RTX at Morgan Stanley’s Laguna Conference: Strategic Growth and Challenges

On Wednesday, 10 September 2025, RTX Corp (NYSE:RTX) presented at Morgan Stanley’s 13th Annual Laguna Conference, providing a comprehensive overview of its strategic initiatives and market performance. The company emphasized its resilience amid challenges like tariffs and supply chain issues, while also highlighting its significant backlog and investment plans. Despite these hurdles, RTX is committed to leveraging its robust product portfolio and innovation to drive future growth.

Key Takeaways

• RTX reported an 8% organic sales growth in the first half of the year.
• The company has a substantial backlog valued at $236 billion.
• A $10 billion investment is planned in engineering, development, and capital expenditures.
• Collins Aerospace’s aftermarket saw an 18% increase year-over-year in the first half.
• RTX forecasts maintenance, repair, and overhaul (MRO) output to rise by 30% year-over-year.

Financial Results

• Organic sales increased by 8% in the first half of the year.
• RTX maintains a significant backlog of $236 billion, indicating strong future demand.
• The company is investing $10 billion in engineering and development (E&D) and capital expenditures (CapEx) to enhance growth and capacity.
• Collins Aerospace reported an 18% rise in aftermarket sales year-over-year.
• RTX projects free cash flow for 2025 to be between $7 billion and $7.5 billion, with a goal of achieving over 90% free cash flow to net income.

Operational Updates

• RTX is navigating challenges, including tariffs, supplier issues, and a strike at Pratt & Whitney.
• Production on programs like GEM-T, AMRAAM, and Coyote is set to double by 2025.
• A $300 million investment is directed towards increasing capacity at various facilities.
• The AMRAAM guidance section production in Tucson will triple through improvements in core operating systems.
• The GTF Advantage engine has received certification and is undergoing aircraft certification testing.
• RTX is addressing GTF engine aircraft-on-ground (AOG) issues by increasing MRO output by 30%.

Future Outlook

• RTX anticipates continued growth in revenue passenger kilometers (RPK) and a robust aftermarket business.
• The company is closely monitoring regulatory changes, including tariffs and the Civil Aviation Agreement.
• Ensuring supply chain health is a priority to support both commercial and defense expansions.
• Allies are increasingly meeting the 2% of GDP defense spending commitment, which supports RTX’s defense business.
• RTX continues to invest in capacity to meet growing customer demands.

Q&A Highlights

• RTX is exploring opportunities to introduce a more commercial mindset to defense contracting.
• The administration is advocating for a commercial approach to contracting to boost output.
• Discussions included the possibility of TINA (Truth in Negotiations Act) light contracting.

In conclusion, RTX remains focused on executing its extensive backlog and fulfilling customer commitments. For further details, please refer to the full transcript below.

Full transcript - Morgan Stanley’s 13th Annual Laguna Conference:

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: All right, we’ll start right on schedule. Hi, good morning everyone. I’m Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst. Very excited to have Chris Calio, Chairman and CEO of RTX, with us this morning. Chris, welcome.

Chris Calio, Chairman and CEO, RTX: Thank you. It’s great to be here.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Let’s start off. You’ve been CEO at RTX for about a year and a half now. What’s been the biggest surprise, either positive or negative, that you’ve encountered so far?

Chris Calio, Chairman and CEO, RTX: Thank you, Christine. It is great to be here. Maybe just two seconds on a little housekeeping. We may make some forward-looking statements here today, of course. Please consult our SEC filings for all of that stuff. I’ll just pick up on your question there. I would tell you the resiliency of the organization, the adaptability and agility in the face of some, I guess I’d call it dynamic or unexpected circumstances, something we’ve been really, really pleased with. Everybody comes into the year with detailed plans and strategies, but we had some interesting things sort of hit this year. Everyone knows clearly about tariffs and the regulatory environment. We’ve had some supplier fires that have gone on, some supply chain issues, things that we have just, I think, adapted very well to. We had a strike at Pratt & Whitney for four weeks, to be able to overcome that.

