RTX (RTX) Annotations

January to do that. But as I think about the Collins business, there are a few things we're watching. Notably, the OE levels, I think that's an important ingredient. And as we get through the fourth quarter here, we'll have a lot more clarity on what that's going to look like. As we've talked about for a long time now, the Collins business is capacitized to deliver at volumes that are much higher than where we are today. And frankly, in some cases, much higher than where we were in 2020 and certainly in 2019. So absorption is a really important part of the Collins OE story, and we need to see the volumes increase to get better unit cost on the deliveries.

So those are the kinds of things we're watching, but I would say that there is a lot of good positive productivity embedded in the business. We're working through the backlog where the pricing was not aligned with the cost inflation that we've experienced over the last few years. and we're seeing the international mix improve. I think longer term, we'll start to see LTAMS and other large franchises come into play as well, and those will give us more opportunities for productivity. So bottom line, hard to put a number on it, but we're going to see that margin improvement. We're seeing it this year. We expect to see more of that next year. And I think this business has turned the corner in terms of the productivity steps forward that we're all hoping for.

I think it remains to be seen about longer term how this plays out. But clearly, the older platforms are continuing to fly. We've seen very low levels of retirements and that supports continued aftermarket strength that we're seeing at Collins, and I expect that to continue into next year as well.

The backlog programs that have been causing consternation in the supply chain aberrations are diminishing now, and we're replenishing that backlog with new bookings that are priced at current prices with the current lead times kind of embedded in them.

And as you think about the margin improvement in the quarter, I would attribute over 100 basis points of that to the mix alone. And the good news there as well as we're seeing year-over-year improvement in productivity that Nathan highlighted,

Miles. So look, the story at Raytheon right now is the demand is incredibly strong, right? I mean if you think about the $16.6 billion of bookings this quarter, it's fantastic. The rolling 12-month book-to-bill is almost 1.5 and they've got a $60 billion backlog today. And as you noted, the international piece of this is up over 10 points, about 44% of the total backlog. Now that's going to take some time to work through. That's not going to be something that's going to materialize in large measure in 2025. We've got to continue to work through the backlog that we have and that's going to take some time

RTX is extremely well positioned for growth. We've got an installed base in commercial aerospace that has a long aftermarket tail and leading defense franchises that are seeing record global demand.

we continue to expect Raytheon sales to grow mid-single digits organically for the year. And due to the volume drop-through and favorable mix you've seen so far this year, we now expect Raytheon's operating profit to grow between $200 million and $250 million versus 2023, up from our prior range of between $125 million and $200 million and this includes the impact of the cybersecurity divestiture.

We continue to expect sales to grow mid-teens on an adjusted and organic basis, most likely towards the higher end of this range, driven by stronger military volume and the favorable mix in large commercial engines that we've seen so far this year. And we are updating the outlook for adjusted operating profit to grow between $475 million and $525 million versus 2023, up from our prior range of between $400 million and $475 million.

Looking ahead, on a full year basis, we continue to expect Collins sales to grow high single digits on both an adjusted and organic basis, though likely at the low end of this range. We expect a lower commercial OE volume that Neil mentioned earlier to be partially offset by higher defense volume. And we are updating the outlook for operating profit to grow between $575 million and $650 million versus 2023 compared to our prior range of between $650 million and $725 million, as we incorporate the impact of the lower OE volume and associated absorption and disruption impacts.

And overall, with our current backlog and the expectation of continued global demand across our end markets, we expect another year of solid organic sales growth and segment margin expansion as well as significant free cash flow generation

improved segment profit outlook that Pratt and Raytheon more than offset a change at Collins, a

strength across our other sales channels, including commercial aftermarket, Pratt Original Equipment and Defense is expected to more than offset these impacts.

Specific to commercial OE production, based on our latest assessment of production rates, we now expect OE sales at the RTX level to grow roughly 10% versus prior year towards the low end of our prior expectation. And at Collins specifically, commercial OE is now expected to be flat for the year, and that's down from our prior expectation of mid-single-digit growth. This outlook assumes that we're able to restart some level of shipments to Boeing in the fourth quarter, and we see no change to the long-term structural demand for our OE products

commercial OE was flat as favorable mix at Pratt was offset by lower narrow-body volume at Collins

Defense sales were up 10% organically as we continue to execute on our backlog

By sales channel, growth was led by commercial aftermarket, which was up 11%, and that's on top of 25% growth last year as global air travel continues to grow.

And first and foremost is our GTF fleet management plan. We remain on track, and our financial and operational outlook remains consistent with our prior comments. At the end of Q3, our inspections of powdered metal parts continue to progress according to plan. The associated fallout rate remains below the 1% expectation and the findings are consistent with the underlying assumptions of our fleet management plan. At our MRO facilities, throughput of engines is improving. PW1100 output increased 10% sequentially and 27% on a year-over-year basis. The team is utilizing core practices to optimize the inspection sequence and implement concurrent assembly operations in our MRO facilities. We've now reached support agreements with 28 of our customers, covering roughly 75% of the impacted PW1100 fleet. The terms continue to remain in line with our assumptions. We're also leveraging our core operating system and Industry 4.0 initiatives across the company to drive continuous performance improvements while expanding capacity.

At Raytheon, we booked a record $16.6 billion of awards in the quarter, driven by the continued global demand for integrated air and missile defense capabilities with 45% of these bookings for international customers. Key awards included $3 billion associated with our Patriot and GMT products, $1.3 billion for SM-3 and $1.2 billion for AMRAAM. Importantly, we booked $1.9 billion for LTAMs, the first domestic and international production order for our next-generation 360-degree air and missile defense system.

We saw incredible growth in our backlog, which ended the quarter at a record $221 billion with a book-to-bill of 1.8 and included $25 billion of defense and $11 billion of commercial orders.