RTX Aktie

Hi, good morning, everyone. I'm Kristine Liwag, Morgan Stanley's aerospace and defense analyst. So very excited to host our next panel. So we have RTX, Chris Calio, who is Chairman, President and CEO. Welcome, Chris.

Good morning Kristine. Great to be here.

Great. So to get started, we'll start with our recent disclosures, and Chris will read some disclosures as well, and we'll dive right in. So for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representatives. So I know you've got disclosures too.

I'll keep it I'll keep it simple. I'll be making some forward-looking statements this morning. Of course, those come with certain risks and uncertainties, so please consult our SEC filings for those. And then, Kristine, maybe I'll just make some brief opening remarks, just sort of frame up what we're going to talk about today.

Wonderful. Go ahead.

Great. Well, good morning, everybody. Here at RTX, we have very strong conviction that we're exceptionally well positioned in the aerospace and defense landscape with our 3 industry-leading businesses: Pratt & Whitney, Collins and Raytheon. If you think about Pratt & Whitney, it's got the best small engine company in Pratt & Whitney Canada, over 70,000 engines in service, #1 and #2 in virtually all of its subsegments. Our military engine business is sole sourced on some of the highest priority platforms in defense today. I think F-35, B-21 -- and of course, we've got the GTF, 8,000 engines in service and a long tail of deliveries ahead of us.

At Collins, you've got a portfolio that is #1 or #2 in 70% of its product segments. It's got 2x the content on new platforms than it did on legacy platforms. And it's got about $105 billion of out-of-warranty equipment flying around today. So if you think of Pratt and Collins, not only are they riding the wave of the OE and aircraft demand that's out there today, everything they're delivering is going to have a very long and lucrative aftermarket tail to it.

And then, of course, there's Raytheon, which has defense franchises across the company, which is critical to defending the U.S. and our allies. You're reading about it every day, protecting people and critical infrastructure. It's got 35 systems in operation today in 50 countries and a significant backlog. I think if you look at the end of Q2, the 12-month rolling back book-to-bill is 1.77. So incredible demand for the product. And we've just recently signed up the [ UCA ] for our Tomahawk. We'll be adding that to our backlog here in the third quarter.

And so when you think about that product portfolio, it is just very, very well positioned to take advantage of the demand we're seeing in aerospace and defense. And that's evidenced by the $289 billion backlog that we've got across RTX. That's up 22% year-over-year. So just incredible demand. It is real and it is enduring. I'll tell you, our focus, of course, is on executing on this backlog, and we're seeing real momentum in our execution and our operational focus.

If you think through the first half of the year, 13% organic sales growth, 21% year-over-year adjusted EPS growth. And we generated about $4 billion in free cash flow. So really good operational progress here in the first half of the year. And of course, we're in a long-cycle business. And so while execution day in, day out of that backlog is critical to our customers and to our results, we've got to continue to look over the horizon and make sure that we've got the right technologies to fill our pipeline as we move forward and that we're making sure that we're investing in the newest tools and systems to design and manufacture our products.

And so this year, we'll invest about $10.5 billion in company and customer-funded E&D and CapEx to make sure that we are staying very healthy in terms of the product pipeline, delivering on our backlog today and making sure that we stay competitive well into the future. Last thing I would just say, Kristine, is no change to our full year outlook. We still remain on track. With that said, we're starting to see some IEPA refunds start to flow through here in the third quarter and into the fourth quarter. And so we'll provide an update on that as we kind of move forward.

So with that, I'll put it back in your capable hands.

Chris, I mean, your opening statement just reminded us of the breadth of your portfolio. I mean, if you guys are shopping for a biz jet, the Gulfstream G600 is powered by Pratt & Whitney. I don't...

Commission today. Yes. You're absolutely right.

I'll take 1%. So with that, I mean, Chris, you've been CEO now for 2.5 years. When you think about your tenure in your role, what has been the most meaningful progress RTX has accomplished in this period? Where do you see the most opportunities ahead? And how does that shape where you're spending your time?

Yes. Thanks, Kristine. Again, I'll go back to the demand and to the backlog. The story from our customers, whether it be commercial or defense, is we need more and we need it faster. So it's the operational focus on executing on the backlog. And again, we're seeing progress there. If you just look at some of our major programs and initiatives, you start to see that play through.

First half of the year, GTF MRO up 30% year-over-year, a critical enabler to continuing to address the fleet issues on the GTF. At Raytheon, our critical munitions have doubled in terms of their output in the first half of the year. Again, the U.S. government needs more they need it faster. Our allies need more and they need it faster, and we're continuing to deliver on that commitment. And then if you look at Collins, 20% sales growth on OE in the first half of the year, again, keeping up with the ramp in front of us from the Boeings and the Airbuses. They all want to continue to take up rate and Collins is right there to continue to support them.

So again, first and foremost, it's about executing on that backlog. And then Kristine, as we sort of look ahead, it goes back to we're a long-cycle business, and we've got to make sure that we are continuing to look over the horizon. Those are things like making sure we're executing on our technology road map, both defense and commercial to stay competitive. We have a very, very robust technology road map that we're executing each and every day, again, sharing technologies across the companies.

When I think about the progress we've made as a company in terms of the, I'll call it, the cost and supply chain synergies, those have been pretty significant. I think we've done a really good job of taking cost out and really understanding the synergies between the 3 businesses, things like our supply chain and our core operating system continuing to be deployed across our businesses, central services and bringing those costs down.

I will tell you the place where we're really starting to see momentum is the technology sharing and the possibilities across our 3 businesses. How do we make sure that the technologies that we are developing in one have application across. We're seeing it in things like hybrid electric. We're seeing it in areas like high-temperature materials between Collins and Raytheon. So again, continuing to identify and execute on those, what I would call technology synergies continues to be top of mind because we've got to stay competitive in this long-cycle business. And even if it's long cycle, things are moving very quickly, as you know, and we want to make sure we're right there.

Chris, you highlighted the strength of the first half of the year. You also increased your guidance. How do we think about the balance of 2026? And how should we look into 2027 with this strong backlog? What are you watching for? And what's the trajectory like?

Yes. So when you think 2026, and we're sitting here, smack in the middle of September, I would just look at the strength in our 3 main channels, right, commercial aftermarket, commercial OE and defense. On the commercial aftermarket side, obviously, it's a pretty dynamic environment right now, but we continue to see strong orders. Customer buying behavior hasn't changed significantly. And you're hearing some of the airlines talk about the continued strength they see in forward bookings. So commercial aftermarket continues to be pretty resilient.

Consumer, obviously hanging in there. On commercial OE, well, as I said upfront, Boeing, Airbus, they want to continue to raise rates. They've got a 15,000 aircraft backlog today that they've got to execute. The demand is there for new, more fuel-efficient aircraft. And so for us, we're just, again, riding that wave of the higher OE and making sure that we can keep up with that demand. And then on the defense side, again, I'll say it again, it's more and faster. Integrated air and missile defense, not only here in the U.S. but internationally, is top of mind for every country around the world.

And of course, we play a role in virtually every single layer of integrated air and missile defense. And so our backlog is strong there. We continue to bring in more orders internationally. We've got our 5 framework agreements that I talked about with the U.S. government. We've got one that's moved into [ UCA ]. We're now executing on that, Tomahawk, long-term contract. We're working through the others.

So again, it's the demand picture that I think really gives us the confidence here as we head into '26 or towards the end of '26. I won't get too into the details, Kristine, on '27 other than to say, I think the fundamentals that I've spent sort of first 10 minutes here talking about have us confident that we're going to continue to have organic sales growth, margin expansion and robust free cash flow generation.

Wonderful. And Chris, you've definitely touched on demand. There's no demand problem for aerospace and defense. But converting that demand into revenue has been a pain point for the industry with constrained supply. What are you watching for to be able to convert some of that backlog sooner and then also taking a step back with the robust demand environment you painted, where do you think we are in the cycle?

Yes. Maybe I'll start with the cycle first, Kristine, because we are -- we RTX are at the forefront of what we believe are 2 really powerful macroeconomic forces. The first one is the continued need and desire for air travel. As I mentioned before, you've got 15,000 aircraft in backlog today with Boeing and the Airbuses. There's a projection that you're going to need over 20,000 to 30,000 new aircraft over the next decade, 1.5 decades, which is more than the actual installed base today.

So that demand for air travel for new and more fuel-efficient aircraft, that continues unabated. The second piece, of course, would be the acknowledgment that I think everybody around the world has that the growing geopolitical threats are only strengthening and that every country needs to make sure that it has what it needs from a defense perspective and to increase defense spending to meet the threats that they're facing. I think that, again, the whole paradigm has sort of shifted in national and global defense.

I think there was a point in time where people were relying on others perhaps for their defense. And I think those days are now behind us. I think everybody realizes they need to continue to drive defense spending and make sure they have what they need to address the growing threats that are going on in the U.S. today. So those 2 macroeconomic forces are not going to abate. And again, as I said upfront, we've got a product portfolio that sits right in the middle of both of those, and we'll continue to take advantage of those.

And so you're right, Kristine, that sort of portends like, okay, Chris, how are you guys going to go and execute on all of this? And I will tell you, we've spent a significant amount of time investing in our shops, making sure that we not only have our core operating system deployed around the company, which is our version of sort of lean operation and problem solving. And if you go into any one of our shops today, you'll just -- you'll see the language, you'll see the metrics and you'll see the dedication to that kind of lean operation.

As we said before, sometimes it's creativity over capital. Capital has a long lead time. And in many cases, we can go into our factories and lean them out and get more productivity out of what we have today as we're trying to add capacity. So very much about our core operating system and continuing to drive that. The second is continuing to invest in automation in our shops, making sure that we've got the best of Factory 4.0. We have so many connected machines today. There's so much data coming off our machines. How do we make sure we get out ahead of issues we may have, see them well in advance? How do we get visibility into our supply chain, all of those elements in terms of automation in Factory 4.0.

I know, Kristine, you had the opportunity to go see what we're doing in our Singapore GTF MRO shop and all of the automation that we're bringing to bear there to take turn time out and to improve quality and yield. We're doing that across all of our operations. And of course, the last piece is just we've got to make sure the supply chain is there. The supply chain is healthy and that they are investing.

I think there's a period of time coming in and out of COVID where there were comments around is the industry giving the right demand signals? Are people really prepared for the increase in travel and demand. I will tell you, we are exceptionally clear with our supply chain about what is needed, about the demand ahead. The demand that I'm talking to you here about, they all know about. They have visibility into that as well. And so we've got to make sure they're continuing to invest not only in capacity but in people and in all the other things we need to meet this demand. It truly is a 1% problem, but it's one that we are exceptionally focused on and we get the entire supply chain moving with us.

I mean I think, Chris, the automation you guys put into geared turbofan MRO is underappreciated. I did get to name a robot so in Singapore. But I've never seen that level of automation in an MRO facility. So kudos to the investments you guys are making.

Yes. And by the way, when you think of our GTF MRO network, one of the benefits of it is we own some of the shops, some of the shops are third party, and we're all sharing best practices. I was at an MTU shop in MRO shop in Hanover 2 weeks ago, and they're taking the lessons learned from Singapore and bringing it to that shop. And then vice versa, there are things that Hanover has developed that we're proliferating across other GTF shops in the network. So there's this constant learning, this constant investment because the GTF MRO demands in the aftermarket are going to continue to grow in importance.

Great. And let's pivot to defense. You talked about Raytheon's role in the integrated missile defense system. The U.S. government is prioritizing integrated air missile defense and also Golden dome. Can you talk about where you live in the architecture? Because I think this is also an area where the market may underappreciate your exposure. And sorry, I'll add a second question to that. Half your backlog is international versus U.S. How do you think the international market evolves as they want to in-source, localize, kind of support their national champions? Where do you fit in that ecosystem as well?

Yes. So we'll start with the first question on integrated air and missile defense. And in our view, we sit right at the heart of that. If you just think about Raytheon's sort of sales composition, 70% of it are sensors and effectors. So we talk a lot about the munitions and the munitions ramp and munitions demand that's out there and the replenishment opportunities, all of which are absolutely true.

I think what's a little bit underappreciated is the sensing and radar capability that we have, and that's going to continue to grow as well. So if you think of integrated air and missile defense at every single layer, we have a critical set of products and solutions at each one of those layers. You start sort of in the innermost layer. We've got our Coyote counter UAS system, which has been incredibly effective in the field.

It's got over 600 defeats in theater, valued very heavily by the Army and the Navy in terms of addressing the growing UAS threat that's out there. We're in development on a non-kinetic version as well that can go out. It's got a high-powered microwave capability that can address drone swarms. It can come back, it can be repowered and redeployed. So again, intermost layer, a counter UAS system that is critical to the Army and to the Navy.

At the more intermediate level, you've got our NASAM system, which we do in concert with Kongsberg, by the way, again, a strong European supplier, along with the AIM-9X and AMRAAM effectors. A little bit further out, you've got Patriot. Patriot's got 19 partner countries. It's got hundreds of batteries all over the world. It sits at the heart, frankly, of integrated air and missile defense around the world, along with our GEM-T effector, which we are ramping up as well.

Of course, we've got our LTAMDS radar right on the heels of Patriot, which is our new 360-degree radar that's also going to be in high demand.

We move a little bit farther out, we've got things like our TP2, our SPY-6 naval radar and the standard missile family, again, that deals with that level in that domain. And then, of course, we're all hearing about how the space domain is growing in importance. And I will tell you, a lot of what we do there is classified, but we've got very, very strong capabilities in things like mission control, sensing and effects that are going to continue to grow in importance. Again, we don't talk about it a lot because it's classified, but know that our core capabilities can also be deployed in that domain as well.

So again, high-level proven capabilities at each level of the integrated air and missile defense architecture. Maybe to your question now on global demand and some of the dynamics that are happening there. As you pointed out, about 48% of Raytheon's backlog is international. That's up 4 points from just a year ago. And I know there's a narrative out there around international sovereignty and are folks going to continue to need U.S. weapons and systems. And I think the answer is unequivocally yes. And for us, that starts with the very strong installed base that we have internationally today.

If you just think about Europe for a minute, we've got 9 countries that have Patriot, 7 that have NASAMS, 20 that use our effectors. So an exceptionally strong installed base there. Same in the MENA region. We've got about 50 Patriot batteries there, 25 NASAMS, a suite of effectors that are being used. And so again, it starts with those things are already in place. They're already highly effective. They are protecting people and infrastructure every single day, and they are integrated.

So again, a very strong installed base to work from. And then to your point, we've got very strong partnerships and a track record of co-production agreements throughout the world. We just think, again, back to Europe for a minute. We've got our deal with Kongsberg on NASAMS, MBDA on [ Gen2 ]. We've got 9 Polish suppliers on our F135 program, continuing to find Polish suppliers in our Patriot business.

We just recently announced that we're out doing a study on additional suppliers in Europe for AMRAAM and for Stinger. And just RTX-Y, we've got 20,000 employees in Europe. So again, we're making sure that we are strengthening our supply chain by moving internationally and strengthening the ties with our customers by making sure we have a presence in these in these areas. In MENA, I'll also note, Kristine, that we've got a recently announced co-production agreement on our Coyote counter UAS system with the UAE. So again, it's making sure that we can continue to strengthen the supply base to feed both the domestic and international markets, but it's also about strengthening those relationships in country.

Super helpful, Chris. And I think diving into the missile opportunity. Of the 5 framework agreements covering Tomahawk, AMRAAM and standard missile family, you said in the 2Q earnings call that this opportunity is not in backlog yet. But at the same time, I think just a few weeks ago, August 17, the Department of War now awarded Raytheon a 7-year $23 billion contract that supports more than 1,000 Tomahawk missiles annually. I guess -- can we take a step back, how meaningful are these agreements? Because we're seeing the demand signals and you're starting to see these materialize in contracts that are multiyear in nature. What do these kinds of agreements allow you to do regarding the ability to ramp up CapEx, how you do business differently, how you procure? And how could these agreements change how AMRAAM and standard missiles also get procured?

Yes. These are very meaningful, Kristine. They're very meaningful to us, and they're very meaningful to the Department of War. To your point, our $289 billion backlog that I cited a couple of times here this morning does not include the 5 framework agreements. It does not include the recently executed $23 billion [ UCA ] on Tomahawk. So across these 5 critical munitions that we have under a framework agreement, you're going to see the volumes rise anywhere from 2 to 4x. And we've been really proud to be a part of the transformation that the Department of War has been sort of infusing into the defense industrial base.

As many of you know, the history of defense procurement has been annual in nature. Every year, there's kind of a debate over the budget. There's not necessarily an opportunity to look sort of further out and plan further out. And the department to its credit has said, we think that's led to some atrophy in the defense industrial base, and we need to take it up a notch and make sure that we've got the strongest defense industrial base in the world. In order to do that, we've got to give people long-term contracts so that they can invest.

Now from an RTX perspective, we clearly have the balance sheet to invest. And we've been doing that historically, whether it be upgrading what we do in Andover, Massachusetts for Patriot or for our other key effectors in Huntsville. We're always continuing to invest and upgrade our facilities. But keep in mind that about half of our supply chain is a medium or small business. And so for them, investing and hiring and buying that capital on a long-term basis, sometimes can be very difficult if they don't have the orders in hand.

In many cases, they're just unwilling to be able to do that, and I certainly understand. And so with these 7-year or long-term agreements, you can go to your key suppliers. You can go to these small suppliers and say, okay, we've got now the visibility into guaranteed demand over the next 7 years. So let's go move out on the plant, the property and the equipment and the labor that's going to be required to take these rates up to where we need to be.

And so it's -- I think the long-term nature of these framework agreements is incredibly important, not only in helping us drive productivity and cost reduction in our facilities, but again, to get those suppliers to be able to lean forward and do what we need to do in order so we can all get to the levels that we need to for the department.

Super helpful, Chris. And I think Raytheon's lead in terms of these high-performing capabilities are not in dispute. But some of the topics that the Department of War has been focused on are mass affordable weapon systems. So first, how do you think about the evolution of the growth in these cheaper weapon systems that are provided by the newer defense entrants versus your traditional very high-end capability set? And then how do you think about potentially balancing investing and creating new solutions that are more affordable versus potentially partnering with these new entrants?

First and foremost, Kristine, I will tell you that our products are still going to be in very, very high demand. These are high-performance, battle-proven, successful systems that can sense, track and defeat ever-growing sophisticated threats from long distances within very short windows. That -- those types of threats are not abating at all, and you're going to continue to need the systems that we provide. And again, I'll just point to the framework agreements as evidence of that.

I'll point to the international demand for our integrated air and missile defense systems. I'll point to the potential of Golden Dome. -- like these very highly capable sophisticated systems are going to continue to be in use. By the way, I will remind you that these are not what you would call legacy systems. These are systems that may have been around at least by name for many years, but we continue to do technology refresh and updates. We will learn from the threat landscape.

We will learn from the services what the adversary is doing, and we will upgrade our product to meet those and in some cases, add additional capabilities and mission sets to those effectors. So those are going to continue to be in high demand well into the next decade, okay, when you think about all the long-term agreements we have and the backlog we've got to execute.

I will also say that there is going to be a growing need for some of the lower-cost systems. I think it's an and, not an or. And so we're doing a number of things to play in those areas. I've mentioned our Coyote counter-UAS system a few times today. That continues to be highly effective. I would put that in the cost-effective effector category, highly capable. We've got directed energy solutions that we're also continuing to work on. We've got a composable weapons construct that we're working through with our advanced technology team within Raytheon, which is effectively looking at developing building blocks from our existing portfolio today.

So whether that be power systems, whether that be the actuator, whether that be the seeker and how do we go using model-based design, figure out a way to use those composable aspects that are designed, proven and in production today and sort of mix and match, if you will, to create at a very high rate, new weapons that can address evolving needs that the government may need. So again, these aren't things that are going to be in a 10-year development cycle, quite the opposite, a much shorter design and development cycle and a fielding time line that meets the threats that are out there today.

I'll also mention that we continue to invest through our RTX Ventures and I would say, emerging companies and emerging technologies. We've got about $250 million in investments across 30 companies. And these aren't necessarily just passive investments. These are companies on the cutting edge that we are doing demonstrator programs with, trying to find ways to incorporate some of their technology into our existing products to enhance their capability and be able to serve new and additional missions.

I'll also mention that there's a growing need for CCAs. That recently just came out of the U.S. Air Force Conference in the last sort of 24 hours. And we're a platform-agnostic supplier of a lot of key systems that are going to continue to go on those types of platforms, whether it be our mission systems from Collins, whether it be propulsion from Pratt & Whitney, whether there are some effectors that go with that from Raytheon, some other systems in terms of sensing capability. So again, I think we'll be able to be a platform-agnostic supplier as those continue to proliferate throughout the services.

So again, high end and highly capable demand is strong. That's going to continue for decades, and we're going to continue to find ways to play in some of the other sort of, I'll call them, lower end, more affordable areas.

Thank you, Chris. And maybe shifting gears to commercial aerospace. The demand environment is strong, but the Middle East has been a little bit lumpier this year. Can you talk about what your expectations are for the aftermarket through 2027? And also, what are you hearing regarding production rates from Boeing and Airbus?

Yes. Maybe I'll start with the production rates first, which is both want to continue to grow. I mean they'll talk about their own sort of '27 and beyond aspirations. But suffice it to say, those rates are going to continue to increase. And again, this year, we'll deliver a record number of GTF. And as I said before, we're keeping up with demand at Boeing on all the systems we have through Collins.

And so we continue to make the investments in capacity Collins, for instance, has been delivering at higher rates than we're seeing today. So it's got the capacity to be able to do that. So we want to stay lockstep with our airframe partners on making sure that they get what they need and clearly here towards the end of '26, '27 and beyond. And I guess on the aftermarket landscape, if you will, I mean you're right, Kristine, you're seeing some price volatility.

Everyone knows here where oil is and that Jet A has clearly been a bit of a cost headwind to the airlines. I think they've done a very good job being able to price -- pass price along to the customer and the consumer has been -- continues to have been pretty resilient. And so as I said before, I haven't seen any change in the buying behavior of the airlines at this point. And again, I'll just step back and say, we've got, again, very, very strong fundamentals in our commercial aftermarket channel as a whole. You heard me say before, the GTF is now larger than the V2500 in terms of size.

And so those shop visits are going to continue to grow. The V2500 also continues to be in very high demand, very low retirements. And it continues to be a relatively young fleet. 15% haven't had their first shop visit, 50% haven't had their second shop visit yet. And then at Frac Canada, it's about 60% of its very, very large installed base that hasn't even had its first overhaul yet.

So again, very long-term fundamentals that will continue to drive strong aftermarket sales for us. And then at Collins, I talked about their content. I talked about the $105 billion of out-of-warranty equipment. That's going to continue to grow as the rate continues to go up with delivery of new aircraft. And so again, strong fundamentals in the aftermarket for the long term.

So Chris, a good segue to GTF. You made progress with MRO output. The turnaround times are improving. AOG is also improving. So how do you think about balancing providing the spares versus OE? Where do you allocate incremental engines? And then also with the GTFA with Advantage, how do we think about long-term economics for Pratt?

Yes. We felt very strongly this year, Kristine, we needed to make sure that our MRO shops had the material and material flow they needed to continue to drive MRO output to support the fleet. And we've seen this Q2, again, our MRO output was up 40% year-over-year. And that's led to the continued progress we've made on the AOG situation, down 25% since the end of last year, and we anticipate that is going to continue on a downward trajectory here in the second half.

And as I said, MRO output is the absolute critical enabler there. And what we've also been really pleased with has been the performance in turnaround time, not only of the entire network, but of some of our newer shops that we've added to the network over the last 3 years. We've added 7 new shops to our network over the last 3 years. And they've taken out -- closing in on around 20% of the turnaround time on heavy shop visits.

So again, that gives us continued confidence that as we move into '27 and beyond that this will be a very high-performing GTF MRO network. On the GTF Advantage, I'll just do something quickly there. As you know, that has been certified. It's going to have 2x the time on wing of our base programs. It's going to have full life LLPs, a state-of-the-art a hot section, more thrust. It's going to be completely SAF compatible, and it's going to be interchangeable with non-GTFA engines. And then, of course, there's a derivative that comes out of the GTF Advantage, the HS+, which we're in the process of certifying -- we'll start to go into shop visits next year. So good progress on that front.

So Chris, I'm going to have 3 rapid-fire questions in the interest of time. First one, Collins Aerospace margins, when do we get to 20%? What are the building blocks there?

We'll put the Collins 19% to 20% in the medium term, Kristine. I won't give you an exact but medium term. And the 3 building blocks there are strong commercial aftermarket. I hit that a few times today. That's 40% of Collins sales. The second is the continued OE ramp, which is going to drive absorption and cost reduction in our facilities and productivity. And the third is the structural cost reduction initiatives that Collins has taken on. We've already started to see that sort of flow through, Kristine, in the first half of this year, 12% organic sales growth with a reduction in indirect headcount.

Great. Now on free cash flow, the midpoint of your 2026 free cash flow outlook is $8.6 billion. But the pain from GTF powder metal issue goes away. Earnings continue to grow. You've talked about the robust visibility ahead. How do we think about free cash flow in 2027? -- and beyond?

Yes. No point estimate here, Christine, but I'll just say, based on the fundamentals of this business that we sort of outlined throughout this last 30, 35 minutes, which is strong demand, well positioned, strong aftermarket. Again, the fundamentals would say this business should be at 90% to 100% of adjusted net income.

And last question, with that robust cash flow, you've got a very strong balance sheet as well. What are the key priorities for capital allocation?

Yes. Our capital allocation playbook is going to remain consistent here. Number one, invest in the business. You heard me talk a lot today about our backlog and the demand. We've got to make sure that we've got the capacity in place to be able to serve that and execute on that demand. That's number one. Number two, continue to pay down the debt. We've made that commitment. By the end of this year, we should be at pre-ASR levels, so really good progress there. And then the third, we're going to continue to be committed to the dividend. We've been paying that for decades and decades. We raised the dividend this year. That's going to be sacrosan for us.

By the way, Chris, that ASR was pretty looking back, pretty successful. .

Very successful. Very, very successful. Some doubters at the time, but I think it's worked out really well.

Well, wonderful. So this concludes our session with RTX. Thank you for joining us.

Thank you, Kristine. Thanks everybody. .

Good day, ladies and gentlemen, and welcome to the RTX Second Quarter 2026 Earnings Conference Call. My name is Olivia, and I'll be your operator for today. As a reminder, this conference is being recorded for replay purposes.

On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations.

This call is being webcast live on the Internet, and there is a presentation available for download from RTX's website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net nonrecurring and/or significant items often referred to by management as other significant items.

The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties. RTX SEC filings including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions]

With that, I will turn the call over to Mr. Calio.

Thank you, and good morning, everyone. We delivered another strong quarter of performance and financial results across RTX, driven by our continued focus on execution. Starting with the top line, adjusted sales were $24.7 billion, up 16% organically, including double-digit commercial aftermarket and defense growth. Adjusted EPS of $1.89 was up 21% year-over-year, driven by 18% growth in segment operating profit, and free cash flow was strong at $2.9 billion.

Across RTX, we continue to see exceptional demand for our products and services. Our backlog stands at yet another record of $289 billion, up 22% year-over-year and 6% sequentially. Raytheon booked nearly $20 billion of awards, resulting in a book-to-bill in Q2 of 2.4 (sic) [ 2.42 ]. These bookings included over $5 billion of GEM-T Patriot effectors driven by international customers and our first domestic GEM-T production order in over 30 years. Raytheon's bookings also included over $4 billion of classified and confidential awards as well as $1.8 billion for AMRAAM.

On the commercial side of the business, demand also remained strong as evidenced by our continued growth. In Q2, we received over $20 billion of OE and aftermarket orders. Notably, at Pratt, AirAsia placed an order for 150 A220 aircraft, which are exclusively powered by GTF engines, adding a new GTF operator and further expanding our installed base in a key growth region. And Collins signed a new 5-year agreement with Air New Zealand to provide MRO services for engine nacelles on their full fleet of 787 aircraft. So overall, a very strong quarter that builds on our momentum from Q1.

Okay. Let me turn to the current operating environment as we look ahead to the back half of the year. Across commercial aerospace, aftermarket continues to be strong and passenger air travel remains resilient. For the year, global RPKs are expected to grow in all regions outside of the Middle East and engine retirements have remained relatively low, both factors that support our outlook for strong commercial aftermarket growth this year. Airframers also continue to cite strong demand with further rate growth expected in the second half of the year, driving the need for our OE products across narrow-body, wide-body and business jet platforms.

On the defense side, our significant awards in the quarter reinforced the global needs for our proven capabilities. Domestically, we're encouraged to see bipartisan support for a significant increase in 2027 defense spending. The base budget request of $1.1 trillion represents a roughly 25% increase year-over-year, along with meaningful increases in funding for RTX priority programs, including Tomahawk, LTAMDS and Standard Missile. And of course, we continue to work closely with the Department of War to advance the framework agreements we signed earlier this year into contracts to increase critical munitions output for our customers.

On the international front, the need for integrated air and missile defense systems remains very strong. In the first half of the year, Raytheon booked over $10 billion of international awards, which is up more than 2x year-over-year, including over $7 billion from our European customers. So based on our first half execution and the demand strength we're seeing across our commercial and defense markets, we're raising our full year outlook for adjusted sales, EPS and free cash flow.

Neil will take you through the details of the second quarter and our updated outlook in a few minutes. But first, let me provide an update on our strategic priorities across RTX on Slide 4. The first is operational execution. We continue to use our core operating system and digital solutions to increase output and deliver our backlog. On the GTF fleet management plan, our financial and technical outlook remains on track. PW1100 AOGs are down again sequentially and down 25% year-to-date, and we expect AOGs to keep trending lower throughout the second half of the year. The improvement is driven by MRO output, which was up over 40% year-over-year, supported by a 23% reduction in turnaround time.

At Raytheon, we've more than doubled year-over-year output across our critical munitions through the first half of the year. Additionally, our Coyote counter-UAS effector, which has been deployed by both the U.S. Army and Navy, has been incredibly effective in the field and is in high demand. As a result, we have more than doubled output on this important program.

And across RTX, our connected factory network now includes over 30 million annual manufacturing hours and our proprietary data and AI platform, up 30% since the end of 2025. This platform is strengthening our operational performance by enabling faster cycle times, better quality and improved decision-making.

Next is innovation for future growth. We continue to make focused investments to meet long-term global demand faster, including increasing capacity across RTX. For example, Raytheon is investing an additional $100 million domestically to increase GEM-T component production and accelerate LTAMDS' test capabilities to meet the growing global need for this 360-degree sensor. We're also coordinating with the U.S. and our allies to expand global production capacity. Just this month, Raytheon announced a collaboration with multiple NATO nations to identify additional European suppliers for AMRAAM components to accelerate deliveries of this critical munition.

On the commercial side, Pratt announced additional investments of more than $100 million in the U.S. to expand GTF MRO capacity across multiple sites in Texas, Florida and Arkansas. These investments will support new automation and repair capabilities to increase shop throughput. And at Collins, we continue to expand our footprint in growth regions. In the quarter, we completed a commercial MRO expansion in Malaysia that will significantly expand capacity and bring more advanced and automated MRO capabilities.

On the technology front, we achieved several key milestones in the quarter. Collins was down-selected to deliver their mission autonomy software for the U.S. Air Force's collaborative combat aircraft program. This type of autonomy will be critical in next-generation fighter development to maximize manned and unmanned teaming. Pratt received aircraft certification for the GTF Advantage engine and started its deliveries to Airbus. As a reminder, the Advantage will double the time on wing performance and is fully interchangeable with current GTF fleet. We expect entry into service later this year and full production cutover in 2028.

And at Raytheon, the team is utilizing a modified TJ150 engine from Pratt to develop a new longer-range variant of our precision-guided air-launched StormBreaker effector. This cross-company initiative has moved from concept to an upcoming flight test in less than 12 months to support delivering this new capability.

So overall, we continue to make good progress across our strategic priorities as we execute and innovate for our customers. Okay. With that, let me turn it over to Neil to take you through the second quarter results and our updated outlook in more detail. Neil?

All right. Thank you. I'm on Slide 5. In the second quarter, adjusted sales of $24.7 billion were up 14% on an adjusted basis and 16% organically year-over-year. This strong organic growth was driven by all 3 channels with commercial OE up 9%, commercial aftermarket up 18% and defense up 16%. Adjusted segment operating profit of $3.2 billion was up 18% year-over-year, primarily driven by the drop-through on higher volume. And segment margins expanded 40 basis points in the quarter with contributions from all 3 segments.

Adjusted earnings per share of $1.89 was up 21% from the prior year, driven by the strong segment operating profit growth I just mentioned. On a GAAP basis, earnings per share from continuing operations was $1.57 and included $0.27 of acquisition accounting adjustments and $0.05 of restructuring and all other nonrecurring items.

We generated $2.9 billion of free cash flow in the quarter, driven by segment profit growth, increased engine deliveries at Pratt and advanced payments from international customers at Raytheon. And powder metal-related compensation was approximately $150 million. Lastly, we entered into an agreement to sell Raytheon's Blue Canyon Technologies business for $620 million as we continue to focus on our core capabilities. So overall, I'm pleased with our strong financial performance through the first half of the year and our continued execution across the business.

Okay. Let's turn to Slide 6, and I'll take you through our updated outlook for the full year. As Chris said upfront, we are updating our full year outlook based on our first half performance and our strong backlog position. On the top line, we're raising our full year adjusted sales outlook by $2.5 billion to a new range of $95 billion to $96 billion, up from our prior range of $92.5 billion to $93.5 billion. The majority of the sales increase is driven by the performance we're seeing in our defense channel across the company, primarily at Raytheon as well as higher GTF aftermarket volume at Pratt.

Additionally, we're seeing strength in commercial OE at Collins, which is also reflected in this increased top line outlook. This translates to full year RTX organic sales growth of between 8% and 9%, up from our prior range of between 5% and 6%. Breaking this down further, we now expect commercial OE sales to grow mid- to high single digits, up from the prior expectation of mid-single digits, primarily attributable to the production ramp at Collins.

