Ronald Epstein

Ronald Epstein inquired about the M&A outlook for 2026, HEICO's comfort with leveraging its strong balance sheet for potential deals, and the progress made on developing PMA parts for defense applications.

Answer

Victor Mendelson stated that the M&A pipeline is very strong, with HEICO being viewed as a buyer of choice due to its long track record. Carlos Macau confirmed comfort with taking on additional leverage (potentially 4-6x) for the right deal, aiming to return to a 2x target within 12-24 months. Eric Mendelson noted progress on PMA parts for defense, reiterating it as a medium-term project with significant opportunity.

Ronald Epstein inquired about the M&A outlook for 2026, the company's comfort with leveraging its strong balance sheet for potential deals, and the progress made on developing PMA parts for defense applications.

Answer

Victor Mendelson and Eric Mendelson described the M&A pipeline as robust, emphasizing HEICO's reputation as a preferred buyer for entrepreneurial businesses. Carlos Macau stated HEICO is comfortable with additional leverage (potentially 4-6x EBITDA for the right deal, aiming to return to ~2x within 12-24 months) for accretive transactions. Eric Mendelson confirmed progress on defense PMA parts, noting it remains a medium-term opportunity.

Ronald Epstein of Bank of America asked for HEICO's view on when the average age of the commercial fleet might decline, the potential industry disruption from the SPS fire, and how the company thinks about the risk of tariffs.

Answer

Eric Mendelson, Co-President, noted that HEICO focuses on the number of aircraft in age cohorts rather than the average age and isn't concerned, as older aircraft continue to fly and newer ones are very expensive to maintain. He expects the SPS fire to be "quite disruptive" but has confidence in PCC's ability to recover quickly. Carlos Macau, EVP and CFO, stated that tariff risk is diffused due to a localized supply chain and that any potential 3-5% cost increase could be passed on to customers.

Ronald Epstein from Bank of America asked about expectations for the M&A environment under the new administration and HEICO's appetite for another large acquisition.

Answer

Co-President Eric Mendelson anticipates a more pro-business regulatory environment but noted HEICO is already a preferred buyer with a busy pipeline. Co-President Victor Mendelson added that HEICO's appetite for acquisitions of all sizes, including large ones, remains unchanged and is driven by bottom-line returns. Eric Mendelson highlighted the success of the Wencor deal as proof of their ability to execute large transactions.

Ron Epstein asked about BETA's strategy for managing supply chain and labor during the production ramp-up, and sought clarification on the term 'deposit-backed backlog' and its significance.

Answer

Kyle Clark, CEO of BETA Technologies, detailed strategies including vertical integration, pre-buying critical components like semiconductors and batteries, and reducing labor through design simplification. Herman Cueto, CFO, and Kyle Clark explained that 'deposit-backed backlog' represents a firm financial commitment from customers, with deposits covering approximately 50% of the aircraft's selling price, providing strong working capital support.

Ron Epstein followed up on L3Harris's NASA work, asking about potential restructuring of civil NASA programs and the opportunities this might present for the company.

Answer

SVP, CFO, and President of Aerojet Rocketdyne Kenneth Bedingfield affirmed NASA as an important customer, particularly for the RS-25 engines for the SLS system, which is a significant part of their space propulsion business. He highlighted additional government funding for SLS through Flight 5 and ongoing engine production, emphasizing the strategic value of space exploration and L3Harris's role as a proud partner with multiple years of backlog in the program.

Ronald Epstein from Bank of America Merrill Lynch asked about the impact of increased European defense spending on L3Harris and whether the company needs a larger physical footprint in Europe to capture these opportunities.

Answer

Chairman and CEO Christopher Kubasik highlighted significant international growth, particularly in European demand for software-defined radios where L3Harris is displacing incumbent providers. He stated that the current strategy of partnering with local companies is effective, though the company remains agile and can establish a physical presence if needed, as it did in Poland.

Ronald Epstein of Bank of America Merrill Lynch questioned the impact of increased European defense spending on L3Harris's international opportunities and whether the company needs a larger strategic footprint in Europe.

Answer

Chairman & CEO Christopher Kubasik highlighted strong international growth, particularly in European demand for software-defined radios where L3Harris is displacing indigenous providers. He stated that the current strategy of partnering with local companies, rather than building a large physical footprint, is working well, though they remain agile and can adjust as needed, citing a past factory opening in Poland as an example.

Ronald Epstein inquired about the 'Golden Dome' initiative, asking for more detail on the company's investments and whether any awards have been secured.

Answer

CEO Christopher Kubasik clarified that no Golden Dome awards have been made yet, but L3Harris is well-positioned, particularly with its HBTSS satellite, which is the only proven on-orbit system for tracking hypersonic missiles and is specifically mentioned for acceleration in the executive order. Executive Kenneth Bedingfield added that prior investments in missile warning and tracking factories in Fort Wayne and Palm Bay align perfectly with the initiative's needs, and the Aerojet Rocketdyne acquisition provides critical interceptor and target capabilities.

Ronald Epstein asked about the M&A environment under the new administration and whether L3Harris was considering bolt-on acquisitions, particularly in technology or venture-oriented areas.

Answer

CEO Christopher Kubasik stated that while the M&A environment may be more favorable, the company's primary focus remains on its operational playbook of partnerships, share repurchases, and organic growth. He highlighted collaborations with firms like Palantir and investments in over 40 venture-backed companies as the preferred method for accessing new technology, rather than pursuing large acquisitions.

Ronald Epstein asked for more color on HII's partnering strategy for unmanned vessels, specifically mentioning collaborations with Shield AI and the progress of internal autonomy systems. He also inquired about the potential market size for unmanned systems and the strategic implications of recent news regarding Hanwha potentially building nuclear submarines at the Philadelphia Navy Yard.

