updated investors about a problem it’s having with one of its aircraft engines. Investors don’t like it.
RTX (ticker: RTX), which was formerly called
on Monday announced it will take a roughly $3 billion charge in the third quarter to reflect the costs of fixing a “rare condition in powder metal” used to make engine parts on its geared turbofan that powers
The “hit [is] worse than expected,” wrote Vertical Research Partners analyst Rob Stallard in a Monday report. “Customer compensation [is] the bulk of the cost.”
RTX stock dropped 7.9% Monday, while the
Dow Jones Industrial Average
were up 0.7% and 0.3%, respectively.
Powder metallurgy is a process for making metal parts. It’s common. Companies have the option to forge, cast, machine, or make parts by, essentially, cooking metal powder. Picking a process depends on many things such as the physical properties a part needs.
The powder metal problem boils down to a repair and maintenance issue for some RTX engines built by subsidiary Pratt & Whitney. The company added in its release Monday that 600 to 700 engines will be removed for shop visits between 2023 and 2026. The majority of the visits will occur in 2023 and early 2024.
“We are focused on addressing the challenges arising from the powder metal manufacturing issue,” said RTX CEO Greg Hayes in a news release. “We will never compromise on the safe operation of our fleet, which is why the Pratt & Whitney team has worked diligently to develop its fleet management plan. At the same time, we recognize this is an extremely difficult situation for our customers, and we are proactively taking steps to support and mitigate the operational impact to them.”
Along with the charge, RTX updated guidance. Adjusted full-year earnings-per-share guidance is the same at a range of $4.95 to $5.05. Guidance for free cash flow was left at $4.3 billion. Sales guidance was lowered to a midpoint of $68 billion from $73.5 billion because of the powder metal issue.
Coming into Monday trading, RTX stock is down about 12% over the past 12 months. The engine problem has weighed heavily on shares. RTX stock dropped about 10% in late July after the disclosure of the engine issue and has dropped another 4% since then.
The S&P 500 is down about 2% over the same span.
(BA) stock is down about 2% as well. Shares of
(GE), another aircraft engine maker, are up about 1%.
Write to Al Root at firstname.lastname@example.org