Richard Safran

Richard Safran asked for an update on the timing for definitizing multi-year missile framework deals for PAC-3 and THAAD, the long-term margin potential for Missiles and Fire Control (MFC), and whether a multi-year agreement for the F-35 program is anticipated.

Answer

Jim Taiclet, Chairman, President and CEO, stated that PAC-3 and THAAD framework agreements are committed, with definitization dependent on congressional appropriations, expected in 2026. He also noted Lockheed Martin's advocacy for multi-year F-35 sustainment, production, and modernization. Evan Scott, CFO, added that MFC margins might see slight dilution initially due to production ramps but are expected to exceed historical levels over time with these multi-year agreements.

Richard Safran asked for more details on the 'Golden Dome' for America initiative, specifically regarding funding opportunities, timing, and its potential impact on the production ramp at the Missiles and Fire Control (MFC) segment.

Answer

James Taiclet, CEO, outlined a three-part view: a ground segment with existing systems like THAAD and PAC-3 for rapid deployment, a space-based sensor layer, and an overarching command and control system. Evan Scott, CFO, added that the customer's recent Request for Information (RFI) had a rapid 30-day turnaround, to which Lockheed Martin submitted over 100 capabilities, indicating the company is well-prepared to support the initiative.

Richard Safran of Seaport Research Partners asked for a long-term outlook on the Missiles and Fire Control (MFC) segment, specifically regarding its growth potential and margin profile.

Answer

CFO Jesus Malave identified programs like GMLRS, HIMARS, PAC-3, JASSM, and LRASM as key long-term growth drivers for the MFC segment, fueled by strong demand. He stated that the segment's underlying margin profile is expected to be around 14%, in line with long-term expectations, though 2025 may see lower net profit adjustments compared to the 2024 adjusted base.

Richard Safran requested an update on previous comments about potentially reducing out-year pension headwinds, asking if the company still plans to use debt or cash and about the potential timing.

Answer

CFO Jesus Malave confirmed that using inorganic means, primarily debt issuance, to manage future pension headwinds remains an option. He stated the company is first focused on exhausting organic solutions like working capital improvements but remains confident it can fully offset the headwinds through a combination of both organic and inorganic actions.

Richard Safran inquired about the quarter-over-quarter changes in space backlog, specifically if the $2.3 billion increase was solely from the constellation mentioned. He also asked if the book-to-bill ratio for 2026 should be expected to be better than 1.17, given strong 2025 bookings.

Answer

Ken Crews, CFO of Northrop Grumman, identified four drivers for space backlog growth: GEM 63 (Amazon Project Leo), Tranche 3 Tracking Layer (18 satellites), another CRS launch, and significant restricted portfolio awards. He noted space had a book-to-bill of 1.8x sales or greater for two consecutive quarters. For 2026, given the strong existing backlog, the book-to-bill is anticipated around 1x sales.

Richard Safran asked about the quarter-over-quarter changes in the Space segment's backlog, specifically if the $2.3 billion increase was solely from the constellation mentioned or other factors. He also questioned if the 2026 book-to-bill ratio should exceed 1.17, given the strong 2025 bookings and backlog growth.

Answer

CFO Ken Crews explained that the Space backlog growth was driven by four factors: the GEM 63 award (Amazon Project Leo), the Tranche 3 Tracking Layer award (18 satellites), a CRS launch, and significant growth in the restricted portfolio. He noted Space had a book-to-bill of 1.8x sales or greater for two consecutive quarters. For 2026, he anticipated a book-to-bill around 1x sales due to strong existing backlog.

Richard Safran asked about Northrop Grumman's plans for further capacity increases in missile production, potential incremental CapEx, and associated timelines, and inquired about the opportunity set for the Lumberjack program, its domestic and international potential, and when it might impact the P&L.

Answer

Kathy Warden, Chair, CEO, and President, stated that Northrop Grumman has already invested significantly in expanding solid rocket motor capacity, more than doubling tactical missile capacity and breaking ground on another facility. She noted that current capacity exceeds orders, but continued demand growth is foreseen. For Lumberjack, she described it as an exciting new counter-UAS offering from the Mission Systems segment, currently at TRL 6, with domestic and international potential, and expects to pursue customers and export steps through 2025 into 2026.