I feel really good about our ability to kind of fight through those things and build some momentum here in the first half of the year. Organic sales up 8% in the first half of the year. Build some momentum there in terms of our performance and feel really good about our demand signal. We’ve got a $236 billion backlog. The demand is very strong, both commercial and defense. For us, it’s really just about continuing that momentum, executing on that backlog, making sure we’re getting the units to our customers when they need them, at the margins that we need. That’s where our focus is. We’re really pleased to be able to have fought through some of those things this year to create some really good momentum. I’ll say too, we’re always looking in the here and now on executing on our commitments, but we’re a long-cycle business.

We continue to invest for future growth. We’re going to invest $10 billion this year in E&D and CapEx. Some of that’s sort of new products. Some of that is making sure that we’ve got some of the longer-term horizon technologies that we continue to invest in and maybe spiral in. It’s making sure we’ve got the right capacity to meet the demands of this ramp-up on both commercial aero and defense. We’re going to continue to look even beyond this year in 2026 and 2027 long-term, because this is a long-cycle business. We’re going to continue to invest. I think the teams have done a very, very good job on focusing on those things that we can control. It’s execution, it’s supply chain, it’s driving cash collections, all the things that were within our control. I think we’ve done a really good job thus far this year.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Chris, touching base on that, the things you’ve seen so far, you talked about the strike, you talked about the tariffs, the demand environment. What trends are you watching? How do you think the rest of the year shapes up? Here we are already in September. It’s like the year’s almost over. What are you watching through year end?

Chris Calio, Chairman and CEO, RTX: Yeah, we’re watching a couple of things here as we sort of come to the end of the year. Clearly, there’s a lot of news right now on what’s going on in the market, the consumer, and the consumer strength there and the labor market. I’ll just tell you that the consumer has continued to be pretty resilient. Household balance sheets have continued to be pretty solid, and we think that plays through to continue to RPKs and then aftermarket growth. They continue to look at the regulatory landscape, obviously. We’re well calibrated this year in terms of the tariff exposure and the mitigation strategies and all those things we’ve brought to bear that I mentioned sort of up front.

We’ll see how that settles out here in the back half of the year and what additional actions do we need to take for 2026 and beyond, given where things might land. I’m certainly hopeful, I’m sure many of us are here in aerospace and defense, that the Civil Aviation Agreement will be brought back in. We’ve seen some green shoots there in some of these framework agreements. Hopefully, that continues to penetrate many of these deals. We’ll see where that lands, and then we’ll react accordingly, whether that’s continued movement within our footprint, within our supply chain, pricing, and the like. Again, trying to see where that shakes out and what do we need to do in response to that for 2026 and beyond. I would say maybe the third big bucket, and you won’t be surprised to hear this, is just the continued supply chain health.

I’ve talked about the ramp-up in commercial and defense. It’s making sure that our suppliers are really, really clear about what the demand is, what we need, when we need it. Keep in mind, we’ve got a number of suppliers across A&D that serve a number of different programs, so we’ve got to continue to make sure that we’ve got second and third sources, that we’re staying ahead of the game there, because otherwise you can get hit with some constraints. I think we’re trying to look beyond and make sure that we’ve got the right supply chain, supply chain health. They know the demand. They know what we need, and how can we help them? How can we get out into their shops with our teams, with our industrial engineers, making sure we can help with yields and quality and specifications and the like?

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Maybe going back to the end market health, right? You talked about the aerospace ramp. It seems like there’s strong demand defense. Can you talk about the headwinds and tailwinds that you’re seeing in the industry? You already a little bit touched on supply chain to watch. How do you view the health of aerospace and defense? What kind of growth do you expect to see in the next few years with your end markets?

Chris Calio, Chairman and CEO, RTX: I think we need to step back and look at our end markets. I think we’re exceptionally well positioned at the precipice of two really strong macro trends. If you think on the commercial aero side, you’ve heard us talk about this before, only one in five people globally have been on an airplane. That’s going to continue to drive RPK growth, which drives obviously our aftermarket business. There’s the demand out there over the next 20 years for about 40,000 aircraft. That’s larger than the global installed base today. If you think about kind of how we’re situated there, we’ve got content on some of the highest volume programs. Think Collins on 737, 787. Clearly, you know, Pratt got a very strong GTF pipeline. V2500 continues to remain very, very strong. You understand that that continues to be kind of a juggernaut for us, very, very young fleet still.

