RTX (RTX) Annotations

RI&S

Pratt & Whitney

Collins

And lastly, we are taking a number of actions to deal with the elevated levels of inflation that everyone is experiencing. For perspective, we are expecting roughly $2 billion of labor and material inflation in 2023. And we are targeting to more than offset this headwind through higher pricing and aggressive cost reduction actions across all RTX.

On the defense side, our backlog is expected to continue to grow given the heightened and increasingly complex threat environment. In the U.S., we continue to see strong bipartisan support as evidenced by the adoption of the Defense Authorization Bill and the Omnibus Appropriations Bill with a budget of $858 billion, which is up about 10% from 2022. In overseas, the EU is targeting a €70 billion increase in defense spending over the next three years and Japan will increase their defense budget by 26% this year.

We are, therefore, expecting commercial aftermarket revenue growth across our aerospace businesses to approach 20% in 2023

In Commercial Aerospace, we expect global air traffic to fully recover to 2019 levels as we exit 2023 with continued strength in the U.S. and Europe. This is pretty consistent from what we're all hearing from the airlines. And like everyone else, we're keeping a close eye on China, which historically has represented about 14% of global air traffic. Our working assumption today is that China's lifting of COVID restrictions continues to be manageable and its traffic levels will remain robust.

From the Stinger, Javelin and Excalibur to NASAMS and now Patriot air and missile defense system, we remain in lockstep with the U.S. government to ensure we can continue to support our allies.

On the cost reduction front, we achieved an incremental $105 million of gross merger cost synergies in the quarter, bringing our merger to date total to $1.3 billion of our $1.5 billion commitment in the 4 years following the merger.

And how should we think about where you are, specifically in the V2500 sort of shop visit recovery? Because I know that's, obviously, a big part of the story this year and next year. And how much growth did you see in the shop visits this year? And how do we think about that in the next year?

f you will, the step down in that profit is higher commercial engine shipments, which, as we've been talking about, have been kind of pushed to the back end of the year. So that's really the major driver of what you see in terms of the walk from Q3 to Q4 on op profit. As we look out a little further, I'm not going to get into specific numbers, but we certainly expect OE deliveries in the large engine business to step up next year aligned with our customer requirements. And I do expect we'll see some movement towards the margin goals that Pratt put out there 1.5 years ago. There's a long ways to go here, but a lot of that will be fueled by a growing aftermarket, the recovery on the V2500s. We've also seen considerable strength in the PW2000s and 4000s. Recall that about 40% of that fleet powers cargo aircraft.

Long story short, I do expect free cash flow to grow organically. We'll also -- we're anticipating a refund of the tax payments that we're making this year. Again, assuming that the -- there is ultimately a repeal of the R&D capitalization provision.

That's -- we had hoped to be about 10 points higher than that. We -- by the end of the year, we hope to be at 80%. We're not going to get there. I think if we're lucky, we'll get to about a 70% kit fill rate by the end of the year, which is the reason why we had to take RMD sales guidance dow

And so we've already seen substantial Collins margin expansion as we've gone through the first 9 months of the year. And I expect as the wide-body international traffic recovers, we will continue to see a broadening of the margins at Collins. I'm pretty pleased with the trajectory that they're on. They've been doing a great job controlling costs as well, and they'll do more of that here in the fourth quarter.

We've been adversely affected to your point on absorption as a result of that slowdown and the throughput that's coming through in the rates, which is causing that productivity to be muted from what we're used to seeing. I do expect as the volume starts to fill up the factories when we deliver that $67 billion of defense backlog, we will start to see improvements in productivity as well.

defense side, we will see some growth. It won't be as robust as we would like. I would tell you, it goes back to those challenges that we talked about. Really, it's about labor availability and some of the supply chain challenges. But we should start to -- again, we saw stabilization here in the third quarter in the supply chain. We've gotten a little bit better in terms of bringing material in, but we've got a long way to go

On labor availability, it's a challenge. Everybody sees it, especially in the supply chain. And I think what's interesting for -- at RTX is we have hired 27,000 people in '22. That's about 3,000 a month since the beginning of the year. Our total headcount today is over 180,000. The challenge, though, is we would need about 10,000 more people.

RMD sales was $3.7 billion, down 6% on an adjusted basis and down 5% organically, primarily driven by continuing delays in material availability and lower volume in land, warfare and Air Defense and Naval Power programs. This was partially offset by higher volume on strategic missile defense programs, including Next-Generation Interceptor development. Adjusted operating profit of $116 million was $74 million lower than prior year driven by unfavorable program mix and lower volume, primarily in Land Warfare and Air Defense programs as well as lower net program efficiencies resulted from continued supply chain and labor constraints. RMD's bookings in the quarter were approximately $5.4 billion, resulting in a book-to-bill of 1.5 and backlog of $32 billion. For the full year, we now expect RMD's book-to-bill to be at or better than 1.2. As a result of ongoing material availability delays and the associated productivity impacts and cost reduction actions, we now expect RMD sales to be down low single digits versus our prior outlook of up slightly versus 2021. And as a result of the lower sales outlook and lower program efficiencies, we are reducing RMD's adjusted operating profit to a new range of down $300 million to down $250 million from the prior range of down $50 million to flat versus 2021.

RIS full year outlook. A result of ongoing material availability delays and the associated productivity impacts as well as anticipated cost reduction actions and award delays, we are reducing RIS sales to the low end of our prior outlook. And now expect RIS sales to be down mid-single digit from our prior outlook of down mid-single digit to down low single digits on a reported basis versus prior year. On an organic basis, we now expect RIS' sales to be down slightly versus our prior outlook of about flat. And as a result of lower sales outlook and program efficiencies, we are reducing RIS' adjusted operating profit to a new range of down $125 million to down $75 million from a prior range of down $50 million to flat versus prior year.

nd we're increasing Pratt's adjusted operating profit to a new range of up $650 million to $700 million from our prior range of up $550 million to $650 million versus 2021, reflecting the strength of the aerospace recovery.