Defense Backlog and Engine Aftermarket Power a $261B Franchise

RTX Corporation is an aerospace and defense manufacturer organized into three reporting segments:

• Raytheon — missiles, missile defense, sensors, radars, and integrated air-and-missile defense systems sold primarily to the U.S. Department of Defense and allied governments. Revenue is largely cost-plus or fixed-price incentive, with multi-year backlog.
• Pratt & Whitney — commercial and military gas turbine engines, including the geared turbofan (GTF) family for narrow-body aircraft, plus military propulsion and a large installed base that generates spares and overhaul revenue.
• Collins Aerospace — avionics, flight controls, actuation, landing systems, interiors, and power and connected systems for commercial and military aircraft.

How it makes money. Raytheon earns on contract execution against appropriated budgets. Pratt & Whitney earns on engine deliveries and, more profitably, on the aftermarket — spare parts and shop visits over a 20-30 year installed life. Collins earns on original equipment content and on the aftermarket for that content.

Customers. The U.S. government and allied defense ministries are the anchor customer for Raytheon. Commercial airlines, cargo carriers, and leasing companies are the anchor customers for Pratt & Whitney and Collins, with Boeing and Airbus as the principal airframers through which Collins content reaches the fleet.

Scale. At a $261.4B market capitalization and 1,347.76M shares outstanding, RTX is among the largest aerospace and defense companies globally, with a public float of 1,249.86M shares — about 92.7% of shares outstanding, indicating minimal strategic or insider lock-up.

Near term (next 12 months). Growth is driven by three measurable items: defense supplemental appropriations converting backlog into revenue, commercial aftermarket spares growth as global flight hours normalize above pre-pandemic levels, and narrow-body build-rate recovery at the airframers, which pulls Collins and Pratt original equipment revenue higher. The 21.6% gap between the current $193.92 price and the $226.88 52-week high represents the market's current discount for timing uncertainty on the first of these.

Medium term (2-5 years). The installed GTF fleet reaches the steep part of its shop-visit curve, which is the point at which aftermarket revenue per aircraft peaks. Simultaneously, defense programs already in backlog — interceptor and munitions replenishment, radar and air-defense modernization — move into full-rate production. Together these create a period in which consolidated revenue grows at a mid-single-digit rate while EPS grows faster because aftermarket mix lifts margin and buybacks shrink the share count.

Constraints on growth. Airframer build rates, supplier labor availability, and the pace of government appropriations are the three binding constraints. None is fully within management's control, which is why the growth story is best expressed as a range rather than a point estimate.

FY-1A EPS of $5.68 matches the reported trailing figure; prior-year and forecast columns are analyst estimates and should be treated as directional.

The narrative behind the table is mix and capital allocation. Revenue growth accelerates into FY0E as defense backlog converts and commercial aftermarket spares recover, then settles into a mid-single-digit cadence. Margin expansion of roughly 30-50 basis points per year comes almost entirely from aftermarket mix at Pratt & Whitney and Collins rather than from defense, where cost-plus structures cap upside. EPS growth outpaces revenue growth by a wide margin because margin expansion and a declining share count (1,452M to a projected 1,270M) compound on top of the top line. That combination — mid-single-digit revenue, modest margin gain, and a 1-2% annual share reduction — is what supports EPS compounding in the low-to-mid teens.

Market size. Global aerospace and defense spending is measured in the trillions of dollars cumulatively over the next decade, split between defense procurement and sustainment (roughly 40% of the total) and commercial aerospace original equipment and aftermarket. The commercial aftermarket alone — spares, repairs, and overhauls — is a several-hundred-billion-dollar pool over a ten-year horizon and is the most profitable slice of the value chain.

Positioning. RTX competes in three distinct arenas. In defense, it is one of a handful of prime contractors with the scale to integrate large air-and-missile defense architectures. In commercial engines, it is one of a duopoly-plus market structure alongside GE Aerospace, with the GTF competing against the CFM LEAP for narrow-body propulsion. In aerospace systems, Collins competes in oligopolistic niches where qualification cycles of five to seven years protect incumbents.

Comparable companies.

Competitive moat. The moat is qualification-based, not patent-based. Once an engine or avionics suite is certified on a platform, switching costs are prohibitive for the life of the aircraft. That is why installed-base share, not annual order share, is the metric that matters for long-term profitability.

DCF discussion. A discounted cash flow approach is the right primary method for RTX because the value is concentrated in a long-dated aftermarket annuity that accounting earnings understate. Key assumptions: revenue growth tapering from high-single digits to roughly 3% terminal, segment operating margin expanding from the low-13% area toward the mid-teens as aftermarket mix rises, capital expenditure in the 4-5% of sales range, and a weighted average cost of capital in the 7.5-8.5% band — low for an industrial because the 0.31 beta and investment-grade balance sheet reduce the equity risk premium. Under those assumptions, the DCF value clusters around the current $193.92 price, implying the market is already capitalizing a normal aftermarket cycle. Upside requires either faster margin expansion or a higher terminal growth rate; downside follows from a slower shop-visit ramp.

Comparable multiples.

RTX's trailing multiple sits at the high end of the defense peer group and in line with GE Aerospace, which is the correct comparison: the market values RTX as an aftermarket-driven aerospace franchise with a defense ballast, not as a pure defense prime. The premium to Lockheed Martin and Northrop Grumman is the price of the commercial aftermarket. The relevant question for valuation is not whether RTX deserves to trade above the defense primes — it does — but whether the aftermarket growth embedded in the current multiple is conservative or optimistic.

• Aftermarket execution risk. GTF shop-visit turnaround times and the cost of durability and support programs determine whether aftermarket revenue converts to margin. If shop visits take longer or cost more than planned, the mix benefit that drives the entire EPS growth story is deferred.
• Appropriations timing. Defense revenue depends on the pace of U.S. and allied budget passage. A continuing resolution or a supplemental funding delay pushes Raytheon revenue to the right without changing the long-run program value — but it does change the multiple the market is willing to pay in the interim.
• Airframer build-rate volatility. Collins and Pratt original equipment revenue is levered to Boeing and Airbus production rates. A rate cut on a narrow-body program reduces revenue with high decremental margin and hits both segments simultaneously.
• Fixed-price development contract charges. Legacy fixed-price development programs have produced charges in the past. A repeat would hit both reported earnings and credibility, and would likely compress the multiple faster than it compresses EPS.
• Regulatory and export-control exposure. Defense sales to allied governments require export licenses and are subject to geopolitical review. A policy shift on a major export program could remove revenue that is already in backlog.