Answer

Chris Kastner, President and CEO, explained that HII's Odyssey software solution for autonomy is open-source, allowing seamless integration of partner capabilities like Shield AI to enhance mission effectiveness. He highlighted the success of their unmanned vehicles, with over 750 delivered, and noted that the unmanned market is ramping up and becoming more material for Mission Technologies, though he refrained from providing a specific market size. Regarding the Hanwha news, Mr. Kastner stated it was new information and HII would focus on building what the Navy requests, remaining undistracted.

Ronald Epstein from Bank of America sought further details on HII's partnering strategy for unmanned vessels, specifically regarding the collaboration with Shield AI and the development of internal autonomy systems. He also inquired about the potential market size for HII in the unmanned sector and the strategic implications of recent news regarding Hanwha's potential involvement in nuclear submarine production.

Answer

President and CEO Chris Kastner elaborated on the open-source nature of HII's Odyssey software, which facilitates integration with partners like Shield AI and C3AI to enhance unmanned vehicle capabilities, citing over 750 deliveries and the Romulus line. He noted the unmanned market is growing and becoming more significant for Mission Technologies, with HII actively investing, though he refrained from providing a specific market size. Mr. Kastner declined to comment directly on the Hanwha news, emphasizing HII's commitment to fulfilling Navy requirements and focusing on current programs.

Ronald Epstein from BofA Securities inquired about the business impact of the R&D tax code changes and asked for the current size and growth potential of HII's unmanned undersea vehicle (UUV) business.

Answer

EVP and CFO Thomas Stiehle explained that the R&D tax law change was the primary driver for the $150 million increase in the 2025 free cash flow guidance. President and CEO Christopher Kastner added that while the UUV business size is not disclosed, it is expected to have 'outsized growth' and highlighted significant opportunities like a potential 200-vehicle Navy contract.

Ronald Epstein asked what is required to modernize U.S. military shipyard manufacturing processes, similar to the automation in Korean commercial yards, and inquired about demand trends for HII's unmanned products.

Answer

President and CEO Christopher Kastner explained that defense shipbuilding is less suited to heavy automation due to complexity, with improvements focused on process efficiency and streamlining. He reported that demand for unmanned systems is 'really good,' with a significant backlog and ramp-up potential for its uncrewed underwater vehicles both domestically and internationally.

Ronald Epstein questioned how management could not have foreseen the current issues at their Investor Day, asked for the 2025 margin outlook, and queried if higher pay could solve the shipbuilder labor shortage.

Answer

CEO Christopher Kastner responded that their assumptions for navigating pre-COVID contracts were 'a little bit too optimistic.' He deferred providing 2025 margin guidance until January, pending Q4 execution and clarity on new submarine contracts. He agreed that higher pay is a key lever for improving retention and performance, confirming it is a focus in discussions with the Navy.

Ron Epstein inquired about the specific reasons for the recent reevaluation and delay of the 777X program, particularly what changed in the last few months, and what factors are slowing down the TIA (Type Inspection Authorization) approval process.

Answer

EVP and CFO Jay Malave reiterated that there are no new technical issues with the 777X airplane or engines. President and CEO Dave Calhoun explained that the delay is solely due to the certification work, specifically underestimating the effort required for TIA approvals and the FAA's review process. He noted it's a collective learning experience for both Boeing and the FAA with the new incremental TIA process.

Ronald Jay Epstein inquired about the specific factors driving the recent reevaluation and delay of the 777X program, particularly concerning the certification process and TIA approvals.

Answer

President and CEO Dave Calhoun explained that the delay is solely due to challenges in completing certification work, specifically obtaining TIA (Type Inspection Authorization) approvals, not new issues with the airplane or engines. He admitted underestimating the effort required for TIA approvals and FAA data review, describing the slowdown as a collective learning experience for Boeing and the FAA with the new process.

Ronald Epstein of Bank of America asked for a more detailed explanation of the engine anti-ice issue on the 737-7 and -10 variants, specifically what was causing the certification process to take longer than expected.

Answer

President & CEO Kelly Ortberg clarified that the delay stems from engineering design challenges. Recent testing of a potential solution revealed issues with airflow perturbation into the engine inlet, requiring the team to 'back up and make some additional design changes.' This has extended the timeline for finalizing a certifiable solution.

Ronald Epstein asked about Boeing's portfolio strategy, inquiring what management considers core versus non-core and seeking comment on media speculation about potential asset sales like Jeppesen.

Answer

CEO Kelly Ortberg stated that a detailed portfolio review is complete and the company's approach will be 'more pruning the portfolio, not cutting down the tree.' He emphasized that this will not be a major restructuring but a streamlining of non-core areas to reduce bureaucracy. He declined to comment on specific assets but indicated actions would occur over the coming months and year.

Ronald Epstein of Bank of America asked about the five-year vision for the Boeing company and at what point a new airplane development program might fit into that future.

Answer

President and CEO Kelly Ortberg outlined his vision for Boeing to regain its leadership position in aerospace and defense through disciplined execution on its existing backlog. He stated that the immediate focus is on executing well, not pursuing new market opportunities, as demand for current products is already strong. He noted that a new airplane is needed in the future, but the company must first stabilize the business and restore the balance sheet.

Ron Epstein from Bank of America inquired about AerCap's view on the A220 market, potential collaborations with Pratt & Whitney in the engine business, and the company's interest in financing emerging electric and hybrid aircraft technologies.

Answer

CEO Aengus Kelly described the A220 as a niche aircraft with passenger appeal, but noted engine time-on-wing challenges, hoping for improvements from Pratt. He confirmed ongoing discussions with Pratt but emphasized AerCap's unique intellectual property in engine logistics with GE/CFM. Regarding electric aircraft, he stated AerCap prefers to be an 'intelligent follower' rather than an initial innovator.

