RTX Corp at Bernstein Conference: Strategic Priorities and Challenges

On Wednesday, 28 May 2025, RTX Corp (NYSE:RTX) presented its strategic vision at the Bernstein 41st Annual Strategic Decisions Conference 2025. CEO Chris Calio discussed the company’s robust $217 billion backlog, reflecting strong demand in both commercial and defense sectors. The conference highlighted RTX’s focus on innovation and execution, while also addressing challenges such as the Pratt & Whitney work stoppage and the impact of tariffs.

Key Takeaways

• RTX’s backlog stands at $217 billion, with $125 billion from commercial and the rest from defense.
• Pratt & Whitney’s work stoppage will have a breakeven to negative cash flow impact in Q2 but is expected to recover within the year.
• RTX maintains its free cash flow guidance of $7 billion to $7.5 billion for the year.
• Collins Aerospace is targeting margins above pre-COVID levels, with significant margin growth achieved in Q1.
• Raytheon aims for a 12% plus Return on Sales, driven by international sales and supply chain improvements.

Financial Results

• Sales and Backlog: RTX reported approximately $80 billion in sales for 2024, with a total backlog of $217 billion.
• Pratt & Whitney Work Stoppage: A four-week stoppage is expected to impact Q2 cash flow negatively, but earnings impact should be neutral.
• Tariffs: RTX feels optimistic about tariff impacts due to pauses in China and the EU, with no changes to the operational outlook.
• Organic Sales Growth: Achieved 11% organic sales growth in 2024 while maintaining flat square footage and minimal headcount growth.
• Raytheon Margin Improvement: Targeting over 12% Return on Sales, with international sales comprising 46% of the backlog.

Operational Updates

• Pratt & Whitney: The work stoppage ended with a new four-year contract, and production is ramping up.
• GTF Engine Program: MRO output for the GTF-1100 engine increased by 35% year-over-year in Q1.
• Raytheon Production: Plans to double production of GemT, Coyote, and AmRAM systems this year.
• Middle East and Europe: Notable opportunities include the first international order for the Coyote counter UAS in Qatar and significant defense installations in Europe.

Future Outlook

• Defense Spending: The potential U.S. defense budget could approach $1 trillion.
• GTF Engine Transition: A two-year process is planned for the GTF Advantage transition, with further durability improvements in 2026.
• Single Aisle Engine Innovation: Continued investment in evolving the GTF Advantage architecture and exploring electric architecture.
• Collins Aerospace: Margins expected to exceed pre-COVID levels, supported by structural cost reductions.

Q&A Highlights

• Raytheon Margin Goals: RTX is confident in achieving a 12% plus ROS through strategic improvements.
• European Defense: The conference highlighted Europe’s efforts to bolster its industrial defense base.
• Single Aisle Engine Development: Pratt & Whitney is advancing its next-generation fan drive gear system.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Okay. Well, why don’t we get started here? I’m Doug Carnett, Bernstein’s senior global aerospace and defense analyst. I’m very excited to have with us today, Chris Calio, the Chairman and CEO of RTX Corporation. And I think you may have a couple of things you want to say first.

I think you have a couple of slides.

Chris Calio, Chairman and CEO, RTX Corporation: Yeah, yeah, just a couple of intro comments. Good morning, everybody. Great to be here. Just some housekeeping maybe to start. Maybe making some forward looking statements here this morning with the risks and uncertainties that come with that.

So please consult our SEC filings on that matter. So with that out of the way, Doug, maybe just a couple of intro comments on RTX, who we are and where we’re focused. So for those of you who aren’t familiar or as familiar with RTX, we’re a global aerospace and defense company, about $80,000,000,000 in sales in 2024 through three strategic business units, Raytheon, Pratt and Whitney and Collins Aerospace. Every day, our 185,000 employees get up with the mission to protect and connect the world, and they’re very passionate about that. I would say the demand for our products is exceptionally strong.

Our backlog is about $217,000,000,000 about 125,000,000,000 of that commercial, the remainder defense. And we are on some of the highest growth platforms in commercial aerospace. Think A320, A220, seven thirty seven MAX. Collins has very strong positions also on widebody, seven eighty seven, A350, all with very long aftermarket tails. And on the defense side, Raytheon in particular, of course, franchises all over the world, critical to protecting The US and our allies.

We’ve got about 35 systems in play all throughout the world today protecting The US and its allies, names such as Patriot, which I think everyone knows now given what’s happened in Ukraine. So great franchises, great positions on some of the highest growth platforms in aerospace and defense. Maybe just a minute, a couple of things on the quarter, Doug, that I think are worth noting. First, some really good news from yesterday, which was the settlement of our work stoppage at Pratt and Whitney. That contract was ratified by our union members, a four year contract.

We will have everybody back this week and back ramping up in our facilities and back to work. So fantastic news there, very happy about that and put that behind us. There was an impact, of course, with the four week stoppage on our ability to ship all the GTF and F135 that was in our plan. So that’s something we’re going to have to recover throughout the balance of the year. There will be a cash impact here in the second quarter as a result.

