Investors were left disappointed as aerospace company RTX (ticker: RTX) provided an update regarding an issue it is currently facing with one of its aircraft engines. RTX, formerly known as Raytheon Technologies, announced that it will incur a charge of approximately $3 billion in the third quarter in order to rectify a “rare condition in powder metal” utilized for manufacturing engine components for Airbus A320 jets, powered by their geared turbofan.
Market Reaction
Following this news, RTX stock experienced a decline of 3.1% during premarket trading. Meanwhile, futures for the S&P 500 and Dow Jones Industrial Average showed a positive trend, with gains of 0.4% and 0.2% respectively.
The Significance of Powder Metallurgy
Powder metallurgy is a widely-used technique employed in the production of metal parts. This process involves various methods such as forging, casting, machining, and utilizing metal powder under certain conditions. The selection of a specific process depends on the desired physical properties of each individual part.
The Challenge with Powder Metal
For RTX’s engines produced by its subsidiary Pratt & Whitney, the issue revolves around a repair and maintenance problem concerning the powder metal used. The company specified in their recent release that around 600 to 700 engines will require shop visits between 2023 and 2026 to address this matter. The majority of these visits are expected to take place in 2023 and early 2024.
RTX Addresses Challenges in Powder Metal Manufacturing
CEO Greg Hayes’ Statement
In a recent news release, RTX CEO Greg Hayes addressed the challenges that have arisen from the powder metal manufacturing issue. He emphasized the company’s unwavering commitment to the safe operation of their fleet and commended the Pratt & Whitney team for their diligent efforts in developing a fleet management plan. Additionally, Hayes acknowledged the difficulties faced by their customers and assured proactive steps to support them while minimizing operational impact.
Updated Guidance
Alongside this announcement, RTX has provided an updated guidance. The adjusted full-year earnings-per-share guidance remains unchanged, with a range of $4.95 to $5.05. The guidance for free cash flow stands at $4.3 billion. However, due to the powder metal issue, the sales guidance has been lowered to a midpoint of $68 billion from the previous estimate of $73.5 billion.
Impact on Stock Performance
Over the past 12 months, RTX stock has experienced a decline of approximately 12%. The engine problem has had a significant impact on the stock’s performance. After the disclosure of the engine issue in late July, RTX stock dropped by about 10%. Since then, it has further declined by 4%.
Comparatively, the S&P 500 has seen a decline of approximately 2% during the same period. Both Boeing (BA) and General Electric (GE), other prominent aircraft engine makers, have also faced challenges. Boeing stock is down about 2%, whereas shares of General Electric have increased by approximately 1%.
