Q1 2020 Earnings Call

Good day, ladies and gentlemen, and welcome to the Raytheon Technologies first quarter 2020 earnings Conference call. My name is actually and I'll be your operator for today as Ray Mike.

Hi, Andrew This conference is being recorded for replay purposes, I would now that you're trying to call over to Mr. Kelcy to Brian Vice President of Investor Relations. Please proceed.

Good morning, and welcome to the Raytheon Technologies first quarter 2020 earnings Conference call with me on the call today, our Gray, our Chief Executive Officer, Toby O'brien, our Chief Financial Officer, and Neil Mitchell, Corporate Vice President financial planning and analysis and Investor Relations. This call is being.

Life on the Internet under the presentation available for download from Raytheon technologies website at Www Dot Our Ti Act dotcom.

Please note, except where otherwise noted the company will speak to results from continuing operation, excluding restructuring costs and other significant items of a nonrecurring and or non operational nature, often referred to by management as other significant items before we get started just a few comments on the structure of the.

And our leadership team concurrent with the merger, we realigned the segments to create for industry, leading businesses Raytheon intelligence in space led by ROI as Aveo is a combination of the legacy Raytheon intelligence information and services and spacing Airborne systems segment, the second Raytheon missiles.

In defense led by.

West Kramer is the combination of the legacy Raytheon missile systems and integrated defense systems.

There is our call and aerospace business, which is now led by Steve 10, and finally, Pratt and Whitney which is led by Chris Colorado.

When we speak to Raytheon technologies overall results for the first quarter, we will be referring to United technologies, Standalone, including carrier and Otis well speaking to Raytheon companies company level results separately.

That's the legacy Raytheon company [noise] unit level, we will be speaking to each segment on a pro forma basis as the go forward Raytheon technologies businesses.

The company also remind listeners that the earnings and cash flow expectation and any other forward looking statements provided in this call are subject to risks and uncertainties are tcs FCC filings, including its 8-K 10-Q and 10-K provide details on important factors that could cause as.

Actual results could differ materially from those anticipated in the forward looking statements.

Once the called becomes open for questions. We ask that you limit your first round to one question per color to give everyone. The opportunity to participate you may ask further questions by Reinserting yourself into the Q as time permits with that I will turn the call over to Greg.

Okay. Thanks girls and good morning, everyone. So just a few things going on and I recognize this is a it's a little bit confusing, but before we have started let me just one logistic away to recover here. So everybody knows we completed the spreads carrier and notice.

Relevant covert 19 information and working with them to enhance and make process is more efficient.

In terms of the impact on the business endemic has led to unprecedented academic uncertainty and of course, a huge slow down in commercial aerospace.

But both Standalone U.T.C. and Raytheon began to here with a strong start it's clear the rest of the years going to be under significant pressure as a result of depend on Mike.

Notwithstanding those challenges whoever we expect the rest of the or Raytheon technologies continues to be well positioned to deliver value over the long term.

At the same time, we're gonna take immediate unnecessary actions to reduce cost and to ensure we maintain that position to financial strength and market leadership. So that we can emerge from this crisis stronger.

To that end, we're taking about $2 billion of cost reduction actions.

In about 4 billion of cash conservation actions on the commercial aerospace side and we'll discuss isn't further detail. The next few slides.

Okay, turning the slide three.

Want to underline wedges mergers, even more important given the environment we face.

As the world's most advanced and D. systems provider, our portfolio is balanced and diversified against commercial aerospace and defense as well as across geography is.

This enables us to be resilient across business and economic cycles, evidenced by strong Q1 defense bookings at a record defense backlog of over $70 billion at a time when commercial aerospace is facing severe headwinds.

Interestingly rate the I'd had a great first quarter.

Book to Bill 1.44, and came into the merger with $50 billion of backlog.

Legacy U.T.C. Arrow businesses had about $20 billion of defense backlog, so stronger together clearly.

Are key defense franchises are also well funded most importantly were well well well aligned with the National defense strategy, which is expected to shape future D.O.D. budgets.

<unk> marketing and passenger traffic rebound and they will we will be even better position to deliver solid growth.

Additionally, the scale uncomfortable complimentary nature of our combined businesses allows us to continue to invest for breakthrough technologies for our customers as well as identify opportunities for technology revenue synergies.

With that just a few highlights from our for industry, leading segments. When you start with the Collins aerospace.

<unk> sought continued captures synergies and the first quarter with nearly $60 million and that's on top of the 300 million, we realize last year.

Ones remains on track to achieve about 600 million of costs energies. That's from the U.P.C.'s acquisition of Rockwell Collins and Lake 2018.

Colleges, particularly well suited with its air management interiors business to also provide solutions to the airline industry to further enhanced passenger health and safety.

At Pratt the G.D.F. engine program achieve two significant milestones as the first in service G.D.F. engine exceeded 10000 service hours.

More importantly, the program reached 5 million revenue flight hours across the combined G.T.F. powered fleets.

Importantly, also impressed the joint strike Fighter program delivered the 500 production aircraft.

Just getting started with both of these programs great future.

Everything on intelligence in space during the quarter. The U.S. Air Force awarded already Estee Force element criminal development program, that's expanding our family of advanced beyond lightest like terminal or if they beat the franchise to modernize it's.

Secure communication terminals on both the B. 52, and the R.C. 135 aircraft.

Finally, our missiles and defense business took over $2 billion on the standard missile three one be multi year during the quarter.

Surely after the quarter closed R. and D. was also selected by the U.S. Air Force to develop the long range standoff weapon strategic weapons that will replace the services legacy Airwatch cruise missile.

Great great achievements of the company.

This franchise will be worth approximately $10 billion over its lifetime.

Like the most important take away, though is each of these businesses is a leader in their respective markets in our all will generate significant value over the long term by combining technologies to generate revenue synergies across all of our businesses.

Okay slide for.

Fundamental to our successes the strength of our financial profile and let me be clear the balance sheet is strong in our liquidity position is solid.

Following the merger, we had about eight and a half billion dollars of cash net debt of about 25 billion in a solid investment grade credit rating.

Combine these were the 5 billion dollar revolver, and a new $2 billion revolving credit facility and we have plenty of financial flexibility.

That's before an additional $2 billion or so a proceeds from the previously announced divestitures.

The majority of which are anticipated in the second half of the year.

And as I mentioned earlier, we're taking immediate actions to reduce costs by 2 billion and preserve liquidity with $4 billion, Okay <unk> cash actions.

Reducing capital expenditures and A.M.D. investments, we have different merit increases across the commercial businesses and we're cutting discretionary spending just to name a few.

Many of these measures of and difficult. It is the right thing to do for the business.

But also attracted delivers a billion dollars and gross costs energies that we committed to and we announced the merger last June.

Strong execution track record in an excellent playbook from Rockwell Collins, and Goodrich acquisitions and after months of integration plantings or teams are working seamlessly as one company.

We're already executing on the detail work plans to drive or sitting commitments.

Regarding share on a returns as you might expect we will not be repurchasing shares this year given the current environment.

However, we do remain committed to return significant capital to share owners.

As a result of return to the $18 billion to $20 billion that we outline last June or more likely take place over a four year versus a three year timeframe.

We also remain committed to the division, which are aboard prove last week and we have sufficient passion liquidity to maintain a competitive did the dividend even in this very difficult environment.

Finally, before I turned over until the tickets as a result.

Let me make a common at how we're thinking about our outlook.

Given all the uncertainty in our commercial arrow business, we're not going to provide a raytheon technologies outlook at this time for 2022.

Told me that give you some important information on how we're thinking about the business back later in the or to provide more color as a situation continues to evolve with.

Let me turn it over to Toby to take it through the first quarter results.

Okay. Thanks flag moving to fly five.

Oh <unk> in spite of the developing public 19 pandemic. He won was a good stuck to the F. Raytheon technologies.

Sinful spans and merger occurred on April 3rd.

I recorded one results for writing on technologies reflect the legacy United Technologies, Standalone results, which includes.

Carry a notice.

Going forward <unk> noticeably reflected as discontinued operations and making on his legacy business will be included from April 3rd onward.

Reported sales were 18.2 billion.

1% burst prior year, including flat organic sales and one point at Backpedaling.

Adjusted D.P.S. was $1.78.

7% less the prior year, which you'll recall is above our expectations for the court.

Within the caught up.

Profit well was more than offset by approximately 10 cents of covert 19 related charges.

A majority of which was noncash within Pratt and Whitney and call.

Yeah.

<unk>.

All the line items will hire versus prior year as expected.

On a gap basis E.P.S. was the last person yeah 10 cents.

Down you over yeah and included $1.88 of net non recurring characters and other significant items of watch $1.66 related to the portfolio separation chagas.

18 sent some non cash impairments.

Primarily related to carry a notice.

T sense of restructuring.

Just a quick comment on our tax write in a quarter.

The report effective tax rate for the first quarter with 98.5%.

As a result of tax separation expenses.

I mean adjusted basis, the effective tax rate was 22.4%, which is closer to the effective tax rate that we expect for our T.X. going forward in 2020.

Free cash flow is better than expected at approximately $250 million and quoted about 700 million of one find cat separation payments.

Telecasts separating separation payments in the quarter or approximately 1.5 billion.

Approximately 700 million was reflected as financing outflow principally associated with may call payments in connection with the early retirement of debt.

Turning to fly sex.

Raytheon company, while not included in writing on technologies first quarter results.

Strong first quarter with walking of 10.3 billion and the both the bell ratio of 1.44.

Into Iraq, There'd backlog 51.3 billion.

Net sales are better than expected at 7.2 billion up 6.5%.

You know over here.

Not on the page, but cash flow from operations was also better than expected and I'll flow of 98 nine in the first quarter or a 313 million dollar improvement versus the prior yet.

Solid stock to 2020.

What's that Oh handed over to nail to talk to the segment results and I'll come back and share a bit about how we see the parent environment.