Think breakeven to negative cash flow in the quarter, but again, recoverable in the year. We’re going to continue to get our people back ramped up, get our engines back out the door, so recoverable within the full year. And from an earnings perspective, I would just say probably neutral in the quarter given the mix of NEM avoidance on new engines and spare engines. So but again, good to have everyone back ramped up, aligned and back to delivering to our customers on the commercial and defense sides. Maybe second comment would be tariffs.

Obviously, we got a lot of play on tariffs from our earnings call. I think we laid out kind of a framework to how we’re thinking about tariffs. I’d say on balance, we feel a little bit better today than we did then on our earnings call about a month ago, Doug. Obviously, we’ve had the pause in China, which has been very helpful. Don’t have a ton of sales in China, but the number was so high that it was having an impact.

So that pause, certainly helpful. And I’ll tell you, our mitigations continue to mature as well in terms of USMCA coverage, pricing initiatives and the like. So feeling better today about tariffs than we did a month ago. And we still need to get smarter, as does everybody. It’s a pretty dynamic environment.

I think this weekend was sort of Exhibit A. We talked about the EU. Good to have that on pause as well. So we’ll update that on our call in July, how that’s sort of progressing. But all in all, for the year, again, excluding tariffs, no change to our operational outlook for the year.

So that’s good. And then again, for us in terms of focus areas, it’s about controlling what you can control, given the dynamic nature what’s playing out in our markets today and geopolitically. And so for us, that’s really about execution and innovation. We’ve got a $217,000,000,000 backlog, as I said. So it’s executing on that backlog, delivering to our customers on time at the right cost points.

And innovation, we’re in a long cycle business. We’re going invest $7,500,000,000 this year in company and customer funded E and D. We need to continue to pump new products out into the market, continue to upgrade our existing products today to meet the needs of our customers. And so that’s where our focus is day in, day out, execution and innovation. So maybe with that, Doug, I’ll turn it back over to you to run the show.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Yeah. So Chris, you’ve been in the CEO role now for a little more than a year. You just remained chairman. Over the course of that year, when you look at the company more holistically than perhaps you did a few years back, How are you thinking about it differently, if at all, in terms of priorities and opportunities here?

Chris Calio, Chairman and CEO, RTX Corporation: Well, first of all, when we think about RTX, I can tell you we’re exceptionally excited about what we think is the runway in front of us. You heard me talk and you’ll hear me talk today about the backlog. To me, that’s a testament to our technologies and our products and the demand for our products and our ability to meet our customers’ needs. So very excited about where we sit today and on the platforms on which we sit, the fastest growing in commercial and those that are critical on the defense side, Doug. If you just think about our priorities, they’ve unchanged, and we’ve articulated them sort of repeatedly.

Number one, it’s executing on our commitments to our customers, and that includes our fleet management plan at Pratt. That continues to go according to plan within the technical and financial guidance that we provided, but it’s also continuing to ramp up in terms of delivery to Boeing and Airbus and the airframers and meeting the needs in the aftermarket. And of course, there continues to be a ramp up on the defense side. I know as primes, we’ve been at times questioned about our delivery. We’re going to continue to ramp on some of the largest platforms that we have.

We’re going to plan to double production this year on GemT, on Coyote, on AmRAM, things that are being expended very quickly that are in extreme need out there in the field, and we’re continuing to ramp that up. Executing on our commitments. Second of course is, and I mentioned it upfront, innovating for future growth, dollars 7,500,000,000.0 in customer and company funded E and D. We’ve got the GTF Advantage certified this past quarter, which is a real feather in our cap. It’s been going on for years, 1% in fuel burn, four plus percent in thrust.

Also think we can kit the key durability improvements that are in the Advantage and insert that into the existing configuration today. So again, not only a new product with the ADVANTAGE, but an upgraded product in terms of what’s flying around today. On LTAMDS, which is our three sixty degree radar, got to milestone C, so into production, which is again a huge accomplishment. First customer internationally is Poland, of course, the U. S.

Army as well. So we see a lot of demand for that product. So continuing to innovate. We’re in a long cycle as you know Doug. We’ve got to continue to innovate so that we don’t fall behind.

We’ve got to continue to make sure our products that are out in the field today are relevant with upgrades, so innovating for future growth. And then the last one is really leveraging our breadth and scale. I mentioned each of our three business units. They’re each about 25,000,000,000 to $30,000,000,000 in size. But if you just step back and sort of look at them, there’s a ton of commonality in terms of our customer base, our supplier base, our manufacturing processes, engineering disciplines.

So it’s really an enabler to the first two priorities. It’s making sure that the best practices that we’ve got in one business get distributed across all three businesses. It’s making sure that our core operating system is deployed fully across all three of our businesses to make sure that we are as efficient and productive as we can possibly be, that we’re solving our engineering problems the same way, executing on our key programs and investments the same way. And again, I think we continue to see really strong progress there. We’ve continued to push the need to drive productivity in our businesses, given our size.

