Gautam Khanna

Gautam Khanna asked for comments on recompetes for the upcoming year, including the percentage of sales they represent and any particularly large or 'lumpier' recompetes that should be monitored.

Answer

CFO Chris Cage stated that while a specific percentage for 2026 recompetes isn't finalized, the Reserve Health Readiness Program (expected Q4 decision) and an Australian airborne program are significant ones to watch. He noted that beyond these, 2026 appears more weighted towards new business and takeaways rather than recompetes, with a strong focus on critical franchises.

Gautam Khanna asked for comments on recompetes for the upcoming year, specifically inquiring about the percentage of sales represented by recompetes and any significant, lumpier contracts to monitor.

Answer

CFO Chris Cage stated it was too early to provide a specific percentage for 2026 recompetes but flagged the Reserve Health Readiness Program (expected Q4 decision) and an Australian airborne program as significant ones. He also mentioned a CBP opportunity and noted that 2026 is expected to be more weighted towards new business and takeaways rather than recompetes.

Gautam Khanna of TD Cowen asked if the aggressive engagement from the DoD with industry was waning and also inquired if the fourth supplier for VA medical exams had fully ramped up its operations.

Answer

CEO Thomas Bell responded that the rate of new contract disruptions has flattened over the last three months, with the administration's focus shifting from cuts to constructive conversations about efficiency, which benefits Leidos. Regarding the VA exams, he stated that the estimated market share loss to the fourth vendor has been minimal, at less than 1% of Leidos's volume, and has not impacted their business.

Gautam Khanna of TD Cowen asked for more detail on the strong Q1 Health & Civil profitability, specifically regarding medical exam utilization and the potential impact of VA headcount reductions.

Answer

CFO Chris Cage attributed the strong results to broad-based performance across the segment and favorable company-wide EAC adjustments. He noted that the customer wants to sustain or increase exam volumes and that no bottlenecks from VA staffing changes have been observed, expressing confidence in sustaining the performance level.

Gautam Khanna asked for a directional view on 2025 bookings and the potential for growth reacceleration in 2026 and beyond, given the strong performance in 2024 created a tough comparison.

Answer

CEO Thomas Bell pointed to the strong Q4 book-to-bill of 1.7x as providing significant momentum and highlighted a "fundamentally retooled" business development team. CFO Chris Cage added that the upcoming Investor Day will detail a compelling story of accelerating growth, supported by strong cash generation and balance sheet capacity.

Gautam Khanna from TD Cowen inquired about the receipt of delayed modules for CVN 80 and requested a breakdown of net EACs by segment. He also sought clarification on the factors that could drive HII's fourth-quarter shipbuilding EBIT to the high end of its implied range and asked for an update on the mix of pre-COVID and post-COVID contracts for the current and upcoming year.

Answer

President and CEO Chris Kastner confirmed the receipt of delayed CVN 80 modules, with installation planned for Q4 to resume the erection schedule. EVP and CFO Tom Seeley detailed the net EACs as a negative $3 million, comprising positive $6 million for Ingalls, negative $13 million for Newport News, and positive $4 million for Mission Technologies. Mr. Seeley reiterated that while the Q4 EBIT guidance has a wide range, the company expects to finish around the midpoint, with no significant inflection anticipated. He also noted that by 2027, post-COVID contracts are expected to exceed 50% of the mix, transitioning from higher pre-COVID proportions.

Gautam Khanna asked for an update on the receipt of modules for CVN-80, the net EACs by segment, and clarification on the wide range of implied Q4 shipbuilding EBIT, specifically if the extremes are still in play. He also requested an update on the pre-COVID and post-COVID contract mix for the current and next year.

Answer

Chris Kastner, President and CEO, confirmed that the modules for CVN-80 were received and would be installed in Q4, allowing the erection schedule to get back on track. Tom Seeley, EVP and CFO, provided the net EACs: gross favorable was $37 million, unfavorable was $40 million, resulting in a net negative $3 million, with Ingalls at positive $6 million, Newport News at negative $13 million, and Mission Technologies at positive $4 million. Mr. Seeley stated that the Q4 shipbuilding EBIT would likely finish around the midpoint of the guidance range, not at the extremes, and reiterated that the company expects incremental improvement year-over-year. Regarding contract mix, Mr. Seeley noted that HII expects more post-COVID work than pre-COVID work by 2027, without providing specific percentages for 2025 or 2026.

Gautam Khanna of TD Cowen asked about the potential economic impact from the CVN 79 aircraft carrier's schedule slip to 2027 and whether it resulted in a negative estimate at completion (EAC).

Answer

President and CEO Christopher Kastner clarified that the schedule change was already factored into the company's financial guidance and resulted in no material financial impact. He emphasized that the CVN 79 program is progressing well, with sea trials scheduled for later in the year, and the slip is related to specific systems and added capabilities.

Gautam Khanna asked for an update on the previously expected cash inflow from signing the 17-submarine contract package and whether the amount could be quantified. He also asked if there were any signs of a new administration revisiting a strategy focused on unmanned, lighter ships.

