RTX Corp (Raytheon Technologies)

RTX Corp is a mega-cap defense/aerospace company with three segments: Collins Aerospace (cockpit electronics, avionics, interiors), Pratt & Whitney (jet engines — commercial GTF + military), and Raytheon (missiles, radar, C-UAS, electronic warfare, cybersecurity). The Physical AI thesis focuses specifically on Raytheon's air-defense and counter-UAS programs.

• Q2 2026 (ended 06-30): revenue $24,708M (+14.5% YoY vs $21,581M), operating income $2,811M (11.4% margin), net income $2,139M.
• H1 2026 revenue $46,784M; FY2025 revenue $88,603M, op income $9,300M (10.5%).
• Adjusted Q2 (8-K EX-99.1): sales $24.7B (+16% organic), adj EPS $1.89 (+21%), FCF $2.9B.
• Record backlog $289B (+22% YoY): $170B commercial / $119B defense; Raytheon backlog $86B (48% international).
• Raytheon Q2 sales $8.3B (+18% organic), segment op profit $1.0B (+100bps margin); Raytheon Q2 bookings $19.9B (book-to-bill 2.42).
• FY26 guidance raised: sales $95-96B, adj EPS $7.10-7.25, FCF $8.50-8.75B.

Public Parameter Table (source-confidence tagged):

• monetization model: One-time hardware (engines, avionics, missiles, radars) + aftermarket services/consumables (spares, MRO, upgrades) + long-term defense contracts (cost-plus/fixed-price). Not subscription/SaaS. 10-K FY2024, Item 1 Business; [sec.gov ; acc. 0000101829-25-000012]
• revenue mix: Collins Aerospace ~34%, Pratt & Whitney ~35%, Raytheon ~33% of FY2024 net sales (~$80.7B total; eliminations ~-2%). [10-K FY2024, Segment Information note; same URL/acc.]
• who pays: U.S. DoD and allied governments; commercial airlines, airframers, lessors, MRO providers. [10-K FY2024, Item 1 Business; same URL/acc.]
• margin_value_capture: Consolidated GAAP operating margin ~6.6% (FY2024 operating income ~$5.4B on ~$80.7B sales); value accrues in aftermarket/services and defense programs. [10-K FY2024, MD&A/Segment note; same URL/acc.]

• customer classes: Government - Program Buyers, Space & ISR Program Buyers, Defense C-UAS Integrators, commercial airlines, airframers, MRO providers. 10-K FY2024, Item 1 Business; [sec.gov ; acc. 0000101829-25-000012]

RTX’s three segments are broadly balanced, but the segment data are not directly additive to consolidated net sales because the 10-K reports segment net sales before intersegment eliminations. The 10-K segment note presents each segment in the mid-$20-billion range for 2023. On a segment-sales basis, the revenue mix is approximately equal thirds: Collins Aerospace ~34–35%, Pratt & Whitney ~32–33%, and Raytheon ~32–33%.

Exact segment-level dollar figures are available in the FY2023 10-K segment footnote [S1]. I am deliberately not reproducing segment-level dollars from memory because the intersegment eliminations make a clean consolidated external-revenue split non-obvious; the consolidated net sales of $68,920 million is the verified primary fact [S1]. This is a source-bound limitation, not a refusal to analyze: the 10-K’s segment footnote is the correct place to read the three segment lines and the eliminations line.

RTX’s business model is a hybrid of:

• Commercial aerospace original equipment (OE) — engines and systems sold to airframers such as Airbus and Boeing.
• Commercial aerospace aftermarket — spare parts, maintenance, repair, overhaul, fleet management, and used-serviceable-material sales to airlines and lessors.
• Defense — prime and subcontract sales to the U.S. Department of Defense, foreign governments, and foreign military sales channels.

The U.S. government is the dominant customer. In FY2023, U.S. government sales, including foreign military sales, were approximately 43% of net sales [S1]. This is a load-bearing concentration fact: any U.S. defense budget shock affects nearly half the company’s revenue.

RTX monetizes through:

1. Product sales — engine deliveries, avionics, missile rounds, interceptors, radars, sensors, aerostructures.
2. Long-cycle aftermarket services — maintenance contracts, spare parts, repair and overhaul, fleet management programs, and material services.
3. Government contracts — cost-reimbursable and fixed-price development and production contracts, plus sustainment.

Aftermarket is structurally higher-margin than OE. A Pratt & Whitney engine is sold at or near breakeven in many commercial campaigns, with the economic value captured over decades of sole-source spares and shop visits [S1]. The same logic applies to Collins’ proprietary avionics and mechanical systems.

For FY2023, RTX’s GAAP gross margin was approximately 23% of net sales, and GAAP operating margin was approximately 6.7% [S1]. These figures are depressed by the $5.4 billion pre-tax Pratt powdered-metal charge [S4]. The charge was concentrated in Pratt & Whitney and was the key reason GAAP operating margin did not reflect the stronger commercial aftermarket pricing environment.

Net income margin for 2023 was approximately 4.6% [S1], but this is not the correct normalized margin. A normalized margin should exclude the powdered-metal charge, which was a discrete event, though future inspection and shop-visit costs may persist.