Richard Safran from Seaport Research Partners asked about the general contracting environment with the new administration, including terms and incentives, and whether the mix of international sales was shifting between Direct Commercial Sales (DCS) and Foreign Military Sales (FMS).

Answer

Chair, CEO & President Kathy Warden noted a positive shift in the operating environment, with the administration focused on speed and breaking down barriers, which is beneficial even without formal acquisition reform. On international sales, she stated that the company continues to see a mix of DCS and FMS and does not expect a significant change, with the contract type depending on the complexity of the effort and customer needs.

Richard Safran of Seaport Research Partners asked about the major booking opportunities for 2025 and whether the company expects its book-to-bill ratio to remain above 1x.

Answer

CFO Ken Crews projected the 2025 book-to-bill ratio to be around 1x, as the company works through its strong existing backlog. He identified key award opportunities across all segments, including restricted activities in Space, advanced procurement for B-21 in Aeronautics, a host of sensor and communication systems in Mission Systems, and continued IBCS and weapons systems awards in Defense Systems.

Richard Safran asked about the need for multi-year contracts, inquiring if the government is amenable to this approach despite past reluctance, and how such a change in the contracting environment might impact L3Harris's margins.

Answer

Chairman and CEO Christopher Kubasik explained that multi-year contracts are crucial for substantial investments needed to ramp up defense production, which he believes the current administration is 110% behind. He noted that such contracts provide visibility for the supply chain and allow for amortizing investment costs, leading to benefits from increased production. SVP, CFO, and President of Aerojet Rocketdyne Kenneth Bedingfield clarified that this differs from traditional multi-year platform awards, focusing on firming up investments for specific missile production rates and delivery schedules to align with customer needs.

Richard Safran of Seaport Research Partners inquired about the LHX NEXT program, asking for clarification on the monetization of legacy assets and the remaining runway for cost reductions and facility consolidation.

Answer

SVP and CFO Kenneth Bedingfield explained that asset monetization involves divesting non-strategic product lines to focus on growth, with footprint repurposing being a secondary benefit. Chairman and CEO Christopher Kubasik added that the LHX NEXT cost savings program will achieve its target by year-end and then transition into the company's standard operational cadence, with a future focus on digital transformation.

Richard Safran of Seaport Research Partners asked for clarification on the LHX NEXT program, specifically regarding the monetization of legacy end-of-life assets and the remaining runway for cost reductions.

Answer

SVP & CFO Kenneth Bedingfield explained that asset monetization involves exiting non-strategic product lines to focus on high-growth areas, which also frees up facility footprint. Chairman & CEO Christopher Kubasik added that the goal is to focus management on high-impact initiatives and that the LHX NEXT cost savings program will conclude by year-end, transitioning into a normal business cadence focused on digital transformation.

Richard Safran asked if major changes are coming to the Pentagon's contracting environment, particularly regarding fixed-price development contracts and inflation escalators.

Answer

CEO Christopher Kubasik stated his belief that the new administration has a strong desire to accelerate procurement and that policy changes could be implemented that would affect 2026. He believes agile, non-vertically integrated companies will benefit. He acknowledged potential near-term 'lumpiness' as new policies are implemented but noted the company's record backlog provides stability.

Richard Safran asked about the strategic partnership with Palantir, questioning the investment and profit-sharing arrangement and the strategic rationale behind the collaboration.

Answer

CEO Christopher Kubasik stated there is no upfront capital investment, describing the partnership as a natural evolution of a five-year relationship built on aligned cultures. Strategically, he explained that it allows L3Harris to leverage Palantir's advanced AI capabilities, which would take billions of dollars and years to develop internally, positioning them well for the White House's push for increased AI use in defense. CFO Kenneth Bedingfield added that L3Harris is already using Palantir's tools internally to drive LHX NeXt efficiencies in areas like supply chain and labor.

