Q2 2024 RTX Corp Earnings Call

July 25, 2024

Good day and welcome to the RTX second quarter 2024 earnings conference call.

Livia: My name is Livia and I'll be your operator for the day. As a reminder, this conference is being recorded for replay purposes.

Operator: 2024 Earnings Conference. On the call today are Chris Calio, President and Chief Executive Officer, and Nathan Ware, Vice President of Resolutions.

Livia: On the call today are Chris Calio, President and Chief Executive Officer.

Livia: Neil Mitchill, Chief Finance Officer.

Operator: This call is being webcast live on the Internet, and there is a presentation available for download from RTX's website, including acquisition accounting adjustments and net non-recurring and or significant items often referred to by management as other significant items. The company also reminds listeners that the earnings and cash flow expectations and any other forelooking statements provided in this call are subject to risk. To give everyone the opportunity to participate, to ask a question, you will need to press star 1-1 on your telephone.

Speaker Change: and Nathan Ware, Vice President of Investolations. This call is being webcast live on the Internet and there is presentation available for download from RTX website at www.RTX.com.

Speaker Change: Please note, except for otherwise noted, the company will seek to resolve from continuing operations, excluding acquisition accounting misjudgments, and net non-recurring and or significant items, often referred to by management as other significant items.

Speaker Change: The company also reminds listeners that the earnings and cash flow expectations and any other forelooking statements provided in this call are subject to written uncertainties.

Speaker Change: RTX SEC filings, including its foams 8K, 10Q, and 10K, provide detailed non-point factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

Speaker Change: Once the call becomes open for questions, we ask that you limit your first round to one questions per caller. To give everyone the opportunity to participate, to ask a question, you will need to press star 1-1 on your telephone.

Speaker Change: You may ask any further questions by reinserting yourself into the queue as time permits.

Operator: With that, I will now turn the call over to Mr. Calio. Thank you, and good morning, everyone. As you saw from our press release this morning, RTX delivered strong operational and financial performance in the second quarter as we continue to execute on our customer commitments and strategic priorities. And free cash flow was strong at $2.2 billion. Collins also received a multi-billion-dollar reward for the U.S. Air Force's next-generation survivable airborne operations center, and Raytheon received a $639 million reward for SPY-6 radar production for the U.S. Navy. And as you saw in early July, Germany placed an additional order for Patriot Systems.

Speaker Change: With that, I will now turn the call over to Mr. Calio.

Christopher T. Calio: Thank you and good morning everyone. As you saw from our press release this morning, RTX delivered strong operational and financial performance in the second quarter as we continue to execute on our customer commitments and strategic priorities.

Speaker Change: Let me start with the highlights on slide 3. We saw another quarter of excellent top-line growth with adjusted sales of $19.8 billion, which were up 10% organically.

Speaker Change: Adjusted EPS of $1.41 was up 9% year-over-year, driven by profit growth and margin expansion across all three segments. And free cash flow was strong at $2.2 billion.

Speaker Change: We also saw continued growth in our backlog, which ended the quarter at $206 billion, with a book-to-bill of 1.25.

Speaker Change: There were also some notable contract wins in the quarter, including a 10-year MRO agreement to support Collins' significant content on Air Canada's 787 fleet of up to 70 aircraft, including avionics, air management, and electric power systems.

Speaker Change: Collins also received a multi-billion dollar reward for the U.S. Air Force's next-generation survivable airborne operations center and Raytheon received a $639 million reward for SPY-6 radar production for the U.S. Navy.

Speaker Change: And as you saw in early July , Germany placed an additional order for Patriot Systems. This is on top of the $1.2 billion order they placed for multiple systems in the first quarter of the year.

Speaker Change: We also saw some positive GTF announcements at the Farm Bureau Air Show earlier this week. With over 700 GTF engines ordered, including options and commitments.

Speaker Change: These include Cebu Pacific selecting the GTF to power the carrier's order for up to 152 additional single-aisle aircraft, and Avalon selecting the GTF engine for up to 160 aircraft.

Christopher T. Calio: So, another quarter of robust orders with significant wins already secured early here in Q3, and more expected as the year progresses. We also continue to make progress on our critical initiatives. As of the end of Q2, we have inspected over 6,000 powder metal parts that are in the field across all programs, and the associated fallout rate remains below the 1% we had assumed, and the findings are consistent with the assumptions that underpin our fleet management. PW1100MRO output increased 10% versus the first quarter.

Speaker Change: So, another quarter of robust orders with significant wins already secured early here in Q3, and more expected as the year progresses.

Speaker Change: We also continue to make progress on our critical initiatives. Specifically regarding the GTF Fleet Management Plan, we remain on track with our financial and operational outlook, consistent with our prior comments.

Speaker Change: As of the end of Q2, we have inspected over 6,000 powder metal parts that are in the field across all programs, and the associated fallout rate remains below the 1% we had assumed, and the findings are consistent with the assumptions that underpin our fleet management plan.

Speaker Change: At our MRO facilities, throughput of engines continues to improve and overall capacity is expanding with the recent addition of two new MRO shops into the network.

Speaker Change: PW1100MRO output increased 10% versus the first quarter. We expect this ramp to continue in the second half of the year.

Christopher T. Calio: We expect this ramp-up to continue in the second half of the year. As it relates to the PW1100 fleet, AOGs have leveled out over the past few months and remain in line with our expectations. Beyond our operational performance, let me also comment on the legal and contract charges we outlined in our press release this morning. And then Neil will provide more detail in a bit. We're nearing completion of agreements with the Department of Justice, the SEC, and the Department of State to resolve several legal matters.

Speaker Change: As it relates to the PW1100 fleet, AOGs have leveled out over the past few months and remain in line with our expectations.

Speaker Change: We've also now reached support agreements with 20 of our customers, covering roughly 65% of the impacted fleet, and the terms are in line with our assumptions.

Speaker Change: Beyond our operational performance, let me also comment on the legal and contract charges we outlined in our press release this morning, and then Neil will provide more detail in a bit.

Speaker Change: We're nearing completion of agreements with the Department of Justice, SEC, and Department of State to resolve several legal matters.

Christopher T. Calio: These matters primarily arose out of legacy Raytheon Company and Rockwell Collins prior to the merger and acquisition of these companies. We also took a charge related to the anticipated termination of a Raytheon fixed price development contract that was entered into before the merger.

Neil: These matters primarily arose out of the legacy Raytheon company and Rockwell Collins prior to the merger and acquisition of these companies. We've already taken robust corrective actions to address the legacy gaps that led to these issues, including implementing enhanced compliance and training measures.

Neil: We also took a charge related to the anticipated termination of a Raytheon fixed price development contract that was entered into before the merger.

Neil: As we've been discussing the last few quarters, we've been battling through some challenges in a handful of fixed-price development programs, including this one.

Neil: But this specific contract is unique in terms of its scope, deliverables, and associated risk profile, which led us to pursue termination.

Christopher T. Calio: So, we're pleased to be putting these matters behind us, and as I highlighted earlier, our operational performance was very strong in the quarter. We've also revised our cash outlook for the year as a result of the matters I just discussed. We also continue to add capacity to meet the demands of the industrial ramp-up. During the quarter, we announced a $200 million investment in our carbon break facility in Spokane, Washington.

Neil: So, we're pleased to be putting these matters behind us, and as I highlighted earlier, our operational performance was very strong in the quarter.

Neil: Given this performance in the continuing strength of our end markets, we are raising our outlook for adjusted sales and EPS.

Neil: We've also revised our cash outlook for the year as a result of the matters I just discussed.

Neil: Lastly, as you saw in May, we raised our dividend 7% and remain on track to return $36 to $37 billion of capital to shareholders from the merger through the end of next year.

Neil: Okay, with that, let's move to slide four, and I'll spend a few minutes on our strategic priorities that will enable us to drive best-in-class performance across RTX, including meeting customer demand, continued sales growth, margin expansion across our segments and strong cashflow generation.

Neil: Given our growing installed base and the unprecedented demand for our products, our first priority is executing on our commitments.

Neil: Powered by our core operating system, our focus is on driving incremental operational improvements to ramp output and deliver on this demand. Today, we have over 4,000 core projects being worked across the company.

Speaker Change: For example, at Collins, our avionics business improved first pass yield by 2x in its fire detection product line by reconfiguring the production cell layout, creating digital tools, and upgrading equipment.

Speaker Change: And at Raytheon, the team conducted a core leadership week to identify initiatives to more than double weekly output on a key component of our AIM 9x effector. As a result, the team achieved a 90% increase in output in the quarter and is on track to hit their full year target by the end of Q3.

Speaker Change: We also continue to add capacity to meet the demands of the industrial ramp-up. During the quarter, we announced a $200 million investment in our carbon brake facility in Spokane, Washington. Once complete, it will add 70,000 square feet of manufacturing footprint to meet rapidly growing demand for our Collins brake solutions.

Christopher T. Calio: Once complete, it will add 70,000 square feet of manufacturing footprint to meet rapidly growing demand for our Collins Brake solution. In addition to creating new capacity, we continue to modernize our existing footprint as part of our Industry 4.0 initiatives. Across RTX, we have now connected 26 factories with our proprietary digital analytics technology, providing us with real-time data to boost equipment efficiency, improve quality, and yield higher output. This year alone, we will spend over $7 and a half billion on company and customer-funded research and development to mature and introduce new capabilities to our customers and fill our product pipeline.

Speaker Change: And on the defense side, we're investing in test equipment and tooling to more than double production capacity by year-end on our Coyote program, which is a low-cost kinetic effector for the counter-unmanned aircraft systems that directly address today's drone threats.

Speaker Change: In addition to creating new capacity, we continue to modernize our existing footprint as part of our Industry 4.0 initiatives.

Speaker Change: Across RTX, we have now connected 26 factories with our proprietary digital analytics technology, providing us with real-time data to boost equipment efficiency, improve quality, and yield higher output.

Speaker Change: This represents a 30% increase in connected sites since the start of the year, and we remain on track to connect 40 factories by the end of the year.

Speaker Change: These incremental efficiency, capacity, and technology improvements are critical to meeting the needs of our customers as we operate in the strongest demand environment in our history.

Speaker Change: Let me move now to our second priority, innovating for future growth.

Speaker Change: We are executing on our cross-company technology roadmap to develop differentiated solutions in areas such as sustainability, advanced propulsion, next-generation sensing, connected battle space, and hypersonics.

Speaker Change: This year alone, we will spend over $7.5 billion on company and customer-funded research and development to mature and introduce new capabilities to our customers and fill our product pipeline.

Speaker Change: For example, we are working on a number of hybrid electric demonstrator programs to deliver advanced propulsion technologies and enable greater fuel efficiency across all future aircraft segments.

Christopher T. Calio: Recently, our Collins, Pratt, and Technology Research Center teams completed a significant milestone in the development of our hybrid electric demonstrator, validating the integrated system functionality of the engine, electric motor, batteries, and high-voltage electric power distribution. And in the quarter, we delivered the first TP2 radar that incorporates our proprietary gallium nitride technology. This technology is a game changer for our sensing capability, providing expanded surveillance range and supporting additional missions in the space domain and hypersonic defense.

Speaker Change: Recently, our Collins, Pratt, and Technology Research Center teams completed a significant milestone in the development of our hybrid electric demonstrator, validating the integrated system functionality of the engine, electric motor, batteries, and high-voltage electric power distribution.

Speaker Change: And in the quarter, we delivered the first TIPI-2 radar that incorporates our proprietary gallium nitride technology. This technology is a game changer for our sensing capability, providing expanded surveillance range and supporting additional missions in the space domain and hypersonic defense.

Speaker Change: We also continue to invest in our digital transformation and AI. This year we are adding an additional 30 plus use cases that generate incremental productivity and cost savings across RTX using advances in artificial intelligence and deep learning.

Christopher T. Calio: In total, we have over 200 AI use cases currently deployed across various internal functions. Our AI investments are also enabling new and improved capabilities in our products, such as predicting equipment failures and aiding human operators in executing complex tasks. For example, over 35% of our product procurement spend is with common suppliers that support all three of our businesses. We're using a unified RTX approach to our contracts and sourcing strategy. And, of course, we'll also continue to review our portfolio and prune where needed, as well as target bolt-on M&A to support our RTX technology roadmap and grow our core franchise. And underlying all three of these priorities is our unwavering commitment to safety, quality, and compliance in everything that we do.

Speaker Change: In total, we have over 200 AI use cases currently deployed across various internal functions.

Speaker Change: Our AI investments are also enabling new and improved capabilities in our products, such as predicting equipment failures and aiding human operators in executing complex tasks.

Speaker Change: These types of investments in innovation will allow us to continue to develop next-gen products and solutions well into the future.

Speaker Change: Our third priority is to fully leverage our breadth and scale across RTX to drive value for our stakeholders. Specifically, this includes creating a more efficient and competitive cost structure and managing our common supply chain. For example, over 35% of our product procurement spend is with common suppliers that support all three of our businesses.

Speaker Change: We're using a unified RTX approach to our contracts and sourcing strategy.

Speaker Change: It also includes harmonizing our product lifecycle management processes and developing integrated solutions for strategic campaigns and pursuits, such as NGAD, Flora, and next-generation commercial platforms.

Speaker Change: And, of course, we'll also continue to review our portfolio and prune where needed, as well as target bolt-on M&A to support our RTX technology roadmap and grow our core franchises.

Speaker Change: And underlying all three of these priorities is our unwavering commitment to safety, quality, and compliance in everything that we do. It's what we and our customers expect and a commitment we will never compromise on.

Christopher T. Calio: It's what we and our customers expect and a commitment we will never compromise on. Putting it all together, I'm extremely excited and confident about the future of RTS. Before I turn it over to Neil, I want to acknowledge the leadership update we announced last week. As you saw, Steve Timm has decided to retire after 28 years with the company.

Speaker Change: Putting it all together, I'm extremely excited and confident about the future of RTX.

Speaker Change: With that, before I turn it over to Neil, I want to acknowledge the leadership update we announced last week.

Speaker Change: As you saw, Steve Timm has decided to retire after 28 years with the company.

Christopher T. Calio: Steve was a great partner and teammate, and I want to thank him for his leadership at Collins. We're very fortunate to have a strong bench and are very excited that Troy Brunk is taking over as the new president of Collins. Troy has served as the president of three of the six Collins business units, and is uniquely qualified for the role. Okay, let me turn over to Neil to take you through the second quarter results in more detail. Neil.

Speaker Change: Steve is a great partner and teammate, and I want to thank him for his leadership at Collins. And we're very fortunate to have a strong bench, and are very excited that Troy Brunk is taking over as the new president of Collins. Troy has served as the president of three of the six Collins business units, and is uniquely qualified for the role.

Speaker Change: Okay, let me turn over to Neil to take you through the second quarter results in more detail. Neil?

Neil G. Mitchill: Thanks, Chris. I'm on slide five. As Chris said, operationally, we had a strong quarter and continue to make progress on key financial metrics across RTX. RTX's adjusted sales of $19.8 billion were up 8% and, on an organic basis, were up 10%. By channel, Commercial OE was up 19% as we continue to support aircraft demand. Commercial aftermarket was up 14% as domestic, international, and long-haul travel continues to grow, and excluding the Raytheon cybersecurity divestiture, defense sales were up 7% as we execute on our backlog.

Neil: Thanks, Chris. I'm on slide five. As Chris said, operationally we had a strong quarter and continue to make progress on key financial metrics across RTX.

Neil: RTX's adjusted sales of $19.8 billion were up 8%, and on an organic basis were up 10%.

Neil: By channel, commercial OE was up 19% as we continue to support aircraft demand. Commercial aftermarket was up 14% as domestic, international, and long-haul travel continues to grow.

Neil: And excluding the Raytheon cybersecurity divestiture, defense sales were up 7% as we execute on our backlog.

Neil G. Mitchill: Segment operating profit of $2.4 billion was up 19%, with growth at all three businesses contributing to consolidated segment operating margin expansion of 100 basis points. Adjusted earnings per share of $1.41 was up 9% from the prior year, driven by segment operating profit growth, as well as a lower share count, which was partially offset by expected headwinds from higher interest and tax expense and lower pension income.

Neil: Segment operating profit of $2.4 billion was up 19% with growth at all three businesses contributing to consolidated segment operating margin expansion of a hundred basis points.