And if you just think about 2024 for a minute, 11% organic sales growth. And if you just look at our footprint in terms of square footage, it was flat. And if you look at our headcount, it grew less than 2%. So that’s the kind of productivity that we continue to drive because we’ve to make this business these businesses as cost competitive as possible. Those continue to be the themes and the priorities that we articulate to our folks each and every day.

And and, again, they’re gaining traction.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: I wanna start a little more on the defense side. I know you were just on the trip with the president in The Middle East. There were some very large numbers discussed out there, a few specifics related to Raytheon. Mhmm. But perhaps you can give us a sense of what we should expect coming out of there for Raytheon.

What opportunities are there?

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. Well, first, on trip itself, I will tell you, making annual trip there to meet with our customers and whatnot. I will tell you the tone and tenor this time was just different. There’s clearly a different sort of posture in terms of the administration, clearly a different posture to The U. S.

Defense Contractors the need there, which is really positive for us. And you saw a couple of joint defense announcements, some in Saudi, others in Qatar. In fact, one one of the announcements in Qatar was the first international order for our counter UAS Coyote in Qatar. So, again, making real traction there. So I think, honestly, coming out of this trip, Doug, it’s a it’s a there’s a lot of momentum in the region.

If you just think of Israel, UAE, KSA, Qatar, all at 4% or more of defense spend as a percent of GDP. We’ve got a very large installed base in that MENA region. We’ve got 60 Patriot fire units. We’ve got 25 Naysames units. We’ve got key effectors all across the company, AIM9X, GemT.

Coyote is now starting to make inroads there as well. So a significant opportunity. Whereas, I think before, it was a different posture with the administration, and it it was can we rely on The US to be able to deliver what we need? I think that was totally a sea change coming out of this trip. And I think we think of the needs of that region.

It’s integrated air and missile defense, as I said, and our installed base speaks to that. And I think that’s going to continue to be a focus area, which is frankly our core competency. If you think about the products we bring to bear, again, Patriot, naysams, Coyote, and all the

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: effectors that go with it. Yeah. Because we’ve seen if you look over the last last few years, I mean, had been a big surge in orders from The Middle East back in the first Trump administration. And we’ve seen sort of that come not just for Raytheon but for others, kind of come down. But it looks like should we assume that now we should see that kind of turn the corner in terms of we’ve seen a lot of growth in Europe, but The Middle East will now come back as another source of growth here?

Chris Calio, Chairman and CEO, RTX Corporation: Absolutely think so. Again, I think the change in posture that the administration has led will be a key part of that. And again, the conversations with our customers while we were there were just much different than they were twelve, eighteen months ago. So I think there’s a lot of momentum in the region and our products are well suited for the needs. Let me come back to The U.

S. So

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: right now we’re looking at we have the skinny 2026 budget, not a lot of detail in there. We have a reconciliation bill that adds a lot, but a lot of that is the obligations don’t have to be done for four years and it’s ten years of spend. I mean, are you looking at both the budget process today here in The U. S. And where the opportunities are for Raytheon?

Yeah. And you’re right, Doug.

Chris Calio, Chairman and CEO, RTX Corporation: When you add those two things together that you just talked about, you’re looking at close to a trillion dollars in terms of the potential defense budget.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: If that reconciliation money gets spent.

Chris Calio, Chairman and CEO, RTX Corporation: Absolutely. But again, I think there is a commitment to ensuring that our defense here in The US is on, the Pentagon would say, better war readiness and war footing. And so I think there are significant opportunities in terms of munitions replenishment, homeland missile defense, counter UAS, frankly, all of the effectors that are in the Raytheon portfolio, again, GemT, AMRAAM, Stinger, Javelin, and down the line, standard missile family. So I think the needs are there. I think they are prioritized.

And so when I look at this budget again, I understand your point about what will become reality, but I think we’re well positioned to capitalize on wherever it lands.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: But and and some of the things you just mentioned all could fit under the umbrella of this golden dome concept. Yeah. And how are you thinking about golden dome and what opportunities there may be for you? There are obviously existing products and there are potentially new things.

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. I think if you just sort of step back and and listen to how the president has sort of described this as something that he wants in place or meaningful progress on within his term, so within like the next three years or so. And that’s exactly the way we’re thinking about it and the way we’ve been discussing it with the decision makers there. If you just look at our portfolio, and I’ll name check them again, but these are our proven, battle tested solutions that are in inventory today. So again, Patriot.

A significant number of sort of ballistic missile intercepts over its life. It is a tremendous brand because of the performance that it’s brought to bear. Naysayms, close to 1,000 intercepts just in the last few years in terms of Ukraine. Coyote, I mentioned before, counter UAS, that close in layer. We’ve had north of 170 intercepts over the last two years as part of the Red Sea.

