Key Points:

  • RTX revises its engine inspection strategy, estimating 600 to 700 engines will require detailed quality checks between 2023 and 2026, potentially grounding 350 jets annually through 2026.

  • The inspections, initially projected to take 60 days per engine, might last up to 300 days, dealing a significant blow to airlines globally.

  • Financial repercussions include RTX facing up to $3.5 billion pre-tax profit hits over the coming years and German partner MTU Aero Engines anticipating around 1 billion euros in additional costs.

Engine Manufacturing Flaw Spurs Intensified Inspections of Airbus Jets, Affecting Airlines Globally

TOULOUSE — Following the discovery of a rare manufacturing flaw, hundreds of Airbus jets are expected to be grounded in the coming years for extensive inspections, a measure instigated by Raytheon Technologies (RTX). Initially, a 60-day repair window was expected, but latest projections estimate a period extending up to 300 days per engine, potentially grounding 350 jets yearly through 2026. In the first half of 2024 alone, as many as 650 jets could be idle.

The anomaly pertains to a rare condition in the powder metal used in fabricating components such as high-pressure turbine and compressor disks, leading to micro-cracks and fatigue. This defect was found during a ramp-up in production in 2015 due to a microscopic contaminant undetectable by earlier inspection methods. However, CEO Greg Hayes conveyed confidence that the setback has been overcome, mentioning improvements made to maintain the purity of the powder.

While RTX, which acquired Pratt & Whitney’s Geared Turbofan series in 2020, contends with a surge in issues concerning the durability of the series, this recent revelation heightens the challenges. The increased inspections, impacting between 600 and 700 engines of Airbus A320neo jets from 2023 to 2026, escalates costs drastically, with pre-tax profits expected to reduce by up to $3.5 billion in the subsequent years. Moreover, RTX has revised its 2025 cash flow goal from $9 billion to approximately $7.5 billion and curtailed its 2023 sales projection by $5.5 billion.

MTU Aero Engines, holding 18% stake in the GTF program, anticipates extra costs nearing 1 billion euros, although it remains uncertain about the exact impact on this year’s financial objectives. Concurrently, various airlines find themselves in a difficult position. Wizz Air foresees a 10% capacity reduction in late 2024 due to this issue, while Lufthansa is appraising the circumstances meticulously. In the U.S., carriers including Spirit Airlines, JetBlue Airways, and Hawaiian Airlines confront significant exposure to the GTF glitch, as per Jefferies, albeit their responses remain pending.

Though Airbus assures that the 2023 delivery and 2024 production ramp-up will remain unaffected, industry insiders predict intensified competition between aircraft manufacturers and repair facilities for engines, potentially diverting them from assembly lines to serve as replacements. This contention emerges amid strained supply chains, with Airbus hesitant to alter delivery goals to free up engines for the spares collection.

In this backdrop, Robert Stallard, a Vertical Research Partners analyst, noted that the RTX’s financial implications were greater than foreseen, delineating a period of enhanced vigilance and collaboration in the aviation sector to navigate through these unprecedented disruptions efficiently.