Again, 15% haven’t had a first shop visit yet. 40% haven’t had a second shop visit yet. There’s still some tailwind behind that. The second sort of macro trend, of course, is the global defense and the threat landscape that’s out there. The world obviously is a very dynamic place right now. I think we’re exceptionally well positioned with our integrated air and missile defense capabilities to continue to supply the U.S. and our allies with what they need to address some of the high-end threats that you’re seeing out there today. You know, you and I were talking a little bit beforehand. You know, Raytheon, we’ve got an unbelievable, I’ll call it, installed base. We don’t talk about it that much in defense, but there are 250 Patriot fire units out there today. There are 19 Patriot countries, for instance.

This gives us an incredible installed base to which we can build upon as the threats continue to evolve.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Maybe on the U.S. budget, we’ve seen this administration increase the defense budget going into the year. The expectation were cuts. We’re not in a cutting environment. We’re in a growth environment. What are your thoughts on RTX’s position in the broader competitive landscape in light of the U.S. reconciliation bill and Golden Dome? You touched on this fairly large installed Patriot base. How are you thinking about the increase in NATO spending? How is RTX positioned to capture some of the growth from our European allies?

Chris Calio, Chairman and CEO, RTX: I’ll say it again. I said it to you privately up front. I continue to believe, we continue to believe we’re exceptionally well positioned there. If you just look at base budget plus reconciliation and the focus areas there, clearly it’s munition and effector ramp-up. You need replenishment of munitions. You need munitions depth. I think that’s been very, very clear throughout the U.S. government and allies today. That’s number one. Second would be homeland defense and Golden Dome for America. You just, again, very well positioned there. I’m sure we can talk about that a little bit. Our allies continue to need our systems, our weapons, our effectors. That ramp-up is real. You’ve talked about NATO a little bit. I think you’re going to find this year almost every country is up to that 2% of GDP spend.

Of course, with a commitment by 2035 to get to, you can debate 3.5%, 5%, whatever it may be. The demand is going to continue to be exceptionally strong. When you look at the budget, Indo-PACOM deterrence in terms of aggression there. If you take all of those things, again, exceptionally well positioned. On the munitions ramp, think things like AMRAAM, Tomahawk, Coyote, all things that we are ramping up significantly that are right in the wheelhouse of what the U.S. government and our allies need. On Golden Dome for America, again, I think that’s going to be a multi-layered architecture. I’m sure many of you here have been reading about it. We’ve got solutions, battle-proven, combat-proven solutions at every one of those layers. If you think sort of further range, we’ve got early warning radar. We’ve got TIPI-2 and Standard Missile.

As you move a little bit closer, you’ve got Patriot. You’ve got LTAMDS coming on board, the Lower Tier Air and Missile Defense Sensor. Again, 360-degree coverage for some of the most advanced threats that are out there today. We got through Milestone C earlier this year. We’re now into low-rate production there. A lot of demand for that. You move a little bit further in, you’ve got NASAMS with AIM-9X. Of course, you’ve got the counter UAS, which is our Coyote system, which again is going to continue to grow in prevalence. It’s been exceptionally valued in the Middle East, Red Sea, and other places. It’s been very, very effective against those threats, as have all the things at the various layers that I just mentioned. I’ll also say too, we don’t talk about it enough probably, and that’s Collins.

Collins has the data links in the communications, the things that have to connect the sensors and the effectors, that connected battle space that we’ve talked about before. That’s also an additional opportunity for us, above and beyond just what you think about in terms of the effectors and radars on Golden Dome for America. Indo-PACOM, Tomahawk, very, very prevalent. Standard Missile, very, very prevalent. All things needed sort of for the naval customer. I feel very, very good about long-term defense spending and the demand and positioning of our products.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thanks, Chris. Diving into more defense, on Raytheon defense, you’re looking to scale on key programs. You’ve highlighted a few of them, like LTAMDS, GEM-T, Coyote. How should we think about the progress in that ramp? How are you managing capacity so that you can accelerate that backlog and convert it into revenue faster?