Neil: Adjusted earnings per share of $1.41 was up 9% from the prior year, driven by segment operating profit growth, as well as a lower share count, which was partially offset by expected headwinds from higher interest and tax expense and lower pension income.

Neil G. Mitchill: On a gap basis, EPS from continuing operations was $0.08 and included $0.29 of acquisition accounting adjustments and $0.03 of restructuring and other significant non-recurring items. In addition, as it relates to the items Chris mentioned, GAP EPS also includes a $0.68 charge related to the expected resolution of several legacy legal matters and a $0.33 charge related to a fixed price development contract at Raytheon. With respect to the legal matters, we are working to finalize deferred prosecution agreements and a civil settlement with the DOJ and an administrative order with the SEC.

Neil: On a gap basis, EPS from continuing operations was $0.08 and included $0.29 of acquisition accounting adjustments and $0.03 of restructuring and other significant non-recurring items.

Neil: In addition, as it relates to the items Chris mentioned, GAP EPS also includes a $0.68 charge related to the expected resolution of several legacy legal matters and a $0.33 charge related to a fixed price development contract at Raytheon.

Speaker Change: With respect to the legal matters, we are working to finalize deferred prosecution agreements and a civil settlement with the DOJ and an administrative order with the SEC.

Neil G. Mitchill: These agreements will cover the previously disclosed investigations of defective pricing claims for certain legacy Raytheon Company contracts, which were entered into between 2011 and 2013 and in 2017. They will also cover the previously disclosed investigations of improper payments made by Raytheon Company and its joint venture, Thales Raytheon Systems, in connection with some Middle East contracts dating back to 2012. As a result, we recorded a pre-tax charge of $633 million in the quarter, which brings our total reserves associated with these matters to $959 million.

Speaker Change: These agreements will cover the previously disclosed investigations of defective pricing claims for certain legacy Raytheon company contracts which were entered into between 2011 and 2013 and in 2017.

Speaker Change: They will also cover the previously disclosed investigations of improper payments made by Raytheon Company and its joint venture, Thales Raytheon Systems, in connection with some Middle East contracts dating back to 2012.

Speaker Change: As a result, we recorded a pre-tax charge of $633 million in the quarter, which brings our total reserves associated with these matters to $959 million.

Neil G. Mitchill: In addition, we recorded a pre-tax charge of $285 million related to voluntarily disclosed Export Controls Compliance Matters primarily identified during the integration of Rockwell Collins and Raytheon Company into RTX, including matters which are expected to be addressed in a consent agreement with the Department of State. As part of the resolution of each of these three matters, we will be required to retain independent compliance monitors over the three-year term of the agreement.

Speaker Change: In addition, we recorded a pre-tax charge of $285 million related to voluntarily disclosed Export Controls compliance matters primarily identified during the integration of Rockwell Collins and Raytheon Company into RTX.

Speaker Change: including matters which are expected to be addressed in a consent agreement with the Department of State.

Speaker Change: As part of the resolution of each of these three matters, we will be required to retain independent compliance monitors over the three-year term of the agreements.

Neil G. Mitchill: And I'll take you through the other moving pieces of our outlook on the next slide. However, the financial impact of these items is higher than we had previously reserved. We believe the measures we have taken put these issues behind us financially, and we will continue to cooperate with the government and external monitors as we move forward. As it relates to the fixed-price development contract, as you know, we've been discussing the challenges we've been working through on this front for some time.

Speaker Change: In total, we expect to pay about $1 billion related to these matters this year, and I've incorporated that into our updated free cash flow outlook for the year. I'll take you through the other moving pieces of our outlook on the next slide.

Speaker Change: While the financial impact of these items is above what we had previously reserved, we believe the provisions we have taken put these issues behind us financially, and we will continue to cooperate with the government and external monitors as we move forward.

Speaker Change: As it relates to the fixed price development contract, as you know, we've been discussing the challenges we've been working through on this front for some time.

Neil G. Mitchill: In conjunction with that effort and an anticipated termination on one of our Raytheon programs with a foreign customer, we recorded a pre-tax charge of $575 million in the quarter. Again, we have incorporated the expected cash outflows into our revised free cash flow outlook for this year. But for the quarter, cash flow was robust with $2.2 billion of free cash flow that was driven by strong collections across the portfolio and some lower tax payments.

Neil G. Mitchill: We also continued our deleveraging in the second quarter and paid down another $750 million of debt, bringing our total debt repayment since the accelerated share repurchase was initiated last October to $2.7 billion. And we returned $867 million of capital to shareholders, primarily through dividends during the quarter. On the portfolio front, we're also pleased that Italy has approved the sale of Collins Actuation Business, and we continue to actively support the remaining efforts to complete the transaction.

Neil G. Mitchill: And as you may have also seen, we have entered into an agreement to sell Collins Hoist & Winch for over $500 million, another great example of the portfolio pruning we are doing to focus on our core franchise. Okay, turning to page six, let me share a few details on our updated outlook for the year. As you've seen, the first half performance across all three of our businesses has been strong, driven by end market demand and continued execution.

Neil G. Mitchill: There are, of course, a few areas we continue to monitor, including pockets of supply chain challenges, inflation, and the ongoing OE production rate uncertainty. But given the results to date, we are increasing our full-year adjusted sales outlook to between $78.75 and $79.5 billion, up from our prior range of $78 to $79 billion. And we now expect 8 to 9% organic sales growth for the year, up from our prior range of $7 to $8 billion.

Neil G. Mitchill: We're also increasing our adjusted EPS outlook by $0.10 on the low end and $0.05 on the high end, putting the new range at $5.35 to $5.45, up from $5.25 to $5.50. The improvement is driven primarily by lower interest and corporate expenses, higher pension income, and a lower full-year effective tax rate.

Speaker Change: Improvement is driven primarily by lower interest and corporate expenses higher pension income and a lower full year effective tax rate.

Neil G. Mitchill: We have included the corresponding updated outlook for these metrics in the appendix of our webcast slides. On free cash flow, as I mentioned earlier, we've incorporated our expected cash outflows associated with legal and contract matters into our outlay. Partially offsetting these impacts is some improvement in current year tax payments of roughly $500 million.

Speaker Change: We have included the corresponding updated outlook for these metrics in the appendix of our webcast slides.

Speaker Change: On free cash flow as I mentioned earlier, we've incorporated our expected cash outflows associated with the legal and contract matters into our outlook parse.

Speaker Change: Partially offsetting these impacts is some improvement in current year tax payments of roughly $500 million.

Speaker Change: All in we have updated our free cash flow outlook to be approximately $4 7 billion compared to our previous expectation of approximately $5 7 billion with that let me turn it over to Nathan to talk you through our segment results and outlooks.

Nathan Ware: Sales were $7 billion in the quarter, up 10% on both an adjusted and an organic basis, driven by strength in commercial aftermarket, commercial OE, and defense. By channel, commercial aftermarket sales are up 12%, driven by a 16% increase in parts and repair, a 15% increase in provisioning, and a 9% decrease in mods and upgrades, with mods and upgrades coming off a difficult prior year compare that benefited from the 5G mandate. Commercially, sales for the quarter were up 10% versus the prior year, driven by growth in narrow-body, wide-body, and regional platforms, and defense sales were up 7% primarily due to higher volume. Adjusted operating profit of $1.15 billion was up $230 million, or 25% from the prior year, driven primarily by drop-through on higher commercial aftermarket volume, as well as higher defense and commercial low EVON.

Nathan Ware: Thanks, Neal starting with columns on slide seven.

Nathan Ware: Sales were $7 billion in the quarter up 10% on both an adjusted and organic basis, driven by strength in commercial aftermarket commercial OE and defense by channel commercial aftermarket sales were up 12% driven by a 16% increase in parts and repair a 15% increase in provisioning and a 9% decrease in mods and upgrades with modern.

Nathan Ware: Upgrades coming off a difficult prior year compare that benefited from the <unk> mandate.

Nathan Ware: Commercial OE sales for the quarter were up 10% versus the prior year driven by growth in narrow body wide body and regional platforms and.

Nathan Ware: And defense sales were up 7%, primarily due to higher volume.

Nathan Ware: Adjusted operating profit of 1.15 billion was up $230 million or 25% from the prior year, driven primarily by drop through on higher commercial aftermarket volume as well as higher defense and commercial OE volume.

Nathan Ware: Looking ahead on a full year basis, we now expect Collins sales to grow high single digits on both an adjusted and an organic basis, up from the prior range of mid to high single digits driven by continued strength in commercial air traffic and defense. And we continue to expect operating profit growth between $650 and $725 million versus 2020. Moving to Pratt & Whitney on slide eight, sales of 6.8 billion were up 19% on both an adjusted and organic basis, with sales growth across all three channels. Commercial lease sales were up 33% in the quarter, due to higher engine deliveries and a favorable mix in the large commercial engine business.

Nathan Ware: Looking ahead on a full year basis, we now expect Collins sales to grow high single digits on both an adjusted and organic basis up from the prior range of mid to high single digits, driven by continued strength in commercial air traffic and defense volume.

Nathan Ware: And we continue to expect operating profit growth between 650 and $725 million versus 2023.

Speaker Change: Shifting to Pratt <unk> Whitney on slide eight sales of $6 8 billion were up 19% on both an adjusted and organic basis with sales growth across all three channels.

Speaker Change: <unk> sales were up 33% in the quarter, a higher engine deliveries and favorable mix in the large commercial engine business.

Speaker Change: Commercial aftermarket sales were up 15% in the quarter driven by higher volume and favorable mix in both large commercial engine and Pratt Canada businesses.

Nathan Ware: Commercial aftermarket sales were up 15% in the quarter, driven by higher volume and a favorable mix in both large commercial engine and Pratt Canada business. And in the military engine business, sales are up 16%, primarily driven by higher sustainment volume across the F-135 and F-117 platforms. Adjusted operating profit of $537 million was up $101 million versus the prior year; drop through on higher commercial aftermarket volume and favorable mix, as well as favorable large commercial low-e mix, was partially offset by headwinds from large commercial low-e engine deliveries and the absence of a $60 million favorable prior year contract. Drop-through from higher military volume and favorable mix was more than offset by higher production costs and higher R&D and SG&A expenses Turning to Pratt's Foyer Outlook.

Speaker Change: And in the military engine business sales were up 16%, primarily driven by higher Sustainment volume across the F 135, and F 117 platforms.

Speaker Change: Adjusted operating profit of $537 million was up $101 million versus the prior year drop through on higher commercial aftermarket volume and favorable mix as well as favorable large commercial OE mix was partially offset by headwinds from large commercial OE engine deliveries and the absence of a $60 million favorable prior year contract matter.

Speaker Change: Drop through from higher military volume and favorable mix was more than offset by higher production costs and higher R&D and SG&A expenses.

Speaker Change: Turning to perhaps full year outlook, we now expect sales to grow mid teens on an adjusted Nonorganic basis up from our prior range of low double digits, driven by stronger military volume and higher commercial OE.

Nathan Ware: We now expect sales to grow mid-teens on an adjusted neurodegenerative basis, up from our prior range of low double digits driven by stronger military volume and higher commercial low-wage. And we continue to see adjusted operating profit growth between $400 and $475 million versus 2020. Now turning to Raytheon on slide 9, adjusted sales of $6.6 billion in the quarter were down 2% as a result of the cybersecurity divestiture completed in the first quarter.

Speaker Change: And we continue to see adjusted operating profit growth between 400 $475 million versus 2023.

Speaker Change: Now turning to Raytheon on slide nine adjusted sales of $6 6 billion in the quarter were down 2% as a result of the cyber security divestiture completed in the first quarter on an organic basis sales were up 4%, primarily driven by higher volume on land and air defense systems, including Patriot counter UAS programs and Stinger.

Nathan Ware: On an organic basis, sales were up 4%, primarily driven by higher volume on land and air defense systems, including Patriot, Counter UAS programs, and Stinger. Adjusted Operating Profit of $709 million was up $47 million versus the prior year, driven primarily by drop-through and higher volume, favorable mix, and improved net productivity, partially offset by the impact of the cybersecurity debacle. And Raytheon had $5 billion in bookings in the quarter, resulting in a backlog of $51 billion.

Speaker Change: Adjusted operating profit of $709 million was up $47 million versus the prior year, driven primarily by drop through on higher volume favorable mix and improved net productivity, partially offset by the impact of the cyber security divestiture.

Speaker Change: And Raytheon had $5 billion of bookings in the quarter, resulting in a backlog of 51 billion.

Christopher T. Calio: On a rolling 12-month basis, Raytheon's book-to-bill is $1.13 million. In addition to the SPI-6 award that Chris mentioned earlier, Raytheon also had $928 million in classified awards and a $393 million award from NASA to design, produce, and deliver four units that will provide advanced Earth observation. Looking ahead, we now expect Raytheon sales to grow by mid-single digits organically, up from the prior range of low to mid-single digits driven by improved material flow.

Speaker Change: On a rolling 12 month basis Raytheon's book to Bill is 113.

Speaker Change: In addition to the spy six award that Chris mentioned earlier, Raytheon also had $928 million of classified awards and a $393 million award from NASA to design produce and deliver four units that will provide advanced earth observation.

Speaker Change: Looking ahead, we now expect Raytheon sales to grow by mid single digits organically up from the prior range of low to mid single digits driven by improved material flow.

Speaker Change: As a result, we now expect raytheon's operating profit to grow between $125 and $200 million versus 2023 up from the prior range of between 100 and $200 million and this includes the impact from the cyber security divestiture.

Christopher T. Calio: As a result, we now expect Raytheon's operating profit to grow between $125 and $200 million in 2023, up from the prior range of between $100 and $200 million, and this includes the impact of the cyber security divestment. With that, I'll turn it back over to Chris to wrap things up. Okay, thanks, Nathan. I'm on slide 10.

Speaker Change: With that I'll turn it back over to Chris to wrap things up.

Operator: As you've heard today, our second quarter operating results were very strong, and we're confident in our updated outlook for the full year. But if you step back and just think of beyond 2024 and look at the long term for RTX, we've got the best position for franchise programs with the right content on the right platforms across commercial, aerospace, and defense. Our large and growing installed base will support significant commercial aftermarket growth for decades to come, and our industry-leading defense capabilities address the threats playing out across the global landscape.

Christopher T. Calio: Okay. Thanks, Nathan I'm on slide 10.

Christopher T. Calio: As you've heard today, our second quarter operating results were very strong and we're confident in our updated outlook for the full year.

Speaker Change: But if you step back and just think of beyond 2024 and look at the long term for RPX. We've got the best positioned franchise programs with the right content on the right platforms across commercial aerospace and defense, our large and growing installed base will support significant commercial aftermarket growth for decades to come and our industry, leading defense capabilities address the threats playing out across.

Christopher T. Calio: Global landscape.

Operator: With that, let's open the line for questions. Thank you. Ladies and gentlemen, in the interest of time and to allow for broader participation, you are asked to limit yourself to one question. To ask a question, you will need to press star 11 on your telephone.

Speaker Change: Alright with that let's open the line for questions.

Speaker Change: Thank you, ladies and gentlemen in interest of time and to allow for broader participation. You are asked to limit yourself to one question.

Speaker Change: Ask a question you will need to press star one on your telephone.

Peter J. Arment: And the first question comes from the line of... Peter Arment Omberg, Greta Armin-Johannesen, Thanks. Good morning, Chris, Neil, Nathan. Good morning. Hey Chris.

Christopher T. Calio: And our first question comes from the line of Pete.

Speaker Change: Peter Arment Baird.

Speaker Change: Your line is open.

Speaker Change: Hey, Thanks, Good morning, Chris Neal Nathan.

Christopher T. Calio: Morning, Chris.

Speaker Change: Nice results.

Christopher T. Calio: Nice results. I guess maybe just on the GTF fleet management plan... sounds like it is going according to plan or remains on track. But maybe if you just peel back the onion a little bit, I know you talked about some pacing, past about getting full life discs into the MRO shop. It sounds like the MRO capacity is going as planned, but maybe any kind of metrics or any color, you know, what you're seeing and any opportunities, or any of these metrics. Yeah, okay, Peter.

Speaker Change: Just I guess, maybe just on the DTF fleet management plan it sounds like.

