Raytheon Technologies Corp

NYSE:RTX

Thank you, and good morning, everyone. Our continued execution and operational focus enabled us to deliver another very strong quarter of results across RTX. On the top line, adjusted sales were $25 billion, up 12% organically with double-digit growth across commercial OE, commercial aftermarket and defense. Adjusted EPS of $2.26 was up $0.56 or 33% year-over-year, including $0.25 from IEEPA cost recovery. And free cash flow was again strong at $2.1 billion. So overall, we're very pleased with the continued momentum in our operational performance across the company in Q3.

We also continue to see robust global demand for our products and services and are very well positioned to meet our growing customer needs across commercial aerospace and defense. RTX ended Q3 with another record backlog of $340 billion, up 36% year-over-year and 18% sequentially. On the defense side, we booked nearly $59 billion of awards with a book-to-bill of 4.57, driven by approximately $23 billion for Tomahawk and over $14 billion for AMRAAM as we converted those framework agreements into multi-year production contracts at Raytheon.

And earlier this month, we also signed multi-year contracts for SM-6 and SM-3 IB. We're very pleased with our collaboration with the Department of War on these contracts, which reinforce the need for our highly capable and proven systems, and they will be a significant revenue driver for Raytheon over the next decade. Neil will provide some more details in a few minutes.

On the commercial side, we received over $22 billion of new orders in the quarter, representing over 60% year-over-year growth across both OE and aftermarket. Most notably, Pratt announced significant GTF engine orders and commitments, including British Airways' selection of the GTF to power up to 63 aircraft, adding another new GTF operator to its expanding fleet. So far this year, we've received over 800 GTF orders and commitments and have a backlog of over 8,000 engines. And commercial orders at Collins were up over 20% year-over-year, driven by the growing installed base and breadth of its content offerings. So another strong quarter of awards across the company.

Okay. Let me shift to the current operating environment as we look to close out the year. In commercial aerospace, we continue to see positive trends with increasing OE production rates on key platforms, which is growing our installed base. For example, Collins' commercial installed base and Pratt's narrow-body powered fleet have grown mid-single digits year-over-year. In Q3, commercial aftermarket also remained resilient with 16% organic growth despite global RPKs declining slightly year-over-year. Our MRO demand continued to be strong and engine retirements were in line with our expectations. Additionally, we continue to see strength across business aviation with global business jet departures up year-to-date. And as a reminder, about 60% of the Pratt Canada fleet has not yet seen a first shop visit.

On the defense side, we remain exceptionally well positioned to meet growing demand, given our proven capabilities, regional partnerships and ability to produce at scale. In the U.S., we're encouraged by the broad support for defense spending, including the need to expand munitions depth and integrated air and missile defense capabilities. And our ongoing discussions with the Department of War give us further confidence that our key programs will remain funding priorities.

Internationally, demand is also rising with defense budgets expected to grow across the European, Asia Pacific and MENA regions next year, including significant spending by Germany, Poland and Japan. Across these regions, we have partnerships with local companies and suppliers that help support the production of key systems, including Patriot, GEM-T, Standard Missile, Coyote and Military Engines. In Europe, for example, we have over 130 different suppliers that support our production work in that region. And while the U.S. government is currently operating under a continuing resolution, our record backlog provides clear visibility to our sales expectations in the fourth quarter and throughout next year. So our focus remains squarely on execution.

Overall, based on our performance to date, we're again raising our full year outlook for adjusted sales, EPS and free cash flow. Neil will take you through the details of the third quarter and our updated outlook in a few minutes. But first, let me provide an update on our strategic priorities on Slide 4.

I'll start with operational execution. We continue to leverage our core operating system to drive output and productivity across the company. At Pratt, we're making progress across key GTF initiatives. On the GTF fleet management plan, the financial and technical outlook remains on track. PW1100 MRO output was up over 35% year-over-year in the quarter and is up over 30% year-to-date. Sequentially, AOGs were relatively stable as this MRO output largely offset the expected engine removals from the seasonally high utilization of the fleet during the summer months. We continue to expect AOG reductions in Q4.