Chris Calio, Chairman and CEO, RTX: Yeah, you said it, Christine. It all starts with the backlog. At RTX, it’s about almost $64 billion in terms of the backlog. It’s up significantly since the end of 2023, again, driven by the global threats that are out there today. We are laser-focused on the ramp, and you’re going to see some meaningful output increases this year on some key programs: GEMT, AMRAAM, Coyote. We think we’re going to double production on all three of those programs here in 2025 and continue to invest in capacity on a number of our other programs. I mean, since 2020, we’ve invested about $1 billion of our own money in capacity increases.

This year alone, another $300 million for places like Andover, McKinney, Texas, Camden, Arkansas, all the places that we need to continue to ramp up to meet the demands of our customers and deliver this backlog as quickly as we can. I think the U.S. government, the administration, DOD have been really leaning forward here and trying to help industry ramp faster in terms of what can you do to take your volumes up faster, to get solutions out to the customers as quickly as you possibly can. That’s looking at supply chain. Where do we need second and third sources and helping in that way? Critical minerals, where do we need help in places like that? Testing protocols. How do we become more efficient in our testing to help drive throughput? Really trying to partner with the administration on how do we drive munitions production faster.

It also comes down to productivity in our own shops. We’ve talked about our core operating system. I’ll just give you an example. On AMRAAM, we’re going to triple guidance section production on AMRAAM out of Tucson this year, and that’s been a function of really just diving in with our core operating system, trying to figure out what are the bottlenecks. How do we relieve those bottlenecks? It’s an integrated program team type of approach. It’s engineering, it’s supply chain, it’s operations. It’s getting on the factory floor to eliminate those bottlenecks to drive up output, and we’re doing that on every one of our major programs.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Great. In the battlefield today, we’ve seen regional conflicts arise. We’ve seen some shifts from precision and capabilities you’ve historically provided versus the growth of some of these good enough solutions from private companies that have emerged in the past few years. I guess there’s a few questions embedded in here. Please bear with me, Chris. There’s been a lot of buzz about these defense tech emerging companies entering into the market. Where do you see their role in the industry versus yours? Where in your portfolio are you concerned about potentially losing market share? Where do you see opportunities to partner? Where do you see some formidable moats in your business?

Chris Calio, Chairman and CEO, RTX: No, thanks. Lots to unpack there. Let me start with, and I say this jokingly, but it’s the truth. I mean, when I hear about defense tech, we are defense tech. We have some of the most advanced and effective systems in the world. There are, for instance, 35 systems of Raytheon today operating incredibly effectively in global conflicts around the world. We continue to invest heavily in technology to make sure that we’re continuing to evolve our products, upgrade them, adapt to things that the customer is seeing in these conflicts so we can overcome some of the other emerging threats and developments that are happening out there. I would just put us in the defense tech category, though I know others might say, hey, you’re too big for that. I really believe our product portfolio warrants it.

If you think about sort of the evolving nature of conflict, we strongly believe you’re going to continue to need solutions across a range of complexity to deal with different missions and different threats that are out there. Clearly, and I mentioned it up front, we’ve got a very, very strong position in some of those most advanced anti-threat type of systems. I talked about the 250 Patriot fire units we have out there today. LTAMDS now coming into production, which can tie into the Patriot system. Just, again, a number of very sophisticated solutions at each layer of integrated air and missile defense, which we believe will continue to be prevalent into the future. I’ll move down a little bit and just say, you know, and you and I talked about this a little bit up front, Christine. Half of our business is commercial aerospace.

There are things like that we make on the commercial side of our business, commercial systems like avionics, mission systems, smaller engines, that are going to continue to be needed for some of these other smaller platforms that you’re reading about from other defense tech companies. Again, a real opportunity for us. I’ll mention Collins once again. They’re a preeminent communications company, assured networks in very contested environments. This is what they do exceptionally well. I’ll also tell you, there’s been a lot of discussion around the space layer and how that will be more prevalent as we move forward. Raytheon has some exceptional missile warning, missile tracking capabilities, and other solutions for the space layer. We feel like we are covered from all of the ranges in that spectrum of products and needs.

