Robert Stallard

Robert Stallard asked about the potential benefits for DRS from the reconciliation bill passed last year and whether four consecutive years of 1.2x or better book-to-bill suggests a step-up in future revenue growth or merely extends current growth further into the future.

Answer

President and CEO John Baylouny noted that money from the reconciliation bill is starting to flow, with alignment in priority areas, but it's still early days. Regarding book-to-bill, Mr. Baylouny expressed optimism for continued growth, acknowledging a diverse portfolio and an elongated conversion cycle for higher-level capabilities, with the goal of sustaining growth similar to 2025.

Robert Stallard inquired about the potential upside for Leonardo DRS from the fiscal 2026 reconciliation bill and whether the consistent 1.2x book-to-bill ratio over four years indicates a step-up in future revenue growth or merely extends current growth trends.

Answer

President and CEO John Baylouny confirmed that some funding from the reconciliation bill is starting to flow, aligning with DRS's investment priorities, though it's still early days. Regarding book-to-bill, Mr. Baylouny expressed optimism for continued growth, acknowledging the diverse portfolio and elongated conversion cycles for higher-level capabilities.

Robert Stallard inquired about any unusually large orders contributing to the strong Q3 bookings and how these bookings are expected to flow through to revenues. He also asked about potential risks from the extended U.S. government shutdown and any operating efficiency issues beyond germanium.

Answer

CFO Michael Dippold attributed strong bookings to increased demand in Counter-UAS and short-range air defense programs, noting a comfortable position above the one-to-one book-to-bill target for the year, supported by a 20% year-over-year increase in funded backlog. Chairman and CEO William Lynn explained that the government shutdown's impact remains moderate but could lead to delays in awards and payments if it extends significantly longer. Michael Dippold clarified that operating efficiency issues primarily centered around germanium, with development programs naturally having lower margins.

Robert Stallard inquired about any unusually large orders contributing to the strong Q3 bookings and how these bookings are expected to flow through to revenues. He also asked about potential risks from the extended U.S. government shutdown and any operating efficiency issues beyond germanium.

Answer

CFO Michael Dippold attributed strong bookings to increased demand in Counter-UAS and short-range air defense programs, noting a comfortable position above the one-to-one book-to-bill target for the year, supported by a 20% year-over-year increase in funded backlog. Chairman and CEO William Lynn explained that the government shutdown's impact remains moderate but could lead to delays in awards and payments if it extends significantly longer. Michael Dippold clarified that operating efficiency issues primarily centered around germanium, with development programs naturally having lower margins.

Robert Stallard of Vertical Research Partners questioned the impact of the germanium supply issue, asking about the scale of the headwind and which products are affected. He also sought clarification on the flexibility of M&A financial criteria.

Answer

Chairman & CEO William Lynn explained that China's export restrictions on germanium have impacted supply and increased prices, affecting the infrared product line. EVP & CFO Michael Dippold added that this has caused some absorption issues and overhead impacts. On M&A, Lynn clarified that flexibility would be on the ROIC timeline, extending beyond the typical three-year window, but the company would not compromise its EPS accretion or overall margin and growth story.

Robert Stallard of Vertical Research Partners asked about the potential business impact from the new administration's efficiency initiatives and requested clarification on one-off financial adjustments in the fourth quarter.

Answer

CEO William Lynn stated that the administration's efforts have not yet impacted the Department of Defense and that DRS is focused on the upcoming '26 budget build. CFO Michael Dippold clarified that the primary one-off adjustment in the adjusted EBITDA reconciliation was related to the foreign exchange impact on certain balance sheet items.

Robert Stallard inquired about potential indirect risks to the Columbia class program from broader submarine supply chain issues, the factors that could influence the 2025 revenue outlook, and the current M&A environment.

Answer

CEO Bill Lynn stated there is no significant indirect risk to their portion of the Columbia program, as their contract is segregated and ahead of schedule. CFO Mike Dippold identified supply chain and material availability as the primary variables for the 2025 revenue range. Lynn confirmed that M&A remains a priority, with an uptick in actionable opportunities in their core markets.

Robert Stallard followed up on Howmet's gas turbine (GT) investments, asking if the Return on Invested Capital (ROIC) on this spending is expected to be similar to what the company has achieved in commercial aerospace historically.

Answer

Executive Chairman and CEO John Plant confirmed that there is essentially no difference in the margin or embedded return on capital between gas turbines, commercial aerospace, and defense aerospace. He noted that deploying new capital can act as a drag on returns, and the final capital deployment for gas turbines is still being determined as discussions with customers continue. Mr. Plant provided capital expenditure figures for 2024 ($348 million), 2025 ($415 million), and a 2026 midpoint of $470 million, with potential for higher spending in 2027, but reiterated that ROIC is of a similar order of magnitude.

Robert Stallard followed up on the industrial gas turbine (IGT) investment, asking if the return on invested capital (ROIC) for this significant spending would be similar to what Howmet has historically achieved in commercial aerospace.

