RTX Corp (RTX) — Q1 2026 Earnings Call Transcript

Thank you, and good morning, everyone. Before I get into our results, I want to acknowledge the ongoing situation in the Middle East and express our hope for a sustained resolution. Let me now shift to the quarter. We delivered very strong performance to start the year, driven by continued execution enabled by our core operating system and a consistent focus on productivity across RTX. Starting with the top line, adjusted sales were $22.1 billion, up 10% organically, with growth across all three channels. Adjusted EPS of $1.78 was up 21% year-over-year, driven by 14% growth in segment operating profit. And free cash flow of $1.3 billion was a solid start to the year and up $500 million from Q1 last year. On the orders front, demand for our commercial and defense products and services remains robust. Our book-to-bill in the quarter was 1.14, and our backlog is a record $271 billion, up 25% year-over-year with strong commercial and defense awards in the quarter. On commercial, our backlog is up 30% year-over-year with strength across both OE and aftermarket. This includes some notable GTF wins, including Vietjet Air, which selected the GTF engine to power an additional 44 aircraft. And recently, Finnair announced their intention to purchase up to 46 GTF-powered Embraer E2 aircraft. On the defense side of the business, we saw significant awards across all three segments, highlighting the strength of our product offerings. At Pratt, the military business was awarded over $3 billion for F135 Lot 19 production. Collins booked close to $3 billion of awards, including $1.7 billion for mission systems capabilities and $400 million for avionics equipment supporting multiple platforms. And Raytheon booked $6.6 billion of awards in the quarter, including over $600 million to supply the Netherlands with Patriot equipment and over $400 million from the U.S. Army for our lower-tier air and missile defense sensors. In addition, we're working closely with the Department of War to accelerate munitions production and are pleased with the progress to date. As we previously announced, Raytheon signed five landmark framework agreements with the Department for critical munitions, including Tomahawk, AMRAAM and the Standard Missile family. These agreements are a significant step forward in the department's transformation initiative, and they are vitally important for national security. Once finalized, these agreements would provide firm demand signals for RTX and our suppliers to invest in ramp production well above existing rates over the next decade. This increased production will primarily occur at sites in Tucson, Arizona; Huntsville, Alabama; and Andover, Massachusetts, where we've already invested nearly $900 million in CapEx over the last three years to expand capacity at these locations. We will continue to make significant additional investments going forward to advance production capabilities and add new manufacturing lines to support these agreements. As we said, the agreements incorporate a collaborative funding approach to preserve upfront free cash flow, and they represent good long-term business for us. So a very strong start to the year. I know everyone is looking to understand how we're thinking about the end markets as we look ahead. So let me provide an update on the operating environment as we see it today. I'll start with commercial aerospace. Like all of you, we're closely monitoring global events. While the environment is dynamic right now, the underlying demand for our OE products and aftermarket services remains durable. Commercial OE in the first quarter was in line with our expectations. We expect continued production ramps across multiple platforms throughout the remainder of the year. In Q1, we saw solid RPK growth despite the disruption in the Middle East. Aircraft retirement rates also remain below historical levels, with V2500 retirements in line with our expectations. Of course, regardless of any near-term volatility, this is a long-cycle business. We assume RPK growth will continue and the demand for new aircraft to remain strong. So based on what we see today, we're not making any changes to our commercial outlook for the year. We'll, of course, be actively monitoring the situation. On the defense side, the current landscape clearly underscores the need for munitions depth, integrated air and missile defense technology, and more advanced capabilities to counter evolving threats, such as our Coyote counter-UAS system. As seen in the President's budget request, we expect these priority areas to see significant funding increases in the 2027 U.S. defense budget and other supplemental funding packages. Our products across RTX are well-positioned to support these needs with our battle-tested systems and munitions serving as the backbone of many U.S. and allied defense architectures, including franchise programs like Patriot, GEM-T, NASAMS, AMRAAM, Tomahawk and the F135. So given our first quarter results and the strength we're seeing in our defense business, we're raising our full year outlook for adjusted sales and EPS and maintaining our free cash flow outlook.