Lastly, what I’ll say is, many of you know, we launched an RTX Ventures Fund a couple of years ago. We’ve made about 20 or so investments there. Again, it’s not just investing. It’s finding ways to partner with some of those portfolio companies on whether it be testing or demo programs and the like, some real cutting-edge sort of defense tech. Maybe the last thing I’ll say is, we’re always looking for ways to partner with others if it makes sense, if it’ll continue to bring value to our product portfolio. We announced one earlier on our Multispectral Targeting System with Shield AI, for instance. Are there opportunities where people have existing capabilities today that we can marry with our product portfolio to level up their performance out in the field? We’re going to continue to look for those.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thanks, Chris. Maybe shifting now to commercial aerospace. What are you seeing for commercial aftermarket the rest of the year and going into 2026? What have you been hearing about the OE ramp for Boeing and Airbus? What rates are you expecting and what can you support? Lastly, how’s the GTF Advantage engine trending at Pratt?

Chris Calio, Chairman and CEO, RTX: OK, so we’ll start with aftermarket. I saw a very strong first half in our aftermarket, up 18% year over year. If you looked at Collins, they had a very strong book-to-bill across all their channels: parts, repair, mods, and upgrades. Again, Pratt, a very strong book-to-bill in commercial aftermarket as well. Everyone knows about the GTF and what we’re doing there from a shop visit perspective and how we’re continuing to try to grow margins in the GTF aftermarket. There’s other legacy platforms there, like the V2500, that continue to have very, very strong demand. Of course, Pratt & Whitney Canada, which we probably don’t talk enough about, the premier small engine company in the world, number one or number two in virtually every one of its segments with exceptional aftermarket sort of positioning and growth.

I felt very good about the performance in the first half of the year. I think long term, given our installed base, we’re going to continue to see structural strength there. On the OE side, everyone here knows, I think Boeing’s done obviously an excellent job continuing to ramp and build rate on 737, 787. I won’t get into rates. That’s for them to discuss. I’ll say that we’re working exceptionally hard to make sure that we can flex to meet whatever they need as they continue to grow. Obviously, Boeing’s success is our success as it relates to some of the platforms that Collins is on.

We want to make sure that we’re supporting them and our supply chain is in the right place, that we’re overcoming, again, some of these challenges I mentioned earlier, supplier fires and the like, to make sure that we’re delivering for them so that they can deliver on their ramp. I think we’ve done a good job of that so far. Maybe Pratt on engine deliveries. We had the four-week strike this year, which was obviously disruptive. I feel like we had a very good recovery plan. We’re on that plan. We want to continue our focus on making sure that Airbus has what it needs to meet its commitments for the end of the year. We feel good about our ability to do that. I’ll just go back. Longer term, structural strength in OE. I think those rates are going to continue to climb. The demand is there.

The backlogs for Boeing and Airbus continue to be there. We’re a big part of that.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thanks, Chris.

Chris Calio, Chairman and CEO, RTX: Oh, and then you asked about the GTF Advantage engine.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Yes.

Chris Calio, Chairman and CEO, RTX: As we announced earlier this year, the GTF Advantage engine received its engine certification, which is fantastic. It is now going through its aircraft certification testing with Airbus, and it’s going through that process as we speak. As everyone knows here, the Advantage, again, an upgraded hot section, improved time on wing performance, obviously improved fuel efficiency. The other piece of this, of course, is that we’re taking the hot section improvements from the GTF Advantage, kitting those, and we’re going to start putting those into MRO shop visits next year on the existing platform today. Driving the time on wing benefits from the Advantage into the existing fleet today, making sure we’re leveraging the investment we made in the Advantage to benefit the entire fleet.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thanks, Chris. I think the trends in commercial aerospace ramp, you know, that’s pretty clear. It’s just going up. Going to Collins, when you think about the labor absorption rate, inflation absorption, as volumes go up, how do we think about margins at Collins? What actions are you taking to improve the cost basis today? What have you taken before? Ultimately, what do you have to see for Collins’ margins to get to 20%?