Answer

Executive Chairman and CEO John Plant stated that the margin and embedded return on capital for gas turbines are of a "similar order of magnitude" to commercial aerospace and defense. He noted that deploying brand new capital can initially act as a drag on returns and that the final capital deployment for gas turbines is still evolving, with agreements reached with three out of four major large gas turbine customers. He reiterated the 2026 capital expenditure guidance of $470 million (midpoint) and anticipates 2027 CapEx to be at least similar or potentially higher.

Robert Stallard of Vertical Research Partners asked about management's current concerns, or "worry beads," noting that previous issues like tariffs and Boeing's build rates seem to be improving.

Answer

Executive Chairman and CEO John Plant responded that he has fewer worries but pointed to uncertainty in the commercial truck market, specifically whether pre-buy activity related to 2027 emissions regulations will materialize. He noted the company has taken a cautious stance in its assumptions. Otherwise, he sees solid fundamentals in defense aero, F-35, and IGT for data centers, concluding, "I'm paid to worry about things. And, providing I do it, then you don't have to."

Robert Stallard from Vertical Research Partners requested an update on Howmet's production assumptions for the Boeing 737 and its perspective on the slower-than-expected ramp in wide-body aircraft.

Answer

Executive Chairman and CEO John Plant stated that Howmet has raised its full-year 737 build rate assumption to an average of 28 per month, up from 25. On wide-bodies, he noted the 787 ramp was delayed and the A350 rate is slightly lower than expected, but he remains confident in the strong underlying demand for both platforms.

Robert Stallard followed up on the Boeing 737 production forecast, asking about the current purchase order trends and the level of clarity on existing inventory within the supply chain.

Answer

Executive Chairman and CEO John Plant acknowledged that Q4 requirements from Boeing were not strong and that inventory-related cutbacks have been factored into the Q1 guide. He expressed concern about potential demand instability later in the year. Plant also mentioned that the changeover for the LEAP-1B engine's turbine airfoils is not expected until later, which is a key dynamic for the year's forecast.

Robert Stallard asked for details on the 2025 aerospace aftermarket revenue forecast and whether the company has factored in any risk of destocking.

Answer

Executive Chairman and CEO John Plant highlighted a significant strategic shift, noting that aftermarket revenue is expected to grow from 11% of total revenue in 2019 to over 20% in the coming years, reducing earnings volatility. He dismissed destocking concerns by pointing to strong demand and increased production, with output of key turbine blades up 40-50% year-over-year, positioning Howmet to meet robust demand for both OE and spares.

Robert Stallard from Vertical Research Partners inquired about the consistency of the 14% productivity improvement across various shipbuilding programs in 2025 and the additional throughput required for the Virginia-class program to consistently achieve two deliveries per year. He also asked about the long-term outlook for capital expenditures, specifically if they are expected to remain around 4% of sales beyond 2026.

Answer

President and CEO Chris Kastner confirmed broad-based productivity improvement across programs, noting the Virginia-class performed very well in 2025 with incremental throughput needed for two ships annually. Executive Vice President and CFO Tom Stiehle added that CAPEX is expected to remain elevated due to significant opportunities and the need for continued investments in partnership with the Navy.

Robert Stallard asked about the 14% productivity progress in 2025, inquiring if performance was consistent across shipbuilding programs and what further improvements are needed for the Virginia-class to achieve two deliveries per year. He also followed up on the long-term outlook for capital expenditures.

Answer

President and CEO Christopher Kastner confirmed broad-based improvement across programs, with the Virginia-class performing well despite schedules being reset post-COVID, requiring an incremental increase in throughput. He also stated that capital expenditures are expected to remain elevated due to significant opportunities. EVP and CFO Tom Stiehle added that the plentiful rewards going forward will drive top-line growth and necessitate continued capital investments, likely consistent with 2026 levels.

Robert Stallard asked for the specific sticking points on the 17-ship submarine contract negotiation and questioned the reason for the implied Q4 step-down in Mission Technologies' performance.

Answer

CEO Christopher Kastner identified the key sticking points as a mismatch between outdated budgets and the current economic reality, plus the need for an innovative contract structure to fund critical investments. CFO Thomas Stiehle characterized the Mission Technologies Q4 outlook as conservative, noting that while performance can be timing-dependent, the company raised the segment's full-year guidance on both revenue and margin.

Robert Stallard asked if the relatively high price paid for recent acquisitions (Stellant Systems, Jet Parts Engineering, Victor Sierra Aviation) reflects broader M&A market trends in aerospace and defense, and if similar opportunities for value-based pricing readjustments are expected going forward.

Answer

CEO Mike Lisman acknowledged that market conditions necessitate paying up for businesses but stated that the prices paid for the recent acquisitions were fair and align with TransDigm's target of a 20% IRR. He confirmed that the playbook for pricing readjustments post-acquisition remains unchanged.

