Wrapup 1: RTX jet engine problem ripples across global aerospace industry

Kawasaki Heavy Industries

12/09/2023 16:12

By Rajesh Kumar Singh
       Sept 12 (Reuters) - Aerospace suppliers and airlines
around the world warned of rising costs and a squeeze on plane
capacity after U.S. firm RTX  RTX.N  disclosed that a rare
manufacturing flaw could ground hundreds of Airbus  AIR.PA  jets
in coming years. 
    The problem, a rare powder metal defect that can lead to
cracks in some engine components, is the latest trouble for the
industry, which has been grappling with shortages of staff and
supply-chain woes even as travel rebounded from pandemic lows. 
    RTX said on Monday it will have to pull 600 to 700 of its
Pratt & Whitney Geared Turbofan (GTF) engines from Airbus
A320neo jets for quality inspections over the next three years.
     The engine issue was first disclosed in July, but RTX made
the extent of the problem clearer on Monday.
    The announcement caused waves up and down the industry, from
component manufacturers like Japan's Kawasaki Heavy Industries
to airline carriers like Air New Zealand that rely on the
popular Airbus jets. 
    The problem may worsen a tug-of-war over engines between
airplane factories and repair shops, industry sources told
Reuters, as repairs take longer to fix.
    The snag could ground an average of 350 jets a year through
2026, with as many as 650 jets sitting idle in the first half of
2024. RTX originally estimated repair work per engine to last 60
days, but it is now expected to take up to 300 days.
    In July, RTX said microscopic contaminants were found in a
powdered metal used in high-pressure turbine discs that are part
of the GTF engine's core. The presence of those contaminants
could lead to cracks in the engine.     
    Replacing the discs requires removing the engine,
disassembling and reassembling it. The engines affected were
made between 2015 and 2021. 
    Shares of RTX have lost a quarter of their value since
disclosing the problem in July and continued to sink on Tuesday,
losing 3.7% to hit another two-year low. The company was formed
from the merger of Raytheon and United Technologies in 2020.
    "When the company initially identified the powder metal
issue with the GTF engine, we had confidence that the issue,
based on the data provided, was relatively well contained,"   
said RBC Capital Markets analyst Ken Herbert in a note.
    "The financial and operational impact identified is more
substantial than we had expected."
    Paris-listed Airbus shares were down 2.4% on Tuesday.
    
AIRLINES, MANUFACTURERS DETAIL HIT
    Aerospace suppliers with a stake in the troubled engine
program said the issue would affect their costs. London-listed
aerospace component maker Melrose Industries  MRON.L  said it
faces a potential hit of around 200 million pounds ($249.2
million).
    Japan's IHI  7013.T  and Kawasaki Heavy Industries  7012.T  
said they expect an earnings hit from the lengthy inspections,
while German firm MTU Aero Engines  MTXGn.DE  warned of lower
profits on Monday.
    Air New Zealand  AIR.NZ , which has 16 A320neo jets in its
fleet, said on Tuesday the issue will further reduce engine
availability and would have a "significant" impact on its flight
schedule from January 2024.
    Scoot, a unit of Singapore Airlines  SIAL.SI , said the
inspections would affect four of the engines that power its
A320neo fleet and could force it to adjust some of its flights.
    On Monday, Hungarian carrier Wizz Air  WIZZ.L  estimated a
potential 10% capacity hit in the second half of fiscal 2024.
    RTX is one of two manufacturers of engines for the popular
narrowbody Airbus A320neo, the other being CFM International, a
joint venture between GE  GE.N  and Safran  SAF.PA . 
    
($1 = 0.8026 pounds)

 (Reporting by Rajesh Kumar Singh in New Delhi, Abhijith
Ganapavaram and Aniruddha Ghosh in Bengaluru; Editing by Arun
Koyyur)
 ((Abhijith.G@thomsonreuters.com | Twitter: https://twitter.com/abhijithg4;
 +91-9019785574;))