Introduction

RTX, a leading company in the aerospace industry, announced on Monday that it will incur a $3 billion financial setback in the current quarter due to an engine manufacturing flaw. This news has caused a decline in the company’s stock prices during premarket trading.

The Issue

The problem stems from defects found in the powder metal used to manufacture some of the highly sought-after Pratt & Whitney GTF engines. As a result, extensive inspections are being conducted on hundreds of engines earlier than scheduled, leading to a reduction in available aircraft for airlines during the post-pandemic travel recovery.

RTX has now determined that approximately 600 to 700 engines, beyond their initial projections, will need to be removed for shop visits until 2026. These engines power various aircraft models, including the popular Airbus A320neo planes.

Financial Implications

Despite the setback, RTX has reaffirmed its adjusted earnings estimates of $4.95 to $5.05 per share for 2023. However, the company anticipates a $1.5 billion negative impact on cash flow in 2025, revising the estimate from $9 billion to $7.5 billion.

RTX expects the engine flaw issue to result in costs of up to $7 billion. Pratt & Whitney, which holds a 51% share in the GTF PW1000 engine program, will share the financial burden.