It’s been highly effective. Customer has been extremely complementary. Maybe just think about protecting the coasts. We’ve got the TP-two radar as part of that system in conjunction with the SM-three effector. We’ve got a number of ready now and proven solutions that can be brought to bear, that can go into the installations, whether it be population centers, critical infrastructure, wherever it may be.

And then, Doug, you can go build on that. In other words, we can upgrade those products, backfill them from inventory, and maybe start to see penetration of new products like LTAMDS, our three sixty degree radar, right, backfilling Patriot. And we’re gonna continue to upgrade those products that we would put in. So again, I think you can make meaningful progress with those existing platforms today and those products that I just mentioned. And then beyond that point, upgrade those existing products or bring in your next generation products behind them.

And, you know, when you look at all of this, and I

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: know there’s a big meeting coming up in Huntsville soon. And you how what what would you say when you look at a large system like this? In the past with large systems, we’ve seen all kinds of approaches with, sort of fragmented many companies, company leadership like we saw in Future Combat Systems, national team, which we saw in GMD. When you think about the Golden Dome, what things would you like to see in terms of the leadership, how the technical strategy, how the acquisition strategy could be formulated here?

Chris Calio, Chairman and CEO, RTX Corporation: Well, I think your point’s a good one, Doug. I think too much fragmentation obviously can lead to a lack of accountability and that drives program timing and cost for sure. But I do think given the technical nature of what we’re talking about here and the scope and the mission it’s trying to solve, I do think it’s going to take a whole of industry to be able to do it and do it right and do it on the timeframe that the President and the Pentagon have outlined. And again, I’ll just speak to our part. I think we’ve got things that are ready now that can be plugged in, And we want to be helpful in any way, shape, form in terms of how to shape the architecture and whatnot.

But I do think it’s going to take the best that industry has to offer. And again, talking our book, I think we have a lot to offer in that regard. So

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: talk about Europe. Obviously, you’ve had a you know, there have been a lot of opportunities for you to help, certainly related to Ukraine and and the rest of Europe. Yep. Can can you describe how you’re looking at the war in Ukraine now, the impact of the you know, Russia’s actions, but the impact on other countries that have fought patriots? And how how are you thinking about demand there?

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. I mean, I I guess first and foremost, let let’s hope there’s a path to peace here and and and that we can get there. I think just as citizens, that’s where all of our head should be, and hopefully that’s where it plays out and plays out soon. Irrespective, I think what we’ve seen is there needs to be an increase in defense spending in Europe. And I think you’re seeing that now be spoken about very openly.

You had the Germans sort of remove the debt break. You have people now, you know, Secretary General Root from NATO talking about a 5%, some of that’s logistics and other things, but a lot of that is true hardware spending. You see places like Poland that are coming close to like that 5% already, given their proximity. Seeing some other countries in that region in Eastern Europe wanting to ramp up their defense very quickly. So there’s a lot of opportunity in Europe.

And again, we’ve got a very strong installed, I’ll call it, base in Europe. We’ve got nine countries that are sort of patriot countries, seven that operate naysams. We’ve got 20 countries across Europe that have significant use of Raytheon effectors. Of course, you’ve the F135 engine on the F-thirty five as well. So there are strong, again, installed base there and a lot of opportunity as these defense budgets continue to grow.

And I know there’s been a lot of conversation around Europe driving its own industrial base and what impact sort of that might have. Look, I’ll tell you our integrated air and missile defense products, which are among the most highly sought after and prioritized in Europe, I think are going to continue to see strong demand. But we also have spent many years forming very strong industrial partnerships in Europe. I mean, you just think about forty years with MBDA, a partnership on GemT, sixty years with Kongsberg on Naysans. We’ve got nine key suppliers in Poland on Patriot, and go on and on.

So again, having a resilient supply chain was something we already were thinking about before the latest sort of trade back and forth. And having those strong partnerships in Europe, I think, put us in pretty strong stead. If you just think about RTX as a whole, I mean, we’ve got close to 24,000 employees in Europe, 60 sites across all three of our businesses. So again, strong installed base and a strong footprint and set of partnerships that I think, again, positions us well. So when you think of this push, which we have definitely heard, the bio European push in Europe, You feel pretty good that you can participate as a European player in those markets, in a sense.

I think we are looked at as more than just a US company, given the partnerships that we have there with some of the leading European defense firms and the success we’ve had in helping develop the industrial base there.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Now Raytheon has been a little challenged in reaching the margin goals you had from a few years ago, you know, getting to that 12% plus type margin. And, you know, I I know you’ve had some challenging fixed price programs. You also, though, have a shift in mix toward international. Can you talk about how we should see that margin trajectory going forward, given the shifts in the business you have?

Chris Calio, Chairman and CEO, RTX Corporation: We’ve pretty clear that we think Raytheon is a 12 plus percent sort of ROS business. And when you look at what’s going to drive that, Doug, we’ve seen progress, by the way, over the last few quarters in terms of margin expansion. And when you see that trajectory to the 12 plus percent, it starts with a healthier supply chain, for sure, making sure that we can execute on our programs within the period of performance and at the cost that we need. And we’ve had eight straight quarters of material growth. So feel good about the trajectory there.

