Wizz Air: A Hidden Gem Amid the Engine Crisis

Wizz Air, Europe’s fastest-growing low-cost carrier, faces a severe operational setback due to Pratt & Whitney’s faulty GTF engines, grounding nearly half its fleet. Yet, beneath the turbulence, the airline’s financial resilience, strategic adjustments, and long-term growth prospects suggest its stock is undervalued. Let’s dissect the crisis, its impact, and why investors might want to look past the noise.

The Engine Crisis: A Long Road Back

Wizz Air’s woes began in 2024 when Pratt & Whitney’s PW1100G-JM engines, powering its Airbus A320NEO fleet, developed cracks in high-temperature coatings. By late 2025, 44 aircraft remained grounded—roughly 20% of its fleet—leading to reduced capacity, soaring costs, and delayed deliveries from Airbus. CEO József Váradi warns the crisis could linger until March 2027, with reactivations proceeding “slow and gradually.”

Despite the setbacks, Wizz Air secured a compensation deal with Pratt & Whitney covering direct losses from grounded aircraft. This financial lifeline, along with a €1.9 billion cash war chest, has shielded the carrier from insolvency. However, indirect costs—such as wet-lease expenses for replacement aircraft (now phased out) and penalties for reduced growth—have eaten into margins.

Financial Resilience Amid the Storm

Recent results reveal a company adapting to adversity:
- Q3 2025 EBITDA surged 740% quarter-on-quarter to €157.1 million, driven by record passenger traffic (15.5 million) and a 90.3% load factor.
- Free cash flow conversion remained near 100%, thanks to disciplined capital management and sale-leaseback deals.
- Full-year 2025 net income fell to €350–€450 million (vs. a prior €500–€600 million target), but foreign exchange tailwinds offset some losses.

The stock, however, hasn’t reflected this resilience. Shares dropped 40% year-to-date by September 2025, hitting £15.64—a stark contrast to the 12-month high of £25.46.

Why the Undervaluation?

A discounted cash flow (DCF) analysis suggests shares are 67% undervalued, with a fair value of £47.39. Analysts highlight three key drivers:

1. Fleet Modernization:
   Wizz Air’s order book includes 50 new A321NEO aircraft for 2026, boosting fuel efficiency (15-20% savings vs. older engines) and capacity by 20%. By 2026, 77% of its fleet will be A321NEOs, reducing reliance on problematic engines.

2. Strategic Network Shifts:
   The airline has pivoted to mature, high-demand markets, cutting unprofitable routes and boosting yields. A 100% focus on “dense” markets (e.g., Moldova’s reinstated routes) improved RASK by 1.4% in H1 2025. AI-driven revenue management further optimized pricing.

3. Cost Control and Growth:
   Wet leases are gone, and FY2026 capacity growth of 15-20% will dilute fixed costs. Analysts project EBITDA margins to expand to 15-20% by 2026, aligning with pre-crisis levels.

Risks and Roadblocks

• Pratt & Whitney’s Prolonged Issues: Delays in resolving engine defects could extend costs and operational disruptions.
• Geopolitical Risks: The Israel-Hamas conflict and Ukraine war have forced route adjustments, squeezing yields in volatile regions.
• Credit Downgrade: Fitch’s BBB- to BB+ rating hike reflects leverage pressures, though liquidity remains strong.

The Bottom Line: A Buy at Current Levels?

Wizz Air’s stock trades at a FY2026 P/E of 8x, well below its 11x historical average. Analysts’ average price target of £28.46 implies a 98% upside, while bulls argue the £47.39 DCF estimate is achievable if growth resumes.

The key catalysts are clear:
- Resolution of Pratt disputes, unlocking cost savings.
- 2026 capacity expansion, driving margin recovery.
- Currency tailwinds (Wizz benefits from a weak Hungarian forint and Polish zloty).

With a cash-to-revenue ratio of mid-30% and a fortress balance sheet, Wizz Air is positioned to outlast the crisis. While risks remain, the combination of undervalued shares, strong cash flow, and long-term growth drivers makes this a compelling contrarian play.

Conclusion: A Diamond in the Rough

Wizz Air’s engine crisis has created a rare opportunity. Despite short-term pain, the airline’s strategic shifts, cash-rich balance sheet, and modern fleet pipeline set it up to rebound strongly in 2026. At current levels, the stock offers asymmetric upside, with a 67% undervaluation suggesting a potential £30+ gain per share. Investors willing to weather near-term volatility could find this a rewarding bet on European travel’s recovery.

Final Take: Buy Wizz Air at £15.64. Target: £30–£47. Risk: £12.50.

Data as of September 2025. Always conduct your own research before making investment decisions.