Chris Calio, Chairman and CEO, RTX: If you just step back and look at the Collins business, it’s got a fantastic business base from which to work. It’s got a $170 billion installed base flying around today. Over $100 billion of that is out of warranty. Again, long aftermarket stream that’s going to continue to grow. It’s got 2X the content on the newer platforms versus the legacy platforms. As we just talked about, that ramp is going to continue to grow. Just a fantastic base from which to work in terms of their positioning in commercial aero. If you think about the continued margin expansion at Collins, clearly comes down to commercial aftermarket continuing to grow. With the positions that we have and the out-of-warranty installed base, we feel good about that. You mentioned commercial OE sort of absorption benefits. As you know, we are capacitized for much more than the rates today.

Obviously, if you look at some of the 2019 rates, we were at higher rates on some of those programs. We have the capacity, and as that volume continues to grow, that’ll help with the cost absorption, which will be a tailwind as well. Lastly, from a cost discipline perspective, it’s just continuing to look at spans and layers, the infrastructure and structure of SG&A, and making sure that we’re doing work that is done across a number of Collins businesses and product lines in the best cost locations. As you continue to grow, you’ve always got to balance the need for having our businesses forward deployed and having their own things with, hey, how do we centralize the common things that we do to just drive the economies of scale and the cost benefits associated with that?

That’s a big part of what Collins is looking at and continue to roll that out.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thanks, Chris. Now, maybe shifting to Pratt, you’ve talked about how the second half of the year would be when we’d see AOGs come down. We’re now in September. Can you talk about the trends you’re seeing for AOGs for the GTF? Also, what are the remaining constraints today in that supply chain?

Chris Calio, Chairman and CEO, RTX: I’ll start like I always do when we talk about this, with just sort of reaffirming both the technical and financial outlook that we’ve talked about before. Again, the fallout rate has actually been better than we had anticipated when we started this fleet management program. That’s great. AOGs have stabilized, but clearly we have more work to do there, Christine. Do I wish that we were further along down the path here? I absolutely do. It’s a process. As I said before, the big piece of that is our MRO output. We’re forecasting this year for MRO to be up 30% year over year. That’s significant, especially given the fact that we’re doing heavier work scopes within the engine. It’s a remarkable sort of growth trajectory, but we need more. That’ll be a big function of, again, supply chain health.

We’ve got the brick and mortar and the shops to be able to do this. It really is the health of the material flow through those shops so we can continue to turn engines as quickly as we can. Again, we’ve seen very good growth in structural castings. We’ve seen good growth within our value stream on forgings, the powder metal parts. We need to continue to see more. We anticipate that the AOGs are going to come down here. It’s moved out a little bit, obviously, because we’ve had the strike and some other things, but come down here as we exit the year. That’s where our team’s focus is. That’s where my focus is, making sure that we get our customers the lift that they need so that they’re prepared to take advantage of the demand that continues to be out there from an RPK perspective.

A ton of energy clearly here. We need to continue to push MRO output. I believe we’ll be able to do so.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thanks, Chris. Thanks for the update. On free cash flow, the midpoint of the 2025 outlook, adding back the $1.2 billion powdered metal remediation, you’re around $8.5 billion for 2025. How do we think about this free cash flow growing beyond 2025, especially the tailwinds that you’ve talked about in commercial aerospace, the tailwinds in defense, and unwind of working capital?

Chris Calio, Chairman and CEO, RTX: Yeah, let me just start with 2025. You kind of zipped beyond that. I’m like, oh, hold on. Let’s talk about 2025. Look, we still feel very good about the $7 to $7.5 billion that we put out there for the year. Again, that’ll be a function of continuing to meet the demands of OE and commercial aftermarket. There are some defense delivery milestones. There are some other sort of larger advance payments from some of our larger international orders. Also, need to continue to liquidate inventory, but feel good about where we are for the full year. I’m not going to give too much specificity on 2026 and beyond, but maybe just focus kind of where you were going, Christine, on sort of the fundamentals of the business. Again, very strong installed bases, you’ve heard me talk about before, significant demand, RPK growth, OE is growing, demand in defense.