He Toby so starting with Collins aerospace on the slide seven.

Sales were 6.4 billion in the quarter down 1% and it faces.

Commercial Oh, we M. sales were down 12% driven by the 737, Max grounding and anticipated declines in legacy programs, partially offset by new program growth driven by the eight 320, Neil 787, and eight to 20.

Commercial after market sales group, 3% driven by provisioning, which was up mid teens and parts and repair which was the mid single digits, partially offset by high single digit declines in modifications and upgrade turn by anticipated lower 80, S.B. Mandy volume.

Military sales were up 10 per cent.

By higher at 35 volume.

We also saw continued solid performance in our mission systems Communications navigation and guiding solutions and I.S.R. businesses.

Operating profit of 1.1 billion was up 3% from prior year with 80 basis points of margin expansion.

Dropped through and higher military and commercial after market sales and continued synergy capture of an incremental 60 million as well as favorable F.X. and contract settlements in the quarter, partially offset by headwind from lower commercial Oh, we m. sales and approximately 40 million in Kobe related charges.

Shifting to Pratt Whitney on slide eight.

Sales with 5.4 billion were up 12% on an organic basis.

<unk>, Oh, M. sales were up 25% driven by G.T.F.M.P.W. 800 deliveries.

Partially offset by anticipated declined in V., 2500 production and lower deliveries and other pwc engines in March driven by coping 19 impacts.

Commercial after market was up 4% in the corner.

Both in the G.T.F. after market was offset by a reduction in legacy shop does it inductions <unk>.

Pratt and Whitney Canada after market. So I grew up from higher shop visit content and a customer contract clothes out partially offset by lower shop visits.

Ramping J.S.F. production.

Intended to drive growth that Pratt's military business military sales were up 16% on higher after market sales across keep platforms and increased at 135 production volume.

Adjusted operating profit on 439 million was down 2%.

Operating profit benefited from dropped through on higher military sales <unk>.

Continued GTF cost reduction lower E.N.D.N., a customer settlement these benefits for more than offset by higher G.N.A., which was primarily driven by Kobe related reserves approximately $60 million.

Epics headwind any absence of the Q1 2019 domestic during licensing agreements.

For approximately $30 million.

Commercial after marking after market operating profit was flat.

By a customer contract clothes out offset by G.T.F. and legacy sales tax.

Turning out to slide nine.

I'll talk through the legacy Raytheon businesses Q1 results as Toby mentioned, while these results are not included in raising 'em technologies first quarter reported results. We thought it would be helpful to share how these businesses performed.

You will find a reconciliation from the former legacy Raytheon seconds to our pro forma new segments in the appendix so with that said starting with R.I.S.P.. One R.S. sales were 3.6 billion.

Operating profit was 379 million and Ross was 10.6%.

No R.I.S. also booked approximately 350 million on the G.P.S. next generation operational control system or G.P.S.O.C.X. program, and it's worth mentioning the former Raytheon S. They ask business grew sales, 15% driven by higher volume across numerous programs.

Additionally, the former rate the N.I.A.S. business saw operating profit declined 45 million, primarily due to 34 million of gains from the first quarter of 2019.

Not repeat.

Moving to R.M.D.

One sales were 3.9 billion operating profit was 573 million and Ross was 14.9%.

At legacy missiles.

Adding profit was up 49 million or 26% driven by higher net program efficiencies <unk>.

<unk> like a C.I.D.S. operating profit was up 79 million or 31% driven by higher net program efficiencies, including 35 million from a contract settlement.

And it isn't what Greg mentioned looking highlights in the segment. During the quarter also include at approximately $500 million to provide advanced Patriot Air missile defense capability for that can come up bearing.

But that I'll hand, it back to Toby to provide an update on the current environment.

Thanks, Yeah I'm on flights on now.

Greg mentioned, we are clearly and uncertain times, particularly for industry.

Said not everything about our feature is unknown.

There are several factors, we know or getting comfortable with right now.

And there are certainly a number of elements network monitoring closely.

Let me take you through how we see it today.

First for some known that sex service Tailwinds, we see our defense businesses on solid ground.

Record backlog and visibility to grow our defense businesses over the next few years.

Franchises, I'll, well aligned with the National defense strategy, which should shake future budgets, and we see demand far advanced solutions internationally.

We have a robust synergy play book that will utilize to create additional left from Rockwell Collins acquisitions energies as well as generating Raytheon technology centers.

And as you heard from Greg.

Taken aggressive the cost reduction in cash conservation actions in response to the current environment.

Now as I mentioned.

Optimistic about our defense business growth at our expectations are largely consistent with when we began to yes.

Yeah monitoring our defense supply chain and any potential disruptions that can occur.

However.

I have good visibility into the demand side of our defense business and as a result.

Provided a detailed outlook for I.S.N.R.M.D. segments in the appendix.

At a high level or I.S., an arm game.

Guided to 6% to 8% sales girl versus 2019 and discuss the ability to improve operating income.

As a result of the covert 19 impacts lowering our I.S.N.R.M.D. sales.

$200 million or a little less than 1%.

Operationally and on a whole year 2020 basis.

For the remaining cared of cute to to queue for 2020.

No changes to the previous defense outlook provided for legacy Raytheon businesses other than the Cogan 19 impacts.

No. There are few changes to the way, we'll import our numbers for R.I.S.R.M.D.

Driven entirely by the merger unrelated accounting.

Including the stopped period.

I see recess and purchase accounting impacts.

You'll note that the appendix slide highlights the expected affect these items will have on these segments.

It is important to know the A.C. reset is merely a matter of timing and not a permanent loss of profit.

Profit improvements will now be recognized over the remaining life of each program.

We are confident in our defense growth in the future and although we're not providing an outlet for 2021.

Say is that we are in a strong position to.

Continue to grow these businesses and will not see the merger related impacts on the accounting beyond next year.

And finally as you know the fence made up a little less than 30% sales within columns and pride in 2019.

Continued to expect Collins, and Pratt's defense sales to grow mid single digit organically and 2020.

As we discussed at the beginning in a year.

Now for what we're monitoring.

As we've discussed the coven 19 pandemic clearly has and will continue to impact our business and the aerospace sex or as a whole.

Yeah. It can unfold in multiple ways, but we'll certainly result in significant headwinds far commercial aerospace segments.

We are monitoring several factors that we'll have a direct impact on the commercial aerospace market, including opium production levels.

Line financial condition fleet groundings.

Revenue passenger miles and after market data.

A few comments on these factors.

No. That's all we production rates have been significantly reduced.

Aircraft fleets around the globe apart.

And I had his latest forecast estimates 2020, R.P.Z.M.'s will be down 48% year over year.

All of which will have a significant impact on the commercial markets in our segments.

And the commercial aerospace industry as a whole, including our commercial supply chain.

While we haven't will continue to see disruptions in the supply chain. We are working very closely with our suppliers to ensure they remain financially stable.

They are able to meet our production requirements.

So let's discuss columns, while I can't provide an overall view on commercial all we are at the market sales and operating profit at this time due to the evolving market conditions, Here's what I can tell you.

We would expect a sharp deceleration in both Oh, we and after market.

The sale side, we expect Oh, we sales to decline in line with O.G.M. production and airline delivery schedules.

After market equally it's difficult to quantify but we generally expect sales declines to be in line with RPM declines with a pro on rebound that there's not we've covered and 2019 levels within 2020.

We also continued to expect point of headwind from lower 80 S.P.C.

Moving on to Pratt as with Collins, we expect to shop deceleration in both are we in after market.

<unk> Oh, we we expect our sales to decline in line with our main Oh, U.M. customers, which is primarily Airbus for a large commercial ones.

On the aftermarket side <unk>.

T F overhaul activity will continue as we upgrade engines to the latest configuration.

However, legacy shot visits are not likely to be down 50% or more over the prior.

Yeah.

As you're aware Pratt and Whitney Canada was approximately 25% of Pratt's total sales and 2019.

Crack, Canada, we'll see a significant sales impact, albeit not as large as we expected decline in the large commercial engine business.

With respect to free cash flow, we expect to generate positive fleet cash flow for the year.

Which will be driven by our defense businesses.

Given the range of outcomes that could materialize within our commercial arrow businesses. We would expect these businesses to be about right even for the year.

And that's despite taking $4 billion of cash to X. and this year.

See hadwin at the commercial arrow businesses, largely due to working capital impacts we work to ensure the health of our supply base and address under absorption.

The song operating results and Q1 highlight the performance capability of Pratt and Whitney in columns aerospace.

And is indicative of the potential and growth the segments will see again.

We rebound.

From the temporary market impacts consulting firm covert 19.

But for now they are clearly a number of moving pieces more unknown unknowns.

We will continue to provide updates as the situation develops.

We have a clear understanding of the pandemics effect on our operations.

Has for some two two color as we have already said, we expect sales to be down significantly at Pratt and columns.

We see cute to operating profit at Pratt to be a loss and operating profit of Collins be approximately break even.

And for R.I.S.N.R. and D. operationally, it's business as usual.

But for the previously mentioned E.A.C. reset and stop area that will in fact the results.

Finally, we expect adjusted D.P.S. and to to to be positive.

As it relates to the full year outlook, we we'll reevaluate our ability to provide our traditional sales E.P.S. and kept.

S outlook aptitude too.

Turning to slide 11, we've provided you with some information to help with your model.

I'll say, our current thoughts on two to three to four ranges, but these line items.

No cap X. four columns and Pratt will now be over 800 million lower than we expected at the start of the year to help mitigate a covert 19 pressures.

<unk> as far as corporate expenses to to to queue for approximately $400 million will be allocated to Pratt and Collins, leaving about 250 300 million of residual corporate costs, which primarily relates to l. towns corporate project for the company.

Lastly, we are making a few changes to the way we measure our results and therefore speak to them externally.

We will continue to discuss our sales and earnings on a joke on adjusted basis.