We're also pleased that the first GTF Advantage powered aircraft was delivered to United Airlines and entered into service earlier this month. As a reminder, the advantage will double the time on wing performance and we expect the production ramp to continue next year. We're also progressing certification of the Hot Section Plus upgrade package that will bring 90% to 95% of the Advantage time on wing benefit back to the installed base, and we will start incorporating this package into MRO visits early next year.

Shifting to Collins. We're advancing structural cost actions to support further margin expansion. This includes consolidating operations, increasing manufacturing hours at best cost locations and reducing overhead layers. Enabled by these actions, Collins has delivered double-digit organic sales growth this year while reducing indirect labor head count.

And at Raytheon, we're increasing munitions output as we improve material flow across the supply chain and drive productivity in our operations. Year-to-date, output across our critical munitions is up over 90% year-over-year with material receipts at Raytheon up double digits over the same period. Across RTX, we're also deploying AI and digital tools to improve speed and decision-making in our operations. For example, through a recent acquisition, Pratt is integrating AI-powered engine inspection software to accelerate borescope analytics. Already in use on legacy programs, this capability is being implemented across our MRO networks and has reduced overall inspection time by more than 30% where it's been deployed.

Next is innovation and future growth. In Q3, we invested $2.8 billion in company and customer-funded research and development and CapEx to advance our technology road map and expand capacity. On the technology front, we're innovating to meet our customers' evolving needs. We're continuing to develop products with AI and machine learning capabilities. For example, Collins is leveraging AI in certain products to assist air traffic controllers, in making faster and smarter decisions.

And Raytheon has sensors deployed in the field that are using AI to identify objects and classify threats. Also in the quarter, Collins completed altitude testing of its next-generation Enhanced Power and Cooling System, known as EPACS. EPACS delivers a significant increase in cooling capacity across critical aircraft systems and is being offered to support technology upgrades on the F-35. It can also be used on other future defense and commercial aircraft platforms.

And Raytheon is progressing its composable weapon strategy to address the evolving needs of our customers. This construct uses proven technologies from across our product portfolio as building blocks to develop new solutions that we can field at a faster scale. For example, we're developing a new effector where we're taking the rocket motor and steering control from one production program and combining it with a seeker from another program to cost-effectively meet a specific mission requirement on an accelerated time line.

On the capacity front, we continue to invest to support higher output levels. In the quarter, Raytheon completed a $50 million expansion of its manufacturing facility in Forest, Mississippi. This investment will support production ramps for the Next Generation Jammer program and other radar systems. And in connection with the munitions contracts that I mentioned earlier, we're making incremental investments in our supply chain and operations to ramp capacity and support significantly higher production rates.

On the commercial side, Collins announced a new partnership with Etihad Engineering to expand MRO services in the Middle East. This agreement will double Collins' footprint for Nacelle services in the region and support growing A350 and 787 fleets. And Pratt announced an expansion of precision parts manufacturing in Poland. This investment will increase capacity of complex component assembly for both commercial and military engines, including the GTF and F135. And so we're pleased to see that our disciplined focus on our strategic priorities is delivering operational improvement and new capabilities for our customers.

Finally, I want to acknowledge the leadership update we announced last month. As you saw, Shane Eddy has decided to retire from the company after more than 40 years in the aerospace and defense industry. Shane has been a great partner and teammate, and I want to thank him for his leadership at Pratt. We're fortunate to have a very strong bench and are excited that Jill Albertelli is taking over as the President of Pratt & Whitney. Jill is currently the President of Military Engines and brings over 3 decades of experience across Pratt.

Okay. With that, I'll hand it over to Neil to take you through the third quarter results and our updated outlook in more detail. Neil?

All right. Thanks, Chris. I'm on Slide 5. In the third quarter, adjusted sales of $25 billion were up 11% year-over-year on an adjusted basis and 12% organically. This strong top line organic growth was driven by all 3 channels: with commercial OE up 10%, commercial aftermarket up 16%, and defense up 10%. Adjusted segment operating profit of $3.9 billion was up 39% year-over-year, driven by drop-through on higher sales volume across the company, improved productivity at Raytheon and IEEPA cost recovery. Segment margins expanded 310 basis points year-over-year including the benefit of approximately 160 basis points from IEEPA.