Answer

President and CEO Christopher Kastner confirmed that a cash upside from the submarine contracts is included in the guidance but declined to quantify it during active negotiations. CFO Thomas Stiehle added that the cash outlook has become less certain as the contracting approach shifted from a single omnibus deal to an incremental one, starting with two boats. On naval strategy, Kastner said it was too early to know the new administration's direction but affirmed HII's support for a high-low fleet mix and its capabilities in the unmanned sector.

Gautam Khanna inquired about the linkage between new submarine contract awards and potential relief on existing contracts, and asked for a breakdown of the financial impact from performance issues versus the delayed contract and the specific impact of weld rework.

Answer

CEO Christopher Kastner explained that recent performance issues on pre-COVID ships and uncertainty around the timing and structure of a major 17-ship submarine contract both impacted results. He stated it was not appropriate to separate the financial impacts. Regarding the weld issue, he described it as a minor process problem affecting a small number of welders, which CFO Thomas Stiehle confirmed was not financially material.

Gautam Khanna asked about the current pinch points in Boeing's supply chain across various programs, beyond the previously mentioned 787 seat certification, and where new bottlenecks might emerge as production rates increase.

Answer

President and CEO Dave Calhoun stated that the supply chain is generally doing well, with seat certification remaining a known constraint for the 787, which Boeing is actively addressing with suppliers. He mentioned monitoring engine demand for both forward fit and aftermarket, as well as durability upgrades. He did not highlight any other specific major pinch points, noting that confidence in Boeing's production output is diminishing fears of discounting production in the supply chain.

Gautam Khanna asked about the current pinch points in Boeing's supply chain across its programs, particularly concerning 787 production hikes and potential bottlenecks as rates increase.

Answer

President and CEO Dave Calhoun generally commented that the supply chain is performing well, distinguishing between the 737 (with excessive inventory) and 787/wide-body supply chains. He reiterated that seating remains a known constraint, with specific actions underway with suppliers and Boeing to certify installations. He also mentioned monitoring continued demand on engines (forward fit and aftermarket) and durability upgrades but highlighted no other specific pinch points, noting that the supply chain's confidence in Boeing's production output is improving.

Gautam Khanna asked for preliminary color on ATI's 2026 outlook beyond the high single-digit airframe sales growth, specifically for jet engines, and sought generic parameters for incremental margins at the High Performance Materials & Components (HPMC) segment.

Answer

Kim Fields (President and CEO, ATI) stated that airframe growth in 2026 is expected to be steady, accelerating in the latter half, and anticipated continued exceptional strength and growth in jet engines through 2027 based on current order books. Don Newman (EVP and CFO, ATI) addressed incremental margins, noting year-to-date performance near 50%. He recommended modeling future incrementals in the 30-40% range (40% for HPMC, 30% for AANS), while acknowledging that management would update if a higher level becomes consistently warranted.

Gautam Khanna requested preliminary insights into ATI's 2026 outlook, specifically regarding airframe sales (high single-digit growth) and jet engine performance, and asked for generic parameters for incremental margins within the High Performance Materials & Components (HPMC) segment.

Answer

Kim Fields, President and CEO, ATI, confirmed expectations for high single-digit airframe growth in 2026, accelerating in the latter half, and anticipated continued exceptional strength in jet engines. Don Newman, Executive Vice President and CFO, ATI, stated that year-to-date incremental margins were approaching 50%, but advised modeling future incrementals in the 30-40% range, with HPMC aligning closer to 40% and Advanced Alloys & Solutions (AANS) to 30%.

Gautam Khanna requested more details on the nickel melt capacity increase and an update on the estimated revenue contribution from the new titanium furnaces.

Answer

President & CEO Kimberly Fields clarified the nickel investment involves new melting equipment in an existing facility, adding 8-10% capacity next year. EVP & CFO Don Newman reiterated that the full 80% titanium melt capacity expansion consists of two parts: a restart generating $150-170 million in revenue at run-rate, and a new brownfield facility, now running, expected to add another $125-135 million, with a target 35% margin drop-through for modeling purposes.

Gautam Khanna asked to quantify the new Airbus contract's size relative to past business and inquired about the duration and competitive risk of ATI's sole-source nickel alloy contracts.

Answer

Kim Fields, President and CEO, explained that the new Airbus contract will effectively double ATI's participation with the airframer next year, up from zero share in 2020. Regarding the nickel alloys, she stated the sole-source contracts are for critical, non-substitutable materials, extend into the 2030s and 2040s, and have extremely high barriers to entry, minimizing the risk of a second source.

Gautam Khanna requested context around the customer commercial negotiation charges, asking if they indicated broader pricing pressure, and also asked for an update on the status of union contract negotiations.

Answer

Executive Vice President and CFO Don Newman clarified the charge was not a 'concession' but a non-recurring item from routine LTA discussions intended to improve ATI's long-term position, not a sign of pricing pressure. President and CEO Kimberly Fields described the ongoing union negotiations as 'constructive and positive,' stating the company is confident in reaching a fair agreement without work stoppages.