System with U.T.C. legacy approach of excluding signal, that's again and non recurring items.

With a few changes.

Given the considerable acquisition merger activity, we will be reporting a segment profit.

Tested her names and adjusted D.P.S. exploding the non cash not expense associated with amortization.

P p. any step up and parity adjustments.

We believe this will provide investors with a better understanding of our results in relation to cast performance.

With respect to our segment operating profit, we will now be allocating the majority of corporate costs to our segments.

And finally.

Reflect the.

<unk> pension adjustment at R.I.S.N.R.M.D. restructuring low segment operating profit in our statement of operations.

Okay with that I'll hand, it back over to gripe.

[noise] good thing still be I know, that's a lot to digest a lot going on let me just maybe summarizing.

I think everybody used to step back and take a deep breath I know a lot of change a lot of uncertainty.

The end of the day, the reason Raytheon and U.T.C. came together were three simple reasons. It was technology. It was talent and it was balance the technology is self evident and I would tell you. The talent is also self evident with the fact that we've got great leaders that our business from West Roy Steve to Chris experience leaders, who know how to work.

In this in challenging environment will do the right thing as we always would we've also got a great corporate stuff you know about half of it from Raytheon half of it from legacy U.T.C. going again, we've lived through these crises before and we will support the businesses and some of the very difficult things that they're going to have to do.

But at the end the day, we'll get through this as we always have.

Because you think about the <unk>.

2020, or priorities, you're pretty clear first of all it's supported or employees keeping them healthy and safe.

Supporting our customers.

Yeah, and importantly, our suppliers.

Delivering technology and product innovation for our customers will get a lot of work to do on executing on the merger integration deliverance energies that we know how to do this.

You know throughout our history, we've weathered a lot of challenges and we'll whether this one and come out stronger around the other side.

I remain excited about the future of our company and I'm confident that the teams. We haven't players will drive sustainable long term value creation little benefit customers employees shareowners and our communities.

But that actually let's go ahead and open it up for questions.

And the interest that time antenna laugh, a broader participation you're asking limit yourself to one question.

<unk>.

Yeah.

So the complete.

Oh, yeah, although.

<unk>.

<unk>, maybe starting off with the fence cause I'm certain are going to going to get bombarded with commercial questions.

When you think about international defense markets in particular, Saudi in what's going on with oil prices and how important Saudi is too.

The legacy defense businesses <unk>, how should we think about their news there any risk to those contracts.

Risk to the to the the Middle East particular, Saudi business.

Yeah.

And as well as for the Kingdom of Saudi Arabia, and all of our other customers over there. So look I'm, it's about 30% of legacy Raytheon business was international.

Anything that it's not all middle East is obviously, a big piece in the U.K.. We we support we've got the Patriots system and pool, when we've got bigger operations in Australia, It's not just a middle eastern business, it's an important that element of it but it's not the whole thing. So so far we have continued to see good cash come in from from the middle Eastern customers there during the first quarter.

No surprise leave it with oil out there they need the equipment. They want the equipment that we need to help them or defend themselves they'll be anything on it I think the only thing I'd add Ron is you know where were looking at a Big award here in Q. too late to to maybe early Q3, the production for the Tippy too.

System for K.S.A. right, that's on track and it falls in line with what Greg said, the the threat environment hasn't changed the need for equipment is still there and then you know if you remember back it was so I'm going to be off three four years ago right. When when oil was down and you know same logical type of questions and you know we came out of that strong.

With no implications.

And you know that that's how we see this plane out as well.

Yeah, and that's why she kinda machine that can you live.

Hi, My name I'm thinking that we went by the time, Greg you're right. That's a lot to digest I realize you like adding that you gave a ski pieces together. So I think you said to U.T.X.M.L. free cash flow was Pinky then.

If we assume Raytheon free cash flow is 3.5 million as a baseline because that's what it was last year.

<unk> generate spring cache files about a bell young stand alone does that provide a framework for about 4.5 billion combined does the bottoming a free cash flow in 2020 or are there other items like cats punch and working capital that think about.

Yeah. This H.L. I think that's probably a little aggressive from the different modeling and the scenarios that you know where we're coming up with here you know right now.

I think what you've got to take into account is with these type of volume drops that were seen and and how they're hitting us all up once there are significant absorption impacts that we're dealing with and trying to you know at least start to mitigate with the costing cash reactions that Greg mentioned in his.

Opening comments.

And the you know the drop through margin on this type of volume loss, especially when you look at the entire mix of the business between you know heavy after marking at Pratt about 50% of their business about 35% of Collins is after market you know when your piece that all together, including the other parts were taught.

And about you know north of 50 per cent type of drop through combined with managing inventory levels with suppliers right and ensuring the health of the supply chain working with customer request on extended terms, we seem a little bit more you know Morehead. When then I think given here you're you're thinking.

Yeah sure I think the the the thing to keep in mind is is really working capital. You know you. We've got a lot of inventory of you know typically as you know on a commercial arrow side, we times or somewhere between 12 and 18 months. So even as you know rolling an Airbus reduced production schedules, we we're not going to be able to take out all the working cat.

Little associated with that we've also assumed.

Some slower payments from some of our customers, which will put pressure on cash so with all that I think you know you're you're you're you're four and a half million is optimistic I would say.

It'll be it'll be a decent year, we'll be able to from the dividend, but I wouldn't I wouldn't get too much above that.

You're an x. question catch him Carter Copeland.

Hey, good morning, newly merged team I hope everybody is getting along nicely.

No no no blood, yet [laughter] well you know you've got plenty of work to work on Greg I I wondered if.

You could just kind of give us a a little bit more specificity and helped map to the the 2 billion in cost out <unk>. It you know from what we've heard from you know a lot. Other folks you know it seems like a your production plan now is probably you know 30, 40% down on <unk> 50, 60 per cent down on aftermarket military.

Holding in you know volumes that you know our down I don't know call at 40 per cent on a year or something like that is that about how you're thinking about production and how do you think about the cost structure and that now that 2 billion maps to that in terms of you know, what's a a runrate saving versus.

You know a one time or somewhat temporary costs out any color there would be helpful. Thanks.

Yeah Carter, so look there's there's obviously or do some water movie pieces here I would think about it more broadly right. This think about commercial Oh, we probably down about 50% for the rest of the year. That's in line with a 48% reduction in traffic that I had a forecast now it will vary by platform.

As you look at you know 737 versus eight 320. So we were trying to match or are we on production with what the customers Boeing and Airbus and Liberty and others are telling us today, but roughly speaking you could think about Oh, we doubt about 50 per cent for the rest of the.

After market down probably in that same range.

So those are big numbers now what are we going to do about it so christen Steve other commercial side they've identified a number of actions are the biggest of course is probably a reduction in indy, but 450 million.

No. It still seems like a lot of money, we spend about two and a half a billion dollars a year on the commercial arrow site on N.D.. So it's roughly at 20% reduction in handy for about 300 million to that's going to come out of practice about $150 million that comes out of college. So just to give you an idea. We of course also we we have stuck hiring.

We could put a hiring freeze in place.

Differed merits were furloughing folks are both at the corporate office and across the commercial businesses.

Also we we're we've we've furloughed people in the factories and I expect there there will be further reductions as we sort through all of these volumes. The key is you know we don't want to cut the talent so deep that when the recovery happens we don't have the right people. So we're trying to be judicious, we're trying to <unk>.

To keep his many jobs as we can add to that end you know.

<unk> Raytheon businesses have 2000 openings today for folks and we're actively working to try and take engineering talented other towns that we've got in the legacy U.T.X. business and move those folks over to programs on the Raytheon side. So there's a lot of pain to come you had a lot of very tough decisions ahead of us in terms of production volumes.

But just generally speaking think about you know 50, and 50 and you're going to be in the ballpark.

Yeah, and it's quite a shame because then Roberts dollar.

[noise]. Thanks, so much component.

<unk>.

A quick question. The Boeing 737, Max are you guys actually shipping any product to the moment and I see look food from here are you in line angle call space and capacity in line with telling you, saying that production rates heading back over 13 next year thinking.

So you know we continue to support Boeing is the return to service for the 737, Max the folks up in Cedar Rapids had been doing software turns and continuing to to to work with bowling to make sure that we've got a the certification.

Standard that F.C.A. will approve here right now and we were should be anything today to bowling we are aligning with their plans to ramp up production later this year it into the next year.

I gave yeah. The lead time on that roughly 12 18 months. So we've been on pause here for a couple of months of well what bowing. His his paws production will ramp up as they Ram back up I think they'd probably got plenty of inventory today that they're going to need to work through so we're trying to match.

R.E.R.P. demand or with with what bowling is out there forecasting but right now we're I think we're pretty well in lock step across all platforms, whether it's 787.

Or or or seven three sevens.

Okay.

Yeah, and it's quite a shame comes from my asthma Okay.

Thanks to morning in Greg Good timing is everything definitely definitely.

First a clarification then a question so Toby the the clarification on recorded margins How's the Raytheon businesses relate the A.C. at I think you said something to be effective effect would be gone. After 21 to just can you elaborate on what that we should think about as the margins looking from.

21, I guess into 22 on the accounting side and then the real question maybe for Greg is on Pratt in the after market now you can have whole types of fleets retired accelerated over the next year or so how much of Pratt's after market is not v. 2500 at this point.

So I'll I'll hit the first one miles on the P.A.C.'s.

You know that the V.A.C. re set to zero percent complete you know that's not purchase a county, but it's really reflective of the acquisition accounting around the merger and if the go forward right. So effectively the merger reflects that to go part of the programs that Raytheon has.

You still expected to be very clear you know the same types of productivity that historically.

You know on analyze basis I've been close to 200 basis points. You know 180 200 basis points a margin, they're just going to be spread out over the next call. It you know 18 to 24 months given that everything is reset.

To zero percent complete.

Post 21, you know, we'd expect margins more in line with what the historical Raytheon businesses, though has been delivering you know with the same focus on working to improve those into and to grow the the segment margin contribution from our.