Within commercial aftermarket, we now expect sales to grow low double digits across the company this year, up from our prior expectation of high single digits, driven by the strength at Pratt that I mentioned earlier. And with respect to defense sales, we now see growth of high single digits, which is at the higher end of our prior range of mid- to high single digits. This improvement is principally driven by the first half performance and continued execution at Raytheon.

On the bottom line, we're increasing our outlook for adjusted earnings per share by $0.40 on the low end and $0.35 on the high end. We now see adjusted EPS of between $7.10 and $7.25 for the full year, up from our prior range of $6.70 to $6.90. At the midpoint of our updated outlook, this increase is driven by approximately $0.26 of higher segment operating profit, principally from the net drop-through on the higher volume across the segments as well as favorable defense mix and improved productivity, primarily at Raytheon. We're also seeing improvement in some below-the-line items, and we've provided an updated outlook for these items in the appendix of our webcast.

Finally, we now expect free cash flow to be between $8.5 billion and $8.75 billion for the full year, up from our prior range of $8.25 billion to $8.75 billion, primarily driven by higher segment operating profit.

With that, I'll hand it over to Nathan to take you through the segments in more detail. Nathan?

Thanks, Neil. Starting with Collins on Slide 7. Sales were $8.2 billion in the quarter, up 8% on an adjusted basis and 13% organically, driven by strength across all channels. Adjusting for divestitures by channel, commercial OE sales were up 26%, driven by higher volume on narrow-body and wide-body platforms. Commercial aftermarket sales were up 10%, driven by an 11% increase in parts and repair, an 11% increase in mods and upgrades and a 7% increase in provisioning. Defense sales were up 7% versus the prior year, driven by higher volume across multiple programs.

Adjusted operating profit of $1.4 billion was up $121 million versus the prior year, driven by drop-through on higher commercial and defense volume. This was partially offset by defense mix, higher SG&A expense and the impact of divestitures completed in 2025. In the quarter, Collins expanded margins by 30 basis points year-over-year.

Turning to Collins' full year outlook. Based on the continued commercial OE production ramp and defense strength, we now expect sales to grow mid- to high single digits on an adjusted basis, up from our prior range of mid-single digit. And organically, we now expect high single-digit to low double digits growth, up from our prior range of high single digit. With respect to operating profit, we now expect growth between $550 million and $625 million versus 2025, up from our prior expectation of between $425 million and $525 million, driven by drop-through on increased sales volume and ongoing cost reduction initiatives.

Shifting to Pratt & Whitney on Slide 8. Sales of $8.9 billion were up 16% on an adjusted basis and 17% organically, driven by strength in commercial aftermarket and military. Recall that Q2 2025 was impacted by a 4-week work stoppage. Commercial OE sales were down 8% as increased engine deliveries were more than offset by large commercial engine mix. And commercial aftermarket sales were up 25%, driven by higher MRO volume. In military engines, sales were up 23%, driven by higher F135 volume. This year-over-year increase benefited from the timing of the F135 Lot 18 contract award, which was received in Q3 of last year.

Adjusted operating profit of $740 million was up $132 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume as well as military mix. This was partially offset by increased engine deliveries, large commercial engine mix and higher SG&A expense. In the quarter, Pratt expanded margins by 30 basis points year-over-year.

Turning to Pratt's full year outlook. We now expect sales to grow high single digit on both an adjusted and organic basis, up from our prior range of mid-single digit due to the strength in commercial aftermarket, partially offset by commercial OE mix. With respect to operating profit, we now expect growth between $275 million and $350 million versus 2025, up from our prior expectation of between $225 million and $325 million, primarily driven by drop-through on increased sales volume.

Turning to Raytheon on Slide 9. Sales of $8.3 billion in the quarter were up 18% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, naval programs and air and space defense systems, including Patriot, Standard Missile and AMRAAM.

Adjusted operating profit of $1 billion was up $234 million versus the prior year, driven by higher volume, favorable mix, including Patriot programs and improved productivity. In the quarter, Raytheon expanded margins by 100 basis points year-over-year. Bookings in the quarter were $19.9 billion resulting in a book-to-bill of 2.42 and a backlog of $86 billion. On a rolling 12-month basis, Raytheon's book-to-bill is 1.77, and Raytheon's backlog is now 48% international, up 4 points year-over-year. In addition to the awards Chris mentioned earlier, other key awards in the quarter include $1.1 billion for AIM-9X and approximately $800 million for LTAMDS.

Turning to Raytheon's full year outlook. We now expect sales to grow high single digits to low double digits on an adjusted and organic basis. This is up from our prior range of high single digit due to the strength Neil mentioned. And we now expect operating profit to grow between $575 million and $650 million versus 2025, up from our prior expectation of between $275 million and $375 million, driven by the drop-through on increased sales volume, favorable program mix and improved productivity.

With that, I'll hand it back over to Chris for some closing remarks.

Okay. Thanks, Nathan. We drove very strong financial performance in the first half of the year and are confident in our updated full year outlook. And I want to thank the entire RTX team for their commitment to our mission. We have strong conviction in the long-term demand across our commercial and defense markets, and we believe that RTX is exceptionally well positioned with leading franchises, a growing installed base, a record backlog and the scale to invest in capacity and technology. Our focus will remain on executing and innovating for our customers to drive continued organic sales growth, margin expansion and robust free cash flow this year and well into the future.

With that, let's open it up for questions.

[Operator Instructions] And the first question will come from the line of Peter Arment from Baird.

Great results. Chris, maybe if you could just give us an update on the latest status with all your framework agreements or the progress that you're making there? And if you could just tie it into how you think kind of what the budget environment, I think everyone's expectations are, we start the year with the CR and how that would affect things and just latest status on both.

Yes, thanks, Peter. Maybe I'll start with the defense budget first because that's obviously a key piece of the framework agreements. I think like many of us, we're pleased to see that the U.S. base budget request crossing the $1 trillion mark, that's significant. And this, plus the multiyear requests that are in there show the continued demand, I think, for years to come, a really strong demand signal. And I know there's lots of discussions on budget amounts and mechanics. But what I can tell you as we engage with Congress is there's a bipartisan support for increased munitions and ramping in those areas which are pretty core to our capabilities.

I know people talk a lot about being aligned with the Department of War and budget priorities, but we've got pretty strong conviction that we have among the strongest claims in that regard. I mean if you just think about it in terms of the global events that have reinforced the need for our systems, we've seen effective intercepts on things like Patriot, Coyote, AMRAAM, AIM-9X and the Standard Missile family. So again, some of the most capable and effective in the world and continuing to do their job in some of the most contested environments.

And then secondly, the 5 framework agreements that we signed that you referenced. Those will have significant demand over the next 10 years to the extent that the budget and the multiyear come home. Those aren't even in our backlog today. So on the framework agreements themselves, Peter, we continue to engage with the department on turning our framework agreements into definitive agreements. And that process is ongoing. I won't get too into the weeds on that, but they've been very, very productive and constructive conversations.

And then behind the scenes, we're continuing to work all the things that we'll need to do in order to execute on those framework agreements once they get signed. So significant engagement with the supply chain, making sure they understand what they're going to need to do, what our volumes are going to look like, what capacity we're going to need, what investments we and they are going to need to make. And we're making some of those investments today. Also engaging with second and third potential suppliers where we have sole-source positions where, frankly, we need to increase the competition and increase the capacity. Some of those are in the defense industrial base today, and some of those are outside the defense industrial base that we're engaging with who are interested in coming in as long as we can get the right volumes.

So again, pretty productive conversations. We'll see how the budget ultimately shakes out. But as I said, I feel really good that our products, no matter how it gets pieced together, will be a priority. And maybe I'll just end, Peter, with -- don't forget about the international demand, still hugely significant, $10 billion of awards in the first half with 48% of Raytheon's backlog being international. So strong domestically and strong internationally.

The next question in the queue will come from the line of Robert Stallard from Vertical Research.

Neil, just a couple of quick questions on the 2026 guidance. Firstly, on the free cash flow, you didn't raise the top end of the free cash flow guidance. I was wondering if timing was anything to do with that very strong performance in Q2. And then secondly, on the revenue guidance, you have raised it, but you are factoring in a slowdown in revenue growth in the second half versus the first half. I was wondering what the key drivers are there.

Yes, thanks, Rob. Let me start with the free cash flow. Obviously, really pleased with the first half performance of cash flow. To your point, there was some timing. There always is with the free cash flow in the quarter, but I'll point to a couple of things. The first is, you'll recall, last year, in the second quarter, Pratt was undergoing a 4-week work stoppage that delayed some engine deliveries that, therefore, delayed cash collections. We've been able to, if you will, catch up on that. And so that's benefiting the second quarter. And the other thing, to a lesser extent that's helping the second quarter is international advances on all those awards that we got, most particularly within the Raytheon segment.

So as I think about the rest of the year, clearly, we're about at the halfway mark of our full year outlook. So we feel good about the second half, but a little bit of timing there between what we had penciled in for Q3 versus Q2. As far as the outlook, we took the bottom end of the range up $250 million to reflect the higher segment operating profit that we're putting through in our guidance updates today. That's offset a little bit by some working capital headwinds. So when we started the year, we thought we'd see a slight tailwind from working capital as we sit here today, given we've added 3 points of organic growth to our outlook for the year, we're going to be building a little bit of inventory to make sure that we're prepared to deliver the continued ramp, not only in the second half of the year, but the growth that we see coming through in early 2027. So those things kind of offset a little bit. Again, feel good where we are, and we'll continue to monitor this as we go through the rest of the year.

As far as the revenue in the second half, let me kind of share a few thoughts here. I mean I think it comes down particularly to some comparisons, and I'll walk you through those pieces. For the full year, our organic sales are going to be up 8% to 9%. So very strong growth, like I just said, up 3 points from where we were. In the first half, we saw 13% organic growth. And in the second half, you'll see in our outlook, it implies somewhere in the 5% range at the midpoint of our outlook. So still growing, still really strong, but again, some unique comparisons.

Let me start with Pratt because I think that's the most pronounced. I just talked about the 4-week work stoppage. And so that happened last year in the second quarter. We caught up in the second half of '25. So you've got that comparison to deal with here in the third and fourth quarter. And also last year in the third quarter, we reached an agreement on the Lot 18 F135 engine production contract. And that brought with it some higher sales that we've been having cost sit on the balance sheet in the second quarter last year. And so again, that won't repeat. And so you'll have that comparison to deal with in the third quarter in particular.

And then another point I would make about the second half for Pratt on the large commercial engine side, our install engines will continue to grow, but there'll be some lower revenue as the mix shifts more towards installs and away from spares. And in fact, we now think our OE sales for Pratt will be down in the low single-digit range as we continue to support that really strong material growth on the MRO side, and you saw that in the second quarter numbers.

On the Raytheon side, also some difficult compares. In the first half of last year, sales were up about 4%. So obviously, we had a really strong 14% first half this year. We had 9% growth in the second half of last year. So we're starting to see the material receipts normalize throughout this year. And so that's really good for getting product out the door, but it does put a little bit of pressure on the growth rate, which is still fairly robust in the mid-single-digit range in the second half.

Collins is a little bit more normalized. So 12% growth in the first half, seeing in that 8%, 9% range in the second half. Again, we're continuing to ramp with our airframers on the OE side in particular. And so -- and we're also staying fairly prudent on the commercial aftermarket side. So we haven't changed our outlook there as we continue to monitor the macro situation. But again, all indications are from the orders that we saw in the second quarter for Collins that the aftermarket remains strong and our customer behaviors remain unchanged.

The next question in queue will come from the line of Sheila Kahyaoglu from Jefferies.

Great quarter. Maybe, Neil, you just covered a ton. Maybe if we could just tease out the puts and takes in Pratt sales growth for the quarter, aftermarket up 25%, military up 23%, OE down 8%. How are you thinking about just the contribution of each going into the full year? And on the Pratt OE down low single digits now, what's driving that? Is it more allocation to Airbus, pricing, something else driving that headwind?

Sheila, it's Chris. Let me start with the Pratt piece and the OE. As Neil noted, the large commercial engine deliveries were up in Q2, up 15%. So pleased with that on a unit level. The sales decrease was due to mix as again, we continue to ensure that we have strong material flow into our MRO shops. As we mentioned, we saw a good decline in GTF AOGs, down 25% in the first half of the year. And that was really driven by very solid MRO performance. We had 1100 output up 43% year-over-year, and that was enabled by a 23% reduction in year-over-year turnaround time, and that was with much heavier work scope, up 14 points year-over-year. So really, really strong MRO performance.

And we've got to continue to keep our MRO network in a very, very strong material position. We need them to be able to continue to sustain higher rates and turnaround time reductions. We've got about 15 PW1100 shops in our MRO network. And our goal here, our objective is to continue to drive this network to consistently achieve that 90-day or below turnaround time. And we need material flow in order to do that, right? And so we need all 15 of those shops hitting that mark at that standard so that we can continue to make this a well-oiled machine in our aftermarket network.

So that was really the thought process there, making sure that they have the material that they need in order to do what they need to do and to have the performance that we need. Now I will say we're also going to continue to drive deliveries to Airbus. We'll be up in the second half of the year there, and we'll deliver a record number of GTF engines this year.

Yes, thanks, Chris. I would just add a couple of things to reinforce a couple of points. One is the work scope. And so as we think about the rest of the year and the total outlook for Pratt, we're taking up the top line by about $900 million at the midpoint. The vast majority of that is aftermarket, and it's really on the back of that higher work scope. So we're seeing good material flow, which is driving those heavy shop visits. And it's not just the PW1100, though, that is the predominance of it. The V2500 shop visits remain right on track at the midpoint of the year to our full year induction expectations and the content there continues to be strong, too.

So I think what's important here, even as we see OE sales down a little bit is that it's really about the material allocation, and we're taking up the profit for Pratt. So we still see the margin expansion, not just this year, but we expect that to continue in years thereafter as this aftermarket continues to gain further traction and the profitability continues to accrue to those contracts. So feeling good about where we are. And I think just a few tweaks around the edges in terms of our allocation of material between the different channels.

The next question comes from the line of Gautam Khanna from TD Cowen.

I was wondering if you could talk a little bit about Raytheon Defense's margin opportunity over several years. It's done very well in recent years in terms of rate of improvement. And in the past, you've commented on productivity, mix foreign versus domestic mature programs versus newer programs. If you could just talk about the evolution there and what do you see as sort of the art of the possible over the next couple of years?

Yes, thanks, Gautam. I would say, we're really pleased with the Raytheon performance this year. I mean, the 18% organic sales growth and the 12.6% margin. Again, we laid out a while ago where we thought the full potential of this business could be, and it is and continues to be really right on track. And that really comes down to the demand and the performance in the supply chain. The demand obviously continues to be strong, $20 billion of awards in Q2 and an $86 billion backlog. And the mix of that demand continues to be pretty favorable. These are mature programs. Those things that we've been -- we've made historically, we know how to go drive productivity. And it's also been the performance of the supply chain on these mature programs, which has continued to be strong.

We've seen at least over 2 years of quarter-over-quarter material receipts going up. We've given very, very clear demand signals, very helpful in terms of what the government has done there as well. We've given very clear demand signals to our suppliers, and they continue to step up and deliver. So that helps drive this productivity.

The other piece of the mix, and you mentioned it, is the international component. Again, 48% of Raytheon's backlog is international right now on these mature programs, and that also helps drive a little bit better pricing and productivity. So all of those things go into what we consider to be Raytheon being on track to continuing to drive margin expansion in its business and getting to that, we'll call it, full potential area that we talked about previously.

Gautam, the thing I would add, too, around productivity, I agree with everything that Chris said is we saw about $20 million of favorability from productivity in the second quarter. So cumulatively, year-to-date, we're about $40 million, which frankly isn't that significant, which tells me that we've got a good solid base margin in the business in the backlog. And that's what the Raytheon team has been focused on for the last couple of years as we've onboarded a lot of new work.

It will, of course, ebb and flow a little bit based on the mix of the timing of deliveries. But again, having achieved the 12-plus percent margin here and then as you look at the outlook for the rest of the year, seeing it still in the mid-12% range, we feel really good about the trajectory that we're on. And all the while, we're able to make investments that we need to do to not just support the new capacity for additional current products, but to invest in new products as well. So feeling good where we are, still a lot more to do.

Maybe the last thing I would say on this one is, we've mentioned this before, the framework agreements that we've talked about, they're not even in this backlog today. To the extent that they get into the backlog and that we get the multiyear treatment, we really believe those are really, really good pieces of business. And so I'll just say we're not going to stop in terms of kind of where we are from a margin perspective. We're still going to continue to push. And we think those framework agreements could be a significant tailwind there.

The next question comes from the line of Ron Epstein from Bank of America.

Can we talk maybe a bit about capital deployment? So in the quarter, you divested Blue Canyon, you're generating a mix of cash. There is a complicated narrative around share buybacks and dividends. So how are you thinking about deploying capital? And how are you looking at the portfolio? And how should we just broadly think about it?

Yes, thanks, Ron. I think our priorities on the capital allocation front continue to be consistent, and that's investing in the business. You've heard us talk a lot today in our prepared remarks about the demand and the demand we've talked a lot on the defense side continues to be strong on both the commercial and defense sides of the house. So continuing to invest in the business to make sure that we've got the right capacity and a healthy supply chain will continue to be a priority. A commitment to the dividend, for sure, obviously, we've raised the dividend again here recently. And then continuing to reduce the debt to strengthen the balance sheet.

On the M&A front, I wouldn't say that anything that's swirling around out there is going to change our thoughts on that. We've got a pretty robust set of criteria about things that we think fit in the portfolio may not fit in the portfolio. And we're going to be -- continue to be disciplined around those types of opportunities. And for us, when we kind of look at the portfolio, there's nothing that we think we really need. We think the portfolio is exceptionally strong. We've got a lot of conviction around the growth trajectory in the portfolio and the way things fit and how we can continue to leverage both scale in terms of supply chain and cost structure, but also technology. So really no change in our mind about how we think about capital allocation. And so for us, it's just about driving execution, investing and making sure that we're delivering for our customers and the rest will take care of itself.

The next question comes from the line of Scott Deuschle from Deutsche Bank.

Neil or Chris, can you share your latest thoughts on the durability of the shop visit demand for PW4000 and V2500 over the next few years based on the utilization you're seeing on those engines today and the conversations you're having with customers? And then, Neil, if you could also share an update on GTF aftermarket margins, that would also be helpful.

Sure. I'll start, and then Neil you can chime in. On the V2500, you heard Neil say a few minutes ago, Scott, that our shop visits are right in line where we thought they would be. Content continues to be strong, and we've seen pretty low retirement activity on that platform. So we think it's going to continue to be a very strong contributor to the overall Pratt aftermarket. A reminder, that is still a relatively young fleet. A number have not had their first shop visit or their second shop visit at this point. So there's a lot of runway left on the V2500 fleet, and it has been integral to the fleet planning of its operators given we're still working through the GTF situation. So I feel really good about the future of the V2500.

On the PW4000, again, I would just say that this is exactly where we would expect it to be in its life cycle. And again, when you get to this particular piece of the life cycle, you start to see things go through a managed decline, and that's exactly what we're doing. There's still going to be some strong contribution from those platforms over the next several years, and we will ultimately manage that decline over a period of years. But nothing surprising there, at this particular time, it's sort of on plan and what we expected.

Thanks, Chris. And a couple of more points there. I think building on the content theme that we're seeing here in 2026, even as the V2500s in terms of number of shop visits tail off, the heavier shop visit scope will continue to build. And so we still see very steady and growing revenues in that portfolio through the end of this decade. So I think big picture at Pratt, the size of the GTF fleet and the aftermarket that it is and will generate and continue to grow over the next 5, 10 years, will offset any of the managed decline on the legacy fleets and then some.

In particular, with respect to the margins, we continue to have low double-digit margins in the GTF aftermarket. I think that there continues to be opportunity there that we've talked about. These are long-term contracts. We remain prudent in the way we look at the booking rates on those, and we're introducing a lot of new material and additional benefits to the GTF engine over the coming couple of years. We expect that to further benefit the GTF aftermarket margins as well. So it's on the right trajectory and no changes from what we've talked about in the past.

The next question comes from the line of Myles Walton from Wolfe Research.

First, a clarification. Are you planning to deliver more on-wing engines to Airbus this year than you were at the start of the year? And then on Collins, could you comment on what your outlook is for the OE portion of the business? That seems like it's probably the biggest contributor to the raise there on the top line. And where are you seeing that relative to your production channels in terms of better performance?

Yes, thanks, Myles. I'll start here, and Chris can pile on. As it relates to our plans with Airbus, no change to our installs in terms of the full year. We're really just swizzling some product between the spare engines and the aftermarket. That will grow in the second half, the installs. And Chris talked about just a few minutes ago that we'll deliver a record number of engines to Airbus this year and ahead of our market share.

On the Collins side, you're right. We're pleased by the rate increases that we're seeing on the OE side. I would put about $525 million at the midpoint of our increase at Collins to the commercial OE side, and it's really across both narrow-body and wide-body. As you know, we have some really heavy content on the wide-body. It doesn't come with profit, but nonetheless, building confidence in the supply chain performance there, and that's enabled us to sort of take up the top line as it relates to those deliveries that we see coming in the second half.

The next question comes from the line of John Godyn from Citi.

I wanted to just spend a second on the international opportunity in defense. That's something that kind of has been sprinkled throughout some of your answers to the questions. And I was hoping to just kind of put it in one place. I thought I heard you guys say international bookings were up 2x year-over-year. It seems like there's a huge opportunity out there internationally that may not be kind of fully appreciated. And even when these framework agreements come through, there might be international demand on top of that. Maybe you guys could just sort of reflect on that and how the international opportunity is going to kind of flow through the numbers over the next few years.

Yes, thanks, John. And you're exactly right. As I said in sort of the first answer upfront here, significant domestic demand. We'll see how the budget ultimately pieces together. But the international continues to grow as well. Obviously, you know what's going on with our NATO allies driving their budgets to that 3.5%. We've seen some big European orders here in the quarter and in the first half. And overall, as I said upfront, 48% of our backlog is international. Of course, there are opportunities in the Middle East as well with what's going on. We have a strong installed base, both in the Middle East and in Europe. So these are things we're going to continue to leverage as the demand grows.

And again, I think the other piece here and you're seeing some more support for it, are those co-production agreements in Europe and in other places. We've announced some, you heard about the one on AMRAAM in our prepared remarks, Stinger as well. We've got co-production agreements on Patriot across Europe. We've got strong partnerships with Kongsberg on NASAMS with MBDA. So we've got a suite of Polish suppliers, both on Patriot and on F135. So continuing to grow the industrial base there, not only strengthens the relationships, but also continues to add very capable sources to our industrial base and adds capacity and allows us to ramp up to meet that stronger demand internationally. So ultimately, just continues to be a significant opportunity for us that we're leveraging.

The next question comes from the line of Seth Seifman from JPMorgan.

I wanted to ask a little bit about Collins and expected profitability there. You raised sales and profit guidance. It looks like expected margin rate roughly similar despite the increase in OE sales. There's still a significant margin opportunity at Collins. And maybe if you could talk a little bit about the pace of kind of realizing that opportunity and what's in front of us as we think about both the things that you guys can do from a self-help perspective and then also maybe some of the headwinds that might emerge from a mix perspective?

Yes. Thanks. Let me start, Seth, on that one. Let me start with this year. Again, you're right, we're seeing, call it, 17% return on sales and a significant increase despite some tariff headwind that we're still going to see this year at Collins. So really good performance. There's a big step-up in the second half. And just to kind of help you with sort of the drop-through, just talked about the top line going up about $525 million for higher OE sales. Keep in mind, the 787 is a piece of that, and there's not a lot of profit contribution there. So hence, the lower drop-through.

But there's a huge step-up between the first half and the second half. And when I think about that, about 60% of that step-up is going to come from drop-through on the higher volume that we're going to see across all the channels at Collins in the second -- in the third and fourth quarter rather. And the rest, 40% of that is going to come from cost reduction actions. Collins has taken on some really significant structural changes to their business. They've invested a bit in the first half of this year to begin the realization of those cost reductions, which we expect to start to play through in the second half and then continue out over the next several years.

And so as we step further back and look at the margin opportunity at Collins, we've always talked about our ability to get back to, call it, 19%, 20% type margins. And we see no reason why when you think about the growth drivers of that business, more and more out-of-warranty flight hours, a larger installed base, continued ramp on the OE side, really significant and healthy mission systems defense business at Collins as well. All of those things we see growing over the next few years, and that additional volume is going to help with absorption and you couple that with this cost reduction, what you called self-help, and we agree, all of that puts us in a good position to continue to drive these margins higher over the next several years.

Yes, Seth, the one thing that I would just emphasize that Neil said is, yes, there are real structural tailwinds to this business based upon its portfolio composition and the content that it has. And that's going to be a significant part of this margin expansion. But let me just pick up on the last piece, the self-help. The Collins team has really taken on in an aggressive way, structural cost reduction actions to drive margin expansion and improve overall profitability and performance. We're talking about consolidating operations, increasing hours at best cost locations, attacking overhead layers.

And again, you know that this is a business that has been created with a number of large acquisitions. And this team still is driving a common operational approach to all of these businesses, some of that integration that really hadn't been done yet, all of which we think are going to yield benefits over the next several years. So those are still in the early innings, we would say. But those are going to -- you're going to start to see those flow through next year and beyond.

The next question comes from the line of Scott Mikus from Melius Research.

Chris, a high-level question. At Farnborough, Airbus mentioned they see the launch of the next clean-sheet aircraft program as an opportunity to rebalance the business model of the industry. Just curious what your thoughts are on that. Are they looking to become a risk-sharing partner in future engine programs? Or are they thinking about taking royalties on your aftermarket sales in exchange for maybe a higher ASP on the install engines? Just curious on your thoughts.

Yes, thanks. I would say the first thing, and I know coming out of these air shows, there's -- it's the right forum to be thinking about like sort of what's next and maybe the shiny new toys that are out there. I will just tell you that our focus today is on execution, obviously, driving additional deliveries to Airbus supporting the GTF aftermarket and then executing on those 8,000 engines that are still in backlog. So we continue to believe that NGSA is going to continue to move to the right because the industry needs stability, our customers want and need stability and supply chain needs and wants stability. And so I think those things are the focus and we agree with that.

But to your point, we've been, I think, pretty steadfast in our belief that the next-generation single aisle, especially on the propulsion side, will need to have a different business model. I think the idea that we're going to invest all this money upfront and then, again, not have high margins on deliveries and then rely on anywhere from 4 to 6 shop visits over a 25-year period. I don't think that, that is the best model going forward. I think we need to smooth out some of those cash flows and some of that investment. And we're open to any number of ways to do that. And we've had some preliminary conversations around that. But I would just agree with the underlying premise that the business model is going to need to change in the future, and that's something we're going to continue to drive.

The next question comes from the line of Douglas Harned from Bernstein.

Chris, when you're talking about this high demand for tactical missiles interceptors, this has been a really strong position even a year ago. As you had huge export demand, you added on top of that Golden Dome, now we have the war in Iran and more export orders. So when you look at the trajectory and particularly with respect to the frameworks, you are already really pushing for higher production rates over the next 3 years or so before. How do you see this higher demand today in terms of what the shape of that trajectory can look like given the efforts you would have to invest to bring the rate up?

Well, you're right, Doug. I think all of this, whether it be executing on the backlog we've got today or any of the things that may come into our backlog from the framework agreement is going to be predicated on the supply chain. If you look at our year-over-year growth in output, which is really strong, again, a lot of that on the back of these being mature programs, but also the supply chain continuing to step up and deliver at rates. As we look to the future, that's going to have to have another significant step up, which is, again, why we're out right now investing in supply chain resiliency. We're investing in second and third sources in constrained areas.

And while we're looking for potential suppliers that are outside the defense industrial base today who may have capability that can be brought to bear to help us get to higher rates. So all of those things are going to have to come home. I think the biggest part of this is going to be the multiyear nature on some of these framework agreements. If you can go out and give a supplier or a set of suppliers a 7-year firm order, they will lean forward. They will make the investment. They will bring in that tooling and test equipment. They will hire people in advance to be able to get to those rates. But they've got to see that level of visibility and commitment. And I know the department is committed to making that happen. We'll see how the budget ultimately shakes out. But that, to me, can be the single biggest game changer in getting this supply base up to the next level.

This now concludes our Q&A session. I will now turn the call back to Nathan Ware.

All right. Thank you, Olivia. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. Thank you all for joining us, and have a good day.

Thanks, everybody.

Thank you.

This now concludes today's conference. You may now disconnect.

Are we ready to go? Okay. Why don't we get started. Good morning. I'm Doug Harned, Bernstein's Global Aerospace and Defense analyst. I am thrilled to again have with us Chris Calio, Chairman and CEO of RTX. I think Chris may -- I think Chris has a few things. I think it would be great to hear a little bit about the company overall.

Great. Well, good morning, Doug. Good morning, everybody. Great to be here. I thought, I'd take just a minute or so here just to sort of frame out RTX for those of you who maybe don't follow us as closely. For those of you who don't, RTX is a global aerospace and defense company, about $88 billion in sales. Last year coming off a pretty strong first quarter demand on both sides of the commercial and defense pieces of our business, and our guidance remains on track for the year, Doug, I want to get that out upfront.

I think the big message around us is that we have strong conviction around the demand on both sides of our business, commercial and defense, and that we are exceptionally well positioned to take advantage of that demand.

If you think about RTX, we go to market through our 3 business units. You've got Pratt & Whitney, which makes commercial engines and military engines. You've got Collins Aerospace, which makes high-end aircraft systems, think avionics, mission systems, electric power, nacelle, wheel and brake and the like. And then, you have got Raytheon, of course, that makes high-end defense system franchise programs across its portfolio, things like Patriot and so forth.

If you just look at our commercial business, I'll start there for a minute. Again, Collins. It is #1 or #2 on 70% of its product portfolio. It's got about $105 billion of out-of-warranty equipment flying around today. So just a huge aftermarket tails and it's got significant content on the fastest-growing platforms in commercial aerospace, thank A320neo, 737 MAX, 787, A350 and the like.

And then, at Pratt & Whitney, just very, very well positioned in commercial aerospace. Of course, everyone knows about the geared turbofan engine well positioned in the narrow-body segment. We got about 8,000 engines in backlog today, north of 50 million hours on that platform. It's 3x larger than we thought it was going to be when we launched it about a decade ago. We've also got the V2500, which again is a critical platform for customers today, there's about 2,500 of those out in service today. And it's a very young fleet.

While it's obviously been around since the mid-80s, today's fleet, which is about 2,500 engines, very young. About 15% haven't had a first shop visit. Those that have about 35% haven't had a second shop visit. So long run there as well from a commercial perspective.

And then, on the defense side of our business, of course, it starts with Raytheon. I think the book-to-bill over the last rolling 12 months has been 1.5. The demand has been exceptional in its portfolio. Again, I mentioned things like Patriot, Tomahawk standard missile, things that you hear about, you read about being critical in today's environment. And so the demand there has been exceptionally strong.

Of course, you've also got defense in both the Pratt and Collins portfolios. At Pratt & Whitney, you're on some of the highest priority platforms within the Pentagon, sole source on all fifth-generation fighters. You've got the F135, tanker B-21. And then, Collins has about 1/3 of its portfolio in defense, think about its Mission Systems business, provides communications and connected battle space on a number of critical platforms.

So both on commercial and defense, exceptionally well positioned, Doug, as we kind of look forward over the next few years. And our focus continues to be on execution. All of that portfolio that I just described culminates in a $271 billion backlog. Again, it goes to that narrative I just talked about in terms of the very, very strong demand.

So our focus is on executing on that backlog. We're in a very long-cycle business. We've got to continue to innovate for growth. And we've got to continue to leverage the breadth and scale of RTX across our defense and commercial portfolio. And we really do believe that we're going to continue to drive margin expansion and strong free cash flow both this year and into the future. So with that, Doug, maybe turn it over to you and we can get into the topics you want to.

Great. If we think back to when you were here last year, a lot's changed. A lot's changed in literally the last few months. Can you talk about how you see the macro environment today and what that means for RTX?

I agree, Doug, that a lot has changed. What I will say is, our priorities haven't. Again, it starts with this idea of the $271 billion backlog that we have. And our customers on both sides want more product and they want it faster. You've spent the last 3 days talking to lots of folks in this industry, and I think the consistent message is demand is strong, and we need more, whether that be engines for Airbus, Boeing, whether it be aircraft systems, Airbus, Boeing, whether it be U.S. government and our NATO allies needing more munitions and equipment faster. And so for us, it starts with execution.

If you think about Raytheon, in the first quarter, we had output up 40% year-over-year on critical munitions. We've continued to go execute our fleet management plan at Pratt & Whitney, and we continue to keep up with the rising rates with the airframers at Collins. So it just starts with us with execution. And then, of course, as I said upfront, this is a long-cycle business. You can't take any plays off. You can't take any cycles off. So we're continuing to invest and innovate for future growth. We're going to do about $10 billion this year in E&D company customer-funded in CapEx. Part of that is continuing to drive innovation in our product portfolio, I'm sure we'll talk a lot about that today, but the other piece is making sure that we've got innovation in how we design our products, how we make our products, and continue to invest in not only having the capacity we need, but the automation and the data we need to meet the rates we're going to have to achieve on both the commercial and the aerospace and the defense side, excuse me.

And as I said before, Doug, it really is about leveraging our breadth and scale. We're going to do over $90 billion in sales this year. Our company has continued to drive both cost synergies through our supply chain, through the application of best practices in our core operating system, which is our lean operating system. And then, the continued development of technology synergies. As I'm sure, you are aware, there continues to be a convergence between the commercial and the defense. Pentagon is looking to continue to drive more commercial application into defense. And with half of our business being on the commercial side, there continues to be a lot of technology synergies that we've got to continue to take advantage of.

But you're right, Doug, the macro, again, on both sides, both commercial and defense continues to be really strong. Obviously, we've had Ukraine on the defense side, and you've got operation Epic Fury. And so there's a lot of replenishment opportunities in defense. We're really pleased to be part of the framework agreements that the Pentagon was pushing for on critical munitions. It just shows how strong the demand is for our products, both today and in the future. And so again, that's why the focus continues to be on execution.