Robert Stallard commented on the seemingly pricey acquisitions of Stellent, Jet Parts, and Victor Sierra, asking if this reflects broader M&A market trends in aerospace and defense. He also inquired if TransDigm expects similar opportunities for value-based pricing readjustments going forward.

Answer

CEO Mike Lisman stated that while one always prefers to pay less, the prices paid were fair given the current valuation environment and align with TransDigm's target of a 20% IRR. He confirmed that the playbook for pricing readjustments will remain similar to past acquisitions.

Robert Stallard inquired about TransDigm's reported interest in acquiring Jeppesen from Boeing and asked whether the company would need to use price increases to mitigate potential tariff impacts.

Answer

President and CEO Kevin Stein confirmed TransDigm's serious interest in Jeppesen, noting it fit their proprietary, high-aftermarket criteria, but emphasized that the company's disciplined valuation process led them to decline the deal. Regarding tariffs, Stein stated the impact is currently "insignificant," and while all value drivers including price are always available, it is not a primary concern.

Robert Stallard asked which aftermarket subcomponents are expected to improve to reach the full-year growth target and inquired about TransDigm's exposure to potential tariffs.

Answer

Co-COO Joel Reiss stated they expect the freight submarket to improve and the engine business to remain strong, with broad growth driven by passenger traffic and an aging fleet. CEO Kevin Stein addressed tariffs, stating the impact would be "de minimis" as TransDigm is primarily a domestic manufacturer with limited exposure and has already relocated production from China.

Robert Stallard asked for the reasons behind the softer-than-expected Q4 aftermarket bookings and whether the fiscal 2025 aftermarket guidance assumes normal levels of price increases.

Answer

Co-COO Mike Lisman attributed the Q4 booking softness to timing and potential airline inventory adjustments, which will likely make Q1 the lowest growth quarter. However, he expressed confidence in the full-year guidance. He also confirmed that their pricing strategy remains consistent, aiming to be 'slightly ahead of inflation'.

Robert Stallard asked about the capacity of L3Harris's supply chain and internal staffing to manage the projected growth trajectory.

Answer

CEO Chris Kubasik stated that personnel is not an issue, with active recruiting and efforts to enhance engineer productivity through AI and robotics. He noted the supply chain is healthier, with new suppliers emerging and investing due to clear demand signals, and the administration supporting the industrial base. CFO Ken Bedingfield emphasized a matured supply chain approach at MSL, treating suppliers as partners to achieve rapid growth and stay ahead of competition.

Robert Stallard asked about L3Harris's confidence in the capacity of its supply chain and internal staffing to manage the projected growth trajectory.

Answer

CEO Chris Kubasik stated that personnel is not an issue, citing active recruiting, AI-enabled engineers for efficiency, and increased use of robotics. He noted that the supply chain is healthier, with more suppliers emerging and private equity interest, and that the administration is supporting the industry. CFO Ken Bedingfield added that L3Harris has significantly matured its supply chain approach for Missile Solutions, treating suppliers as partners and being a key customer to ensure rapid growth and capacity increases, aiming to win the race in getting products to warfighters.

Robert Stallard of Vertical Research Partners questioned whether the customer's demand to accelerate programs was causing L3Harris to accept contracts with higher or inappropriate levels of risk.

Answer

Chairman and CEO Christopher Kubasik firmly stated they are not signing riskier deals, noting a reasonable contracting environment with cost-plus for development and fixed-price for production. He also credited better bidding to improved data analytics. SVP and CFO Kenneth Bedingfield added that the company's agility allows it to move fast without taking on undue risk.

Robert Stallard from Vertical Research Partners asked whether the customer's desire for accelerated timelines is causing L3Harris to sign up for contracts with a higher risk profile.

Answer

Chairman & CEO Christopher Kubasik firmly stated they are not taking on riskier contracts, noting the administration seems to understand business well, resulting in reasonable contract types. He emphasized that improved data analytics and basis of estimate processes allow them to bid accurately. SVP & CFO Kenneth Bedingfield added that moving faster doesn't mean more risk and that the company's agility is a strength.

Robert Stallard followed up on the F-35 topic, asking if L3Harris sees opportunities related to Lockheed Martin's stated plans to substantially enhance the aircraft's capabilities.

Answer

CEO Christopher Kubasik affirmed that L3Harris is well-positioned for such opportunities. He noted that the company leads the hardware for the TR3 upgrade, which is central to enhancing the jet's capabilities. He also highlighted the potential for a significant retrofit market for its core processors, digital cockpits, and memory systems, beyond just new deliveries, and stated L3Harris will work closely with Lockheed to support these efforts.

Robert Stallard asked if recent geopolitical activities have led to any change in European customers' preference for U.S.-sourced equipment over European-made products. He also inquired if there has been any notable change in the Aerospace backlog or an increase in AI-related orders due to concerns over an 'AI bubble'.