Adjusted earnings per share of $2.26 was up 33% from the prior year, driven by about $0.43 of operational segment profit growth and approximately $0.25 of IEEPA recovery. This growth more than offset roughly $0.12 below-the-line items, primarily from an expected higher tax rate and lower pension income.

On a GAAP basis, earnings per share from continuing operations was $1.89 and included $0.26 of acquisition accounting adjustments and $0.11 of restructuring and all other nonrecurring items. Free cash flow in the quarter was $2.1 billion and included approximately $165 million of powder metal-related compensation and approximately $300 million of IEEPA recovery.

As Chris mentioned, we converted 4 munition framework agreements into undefinitized contracts. Over the next several years, Raytheon will be focused on ramping the supply chain, our operations and capacity to meet the associated production requirements. As a reminder, these contracts include a funding approach that will essentially preserve upfront free cash flow. We'll be making CapEx and other investments on these contracts over the next 2 to 3 years and we'll recognize revenue as costs are charged to the programs. Therefore, we expect to see sales and profit contributions over the next several years as we capacitize and then ramp to achieve full rate production over the multi-year terms of each contract. And over time, these contracts have the potential to support margin expansion at Raytheon as we scale production. So overall, we delivered strong financial performance across RTX and we're pleased with the significant growth in our backlog.

Let's turn to Slide 6, and I'll take you through our updated outlook for the full year. Given our performance to date as well as the IEEPA recovery, we are increasing our full year outlook. On the top line, we're raising our full year adjusted sales outlook by $2 billion on the low end and $1.5 billion on the high end to a new range of $97 billion to $97.5 billion, up from our prior range of $95 billion to $96 billion. The sales increase is driven by continued defense performance, commercial OE strength at Collins and higher GTF aftermarket volume at Pratt. This translates to full year RTX organic sales growth of between 10% and 11%, up from our prior range of between 8% and 9%.

By channel, we now expect commercial OE sales to grow high single digits which is at the higher end of our prior expectation of mid- to high single digits, driven by the production ramp at Collins. Within commercial aftermarket, we now expect sales to grow low double digits to low teens across the company, which is up from our prior expectation of low double digits, driven by higher GTF aftermarket volume. And for defense sales, we now expect low double-digit growth, up from our prior range of high single digits primarily driven by the performance at Raytheon.

On the bottom line, we are increasing our outlook for adjusted earnings per share by $0.55 on the low end and $0.50 on the high end. We now see adjusted EPS of between $7.65 and $7.75 for the full year, up from our prior range of $7.10 to $7.25. At the midpoint of our updated outlook, this increase is primarily driven by approximately $0.28 of performance across the company and approximately $0.25 of IEEPA recovery. We've included the updated outlook for the associated below-the-line items in the appendix of our webcast.

Finally, we now expect free cash flow to be between $9 billion and $9.2 billion for the full year, up from our prior range of $8.5 billion to $8.75 billion, driven primarily by IEEPA recovery. As we look beyond this year, based on the fundamentals of our company, our record backlog position and operating momentum, we expect another year of top- and bottom-line growth, improving operational margins and strong free cash flow generation. And as we do every year, we'll be back on our fourth quarter call in January with our detailed outlook for 2027.

With that, I'll hand it over to Nathan to take you through the segments in more detail. Nathan?

Thanks, Neil. Starting with Collins on Slide 7. Sales were $8.4 billion in the quarter, up 10% on an adjusted basis and 12% organically, driven by strength across all channels. Excluding divestitures, commercial OE sales were up 23%, driven by higher volume on narrow-body and wide-body platforms. Commercial aftermarket sales were up 9%, driven by an 18% increase in mods and upgrades, a 12% increase in provisioning and a 7% increase in parts and repair. Defense sales were up 7% versus the prior year, driven by higher volume across multiple programs.

Adjusted operating profit of $1.8 billion was up $594 million versus the prior year, driven by drop-through on higher commercial volume, commercial mix and approximately $250 million of IEEPA recovery. In the quarter, Collins expanded margins by 560 basis points year-over-year, including the benefit of structural cost actions and 300 basis points of IEEPA recovery.

