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The Street
The Street
Business
Martin Baccardax

RTX Plunges On Revealing Pratt & Whitney Engine Inspection Issue

RTX Corp. (RTX) -) shares plunged lower Tuesday after the aerospace and industrial group said that a 'significant' number of its Pratt & Whitney engines would need to be removed from Airbus A320neo airplanes for urgent inspections.

The so-called GTF engines, which are used by Airbus clients such as Delta Air Lines (DAL) -), were said to have been affected by a "rare condition in powder metal used to manufacture certain parts", according to RTX, and will require an "accelerated fleet inspection" over the coming year.

RTX acquired Pratt & Whitney through the $120 billion merger between Raytheon and United Technologies in 2020. Raytheon, which makes the Tomahawk and Patriot missile systems for the US military, took on 43% of the combined group, which is now lead by former United Technologies CEO Grey Hayes.

"This is not a flight safety issue, this is a quality issue," he later told CNBC. "In terms of the financial impact, we anticipate around a $500 million cash flow hit this year, but it won't be a 'major impact' for the company."

The disclosure clouded the group's second quarter earnings report, which included a better-than-expected bottom line of $1.29 per share on revenues of $18.32 billion and an improved full-year profit forecast.

"However, we are lowering our free cash flow outlook to reflect the impact of an issue that has recently come to light, which will require Pratt & Whitney to remove certain engines from service for inspection earlier than expected," said Hayes. "The continued safe operation of our fleet will always remain our number one priority."

RTX shares slumped 13.2% in early Tuesday trading to change hands at $84.22 each, a move that would tip the stock into negative territory for the year and the lowest since September of last year. The US listing for Airbus showed the stock down 2.5%, while its main Paris listing closed 2.45% lower at €133.02 each.

Delta Air Lines shares were also lower, falling 2.8% to $46.15 each, while Spirit Airlines (SAVE) -), another Airbus customer, fell 2.4% to $18.72 each. 

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