All right. Thanks, Chris. I'm on Slide 5. As Chris already mentioned, we had strong financial performance to start the year. In the first quarter, adjusted sales of $22.1 billion were up 9% on an adjusted basis and up 10% organically. This top line organic growth was driven by strength across all three channels, with commercial OE up 6%, commercial aftermarket up 14% and defense up 9%. Adjusted segment operating profit of $2.9 billion was up 14% year-over-year, driven by drop-through on higher volume, favorable defense mix and improved productivity. Specifically on productivity in the quarter, we saw continued progress across the company on cost reduction and efficiency improvement, growing organic sales and segment profit double digits with only a 1% increase in headcount. We also drove 70 basis points of consolidated segment margin expansion in the quarter with contributions from all three segments, more than offsetting the year-over-year headwind from tariffs. Adjusted earnings per share of $1.78 was up 21% from prior year, driven by strong segment operating profit growth and lower interest expense. Adjusted earnings per share also benefited by about $0.08 year-over-year from a lower effective tax rate, which was principally driven by higher stock-based compensation deductions. On a GAAP basis, earnings per share from continuing operations was $1.51 and included $0.27 of acquisition accounting adjustments. Free cash flow of $1.3 billion was a solid start to the year and included approximately $170 million of powdered metal-related compensation. Lastly, we paid down $500 million of debt in the quarter and are tracking to our full year deleveraging expectations as we further strengthen our balance sheet. Okay. Let's turn to Slide 6 and I'll provide a few details on our updated outlook for the full year. As Chris mentioned, based on our strong first quarter performance and expectations around continued defense strength, we are updating our full year outlook. On the top line, we're raising our full year adjusted sales outlook by $500 million to a new range of $92.5 billion to $93.5 billion, up from our prior range of $92 billion to $93 billion, driven by the performance we saw at Raytheon in the first quarter as well as slightly lower sales eliminations for the year.

Thanks, Neil. Starting with Collins on Slide 7. Sales were $7.6 billion in the quarter, up 5% on an adjusted basis and 10% organically, driven by strength across all channels. Adjusting for divestitures, by channel, commercial OE sales were up 15% driven by higher volume on narrow-body and wide-body platforms. Commercial aftermarket sales were up 7% driven by a 15% increase in provisioning and an 8% increase in parts and repair, partially offset by a 3% decline in mods and upgrades. Recall, mods and upgrades were up 18% in Q1 2025. Defense sales were up 9% versus the prior year driven by higher volume across multiple programs. Adjusted operating profit of $1.3 billion was up $71 million versus the prior year, driven by drop-through on higher commercial and defense volume and lower R&D expense. This was partially offset by unfavorable commercial OE mix, the impact of divestitures completed in 2025 and higher tariffs across the business. In the quarter, Collins expanded margins by 10 basis points year-over-year despite a 130 basis point headwind from tariffs. Turning to Collins' full year outlook. We continue to expect sales to grow mid-single digits on an adjusted basis and high single digits organically, with operating profit growth between $425 million and $525 million versus 2025. Shifting to Pratt & Whitney on Slide 8. Sales of $8.2 billion were up 11% on an adjusted basis and 10% organically, driven by strength in commercial aftermarket and military. Commercial OE sales were in line with expectations and down 1%, driven by lower engine deliveries. As Chris said, we continue to expect mid to high single-digit large commercial engine delivery growth for the full year. Commercial aftermarket sales were up 19%, driven by higher volume, including heavier content in both large commercial engines and Pratt Canada. In military engines, sales were up 7%, driven by higher F135 production volume. Adjusted operating profit of $711 million was up $121 million versus the prior year, driven by drop-through on higher commercial aftermarket and military volume, partially offset by higher operational costs, including tariffs and higher SG&A expense. In the quarter, Pratt expanded margins by 70 basis points year-over-year despite a 50 basis point headwind from tariffs. Turning to Pratt's full year outlook. We continue to expect sales to grow mid-single digits on an adjusted and organic basis, with operating profit growth between $225 million and $325 million versus 2025. Turning to Raytheon on Slide 9. Sales of $6.9 billion in the quarter were up 10% on an adjusted basis and 9% organically, driven by higher volume on land and air defense systems, including Patriot and GEM-T, and higher volume on naval munitions programs. Adjusted operating profit of $845 million was up $167 million versus the prior year, driven by favorable program mix and higher volume in land and air defense systems, higher volume in naval programs and improved net productivity. In the quarter, Raytheon expanded margins by 150 basis points year-over-year driven by favorable mix and increased productivity. Bookings in the quarter were $6.6 billion, resulting in a book-to-bill of 0.96 and a backlog of $74 billion. On a rolling 12-month basis, Raytheon's book-to-bill is 1.48. In addition to the awards Chris mentioned earlier, other key awards in the quarter included over $900 million for Standard Missile and Tomahawk.