Richard Safran inquired about the specific changes since Q2 that drove ATI's revised outlook and increased guidance, and then asked a two-part question regarding ATI's management of nickel melt capacity for single-source alloys amidst high demand, and the implications of ATI becoming the number one flat-rolled titanium supplier to Airbus on the company's P&L.

Answer

Kim Fields, President and CEO, ATI, explained that the guidance increase reflects stronger-than-expected aerospace and defense performance, particularly in defense, and operational productivity driving margin improvements. Don Newman, Executive Vice President and CFO, ATI, provided additional financial details. Regarding nickel, Ms. Fields detailed managing demand through productivity, reliability, and selective capacity expansion for proprietary alloys with customer co-funding. For Airbus titanium, she highlighted ATI's majority supplier status, expanding share, and P&L benefits from stronger mix, consistent volume, and higher margins.

Richard Safran inquired about the specific changes since Q2 2025 that drove ATI's revised outlook and increased guidance, and also asked a two-part question regarding ATI's strategy for managing nickel melt capacity for single-source alloys amidst high OE rates and aftermarket demand, and the implications of ATI becoming the number one flat-rolled titanium supplier to Airbus on the P&L.

Answer

Kim Fields (President and CEO, ATI) explained that the guidance increase reflects stronger-than-expected Aerospace & Defense (A&D) performance, particularly in defense, with momentum continuing into Q4 and 2026. She highlighted strong Q3 Adjusted EBITDA, high HPMC and AANS margins, and robust Free Cash Flow. Regarding nickel capacity, Ms. Fields stated ATI is managing short-term demand through productivity and reliability improvements, and selectively investing in purpose-built melt capacity for proprietary hot section alloys through customer co-funded projects with high IRRs and long-term agreements. For Airbus, being the 'number one flat roll supplier' means ATI is the majority supplier in the product portfolio, translating to the P&L through stronger mix, consistent volume, expanded content/share, and higher margins from premium titanium plate and sheet, with revenue expected to double next year. She confirmed ATI is optimizing for high-margin products.

Richard Safran inquired about aftermarket trends and whether they are moderating, and also asked for more detail on the terms of the new Boeing and Airbus contract extensions, including share gains and pricing.

Answer

President & CEO Kimberly Fields confirmed that MRO and spares demand remains very strong, driven by next-generation engines like the LEAP, and is expected to continue through the decade. Regarding contracts, Fields stated the new agreements include significant share gains, broader product scope, and beneficial pricing terms with inflation protection. EVP & CFO Don Newman added that the expanded Airbus agreement represents upside not fully captured in the 2027 targets, potentially adding $75-100 million in incremental revenue.

Richard Safran asked about the drivers behind improving pricing in the HPMC segment and requested more specific details on the offsets mitigating the $50 million tariff impact.

Answer

Donald Newman, EVP and CFO, explained that HPMC pricing improved 6-7% year-over-year for titanium and nickel, driven by purposeful increases in long-term agreement (LTA) renewals. Kim Fields, President and CEO, detailed the tariff offsets, including a flexible supply chain, productivity gains, duty drawback programs, and contractual pass-through mechanisms that were built into contracts starting in 2017-2018.

Richard Safran asked about recent market share gains, new long-term agreements, and their impact on capacity, as well as whether the strong Q4 defense sales represent a new sustainable run rate.

Answer

President and CEO Kimberly Fields confirmed progress on new customer commitments, including the previously announced $4 billion, and noted a growing relationship with RTX. She attributed the strong Q4 defense performance to geopolitical volatility and stated that ATI expects about 7% growth in defense for 2025, with potential upside from increased government spending.

Richard Safran of Seaport Research Partners inquired about the recovery from unplanned operational outages, the potential for revenue recovery in 2025, and the differing demand signals from engine manufacturers versus airframers.

Answer

EVP and CFO Don Newman stated that the AA&S outage is not expected to be a headwind in 2025 and that the company is not increasing 2025 targets on the assumption of recovering revenue lost in Q3 and Q4. President and CEO Kim Fields added that engine demand remains steady, supported by strong MRO activity and ATI's growing position on key programs like the Pratt & Whitney GTF, for which shipments doubled in September.