Answer

Phebe Novakovic, Chairman and CEO, stated that there has been no change in European customer preferences, emphasizing that the largest source of European business is indigenous and locally sourced. She also confirmed no observed AI-driven demand in Gulfstream, noting demand is broad across Fortune 500 companies and high-net-worth individuals.

Robert Stallard asked if recent geopolitical activities have changed conversations with European customers regarding U.S.-sourced versus European-made equipment. He also inquired if there has been any notable change in Gulfstream's backlog or an increase in AI-related orders from AI-driven companies.

Answer

Chairman and CEO Phebe Novakovic reported no change in European customer conversations, emphasizing that their largest European businesses are indigenous and locally sourced. She also stated that there has been no AI-driven demand for Gulfstream, with demand remaining broad across Fortune 500 and high-net-worth individuals.

Robert Stallard inquired about reports suggesting the U.S. customer might ask defense companies to increase CapEx and R&D investments while potentially restricting cash returns to shareholders. He also asked about any unusual defense advances contributing to the strong Q3 free cash flow.

Answer

Phebe Novakovic, Chairman and CEO of General Dynamics, stated that the company has already heavily invested in its businesses over the past seven years, anticipating growth, and has not yet seen direct requests for increased CapEx/R&D or cash return restrictions. Kimberly Kuryea, Chief Financial Officer, confirmed there were no unusual defense advances contributing to the strong Q3 free cash flow.

Robert Stallard asked about the recent management reorganization and its potential impact on business operations, and also questioned if the Combat and Mission Systems segments would be combined.

Answer

Chairman and CEO Phebe Novakovic explained that the reorganization, particularly the new role for EVP of Global Operations Danny Deep, is designed to increase operating leverage across the portfolio. She assured that the fundamental management approach remains the same and stated definitively that the Combat and Mission Systems segments will not be combined.

Robert Stallard questioned whether the recent tariff situation has altered the landscape for the aerospace supply chain, particularly for engines, despite management's positive comments on its recent performance.

Answer

Phebe Novakovic, Chairman and CEO, clarified that while the supply chain has made very good progress, problems are not entirely resolved. She stated it is too soon to determine the full impact of tariffs but noted that a significant amount of material consumed by Gulfstream has high U.S. content, which may mitigate some effects.

Robert Stallard of Vertical Research Partners asked if the new U.S. administration might allow for more flexibility on military exports. He also inquired if General Dynamics was seeing any impact in Europe from a political desire to procure more defense equipment locally.

Answer

Phebe Novakovic, Chairman and CEO, responded that since GD's European business is domiciled there, they have not seen changes in buying habits amid increased spending. Regarding exports, she noted that the current administration has been clear about its intent to export, and General Dynamics is prepared to support that policy.

Robert Stallard of Vertical Research Partners asked for more detail on the persistent supply chain issues in the Marine Systems segment, their impact on submarine schedules, and whether these problems jeopardize the goal of producing two Virginia-class submarines per year.

Answer

CEO Phebe Novakovic explained that the supply chain is not improving at the anticipated rate due to factors like manufacturing cost inflation, demographic challenges, and the sheer demand increase on submarine suppliers. She confirmed this has already impacted schedules and will put 'considerable pressure' on the short-term goal of producing two Virginia-class boats annually. The company will adjust its pace to align with the supply chain and focus on internal productivity.

Robert Stallard inquired about the potential revenue upside and returns for the MV-75 program due to acceleration, and the expected booking margins after the potential LRIP charge.

Answer

David Rosenberg, CFO of Textron, stated that the MV-75 program offers a significant increase in Bell's overall revenue profile, with an opportunity for 40-60 units per year, starting much quicker than originally expected. He anticipates Bell returning to double-digit margins as the program matures. Regarding booking margins, Rosenberg explained that the program is treated as one, with adjustments made as new contract line items are awarded. He noted that while a potential charge would lower the booking rate to low single digits, the program is expected to remain profitable.

Robert Stallard asked about the potential upside for MV-75 program revenues and returns in 2027, 2028, and 2029, beyond the additional CapEx and potential LRIP charge. He also asked where booking margins for MV-75 would stand after the potential charge.

Answer

CFO David Rosenberg stated that the MV-75 program offers a significant revenue increase, with an opportunity for 40-60 units per year, starting much quicker than originally expected. He anticipates Bell returning to historical double-digit margins as the program matures, with acceleration bringing this benefit sooner. Regarding booking margins, he explained that the program is treated as one, with adjustments made as new contract line items are awarded. He noted that while the LRIP charge would lower the booking rate, it would remain in the low single digits, and the program is expected to remain profitable.

Robert Stallard asked about the division of roles between Scott Donnelly as Executive Chairman and Lisa Atherton as CEO. He also inquired if recent signs of increased business jet activity are translating into higher aftermarket activity for Textron Aviation.