I’ll say that the second piece, and you mentioned it, of tailwind, is the backlog mix. We ended Q1 at about 46% of the backlog. International, that was up sort of two points sequentially, 10 points from the end of twenty twenty three. So you’re continuing to see the international demand, which is a higher margin set of contracts, become a larger part of our backlog. And then third, it’s really the backlog composition.

Much of it has come on the back of what I would consider to be our traditional core competency core products, integrated air and missile defense, radars and effectors, things that are right in our wheelhouse. So those things are mature products where we can start to see productivity come back again. So again, helping the margins there as well. So would you say you’re sort of kind of this year kind of at an inflection point? Or is this something that will

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: be very gradual over many years?

Chris Calio, Chairman and CEO, RTX Corporation: No, I don’t think it’s over many years. I think it’s something that we can see over the next several years, Doug. And again, you mentioned that we’ve had some programs that we’ve had to sort of wrestle to the ground and get into a better place. And I think we’ve done that on many of those programs. And there are certain contracts in our backlog today that we would say are perhaps, we’ll call them underperforming parts of our backlog that will burn off substantially over the next couple of years.

And again, that’s where you’re going to see the new bookings, the integrated air and missile defense, the international orders really start to be executed, again, should help that that margin momentum that we’ve been talking about.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Well, let’s move over to Pratt. It was great news, the resolution of the strike. But let’s talk I wanna talk a little bit about the GTF. If you could kind of update us on sort of where things stand with respect to the powdered metal issue, and we’re still seeing quite a few airplanes grounded. How is that coming along?

Chris Calio, Chairman and CEO, RTX Corporation: Yep. So as I said upfront, Doug, the technical and financial outlook that we put on the fleet management plan remains consistent. So again, our inspection findings are actually below where we had in the fleet management plan, which is great. It always starts with that and with the safety of the fleet. So that’s going better than we had anticipated.

The key to continuing to drive down AOGs, they have stabilized, they’re starting very slowly to come down, is MRO output. I’ve been very, very clear that that is the single biggest lever we have, getting engines into the hands of our customers to get their aircraft off the ground. If you think about MRO output in the first quarter on the GTF-eleven hundred, it was up 35% year over year. Last year in 2020%. So again, we’re continuing to see traction in MRO output.

We’ve made a ton of investment in our GTF aftermarket MRO network, both frat shops but also partner shops. And we’re seeing turnaround times come down. We’ve compressed it about 10%. Again, that’s on the back of some improvements on gates one and gate three. So think disassembly gate one, reassembly and test gate three.

It’s gate two, material accumulation, where we get our spare parts in from our internal and external suppliers. We need to continue to see improvement. Now we have seen improvement on things like structural castings, which had been a pain point for us, up 16% year over year in the first quarter. Powder metal forgings, which we do huge ramp last year, another 10% year over year growth in Q1. So starting to see that go in the right direction.

We need to continue to see material flow through our shops. When it does, our teams can compress turnaround time significantly on heavy work scopes. By the way, those numbers that I just gave you, the 30% last year to 35% this year, on heavier work scopes, You’re seeing those types of those output numbers on heavier shop visits, which is encouraging. The teams are continuing to learn out our processes and get better at taking time out.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: So I think the gate two point you’re making is so important here because it appears to us when we look at you can see these go through the shop in one hundred days if everything’s smooth. That’s right.

Chris Calio, Chairman and CEO, RTX Corporation: I mean, again And it’s the parts issue that And again, we’re not sitting back idly by waiting at the door for parts. We are in with our suppliers each and every day. Where are we having yield issues? What can we do to help from an engineering perspective? Setting up new and additional sources.

I’ll also tell you, repair development has been another focus for us. Continuing to drive parts that were scrapped before where you would need a new part, developing repairs to salvage that part, better from a turnaround time perspective and not having to go buy a new part, so better from a cost perspective. So these are the kinds of things that we continue to develop each and every quarter to help sort of drive output. We’ve got

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: to continue. Yeah. And I know as you were commenting, I mean, you’ve expanded your network, your MRO network significantly in 13 to 16 to 19 shops. But one of the things that I think has to be a challenge in there is you get someone new involved, and it takes a little while to get them up to speed to be able to do do a shop visit on these engines.

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. There there’s a learning curve for sure, Doug. But the people that we’re bringing into the network are MRO providers. So they know the processes. They know what’s required.

It’s just it’s learning this engine and what has to be done. But one of the really good things network that we have is that we all share information. It is not a proprietary type thing where, hey, if we develop something, we don’t share it with MTU. Or if MTU develops a way to turn the engine, a particular way to take time out of disassembly, they don’t share it with us. It’s actually completely open book, sharing with each other best practices.

