Delta Air Lines: We Think Delta Can Weather Pratt & Whitney Engine Recall; Valuation Unaffected

For the time being we are leaving our $41 fair value estimate of no-moat Delta Air Lines DAL unchanged, but we will continue to evaluate potential impacts on the airline of the engine recall announced by Pratt & Whitney parent company RTX on Sept. 11. Delta operates approximately 100 airplanes powered by the recalled PW1100 engines, a mix of A220 and A320neos, the largest such fleet in North America (American Airlines flies more Airbus planes, but these have different engines). Delta’s overall fleet numbers almost 1,000 planes.

European low-cost carrier Wizz Air, which also operates approximately 100 of the affected Airbus models out of its 180-plane fleet composed entirely of A320 variants, announced that it anticipates an approximate 10% reduction of capacity in the latter half of 2024 resulting from the engine recall. The recall will require a global total of around 1,500 jets to be pulled from service for months at a time as their engines are dismounted, dismantled, inspected, and refurbished.

We believe that Delta, which operates a much larger and diversified fleet than Wizz overall, may be able to absorb the groundings without such an impact on its capacity, and the repairs will take place largely in the off-peak travel season in the latter half of 2023 and first half of 2024.