What impacted RTX's net profit in Q3 2023?

Raytheon Technologies (RTX) experienced a significant negative impact on its net profit in Q3 2023, primarily due to a $3 billion pre-tax charge related to a Pratt & Whitney engine issue. This charge was triggered by a rare condition in the powder metal used to manufacture certain engine parts, which required accelerated inspections and engine removals. This issue affected the PW1100G-JM (GTF) fleet, which powers the A320neo. The consequences of this discovery included approximately 600 to 700 engines needing to be removed for shop visits between 2023 and 2026, with the majority of these removals required by the end of 2023 and early 2024. This situation not only led to a substantial one-time charge but also resulted in an expected ongoing impact on operating profit, estimated to be between $3 billion and $3.5 billion over the next few years.

1. Pratt & Whitney's Powder Metal Manufacturing Issue: Pratt & Whitney, a subsidiary of RTX, identified a rare condition in the powder metal used to manufacture certain engine parts. This condition necessitated accelerated inspections and removals of the PW1100G-JM engines, which are used to power the A320neo aircraft.
2. Impact on Financial Performance:
   • Charge in Q3 2023: RTX announced a $3 billion pre-tax charge in Q3 2023, which is a substantial amount that directly impacted the company's net profit for the period.
   • Future Impact: The issue is expected to result in additional charges of between $3 billion and $3.5 billion over the next several years, including the $3 billion charge taken in Q3 2023.
   • Free Cash Flow Estimate Reduction: Due to the issue, RTX reduced its 2023 free cash flow estimate by half a billion dollars to $4.3 billion.
   • Sales Outlook Cut: Along with the charge, RTX lowered its 2023 sales outlook, although it confirmed its 2023 adjusted earnings per share guidance.

This combination of a one-time charge and ongoing costs for inspections and engine removals significantly affected RTX's net profit in Q3 2023, leading to a substantial loss for the period.