Jet engine maker Pratt & Whitney confronted escalating problems Friday over its next-generation engine after Qatar Airways said it canceled A320 Airbus orders due to delays.The Wall Street Journal and Reuters reported that Akbar Al Baker, chief executive of Qatar Airways, criticized the delays. He spoke with reporters on the sidelines at the International Air Transport Association annual meeting in Dublin.Airbus said it expects delays in deliveries of A320neo aircraft to be resolved by midyear, Reuters reported.Al Baker said the airline should have five A320neos in service by now as part of its agreement, according to The Wall Street Journal. He expressed concern over whether Airbus could make necessary fixes and said deadlines have been missed, with some problems extending into next year.Pratt said in an emailed statement that Al Baker's comments are “completely inaccurate and mischaracterize” the engine's performance.The Pratt engine is fully certified, meets performance and contract specifications and has been delivered to three airlines, Pratt said.“We have resolved the very few initial teething items airlines have experienced,” Pratt said.Production engines now shipping to Airbus include hardware and software improvements, and solutions for the items are “well known and have been extensively covered in detail by the media,” the jet engine maker said.Greg Hayes, CEO of United Technologies, told investor analysts April 27 that Pratt is committed to more than 200 engines this year, most of which will be the so-called neo engine.That number will double next year and rise by another 200 in 2018, he said.United Technologies has staked a lot on what it calls its geared turbofan engine. UTC has invested more than $1 billion over 20 years to research, develop and build the engine it promotes as saving fuel and operating more quietly than other jet engines.Nick Heymann, an analyst at William Blair and Co., said in a note to investors that he continues to believe the commercial future for Pratt's engine “looks very bright.” But the financial returns and risks on the $10 billion engine program are expected to be challenging for at least the rest of this decade, he said.The problem with the engine has largely been related to much longer cooling times than normal before engine start-up to avoid the risk of internal damage, Heymann said.Hayes told investor analysts in January that Pratt identified “a software fix and a minor hardware fix.”He said next-generation commercial engines have to cool down to a uniform standard before the engine start, and the Pratt problem is “not something endemic” to its engine.“The starting time of the cooling is a little longer than what the customer would have liked,” Hayes said.Heymann said Qatar Airways is known “to be a particularly exacting customer,” but canceling an aircraft order due to performance concerns signals that an airline “has lost confidence in the aircraft configuration.”Pratt said in February it's making fixes to its Airbus engines after Al Baker threatened to cancel the order.In addition, the current versions of Airbus' twin-aisle A350 are facing bottlenecks as suppliers struggle to meet deadlines to supply seats and galleys
Jet, While I like some of your comments, what is troubling is to see recent pictures of airplanes with no engines at Airbus. It has to be a lot more than software otherwise the airplanes would have engines on them. This will hurt the program long term and the ability for UTC to capture more airline customers and Boeing. Stock went up today so I sold the rest of my UTX holding and will get back in when it is back to the high eighties or low 90's. I have no confidence in Bob Leduc and his team. PW appears to have lost most of his operations talent which many came from the small engine division. I recall customers in disarray the last time Bob was at Pratt nearly 20 years ago. Blaming your customers always comes back to bite you. Obviously the CEO has no clue of what is going on in his company. Good luck to all holding on to UTX.
Sentiment: Strong Sell
More posturing and pressure tactics on the part of this customer--make no mistake, this is about compensation.
Here is a slightly more balanced perspective :
The GTF and start-up issues on the neo – Much Ado About Nothing?
The media coverage of the “start-up” issues with the PW1100G-JM on the A320neo family seems a bit of overkill to neutral observers. Of course, the airlines are pushing for additional compensation and Pratt & Whitney isn’t saying much or fighting back, as it is never good to disagree with customer. As a result, we’re seeing one side of the story a bit more than the other.
A Very Strong EIS
The media’s focus on the extended start-up times has nearly masked the incredible performance of this new engine. To date, and only a few months in, the engine is already at a 99% dispatch reliability rate. An unprecedented level of reliability for a new engine. Pratt & Whitney promised strong reliability out of the box, and has already achieved it. This should be capturing the headlines for the GTF engine.
In addition, the engine is meeting or exceeding its performance objectives, and is surpassing targets for fuel efficiency. When was the last time that a new engine met all of its performance targets at EIS, and didn’t require a performance recovery package after EIS? The engine, other than the start-up time issue, is performing superbly.
Aeroturbopower analyzed the impact on Indigo of the longer start-up times, and found virtually no impact on the airline’s schedule. This is, of course, contrary to what is being stated publicly.
No doubt that the initial longer start-up time and software nuisance warnings were teething problems that are being quickly overcome. Soon the focus should turn to this long awaited engine that is meeting all its performance commitments and demonstrating mature reliability levels within its first 100 days of service.
June 3, 2016
DUBLIN—Qatar Airways has canceled the order for its first Airbus Group SE’s A320neo plane in the clearest sign yet that supplier bottlenecks are undermining commitments the European plane maker has made to customers.
