What happened
RTX (RTX 1.34%) is beginning to quantify the impact of a previously announced massive recall of one of its most popular aircraft engines, forecasting billions in charges related to the problems. The stock is feeling the hit, falling by more than 6% as of 11:25 a.m. ET on Monday.
So what
RTX, which until recently was known as Raytheon Technologies, was formed in 2020 when defense specialist Raytheon combined with the commercially focused aerospace arm of United Technologies. In July, the company disclosed that it had discovered a problem with the manufacture of hundreds of Pratt & Whitney jet engines that would require a costly fix.
On Monday, investors got a glimpse at the magnitude of the financial hit. RTX said it would remove about 600 to 700 engines for inspection over the next three years and would book a pretax operating-profit charge of at least $3 billion in the current quarter related to the issue.
The company also cut its full-year sales outlook, and said the engine issue would likely reduce 2025 free cash flow by about $1.5 billion.
RTX said it is analyzing the potential impact of the issue on other engine models, although they are expected to be far less affected.
NYSE: RTX
Key Data Points
Now what
The engine issue is bad, but for long-term investors, there are some silver linings. RTX did reaffirm its commitment to return $33 billion to $35 billion to shareholders through 2025. And Pratt & Whitney customers who might be frustrated with the manufacturer due to these problems have little choice but to continue to work with it.
The engine in question powers the Airbus A320neo family of single-aisle jets, which is a mainstay of global fleets. There is competition here: About 40% of 320neos are powered by Pratt & Whitney engines, with the rest powered by an engine produced under a joint venture of General Electric and Safran.
But with order books full, there is little opportunity for airline customers to switch engines even if they want to, giving Pratt & Whitney time to work out the issues and restore its reputation.
RTX in all likelihood will work through this issue and has great potential to grow Pratt & Whitney from here. But in the near term, the troubles will probably be a headwind for quarters to come.
