In an update to investors on September 11, RTX, parent company of Pratt & Whitney, has recognised a charge for the third quarter from the impact to the GTF PW1100 fleet arising from powder metal manufacturing issue on certain engine parts.
Pratt & Whitney has developed a fleet management plan for the affected PW1100 GTF engines that requires a combination of a repetitive inspection protocol, at an interval of between approximately 2,800 and 3,800 cycles, and part life limits of between approximately 5,000 and 7,000 cycles, for high pressure turbine (HPT) discs and high-pressure compressor (HPC) discs.
RTX confirmed that 600 to 700 incremental geared turbofan engines will have to be removed from aircraft for quality checks between 2023 through to 2026, which will reduce its pretax profit by $3 billion to $3.5 billion over the next several years.
The gross financial impact of the fleet inspection and management plan, which includes customer support as well as the accelerated workscope, will be $6bn to $7bn, with a net operating profit impact of $3bn to $3.5bn. The cost to Pratt & Whitney for its 51% net share of the PW1100 programme is a pre-tax operating profit charge of approximately $3bn.
These figures are based on estimates of potential compensation and other consideration for customer fleet disruption and the one-time Estimate-at-Completion (EAC) impact of estimated incremental costs to long-term maintenance contracts as a result of this matter. The incremental costs to the business's long-term maintenance contracts include the cost of additional inspections, replacement of parts and other related impacts. RTX says it expects reported 2023 sales of $67.5bn to $68.5bn, with no change to its prior 2023 outlook for adjusted sales of $73bn to $74bn.
On an investor call on September 11, Pratt & Whitney confirmed that the majority of the estimated costs of the fleet inspection and management plan (some 80%) would be on the customer support requirements, with the remainder on the workscope mainly on materials and labour costs.
The impact of the fleet inspection and management plan will be significant for the – GTF-powered fleets, with significant impact to operators, especially those with large fleets. Pratt & Whitney said that it was laser-focused on putting resolving the issue and working with partners and customers to accelerate the required inspections.
"We are focused on addressing the challenges arising from the powder metal manufacturing issue," said RTX chairman and CEO Greg Hayes. "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 recognise this is an extremely difficult situation for our customers, and we are proactively taking steps to support and mitigate the operational impact to them."
The majority of the GTF PW1100 engines (some two thirds) will removed for shop visits this year and into early 2024. The workscope for these shop visits will now be heavy in nature since they will incorporate the inspection and replacement of the compressor and turbine discs on the GTF PW1100 engines. RTX confirmed that the discs will be replaced with new discs with full certified life, which will eliminate the need for repetitive inspections and a longer time on wing within the 2,800 to 3,800 hourly cycle range.
The accelerated removals and incremental shop visits will result in higher aircraft on ground as well as add to an already strained MRO capacity.
RTX estimates that each workscope will take between 250 and 300 days from when the engines are removed from the wing until they are returned to the operator (wing-to-wing). As a result, RTX forecasts an average of 350 aircraft on ground rate for the GTF-powered A320 fleet from 2024 to 2026 – with a peak of 600-650 aircraft on ground during the first half of 2024.
On an investor call, Hayes confirmed that the company was working with its partners to both ramp up production of the full life certified discs and adding maintenance capacity to shorten turnaround times for inspections and workscopes.
During the call, MTU – which owns an 18% share in the GTF programme – issued a statement that according to Pratt & Whitney’s comments, it must “currently assume” that the inspection plan “might result in a reduction in revenues and reported EBIT of around 1 billion euros in the current financial year”, adding that the “associated liquidity impact would be expected to occur in particular in the subsequent years 2024 to 2026”.
MTU stated further: “It is not possible at this stage to make a precise assessment of the impact on MTU’s forecast for the current financial year. However, MTU feels compelled to make its otherwise stable forecast for the financial year 2023 subject to the impact of this circumstance on revenues and earnings. MTU will initiate measures with the aim of limiting the aforementioned effects as far as possible.”
Pratt & Whitney says that it is analysing the impact of powder metal on other engine models within its fleet, but noted that “other engine models currently are expected to be far less impacted”. On the investor call, Chris Calio, president and chief operating officer at RTX, outlined plans for analysis on the PW1500 and PW1900 engines to be done “around the end of this month” adding that each engine programme will have its own fleet management plan put in place with inspection intervals, but that “we believe they will largely fit inside the existing shop visit profiles that are already in our forecast over the next few years”.
Calio also commented that analysis of the V2500 fleet would be completed towards the end of the month but that the engine already has a “very aggressive fleet management plan in place, and has had for some time”. He further confirmed that half the fleet had been inspected already with an angle scan – which can detect the powder metal issue – and that he expects that exposure to be “manageable”.
Hayes reiterated the longevity of the GTF programme, which he says has decades to run. “The GTF programme has a very large backlog,” he says. “We've got the GTF Advantage on track, and this [programme] will go on for decades.”
Hayes confirmed both that the timeline for the introduction of the GTF Advantage programme remained unchanged and added that although the company has a lot of work to do over the next few years it can cope with the cost impact.
He also noted that RTX intends to deliver on its commitment to fulfil $3bn share buybacks in 2023 and pay more than $3bn in dividends, adding: “The balance sheet remains very strong – while $3bn of cash over three years is not insignificant, it is certainly something we can handle.”