Airlines, suppliers warn of hit from RTX engine snag

(Reuters) -Several airlines and aerospace suppliers warned of a hit from U.S. firm RTX’s disclosure of a rare manufacturing flaw that could ground hundreds of Airbus jets in the coming years.

The latest problem relates to a rare powder metal defect that could lead to the cracking of some engine components and comes on top of a spate of durability issues that the engines are facing.

It adds to the troubles of the airline industry, which has been grappling with shortages of staff and new planes, while piling pressure on suppliers who were just beginning to see an easing of supply chain woes.

RTX, formerly known as Raytheon (NYSE:), 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 between 2023 and 2026.

The latest snag, first revealed in July, 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.

Repair work that RTX CEO Greg Hayes had initially expected would take 60 days is now expected to last up to 300 days per engine.

The problem may worsen a tug-of-war over engines between airplane factories and repair shops, industry sources have told Reuters.

Air New Zealand, 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 (OTC:), 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 estimated a potential 10% capacity hit in the second half of fiscal 2024.

Aerospace suppliers who have a stake in the troubled engine program also outlined their share of costs.

London-listed Melrose Industries said it faces a potential cash impact of around 200 million pounds ($249.20 million).

Japan’s IHI and Kawasaki Heavy Industries said they expect an earnings hit from the lengthy quality inspections, following a profit warning from German firm MTU Aero Engines (OTC:) on Monday.

Meanwhile, at least four Wall Street analysts cut their price targets on RTX, with some voicing concern about the scope of the problem.

“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,” RBC Capital Markets analyst Ken Herbert wrote in a note.

“However, the financial and operational impact identified (on Monday) is more substantial than we had expected.”

RTX shares were down 3.2%, hitting over a two year low of $74.26 on Tuesday. Airbus shares were down 2.3%.

($1 = 0.8026 pounds)