And our on Monday.

So let me trained and address the question I'm pregnant again I'll give you. Some some broad outline if you think about it you know there's really four engine families that contribute to the after market.

Near the G.P.A.D. for the old M.D. eighties, and such which would be for the adult is retiring don't really have a significant impact at all anymore. That's all all going more years ago.

The biggest obviously is is the the V. 2500 is you know there's about 7000 inches that we sold about 6000 of those are still an active service.

You of course got the G.T.F., which isn't really contributing much in terms of of after market today in terms of profit their sales associated with it then of course, you've got the legacy press 2000, which is up to 757, then you've got the legacy for P.B.W. 4000, which powered some of the first Triple Seven survey three third uses et cetera.

The v. accounts for about 50% of the aftermarket today.

The 2000 4000, roughly together was about a thousand aircraft up there you're talking maybe 20% or so of the after market for Pratt. So some of that will go away, so that natural where I think.

We think about those things have been onto a decline for the last 10 years. They will continue to decline, we'll see what comes back into service with fuel prices as well as they are the need for new aircraft is probably somewhat lesson and or people will probably fly some of the older less efficient aircraft for a few more years.

Save on the capital of buying new airplanes, which is you'll probably see these things come back into service, although not in the numbers that we saw so that's all contemplated in this this this reduction that we've that we've been talking about for the aftermarket upright.

Yeah, and ask why can't they they stress.

[laughter] Thanks <unk>.

[noise] one do a one to ask about what you saw all out of the after market you need people, maybe spleen out between between cons and Pratt and then great can you comment on neat what all this does you know the lower production rates on E. 320, what that does to the G.T.

Los profile balance scene, you know you'll be delivering fewer engines, but you also I assume.

Coming down the learning learning curve more slowly thanks, though.

So on the on the G.T.F., obviously, because everybody knows we lose money every time, we we ship it engine.

And so there's actually good news for him as the lower production. The on the G.P.S. that is offset somewhat by the lack of absorption. So all the the negative engine margin that we would typically see is not all going to Florida the bottom line.

You got lack of absorption and you know importantly, or you're coming down the learning curve you take him you know 5% to 10% of the cost out every year, that's going to be slower as volumes go down you don't have the leveraging the supply chain. So overall, you're probably going to get about $100 million would pick up as a result of the lower volumes on G.T.

But I think that's a you know it's it's it's a relatively modest number because of the absorption impact I'm. So it was the first part of the class.

After marking anything Oh, I'm, sorry half your <unk>, Yeah, Let me give you two data points that I think are indicative of worthy after market is going so pratt typically gets about a thousand engine induction a year.

For the V. 2500, and you know most of those inductions. We're we're right about online we were seeing your roughly 80 or so a month January February even into March.

April not so good there was about 20 called 25 or so engines inducted into the overall shopping so we'll see that revenue impact here in the second quarter, because typically as we repair. These engines you know they consume spare parts. We recognize the revenue that's going to be the probably the biggest place where you'll see the n.

Pack.

On the collar inside again, a similar number if you think about repair input that is the things that come back to our shop around the world. We've got a lot of shops repair input for the month of April is down about 55%.

Again, you know this week, we think you know this isn't this is probably just as bad as it gets but it's happened very very quickly and so hopefully we'll see a slow recovery.

The best thing into you know that you you track the <unk> every every day I get your little note there to to appreciate it but the the China business actually is coming back slowly, but it is coming back passengers are coming back and flying in China again, and I suspect you know two months out of the road, we'll see a slight recovery Stark maybe it's.

Three months or foremost, but they're you know there is some white at the end of this it's just going to take a little while but we certainly have already seen the impacts in April of of the airline slowdown.

Yeah.

Yeah, I think kind of trompeter on it.

Yeah. Thanks, the morning crank Toby you know yeah, Gregg maybe just to ask the question on the B. 2500, a different way that 6000 engines that you have out there and what's do you haven't that like an average age are we talking that this is still you know in there on 11 Euro teams 11 year. So so you're still has a long so.

Yeah, So I think about it about half of the visa rout. There have not had it's first major overhaul and the other half or only had one. So if you think about <unk> you know those those lifecycles engines you just go through to sometimes three major overhaul. So yeah. We're still in the third ending I would say or the life of the V. 2500 terms of the aftermarket.

Mm.

Yeah, Nice hi, shame catch any sense size net.

Oh, thanks, Thanks, very much the morning.

<unk>.

So I I was.

I notice that there was kind of a small intangible impairment <unk> <unk> <unk>, how do you think about the rest you know further impairments hair on now what are the pieces of the concept that that you see that's most at risk care how much of the after market has discretionary you know how you see things playing at at at that.

Business and you know I believe the places where you see the crater spread does kind of the more more permanent kind of you know reduction.

But as you can expect says we we pretty hard to look at all of the intangible assets. As we were close you know first quarter and we obviously ran a bunch of different sensitivities and L. <unk>. There was a small impairment I think it was.

$40 million at college.

To some small businesses that they had that we're we're part of the original acquisition of Rockwell Collins, but we have looked at all of the other intangibles, even with a worst case scenario after market for the next two years, we did not see any potential for impairment there was plenty of.

Any of the runway there could additional cash flows.

Assuming that to even a three year kind of recovery here, so I'm not expecting a big big impairments here now again as the world changes we evaluate this thing every single Porter, but we did a pretty good scroll, but I guess nila desk here. He was well yeah I would just add to that I mean, when you think about the the Rockwell Collins acquisition, which didn't.

Happened not long ago, though it's worth the assets that were you know mark a fair value. Most recently and so they're the ones that are most susceptible but all of this is non cash and so you know we will go through a process will continue to monitor you know the the near term mid term long term and update that accordingly, but I agree with everything that he just.

<unk>.

Okay.

Yeah next question <unk>.

Hey morning, everybody.

I know you know.

He told me since you.

Sort of spoke to you know a kind of floor in the 2023 cash and I know you know a lot of your investors are focused on.

The the 2021 target that that had been provided a and and maybe there's less you know sort of abnormal below the segment working capital type of disruption.

I wanted to see if I get it can get you to kinda speak to that and I had you know outside of a a bottoms up model I had kind of top down just crudely been thinking you know in the slides from from the deal you had though.

Three plus three from each business pro forma six goes to eat so if I just copy U.T.C. three three and half I take out one and a half or if I looked at the S. or you know on a leopard basis. It was kind of a four enforce split to get to that eight not quite but so if I just took that foreign cut in half I was too so.

So one and a half the two out of the eight can I think of you know six to six and a half as the free cash kinda floor in 2021 or would you still have some of these working capital disruptions or something else.

Yeah. So I understand the question no right. Obviously, we we haven't guided 2020. So we we we need to figure that out first.

You know, stating the obvious 2021 number if you're referring to write certainly didn't consider are there wouldn't be this type of environment because it a pandemic.

And I think the two things two or three things you know to to to help you a little bit right. Obviously, we expect offense to continue strong right. So that that's you know that shouldn't be a tailwind for us going into next year.

<unk> on the commercial arrow side in any of the math that you're referring to is really the shape of the recovery and what type of trajectory. We come out at 2020, you know in in that Collins and Pratt going into 21, and you know too early to tell at this point, but you know as you.

Mentioned some of the the the figures right bold businesses have a a strong history you know delivering strong cash flow just go back to you know 2019 results and you'll see it there. So we'll get back there at some point right well. We're good you know we're not seen any change the underlying fundamentals.

The proud or the Collins businesses evidence by the even you know the Q1 results. It's just too early to you know speculate more on 2021.

Yeah, I need some kind of 10, Robert Thank God.

Good morning.

Right.

Greg I wanted to follow on the commercial error questions asked so far because it seems like you see after market leading the recovery.

Overall, we and I want to ask you first if I'm interpreting that correctly and second how you differentiate recoveries in your commercial after market versus commercial Oh, we businesses in terms of timeline and then how that translates to Collins and perhaps recoveries.

Well, so I guess the way I would think about it is as long as the airlines continue to fly.

You're going to see after market demand and I think again as I mentioned earlier with fuel prices, where they are we would expect to see after market demand pick up a little bit more quickly than Oh, we demand just because today you got 55% of the World Fleet parked. Good news. If you think about is really about 40% of those.

Related back in January before all this started you had roughly 15% of the 30000 fleet Park. So that means shape at 40% parked as a result, <unk> those planes will come back into service slowly and I think what you're going to see his those planes will come back before you see a lot of new E.M. demand come back.

And so that's why we're thinking you're probably going to see a much more.

<unk> you will see a quicker return on the aftermarket then you will Oh, we side over the next couple of years, you know as as you know it to every and stuff right now for Boeing and Airbus to place planes because of the financing constraints of some of their customers are under obviously you know, we'll work with Boeing and Airbus on that but I really think.

It's it's that parked fleet returning to service first before you see a lot of new aircraft out there.

Actually we have time for one more question. Please.

Yeah, Alaska can cause I'm kinda I finally my.

Yes. Thank you very much. So if you look at 2000 than I am the after market for the industry was down mode of mid teens, essentially you know 67% or less.

Traffic decline, if you expect traffic to be down 50%.

Why won't be aftermarket be down more because this time, we also had a a speak going against US Yeah Airlines talking more retirements and we have so much weaker oh, we backdrop and therefore less position so why isn't the aftermarkets.

If you're down 50 per cent in traffic going to be down 70.

Oh, God, I think p. or how much is actually going to be down is is is the question of the day I would tell you. The E.D.S.B. mandate that was over at the end of December So we actually already factored E.D.S.B. into our forward looking guidance for after market. So I would tell you. That's that's really outside of the the 50 per cent drop that we're talking about for after market.

You know it really just depends though if you look and take a snapshot of where we are today.