And you’ve got some fantastic MRO providers in our network, not only the Pratch ops, but I mentioned NTU, Delta Tech ops, and others. And so to the extent that there are learnings in one place on how to do something, that gets blasted across the network to go drive down turn times.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: And and you mentioned the advantage certification. Yep. First, what what’s the sort of timeline to ramp up the advantage? Because you’re you’re still producing the Yep. Traditional Yep.

Version. Yep. How’s that mix go over time?

Chris Calio, Chairman and CEO, RTX Corporation: The way that we’ve decided to do this is sort of like a a two year cut over. Okay? And and we’re and we’re being sort of thoughtful about how we do this, making sure where we have sort of new parts of the bill of material that we can produce them with the yields that we need and make sure that we’re not in any way, shape or form impacting our ability to produce engines So we want to be thoughtful about this cutover. It’s going be about a two year process, again, because we want to make sure that we’ve got surety of supply to our customers and do this in a very thoughtful way.

At the same time, Doug, we’re actually going to be, again, as I said before, kitting the key parts of the durability improvements of the Advantage. You can get about 90% of the durability improvements from about 30 to 35 of the parts. So kitting those and then selling them as part of shop visits on the existing configuration today. So that’s a 2026 initiative.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: And and you and I have talked about some of the issues that you’ve had on the on the GTF. And so in terms of those durability issues, how does the Advantage what are some of the things that the Advantage delivers on should deliver on to address You’re

Chris Calio, Chairman and CEO, RTX Corporation: gonna have a state of the art hot section. Right? So as you know, the hot section drives a lot of the interval that the engine can survive, the time on wing between shop visits. So we’re gonna have a state of the art hot section, so that’s new cooling holes, new coatings. You’re going have, again, as we said before, additional cooling air going through the center of that engine.

That’s how we’re able to get the additional sort of thrust by opening up the LPC a little bit there. So you’re going to have LLPs, life limited parts, they’re going to be full life, chapter five, right out of the box. So all of those things go to a much longer interval and much longer time on wing, time between shop visits. Well, changing gears a little bit here. Airbus and Boeing both have been behind schedule basically in where they want to be in deliveries if we go back a few years.

What that’s meant one thing that’s meant has been a lot of life extension for V2500 powered aircraft.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: How are you looking at and that’s those life extensions, I think, are very attractive from a margin standpoint How are you looking at that trajectory today in terms of when the peak in shop visits is likely to occur? Yeah.

Chris Calio, Chairman and CEO, RTX Corporation: To your point, Doug, the V2500 has been a fantastic engine for us. Customers love that engine. You’re seeing the demand remain strong. To your point, retirements have been exceptionally low. And again, it remains a pretty young fleet by and large, about average age 15 years.

About 20% of that fleet hasn’t seen its first shop visit, about 40% hasn’t seen its second shop visit. So it’s got some runway in terms of aftermarket. We came into the year with a plan to do about 800 shop visits this year, and we’re largely tracking to that. And I think you’ll continue to see strong demand for that platform over the next several years. Will it start to gradually step down as new aircraft get delivered and that installed base gets larger?

It will. But again, as it gets a little bit older, I think you’ll start to see the content per shop visit grow as well. So the V2500 program is going to continue to be an aftermarket growth driver for Pratt for the foreseeable future.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Well, in addition to content, you should also see a pricing opportunity, think, as well. And I’m going to look at what Spares pricing looks like.

Chris Calio, Chairman and CEO, RTX Corporation: I think given the environment we’ve been operating in over the last five years, both Pratt and Collins, candidly, have been pretty aggressive on driving price increases to address the inflationary environment. Double digit growth in the catalog pricing annually the last several years. And those have stuck. And to your point, Doug, continue to see that as an opportunity.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Now switching over to F-thirty five. So F-thirty five production, assuming budgets are reasonable and export sales are fine, we’re looking at 156 production a When you look at your F135 revenues, how do you think of that? Because MRO, as the fleet grows, is clearly a very big thing for F-thirty five.

Chris Calio, Chairman and CEO, RTX Corporation: I can’t start any conversation on F-one hundred thirty five without starting with the performance of that engine, which has been remarkable. I think if you talk to any of our customers, any of the operators out there, they’ll log the performance of the engine from a technical perspective. Also been exceptionally reliable. If you just think about it in terms of unscheduled engine removals, 10x reduction versus fourth generation, continues to meet its mission capable rates. It’s been a fantastic platform.

To your point, I think the OE deliveries are going be relatively stable over the next few years. And I think sustainment’s going to grow as the installed base grows. It’ll be up about 10 in terms of shop visits this year on that, and that’s gonna continue to grow as the platform grows. And again, sustainment’s an important part of the Pratt sales and margin story. Well, then also on the defense side within PRAT, you’ve got another growth situation which is on B-twenty

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: one. How should we see that progressing? Is that going to be a material component of growth here for Pratt in the near term?