Turning to Collins' full year outlook. Based on year-to-date commercial OE performance, we now expect sales to grow high single digits on an adjusted basis versus our prior range of mid- to high single digits. Organically, we now expect low double-digit growth versus our prior range of high single digits to low double digits. With respect to operating profit, we now expect growth between $925 million and $975 million versus 2025, up from our prior expectation of between $550 million and $625 million, driven by the drop-through on increased sales volume, ongoing structural cost reduction initiatives and approximately $250 million of IEEPA recovery.

Shifting to Pratt & Whitney on Slide 8. Sales of $9.2 billion were up 10% on an adjusted and organic basis, driven by strength in commercial aftermarket. Commercial OE sales were down 5%, driven by large commercial engine mix. Commercial aftermarket sales were up 21%, driven by higher MRO volume, primarily GTF. In Military Engines, sales were up 2%, driven by higher volume across multiple programs, partially offset by the prior year benefit from F135 contract award timing.

Adjusted operating profit of $968 million was up $217 million versus the prior year, driven by drop-through on higher commercial aftermarket volume and approximately $160 million of IEEPA recovery. This was partially offset by large commercial OE engine mix, commercial aftermarket mix and higher SG&A expense. In the quarter, Pratt's margins of 10.5% included 170 basis points of IEEPA recovery.

Turning to Pratt's full year outlook. We continue to expect sales to grow high single digits on both an adjusted and organic basis, most likely towards the top half of this range given the strength in commercial aftermarket. With respect to operating profit, we now expect growth between $475 million and $525 million versus 2025, up from our prior expectation of between $275 million and $350 million, driven by the drop-through on increased sales volume and approximately $170 million of IEEPA recovery.

Turning to Raytheon on Slide 9. Sales of $8 billion in the quarter were up 14% on both an adjusted and organic basis, driven by higher volume on naval programs and land and air defense systems, including Patriot, Standard Missile and Tomahawk. Adjusted operating profit of $1.1 billion was up $275 million versus the prior year driven by improved productivity, higher volume and favorable mix, including Patriot programs. Net productivity improved $104 million year-over-year and included approximately $85 million of benefits in the quarter associated with an international contract modification and a favorable adjustment related to an offset obligation.

In the quarter, Raytheon expanded margins by 190 basis points year-over-year. Bookings in the quarter were $52.3 billion, resulting in a book-to-bill of 6.54 and a backlog of $130 billion. On a rolling 12-month basis, Raytheon's book-to-bill is 2.9. In addition to the munitions contracts that Chris mentioned earlier, other key awards in the quarter included $3.1 billion to provide training systems for the British Army, $3 billion of classified awards and $1.8 billion for SPY-6 production.

Turning to Raytheon's full year outlook. We now expect sales to grow low teens on both an adjusted and organic basis. This is up from our prior range of high single digits to low double digits due to the strength Neil mentioned. And we now expect operating profit to grow between $800 million and $850 million versus 2025, up from our prior expectation of between $575 million and $650 million, driven by the drop-through on increased sales volume, improved productivity and favorable program mix.

With that, I'll hand it back over to Chris for some closing remarks.

Okay. Thanks, Nathan. We delivered another strong quarter of results and are confident in our updated full year outlook, reflecting the continued execution across the company. And I want to thank all of our employees for their dedication to our mission. RTX is exceptionally well positioned across commercial aerospace and defense with our leading franchises, growing installed base and record backlog. We remain focused on executing on our commitments, investing in the right technologies and capacity and leveraging our breadth and scale to drive top and bottom line growth this year and beyond.

With that, let's open it up for questions.

Yes. Thanks, Sheila. As you noted, we're pretty pleased with Raytheon's organic sales growth here in the quarter and even more so with the execution that underpinned it. Output across our critical munitions was up over 90%, and we're seeing output growth across other critical munitions programs as well. So very happy with the operational performance the team is showing to ramp given the needs that are out there in the market.