Well, let's get into defense. So right now, we've got a proposed budget from the President of $1.5 trillion. Now, we'll see how that all goes. Obviously, there's a lot in there for you guys, but when you look at the process right now, this has got to make its way through Congress. It's complicated. How are you seeing that budget process unfold? And how do you manage given the uncertainty, and where things may ultimately come out?

Well, a couple of things, Doug. And you mentioned it, the base budget, the $1.15, again, even that crossing the $1 trillion mark is significant, I think portends for continued demand in defense both this year and in future years, I don't think that's not going to retract. I think it's only going to go forward. And whether or not you get the $350 billion in reconciliation or not, I think when you talk to members of the House Armed Services Committee, you talked to folks in Congress, there is general bipartisan support for the need for larger munitions, ramp up the things that are within the core capabilities of Raytheon in particular.

Again, if you just look at the 5 framework agreements that we signed with the Pentagon Tomahawk, AMRAAM, Standard Missile family, I mean, these are things that are universally acknowledged as being needed both here in the U.S. And keep in mind, no matter where the budget shakes out, Doug, 30% of Raytheon's sales are international. We just look at Raytheon's backlog today, about 48% of that backlog is international today. So again, you're going to continue to have strong demand here in the U.S., whether that's the 1.15 or the 1.5, but you're also going to continue to have strong demand internationally.

Well, on those framework agreements, because I think this was a really important thing. We talked about it with Jim Taiclet yesterday, for example. And so you each have these framework agreements on specific programs, Tomahawk, SM-3, AMRAAM, I think, and so those framework agreements were put together prior to the war in Iran. And since then, we've seen a lot of usage of these products. So demand is even higher. So where do you stand in terms of being able to take production up if there's even more money in the budget, does that turn into just an extension of backlog? Or can you actually say in the next 3 years, increase volumes further?

Well, the first thing I'll say, Doug, is the framework agreements that we've signed. Those aren't even in the $271 billion backlog that I've quoted a couple of times here this morning. That's on the top.

Yes, those are under contract, yes.

Right. So correct. And we've been, irrespective of those framework agreements, Doug, we've been ramping significantly because of the demand in our business. And so the framework agreements, again, will be on top of that. But for us, yes, there is significant demand that comes with those, but the mindset remains the same. We've been ramping anyway. We've got 12 consecutive quarters of material growth. We've continued to drive additional second sources into our supply chain. Just in 2025 alone, Raytheon qualified 150 new suppliers. So we've been in this ramp-up mindset and mode for a while now anyway.

And when we think of the framework agreements. Again, I think there are a couple of underlying sort of principles that we have to sort of make clear. Well, number one, obviously, very pleased to be a partner with the Department of War on their transformation efforts. I think, some of these efforts have been long overdue, and bringing commercial practices into DOW procurement, I think is something that is good for the defense industrial base and good for the country. And frankly, an area given how large our commercial business is, we feel really well positioned to take advantage of.

I would say the second thing is that these framework agreements are based on long-term demand. In our case, 7-year firm demand. And the department understands that, that's critical, not only for the defense primes, but more importantly, for the defense industrial base and our supply chain. A good half of our supply base are medium and small businesses, and they need to see that long-term demand signal in order to make the kinds of investments in people and plants and equipment and higher labor and so forth. So that's the critical piece of this. So it's the firm long-term demand.

Second piece is the department wants us to continue to invest in capacity, and they're going to work with us on a collaborative funding approach so that they help provide us funding sort of upfront to allow us to build the capacity and achieve the returns that we need. And then, the third thing I would say is they've been a partner with us on trying to drive additional folks into the supply base. They understand, as I said before, how important that's going to be. That's going to be the linchpin of all of this. Do we have healthy enough supply base? Do we have folks that come into the supply base that have historically not been in defense to come in to help us reach these levels?

Again, I think the 7-year demand that the department has put out there, I think, helps drive the types of incentives we would need in order to be able to do that. And so as I said before, Doug, we've been ramping. You've been investing in places like Huntsville, like McKinney, like Andover because of this ramp that we've already been in. So for us, it's just continuing that pace and making sure the supply chain can keep up with us.

Now, something -- this has been -- this topic, as you, I think, may have seen, is we've been talking about a lot that -- a lot about this over the last couple of days, both from you and the missile suppliers as well as the solid rocket motor companies and others. When you look at this framework, we're looking at growth planned out 5, 7 years in advance, yet -- and I think there's no question that the demand is huge. There's bipartisan support for these initiatives. However, if you were to roll forward, say, 4 years, I mean, appropriations are done annually. And how do you get comfortable that different administration, in a different geopolitical situation potentially that these investments are all going to be tied to this growth?

It's been an integral part of the discussions we've had with the department, Doug. We've said if there's a change in posture at some point, then there needs to be a very strong recovery method, and a protective set of terms and conditions in our definitive agreements to make sure that when we make these kinds of investments, and when our supply chain makes these kinds of investments that they're protected, if you will, from any type of portability and administration or posture. Again, that's another big part of this.

I think the one thing that the department understands is that you can't have these episodic ordering patterns. I mean, there's a lot of reasons why people believe that the defense industrial base has been unable to meet the demands of the department and others, but a big part of that has just been some of the procurement patterns that have happened that allows lines to run dry suppliers go into other more predictable industries. That's a big part of it. And I think the department has been really, really clear, we need to set these long-term firm demand signals in order to get off of that cycle of up and down ordering because all that does is drive inconsistency in our ability to execute, and I think that has been their message from day one when they have walked in, and I commend them for it.

Now one of the things that's been over the years in your ramps that has been a challenge has been motors, rocket motors. How do you see that right now? I know, Raytheon itself is now doing work in this area, right? So how do you look at that part of your supplier base and how it's responding to enable you to move on these ramps?

I think as a general matter, rocket motors have been a constrained value stream, Doug, you know that. And so we -- while we've seen some improved performance with our current suppliers, I think that is a value stream that is in need of additional investment. And additional capable parties to be able to really meet the needs of the entire industry. And now we're working with a number of folks, Avio, Nammo Investments to have them continue to ramp up their capabilities here in the U.S., because again, I think there's a generational demand shift that's happening here, and we can't get caught short by a few constrained value streams. It just won't work. So you're going to need more players in that particular space.

So your view is -- and Lockheed talked about this yesterday that it's good to have sort of multiple suppliers on programs in general?

Across the board, Doug, I mean, we'll talk rocket motors because that's been kind of the headline constraint for many years, but if you just go through the entire supply base, we've got to continue to get additional sources into those -- into some of these key programs. There are places where we found supply chain vulnerabilities, where we've got sole source or people that are too small to fail. And I think if you're going to try to get to these ramp rates, keep in mind for our framework agreements, it's anywhere from 2 to 4x the rates that we're at today. So in order to get to those rates, you're just going to need additional folks to be able to make some of those parts, rocket motors surely for one. But there are others, too, that we've got to continue to keep a close watch on castings, for instance, is one.

Microelectronics is another, right? There's significant microelectronic demand and things outside of defense. We've got to make sure that we've got the capacity to serve the defense industrial base as well. So we're working with the department going through each of these constrained value streams, where do we need to bring in additional suppliers, who needs funding? We've obviously launched this Office of Strategic Capital, so we've introduced suppliers to that funding source, because, again, we've got to get everybody synchronized at the pace that we need.

Now the wars in Iran and Ukraine have sort of brought forward the need for missile defense of all types, everywhere from low-end counter UAS things to going all the way up to what you do with SM-3 and higher-end. Can you talk about how -- what's happened in those conflicts has shaped the way you're thinking about your portfolio in terms of missile defense?

Yes. I think when you start with Ukraine, you moved to operation Epic Fury, the need for integrated air and missile defense has never been more important. And when you look at the core of what Raytheon does, it's radars and effectors, right? So if you think about Patriot, NASAMS, we've got our LTAMDS, that's now in production, Doug, which is sort of that next generation of radar, which 360-degree view. So a, you need the sensing capability, which we have; and then, of course, you need the effectors as well to go along with that. And so think about GEM-T, AMRAAM. And I mentioned some of the others that are part of the framework agreements, all a part of high-end integrated air and missile defense that both the U.S. and our allies have just generational demand for right now.

But the other piece of this, and you kind of referenced it, is the proliferation of UAS, drone and whatnot. And so we continue to develop solutions for that piece of the layered defense as well. We've got our Coyote system, which has been exceptionally well performing in the field, both Red Sea and here in operation, Epic Fury, we continue to develop a nonkinetic version of the Coyote, Doug, that can go out on a mission, use high-power microwave to address a swarm, come back, be recharged, be able to go out and do another mission. So at each layer of that integrated air and missile defense, we've got proven capabilities in-production capabilities that are ramping.

And when you go to that sort of lower-tier counter UAS portion, when you have Coyote, you have LIDS, you have, I mean, this is an area a lot of people at this conference are talking a lot about it, it's so much in the headlines. How large can that business be for you? And then, second, there are tons of new entrants trying to work into this space. What advantages you relative to some of these new players?

Well, first thing I'll say, Doug, is the, I'll call them, the higher-end systems, the things that are part of our framework agreement. I think it's generally well acknowledged that they've been exceptionally effective both in this conflict and they're going to continue to be necessary for the high-end conflict in the future. And I think the framework agreements bear that out. You're going to need that, those long-range precision strikes that just have exceptionally high success rates.

And so that -- I think that's something that's just going to continue to persist. On the sort of the lower end, the UAS and drone, and counter drone, you're right, there are a lot of folks that are in this space. We're not chasing the commoditized sort of low end. Again, what our Coyote system is able to do in a more cost-effective manner is take out a number of those platforms that our adversaries have developed and it's been doing it exceptionally well.

You asked like what separates us from others, we've got a long history of making systems that have very, very high success rates. It's one thing to have a lower-cost platform. But if your success rate is in the 30% or 40%, I'm not sure that, that's going to do us much good. You're going to need to have the level of success and precision across each layer, and that's something that we've got a strong track record of being able to do.

And I'd also say, Doug, there's other pieces of our business as people are developing unmanned platforms that we can potentially be taking advantage of. A lot of those platforms are going to need engines, they're going to need mission systems. They're going to need Avionics. They're going to have potentially factors hanging off of them. So there are other parts of our business that will actually be able to be a platform-agnostic supplier to many of those platforms, but the Raytheon piece, again, is focused on our LIDS and our Coyote system, and some other things that we're doing in classified environments like directed energy applications.

Switching gears a little bit within Raytheon. Over the last few years, you've had to kind of rework your space strategy. Where does that stand now? How are you looking at that part of your business?

Well, if you think of Raytheon's historical space businesses, you've had the mission control, you've had the sensing, and the payloads that we make for sensing. Those continue to be very solid businesses. But as you're starting to see this trend of conflict moving to space. And you hear about this as part of Golden Dome as well. I would just say our space effects portfolio will continue to be a very fast-growing piece of the portfolio. It's classified nature. There's not too, too much that we can get into here, but we consider it to be a core capability and have substantial capabilities in that area.

But this is different than it was a few years ago when you were trying -- at one point when you're trying to do integrated satellites, it's more of a focus, I'm assuming on that.

Yes, our strategy on that had shifted a little bit to say, look, again, we're going to be a Tier 1 supplier to folks that are going to be like an all-up integrator. That's not necessarily our core capability, and it was just a pivot sort of away from that. And so that business has stabilized as a result. But there's this other piece of our space strategy, which is the space effects and defense that I think is going to be again, a very fast-growing segment.

Now within Raytheon, if we go back a few years, you've had challenges reaching your margin targets there. And I know there were fixed-price development programs that were an issue. But here we are, you got last quarter, 12% margins. I mean, are you at the turning point here where you can move those margins up to sort of this 12%, 13% level? I mean, given you've got a lot of mature production ahead of you, you've got export sales -- are we going to see that upshift soon?

Well, we're really pleased with the margin trajectory we've seen over the last couple of years. With Raytheon, again, it has started with being able to meet our milestones and deliver the product. And that goes back to the continued focus on our supply chain. I mentioned the 12 quarters in a row of material growth before deployed hundreds of people into our supply chain to enable that kind of growth. So that gave us absolutely the stability that we needed to continue to deliver. We also worked through some development programs, R&D programs got on the other side of those, Doug as well, and those are largely now sort of sold off and through the development cycle.

And then, you mentioned it. Much of what's gone into our backlog over the last couple of years would be core products, those radars and effectors, part of that integrated air and missile defense core capability that makes Raytheon, who it is. And so yes, those are ripe for continued increases in productivity. I also mentioned that 48% of our backlog is international. It was generally speaking, tend to have higher margins. And so again, really pleased with the margin trajectory. We're, of course, not capping this business at 12%. I think as you think about the framework agreements and some of the efficiencies that can be brought to bear there, we think those are really, really good potential business as well. So again, pleased, where the margins are, and we're not stopping there.

Okay. Great. Let's go over to Pratt. Now another topic that's been right at the front over the last couple of days here has been on the aftermarket. So let's take the V2500, which is very attractive high-margin program for you guys. With the high fuel prices out there today, there are a lot of airlines, I will say, developing market, LCCs, things like that are having real challenges from a cash standpoint. So far, have you seen any impact on your aftermarket demand given some of those pressures that you're seeing?

Yes. We had a strong Q1 in Pratt's aftermarket, Doug, up 19%. When you start to sort of dig into that, again, continued strength in the V2500. And then, the GTF as well. As you know, we're working through the fleet management plan. So that MRO is going to continue to grow throughout the year. As we've entered here into Q2, and we are looking at this, as you might imagine, by geography, by customer, by program. The demand has continued to be good. We have not seen any change in buying patterns. We've not seen any change in an airline behavior. And so again, for us, it's really just about making sure that we've got the supply chain necessary to continue to meet this demand.

The GTF, as I said before, is going to continue to grow just because we're continuing to work through that fleet management plan, we're making some very good progress there. And because of the GTF plan that we're working through, the V2500 becomes an even more important part of the airline's fleet operating plans. And so that demand has continued to be strong as well. And then, when you get into some of our more legacy products, I think PW2000, PW4000, things like that. They've also continued -- the demand has continued to be very good. And so we just haven't seen any back off at this point.

Now, do you worry at all if this extends, how do you deal with an airline that comes to you and says, we flat out having no cash. You were going to induct our RV. We can't do it. We have no money. What's the process to deal with those kinds of situations? Should we start to see any of that?

Well, first of all, we've got a really rigorous process, Doug, around evaluating all of our customers and any risk that's there. But generally speaking, we've got a long history of working with our customers on ensuring that we can continue our long-term partnership. And so again, those go in ebbs and flows. But we've got a track record to be able to work with our customers. In certain cases, you can restructure a deal, you can defer certain things. There are ways that we can make it sort of a win-win situation. And then, the unlikely event or the unfortunate event that something happens with one of our airlines, I mean, generally speaking, the assets can be redeployed in other places. The demand is pretty strong. We've never been in a situation where we haven't been able to redeploy assets.

Now on the GTF. So the PW1100, there still are a lot of AOGs. Now some of those are inflated because you have spirit. There's some airline specific issues. But can you take us through how you're progressing on bringing down those AOGs and kind of what that path is now?

Yes. So as many of you know, we continue to execute on the fleet management plan that we've announced a couple of years ago on the 1100 and the 1500. The financial and technical outlook remains intact with what we've said. And again, a big piece of that was the fallout rate from our inspections. That's been exactly, if not better than we thought it was going to be, Doug. So really pleased about that. The AOG situation continues to improve.

Again, we were down 15% in the first quarter since the end of 2025. And we continue to see that downward trajectory here continue in the second quarter. Now a lot of that is on the back of our continued growth in MRO output. It was up 23% year-over-year in the first quarter. I was on the back of 26% growth in 2025. So really, really good output in our '21 MRO -- GTF MRO shops that we've got out there, and a big part of that has been the reductions in turnaround time. Turnaround time is down 20% in the first quarter, and that was on much heavier work scopes, 9 points heavier in fact. So continuing to see good material flow into our MRO shops. Castings were up 10% year-over-year. Forgings were up 18% year-over-year. So as long as that material flow continues as we've seen and our shops continue to come down the learning curve and turnaround time continues to come down, we expect to see the AOG situation continue to improve markedly.

So you're -- I'm assuming that, and we've talked about this before, but I'm assuming that, so you're still on that path in terms of sort of the $3 billion to $3.5 billion, which is the provision you took back in 2023, you're still on that trajectory. We are to be there.

We are. And again, our focus is on making sure that we get the assets back in the hands of our customers, which is why we've been so focused on the MRO output, Doug. And again, it's been bearing fruit, and you're seeing that show up in the fleet health.

Well, you're also -- I mean, you're delivering also a pretty high number of spare engines too to bring these off the ground. Certainly, like Airbus has commented, I know there's been back and forth on deliveries -- sort of deliveries for on-wing aircraft versus in the aftermarket. Can you talk a little bit about that, how you think about that balance?

Yes. The focus in '26, to be very clear, is on MRO output. We have a significant step-up in MRO output. That is going to be the key linchpin to the continued fleet health. We've been in a situation over the last couple of years, where we've had to be thoughtful about how we balance material that goes to our OE side of the business and to the aftermarket. And as I said upfront, we've got a commitment to our customers to get them back their assets. And so we've got to be, again, every day, every week thoughtful about whether material goes to our shops for a shop visit or towards the OE.

On the OE front, we're going to be up this year. We're going to deliver more engines to Airbus this year than we did in the last year. And as we continue to see the AOG situation improve, I expect that we'll continue to get aligned with Airbus on the volumes that they're going to need going forward.

Yes. Okay. So when you look at this rising demand in GTF, rising demand for aftermarket for OE, and you look in your supply chain. You sort of -- you don't always see these 2 things grow at the same time. When you do, are there areas in that supply chain that you're particularly worried about the need to ensure they can deliver on both parts of this demand?

It's a really good point, Doug, because we are ramping deliveries. You're seeing it both at Airbus. And of course, on the Collins side, you're seeing it at Boeing as well. And -- but meanwhile, the demand for aftermarket continues to be very strong. So to your point, you got both of these things growing at the same time, and you're ramping at both of the airframers. And so much like on the defense side of our business, the supply chain is critical to enabling all of that ramp.

I mentioned upfront castings. Castings, both at Pratt and Collins continues to be a watch area. Again, we saw castings, structural castings at Pratt up 10% year-over-year in the first quarter, but you're always seeing things arise here and there that interrupt your flow. And so we've got to continue to maintain that maniacal focus on the supply chain. And sometimes that does require us to make some trades depending on, is there an airline that's in a particular situation and they need a spare engine to come out of the shop, is that where the material should go. Our program teams are making those trades each and every day. But as -- I think as we continue to mature, as we continue to see the supply chain continue to grow, those trades will happen less and less. And we'll be able to be able to meet the needs of both.

Now you have a relatively new facility in Asheville, you're building out, which is doing sort of coatings, castings. I mean, what are your objectives with that effort? How does that fit into your whole supply chain view?

Yes. We opened Asheville a few years ago as our sort of our turbine airfoil center of excellence, it's a key part of both the GTF and the F135 turbine airfoils. It's in a critical part of the engine, high-margin part, high-performance part. We've also launched an ability to do some of those castings ourselves, Doug. That's something that we had a historical capability of doing and have since outsourced to others. That's been a constrained value stream. And we want to be able to sort of reenergize our efforts around being able to do some of that.

It won't replace and fulfill all of our needs, but again, given the demand, both on OE and aftermarket, we felt it was a strategic decision we needed to make to be able to provide some additional capacity for the needs on both the defense and the commercial side of our business.

Because that's not an easy -- it's not an easy part of the supply chain. Is this something that you look at as an ability to kind of flex if you have issues that you can bring some of that online or...

You're right, Doug. It is a reason why it's been a constrained value stream. It is a -- there are only a few players that will do it. It is a very difficult process, but it's something that we've had historical experience doing. And we've been working through that over the last couple of years, making sure that before we go live that we get the yields where we need them to be. So it's economical, and it makes sense. And yes, it's just an area where we've seen long-term constraints, and we need additional supply. And we just, again, made the strategic decision to bring that in, and try to vertically integrate a little bit to give us more options.

Now I mentioned the F135. So we're looking at flat production going forward, 156 a year. However, there's a lot of sustainment need out there, and how are you looking at the sustainment portion on that engine as well as any impact you're seeing from high OPTEMPO based on current conflict?

I want to start off any discussion on the F135 with just how incredibly capable a piece of machinery it has been. I think, if you ask any of the operators that would tell you, it's just a phenomenal engine. And I think the one thing that gets a little bit underreported is that our mean time between overhaul, meaning like how long you can run it before you have to take it off for maintenance is 2x the spec. And that's while we are 2x above the spec on power and thermal management because of other parts of the platform that are drawing power off the engine, so it's really just been a phenomenal, both from a performance perspective, but also from a durability perspective.

And you're right, Doug, it will be relatively flat from an OE standpoint this year, but sustainment was already going to be on a very significant track. We're going to start getting into the more scheduled visits. And I think the OPTEMPO is going to continue to put demand into what was already sort of a high-demand programming.

Yes. Well, if we look farther forward, and you're looking at a next narrow-body, how are you thinking about the engine you would like to provide for something, the next narrow-body?

Well, whenever we talk about the next generation of engine, again, I feel compelled to talk about that you need to take care of your customers today in order to enable tomorrow, right? And so number one, our focus is on the fleet management plan and making sure that we get the GTF assets back into our customers' hands. And then, two, we still got 8,000 GTF engines in backlog today.

Well, and also the GTFA.

And of course, we've just now certified the GTF Advantage, which will provide additional fuel burn benefits, some additional thrust, but really will extend the time on wing by 2x the original GTF engine. So that's where our focus is today. And there's a lot of runway, just on today's program. I mean, if you just think about it, Airbus is sold out into the next decade. So that's sort of priority one. But when you think about what it may look like towards the back end of next decade on a next-generation sort of platform, in our view, it will be a ducted architecture with a gear. And a gear is something that we've had over -- on the 1100, 50 million hours worth of experience with the gear, 10 -- more than 10 years into production.

And we consider our GTF Advantage to be the perfect architecture for the next-generation single aisle, we'll continue to provide additional technology upgrades to that architecture, whether that be a next-generation stand drive gear system whether that be an upgraded combustor, whether we use advanced materials in the core that can withstand greater heat to be able to extend the life and the time on wing. Those are all things that we are investing in today.

One thing I will also mention when we think about a next-generation engine application is, we've got to be thoughtful about the time on wing and the durability. We're going to continue to push to get fuel efficiency, but you've got to balance that with how long the engines are able to stay on wing and the durability. If you talk to any of our airlines today, they will tell you, they don't want one or the other, they want both. And so as we think about when the technology will be mature and ready, I want to make sure we're ready, both from a fuel burn perspective, but also from a time on wing perspective.

And again, so the technology has to be ready, time on wing, has to be ready when it comes out of the box. And then, last but not least, again, the manufacturing readiness. When we launched the GTF, we don't only launch the new center line design, but we took the ramp in terms of deliveries up right from the get-go. And again, the next time we do this, I want to make sure that our manufacturing readiness levels match the technology readiness level, so we can meet the ramp while also meeting the performance requirements.

Yes. And I'd argue, when you talk about those two things, everyone I talked to, durability is the first one, across the board.

I think, you're right. I think we're going to need to continue to drive efficiency in the engines, especially given what's happening in the world today. I think that's something that Boeing or Airbus or whomever when they launch is going to want to see a sort of a step change in fuel efficiency, but it's got to come with the time on wing, Doug, I couldn't agree with you more, which is why, again, I think this is a multiyear process to be able to prepare to be able to do that.

So if we jump over to Collins, this has had steady revenue and earnings growth over the last few years, but again, I'm going to go back to the current environment out there, the macro environment. I remember this -- the Collins, what was Rockwell Collins that back during the global financial crisis, and you saw the aftermarket get pressured a lot in some areas that are more discretionary, things like avionics upgrades, interiors. When you look at Collins today, it's obviously broader than just what Rockwell Collins was. How do you see risks there given the environment?

Well, I think you got to go back to what I said earlier. When you look at the Collins out-of-warranty installed base, it's $105 billion. And those out-of-warranty flight hours are continuing to grow as things come off warranty. So you've got just an incredible installed base there, Doug. That's going to continue to drive long aftermarket tails for years and years to come. If you're thinking about sort of the current situation, I think, you got to step back and break down the sort of the Collins aftermarket into some of its pieces. 2/3 of the Collins aftermarket would be in parts and repair. So that's sort of like break fix things that you're going to have to do. And the remainder is made up of provisioning and mods and upgrades.

Generally speaking, provisioning follows OE deliveries. And OE deliveries are continuing to ramp. The good news this week on Boeing being able to go to rate 47, and then, wanting to move to rate 52. And so provisioning, generally speaking, follows that trajectory. And then, you get to the mods and upgrades. And to your point, Doug, you see some upgrades in avionics, maybe in some of our interiors business and whatnot. And so that's something we're looking at really carefully that if this were to extend and if there were to be more strain on operators, could that be a place where you might start to see some deferral and pushing things out? But again, I think the one thing that the airlines learned coming out of COVID is they don't want to underestimate the recovery, and they don't want to be out of step when it happens.

So that's why deferring a shop visit on the engine side can be a very dangerous proposition because you don't know when you're going to get back in the line. Same with deferring a modern upgrade. And if you think about seating in particular, many of the airlines are now getting pricing because of the differentiation they're driving in the passenger experience and the cabin experience. And so -- and seating is a very big part of that. So again, I think the airlines today are looking at this, like, hey, look, long term, RPKs are still going to be strong, and we've got to be positioned to take advantage of that when it does.

Now some good news on the OE side here is now we -- as you said, finally have that 737 rate going up, that's great for -- certainly for the integrated flight deck. It's got 787 going up. You provide vast majority of the systems on that. However, that's -- in total, this OE demand is a little bit dilutive to margins. So how do you -- how should we think about margin trajectory given that this is now -- this portion should grow more. That's good for operating leverage with that OE work, but at the same time, it could be dilutive overall. What does this mean for the margin outlook?

Well, when you think about Collins margins, I'll kind of talk about it in 3 areas. One, again, I'll go back to the installed base in the out-of-warranty equipment. And that's going to continue to grow. And as you know, the aftermarket at Collins is very high margin. Second piece, and you just referenced it, Doug, as these OE rates are going up, there's going to be some operating leverage there. We have been building at much higher rates in the past. We have the capacity. There's going to be that absorption benefit that comes from higher rates. So while the margins in OE are a little bit less, of course, than the aftermarket, again, there's going to be an absorption benefit that comes with these higher rates because we've been capacitized for them for some time now.

And then, again, the third bucket is the continued drive to take out structural cost within Collins. You start to see some of that play through in the first quarter. I think they're taking some really smart actions on how to consolidate certain operations, how to attack spans and layers and drive cost out of the business and to just be more efficient. Maybe just step back for a minute, RTX wide, we had about, what, 10%, 11% organic sales growth and pretty much flat headcount. And so that's something that each one of our businesses is driving towards. I just got to be more efficient, more productive. And I think Collins is leading the pack there.

So a while back, your goal was to have 19% margins at Collins. Where are you now on that path? Should we still be looking forward to that kind of a margin level?

Yes. I think across each one of our businesses, there's margin runway, Doug. And I think with Collins as well, I think we've continued to grow margins even in the face of tariff headwind last year. We're going to continue to grow margins this year. And again, we're on that trajectory. That goes for each one of our businesses. You've talked about Raytheon early on in that -- still in that 11%, 11.5% range. There's room to grow there. Clearly, at Pratt, as the GTF aftermarket continues to grow and become more profitable, that will be a big driver. And we didn't even really talk about Pratt Canada today, which is the best small engine business in the world with 70,000 engines in service and all the aftermarket they're going to bring to bear, and then, Collins. Again, the 3 buckets I just talked about, we think we can continue to drive margins in that business as well.

If you pull this all together, I mean, you've guided to $8.25 billion to $8.75 billion in free cash flow this year. How should we think about that in 2 ways? One is, are there some levers here that can provide upside to that? And then, second, can you give us a sense of where that may go beyond 2026?

Yes. Well, again, we had a really strong free cash flow performance in '25, Doug, right at that $7.9 billion. This year, I feel comfortable with the guidance that we've provided. And I just think if you look long term in our ability to generate free cash flow, we've got all of the structural pieces in place to be, again, 90% to 100% of EBITDA as free cash flow. I think that's what this company is structured to do. When you think about the positions we have on the fastest-growing platforms, when you think about the aftermarket content that we have across Pratt and Collins, and we think about the franchise programs at Raytheon, it's got the ability to continue to drive to those cash levels.

Well, great. Well, we're out of time here. But Chris, thank you very much for this. This is great.

Thank you. Appreciate it. Thanks, everybody.

Good day, and welcome to the RTX First Quarter 2026 Earnings Conference Call. My name is Latif, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes.

On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchill, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations.

This call is being webcast live on the Internet, and there is a presentation available for download from RTX website at www.rtx.com.

Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net nonrecurring and/or significant items, often referred to by management as other significant items.

The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

[Operator Instructions] With that, I will turn the call over to Mr. Calio.

Thank you, and good morning, everyone. Before I get into our results, I want to acknowledge the ongoing situation in the Middle East and express our hope for a sustained resolution.

Let me now shift to the quarter. We delivered very strong performance to start the year, driven by continued execution enabled by our core operating system and a consistent focus on productivity across RTX.

Starting with the top line, adjusted sales were $22.1 billion, up 10% organically, with growth across all 3 channels. Adjusted EPS of $1.78 was up 21% year-over-year, driven by 14% growth in segment operating profit. And free cash flow of $1.3 billion was a solid start to the year and up $500 million from Q1 last year.

On the orders front, demand for our commercial and defense products and services remains robust. Our book-to-bill in the quarter was 1.14, and our backlog is a record $271 billion, up 25% year-over-year with strong commercial and defense awards in the quarter. On commercial, our backlog is up 30% year-over-year with strength across both OE and aftermarket. This includes some notable GTF wins, including Vietjet Air, which selected the GTF engine to power an additional 44 aircraft. And recently, Finnair announced their intention to purchase up to 46 GTF-powered Embraer [ E2 ] aircraft.

On the defense side of the business, we saw significant awards across all 3 segments, highlighting the strength of our product offerings. At Pratt, the military business was awarded over $3 billion for F135 Lot 19 production. Collins booked close to $3 billion of awards, including $1.7 billion for mission systems capabilities and $400 million for avionics equipment supporting multiple platforms. And Raytheon booked $6.6 billion of awards in the quarter, including over $600 million to supply the Netherlands with Patriot equipment and over $400 million from the U.S. Army for our lower-tier air and missile defense sensors.

In addition, we're working closely with the Department of War to accelerate munitions production and are pleased with the progress to date. As we previously announced, Raytheon signed 5 landmark framework agreements with the Department for critical munitions, including Tomahawk, AMRAAM and the Standard Missile family. These agreements are a significant step forward in the department's transformation initiative and they are vitally important for national security. Once finalized, these agreements would provide firm demand signals for RTX and our suppliers to invest in ramp production well above existing rates over the next decade.

This increased production will primarily occur at sites in Tucson, Arizona; Huntsville, Alabama; and Andover, Massachusetts, where we've already invested nearly $900 million in CapEx over the last 3 years to expand capacity at these locations. We will continue to make significant additional investments going forward to advance production capabilities and add new manufacturing lines to support these agreements.

And as we said, the agreements incorporate a collaborative funding approach to preserve upfront free cash flow and they represent good long-term business for us.

So a very strong start to the year. I know everyone is looking to understand how we're thinking about the end markets as we look ahead. So let me provide an update on the operating environment as we see it today. I'll start with commercial aerospace.

Like all of you, we're closely monitoring global events. While the environment is dynamic right now, the underlying demand for our OE products and aftermarket services remains durable. Commercial OE in the first quarter was in line with our expectations. We expect continued production ramps across multiple platforms throughout the remainder of the year.

In Q1, we saw solid RPK growth despite the disruption in the Middle East. And aircraft retirement rates also remain below historical levels, with V2500 retirements in line with our expectations. Of course, regardless of any near-term volatility, this is a long-cycle business. We assume RPK growth will continue and the demand for new aircraft to remain strong.

So based on what we see today, we're not making any changes to our commercial outlook for the year. We'll, of course, be actively monitoring the situation.

On the defense side, the current landscape clearly underscores the need for munitions depth, integrated air and missile defense technology, and more advanced capabilities to counter evolving threats, such as our Coyote counter-UAS system. As seen in the President's budget request, we expect these priority areas to see significant funding increases in the 2027 U.S. defense budget and other supplemental funding packages. Our products across RTX are well positioned to support these needs with our battle-tested systems and munitions serving as the backbone of many U.S. and allied defense architectures, including franchise programs like Patriot, GEM-T, NASAMS, AMRAAM, Tomahawk and the F135.

So given our first quarter results and the strength we're seeing in our defense business, we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook. Neil will take you through the details in a few minutes.

Operationally, our focus will remain on executing our backlog, driving increased output and innovating to bring new capabilities to market. Let me highlight on Slide 4 some of the progress we're making across RTX on these fronts, starting with our focus on operational execution.

On the GTF program, the fleet management plan, including our financial and technical outlook, remains on track. PW1100 AOGs were down around 15% compared to the end of last year. We expect this downward trend to continue. As we've said before, the key enabler of this reduction is MRO output, which was 23% year-over-year on the PW1100 on top of the 35% growth we saw in Q1 of last year. Consistent with our prior comments, we will continue to optimize the allocation of material between OE and aftermarket to ensure the health of the overall fleet and balance all of our customers' needs.

On the OE front, GTF shipments were in line with our expectations for Q1, and we continue to expect mid to high single-digit delivery growth for the year. During the quarter, GTF-powered aircraft surpassed 2,700 deliveries, with Pratt powering about 45% of the A320 deliveries to date, ahead of our roughly 40% sold program share.

Also of note, the GTF program achieved 10 years in service in the quarter. The engine now has over 50 million flight hours with a backlog of about 8,000 engines, and we recently received aircraft certification of the GTF Advantage, keeping us on track for entry into service later this year. The Advantage incorporates a decade of learning that will deliver a step change in performance and time on wing for our customers.

