RTX leans on $340bn backlog for 2027 growth

RTX Corporation kept its full-year 2026 guidance unchanged at the Baird 2026 Global Industrial Conference, despite having 51 days left in the fiscal year. Management said a $340 billion backlog, improving defense bookings and steady commercial aerospace demand support confidence in delivering the current-year plan. Looking ahead, RTX expects 2027 to bring sales growth, earnings growth, operating margin expansion and higher free cash flow across Pratt & Whitney, Collins Aerospace and Raytheon.

The company noted that some non-recurring items that helped 2026 results, including a $0.25 per share benefit from IEEPA refunds, will not repeat in 2027. It also anticipates a pension-related headwind of about $0.30 to $0.35 per share as a result of the higher-rate environment. RTX said the net impact of these items is close to neutral, leaving underlying operating growth as the main driver of 2027 performance.

RTX emphasized that its $340 billion backlog provides strong multi-year visibility, particularly as Raytheon converts major munitions framework agreements into binding contracts. These munitions deals include downside protections on funding or volumes and are expected to provide about 10 years of visibility into demand for critical munitions. Investment in supply chain and tooling for these programs has already begun, with production expected to start around 2030.

Raytheon’s backlog, excluding the munitions framework contracts, is 52% international, with key platforms such as Patriot radar systems, LTAMDS, GEM-T, Coyote counter-UAS and Standard Missile systems. RTX said Raytheon’s 2027 sales are about 80% in backlog and at least 85% fully funded, supporting high visibility on next year’s defense revenue. The company added that the current U.S. continuing resolution environment is not expected to materially affect its 2027 sales outlook.

RTX is also working to broaden its defense supply base. It has identified three new rocket motor and propulsion suppliers expected to join over the next couple of years and has added 150 new casting suppliers in the past year. The company is securing supply agreements for advanced microelectronics to reduce sole-source dependencies in high-volume munitions programs.

Commercial aerospace remains a key growth driver. RTX said it is aligned with Boeing and Airbus production schedules, with Collins Aerospace in step with Boeing and Pratt & Whitney balancing material between original equipment, maintenance and spare engines. Commercial original equipment sales rose 10% year over year in the third quarter, and output to Airbus is increasing in 2026 with further increases expected in 2027.

Demand is strong across narrow-body aircraft, business jets, general aviation and helicopters, with Pratt & Whitney Canada seeing very strong demand despite material constraints. Pratt & Whitney’s Geared Turbofan aftermarket is sold out through 2027 and beyond, with shop visits for the GTF family fully booked. The legacy V2500 engine fleet is expected to support about 800 shop visits in both 2026 and 2027, with rising content per visit as engines move into heavier overhaul cycles.

RTX reported that aircraft-on-ground levels were stable sequentially in the third quarter and are expected to improve in the fourth quarter and into 2027. Management also said it has not seen meaningful changes in customer buying behavior or airline capacity plans and is using pricing power to offset higher material costs. Retirements are described as following an already-expected structural decline.

RTX expects operating profit growth and margin expansion in 2027 across Collins Aerospace, Pratt & Whitney and Raytheon. Collins is viewed as having room for further margin improvement, supported by structural cost reductions, high-margin aftermarket activity and production ramps that help absorb fixed overhead. RTX targets a 19% to 20% operating margin for Collins Aerospace over time and expects structural cost cuts to have a compounding effect over several years.

The company projects free cash flow growth from 2026 to 2027, helped by an expected about $500 million tailwind as powder metal payment obligations decline. RTX expects free cash flow over the long term to equal 90% to 100% of adjusted net income, even as capital expenditures remain above $10 billion annually to expand capacity across its supply chain and manufacturing base. Management said the funding structure for the large munitions contracts should be cash flow neutral during the investment phase before becoming a source of cash and profit later in the decade.

RTX outlined consistent capital allocation priorities: first, investment in research and development and capital spending; second, maintaining and growing the dividend; third, reducing debt, including obligations tied to accelerated share repurchases; and fourth, pursuing selective mergers, acquisitions and small bolt-on deals. The company has maintained dividend payments for 56 consecutive years, while delivering revenue growth of nearly 12% over the last twelve months, free cash flow of $9.5 billion and a return on equity of 13%.

RTX has not issued formal numerical guidance for 2027 but plans to do so on its January earnings call. Directionally, it expects sales to increase across all three segments, operating profit to grow with margin expansion, and free cash flow to rise despite higher capital spending and working capital needs tied to backlog conversion. Management characterized its position entering 2027 as supported by strong backlog, clear production ramps in commercial aerospace and solid visibility on defense demand.