Chris Neal: Everything is going according to plan and remains on track, but maybe if you could just peel back the enel a bit I know you talked about some pacing items in the past about getting full life dish into the MRO shops, and just kind of curious availability. It sounds like the MRO capacity is going as planned, but maybe any kind of metrics or any color, what you're seeing and any opportunities.

Speaker Change: Actually were any of these metrics might still be able to come into the left before 'twenty. Thanks.

Christopher T. Calio: Thanks. Thanks for the question. Let me take you through where things stand. As you noted, our key assumptions around AOGs, lingering turnaround time, shop visit mix between heavy and light, and customer compensation all remain consistent. And as I noted up front, our assumptions on the inspection fallout rates and the findings are all consistent or even better than we planned. So, there is good stability around the key assumptions. As you know, MRO output is the key enabler.

Speaker Change: Yes, Okay. Peter Thanks. Thanks for the question, let me, let me take you through where things stand.

Speaker Change: As you noted our key assumptions around Afg's lingering turnaround time shop visit mix between heavy and light and customer compensation, all remained consistent and as I noted upfront our assumptions on the inspection fallout rates and the findings are all consistent with or even better than we planned. So so good.

Speaker Change: Stability around the key assumptions.

Christopher T. Calio: And we're focused on improving the material flow, better processes in the shops, and we've added some capacity on this front. And again, we saw some good signs of progress here in the first half of the year. I mean, output was up 10 percent from Q1 to Q2, and first half output on the 1100 is up over 30 percent versus the first half of 2023. We continue to drive some output there, which is helpful. The key enabler, of course, for the MRO output is material.

Speaker Change: As you know MRO output is the key enabler.

Speaker Change: And we're focused on improving the material flow better processes in the shops and we've added some capacity on this front.

Speaker Change: And again, we saw some some some good signs of progress here in the first half of the year I mean output was up 10% from Q1 to Q2 and first half output on the 1100 is up over 30% versus the first half in 2023, we continue to drive some output there, which is which is helpful. A key enabler of course.

Speaker Change: On the MRO output is material you had mentioned that no upfront, we're continuing to see some some progress on structural castings structural castings are up about 5% sequentially and 14% year over year. So good progress there and then on on forgings powdered metal parts.

Christopher T. Calio: You mentioned that up front. We're continuing to see some progress on structural castings. Structural castings are up about 5 percent sequentially and 14 percent year over year, so good progress there. And then on forging, the powdered metal parts. We continue to drive output there, you know, as well. Isothermal forgings were up almost 100% year over year, and we continue to add additional capacity for inspection and machining.

Speaker Change: We continue to drive output there as well isothermal forgings were up almost 100% year over year and we continue to add additional capacity for inspection and machining. For example, we've nearly doubled our sonic inspection capacity for the year. So again.

Christopher T. Calio: For example, we've nearly doubled our sonic inspection capacity for the year. So again, driving on all the key enablers, Peter, to try to get this fleet in as good a shape as we possibly can. Also, just note, sort of unrelated to the fleet management plans, continued to drive OE output, you know. OE deliveries were up, you know, sequentially up 30% in the first half on a year over year basis despite sort of grinding through some of the supply chain portabilities.

Speaker Change: Driving on all the key enablers Peter to try to get this fleet in as healthy a shape as we possibly can also just note sort of unrelated to the fleet management plans continue to drive OE output as well OE deliveries were up sequentially up 30% in the first half on a year over year basis, despite sort of grinding through some of the supply.

Speaker Change: Chain probabilities and we're also pleased with the additions to the GTS backlog that were announced at Farnborough recently, so again focusing on what we can control on the fleet management plan and continuing to drive both supply chain and new orders into the backlog.

Christopher T. Calio: And we're also pleased with the additions to the GTS backlog that were announced at Farm Bureau recently. So again, focusing on what we can control on the fleet management plan and continuing to drive both the supply chain and new orders into the backlog. I appreciate all the details.

Speaker Change: I appreciate all the detail thanks, Chris.

Speaker Change: Thank you.

Robert Alan Stallard: And our next question comes from the line of Robert Stallard from Vertical Research. Robert Stallard, your line is open. [inaudible] Chris, following on the GTF theme, I was wondering if you could comment on what the situation is with Airbus and their recent forecast cut, because they've clearly not been..., https://www.youtube.com/accenture.com Yep. Thanks, Rob. So, Again, you heard me say just a minute ago to Peter that ROE deliveries are up sequentially and up in the first half of the year, 30% on a year-over-year basis.

Speaker Change: And our next question coming from the line of Robert Stone.

With vertical.

Speaker Change: <unk> research <unk> your line is open.

Robert Alan Stallard: Thanks, so much good morning.

Rob: Morning, Rob.

Chris: Chris following on on the GTS theme I wondered if you could comment on what the situation is with Airbus and that recent forecast cut because they've been getting as many new engines as anticipated. So those engines instead of going to the spare engine pool. Thank you.

Rob: Yes, thanks, Rob.

Rob: So.

Speaker Change: Again, you heard me say just a minute ago.

Peter that Roe deliveries.

Speaker Change: Are up sequentially and up first half of the year of 30% on a year over year basis.

Robert Alan Stallard: We're not necessarily where we need to be with Airbus, but again, we're seeing strong growth sequentially and year-over-year. And our outlook reflects our assessment of kind of where Airbus, you know, needs support from us. And we're aligned on, you know, what they need. You alluded to the fact that we're balancing both OE and spare engines and materials, and that's true. And we need to do that for the support of the fleet.

Speaker Change: Not necessarily where we need to be with with Airbus, but again, we're seeing strong growth sequentially and year over year and our outflow outlook reflects our assessment of kind of where Airbus need support from us and we're aligned on what they need you alluded to the fact that we're balancing.

Speaker Change: In both OE and spare engine and material and Thats true and we need to do that for the support of the fleet, but again I continue to be encouraged by what we continue to drive in terms of production and getting Airbus what they need and I think in the back half we're going to continue to balance the OE spare engine and MRO needs.

Christopher T. Calio: But again, I continue to be, you know, encouraged by what we continue to drive in terms of production and getting Airbus what they need. And I think in the back half, we're going to continue to balance the OE spare engine and MRO needs, but I think we'll be in a position to get Airbus what they need. Thank you. And our next question comes from the line of Myles Walton from Wolf Research. Myles Walton, your line is open.

Speaker Change: But I think we'll be in a position to get Airbus what they need.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Myles Walton on Wolfe Research Myles Walton Your line is open.

Myles Alexander Walton: Thanks. Good morning. Chris or Neil, I'm not sure which, on the defense side and on Raytheon, could you maybe dig a little bit into what are the problem programs still remaining? You could be a percentage of revenue if that's where you want to handle it or the backlog. And then specifically this decision to sort of proactively, you know, cut losses and terminate the contract, not an easy decision, but are there other contracts where you could differentiate similarly, or would that cause customer distress, and lastly, was there cash? Yeah, thanks, Myles. I'll start, and then Neil can certainly chime in.

Myles Alexander Walton: Thanks, Good morning.

Speaker Change: Chris or or Neil Im not sure which.

Myles Alexander Walton: The defense side and on Raytheon could you maybe dig a little bit into what are their problem programs still remaining.

Speaker Change: You may be a percentage of revenue, if that's where you want to handle it or or backlog and then specifically to this decision to sort of proactively.

Speaker Change: Cut losses, and terminate the contract not an easy decision but.

Speaker Change: Are there other contracts where you could.

Speaker Change: Extinguished similarly, or would that cause customer distress and lastly was there a cash impact too.

Christopher T. Calio: Certainly not an easy decision, but we've been alluding to the fact that we have had a significant classified program out there that was, we would say, not in our wheelhouse, meaning the work that we had taken on, and this contract was pre-formation of RTX, was not within our core competency. And we struggled with that, and we struggled to get to the right technical solutions, and ultimately came to a point where we just didn't think it was productive anymore to continue to go down this path, and ultimately decided it was in the best interest of us and the customer to just kind of do a reset here and allow us to go focus our resources on some of the other programs that we've got.

Speaker Change: Yeah. Thanks, Myles I'll start and then Neill can certainly chime and certainly not an easy decision.

Speaker Change: But we've been alluding to the fact that we've had a significant classified program out there that was what we would say not in our wheelhouse, meaning the work that we had taken on in this contract was pre formation of RPX.

Speaker Change: Does not within our core competency and we struggled with that and we struggled to get to the right technical solutions and ultimately came to a point, where we just didn't think it was productive anymore to continue to go down this path and ultimately decided it was in the best interest of us and the customer to just kind of do a <unk>.

Speaker Change: Reset here and allow us to go focus our resources on some of the other programs that we've got you had mentioned a handful of other I'll call them classified development fixed price development programs.

Christopher T. Calio: You mentioned a handful of other, I'll call them classified development, you know, fixed price development programs that we've been talking about. I would say those are much different in terms of risk profile than the one we took action on here. Those have some important milestones here in 24 and in 25, but we feel like we've got a much better handle on those than the one we're talking about here and feel like we understand the risks much better there and what needs to be done to get them to closure.

Speaker Change: That we've been talking about I will say those are much different in terms of risk profile than the one we took action on here.

Speaker Change: Those have some important milestones here in 'twenty four and in 25, but we feel like we've got a much better handle on those than the one we're talking about about here.

Speaker Change: And feel like we understand the risks much better there and what needs to be done to get them to closure.

Neil G. Mitchill: And just to add, Myles, in terms of the cash flow impact. So, you know, as I sit here today, there's really just a few changes that we've made to our 24-month outlook. The first is about a billion dollars related to legal matters.

Speaker Change: And just to add Myles in terms of the cash flow impacts so.

Myles Alexander Walton: As I sit here today, there is really just a few changes that we've made to our 24 outlook first is about $1 billion related to the legal matters.

Neil G. Mitchill: We sold about a half a billion dollars related to the contract matter that Chris just was talking about, and offsetting that is about a half a billion dollars of improvement that we've seen operationally in our tax payments due to some planning that we've done. So net net, that's a billion dollars. And I would expect that that mostly sits in the fourth quarter of this year. It'll depend on when we get the final resolutions with the government agencies, but that's trending towards, you know, certainly late September or early in the fourth quarter. Thanks for the call. And our next question comes from the lineup, Sheila Kahyaoglu from Jeffries. Sheila, your line is open.

Myles Alexander Walton: <unk> sold about a half a billion dollars related to the contract matter that Christian was talking about and offsetting that is about a half of $1 billion of improvement that we've seen operationally in our in our tax payments due to some planning that we've done so net net that's a $1 billion and I would expect that that mostly sits in the fourth quarter of this year.

Myles Alexander Walton: It will depend on when we get the final resolutions with the government agencies, but thats trending towards certainly late September or early in the fourth quarter.

Speaker Change: Thanks for the color.

Myles Alexander Walton: Yes.

Sheila Karin Kahyaoglu: Thank you and our next question coming from the line of Sheila <unk>.

Speaker Change: From Jefferies. Your line is open.

Sheila Karin Kahyaoglu: Good morning, guys, and thank you. So Neil, maybe another one for you.

Sheila: Morning, guys and thank you.

Sheila: Good morning.

Speaker Change: Maybe another one for you just now youre going to do about $7 4 billion of net income last year, and I know that for both us and generate four seven of cash.

Neil G. Mitchill: Just, you know, you're going to make about $7.2 billion of net income this year on an adjusted basis and generate $4.7 of cash. Some of that is one-time items with the DOJ, the Powder Metal, and PACS. So how do we think about that gap closing on net income through cash flow? And then just on the DOJ, can you elaborate a little bit more on how we think about that, its outcomes, and the cash impact outside of 24?

Speaker Change: That is one time item, let full DHA powder metal and tax, though how do we think about that gap closing on net income cash flow and then just on the Dr. Joel can you elaborate a little bit more how we think about that.

Speaker Change: It comes of it and that cash impact outside of Tony Boor.

Neil G. Mitchill: Sure, let me start with free cash flow. You just heard me talk about some of the changes that we rolled into our outlook for the year. As I think about the absolute value of the $4.7 billion, remember that it includes a couple of non-recurring items that are pretty substantial. And if you adjust for those things, you kind of get to a $7, $7.5 billion, maybe even higher level of free cash flow that is operational.

Speaker Change: Sure let me start with free cash flow you just heard me talk about sort of the changes that we rolled into our outlook for the year.

Speaker Change: As I think about the absolute value of the $4 7 billion remember that includes.

Speaker Change: A couple of nonrecurring items that are pretty substantial and if you adjust for those things.

Speaker Change: To get to a $7 $7 5 billion, maybe even higher.

Speaker Change: Level of free cash flow that is operational.

Speaker Change: So I think as we look forward Sheila.

Neil G. Mitchill: So I think as we look forward, Sheila, and we get the powder metal payments behind us this year and next year, just a little color so far, we're a little less than $200 million into our $1.3 billion in powder metal outflows this year. We expect that, obviously, to obviously ramp up. You heard us talk about doubling the number of customers that we've got agreements with and about two-thirds of the fleet under agreement. So I would expect the third and fourth quarters to kind of be split pretty evenly with respect to the rest of the payments this year.

Speaker Change: And we get the powder metal payments behind us this year and next year, just a little color. So far we're a little less than $200 million into our $1 3 billion and powder metal outflows. This year, we expect that obviously ramp up you heard us talk about doubling the number of customers that we've got agreements with and about two thirds of the fleet under our.

Speaker Change: So I would expect third and fourth quarter kind of be split pretty evenly.

Speaker Change: With respect to the rest of the payments this year, but if you look at the underlying operations you can see that there is real strong organic sustainable cash flow and I think thats one.

Neil G. Mitchill: But if you look at the underlying operations, you can see that there's real strong, organic, sustainable cash flow. And I think that's what we'll be, you know, looking to see sustain itself over time. Now, in particular, there's some working capital improvement. I've talked about $1.1 billion of improvement year over year and arriving at our $4.7 billion. Obviously, inventory was a use of cash in the first half.

Speaker Change: We will be.

Speaker Change: Looking to see sustained itself over time now in particular, there's some working capital improvement I've talked about like $1 $1 billion of improvement year over year in arriving at our $4 7 billion, obviously inventory was a use of cash in the first half.

Speaker Change: While we expect that to turnaround in the second half, which is typical for our business. We've got a little bit of headwind from the OE production rates that we've contemplated in that but we are seeing stronger collections on the customer side. So that balances for the rest of this year. So that's how I would characterize the free cash flow situation today as it relates to.

Neil G. Mitchill: So that's how I would characterize the free cash flow situation today. As it relates to the DOJ and the outcomes, you know, I think we feel very certain about the amount of cash impact that's going to happen this year. As we talked about in our prepared remarks, you know, we've reached agreements in principle. There's some work to do to get that finalized with the various government agencies. That could take a few months, but when it happens, it'll get filed and be available publicly. And then shortly thereafter, we'll be required to make the payments associated with that. There's very little that lingers beyond that.

Speaker Change: The Doj and the outcomes.

Speaker Change: I think we feel very certain about the amount of cash impact that's going to happen this year.

Speaker Change: As we talked about in our prepared remarks, we've reached agreements in principle. There is some work to do to get that finalized with the various government agencies that could take a few months.

Speaker Change: But when it when it happens that will get filed and be available publicly and then shortly thereafter will be required to make the payments associated with that there's very little that lingers beyond that I'd say, it's in <unk>.

Neil G. Mitchill: I'd say it's in the, you know, $50 million a year kind of range following 2024. So it's manageable. Those costs will include some residual payments on the global trade-related consent agreement, as well as some internal costs that we'll obviously invest in to continue to improve our processes as we support the monitor activity. So, you know, I would leave it at that for now with those items. Cool. Thank you.

Speaker Change: <unk> million dollars, a year kind of range.

Speaker Change: Following 2024, so it's manageable.

Speaker Change: Those costs will include some residual payments on the global trade related consent agreement as well as some internal cost that will obviously invest in to continue to improve our our processes as we support the monitor activities. So I would I.

Speaker Change: I would leave it at that for now with those items.

Speaker Change: Thank you.

Neil G. Mitchill: Thank you. And our next question comes from the line of Doug Harned from Bernstein. Doug Harned, your line is open. Thank you. Good morning.

Speaker Change: Next question coming from the line of Doug Harned from Bernstein. Your line is now open.

Speaker Change: Yes.

Douglas Stuart Harned: Thank you and good morning.