It doesn't seem all that complicated to invest in a basket of securities that yield a decent (in the current low yield world) return. I have annuity contracts that are paying between 3.5% & 5.5%, and yes, I surely paid a fee (commissions) going into them long ago (back when IRA investments were paying close to 10%, but inflation was also over 10%). Maybe UTC is trying to shed the last vestige of fiduciary responsibility to the 401K people and get everyone into the life annuity they are pushing. ????
And the Auto Companies Sales collapsed at the strongest seasonal period...
And China reports collapsing activity...
DETROIT (AP) —
Most major automakers reported lower sales in May compared to the same month a year ago. General Motors' sales fell 18 percent, Ford's were down 6 percent and Toyota's sales dropped 10 percent. Volkswagen's sales dropped 17 percent
ISM Nonsense REPORT !
The New Orders Index registered 55.7 percent, a decrease of 0.1 percentage point from the April reading of 55.8 percent. The Production Index registered 52.6 percent, 1.6 percentage points lower than the April reading of 54.2 percent. The Employment Index registered 49.2 percent, the same reading as in April.
We've casually discussed this in the past, but, still puzzling. The income fund fees are 0.327% of assets, the equity index is 0.008% of assets and he emerging markets equity is 0.092% of assets. So, the income fund fees are 40X what the equity index fees are. These fees are not directly visible, but, are there below the surface. If the fees for the income fund were less the fund could pay a higher interest rate. This is academic to me since I do not invest in the income fund......Kid
Korean Air Lines flight KE 2708 from Tokyo-Haneda Airport to Seoul-Gimpo (South Korea) was accelerating for take-off on runway 34R(ight) when the left engine #1 suffered an uncontained failure. Engine type: Pratt + Whitney PW4098.
Engine debris damaged a fuel line resulting in a fire. The pilots discontinued the take-off run at a speed of approximatelay 80 knots after the pilots received indications about a fuel leak and a fire and triggered the fire bottles. The Boeing 777 decelerated and came to a halt near taxiway „Charlie 5“ about 1500 meters down the runway.
The crew initiated a full cabin evacuation via onboard chutes. All exits to the right side were used plus the left foreward door L1.
When airport fire services arrived the engine was still burning and patches of fuel fires on the runway beneath the left maingear were visible. The flames foamed and the fires were extinguished a few minutes later.
a9181,.....With 38 years under your belt, you will soon overtake me. I enjoyed working, but, enjoy retirement even more.........Kid
ctb..........Good one, it's like the line in Casablanca, when Captain Renault says: I'm shocked, shocked to find that gambling is going on in here! .....Kid
What were the odds the Red Sox had to beat the Yankees with 2 out in the bottom of the ninth down by 1 to go on and win the World Series ? Matter of fact went on to win 8 World Series games in a row 2004 & 2007. I was an ecstatic P & W hand welder who is now on year # 38 with Pratt. Just Say in. I really do appreciate all your posts here
Orders in the closely watched category that serves as a proxy for business investment fell 0.8 percent after a 0.1 percent decline in March and a 2.1 percent plunge in February.
Looked at 5 UTC annual reports and discovered that Pratt's operating profits have been unbelievably consistent, $1.8B, $2.0B, $2.0B, $2.0B and $1.6B. I occasionaly play blackjack at the casino, you need a basic understanding of statistical odds to survive. What are the odds of a major league batter having the same batting average in 3 of 5 seasons?, Not good. Some may defend the uncanny repeatable precision of Pratt's profits, but, I am concerned about financial engineering.......Kid
flyer is correct--development costs are expensed as they occur and "negative margins" of $1M or more per engine are not unusual--GE and RR incur similar costs due to the extremely cutthroat competition in the large commercial engine market. This is one reason why UTC got out of the widebody business--negative margins were even higher and the overhaul cycle so drawn out that the return on invested capital could not be justified. It is also one of the reasons why I have been saying that the "sideshow" GTF models powering the MRJ, CSeries, and Embraers new E-Jets are actually very important to PW. Each of these are exclusive platforms with only one engine choice--much like Pratt Canada's business. These sales help lower unit cost of production and are profitable on day one. I an hoping they sell a ton of them. Getting CSeries into Delta is a good start.
That being said, UTC shareholders are not going to wait for 30 years before they expect to see solid earnings growth, negative margin or not. At a recent conference Hayes seemed to dampen expectations for next year saying that "earnings growth would continue to be constrained through 2017". I think most analysts are expecting to see a turnaround next year with earnings of $7.00 per share backed by organic growth and not just reduced share count. If it doesn't happen, look out below.
kid, I think development costs are expensed as they occur. It makes perfect sense to sell a product at below the cost of manufacture if you're going get aftermarket business at 50% margin for decades. Even Otis does that wit elevators. At the investors meeting a week or so ago Hayes said that by about 2018 Pratt's negative margin on the ~ 800 engines it plans to produce that year will be about $1 billion. Do the math...that's over $1 million per engine. Since I know you're probably still not buying this argument, I suggest that as the quarters fly by you take note of Pratt's margins. They have been decreasing and will continue to do so as production ramps up. Pratt will add very significant revenue growth for UTC in the years ahead....but UTC's margins and cash flow will be squeezed. There was a reason why the recent dividend increase was so small compared to recent years.