Ron Epstein asked about the market for the A220 aircraft, potential opportunities for AerCap's engine business with Pratt & Whitney, and AerCap's interest in financing emerging electric or hybrid aircraft (EVTOL, urban air mobility).

Answer

CEO Aengus Kelly described the A220 as a niche aircraft with a good passenger experience but noted engine time-on-wing challenges, hoping for improved durability with Pratt enhancements. He stated AerCap talks to Pratt but wouldn't rule out partnerships, emphasizing AerCap's unique spare engine network management with GE and CFM. Regarding electric aircraft, he indicated AerCap prefers to be an 'intelligent follower' rather than an 'initial innovator' in that space.

Ron Epstein from Bank of America inquired about the impact of the tariff environment, the comparative return profiles of engines versus airframes, and whether AerCap needs to expand its wide-body order book.

Answer

CFO Pete Juhas noted a minimal impact from tariffs. CEO Aengus Kelly explained that engines have a lower initial yield but a shallower depreciation curve compared to airframes. He stated definitively that AerCap would not build its wide-body order book unless it met strict shareholder return criteria, famously adding that the 'cheapest wide bodies in the world' are AerCap's own shares.

Ron Epstein of Bank of America inquired about the business impact of the global tariff environment, the comparative return profiles of engines versus airframes, and whether AerCap needs to expand its wide-body order book.

Answer

CFO Pete Juhas reported a very limited impact from tariffs and expressed optimism about recent US-UK and US-EU agreements setting a precedent for a "zero for zero" tariff regime. CEO Aengus Kelly explained that engines have a lower initial lease yield but a shallower long-term depreciation curve compared to airframes. Critically, he stated AerCap will not expand its wide-body order book unless it generates adequate shareholder returns, remarking that "the cheapest wide bodies in the world are available on the New York Stock Exchange under the ticker Alpha Echo Romeo."

Ronald Epstein inquired about the current state of wide-body aircraft demand and the outlook for the 777X. He also asked if the aerospace industry is actively lobbying against tariffs and, separately, whether he believes the 737 aircraft family needs to be replaced.

Answer

CEO Aengus Kelly confirmed that wide-body demand remains 'very strong' and 'unabated,' with high demand for 787s and A350s. He expects the 777X to be a highly capable aircraft that will dominate its market segment. He affirmed his belief that the industry is lobbying against tariffs. On the 737, he stated emphatically 'No,' it does not need a replacement. Instead, he argued the industry's focus should be on improving the reliability and durability of existing aircraft programs, not launching new ones.

Ronald Epstein asked for an updated forecast on when the narrow-body aircraft market might reach supply-demand equilibrium, given ongoing production issues at both Boeing and Airbus. He also asked if this signals a permanent shift to older fleets.

Answer

CEO Aengus Kelly revised his forecast, pushing the expected equilibrium to the end of the decade, around 2029-2030. He cited high lease extension rates and airlines buying older assets as evidence. He clarified that airlines are keeping planes longer out of necessity, not desire, as they prefer the operational simplicity of new, standardized fleets.

Ronald Epstein asked about Gulfstream's product development strategy, specifically if the steady investment approach continues, and for insights into levers being pulled to improve efficiency in the shipbuilding business, particularly concerning labor and the supply chain.

Answer

Phebe Novakovic, Chairman and CEO of General Dynamics, reiterated Gulfstream's long-term strategy of replacing its fleet with new products, noting recent announcements like the G300, and stated future upgrades would occur in due course. Danny Deep, EVP of Global Operations, General Dynamics, highlighted supply chain stabilization as the biggest driver for shipbuilding efficiency, citing government investments, increased material flow, and internal efforts in robotics, automation, and employee training.

Ronald Epstein of Bank of America asked if G700 delivery issues would impact the G800 certification and if General Dynamics receives compensation from suppliers for delays. He also inquired about managing business operations amid recent volatility in U.S. Army contracts.

Answer

Phebe Novakovic, Chairman and CEO, stated that G800 certification is expected in the first half of 2025, and the learnings from the G700 are advantageous for the G800. She mentioned that the company has worked out some 'consideration' with suppliers but noted it was not material. Regarding contract volatility, she advised reacting to 'implemented reality' rather than rumors.

Ronald Epstein of Bank of America questioned why the supply chain for Combat Systems appears more resilient than those for the Marine and Aerospace segments. He also asked for more specific details on the types of components causing bottlenecks in the Marine supply chain.

Answer

CEO Phebe Novakovic explained that the Combat Systems supply chain is more robust because it uses materials and components that have broader industrial applications, unlike the unique, one-of-a-kind inputs for Gulfstream jets and submarines. For the Marine segment, she pointed to issues with both smaller parts from single-source suppliers and large, highly complex components, noting the Navy has also reported on these challenges.

Ronald Epstein asked about the performance of Textron Systems' unmanned portfolio, including Aerosonde, Shadow, and land systems, given the surging demand for unmanned technologies, and inquired about the pipeline for expanding in this market.

Answer

Scott Donnelly, Chairman, President, and CEO, reported that the Aerosonde program is performing well, with redeployed aircraft and growth in marine applications. He noted that while the FTOS program changed, opportunities are emerging from direct sales to brigades, international markets, and Customs and Border Patrol. Mr. Donnelly also highlighted new platforms like the Nuva 300 unmanned cargo aircraft in flight test and Pipistrel's high-altitude, long-duration surveillance products, which Textron Systems will now take to market, augmenting its unmanned aircraft strength.

Ronald Epstein asked about the performance of Textron Systems' unmanned portfolio, including Aerosonde and Shadow, given surging demand for unmanned systems, and if there are new developments in the pipeline to expand in this market.