With respect to the conversion of the framework agreements to the UCAs, again, a lot of hard work went into that, a lot of collaboration with the Department of War. That's all in, about $70 billion in combined value that provides Raytheon almost a decade of demand visibility. Obviously critical, not only for us but for our supply chain as we seek to take these rates up anywhere from 2 to 4x. And these are binding contracts. They've got robust terms, including price, delivery schedules and the like. And so now we've shifted into the execution phase, lining up the supply chain, putting up POs for tooling and test equipment, all the things we need to do to make that rate.

And we've also been working really closely with the department on all the actions necessary to accelerate the production, streamlining test requirements, improving producibility where we can, addressing obsolescence, qualifying new suppliers. In 2025 alone, Raytheon added 150 new suppliers. We've got to get that supply base as strong as we possibly can. And so right now, it's about just removing any and all bottlenecks so we can get to these higher rates.

In terms of how this sort of feathers in, and we're going to execute these contracts over the next, say, 7 to 10 years. And as Neil noted upfront, we're going to account for these like other defense programs. Revenue will be on a cost-to-cost basis. And as we scale production and continue to drive the efficiencies given the volumes here and given -- the visibility we've given the supply chain, we think these contracts have the potential to support margin expansion at Raytheon above and beyond where they are today.

Yes. I'll start and certainly ask Neil to pile in as well, Peter. Again, if you just look at the fundamentals of this business, they're pretty strong, robust demand, large installed base. So again, we think this supports our business being able to generate that 90% to 100% of free cash flow to adjusted net income. We've been pretty consistent in saying that.

And there will be investments associated with the UCAs and the demand that we're seeing, but they incorporate a collaborative funding approach to help with some of the upfront free cash flow. So again, for us right now, it's all about focusing on meeting this demand. We've got a $340 billion backlog. We've got to make sure that we've got the supply chain where it needs to be and the capacity, not only in our own shops, but again with some of these key suppliers. And so that's where the focus is going to be.

Yes, Chris, maybe I'll add a couple of thoughts on some of the things that we've incurred in '26 and how they might play out as we start to turn the corner and look at '27. I'm not going to give a '27 outlook today for free cash flow. But as I sit back and think about the underpinning of the drivers, the first thing is we've obviously been tailing down on the powder metal payments. So I expect that to be probably about a $500 million tailwind as we head into 2027. You heard us talk this morning about the IEEPA refunds. So we had about $300 million in cash come in, in the third quarter. There's another $50 million that will come in, in the fourth quarter, and then that will be largely behind us.

So that will turn into a bit of a headwind. I'm thinking there's probably about $100 million of pension headwind as well. So all of that sort of nets to about 0. So you step back and you think about the underlying drivers of the business, Chris just talked about how the frameworks will play out, largely a cash-neutral event as we head into '27.

So then it comes down to segment operating profit growth, which we're expecting to see. We're going to have operational expansion of the margins. So excluding the benefit that we just talked about from IEEPA, we'll still grow our margins. And we're going to keep an eye on the need for probably a little bit higher working capital as we continue to support strong levels of organic sales growth. You saw we took our guidance up today, added 2 points of organic growth this year. We've seen some working capital draw still seeing increased turns on inventory and working capital, but as we kind of position ourselves for the continued growth and delivering this $340 billion of backlog, I could see a little bit of a headwind there.

But all in all, we expect cash flow to be up next year, really well positioned, about 70% of the way to our 2026 goal so far and still some work to do here in the fourth quarter, but feel good about where we sit today. Thank you.

Yes. Thanks, Rob. You're right. We're closely engaging with the airlines and doing bottoms-up sort of fleet planning and understanding kind of where their head is in 2027, the impact of the cost headwinds that you just mentioned, looking obviously at the consumer and the consumer health.

But what we've seen is what you saw in our numbers here in Q3, which has been resilient demand and a resilient consumer. I mean we had 16% organic growth in commercial aftermarket in Q3. Our GTF PW11 output was up significantly 35% year-over-year, and that demand is going to continue into next year and grow. Content has continued to be strong on the V2500. And then as you heard Nathan say upfront, Collins had continued organic growth across all 3 channels with mods and upgrades and provisioning both up double digits. And we're also seeing, again, retirements that have been relatively low and in line with our expectations.