We also continue to leverage our core operating system, digital solutions and investments in automation to drive productivity and deliver on our commitments. For example, we saw further progress on munitions output at Raytheon in Q1 with total deliveries up over 40% year-over-year, building on the increased production we drove in 2025.

With respect to our automation efforts, Pratt's MRO facility in Singapore has developed industry-leading robotics that assemble high-pressure compressor rotors, delivering 100% first-pass yield and reducing assembly time by 50%. And the team is implementing further automation of assembly and engine core stacking for the low-pressure compressor. This type of investment has supported an 80% increase in output at the facility over the last 2 years, and we're actively deploying these capabilities across our MRO sites.

We also remain on track to connect 60% of our annual manufacturing hours to our proprietary data and analytics platform by the end of this year. We're harnessing this data from our connected products and factories to improve the speed of decision-making and operations.

We've integrated our commercial installed base into this platform to enhance predictive fleet maintenance. For example, the wheels and brakes team at Collins is using real-time data to better understand service life and improve inventory management, resulting in cost reduction across its large portfolio of long-term pay-by-the-landing service agreements.

Moving now to innovation and future growth. We're making focused investments to meet the growing end market demand. Specific to capacity, we made progress on expansion efforts across all 3 segments in the quarter. Pratt announced a $200 million investment to expand capabilities at our Columbus, Georgia facility that supports both commercial and military engine programs, including the GTF and F135. This investment will increase output of critical parts including rotating compressor and turbine discs to support growing OE and MRO demand.

Raytheon completed $115 million expansion of our Redstone Missile integration facility in Huntsville. This investment will increase the facility's munitions capacity by over 50% and support multiple systems, including the standard missile family and associated framework agreements. And Collins launched a capacity expansion effort that will support the recently awarded FAA contract for radar systems and other air traffic modernization opportunities.

We also achieved significant milestones within our cross-company technology road maps in the quarter. Raytheon successfully demonstrated a non-kinetic variant of the Coyote effector during a U.S. Army test event. This is a lower-cost counter unmanned aircraft system that can be recalled after completing its mission and redeployed for additional engagements. This innovation addresses a growing need for our customers and builds upon the battle-tested kinetic variant of Coyote in use today to defeat drone threats.

In AI and autonomy, Collins completed a successful flight test of its mission autonomy software for the U.S. Air Force's Collaborative Combat Aircraft Program. This demonstration highlights the strength of Collins' open architecture autonomous software to deliver enhanced capability across various platforms. And in propulsion, our cross-company team consisting of Pratt, Collins, the RTX Research Center and RTX Ventures is making significant progress in Hybrid Electric Solutions. In the quarter, the team successfully operated the propulsion system and battery pack for a Turboprop demonstrator at full power. This technology is expected to drive a 30% improvement in fuel efficiency for regional aircraft and combines a thermal engine from Pratt, a 1-megawatt electric motor from Collins and a 200-kilowatt battery system supported by RTX Ventures.

So overall, I'm pleased with the progress we're making on the innovation front. With that, let me turn it over to Neil to walk you through the first quarter results and the outlook in some more detail. Neil?

All right. Thanks, Chris. I'm on Slide 5. As Chris already mentioned, we had strong financial performance to start the year.

In the first quarter, adjusted sales of $22.1 billion were up 9% on an adjusted basis and up 10% organically. This top line organic growth was driven by strength across all 3 channels, with commercial OE up 6%, commercial aftermarket up 14% and defense up 9%. Adjusted segment operating profit of $2.9 billion was up 14% year-over-year, driven by drop-through on higher volume, favorable defense mix and improved productivity.

Specifically on productivity in the quarter, we saw continued progress across the company on cost reduction and efficiency improvement, growing organic sales and segment profit double digits with only a 1% increase in headcount. We also drove 70 basis points of consolidated segment margin expansion in the quarter with contributions from all 3 segments, more than offsetting the year-over-year headwind from tariffs.

Adjusted earnings per share of $1.78 was up 21% from prior year, driven by strong segment operating profit growth and lower interest expense. Adjusted earnings per share also benefited by about $0.08 year-over-year from a lower effective tax rate, which was principally driven by higher stock-based compensation deductions.

On a GAAP basis, earnings per share from continuing operations was $1.51 and included $0.27 of acquisition accounting adjustments. And free cash flow of $1.3 billion was a solid start to the year and included approximately $170 million of powder metal related compensation.

Lastly, we paid down $500 million of debt in the quarter and are tracking to our full year deleveraging expectations as we further strengthen our balance sheet.

Okay. Let's turn to Slide 6 and I'll provide a few details on our updated outlook for the full year. As Chris mentioned, based on our strong first quarter performance and expectations around continued defense strength, we are updating our full year outlook.

On the top line, we're raising our full year adjusted sales outlook by $500 million to a new range of $92.5 billion to $93.5 billion, up from our prior range of $92 billion to $93 billion, driven by the performance we saw at Raytheon in the first quarter as well as slightly lower sales eliminations for the year. We continue to expect this to translate to between 5% and 6% organic sales growth for the full year at the RTX level.

Breaking this down further, we continue to expect commercial OE sales to grow mid-single digits and commercial aftermarket sales to grow high single digits for the full year. And given the increase at Raytheon, we now expect defense sales to grow mid to high single digits for the full year, up from our prior expectation of mid-single digits.

On the bottom line, we are increasing our adjusted earnings per share outlook $0.10 on both the low and high end of the range. This increase is driven by approximately $0.05 of drop-through on the higher sales at Raytheon, with the rest coming from a couple of below-the-line items, including lower interest expense.

We now see adjusted EPS of between $6.70 and $6.90 for the full year, up from our prior range of $6.60 to $6.80.

On free cash flow, we remain on track to our outlook of between $8.25 billion and $8.75 billion for the full year.

Okay. With that, let me hand it over to Nathan to take you through the segment results for the quarter. Nathan?

Thanks, Neil. Starting with Collins on Slide 7. Sales were $7.6 billion in the quarter, up 5% on an adjusted basis and 10% organically, driven by strength across all channels. Adjusting for divestitures, by channel, commercial OE sales were up 15% driven by higher volume on narrow-body and wide-body platforms. Commercial aftermarket sales were up 7% driven by a 15% increase in provisioning and an 8% increase in parts and repair, partially offset by a 3% decline in mods and upgrades. Recall, mods and upgrades were up 18% in Q1 2025. Defense sales were up 9% versus the prior year driven by higher volume across multiple programs.

Adjusted operating profit of $1.3 billion was up $71 million versus the prior year, driven by drop-through on higher commercial and defense volume and lower R&D expense. This was partially offset by unfavorable commercial OE mix, the impact of divestitures completed in 2025 and higher tariffs across the business. In the quarter, Collins expanded margins by 10 basis points year-over-year despite a 130 basis point headwind from tariffs.

Turning to Collins' full year outlook. We continue to expect sales to grow mid-single digits on an adjusted basis and high single digits organically, with operating profit growth between $425 million and $525 million versus 2025.

Shifting to Pratt & Whitney on Slide 8. Sales of $8.2 billion were up 11% on an adjusted basis and 10% organically, driven by strength in commercial aftermarket and military. Commercial OE sales were in line with expectations and down 1%, driven by lower engine deliveries. As Chris said, we continue to expect mid to high single-digit large commercial engine delivery growth for the full year. Commercial aftermarket sales were up 19%, driven by higher volume, including heavier content in both large commercial engines and Pratt Canada. In military engines, sales were up 7%, driven by higher F135 production volume.

Adjusted operating profit of $711 million was up $121 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume, partially offset by higher operational costs, including tariffs and higher SG&A expense. In the quarter, Pratt expanded margins by 70 basis points year-over-year despite a 50 basis point headwind from tariffs.

Turning to Pratt's full year outlook. We continue to expect sales to grow mid-single digits on an adjusted and organic basis, with operating profit growth between $225 million and $325 million versus 2025.

Turning to Raytheon on Slide 9. Sales of $6.9 billion in the quarter were up 10% on an adjusted basis and 9% organically, driven by higher volume on land and air defense systems, including Patriot and GEM-T, and higher volume on naval munitions programs. Adjusted operating profit of $845 million was up $167 million versus the prior year, driven by favorable program mix and higher volume in land and air defense systems, higher volume in naval programs and improved net productivity.

In the quarter, Raytheon expanded margins by 150 basis points year-over-year driven by favorable mix and increased productivity. Bookings in the quarter were $6.6 billion, resulting in a book-to-bill of 0.96 and a backlog of $74 billion. And on a rolling 12-month basis, Raytheon's book-to-bill is 1.48. In addition to the awards Chris mentioned earlier, other key awards in the quarter included over $900 million for Standard Missile and Tomahawk.

Turning to Raytheon's full year outlook. We expect sales to grow high single digits on an adjusted and organic basis, up from our prior range of mid to high single digits due to the strength Neil mentioned earlier. We now expect operating profit growth between $275 million and $375 million versus 2025, up from our prior expectation of between $200 million and $300 million, driven by the drop-through on higher sales and favorable program mix.

With that, let me hand it back over to Chris for some closing remarks.

Okay. Thanks, Nathan. As we set up front, our execution and operational performance drove strong top and bottom line results in Q1, and I want to thank the entire RTX team for their continued dedication and commitment to our mission.

The underlying demand for our commercial and defense products is durable, and we remain focused on executing on our commitments, investing in capacity and innovating for future growth to drive long-term shareholder value.

With that, let's open it up for questions.

[Operator Instructions] The first question comes from the line of Robert Stallard of Vertical Research.

Chris, you highlighted the very strong demand you continue to see for Missile Systems in the Raytheon portfolio. I was wondering, how concerned are you about the ability of your supply chain to keep up with the demand pace you're setting? And also in relation to that, the risk with regard to rare earth?

Thanks for the question, Rob. I'll start by just saying we're really pleased with how we started the year in terms of production. As we said upfront, [ munitions ] was up over 40% year-over-year. So a very good start to the year. Now the continued ramp of production is going to require growth in supply chain output and performance, as you've noted here.

Now Raytheon has had 12 consecutive quarters of material growth, which is great, and material receipts were up 13% year-over-year here in Q1. And we're going to obviously going to keep a very close eye on a number of the things that we talk about on a consistent basis: Rocket Motors given the concentrated supply base; microelectronics, given the non-A&D demand that's out there. But if you just think longer term and the potential impact of the framework agreements, it's going to require a step change, to your point, in the supply chain.

Now the framework agreements do provide some potential long-term firm demand. And that's going to provide the visibility the supply chain needs to invest in people, tooling, test equipment and capacity, which is great. But I think longer term, the defense industrial base is going to need additional suppliers to improve the overall resiliency, and the firm demand is likely going to incentivize quality suppliers from other industries to enter the supply base, which is great, and I think we need it.

And the Department of War has been partnering with a lot of those folks to provide strategic capital to give them the balance sheet strength they need to make these investments. But we're going to need all of that in order to not only meet the production ramp-up that we have in front of us now, but also the potential ramp-up that comes with the framework agreements.

On critical minerals, I would just say that we've been working on this for a while having seen this coming. And so we're covered in what I would call the near and medium term. And we're still seeking to lock up longer-term partnerships and contracts on a handful of those. And the department has actually been a really strong partner in that effort as well.

Our next question comes from the line of Peter Arment of Baird.

Chris, if we could just stick on your framework comments. Just wanted to kind of double-click on sort of how you're thinking about -- I know pricing is always sensitive, but how we're thinking about the impact when you're thinking about CapEx that you've had to put in place, and then how should we think about potentially margins long term? Is there an opportunity here where the mix changes dramatically where you have more in production versus development mix? Just how you're thinking about Raytheon just given investments that you need to do [ shoring up ] supply chain, et cetera, and then pricing around some of these agreements?

Yes. Thanks, Peter. Look, given the demand coming out of the Ukraine conflict, we've been investing for a while and increasing capacity. We mentioned a number of those in our upfront comments. Think Huntsville, think Andover, think McKinney, Texas. All those investments that you need to not only expand your footprint, but tooling, test equipment and labor. So we've been on that path to meet the demand.

On the framework agreements, and again, I don't want to get to too far into the details on this, Peter, only because we're still in the process of negotiations and discussions with the department on that. But again, as I said before, when they are ultimately finalized, it will give the kind of long-term visibility that the supply chain will need to invest, which is critically important. I think the episodic nature previously of the ordering patterns made it very difficult for the supply chain to make those kinds of long-term investments and things like the framework agreements are here to sort of address that.

But here's what I will say, if you just think about the overall economics of the framework agreements, they give us an opportunity to bundle materials, they give us an opportunity to leverage economy of scale, and they give us an opportunity to really drive production efficiencies, especially given some of these are mature programs, things that are right in our wheelhouse. So we ultimately think that these are going to be very good business for us, but we're still going through the process to convert those into final agreements.

Our next question comes from the line of Myles Walton of Wolfe Research.

Maybe a question again on Raytheon, maybe a little bit bigger into the -- digging into the details on the sensors and effectors. On the effector side, as a surrogate, LHX laid out this almost 20% CAGR through 2030 for the missiles business. Would that be reflective of the kind of growth you're expecting within that portfolio? And we don't hear as much on the sensor side, but you mentioned the Andover expansion. So I'm curious on the sensor side, what kind of growth you're looking for as it relates to your business at Raytheon?

Myles, I'll start on that one for you. Let me start by giving you a little bit of perspective on the Raytheon portfolio. If we were to look at '25, '26, if you will, as a proxy for how large is the effector business within Raytheon. Think about that as accounting for a little bit over 40% of the sales of Raytheon. So to just give you some context. And sensors obviously makes up a little less than that, but a large portion of the Raytheon business as well.

And I would tell you that the growth we saw in the first quarter was significantly driven by the munitions and effectors, also the sensors, Patriot in particular. And we're seeing double-digit growth rates on those businesses in the quarter, and I expect that to continue as we go forward. Keep in mind, everything that Chris just spent a couple of questions talking about is not even in our backlog yet. So we're just talking about delivering today's backlog to both our U.S. and our international customers.

On the sensor side, we see a lot of runway ahead of us there as well. We're continuing to build and deliver Patriot systems, NASAMS systems, the Coyote system. And obviously, we're ramping up our production on LTAMDS as we look forward. So that helps give a little bit of context on the size of the business and where we see it going. Again, as we finalize those agreements, we'll be sharing more details on the specifics as they come to finality. Chris?

No. The only thing I was going to add there, Myles, is I think the underlying premise of your question is a good one, which is I think the sensors potential has been something that has perhaps been under-discussed given, obviously, the framework agreements and all the replenishment that you're going to need on the effector side. And Neil rattled off a whole bunch of pieces of that portfolio, which I think are going to be really critical priorities. But again, just think Golden Dome, think integrated air and missile defense, the sensor portfolio is going to continue to grow in importance. And I think we're going to see the output there have to grow over the long term as well.

Our next question comes from the line of Kristine Liwag of Morgan Stanley.

When we look at what's happening in Iran, so there's a clear increasing need to solve for some of the cost mismatch issues for the lower-cost drones. I guess the demand signal for your existing products is very clear and the replenish of the arsenal makes sense. But can you talk about how you're thinking about the solutions you provide in these higher-volume but cheap drones, especially when we think about the future of warfare and how that could be integrated into the Golden Dome?

Yes. Thanks, Kristine. Appreciate the question. I think just to provide some high-level context here, I think we're going to continue to need the right mix of capabilities. And you're absolutely right, the Department of War has put priorities around munitions depth and replenishment, integrated air missile defense, Golden Dome, all the things that are in the Raytheon wheelhouse and very mature products and products that are in production today.

Your point about counter-UAS is a good one. We talked upfront about our Coyote system, and the Coyote system has been in great demand. It's performed exceptionally well in the field. And we've just actually started to introduce a non-kinetic version of the Coyote. So it can go up. It can perform its mission. It can address drone swarms. It can then come back and redeployed, recharged and, again, go out and prosecute another mission. So that goes to the low-cost, reusable nature of that particular platform. And we're seeing really, really strong demand both domestically and internationally. In fact, we just had an FMS case approved for Coyote for the UAE, just to show the level of international demand there.

I think more broadly, you're right, there are a number of lower cost sort of platforms that are out there. I'm not sure that's where we're going to compete on a platform level. But I do think there are going to be opportunities for us to be a platform-agnostic supplier of systems on some of these solutions, whether that be mission systems, whether that be autonomy, whether that be propulsion. So that's kind of how we see this landscape playing out. Clear demand for the high-end capabilities that are in our backlog today and that are part of the framework agreement, clear strengths in our counter-UAS capabilities, again, Coyote, and then opportunities for us to play on some of those other platforms as a supplier.

Our next question comes from the line of Mariana Perez Mora of BofA.

I wanted to follow up about the tariff impact. How are we seeing the impact so far after these new metal tariffs that were recently announced, and also the Supreme Court ruling on IEEPA?

Sure. I'll start with that one. Thanks for the question on the tariffs. Really no change today to our outlook for tariffs for the P&L for the full year. We talked about, back in January, seeing about a $75 million year-over-year tailwind as we continue to implement mitigations there.

Obviously, the IEEPA tariffs court ruling have been overturned. They've been replaced with Section 122 and some other tariffs that's called Section 232. And so right now, we're sort of saying on balance, the tariff impact is about the same. That said, since the tariffs for IEEPA were put in place, we paid about $500 million associated with that kind of tariff. Obviously, the government is in the process of starting the refund process. And as we gain more clarity into that, we too will submit requests for our refunds there.

We have not recorded income associated with reversing any of the expenses that we took. We have not included that in our guidance for this year either. So more to come there, but no change to our outlook today based on any of those changes. And if it improves, you'll see it in the bottom line. But right now, we're continuing to monitor it like everyone.

Our next question comes from the line of Scott Deuschle of Deutsche Bank.

Chris, can you walk us through how you're thinking about the pricing strategy for [ Hot Section Plus ], which I believe is off warranty? And then do you require any additional regulatory approvals to begin providing Hot Section Plus on upcoming shop visits?

Yes. Scott, thanks for the question. Well, first and foremost, we're really pleased here to have the aircraft certification on the GTF advantage, which, as you know, is where the Hot Section Plus comes from. So that paves the way for Advantage [ entry into ] service later this year. And those GTF Advantage engines are already moving through our production lines, and so I know our customers are looking forward to the increased time on wing and fuel efficiency.

And to your point, the Hot Section Plus is the -- effectively the vintage retrofit package. Those 30 to 35 parts are going to provide almost 95% of the durability benefits of the Advantage, and they're going to get introduced into MRO a little bit later this year. So they will be introduced in MRO before likely the actual engine goes into service later this year.

In terms of the pricing strategy, I mean, look, we've invested significantly in the Advantage, in all of the design and the testing and the like, and we plan to get value for that investment. Are there certain contracts that we have where it might make sense to incorporate versus others depending on where they're operating and what the environment looks like? Yes. And we're continuing to look at where it might be the most beneficial. But our intent is to get value for the investment that we've made and the value that it's going to continue to bring customers in terms of the time on wing and the fuel efficiency, which is again becoming a more important part of the overall equation.

Really helpful. Then Neil, can you explain how the transition to GTF Advantage will influence negative engine margin on the program? I assume there's some better pricing there, but it's not clear how that nets against presumably higher costs. If you could clarify that balance, that would be really helpful.

Sure. Thanks, Scott. I appreciate the question here. As we look forward, I think the GTF Advantage will have a little bit more cost associated with the engine as it brings greater capability and durability. But that said, you named it, there'll be some more pricing there as well. So on balance, I don't see a lot of headwind on a per engine basis as we begin to ramp up on the GTF Advantage engine over the next several years.

So as we talked about for this year, we do think there's going to be a couple of hundred million dollars of headwind on OE margins throughout the course of the year. I'll tell you, for the first quarter, it was pretty much flat, not a major driver of the year-over-year performance at Pratt. They're doing a really nice job managing the cost of the engine. We're going to continue to see negative margins on deliveries of new engines, but obviously, the aftermarket is continuing to ramp there.

Considerably, you heard Chris talk about the 22% GTF MRO output increase in the first quarter, that's driving aftermarket. The mix of those shop visits is getting heavier as well. And the margins on the aftermarket are low double digits. So we're starting to see the sequential improvement in the profile of the aftermarket at Pratt as well.

So on balance, it's good business. It's great to see the certification occur here in the first quarter, and we're looking forward to making a very disciplined cutover over the next 1.5 years or so.

Our next question comes from the line John Godyn of Citi.

I was hoping to revisit Raytheon and the defense trends. Clearly, a lot of opportunities there, and the guidance was raised. That said, it was a very strong start to the year. So it feels like perhaps guidance is even a bit conservative. Maybe you could just revisit the outlook a bit and the shape of the year and how you see it playing out.

Thanks, John. I'll take that one. Yes, really pleased with the start of the year for Raytheon, seeing 9% growth on the top line. Chris talked about the material receipts, 12 consecutive quarters, 13% growth there. So we've been working, the team has been working very hard to make sure that we are prepared to deliver the backlog we have and then get ready for the future as well.

With that strength, we dropped it through to our guide. We took up the top line at RTX by $500 million on the low and the high end of the range. I'd say about $350 million of that is all attributable to the Raytheon performance largely in the first quarter and what we can see as we enter here into the second quarter. The rest of the sales increase, we see some lower eliminations at the RTX level. So together, that's about $500 million.

And we're seeing good drop-through. As you can see, the margins for Raytheon were 12.2% in the first quarter. We had $32 million of year-over-year productivity improvement at Raytheon. So a really nice start to the year. We're putting that into our guidance as well, and so that's a big driver of the $75 million increase in the range on both end of the high and low end of the range for Raytheon.

So again, it's 1 quarter. We think that the business is performing quite well. We're seeing really good mix in the business. And as we continue to see that supply chain keep pace with our delivery plans, then we'll revisit that again here in July. But really pleased with the start and looking forward to continuing to see the ramp.

Our next question comes from the line of Seth Seifman of JPMorgan.

I wanted to ask about the impact of lower expected air travel growth on the aftermarket businesses at both Collins and Pratt, particularly maybe the short-cycle stuff at Collins, but if you could address it overall. We heard elsewhere this morning about the potential for a lag effect. And so thinking about is it some impact coming later this year and into '27, but it's a pretty significant hit to air travel growth this year. So maybe you could address that.

Yes. Thanks, Seth. Well, the first thing I'll say is that we're really pleased with the way we started the year in our aftermarket business with 14% growth and the demand that we saw. And you're right, we're watching all the things that you're watching and the environment and the implications around higher fuel prices, jet fuel shortages, the moves that airlines are making on capacity adjustments.

If you just think about our business, I think you've got to look at it by business unit and by channel to really understand sort of some of the implications. Now some of the initial moves that the airlines are making where they're retiring much older sort of platforms, again, a lot of our aftermarket isn't reliant on those. We don't see a lot of maintenance opportunities on some of those platforms. So those near-term moves don't see a lot of impact.

If you look at Pratt, the 2 largest portions of our aftermarket are the V2500 and the GTF. As we've said before, the V2500 is still a very, very young fleet. 50% of it hasn't had a first or second shop visit. Shop visits were very strong here in the first quarter, and again, look to continue to be strong throughout the year.

And on the GTF, well, number one, it's the most fuel efficient, which right now, of course, is, I think, what people are focused on. But beyond that, you obviously know that we've got the fleet health issues that we're contending with. We've got to continue to move engines out of the parking lot into our MRO shops, and we've seen good output there, as Neil talked about. So the demand for GTF MRO is going to continue to be pretty robust.

At Collins, again, you've got sort of the 3 channels: the parts and repair, the provisioning, and the mods and upgrades. And I think where you'll start to see any potential issue would perhaps be in provisioning and mods and upgrades. Provisioning if airlines decide that they want to sort of live with lower stocking levels; and mods and upgrades if the airlines decide they want to maybe defer some of those things. Now we just haven't seen any of the impact on the demand yet, but that's kind of how we're thinking about it, and that's kind of how we're tracking it.

Thanks, Chris. I don't have much to add there, but I'll add a couple of data points, maybe just to help people do some sensitivities as we think longer term about this. On the Pratt business, about half of their segment is aftermarket. And as Chris said, the predominance of that is coming from the GTF, the V2500, and I would throw in there Pratt Canada. So if you put those 3 together, you're over 85% of the aftermarket sales. And Pratt Canada is a very diverse business, lots of customers, 70,000 units in service, so -- and great strength really across a number of their different business channels. So just to provide a little context there.

On Collins, aftermarket there is about 40% of the total segment. And provisioning makes up -- I'm sorry, the parts and repair makes up about 2/3 of the aftermarket. So just a little bit of context to help people think about it. Again, very diverse business operating on a lot of what we would call the right platforms, a lot of newer platforms.

And keep in mind, out-of-warranty flight hours continue to grow. When you think about all of the deliveries over the last 5 years, with the growth that we've seen year-over-year, we have more and more hours coming out of warranty every single year. And so those are the aircraft that will continue to fly even in a slightly depressed environment.

So as we sit here and look at '26, there's no changes to our by-channel outlooks at this point for commercial OE or aftermarket. We're watching it, but I think we're feeling like, as we look at our portfolio, pretty good line of sight to the demand.

Our next question comes from the line of Sheila Kahyaoglu of Jefferies.

I wanted to ask about [ aerospace ] profitability, both Collins and Pratt. So first, on Collins, margins were quite healthy despite the tariff impact and OE growth mix. How would we think about 2026 guidance which suggests the rest of the year margins are flat to down slightly versus Q1, which would sort of buck the seasonal trend? So I guess how do we think about Collins puts and takes on margins?

And then on Pratt, Neil, you provided a sensitivity layup for us right here. So when we think about the V2500, the PW2000 and the 4000, and if you could give us a breakout of what percentage that consists of and the retirement rates that you're assuming?

Let me start with the Collins margins. I think you said it, Sheila, it was a really strong start to the year despite our last quarter of having to deal with the year-over-year headwind from tariffs. Collins has done a nice job. They're focused on cost. We're taking on more and more OE. And some of that mix is a headwind, frankly. So with all of that, we continue to see margin expansion.

You're right, as you look at the rest of the year, the margins remain relatively steady. I think as we continue to see OE mix trend towards more wide-bodies on the growth side, we'll have a little bit of a headwind there. It's a little bit early, as you know, to be adjusting the full year. We just talked about some of the uncertainty in the market. I think we're going to hold off for another quarter to see what second quarter looks like. But we're feeling like the Collins business is certainly on the right trajectory.

If we get into the Pratt business, what I would say is the PW2000 is really not a major driver of the aftermarket. Obviously, we have a bit of a bigger portfolio on the 4000s, but we've been planning for that, I'll call it, structured decline for a number of years. And so that's not changing in our outlook here. On the V2500 specifically, we also are well connected with our customers. It's a young fleet. As Chris said, 50% of the fleet hasn't seen a second shop visit. 15% hasn't even seen its first shop visit. So we expect those airplanes to fly. They're also very durable and perform well. So despite the higher fuel prices, I think that they're great aircraft powered by the V2500.

So as we look out, we're planning, call it, 1% to 2% kind of retirements for [ the V ]. The shop visits for the first quarter were on the run rate we expect for the full year, which is about 800. So continuing to see the strength there.

Have a lot of visibility into the shop visit pipeline. Keep in mind, we're operating in a material-constrained environment, and so there's significant demand for spare parts and overhauls there. So that's what I would say as it relates to Pratt.

Our next question comes from the line of Gautam Khanna of TD Cowen.

I was wondering if you could give us some help on how to think about AOGs on the GTF, because it's very hard from the outside to track those which were powdered metal impacted and not. So just kind of thinking about at year-end, is there some natural number we should be expecting AOGs that you can point to that would be consistent with your assumptions on MRO output and the charge provision you took a couple of years back? Just so we know that we're tracking to the -- to what you've already guided to.

I'll start. And maybe just to address kind of your final point there, like the financial and technical outlook for the powdered metal situation remains on track. And as I said upfront, Gautam, we were really pleased that AOGs came down 15% in Q1 from the end of last year. That was on the back of some very solid MRO performance in Q1. The 1100 output was up 23% year-over-year, as I said. And that was with heavier shop visits up 9 points year-over-year. And so that was enabled by heavy shop visit turnaround time improving by about 20%. So very, very good performance in the shop helping enable the reduction in those AOGs.

A couple other of good indicators as well as we think forward, 1100 inductions were up 7% sequentially from Q4 to Q1. And so we're improving that WIP in our shops to support the future growth in MRO output. And we also saw continued progress in material growth across some of the key value streams that are going to be important to MRO output. Structural castings were up 10% year-over-year, isothermal forgings were up 18% year-over-year.

So again, those are all the elements that go into continuing to drive MRO output for the year, which in turn is going to continue to drive that downward trend that we talked about here that we saw in the first quarter. I won't give sort of a point estimate as to where we're supposed to be, but I will just say, as you just look at sort of the public data around AOGs, there are some in there that have absolutely nothing to do with engines. There are a number of other factors. Maybe they're going through a mod and upgrade. Maybe they're being returned from [ use ] and they need some modifications. And so not all of those are engine related.

I'll also tell you that we continue to have removals for other reasons other than powdered metal. But those are the things that were in existence previously. And we've continued to provide upgrades to improve the durability and reliability. And so we also believe those will continue to have a positive effect as we look forward.

So again, pleased with the Q1 performance. Our customers obviously want their assets back. It was a real positive shift this quarter in terms of the reduction. And given all the elements that I just talked about within MRO and those indicators, we continue to believe that that downward trajectory is going to continue.

Our next question comes from the line of Scott Mikus of Melius Research.

Chris and Neil, very good results. SpaceX is going public at a very lofty valuation and its IPO will probably create generational wealth for a lot of its employees. We've also seen Shield AI raise capital to $12 billion valuation. Anduril is looking to raise capital at a $60 billion valuation. Just how are you thinking about that in the context of retaining your best employees and engineers, so they don't join a defense tech company where they get significant upside from the equity valuation?

Yes. Thanks, Scott. I thought where you were going there is that we were undervalued. I was hoping the point you were making there. Yes, good, good.

All kidding aside, again, this is something we think about a lot in terms of the defense ramp-up. With unemployment at 4.3%, how do we make sure that we can attract and retain the labor that we need, in some cases, it's classified labor, which can be even more difficult because you got to get it cleared and the like at many of our facilities. So our labor strategy is something that we are laser-focused on.

Now you mentioned our engineering population. If you look at RTX-wide, we've got roughly 180,000 people, about 1/3 of those are engineers. And they are clearly the lifeblood of the company, when you think about innovation being the bedrock of everything that we do. And so I think there's a couple of things that come into play there. Number one, we've got to continue to be competitive just from a compensation perspective, and that's something we're always looking at.

And then number two, I will tell you that you walk the floors within RTX, you will see an uncommon dedication to the mission. And I think people get really excited about the work that we do and the mission that we play to connect and protect the world, in particular, on the national security side, given how critical our products are to national security and to allies.

So it's not easy, to your point, Scott, there are people that will go, take a leap to go somewhere where they see that there might be some runway with an early-stage company. But by and large, we've been pretty successful at retaining our top folks. And again, I think that comes down to the core mission that we serve.

Our next question comes from the line of Ken Herbert of RBC CM.

I just wanted to follow up on the March commercial engine deliveries. With the first quarter in line with plan, and obviously, still the mid to high single for the full year growth, how do we think about the cadence into the second quarter and second half of the year? And I guess within that, as a result of just the supply chain incremental risk from higher input costs and everything else, are you seeing any incremental risk on your, I guess, Pratt supply chain from suppliers around the world just as a result of the war in Iran?

Thanks, Ken. Let me start with the supply chain piece. Right now, and as you know, we've been talking about this for a long time, Pratt has been laser-focused on ramping up critical supply chain elements: Structural castings, turbine airfoils and many other parts that go into the engine. And I think we've done a nice job there. So continue to see growth in those key elements, materials that are going to the engine. And so we're not seeing anything new crop up. Obviously, with the kind of growth rates we're talking about, because you've got to keep in mind, we're not only feeding the OEM growth rates, we're feeding the aftermarket as well, it's pretty substantial. But nothing new to report there.

As it relates to the delivery profile, as planned, we were allocating materials between MRO and original equipment in the first quarter. You saw that in the sales number and in the delivery numbers for the quarter. And as you look at the implied performance for Pratt through the rest of the year, we still expect OE to be low single-digit sales. And as you said, up mid- to high single-digit unit delivery. So we'll continue to grow the number of new engines we delivered this year, and that will kind of happen pretty ratably as we think about the rest of the year.

Now keep in mind, we had the strike last year in the second quarter. And so this year, second quarter will have an easier compare. But as we think about it, the negative engine margin will ramp up over the next several quarters as we kind of balance the mix of material between MRO and OE and drive the OE -- the AOG is down, and then continue to deliver to our end customer, Airbus.

Our last question comes from the line of David Strauss of Wells Fargo.

Following up there on Ken's question. Maybe could you specifically address the state of negotiations with Airbus and what they're desiring to get in terms of engines from you? And then secondly, if you can maybe just talk about the interior side of the business at Collins, where that is now in terms of being able to handle the -- what looks like a coming widebody ramp?

Yes. Thanks, David. On your first question, as Neil said, we're going to continue to see OE deliveries step up throughout the year. And when we get to the end and execute on that plan, it's going to be a record number of GTF engines that we've delivered and that delivery share is going to remain above the program share. So continue to be pleased about that.

In terms of the discussions with Airbus, those are always ongoing. And we're always talking with them about what's going on industrially, what's going on from a supply chain perspective and balancing, of course, the needs of the GTF fleet health and our mutual customers. And so those conversations will continue to go on. I will tell you that our focus is on making sure that we are investing for the growth we see both on the OE and the MRO side.

On the MRO side, you heard us talk about some of those investments that we've made in Singapore that we're going to then translate into other parts of our network. We're going to be adding a forging press in our Columbus, Georgia facility. We're going to be adding a new tower for powder production at our HMI facility in New York. You heard Neil talk about the turbine airfoil ramp-up at Asheville. These are all investments that we're making because we continue to see the demand both on the OE and MRO side.