You have to merge is going to be down a lot more in April and May then the 50 per cents of where we are expecting a gradual recovery through the course of the year and keep in mind or many of these most most many of the aftermarket contracts that we have the pratt side or hours base. So even a planes are flying full if they're if they're flying regenerating.

They're they're generating aftermarket so that will help here as well to offset so thinking about 70% probably of the fret fleet today is power by the hour.

I think if you look at where China is today, where they're they've started this kind of slow recovery back up to about 40%.

Time to up from 20, we expect to see a kind of that that same gradual recovery. During the course of the year I'll tell Ya you know we aren't going to know what the after market looks like until we probably get to December 31st <unk>. You know, we'll continue to give you guys update as we as we speak you know looking at this really month by month to see what the recovery profile looks like.

It's it's not a sharp v.

Is more like a you shape and I still I think it's going to be a full two years before we see a recovery closer to what we saw in terms of 2019 levels of of after market and you know that could be could well be three years.

The day you know we'll survive this we'll get through it but it's gonna be painful because as you know that is relatively high margin business, which affords us the opportunity to make these big investments engines and and other technologies across to the portfolio.

Okay <unk>.

Two grand Okay, I see remarks.

Thank you actually and thank you everyone for listening in I recognize a lot of data here a lot of change going on kneeled, Kelsey and team will be around here today to answer your questions. Thank you all for listening and or I would just ask everybody be healthy and safe.

<unk>.

Technically cities conference thing he their participation.

<unk>.

[noise] Oh I was.

Yeah.

[music].

[music].

[music].

Good day, ladies and gentlemen, and welcome to the Raytheon Technologies first quarter 2020 earnings Conference call. My name is actually Adobe your operator for today.

A reminder, this conference is being recorded for replay purposes, I would now, but you tend to call over to Miss Kelcy to Brian Vice President Investor Relations. Please proceed.

Good morning, and welcome to the Raytheon's technologies first quarter 2020, <unk> earnings Conference call with me on the call today, our Gray, our Chief Executive Officer, Toby O'brien, our Chief Financial Officer, and Neil Mitchell, Corporate Vice President financial planning and analysis and Investor relation this call.

Being carried life on the Internet and during the presentation available for download Sunrun can't technologies website at Www Dot Archie Dot com.

No, except where otherwise noted the company will speak to results from continuing operations, excluding restructuring costs and other significant items other nonrecurring and or non operational nature, often referred to by management and other significant item before we get started just a few comments on the structure of the bid.

And our leadership team concurrent with the merger, we realigned the segments to create for industry, leading businesses Raytheon intelligence is being led by ROI as a NATO is a combination the legacy Raytheon intelligence information and services and basic Airborne systems segment, the second Raytheon missiles and.

Hi, My West Kramer is the combination of the legacy Raytheon missile systems and integrated defense system.

Third is our college aerospace business, which is now wed like to beat him and finally, Pratt and Whitney which is led by Chris Kelly.

When we speak to Raytheon technologies overall results for the first quarter, we will be referring to United technologies, Standalone, including Terrier, an OTA well speaking to Raytheon companies company level results separately.

The legacy Raytheon company that level, we will be speaking to each segment on a pro forma basis as the go forward Raytheon technologies businesses.

The company also remind listeners that the earnings and cash flow expectation and any other forward looking statements provided in this call are subject to risks and uncertainties Archie sees FCC filings, including its 8-K, hence you and 10-K provide detailed on important factors that could cause.

Actual results could differ materially from those anticipated in the forward looking statements.

Once the called becomes open for question, we ask that you limit your first round to one question per color to get every one of the opportunity to participate you may ask further questions by Reinserting yourself into the Q as time permits with that I will turn the call over to Greg.

Okay. Thanks girls and good morning, everyone. So just a few things going on and I recognize this is a.

A little bit confusing, but before we have started one logistic away to the career so everybody knows we completed the spreads.

We are notice.

Third April concurrent with the merger with Raytheon, which create a write down technologies.

Since the transaction occurred right. After the close of the first quarter. The carrier orders all sort of course included in our numbers for Q1.

However, we're not going to discuss that today because everyone around the room earnings calls later today, and then again from Robert for carrier.

Your commentary today is going to own recover the new Raytheon technologies, which of course is simply are focusing the company.

So with that is for you turn to slide two here in the webcast.

We're just begin my remarks, we're talking about the coldest 19 pandemic and what we're doing.

To fight that are helping to war on a pandemic.

First what are you just take or team at particularly those of the production lines were supporting our customers worldwide.

I also put you in your families or say, what you said perspective, we were about 100, and maybe 5000 employees are Raytheon technologies.

95000 of those folks are working for home today, and the other hundred thousand or come into the office or to the factories to support our customers.

Again, I think are just to keep in mind, our top priority is to ensure that so well for and safety of all of our employees and so we're focused on making sure we're doing everything we can.

Implement best practices of course de cleaner facilities daily between ships were temperature scaling our employees upon entry rotating ships for social distance aimed at providing appropriate personal protective equipment for boys it can't work from home.

Preliminary cost of that was going to be about eight to 10 cents for the year. Most of those costs will be incurred throughout the rest of the year so necessary for expense over to ensure the safety of our folks.

Okay any business continuity is also essential support our commercial and defense customers. During this time as we always do.

We will continue to serve our customers with mission critical products and services in the U.S. and internationally and importantly helped the rebound when this is over.

To support the frontline workers, we have done a very 1.5 million pieces of ppt to health care professionals in the first responders globally.

We're also using our threed printing capabilities to manufacture 20000 fish yields per month.

And we're working with suppliers to provide parts to support production ventilators.

In fact, our business in the UK and our business in Canada has actually come up with designs of ventilators and we're working with local governments to begin manufacturing.

Supply chain stability of course, there's also top of mind, you engage with thousands of our small business suppliers to support them, including disseminating relevant covert 19 information and working with them to enhance and make processes more efficient.

In terms of the impact on the business endemic has led to an unprecedented economic uncertainty and of course, a huge slowdown in commercial aerospace.

Well, both Standalone UGC and Raytheon began the year with a strong start it's clear the rest of your is going to be under significant pressure as a result of the pandemic.

Notwithstanding those challenges. However, we expect the rest of the you're right. The technologies continues to be well positioned to deliver value over the long term.

At the same time, we're going to take a media the necessary actions to reduce cost and to ensure we maintain a position of financial strength and market leadership. So that we can emerge from this crisis was stronger.

To that end, we're taking about $2 billion of cost reduction actions in about $4 billion cash conservation actions on the commercial aerospace side that will discuss further detail. The next few slides.

Okay, turning to slide three.

One of the underlying why this merger is even more important given the environment we face.

As the world's most advanced and these systems provider, our portfolio is balanced and diversified against commercial aerospace and defense as well as across geographies.

This enables us to be resilient across business with economic cycles, evidenced by strong Q1 defense bookings at a record defense backlog of over $70 billion at a time when commercial aerospace is facing severe headwinds.

Interestingly Raytheon had a great first quarter.

Book to Bill 1.44, and came into the merger with $50 billion of backlog.

Legacy you Tcl businesses had about $20 billion of defense backlog, so stronger together clearly.

Our key defense franchises are also well funded most importantly, we're well well aligned with the National Defense strategy, which is expected to ship future DRD budgets.

Nation market in passenger traffic rebound and they will we will be even better positioned to deliver solid growth.

Additionally, the scale account complementary nature of our combined businesses allows us to continue to invest.

Rick through technologies for our customers.

As well as identify opportunities for technology revenue synergies.

With that just a few highlights from our for industry, leading segments, let me start with the columns aerospace.

So called saw continued captures synergies in the first quarter with nearly $60 million. That's on top of the 300 million, we realized last year.

As remains on track to achieve about 600 million of cost synergies that's from the Fccs acquisition of Rockwell Collins in late 2018.

Columns is particularly well suited with its air management interiors business to also provide solutions to the airline industry to further enhance passenger health and safety.

At Pratt.

We have engine program achieved two significant milestones as the first in service GTF engines exceeded 10000 service hours.

More importantly, the program reached 5 million revenue flight hours across the combined GTF powered fleet.

Importantly, also impressive joint strike fighter program delivered the 500 production aircraft.

We're just getting started with both of these programs great future.

The Raytheon intelligence and space during the quarter. The U.S. airports awarded RSV Force element terminal development program, that's expanding our family of advanced beyond wireless like terminal.

The franchise to modernize and secure communication terminals on both would be 52, they RC 135 aircraft.

Finally, our missiles and defense business over $2 billion on the standard missile three one be multiyear during the quarter.

Shortly after the quarter closed R&D was also selected love US Air Force developed the long range standoff weapon strategic weapons.

The services legacy Airlines cruise missile.

That's a great great achievement for the company. This franchise will be worth approximately $10 billion over its lifetime.

Like the most important takeaway those each of these businesses as a leader in their respective markets in are all will generate significant value over the long term by combining technologies to generate revenue synergies across all of our businesses.

Okay slide four.

Fundamental to our success is the strength of our financial profile, let me be clear the balance sheet is strong and our liquidity position is solid.

Following the merger we had about eight.

Billion dollars of cash net debt of about 25 billion and a solid investment grade credit rating.

Combined these was a $5 billion revolver, and our new $2 billion revolving credit facility and we have plenty of financial flexibility.

So thats before an additional $2 billion or so of proceeds from the previously announced divestitures.

We already have which are anticipated in the second half of the year.

And as I mentioned earlier, we're taking immediate actions to reduce costs by 2 billion and preserve liquidity with $4 billion.

Actions.

Reducing capital expenditures and the investments we've deferred merit increases across the commercial businesses and we're cutting discretionary spending just to name a few.

So many of these did measures have been difficult.

Is the right thing to do for the business.

We're also attracted delivers a billion dollars in gross cost synergies that we committed to and we announced the merger last June.

Got a strong execution track record in an excellent playbook for Rockwell Collins and Goodrich acquisitions.

And after months of integration plantings are teams are working seamlessly as one company.