So as we sit here today, Rob, demand has continued to be resilient. We think it's durable. And again, we're going to watch all the other things that everyone else is watching as we're kind of head into '27 on jet fuel and the other cost headwinds. But if you just step back for a minute and if you just kind of let your mind linger past some of these near-term issues, I mean there are really strong fundamentals that underpin our aftermarket growth. I mean there's the out-of-warranty flight hours, there's pricing, there's a growing installed base. So we feel very good medium, long term about our commercial aftermarket positioning.

Sure. Thank you for the question, Kristine. So obviously, there are a few variables here, the most important of which is how the defense budgets play out in the coming months. But nonetheless, we're very confident in the demand and need for these important munitions. So as you pointed out, we got 2 of the frameworks converted to undefinitized contracts in the third quarter. We had 2 more that came here in the fourth quarter. So those will be included in our fourth quarter bookings.

And we've booked a little bit of revenue on this here in '26, and we certainly do expect some of that to ramp up in '27 as we begin to facilitize. But I think importantly, before I even get further on that, we got this enormous backlog to deliver. And so as I look at Raytheon's 2027 and beyond outlook, it shows very strong top line growth opportunity in its base backlog and then you put this on top of it as well. And so won't get into the specifics, as you pointed out today, but certainly, I see this as starting to ramp over the next 2 years in earnest and really continuing through 2030 when we get into full rate production for the suite of munitions that we'll be providing.

Myles?

We lost you there, Myles. But from what we did hear, you asked -- yes, we'll guess the question. We'll reframe the question as we like it. No, we heard the question on Collins -- there you go. There you go. Go ahead. We hear you now.

Yes. Well, obviously, we're really pleased with where Collins' operational margins were in the third quarter, and there really was nothing I would call out that was particularly unusual about the third quarter. So it's good to see the traction that they're getting. Everything we've been talking about for the last 5 years, frankly, about higher OE production, getting good absorption, the aftermarket drop-through, the increased content on the installed base is coming to fruition, and we got good defense performance as well at really good margins. So the third quarter was strong and very clean.

As we walk to the fourth quarter, you're right, we see a little bit of pullback on the margins. And what I'll tell you there is there's a couple of things. First, obviously, we won't have the IEEPA refunds repeat for Collins. That's all behind us here in the third quarter. We are investing in that business. It's really important for us to make sure that we're prepared for next-generation technology. And so we'll see a little bit higher research and development in the fourth quarter as we usually do, but it's ramping a bit.

We're also increasing our digital spend there. That's a key element of the transformation that Collins is going through in terms of their reducing complexity, automating back-office functions, et cetera. So that comes into play here in the fourth quarter. We do see a little bit higher OE volume in the fourth quarter, probably gives us about 40 basis points of margin headwind and a few other timing items. But fundamentally, the Collins margins remain really strong, and we expect the operational margins to continue to expand into '27, and we'll talk more about that, obviously, in January.

Maybe just Myles, to hit on one part of your question on sort of the sustainability on the structural cost reduction. I would tell you, and Collins would tell you that we're in the relatively early stages of that, and we've continued to see some really good progress there. You heard Neil talk about some of those initiatives. It's consolidating operations, increasing costs at best cost locations, really attacking the overhead layers and you saw sort of the indirect head count reduction that we referenced in our remarks. So these actions are going to continue to compound over time and provide some nice tailwind to Collins' margins.

Yes, absolutely, Ron. And I won't get into the detailed terms. But what I will say is that we are protected if there are changes in the budgetary environment and changes in volumes. That was a critical part of our discussions. We want to move out quickly and get to these rates. The department understood that. But it was also cognizant of the fact that things could change in this budget environment and that we've got the protections we need to feel good about moving out on these investments.

I will say though, Ron, even with the sort of the budget risk that, that sort of sits out there, I do believe that our critical munitions will be prioritized. No matter how the machinations ultimately shake out between is there going to be a reconciliation, what's in the base? I think these UCAs are a testament to how critical these munitions programs are and that they will continue to be prioritized as we go through the budget process. So again, I feel confident that we'll see these go through but protected on the downside just in case.