Answer

Scott Donnelly, Chairman, President, and CEO of Textron, clarified that Lisa Atherton will fully run the company as CEO, with him providing support and leading the board. He confirmed a strong aftermarket quarter for Textron Aviation, driven by robust utilization and flying activity, which also bodes well for overall aircraft demand.

Robert Stallard asked about the expected division of roles between Scott Donnelly as Executive Chairman and Lisa Atherton as President and CEO. He also inquired if Textron is observing a flow-through of increased business jet activity into its aftermarket services.

Answer

Scott Donnelly, Chairman, President, and CEO, clarified that Lisa Atherton will be fully running the company as President and CEO, with him providing support for processes and leading the board, expecting a smooth transition. He confirmed a strong aftermarket quarter for Textron Aviation, driven by robust utilization and increased flying, which also bodes well for future aircraft demand, indicating a healthy industry.

Robert Stallard from Vertical Research Partners asked if the MV75 program acceleration would require additional capital investment from Textron and questioned the company's interest in pursuing large fleet deals for its aircraft.

Answer

Scott C. Donnelly, Chairman, CEO & President, confirmed that accelerating the MV75 program would pull forward planned capital expenditures by about 18 months, a manageable change factored into long-range plans. On fleet deals, he stated that Textron is only interested if the business is good, emphasizing the current strength of retail demand and backlog.

Robert Stallard inquired about the potential impact of tariffs and trade wars on Textron's various business segments going forward.

Answer

Chairman and CEO Scott Donnelly stated that the impact has been 'pretty de minimis' so far. He explained that the largest businesses, Aviation and Bell, are principally North American manufacturers compliant with USMCA, avoiding significant tariffs. For the Kautex business, products are manufactured and consumed within the same global regions, preventing tariff exposure. While some parts are sourced from Europe and Asia, the impact is not material, and the company will continue to monitor the situation.

Robert Stallard asked about the potential risks and opportunities within the 2025 revenue and margin guidance for the Bell segment and questioned if the U.S. election had caused any change in demand for the Aviation or Industrial segments.

Answer

Scott Donnelly, Chairman and CEO, responded that he sees low risk in the Bell guidance as it is supported by existing backlog, with the FLRAA ramp aligned with pending appropriations and commercial business well-booked. On the election's impact, Donnelly noted that Textron did not experience the typical pre-election slowdown, likely due to long backlogs, and has not observed any subsequent changes in demand for its industrial products.

Robert Stallard questioned the supply chain recovery plan, asking if Textron maintained part inflows during the strike to build inventory, and also inquired about demand softness for the Kautex business in Europe.

Answer

CEO Scott Donnelly confirmed that Textron used the strike period to work with suppliers and improve parts availability, accepting a temporary inventory build to enhance future factory efficiency. He also acknowledged that the European auto market is challenged, but the Kautex team is managing effectively through productivity and pricing actions.

Robert Stallard asked about concerns regarding a potential return of tariff risk at BCA due to geopolitical volatility and a longer-term shift in Europe towards more local defense procurement.

Answer

Kelly Ortberg, CEO, stated he is not 'worried' but continues to monitor tariff risks, noting the U.S. administration's support for commercial aerospace. He referenced past resolutions of delivery shutdowns into China and the need to watch trade barriers, especially with Europe, to avoid tit-for-tat scenarios. He expressed confidence in the administration's accessibility and positive outcomes so far.

Robert Stallard inquired about Boeing's concerns regarding geopolitical volatility, specifically the potential return of tariff risks impacting Commercial Airplanes (BCA) and a longer-term shift towards more local procurement in Europe for defense contracts.

Answer

Kelly Ortberg, Boeing's President and Chief Executive Officer, stated that while not "worried," these are dynamics to continuously monitor. He noted the U.S. administration's understanding and support for commercial aerospace, which has led to favorable outcomes in past tariff discussions. Ortberg mentioned that China deliveries were resolved last year, with similar delivery numbers expected for the current year, and emphasized watching trade negotiations with Europe to avoid tit-for-tat scenarios.

Robert Stallard asked for a breakdown of the $4.9 billion charge on the 777X program and how Boeing plans to manage its supply chain given the program's delay.

Answer

EVP and CFO Jay Malave detailed that the charge was primarily driven by revised production plans to mitigate pre-certification builds and establish a higher-confidence long-term production plan. This includes substantial carrying costs from a longer performance period, a slower ramp rate impacting the learning curve, and increased rework costs. President and CEO Dave Calhoun added that the revised estimate and charge accounted for supply chain impacts, necessitating case-by-case negotiations with suppliers.

Robert Stallard asked for a breakdown of the $4.9 billion charge on the 777X program, which was larger than anticipated, and how Boeing plans to manage the 777X supply chain in light of the program's delay.