Answer

Scott Donnelly, Chairman, President, and CEO of Textron, reported strong performance for Aerosonde, with redeployments to new applications. He noted that while the FTOS program changed, direct sales to brigades and international opportunities are emerging. He also highlighted new developments like the Nuva 300 unmanned cargo aircraft (now in flight test) and Pipistrel's high-altitude, long-duration surveillance products, which Textron Systems will market.

Samantha Stiroh, on behalf of Ronald Epstein from Bank of America, asked about Textron's capital deployment strategy, specifically regarding the outlook for share repurchases and potential M&A opportunities.

Answer

An unnamed executive, likely CEO Scott Donnelly, reiterated that the primary focus for capital deployment is opportunistic share buybacks, which they expect to continue through the second half of the year. He added that while the company has the capacity for acquisitions if a good opportunity arises, share repurchases currently offer the best return for shareholders.

Ronald Epstein asked about the potential to apply eAviation technology to other Textron aircraft like the Caravan and inquired about the company's view on the current M&A environment, especially in defense tech.

Answer

Chairman and CEO Scott Donnelly explained that while Textron supports other companies electrifying the Caravan, it is not doing so itself but has arrangements to potentially incorporate a certified electric design into its production line if demand is sufficient. On M&A, he said Textron is always looking but has found deal multiples to be 'a little bit on the nutty side' and will only pursue deals that are accretive to shareholders.

Ronald Epstein asked if the new administration could create a tailwind for private aviation and if there were opportunities for more commercial-style defense contracting, similar to the past Scorpion program.

Answer

Scott Donnelly, Chairman and CEO, agreed that a pro-business climate with favorable tax and regulatory policies generally boosts customer confidence for capital expenditures like aircraft. On defense contracting, he noted that previous efforts to accelerate acquisition were beneficial and he is hopeful the new administration will also prioritize speed, which would be a net positive for Textron's programs, though he did not comment on a specific new platform.

Ron Epstein asked for more details on the B-21 program, specifically regarding a potential increase in the build rate, and inquired about the drivers behind the program award delays mentioned in the prepared remarks.

Answer

Kathy Warden, Chair, CEO, and President, stated that Northrop Grumman is in active discussions with the customer regarding B-21 production rate acceleration, with funding included in the reconciliation bill. She noted that the government shutdown has temporarily held up these discussions. Regarding program award delays, she attributed them to the time it takes for a new administration to allocate resources and conduct reviews, exacerbated by the recent government shutdown.

Ronald Epstein from Bank of America Merrill Lynch inquired about the drivers of the 18% international sales growth and future prospects from NATO spending, and also sought more detail on the surprising positive EAC adjustment for the Sentinel program.

Answer

Chair, CEO & President Kathy Warden attributed the strong international growth to a 'generational shift' in European defense spending, with a strong book-to-bill and broad demand across weapons, missile defense, and aircraft. Regarding Sentinel, she explained that substantial progress on the weapon system, a restart of work on the command and launch segment, and a more collaborative approach with the Air Force improved the company's outlook and confidence in meeting program milestones.

Ronald Epstein pressed for details on what specifically changed with the B-21 program to trigger the recent charge and sought assurance against future charges. He also asked about profitability confidence on the Sentinel program.

Answer

CEO Kathy Warden attributed the B-21 charge to a defined process change for higher production rates and an underestimation of material costs, noting these learnings are not expected to repeat. For Sentinel, she highlighted it is a cost-plus contract and the company is working with the Air Force to identify cost efficiencies.

Ronald Epstein of Bank of America inquired about Northrop Grumman's strategic view on a potential U.S. 'Iron Dome' system and the expected 2025 growth contribution from the B-21 and GBSD (Sentinel) programs.

Answer

CEO Kathy Warden affirmed that Northrop Grumman is well-positioned to support a U.S. missile defense architecture, citing the company's end-to-end capabilities in launch disruption, satellite-based tracking, and interceptor development. She also clarified that while B-21 and GBSD will contribute to 2025 growth, their growth rates will be more modest than in the past, with both programs combined remaining under 10% of total company sales.

Ronald Epstein from Bank of America asked for an assessment of the current supply chain environment, including any specific points of tightness or concern, and questioned whether vertical integration is being considered as a solution.

Answer

Chair, CEO and President Kathy Warden responded that supply chain challenges are broad-based and supplier-dependent, spanning from microelectronics to solid rocket motors, rather than being concentrated in one area. She noted that while the situation is improving, risks will likely persist into 2025. Warden clarified that the company's primary strategy is to support suppliers, viewing vertical integration as a last resort.

Ron Epstein asked about Collins' margins, noting that incremental margins appeared weaker than expected, and questioned if this was primarily tariff-related.

Answer

CFO Neil Mitchill confirmed that the weaker incremental margins in Collins were primarily due to a $90 million year-over-year headwind from tariffs. He mentioned ongoing mitigation efforts, including USMCA treatment, bonds for re-exported material, and pricing adjustments, to address these headwinds.

Ron Epstein asked about Collins' margins, specifically if the incremental margins appeared weaker due to tariff-related impacts.

Answer

CFO Neil Mitchill confirmed that tariffs were a key factor, with Collins experiencing approximately $90 million in year-over-year tariff headwinds in the quarter, similar to Pratt. He mentioned ongoing mitigation efforts, including USMCA treatment, bonds for re-export, and pricing strategies, to address these headwinds.

Ronald Epstein of Bank of America inquired about the commercial original equipment (OE) production rates RTX is seeing from its customers, specifically regarding stability at Boeing and the ramp-up at Airbus for the A320 and A350.