Yes. Absolutely, Ron. You're hitting on the single biggest enabling factor in getting to these enhanced rates, the 2 to 4x that I mentioned before. It's absolutely going to take a change in how we do things with our supply chain. You heard me mention upfront, some of the things we're doing differently in collaboration with the department in terms of streamlining test requirements, things that sit, generally speaking, within the department's purview, how do we be more efficient in how we do testing? How do we look at our requirements and really interrogate them to make sure that everything is absolutely necessary? And then how do we work with them to bring additional suppliers into the defense industrial base?

I mean you're right, there are certain pieces that we are competing with other industries. You mentioned the AI build-out. I mean, keep in mind, we're looking for a little bit different things than some of those folks, but working with the government to make sure that the folks that are producing the things that we need are prioritizing us, and we're not going to be left behind by virtue of AI build-out or other things.

I'll put critical minerals in that same category. These are things that are going to be important for both the commercial and defense. And we've been working those for a long time. And the department's helped there as well in terms of helping us secure long-term supply to make sure that we've got what we need for '27 and beyond. So I'll just tell you that the supply chain focus is acute and is where we're putting a lot of our energy focus and investment.

Yes. Thanks, Seth. I won't speculate too much right now as I know that legislative process is ongoing. And as you noted, the '27 budget isn't final. Again, we want to be supportive of our customers and their sustainment needs. But we're also going to need the kinds of protections around IP and protections around the investments that we've made and to make sure that we can balance those needs and the life cycle ownership needs of the customer. So again, I think, ultimately, we'll get to the right place on this, and we'll see how it shakes out.

Scott, thank you. Listen, as I look at Pratt, first of all, it's generating substantial cash flow in '26. It has been every year since the trough of COVID. So it's a very productive and cash flow positive entity. Keep in mind, about half of it is commercial engines, 1/4 of it is military, 1/4 of it is Pratt Canada. What's great about, as we look forward, as you all know, we've made substantial investments in expanding our MRO capacity, getting our facilities put together for assembly of GTF engines, we expect that to continue as we continue to increase our volumes.

But on the GTF aftermarket, we've been doing a number of overhauls that are pay-at-shop-visit and those full interval shop visits are coming due here this year and into the next several years. And each of those shop visits brings with it cash payments. So Pratt will be a tailwind to RTX's free cash flow over the next 3 years. I'm not going to put a number on it today, but you've heard the kind of growth rates we've demonstrated over the last 2 years in the MRO output. We expect strong call it, low double-digit increases in shop visits as we go into '27 and beyond. And so with that, will come the cash flow that we expect to return the investment on the GTF.

So we've talked about the contracting landscape before. And about 80% of the contracts for the GTF program are under a long-term contract. And I would say the vast majority of them are at a pay-at-shop-visit contract. And so the good news is, as you've looked at the results of RTX and Pratt a key part of that over the last few years, we have generated substantial free cash flow. And we have, at the same time, made substantial investments in overhauls over the last few years. And so the contract asset has grown at Pratt, but over the next 3 to 5 years, we'll start to see that come down and generate tailwinds for the business.

I'll start, John, and then I'll ask Neil to chime in. Look, when you think about Pratt and Pratt's margin expansion and performance, it does center around the GTF. You heard us talk earlier today about the MRO performance on the 1100, up 37% year-over-year. Turnaround time has come down, and that's with heavier shop visits. So really strong performance from an MRO perspective, which will help drive AOGs down here in the fourth quarter.

And then it's really shifting to the GTF Advantage and HS+. Those are going to be the two main thrusts behind margin expansion in our Large Commercial Engines business. GTFA is in production today. As you know, we talked about its EIS with United earlier, so we're very pleased about that. We're taking a disciplined approach to that production cutover. This configuration will get cut in over a period of several years to manage the risk. There's a large proportion of the bill of material that's common, but there's some that's unique. We want to make sure those are up at the right rates as we cut that in.