Douglas Stuart Harned: Good morning, Doug. What we've, you know, what you've talked about and what we've heard as well is that, you know, your shop on the GTF, a lot of the shop visit times, you've brought that down significantly, the time in the shop, which is great. And so, presumably, this is with improved parts availability that's allowed you to do that. And I know in Q1, you did divert resources away from B2500 work in order to better enable you to provide GTF parts. And so, two things on this. First... And where do you stand now on D2500 MRO? Is that kind of back to normal?

Douglas Stuart Harned: Good morning, Doug.

Douglas Stuart Harned: Glenn.

Speaker Change: What we've what you've talked about and what we've heard as well.

Speaker Change: Do you shop on the DTF that a lot of the softness at times.

Speaker Change: Got that down significantly the time time in the shop.

Speaker Change: Which is great and so presumably this is with improved parts availability. That's allowed you to do that and I know in Q1, you did divert resources away from <unk>.

Speaker Change: 2500 work in order to better enable you to provide CTF parts.

Speaker Change: Two things on this.

Speaker Change: I guess first.

Speaker Change: And where do you stand now on the 2500 MRO is that kind of back to normal and then.

Speaker Change: Second even though.

Speaker Change: The shop visit times seem to have come down significantly everything we've seen is that <unk>.

Speaker Change: Induction wait times are still quite long and perhaps if you could address those two issues that would be really helpful.

Neil G. Mitchill: And then second, even though those shop visit times seem to have come down significantly. Everything we've seen is that. Induction wait times are still quite long, and perhaps, you know, if you could address those two issues, it would be really helpful. Doug, let me start on the V2500, then I'll hand it over to Chris to talk a little bit about the GTF induction times and turnaround times. On the V2500, on a first-half basis, we're at about 369 inductions to date.

Douglas Stuart Harned: Doug Let me start on the V. 2500, then I'll hand, it over to Chris to talk a little bit about the DTF induction times and turnaround times on the V 2500 on a first half basis. We're at about 369 deductions to date. So we had talked about 800 on a full.

Neil G. Mitchill: So we had talked about 800 on a full-year basis, and we expect that – we still expect that to continue. I guess the good news there is that, with that acceleration, not only are we seeing an increase in the number of shop visits in the second half of the year, but we're also seeing more work scope. So these are heavier overhauls.

Douglas Stuart Harned: Year basis, and we expect that.

Douglas Stuart Harned: We still expect that to continue and I guess the good news there is that with.

Speaker Change: With that acceleration not only are we seeing an increase in the number of shop visits in the second half of the year. We're also seeing.

Chris: More work scope. So these are heavier overhauls and all of that will contribute to the second half growth that we'll expect to see coming from Pratt Whitney, particularly in the aftermarket so the second half story for <unk>.

Neil G. Mitchill: And all of that will contribute to the second-half growth that we'll expect to see coming from Pratt & Whitney, particularly in the aftermarket. So the second-half story for Pratt's, you know, operating outlook is really focused around what we call the mature commercial engines, the V2500 being the biggest part of that. So that's where we sit today on that front. Chris, maybe a couple comments on GTF. Yeah,

Chris: Operating outlook is really.

Douglas Stuart Harned: Focused around what we call the mature commercial engines to be 2500 being the biggest part of that so that's where we sit today on that front, Chris maybe a couple of comments on GTS, yes, yes, and before I do that I'll just say.

Christopher T. Calio: And before I do that, Doug, I'll just say, on the V, I mean, obviously, our customers are relying heavily on that, given the other stress in the fleet. And so we're heavily focused on making sure that, you know, V inductions, turnaround times, and whatnot, that the support is there for the customer base. On the GTF MRO, you're right. In the shop, when we've got material flowing, when we've got material in the right positions at gate two and gate three, we are seeing a significant reduction in shop turnaround time, both for our shops and our partners, which is really encouraging. The induction times are really a function of what we would call the parking lot.

Chris: On the <unk>.

Chris: Obviously, our customers are relying heavily on that giving given the other stressed in the fleet. So we're heavily focused on making sure that.

Chris: <unk> inductions turnaround times and whatnot, but the support is there for the customer base.

Chris: On the GTS MRO Youre right.

Chris: In the shop, when we've got material flowing when we've got material in the right positions in gate to engage three we are seeing significant reduction in sharp turnaround time, both our shops and and our partners, which is really encouraging.

Chris: The induction times are really a function of what we would call the parking lot.

Christopher T. Calio: So there are a lot of engines that came off the wing, obviously, when the AD hit, and people did some of that proactively. So we are still working through a large parking lot of engines that need to get inducted into the shop. But again, we're encouraged by what we're seeing when the material is there, which is why we're so heavily focused on making sure the supply chain is healthy. You heard me talk about structural castings and isothermal forgings.

Speaker Change: Lot of engines that came off wing, obviously when the.

Speaker Change: When the <unk> hit and people did some of that proactively. So we are still working through a large parking lot of engines that need to get inducted into the shop, but again, we're encouraged by what we're seeing when the material is there which is why we're so heavily focused on making sure. The supply chain is healthy you heard me talk about structural cash.

Speaker Change: Things isothermal forgings. These are the things that are going to be the biggest unlock for us as we take the numbers down and support our customers.

Christopher T. Calio: These are the things that are going to be the biggest unlock for us as we take the AOG numbers down and support our customers. Very good. Thank you. Our next question, coming from the line-up, Ronald Epstein from Bank of America. Ronald, you're on the line. Hi, good morning. This is Samantha Styro on behalf of Ron Epstein.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Ronald Epstein from Bank of America. Your line is now open.

Ronald Jay Epstein: I was wondering if you could talk a little bit about Collins, particularly the interiors, kind of what they're doing and what your expectations are there. Thank you. Good morning, Samantha. How are you doing?

Speaker Change: Hi, Good morning, this is Samantha styron or Ron Epstein.

Samantha Styron: Wondering if you could talk a little bit about Collins, particularly interiors kind of what theyre doing and what your expectations are there. Thank you.

Neil G. Mitchill: Let me start there. I mean, we're seeing, you know, significant improvement in the interiors business. And frankly, the second half story for Collins is going to rely substantially on the aftermarket uptick there in mods and upgrades. And, you know, the one thing I would say about the Collins portfolio of businesses is that we've seen really strong performance across all the segments, the SPU segments there. And many of them are at or above, and frankly, above where we were in 2019. Interiors is the one place where we're still lagging.

Speaker Change: Good morning, Samantha How're you doing let me let me start there I mean, we're seeing.

Speaker Change: Significant improvement in the interiors business.

Speaker Change: And frankly, the second half story for Collins is going to rely substantially on the aftermarket uptick there.

Speaker Change: And mods and upgrades and.

Speaker Change: The one thing I would say about the Collins portfolio of businesses as we've seen really strong performance across all the segments.

Speaker Change: SBU segments, there and many of them are at or above and frankly above where we were in 2019 interiors is the one place where we're still lagging so.

Neil G. Mitchill: So we're encouraged by the orders we are seeing there, and we do expect that to translate to substantial growth in the second half of this year that's going to be driving a substantial part of Collins aftermarket year over year. Thank you. And our next question comes from the line of Seth Seifman from J.P. Morgans. That line is open. Hey, thanks very much. And good morning.

Speaker Change: We're encouraged by the orders we are seeing there and we.

Speaker Change: We do expect that to translate to substantial growth in the second half of this year, that's going to be driving.

Speaker Change: A substantial part of Collins aftermarket year over year.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of this time.

Speaker Change: <unk> from J P. Morgan Stanley. Your line is now open.

Seth Michael Seifman: Chris and Neil, I wonder if you could address the free cash flow target for next year, kind of talk about whether you feel like that still stands in the areas of risk, areas of opportunity, and kind of your level of confidence. Yeah, thanks for the question. You know, right now, Seth, we don't see a reason to change the outlook.

Speaker Change: Hey, thanks, very much and good morning.

Chris: Chris I Wonder if you could address the free cash flow target for next year kind of talk about whether you feel like that still stands areas of risk areas of opportunity and kind of your level of confidence.

Speaker Change: Yes, thanks for the question.

Speaker Change: Right now said, we don't see a reason to change the outlook the fundamental business drivers remain strong on both the commercial and defense sides. Our end markets have proven pretty resilient and demand remains strong as we set we set upfront I think like everybody else. There are several items that were tracking that have 2025 implications zinc.

Christopher T. Calio: The fundamental business drivers remain strong on both the commercial and defense sides. Our end markets have proven pretty resilient, and demand remains strong, as we said up front. I think, like everybody else, there are several items that we're tracking that have 2025 implications. Think OE rates. Got to continue to see the strength, you know, in the aftermarket. That's a big part of the cash, you know, walk in 2025.

Speaker Change: OE rates kind of continue to see the strength in the aftermarket that's a big part of the of the cash.

Speaker Change: Work in 2025 and of course the supply chain.

Christopher T. Calio: And of course, the supply chain. I mean, you just heard me talk about the sequential improvements and the stability we're seeing, but that's got to continue, you know, to ramp up. But again, I still feel like the 2025, you know, cash goal here is achievable based on everything we see today, both within our four walls and the macro environment. Great. Thank you very much. And our next question, coming from the lineup, is from Kristine Liwag from Morgan Stanley. Kristine Liwag, your line is open.

Speaker Change: You just heard me talk about the sequential improvements in the stability, we're seeing but that's got to continue to ramp.

Speaker Change: Still feel like the 2025 cash.

Speaker Change: Our goal here is achievable based on everything we see today, both within our four walls and the macro environment.

Speaker Change: Okay. Thank you very much.

Speaker Change: Sure.

Christian <unk>: And our next question coming from the line of Christian <unk> from Morgan Stanley. Mr. Lewis. Your line is now open.

Kristine Liwag: Hey, good morning, Chris, Neil, and Nathan. I'll meet you back with Pratt. You know, you guys have highlighted that isothermal forgings are getting better. You're seeing doubled capacity increases in sonic inspections, which are all good. But, you know, structural castings, you know, continue to be an issue. Can you provide more color on why structural casting continues to linger?

Christian: Good morning, Chris Nathan I'll, maybe back with Pratt.

Speaker Change: I've highlighted the isothermal forgings or getting better youre seeing doubled capacity increases in sonic inspections, which are all good.

Scott Shaw: Scott Shaw castings continue to be an issue can you provide more color on why structurally structural casting continues to linger and then also I mean look this historically has been one of the bottlenecks the previous aerospace ramp ups. So I guess how is your approach different this time around to mitigate.

Christopher T. Calio: And then also, I mean, look, this historically has been one of the bottlenecks for previous terrorist-based ramp-ups. So I guess, you know, how is your approach different this time around to mitigate risk? And any color you could provide on the underlying tightness would be helpful.

Speaker Change #109: Risks and any color you could provide of the underlying tightness there would be helpful.

Christopher T. Calio: Sure, thanks, Kristine. And you're right, structural castings have been a habitual sort of constrained, you know, value stream, even since the beginning of the ramp up, you know, back in the 16-17 timeframe. While we've seen, you know, some improvement here, I mentioned up 5% sequentially, it needs to be higher than that in order to continue to meet the demands of both OE to the air framers, spare engines, and MRO. So again, while we're seeing sort of positive incremental improvement, it needs to continue to grow. And the reason it's constrained is because there are, you know, very few people that do this.

Speaker Change: Sure, Thanks, Christine and Youre right structural castings has been.

Speaker Change: <unk> sort of constrained.

Speaker Change: <unk> stream, even since the beginning of the ramp up back in the 16 17 timeframe.

Speaker Change: While we have seen.

Speaker Change: Some improvement here I mentioned up 5% sequentially it needs to be higher than that in order to continue to meet the demands of both OE to the air framers.

Speaker Change: Spare engines and and MRO. So again, while we're seeing sort of positive incremental improvement it needs to continue to grow and the reason it's constrained is because there are.

Christopher T. Calio: And a lot of us in the industry rely on the same players. And so we're all ramping up around the same time. To your point about what we're doing, you know, differently, I would say we're really working hard on making sure that our demand signal is crystal clear, that people know we need both from an OE but also an MRO perspective. And then getting on LTAs, you know, as quickly as we can, so that we can, you know, make sure that again, the supply chain knows what we need, when we need it, and that they can make the necessary investments to deliver.

Speaker Change: Very few people that do this in a lot of us in the industry rely on the same players and so we're all ramping up around the same time to your point about what we're doing.

Speaker Change: Currently I would say, we're really working hard on making sure that our demand signal is crystal clear that people know what we need both from an OE, but also an MRO perspective.

Speaker Change #100: Then getting on LTE as.

Speaker Change: As quickly as we can so that we can make sure that again supply chain knows what we need when we need it and that they can go make the necessary investments to deliver.

Christopher T. Calio: One thing I would add there too is that, you know, we've deployed a lot of our own people to these suppliers to help sort through the assessments that are required around the inspection criteria. As you know, these are parts that are built to extremely tight tolerances, and it's important to have our engineering teams working collaboratively with the supply base to make sure that we can clear those items as they come through the production process. And that's been something that I think we've put a lot of effort into over the last couple of years, frankly, but we've ramped that up recently.

Speaker Change: One thing I would add there too is that we have forward deployed a lot of our own people to the suppliers.

Speaker Change: To help sort through the assessments that are required around inspection criteria. As you know these are parts that are built to extremely tight tolerances.

Speaker Change: And it's important to have our engineering teams working collaboratively with the supply base to make sure that we can.

Speaker Change: Clear those items as they come through the production process and that's been something that I think we've put a lot of effort into over the last.

Speaker Change: A couple of years, frankly, but we've ramped up recently.

Speaker Change #105: Great. Thank you.

Speaker Change #111: Thank you.

Christopher T. Calio: Great, thank you. The next question coming from the line-up is from Cai Van Rumohr from TD Cowen. Cai Van Rumohr, your line is open. Thanks so much. So, operations look good at the platen columns in the quarter, sales beat, margins beat, and you've increased sales for the year, but you basically didn't touch profit. Is that conservative? Or are you assuming? I mean, it looks like in Collins the margins are the same, or basically a little bit lighter in the second half? Second quarter.

Speaker Change #107: Our next question coming from the line up.

Colin: From a from TD Colin.

Speaker Change #101: Your line is now open.

Colin: Thanks, so much so good morning, good morning.

Colin: Operations look good patent columns in the quarter sales the margins be.

Speaker Change #104: And you've increased sales for the year, but you basically didn't touch profit.

Colin: Collins is that conservative or youre, assuming I mean, it looks like and columns. The margins are the same.

Speaker Change #108: A little bit lighter in the second half than the second quarter.

Speaker Change #112: Give us some color on that if you could.

Cai von Rumohr: Give us some color. Hi Kai. Thanks for the comments. Overall, you know, we're pleased with the first half results, as you kind of outlined there, and we've updated our full year guide to reflect that, you know, strong top-line growth. When we think about, you know, the segments and what's going on there, there are some headwinds. We've got some higher product costs, primarily in the defense pieces of Pratt & Collins. We've got a little bit of underabsorption with some of the lower OE rates, and we've seen some higher, you know, R&D.

Cai: Hi, Cai.

Cai: Thanks for the comments.

Speaker Change #103: Overall, we're pleased with the first half results as you kind of outlined there and we've updated our full year guide to reflect that strong topline growth when we think about.

Speaker Change #121: The segments and what's going on there there are some some headwinds we've got some higher product costs, primarily in the defense pieces of Pratt and Collins.

Speaker Change #121: That's a little bit of under absorption with some of the lower OE rates and we've seen some higher E&E, we have offset some of those headwinds with some below the line items such as.

Cai von Rumohr: Now we have offset some of those headwinds with some below-the-line items, such as, you know, corporate spending, and reductions in tightening. So there are a few moving pieces here, but we've got good momentum as we enter the second half of the year, and we're confident in the updated outlook. Thanks, Chris.

Speaker Change #103: Corporate spending reductions and tightening.

Speaker Change #103: So there are a few moving pieces here, but we've got good momentum as we enter the second half of the year and we're in we're confident in the updated outlook.

Christopher T. Calio: Let me add a little bit, Cai, in terms of the top line, maybe some perspective on the moving pieces. You know, we took up our sales by $750 at the low end, $500 at the high end. So think about the midpoint, obviously $625. If you break that down, I would put, you know, $500 million of that is within the Pratt & Whitney business. It's really two pieces of that.