Answer

CEO Christopher Calio confirmed that RTX is seeing increased stability in production rates at Boeing and that RTX has the capacity to support their needs. For Airbus, he noted the A320 continues to ramp, though a recent work stoppage had a minor impact that is expected to be recovered. He emphasized the ongoing focus on balancing material allocation between new engine production and MRO support for the existing fleet.

Ronald Epstein asked about the recent decision on a next-generation manned aircraft program and for any insight on the potential timing for the associated engine selection, implying a competition between RTX and a competitor.

Answer

Executive Chairman and CEO Christopher Calio did not provide a specific timeline but highlighted that Pratt & Whitney received a $550 million award in Q1 to advance its next-generation engine program. He expressed satisfaction with testing progress and customer feedback, reinforcing Pratt's strong track record in providing advanced fighter propulsion technologies.

Ronald Epstein of Bank of America questioned the status of the Next Generation Adaptive Propulsion (NGAP) program following an increased Air Force contract and its expected financial impact on Pratt & Whitney.

Answer

Executive Christopher Calio stated that RTX has been pleased with the rigorous testing of its NGAP solution and the new funding will help de-risk the program. CFO Neil Mitchill added that NGAP, along with the F135 Engine Core Upgrade, is a key contributor to the mid-single-digit growth forecast for Pratt's military business and represents a clear tailwind.

Ronald Epstein of Bank of America inquired about RTX's strategy regarding emerging defense tech companies, asking whether they are viewed as competitive threats or potential partners.

Answer

Executive Christopher Calio described the situation as both a threat and an opportunity. He stated that while RTX remains vigilant about competition, its key advantage is the ability to scale sophisticated production. He also acknowledged learning from the agility of newer players. Calio confirmed RTX is actively seeking partnership opportunities, particularly in software, and is using its RTX Ventures arm to invest in early-stage companies to integrate new technologies into its product portfolio.

Ron Epstein asked for details on GE Aerospace's defense R&D efforts, particularly regarding the hybrid electric turbo generator, and how commercial aviation lessons, given the large fleet experience, are being applied to the defense sector.

Answer

Chairman and CEO Larry Culp explained that commercial supply chain improvements and FlightDeck tools are significantly benefiting the defense business, evidenced by 83% engine output growth. He highlighted applying commercial best practices in development cycles and sustainment models to the Pentagon, with R&D focused on next-gen platforms like sixth-gen propulsion and the ITAP T901 engine, aiming to rethink business models.

Ron Epstein asked about the implications of hybrid electric turbo generator work for defense, the drivers of defense business growth, R&D focus in defense, and how commercial lessons are being applied to the defense sector.

Answer

Larry Culp, Chairman and CEO, highlighted that supply chain improvements and FLIGHT DECK principles, initially applied commercially, are significantly benefiting the defense business, evidenced by 83% defense engine output growth. He noted efforts to leverage commercial best practices for faster development cycles and creative sustainment models at the Pentagon. R&D is focused on next-gen platforms like sixth-gen propulsion and the T901 engine, aiming to fulfill the defense backlog and rethink business models.

Ronald Epstein of Bank of America Merrill Lynch noted increased confidence in the CFM RISE program and asked what was driving it, and if a ducted fan alternative exists.

Answer

Chairman & CEO Lawrence Culp attributed the confidence to significant technical progress, with over 350 program tests completed, and strong alignment with industry partners like Airbus. He emphatically stated that GE Aerospace is "all in" on the open fan architecture, signaling it as their primary path forward for next-generation narrowbody propulsion.

Ronald Epstein of Bank of America inquired about the supply chain risk related to rare earths and other critical materials from China, given changing trade rules.

Answer

Chairman and CEO H. Culp stated that the company has been actively managing this risk. He expressed confidence that between alternative sourcing strategies and existing inventory positions, both at GE and with its partners, there are no immediate issues. He concluded that this specific concern is not currently high on the company's worry list.

Ronald Epstein questioned if there are potential applications for the GE9X engine beyond the Boeing 777X aircraft.

Answer

CEO H. Culp stated that the company's current focus is entirely on supporting the launch of the Boeing 777X. He emphasized the engine's extensive testing, noting it's approaching 2,500 cycles and is on its second iteration of HPT blades. Culp expressed confidence in the program, highlighting a backlog of nearly 1,000 engines.

Ronald Epstein from Bank of America requested more detail on aftermarket shop visits during the quarter, noting that while LEAP visits were up, other areas appeared to be down.

Answer

Executive H. Culp attributed the dynamic to broad supply chain challenges impacting all engine programs. Executive Rahul Ghai added that there is a constant balance between supporting internal shop visits and selling spare parts to the external MRO network. In Q3, GE prioritized spare part sales to reduce overall turnaround times for airlines, resulting in higher part sales but flat internal shop visits year-over-year. He noted a strong backlog of shop visits entering Q4.

Ron Epstein asked for CEO Peter Beck's definition of a successful first Neutron launch, the drivers behind the strong Electron average selling price (ASP) in the quarter, and the potential for European national security opportunities.

Answer

CEO Sir Peter Beck defined a successful first Neutron launch as reaching orbit and being ready to scale, not just clearing the pad. CFO Adam Spice attributed the strong Electron ASP to a favorable mix of higher-priced Haste missions and improved pricing on commercial bulk buys. Beck confirmed that Europe is a key growth market, with the Monarch acquisition and ESA contracts serving as stepping stones for further expansion, including in national security.

Ronald Epstein from Bank of America asked about the health of TransDigm's own supply chain and any remaining bottlenecks. He also inquired about the company's exposure and the potential impact of the Boeing St. Louis strike.

Answer

Co-COO Mike Lisman responded that the supply chain continues to improve but is not yet at pre-pandemic efficiency, with castings and certain electronics remaining as pain points. Regarding the St. Louis strike, he noted it is a headwind but a much smaller one than a commercial strike would be, given TransDigm's relative defense exposure.