Okay. Thanks, Nathan. As we set up front, our execution and operational performance drove strong top and bottom line results in Q1, and I want to thank the entire RTX team for their continued dedication and commitment to our mission. The underlying demand for our commercial and defense products is durable, and we remain focused on executing on our commitments, investing in capacity and innovating for future growth to drive long-term shareholder value. With that, let's open it up for questions.

Chris, you highlighted the very strong demand you continue to see for Missile Systems in the Raytheon portfolio. I was wondering, how concerned are you about the ability of your supply chain to keep up with the demand pace you're setting? And also in relation to that, the risk with regard to rare earth?

Thanks for the question, Rob. I'll start by just saying we're really pleased with how we started the year in terms of production. As we said upfront, munitions were up over 40% year-over-year. So a very good start to the year. Now the continued ramp of production is going to require growth in supply chain output and performance, as you've noted here. Now Raytheon has had 12 consecutive quarters of material growth, which is great, and material receipts were up 13% year-over-year here in Q1. And we're going to obviously keep a very close eye on a number of the things that we talk about on a consistent basis: Rocket Motors given the concentrated supply base; microelectronics, given the non-A&D demand that's out there. But if you just think longer term and the potential impact of the framework agreements, it's going to require a step change, to your point, in the supply chain. Now the framework agreements do provide some potential long-term firm demand. And that's going to provide the visibility the supply chain needs to invest in people, tooling, test equipment and capacity, which is great. But I think longer term, the defense industrial base is going to need additional suppliers to improve the overall resiliency, and the firm demand is likely going to incentivize quality suppliers from other industries to enter the supply base, which is great, and I think we need it. And the Department of War has been partnering with a lot of those folks to provide strategic capital to give them the balance sheet strength they need to make these investments. But we're going to need all of that in order to not only meet the production ramp-up that we have in front of us now, but also the potential ramp-up that comes with the framework agreements. On critical minerals, I would just say that we've been working on this for a while having seen this coming. And so we're covered in what I would call the near and medium term. And we're still seeking to lock up longer-term partnerships and contracts on a handful of those. And the department has actually been a really strong partner in that effort as well.

Chris, I would like to elaborate on your framework comments. I'm interested in your thoughts on the sensitivity of pricing and how it relates to the capital expenditures you’ve implemented. Additionally, how should we approach the potential long-term margins? Is there a possibility for a significant shift in the mix, moving towards more production rather than development? Please share your perspective on Raytheon's strategic investments in strengthening the supply chain and the pricing dynamics of some of these agreements.

Yes. Thanks, Peter. Look, given the demand coming out of the Ukraine conflict, we've been investing for a while and increasing capacity. We mentioned a number of those in our upfront comments. Think Huntsville, think Andover, think McKinney, Texas. All those investments that you need to not only expand your footprint, but tooling, test equipment and labor. So we've been on that path to meet the demand. On the framework agreements, and again, I don't want to get too far into the details on this, Peter, only because we're still in the process of negotiations and discussions with the department on that. But again, as I said before, when they are ultimately finalized, it will give the kind of long-term visibility that the supply chain will need to invest, which is critically important. I think the episodic nature previously of the ordering patterns made it very difficult for the supply chain to make those kinds of long-term investments and things like the framework agreements are here to sort of address that. But here's what I will say, if you just think about the overall economics of the framework agreements, they give us an opportunity to bundle materials, they give us an opportunity to leverage economies of scale, and they give us an opportunity to really drive production efficiencies, especially given some of these are mature programs, things that are right in our wheelhouse. So we ultimately think that these are going to be very good business for us, but we're still going through the process to convert those into final agreements.

Could you provide some insights on Raytheon, particularly regarding the sensors and effectors? On the effector side, LHX has projected nearly 20% compound annual growth rate through 2030 for the missiles business. Is this what you're anticipating for that portfolio? Additionally, while we haven't heard much about the sensor side, you did mention the Andover expansion. What kind of growth do you foresee for the sensor segment in relation to your business at Raytheon?

Myles, I'll start on that one for you. Let me start by giving you a little bit of perspective on the Raytheon portfolio. If we were to look at '25, '26, if you will, as a proxy for how large is the effector business within Raytheon. Think about that as accounting for a little bit over 40% of the sales of Raytheon. So to just give you some context. And sensors obviously makes up a little less than that, but a large portion of the Raytheon business as well. And I would tell you that the growth we saw in the first quarter was significantly driven by the munitions and effectors, also the sensors, Patriot in particular. And we're seeing double-digit growth rates on those businesses in the quarter, and I expect that to continue as we go forward. Keep in mind, everything that Chris just spent a couple of questions talking about is not even in our backlog yet. So we're just talking about delivering today's backlog to both our U.S. and our international customers. On the sensor side, we see a lot of runway ahead of us there as well. We're continuing to build and deliver Patriot systems, NASAMS systems, the Coyote system. And obviously, we're ramping up our production on LTAMDS as we look forward. So that helps give a little bit of context on the size of the business and where we see it going. Again, as we finalize those agreements, we'll be sharing more details on the specifics as they come to finality.