Speaker Change #103: Thanks, Chris let me add a little bit Kai.

Kai: In terms of the topline maybe some perspective on the moving pieces you saw that we took up our sales $7 50 at the low end 500 at the high end. So think about the midpoint. Obviously 625, if you break that down I would put.

Speaker Change #103: $500 million of that is within the Pratt and Whitney business.

Speaker Change #103: There's really two pieces of that about $400 million of that 80% is in the military business, we saw really strong material inputs.

Neil G. Mitchill: About $400 million of that, 80%, is in the military business. We saw really strong material inputs, particularly supporting the F-135 and F-117 aftermarket. We dropped that. And the rest is slightly higher OE. You saw the numbers we had in the first and second quarter.

Speaker Change #103: Particularly supporting the F 35 in FY 2017, aftermarket we dropped that through.

Speaker Change #114: And the rest is slightly higher OE you saw the numbers, we had in the first and second quarter and so we're seeing good mix and we're letting that flow through to the full year as well as Chris mentioned the <unk>.

Neil G. Mitchill: And so we're seeing a good mix, and we're letting that flow through to the full year as well. As Chris mentioned, you know, on the profit side of Pratt, we're seeing higher production costs. Again, particularly on the military side of the business, as we burn down the F-135 contract and a little bit of higher R&D spending supporting the continued certification of the GTF Advantage and obviously the powder metal-related things. At Collins... You know, we also took that guide up a little bit, you know, high single-digit, you know, think seven to 8% higher end of the range that we were at before. That's about $100 million in sales.

Chris: Profit side of Pratt, we're seeing higher production costs again, particularly in the military side of the business as we as we burn down the F 35 contract at a little bit of higher R&D spending supporting the continued certification of the GTS advantage.

Speaker Change #114: Obviously, the powder metal related things.

Speaker Change #113: At Collins.

Speaker Change #103: We also took that guide up a little bit.

Speaker Change #103: High single digit 7% to 8%.

Speaker Change #103: Here end of the range that we're at before.

Speaker Change #148: That's about $100 million of sales and as I think about that.

Neil G. Mitchill: And as I think about that, you know, it's a couple hundred million, maybe three points lower on the commercial OE side; we've taken our rates down on the Boeing side in particular. But offsetting that, or more than offsetting that is, you know, the aftermarket and the military side of Collins as well. So about a one point increase on the commercial aftermarket and two points on defense. Um, you know, just to kind of round it out at Raytheon, we now see, you know, solid flat, if you will, organically up mid single digits. It's about $50 million.

Speaker Change #103: It's a couple hundred million dollars, maybe a three points lower on the commercial OE side, we've taken our rates down on the on the Boeing side in particular.

Speaker Change #103: But offsetting that are more than offsetting that.

Speaker Change #103: The aftermarket and the military side of Collins as well so on a one point increase on the commercial aftermarket two points on defense.

Speaker Change #106: Just to kind of round it out at Raytheon, we now see solid flat. If you will organically up mid single digits, it's about $50 million or slightly higher eliminations at the corporate level.

Neil G. Mitchill: There are slightly higher eliminations at the corporate level. Um, you know, we're going to kind of hold as a placeholder what we saw in the second quarter for the rest of the year, a lot more intercompany activity between Collins and Pratt and Collins and Raytheon there. So again, you know, we're early; we're encouraged by the first half results on the profit side, but certainly on the top end, we're seeing a trend towards the top end of our prior ranges, taking them up slightly here. And of course, if there's more, you'll see that in the results. I want to kind of see another quarter play out.

Speaker Change #106: We're going to kind of hold as a placeholder what we saw in the second quarter for the rest of the year a lot more intercompany activity between Collins, and Pratt and Collins and Raytheon there so again.

Speaker Change #106: We're early we're encouraged by the first half results on the profit side, but certainly on the top and we're seeing a trend towards the top end of our prior ranges taking them up slightly here and of course, if theres more youll see that in the results I want to kind of see another quarter play out.

Neil G. Mitchill: Terrific, thank you very much. You're welcome. Thank you. And our next question, coming from the line of Jason Gursky from Citi. Jason Gursky, your line is open. Great. Thank you. And good morning, everybody. And Nathan, welcome to the call.

Speaker Change #125: Terrific. Thank you very much.

Speaker Change #106:

Speaker Change #106: Thank you and our next question coming from the line of Jason Gursky Citi. Jason Gursky. Your line is now open.

Jason Michael Gursky: Hey, Chris, I know you're, you know, executing on the existing engine platforms, but I'm wondering if you wouldn't spend a few minutes talking about the future. News flow coming out of Farnborough suggests, maybe Rolls is going to get back into the narrow body market. GE made some comments this week on its earnings call that customer interest in the rover continues to grow. And then I think somebody at Pratt at Farm Bureau suggested that your next generation GTF might be 25% more fuel efficient.

Jason Michael Gursky: Great. Thank you and good morning, everybody and Nathan welcome to the call.

Jason Michael Gursky: Hey, Chris I know.

Jason Michael Gursky: Recognize that you're executing on the existing engine platforms, but I'm wondering if you wouldnt spend a few minutes talking about.

Speaker Change #103: Future.

Speaker Change #115: News flow coming out of Farnborough suggests.

Speaker Change #118: Maybe rolls is going to get back into the narrow body market.

Speaker Change #103: Jay you made some comments this week on its earnings call that.

Speaker Change #123: Customer interest and the rise continues to grow and then I think somebody.

Speaker Change #122: At Pratt at Farnborough suggested that your next generation.

Speaker Change #130: <unk> might be 25% more fuel efficient.

Speaker Change #119: Not clear to me, whether that was relative to the existing GTS.

Speaker Change #119: Or it was a comment about the overall.

Christopher T. Calio: It was not clear to me whether that was relative to the existing GTF or whether it was a comment about the overall existing fleet. But I'm wondering if you can just kind of paint a picture for us on what the next generation of engines is going to look like from your perspective, whether customers are kind of starting to have more conversations with you about that, and what the potential timing of a new engine on the narrow body side might be. Thanks.

Speaker Change #124: Existing fleet, but I'm wondering if you could just kind of paint a picture for us on.

Speaker Change #136: What's the next generation of engines.

Speaker Change #120: Is going to look like from your perspective, where their customers are kind of starting to have more conversations with you all about that and what the potential timing.

Speaker Change #126: Of a new engine on the narrow body side might be thanks.

Speaker Change #103: <unk>.

Christopher T. Calio: Yeah, thank you, Jason. And as you might imagine, having been to the Farm Bureau this week, there was a lot of conversation around the future of narrowbody sustainability and on when those platforms, you know, will be launched and go into service. I will just kind of maybe break this into sort of near, medium, and then longer term. Near, medium, our focus, and you've sort of alluded to this, is on the GTF, you know, advantage.

Christopher T. Calio: Right now, we're about 90 percent of the way through that testing, and we got some good results in terms of our environmental and durability. And so we're continuing down that certification path, as you know, another 1% of fuel burn, 4% thrust, but a more durable and reliable engine. So that's the near. As we think about sort of the medium and longer term, I will tell you we're evaluating and investing in a number of key enabling technologies for insertion into future GTF configurations. Think composite fan blades, advanced materials like CMCs, and the Planetary Gear System. And then you just referenced hybrid electric.

Speaker Change #110: Cereals like Cmc's.

Christopher T. Calio: Some of those numbers that were coming out of Farmboro are what I would call hybrid electric or electric applications. And you think about that for the narrow body, I view that as more of an assist, if you will, around sort of the corner points of the flight envelope, lower platform, smaller platforms; the hybrid, hybrid electrical do more work. And we continue to invest there and have made some really strong strides in some of our, you know, demonstrator programs.

Speaker Change #127: Planetary gear system, and then you just referenced hybrid electric some of those numbers that we're coming out of Farnborough are what I would call hybrid electric or electric applications. When you think about that for the narrow body I view that as more of a an assist if you will around sort of corner points of the flight envelope lower platform.

Speaker Change #110: Arm smaller platforms, the hybrid hybrid electrical do more work and we continue to invest there and have made some really strong strides in some of our demonstrator programs. So again, we've said this before the GTS architecture continues to have runway and so these are all the enabling technologies that we continue to invest in that.

Christopher T. Calio: So again, we've said this before, the GTF architecture continues to have runway. And so these are all the enabling technologies that we continue to invest in that we think we're going to be able to put into that for the next generation single aisle. I'll also, you know, make the point that many of us in the industry are focused on fuel efficiency, and rightly so. But I will tell you that we're also really focused on durability and reliability, and as we continue to push efficiency gains in the engine, there's always going to be trade-offs.

Speaker Change #110: We think we're going to be able to insert in that for the next generation single aisle I'll also.

Speaker Change #110: Make the point that many of us in the industry are focused on fuel efficiency and rightly. So I will tell you that we're also really focused on durability and reliability as we continue to go push efficiency gains in the engine. There is always going to be tradeoffs and we've got to make sure that those trades makes sense, which is why we continue.

Christopher T. Calio: And we've got to make sure that those trades make sense, which is why we continue to invest in things like advanced coatings and other advanced manufacturing techniques that can help with the durability, you know, of the engines. If you talk to operators today, the number one thing that they want, in addition to, you know, sustainability and fuel efficiency, is time on wing. We've got to make sure that as we're driving efficiency, and rightly so, that we're also focused on the durability of the engines during time on wing, because that's frankly what the customers need. And that's what we need for our business model. Thank you. And our next question, coming from the lineup, is Matt Akers from Wells Fargo. Matt Akers, your line is open.

Speaker Change #110: To invest in things like advanced coatings, and other advanced manufacturing techniques that can help with the durability of the engines. If you talk to operators today. The number one thing that they want in addition to <unk>.

Speaker Change #110: Sustainability and fuel efficiency as time on wing, we've got to make sure that as we're driving efficiency and rightly. So that we're also focused on the durability of the engines in the time on wing, that's frankly, how that's what the customers need and Thats, what we need for our business model.

Matthew Carl Akers: Yeah, hey guys, good morning. Thanks for the question. I wanted to see if you could touch on divestitures a little bit. You've been pretty active there. Could you talk about just kind of what's there?

Neil G. Mitchill: What's left to divest? Specifically, are you able to give the revenue and eBit contribution from the Hoist and Winch deal? Good morning, Matt. This is Neil.

Neil G. Mitchill: We expect to close that in the fourth quarter as it relates to the actuation business at Collins. You know, we were pleased to see the Italian regulatory approval in the last quarter. You know, we're continuing to support Saffron in the efforts that are required to close that transaction. Again, you know, nothing that we see we can't get through here, but it's going to take a little bit of time. Some regulatory hurdles still remain, however.

Neil G. Mitchill: But, you know, there's other things we're looking at. We're always looking at the portfolio. As Chris and I have talked about, we're targeting bolt-on type M&A that fits into our technology roadmaps where it's appropriate. We want to be opportunistic there, but we also want to be thoughtful and careful.

Speaker Change #110: We wanted to be opportunistic thomistic, there, but we also want to be thoughtful and careful and then we're always looking at the portfolio from a pruning perspective, nothing to announce today, but I can tell you that.

Neil G. Mitchill: And then we're always looking at the portfolio from a pruning perspective. Nothing to announce today, but I can tell you that, you know, we're going through a rigorous process, as we always do every year. And there'll probably be a handful of others that we come up with. We've talked about some of them in the past. But again, nothing to say today.

Speaker Change #110: We're going through a rigorous process as we always do every year and they'll probably be a handful of others that we come up with we talked about some of them in the past, but again nothing to say today.

Christopher T. Calio: Yeah. Maybe just to add to that, Matt. You know, we do have a robust and rigorous process to take a hard look at the portfolio every year. And while there are businesses that might be solid performers, we want to make sure that they fit into the criteria long term within RTX, namely technology differentiation and strong aftermarket tails.

Speaker Change #128: Just to add to that that we do have a robust and rigorous process to take a hard look at the portfolio every year and while there are businesses that might be solid performers, we want to make sure that they fit into the criteria long term within our TX, namely technology differentiation.

Speaker Change #128: And strong aftermarket sales right. So continuing to look at the portfolio through that through that prism also.

Christopher T. Calio: So continuing to look at the portfolio, you know, through that prism. Also, I want to remind you that we've set up RTX Ventures. We've been making investments in early stage companies keeping our eye on some of those trends, both commercial and defense. And so those may yield some opportunities as well for bolt-ons that fit into, again, our criteria. Great, thank you. Thank you. And our next question, coming from the lineup, David Strauss from Barclays. David Strauss, your line is open.

Speaker Change #128: Mind, you that we've set up an RPX ventures, we've been making investments in early stage companies keeping our eye on some of those trends, both commercial and defense and so those may yield some opportunities as well for bolt ons that fit into again our criteria.

Speaker Change #132: Great. Thank you.

Speaker Change #128: Thank you.

Speaker Change #128: Next question coming from the line of David Strauss from Barclays. David Johnson. Your line is now open.

David Egon Strauss: Thanks, good morning everyone. One question for Neil: your comments about Collins and the Boeing OU rates, you said you took them down. I didn't know if that meant you actually have reduced the rate at which you're building on the MAX and 787 or you're just going up more slowly. Maybe if you could clarify that and, if possible, talk about where you are exactly on the MAX and 787. Sure, David.

David Johnson: Thanks, Good morning, everyone.

David: David David.

David: One Neil your comments on on Collins, and the Boeing OE reach you said took them down I Didnt know if that menu actually have reduced the rate at which youre building on the Max and 77 areas going up more more slowly maybe if you could clarify that and.

Neil G. Mitchill: You know, listen; I'm not going to get into specific rates per se, but I'll tell you that obviously we started the year with a more aggressive outlook in terms of what that rate ramp would look like. What I would tell you is that we are, you know, in the low 30s in the first half of the year, and we do expect the rate to ramp up as the year goes on. So it's not a flat rate assumption, but I'd say it's a calculated increase.

Neil G. Mitchill: And, you know, you'll be able to hear from Boeing next week, I think. I'm sure they'll have something to say about their rates. I'd say today we're aligned with the airframers, but we're monitoring it just like everybody else. On the Airbus front, Chris talked about it already; same thing. We're aligned there with the Airbus team on output. There is always a desire to increase those rates, but we're doing the best we can to balance between the airline customers and the OEMs here. But I'd say from an Outlook perspective that we're reasonably well calibrated, barring some change that we're not aware of right now. Thanks very much.

Neil G. Mitchill: You're welcome. Thank you. And our next question, coming from the lineup, is Robert Spinkorn from Mellius Research. Robert, your line is open. Thank you. This is Scott Mikason on behalf of Rob Spingarn.

Robert Alan Stallard: Neil or Chris, in the past, you've mentioned that you don't exactly like the business model where the engine OEMs go through a heavy development cycle, lose cash on the OE sales, and then have to recoup their investment in the aftermarket. So I'm just wondering about the general misalignment of profit drivers between the air framers and the engine OEMs that can create tension when allocating scarce resources. On a future clean sheet aircraft program, is there going to be a broader industry discussion to better align those profit drivers between the airframers and engine OEMs? Thanks for the question, Scott. And it's a good question.

Speaker Change #132: On a future clean sheet aircraft program is there going to be a broader industry discussion to better align those profit drivers between the air Framers and engine Oems.

Christopher T. Calio: Yes. The short answer is yes, but there's going to need to be a discussion around aligning our business model. And I believe that's not only in the interest of, I'll speak, I'll speak, you know, from the engine side from the Pratt team, but also from the airframe team. And you're, you are, you've got different incentives in terms of, you know, how you make your money, it does just drive a tension. And ultimately, sometimes the customer is the one that's sort of caught, you know, in between there.

Speaker Change #135: Thanks for the question Scott and it's a good question.

David: Yes.

David: Short answer is yes, there's going to need to be a discussion around aligning our business model.

David: I believe thats not only in the interests of all.

Christopher T. Calio: And so, again, I think the more that we can align our business models, the better it will be for the OEMs and for the customer base. And you're right, the opportunity to do that is going to be on the next platform. We're already, obviously, entrenched in the current platforms. But I think we're both seeing this, at times, misalignment play out.

Speaker Change #147: I'll speak I'll speak from the engine side from the from the Pratt team, but also from the airframe your team and your U R.

