Jet engine manufacturer Pratt & Whitney will take a financial hit this year as parent company Raytheon Technologies Corp. said Tuesday it’s cutting all ties to Russia and reduced its 2022 revenue estimates as it participates in global sanctions for the invasion of Ukraine.
The Waltham, Massachusetts-based aerospace and defense giant reduced its sales forecast by $750 million, to a range of $67.75 billion to $68.75 billion. The cut in revenue will be apportioned equally to the conglomerate’s two commercial aerospace businesses, Pratt & Whitney and Collins Aerospace.
“We’re done in Russia. Full stop,” Chief Executive Officer Greg Hayes told industry analysts on a conference call discussing first-quarter financial results.
Raytheon Technologies closed a joint venture that built commercial heat exchangers for Boeing and Embraer and sold its share, he said.
“We aren’t going back,” Hayes said. “We’re not going to support the airlines. We’re not going to support the development programs. We’re not going to support any Russian customers going forward while this is going on.”
Shipments of Pratt & Whiney engines will be halted to Irkut Corp., a Russian aircraft manufacturer, and Airbus that would otherwise send engines to Russia. Airbus, based in the Netherlands, will remarket some engines, sparing deeper losses for Pratt & Whitney. But the Connecticut manufacturer will lose spare parts revenue associated with engines that would otherwise be shipped to Russia, Hayes said.
The financial stakes for Raytheon are modest. He said Russia accounts for 4% of global revenue passenger miles, an aviation metric. Russian business accounts for 1.5% of Raytheon sales, or about $900 million a year, Hayes said.
Raytheon will be able to reduce the impact with higher sales elsewhere, Hayes said.
A “relatively significant hit” on earnings of about $200 million will be offset by cost containment. “It is not a small number for us as we think about guidance for the year,” he said.
Investors were unfazed. Shares closed at $99.19, down less than a half-percent as a sell-off engulfed broader markets.
The reduced outlook for the year comes as commercial aviation is lifting sales at Raytheon Technologies. It reported double-digit first-quarter sales increases for Pratt & Whitney and Collins Aerospace, as the industry emerges from travel restrictions imposed by COVID-19.
The company again said it expects commercial airline traffic will return to 2019 levels by the end of next year. “Recovery is in sight,” Hayes said.
Pratt & Whitney, headquartered in East Hartford, posted $4.5 billion in revenue for the quarter ended March 31, up 12% from the first quarter of 2021. Collins Aerospace, which makes airline cabin interiors, landing gear, cockpit equipment and most other components, posted revenue of $4.8 billion, up 10% from same quarter last year.
Raytheon’s two military units posted lower sales in the first quarter than in 2021. Raytheon Missiles & Defense posted $3.5 billion in sales, down 7% from 2021, driven primarily by supply chain constraints and declining Pentagon spending for certain programs.
Raytheon Intelligence & Space, which manufacturers satellite equipment, radar components and other systems, posted first-quarter sales of $3.6 billion, down 5% that Raytheon attributed to a business divestiture.
However, Hayes said he’s encouraged by President Joe Biden’s $773 billion 2023 defense budget request. And that was before Russia’s invasion of Ukraine launched Feb. 24, he said. U.S. allies, too, are increasingly making military spending a priority that will benefit Raytheon Technologies, Hayes said.
Raytheon Technologies posted first-quarter sales of $15.7 billion, up 3% from the same period last year, but missing Wall Street estimates of $15.8 billion, according to Zacks Investment Research. Per-share earnings of 72 cents were up from 50 cents last year.
Stephen Singer can be reached at [email protected].
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