Gautam Khanna asked about the expected timing and form of contracts for five Columbia class submarines and the next Virginia class block, including whether all would be ordered at once and if contract terms might be more favorable with increased government risk-sharing.

Answer

Phebe Novakovic, Chairman and CEO of General Dynamics, stated the operating assumption is that the large, complex Columbia and Virginia class contracts will be executed this year. She indicated transparency would follow once assigned, emphasizing a close working relationship with the government to increase shipbuilding throughput and maintain quality, with optimism for mutual problem-solving.

Gautam Khanna inquired about the General Dynamics G800 delivery schedule for the second half of 2025 and sought guidance on its profitability curve by production lot compared to the G700.

Answer

Chairman and CEO Phebe Novakovic stated that the first G800 delivery is imminent. She explained that the G800's initial production lots will have higher margins than the G700's did, as the G800 did not carry as much developmental cost. Ms. Novakovic anticipates the G800 will see similar margin expansion over time as it progresses down its learning curve.

Gautam Khanna asked if GDIT has had contracts terminated as part of government cost-saving initiatives and if the impact could be quantified. He also asked for the approximate percentage of the large-cabin Gulfstream pipeline that is from non-U.S. customers.

Answer

Jason Aiken, EVP of Technologies, confirmed GD has been part of government actions like stop-work orders but did not quantify the impact, stating the full-year outlook remains the same and noting GD's conservative backlog accounting. Phebe Novakovic, Chairman and CEO, estimated the international portion of the Gulfstream pipeline typically runs around 40%, with the U.S. at 60%.

Gautam Khanna of TD Cowen asked for clarification on the mechanics of how U.S. Navy industrial base funding flows to General Dynamics, specifically questioning the mechanism for the money's application.

Answer

Phebe Novakovic, Chairman and CEO, distinguished between different funding types, explaining that the industrial base funding is directed to the supply chain partners themselves, not to General Dynamics directly, although GD may execute contracts for the Navy related to that funding.

Gautam Khanna of TD Cowen asked about the expected timing for finalizing contracts for the next block of Columbia and Virginia-class submarines and the potential cash or margin impact. He also questioned if there's a possibility of receiving contractual relief for past inflation on boats already under construction.

Answer

CEO Phebe Novakovic stated she expects the FY24 ships to be contracted in the next few months but has no firm timing for the larger Block 6 Virginia or Columbia boat 2 contracts, citing the need to work through significant input cost increases with the customer. She confirmed the company is in constant negotiation on various contracting actions and will seek remedy for cost increases through entitlements in existing contracts.

Gautam Khanna asked about current jet engine alloy lead times, the discrepancy between Carpenter Technology's strong results and broader industry chatter, and the impact of Boeing's past destocking on profits and the anticipated recovery in orders. He also inquired about fastener demand trends.

Answer

Tony Thene, Chairman and CEO, confirmed that engine lead times remain extended and are expected to push out further following recent positive Boeing news. He highlighted Carpenter Technology's unique position and capabilities, which enabled record results even during Boeing's supply chain disruptions. Thene noted that fastener demand was down 7% sequentially but up 40% year-over-year, with strong order intake and customers placing orders for calendar year 2026.

Gautam Khanna inquired about the current status of jet engine alloy lead times, the discrepancy between Carpenter Technology's strong results and broader industry channel checks, and the impact of past Boeing destocking on profits, specifically if the recovery in Boeing orders signals a pivot to higher profitability. He also asked for an update on fastener demand trends.

Answer

Chairman and CEO Tony Thene confirmed that engine lead times remain extended and are expected to push out further due to recent FAA approval of Boeing 737 MAX rate increases. He attributed Carpenter's strong performance amidst industry chatter to its unique products, capabilities, and broad customer base, highlighting the company's ability to achieve record results even during Boeing's prior production issues. Thene expressed confidence in future growth for FY26 and FY27. Fastener sales were down 7% sequentially but up 40% year-over-year, with strong Q2 order intake and customers placing orders for calendar year 2026.

Gautam Khanna of TD Cowen inquired about the evolution of lead times for key products like jet engines and fasteners, and whether Carpenter Technology's strong pricing power will endure given recent competitor capacity announcements.

Answer

President and CEO Tony Thene responded that pricing actions will remain a tailwind due to a significant and persistent supply-demand gap that minor capacity additions won't disrupt. He confirmed that lead times remain extended and he anticipates the market will get even tighter as aerospace build rates, particularly at Boeing, continue to ramp up, which will quickly absorb any excess inventory in the supply chain.

Gautam Khanna of TD Cowen inquired about changes in lead times for the engine channel, the impact of any destocking related to Boeing, and the current state of the pricing environment, particularly for spot market activity.

Answer

CEO Tony Thene explained that lead times for aerospace materials have slightly improved by a couple of weeks due to productivity gains. He acknowledged a pause in orders from customers heavily tied to Boeing, which was anticipated, but noted that aero engine orders were slightly up sequentially. Thene stated that while there might be spot market discounts from others with capacity, Carpenter's long-term customer discussions remain focused on surety of supply, and he expects demand to rebound quickly.