Speaker Change #129: You've got different in.

Speaker Change #129: Incentives in terms of.

Speaker Change #129: How you how you make your money it does just drive a tension and ultimately sometimes the customer is the one that sort of caught in between there and so again I think the more that we can align our business models that federal will be for the for the Oems.

Speaker Change #129: And for the customer base and you are right the opportunity to do that is going to be on the next platform. We're already obviously entrenched in their current platforms, but I think we're both seeing this at times misalignment play out and I think with the with the new platforms that gives us a chance with a clean sheet of paper to sketch out.

David: How do we get better aligned and better serve our customers.

Christopher T. Calio: And I think with the new platforms, it gives us a chance, a clean sheet of paper to sketch out how we get better aligned and better serve our customers. Thanks, I'll stick around. And our next question comes from the line of Noah Poponak from Goldman Sachs. Noah, you're on a cell phone. Hey good morning guys. Hey Noah.

Speaker Change #144: Thanks, I'll stick with one.

Speaker Change #149: Thank you.

David: And our next question coming from the line of Noah will now follow Goldman Sachs. Noah. Your line is now open.

Noah: Hey, good morning, guys.

Noah: Hey, Noah.

Noah Poponak: With regard to the GTF powdered metal process, is it possible to put numbers around, Uh, you know, of the number of engines that will need to come off the wing, how many, what percentage, even if it's a range, have come off the wing, and of that, how many have actually fully gone through the full fix process versus are waiting in line to do so? Thanks, Noah. So let me just step back and give you sort of the powdered metal sort of ramp up and insertion, you know, background here. So as we've talked about before, since late last year, everything coming off the line, going to the OEMs has had full life powder metal parts. Now all spare engines, you know, have those as well.

Noah: With regard to the GTS powdered metal process is it possible to put numbers around.

David: <unk>.

Speaker Change #139: The number of engines that will need to come off wing.

Christopher T. Calio: MRO was always a, I'll call it, a phased ramp-up. And so we'll start to see this ramp-up here in the second half of the year, and it's going to continue to accelerate into 2025 and into 2026. Again, we've put a lot of emphasis on isothermal forging production. As I said up front, we put a lot of demand into the system, as you might imagine, given what's happened with the fleet, and we've seen some solid progress.

Christopher T. Calio: We need to continue to see some more ramp-up. And as we said before, when a shop, excuse me, when an engine comes into the shop for a visit, we do an evaluation based on the work scope it needs, where it operates, when it was naturally going to see another shop visit to determine whether or not, you know, insertion of those parts makes sense. Again, we're trying to get the longest time on the wing that we can and make sure that we allocate these, you know, these resources appropriately.

Christopher T. Calio: And so those are all the things that go into the decision as to which engines get the full life parts, in which we can do an inspection and do all the other things in the engine because it was already slated to come back in advance of, you know, the time limits that we've established.

Christopher T. Calio: So there's a lot of moving pieces here, but suffice it to say it's going to be a continued ramp back half of this year, 25 and 26, on powdered metal production and insertion and MRO. OK. As you're going through incremental customer negotiations, are you finding yourself able to change assumptions, either better or worse, based on what you've experienced thus far, or is it more of an assumption that remains similar because the output has been in line?

David: I'm powdered metal production and insertion in MRO.

David: Okay.

David: As you're as you're going through incremental customer negotiations are you.

David: Finding yourself able to change assumptions.

David: Either better or worse based on what you are experiencing.

Speaker Change #146: Thus far or is it more kind of the assumptions remained similar because the output has been in line.

Christopher T. Calio: The assumptions remain similar, Noah, but I'll tell you, each customer negotiation is different based upon where they operate and how they operate, and so the agreements are tailored, you know, to those, I would say, airline-specific, you know, you know, metrics and criteria, but we're using the same, I'll call it, key assumptions that we outlined up front across the board. Okay.

Speaker Change #146: The assumptions remain similar Noah but.

Noah: But I will tell you each customer negotiation is different based upon where they operate and how they operate and so the agreements are tailored to those I would say airline specific metrics and.

David: Criteria, but we're using the same I'll call. It key assumptions that we outlined upfront across the board.

David: Okay.

David: Yeah.

Speaker Change #134: Thank you.

Christopher T. Calio: Thank you. Thank you. And the final question comes from the line of Scott Deuschle from Deutsche Bank. Scott, your line is open. Hey, good morning.

Speaker Change #137: And final question coming from the line of Scott <unk> from Deutsche Bank. Your line is open.

Scott Shaw: Hey, good morning, Thanks for taking my question David Scott.

Chris: Hey, Chris are you are you seeing progress with the FAA in terms of getting some of these wide body first class seats certified and then I'm sorry, if I missed it but are you seeing momentum on ramping up output on the 787 heat exchanger. Thanks, yes.

Christopher T. Calio: Yeah, thanks, Scott. So, yes, we on the seating question continue to work our way through the certification there. These are actually a lot more complex than I think people understand. And the certification requirements, you know, are a relatively high bar.

David Egon Strauss: Yes, Thanks Scott.

Speaker Change #151: So yes, we.

Speaker Change #143: On the seating question, we continue to work our way through the certification. There. These are actually a lot more complex than I think people understand and the certification requirements.

Speaker Change #143: A relatively high bar, but we think we have our arms around what we need to do there to get these certified and ultimately.

Christopher T. Calio: But we think we have our arms around what we need to do there to get these certified and, ultimately, you know, into the hands of the air framers and the airlines on the heat exchanger. I'll just remind everyone that that was a part that we had to move as a result of the conflict in Russia, Ukraine, you know, out of Russia and then, you know, set up another source, you know, here and set up a separate, you know, supply chain.

Speaker Change #143: Into the hands of the air Framers and the airlines.

Speaker Change #152: On the heat exchanger.

Speaker Change #143: I'll just remind everyone that that was a part that we had to move as a result of the conflict in Russia Ukraine.

Speaker Change #143: Out of Russia, and then set up another source here and set up a separate.

Christopher T. Calio: And that is taking some time. But we're starting to ramp up there to the rates that we need to support what we think Boeing's demand is. Thank you. Thank you. Thank you. And with that, I will now turn the call back over to the RTX team. All right. Thanks, Olivia.

Speaker Change #143: Supply chain and that has that has taken some time, but we're starting to ramp up there to the rates that we need to support what we think boeing's demand is.

Speaker Change #150: Thank you.

Speaker Change #137: And with that I will now turn the call back over to Jill RPX team.

Operator: That concludes today's call. As always, I and the Investor Relations team will be available for follow-up questions. I really appreciate everyone joining today, and have a good day. Have a good day, everybody.

Jill: Alright, Thanks, Olivia that concludes today's call as always our Investor relations team will be available for follow up questions really.

Speaker Change #140: Really appreciate everyone joining today and have a good day good day everybody.

Speaker Change #142: This now concludes today's conference you may now disconnect.

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Operator: B.K. Beard, David Short, Michael S. Schwartz, Bill Lovett, David C. Riegel, R.H. P.I. Barrett, S.R. B.K. Beard, J.J. F. M. B.K. Beard, J.J. F. M. B.K. Beard, J.J. F. B.K. Beard, J.J. F. B.

Operator: Beard, J.J. [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? [inaudible] Channel Channel Channel Channel, Good day, and welcome to the RTX second quarter 2024 earnings conference. My name is Libby and I'll be your operator for today.

Operator: As a reminder, this conference is being recorded for replay only. On the call today are Chris Calio, President and Chief Executive Officer. Neil Mitchill, Chief Financial Officer, and Nathan Ware, Vice President of Resolutions. This call is being webcast live on the Internet, and there is a presentation available for download from RTX's website, dot rtx.com. Please note, except for otherwise noted, the company will, from Continuing Operations, include acquisition accounting adjustments and net non-recurring and or significant items often referred to by management as other significant items.

Operator: The company also reminds listeners that the earnings and cash flow expectations and any other forelooking statements provided in this call are subject to risk and uncertainty. RTX SEC filings, including its Form 8K, 10Q, and 10K, provide detailed non-point factors that could cause actual results to differ materially from those anticipated in the forelooking statements. Once the call becomes open to questions, we ask that you limit your first round to one question per call. To give everyone the opportunity to participate, to ask a question, you will need to press star 1-1 on your telephone.

Operator: You may ask any further questions by reinserting yourself into the queue as time permits. With that, I will now turn the call over to Mr. Calio. Thank you, and good morning, everyone.

Christopher T. Calio: As you saw from our press release this morning, RTX delivered strong operational and financial performance in the second quarter as we continue to execute on our customer commitments and strategic priorities. Let me start with the highlights on slide three. We saw another quarter of excellent top-line growth, the adjusted sales of $19.8 billion, which were up 10% organically. Adjusted EPS of $1.41 was up 9% year-over-year, driven by profit growth and margin expansion across all three segments.

Christopher T. Calio: And Free Cash Flow was strong at $2.2 billion. We also saw continued growth in our backlog, which ended the quarter at $206 billion, with a book-to-bill of 1.25. There were also some notable contract wins in the quarter, including a 10-year MRO agreement to support Collins' significant content on Air Canada's 787 fleet of up to 70 aircraft, including avionics, air management, and electric power systems. Collins also received a multi-billion-dollar contract for the U.S. Air Force's next-generation survivable airborne operations center, and Raytheon received a $639 million contract for SPY And as you saw in early July, Germany placed an additional order for Patriot Systems.

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Christopher T. Calio: This is on top of the $1.2 billion order they placed for multiple systems in the first quarter of the year. We also saw some positive GTF announcements at the Farm Bureau Air Show earlier this week. With over 700 GTF engines ordered, including options and commitments, these include Cebu Pacific selecting the GTF to power the carrier's order for up to 152 additional single-aisle aircraft, and Avalon selecting the GTF engine for up to 160 aircraft.

Christopher T. Calio: So, another quarter of robust orders with significant wins already secured early here in Q3, and more expected as the year progresses. We also continue to make progress on our critical initiatives. Specifically regarding the GTF Fleet Management Plan, we remain on track with our financial and operational outlook, consistent with our prior comments. As of the end of Q2, we have inspected over 6,000 powder metal parts that are in the field across all programs, and the associated fallout rate remains below the 1% we had assumed, and the findings are consistent with the assumptions that underpin our fleet management. At our MRO facilities, throughput of engines continues to improve, and overall capacity PW1100MRO output increased by 10% versus the first quarter.

Christopher T. Calio: We expect this ramp-up to continue in the second half of the year. As it relates to the PW1100 fleet, AOGs have leveled out over the past few months and remain in line with our expectations. We've also now reached support agreements with 20 of our customers, covering roughly 65% of the impacted fleet, and the terms are in line with our assumption. Beyond our operational performance, let me also comment on the legal and contract charges we outlined in our press release this morning, and then Neil will provide more detail in a bit.

Christopher T. Calio: We're nearing completion of agreements with the Department of Justice, the SEC, and the Department of State to resolve several legal matters. These matters primarily arose out of legacy Raytheon Company and Rockwell Collins prior to the merger and acquisition of these companies. We've already taken robust corrective actions to address the legacy gaps that led to these issues, including implementing enhanced compliance and training measures. We also took a charge related to the anticipated termination of a Raytheon fixed price development contract that was entered into before the merger.

Christopher T. Calio: As we've discussed in the last few quarters, we've been battling through some challenges in a handful of fixed-price development programs, including this one. But this specific contract is unique in terms of its scope, deliverables, and associated risk profile, which led us to pursue termination.

Christopher T. Calio: So, we're pleased to be putting these matters behind us, and as I highlighted earlier, our operational performance was very strong in the quarter. Given this performance and the continuing strength of our end markets, we are raising our outlook for adjusted sales and EPS. We've also revised our cash outlook for the year as a result of the matters I just discussed. Lastly, as you saw in May, we raised our dividend 7% and remain on track to return $36 to $37 billion of capital to shareholders from the merger through the end of next year.

Christopher T. Calio: Okay, with that, let's move to slide four, and I'll spend a few minutes on our strategic priorities that will enable us to drive best-in-class performance across RTX, including meeting customer demand, continued sales growth, margin expansion across our segments, and strong cash flow generation. Given our growing installed base and the unprecedented demand for our products, our first priority is executing on our commitment. Powered by our core operating system, our focus is on driving incremental operational improvements to ramp up output and deliver on this demand.

Christopher T. Calio: Today, we have over 4,000 core projects being worked on across the company. For example, at Collins, our avionics business improved first pass yield by 2x in its fire detection product line by reconfiguring the production cell layout, creating digital tools, and upgrading equipment. And at Raytheon, the team conducted a core leadership week to identify initiatives to more than double weekly output on a key component of our AIM 9x effector. As a result, the team achieved a 90% increase in output in the quarter and is on track to hit their full year target by the end of Q3. We also continue to add capacity to meet the demands of the industrial ramp-up. During the quarter, we announced a $200 million investment in our carbon break facility in Spokane, Washington.

Christopher T. Calio: Once complete, it will add 70,000 square feet of manufacturing footprint to meet rapidly growing demand for our Collins Brake solution. And on the defense side, we're investing in test equipment and tooling to more than double production capacity by year end on our Coyote program, which is a low cost kinetic effector for countering unmanned aircraft systems that directly address today's drone threats. In addition to creating new capacity, we continue to modernize our existing footprint as part of our Industry 4.0 initiatives. Across RTX, we have now connected 26 factories with our proprietary digital analytics technology, providing us with real-time data to boost equipment efficiency, improve quality, and yield higher output.

Christopher T. Calio: This represents a 30% increase in connected sites since the start of the year, and we remain on track to connect 40 factories by the end of the year. These incremental efficiency, capacity, and technology improvements are critical to meeting the needs of our customers as we operate in the strongest demand environment in our history. Let me move now to our second priority, innovating for future growth. We are executing on our cross-company technology roadmap to develop differentiated solutions in areas such as sustainability, advanced propulsion, next-generation sensing, connected battle space, and hypersonics.

Christopher T. Calio: This year alone, we will spend over $7 billion on company and customer-funded research and development to mature and introduce new capabilities to our customers and fill our product pipeline. For example, we are working on a number of hybrid electric demonstrator programs to deliver advanced propulsion technologies and enable greater fuel efficiency across all future aircraft segments. Recently, our Collins, Pratt, and Technology Research Center teams completed a significant milestone in the development of our hybrid electric demonstrator, validating the integrated system functionality of the engine, electric motor, batteries, and high-voltage electric power distribution.

Christopher T. Calio: And in the quarter, we delivered the first TP2 radar that incorporates our proprietary Gallium Nitride technology. This technology is a game changer for our sensing capability, providing expanded surveillance range and supporting additional missions in the space domain and hypersonic defense.

Christopher T. Calio: We also continue to invest in our digital transformation and AI. This year, we are adding an additional 30 plus use cases that generate incremental productivity and cost savings across RTX using advances in artificial intelligence and deep learning. In total, we have over 200 AI use cases currently deployed across various internal functions.

Christopher T. Calio: Our AI investments are also enabling new and improved capabilities in our products, such as predicting equipment failures and aiding human operators in executing complex tasks. These types of investments in innovation will allow us to continue to develop next-gen products and solutions well into the future. Our third priority is to fully leverage our breadth and scale across RTX to drive value for our stakeholders. Specifically, this includes creating a more efficient and competitive cost structure and managing our common supply chain. For example, over 35% of our product procurement spend is with common suppliers that support all three of our businesses.

Christopher T. Calio: We're using a unified RTX approach to our contracts and sourcing strategy. It also includes harmonizing our product lifecycle management processes and developing integrated solutions for strategic campaigns and pursuits, such as NGAD, Flora, and next generation commercial platforms. And, of course, we'll also continue to review our portfolio and prune where needed, as well as target bolt-on M&A to support our RTX technology roadmap and grow our core franchise. And underlying all three of these priorities is our unwavering commitment to safety, quality, and compliance in everything that we do.

Christopher T. Calio: It's what we and our customers expect and a commitment we will never compromise on. Putting it all together, I'm extremely excited and confident about the future of RTX. Before I turn it over to Neil, I want to acknowledge the leadership update we announced last week. As you saw, Steve Timm has decided to retire after 28 years with the company.