Already executing on the detailed plans to driver synergy commitments.

Regarding shareowner returns as you might expect we will not be repurchasing shares this year given the current environment.

However, we do remain committed to returning significant capital shareowners.

As a result to return to the $18 billion to $20 billion that we outlined last June will more likely take place over a four year versus a three year timeframe.

We also remain committed to the dividend, which are board approved last week, and we have sufficient cash and liquidity to maintain a competitive bid the dividend even in this very difficult environment.

Finally, before I turn it over Toby take you through the results.

Let me make a comment on how we're thinking about our outlook.

Given all the uncertainty in our commercial Aero business, we're not going to provide a race and technologies outlook at this time for 2020.

Toby will give you some important information on how we're thinking about the business and move that later in the year to provide more color as a situation continues to evolve.

With that let me turn it over to Toby the take you through the first quarter results. Okay. Thanks, Greg moving to slide five.

As Greg said in spite of the developing over 19 pandemic Q1 was a good start for the year for Raytheon technologies.

Since the spin and merger occurred on April 30.

Our reported Q1 results for Raytheon technologies reflects the legacy United Technologies, Standalone results, which include carrier Novus.

Going forward carrier notice will be reflected as discontinued operations and raytheon's legacy business will be included from April Threerd onward.

Reported sales were 18.2 billion down 1% versus prior year, including flat organic sales and one point of FX headwind.

Adjusted EPS was $1.78.

7%, whereas the prior year, which you'll recall is above our expectations for the quarter.

Within the quarter.

Gross profit growth was more than offset by approximately 10 cents of cobot 19 related charges.

The majority of which was non cash within Pratt and Whitney and call.

Except for entrust below the line items were higher versus prior year as expected.

On a GAAP basis, EPS was a loss per share of 10 cents.

Down year over year and included a $1.88 of net nonrecurring charges and other significant items.

Which $1.66 related to the portfolio separation charges.

18 cents from non cash impairments primarily related to carry notice.

And two cents of restructuring.

Just a quick comment on our tax rate in the quarter.

The reported effective tax rate for the first quarter was 98.5%.

Which was the result of tax separation expenses.

On an adjusted basis, the effective tax rate was 22.4%, which is closer to the effective tax rate that we expect for RPX going forward in 2020.

Free cash flow is better than expected at approximately $250 million and included about 700 million of onetime cast separation payments.

Of which approximately 700 million was reflected at financing outflow.

Typically associated with make whole payments in connection with the early retirement of debt.

Turning to slide six.

Raytheon company, while not included in writing on technologies first quarter results.

Had a strong first quarter with bookings of 10.3 billion and the book to Bill ratio of 1.44, leading to a record backlog of 51.3 billion.

Net sales were better than expected at 7.2 billion up 6.5% year over year.

Not on the page, but cash flow from operations was also better than expected at an outflow of 98 million in the first quarter or a 313 million dollar improvement versus the prior year.

The solid start to 2020.

With that I'll hand, it over to nail to talk through the segment results.

And I'll come back and share a bit about how we see the current environment.

Thank you Toby.

Starting with Collins aerospace on slide seven.

Sales were 6.4 billion in the quarter down 1% on organic basis.

Commercial OEM sales were down 12% driven by the 737, Max grounding and anticipated declines in legacy programs, partially offset by new program growth driven by the Athree hundred Twentyneo 77, and eight to 20.

Commercial aftermarket sales grew 3% driven by provisioning, which was up mid teens and parts and repair which was up mid single digit partially offset by high single digit declines in modifications and upgrades driven by anticipated lower Espeed Mandeep volume.

Military sales were up 10% led by higher F 35 volume.

We also saw continued solid performance in our mission systems Communications navigation and guidance solutions and it's our businesses.

Operating profit of 1.1 billion was up 3% from prior year with 80 basis points of margin expansion.

Drop through on higher military and commercial aftermarket sales and continued synergy capture of an incremental $60 million as well as favorable FX and contract settlements in the quarter, partially offset by headwind from lower commercial OEM sales and approximately $40 million encoded related charges.

Shifting to Pratt Whitney on slide eight.

Sales of $5.4 billion were up 12% on an organic basis commercial OEM sales were up 25% driven by GTF NPW 800 deliveries, which were partially offset by anticipated declines and V 2500 production and lower deliveries of other pwc engines in March driven by Coven 19 impacts.

Commercial aftermarket was up 4% in the quarter.

Growth in the GTF aftermarket was offset by a reduction in legacy shop visit inductions.

Brent Whitney, Canada aftermarket saw growth from higher shop visit content and a customer contract closeouts, partially offset by lower shop visits.

Ramping JSF production continues to drive growth that Pratt's military business military sales were up 16% on higher aftermarket sales across key platforms and increased from 35 production volume.

Adjusted operating profit of 439 million was down 2%.

Operating profit benefited from drop through on higher military sales continue GTF cost reduction.

Lower dnbi and a customer settlement. These benefits were more than offset by higher Jna, which was primarily driven by tobin related reserves of approximately $60 million.

FX headwind and the absence of the Q1 2019 divestiture and licensing agreement for approximately $30 million.

Commercial aftermarket aftermarket operating profit was flat driven by a customer contract closeouts offset by GTF and legacy sales mix.

Turning now to slide nine.

Talk through the legacy Raytheon businesses Q1 results as Toby mentioned, while these results are not included in Raytheon technologies first quarter reported results. We thought it would be helpful to share how these businesses performed.

You will find a reconciliation from the former legacy Raytheon segments to our pro forma new segments in the appendix so with that said starting with high EPS.

For Q1, RF sales were 3.6 billion operating profit was $379 million and Ross was 10.6% of note. Our is also booked approximately 350 million on the GPS next generation operational control system or GPS those CX program and it's worth mentioning the former.

Raytheon SCS business grew sales, 15% driven by higher volume across numerous programs.

Additionally, the former Raytheon is business saw operating profit declined 45 million, primarily due to 34 million of gains from the first quarter of 2019.

Not repeat.

Moving to RMD Q1 sales were 3.9 billion operating profit was 573 million and Ross was 14.9%.

At legacy missiles operating profit was up 49 million or 26% driven by higher net program efficiencies.

At legacy ideas operating profit was up 79 million or 31% driven by higher net program efficiencies, including $35 million from a contract settlement.

In addition to what Greg mentioned booking highlights in the segment. During the quarter also included approximately $500 million to provide advanced Patriot Air missile defense capability for the kingdom of bearing.

That I'll hand, it back to Toby to provide an update on the current environment.

Thanks, Neil I'm on slide 10 now.

As Greg mentioned, we are clearly and uncertain times, particularly for our industry.

That said not everything about our future is unknown.

There are several factors, we know or getting comfortable with right now.

There are certainly a number of elements network monitoring closely.

Let me take you through how we see it today.

First for some unknowns that should serve as tailwinds.

We see our defense businesses on solid ground.

We have record backlog and visibility to grow our defense businesses over the next few years, our franchises are well aligned with the national defense strategy, which should shake future budgets and we see demand for our advanced solutions internationally.

We have a robust synergy playbook that will utilize to create additional lift from Rockwell Collins acquisition synergies as well as generating the Raytheon technology synergies.

And as you heard from Greg, we're taking aggressive cost reduction and cash conservation actions in response to the current environment.

Now as I mentioned, we are optimistic about our defense business growth and our expectations largely consistent with when we began the year.

We are monitoring our defense supply chain and any potential disruptions that can occur.

However.

We have good visibility into the demand side of our defense business and as a result have provided a detailed outlook for our is in R&D segments in the appendix.

At a high level for our I asked in R&D, we had guided to 6% to 8% sales growth versus 2019 and discuss the ability to improve operating income.

As a result of the coven 19 impacts we are lowering our IRS and RMD sales by $200 million or a little less than 1%.

Operationally and on a full year 2020 basis.

For the remaining carried of Q2 to Q4 2020.

No changes to the previous defense outlook provided for legacy Raytheon businesses other than the Kogan 19 impacts.

No. There are few changes to the way we'll report our numbers for our I asked and R&D.

Driven entirely by the merger and related accounting.

Including the stub period.

The AC resets and purchase accounting impacts.

You'll note that the appendix slide highlights the expected effects. These items will have on these segments.

It is important to note the AC reset is merely a matter of timing and not a permanent loss of profit as the profit improvements will now be recognized over the remaining life of each program.

We are confident in our defense growth in the future.

Although we're not providing an outlook for 2021.

What I can say is that we're in a strong position.

Continue to grow these businesses and will not see the merger related impacts on the accounting beyond next year.

And finally as you know defense made up a little less than 30% of sales within columns and pride in 2019.

We continue to expect Collins and press defense sales to grow mid single digit organically in 2020.

As we discussed at the beginning in the year.

Now for what we're monitoring.

As we've discussed the covert 19 pandemic clearly has and will continue to impact our business and the aerospace sector as a whole.

Year can unfold in multiple ways, but we'll certainly result in significant headwinds for our commercial aerospace segments.

We are monitoring several factors that will have a direct impact on the commercial aerospace market, including OEM production levels.

Line financial condition fleet Groundings revenue passenger miles an aftermarket data.

A few comments on these factors.

We know that OEM production rates have been significantly reduced.

Aircraft fleets around the globe apart.

And I out his latest forecast estimates 2020 RPM.

We'll be down 48% year over year.

All of which will have a significant impact on the commercial markets in our segments.

And the commercial aerospace industry as a whole, including our commercial supply chain.

While we haven't will continue to see disruptions in the supply chain. We are working very closely with our suppliers to ensure they remain financially stable.

We were able to meet our production requirements.

So let's discuss columns, while I can't provide an overall view on commercial OE or aftermarket sales and operating profit at this time due to the evolving market conditions, Here's what I can tell you.

We would expect a sharp deceleration in both OE and aftermarket.

The sale side, we expect OE sales to decline in line with OEM production and airline delivery schedules.