Gautam Khanna inquired about current aerospace customer behavior, asking about potential destocking or deferral requests and whether incoming orders have slowed due to market uncertainty. He also followed up on whether Carpenter Technology has caught up with underlying demand.

Answer

Tony Thene, President and CEO, acknowledged that while some aerospace customers heavily exposed to Boeing are taking a 'wait-and-see' approach, this is being offset by strengthening orders in other markets like power generation. He confirmed the order backlog remains over $2 billion with extended lead times and that MRO demand is very strong, with customers still making emergency requests. Thene emphasized that Carpenter's broad market exposure allows it to navigate near-term uncertainty by shifting production to meet urgent needs.

Gautam Khanna requested an update on the expected A350 equivalent shipments for the current year and a best guess for 2026. He also asked if incremental margins for 2026 could be higher due to absorption and for the aggregate tariff headwind incorporated into the 2025 guidance.

Answer

CEO Tom Gentile confirmed that 60 A350 equivalent units is the current expectation for the year, down from earlier forecasts. For 2026, he estimated A350 equivalents to be in the 80 range. He affirmed that higher production rates, particularly on the A350, will drive better operating leverage and higher margins, while acknowledging other offsetting factors. Regarding tariffs, he stated that the $3 million-$4 million per quarter impact, totaling about $0.10 of EPS, has been incorporated into the updated 2025 guidance.

Gautam Khanna requested an update on the expected A350 equivalent shipments for 2025 and a best guess for 2026. He also asked if incremental margins could be higher next year due to absorption and for the aggregate tariff headwind included in the 2025 guidance.

Answer

Tom Gentile, CEO, Chairman, and President, updated the A350 equivalent shipments for 2025 to approximately 60 units (down from an initial 84). He estimated 2026 shipments to be in the 80s. He confirmed that higher production rates, particularly for the A350, would drive better operating leverage and higher margins, even with other offsetting factors. He reiterated that the $3-4 million per quarter tariff impact is incorporated into the updated 2025 guidance, accounting for about $0.10 of EPS.

Gautam Khanna of TD Cowen inquired about the expected pace of recoupling to underlying A350 production rates in 2026, the outlook for the Boeing 787 program, and the timing of significant pricing resets on long-term agreements.

Answer

CEO Tom Gentile explained that Hexcel expects to be more closely coupled with Airbus's A350 rates during 2026 and anticipates a stronger second half for the 787 program. Regarding pricing, he described it as a gradual, ongoing process, with about 15-20% of contracts renewing annually, noting the main Airbus A350 contract is an exception that extends to 2030.

Gautam Khanna of TD Cowen inquired about the expected A350 shipping rate by the end of 2025 in preparation for 2026 deliveries. He also asked if the rate reductions were being applied uniformly across all of Hexcel's A350 suppliers or if there was variability.

Answer

Chairman, CEO and President Tom Gentile declined to provide 2026 guidance but confirmed that rates would be higher. He explained that the impact is highly variable across the approximately 35 different delivery locations, with some suppliers running behind and others ahead. The revised plan is based on the average demand across all of them, which equates to 68 shipsets for the year.

Gautam Khanna from TD Cowen inquired if the 787 ramp was broad-based across the supply chain and sought clarification on the sequential pull rates for Airbus programs, questioning the drivers behind the Q3 slowdown.

Answer

CEO Tom Gentile confirmed the 787 pull rate was steady at about 7 per month in Q2 and Q3, unaffected by the Boeing strike. He explained the sequential slowdown in A320 and A350 pull rates in Q3 was expected due to normal seasonality from European summer holidays, with the A320 impact being more pronounced.

Gautam Khanna requested an update on expectations for GTF compensation payments through 2026, any changes to the timing for achieving lower AOG levels, and the adequacy of the current provision.

Answer

CFO Neil Mitchill stated that the financial outlook for GTF compensation remains consistent with prior years, with disciplined payments on track for the year ($1.1 billion to $1.3 billion expected). He noted a heavier Q4 for payments, with residuals extending into next year, and confirmed no change to the overall outlook.

Gautam Khanna requested an update on expectations for GTF compensation payments through 2026, inquiring if there were any changes to the timing of reducing AOGs and if the current provision remains adequate.

Answer

CFO Neil Mitchill confirmed that the financial outlook for GTF compensation remains consistent with prior years. He stated that the team is disciplined with payments, is on track for the current year, and expects residual payments to fall into next year, with no change to the overall outlook.

Gautam Khanna of TD Cowen requested an update on the rollout of the GTF Advantage engine for both new production and aftermarket, along with a general update on the supply chain.

Answer

CEO Christopher Calio reported that GTF Advantage production has started, with first deliveries planned for late 2025 and a multi-year transition. A 'Hot Section Plus' package, incorporating nearly 90% of the Advantage's durability improvements, will enter the MRO network next year. He also noted broad supply chain improvements, including over 20% growth in structural castings and nine straight quarters of material growth at Raytheon.