No. The only thing I was going to add there, Myles, is I think the underlying premise of your question is a good one, which is I think the sensors potential has been something that has perhaps been under-discussed given, obviously, the framework agreements and all the replenishment that you're going to need on the effector side. And Neil rattled off a whole bunch of pieces of that portfolio, which I think are going to be really critical priorities. But again, just think Golden Dome, think integrated air and missile defense, the sensor portfolio is going to continue to grow in importance. And I think we're going to see the output there have to grow over the long term as well.

When we look at what's happening in Iran, so there's a clear increasing need to solve for some of the cost mismatch issues for the lower-cost drones. I guess the demand signal for your existing products is very clear and the replenish of the arsenal makes sense. But can you talk about how you're thinking about the solutions you provide in these higher-volume but cheap drones, especially when we think about the future of warfare and how that could be integrated into the Golden Dome?

Yes. Thanks, Kristine. Appreciate the question. I think just to provide some high-level context here, I think we're going to continue to need the right mix of capabilities. And you're absolutely right, the Department of War has put priorities around munitions depth and replenishment, integrated air missile defense, Golden Dome, all the things that are in the Raytheon wheelhouse and very mature products and products that are in production today. Your point about counter-UAS is a good one. We talked upfront about our Coyote system, and the Coyote system has been in great demand. It's performed exceptionally well in the field. And we've just actually started to introduce a non-kinetic version of the Coyote. So it can go up, it can perform its mission, it can address drone swarms, it can then come back and be redeployed, recharged and, again, go out and prosecute another mission. So that goes to the low-cost, reusable nature of that particular platform. And we're seeing really, really strong demand both domestically and internationally. In fact, we just had an FMS case approved for Coyote for the UAE, just to show the level of international demand there. I think more broadly, you're right, there are a number of lower-cost platforms that are out there. I'm not sure that's where we're going to compete on a platform level. But I do think there are going to be opportunities for us to be a platform-agnostic supplier of systems on some of these solutions, whether that be mission systems, whether that be autonomy, whether that be propulsion. So that's kind of how we see this landscape playing out. Clear demand for the high-end capabilities that are in our backlog today and that are part of the framework agreement, clear strengths in our counter-UAS capabilities, again, Coyote, and then opportunities for us to play on some of those other platforms as a supplier.

I wanted to follow up about the tariff impact. How are we seeing the impact so far after these new metal tariffs that were recently announced, and also the Supreme Court ruling on IEEPA?

Sure. I'll start with that one. Thanks for the question on the tariffs. Really no change today to our outlook for tariffs for the P&L for the full year. We talked about, back in January, seeing about a $75 million year-over-year tailwind as we continue to implement mitigations there. Obviously, the IEEPA tariffs court ruling have been overturned. They've been replaced with Section 122 and some other tariffs that's called Section 232. And so right now, we're sort of saying on balance, the tariff impact is about the same. That said, since the tariffs for IEEPA were put in place, we paid about $500 million associated with that kind of tariff. Obviously, the government is in the process of starting the refund process. And as we gain more clarity into that, we too will submit requests for our refunds there. We have not recorded income associated with reversing any of the expenses that we took. We have not included that in our guidance for this year either. So more to come there, but no change to our outlook today based on any of those changes.

Chris, can you walk us through how you're thinking about the pricing strategy for Hot Section Plus, which I believe is off warranty? And then do you require any additional regulatory approvals to begin providing Hot Section Plus on upcoming shop visits?

Yes. Scott, thanks for the question. Well, first and foremost, we're really pleased here to have the aircraft certification on the GTF Advantage, which, as you know, is where the Hot Section Plus comes from. So that paves the way for Advantage to enter into service later this year. And those GTF Advantage engines are already moving through our production lines, and so I know our customers are looking forward to the increased time on wing and fuel efficiency. And to your point, the Hot Section Plus is effectively the vintage retrofit package. Those 30 to 35 parts are going to provide almost 95% of the durability benefits of the Advantage, and they're going to get introduced into MRO a little bit later this year. So they will be introduced in MRO before likely the actual engine goes into service later this year. In terms of the pricing strategy, I mean, look, we've invested significantly in the Advantage, in all of the design and the testing and the like, and we plan to get value for that investment. Are there certain contracts that we have where it might make sense to incorporate versus others depending on where they're operating and what the environment looks like? Yes. And we're continuing to look at where it might be the most beneficial. But our intent is to get value for the investment that we've made and the value that it's going to continue to bring customers in terms of the time on wing and the fuel efficiency, which is again becoming a more important part of the overall equation.