All of these underpin what we consider to be our potential to drive free cash flow growth as we move forward. There’s no reason why this business, given those fundamentals that I just outlined, shouldn’t be a 90%+ free cash flow to net income. It has all the fundamentals to be able to do that. Again, strong installed base, strong products plus demand, and our focus on execution through our core operating system. All of those things together give us the confidence I just mentioned.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Great. Looking at capital allocation, I was looking at your capital return to shareholders. You’re on track to hit your target of $37 billion in capital return to shareholders by year end this year. When you look at the balance sheet, leverage has come down. It’s in a pretty healthy place. Free cash flow is positive, and you’ve got the tailwinds that you’ve highlighted. Can you discuss how you think about capital allocation in 2026 and beyond? Do you plan to have another share repurchase plan soon or some sort of accelerated plan like you did a few years ago?

Chris Calio, Chairman and CEO, RTX: I’ll start with where you started, Christine, which is on the $37 billion. We feel really good about the progress made towards that and where we are there, especially given the fact that that was a commitment that was about four years ago. I feel really good in terms of what we’ve done year over year to be on the right trajectory to make that a reality for sure. Step back and just think about capital allocation for us. The priority, and you mentioned it, will be on continuing to pay down the debt, further strengthening our balance sheet. We’ve had a couple of divestitures this year that’ll help us in that regard, be some tailwind there. As we look forward, it’ll be kind of the same and similar playbook that we’ve used previously at RTX.

The focus will be on returning capital to shareholders in particular, prioritizing and growing our dividend, which we’ve done consistently. Everything else after that is sort of opportunistic based upon what our other opportunities are.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Great. We probably have time to take one or two questions from the audience. If you want to ask a question, raise your hand. We’ll bring a mic to you. Mark?

Mark, Unidentified speaker: Thanks, Chris. RTX, Commercial Defense Organization, I think one of the themes we’re hearing out of D.C. is they want the defense contracting environment to be a bit more commercial. Maybe talk about how you think that can evolve, especially given the paradigm that missiles and munition demand is off the charts.

Chris Calio, Chairman and CEO, RTX: Great question. I’ll kind of reiterate what I said up front. I really commend the administration for pushing that exactly as you just mentioned, Mark. How do we bring a more commercial mindset to contracting in order to raise output as quickly as we can? I would say one of the unique things about RTX, and I said it up front, is half of our business is commercial aerospace. We know how to take a look at a market, assess risk, decide where we allocate capital based on the volumes that are potentially out there. We’ve been having discussions with the administration about just that. How do we take some of the perhaps creative contracting that we’ve done market-based on our commercial side and bring some of those principles over to the defense side?

I think the administration, in turn, has been pushing us on like, hey, look, are there things around TINA and in a TINA light type of paradigm that could be helpful? What other things do you guys use on your commercial business in terms of improving yields and throughput and timing? How can you bring that over to the defense side of your business? I feel like there’s a significant amount of synergy, obviously, between our commercial and defense industrially. We’re continuing to bring those principles over to defense. I view it as a real opportunity, Mark, as the administration continues to push us in that direction because we have a lot of muscle memory within the organization about how to do that.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Great. More questions? All right, the last one for me, Chris. What are you most excited about? You’ve talked about so many different elements in your portfolio regarding all the tailwinds in your end markets. Where are you spending the most of your time, and where are you most excited as you look out the next few years?

Chris Calio, Chairman and CEO, RTX: Just really excited, and I said it up front, Christine, about the opportunity in front of this business. If you think about the macro trends I mentioned up front on both commercial and defense, we have the right product portfolio. We’ve got the right execution mindset with our core operating system and the continued commitment to investing in next-generation products and services that I really, truly believe as those macro forces continue to reveal themselves and propagate, we are just exceptionally well positioned to take advantage of those going forward. Our commitment to our customers is head down and focus on execution. The backlog, it’s at $236 billion today. For us, it’s all about execution and delivering on those commitments. We’re really excited about it.

Christine Liwag, Morgan Stanley’s Aerospace and Defense Analyst, Morgan Stanley: Thank you very much, Chris. This concludes our session on RTX. Thank you very much.

Chris Calio, Chairman and CEO, RTX: Thank you, Christine.

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