Gautam Khanna asked about any changes to OE production rate expectations for programs like the A350 and requested an update on supply chain constraints, particularly for the 787 program.

Answer

Executive Chairman and CEO Christopher Calio stated that airframer backlogs remain strong and they are focused on ramping production, with no material changes to expectations. He reiterated progress in key supply chain areas like rocket motors and structural castings and specifically noted that the 787 heat exchanger supply is now meeting demand.

Gautam Khanna of TD Cowen requested an update on supply chain constraints, asking which areas remain pinch points and how they have progressed over the last 90 days.

Answer

Executive Christopher Calio identified ongoing challenges with structural castings and forgings at Pratt, and rocket motors at Raytheon. He noted improvement in microelectronics at Collins, where lead times have come down. He also mentioned that heat exchanger production doubled last year and is on track for recovery in 2025.

Gautam Khanna of TD Cowen asked when Raytheon's defense productivity is expected to improve more significantly, when challenged programs might roll off, and if productivity could return to pre-pandemic levels.

Answer

Executive Neil Mitchill indicated that Raytheon has "turned the corner" on productivity, citing a $110 million year-over-year improvement and an expectation of nearly $200 million for the full year. He explained that new backlog is being priced more favorably and that factory productivity will increase as the supply chain, particularly for rocket motors, improves. While not committing to pre-pandemic levels, he expects continued margin improvement.

Gautam Khanna asked for specifics on where GE Aerospace is observing the greatest improvements in supply chain material availability, seeking details on any breakthroughs or 'inside baseball' insights.

Answer

Larry Culp, Chairman and CEO, stated there wasn't one single breakthrough but rather a cumulative, compounding effect of intense, urgent work over the past 18+ months with the supply base. He emphasized deep, collaborative problem-solving on factory floors with priority suppliers to address throughput and yield issues, focusing on permanent corrective actions. This relentless application of FLIGHT DECK tools across the supply chain, from large to small suppliers, is the common denominator for improvement.

Gautam Khanna asked for more specific details on where GE Aerospace is seeing the greatest improvements in supply chain material availability, inquiring if there have been any significant breakthroughs.

Answer

Chairman and CEO Larry Culp stated there was no single breakthrough, but rather a cumulative effect of intense, urgent work over 18+ months with the supply base. He emphasized collaborative problem-solving on factory floors with priority suppliers, addressing throughput and yield issues through FlightDeck tools, and focusing on permanent corrective actions. Culp also highlighted the importance of visibility and communication with airframer partners for future rate increases.

Gautam Khanna of TD Cowen requested an update on the supply chain's status, remaining pinch points, and the outlook for gross inflation over the forecast period.

Answer

Chairman & CEO Lawrence Culp reported significant progress, with a 10% sequential rise in material input and 95% delivery-to-commitment rates from key suppliers. SVP & CFO Rahul Ghai added that they expect the supply chain to remain tight and inflation elevated, but pricing actions are anticipated to fully offset this impact through 2028.

Gautam Khanna of TD Cowen questioned GE's pricing strategy for offsetting tariffs and how it might differ from typical annual price adjustments.

Answer

CFO Rahul Ghai outlined a two-part approach. The standard mid-to-high single-digit catalog price increase is still planned for late summer. Separately, to address tariffs, the company may implement a temporary surcharge to recover costs that are not offset by mitigation efforts and SG&A controls. Ghai emphasized this surcharge would be temporary and removed if the tariffs are rescinded.

Gautam Khanna from TD Cowen asked for an updated outlook on the cadence of CFM56 shop visits versus widebody engine shop visits over the next few years.

Answer

Executive Rahul Ghai explained that the peak for CFM56 shop visits is still expected in 2025 but is now projected to remain at that elevated level through 2027. For widebodies, the GE90 is entering its second, more intensive shop visit cycle. Conversely, GEnx shop visit volume is expected to be flat for the next 3-4 years as strong time-on-wing performance pushes inductions later into the decade, which is a positive for program profitability.

Gautam Khanna from TD Cowen asked for clarification on the change in unbooked backlog, the value of outstanding bids, and any potential funding risks to the second-half growth outlook.

Answer

CEO Cary Smith clarified the unbooked backlog is now over $11 billion, with the decrease resulting from the removal of the confidential contract's ceiling and successful task order awards on other vehicles. She noted a $55 billion pipeline and $6 billion in bids awaiting award. Both Ms. Smith and CFO Matt Ophelis stated there are no funding risks, highlighting that funded backlog is at a record 70% and collections are strong.

Gautam Khanna sought clarification on the impact of DOGE and any changes to offensive cyber operations, and asked about the guidance assumptions for the confidential contract, specifically if there is time to catch up from the Q1 underrun.

Answer

CEO Carey Smith and CFO Matt Ofilos reiterated that DOGE discussions have been positive and focused on accelerating programs like FAA modernization. Smith also stated they do not expect offensive cyber work to be stopped. They confirmed the guidance midpoint assumes the negotiated value for the confidential contract's option year and that they believe a surge in activity after May would allow them to meet mission requirements and catch up from the Q1 run rate.

