By Chris Sloan<\/strong><\/p>\n First quarter 2025 Earnings Report.<\/strong><\/p>\n<\/div>\n April 22, 2025, \u00a9 Leeham News: <\/strong>The chorus of tariff-dominated earnings season calls continued as RTX took its turns at bat.<\/p>\n President and Chief Executive Christopher Calio aligned with other CEOs to demonstrate that aerospace is in sync with the presidential administration in correcting the trade deficit.<\/p>\n \u201cWe really believe that the aerospace and defense industry is really well positioned to meet what the administration\u2019s north star in trade objectives are and that this industry has just been a shining example of that.\u201d Calio cited RTX as a net exporter of goods exceeding imports by $12bn, offering a host of stats to build his case to reduce aerospace-related tariffs. \u201cOur industrial base is largely located in the U S, including about 70% of our employees. On the supply chain side, about 65% of our product spend is with U.S. suppliers. Over the last five years, we\u2019ve invested nearly $10 billion to enhance our domestic manufacturing footprint, with planned capabilities of $2 billion additional planned in 2025.\u201d<\/p>\n Calio warned RTX is far from immune to the wide-ranging tariffs. \u201cLike many companies in the industry, our supply chain and customer base, we import raw materials, parts, and modules from around the world.\u201d He warned that the tariffs would sharply crater profits by $850mn if they remained in place, flagging that not all regulatory and operational mitigation would address our tariff exposure.<\/p>\n Granular direct impacts of $250m from Canada and Mexico, $250m from China\/Tariffs from China, $300m in global reciprocal, and $50m in steel and aluminum would begin to have a real impact in the back half of the year as inventory is liquidated.<\/p>\n \u201cI\u2019d say the Raytheon impact is very minimal \u2013 think about that as like a penny per share kind of a number\u00a0 \u2013 the rest of it, the residual impact, is split pretty evenly between Collins and Pratt,\u201d suggested RTX Chief Financial Officer Neil G. Mitchill Jr.<\/p>\n Analyst Scott Mikus of Melius Research observed RTX\u2019s exposure to tariffs exceeded that of competitor GE Aerospace. \u201cBased on RTX\u2019s assessment, it could face an $850m headwind (net of mitigation efforts) from tariffs, which equates to ~8% of segment operating profit. For context, GE embedded a $500m impact from tariffs into its guidance. Given the timing of paperwork associated with duty drawbacks, the potential impact to RTX\u2019s 2025 cash flow could be ~20% higher than the hit on the P&L.\u201d<\/p>\n \u00a0The company was vague on whether tariff costs would be passed directly onto customers through price increases or temporary surcharges, possibly due to still delicate relationships with customers on the heels of GTF and Collins problems, but didn\u2019t rule anything out.<\/p>\n \u201cWe\u2019ve been operating in a highly inflationary environment over the last several years, so we\u2019ve done pretty well at knowing where and how to pass along higher costs through pricing. Again, the situation is fluid. So we came into the year with a number of levers we would potentially pull if we saw things change in the marketplace to let things sort of play out,\u201d said Calio.<\/p>\n With renewed concern that this latest distraction could derail the supply chain\u2019s recovery, Calio sought to reassure investors. \u201cWe\u2019re going to stay super tight with our supply base, making sure that we\u2019re all working together on tariff mitigation, the movement of work, and making sure that we don\u2019t see those disruptions. We\u2019ve seen in the past what happens when you are herky jerky with your supply chain, like we saw in Covid. The company sought to assuage investors\u2019 fears over China, stating that RTX has been developing multiple (material and component) sources globally since coming out of COVID-19, and that those are accelerating.<\/p>\n Slowing global economies are adding to a full plate of problems, yet RTX is cautiously optimistic that aircraft utilization will remain strong, supporting continued aftermarket demand. Given the backlog levels, on the OE front, they expect production of new aircraft to stay strong, with engineless, incomplete airframes still being pumped out of factories. \u201cThe demand there remains very strong, obviously, it\u2019s a constrained environment, there\u2019s a lot of demand for new aircraft, and we expect that to largely continue. If you think about the aftermarket, there was clearly tremendous demand for the GTS aftermarket. Expect us to be on track to continue to deliver growth there throughout the rest of the year,\u201d said the sanguine CFO. However, they disclaimed that it closely monitors consumer sentiment as the peak summer travel season approaches.<\/p>\n If there\u2019s one bright side to the tariffs, it\u2019s that investor\u2019s attention has at least temporarily shifted from the GTF\u2019s travails \u2013 which enjoyed a much needed spate of good news. MRO activity for the PW1100 engine surged 35% year-over-year and 14% sequentially, with the company projecting over 30% growth for the full year. Executives say the ramp-up in output is a critical factor in reducing aircraft-on-ground (AOG), which are expected to decline in the second half of 2025.<\/p>\n Meanwhile, the FAA has certified Pratt & Whitney\u2019s new GTF Advantage engine\u2014a significant milestone for the program. Drawing on a decade of operational insights from the geared turbofan platform, the Advantage engine is expected to deliver up to double the time on wing compared to current models. It will enter service with full-life maintenance plans. Initial deliveries to Airbus remain on schedule for later this year.<\/p>\n In addition, Pratt & Whitney is working to certify an upgrade package that will allow existing PW1100G-JM engines to receive approximately 90% to 95% of the Advantage\u2019s durability enhancements during scheduled MRO visits.<\/p>\n Pratt & Whitney remains on track to meet its 2025 outlook of approximately 800 V2500 engine shop visits, with first-quarter activity representing about 25% of the annual forecast. Shop visit inductions for the V2500 were up 7% year-over-year in Q1, and the company notes a shift toward heavier overhauls due to the aging fleet. Despite 11 retirements of V2500-powered aircraft in the first quarter, overall fleet retirements remain low. Executive emphasized that the V2500 continues to benefit from strong customer demand, especially in the narrowbody segment, and is expected to maintain consistent MRO activity in the near term\u2014even amid potential fluctuations in broader market demand. As the AOG GTF fleet gradually returns to service and new airframes are delivered, the company anticipates a future tapering in V2500 shop visit volume, but not until further out on the horizon.\u00a0 P&W reports similar stability for its legacy PW2000 and PW4000 engine programs, with shop visit trends and customer demand aligning with internal forecasts.<\/p>\n A constrained environment is counteracting any economic slowdown at the Collins division, even going into April following Liberation Day. \u201cThe airframers have strong firm backlogs and are focused on continuing the ramp right, they need to keep material flow going through their shops from the supply chain. So we don\u2019t see any material changes there, and again, we see a ramp ahead, and we want to stay out of their way,\u201d Calio remarked. The heat exchangers that have bedeviled Boeing 787 deliveries are a subsiding pain point. \u201cWe\u2019re going to continue to keep a close eye on that as Boeing continues to ramp,\u201d he added, referring to Boeing\u2019s quest for 787 rate 10 a month.<\/p>\n![\"\"](\"https:\/\/leehamnews.com\/wp-content\/uploads\/2024\/09\/RTX-Logo.png\"){kind=logo}
<\/a><\/p>\nRTX is not immune to tariffs<\/strong><\/h5>\n
<\/a><\/p>\nA Watchful Eye on Pricing, China, Supply Chains, and Economic Slowdowns<\/h5>\n
GTF Enjoys Good News For A Change<\/h5>\n
<\/a><\/p>\nMRO and V-2500<\/h5>\n
Collins Remains Reliable<\/h5>\n