Christopher T. Calio: Steve is a great partner and teammate, and I want to thank him for his leadership of Collins. And we're very fortunate to have a strong bench and are very excited that Troy Brunk is taking over as the new president of Collins. Troy has served as president of three of the six Collins business units and is uniquely qualified for the role. Okay, let me turn it over to Neil to take you through the second quarter results in more detail. Neil.

Neil G. Mitchill: Thanks, Chris. I'm on slide five. As Chris said, operationally, we had a strong quarter and continue to make progress on key financial metrics across RTX. RTX's adjusted sales of $19.8 billion were up 8% and, on an organic basis, were up 10%. By channel, commercial OE was up 19% as we continue to support aircraft demand. Commercial aftermarket was up 14% as domestic, international, and long-haul travel continues to grow, and excluding the Raytheon cybersecurity divestiture, defense sales were up 7% as we execute on our backlog.

Neil G. Mitchill: In addition, we recorded a pre-tax charge of $285 million related to voluntarily disclosed Export Controls compliance matters primarily identified during the integration of Rockwell Collins and Raytheon Company into RTX, including matters which are expected to be addressed in a consent agreement with the Department of State. As part of the resolution of each of these three matters, we will be required to retain independent compliance monitors over the three-year term of the agreement.

Neil G. Mitchill: In total, we expect to pay about $1 billion related to these matters this year, and I've incorporated that into our updated free cash flow outlook for the year. I'll take you through the other moving pieces of our outlook on the next slide. The financial impact of these items is higher than what we had previously reserved.

Neil G. Mitchill: We believe the measures we have taken put these issues behind us financially, and we will continue to cooperate with the government and external monitors as we move forward. As it relates to the fixed-price development contract, as you know, we've been discussing the challenges we've been working through on this front for some time. In conjunction with that effort and an anticipated termination on one of our Raytheon programs with a foreign customer, we recorded a pre-tax charge of $575 million in the quarter.

Neil G. Mitchill: Again, we've incorporated the expected cash outflows into our revised free cash flow outlook for this year. But for the quarter, cash flow was robust with $2.2 billion of free cash flow that was driven by strong collections across the portfolio and some lower tax payments.

Neil G. Mitchill: And as you may have also seen, we have entered into an agreement to sell Collins Hoist & Winch for over $500 million, another great example of the portfolio pruning we are doing to focus on our core frame. Okay, turning to page six, let me share a few details on our updated outlook for the year. As you've seen, the first half performance across all three of our businesses has been strong, driven by end market demand and continued execution.

Neil G. Mitchill: There are, of course, a few areas we continue to monitor, including pockets of supply chain challenges, inflation, and the ongoing OE production rate uncertainty. But given the results to date, we're increasing our full-year adjusted sales outlook to between $78.75 and $79.5 billion, up from our prior range of $78 to $79 billion. And we now expect eight to nine percent organic sales growth for the year, up from our prior range of seven to eight.

Neil G. Mitchill: We're also increasing our adjusted EPS outlook by 10 cents on the low end and 5 cents on the high end, putting the new range at $5.35 to $5.45, up from 525 to 540. The improvement is driven primarily by lower interest and corporate expenses, higher pension income, and a lower full-year effective tax rate.

Neil G. Mitchill: We have included the corresponding updated outlook for these metrics in the appendix of our webcast slides. On free cash flow, as I mentioned earlier, we've incorporated our expected cash outflows associated with the legal and contract matters into our outlook. Partially offsetting these impacts is some improvement in current year tax payments of roughly $500 million.

Neil G. Mitchill: All in, we have updated our free cash flow outlook to be approximately $4.7 billion compared to our previous expectation of approximately $5.7 billion. With that, I will turn it over to Nathan to talk you through our segment results and outline. Thanks, Neil, starting with columns on slide seven. Sales were $7 billion in the quarter, up 10% on both an adjusted and an organic basis, driven by strength in commercial aftermarket, commercial OE, and defense.

Nathan Ware: By channel, commercial aftermarket sales are up 12%, driven by a 16% increase in parts and repair, a 15% increase in provisioning, and a 9% decrease in mods and upgrades, with mods and upgrades coming off a difficult prior year comparison that benefited from the 5G mandate. Commercially, sales for the quarter were up 10% versus the prior year, driven by growth in narrow body, wide body, and regional platforms, and defense sales were up 7% primarily due to higher volume. Adjusted operating profit of $1.15 billion was up $230 million, or 25% from the prior year, driven primarily by drop-through on higher commercial aftermarket volume, as well as higher defense and commercial low EVON.

Nathan Ware: Looking ahead on a full year basis, we now expect Collins sales to grow high single digits on both an adjusted and an organic basis, up from the prior range of mid to high single digits driven by continued strength in commercial air traffic and defense. And we continue to expect operating profit growth between 650 and 725 million versus 2020. Shifting to Pratt & Whitney on slide eight, sales of 6.8 billion were up 19% on both an adjusted and an organic basis with sales growth across all three channels. Commercial lease sales were up 33% in the quarter, higher engine deliveries, and a favorable mix in the large commercial engine business.

Nathan Ware: Commercial aftermarket sales were up 15% in the quarter, driven by higher volume and a favorable mix in both large commercial engine and Pratt Canada businesses. And in the military engine business, sales were up 16%, primarily driven by higher sustainment volume across the F-135 and F-117 platforms. Adjusted operating profit of $537 million was up $101 million versus the prior year, dropped through on higher commercial aftermarket volume and favorable mix, as well as favorable large commercial OE mix, was partially offset by headwinds from large commercial OE engine deliveries and the absence of a $60 million favorable prior year contract. Drop-through from higher military volume and favorable mix was more than offset by higher production costs and higher R&D and SG&A expenses.

Nathan Ware: Turning to Pratt's Foyer Outlook, we now expect sales to grow mid-teens on an adjusted neurogranic basis, up from our prior range of low double digits driven by stronger military volume and higher commercial low, And we continue to see adjusted operating profit growth between $400 and $475 million versus 2020. Now turning to Raytheon on slide 9, adjusted sales of $6.6 billion in the quarter were down 2% as a result of the cybersecurity divestiture completed in the first quarter.

Nathan Ware: On an organic basis, sales were up 4%, primarily driven by higher volume on land and air defense systems, including Patriot, Counter UAS programs, and Stinger. Adjusted Operating Profit of $709 million was up $47 million versus the prior year, driven primarily by drop-through and higher volume, favorable mix, and improved net productivity, partially offset by the impact of cybersecurity. And Raytheon had $5 billion in bookings in the quarter, resulting in a backlog of $51 billion.

Nathan Ware: On a rolling 12-month basis, Raytheon's book-to-bill is $1.13 million. In addition to the SPI-6 award that Chris mentioned earlier, Raytheon also had $928 million in classified awards and a $393 million award from NASA to design, produce, and deliver four units that will provide advanced Earth observation. Looking ahead, we now expect Raytheon sales to grow by mid-single digits organically, up from the prior range of low to mid-single digits driven by improved material flow.

Nathan Ware: As a result, we now expect Raytheon's operating profit to grow between $125 and $200 million in 2023, up from the prior range of between $100 and $200 million, and this includes the impact of the cybersecurity divestment. With that, I'll turn it back over to Chris to wrap things up. Okay, thanks, Nathan. I'm on slide 10.

Christopher T. Calio: As you've heard today, our second quarter operating results were very strong, and we're confident in our updated outlook for the full year. But if you step back and just think of beyond 2024 and look at the long term for RTX, we've got the best position for franchise programs with the right content on the right platforms across commercial, aerospace, and defense. Our large and growing installed base will support significant commercial aftermarket growth for decades to come, and our industry-leading defense capabilities address the threats playing out across the global landscape.

Christopher T. Calio: All right, with that, let's open the line for questions. Thank you. Ladies and gentlemen, in the interest of time and to allow for broader participation, you are asked to limit yourself to one question. To ask a question, you will need to press star 11 on your telephone.

Operator: And the first question comes from the line of... Peter Arment Holmberg, Greta Arment Yolanda, Thanks. Good morning, Chris, Neil, Nathan. Good morning. Hey, Chris.

Peter J. Arment: Nice results. I guess maybe just on the GTF fleet management plan: sounds like... going according to plan or remains on track. But maybe if you just peel back the ending a little bit, I know you talked about some pacing, past about getting full life discs into the MRO shop. It sounds like the MRO capacity is going as planned, but maybe any kind of metrics or any color, you know, what you're seeing and any opportunities, or any of these metrics. Yeah, okay, Peter.

Christopher T. Calio: Thanks. Thanks for the question. Let me take you through where things stand. As you noted, our key assumptions around AOGs, winged ring turnaround time, shop visit mix between heavy and light, and customer compensation all remain consistent. And as I noted up front, our assumptions on the inspection fallout rates and the findings are all consistent or even better than we planned. So, there is good stability around the key assumptions. As you know, MRO output is the key enabler.

Christopher T. Calio: And we're also pleased with the additions to the GTS backlog that were announced at Farmboro recently. So again, focusing on what we can control on the fleet management plan and continuing to drive both the supply chain and new orders into the backlog. I appreciate all the details.

Robert Alan Stallard: And our next question comes from the line of Robert Stallard from Vertical Research. Robert Stallard, your line is open. Thanks so much, good morning. Morning, Ron. Morning, Rob. Chris, following on the GTF theme, I was wondering if you could comment on what the situation is with Airbus and their recent forecast cut because it's cleared up... Yep. Thanks, Rob. So, Again, you heard me say just a minute ago to Peter that ROE deliveries are up sequentially and up in the first half of the year, 30 percent on a year-over-year basis.

Robert Alan Stallard: We're not necessarily where we need to be with Airbus, but again, we're seeing, you know, strong growth sequentially and year-over-year. And our outlook reflects our assessment of kind of where Airbus needs support from us, and we're aligned on what they need. You alluded to the fact that we're balancing both OE and spare engine and material, and that's true, and we need to do that for the support of the fleet, but again, I continue to be, you know, encouraged by what we continue to drive in terms of production and getting Airbus what they need, and I think in the back half, we're going to continue to balance the OE spare engine and MRO needs, but I And our next question comes from the line of Myles Walton from World Research. Myles Walton, your line is open.

Christopher T. Calio: Thanks. Good morning. Chris or Neil, I'm not sure which, on the defense side and on Raytheon, could you maybe dig a little bit into what are the problem programs still remaining? You could be a percentage of revenue if that's where you want to handle it or the backlog. And then specifically this decision to sort of proactively, you know, cut losses and terminate the contract, not an easy decision, but are there other contracts where you could, Distinguished similarly, or would that cause customer distress, and lastly, was there a cashout? Yeah, thanks, Myles. I'll start, and then Neil can certainly chime in.

Myles Alexander Walton: Certainly not an easy decision, but we've been alluding to the fact that we have a significant classified program out there that was, we would say, not in our wheelhouse, meaning the work that we had taken on, and this contract was, you know, pre-formation of RTX, was not within our core competency. And we struggled with that, and we struggled to get to the right, you know, technical solutions, and ultimately came to a point where we just didn't think it was productive anymore to continue to go down this path, and ultimately decided it was in the best interest of us and the customer to just kind of do a reset here and allow us to go, you know, focus our resources on some of the other programs that we've got.

Myles Alexander Walton: You mentioned a handful of other, I'll call them, classified development, you know, fixed price development programs that we've been talking about. I would say those are much different in terms of risk profile than the one we took action on here. Those have some important milestones here in 24 and in 25, but we feel like we've got a much better handle on those than the one we're talking about here and feel like we understand the risks much better there and what needs to be done to get them to closure.

Myles Alexander Walton: And just to add, Myles, in terms of the cash flow impact. So, you know, as I sit here today, there's really just a few changes that we've made to our 24-month outlook. The first is about a billion dollars related to legal matters.

Neil G. Mitchill: And I would expect that that mostly sits in the fourth quarter of this year. It'll depend on when we get the final resolutions with the government agencies, but that's trending towards, you know, certainly late September or early in the fourth quarter. Thanks for the call.

Sheila Karin Kahyaoglu: And our next question coming from the lineup, Sheila Kahyaoglu from Jeffries. Sheila, your line is open. Good morning, guys. And thank you. So I know maybe another one for you just, you know, you're going to do about 7.2 billion of net income this year on an adjusted basis and generate $4.7 billion of cash. Some of that is one-time items with the DOJ, the powder metal, and tax.

Neil G. Mitchill: So how do we think about that gap closing on net income through cash flow? And then just on the DOJ, can you elaborate a little bit more on how we think about that, its outcomes, and the cash impact outside of 24? Sure, let me start with free cash flow. You just heard me talk about some of the changes that we rolled into our outlook for the year. As I think about the absolute value of the $4.7 billion, remember that it includes a couple of non-recurring items that are pretty substantial.

Neil G. Mitchill: And if you adjust for those things, you kind of get to a $7, $7.5 billion, maybe even higher level of free cash flow that is operational. So I think as we look forward, Sheila, and we get the powder metal payments behind us this year and next year, just a little color so far, we're a little less than $200 million into our $1.3 billion in powder metal outflows this year. We expect that to obviously ramp up.

Neil G. Mitchill: You heard us talk about doubling the number of customers that we've got agreements with and about two-thirds of the fleet under agreement. So I would expect the third and fourth quarters to kind of be split pretty evenly with respect to the rest of the payments this year.

Neil G. Mitchill: We expect that to turn around in the second half, which is typical for our business. We've got a little bit of headwind from the OE production rates that we've contemplated in that, but we're seeing stronger collections on the customer side. So that balances for the rest of this year. And that's how I would characterize the free cash flow situation today. As it relates to the DOJ and the outcomes, you know, I think we feel very certain about the amount of cash impact that's going to happen this year.

Neil G. Mitchill: As we talked about in our prepared remarks, you know, we've reached agreements in principle. There's some work to do to get that finalized with the various government agencies. That could take a few months, but when it happens, it'll get filed and be available publicly.

Douglas Stuart Harned: And then shortly thereafter, we'll be required to make the payments associated with that. There's very little that lingers beyond that. I'd say it's in the, you know, $50 million a year kind of range following 2024. So it's manageable. Those costs will include some residual payments on the global trade-related consent agreement, as well as some internal costs that we'll obviously invest in to continue to improve our processes as we support the monitoring activity.

Douglas Stuart Harned: So, you know, I would leave it at that for now with those items. Cool. Thank you. Yeah. Thank you. And our next question comes from the line of Doug Harned from Bernstein. Doug Harned, your line is open. Thank you. Good morning.

Neil G. Mitchill: Good morning, Doug. What we've, you know, what you've talked about and what we've heard as well is that, you know, your shop on the GTF, a lot of the shop visit times, you've brought that down significantly, the time in the shop, which is great. And so, presumably, this is with improved parts availability that's allowed you to do that. And I know in Q1, you did divert resources away from B2500 work in order to better enable you to provide GTF parts. And so, two things on this. First... And where do you stand now on D2500 MRO? Is that kind of back to normal?

Neil G. Mitchill: And then, second, even though those shop visit times seem to have come down significantly. Everything we've seen is that. Induction wait times are still quite long, and perhaps, you know, if you could address those two issues, it would be really helpful. Doug, let me start on the V2500, then I'll hand it over to Chris to talk a little bit about the GTF induction times and turnaround times. On the V2500, on a first half basis, we're at about 369 inductions to date.

Neil G. Mitchill: So we had talked about 800 on a full year basis, and we expect that, we still expect that to continue. And I guess the good news there is that, with that acceleration, not only are we seeing an increase in the number of shop visits in the second half of the year, but we're also seeing more work scope. So these are heavier overhauls, and all of that will contribute to the second half growth that we'll expect to see coming from Pratt & Whitney, particularly in the aftermarket.

Neil G. Mitchill: So the second half story for Pratt's, you know, operating outlook is really focused around what we call the mature commercial engines, the V2500 being the biggest part of that. So that's where we sit today on that front. Chris, maybe a couple of comments on GTF. Yeah, yeah.

Christopher T. Calio: And before I do that, Doug, I'll just say on the V. Obviously, our customers are relying heavily on that, given the other stress in the fleet. So we're heavily focused on making sure that, you know, V inductions, turnaround times, and whatnot, that the support is there for the customer base. On the GTF MRO, you're right. In the shop, when we've got material flowing, when we've got material in the right positions at gate two and gate three, we are seeing a significant reduction in shop turnaround time, both for our shops and our partners, which is really encouraging. The induction times are really a function of what we would call the parking lot.