Chris Calio, Chairman and CEO, RTX Corporation: I don’t know how much I can say on B21. I know you had Kathy up here before. I’m sure she talked about it. Here’s what I’ll say about B21. We’re excited to be the engine on that on that platform and continue to work through, you know, the program successfully, meeting milestones, really pleased with how that’s going.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: And then on f 47, so that will be competition here, it looks like. How do you see yourselves positioned for that given the work you’ve already been doing related to the 01/1935 upgrade and so forth?

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. Again, I think today, Pratt has Powers is the only two sort of fifth gen fighters when you think about the f 35 and the f 22. But I think they’ve got a a fantastic legacy of being able to develop cutting edge technology to meet the demands of the next fighter jet generation that’s out there. We’re going to compete hard on that. We’ve continued to invest in the technologies, whether it be low observability, range, thrust, all the things that are going to be necessary to fulfill the mission that that aircraft is supposed to fulfill.

And again, feel good based upon our legacy that we’ll be in a good position there.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Well, speaking of investment there, if we look forward to the next single aisle, are you thinking about Pratt and engine innovation and investment there in terms of what comes next?

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. So first of all, I think, again, our near term priority, Doug, is the GTF advantage. Getting that certified and now ramping that up into production and getting that kit into the existing installed base today. That installed base, if you look at our backlog, that’s going to continue to grow over the next sort of several years. When you think about NGSA though, I think for us and we can debate when you think that ultimately sort of happens.

There’s varying sort of opinions on that. Purposes of this discussion, we’ll just say maybe mid next decade. That enables us to do continued sort of incremental investment to continue to evolve the GTF advantage architecture and find ways to make that even more efficient. So think composite fan blades, think enhanced combustors with ceramics matrix composites type parts in the hot section, which kind of help as you’re driving more hot air through the core to get the efficiency that you need. A next generation fan drive gear system as well potentially as your fan size to Higher gear ratios.

Higher gear ratios, exactly. All things that can go continue to drive efficiency into the existing architecture today. I’ve said this before, and I think it bears repeating, which is we’ve also got to think about the lessons learned from the existing new platforms today. And by that, I mean making sure that durability and time on wing are at the forefront as well. You can go continue to chase efficiency.

You can go continue to run your engines hotter, which is how you get that efficiency. But you’ve got to balance that against the time on wing and the durability of these engines. And there’s always a balance there between the cost savings from less fuel consumption versus increases in time on wing. So that’s something as we’re thinking about the next generation of engines, how do we, yes, drive efficiency because that’s what you need, that’s what the market needs, that’s what our customer needs, but balancing that against, again, durability and time on wing. And as you think even further sort of beyond that, and I bring Collins into this as well, look, it’s kind of the electric architecture.

Collins obviously has a ton of experience in that regard. How will that sort of move over and to make the engines a little bit more electric? You’re gonna see that, I think, come into when you can at a portfolio sooner rather than later.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: I Collins has certainly been a huge player on the 87 systems, which is the electric. And that’s what you’re saying,

Chris Calio, Chairman and CEO, RTX Corporation: that kind of capability. That kind of integration with Pratt. So think of an electric architecture, think of an integrated propulsion system within a cell business at Collins and Pratt. Again, driving additional efficiencies sort of going forward, balancing it, as I said before, the durability and time on wing that our customers need. At the end of the day, availability of their engines is the number one thing on their mind.

We’ve got to keep that at the forefront of our design decisions.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: I know customers who would gladly give up a little fuel burn for better durability. Exactly. Yeah. If if we switch over to to Collins, you know, one one area that has clearly held you back on the top line at least has been the slow progress in production ramp at Boeing, both on the MAX and on the seven eighty seven. Can you comment on how you’re look you know, we’re now starting to see things improve there.

Kelly will be here tomorrow. But how are you looking at the Collins ramp, revenue ramp now when you tie in sort of where Boeing stands?

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. I think we’re seeing that improvement in stability as well, Doug, which fantastic. Again, Collins is capacitized for much higher rates than we’re seeing today. So as those volumes continue to grow, there’ll be some nice absorption tailwind that they’ll continue to see. And so for us, it’s making sure that we’re in the right position to meet the ramp both on July and July that Boeing’s thinking about.

Making sure that our supply chain is healthy, making sure that any bottlenecks we have are out of the way, making sure that we’ve got the right level of inventory to support that ramp. So that’s our focus. But as more continues to get delivered, more continues to go through our shops, it’ll it’ll be better from a cost perspective for us. A few years ago, you know, you

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: were looking at getting Collins margins up into the 19% levels. And there seem to be two things that were involved with that. One is to be able to have the operating leverage on the OE side. So you are utilizing that capacity, but at the same time being able to grow the aftermarket. And a lot of the things that I know and people had said before at Collins was if you can get that aftermarket growth above OE, that’s very helpful as well.

So you’ve kind of got two things going on here.

