Last month, Airbus (OTC:EADSY) and United Technologies (NYSE:UTX) confirmed that they had discovered a flaw in recently manufactured Pratt & Whitney geared turbofan engines. Many of Airbus' next-generation A320neo and A321neo aircraft utilize these Pratt & Whitney engines.
This development has caused significant disruption for airlines that are stuck with the affected engines -- or were scheduled to receive new Pratt & Whitney-powered A320neos or A321neos in 2018. That's making two U.S. airlines look very smart: JetBlue Airways (NASDAQ:JBLU) and Spirit Airlines (NYSE:SAVE). In the past year and a half, JetBlue and Spirit have both postponed all of their A320neo and A321neo deliveries until 2019 and beyond, in response to the new geared turbofan engines' early reliability issues.
The pain is real
Following discovery of the recent manufacturing flaw -- which caused several in-flight engine shutdowns -- Airbus had to temporarily halt deliveries of new aircraft with the affected engines. Airbus plans to resume deliveries in April. Nevertheless, it could take quite a while to catch up, given that Pratt & Whitney has to replace the faulty engines it already produced in addition to building engines for new aircraft.
The resulting delays recently forced Hawaiian Holdings subsidiary Hawaiian Airlines to scrap two planned seasonal summer routes and delay the start date for a third route. All of these routes were supposed to use brand-new A321neos.
Larger airlines may have more flexibility to adjust their fleet plans on the fly without canceling routes outright. Even so, the last-minute delivery delays will be costly for airlines that had to ground aircraft due to faulty engines or that won't receive their A320neo-family planes on time this year. (The affected airlines may receive compensation from Airbus and United Technologies to offset at least some of their losses.)
JetBlue dodged a bullet
As of mid-2016, JetBlue Airways was scheduled to add six A321neos to its fleet in 2018. Yet the company's management was wary of initial quality problems with the Pratt & Whitney engines that will power its A321neos. As a result, in the third quarter of 2016, it accelerated three current-generation A321 deliveries from 2019 to 2018, while deferring three A321neo deliveries from 2018 to 2019.
JetBlue executed an identical swap last April, as part of a broader fleet plan change designed to reduce its growth rate. As a result, it is now scheduled to receive its first A321neos in 2019.
Obviously, there's no guarantee that Pratt & Whitney will have resolved all of its production issues by year's end. Still, by deferring all of its A321neos to 2019 and beyond, JetBlue greatly reduced the risk of facing a major disruption to its fleet plan.
Meanwhile, Spirit Airlines learned its lesson
Spirit Airlines wasn't quite as smart -- or lucky -- as JetBlue. In late 2016, it became the first A320neo operator in the United States, taking delivery of five Pratt & Whitney-powered A320neos. Doing so proved to be a big mistake. Spirit had to ground multiple A320neos for most of last year because of engine problems.
By early 2018, Spirit Airlines' A320neo fleet was fully operational again. However, management had already learned its lesson about relying on not-quite-mature aircraft types.
In the first quarter of 2017, Spirit Airlines converted two of the four A320neos it had scheduled for delivery in 2018 to the current-generation A320 model. It deferred the other two A320neo deliveries to 2019. Earlier this year, it went even further, converting five of its 14 scheduled A320neo deliveries for 2019 to the current-generation version. That means it won't receive any additional A320neos (or A321neos) until the second half of 2019.
The A320neo and A321neo are great airplanes. In the long run, they will provide significant savings for airlines by reducing fuel and maintenance costs. But for now, most airlines are better off waiting on the sidelines while Pratt & Whitney works to ensure the reliability of its state-of-the-art geared turbofan engines.