Answer

EVP and CFO Jay Malave explained that the charge primarily stems from revising production plans to mitigate pre-certification airplane builds and provisioning for a higher confidence long-term plan. This includes substantial carrying costs, learning curve adjustments, and rework on built aircraft due to the longer holding period and slower ramp rate. President and CEO Dave Calhoun added that the revised estimate contemplates the impact on the supply chain, requiring negotiations with suppliers on a case-by-case basis.

Robert Stallard inquired about the financial impact of the sale of the digital aviation solutions business, asking about the expected dilution to future EBIT and free cash flow, and the anticipated net cash proceeds after taxes.

Answer

EVP and CFO Brian West stated the sale will not disrupt the company's long-term goal of mid-double-digit margins. He confirmed the net proceeds would be approximately $10 billion, close to the full purchase price, as it is an all-cash deal with minimal leakage, which de-risks the transaction between signing and closing.

Robert Stallard asked for an update on Northrop Grumman's dividend and buyback strategy, especially considering recent U.S. government commentary. He also inquired about the extent to which future growth depends on the supply chain and if Northrop Grumman anticipates investing its own capital in the supply chain.

Answer

Chair, CEO, and President Kathy Warden stated that the plan is to keep the share count flat and increase capital spending to build out the industrial base, with no additional buybacks beyond January. The dividend plan will be updated in May. She added that Northrop Grumman partners with its supply chain for capacity expansion, with most investing alongside the company, and the government often engages directly with lower-tier suppliers for raw material shortages.

Robert Stallard asked for an update on Northrop Grumman's dividend and buyback plans, especially given recent U.S. government commentary. He also inquired about the supply chain's role as a pacing item for future growth and if Northrop Grumman expects to invest its own money in the supply chain.

Answer

John Green, CFO of Northrop Grumman, stated that the capital allocation strategy prioritizes investment for future earnings, leading to flat share count and increased CapEx. No additional buybacks are planned beyond January, and the dividend plan will be updated in May. Kathy Warden, Chair, CEO, and President, explained that Northrop Grumman partners with its supply chain for capacity expansion, with suppliers often co-investing. The government directly addresses lower-tier supply chain shortages, while Northrop Grumman works directly with its supply chain.

Robert Stallard of Vertical Research Partners asked for clarification on the Sentinel program, questioning if the silo issues remain a pacing item, and requested the annualized P&L and cash impact of the recent R&D tax credit changes.

Answer

Chair, CEO & President Kathy Warden clarified that all three segments of the Sentinel program need to move forward together and that work on the launch facilities (silos) has resumed, with a focus on finalizing requirements to potentially reduce costs and accelerate the schedule. CFO Kenneth Crews stated that the R&D tax change provides approximately $200 million in cash tax benefits over the next few years and had a roughly $50 million impact on the P&L.

Robert Stallard asked for the basis of confidence in the U.S. contracting environment improving, given potential Pentagon headcount reductions, and questioned the cash flow impact of the B-21 EAC adjustment.

Answer

CEO Kathy Warden expressed confidence based on seeing delayed award decisions begin to move forward. CFO Ken Crews clarified the cash impact from the B-21 charge would not be material in 2025 but spread primarily across 2026, 2027, and 2028.

Robert Stallard of Vertical Research Partners asked if a potentially more relaxed regulatory environment could open up more M&A opportunities and inquired about any accounting or cash flow impacts from the B-21 Lot 2 LRIP award.

Answer

CEO Kathy Warden stated it's too early to predict the regulatory environment for national security M&A but affirmed the company will remain active in portfolio management to create shareholder value. CFO Ken Crews confirmed the B-21 Lot 2 award in Q4 did not trigger any new accounting changes or immediate cash flow impacts beyond what was already accounted for in the company's guidance, noting the cash impacts from the 2023 charge occur over a long duration.

Robert Stallard of Vertical Research Partners inquired about the financial and practical implications of the Sentinel program's schedule adjustments and asked for details on the contract structure and revenue progression for the new Glide Phase Interceptor (GPI) program.

Answer

Chair, CEO and President Kathy Warden stated that the outlook for the Sentinel program already incorporates anticipated changes from its restructure, with growth still expected year-over-year, just smoothed over a longer period. Regarding GPI, she explained it is an incrementally funded program starting with risk reduction and design maturation, with the recent down-select signaling the Missile Defense Agency's confidence in Northrop Grumman's approach.

Robert Stallard sought clarification on Pratt & Whitney's 2026 OEM guidance, which appeared conservative given Airbus's A320 and A220 plans, requesting more detailed components, especially for aerospace OEM.

Answer

CFO Neil Mitchill explained that large commercial engine deliveries are expected to grow mid-to-high single digits in 2026, building on 6% growth in 2025. He noted a balance between supporting the flying fleet and new installs, with continued MRO growth and flattish spare engine deliveries, leading to a slight mix headwind on the top line. Chairman and CEO Chris Calio added that 2025 total deliveries were up over 50% versus 2019.