Ronald Epstein asked for an update on the freight and cargo aftermarket and inquired about the company's interest in the software-enabled hardware market.

Answer

Co-COO Mike Lisman reported that the freight business performed well in Q2, with growth exceeding the 13% overall for the commercial aftermarket. Regarding software-enabled hardware, Lisman reiterated that all M&A opportunities are evaluated against their disciplined financial model targeting a 20% IRR, and this approach will not change.

Ronald Epstein inquired about the M&A environment, asking if political changes could create new opportunities and whether any potential assets being sold by Boeing are of interest to TransDigm.

Answer

CEO Kevin Stein stated he does not speculate on political impacts but noted that fiscal 2024 was a record year for the number of transactions and he doesn't see the environment slowing. Regarding specific assets, he declined to comment on public company M&A but acknowledged some larger assets look 'possibly attractive'.

Ron Epstein of Bank of America inquired about the key drivers behind Voyager's confidence in its growth outlook and asked about any potential risks or concerns on the horizon.

Answer

CEO Dylan Taylor cited strong positioning in high-growth markets like Smart Missile Defense with its throttable propulsion technology, a robust M&A pipeline, and the long-term potential of Starlab. Key risks or focus areas mentioned were scaling technology production post-CDR, successful M&A integration, and continued talent acquisition. CFO Phil De Sousa added that the company has a growing $3.6 billion opportunity pipeline, heavily weighted toward the Defense and National Security segment.

Ronald Epstein of Bank of America asked a series of questions, including whether Embraer would consider spinning off Eve to unlock value, the status of new aircraft development, the rationale for not moving more executive jet production to the U.S., and the progress of E-Jet sales campaigns outside the U.S.

Answer

CEO Francisco Neto and CFO Antonio Garcia addressed the points, stating there are no plans to spin off Eve due to strong synergies. They confirmed ongoing R&D but no new aircraft programs to announce. They believe the current U.S. executive jet footprint is well-balanced and competitive. Finally, they highlighted strong E2 sales momentum globally following recent orders from ANA and SAS.

Ronald Epstein from Bank of America asked about the timeline for investing in a new aircraft platform, the level of conservatism in the 2025 guidance, and demand for the KC-390 from NATO.

Answer

CEO Francisco Neto stated the focus is on execution through 2030 to fund any future program, calling the current guidance 'realistic' rather than conservative. He also noted strong global interest in the KC-390, with active campaigns in Europe and Asia, and highlighted the potential for a major U.S. order, which would lead to the aircraft being produced in the U.S.

Ronald Epstein asked for a broader characterization of customer interest and sales campaigns for commercial aircraft following the Farnborough Airshow, noting he had expected more order announcements.

Answer

President and CEO Francisco Gomes Neto highlighted a strong start to the year with orders from American Airlines and Mexicana. He assured that Embraer is actively engaged in numerous sales campaigns across all global regions and expressed confidence in announcing new orders in Q3 and the remainder of the year.

Ron Epstein from Bank of America asked for the breakdown of backlog growth between organic and acquisition-related contributions and inquired about any impact from critical mineral shortages.

Answer

SVP & CFO Mike Fitzgerald stated that the majority of the backlog growth was organic, with the Kinetrix acquisition contributing about $240 million. President, CEO & Director Rex Geveden noted the company is not seeing significant pressure from critical minerals, and Fitzgerald added that pricing is locked in for roughly 70% of material purchases, mitigating risk.

Ronald Epstein posed a big-picture question on whether shipyard production challenges will eventually catch up to BWXT and asked about the company's potential market capture in the SMR space, which was previously estimated at $300 billion by 2040.

Answer

CEO Rex Geveden explained that stopping the supply chain to let shipyards catch up is not feasible, as it would risk losing capabilities, so BWXT will continue producing at required levels. For SMRs, Geveden estimated potential content at around $100 million per GE BWRX-300 unit and tens of millions for TerraPower's Natrium, which can be used to scale the opportunity. CFO Robb LeMasters added that BWXT also has call options to provide fuel solutions and leverage its U.S. manufacturing sites for domestic SMR demand.

Ronald Epstein from Bank of America inquired about the current stability of aircraft production from OEMs like Boeing and Airbus. He followed up by questioning an apparent backtrack in portfolio yield during the quarter, despite previous guidance that yields would trend higher.

Answer

CEO John Plueger stated that Boeing's production has been stable relative to its November 2024 outlook, while Airbus has also been stable since its last update, though he noted potential risk due to its higher production rate. EVP & CFO Gregory Willis corrected the premise of the follow-up question, clarifying that portfolio yields on an average asset basis did, in fact, increase during the quarter and are expected to continue tracking upward.

Ronald Epstein of Bank of America asked when the aircraft supply/demand imbalance might reach equilibrium, if airlines are adapting to older fleets, and if the industry needs a third major OEM.

Answer

Executive Chairman Steven Udvar-Hazy stated that the timeframe for market equilibrium is stretching out, not shortening, due to persistent engine and supply chain shortages. He confirmed airlines are flying older aircraft longer, which increases demand for lessors. He also noted that while there is room for a third OEM, a major challenge would be securing a next-generation propulsion system that offers a step-change in reliability.

Ronald Epstein from Bank of America inquired when the net interest margin might begin to rise and asked for management's thoughts on the possibility of a third major OEM entering the market.

Answer

CFO Gregory Willis suggested that as lease yields improve and the Fed eases, the net interest margin should see some expansion in the near term. Executive Chairman Steven Udvar-Hazy commented that while a third OEM would be welcome for competition, the capital, regulatory, and logistical hurdles are immense, making it unlikely in the near future. He noted the current headwinds for a new entrant are greater than the tailwinds.