And again, the relationship with Airbus is an important one for us. It's one that we, of course, greatly value. And it's one that has spanned decades. And it will continue to span decades. And we will continue to work through our issues, as we always do, in a constructive and transparent manner. And I have no doubt that we'll ultimately get there to where we need to be on volumes going forward.

And maybe just a comment on interiors. Had a good quarter. Sales were up double digits, so call it, low teens, if you will, in the first quarter. We're continuing to work through a couple of certification requirements on a handful of bespoke programs. But business has a good trajectory. We're expecting solid growth for the full year, and pretty good line of sight to mods and upgrades for the remainder of the year. So feeling good about that today. Thank you for the question.

Thank you. With that, I will now turn the call back over to Nathan Ware.

All right. Thanks, Latif. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. So thank you all for joining us, and have a good day.

This now concludes today's conference. You may now disconnect.

Global Industrial Tech and Mobility Conference. We're very excited to have Chris Calio, RTX's Chairman and CEO, for a chat with us about a lot of different themes in aerospace and defense. Chris, if you have any initial comments, I want to pass it off to you, and then we'll hit it.

Well, thanks, John, and great to be here this morning with everybody. Maybe just one housekeeping item, of course, may be making some forward-looking statements today, subject to all those risks and uncertainties. So please consult our SEC filings. We know with that out of the way, maybe just brief comment on RTX and who we are. I think many of you know us, but for those of you who don't, leading aerospace and defense company, about $88 billion in sales last year, 3 leading business segments, Collins Aerospace, Pratt & Whitney and Raytheon.

Coming off a pretty strong 2025 top line growth, margin expansion, robust free cash flow generation, ended the year with a $268 billion backlog. So demand very strong and durable on both sides of our business, commercial aero and defense. And so for us, really, the focus is on executing on that backlog and then, of course, innovating for future growth. We're a long-cycle business. We've got to make sure we've got the capacity in place, the advanced manufacturing in place, and we're continuing to fulfill and fill our technology pipeline. And so we issued our guidance out in January, and so no change there.

That's fantastic. Where I'd love to start is just we've described RTX as the marquee megatrend stock in -- because of its exposure to all sorts of big picture tailwinds and themes across both aerospace and defense. I'd love to get your reaction to that, if you don't mind, and then we can kind of step through the segments. But big picture, what tailwinds, what growth opportunities are you most excited about in the years to come?

Well, John, I think you're right. So maybe just step back for a minute and to your point, and we lay out sort of the macro environment that we're operating in. On commercial aerospace, obviously, the industry has come back very, very strong from the pandemic. RPK growth continues to be strong, 5% last year, another 5% this year. Beyond that, there's demand for 40,000 aircraft over the next 20 years. That's actually more than the installed base today. So a ton of deliveries still to come. Again, I will tell you on the defense side, you know what's going on in the global environment. There's the replenishment opportunities here in the U.S. There's the NATO getting their budgets up to that 3.5% core.

If you look at APAC, MENA, 3% to 4% growth. So just really exceptionally strong macro tailwinds on both the commercial aero and the defense sides. And then if you just sort of drill down into our portfolio, I think we're very well constructed and positioned to take advantage of those macro tailwinds. If you look at Collins, for instance, you've got $105 billion of out-of-warranty content flying around out there, generating significant aftermarket returns and tails.

They are #1 or #2 in 70% of their product segments. They've got 2x the content on the current generation of platforms than the older generation of platforms. So again, building up that installed base even more to generate even more aftermarket tailwinds into the future. Pratt & Whitney's got Pratt & Whitney Canada. Again, I don't think we spent enough time talking about Pratt Canada, the premier small engine business, 70,000 engines in service, #1 or #2 in each of its end markets. We've got a very strong military engine portfolio. The only fifth-gen powered fighters are coming from Pratt on priority programs like the tanker and B-21. And then, of course, there's a GTF program, which I'm quite confident we're going to talk about a little bit later, but that program is 3x the size than when we first launched it, and it's got a very strong 8,000 engine backlog.

So again, very, very strong there. And then you just look at Raytheon, you've got 35 systems and operations today across 50 countries, serves as the backbone of many countries, integrated air and missile defense architecture. So just incredibly strong product positioning, well positioned to take advantage of those tailwinds. And you're seeing that play out, again, in the backlog that I mentioned upfront, $268 billion. That's up 23% since the end of '24. And then so for us, as I said, focus is on executing on that backlog. We're going to invest another $10 billion in company and customer-funded E&D and CapEx this year to make sure that we're finishing on our programs, executing on those programs, making sure we have the capacity in place for the ramp-up on both defense and commercial. So we're very excited about where we sit.

That was fantastic. There are so many things in there I want to follow up on. But if we just start somewhere, I feel like munitions is a good place to start. We all saw the munitions announcement from a couple of weeks ago. Can you just walk us through how that's going to impact 2026? And what are the next steps for moving from framework to production on that?

Yes. We're really, really excited about that. And frankly, really proud to have partnered with the Department of War on these 5 framework agreements. I think it's good for the department and as part of its transformation agenda. I think it's good for national security. I think it's good business for Raytheon. The 5 frameworks we're talking about, it's all about ramping production over the next decade. And in many cases, 2 to 4x the current rates that we're producing today.

As you mentioned, these are framework agreements. So there's much work to do collaboratively with the department to get those into definitive agreements. So I don't want to get sort of too ahead of that process, John. But a couple of things I will say. One is the framework agreements are predicated on firm long-term demand, right? I think most of us in this industry have been talking about the need for firm demand and firm demand signals. And I think the department has taken that very seriously. And so they want to give us that long-term demand, which allows us to invest in the capacity and just as, if not more importantly, our supply chain to invest in that capacity that's needed. It's a collaborative funding approach, which is good, which is also calibrated into our 2026 guidance.

We'll start putting in some of that capacity in place towards the tail end of this year, I suspect. And then the sales will flow once that capacity is in place and we're producing. But again, very excited about the opportunity. And again, it's building on what is already incredible demand at Raytheon. We've got $75 billion in their backlog today. None of these framework agreements are included in that backlog. Those are outside as we work towards definitive agreements. But again, very proud to be a part of the transformation agenda that the department is driving.

And so for us, it's like how do we go take those production levels up? What do we need to do from a capacity perspective within our own 4 walls? What suppliers do we need to get up to the higher levels? What investments do they need to make? Are there other suppliers that we need to qualify to make sure that we have, again, enough capacity in the system and the ecosystem to get to these levels. So a lot to do, but very exciting.

Yes. It sounds like a fantastic opportunity. Can you talk a little bit more about the broader demand signals that we're seeing, missiles, munitions, demand? How does it evolve over the coming years?

Yes. Well, as I said upfront, if you just look at -- go around the globe, you've got significant replenishment opportunity in the U.S. And I think you've seen the budget stand behind that and provide really good opportunity there. Global defense, everyone knows what's going on in the world, those defense budgets, again, NATO, 3.5% the other regions of the world in that 3% to 4% -- and at the end of the day, what people want the most is integrated air and missile defense. And that is something that is core to who we are and what we do. If you just think about all the products that we have in there.

Obviously, our Patriot system, the GEM-T Patriot effector, AMRAAM and the like. I mean I can go through a whole bunch of our, I'll call them, franchise programs. And people are always talking about the need for munitions replenishment. You talked about it upfront. And obviously, our backlog is very strong there. But what I will tell you is we're starting to see people come to the realization that we need a similar potential effort on the sensor front. So think Patriot, think NASAMS. We've got a next-generation radar coming in, LTAMDS.

We've got TPY-2, -- we've got SPY-6. So clearly, strong munitions demand around the world, but also the need for additional sensors and radars, and we're able to provide those as well. And I will tell you the other piece, the other threat, of course, that's evolved over the last few years are the UAS and drone, and we've got a very strong counter UAS system that we've developed, the Coyote system that's been highly effective and see that as another big growth engine.

Yes. That's great. If we could just talk a little bit more about international specifically and the demand signals there. One of the stats that I love is this idea that 47% of the backlog is international and what that means for revenue growth and margin improvement from here. Would you mind elaborating on that?

Yes, sure. Again, when you look around the globe and you look at all the hotspots, our equipment, our systems, our products have been incredibly effective in some of the most high-profile situations that we're seeing in the world today, whether that be Ukraine, Qatar, the Red Sea. So that's obviously created a lot of demand for the product. There's also, of course, a very strong installed international -- strong installed base in the international community.

Take Europe, for instance, you've got 9 Patriot countries, 7 NASAMS countries, 20 countries that use the Raytheon effectors. Just look at the Middle East. Again, you've got 50 Patriot fire units there, right? If you just look at some of our large orders in the last year, Patriot GEM-T, an international order, about $2.5 billion. Our 3 largest contracts in Raytheon's backlog today are international customers. So to your point, that 47%, which is up significantly over the last few years, provides the volume that we need for productivity in our shops, provides a better, generally speaking, margin profile. Just think of our 2025 sales, over 30% of that was international. That's up 4 points in just 2 years. So some really good tailwind in terms of the mix of the backlog.

That's fantastic and fully appreciate the Patriot comments. Can we talk about Golden Dome a bit, if you don't mind? I feel like we can't leave a discussion about defense without talking about Golden Dome. More and more, we're seeing awards come through. The program is taking shape. What does that mean for Raytheon?

Yes. Well, if you listen to how the administration has sort of talked about this, they want to be able to field capability in the next 2 to 3 years. If you want to field capability in that time frame, you're going to need proven battle-tested systems. And I just made my case for some of the Raytheon systems in my last answer. But -- so the idea would be take those proven systems, start to install those and then work over the years on a sort of a technology upgrade sort of plan. I think that's the construct that may be at play here. I think we're well positioned, frankly. I think it's going to be a multilayer architecture, Golden Dome, space layer and then various ground-based missile and air defense layers.

And Raytheon has premier products at every one of those layers, can't say too, too much about the space layer because of the classification, but have some really interesting solutions there. And then, of course, as you just move down into the other products that I mentioned, Coyote counter UAS, NASAMS, Patriot and then the radar systems that I mentioned before. So really, really well positioned, I think, for Golden Dome as that continues to mature. And again, I'll reiterate, none of that is in our backlog today. So that $268 billion RTX backlog, Golden Dome is not in there yet.

Yes. It sounds like Raytheon has a lot of tailwinds. Moving to Pratt. Whenever you speak publicly, I feel like investors are focused on some sort of update on the GTF. So let me just give you an opportunity to give us a bit of an update, if there is any, with respect to the powder metal issue, whatever you want to talk about.

Well, I like digging into the commercial aerospace. It's half of our business, almost half of our business. And so I know what's going on in the world in defense and rightfully so, it gets a lot of attention. But -- almost half of our business is commercial aerospace. As I said upfront, pretty well positioned given the macro tailwinds. Before I get into part of metal, maybe just some macro comments on the GTF. Today, we've got about 45 million hours now on the GTF. So all of that learning going into our engineering, our production and our sustainment. As I said before, it's 3x larger than we thought the program was going to be.

So this now has tails 20, 30, 40 years out and an 8,000 engine backlog, a high-quality backlog that still has to deliver. So so much runway on that program. I would also say the GTF Advantage is slated to get certified this year, and we're starting to produce that engine. So additional thrust and efficiency. So really excited about some of the macros on the program and where it can go long term. Obviously, we're continuing to work through, as you noted, our powder metal situation. Just from a financial and technical perspective, no change to the outlook, and we had mentioned that back in January. For us, the critical enabler, and I've been pretty consistent about this, is MRO output. We need to continue to drive MRO output in order to get those assets back up to the fleet to take aircraft off the ground and get them back into the hands of our customer.

We had a pretty strong 2025 in terms of MRO output, 26% growth year-over-year, exited the year actually in the fourth quarter, 39% year-over-year. So exited on a really high run rate, really pleased with that. And we saw the AOGs come down in the fourth quarter, and we expect they will continue to come down gradually throughout this year. But again, it's going to come down to the continued MRO output in our shops. We've got 21 shops today. We're continuing to invest in repair development and automation and automated inspection, -- anything we can do to drive efficiency and reduce turnaround time.

One of the things that we're going to be continuing to do here in 2026, and we did in 2025 is allocating between OE and aftermarket because, again, we've got to continue to bend the curve downward on the AOGs like we've been doing. And again, we've got to make sure the material is flowing into our shops to make that happen. We're still going to be up year-over-year on an OE basis. But again, that allocation is going to continue to happen here in 2026. I think it's imperative that we do that in order to continue to ensure the health of the overall fleet.

The other thing I'll mention and I talked about the GTF Advantage certification, there's a Hot Section Plus package that we're actually going to be certifying at the same time. That's 90% to 95% of those durability improvements that we have on the GTF Advantage. We're going to kit those and start putting them into shop visits on our base fleet today. So they should be getting the benefit of the GTF Advantage durability improvements on that base fleet. So another tailwind in the program to help with fleet health.

That was fantastic. I appreciate all the detail there. I'd love to chat a little bit bigger picture about engine aftermarket for Pratt as well as other manufacturers, we've seen pretty dramatic extensions of aircraft life, particularly with older technologies. Every year, I feel like it seems like retirement rates should be shooting back, but they're not. They stay very low. Can you just talk about that backdrop as you see it, what it might mean for retirement rate trajectories across aircraft in general, but the V2500 in particular?

Yes. Pratt's commercial aftermarket has continued to be pretty strong, 23% growth last year. And that was on the back of like 14% and 20% over the previous 2 years. And the V2500, to your point, continues to be a big part of that growth story. Yes, we have seen very low retirements. Part of that is because of the growth in RPKs, Part of it is because we're still recovering on the GTF. So there's strong demand. The engine also performs exceptionally well. So we've seen retirements in that 2% range. And keep in mind, that fleet is still relatively young. Average age, about 16 years old. 15% of that fleet still hasn't had its first shop visit. 35% still hasn't had its second shop visit.

So those are big profitable shop visits as you move out into the future. We did about 800 shop visits last year, thinking on or about the same range this year with some heavier content as it starts to age. So again, feel really good about the V2500 position in our commercial aftermarket. It's going to continue to be, I think, a growth driver even as those shop visits start to come down gradually, you'll start to see sort of heavier content as well to make up for that.

I appreciate that answer. Maybe we can move -- before we move away from Pratt, maybe we should talk a little bit about the defense side of things, namely F-35. You've had a good story there. Would you mind digging in a bit?

No, of course, not. Look, as I said upfront, the military engine portfolio at Pratt, very strong, right? F-135, F-119, so the only fifth-gen engine fighters, tanker B-21. So really good growth. We saw, I think, 12% sales growth last year, mid-single digit this year in that portfolio. F-135 is going to continue to grow both in terms of production and sustainment. It's been really a remarkable platform, powers over 1,000 jets, got about 1 million hours in service, unrivaled sort of performance and reliability on that program.

And sustainment, I think, will start to grow, John. We've pushed out some of those scheduled shop visits because the engines continue to perform exceptionally well even in difficult environments. Those scheduled shop visits are now going to start to come in. So that's going to be a bigger part of that portfolio. And as you look forward on the program, obviously, we're committed to keeping it on the F-35 as its only power plant.

And so we're now developing the engine core upgrade, right, which is an upgrade to the core of that engine, providing more thrust, range and efficiency for all 3 variants to drop in change. It's also going to have additional power and thermal management capability to be able to take on some of the requirements of some of the next-generation weapons that are going to be hanging off of the F-35. So for us, the F-135 is a priority critical platform, which is why we're continuing to invest.

Yes. No lack of tailwinds across the portfolio. Maybe we could shift a little bit over to Collins. Collins historically, I would say, distinguished itself through having a lot of operating leverage, both on OE and aftermarket. You've talked a bit about the production capacity there. Can you elaborate on how you see margin expansion playing out, absorption tailwinds? How are these things progressing as we see Boeing and Airbus raise production rates?

Yes, good question. So when we laid out our guidance for '26, sort of the implied margin expansion at Collins was about 80 basis points at the midpoint of that guidance. And I'd put that expansion maybe into sort of 3 buckets. One is continuing volume and strength in commercial aftermarket that I talked about previously. Second would be, just as you were remarking, as OE rates continue to move upward, both 737 MAX, A320neo and some of the wide-body, there are absorption benefits in our shops, right? They are capacitized to higher rates. So as we move more product through those factories, we'll get the absorption benefits and see those drop through.

I'll say the third bucket, and this is something that I think the Collins team is exceptionally focused on right now is the continued streamlining of that organization and structural sort of cost reduction. As you know, Collins, as a general matter, has been the product of a number of large acquisitions that have happened. And I think we've done a good job at integration, but there was more sort of meat on the bone. And so I think the Collins team has really taken up the challenge of continuing to streamline that business and make it as cost competitive as possible. Last year, we had 9% organic sales growth on a 3% reduction in headcount on an organic basis. So continuing to drive productivity in every phase of that business.

Yes. No, that's fantastic. And you mentioned that it was pieced together over many years with multiple deals. One of those would be aerospace interiors. I feel like interiors is always a bit of a strange sticking point every cycle. I hear about interior supply chain issues and other things. Can you just talk about how demand is trending for higher-end interiors? And can you talk a bit about supply chain and production there?

Yes. I just think fundamentally, the interiors business is a really good business and well-positioned business. There are very few companies that can do first-class seating, business class seating, main cabin seating and Collins is one of those on the back of the acquisition of B/E Aero. Demand continues to be pretty strong. I think airlines, especially in the premium category are continuing to look for ways to distinguish themselves and to make the passenger experience more of their value proposition.

And so that plays very well into the capabilities that you see at Collins. I would tell you that we've worked through some programs which had a difficult sort of certification set of requirements, and bespoke sort of contracts. So we made very good progress on kind of getting those through the certification cycle in '25. There's a handful or so more here in 2026 that we need to get through. From a supply chain perspective, we saw a nice uptick in sales in the second half of last year in that business on the back of sort of better production flow. So again, I think the business is well positioned. And I think as people continue to reinforce the passenger experience, provide more opportunity for that seating business.

Yes. Well, we're certainly seeing that demand on the airline side, part of our coverage as well. If we could just take a step back on Collins. I feel like we could talk about Collins all day, but it's the one segment that really crosses all the themes that we're talking about, aerospace, defense, -- we had this megatrends idea. When you think about the demand signals across that portfolio, are there areas that are interesting, reading the tea leaves, things investors should be kind of focusing more on? Anything to comment on there?

I think you're right. I think sometimes people strangely even overlook just how well positioned Collins is in its breadth and scale within both commercial and defense, I might add. I gave you some of the statistics sort of upfront, right? I mean 70% of its product segments, #1 or #2 in their spaces, 3x -- excuse me, 2x the content on the current generation platforms and the older ones, so continuing to grow that installed base. And the out-of-warranty installed base today over $100 billion. So just generating really strong aftermarket returns to allow to continue to invest and protect those next-generation positions that it has.

And on the defense side, again, it's -- they support over 70% of the U.S. and allied airborne communications. Maybe think of its mission systems business, its secure communications business, about 30% of those sales are FAR Part 12. So again, higher margin. Maybe just sort of step back, we talked about the Department of War transformation sort of upfront here. You see them really pushing this convergence, if you will, between commercial and defense. How do you continue to drive commercial applications into defense? I think Collins is exceptionally well positioned to be able to do that given its product history, given its placements on a number of the highest priority platforms in the DoW.

You just saw recently, it's teaming with General Atomics to provide the autonomy on the Air Force's CCA program. So there are a number of things that it does in -- at a high end on the commercial aerospace side that are going to have application as you continue this transformation and convergence in the defense part of the world. So again, I just -- I think it's just exceptionally well positioned, a fantastic product portfolio and a business that we just think even has more runway and more potential to it.

Part of the marquee megatrend thesis.

Indeed.

Can we just double-click on supply chain? I feel like supply chain keeps coming up. We heard it come up in the Textron presentation we did just before this. Maybe we could just talk about at a broader level for RTX -- anything to flag across the company? Any watch items? I guess that's kind of part A. And part B, just supply chain philosophy in general as we're in a world where production rates across a lot of different products are going up.

Yes. Supply chain is going to be critical to all of the opportunities that I just talked about for the last half hour. And just in terms of the philosophy, it is interesting. I was just speaking to our teams the other day. One of the mindset sort of shifts that I think we've undergone is to not talk about supply chain like it's some third party. We are our supply chain. When you go to our customers, their very explicit mandate to us is we're paying you to manage the supply chain. They view them as us.

And as a result, we've got to, yes, be out there holding our suppliers accountable for delivering. We've also got to be out there helping them. We've got to give them very clear demand signals. We can't have sort of episodic ordering patterns. We've forward deployed hundreds of people into their shops helping on things like manufacturing yields and inspections and the like. How can we make it easier to make our products, right? So again, there's a collaborative piece of this that I think we've got to continue to bring to bear in the supply chain if we really want to get to the levels that we need to, both on the commercial and the defense side.

Maybe just sort of step back, like where are we seeing those areas that we pay particular attention to? Well, there's always pockets of disruption in the supply chain. It's what happens in a company and in an industry as complex as ours, but there are a few areas that we spend a lot of time watching, John. One is castings. And you've heard us talk about structural castings at Pratt call after call. And again, they were up 17% year-over-year last year. But castings sort of writ large is a constrained value stream across both commercial aerospace and defense.

And so it's a part of our Collins business. It's a part of our Raytheon business. So making sure that we've got the right casting suppliers and capacity has been pretty critical. On the Raytheon side, clearly, rocket motors, right? That's sort of been an industry pinch point, seen improvement in 2025, which has been great. We need to see even more improvement as we move forward because the rates are only going to go up. As I said on our last call, in 2025, our top programs at Raytheon were up in terms of deliveries, 20% year-over-year, and we've got to do even more this year. So we need that value stream to continue to be healthy and step up.

Microelectronics, another place that we focus heavily. I would say the lead times have been good and have been healthy, but we're keeping an eye there just because of demand in the non-A&D space for microelectronics, wanting to make sure that we've got buffer stock and they know what our demand is, and then we're not going to fall behind anyone else in the priority order. And then maybe the last thing I would mention would just be critical minerals. I know everyone has been talking about that.

We were thinking about this a couple of years ago, really kind of focused on the key ones where we needed to set up both buffer but additional suppliers out in the world. I think the government has been a real partner in this as well, really commend some of the deals that they've done. But we feel like we're covered there in the near medium term, but still some work to do in the longer term in setting up the partnerships and LTAs that we need.

Yes. I wanted to ask about CORE. It's something that we've heard on different conference calls. Maybe the first question is just for the benefit of everybody, what exactly is CORE? And then the follow-up is going to be just the progress and where it's going from here.

Yes. Thank you. So CORE is our operating system. It's our continuous improvement and lean operating system that's embedded in everything that we do. It's embedded in all of our functions. It's embedded certainly in our operations. It's about driving continuous improvement each and every day, stacking incremental improvements to improve productivity, improve efficiency and ultimately improve deliveries and financial results.

So that's what CORE is. And we reinvigorated it at the time of the merger. I think Raytheon had sort of its operating system. United Technologies had its. And frankly, we kind of brought them together and took a best of the best approach. And I think on both sides, at that particular time, at the time of the merger, it could have used some bolstering. And so we did that, and we've really been aggressive about deploying it. And we're really seeing it start to take hold in our company. I want to say last year, we did almost 12,000, I'll say, core events. And an event is when you go in and you've got a problem statement or you've got something you're trying to address and you get all the right constituencies together and you have a process to work that problem to get to the right answer.

And I've participated in these in our shops. I did one at Raytheon on the guidance section for AMRAAM, for instance, did another one at our nacelle facility in Foley, Alabama. And I will tell you, it's inspiring to see the teams attack this, and it's a real democracy. They don't really care who's there and participating. You have to pull your weight and you've got to help get to the right answer. So we've seen that really continue to take hold in the company. And we've got a ton of opportunities if you just step back and think about it, right?

I mean we've got a significant number of labor hours, right? Imagine what a 1% productivity increase there would be. We got $13 billion of inventory. Imagine what some incremental improvements there could mean in terms of free cash flow. We've talked about the ramp-up here on both commercial aero and defense. And in some cases, when you want to go build out capacity to meet that demand, the lead times are -- can be 2 and 3 years for tooling, test equipment and the like. And so we've got to get really efficient at what our footprint looks like today to squeeze as much as we possibly can out of that.

And sometimes that means bringing in a team and just relaying out an entire production floor for better flow because we don't have time to wait for another 1.5 years or 2 years for a new piece of equipment or a new piece of tooling. How do we get as efficient and productive as we possibly can with the assets that we have sort of in-house today. And I think CORE is going to be instrumental as we think about some of the framework agreements that we're talking about there. And one of the sort of next steps for us is to continue to deploy that into our supply chain, doing events collaboratively with our suppliers in their shops to drive the kind of efficiency that we need.

It sounds like we're in the early innings of CORE really having an impact.

Well, look, no, I think it is having an impact, John. If you just look at RTX last year, 11% organic sales growth on flat headcount, okay? So we are starting to see the productivity benefits -- but again, we want to make it not like it's some special thing that you have to do. We want to make it so that it's just ingrained in what we do each and every day. And so there's some opportunity there.

Got it. And sort of last but not least, maybe we could talk a bit about M&A and the portfolio at large, your views. Talk a little bit about adding, divesting businesses across the broader RTX portfolio. Any areas to prune, any technology gaps that you want to kind of fill capabilities to fill? Just offer some broad thoughts in general.

Yes. As we step back and look at RTX, almost 6 years now post creation. We've got more conviction about the strength and composition of the portfolio than we did at the beginning. And again, you talked about it upfront on sort of the marquee macro trends and how well positioned we are there. So for us, it's not necessarily about what do we need to add to the portfolio. It's how do we get the absolute most out of the portfolio that we have in these leading positions. If you just look at each of our businesses, Pratt, Raytheon and Collins, they have margin runway.

We talk about how do we get to our full potential. And it's about all of the things that we've talked about here for the last half hour or so, but it's getting the most out of those businesses. So for us, it's about the $268 billion backlog and executing on that as flawlessly as we can because we've got the right product positions. We've got the right customer relationships. The demand is there. And so for us, it's about the execution. And so we think about our capital deployment, a lot of that is the E&D, both company and customer and the CapEx needed to continue to get to the levels that we need.

And when we talk about CapEx, it's not only just the expansion of facilities and new testing and new equipment, it's continuing to drive our digital infrastructure. There's so much data that courses through both our products and our factories. And we continue to make investments on how we harness that data, connect all of our products and machines so that we can drive better high-quality decisions throughout the portfolio. So that's really where the focus is. Now as you know, we've done some pruning. We've done some divestitures over the last couple of years, but really, that's around making sure that we're prioritizing where we want to put our investments in the future and making sure that we're as focused and as lean as we can possibly be. But again, for us, the focus isn't on what we would add to the portfolio. It's on execution and innovating for future growth.

Yes. That makes a tremendous amount of sense. And sorry, technology gaps or anything that you would flag capability gaps that you think need filling out?

Well, we've got 10 cross-company sort of technology road maps that we track each and every year to make sure they have the right funding, the right resources things like advanced materials, things like additive manufacturing, autonomy, AI, things that cut across all of our businesses. We want to make sure that we're doing things in a unified way, leveraging the breadth and scale of the portfolio as best we can. So we're always on the lookout for maybe bolt-on type acquisitions that fit into sort of our core technology strategy.

I talked about the Coyote program before the counter-UAS. That was actually borne out of a technology acquisition that Raytheon did sort of many years ago, and it's ultimately now going to become what we think is the next franchise program. So we're always on the lookout for things that we can go kind of scoop up and bolt into our existing portfolio. But again, feel very good about the technology road maps that we have, and we've got the balance sheet to continue to invest. As you know, we're in a long-cycle business. You cannot miss a cycle. If you miss a cycle, you can get penalized for decades. So we've got to continue to invest and fill that pipeline at all technology readiness levels.

Yes. And the backlog certainly shows that the technology is there. We're just about done, Chris. I just want to give you the floor for any kind of concluding last statements, tying anything together, whatever take us home.

Sure. Well, again, thanks for your time this morning. I love your setup on the marquee megatrends. I couldn't agree more, but it better than you said it than I said it, I can just agree with it. But again, a very, very well-positioned set of businesses, both commercial and aerospace, a $268 billion backlog and some opportunities on the defense side that aren't even in that backlog today. So again, I'll just repeat what I said because it's important. It's about executing on our backlog and innovating for future growth. And I think that will put us in a position to drive long-term shareholder value.

That's a great place to end. Thank you so much for joining us today. Appreciate it. Thanks.

Appreciate your time.

Good day, ladies and gentlemen, and welcome to the RTX Fourth Quarter 2025 Earnings Conference Call. My name is Olivia, and I'll be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchill Mitchill, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations.

This call is being webcast live on the Internet, and there is a presentation available for download from RTX website at www.rtx.com. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding acquisition accounting adjustments and net nonrecurring and/or significant items often referred to by management as other significant items.

The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties or the SEC filings, including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

[Operator Instructions]. With that, I will turn the call over to Mr. Calio.

Thank you, and good morning, everyone. We delivered strong sales, adjusted EPS and free cash flow in the fourth quarter, underscoring our momentum and focus on execution across RTX.

For the full year, adjusted sales were $88.6 billion, up $9 billion year-over-year or 11% organically, driven by 10% growth in commercial OE, 18% growth in commercial aftermarket and 8% growth in defense. Adjusted EPS of $6.29 was up 10% year-over-year on drop-through from higher sales and free cash flow was a robust $7.9 billion, up $3.4 billion year-over-year.

Our performance continues to be driven by the durable demand for our products and services and operational improvements enabled by our core operating system. On the orders front, we ended 2025 with a full year book-to-bill of 1.56, resulting in another record backlog of $268 billion, up 23% year-over-year with roughly $161 billion of commercial orders and $107 billion of defense awards.

On the commercial side of the business, our backlog is up 29% year-over-year, driven by growing aircraft production rates, and resilient passenger air travel. Orders and commitments during the year included over 1,500 GTF engines and over 2,400 Pratt Canada engines. On the defense side, our book-to-bill for the year was a very strong 1.31 and included several significant fourth quarter awards.

For example, Raytheon booked $1.2 billion to supply Spain with additional Patriot air and missile defense systems. It was also awarded a $1.2 billion contract for [ Timur ] missile production with work to be executed in our recently completed Camden, Arkansas facility. Raytheon booked $40 billion of awards in the year and their international backlog mix is now 47%, up 3 points from the end of 2024.

At Pratt, the military business booked $2.2 billion in sustainment contracts to support multiple engines, including the F135 and the F119. And at Collins in the fourth quarter, the business was awarded a $438 million contract from the FAA to deliver [ RADAR ] systems for the broader radar system replacement program, which will help modernize the U.S. air traffic control system. So overall, a very strong year of orders across the company, highlighting the growing demand of our products and services and setting us up very well heading into 2026.

We will walk you through the details of the fourth quarter and our 2026 outlook in a few minutes. But first, let me briefly comment on the operating environment that we see today. Demand remains strong, which combined with our existing backlog and focus on execution, positions us well for another year of top line growth.

Commercial air travel is expected to grow again. The global RPK is projected to increase around 5% this year on top of the 5% we saw in 2025. On the commercial OE front, given the substantial airframe or backlogs, we expect OEM production rates to increase again this year, particularly on the A320neo, 737 MAX and 787 platforms as well as on business jet and general aviation aircraft, all platforms where we have significant content.

In commercial aftermarket, our growing installed base, which now includes about $105 billion of out-of-warranty aircraft content at Collins and expanding fleet of engines at Pratt positions us well for sustained commercial aftermarket growth. On defense, there's a heightened need for munitions and integrated air and missile defense as the U.S. and partner countries work to replenish inventories, modernize existing systems and invest in new capabilities.

We understand that our products are critical to maintaining security around the world, and we fully support the Department of [ War's ] transformation objectives to significantly increase capacity and accelerate production over a sustained period. And given the commercial expertise in our business, we are very well positioned to bring a commercial approach to the department's transformation initiatives.

On the international side, NATO allies, which today spend around 2% of GDP on defense have committed to increasing their core defense spending to approximately 3.5% of GDP by 2035. And across the Asia Pacific and Middle East regions, defense budgets are projected to grow at an average of 3% to 4% annually over the next 5 years, with several countries at record levels. Altogether, these growing global demand signals support another strong financial outlook for RTX.

For 2026, we expect adjusted sales to be between $92 billion and $93 billion, with 5% to 6% organic growth year-over-year. Increased volume, along with pricing and our continued focus on productivity and our cost structure, will support another year of consolidated segment margin expansion. We expect adjusted EPS to be between $6.60 and $6.80 with between $8.25 billion and $8.75 billion of free cash flow for the year. Consistent with 2025, our performance will be underpinned by our strategic priorities and our relentless focus on operational execution.

Moving to Slide 4. Let me highlight how we continue to drive execution, improve productivity and increase output utilizing our CORE operating system and digital solutions. At Raytheon, the team leveraged CORE to significantly increase munitions output across the business in 2025. Notably, we saw output increase by 20% across a number of our critical programs, including [ GMT ] for the Patriot [ Air and Missile Defense System], [ MRAM], which is the premier air-to-air combat-proven effector and Coyote to support counter [ UAS ] capabilities.

In 2026, we expect to significantly increase output again on these programs as well as on other critical munitions, including SM-6 and Tomahawk. We're also continuing to deploy our proprietary data analytics and AI tools across our factories to monitor daily key performance indicators, identify bottlenecks to reduce work in process and track equipment health and performance, all to enable more informed decisions, reduce costs and improve output.

Across RTX, we've now connected factories that represent over 50% of our annual manufacturing hours to our digital platform, and we're seeing the benefits. For example, Pratt has reduced aged inventory by about 45% at its Lansing, Michigan facility, which manufactures GTF fan blades. And within Raytheon's Andover, Massachusetts facility, we've reduced circuit card production cycle times by about 35%. In 2026, we'll continue to see these benefits as we connect more equipment and expand coverage across our footprint.

