Around 1,200 airplane engines by Pratt & Whitney have been recalled due to contaminants found in the metals used to make them, which can cause cracks in critical parts. Parent company RTX said last week it recently discovered the contamination, requiring planes that use these engines—built between 2015 and 2021—to be inspected to check whether repairs are needed. The recall is a negative development for RTX’s social credentials associated with the quality and safety of its products.
Product quality & safety is a financially material category for the aerospace and defense industry according to the Sustainability Accounting Standards Board. This is because safety concerns, either from improper design or failures in manufacturing and testing processes, could lead to an increase in costs and an impact on revenue due to a potential decrease in demand for products. The most immediate inspection of 200 of the 1,200 engines by mid-September is expected to reduce RTX’s free cash flow by $500 million this year, The Wall Street Journal reported.
RTX’s stock price has dropped some 10% since the news broke on Tuesday last week, losing around $14 billion in market value. The company didn’t respond to a request for comment on the negative implications of the recall.
Engine recall could hit Airbus’s supply-chain management
RTX’s recall is having a knock-on effect on Airbus’s supply chain, potentially affecting its business-model and innovation profile, as around 40% of its popular A320neo single-aisle jetliners are equipped with Pratt engines. The recall affects hundreds of its airplanes, which will be required to undergo inspections due to the potential metal contamination.
From a sustainability perspective, these safety concerns could weigh on Airbus’s supply-chain management credentials as they raise questions on the company’s ability to ensure that suppliers’ actions don’t have material adverse effects on its own operations. Airbus’s stock price dropped around 4% when the news broke on Tuesday, before normalizing on Friday. An Airbus spokesman said the engine problem didn’t pose an immediate safety issue and wasn’t expected to affect aircraft deliveries.
The recall could also add on to the current supply-chain snarls gripping the aerospace industry and to the pressure that Airbus and other manufacturers such as Boeing are experiencing to increase jet production to meet strong demand from airlines amid a recovery in travel. Airbus Chief Executive Guillaume Faurysaid the company was sticking to its existing plan to deliver 720 commercial aircraft this year, but was still assessing what knock-on effects the recall would have on deliveries over the next two years.
Aerospace-and-defense industry sustainability breakdown
When it comes to disclosing information regarding the quality and safety of products, Figeac Aero, Electro Optic Systems and Avicopter are leaders in the aerospace-and-defense industry, according to the Dow Jones sustainability scores. All receiving a score of 79 in the category, these companies are 22 points above the global industry average. RTX doesn’t currently meet the data-reporting threshold to receive a Dow Jones sustainability score. Moreover, when it comes to addressing supply-chain management issues, based on what companies disclose, Airbus performs relatively well. With a score of 65, it places 15 points above the global aerospace-and-defense industry average. However, it is still 20 points below industry leader Korea Aerospace Industries, the scores show.