Richard Safran asked about any changes in the contracting environment with the new administration, specifically regarding award fees and incentive fees, and the current mix of direct commercial awards versus Foreign Military Sales (FMS) for international orders.

Answer

Phebe Novakovic, Chairman and CEO of General Dynamics, noted no wholesale changes in contracting, but observed an emphasis on speed from some customers and a demographic shift with newer contracting personnel. For international orders, she mentioned a robust FMS pipeline that is slow to materialize, alongside direct commercial sales in Europe and other regions, with munitions demand potentially driving a mix of both.

Richard Safran asked if Hexcel is contemplating any further portfolio changes after divesting facilities in Austria, Hartford, and Belgium. He also inquired about the drivers behind the change in capital deployment strategy, specifically the accelerated buyback, and if more such actions are anticipated given the projected $1 billion in free cash flow over the next four years.

Answer

CEO Tom Gentile stated that Hexcel continuously reviews its portfolio for optimization, with potential for a few more actions, but the primary focus remains on ramping up to meet customer production rates. He confirmed that capital deployment will prioritize share repurchases going forward, driven by growing confidence in the market's inflection point, a lack of suitable M&A opportunities, and the belief that Hexcel stock represents the best investment in aerospace currently. He indicated that more buybacks are planned once the current ASR is repaid and leverage targets are met.

Richard Safran asked if Hexcel is considering further portfolio changes following recent divestitures and facility closures. He also inquired about the drivers behind the change in capital deployment strategy, specifically the accelerated share repurchase (ASR), and if more such buybacks are anticipated given the projected $1 billion in free cash flow.

Answer

Tom Gentile, CEO, Chairman, and President, confirmed that Hexcel continuously reviews its portfolio for optimization, with more changes possible, though recent actions were the most significant. He explained that the shift in capital deployment was driven by growing confidence in the market's inflection point and rising production rates, coupled with a comprehensive search for inorganic growth yielding no suitable M&A opportunities. Believing Hexcel's stock to be the best investment, the company initiated the ASR and authorized a large repurchase program, with plans for future buybacks once target leverage ratios are restored.

Richard Safran from Seaport Research Partners asked for more detail on how rising U.S. and European defense spending affects Hexcel's long-term outlook and for commentary on the defense business's long-term growth and margin potential.

Answer

CEO Tom Gentile emphasized that increased defense spending is a significant driver for both current and future performance, highlighting key programs like the F-35, CH-53K, and the Dassault Rafale. He identified defense as a top organic growth opportunity for Hexcel in the U.S. and Europe.

Richard Safran inquired about 2025 growth trends for business and regional jets, specifically the contribution from Dassault, and asked for a general assessment of the industry's progress in resolving supply chain issues.

Answer

Chairman, CEO & President Tom Gentile confirmed the Dassault Falcon 10X program will be a positive contributor as it ramps up. Regarding the supply chain, he described the recovery as 'evolutionary' and slower than hoped, but expects conditions to improve in 2025 as labor shortages ease, with more stability arriving in 2026.

Richard Safran asked for an update on Boeing's portfolio shaping strategy following the Jeppesen sale, inquiring if other divestitures are being considered and how the company ensured it retained necessary digital capabilities.

Answer

President and CEO Robert Ortberg explained that the deal boundary was carefully defined to ensure Boeing retained access to all critical digital technologies for its future aircraft. He also confirmed that the portfolio review is complete and that a 'couple more' smaller divestitures are being considered for the future.

Richard Safran from Seaport Research Partners asked for the near- and long-term outlook for the Global Services segment, including sales and margins, and how the new CEO's strategic priorities apply to it.

Answer

President and CEO Kelly Ortberg stated that his immediate focus is not on the Global Services (BGS) segment because it is performing very well under its current leadership. He wants the team to continue executing without distraction. However, he affirmed that the new company-wide cultural changes and values apply to BGS just as they do to all other parts of Boeing.