Ronald Epstein from Bank of America questioned why the germanium issue seems more pronounced for DRS than for peers and asked about other opportunities in the shipbuilding industrial base. He also asked for an outlook on the fiscal 2027 budget process.

Answer

Chairman & CEO William Lynn explained that as a major sensor house, germanium is a critical input for DRS. He identified permanent magnets as another key material. For shipbuilding, he cited future opportunities in electric drive for the DDG(X) and SSN(X) platforms. On the FY27 budget, he suggested the administration's goal will be sustained, predictable growth to counter threats, likely achieved through a combination of budget bills and possibly another reconciliation.

On behalf of Ron Epstein from Bank of America, an analyst asked about DRS's opportunity as European countries build domestic defense capabilities, the timeline for Navy opportunities to materialize, and the company's exposure through alternative shipyards like those in Korea.

Answer

CEO William Lynn identified a substantial near-term opportunity in Europe for advanced systems like counter-drone and sensing. He positioned DRS as an enabler for U.S. shipyards, helping to increase throughput rather than competing for work. Lynn noted DRS already operates on a largely fixed-price basis and proactively invests its own R&D. He also confirmed active engagement with the Korean Navy on new ship classes.

Ronald Epstein from BofA Securities asked for management's perspective on a potential 8% defense budget reallocation, the impact of a continuing resolution for FY25, and how geopolitical tensions might affect foreign military sales.

Answer

CEO William Lynn suggested that a budget reallocation could benefit DRS, as funds may shift to missile defense and counter-UAS, which are core areas for the company. He noted a continuing resolution would be more of a 2026 issue, as 75% of 2025 revenue is in backlog. Regarding FMS, he believes European urgency for proven capabilities could drive demand for DRS's systems, offsetting any tapering in Ukraine-related sales.

Ronald Epstein inquired about the company's M&A sourcing strategy, whether any assets in the Boeing Defense portfolio could be a fit, and the potential market size for counter-UAS and directed energy.

Answer

CEO Bill Lynn and CFO Mike Dippold described a multi-pronged M&A strategy involving a dedicated team, proactive outreach, and leveraging partnerships as an 'acquisition incubator'. Lynn noted that while a Boeing deal is always possible, nothing is currently actionable. He characterized the counter-UAS market as being in the early stages, with international sales representing the next major growth opportunity.

Ronald Epstein of Bank of America Merrill Lynch questioned why it took over a billion dollars in charges to prompt a change in the program review process and asked for a detailed breakdown of how the $1.8 billion in charges will impact cash flow in 2025 and 2026.

Answer

CEO James Taiclet clarified that the review process was reset in Q4 2024, and the new, more rigorous monitoring system uncovered additional cost risks this year, which, when flowed through multi-year fixed-price obligations, resulted in the large charge. CFO Evan Scott specified the cash impact, stating a $500 million cash usage from the classified program is included in the reiterated 2025 guidance, which will step down to approximately $400 million in 2026.

Ronald Epstein of Bank of America followed up by asking why it took a billion dollars in charges to prompt a change in the program review process and requested a breakdown of the cash flow impact of the $1.8 billion in charges for 2025 and 2026.

Answer

Chairman, President & CEO James Taiclet clarified that the new, more rigorous monitoring system implemented after Q4 revealed new cost risks and development anomalies. When flowed through multi-year fixed-price obligations from 2018, these new discoveries resulted in the large charge. CFO Evan Scott detailed the cash impact, stating a $500 million cash usage from the Aero classified program is baked into 2025 guidance, which will step down to approximately $400 million in 2026.

Ronald Epstein of Bank of America asked if the concept of an 'iron dome over the U.S.' is essentially the Next Generation Interceptor (NGI) program and also inquired about the implications of U.S. policy discussions regarding Greenland.

Answer

CEO James Taiclet clarified that NGI is an 'integral part' of a much broader, multi-layered homeland defense system that must also counter hypersonic missiles, cruise missiles, and drones. He described it as a comprehensive solution for a multi-domain threat environment. He declined to comment on the Greenland question, stating it was a U.S. government policy matter outside the company's purview.

Ronald Epstein inquired about Lockheed Martin's strategy for next-generation tactical fighters, specifically regarding the Collaborative Combat Aircraft (CCA) program's Increment 2 and the interplay between manned and unmanned systems.

Answer

CEO James Taiclet explained that Lockheed Martin is preserving optionality by investing in sixth-generation technologies at Skunkworks while also developing systems, like a new pod, to enable the F-35 to control CCAs. He emphasized that Increment 2 is targeted to be a scalable, combat-ready system for which Lockheed Martin will eagerly compete. CFO Jesus Malave added that the company's multiyear financial outlook accounts for significant investments in autonomy and AI.

Ronald Epstein from Bank of America questioned how Booz Allen is positioned for a government push towards more commercial contracting terms and asked about a perceived 'branding issue' from media scrutiny.

Answer

Horacio Rozanski, Chairman, CEO and President, described the shift to commercial tech as a net positive, highlighting Booz Allen's role as a preferred partner for 'missionizing' commercial solutions. Regarding branding, he attributed the media attention to being a market leader and stated the company is improving its storytelling and that the quality of its technology and direct government relationships ultimately strengthen the brand.

Ronald Epstein of Bank of America asked about the potential impact of a fiscal '26 continuing resolution, the timing and certainty of IM-2 success payments, and the company's strategy for mergers and acquisitions.

Answer

CEO Steve Altemus explained that a continuing resolution would have minimal impact as major programs are underway. Regarding IM-2 payments, he cited the complex closeout process for the timing and expressed confidence based on ongoing discussions. On M&A, he described their approach as opportunistic.