Aftermarket is equally as difficult to quantify but we generally expect sales declines to be in line with RPM declines with a prolonged rebound that does not recovered at 2019 levels within 2020.

We also continue to expect point of headwind from lower Ats piece, yes.

Moving on to Pratt as with Collins, we expect the sharp deceleration in both OE and aftermarket.

For Pratt OE, we expect our sales to decline in line with our main OEM customers, which is primarily Airbus for a large commercial engines.

On the aftermarket side GTF overhaul activity will continue as we upgrade engines to the latest configuration.

However, legacy shop visits are now likely to be down 50% or more over the prior year.

As you're aware Pratt and Whitney Canada was approximately 25% of perhaps total sales in 2019.

Pratt, Canada, we'll see a significant sales impact, albeit not as large as we expected decline in the large commercial engine business.

With respect to free cash flow, we expect to generate positive free cash flow for the year.

Which will be driven by our defense businesses.

Given the range of outcomes that could materialize within our commercial Aero businesses. We would expect these businesses to be about breakeven for the year.

And that's despite taking $4 billion of cash actions this year.

See headwind at the commercial Aero businesses, largely due to working capital impacts as we work to ensure the health of our supply base and address under absorption.

The strong operating results in Q1 highlight the performance capability of Pratt and Whitney and columns aerospace.

And is indicative of the potential and growth the segments, we'll see again.

As we rebound from the temporary market impacts, resulting from Kogut 19.

For now clearly a number of moving pieces with more unknown unknowns.

We will continue to provide updates as the situation develops when we have a clear understanding of the pandemics effect on our operations.

As for some Q2 color as we've already said, we expect sales to be down significantly at Pratt and columns.

We see Q2 operating profit at Pratt to be a loss and operating profit of Collins to be approximately breakeven.

And for our I asked an R&D operationally, it's business as usual.

But for the previously mentioned he AC reset and stub period that will impact that results.

Finally, we expect adjusted EPS in Q2 to be positive.

As it relates to the full year outlook, we will reevaluate our ability to provide our traditional sales EPS and cash outlook after Q2.

Turning to slide 11, we have provided you with some information to help with your model.

You will see our current thoughts on Q2 through Q4 ranges for these line items.

Of note Capex Fort Collins, and Pratt will now be over 800 million lower than we expected at the start of the year to help mitigate opened 19 pressures.

Additionally, as far as corporate expenses for Q2 to Q4, approximately $400 million will be allocated to Kraton Collins, leaving about 250 to 300 million of residual corporate costs, which primarily relates to Lpms corporate project for the company.

Lastly, we are making a few changes to the way we measure our results and therefore speak to them externally.

We will continue to discuss our sales and earnings on a job on adjusted basis.

Insistent with UTI fees legacy approach of excluding significant and nonrecurring items with a few changes.

Given the considerable acquisition and merger activity, we will be reporting segment profit.

Adjusted earnings and adjusted EPS.

Floating the non cash net expense associated with amortization.

Any step up and parity adjustments.

We believe this will provide investors with a better understanding of our results in relation to cash performance.

With respect to our segment operating profit, we will now be allocating the majority of corporate costs to our segments.

And finally will reflect the vast Cas pension adjustment.

Yes, and RMD restructuring below segment operating profit in our statement of operations.

Okay with that I'll hand, it back over to Greg.

Thanks, Tobey I know Thats, a lot to digest a lot going on.

Let me just maybe summarizing.

My own where I think everybody uses stuff can take a deep breath I know a lot of change a lot of uncertainty.

At the end of the day, the reason Raytheon and you to see came together were three simple reasons. It was technology. It was talent and it was balance.

Technology is self evident.

I would tell you. The talent is also self evident from the fact that we've got great leaders that our business from west to ROI to Steve to Chris experienced leaders, who know how to work in this challenging environment, we'll do the right thing as we always were we've also got a great corporate staff.

About half of different Raytheon half of it from legacy UGC and again, we've lived through these crises before and we will support the businesses and sort of a very difficult things that they're going to have to do.

But at the end of the they will get through this as we always have.

Because I think about the remainder of 2020 or priorities are pretty clear first of all it's supported our employees keeping them healthy and safe.

Supporting our customers and importantly, our suppliers.

So delivery technology and product innovation for our customers will get a lot of work to do on executing on the merger integration delivering synergies, but we know how to do this.

Through our history, we've weathered a lot of challenges and whether this one and come out stronger on the other side.

I remain excited about the future of our company and I'm confident that the teams. We haven't plays will drive sustainable long term value creation little benefit customers employees shareowners and our communities.

With that actually let's go ahead and open it up for questions.

And the interest at a time and to allow for Brando participation as to limit yourself to one question.

First question will come from the line as Ron Epstein.

Yes, good morning, guys.

Thanks.

Complete call although.

Just maybe starting off with the fence because I'm certainly going is going to parted with commercial commissions.

When you think about international.

Defense markets in particular, Saudi and what's going on with oil prices.

And how important.

Saudi is too.

The legacy defense businesses.

How should we think about there is there any risk to those contracts and is there any risk to that to the middle East particular, Saudi business.

Or I look there's always uncertainty when oil is here 20 or $30 a barrel obviously came to restart of your rate is challenged as are most of the middle east customers. During this time.

Same time, I don't think pieces breaking down anytime soon in the middle East and providing a solid defense posture to our customers over there remains a priority both for the U.S. government as well as for the Kingdom of Saudi Arabia, and all of our over customers over there so look I am.

It's about 30% of legacy Raytheon business was international.

I think it is not all middle East is obviously, a big piece in the UK. We support we've got the Patriots system in Poland, We got Big operations in Australia, It's not just the middle Eastern business, it's an important element of it but it's up the whole thing so.

So far we have continued to see good cash come in from from the middle Eastern customers. There during the first quarter surprisingly EBIT was oil out there may be the equipment. They want the equipment that we need to help them deferred themselves there will be anything on it I think the only thing I'd add Ron is.

No where were looking at of a Big award here in Q2 late Q2, maybe early Q3 the.

Production for the Tippi too.

System for KFC right Thats on track and it falls in line with what Greg said the threat environment Hasnt changed the need for our equipment is still there and then if you remember back it was so I'm going to be off three four years ago right when when oil was down and.

Same logical type of questions and we came out of that strong with no implications.

And that's how we see this playing out as well.

Your next question comes from Sheila can you love.

Hi, good morning, and thank you everyone for the time, Greg you are right. That's a lot to digest I realize you aren't guiding but you gave us a few pieces to pull together. So I think you said you TX Aero free cash flow was breakeven and if we assume Raytheon free cash flow is 3.5 billion as a baseline because that's what it was last year.

Yes generates free cash flow of about a billion Standalone does that provide a framework for about 4.5 billion combined does the bottoming of free cash flow in 2020 or are there other items like tax pension working capital that think about.

Yes.

I think.

That's probably a little aggressive from the different modeling in the scenarios that.

Where we're coming up with Pierre.

Right now.

I think what you've got to take into account is with these type of volume drops that were seen and how they're hitting us all at once.

Our significant absorption impacts that we're dealing with and trying to at least start to mitigate with the the cost and Cas actions that Greg mentioned in his opening comments.

And the.

Drop through margin on this type of volume loss, especially when you look at the entire mix of business between heavy aftermarket at Pratt about 50% of their business about 35% of Collins is aftermarket.

When you piece that all together, including the other parts were talking about a north of 50% type of drop through combined with managing inventory levels with suppliers right and ensuring the health of the supply chain working with.

Customer request on extended terms.

We seem a little bit more more headwind than I think given your.

Thank you there should I think the thing to keep in mind is really working capital.

Yes, we've got a lot of inventory typically as you know on the commercial Aero side lead times are somewhere between 12 and 18 months so even as.

Boeing and Airbus reduce production schedules, we were not going to be able to take out all the working capital associated with that we've also assumed I would tell you some slower payments from some of our customers, which will put pressure on cash so with all that I think you know your your forward a half billion is optimistic I would say.

Literally it'll be a decent year, we'll be able to from the dividend, but I wouldn't I wouldn't get too much above that.

Your next question comes from Carter Copeland.

Hey, good morning, newly merged team I hope everybody is getting along nicely.

No no blood yet.

Yes.

You know you got plenty of work to work on.

Greg I wondered if you.

You could just kind of give us a little bit more specificity and help mapped to the 2 billion in cost out okay thats it from what we've heard from.

A lot other folks it seems like your production plan now as probably 30, 40% down on only 50, 60% down on aftermarket military still holding and evolve.

James that are down I don't know call it 40% on a year or something like that.

Is that about how you're thinking about production and how do you think about the cost structure and that now that 2 billion maps to that in terms of what's the run rate savings versus.

A onetime or somewhat temporary costs out any color there would be helpful. Thanks.

Carter, So look theres, obviously to do so lot of moving pieces here I would think about it more broad rewrite this bigger, but commercial OE, probably down about 50% for the rest of the year. That's in line with a 48% reduction in traffic that I had a forecast now it will vary by platform.

As you look at 77 versus a 340, so we were trying to match.

OEM production with what the customers Boeing and Airbus and Liberty and others are telling us today, but roughly speaking you can think about OE down about 50% for the rest of the.

And aftermarket down probably in that same range.

So those are big numbers now what are we going to do about it so Chris and Steve on the commercial side.

Identified a number of actions the biggest of course is probably a reduction in the 450 million.

Now it seems like a lot of money, we spend about two and a half a billion dollars a year on the commercial Aero site on the Andy So it's roughly a 20% reduction in DMD about 300 million to that is going to come out of press about $150 million that comes out of college. So just to give you an idea. We of course also we have stopped hiring.

Good for hiring freeze in place, we've deferred merits furloughing folks both at the corporate office and the across the commercial businesses.

Also we are we furloughed people are the factories and I expect there will be further reductions as we sort through all of these volumes. The key is we don't want to cut the talent. So deep that when the recovery happens we don't have the right people. So we're trying to be judicious, we're trying to.

