Melrose Industries Expects £200 Million Hit from Pratt & Whitney Engine Recalls

Melrose Industries, a leading turnaround specialist, stated that it anticipates a potential cash impact of approximately £200 million ($250.2 million) resulting from the recent Pratt & Whitney engine recalls. Despite this, the company stands by its previous guidance.

On Monday, RTX, the parent company of engine maker Pratt & Whitney, announced a recall of approximately 600 to 700 engines for inspection due to a powdered metal-related issue with certain parts.

Melrose Industries noted that its GKN Aerospace division holds a 4% program share regarding the affected engine variant. Furthermore, the company emphasized that their financial assumptions for all risk and revenue sharing partner programs are conservative and acknowledge that their main focus is on the delivery of GKN parts, which typically endure for the lifespan of the engine. It also allows for any potential risks to arise over the entire duration of a program.

According to Chief Executive Simon Peckham, RTX has confirmed that the rare parts issue falls within the previously outlined scope and that the cash impact will now be spread out over a longer period. Melrose Industries maintains its confidence in achieving previous profit and balance sheet targets and eagerly looks forward to commencing its share buyback program in October.

In addition to Melrose Industries, Germany's MTU Aero Engines also expects a significant hit, estimating around €1 billion ($1.07 billion) from the engine recall.

As for Wizz Air, an eastern Europe-focused budget carrier, it foresees a negative impact on its capacity due to the necessary engine inspections. This may lead to grounded aircraft and potential financial compensation claims against the company. Wizz Air is currently assessing the implications and anticipates a potential 10% reduction in capacity for the second half of the fiscal year ending in March 2024.