Gautam Khanna from TD Cowen asked for more detail on which specific OE products were being destocked and which areas within the passenger aftermarket were weakest. He also inquired about any changes in customer buying behavior.

Answer

Co-COO Mike Lisman explained that the OE destocking was broad-based across the product portfolio rather than concentrated in one area. For the aftermarket, he identified the non-engine passenger segment as the primary area of relative weakness. He did not note any specific shifts in customer buying behavior beyond a general pullback outside of the engine and interiors segments.

Gautam Khanna asked if there has been any change in discretionary aftermarket spending, particularly in interiors. He also inquired about pricing elasticity related to tariffs and the status of any late-stage M&A deals.

Answer

Co-COO Mike Lisman stated they have seen no behavioral difference in discretionary versus non-discretionary aftermarket spending, with the interiors business continuing to perform well. He reiterated that the tariff impact is not expected to be material. President and CEO Kevin Stein declined to comment on specific M&A deals in process, emphasizing that only closed deals matter.

Gautam Khanna asked about point-of-sale (POS) data from the distribution channel versus direct sales and for commentary on engagement with the Department of Defense regarding procurement practices (DOGE).

Answer

Co-COO Joel Reiss stated that distributor POS sales are running in the double-digits, ahead of their direct sales, which they view as a positive leading indicator. CEO Kevin Stein framed engagement with the DoD as a constructive opportunity to improve procurement, emphasizing that TransDigm is a very small supplier in this context and that most of its business is already cost-disclosed or competitive.

Gautam Khanna asked for an update on the status of the major OEM contract renegotiation with Boeing, its expected timeline, and whether its potential impact is included in the fiscal 2025 guidance.

Answer

Co-COO Mike Lisman confirmed that negotiations are actively ongoing but declined to comment on specifics. He assured that the potential impact of the new contract terms has been factored into the fiscal 2025 guidance provided.

Gautam Khanna of TD Cowen asked for an update on pricing expectations for the upcoming year and beyond, and whether the rate of net price increases is expected to change.

Answer

Executive Chairman and CEO John Plant stated that the company's disciplined pricing process, which has been in place for six years, remains unchanged. He reiterated his commentary from February 2024, where he said 2025 pricing would be similar to or greater than 2024. He now expects a similar picture of consistent price movement to continue into 2026 and 2027, with no change in process or annual expectation.

Gautam Khanna asked if the new high-pressure turbine blade for the LEAP-1A engine would command higher pricing and if it is easier to manufacture.

Answer

Executive Chairman and CEO John Plant clarified the new blade will be used in all new OE production, not just aftermarket. While implying performance enhancements relate to value, he expressed only 'some optimism' on improved producibility. He confirmed several hundred engine sets have been produced but stated it is 'early days' to be certain about long-term manufacturing yields.

Gautam Khanna of TD Cowen asked about current demand signals for the China natural gas business and whether recent changes in U.S. trade policy have caused any demand erosion across the portfolio.

Answer

CFO Bill Lacey noted that the China natural gas business remains dampened by the local economy. CEO Chip Blankenship addressed trade policy, stating they have not seen demand erosion but rather 'unnatural volatility,' such as delayed orders followed by unusually large ones, particularly in China services.

Gautam Khanna inquired about the profitability level of the commercial OE business and the potential for demand destruction in the Industrial segment resulting from tariffs.

Answer

CFO William Lacey confirmed that the commercial OE business is profitable but declined to provide a specific margin profile. CEO Charles Blankenship stated that the company does not view potential demand destruction from tariffs as a significant risk for its Industrial business.

Gautam Khanna requested a breakdown of aerospace growth expectations by sub-market for fiscal 2025, an update on channel inventory levels for engine products, and the company's pricing outlook.

Answer

CEO Charles Blankenship ranked expected FY25 growth as strongest in Military OE, followed by Commercial OE, then Commercial Aftermarket. He noted customers are still building inventory to support rate ramps. CFO William Lacey projected overall price realization of around 5% for FY25, with Aerospace slightly stronger than Industrial.

Gautam Khanna of TD Cowen asked about the decline in funded backlog despite a strong book-to-bill and when this might become a concern. He also questioned the likelihood of a typical September spending flush, the company's confidence in hitting year-end headcount targets, and any potential impact from a re-evaluation of the Advanta contract.

Answer

CFO Matt Calderone attributed the lower funded backlog to the slow pace of funding, calling it a timing issue and not a cause for concern. COO Kristine Anderson stated they still plan for a Q4 acceleration due to mission needs and a funding backlog. On headcount, Anderson and Calderone expressed confidence in their ability to hire as needed, noting they are pacing hiring to demand. CEO Horacio Rozanski commented on the Advanta contract, expressing pride in the work and highlighting its broad applicability and role in driving the company's AI business.

Gautam Khanna of TD Cowen asked for more detail on headcount addition plans for the upcoming quarters and questioned whether the slowdown in contract awards is a concrete, observed trend or more of an anticipation.