And then on Hot Section Plus which, as you know, is the -- effectively the derivative of the GTF Advantage, you get 90% to 95% of the durability benefits in a kit. We're working with Airbus and regulators to finalize certification, and we anticipate it's going to be installed into MRO early next year. And we also expect that cut-in to be more aggressive and faster than the one I just described on the GTF Advantage. So again, it's really going to come down to continuing on the MRO output on GTF and then the cutover on GTF Advantage and then the cutover on HS+ in our GTF shop visits.

Chris, the only thing I would add maybe to just put some numbers around what we're talking about here. We've talked about Pratt being entitled to low to mid-teens margins over the longer term. And when I look at the performance of the business and the mix of installs and spare engines, the growing GTF aftermarket, the continued steady V2500 shop visit outlook that we have for the next several years, all of those things contribute to margin growth year-over-year through the next 5 years. It's going to be a gradual growth. But importantly, as I just talked about a few minutes ago, it will come with significant cash flow tailwind as well as we convert these shop visits to paying shop visits.

So the formula for margin expansion is in place. We've got good traction on the aftermarket, on the pricing and I think that the team is focused on the right things at Pratt & Whitney to drive that growth over the next several years.

Yes. Thanks. Appreciate it, Scott. Again, I think when we look at our supply chain, we're looking at all of our possible constraints. We see constraints, as I mentioned earlier, in castings, and we're investing in our own Asheville facility there. We see constraints in rocket motors, as you noted. I talked earlier about critical minerals. So we're always looking at whether or not we deploy capital to bring additional sources of supply in, in terms of qualifying new suppliers. And we're also always looking at places to deploy capital to bring certain suppliers in-house if we feel like it's a major bottleneck.

On rocket motors, in particular, I will tell you, we're expanding the supply base and entering into partnerships with other solid rocket motor suppliers because I think that's just an area that we're just -- you're never going to have enough suppliers there. I think the demand is going to be incredibly high and we need to continue to spread that risk across a number of suppliers, which is why you've seen some of our announcements that we've made in terms of our partnerships with other rocket motor suppliers.

So again, just stepping back, we're always looking at ways to shore up our supply chain. No immediate plans on rocket motors. Again, that's more of a partnership strategy, but always looking for ways to strengthen the base.

On the last part of your question, Gautam, as I said earlier, as we continue to move into the production phase and we start to see the efficiencies come from the higher volumes and from our supply base, again, we think that these can support margin expansion at Raytheon.

On the international side, again, it continues to be a very strong portion of the Raytheon backlog. Our international bookings at Raytheon are up 2.5x year-to-date on a year-over-year basis. So that international demand continues to be very, very strong. And again, I know there's been some overhang regarding questions on the budget and the like, but our international customers continue to have really strong demand for our products, whether that be Europe, MENA, Asia Pac. So the demand internationally continues to be exceptionally robust.

And just to put a finer point, sorry if I missed it, Chris, 37% of the total backlog is international. It's 52% if you exclude the munitions contracts, Tomahawk and AMRAAM that we added. So still very substantial. We booked $9 billion worth of international orders at Raytheon during the third quarter, a little overshadowed by the size of Tomahawk and AMRAAM, but still really, really strong bookings, and we expect some more here in the fourth quarter. So just a little extra color there.

Thanks, Ken. Listen, the majority of that growth came from the GTF aftermarket. We're still seeing really solid content on the V2500. So Q3 was lifted a little bit by particularly strong content on the V program. So a little bit of growth there as well. We see that actually slowing down in the fourth quarter just on the mix of the inductions and the engines going through the shop.

But as I said in the last call, we expected about 800 shop visits for 2026. We are right on track to that rate through the end of the third quarter, and we see no change to that outlook in the fourth quarter. And frankly, I think we see that number of shop visit inductions pretty flat and consistent year-over-year with, again, increasing content on the V.

But as we look at where we are today and the top line growth at Pratt, a lot that's being driven off of our GTF program, which over time, will far outweigh the structured decline in the V2500-powered aircraft.

All right. Thank you, Latif. That concludes today's call. As always, the Investor Relations team will be available for follow-up questions. Thank you all for joining us, and have a good day.

Take care, everybody.