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RTX Stock Jumps on Buyback; Earnings Hurt by Jet-Engine Costs

RTX plans to buy back an additional $10 billion in stock to take advantage of the sharp slide in its share price since disclosing quality problems with its latest jetliner engine during the summer.

The world’s biggest aerospace and defense company by sales reported a loss for the third quarter as it booked a charge to cover compensation and repair of geared turbofan engines that will require the grounding of hundreds of Airbus jets next year.

RTX’s market value has fallen by more than $30 billion since the problems were disclosed in July, and Chief Financial Officer Neil Mitchill said it is taking advantage of the low price to repurchase shares.

Mitchill said the cost and repair timelines for engines remained unchanged from its guidance in September.

Shares of RTX, previously known as Raytheon Technologies, jumped more than 6%.

Here’s more detail on how RTX did in the third quarter:

RTX reported a loss of $984 million for the third quarter. Excluding the engine charge, per-share earnings of $1.25 beat the consensus among analysts polled by FactSet by 3 cents.

Adjusted sales rose 12% to $18.95 billion in the quarter, topping analysts’ estimates, with backlog rising to a record $190 billion after a third consecutive quarter of double-digit growth.

RTX also agreed to sell its cybersecurity and intelligence business for $1.3 billion to an undisclosed customer.

Excerpt from WSJ
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Heard on the Street: They Don't Build Jets Like They Used to

Anyone who has walked into a used-car dealership knows about the risks of being sold a lemon. When it comes to aircraft, however, it is the newer models that seem more likely to leave owners stranded.

The price tag for a 10-year-old Airbus A320-200—the backbone of the world’s short-haul fleet—has risen 10% since August, according to appraisal data from aviation-analytics firm Ishka. The popularity of trusty clunkers is rising because of issues affecting the newer version of the plane, the A320neo, introduced in 2016.

And it isn't an isolated case: The rival engine to the GTF is also suffering from durability issues. Ever since Boeing botched the development of the 787 Dreamliner in the 2000s, aerospace firms have been battling to rectify defects. As engineering more fuel-efficient jets keeps getting harder, future models may become even less reliable upon introduction.

The implication is that midlife jets may have a permanently higher “residual values,” which is good for lessors like AerCap and Air Lease Corporation, as well as aircraft asset-backed securities.

Excerpt from WSJ
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Airbus to Push Ahead With Production Increases as Boeing Lags

Plane maker reports rise in quarterly profit as it delivers more jets despite supply-chain snags

An increase in orders for narrow-body jets including the A321 helped boost Airbus’s third-quarter income. 
Airbus SE plans to ramp up production over the course of next year, despite persistent supply-chain disruption, as the European plane maker extends its lead over rival Boeing Co. BA 0.34%increase; green up pointing triangle in the crucial market for smaller jets.

The Toulouse, France-based company on Friday confirmed plans to lift production of its A320 aircraft to 65 a month by early 2024 from about 50 a month at the end of this year, one of the fastest increases in the company’s history. The move comes as demand for Airbus’s family of A320 narrow-body aircraft outstrips that for Boeing’s rival 737 MAX but also as both plane makers grapple with continuing supply-chain issues.

Airbus has been gaining market share over Boeing since the grounding of the 737 MAX, with the split between the two most popular narrow-body programs at 61-39 in favor of the A320neo as at the end of September, according to an analysis of both companies’ backlogs by research firm Agency Partners.

The market-share split is a closely watched measure in the aerospace duopoly. As Airbus extends its lead, the company is able to produce more aircraft, enabling it to push for better pricing with suppliers that it can use to either boost profitability or undercut pricing from Boeing.

Excerpt from WSJ
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Boeing’s 737 MAX Output Falls to Lowest Level in Two Years

Deliveries and production of the company’s bestselling jet slowed in September amid snafus at one of its key suppliers

Boeing said it delivered 15 new 737 jets to the world’s airlines in September. Deliveries of Boeing’s 737 MAX jets to customers fell in September to the lowest level in more than two years, laying bare how one of the U.S.’s largest manufacturers is struggling to churn out enough jets to fill the skies.

The company’s operations have been disrupted this year by a series of snafus at one of its key suppliers. The latest problem, discovered in August, is misdrilled holes on the fuselage of its bestselling 737s. As a result, production of the more than $100 million jet—which accounts for the bulk of Boeing’s output— is running at about half the company’s target.

Boeing executives have said that deliveries would slow but that they still expected to meet their targets for the full year. Boeing said earlier this year that it was moving to complete an average of 38 new 737s a month. It made 22 in September, according to data from Aero Analysis Partners/AIR, a research firm.

Excerpt from WSJ
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