UPDATE 2-RTX exceeds estimates of military demand and aviation strength

(Adds comments from CFO)

By Pratyush Thakur and Mike Stone

April 23 (Reuters) – Aerospace and defense giant RTX beat first-quarter profit expectations on Tuesday, helped by demand for missile defense systems and the strength of its commercial aftermarket business.

Aftermarket activity increased as airlines needed to extend the life of aircraft to keep pace with the recovery of air travel, while the availability of new commercial aircraft was limited.

The Arlington, Virginia-based company reported revenue of $19.3 billion and earnings per share of $1.34 for the quarter.

Analysts on average had expected revenue of $18.41 billion and earnings of $1.23 per share, according to LSEG data.

Pratt and Whitney, a subsidiary of RTX, reported a 23% increase in sales due to continued inspections to check for potentially defective components in its turbofan (GTF) jet engines.

The GTF engine problem involves a powder metal used in engine parts, such as high-pressure turbine discs and high-pressure compressor discs, that can lead to micro-cracks and fatigue.

Following the quality crisis of some GTF engines last year, RTX estimated that 350 aircraft would be grounded annually between 2024 and 2026, outlining $6 billion to $7 billion in recall costs, including compensating customers for lost capacity.

Chief Financial Officer Neil Mitchill told Reuters in an interview that the company’s negotiations with customers were progressing, with agreements completed with nine customers representing “a healthy portion of the fleet,” and another six in progress.

More than 40 customers use the PW 1100 engine, he says.

RTX still expects about 350 aircraft to be grounded due to engine removals at any given time. “We are actually at the peak here in April. Between 2024 and 2026 there will be an average of around 350. So nothing changes in the situation.” these assumptions,” Mitchill said.

Pratt’s operating profit fell as the supply of new engines offset the aftermarket benefits. Engine manufacturers often sell new units at a discount to make a profit over the life of the engine through aftermarket sales.

Driven by strong demand for both original equipment and aftermarket service, sales at RTX’s Collins Aerospace unit, which makes avionics and aerospace components, rose 9%.

International demand for American weaponry is soaring following Russia’s invasion of Ukraine, raising the specter of Chinese aggression and conflict in the Middle East, with countries making and negotiating new deals to buy weapons and trying to expedite existing contracts.

Operating profit at Raytheon, RTX’s defense arm, rose 74%, helped by the in-demand Patriot defense system and gains from the divestiture of the cybersecurity, intelligence and services sectors.

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During the quarter, Raytheon booked a $1.2 billion order for Germany’s Patriot air and missile defense systems.

(Reporting by Pratyush Thakur in Bengaluru and Mike Stone in Washington; Editing by Maju Samuel and Louise Heavens)