ULCC - Summer travel may be hit as airlines could face downtime from RTX engine issue

2023-07-26 07:40:25 ET

Airline carriers could face downtime during the busy summer travel season in the wake of RTX's ( NYSE: RTX ) disclosure of a manufacturing defect in some jet engines.

Pratt & Whitney estimated a significant portion of the PW1100G-JM engine fleet, which powers Airbus' ( OTCPK:EADSF ) A320neo, will require accelerated removals and inspections within the next 9-12 months.

RTX ( RTX ) CEO Greg Hayes said the engine recall is "going to be expensive", with full-year free cash flow guidance cut to $4.3B from ~$4.8B.

U.S. carriers that have the biggest fleets with the defective engines include Delta Air Lines ( DAL ) and Spirit Airlines ( SAVE ), according to Bloomberg Intelligence analyst George Ferguson.

Overseas, India's budget airlines IndiGo will likely be the most affected, while Mexico's Volaris ( VLRS ) and Germany's Lufthansa ( OTCQX:DLAKF ) could also take a hit.

Airbus ( OTCPK:EADSF ) expects the engine defect will not impact ongoing deliveries. "Airbus ( OTCPK:EADSF ) will work to support customers as they work with Pratt & Whitney to resolve the situation and minimize the disruption on their own fleets," a spokesperson said.

The largest deliveries from Airbus ( OTCPK:EADSF ) over the next year are expected to go to Spirit ( SAVE ), Delta ( DAL ), United Airlines ( UAL ), JetBlue ( JBLU ) and Frontier Group ( ULCC ).

"I imagine the U.S. could see small delays in aircraft deliveries and slightly less airline capacity," Ferguson said.

Alaska Air ( ALK ), Southwest Airlines ( LUV ), United ( UAL ) and American Airlines ( AAL ) may not be affected as they fly other plane models.

Note that airline stocks were already dragged by Alaska Air's ( ALK ) weak forecast on lower fare prices.

The engine defect disclosure sent RTX spiraling 10% . "Despite the recent setback, RTX's attractive valuation and positive outlook make it a stock worth considering for the future," said Investing Group Leader Leo Nelissen .

More on RTX engine defect

• Use Current Undervaluation To Buy RTX
• RTX Crashed After Earnings: I'm Buying With Both Hands
• RTX: Market Could Be Overreacting To Engine Issue But Still A Risk

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