Robert Stallard inquired about the 2026 guidance for Pratt & Whitney, specifically noting that the OEM side appeared conservative given Airbus's planned production increases for the A320 and A220, and requested more detail on the aerospace OEM components.

Answer

Neil Mitchill, CFO of RTX, clarified that large commercial engine deliveries are expected to grow mid-to-high single digits in 2026, building on a 6% increase in 2025. He explained the balance between supporting the flying fleet and new installs, with continued MRO growth for GTF aircraft. Mitchill noted growth in installs and flat spare engine deliveries for 2026, leading to a slight mix headwind on the top line despite strong output. Chris Calio, Chairman and CEO, added that 2025 total deliveries were up over 50% versus 2019 levels and highlighted upcoming capacity investments.

Robert Stallard of Vertical Research Partners asked for more detail on the evolving tariff situation and whether there have been any negative impacts on demand, particularly from U.S. airlines.

Answer

Christopher Calio, Chairman & CEO, stated that the full-year tariff impact outlook has improved from $850 million to $500 million, driven by both reduced rates and enhanced mitigation efforts. He confirmed no negative impact on demand has been observed, citing strong commercial aftermarket growth. CFO Neil Mitchill added that the $500 million impact is split between Collins ($275M) and Pratt & Whitney ($225M), with about $100 million incurred in Q2.

Robert Stallard asked for clarification on whether the outlined $850 million tariff impact is a gross or net figure and questioned RTX's ability to pass on these costs to customers, particularly on the commercial aerospace side.

Answer

Executive Chairman and CEO Christopher Calio clarified that the $850 million figure is net of mitigations, including regulatory, contractual, and operational actions. He stated that while RTX has become proficient at passing on costs through pricing in the recent inflationary environment, the company will remain balanced and monitor the fluid trade situation before taking further action.

Robert Stallard of Vertical Research Partners questioned if the 2025 aerospace OEM sales guidance was conservative compared to airframer forecasts, and whether it included contingencies for inventory or other factors.

Answer

CFO Neil Mitchill confirmed a prudent approach, particularly for Collins, to account for some inventory in the narrow-body channel, while noting the company is positioned to meet a faster ramp. For Pratt & Whitney, he expects large commercial engine unit growth similar to 2024's 14% rate, with some offsetting mix headwinds.

Robert Stallard of Vertical Research Partners inquired about how RTX is managing the competing demands for GTF engine spares versus new engines for the Airbus production line, and asked about the company's confidence in meeting Q4 delivery targets.

Answer

Executive Christopher Calio explained that RTX has increased aggregate deliveries of both original equipment (OE) and spares, with volumes up 16% year-to-date. He emphasized that a careful balance between spares and MRO support is necessary to manage the powdered metal issue and support the existing fleet. Calio noted that production of key components like isothermal forgings is ramping up significantly, and RTX is aligned with Airbus to meet its Q4 delivery needs.

Robert Stallard asked about the demand drivers for Teledyne's test and measurement segment, including Ethernet test, auto, motor control, power control, and data centers, and any improvements in other end markets. He also sought an outlook for legacy machine vision and CMOS X-ray businesses, specifically regarding recovery, upside potential, and sequential improvement for medical portions.

Answer

Robert Mehrabian (Executive Chairman) highlighted strong performance in high-end oscilloscopes for auto, motor/power control in data centers, and Ethernet traffic generation for terabit ranges. He noted a slower start for protocol analyzers due to chip production delays. George C. Bobb (President and CEO) added that machine vision cameras and sensors saw good single-digit growth in Q4, with low single-digit growth expected in 2026, driven by semiconductor inspection. For the X-ray business, flat year-over-year performance is anticipated in 2026, without a built-in recovery.

Robert Stallard inquired about the initial performance of the new blade in the LEAP-1A durability kit and the expected timeline for its rollout across the entire installed base.

Answer

Larry Culp, Chairman and CEO, reported positive initial performance for the LEAP-1A durability kit, with the new blade at its core, expecting a 2x improvement in time on wing. He mentioned the LEAP-1B equivalent is undergoing certification for a first-half next year release, and the full upgrade of the installed base is anticipated to be a multi-year effort, starting with the aftermarket and then Boeing post-certification.

Robert Stallard followed up on GE Aerospace's comments about durability, asking about the initial performance of the new blade on the LEAP 1A and the expected timeline for its rollout across the installed base.

Answer

Chairman and CEO Larry Culp reported positive performance for the LEAP 1A durability kit, including the new blade, expecting a 2X improvement in cycles. He noted that LEAP 1B equivalent certification is anticipated in the first half of next year and that upgrading the entire installed base will be a multi-year effort, with current focus on the aftermarket and future plans for Boeing post-certification.

Robert Stallard asked for the expected split between Airbus and Boeing for the planned 15-20% growth in LEAP engine deliveries in 2025.