Christopher T. Calio: So there are a lot of engines that came off the wing, obviously, when the A.D. hit, and people did some of that proactively. So we are still working through a large parking lot of engines that need to get inducted into the shop. But again, we're encouraged by what we're seeing when the material is there, which is why we're so heavily focused on making sure the supply chain is healthy. You heard me talk about structural castings and isothermal forgings.

Christopher T. Calio: These are the things that are going to be the biggest unlock for us as we take the A.O.G. numbers down and support our customers. Very good. Thank you. Our next question coming from the line-up, Ronald Epstein from Bank of America, and Ronald Yellen is... Hi, good morning. This is Samantha Styro on for Ronald Epstein.

Neil G. Mitchill: So we're encouraged by the orders we are seeing there, and we do expect that to translate to substantial growth in the second half of this year that's going to be driving a substantial part of Collins aftermarket year over year. Thank you. And our next question coming from the line-up is from Seth Seifman from J.P. Morgans. That line is open. Hey, thanks very much. And good morning.

Christopher T. Calio: Our end markets have proven pretty resilient, and demand remains strong as we set up front. I think, like everybody else, there are several items that we're tracking that have 2025 implications. Think OE rates, and we have to continue to see the strength, you know, in the aftermarket. That's a big part of the cash, you know, walk in 2025.

Christopher T. Calio: And of course, the supply chain. I mean, you just heard me talk about the sequential improvements and the stability we're seeing, but that's got to continue, you know, to ramp up. But again, I still feel like the 2025, you know, cash goal here is achievable based on everything we see today, both within our four walls and the macro environment. Thank you very much. And our next question, coming from the lineup, is Kristine Liwag from Morgan Stanley. Kristine Liwag, your line is open.

Kristine Liwag: Hey, good morning, Chris, Neil, and Nathan. I'll meet you back with Pratt. You guys have highlighted that isothermal forgings are getting better. You're seeing doubled capacity increases in sonic inspections, which are all good. But, you know, structural castings, you know, continue to be an issue. Can you provide more color on why structural casting continues to linger?

Christopher T. Calio: And then also, I mean, look, this historically has been one of the bottlenecks for previous aerospace ramp-ups. So, I guess, you know, how is your approach different this time around to mitigate risk, and any color you could provide of the underlying tightness would be helpful. Sure, thanks, Kristine.

Christopher T. Calio: And you're right, structural castings have been a habitual sort of constrained value stream even since the beginning of the ramp up, you know, back in the 16-17 timeframe. While we've seen, you know, some improvement here, I mentioned up 5% sequentially, it needs to be higher than that, in order to continue to meet the demands of both OE to the air framers, spare engines, and MRO. So again, while we're seeing sort of positive incremental improvement, it needs to continue to grow. And the reason it's constrained is that there are, you know, very few people that do this.

Christopher T. Calio: And that's been something that I think we've put a lot of effort into over the last couple of years, frankly, but we've ramped that up recently. Great, thank you. The next question coming from the line-up is from Cai Von Rumohr from TD Cowen. Cai, your line is open. Thanks so much.

Cai von Rumohr: So, operations look good. Platinum columns in the quarter, sales beat, margins beat, and you've increased sales for the year, but you basically didn't touch profit. Is that conservative? Or are you assuming, I mean, it looks like in Collins, the margins are the same, or basically a little bit lighter in the second half?

Christopher T. Calio: Give us some color. Hi Kai. Thanks for the comments. Overall, you know, we're pleased with the first half results, as you kind of outlined there, and we've updated our full year guide to reflect that, you know, strong top-line growth. When we think about, you know, the segments and what's going on there, there are some headwinds. We've got some higher product costs, primarily in the defense pieces of Pratt & Collins. We've got a little bit of underabsorption with some of the lower OE rates, and we've seen some higher, you know, R&D.

Christopher T. Calio: Now we have offset some of those headwinds with some below-the-line items, such as, you know, corporate spending, and reductions in tightening. So there are a few moving pieces here, but we've got good momentum as we enter the second half of the year, and we're confident in the updated outlook. Thanks, Chris.

Neil G. Mitchill: Let me add a little bit, Cai, in terms of the top line, maybe some perspective on the moving pieces. You know, we took up our sales by $750 at the low end, $500 at the high end. So think about the midpoint, obviously $625. If you break that down, I would put, you know, $500 million of that is within the Pratt & Whitney business. It's really two pieces of that.

Neil G. Mitchill: And so we're seeing a good mix, and we're letting that flow through to the full year as well. As Chris mentioned, you know, on the profit side of Pratt, we're seeing higher production costs. Again, particularly on the military side of the business, as we burn through the F-135 contract and a little bit of higher R&D spending supporting the continued certification of the GTF Advantage and obviously the powder metal-related things. At Collins... You know, we also took that guide up a little bit, you know, high single-digit, think 7% to 8% higher end of the range that we were at before. That's about $100 million in sales.

Neil G. Mitchill: And as I think about that, you know, it's a couple hundred million, maybe three points lower on the commercial OE side; we've taken our rates down on the Boeing side in particular. But offsetting that, or more than offsetting that is, you know, the aftermarket and the military side of Collins as well. So about a one point increase on the commercial aftermarket, two points on defense. Um, you know, just to kind of round it out at Raytheon, we now see, you know, solid flat, if you will, organically up mid single digits, it's about $50 million. There are slightly higher eliminations at the corporate level.

Neil G. Mitchill: Um, you know, we're gonna kind of hold as a placeholder what we saw in the second quarter for the rest of the year, a lot more intercompany activity between Collins and Pratt and Collins and Raytheon there. So again, we're early, we're encouraged by the first half results on the profit side. But certainly on the top end, we're seeing a trend towards the top end of our prior ranges, taking them up slightly here. And, of course, if there's more, you'll see that in the results. I want to kind of see another quarter play out.

Neil G. Mitchill: Terrific. Thank you very much. Welcome. Thank you. Our next question comes from the line of Jason Gursky from Citi. Jason Gursky, your line is open.

Jason Michael Gursky: Great, thank you. And good morning, everybody. And Nathan, welcome to the call.

Christopher T. Calio: Hey, Chris, I know you're, you know, executing on the existing engine platforms, but I'm wondering if you wouldn't spend a few minutes talking about the future. News flow coming out of Farnborough suggests that maybe Rolls is going to get back into the narrow body market. GE made some comments this week on its earnings call that customer interest in the rover continues to grow. And then I think somebody at Pratt at Farm Bureau suggested that your next generation GTF might be 25% more fuel efficient.

Christopher T. Calio: Yeah, thank you, Jason. And as you might imagine, having been to a Farm Bureau this week, there was a lot of conversation around the future of the narrow body on sustainability and on when those platforms, you know, will be launched and get into service. I will just kind of maybe break this into sort of near medium, and then longer term.

Christopher T. Calio: Near medium, our focus, and you've sort of alluded to this, is on the GTF, you know, advantage. Right now, we're about 90 plus percent of the way through that testing, and we got some good results out of our environmental and durability testing. And so we're continuing down that certification path, as you know, another 1% of fuel burn, 4% thrust, but a more durable and reliable engine. So that's the near. As we think about sort of the medium and longer term, I will tell you we're evaluating and investing in a number of key enabling technologies for insertion into future GTF configurations, think composite fan blades, advanced materials like CMCs, and the Planet

Christopher T. Calio: And then you just referenced hybrid electric. Some of those numbers that were coming out of Farnborough are what I would call hybrid electric or electric applications. And when you think about that for the narrow body, I view that as more of a, an assist, if you will, around sort of corner points of the flight envelope, lower platform, smaller platforms, the hybrid, hybrid electrical do more work.

Christopher T. Calio: And we continue to invest there and have made some really strong strides in some of our, you know, demonstrator programs. So again, we've said this before, the GTF architecture continues to have runway. And so these are all the enabling technologies that we continue to invest in that we think we're going to be able to insert into that for the next generation single aisle.

Christopher T. Calio: I'll also, you know, make the point that many of us in the industry are focused on fuel efficiency, and rightly so. But I will tell you that we're also really focused on durability and reliability, and as we continue to push efficiency gains in the engine, there's always going to be trade-offs. And we've got to make sure that those trades make sense, which is why we continue to invest in things like advanced coatings and other advanced manufacturing techniques that can help with the durability, you know, of the engines.

Christopher T. Calio: If you talk to operators today, the number one thing that they want, in addition to, you know, sustainability and fuel efficiency, is time on wing. We've got to make sure that as we're driving efficiency, and rightly so, that we're also focused on the durability of the engines during time on wing.

Christopher T. Calio: That's frankly how, that's what the customers need, and that's what we need for our business model. Thank you. And our next question, coming from the line up, Matt Akers from Wells Fargo. Matt Akers, your line is open.

Neil G. Mitchill: What's left to divest? Specifically, are you able to give the revenue and eBit contribution from the Hoist and Winch deal? Good morning, Matt. This is Neil.

Neil G. Mitchill: You know, we're really happy, obviously, with some of the transactions that we've announced recently, in Hoist & Winch, in particular. Not going to be able to give you the numbers today, but once that transaction is closed, we'll get that out there in the right form. But, you know, we got good value there. We expect to close that in the fourth quarter as it relates to the actuation business at Collins. You know, we were pleased to see the Italian approval in the last quarter.

Neil G. Mitchill: You know, we're continuing to support Saffron in the efforts that are required to close that transaction. Again, you know, nothing that we see we can't get through here, but it's going to take a little bit of time. Some regulatory hurdles still remain.

Neil G. Mitchill: But, you know, there's other things we're looking at. We're always looking at the portfolio. You know, as Chris and I have talked about, we're targeting bolt-on type M&A that fits into our technology roadmaps where it's appropriate. We want to be opportunistic there, but we also want to be thoughtful and careful. And then we're always looking at the portfolio from a pruning perspective. Nothing to announce today, but I can tell you that, you know, we're going through a rigorous process, as we always do every year. And there'll probably be a handful of others that we come up with. We've talked about some of them in the past. But again, I have nothing to say today.

Neil G. Mitchill: Yeah. Maybe just to add to that, Matt, you know, we do have a robust and rigorous process to take a hard look at the portfolio every year. And while there are businesses that might be solid performers, we want to make sure that they fit into the criteria long term within RTX, namely technology differentiation and strong aftermarket tails, right? So continuing to look at the portfolio, you know, through that prism.

Neil G. Mitchill: Also, you know, remind you that we've set up RTX Ventures. We've been making investments in early stage companies, keeping our eye on some of those trends, both commercial and defense. And so those may yield some opportunities as well for bolt-ons that fit into, again, our criteria. Great, thank you. Thank you. And our next question, coming from the lineup, is David Strauss from Barclays. David Strauss, your line is open.

David Egon Strauss: Thanks, good morning everyone. One question: Neil, your comments about Collins and the Boeing OE rate you said took them down. I didn't know if that meant you actually have reduced the rate at which you're building on the MAX and 787 or you're just going up more slowly. Maybe if you could clarify that and, if possible, talk about where you are exactly on the MAX and 787.

Neil G. Mitchill: Sure, David. Listen, I'm not going to get into specific rates per se, but I'll tell you that obviously, we started the year with a more aggressive outlook in terms of what that rate ramp would look like. What I would tell you is that we're, you know, in the low 30s in the first half of the year, and we do expect the rate to ramp up as the year goes on. So it's not a flat rate assumption, but I would say it's a calculated increase.

Neil G. Mitchill: And, you know, you'll be able to hear from Boeing next week, I think. I'm sure they'll have something to say about their rates. I'd say today we're aligned with the airframers, but we're monitoring it just like everybody else. On the Airbus front, Chris talked about it already; same thing; we're aligned there with the Airbus team on output. There is always a desire to increase those rates, but we're doing the best we can to balance between the airline customers and the OEMs here. But I'd say from an Outlook perspective, we're reasonably well calibrated, barring some change that we're not aware of right now. Thanks very much.

Robert Alan Stallard: Neil or Chris, in the past, you've mentioned that you don't exactly like the business model where the engine OEMs go through a heavy development cycle, lose cash on the OE sales, and then have to recoup their investment in the aftermarket. So I'm just wondering, with the general misalignment of profit drivers between the airframers and the engine OEMs that can create tension when allocating scarce resources, on a future clean sheet aircraft program, is there going to be a broader industry discussion to better align those profit drivers between the airframers and the engine OEMs? Thanks for the question, Scott. And it's a good question.

Christopher T. Calio: Yes. The short answer is yes, but there's going to need to be a discussion around aligning our business model. And I believe that's not only in the interest of, I'll speak, you know, from the engine side, from the Pratt team, but also from the airframe team. When you're, you are, you've got different incentives in terms of, you know, how you, how you make your money. It does just drive the tension.

Christopher T. Calio: And ultimately, sometimes the customer is the one that's sort of caught, you know, in between there. And so, again, I think the more that we can align our business models, the better it will be for the OEMs and for the customer base. And you're right, the opportunity to do that is going to be on the next platform. We're already obviously entrenched in the current platforms, but I think we're both seeing this, at times, misalignment play out. And I think with the new platforms, it gives us a chance, with a clean sheet of paper, to sketch out how we get better aligned and better serve our customers. Thanks. I'll stick.

Noah Poponak: And our next question coming from the lineup, Noah Poponak from Goldman Sachs. Noah, you're on a cell phone. Hey, good morning, guys. Hey, Noah.

Christopher T. Calio: With regard to the GTF powdered metal process, is it possible to put numbers around... You know, of the number of engines that will need to come off the wing, how many, what percentage, even if it's a range, have come off the wing, and of that, how many have actually fully gone through the full fix process versus are waiting in line to do so? Thanks, Noah. So let me just step back and give you sort of a powdered metal sort of ramp up and insertion, you know, background here. So as we've talked about before, since late last year, everything coming off the line and going to the OEMs had full life powder metal parts. Now all spare engines, you know, have those as well.

Christopher T. Calio: And we've seen some solid progress. We need to continue to see some more ramp-up. And as we said before, when a shop, excuse me, when an engine comes into the shop for a visit, we do an evaluation based on the work scope it needs, where it operates, when it was naturally going to see another shop visit to determine whether or not, you know, the insertion of those parts makes sense. Again, we're trying to get the longest time on the wing that we can and make sure that we allocate these, you know, these resources appropriately.

Christopher T. Calio: So there's a lot of moving pieces here, but suffice it to say it's going to be a continued ramp back half of this year, twenty five and twenty six on powdered metal production and insertion, and MRO. OK. As you're going through incremental customer negotiations, are you finding yourself able to change assumptions, either better or worse, based on what you've experienced thus far, or is it more of the, The assumptions remain similar because the output has been in line with the input.

Christopher T. Calio: The assumptions remain similar, Noah, but I'll tell you, each customer negotiation is different based upon where they operate and how they operate. And so the agreements are tailored, you know, to those, I would say, airline-specific, you know, metrics and criteria.

Christopher T. Calio: But we're using the same, I'll call them key assumptions that we outlined up front across the board. Okay. Thank you. Thank you. And final question coming from the lineups, Scott Deuschle from Deutsche Bank. Scott, your line is open. Hey, good morning.

Scott Deuschle: Thanks for taking my question. Hey, Chris, are you seeing progress with the FAA in terms of getting some of these wide body first class seats certified? And then, I'm sorry if I missed it, but are you seeing momentum on ramping up output on the 787 heat exchanger? Thanks. Yeah, thanks, Scott. So, on the seating question, we continue to work our way through the certification process there. These are actually a lot more complex than I think people understand, and the certification requirements are a relatively high bar, but we think we have our arms around what we need to do there to get these certified and ultimately into the hands of the airframers and the airlines.

Christopher T. Calio: On the heat exchanger, I'll just remind everyone that that was a part that we had to move as a result of the conflict in Russia, Ukraine, out of Russia, and then set up another source here and set up a separate supply chain, and that has taken some time, but we're starting to ramp it up there to the rates that we need to support what we think Boeing's demand is. Thank you.

Christopher T. Calio: Thank you. And with that, I will now turn the call back over to the RTX team. All right. Thanks, Olivia. That concludes today's call. As always, I and the Investor Relations team will be available for follow-up questions. I really appreciate everyone joining today, and have a good day. Have a good day, everybody. This now concludes today's conference. You may now disconnect.

Q2 2024 RTX Corp Earnings Call

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