The A320neo jet manufactured by Airbus SE (EPA:AIR) has suffered additional instances of engine issues that are causing significant problems for the builder, its customer airlines and the engine manufacturer Pratt & Whitney.
The A320 line and its A320neo variant are part of Airbus’ original product line that accounts for more units than all of Airbus’ other civilian production lines – A330, A350 & A80. To entice more customer airlines to choose the A320 over its direct competition, – Boeing’s (NYSE:BA) B737 – Airbus introduced new engine options for the A320neo variant with improved fuel efficiency.
However, one of the engine options developed and manufactured by Pratt & Whitney – a wholly-owned unit of United Technologies Corporation (NYSE:UTX) – has had some issues that forced flight interruptions and flight cancellations, as well as grounded airplanes. Currently, nearly 10% of the A320neo variants – 11 out of 113 – that were delivered to airlines are grounded following the issuance of an Emergency Airworthiness Directive by the European Aviation Safety Agency. Such directives occur when the agency determines unsafe condition that require an immediate action by the owner or the operator of the aircraft.
An additional downside is that – with the production of the A320neo postponed indefinitely – airlines with open orders for the A320neo are choosing to take deliveries of older versions that have higher fuel consumption and higher pollution emissions. One such airline, IndiGo, announced that it will take deliveries of the A320ceo variant to support its market growth until the engine issues are resolved and the production of the A320neo resumes.
The Airbus share price basically traded flat on Feb. 12, closing only slightly down. Boeing’s share price was 3.3% up and United Technologies rose 1.9% for the day. Since the beginning of 2018, Airbus’ share price is down 1.4%, United Technologies dipped 0.1%, while Boing’s share price is 16% higher. Share price gains for Airbus, United Technologies and Boeing over the past 12 months are 41%, 13% and 99%, respectively.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.