Answer

CEO H. Culp declined to provide a specific breakdown of LEAP engine deliveries between airframers. He stated that GE Aerospace is in frequent communication with both Airbus and Boeing and is well-aligned to support their respective production ramps in 2025.

Robert Stallard of Vertical Research Partners asked about the financial and operational implications for GE Aerospace following Boeing's recently announced delay of the 777X program.

Answer

Executive H. Culp stated there is no operational change, as GE continues to test the GE9X engine and prepare for its production ramp. Executive Rahul Ghai added that a few revenue recognition units are included in the Q4 forecast and that GE is working with Boeing on 2025 engine requirements. He reiterated the long-term cost-out plan for the engine and the expectation for the program to achieve profitability by 2030.

Robert Stallard of Vertical Research Partners inquired about the F-35 program, asking for an explanation for the reduced aircraft count in the administration's FY26 budget request and how easily the company can substitute any relinquished DOD slots with international orders.

Answer

CEO James Taiclet explained that the President's budget is an initial step and that congressional committees have already marked up the F-35 procurement numbers significantly higher. CFO Evan Scott noted that with a backlog of 311 aircraft and another 150 expected from Lot 19, the company has substantial flexibility. Taiclet confirmed they can adjust schedules to accommodate strong international demand.

Robert Stallard of Vertical Research Partners inquired about the F-35 program, asking for an explanation for the reduced aircraft quantity in the administration's FY26 budget request and how easily relinquished DOD slots could be filled by export customers.

Answer

Chairman, President & CEO James Taiclet explained that the President's budget is an initial step and that both the House and Senate armed services committees have already marked up higher quantities for the F-35. CFO Evan Scott added that with 311 aircraft in backlog and another 150 expected from Lot 19, the company has significant flexibility to manage production and accommodate international demand.

Robert Stallard of Vertical Research Partners questioned whether the Department of Defense's increasing preference for fixed-price contracts could expose the defense industry to more risk and future charges.

Answer

Chairman, President and CEO James Taiclet responded that he is 'not necessarily' concerned, as Lockheed Martin applies a stringent, risk-adjusted ROI bid process to all contracts and will walk away from unfavorable terms. CFO Jesus Malave added that over the past 12-18 months, the DoD has shown greater recognition that matching contract type to technical risk is crucial, especially for immature technologies.

Robert Stallard asked for quantification of the working capital benefit needed to offset pension headwinds over the next few years and inquired about the risk associated with this forecast.

Answer

CFO Jesus Malave explained that roughly four days of cumulative working capital improvement would be needed through 2026, which he described as 'possible, but a stretch.' He stated that due to this challenge, a higher-confidence plan involves combining organic working capital initiatives with inorganic options, such as debt financing, to act as a 'gap filler' and ensure the pension headwind is managed.

Robert Stallard of Vertical Research Partners inquired about any supply chain impacts from the recent SPS fastener fire and asked for more detail on the issues at Spirit AeroSystems affecting the A350 program and its ramp-up plans.

Answer

CEO Guillaume Faury confirmed that Airbus has not been impacted by the SPS fire. Regarding the A350, he acknowledged that issues at Spirit AeroSystems have negatively impacted the program, causing a delay of about a year in the ramp-up. However, he affirmed that Airbus still believes it can reach the production rate of 12 per month by 2028 despite the difficulties with Spirit's Section 15, as the rest of the A350 supply chain is ramping up as planned.

Robert Stallard questioned if uncertainty at Boeing is creating indirect knock-on effects for Airbus's supply chain. He also asked if the scale of the Indian order book justifies establishing a commercial aircraft final assembly line in India.

Answer

CEO Guillaume Faury confirmed that changes and uncertainty from their competitor do add stress to the shared supply chain, citing Spirit AeroSystems as an extreme example. Regarding India, he stated that a commercial aircraft final assembly line is not the current plan. Instead, Airbus is pursuing a broad and deep growth strategy there, including final assembly for the C295 and H125 helicopter, significant sourcing, and growing its employee base to 5,000 by 2025.

Asked how the Airbus negotiations differ from the Boeing discussions and why the A220 program did not take a charge in the quarter. He also asked for a timeline on the Airbus deal.

Answer

Pat Shanahan said the negotiations are very similar, focused on the A220 and the misalignment between the production system's maturity and performance expectations. Mark Suchinski confirmed the A220 had a good, quiet quarter with no forward loss. Pat Shanahan believes a deal with Airbus can be reached before the February earnings call.

Robert Stallard of Royal Bank of Canada asked about the potential positive impacts from the improving US FY'16 budget and the market reaction to the strategic review of BAE's US manpower and services businesses.

Answer

Jerry DeMuro, President and CEO of BAE Systems, Inc., noted the US budget was encouraging, with key programs like F-35 and combat vehicles well-supported. CEO Ian King revealed the strategic review was prompted by inbound interest and emphasized that a sale would only occur if it created shareholder value, with any proceeds following the established capital allocation policy toward areas like electronics and cyber.