The margin structure also differs by segment:

• Collins Aerospace — high aftermarket mix, historically high-teens operating margin; defense and commercial OE lower.
• Pratt & Whitney — engine OE lower margin; aftermarket materially higher.
• Raytheon — defense program margins depend on contract type, with fixed-price development risk and cost-plus production stability.

All three segments have negative working capital characteristics in some defense programs because of progress payments and milestone billing, which supports cash conversion.

The most decision-relevant unit economics for RTX is the GTF aftermarket revenue pool. The calculation below is intentionally explicit that several parameters are assumed rather than directly sourced from the 10-K. Where a parameter is assumed, it is marked as such.

Formula

\[

\text{Annual GTF MRO revenue} = (N \times E + S) \times V \times R

\]

where:

• \(N\) = number of GTF-powered aircraft in service
• \(E\) = engines per aircraft
• \(S\) = spare-engine pool
• \(V\) = annual shop visits per engine
• \(R\) = average revenue per shop visit

Inputs

Calculation

\[

\text{Engine pool} = 1,600 \times 2 \times 1.15 = 3,680

\]

\[

\text{Annual shop visits} = 3,680 \times 0.12 = 441.6

\]

\[

\text{Annual GTF MRO revenue} = 441.6 \times \$3.0\text{M} = \$1.32\text{B}

\]

Sensitivity

The takeaway is not the precise dollar amount; it is that even a relatively small installed base of ~1,600 aircraft can produce billions of annual aftermarket revenue because shop-visit revenue is large and recurring. This is the economic engine behind Pratt & Whitney’s long-term value, and it also explains why the powdered-metal inspections were so damaging: they forced accelerated shop visits, disrupting the normal revenue pattern and consuming capacity.

1. U.S. government — Department of Defense, intelligence community, NASA, and other agencies. This is the largest customer, approximately 43% of 2023 net sales [S1].
2. Foreign governments — through foreign military sales and direct commercial sales, especially in Europe, Middle East, and Asia Pacific.
3. Commercial airframers — Airbus and Boeing are the primary OE customers for Pratt and Collins. Embraer, Bombardier, and other airframers also buy systems.
4. Airlines and lessors — the aftermarket customer base for Pratt and Collins, including full-service and low-cost carriers.
5. Defense prime contractors — Raytheon and Collins also sell subsystems to other primes, such as Lockheed Martin, where RTX is a subcontractor.

• Defense procurement officers — long-cycle, regulatory, mission-driven, prioritizing schedule, capability, and compliance.
• Airline technical operations and fleet planners — cost-conscious, reliability-focused, and increasingly willing to benchmark engine maintenance cost per flight hour.
• Aircraft lessors — care about residual values and transferability of maintenance reserves.
• Commercial OEM program managers — care about on-time delivery, weight, reliability, and passenger experience for Collins systems.

The 10-K names the U.S. government as the principal customer. It also states that no single commercial customer exceeds 10% of net sales [S1]. Commercial customer names are not individually quantified in the filing because no single one crosses the 10% disclosure threshold.

FY2025 net sales were $88.6B, up 9.7% YoY from $80.7B; gross margin was 20.1% and operating margin was 10.5%.

DoD and allied air-defense / counter-UAS demand pulls through Raytheon programs like Patriot, GEM-T, PAC-3, AMRAAM, LTAMDS, and interceptor production. RTX is the incumbent scale supplier for critical mission systems in the kill chain.

• FY2025 net sales $88.603B vs $80.738B in 2024; total cost of sales $70.814B; operating profit $9.300B [SEC 10-K 2026-02-06]
• Q1 2026 adjusted sales $22.1B; record backlog $271B, including $109B defense; operating cash flow $1.9B; free cash flow $1.3B [SEC 8-K EX-99.1 2026-04-21]
• Raytheon Q1 2026 sales $6.945B, up 10% YoY, driven by higher volume on land and air defense systems, including Patriot and GEM-T, plus naval munitions [SEC 8-K EX-99.1 2026-04-21]
• Management said RTX is increasing output and accelerating fielding of new capabilities because defense demand is strong and the backlog is being delivered [SEC 8-K EX-99.1 2026-04-21]

Calc 1 — Patriot supply vs. demand gap:

• Supply: Patriot-family procurement ~tripled from ~500 interceptors/yr (pre-2022) to ~1,500+/yr; GEM-T capacity path to 650/yr by 2028; PAC-3 MSE (Lockheed) ~620 delivered in 2025 (~52/mo).
• Demand: Ukraine burn 60-70/mo normal → 150-180/mo peak (1,800-2,160/yr peak); Operation Epic Fury consumed est. 1,060-1,430 Patriots in ~6 weeks ≈ 18 months of production.
• Result: a commercial order placed early 2026 delivers ~2031 → a ~5-year replenishment runway for Raytheon.

Calc 2 — SRM is the true chokepoint, and it is upstream:

• PAC-3 MSE: 24-month missile lead time, 30-month SRM lead time (propellant cast/cure/inspect physics, not procurement choice).
• SRM industrial base: 6 suppliers (2000) → 2 (2015). Demand 22,000 motors by 2028 vs ~14,000 capacity = 57% gap (DoD DIB).
• Pentagon July 27 2026: 7-yr framework agreements with L3Harris + Lockheed to triple PAC-3, quadruple THAAD; DoD FY27 missile budget $73B (vs $29B peak 2024).