Answer

CFO Matt Calderone confirmed the plan is to ramp up hiring, noting that billability was at a record high in December, and they are now activating the hiring engine for recent large wins. CEO Horacio Rozanski added that they are seeing a clear slowdown in some agencies, though Booz Allen has minimal exposure there. He noted that award timelines had already lengthened in some civil agencies prior to the transition.

Gautam Khanna of TD Cowen inquired about the growth outlook beyond 2026 for tactical radios and the Armed Overwatch program, given some softness in the President's Budget Request for 2026.

Answer

Chairman and CEO Christopher Kubasik explained that for radios, a new budget line item likely contains modernization funding, and strong international demand provides an offset, giving him confidence in continued growth. SVP and CFO Kenneth Bedingfield noted the dip in Armed Overwatch funding is not a concern due to the program's long-term nature and significant international opportunities.

Gautam Khanna from TD Cowen questioned the growth outlook for tactical radios beyond 2026 given softer budget requests, and also inquired about the Armed Overwatch program.

Answer

Chairman & CEO Christopher Kubasik addressed the radio budget by noting a new, larger line item (NextGen Command and Control) was added, which he believes will fund modernization. SVP & CFO Kenneth Bedingfield stated there were no concerns about Armed Overwatch, as the production flow is stable and they see significant international opportunities to offset any domestic dips.

Gautam Khanna asked CFO Ken Bedingfield to elaborate on his objectives in his newly expanded role as President of the Aerojet Rocketdyne (AJRD) segment.

Answer

CFO and President of Aerojet Rocketdyne, Kenneth Bedingfield, outlined his priorities as increasing production capacity for solid rocket motors to meet high demand, driving efficiency in the space propulsion business, and ensuring delivery on critical programs like Artemis. He expressed confidence in the strong teams at both AJRD and in finance to execute on these goals.

Gautam Khanna requested an update on the F-35 Tech Refresh 3 (TR-3) program and asked about the margin progress and recovery at the Integrated Mission Systems (IMS) segment.

Answer

CEO Christopher Kubasik clarified that L3Harris is under contract through Lot 19 for the F-35 and is not experiencing financial headwinds from prime contractor negotiations. He stated the company is meeting its TR-3 commitments and the customer is happy with their performance. Regarding IMS, he confirmed the segment is performing well and margins are recovering to previous levels, attributing the success to new leadership, systems investments, and improved program execution, including better management of change orders.

Gautam Khanna from TD Cowen inquired about demand trends for commercial helicopters and asked if Textron has seen any evidence of demand erosion across its portfolio due to tariffs and trade policy uncertainty.

Answer

Scott C. Donnelly, Chairman, CEO & President, described commercial helicopter demand as strong across all models, with good order activity. He stated definitively that Textron has not seen evidence of demand erosion due to tariffs at this point, noting that many customers are taking a 'wait and see' approach and that much of Textron's business is North American-based.

Gautam Khanna of TD Cowen asked for a reminder of known contract headwinds for the next 12-24 months and for details on the cost overrun mentioned in the prepared remarks.

Answer

CEO Toni Townes-Whitley identified the NASA program loss (lapping in Q3) and the no-bid on the Cloud One program as the main headwinds, stating there are no other significant known recompete risks. Regarding the cost overrun, she explained it was on a complex, fixed-price space development program. CFO Prabu Natarajan added that the program is unique, the EAC captures remaining risk, and it is expected to move into a healthier sustainment phase soon.

Gautam Khanna from TD Cowen requested on-the-ground anecdotes of how the administration changeover has manifested and asked if there has been any policy movement on SBA small business set-asides that could benefit SAIC.

Answer

CEO Toni Townes-Whitley described the impact as delays in contract actions and the need to reset relationships with new government personnel. CFO Prabu Natarajan added that work perceived as simple consulting or reselling is getting more scrutiny, which is not SAIC's core business. Toni noted they are tracking SBA policies but pivoted to opportunities for SAIC in the current environment, including contract conversions and integrating new commercial technologies for the government.

Gautam Khanna asked about the progress on WENCORE cross-selling, the pace of FAA approvals under the new administration, and whether aftermarket strength varied by component type, such as engine versus airframe.

Answer

Co-CEO Eric Mendelson said that while progress with WENCORE is good, there is 'a lot more to come.' He noted no change in the excellent relationship with the FAA and its approval pace. He confirmed engine components have been very strong but sees strength across the entire market, both engine and non-engine.

Gautam Khanna of TD Cowen asked about the development timelines for DoD PMA, the historical constraints on its adoption, the progress of Wencor cross-selling initiatives, and the breadth of the current defense demand strength.

Answer

Eric Mendelson, Co-President, declined to give specifics on DoD PMA strategy for competitive reasons but confirmed HEICO has experience selling proprietary and interchangeable parts to the government. He believes they are in the first half of the Wencor cross-sell journey with significant opportunity remaining. Victor Mendelson, Co-President, described the defense demand uptake as "fairly broadly based," also noting the success of the Exxelia acquisition in capturing European defense growth.

