RTX Corp, parent of Pratt & Whitney, tumbled 10% in overnight US trade: What investors in IndiGo shares need to know

IndiGo share price: Shares of InterGlobe Aviation, the operator of IndiGo Airlines, slipped as much as 1.57 per cent to Rs 2,543 apiece on the BSE in the morning trade on Wednesday, after RTX Corp, in the overnight trade in the US market, tumbled 10 per cent after the company, in its concall, said it will remove 1,200 jet engines from service after discovering a manufacturing defect.

RTX Corporation is an American multinational aerospace and defence conglomerate headquartered in Arlington, Virginia, and is the parent company of Pratt & Whitney (the aircraft engine manufacturer).

It was the latest setback to the US engine maker's efforts to conquer the biggest market segment—narrowbody jets—and could exacerbate a capacity crunch as some airlines struggle with a plane shortage during the peak summer travel season, Reuters reported.

Citing the rationale behind the move, RTX Corp said a "rare condition" in powdered metal meant 1,200 of more than 3,000 engines, built for the twin-engined Airbus A320neo between 2015 and 2021, had to be taken off and inspected for microcracks that would point to fatigue. Microscopic contaminants were found in a metal used in the engine's high-pressure turbine discs, part of the engine core.

Of the 1,200 engines, 200 must be checked by mid-September because of their time in service. The remainder will need inspection over the next year, Reuters reported, quoting the company as saying.

Impact on IndiGo Airlines and its Stock

As of 4QFY23, Indigo had a fleet size of 304. Out of which, around 140 aircraft are powered by Pratt & Whitney engines. In the last earnings call, Indigo’s management highlighted that the aircraft-on-ground (AoG) figure was in the high 30s amid rising supply chain challenges. Given escalating problems at Pratt & Whitney, the AoG figure would be a key to monitor in the near term, says Jinesh Joshi, Research Analyst at Prabhudas Lilladher.

AOG, or Aircraft-on-Ground, means an aircraft is in need of immediate maintenance services. This means that the plane has been grounded and is unable to reenter rotation until it is approved for flight.

However, the analyst added that there was not much to worry about the company's prospects and stock price as future aircraft deliveries will be powered by CFM engines. "We do not foresee any major risk from problems (if any) in the production schedule of Pratt & Whitney."

The brokerage has retained BUY on the stock with a target price of Rs 2,993.

InterGlobe Aviation Q4 nos

Interglobe Aviation, the owner and operator of airline IndiGo, reported a net profit of Rs 919.2 crore for the quarter ended March 2023, marking a sequential fall of 35.4 per cent but better than analysts' estimates. It was IndiGo's highest profit ever in a March quarter.

The company's revenue shrank 5.2 per cent to Rs 14,160.6 crore compared with the previous quarter, according to a regulatory filing.  

Interglobe Aviation reported Rs 2,966.5 crore in earnings before interest, taxes, depreciation, amortisation, restructuring, or rent costs (EBITDAR), a decline of 12.7 per cent on a quarter-on-quarter basis. READ MORE

InterGlobe Aviation's share price

The stock of the airline has rallied 28 per cent in the past three months (till July 25), Trendlye data show.

Disclaimer: The views, suggestions, and advice expressed here in this article are solely those of investment experts. Zee Business suggests its readers consult their investment advisers before making any financial decisions.