On the GTF fleet management plan, our financial and technical outlooks remain on track. As planned, PW1100 [ AOGs ] declined in the fourth quarter, and we expect this trend to continue as we move throughout the year. MRO output was up 39% in the fourth quarter and up 26% for the full year, even as heavier shop visits increased 40% in 2025. We also announced the addition of 2 new MRO shops with the UAE [ Sana ] Group and Spain's [ ITP Aero ] joining the GTF MRO network. We expect this momentum to continue in 2026 with year-over-year growth in PW1100 MRO output, in line with what we saw in 2025.

To support our operational growth, we continue to make significant investments in capacity and technology. In 2025, we invested over $10 billion in CapEx and company and customer-funded research and development, with a concentration on expanding our production capacity in factory automation, bringing new products to the market and our cross-company technology road maps. On the CapEx front, we invested $2.6 billion last year. This included significant capacity expansion at Raytheon in areas such as Tucson, Arizona for Tomahawk and classified programs and Huntsville, Alabama to increase output for the standard missile family.

We also made investments to increase production in other key facilities across the company such as [ Polkan Washington ] to support Collins' carbon brake production in Asheville, North Carolina to expand Pratt's turbine airfoil machining and coating capacity for the GTF and F135.

In the fourth quarter, we received the EU certification of the GTF Advantage engine and expect aircraft certification soon. We have begun production cut in of the Advantage engine and expect entry into service later this year, along with certification and first installations of the associated hot section plus upgrade package for MRO customers.

We're also progressing on our strategic partnerships. In 2025, we made $85 million in investments across 19 companies through RTX Ventures in areas such as autonomy, advanced manufacturing, space and propulsion. This included a successful demonstration of Raytheon's deep strike autonomous mobile launcher vehicle in collaboration with multiple RTX Ventures portfolio companies.

In 2026, we plan to invest another $10.5 billion in CapEx in company and customer-funded research and development, including another $3.1 billion in CapEx on top of the $2.6 billion I just highlighted for last year.

Specifically, Raytheon will continue capacity investments in areas such as Tucson and Andover, building on projects completed last year and creating additional capacity for munitions and sensors, including the standard missile family, AMRAAM, Tomahawk, Patriot and LTAMDS. Collins will increase CapEx this year to support growing commercial and defense platforms, including the expansion of the Richardson, Texas facility, the survival airborne operations center and the [ E130J ] programs. And Pratt will continue to invest in capacity across multiple sites, including Columbus, Georgia to increase forging production and asphalt to establish a foundry to produce turbine airfoil castings.

We've got great momentum heading into 2026 and feel very good about how our company is positioned to drive another year of strong growth in organic sales, segment margin expansion and free cash flow generation. With that, let me turn it over to Neil to take you through the fourth quarter results and more details on our 2026 outlook. Neil?

All right, Chris. Thanks. I'm on Slide 5. As you saw, we had very strong financial performance to finish the year. In the fourth quarter, adjusted sales of $24.2 billion were up 12% on an adjusted basis and 14% organically. By channel, organic growth was driven by commercial OE, which was up 18%, commercial aftermarket, which was up 17% and Defense, which was up 10%.

Adjusted segment operating profit of $2.9 billion was up 9% year-over-year and adjusted earnings per share of $1.55 was up 1% from prior year as strong segment operating profit growth was partially offset by expected higher corporate expenses and a higher effective tax rate in the quarter.

On a GAAP basis, EPS from continuing operations was $1.19 and included $0.31 of acquisition accounting adjustments and $0.05 of restructuring in all other nonrecurring items. This included a $0.15 settlement charge associated with the pension transaction we completed in the quarter. Free cash flow for the quarter was very strong at $3.2 billion, bringing our full year free cash flow to $7.9 billion, as Chris said. This included approximately $1 billion of powder metal related compensation and approximately $600 million of tariff-related impacts. Lastly, in the quarter, we paid down $1.1 billion of debt and completed the divestiture of the Collins Simmonds business.

Okay. With that, let me hand it over to Nathan to take you through the segment results, and then I'll come back and share some details on our 2026 outlook.

Okay. Thanks, Neil. Starting with Collins on Slide 6. Sales were $7.7 billion in the quarter, up 3% on an adjusted basis and 8% organically, driven principally by strength across commercial OE and aftermarket. Adjusting for divestitures, by channel, commercial OE sales were up 9%, driven by higher volume on wide-body and narrow-body platforms. Commercial aftermarket sales were up 13%, driven by a 24% increase in provisioning, an 11% increase in parts and repair and a 7% increase in mods and upgrades.

Defense sales were up 2% versus the prior year on a difficult compare, driven by higher volume across multiple programs. Recall that the prior year was up 13%. Adjusted operating profit of $1.2 billion was up $16 million versus the prior year as drop-through on higher commercial aftermarket and OE volume was partially offset by the impact of the divestitures completed during the year and higher tariffs across the business. For the full year, Collins generated $30.2 billion of adjusted sales and $4.9 billion of adjusted operating profit, resulting in 9% organic sales growth and 30 basis points of year-over-year margin expansion.

Shifting to Pratt & Whitney on Slide 7. Sales of $9.5 billion were up 25% on both an adjusted and organic basis, driven by strength across all channels. Commercial OE sales were up 28%, driven by increased deliveries and favorable mix in large commercial engines with large commercial engine deliveries up 6% for the full year. Commercial aftermarket sales were up 21%, driven by higher volume, including heavier content in large commercial engines and Pratt Canada.

In military engines, sales were up 30%, driven by higher F135 production volume and higher sustainment volume across multiple platforms, including the F135 and F100. Adjusted operating profit of $776 million was up $59 million versus the prior year, driven by drop-through on higher military and commercial aftermarket volume as well as favorable military and commercial OE mix. This was partially offset by the impact of commercial aftermarket mix, higher tariffs across the business, higher SG&A expense and the absence of an approximately $70 million prior year insurance recovery.

For the full year, Pratt generated $32.9 billion of adjusted sales and $2.7 billion of adjusted operating profit, resulting in 17% organic sales growth and 20 basis points of year-over-year margin expansion.

Turning to Raytheon on Slide 8. Sales of $7.7 billion in the quarter, were up 7% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, including Patriot and GMT, and higher volume on naval programs including Evolved Sea Sparrow Missile and Tomahawk. This was partially offset by the absence of a prior year benefit related to a restart of contracts with the Middle East customer. Adjusted operating profit of $885 million was up $157 million versus the prior year, driven by improved net productivity, higher volume and favorable program mix.

Bookings in the quarter were $10.3 billion, resulting in a book-to-bill of $1.35 and a record backlog of $75 billion, with a full year book-to-bill of $1.43 billion. In addition to the awards Chris mentioned earlier, other key awards in the quarter included over $900 million of classified bookings and approximately $600 million for NASAMS.

For the full year, Raytheon generated $28 billion of adjusted sales and $3.2 billion of adjusted operating profit, resulting in 6% organic sales growth and 130 basis points of year-over-year margin expansion, including $157 million of improved net productivity. With that, I'll hand it back over to Neil to provide some more details on our 2026 outlook.

Thanks, Nathan. Turning to Slide 9. Let me take you through the drivers of our 2026 outlook that Chris highlighted.

Starting with sales. Given our current backlog and the demand environment we've discussed, we expect total RTX sales to be between $92 billion and $93 billion for the full year. On an organic basis, this translates to between 5% and 6% top line growth. By sales channel at the RTX level and adjusting for divestitures, we expect both commercial OE and defense to grow mid-single digits and commercial aftermarket to be up high single digits.

Moving to EPS. Let me take you through the year-over-year walk. For the year, the most significant driver will be segment operating profit, which will drive approximately $0.59 of EPS growth at the midpoint of our outlook range. Included in this segment growth is a headwind of roughly $0.03 associated with the divestitures we completed last year at Collins. And with lower average debt, we expect a tailwind from lower interest of about $0.06.

Partially offsetting these items is approximately $0.13 from lower pension income, driven primarily by the actions we've taken to derisk our pension plans, including the transaction I just mentioned. Finally, we expect a $0.05 headwind from a higher share count and anticipate a $0.06 headwind from all other items largely related to higher minority interest associated with our joint ventures. All in, this brings our adjusted EPS outlook range to between $6.60 and $6.80 for the year.

Moving to our free cash flow walk. Operational performance, primarily segment operating profit growth will drive an improvement of approximately $1.1 billion. This operational improvement includes a slight working capital tailwind as we continue our company-wide initiatives to improve inventory management. Specific to powder metal compensation, we expect around $700 million for the year, which results in a tailwind of about $300 million year-over-year.

Partially offsetting these items will be the impact of higher CapEx of approximately $500 million as we invest to support the growing customer demand that Chris discussed. For the full year, we expect to invest approximately $3.1 billion in CapEx. Lastly, we expect a headwind of approximately $300 million for all other items, including the net impact of pension, interest, taxes and other investments. All in, we expect free cash flow to be between $8.25 billion and $8.75 billion for the full year.

With that, let's turn to Slide 10, and I'll provide the details around our segment outlooks. Starting with Collins, we expect full year sales to be up mid-single digits on an adjusted basis and up high single digits organically. Adjusting for the divestitures we completed in 2025, we expect commercial OE to be up approximately 10%, driven by double-digit growth across narrow-body and wide-body production, along with single-digit growth across business jet and civil rotorcraft platforms.

Commercial aftermarket is expected to be up high single digits, driven primarily by further growth in out-of-warranty flight hours and global RPKs. Defense sales are expected to be up mid-single digits, driven by multiple programs including the F-35 and other [ Mission Systems ] platforms.

With respect to Collins adjusted operating profit, we expect it to grow between $425 million and $525 million versus the prior year. This is driven by drop-through on higher volume across all 3 channels, higher pricing and the benefit of continued cost reduction efforts across the business. Keep in mind, this profit outlook includes an approximately $50 million headwind associated with the completed divestitures.

Shifting to Pratt & Whitney. We expect full year sales to be up mid-single digits on both an adjusted and organic basis. By channel, we expect commercial OE to be up low single digits as increased large commercial and Pratt Canada engine deliveries are partially offset by engine mix within large commercial engines. Commercial aftermarket is expected to be up high single digits driven by higher volume across large commercial engines, primarily GTF and Pratt Canada.

Within the military business at Pratt, sales are expected to be up mid-single digits driven by higher F135 production and sustainment volume. For Pratt's adjusted operating profit, we expect growth of between $225 million and $325 million versus the prior year. This is driven by drop-through on higher commercial aftermarket and military volume and cost reduction efforts across the business, partially offset by increased commercial OE deliveries and mix.

Turning to Raytheon. We expect sales to grow mid- to high single digits on both an adjusted and organic basis, principally driven by growth across land and air defense systems. Raytheon's adjusted operating profit is expected to be up between $200 million and $300 million versus the prior year, driven by drop-through on higher volume, favorable contract mix and improved net productivity.

In addition to the segment outlooks, we've included guidance for pension and some of the other below-the-line items in the appendix of our earnings presentation. All in, 2026 is expected to be another strong year of financial performance for RTX with all 3 segments delivering growth in organic sales and operating profit with continued margin expansion and solid cash conversion.

Okay. With that, I'll hand it back over to Chris to wrap things up.

Okay. Thanks, Neil. Looking at our 2025 results, it's clear we have built great momentum across RTX, delivering both top and bottom line growth throughout a dynamic year. I want to thank all of our employees across RTX for their hard work, dedication and commitment to our mission that led to these results.

As we move into 2026, our strategic priorities remain consistent. We are committed to making the right investments in the business to support the favorable long-term demand we see and drive sustainable growth this year and beyond. With that, let's open it up for questions.

[Operator Instructions] The first question will come from the line of Peter Arment from Baird.

Nice results, and congrats on all the momentum in the business, Chris. Yes, so many topics here to talk about in '26. But I guess I want to start with the GTF fleet management plan, it's year 3 here and your financial and technical outlook has remained on track the entire time. Maybe can you give us the latest kind of update in any key items we should expect going forward with the plan.

You got it, Peter. And you're right, Peter, I always start this way. Our financial technical outlook remain on track and consistent with our prior comments. AOG did come down in Q4, and they're down over 20% from the highs of 2025. So making good progress there. As I've said before, MRO output remains the key enabler and that continues to improve. The 1,100 output, as we set upfront was up 26% last year, and that was with heavier shop visits increasing 40% year-over-year.

So really good improvement in the shops. And importantly, we exited the year on a strong note. [ LPU ] was up 39% in the fourth quarter, which included a 16% reduction in turnaround time and a significant increase in repair volume which, as you know, takes some pressure off of the need for new material. So all in, this positions us pretty well to grow MRO output at a similar level in '26 which in turn enables us to continue to reduce AOG throughout the year continues to be our top priority, making sure we get the fleet in a better condition, and we're making progress there.

The next question will come from Ronald Epstein from Bank of America.

Kind of like Peter alluded to it sort of like everything, everywhere all points so far this year, and we're only a couple of weeks in. Maybe broadly, Chris, how are you thinking about we've got this executive order about how defense companies deploy capital. RTX was highlighted in a social media post by the administration. How are you broadly thinking about that? And what's it mean to you as a manager of the business, how do you handle all that?

Yes. Thanks for the question, Ron. Let me break it down maybe in a couple of parts here.

Number one, we understand that our products are critical to national security and security of our partners and allies. And I can tell you, across the organization, we absolutely feel the responsibility and urgency to deliver more and to deliver it faster. And candidly, we understand the frustration. And I can tell you, our focus and resources are fully aligned with the department's mandate to ramp production and invest in capacity. And as we set up front, we made some progress in 2025. I think some very good progress.

Output was over -- up over 20% on a number of the critical programs, but there's more to do. We expect to significantly increase output again this year. We're also going to increase our CapEx to enable that ramp. As it relates to capital allocation, we recognize our shareholders rely on our dividends and they've come to expect our dividends. We've been paying them for decades on a quarterly basis. So we remain committed to the dividend.

That said, again, we're comfortable we can accommodate both that and the investment needs that come with delivering the current backlog and the potential future volumes on key programs. And I can tell you that we continue to have active and constructive engagement with the department on its future needs and how we can fulfill those and strengthening the industrial base. So we've got to do it all.

The next question will come from the line of Kristen Liwag from Morgan Stanley.

Maybe, Chris, Neil, RTX is now the largest aerospace defense company in the world by sales. And we're living in a very dynamic period, seeing unprecedented demand for your products, but also unique actions from the government where they're willing to invest in supporting CapEx.

I guess like how are you thinking about the portfolio composition and potential monetization for shareholders? Given the recent move from one of your competitors where they're carving out emission solutions business, receiving a $1 billion investment from the government with an IPO in the second half of the year. How do you think about your portfolio? And where do you see the opportunities?

Yes. Thanks, Kristina. I'll start. Again, I continue to believe -- we continue to believe and have strong conviction that RTX is constructed to meet the moment. By the moment I mean the ramp both in defense and commercial and to drive long-term value for customers and shareholders. And I've said this before, our breadth and scale provides a competitive advantage in our mind in terms of technology, cost structure, customer and market knowledge and talent.

And as you know, in this industry, you make big bets on large platforms, and that requires a strong balance sheet and ability to innovate and invest over the long term and the ability to manufacture at scale for a sustained period of time, all things that are within the RTX core competency.

And you're also starting to see this convergence of commercial and defense tech. You're seeing a lot of that given the transformation initiatives that the Department of War is pushing forward. And I think we're just uniquely positioned to compete in that environment. And I think that provides us a real opportunity as opposed to perhaps some of our competitors. And as we said before, we're going to continue to invest, and we've got the balance sheet to continue to invest in the capacity and in technology to meet both the current backlog and the programs of the future.

The next question will come from the line of Robert Stallard from Vertical Research.

Probably a question for Neil regarding the 2026 guidance. Your forecast for Pratt & Whitney, particularly on the OEM side, looks a bit conservative, particularly given what Airbus is planning on the A320 and 220 going forward. So I was wondering if you could perhaps delve into the components a bit more, particularly on aerospace OEM.

Yes. Thanks, Rob. I appreciate the question. Let me give you a little bit of color. I think it's important to kind of see what's underneath the covers there on the Pratt side. I would start by saying, in 2025, we had our large commercial engine deliveries up as Nathan said. As we think about 2026, I think the large commercial engine output in terms of deliveries is likely to be up call it, mid- to high single digits.

So it's growing on top of the number that we put up for 2025. We talked at length for a number of years about the mix in the OE and balancing the need to support the flying fleet today as well as installs at Airbus. And we think we put together a plan that does just that. And so we will see continued growth on the MRO side at Pratt. That will support the GTF aircraft in particular. And the rest will go between Airbus and spares.

I think if we look inside of the install side, we still see growth on both the installs and probably flattish on the spare engine deliveries for 2026. So a little mix headwind on the top line. But in terms of output, strong output throughout the course of this year. If it's better, you'll see that, but we're really trying to make the right balancing decisions between MRO and install. And Chris has a couple of the --

Yes. No, I'd just add a couple of other notes here. Again, our 2025 total deliveries were up over 50% versus 2019 levels. I think that's important to continue to reinforce. And as Neil said, we're always going to try to support our customers. There's a balance that we've got to bring to bear, given what's going on with the fleet. But the backlog on the program is very strong. And we've got key investments coming online over the next 24 months to continue to support it, a new powder metal tower, new forging press, some additional capacity in Asheville, where we do turbine airfoils. So we're 100% in support of continuing to drive deliveries on the program over the long term because the backlog is there and the customer demand is there.

The next question will come from the line of Scott Deuschle from Deutsche Bank.

Neil, why does Pratt commercial aftermarket growth slow to high single digits in 2026, particularly given the strength you saw here in the fourth quarter and then the commentary on GTF MRO volumes? And then for Chris, I was wondering if you might give us an update on when you expect to cast these output to begin to ramp up at Asheville.

Yes. Thanks, Scott. I will start with the Pratt. I'll fill in where I left off. We were talking about the OE side. About 70% of Pratt's growth in '26 is going to come from commercial aftermarket. We talked about that being up high single digits. If you kind of look at the pieces here, I'll start with Pratt Canada. We'll see growth in their aftermarket that's in the high single-digit range. So very solid there, growing ahead of RPKs in the market.

Within the large commercial engine business on a V2500 shop visit basis, we talked last year about doing 800 or so shop visits probably did a little bit more than that. I think for 2026, we're expecting it to be more or less the same, probably within 20 shop visits of 2025, so steady and above [ $800 million]. There's a little bit of an offset on the PW 4000s and 2000s as those older engines start to retire. Those are expensive overhauls. And we're seeing a little bit of headwind there, probably about $100 million for 2026, all things that we saw coming and we planned aligned with our customers' fleet plan.

So inside of the aftermarket, those are a couple of moving pieces on the legacy side of the business. And of course, the GTF aftermarket is continuing to grow, as you point out. Chris talked about stepping up again similar to the growth level that we saw in 2025. The shop visit content varies though they're getting heavier, and so we will see that in the top line.

Maybe just a comment on the profitability there. We've seen solid margins and progression on the GTF aftermarket. I'd call it, low double-digit kind of margins, obviously 1 to 2 points maybe of expansion here in '26. So that GTF aftermarket revenue stream is moving in the right direction as we get further away from entry into service and start to put in new contracts and gain durability improvements that we've talked about and the pricing in the contract structures.

Yes. And Scott, maybe on the second part of your question on the casting piece. So the casting foundry investment has been approved. We moved out on that investment. We're in that sort of buildup phase and working to make sure the yields are where we need them. So that when we're going into production, we're getting the yields that we need and I think that impact will start to feel that more in the '28-'29 time frame.

The next question will come from the line of Myles Walton Wolfe Research.

Might be for Neil. So Neil, could you pull back the covers on the Raytheon segment in terms of the growth rates of maybe some of the larger SDUs. I heard the comment about the 20% growth in some of the effectors. But maybe just a little bit of color there. And then, Chris, following the comments by the administration, have you engaged to change any behavior? And if so, what is it that they're requesting?

Right. Thanks, Myles. I'll start here. As I pointed out in our opening comments here, the majority of that sales increase is coming from the land and air defense systems business. I'd say over half of it frankly. Obviously, that's supported by material growth. We've seen 11 consecutive quarters of growth. We're expecting mid- to high single-digit growth in material again here in '26. That's the heart of the Raytheon business, obviously, on the munitions and the sensors. So that's where the bulk of it is coming from.

Supporting programs that you all know about Patriot, GMT, LTAMDS, et cetera. I think, importantly, for Raytheon, about 85% of our '26 sales are sitting in our backlog today. So feeling very confident in the outlook that we put out today for them. And as I think about the rest of the year, we should be able to fill that remaining 15% nicely. And it's all about coordinating the supply chain and getting things synchronized, which we're seeing continued improvement in over the last 12 to 18 months. Chris?

Yes. So Myles, I would say that we're obviously fully supportive of the transformation initiatives that the department is pushing forward. And we are working in partnership with them on ways to move output faster and to accelerate, whether that be through different requirements or testing protocols or anything within our shop that can make things more efficient in partnership with the customer.

We're also talking to them about how do we get the most out of our existing capacity, what suppliers do we need help with, whether that be from a throughput perspective or an investment perspective and then again, where do we need to invest in capacity as we see the demand continuing to ramp. So it's a partnership on a number of fronts. It's been very constructive and collaborative. And we're going to -- I hope to start to see the benefit of that here in '26 as we've got to continue to ramp on some critical programs.

The next question will come from the line up Seth Seifman from JPMorgan.

So I wanted to ask another one about defense and maybe a slightly different topic. But in terms of missile defense and the Golden Dome initiative, we understand that the administration is looking for contractors to step out a little bit more there in terms of fronting our R&D to be involved in that effort particularly with space-based interceptors.

And wondering how you're thinking about that given both Raytheon's traditional capabilities in missile defense, but also were pretty full plate in terms of ramping up some of the existing programs.

Yes. Thanks, Seth. Overall, we're looking at Golden Dome as a real opportunity for us. If you just step back and look at what we continue to believe is the multilayered architecture. We believe we've got solutions at each of those layers. And you know those systems very well, whether it be Patriot, whether it be GEM-T, SPY-6, Coyote, and the like.

So between effectors and sensors have a full suite of products that we think can meet the needs of Golden Dome. I think there are also some opportunities in space. I can't talk about them too much. But again, I think we've got some unique capabilities there that we're discussing with the department. And as with all things, we're always looking at the opportunities for us to increase capacity for some of this demand.

As you know, there are long lead time items in some of these areas. There are suppliers that we need to continue to sort of rejuvenate and make sure that they can meet the demands that we need. So all of those things are going on, identifying a long-lead material we might need everything that will help us accelerate production. So when those awards come down, we're ready.

Seth, I would just add that with respect to the investment and our willingness to invest, we, of course, would invest in good business. And so we're prepared to make the right choices there. Our R&D for 2026 is going to approach $3 billion with a healthy portion of that sitting in Raytheon, obviously. So we're prepared to make those investments when it makes sense to do so.

The next question will come from John Godyn from Citi.

All the businesses are experiencing tailwinds, and it's been quite a good run for the last few quarters. I know it can be hard to pick your favorite child, but I was hoping you could just help us sensitize the outlook a bit. In the context of the segments, which one do you think has the most scope for exceeding guidance based on the demand signals that you're seeing recently?

So I'm going to give this one to Chris. Actually, I'll answer it, John. It's obviously early in the year, and we love all of our children here at RTX. So I think all 3 businesses have tailwinds behind them, frankly. I think it's early in the year, we set our guide based on where our backlog sits today. We've got a number of initiatives that are obviously in the pipeline here in terms of cost reduction.

So when I think about Collins in particular, they've kicked off a pretty significant transformation effort there to drive costs out of both the production side as well as the back office. So I see tailwinds supporting the Collins margin trajectory. If I go to Raytheon, we've talked a lot about it already this morning. The Defense business, the demand the productivity improvements that we're seeing in Raytheon, we've seen about $160 million year-over-year improvement for each of the last 2 years. Now that may tail off a little bit. We'll see probably another $25-or-so million of year-over-year improvement.

But we're in the zone where we're seeing positive productivity coming out of the Raytheon business. And that's because of the significant volume the synchronization with the supply chain and the continued execution mode that we're in there. So that's how I kind of think about the Raytheon business.

And over at Pratt, obviously, there's a ways to go there. But we know that the GTF program is growing significantly. We're performing well. We're growing out of the older contracts. We're getting pricing and the legacy businesses continue to be intact there, and we see that staying steady for the next several years. So great businesses. Hard to pick one.

But clearly, all of them have margin potential over the next several years, and that's what we're focused on. And I think if we execute and deliver the backlog we have today that we'll naturally see that margin expansion over the next couple of years. Importantly, that will convert to cash. And you're seeing that in the '26 outlook. We saw it as we exited '25, exceeding where we had thought we would exit the year on strong collections. So really good position to be in. And again, it affords us the opportunity to take on that extra investment to build for the future capacity that's not even yet sitting in our backlog. Chris?

I think you said it really well, Neil. And the only thing that I would emphasize, John, is that each of the businesses is fully focused on getting to its full potential. I will tell you that Neil outlined some time frames for each of those. Some are closer as you might imagine. But all dedicated to driving operational improvement through core structural cost reduction and a maniacal focus on execution given the backlog.

The next question will come from the line of Gautam Khanna from TD Cowen.

I had quick ones. One, a follow-up to the prior question. Just on Raytheon Defense, productivity, and you also have higher volumes and better mix over time with the foreign backlog conversion into sales. So what's your updated thoughts on eventual margin entitlement for that segment? And then wanted to just ask on GTF. Could you remind us again in the guidance for '26 with the cash customer compensation payments are? And if there's going to be any tail to that in 2027? And if you could just give us the final number for 2025.

Thanks, Gautam. Let me start with the last question. So in our outlook, for 2026, we have $700 million place held as the cash outflow. We exited 2025 with $1 billion cumulatively we're at $2.8 billion when you get through the end of 2026. We had talked about that being about a $3 billion cash headwind to us over the period of time we execute the FMP.

So that leaves a couple of hundred million dollars. As I sit here today, we've been very prudent in our management of the compensation. We've got agreements with customers and very, very disciplined there. So that's how I see it today in good shape for the 2026. As it relates to the Raytheon margin potential, we're exiting 2025 strong. Our outlook for 2026 puts us pretty close to the 12% range that we talked about. And as you pointed out, the international mix is increasing.

Today, our backlog has about 47% international mix in it and we expect the sales mix to grow. I will say, as we talk about increasing our capacity for [ permunitions ] and sensors, that will have a different sort of mix impact as well, but there's no reason to believe that the Raytheon margins can't be north of 12%, and we're certainly well on our way in this outlook that we put out today.

The other piece of tailwind that I would add there, to Neil's comments is if you just look at the backlog composition, Neil talked about the international component. But if you think about the products that are continuing to grow in that backlog, those are products in our core competency, mature products that are going to continue to help drive productivity and improve margins. And when you think about where some of this future demand is as part of this defense transformation, whether it be the effectors, Golden Dome. Again, these are going to be the products in integrated air and missile defense that are core to Raytheon.

The next question will come from the line of Sheila Kahyaoglu from Jefferies.

I wanted to ask about Collins because I feel like it's a bit forgotten given everything else going on. Collins embeds 70 basis points of margin expansion, 40 basis points of that is the divestiture benefit. So only 30 bps organically.

But it seems like there's a lot of good things going on in the segment, whether it's double-digit OE, narrow-body growth, which I presume is in line with segment margins 10% aftermarket productivity plan in place. Maybe if you guys could bridges and obviously, a full year of tariffs is maybe some of that offset.

Thanks, Sheila, for the question. So let me start with '25. You're right. We had about 30 basis points of margin expansion there. I would tell you that -- from a tariff perspective, that was a 90 basis point drag. So if you were to add that back, we saw Collins, I'll call it, organic margins at 17.1%, which was really, really nice to see.

Obviously, we're still living with the tariff situation. We do expect to see a bit of a tailwind as we move from 2025 to 2026 on tariffs, probably about $75 million lower and keep in mind, we're picking up an extra quarter of tariff expense in 2026. So the first quarter will be a little bit depressed on the Collins margins as they pick up an extra quarter. But nonetheless, still seeing really good margin expansion there.

As you go to 2026, inclusive of tariffs, we're going to see another 80 basis points of margin expansion at the midpoint. As I said a couple of minutes ago, Collins has a ton of effort going into digitizing the back office, streamlining their footprint, and we're seeing the benefits of that cost reduction activity already come through in these margins. And I think that there are several years of benefits ahead of us as a result of the work they're doing.

So we are seeing that improved drop-through. Obviously, in '26, we've got OE growing about 10% those margins are probably consistent with what you'd expect for sort of a defense kind of margin low double digits and some really robust aftermarket. About 45% of their growth coming from the aftermarket business with the kind of drop-through that you'd expect in the business at Collins. So well-positioned, growing installed base, RPKs are strong, and we're getting the pricing benefit, too, that we've been pushing for in light of these headwinds we've been dealing with over the last couple of years.

The next question will come from the line of Douglas Harned from Bernstein.

When you look at the GTF right now, I mean you talked about how AOGs are coming down off that peak. The other thing going on at Pratt is as you talked about, you've got increasing work scope on [ B2500s], which is very good for margin. You've had getting life extensions. But how should we think about the longer-term margin at Pratt?

Because on one hand, you have that benefit, but as AOG start coming back, you may have 2 other effects, which are you may see some PW1100 powered airplanes lead to parking of some fees and you're going to have some decline in spare engine rates. So how should we think about combining all of those things for the long-term Pratt margin?

Yes. I'll start, Doug, and Neil, feel free to chime in. You're right on a number of those tailwind component, Doug, the V2500 is going to continue to be strong. Shop visits are going to stay in that 800 range in the content is going to continue to be strong. We see low retirements there, a lot of continued demand for that platform.

When you think about the margin trajectory at Pratt, obviously, there's going to be some headwind associated with continued OE deliveries. You know that with that margin profile sort of looks like there. We're also continuing to grow the GTF in the installed base. And so a big part of this is going to be continuing to drive GTF aftermarket margins. And so how do we go and do that?

Well, number one, you know we've put in place a number of durability improvements. A number started going in last year, and you can start to see that benefit throughout the fleet. You've got the advantage that's going to be coming into play. We got the EU engine certification in Q4, expect the aircraft certification relatively soon.

We started producing that engine and that production cutover and expect EIS on that later in the year. And then the third piece, and it's related to the GTF advantage is that we're also anticipating the incorporation of our hot sections retrofit package into MRO later this year. That's 90% to 95% of the durability benefits of the GTFA, and that's going to be going into the installed base today as part of that retrofit package. So it's going to be the GTF aftermarket that is going to need to continue to grow in profitability. That will take the margins up at Pratt.

And maybe just to add a couple of points, Doug. I think with respect to the size of the fleet, today's GTF fleet is about the same size effect. I think it's a little bit larger than the installed flying B2500 fleet. So sort of to compensate for what will ultimately be retirements. As you look out a number of years, that GTF fleet is just growing at a really significant rate. And so that will overcome sort of lost revenues and profits that we'll see on the V2500 as it retires.

As it relates to the spare engines, I mean, you talk about the ratio. I think another way to think about that might be there's just going to be continued demand for spare engines. So again, as that fleet gets bigger, while the ratio might come down, we'll still be selling a lot of spare engines. And I expect that to be a continued steady stream of revenue and profits.

And what we like about that, of course, is it helps the fleet, which helps the aftermarket contracts, but it also generates its own aftermarket because those engines will ultimately come in for overhauls as well. So that's how I would frame a couple of the data points behind what Chris said.

The next question will come from the line of Scott Mikus from Melius Research.

Very nice results and solid guide. I wanted to touch on Ron's and Myles' question. So this administration seems more willing to allow M&A deals to go through. They also want defense companies to invest ahead of contract awards and expand capacity. But I've always just thought that the primes get somewhat unfairly blamed because a lot of the bottlenecks, the higher production actually lie deeper in the supply chain. So does it make sense from a capital deployment perspective to pursue vertical integration at Raytheon, whether it's organic or inorganic?

Yes. Thanks for the question, Scott. And again, when we talk to the department I will tell you that we are supply chain. They pay us to manage our suppliers and deliver whether it be all [ a round ] or a full system or whatnot. So we've been working in partnership with them and how do we continue to strengthen the industrial base because to take production to the levels that the department needs, you're just going to need to continue to invest in that industrial base and bring new suppliers into the fold.

And that's where I think I'd sort of direct your second part of your question. I don't necessarily think it's about vertical integration. I think about strengthening what we have today and bringing new sources into the industrial base. You've seen there's been a number of activities and investments solid rocket motors, for instance, because that has continued to be the industry at large.

We continue to look for other casting suppliers because that affects not only what's going on in commercial but defense as well. So I think it's really about infusing more capital into the supply base, strengthening that supply base and then finding new suppliers in some of the constrained value streams.

And the last question will come from the line of Matt Akers from BNP Paribas.

Most of mine have been answered, but I just want to ask about debt maturities, a fair amount coming due this year. Just curious what your plans are to address those.

Yes. Thanks, Matt. Appreciate the question. We've talked for a couple of years now about our debt repayment priorities. We made a payment of $1.1 billion in the fourth quarter. And we've got about $3.4 billion of payments that are coming due this year that we anticipate to make and bring that debt down further. So that's what I would say today about our plans for paying down the debt that's on the balance sheet and making great progress, as Chris said. Balance sheet is really strong and positions us well for continuing to make the investments that we've talked at length about today.

Thank you. And with that, I will now turn the call back to Nathan Ware.

All right. Thank you very much. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. Thank you all for joining us today, and have a good day.

Ladies and gentlemen, this now concludes today's conference and you may now disconnect.

Good morning, everyone. My name is Peter Arment, senior aerospace and defense analyst here at Baird. We are delighted to have RTX joining us this morning. From RTX, we have Neil Mitchill, the Chief Financial Officer and Executive Vice President. Neil, welcome.

Thank you Peter.

Neil is going to make a couple of opening comments, and then we're going to jump into some Q&A. So thanks again, Neil, welcome.

Yes. Thank you, Peter. I'm looking forward to it, and good morning, everybody. First, I want to make a statement here. I'm going to make some forward-looking statements as I usually do, and there's plenty of risks and uncertainties in our business. So please refer to our SEC filings for more information on that.