Gautam Khanna from TD Cowen asked about the historical obstacles preventing the DoD from purchasing PMA parts, whether the biggest opportunity is in commercial derivatives, and for a framework of the inorganic revenue contribution for the upcoming fiscal year.

Answer

Co-President Eric Mendelson explained the primary obstacle for DoD adoption of PMA parts is a lack of process, which he called a "relic of the past" that must change. He sees a very large opportunity in both commercial derivatives and other military platforms. CFO Carlos Macau clarified that while recent acquisitions will contribute, growth in fiscal 2025 will be "mostly organic."

Gautam Khanna inquired about growth rate differences among aftermarket product types, the current state of the Wencor integration, and the performance of the space business within ETG.

Answer

Eric Mendelson, Co-President, stated that aftermarket strength was very broad-based with no major trend differences between product types. On Wencor, he said that while great progress has been made, they are still in the early stages of realizing all potential synergies, calling it "the gift that keeps on giving." CFO Carlos Macau noted that the space business was roughly flattish for the year but up slightly for the quarter.

Gautam Khanna inquired about the expected timing for the F-35 Lot 19 contract and asked how much of a potential reduction in U.S. orders could be absorbed by strong international demand to maintain the production rate.

Answer

James Taiclet, Chairman, President and CEO, projected the F-35 Lot 19 contract would be finalized in the second half of the year, which is factored into guidance. He expressed high confidence that very strong international demand would allow the company to offset any potential moderation in U.S. orders and maintain the 150-plus annual production rate.

Gautam Khanna of TD Cowen asked about the potential for the Missiles and Fire Control (MFC) program that incurred a charge to achieve significantly improved profitability as it scales up in the future.

Answer

CFO Jesus Malave, limited by the program's classified nature, indicated that once past the current fixed-price phase, pricing would be open, and they would 'expect to return to reasonable type margins.' He noted the margin profile would get 'substantially better' but would not immediately reach typical MFC levels due to ramp-up dynamics. CEO James Taiclet added that it is expected to be a long-lived program.

Gautam Khanna of TD Cowen questioned whether the 2025 margin expansion in Mission Systems is driven more by contract mix or performance, and asked about the potential impact to Northrop if the conflict in Ukraine ends.

Answer

CFO Ken Crews attributed the Mission Systems margin expansion primarily to performance, efficiency, and learning curve benefits from scaling the business, not a significant mix shift. CEO Kathy Warden stated that revenue from systems directly used in Ukraine is less than 1% of total revenue and that the company anticipates a multi-year cycle of stockpile replenishment, suggesting no immediate negative impact from a cessation of hostilities.

Gautam Khanna of TD Cowen asked about the potential impact of the upcoming U.S. election on defense programs and sought clarity on the long-term revenue trajectory for the Space segment beyond 2025.

Answer

Chair, CEO and President Kathy Warden stated she does not see a significant difference in defense priorities post-election, as budgets tend to reflect the global threat environment, which has driven consistent strategy. For the Space segment, she reiterated expectations for a return to growth beyond 2025, noting the underlying portfolio is already growing at a mid-single-digit rate, masked by the wind-down of two specific programs.

Gautam Khanna from TD Cowen asked about the potential for a slowdown in contract award pace due to the administration transition and the financial impact of any reduction in operational tempo in Ukraine or Israel.

Answer

CEO John Mengucci and CFO Jeffrey MacLauchlan stated they do not anticipate major delays in contract awards, as the relevant work occurs at levels less affected by senior leadership changes. Mengucci also clarified that while CACI gains insights from global conflicts, its direct revenue exposure to areas like Ukraine is de minimis and does not drive financial outcomes.

Gautam Khanna of TD Cowen inquired about the timeline for securing a launch customer for the AerAware system, the nature of any pushback from potential clients, and the competitive landscape for used aircraft feedstock bids.

Answer

CEO Nicolas Finazzo explained that the AerAware commercialization phase is longer than anticipated due to the complexities large carriers face with implementation, such as pilot training, logistics, and budget cycles, rather than direct pushback on the product. Regarding feedstock, Finazzo described a highly competitive market where airlines are retaining mid-life aircraft and new financial players are bidding aggressively, leading AerSale to maintain bidding discipline despite a low 3.1% win rate on awarded deals in the quarter.

Gautam Khanna inquired about LinQuest's exposure to small business set-aside work and how that might run off. He also asked about the expected impact on bookings over the next couple of quarters if the U.S. government operates under an extended continuing resolution (CR).

Answer

President and CEO Stuart Bradie stated that LinQuest has no material small business set-aside work. EVP and CFO Mark Sopp added that the work mentioned is under an SBIR Phase III vehicle, which is fully available to large businesses for commercializing technology. Regarding a potential CR, Stuart Bradie expressed confidence that bookings will remain strong due to sizable awards currently in the protest phase and a robust pipeline, and he does not expect a CR to alter the company's guidance for the upcoming year.