Chris Calio, Chairman and CEO, RTX Corporation: It does. If you just sort of step back and look at the Collins sort of business today, and I mentioned this upfront, it’s got fantastic positions on the highest growth platforms, A320, seven thirty seven MAX. And when you think about their installed base today, it’s about $170,000,000,000 worth of equipment flying around today. Over $100,000,000,000 of that, which is out of warranty, meaning it’s generating meaningful aftermarket dollars, and that’s gonna continue to grow. So they’ve got a fantastic base from which to grow the aftermarket, Doug.

That’s a big part of continuing to drive those margins up. Frankly, we think they can go above pre COVID levels. And again, when you think of that installed base, that will be a big reason why. You mentioned the absorption benefits on OE. Again, we’re capacitized for higher levels of delivery.

So as that continues to rise, that will provide some tailwind. And I think the third component for Collins is a structural cost reduction story. As you know, Collins has been the creation of a number of acquisitions over the years. We continue to drive structural cost reduction in that business, and it’s starting to bear fruit. You saw about 100 basis points of growth last year, another 130 basis points here in the first quarter on the back of some pretty large restructuring that it’s done.

So it’s continuing to drive out waste, consolidate systems, reduce spans and layers. Again, that’ll help drive the margin as well.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: One area that’s been challenging and there has been interiors. Can you talk about how that’s progressing? How should we see that ultimately play out? And it’s not just your interiors business, it’s across the industry.

Chris Calio, Chairman and CEO, RTX Corporation: Well, look, I think the Collins interiors business is a good business. And if you think about the number of people out there that can do high end, high margin seating, the very small group of which Collins is a part. I will tell you that the delays in sort of wide body have had a bit of an impact on that portfolio, as have some, I would say, maybe two bespoke contracts that we took on that we are getting through some very tough certification requirements, but feel like we’re getting sort of better there. This business has been in that double digit raw zip code since 2023. As we get a little bit more discipline on sales and contracting and making sure that we if we’re going to do something that’s bespoke that we get the right return for it, I think you’ll start to see those margins continue to grow in that business.

Again, that’ll be a tailwind to Collins overall. Now if we sort of

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: put all this together, you’ve made changes in the portfolio over time. You’ve done some divestitures, particularly on the Raytheon side. Can you talk about how you’re looking at the portfolio today? Are you where you want to be in terms of things that you consider core?

Chris Calio, Chairman and CEO, RTX Corporation: Well, to your point, Doug, we look at the collection of businesses that we’ve got every year and say, do they meet the sort of criteria that we want to have in the portfolio? Again, you’ve got to be thoughtful about how you allocate investment. And you want to make sure that the businesses in the portfolio have differentiating technology, generally speaking, have long aftermarket tails and they’re on the right platforms, growing platforms. And so there are times we’ve looked around and done some pruning. Some very good businesses, but perhaps didn’t meet that criteria and they’re better owned by other folks.

But I would put our approach on this front. I describe it as pruning. We really think that both Pratt and Collins and of course Raytheon have fantastic products and product portfolios. And they’re on the right platforms. And so we’re looking at places where we may not want to invest, it may not have runway in terms of margin expansion or technology differentiation, and we’ll look to sort of move those businesses out.

But as a general matter, we really love the portfolio and how it’s positioned. And when you’re looking at your free cash flow guidance, like 7,000,000,000

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: to $7,500,000,000 for this year, can you tell us at all about how you’re sort of looking at that over time evolving beyond 2025?

Chris Calio, Chairman and CEO, RTX Corporation: Yeah. We talk about this a lot internally. The fundamentals of this business, the customer base, the business model should support 90% to 100% of free cash flow as a percentage of adjusted net income. That’s what this business should be. Now I think we’ve got to get our get OE on a more sustainable, stable path.

I think the aftermarket will continue to be very strong. And I think, again, you’ll start to see the parts of the Raytheon backlog that, again, are in our core start to play through. And when those things happen, we continue to take our inventory down, get the right inventory positions, we should be able to get to those levels that I just articulated, which again allows us to continue to pay the dividend that we’ve been accustomed to paying, getting our debt levels down and maybe revisiting or restarting buybacks at some point, and then just being opportunistic about bolt ons to the portfolio. So I guess just to wrap up, when you look forward over the next twelve to twenty four months, how are you going be focusing your time? Frankly, Doug, it’s no different than I said upfront.

It’s execution, given our February backlog and the demands of our customers. It’s innovation. We’re going to continue to invest at that $7,500,000,000 level to make sure that we’ve got the right products in the portfolio at the right time. And then to tie it all up, it’s the talent. It’s making sure that we’ve got the talent across each of our businesses and we’re sharing talent to be able to both execute and innovate.

The lion’s share of my time and leadership’s time, execution, innovation, and the talent to make it happen.

Doug Carnett, Bernstein’s Senior Global Aerospace and Defense Analyst, Bernstein: Well, good. Well, Chris, thank you very much for joining us today. Yeah.

Chris Calio, Chairman and CEO, RTX Corporation: Thank you, Doug. Appreciate it.

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