Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong aftermarket performance at Collins Aerospace, with aftermarket sales up 26% and provisioning up 42% over the full year, indicating robust demand and potential for continued revenue growth.
- RTX expects a 20% year-over-year increase in large commercial engine deliveries in 2024, expressing confidence in meeting Airbus's requirements, which suggests significant growth potential in the aerospace sector.
- Cost reduction initiatives and operational improvements at Collins Aerospace and Pratt & Whitney are expected to drive margin expansion and profitability, including moving engineering and manufacturing to lower-cost locations and ramping up production capacity. , ,
- Significant cash flow impact due to the powdered metal issue, with disbursements of about $1.3 billion in 2024 and $1.5 billion in 2025, affecting financial performance.
- Challenges in ramping up production of full-life discs are leading to potential bottlenecks in meeting customer demands, including commitments to Airbus.
- The military business at Collins Aerospace is experiencing slow growth, with military sales flat in 2023 and expected to grow only low to mid-single digits in 2024, which may dampen overall growth prospects.
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Cash Flow Impact from Powdered Metal Issue
Q: What's the cash flow hit from the powdered metal issue?
A: The cash flow impact from the powdered metal issue in 2023 was essentially zero, as cash flows shifted to the right. We moved about half of that into 2024, amounting to $1.3 billion. We're still holding $1.5 billion in our 2025 outlook, with the rest spilling into early 2026. -
GTF Situation – AOGs and Cash Impact
Q: Can you update us on the GTF AOG scheduling and cash impact?
A: We expect the peak number of AOGs to be in Q1 2024, then trend downward. The peak will be lower than initially assessed because the timing of the AD has shifted, and customers have proactively accelerated some removals. Regarding cash impact, the timing of payments has shifted from the second half of 2023 into 2024, but the total special support remains at 6% to 7%. -
Pratt & Whitney Margins
Q: What's driving margins higher at Pratt & Whitney?
A: The margin increase is mainly driven by aftermarket sales, which are up in the low teens, providing significant drop-through to profit. We're expanding margins on both legacy and GTF aftermarket as volumes grow. OE sales are up mid-teens, with engine production increasing about 20%, leading to better absorption. Military sales are also up mid-single digits, contributing to the profit increase. -
Raytheon Headwinds and Fixed-Price Programs
Q: What's the status of Raytheon's fixed-price development programs?
A: We've faced headwinds from fixed-price development programs, some with difficult requirements outside our core capabilities. We're adding resources and working with customers to restructure specifications for better outcomes. We expect improvement over the next 12 to 18 months as we achieve milestones. In 2023, we had a $240 million headwind from negative productivity; in 2024, we expect a $200 million year-over-year improvement. -
Incorporation of Full-Life Parts
Q: By end of '24, how will full-life parts be incorporated?
A: We're incorporating full-life powder metal parts in OE engines starting this year, maximizing time on wing for customers. In MRO, we've begun earlier than planned, starting before Q2, and will ramp up throughout the year. Not all shop visits will have full-life parts initially, but we'll reach our targets as planned by year's end. -
Bottleneck in Full-Life Disc Production
Q: What's the bottleneck in ramping full-life disc production?
A: The bottleneck is ramping up the powdered metal value stream, including inspection and machining capacity, which needs significant scaling beyond initial expectations. We're focusing on quality, yield, tooling, and maintenance to enable the volume jump. For 2024, we expect large commercial engine deliveries to be up about 20% year-over-year and are confident in meeting Airbus' commitments. -
RTX Margin Assumptions to 2025
Q: How will you achieve 2025 margin targets from 2024 guidance?
A: We'll achieve our 2025 margin targets through aftermarket growth fueling better absorption and cost reductions at Pratt & Whitney and Collins. Pratt and Collins are within their expected ranges, likely towards the middle to high end. Adjustments at Raytheon have been made, but our overall margin assumptions at the RTX level remain about the same as previously projected. -
Risks from AOGs to Customer Financials
Q: Are you concerned about financial risks with airlines due to AOGs?
A: We are actively engaging with our customers to support them through compensation structures and special support. Around 10 to 12 customers are more impacted, and we're working hard to provide fair compensation for the powdered metal AOG situation. We aim to avoid harming our customers' financials and maintain good relationships. -
Collins Outlook – Widebody and Interiors
Q: How is Collins' outlook driven by widebody and interiors?
A: Collins' aftermarket is expected to be up 10% or more, with OE sales up mid- to high single digits. We're seeing a shift from narrow-body to wide-body as a big driver. While wide-body OE margins are thinner, it sets us up well for long-term growth as aftermarket picks up post-warranty. The interiors business is growing but won't return to 2019 levels until about 2026; we're transforming the cost footprint to improve margins when volume returns. -
Collins Growth Outlook and Military Business
Q: What's the potential for Collins' top-line growth, and is the military business a drag?
A: We see potential for top-line growth at Collins, with OE production rates rising and aftermarket strength. The military business isn't a drag; it was flat in 2023 but expected to grow low to mid-single digits in 2024 as supply chain issues improve. We're well-positioned on strategic platforms and are driving structural cost reductions to support margin expansion.