RTX expects GTF groundings to peak this quarter

RTX expects that the number of aircraft on ground for repairs of Pratt & Whitney Geared Turbofans with contaminated powder metal parts will peak this first quarter to 350. From there, AOG should come down, which partly is the effect of airlines collectively re-planning their fleets, and partly from progress made with inspections and repairs. RTX first communicated the powder metal contamination problem in July, explaining that High-Pressure Turbine (HPT) and High-Pressure Combustor (HPC) disks were identified with contaminated powder metal. The parts, produced between Q4 2015 and Q3 2021, are life-limited and require ultrasonic inspections and replacement with newer parts without restrictions. P&W said in September that another 600 to 700 GTFs would be subject to incremental shop visits from 2024 through 2026, on top of the previously announced 1.200. This was expected to result in some 650 Airbus A320neo family aircraft on ground in HY1 2024 as well as Airbus A220s and Embraer E2-series. Engine inspections of the first 200 GTFs commenced in September. “With respect to the number of AOGs, we continue to expect the roughly 350 on average that we previously guided. However, we will likely see a lower peak level than previously anticipated due to the timing of the Airworthiness Directive-issuance and proactive fleet management by our customers,“ Chris Calio, currently President and Chief Operating Officer but CEO from May 2, said on Tuesday’s 2023 results earnings call. He said earlier that the FAA will issue ADs likely in the coming month as drafts will become final. Calio added later in the call: “We do expect the peak to continue to be here in Q1 and then thread downwards. The peak is to come down since our initial assessment for two reasons. One, the timing of the ADs has shifted a bit to the right. Two, customers took collective fleet planning and decided to do some removable planning for the year and were pairing engines and other things to make them more efficient. So there is a peak but from there a steady streak.” Focus on ramping up disk production Meanwhile, RTX is ramping up the production of new parts. “Our focus is on ramping up production of HPT and HPC disks to support both OE and MRO deliveries. We have made solid progress here as well, and continue to ensure the necessary machining capacity for increased disk production. Today, all OE GTFs being delivered to our customer’s final assembly line contain disks with powder metal manufactured after Q3 2021 and have full-certified life,” said Calio. “On the MRO front, we have started inserting full-life disks during shop visits. The number of engines receiving full-life disks will increase throughout the year as we continue to ramp up production of these parts.” Calio reiterated that shop visits and the time to get a GTF back on the back on the aircraft is between 250 to 300 days, as reported in September. “Our estimated wing-to-wing turnaround time remains consistent with our guidance.” But he added: “Pratt MRO grew by almost 30 percent year over year in 2023 and we are making investments in additional shops, test cell capacity, and repair capabilities to support even more growth in 2024.” Asked why this is not happening quicker, Chris Calio said: “We think we have pretty adequate forging capacity, but we have to ramp up inspection capacity, machining capacity. But as you ramp up and take these parts to a volume that our supply chain wasn’t necessarily anticipating, you have to double down on the fundamentals of quality in the tooling and maintenance. We made solid progress so far, but we are going to need to step throughout the year, especially as we want to increase the number of full-life parts we put into MRO.” The powder metal and resulting aircraft on ground issue are affecting some airlines harder than others. Calio said that Pratt & Whitney is working closely with them to reduce the effects as best as it can: “Each and every day we are figuring out how best to support them, whether that is through induction, special support or spare engine allocation. Indeed, there are 10 to 12 customers that are more impacted than others. Some have all Pratt fleets, whether that are GTFs and V2500s. We are working very hard with them to come up with a compensation structure. That’s fair and can give them a little bit of lift, but it won’t make up for all the disruptions they have in their fleet. We have a track record of coming to agreement with our customers and count on it that we will do that again.” RTX 2023 results RTX, including P&W, Collins Aerospace, and Raytheon, reported $74.3 billion in adjusted sales for 2023, up 11 percent year on year from $67.1 billion. The net income was up by just 2 percent to $7.3 billion from $7.1 billion. Earnings per share were up 6 percent to $5.06. For Q4, consolidated adjusted revenues were up 10 percent to $19.8 billion, but the net income was down by 6 percent to $1.8 billion. Collins Aerospace produced adjusted sales of $26.2 billion, up from $23.1 billion in 2022. The operating profit was up by 28 percent to $3.9 billion. Q4 sales were up by 12 percent to $7.0 billion, with an operating profit up 22 percent to $1.0 billion. OE sales were up by 17 percent, aftermarket by 23 percent in the final quarter. Looking at Pratt & Whitney, full-year adjusted revenues were $23.7 billion, up from $20.5 billion. This includes a $5.4 billion powder metal charge consistent with what RTX announced in October. The operating profit improved by 35 percent to $1.7 billion at a 7.1 percent margin. Adjusted sales for Q4 were $6.4 billion versus $5.7 billion, and the operating profit was $405 million versus $321 million in Q4 2022. Both commercial sales and aftermarket performed well with 20 and 18 percent higher sales, respectively. Pratt & Whitney delivered 875 large commercial engines in 2023 compared to 712 in 2022, mainly GTFs. Q4 deliveries were 256, better than 224 the year before but down from 261 in Q3. Pratt & Whitney Canada delivered 2.063 engines in 2023 versus 1.965 in 2022, or 557 in Q4 versus 542. RTX’s free cash flow was $5.5 billion for 2023, up 12 percent year on year. It will grow to $5.7 billion this year, but this includes a $1.3 billion impact from the powder metal issue. Another $1.5 billion is expected for 2025 plus a final effect in 2026, when the problem should have been solved. FY25 free cash flow is guided at $7.5 billion. RTX guides consolidated sales for 2024 at $78 to $79 billion, organic sales growth of 7 to 8 percent, and an adjusted EPS of between $5.25 and $5.40. P&W adjusted sales are expected to be up by low double-digit numbers, resulting in an adjusted operating profit of $400 to $475 million. Aftermarket sales for GTF and legacy engines should grow by low teens and become a driver of year-on-year growth. OE sales will be up in the mid-teen range thanks to 20 percent higher production volumes.

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