I think most of you probably know RTX, but just a quick reminder, we are a premier aerospace and defense company. We have 3 industry-leading segments, Pratt & Whitney, Collins Aerospace and Raytheon. Coming off of a really strong third quarter, Peter. We had 13% top line organic sales growth, double-digit growth in sales across all 3 of our channels. Aftermarket was up 18%. Defense and OE were up 10% each. So really, really strong third quarter. Good execution across the entire business, and that converted to margin expansion at each of the segments and at the RTX level. So really happy with that progress and the momentum. Free cash flow was a bright spot. We had $4 billion in the third quarter, putting us well on track for our full year.

So all of that momentum that we saw in the third quarter and had been building throughout the course of the year allowed us to take up our top line, take up our earnings per share, adjusted earnings per share and maintain our $7 billion to $7.5 billion of free cash flow. So our sales today, we see between $86.5 billion and $87 billion and our adjusted earnings per share, $6.10 and $6.20 in between those 2 numbers. So I'm sure we'll talk a little bit more about the fourth quarter, but feel really good where we are coming out of the third quarter.

Maybe just a couple of other comments before we get started, if you don't mind. Demand story remains really strong across all of our businesses. In fact, as we sit here and look at our $251 billion backlog, I would say that doesn't even include yet some of the significant defense demand that we're seeing here in the United States as well as globally. So I think there's a lot more to come there.

We really like the portfolio. As I said, it's performing pretty well. And we have a lot of opportunity ahead of us, I think, on the U.S. government side. It's great to see the government reopen last night. That's a really important milestone here for us in the quarter, obviously, for the country. So pleased to see that happen, and that takes a fair amount of risk off the fourth quarter that we are starting to monitor.

I think maybe one more topic I wanted to cover upfront. Most of you probably saw Secretary Hegseth's comments last Friday on acquisition acceleration efforts. I want to say that we're extremely excited to support the Secretary's and the Defense Department's transformation efforts here. We certainly agree with the need to increase the pace of delivering products to the war fighter. It's critical, especially in these times. And I think that we at RTX are particularly well positioned to support this successfully. As many of you know, we're about 50-50 commercial and defense today. And so we know what the commercial model looks like, and we know that we can move with speed, and that's just what the Department of War is looking for.

In fact, we have plenty of examples already where we've taken commercial products and put them into military missions. And I think we can do more of that for the customer going forward. So overall, absolutely support these well-needed transformation initiatives, and we're looking forward to supporting that on the Secretary's objectives in that regard.

So again, off to a good start this year, 9 months in, we just have about 1.5 months to go, and we're feeling pretty good. So...

Terrific. That's great. Thank you. Well, you mentioned you clearly had a strong Q3 performance. You've increased your full year outlook. And now as you move through the fourth quarter and close out the year, maybe what are some of the items or end markets activity that you're really watching closely as we think about the year-end?

So a few things here, Peter. Obviously, a lot is behind us already. So that's been a good thing. The backlog is really strong. So we don't have a challenge with kind of what are we going to sell to deliver the fourth quarter here. I think everything is tracking. We've seen October results.

Obviously, we've been watching the government shutdown impact. That was a key watch item. I'd say we've seen a little bit of slowing down on the awards, new contracts and a little bit of slowing down on customer payments. We're optimistic that we'll see a return to normal pretty quickly here in the fourth quarter. We could see a little bit of risk there on the collection side. But of course, that's just timing for us, whether it's this year or next year, it's not a collection issue. It doesn't change anything about the underlying business.

But I'd say in terms of OE aftermarket, we're on track to deliver to the outlook we provided a few weeks ago. And I think all of that is in check.

Now we did file an 8-K this morning. Maybe I'll just provide a little clarification around what we announced this morning. We have been on a path for a number of years to derisk our pension plans. Our plans are well funded, well over 100%. And one of the transactions that we announced this morning is an opportunity to transfer $2.5 billion of our pension obligation to an insurer. Now that will come with an accounting charge. It's a onetime noncash charge, pretax of about $300 million here in the fourth quarter. It will change a little bit based on the finalization of the actuarial assumptions there. But we'll take that charge. It won't affect our adjusted earnings per share because charges like that, we would measure out of that metric, but a really good economic transaction for us, particularly in the position that the plans sit today.

As we look to '26, just a little bit of forward-looking information here. It will create a little bit of headwind on our non-service pension income. We're seeing about a $200 million year-over-year decline in that line item in our income statement. Again, that's not a cash item for us. But just so folks are aware, about 1/3 of that $200 million relates to this transaction. But overall, a really good transaction as we continue to derisk the pension plans and strengthen our balance sheet a little bit further.

So that's how we see the fourth quarter. It's really heads-down focus on execution so we can deliver the outlook that we provided on our earnings call.

Terrific. Yes, anytime you can reduce pension, we're big fans. Yes, it's always something.

As are we.

Yes. Specifically on cash flow, maybe some of the cash and working capital trends to think about as you finish this year on inventory. I know this has been kind of a big focus of the company. It's -- and you talk -- can you talk a little bit about the progress you're making there?

Sure. We've obviously built up a number of our working capital account balances and inventory being the largest contract assets as well, mostly because we've been dealing with significant growth in the business, really across every single part of RTX. We've had huge initiatives to try to drive that down to improve our turns, and we've seen some progress. But frankly, we've done a lot to protect the supply base over the last 1.5 years. And so we're continuing to make progress there.

I think the good thing, if you will, the bright side to maybe not making as much progress as we had originally set out is that opportunity still lies ahead of us, and we're still delivering cash. But there's plenty of work to do. It's a top priority of our company. We're employing a lot of digital tools now to help us better allocate our material throughout the operation system and to get a better look inside of our suppliers as well.

As we look to the end of the year here, I think we're going to continue to see inventory burn down from where we were in the third quarter. We'll also see our payables probably lengthen a little bit, which is all volume related. I think as we look longer term, still more opportunity to take net assets off the balance sheet and improve the turns as we continue to see a little bit more stabilization in the supply chain and then better tools and visibility that we're employing across our manufacturing sites.

Yes, it's great that you still have that opportunity in front of you. I mean it just adds to the momentum that you're kind of building over time. Beyond -- thinking about really '26 or beyond this year, and I know you're not giving a '26 outlook, I get that. But is there anything you can share with us on next year expectations for the company, broad-brush?

Yes. Maybe there's a couple of things. You're right. I'm not going to provide the guidance today. I want to finish the year strong first. But with a $250 billion backlog, as we sit here today and look out to next year, we feel pretty confident that what we need to deliver is pretty well known. There's not a lot of selling. As we look at the commercial aerospace side of the business, revenue passenger miles continue to grow. They're moderating as we all expected, but we still see that in the mid-single-digit range next year. The installed base continues to grow on OE deliveries. And the defense, I think we're starting to see -- you saw that in the Raytheon numbers really across RTX. We had 10% defense growth in the third quarter. We'll see strong defense momentum as we continue to increase our capacity and then start to deliver that to our customer. Material receipts have gone up 10 consecutive quarters at Raytheon. Obviously, that's a huge driver of getting -- Yes. So we're looking for number 11. But even still, this supply chain is getting a lot healthier, and we're seeing that momentum build so we can deliver next year.

So if you just step back, we're going to see top line growth. I won't put a number on it today. We're going to see that convert to margin expansion at each of our 3 businesses. And we expect the free cash flow to grow as well. We're continuing to make powder metal payments this year in '25. We expect that to be a tailwind as we head into '26. And so that, combined with working capital, we expect to see our free cash flow growth.

So I'll leave it at that for now, but we're sitting in a really good position, and we're focused -- really just focused on executing.

Yes. It's -- you guys have been executing across the board, and it's great to see. Maybe just below the line for '26. Anything we should keep in mind about modeling below the line as we think about next year? You mentioned pension already, but just the things that we should think about?

Yes, that's a good question. I think a couple of things maybe to focus on. First is we do a lot of joint venture work, and so we have noncontrolling interest that will probably rise as volume goes up.

The other area is our digital investments. We are making a concerted effort to prioritize our investments in areas where we get the biggest bang for the buck, as you'd expect us to. But the deployment of digital technology, AI and data analysis, I'll give you an example. In our GTF MRO network, we've deployed data analysis that allows us to optimize where material is directed across the MRO network. I expect us to have a little bit of a step-up in that spend as we get into '26.

But other than that, I think not a whole lot other moving pieces of significance to talk about today.

Okay. Terrific. That's great. Maybe let's just talk defense a little bit. It's half your company. What are you seeing right now? I think that's the U.S. has a variant change, I think, in the U.S. pace of government contracting, you mentioned a little bit. And then we're thinking about international demand. I mean, covered Raytheon for a very long time before it became part of RTX and 80 countries, I think, or it used to be 80 countries, it's probably more now, but your presence globally is impressive. So maybe talk a little bit about what you're seeing.

Yes. Thank you. The defense business today is really firing on all cylinders. We've seen significant stabilization as I'm sure you've observed in the Raytheon portfolio. But it's not just the Raytheon portfolio. Collins and Pratt have very substantial defense contribution as well. As I think about our priorities right now, it's really about, first and foremost, capacitizing to execute on the backlog. We're making hundreds of millions of dollars of investments in capacity. We'll make $300 million just at Raytheon this year. And a lot of that's around the United States, Alabama, it's Florida, Arkansas, Texas. We can go Tucson, Arizona, for example, Connecticut, pretty much everywhere we are doing defense business.

So the demand remains very, very strong there. And it's really all about getting the supply chain in sync with our delivery profile. We're seeing substantial increases in the capacity that we've created for munitions. And so as I look a little bit forward, and I'll start with the United States, the demand for enhanced munitions output is very, very substantial. What we've seen to date is a lot of the international orders coming in, some U.S. But I think as we look forward, we see a lot of opportunity ahead of us. Now there's a lot of work to do to get our rates up even further and a lot of investment we'll need to make to do that. But the return on that is very, very strong. So we're optimistic about that.

Sticking with the United States, you've got Golden Dome, integrated air missile defense, protecting the homeland here in the United States is right in the wheelhouse of what Raytheon does quite well. So that's the radar systems, that's LIDS, which couples with our Coyote effector. It's NASAMS, it's Patriot. And then we had a significant $1.5 billion order for LTAMDS, the next generation of Patriot.

All of that -- most of that translates to the international markets as well. So in Europe, you're seeing substantial upticks in defense spending. We've seen that come through in orders for GEM-T, for example, in the third quarter. We're expecting more orders for international -- integrated air defense systems and the munitions that go along with that. And to do that and to ensure that the European countries are comfortable buying from Raytheon, we've got a lot of partnerships that we...

I was going to say...

Working through there. So in Spain, Kongsberg and other places where we've partnered to make the product or source parts that go into the product locally. Middle East, same story. A lot of opportunity sits in the Middle East, and we're seeing that level of activity increase as well.

So I think our book-to-bill in the third quarter for defense was 1.94. It's very, very substantial. And now it's just really about focusing on execution and making sure everything synchronizes in the supply chain and deliver.

Yes. So general [indiscernible] architecture is not out yet. Maybe it's -- it was expected this month, but obviously shutdowns things. It's probably maybe year-end or something. But it seems this administration wants a win. So it clears like it's just going to be a lot of the existing systems and just a lot more. And it just seems like you guys are so well set up to kind of capitalize on that. Is that kind of a view that you guys share?

It is, Peter. We've got 35 of our systems at Raytheon that are actually deployed and in use today. And I think when you think about the importance and the criticality of bringing a timely set of defenses to the U.S. homeland, you got to go with products that are battle tested. And certainly, the ones that Raytheon manufactures fit that bill. So I think in order for us to set up systems like this around the United States in a very quick manner, we're going to have to use products that we have today.

Now these products that we have today have been developed and improved upon for decades. So they're better and better every single day, and we're continuously bringing new technology to the platform. So I do think that Raytheon's products are certainly going to play a big role in that architecture.

Yes, for sure. You mentioned just capacity before just about in defense and the investments, just not knowing what the architecture is, but everyone is kind of somewhat informed. How do you feel about the capacity to kind of meet this? Because it is -- there is just the demand signals really are off the charts in defense.

Yes. We are capacitized to a certain level of Patriot, for example, I'll talk about that in the end, over Massachusetts. Back in its peak, we were producing about 1 per month. When you look ahead and you look at both the U.S. and the international demand for a system like that, we could see that certainly creep up. We would want to expand our capacity. In fact, we are doing that already in anticipation of both U.S. and international orders.

LTAMDS is another one where we're already making investments to get up to similar rates of production for that system, which is much, much larger than a Patriot system. As we do with every investment, we make a very calculated business case about the return on that investment and the payback. And I think we see very clear line of sight to favorable returns and the benefit of having a stable and long-term commitment from our customers on the volumes around those kinds of products.

So haven't yet fully obviously signed any contracts or gotten that far, but we do see a huge opportunity here, and it will take some investment, but we're confident in investing in ourselves and products that are battle-tested and we know how to make and a supply chain that we're familiar with.

Yes. That's terrific. Let's switch over to maybe commercial. RTX has been keeping pace with the OEM kind of rate ramp that we're all looking at and particularly on A320. And how do we think about maybe 737 MAX? Touch upon that.

Sure. Yes, I'll start with Collins. We certainly, I think, have done a decent job of predicting what that rate was going to look like when we entered the year. We knew there was a little bit of inventory in the channel with Boeing, but we're really pleased to see the progress that Boeing is making on the ramp rate for 737. So I think we're synchronized with what their needs are, and we are coordinating very closely to make sure we are able to support their continued ramp on the 737 program. So that's been a well-executed plan for this year. And I think you saw that in the Collins numbers. I think they were up 16% in sales. Q3, obviously, a little bit of benefit from the timing of the strike last year, but on track on the Collins side. And similarly, Collins is aligned with Airbus on programs that they support.

On the Pratt side, it's been another really good story on production for OE. We are going to be up about 8% to 10% this year in output of production for Pratt on new engines. But for Pratt, it's a little bit more of a balancing act, trying to support both Airbus on the A320 as well as support the fleet to get the fleet off the ground as we execute those fleet plans, which are on track as well.

Of note, I would kind of point out that when you look back to 2019 and compare 2019 to the end of Q3 2025, our production for GTF engines is up 55%.

That's incredible.

So we've really, really put a lot of new engines out there. Interestingly, when you look at that output compared to our market share on the A320 program, in particular, we're about 4 points ahead of our firm order market share in terms of delivery. So at this point, we really need to make sure we continue to balance what we supply to Airbus as well as to the rest of the fleet in the form of the material as we look ahead for the MRO output next year.

MRO output this year, it's not an OE item, but really, as we talked about, the key ingredient to lifting the fleet is material into the overhaul and repair network. We've talked about getting the PW1100, which powers the A320, up about 30% year-over-year in terms of output. And I would say we're 21% through the first 9 months. We've closed October and October's output was in line with our full year expectations. So continuing to see good progress on that front, and we want to see that continue the rest of this quarter and into next year.

Yes. You guys have stayed right on track with the plans you've outlined. One area, though, how is destocking run its course at Collins? Can you maybe talk a little bit about that because that's -- because they've been such a strong supplier and they were ahead?

Yes. So that's where I was saying that I think when we started the year, we had a pretty good insight and line of sight, if you will, to what Boeing had. And that's why I think our outlook started on the lower side a little bit because we were letting that -- it had to work its way through the system. As we got about halfway through the year, I'd say a lot of that is behind us. It's not easy to paint a broad-based brush across the entire program with the number of systems that we provide there. But we certainly are on track and in sync with Boeing to deliver for this rising rate. And I think at least at Collins, most of that slack in the system has been taken up.

Yes. And you mentioned earlier in your opening kind of comments about everything is just still tracking on plan with GTF with powdered metal kind of -- and you said a little bit of a tailwind as we think about '26. Maybe just touch upon that because I think when we think back to when that issue first came up, everyone was concerned, but you guys have stayed right on plan as we think about -- as we go into kind of year 3 of this whole thing.

Sure. Yes. I'll kind of start at the top. Scientifically, we understood the issue. We've been able to verify that through lots of inspections over the last 2 years. We laid out an aggressive plan. We have seen and overhauled a lot of engines. It continues to be a balancing act, but we're confident because we see structural castings, we see forgings and the important materials continuing to rise in output year-over-year sequentially. It's not been easy on our customers. We recognize that. We have agreements with the vast majority of our customers to compensate them for that. So our financial and our operational outlook remains the same as it has all year and as recently as the last quarter.

Looking forward, we do continue to expect the AOG situation to improve. Again, it's all about balancing the material between OE and aftermarket and continuing to see that output in the shops. We're seeing turnaround times for the engines in the shop come down quarter-over-quarter. And we have the capacity in the MRO network, and we're adding the capacity where we need it in the powder metal and the forging value stream to support not just this year, but multiple years forward as the aftermarket continues to grow.

I mean one of the things that's really neat about this program today is that it's 3x larger than what we thought it was going to be when we originally set out to make the investments around the GTF. And if you get -- once we get to the end of this year, the number of engines that are GTF will overtake the V2500 size. So it's been a very rapid, obviously, with its challenges. But from those challenges come a lot of learnings, and I think the team has done a really nice job incorporating those learnings back into the product as we flip into the GTF advantage that comes to market really in earnest next year.

Terrific. On -- how do we think about the impact of aircraft retirements, like thinking about the aftermarket at both Collins and Pratt and think about as we go forward?

So as everyone knows, retirements have been really, really low, in part because of OE constraints, supply chain constraints, the GTF issue that I talked about. But notwithstanding that, we still believe there's a lot of life in the V2500-powered aircraft. I mean I think retirements to date are at about 1.5%, which is pretty much in line, a little better, frankly, than what we had calculated.

As we see OE rates go up, we're going to see more retirements, but we still have about 55% of the V2500-powered fleet has seen one or fewer shop visits. So there's a lot of life left there. And even as the number of shop visits comes down over the back end of the decade, the content per shop visit because these are much heavier, continues to go up and the profitability there is obviously very good. So I still see a pretty strong tail on the Pratt side on the V2500 legacy fleets.

At Collins, the same applies there for the legacy fleets that they're part of, but even more importantly, their installed base continues to grow rapidly. And our content there is twice what it was on the old fleet. So by definition, we'll continue to get more access, if you will, to the aftermarket. We have about $170 billion that's installed, $100 billion of it is off warranty. And as it comes off warranty, and you think about the growing volumes over the last 4 years, more and more is going to come off warranty each of the next 3 or 4 years. So we see some tailwinds there as well.

Not a lot of introductions of new aircraft to new customers. So provisioning will start to normalize a little bit. But as long as there's not a significant economic downturn, we see no reason why we won't see mid-single-digit RPK growth, continued growth in the installed base, continued growth in the magnitude of the aftermarket for the next few years.

Terrific. Last couple of minutes, I want to get in 2 questions on -- you've -- obviously, you've got a lot of volume going, but obviously, you're making a lot of productivity enhancements to help with your margin expansion. So touch upon that, and then I want to just end with capital.

I'll make this quick. We have a relentless focus on cost reduction and productivity at RTX. It's backed by our core operating system. To summarize it at a very, very high level, we're focused on driving the manufacturing cost down. We're connecting tons of our factory equipment to digital data collection so we can analyze it and preemptively deal with issues. We're continuing to work hours out of the system. We're moving work from high-cost locations to low-cost or best cost locations. We're employing a ton of digital technology. We're in the middle of a -- I guess, we're at the beginning of an upgrade of our SAP system. So that will take place over the next 5 years. All of those things, a very sharp focus on SG&A. The Collins team has launched a transformation effort to substantially reduce, simplify, eliminate waste in their back offices.

So across the whole portfolio, we've got a lot of activity going on to continue to drive productivity to offset the inflation and the global trade issues that we've taken on board this year.

Terrific. That's good to hear. And then just lastly on capital allocation. How do we think about that as we go forward into next year? I know are we doing further debt reductions or buybacks? How are you thinking about that?

Sure. I think what you're going to see from us, Peter, is the same playbook that you've seen from us over a number of years. But I'll talk about it more in the short term, I guess. First and foremost, we're investing in the company. We spend over $2.5 billion in CapEx every year, almost $3 billion of our own money on research and development, more than that from a customer perspective, collectively, $10 billion a year investing in RTX. We know that there's a ton of demand for our products, and that's a really smart investment. So we'll start there. All of that is before you get to what's left, free cash flow.

And so we'll continue to prioritize our dividend. That's an important -- critically important part of our share return model. And then as you pointed out, we did the ASR a couple of years ago. We've paid down about $5.8 billion, $5.7 billion, $5.8 billion worth of debt so far. So we have about $4 billion more to go. Our goal is to get back to that level before we return to our other forms of returning capital to shareowners.

I think what's important here is that as we look forward and we look at the cash generation capability of RTX, we're going to be able to do both. By both, I mean, invest in our business, and return capital to shareowners in the way that you would expect us to do and that we've done over the last number of years.

Yes. And you guys don't get enough credit for how you leaned in on that ASR because it shows the confidence in your future cash generation. So -- but Neil, thank you. We're out of time.

Thank you, everyone, for joining us. Neil, thanks again, as always. Thanks for the conference.

Of course. Thank you. Have a great day.

Good day, and welcome to the RTX Third Quarter 2025 Earnings Conference Call. My name is Desiree, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes. On the call today are Chris Calio, Chairman and Chief Executive Officer; Neil Mitchell, Chief Financial Officer; and Nathan Ware, Vice President of Investor Relations. This call is being webcast live on the Internet, and there is a presentation available for download for RTX website at www. rtx.com.

Please note, except where otherwise noted, the company will speak to results from continuing operations excluding acquisition accounting adjustments and net nonrecurring and/or significant items often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties. RTX SEC filings, including its forms 8-K, 10-Q and 10-K, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions]

With that, I will turn the call over to Mr. Calio.

Thank you, and good morning, everyone. We delivered a very strong quarter of results in Q3, which reflects our intense focus on execution, the broad utilization of our core operating system and the durable demand for our products. On the top line, sales were up 13% organically year-over-year with double-digit growth in each of commercial OE, commercial aftermarket and defense. Adjusted segment operating profit was up 19% year-over-year, with growth in margin expansion across all 3 segments. And free cash flow was robust at $4 billion in the quarter, keeping us on track for the full year. Underpinning these results is the continued strength in the global demand for our products and services.

In commercial aerospace, passenger air travel has remained resilient with global RPKs on track for approximately 5% growth this year. We continue to see positive OE production trends, which drove a significant increase in production at Collins in the quarter as well as at Pratt, which saw a 6% growth in large commercial engine deliveries. Commercial aftermarket also remained strong, supported by our large and growing installed base, including over $100 billion of out of warranty content at Collins and heavier shop visit content across our MRO activities.

Aircraft retirements have remained low, with only 1.5% of the V2500 fleet retired so far this year. In Pratt Canada, nearly 70,000 engines in service, has seen over 15% growth year-to-date in commercial aftermarket. On the defense side, we continue to be exceptionally well positioned to meet the growing needs of our U.S. and international customers in particular with respect to munitions and integrated air and missile defense, both core capabilities of our company.

On the orders front, our book-to-bill in the quarter was 1.63 resulting in a backlog of $251 billion, up 13% year-over-year. The activity in the quarter included $37 billion of new awards with $23 billion of defense and $14 billion of commercial orders. On the commercial side, through Q3, our book-to-bill this year is 1.71 and our backlog has grown 18% since the end of 2024 showing the exceptional demand for our products and technologies at both Collins and Pratt.

At Raytheon, we booked over $8 billion of orders from munitions, including approximately $2.5 billion for GEM-T to support multiple international customers and $2.1 billion for AMRAAM the largest order in the 30-year history of that program. Raytheon was also awarded a significant counter drone contract for Coyote production from the U.S. Army. Coyote has proven to be extremely effective in the field. and we've recently developed a lower cost nonkinetic Coyote payload to combat drone swarms. And Pratt was awarded over $3 billion to support the F135 engine, including the lot 18 production contract.

So overall, our end markets and operational performance remains strong as we enter the fourth quarter. Based on this, we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook of $7 billion to $7.5 billion. Neil will take you through the details in a few minutes. But before that, want to provide an update on our strategic priorities on Slide 4.

Starting with executing on our commitments. Our focus on driving performance improvements through our core operating system has continued to generate productivity across RTX. Through Q3, we have delivered 10% organic sales growth this year while keeping head count flat across the organization. This has been a key enabler in driving 6 consecutive quarters of year-over-year adjusted segment margin expansion. With respect to the GTF fleet management plan, our financial and technical outlook remains on track. PW1100 MRO output was up 9% in the quarter and is up 21% year-to-date. We continue to work with our supply chain partners to increase the flow of critical value stream material to ramp MRO output.

In Q3, we saw another quarter of solid progress with growth in isothermal forgings, up 16% and structural castings up 29% year-over-year. Exiting the third quarter, this material flow has supported a record high number of PW1100 Gate 3 starts which is where we reassemble engines during a shop visit, putting Pratt in a position to deliver about 30% MRO output growth for the year. And across the company, we continue to focus on increasing critical manufacturing capacity to support growth, including investing over $600 million this year in expansion projects.

For example, Raytheon is on track to invest $300 million in capacity expansion to deliver the growing backlog. This includes the Redstone Missile integration facility in Huntsville, Alabama, which will increase site capacity by 50% and support the growing demand for our naval programs, including the standard missile franchise. Shifting to innovating for future growth. Pratt Canada was selected by the EU's Clean aviation program to design and integrate a hybrid electric propulsion demonstrator for regional aircraft. This system integrates a 250-kilowatt electric motor and advanced Propeller technology from Collins and is expected to improve fuel efficiency by approximately 20%.

Additionally, Collins is nearing final certification of its next-generation braking system for the A321 XLR aircraft. The design incorporates proprietary carbon technology and is expected to extend break life and drive improved profitability and our maintenance support portfolio. And Raytheon recently demonstrated 2 significant effector technology achievements. The AMRAAM team successfully completed the longest ever air-to-air shot from the fifth-generation fighter. In the storm breaker team in just 50 days, designed, developed and tested a new ground launch demonstrator version of this air launched effector, which will expand the capabilities and future applications for this product.

And finally, we remain focused on leveraging the breadth and scale of RTX. As we've highlighted before, we continue to develop and deploy our data analytics and AI tools to improve productivity and the speed and quality of decision-making in our business. We're strategically using these tools to support the highest impact opportunities across the company, including increasing munitions in OE production rates, growing GTF MRO output and improving sales and inventory planning and management. For example, the Raytheon AMRAAM team has deployed multiple proprietary digital AI tools to proactively identify production bottlenecks and reduce rework which has contributed to output more than doubling year-to-date through Q3 on the program. These examples highlight the progress that we continue to make across our strategic priorities, and I'm pleased with the results they are yielding throughout the company.

With that, let me turn it over to Neil to take you through the third quarter results and our updated outlook for the full year. Neil?

All right, Chris. Thanks. I'm on Slide 5. In the third quarter, adjusted sales of $22.5 billion were up 12% on an adjusted basis and 13% organically. As Chris mentioned, this was a very strong result in the quarter with commercial aftermarket up 18% and commercial OE and defense, both up 10%. Adjusted segment operating profit of $2.8 billion was up 19%, and we saw 70 basis points of consolidated segment margin expansion with contributions from all 3 segments.

Adjusted earnings per share of $1.70 was up 17% from the prior year, driven primarily by segment operating profit growth. In addition, the quarter also benefited from several tax items, including legal entity reorganizations which impacted EPS by approximately $0.12. These items more than offset a $0.04 headwind from the recently enacted tax legislation.

On a GAAP basis, EPS from continuing operations was $1.41 and included $0.29 of acquisition accounting adjustments. Free cash flow was very strong at $4 billion driven by working capital improvement, including strong collections and some advanced payments tied to contract awards in the quarter that were accelerated from Q4. Cash flow for the quarter also included approximately $275 million for powder metal related compensation and $220 million of tariff-related impacts.

With respect to capital allocation, we returned over $900 million to shareowners through dividends in the quarter. And with our focus on further strengthening our balance sheet, we paid down $2.9 billion of debt in the quarter. And finally, during the quarter, we completed the sale of the actuation business. And earlier this month, we also completed the sale of Collins Simmons Precision Products business for $765 million.

Okay. Turning to Slide 6. Let me provide a few details on our updated outlook for the full year. As you've seen with our third quarter results, execution and momentum across all 3 segments continues to be strong. Given this operating performance, along with the strength of our end markets, we are updating our outlook for the full year. On the top line, we are raising our full year adjusted sales outlook to a range of $86.5 billion to $87 billion, up from our prior range of $84.75 billion to $85.5 billion. This now translates to between 8% and 9% organic sales growth for the year, up from our prior range of 6% to 7%.

By channel, at the RTX level and adjusting for divestitures, we now expect commercial aftermarket sales to grow mid-teens year-over-year, up from our prior outlook of low teens, primarily driven by heavier shop visit content that we saw in Q3 at Pratt. On the commercial OE side, we expect sales to grow around 10% for the year, up from our prior outlook of high single digits year-over-year. And on defense, we continue to expect sales to grow mid-single digits. On the bottom line, given the performance across all 3 segments, we are increasing adjusted earnings per share $0.30 on the low end of our range and $0.25 on the high end.

At the midpoint, the increase is primarily driven by approximately $0.20 of improved segment operating profit with the rest coming from a few below-the-line items. And within this updated outlook, there is no change to the net tariff headwind we discussed on our last earnings call. All in, we now see adjusted EPS at a new range of between $6.10 and $6.20 for the full year up from our prior range of $5.80 to $5.95. Specific to Q4, we expect another quarter of strong operational performance at the segment level. with segment profit up around 10% year-over-year, excluding the impact of tariffs and recent divestitures at Collins.

Below the line, the Q3 $0.12 tax benefit I mentioned will not repeat we expect a higher effective tax rate in the fourth quarter. On free cash flow, we are on track to achieve our outlook of between $7 billion and $7.5 billion for the year. The primary drivers of our fourth quarter free cash flow will be the same as we saw in the third quarter, segment operating profit growth and working capital improvement.

And as we look beyond this year, we feel good about the momentum we're seeing across our business, including our growing backlog and end market strength that continues to position us well for continued top line growth, margin expansion and solid free cash flow conversion. And like we do every year, we'll be back on our fourth quarter earnings call in January with our detailed outlook for 2026.

So with that, let me hand it over to Nathan to take you through the segment results for the third quarter.

All right. Thanks, Neil. Starting with Collins on Slide 7. Sales were $7.6 billion in the quarter, up 8% on an adjusted basis and 11% organically, driven by strength across all 3 channels. Adjusting for divestitures by channel, Commercial OE sales were up 16% versus prior year, driven primarily by higher volume on narrowbody platforms. Recall, last year included the impact of the Boeing work stoppage in the quarter.

Commercial aftermarket sales were up 13%, driven by a 17% increase in mods and upgrades, a 13% increase in parts and repair and a 10% increase in provisioning. Defense sales were up 6% versus the prior year, driven by higher volume across multiple programs and platforms, including a survivable airborne operations center program. Adjusted operating profit of $1.2 billion was up $98 million versus the prior year as drop-through on higher commercial aftermarket, defense and commercial OE volume, along with lower R&D expense was partially offset by unfavorable commercial OE mix and the impact of higher tariffs across the business.

Turning to Collins full year outlook. We continue to expect sales to grow mid-single digits year-over-year on an adjusted basis and high single digits organically. And we now expect operating profit growth between $325 million and $375 million versus 2024, up from our prior expectation of between $275 million and $350 million driven by drop-through on higher commercial aftermarket volume. Keep in mind, this updated profit range includes an approximately $60 million year-over-year headwind associated with the business divestitures completed this year.

Shifting to Pratt & Whitney on Slide 8. Sales of $8.4 billion were up 16% on both an adjusted and organic basis, driven by strength across all channels. Commercial OE sales were up 5%, driven by increased volume in large commercial engines and favorable mix in Pratt Canada. Commercial aftermarket sales were up 23% and driven by higher volume in both large commercial engines and Pratt Canada. In military engines, sales were up 15% in the quarter driven primarily by the F135 program, including higher volume associated with Lot 18 contract award.

Adjusted operating profit of $751 million was up $154 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume. This growth more than offset increased large commercial OE deliveries, higher SG&A expense and the impact of higher tariffs across the business.

Turning to Pratt's full year outlook. We now expect sales to grow low to mid-teens on an adjusted and organic basis. an increase from our prior range of up low double digits, driven by strength in commercial aftermarket and favorable commercial OE mix. And we now expect operating profit growth between $350 million and $400 million versus 2024, up from our prior expectation of between $200 million and $275 million driven by drop-through on higher commercial aftermarket volume and favorable commercial OE mix.

Now turning to Raytheon on Slide 9. Sales of $7 billion in the quarter were up 10% on both an adjusted and organic basis, driven by higher volume on land and air defense systems, including international Patriot and higher volume on naval programs, including multiple classified programs, SM-6 and the Evolved SeaSparrow missile. Adjusted operating profit of $859 million was up $198 million versus the prior year, driven by favorable program mix, including international Patriot, improved net productivity and higher volume. Net productivity improved $57 million year-over-year.

Recall, Q3 of last year included an unfavorable impact of $53 million related to a classified program. Bookings in the quarter were $15.9 billion, resulting in a book-to-bill of 2.27 and a record backlog of $72 billion. International backlog represented 44% of Raytheon's total at the end of the quarter and was up 18% on a dollar basis year-over-year. Other key awards in the quarter included $1.5 billion for LTMs production and over $500 million for Stinger production. These awards will support both domestic and international customers. And on a rolling 12-month basis, Raytheon's book-to-bill is 1.43.

Turning to Raytheon's full year outlook. We continue to expect sales to grow low single digits year-over-year on an adjusted basis and mid-single digits organically. And we now expect operating profit growth between $400 million and $450 million versus 2024, up from our prior expectation of between $225 million and $300 million driven by the favorable international program mix we saw during the third quarter.

With that, I'll hand it back over to Chris.

Okay. Thanks, Nathan. We have great momentum across RTX. We delivered strong top and bottom line growth this quarter, and our end markets remain robust as seen by our recent customer wins and 1.63 book-to-bill in the quarter. Our backlog now stands at $251 billion and we remain focused on our strategic priorities across the company, giving us confidence in our ability to deliver strong growth in sales, earnings and free cash flow well beyond this year.

