American aerospace conglomerate Raytheon Technologies posted strong sales in the first three months of 2023, driven by the resurgence of commercial air travel.
During a 25 April quarterly earnings call, Raytheon chief executive Gregory Hayes said subsidiaries Pratt & Whitney (P&W) and Collins Aerospace led the company’s revenue, both posting double digit percentage growth in sales, year-on-year.
“With strong consumer demand and record advanced booking we expect full global air traffic to fully recover to 2019 levels as we exit the year,” Hayes says.
Both engine maker P&W and aerospace systems provider Collins are major suppliers to the commercial aviation industry. P&W saw a 15% increase in sales compared to the same period in 2022, while Collins posted a 16% gain.
Chief operating officer Christopher Calio says there is “incredible demand” for P&W engines in the commercial market. He notes Raytheon and its subsidiary are in “lock-step” with the major airframers to meet their production targets.
“We’re in constant contact with both Boeing and Airbus”, confirms Hayes.
P&W, which provides the F135 engine that powers the Lockheed Martin F-35 fighter, also secured a major US Air Force (USAF) contract to perform an engine core upgrade on the service’s fleet of the advanced stealth aircraft. The USAF selected P&W’s upgrade package over a full engine replacement proposed by GE Aerospace.
“This programme will solidify Pratt & Whitney’s position on the F-35 and will provide additional thrust, range and efficiency necessary to support the needs of the war fighter well into the next decade,” Hayes notes.
Despite increasing defence spending in the USA, Europe and the Indo-Pacific, Raytheon’s defence-focused businesses saw only flat or modest gains in sales year-on-year.
Raytheon Missiles & Defense saw a modest 4% year-on-year increase in sales for the quarter, despite a record backlog of $35 billion.
Sales were flat at Raytheon Intelligence & Space, which produces military sensors, radars, and communications platforms.
Executives blame the sluggishness on a higher mix of low-revenue generating developmental programmes and continued supply chain pressures within the defence industry.
“We remain very focused on the health of the supply chain, which continues to be a challenge from a performance and cost perspective,” says Calio.
He notes there has been stabilisation in supply chain for electronic components, but manufacturers “continue to experience challenges” when it comes to castings, forgings, raw materials and machining.
While this impacts commercial engine production at P&W, it is the defence supply chain that remains particularly challenged, Calio notes. Raytheon has “significantly increased” on-site support to its suppliers over the past quarter, he says, which helped clear some of the bottlenecks.
Calio says Raytheon has a physical presence at facilities belonging to more than 400 of its suppliers. Despite those efforts, he says cost increases remain an issue.
“The overall inflation picture remains persistently high,” he notes.
One crucial partner has been of particular concern to Raytheon executives. Rocket engine manufacturer Aerojet Rocketdyne provides the essential motors that power everything from precision missiles to NASA’s next-generation heavy-lift space rocket.
The company is major supplier to Raytheon, Lockheed and most other aerospace manufacturers in the US defence industry.
Amid a surge in demand for long-range precision munitions resulting from Russia’s invasion of Ukraine and heightened tensions with China in the Indo-Pacific region, Aerojet has struggled to maintain production – buffeted by pandemic era supply and labour challenges.
Hayes described Aerojet as the “weak link” in Raytheon’s supply chain, in a December interview with Defense One.
Later that month, L3Harris announced a $4.7 billion all-cash offer to buy Aerojet. The move came after regulators in Washington expressed opposition to an acquisition proposal from Lockheed, scuttling the deal.
While the L3Harris takeover has yet to be approved, Hayes says the outcome is of major concern to Raytheon and its munitions business, which includes legacy programmes such as the AIM-120 AMRAAM air-to-air missile and FIM-92 Stinger anti-air missile, as well as next-generation munitions like the Hypersonic Attack Cruise Missile.
“The concern… when you have one of your key suppliers going through a merger or an acquisition is that they lose focus on delivery and quality,” Hayes notes.
He adds Aerojet is one of the suppliers with whom Raytheon is in contact “every single day”. The CEO also cautions the L3Harris proposal may suffer a similar fate to Lockheed’s attempted acquisition.
“In the current anti-trust environment, no deal is certain until it is actually done,” Hayes says. “So we’ll have to see how this plays out, and make sure that Aerojet Rocketdyne continues to focus on delivery and not get distracted by this deal.”
Defence leaders in Washington have described the company as part of a strategic sector “crucial to protecting national security”. The Pentagon on 14 April announced a $215 million investment in Aerojet Rocketdyne to help the company expand production in the USA.
“This critical investment will modernise rocket propellant and motor production in the United States, in addition to creating technical and skilled labour jobs at multiple domestic facilities,” said deputy secretary of defense Kathleen Hicks.