Try to keep as many jobs as we can add to that end.

There are legacy Raytheon businesses of 2000 openings today for folks and we are actively working to try and take engineering talent and other talent that we've got it.

Legacy you, TX business and move those folks over to programs on the Raytheon side. So.

Theres a lot of pain to come yet a lot of very tough decisions ahead of us.

In terms of production volumes, but just generally speaking think about 50, 50, and you're going to be in the ballpark.

Your next question comes from Robert Stallard.

Thanks, so much good morning.

Rob.

Quick question on the Boeing 737, Max you guys actually shipping any product to the moment and as you look forward from here.

You aligning your cost base and capacity in line with Boeing is saying that production rates heading back over 30 next year. Thank you.

So we continue support Boeing is a return to service for the 737, Max the folks up in Cedar Rapids have been doing software turns and continuing to two to work with Boeing to make sure that we've got a.

Certification.

Standards that are that they will approve here.

Right now and we were shipping anything today to Boeing.

We are aligning with their plans to ramp up production later this year and into next year.

Again, we have a lead time on that roughly 12 to 18 months. So.

We've been on pause here for a couple of months of what Boeing has has paused production will ramp up as they ramp back up I think we've probably got plenty of inventory today that they're going to need to work through so we're trying to match our.

RP demand or with the with what Boeing is out there forecasting but right now we're I think we're pretty well in lock step across all the platforms, whether it's 787.

Or or or seven three sevens.

Your next question comes from Myles Walton.

Thanks, Good morning, and Greg Hopkins everything definitely definitely Gallagher.

First a clarification then a question so Toby the clarification on reported margins of the Raytheon businesses as it relates to see it I think you said something to be effective the effect would be gone. After 21. So just can you elaborate on what that we should think about as the margins looking from.

21, I guess into 22 on the accounting side and then the real question, maybe Greg is on Pratt and the aftermarket you could have whole types of fleets retired accelerated over the next year. So how much of Pratt's aftermarket is not be 2500 at this point.

So let me I'll I'll hit the first one miles on that EA fees.

You know that the EA see reset to zero percent complete.

It's not purchase accounting, but it's really reflective of the acquisition accounting around the merger.

And the go forward right. So effectively the merger reflects the to go part of the programs that Raytheon has we still expect just to be very clear.

The same types of productivity that historically.

On an annualized basis have been close to 200 basis points and 180 200 basis points of margin, they're just going to be spread out over the next call. It 18 to 24 months given that everything is reset.

Zero percent complete.

Post 21.

We'd expect margins more in line with what the historical Raytheon businesses, though has been delivering.

With the same focus on working to improve those end to end to grow the.

Segment margin contribution from our I asked and R&D.

So let me try and address the question credit and again I'll give you. Some some broad outline if you think about it.

There's really four engine families that contribute to the aftermarket.

We are the gvhd for the old.

The eightys and such which deltas retiring don't really have a significant impact at all anymore. That's all ongoing years ago.

The biggest obviously is the V 2500 as you noted there is about 7000 engines that we sold about 6000 of those are still an active service.

Of course got the GTF, which is it really contributing much in terms of.

Aftermarket.

Today in terms of profit through sales associated with that of course, you got to legacy print 2000, which is up to 757, then you've got to legacy.

PW 4000, which powered some of the first triple seven some athree hundred thirtys as et cetera.

The v. accounts for about 50% of the aftermarket today.

2000, 4000, roughly together was about 1000 aircraft up there.

You're talking maybe 20% or so.

Of the aftermarket for Pratt so.

Some of that will go away so that natural I think.

As we think about those things a bit on the decline for the last 10 years.

They will continue to decline, we'll see what comes back into service.

With fuel prices as low as they are the need for new aircraft is probably somewhat less and the people will probably twice over the older less efficient aircraft for a few more years to save on the capital by new airplanes, which is you'll probably see these things come back into service.

No doubt in the numbers that we saw so that's all contemplated in this reduction that weve that we've been talking about for the aftermarket upright.

Your next question comes from David Strauss.

Thanks, Good morning.

A one do wanted to ask about what you saw out of the aftermarket in April maybe splitting out between between Collins and Pratt and then Greg can you comment on the what all this does lower production rates on Athree hundred 20, what that does to did GTS.

Loss profile balancing you'll be delivering pure engines, but you also I assume becoming down the learning learning curve more slowly. Thanks.

So on the.

The other GTF, obviously as you as everybody knows we lose money every time, we ship and engine.

So there is actually good news for wells the lower production.

The other GTF.

That is offset somewhat by the lack of absorption. So all of the negative engine margin that we would typically see.

Is not all going to flow to the bottom line.

You got lack of absorption Ed.

Importantly, or you're coming down the learning curve, you, taking 5% to 10% of the cost out every year that is going to be slower as volumes were down you don't have the leverage in the supply chain. So.

Overall, you probably get going about a $100 million of pickup as a result of the lower volumes on GTF.

But I think Thats a.

It's a it's a relatively modest number because of the absorption impact. So it was the first part of the plant.

Aftermarket in April Oh, I'm, sorry, after Bartley, Yes, let me give you a two data points that I think are indicative of where the aftermarket is going so prep typically gets about a thousand engine inductions a year.

For the 2500.

And.

Most of those inductions were right about online we were seeing a roughly 80 or so a month January February EBIT into March.

April not so good there was about 20 call it 25 or so.

Engines inducted into the overhaul shop and so.

We'll see that revenue impact here in the second quarter, because typically as we repair these engines they consume spare parts. We recognize the revenue that's going to be the probably the biggest place where you'll see the impact.

On the Collins side again, a similar number if you think about repair input that is the things that come back to our shop around the world. We've got a lot of shops repair input for the month of April is down about 55%.

Again.

We think this is this is probably as bad as it gets but it's happened very very quickly and so hopefully we'll see a slower recovery.

I guess is the best thing.

You track the flights ever everyday I get your will note there to depreciate it but the China business actually is coming back.

Slowly, but it is coming back passengers are coming back and flight in China, They get it I suspect.

Two months out of the road, we'll see a slight recovery start maybe three months or four of us, but there is some light at the end of this.

She is going to take a little while but we certainly have already seeing the impacts in April.

A large slowdown.

Your next question comes from Peter.

Okay.

Thanks, Good morning, Greg Toby.

Hey, Greg maybe just to ask the.

Question on the B 2500, a different way that 6000 engines that you have out there whats do you have in that like an average age are we talking that this is still in front of 11 low teens 11 year. So so still haven't longer so.

Yes, I think about in about half of the fees that are out there have not had its first major overhaul.

The other half are only had one so if you think about.

No those boot lifecycle is as you go through two sometimes three major overhaul. So yes, we're still in the third inning I would say over the life of the V 2500 terms of the aftermarket.

Your next question comes from Seth Seifman.

Thanks, Thanks, very much good morning.

When I said.

So I was curious.

In the notice that there was kind of a small intangible impairment costs aerospace.

How do you think about the rest of further impairments there and what are the pieces of the columns business that you see as as most at risk here, how much of the aftermarket as discretionary.

How you see things playing out at that to be business and.

The places where you see the greatest strength thats kind of the more more permanent kind of.

Reduction.

Well as you can expect says we took a hard look at all of the intangible assets as we were closing out first quarter.

And we.

Obviously ran a bunch of different sensitivities avail analysis, because there was a small apparel, but I think it was.

$40 million at Collins.

Related to some small businesses as they had that were part of the original our acquisition of Rockwell Collins, but we have looked at all of the other intangibles, even with a worst case scenario aftermarket for the next two years, we did not see any potential for impairment there was plenty of.

Plenty of runway there additional cash flows again, assuming the to even a three year kind of recovery here, so I'm not expecting.

Big Big impairments here now again as the World changes, we evaluate this thing every single quarter.

But we did a pretty good scrolling I guess Neal I'd ask issues with yes, I would just add to that I mean, when you think about the Rockwell Collins acquisition, which didnt happen not long ago. Those work that assets that were marked to fair value. Most recently and so they're the ones that are most susceptible but all of this is noncash and so.

We will go through a process will continue to monitor.

Near term mid term long term and update that accordingly, but I agree with everything that you just said there Greg.

Okay.

Your next question comes from Noah Poponak.

Hey, good morning, everybody.

Hey, Toby since you.

Sort of spoke to.

Kind of floor in the 2023 cash and I know a lot of your investors are focused on.

The 2021 target that had been provided.

And maybe there is less sort of abnormal below the segment working capital type of disruption.

I wanted to see if I get it could get you to kind of speak to that and I had a outside of a bottoms up model I had kind of top down discreetly been thinking.

Slides when you throw up from the deal you had the three plus three from each business pro forma six goes that eight so if I just cut the DTC three three and half I take out one and a half or if I look at the us for.

On a levered basis, it was kind of a four enforced split to get to that is not quite but so if I just took that foreign cut in half I was too. So if I just took one and a half the two out of the eight can I think of.

Six to six and a half as the free cash kind of floor in 2021 or would you still have some of these working capital disruptions or something else.

Yes, so I understand the question no right.

Obviously, we haven't guided 2020, so we need to figure that out first.

Yes, stating the obvious the 2021 number if you're referring to write certainly didn't consider there would be this type of environment.

Because of the pandemic.

And I think the two things two or three things to help you a little bit right. Obviously, we'd expect defense to continue strong right. So thats a.

It should be a tailwind for us going into next year the variable on the commercial aero side in any of the math that you're referring to is really the shape of the recovery and what type of trajectory we come on at 2020.

In that call exam Pratt going into 21 too early to tell at this point, but as you mentioned some of the figures right both businesses have a strong history.

Delivering strong cash flow just go back to.

2019 results and you'll see it there so we'll get back there at some point right. We're good.

We're not seeing any change to the underlying fundamentals of the proud or the Collins businesses.