With that, let's open it up for questions.

[Operator Instructions] The first question will come from the line of Rob Stallard with Vertical Research.

This is probably for Neil. You've raised the aerospace OEM guidance for the year. So wondering if you could dive into the details below that and probably in conjunction for Chris [indiscernible], how confident are you in delivering those new LEAP engines to Airbus with regard to their target for the full year?

Thanks, Rob. Let me start on the guidance, and then I'll hand it over to Chris. Again, really strong quarter here in the third quarter. And what we've done with our outlook is we've dropped through that goodness for the full year. also taking up the top line. If I kind of focus that around the midpoint at the top line at the RTX level, we'll see about a $1.6 billion increase Commercial aftermarket is a large portion of that.

Commercial OE is about $200 million there. I'd say that $50 million of that is coming from Collins. The rest of it is at Pratt & Whitney. And what we're seeing there is continued delivery strength on the Collins side, particularly as we get into the last quarter of the year here on increased rates on 737 and 787. And on the Pratt side, I'd attribute that to the engine mix. On the aftermarket side, a lot of that sits at Pratt & Whitney. About $1.1 billion of the $1.6 billion that we're talking about on the increase sits inside of Pratt & Whitney with the majority of that in the aftermarket.

We had a really strong third quarter. As you heard Chris talk about the increase in MRO output is driving GTF aftermarket. We're also seeing strong V2500 mix and heavy shop visits there. So again, letting that drop through for the full year and you'll see that both on the top and the bottom line. And then finally, there's a couple of hundred million dollars at Raytheon on the defense side. we've got 10 consecutive quarters here of material receipt growth, and we're continuing to get ready for the delivery of that large backlog and a backlog we expect to continue to grow.

So those are the big moving pieces on the top line. Of course, dropping through on the bottom line, you see the profit there. We've had some favorability on below-the-line items as well, and we're letting that kind of come through as we scare it just 90 days to go.

Rob, I'll pick it up from there on the second part of your question on deliveries. I mean, overall, we feel pretty good about how we've executed this year and supported the production ramps for both the aircraft -- for all the aircraft OEMs. We're going to continue to work very closely with Airbus to make sure that they have what they need down the stretch of the year also continuing to balance the allocation of material as we've talked about before because we've got to continue to support the fleet. So that's going to continue to be a focus.

I'll remind folks that we're up over 50% versus our 2019 production levels. We've continued to ramp production pretty robustly. And again, going to work very closely with our airframe customers to make sure they have what they need, so they can hit their deliveries for the end of the year.

Our next question comes from the line of Myles Walton from Wolfe Research.

Neil, maybe just a clarification first and then maybe, Chris, a question on Raytheon segment. On the clarification, the 30% output for the full year, I just want to make sure that's 30% output for GTF and so a pretty steep 4Q MRO output improvement you're looking for there?

And then, Chris, on the Raytheon outlook, could you just comment on the limitations to growth. It's clearly not a demand situation here that you're poor on and would expect that the Raytheon segment's revenue would start to accelerate pretty meaningfully. Obviously, we saw some of that here in the third quarter but didn't raise the full year. And so maybe what are the limitations there?

Yes. Thanks, Myles. Maybe your question on the GTF MRO output, I'll start there. And you're right, through the year-to-date, up about 20%, we need to get to that 30% level. MRO output, as I've said pretty consistently, is the key to continuing to push down or AOG levels. And I think we're in a pretty good position to be able to hit that 30% for the full year. And there are several factors that kind of put us in that position. And first, we exited September with the record number of gate REIT starts, as I said previously, that's the reassembly and then the testing process. So we feel good how we've come out of the gate here, no pun intended.

Material flow in the critical value streams was pretty strong. ISO thermal forgings were up 16% year-over-year, as I mentioned, structural casting is 29% year-over-year. Another piece here is our repair network, demonstrated some strong increase here in Q3, 30% year-over-year. That helps lessen the demand for new parts, which should again help the flow in Gate 2. We've continued to see progress with productivity in our shops. Again, exited Q3 in September with about 80% of our MRO completions on the GTF averaging 110-day turnaround time in the shop. And that's on heavier work scopes. So those are the things that I think put us in a position to go drive here in the fourth quarter on MRO output, ultimately, to support the fleet.

On your questions on Raytheon and I'll invite to come in as well if he wants to talk about some of the puts and takes in the quarter. But overall, the headline story here is just continued exceptionally strong demand right? The book-to-bill in the quarter at $2.27 billion, $16 billion of new orders. The demand is there, and we're continuing to invest in capacity to ensure that, that demand can be met. You heard us talk about the $300 million this year. If you just think about since 2020, just at Raytheon alone, it's been about $1 billion on capacity expansions and automation. And then I'll tell you, for us, it's looking at the supply chain and making sure that it continues to be healthy.

We're seeing our tenth consecutive quarter of material receipts growth, which is great. We've got to continue to see that accelerate upwards across all of our critical value streams, whether that be microelectronics, rocket motors and the like. So while performance has stabilized and been good. We need to continue to see that accelerate '26 and beyond because the demand is there.

Chris, I'll just add to that a little bit. Myles, you alluded to it, the third quarter is seeing a very substantial 10% organic growth at Raytheon. If you look under the covers there, just a couple of kind of anecdotes. Our naval power business is in line with that level of growth, but our land and air defense systems business is significantly higher than that. So that growth that you're talking about, we're seeing come through in that side of the business, in particular, as it relates to Patriot and GEM-T output. So the business is very diverse, as you know. And when you look at it at the Raytheon level, I still think we're going to see very strong aggregate organic growth going forward. But certainly, within the areas of munitions and air defense systems, we're seeing growth that's well above what we're reporting at the Raytheon level.

Next question comes from the line of Peter Arment from Baird.

Nice results. Maybe we just stick with in Raytheon, it's not just been a top line story or the backlog. You've also had really good performance on the margin side of things should continue to show really good margin expansion. How should we think about that? Is this kind of continues to see growth accelerate, but you've got higher international mix, maybe just walk us through kind of your thinking around Raytheon's margins in the longer term?

Yes. Peter, you're absolutely right. When we talk about the backlog at Raytheon, which is substantial huge orders in the quarter. If you think about the international portion of that backlog, it now sits at about 44%. And our top 3 programs in that backlog are international. So that certainly provides a tailwind. I would also tell you the team continues to focus heavily on our core operating system and driving productivity and efficiency in our shops to take cost down and to drive productivity.

I can give you a number of examples this year where Phil and the team have used our core operating principles to drive increased production and to drive down cost. And if you just think about some of our top programs, we're going to have significant increases in production this year. Just think AMRAAM, you think GEM-T, Coyote, significant production ramps, again, enabled by more efficiency in our shops, which, again, drives down cost and provide some margin tailwind.

Peter, I'll add that during the third quarter, really pleased to see positive productivity on top of significant year-over-year productivity. Obviously, we had a onetime item last year. But year-to-date, it's about $75 million or so of productivity improvement. That's on top of $160 million last year. So the business is getting back to its formula of driving efficiencies and driving productivity. And clearly, the growing backlog creates more opportunities for us to do that.

So -- now those are significant items here in the quarter. The mix was heavily international focused, particularly on the Patriot deliveries, but we'll see that change a little bit in the fourth quarter. But long term, as Chris said, the mix of the backlog supports an expanding margin, and we're happy to see the productivity continuing to develop in the business.

The only thing I would add to that, Peter, just to build on Neil's comment is it's not only the mix of international and domestic. It's the mix in terms of the products that you're seeing in there. In terms of the $16 billion in orders this particular quarter, $8 billion in factors. Those are things directly in the core capabilities of Raytheon, where we've got mature processes where we've been able to historically yield productivity. So another piece of good news on that front.

Next question comes from the line of Scott Deuschle with Deutsche Bank.

Neil, it looks like frac commercial OE revenue was up 5% on 6% higher shipments. So was the GTF spare engine ratio down year-over-year this quarter? Or are these spare engines just being heavily discounted for the customers that are impacted by the powder metal issue? Just trying to understand...

Yes. I wouldn't say -- thanks, Scott, for the question. I would not say that our spare engines are being heavily discounted, as you all know. And as Chris has talked about earlier today, we're balancing the output of installs, spares and material to the MRO network. And we're doing the same thing here in the third quarter. I would not say there's any major difference in the level of mix between OE and spares that we saw in the quarter. And as we've talked about in the past, we expect that to continue. There's a lot of demand for all of these engines, whether they're going to Airbus, whether it here going directly to an airline customer or material heading into MRO network.

So nothing unique there in the quarter. And as we look at the fourth quarter, we do expect continued OE step up there on a year-over-year basis, there will be a little bit more headwind from the higher negative engine margin in the fourth quarter, but again, still expect reasonable balance of spares and the typical fourth quarter aftermarket performance from Pratt.

Next question comes from the line of Kristine Liwag from Morgan Stanley.

Maybe touching base on the Boeing 737 MAX and 787, can you level set us regarding the run rate you're currently producing? And how we should think about incremental margins on these programs as volumes continue to ramp up. And ultimately, how does that expectation relate to your overall Collins margin expectations?

Yes. Thanks, Kristine. As it relates to Boeing ramp, first of all, really pleased to see the approval on the ability to go to a higher rate on 737. I would say we are, at this point, aligned with Boeing on the rates that they're at now and where they want to go across Collins. And again, as we've said before, Collins has delivered at a higher rate in the past. So we've got the capacity to support the volume ramp and so feel good as this continues to go to higher rates that we're going to be prepared to support Boeing in their effort to do that.

Again, like everything else, it's going to come down to the continued health of the supply chain. We've been very, very transparent with kind of where we are with the supply chain and what we need, that's continued to bear fruit and feel like we're in a good position to continue to support Boeing as they move forward.

And if I just pick up there, obviously, when we set the outlook at the beginning of the year, we had a set of assumptions, and we were delivering to that. There was a little bit of inventory in the channel, say now that we're almost -- we're more than 3 quarters of the way through the year, a lot of that is behind us. And so we're pretty synchronized with Boeing and their delivery schedule. Obviously, the mix of higher 787 as you all know, on the Collins side, comes with some margin challenges. But longer term, as Chris alluded to here, these rates are increasing back to levels that we've capacitized for, we'll get better absorption that will contribute to the continuation of margin expansion in the Collins business as it relates to the OE business.

And of course, as you get more and more of these new aircraft out there, along with that comes provisioning and the aftermarket that goes along with all of that. So I think it's right on track. And of course, we'll be back January with a little bit more precise outlook for next year, but we see growth ahead on the Collins front.

Next question comes from the line of Gautam Khanna from TD Cowen.

I was wondering if you could just update us on your expectations through '26 on the GTF compensation payments. Has there been any change to the timing of when we get down to a much lower level of AOGs and the like? And is the provision still adequate?

Thanks, Scott. I'll take that one. Today, we sit here, and the financial outlook remains consistent with the outlook that we've had for now a couple of years. The team continues to be disciplined with our compensation payments to our customers. I'd say we're right on track with where we expected to be this year. We have some more to go a little bit heavier fourth quarter payments that was all planned and contemplated in our outlook. We said between $1.1 billion and $1.3 billion for the year. And so the residual falls into next year. I'd say right now, no change to that outlook. It seems on track.

Next question comes from the line of Ron Epstein with Bank of America.

Can you speak a little bit to the margins in Collins. It seems like the incremental margins might have been a little bit bigger than what we were thinking. Is that tariff related? Or how should we think about that?

Yes, definitely tariff related. During the quarter, Collins saw about $90 million of headwind from year-over-year tariffs, actually same number that Pratt's off for the quarter. So I think if you put that aside, the team is doing a great job making that a smaller number as we move forward. A number of mitigations have been identified, but that's really the key driver there and what's dragging down the margins.

I think as we go forward, we continue to do a lot of work to continue to support our products and qualification for USMCA treatment or bonds as we reexport material outside of the United States. So -- and, of course, pricing. So there's an opportunity there to continue to mitigate the headwinds, but that's what you saw in the third quarter. And you'll see that again in the fourth quarter, obviously, for both Collins and Pratt too.

Next question comes from the line of Sheila Kahyaoglu with Jefferies.

Maybe if I could go back to Pratt and if we could just talk about the moving pieces for the top line and also the bottom line just on commercial, you raised commercial OE revenue guidance by $150 at Pratt pointing to mix. How do we think about -- is that just the GTF advantage coming in, so higher revenues per engine and the spares mix? And then how that factors into the bottom line with the negative engine margin headwind? Is it still $150 million to $200 million in '25 million and how we think about the higher MRO output into the fourth quarter and into '26?

Sure. Let me take that, Sheila. As I said earlier on the call here, the Pratt uptick in the revenue outlook is about $1.1 billion at the midpoint of our guidance. About $150 million of that is on the OE side. And I would say it has nothing to do with the GTF advantage at this point. It's really just finalization of the year, the mix of spare engines versus installed engines and the volumes that we see there. So that's what's driving the top line there, frankly.

We're also seeing about $100 million on the defense side of Brad & Whitney. And we are happy to get the Lot 18 production contract executed in the third quarter. That drove most of the growth that Pratt's the military side in the third quarter. And so as we play that forward, the material receipts coming in, we expect a little bit of upside there. The rest is in the aftermarket. And if you think about the third quarter and the fourth quarter MRO output that we've just talked about, that comes with revenue. So there's a heavy mix of that towards the GTF. Obviously, that comes with some profit but not the same kind of profits that we see on the V2500.

That said, on the V2500, I talked about 800 shop visits for the full year. I'd say we are right on track. It's been pretty linear throughout the first 3 quarters of the year. So we expect another quarter of about the same level of volume on the V2500. Those shop visits are getting a little bit heavier. And so that's what you're seeing in the top line. And of course, that's dropping to the bottom line. As it relates to full year negative engine margin, no change to the outlook from the beginning of the year, still within that $150 million to $200 million year-over-year headwind. I expect it's going to land somewhere in the middle of that at the end of the year.

Next question comes from the line of Seth Seifman with JPMorgan.

Wanted to ask just quick clarification and a question. Just following up on Sheila's question. I'm proud in GTF, given negative engine margin outlook still the same, are we still thinking about 14% growth in GTF deliveries for the year and which implies a very, very strong Q4. And then as a question, I guess as we think about where the company is going to exit this year, balance sheet should be getting into better shape. How do you think about capital deployment as we go forward and maybe balancing the ability to start returning some cash along with maybe some of the investment requirements that might be ahead, especially on the defense side.

Yes. Thanks. I appreciate the question there. As it relates to -- I'm sorry, the first question was on GTF engines. As it relates to that, when we started the year, I talked about growth that was similar to last year. I didn't put an exact number on it. As I sit here today, I think we're going to end up in the high double -- high single digit rather growth rate. So think about 8% to 10% kind of range. So that you can do the math on the fourth quarter there.

Broader thinking about capital return. We were really pleased with the level of debt paydown that we've made year-to-date. As you all know, we did some buyback a number of years ago. We took some debt out and we've been repaying that over the last couple of years. continue to do that as we move into next year and get back to the levels that we enjoyed of debt before executing that transaction.

I think as we step back, we're prioritizing the dividend as we always have, and we expect that to continue to grow with earnings over the next couple of years and then making sure that we're making the right investments in the business for the future, research and development capital. We've got a healthy rule of CapEx invested expected this year, $2.5 billion to $2.7 billion similar amounts of company-funded R&D throughout the business this year, and I expect that to continue as we look forward. Chris?

Yes. No, just to emphasize something that Neil said there which he's spot on. And that's as the need for investment in defense potentially continues to grow. Those are things that historically, we've been able to do in addition to our capital deployment and allocation strategy. If you just look at our average investment, it's about $1.5 billion a year company-funded investment in defense capacity, automation, R&D.

So we've been able to continue to invest where the business cases make sense. And for us, Seth, it's really a conversation with the government around long-term demand signal. How do we build a business case around investing when we can have visibility into the long-term demand. When we've seen it, and when we feel good about it, we've invested. But again, I think in terms of the capital deployment strategy, it's an and, not an or, we can do both.

Next question comes from the line of Scott Mikus from Melius Research.

Chris, you mentioned the V2500 retirements have been low, and that's a trend we've seen coming out of COVID. We're kind of at a point where ASK -- at least domestic ASKs are growing below the pre-COVID trend. -- next year, Boeing and Airbus will probably deliver 1,300 narrow-bodies, you have potentially hundreds of GTF-powered aircraft returning to service. So when you think about V2500 shop visit visibility in the next year, are you requiring customers to put down deposits to reserve shop visits just to make them a little bit more sticky.

Yes. Thanks for the question, Scott. So look, and Neil said this upfront, the demand for the V2500 continues to be strong, and that's separate and apart from what you just mentioned. And that's because, frankly, what's the dynamic of what's going on in the fleet, obviously, so people need to continue to use their views, but it's also the characteristics of that fleet.

It's still a relatively young fleet. Average age is 15 years, 15% haven't seen a first shop visit, 40% haven't seen a second shop visit. So there is just natural significant aftermarket runway ahead on that program. Customers love the application. And so we feel good about the demand on this going forward, frankly, above where we thought it would be a year or 2 years ago, continues to have runway.

Next question comes from the line of Doug Harned with Bernstein.

On Raytheon, you talked some about margins before. This quarter, you got over that 12% level that I know you've been looking at for some time. And when you talk about the opportunities here, higher volumes, more international, more mature fixed price work, are you kind of where you want to be already? Or can we see more upside from here on margins as you go forward over the next few years? Because it does set up well.

Yes. Doug, we're really pleased, again, with where Raytheon is, I mentioned before, demand is the big headline. And if you think about the composition of that backlog, the growing piece that's international at 44%. That's up from a year ago. So I feel really good about the mix and the tailwind that it can provide. I'll also remind folks that when you think about the $50 billion in reconciliation for munitions replenishment and Golden Dome for America, those things are not in our backlog today. So those are potentially additive to the backlog.

Again, Doug, we're going to need to continue to see supply chain health to get to these levels. As you know, it's a very interconnected supply chain within defense. So if you want to raise production on a number of programs. You've got to make sure that you're deconflicting again, some of the some of those suppliers making sure we're bringing new suppliers to bear to be able to meet the ramp here. That's going to be the critical piece here in our ability to convert this into upside. It's not going to be the demand, and it's not going to be the composition of the backlog, are we going to get the supply chain in a healthy enough place to be able to deliver at these higher rates. And I will tell you that, that's been a focus area for us.

Next question comes from the line of Ken Herbert with RBC.

I wanted to see if you can talk about the 13% in the Collins aftermarket and specifically, the pieces within that and what you're seeing on the retrofit side. But then also I wanted to see for both Collins and Pratt for sort of catalog pricing, have you -- are you getting similar levels on spare parts this year due to last year? Or are you seeing any incremental pushback on the catalog pricing this year from customers.

Yes. Thanks, Ken. So maybe just briefly on Collins and then Neil can add some additional color. Again, Collins, double-digit organic growth in all 3 of its aftermarket channels, parts of repair, provisioning, mods and upgrades. So very good about the strength we're seeing in the Collins aftermarket. As you know, it's got over $100 billion of out-of-warranty installed base. So an incredibly strong position to work from, from an aftermarket growth perspective.

On the pricing for both Pratt and Collins, again, given what's going on in terms of tariffs and given the demand in the marketplace, I think both of them appropriately aggressive in pricing this year. And as we look towards next year, again, we got to see how things shake out on the tariff front. But again, we're going to be -- continue to be aggressive in terms of catalog pricing because of the value that we bring and because of the demand that's out there.

And to add some color on the quarter's aftermarket performance. I think what was notable was the parts and repair. We're seeing 13% organic growth there and that's indicative of aircraft that are flying that you need sort of the brake fix type of aftermarket that Collins has, which comes with very good margins. So I think that was encouraging to see on the mods and upgrades, up 17% organic. If you look a little bit into that, you're going to see that the interiors business was up significantly during the quarter. Top line growth really, really strong.

Still working through some older contracts there. But I would tell you, on the top line, delivering that backlog positioned for continued growth as well as expanding margins on the interiors business, which is one of the items that will fuel next year's margin expansion for Collins.

And our last question comes from the line of Gavin Parsons with UBS.

Guys, I wanted to ask about 2026 free cash flow conversion. I think you made some recent comments and there's a little bit of market confusion or investor confusion around that. And then if you could bridge some of the major moving pieces as we go into 2026 and then why you reiterate the 2025 free cash guide while raising everything else.

Thanks. Let me start with 2025. We set out the year with a goal of $7 billion to $7.5 billion of free cash flow. And as we sit here today, we're very comfortable with that for the full year. There's been some moving pieces. I'll remind you, back in the second quarter. We had some tariff headwind that we onboarded, about $600 million. We offset that with lower cash taxes for the year, so that's sort of neutralized. And as you kind of roll forward to where we sit today, obviously, we're getting stronger operating profit. And we're seeing a little bit of growth in the inventory, I'd say, less reduction in the inventory.

We were pleased to see inventory come down a couple of hundred million dollars sequentially Q2 to Q3. Things are moving in the right direction. And I think we'll see another few hundred million dollars of inventory reduction as we exit the year. But there's been some stocking there to prepare for this continued growth. And we're making sure that we balance our sales and inventory and ops planning using the core operating system to do that. But that was one of the things that sort of offset a little bit here in the fourth quarter.

That said, really strong collections in the third quarter. We had catch-up from the Pratt & Whitney work stoppage in the second quarter that helped bolster the results. We also had some advances that the Raytheon is in particular, as well as the execution of the Lot 18 contract that Pratt brought some cash into the third quarter, things that were planned in the fourth quarter. So as we sit here and you look at the implied fourth quarter very achievable positioning us to think for a nice start to '26 as well.

I'm not going to get into the specifics of '26. But if you look at '25 and you think about the $7.25 billion at the midpoint, you also think about the level of powder metal compensation embedded in that. You can see that our baseline free cash flow is in the $8 billion, $8.5 billion range. And so next year, as we look forward, obviously, we expect powder metal payments to come down. Working capital still remains an opportunity for us. We have very heavy levels, but we have very heavy growth plans ahead of us. So we'll be balancing that as we move forward. I'll be back in January to provide a more detailed walk on that front.

Yes. Maybe just to add to it, Kevin. I think long term, we think the 90% to 100% of free cash flow is where this business is positioned to sit. If you just step back, you've got some momentum around that with some of the fundamental attributes in this business, a $251 billion backlog in place to drive growth. Commercial OE production is ramping air traffic has been resilient. And of course, we've got large installed base of Collins and Pratt, which have long aftermarket sales. And of course, we've talked a lot today about the growth in defense spending. So put all those things together, and that's where we get to that longer term, 90% to 100% conversion.

With that, there are no more analysts in the queue. So I will now turn the call back over to Nathan Ware.

All right. Thank you, Desire. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. So thank you all for joining us, and have a good day.

This now concludes today's conference. You may now disconnect.

All right. So we'll start right on schedule. So hi. Good morning, everyone. I'm Kristine 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.

Thank you. Great to be here.

So I guess let's start off. You've been CEO at RTX for about 1.5 years now. What's been the biggest surprise, either positive or negative that you've encountered so far?

Yes. Well, thank you, Kristine. It is great to be here. Maybe just 2 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. And I'll just pick up on your question there. Again, I would tell you the resiliency of the organization, the adaptability and agility in the face of some, I call it, dynamic or unexpected circumstances, something we've been really, really pleased with. I mean 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 4 weeks, so to be able to overcome that. So 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. I mean organic sales up 8% in the first half of the year. So build some momentum there in terms of our performance and feel really good about our demand signal. Again, we've got a $236 billion backlog.

The demand is very strong, both commercial and defense. And so 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, and that's where our focus is. But we're really pleased to be able to have thought through some of those things this year to create some really good momentum. And 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, and 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. And so we're going to continue to look even beyond this year in '26 and '27 long term because this is a long-cycle business, and we're going to continue to invest. And again, I think the teams have done a very, very good job on focusing on those things that we can control. It's execution, its supply chain, its driving cash collections, all the things that were within our control, I think we've done a really good job thus far this year.

Anything, Chris, touching base on that, the things you've seen so far, you talked about the strike, you talked about kind of the tariffs, the demand environment. What trends are you watching? And how do you think the rest of the year shapes up? I mean here we are already in September, like the year is almost over. What are you watching through year-end?

Yes. We're watching a couple of things here as we sort of come to the end of the year. I mean, 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. We think that plays through to continued RPKs and then aftermarket growth. We continue to look at the regulatory landscape, obviously. I mean 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 upfront.

But again, 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 '26 and beyond given where things may 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 sort of 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.

So again, trying to see where that shakes out and then what do we need to do in response to that for '26 and beyond. And 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 talked about the ramp-up in commercial and defense. It's making sure that we -- 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. And 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.

Maybe going back to the end market health, right? You talked about the aerospace ramp. It seems like there's strong demand in 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. But how do you view the health of aerospace and defense? And what kind of growth do you expect to see in the next few years with your end markets?

I think when you just step back and look at our end markets, I think we're at the -- 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 1 in 5 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.

And if you think about kind of how we're situated there, we've got content on some of the highest volume programs. I think Collins on 737, 787. Clearly, Pratt got a very strong GTF pipeline. V2500 continues to remain very, very strong. Kristine, 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. So there's still some tailwind behind that. And then the second sort of macro trend, of course, is the global defense and the threat landscape that's out there, okay? The world obviously is a very dynamic place right now.

And 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 and I were talking a little bit beforehand, at 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.

And maybe on the U.S. budget, we've seen this administration increase the defense budget going into the year, the expectations were cut, and 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? And then you touched on this fairly large installed Patriot base. How are you thinking about the increase in NATO spending? And how is RTX positioned to capture some of the growth from our European allies?

I'll say it again, and I said it to you privately upfront, I continue to believe -- we continue to believe we're exceptionally well positioned there. If you just look at base budget plus reconciliation in 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. So that's #1. Second be Homeland Defense and Golden Dome for America. And you just -- again, very well positioned there, and I'm sure we can talk about that a little bit.

And again, our allies continue to need our systems, our weapons, our effectors. That ramp-up is real. I mean you've talked about NATO a little bit. I mean I think you're going to find this year, almost every country is up to that 2% of GDP spend. And then, of course, with a commitment by 2035 to get to, you can debate 3.5%, 5%, whatever it may be. So the demand is going to continue to be exceptionally strong. And then again, if you look at the budget, INDOPACOM deterrence in terms of aggression there. So 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. And then on Golden Dome for America, again, I think that's going to be a multilayered architecture, as I'm sure many of you here have been reading about. And 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 TPY-2 and standard missile. As you move a little bit closer, you've got Patriot and 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. So 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, okay?

And then, 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 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, and we don't talk about it enough probably, and that's Collins.

Collins has the data links and 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. And then again, INDOPACOM, Tomahawk, again, very, very prevalent, standard missile, very, very prevalent, all things needed sort of for the naval customer. So I feel very, very good about long-term defense spending and the demand and positioning of our products.

And 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? And how are you managing capacity so that you can accelerate that backlog and convert it into revenue faster?

Yes. You said it, Kristine, it all starts with the backlog. At Raytheon, 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. GEM-T, 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. Again, 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 we need help in places like that, testing protocols, how do we become more efficient in our testing to help drive throughput. So really trying to partner with the administration on how do we drive munitions production faster. And again, 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 at 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. And it's an integrated program team type of approach. It's engineering, its 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.

Great. And in the battlefield today, we've seen regional conflicts arise, and we've seen some shift 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. So I guess there's a few questions embedded in here.

So please bear with me, Chris. So there has 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? And where in your portfolio are you concerned about potentially losing market share? Where do you see opportunities to partner? And where do you see some formidable moats in your business?

No, thanks. A lot 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, well, 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. So -- and we continue to invest heavily in technology to make sure that we're continuing to evolve our products, upgrade them, adapt to things that we are -- the customer is seeing in these conflicts so we can overcome some of the other emerging threats and developments that are happening out there.

So 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. And 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 upfront, 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. So just, again, a number of very sophisticated solutions at each layer of Integrated Air & Missile Defense, which we believe will continue to be prevalent into the future. And then again, I'll move down a little bit and just say -- and you and I talked about this a little bit upfront, Kristine, half of our business is commercial aerospace. And 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.

So again, a real opportunity for us. And I'll mention Collins once again. I mean they're a preeminent communications company, assured networks in very contested environments. This is what they do exceptionally well. And 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. Again, Raytheon has some exceptional missile warning, missile tracking capabilities and other solutions for the space layer. So we feel like we are covered from all of the ranges in that spectrum of products and needs and then lastly, what I'll say is, as many of you know, we launched an RTX Ventures fund a couple of years ago.

We've made about 20 or so investments there. So 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. And maybe the last thing I'll say is we're always looking for ways to partner with others if it makes sense, if it will continue to bring value to our product portfolio. We announced one earlier on our MTS, Multi-Spectral System with Shield AI, for instance. So 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, and we're going to continue to look for those.

Maybe shifting now to commercial aerospace. What are you seeing for commercial aftermarket the rest of the year and going into 2026? And what have you been hearing about the OE ramp for Boeing and Airbus? What rates are you expecting? And what can you support? And lastly, how is the GTF trending at Pratt?

Okay. So we'll start with aftermarket. Yes, so 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. But again, there's other legacy platforms there like the V2500 that continue to have very, very strong demand.

And of course, Pratt & Whitney Canada, which we probably don't talk enough about the premier small engine company in the world, #1 or #2 in virtually every one of its segments with exceptional aftermarket sort of positioning and growth. So again, I felt very good about the performance in the first half of the year. And 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 has 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, but 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. And I think we've done a good job of that so far.

And then, maybe Pratt on engine deliveries, we have the 4-week strike this year, which was obviously disruptive, I feel like we had a very good recovery plan, we are on that plan, and 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. And we feel good about ability to do that. And again, I'll just go back longer term, structural strength, I think those rates are going to continue to climb, the demand is there, the backlogs for Boeing and Airbus continued to be there and we are big part of that. And then you asked about the Advantage, as we announced earlier this year, the Advantage received its engine certification, which is fantastic.

It is now going through its aircraft certification testing sort of 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. And 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. So 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.

And I think the trends in commercial aerospace ramp, that's pretty clear. It's just going up. So going to Collins. When you think about the labor absorption rate, inflation absorption as volumes goes up, how do we think about margins at Collins? And what actions are you taking to improve the cost basis today? What have you taken before? And ultimately, what do you have to see for Collins margins to get to 20%?

Well, let's start with this. If you just step back and look at the Collins business, it's got a fantastic business base from which to work, okay? It's got a $170 billion installed base flying around today. Over $100 billion of that is out of warranty. So 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. And as we just talked about, that ramp is going to continue to grow. So 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. And again, with the positions that we have in 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. So we have the capacity. And as that volume continues to grow, that will help with the cost absorption, which will be a tailwind as well.

And then I would just say, 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. And so that's a big part of what Collins is looking at and continue to roll that out.

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. I mean we're now in September. Can you talk about the trends you're seeing for AOGs for the GTF? And also, what are the remaining constraints today in that supply chain?

So 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 -- improved than we had anticipated when we started this fleet management program. So that's great. AOGs have stabilized, but clearly, we have more work to do there, Kristine. Do I wish that we were further along down the path here? I absolutely do. It's a process. And as I said before, the big piece of that is our MRO output. And 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. I mean that's -- it's a remarkable sort of growth trajectory, but we need more. And that will be a big function of, again, supply chain health. We've got the brick-and-mortar in 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, right, the powder metal parts, but we need to continue to see more.

Again, 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 that come down here as we exit the year. And 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. But a ton of energy clearly here, and we need to continue to push MRO output, and I believe we'll be able to do so.

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...

Yes. Let me just start with '25. You kind of zipped beyond that. And I'm like, oh, let's talk about. Look, we still feel very good about the $7 billion to $7.5 billion that we put out there for the year. Again, that will be a function of continuing to meet the demands of OE and commercial aftermarket. There are some defense delivery milestones. And then there are some other sort of larger advanced 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 '26 and beyond, but maybe just focus kind of where you were going, Kristine, on sort of the fundamentals of the business.

Again, very strong installed base, as you heard me talk about before, significant demand, RPK growth. OE is growing, demand in defense. All of these underpin 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% plus 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.

Great. And looking at capital allocation, I was looking at your capital return to shareholders, and 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? And do you plan to have another share repurchase plan soon or some sort of accelerated plan like you did a few years ago?

Well, I'll start with where you started, Kristine, 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 4 years ago. So we 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. If we 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 had a couple of divestitures this year that will help us in that regard, be some tailwind there. And then again, as we look forward, it will be kind of the same and similar playbook that we've used sort of previously at RTX. The focus will be on returning capital to shareholders, in particular, prioritizing and growing our dividend, which we've done consistently. And then everything else after that is sort of opportunistic based upon what our other opportunities are.

Great. So 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?

So 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. So maybe talk about how you think that can evolve, especially given the paradigm that missiles and munition demand is off the charts.

Yes. Great question. And again, I'll kind of reiterate what I said upfront. 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, again, raise output as quickly as we can. I would say one of the unique things about RTX, and I said it upfront, is half of our business is commercial aerospace. So we know how to take a look at a market, assess risk, decide where we allocate capital based on sort of the volumes that are potentially out there.

So 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. And I think the administration in turn, has been pushing us on like, hey, look, are there things around TINA and a TINA like 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? And how can you bring that over to the defense side of your business? So again, I feel like there's a significant amount of synergy, obviously, between our commercial and defense industrially, and we're continuing to bring those principles over to defense. So 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.

Great. more questions? All right. 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. But where are you spending the most of your time and where are you most excited as you look out the next few years?

Just really excited, and I said it upfront, Kristine, about the opportunity in front of this business. If you think about the macro trends I mentioned upfront 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 that we are just exceptionally well positioned to take advantage of those going forward. And so our commitment to our customers is head down and focus on execution. The backlog, it's at $236 billion today. So for us, it's all about execution and delivering on those commitments, and we're really excited about it.

Well, wonderful. Well, thank you very much, Chris. This concludes our session on RTX. Thank you very much.

Thank you, Kristine.