Ronald Epstein from Bank of America asked about the potential impact of the new administration's efficiency drive on NASA, how a focus on Mars might affect the company, and the business implications of a potential government continuing resolution for fiscal years 2025 and 2026.

Answer

CEO Steve Altemus viewed the government's efficiency push as a positive, positioning Intuitive Machines to capture work through its agile commercial model. He reiterated that the moon remains the primary strategic interest over Mars. Regarding funding, he stated that the company's key programs like CLPS, NSNS, and LTV are currently funded and would be covered under a continuing resolution.

Ronald Epstein of Bank of America asked for details on the impact of tariffs, the company's ability to pass them through to customers, and its exposure to rare earth minerals.

Answer

Executive Chairman and CEO John Plant detailed a comprehensive mitigation strategy, estimating a gross tariff impact of ~$80 million but a net impact of less than $15 million in 2025, mostly due to timing lags. Regarding rare earths, he noted long-term supply for key materials like yttrium, stating the company is in 'good shape'.

Ronald Epstein requested more color on the opportunity in the Industrial Gas Turbine (IGT) market, noting management's increasing bullishness and asking about its potential scale for Howmet.

Answer

Executive Chairman and CEO John Plant described the IGT outlook as 'exceptional,' driven by massive electricity demand from data centers for processing and cooling. He noted that Howmet is expanding capacity at two sites to meet this demand, which will initially manifest as higher spares sales from increased utilization of the existing turbine fleet. Plant reiterated that Howmet holds over 50% market share in IGT turbine blades and that IGT margins are similar to those in aerospace.

Ronald Epstein asked about the company's capital deployment strategy, specifically weighing the potential for M&A against continued share repurchases.

Answer

Executive Chairman and CEO John Plant described Howmet as being in a 'position of choice.' While the company actively evaluates M&A opportunities, from small tech tuck-ins to larger deals, it remains highly disciplined. Any potential acquisition is rigorously compared against the risk-adjusted, cash-on-cash returns of buying back its own stock, which management still views as a healthy and positive use of capital.

Ronald Epstein asked about potential logistical challenges with product shipments and port congestion. He also requested more detail on tariff mitigation tools and the specific impact of tariffs on the Aviation segment.

Answer

CEO Cliff Pemble reported that shipping and manufacturing have been following a normal cadence with a mix of air and sea freight, describing it as "business as usual." On mitigation, he reiterated that all options are being considered but declined to provide specifics due to competitive sensitivity. For Aviation, Pemble acknowledged some impact from tariffs on materials sourced from outside the U.S. but noted it is more limited since most manufacturing for that segment occurs in the U.S.

Ronald Epstein inquired about the business opportunity for Hexcel resulting from the expansion of Boeing's 787 production facility in South Carolina.

Answer

Chairman, CEO & President Tom Gentile described the 787 as a 'good program' for Hexcel, with a significant shipset value between $1 million and $2 million. He viewed the facility expansion, which could enable production rates to increase from 7 to 12 per month, as a very encouraging development that would be 'great for Hexcel.'

Ronald Epstein requested more detail on the trend in shop visit mix, particularly the share of heavy visits, and asked for a breakdown of this mix across the company's major engine platforms.

Answer

CFO Dan Satterfield explained that the strong earnings profile in Q3 reflected a lighter work scope mix with lower material content, which typically carries higher margins. He stated that the company does not provide platform-specific details on the call but could potentially follow up.

Ronald Epstein asked for an update on the supply chain and workforce environment. He also inquired about the long-term outlook for free cash flow generation and its potential alignment with earnings.

Answer

CEO William Ballhaus stated that he does not currently see significant performance constraints from either the workforce or supply chain. Executive David Farnsworth added that supply chain lead times have not systemically elongated. Regarding cash flow, Farnsworth reiterated expectations for positive free cash flow for the full year, with a stronger second half, and affirmed the long-term goal for the business to be a consistent cash generator.

Ronald Epstein of Bank of America asked about the current M&A environment, including property pricing and opportunities arising from supplier stress. He also questioned if there were opportunities for RBC in the naval supply chain, given execution challenges at prime contractors.

Answer

CEO Mike Hartnett described the M&A market as active, particularly in A&D, but noted intense competition from private equity and that many attractive assets come with significant problems to solve. Regarding the naval supply chain, Hartnett said the company's current focus is on executing its existing large order book and that a previous offer to build a new plant to help was met with little interest.

Ronald Epstein asked how long the Boeing strike would need to last before it becomes truly problematic for Crane and its supply chain, seeking to understand if there is a specific 'line in the sand' for the company.

Answer

CEO Max Mitchell responded that he does not see a 'red line' for Crane regarding the strike's duration. He explained that the company's strong aftermarket business provides a natural hedge against OE production delays. He also noted that Crane is proactively managing inventory and its supply chain to support Boeing's eventual recovery without disruption, expressing confidence in their ability to manage the situation.

Inquired if a potential Boeing strike is factored into the outlook, asked for details on the electric aircraft gearbox development, and questioned the extent of the company's new landing gear design work.

Answer

The company's forecast is already conservative regarding Boeing's rates and they have contingency plans for a strike. They are developing a new type of gearbox for an unnamed prime's electric regional jet. They have a growing portfolio of new landing gear designs for various small to medium aircraft.

Asked a high-level question about the company's long-term (5-year) strategic plan post-divestiture and how the company is managing the risks associated with the Boeing 737 MAX program.

Answer

The long-term plan is to pivot to growth, not get smaller, by focusing on its core IP-based businesses (actuation, engine controls, gearboxes) and closing the valuation gap with peers. Regarding the MAX, the company is working closely with Boeing's leadership to support quality improvements and is confident in the program's recovery.