Really helpful. Then Neil, can you explain how the transition to GTF Advantage will influence negative engine margin on the program? I assume there's some better pricing there, but it's not clear how that nets against presumably higher costs. If you could clarify that balance, that would be really helpful.

Sure. Thanks, Scott. I appreciate the question here. As we look forward, I think the GTF Advantage will have a little bit more cost associated with the engine as it brings greater capability and durability. But that said, you named it, there'll be some more pricing there as well. So on balance, I don't see a lot of headwind on a per engine basis as we begin to ramp up on the GTF Advantage engine over the next several years. So as we talked about for this year, we do think there's going to be a couple of hundred million dollars of headwind on OE margins throughout the course of the year. I'll tell you, for the first quarter, it was pretty much flat, not a major driver of the year-over-year performance at Pratt. They're doing a really nice job managing the cost of the engine. We're going to continue to see negative margins on deliveries of new engines, but obviously, the aftermarket is continuing to ramp there. Considerably, you heard Chris talk about the 22% GTF MRO output increase in the first quarter, that's driving aftermarket. The mix of those shop visits is getting heavier as well. And the margins on the aftermarket are low double digits. So we're starting to see the sequential improvement in the profile of the aftermarket at Pratt as well. So on balance, it's good business. It's great to see the certification occur here in the first quarter, and we're looking forward to making a very disciplined cutover over the next 1.5 years or so.

I was hoping to revisit Raytheon and the defense trends. Clearly, a lot of opportunities there, and the guidance was raised. That said, it was a very strong start to the year. So it feels like perhaps guidance is even a bit conservative. Maybe you could just revisit the outlook a bit and the shape of the year and how you see it playing out.

Thanks, John. I'll take that one. Yes, really pleased with the start of the year for Raytheon, seeing 9% growth on the top line. Chris talked about the material receipts, 12 consecutive quarters, 13% growth there. So we've been working, the team has been working very hard to make sure that we are prepared to deliver the backlog we have and then get ready for the future as well. With that strength, we dropped it through to our guide. We took up the top line at RTX by $500 million on the low and the high end of the range. I'd say about $350 million of that is all attributable to the Raytheon performance largely in the first quarter and what we can see as we enter here into the second quarter. The rest of the sales increase, we see some lower eliminations at the RTX level. So together, that's about $500 million. And we're seeing good drop-through. As you can see, the margins for Raytheon were 12.2% in the first quarter. We had $32 million of year-over-year productivity improvement at Raytheon. So a really nice start to the year. We're putting that into our guidance as well, and so that's a big driver of the $75 million increase in the range on both end of the high and low end of the range for Raytheon. So again, it's 1 quarter. We think that the business is performing quite well. We're seeing really good mix in the business. And as we continue to see that supply chain keep pace with our delivery plans, then we'll revisit that again here in July. But really pleased with the start and looking forward to continuing to see the ramp.

I wanted to ask about the impact of lower expected air travel growth on the aftermarket businesses at both Collins and Pratt, particularly maybe the short-cycle stuff at Collins, but if you could address it overall. We heard elsewhere this morning about the potential for a lag effect. And so thinking about is it some impact coming later this year and into '27, but it's a pretty significant hit to air travel growth this year. So maybe you could address that.

Yes. Thanks, Seth. Well, the first thing I'll say is that we're really pleased with the way we started the year in our aftermarket business with 14% growth and the demand that we saw. And you're right, we're watching all the things that you're watching and the environment and the implications around higher fuel prices, jet fuel shortages, the moves that airlines are making on capacity adjustments. If you just think about our business, I think you've got to look at it by business unit and by channel to really understand sort of some of the implications. Now some of the initial moves that the airlines are making where they're retiring much older sort of platforms, again, a lot of our aftermarket isn't reliant on those. We don't see a lot of maintenance opportunities on some of those platforms. So those near-term moves don't see a lot of impact. If you look at Pratt, the two largest portions of our aftermarket are the V2500 and the GTF. As we've said before, the V2500 is still a very, very young fleet. 50% of it hasn't had a first or second shop visit. Shop visits were very strong here in the first quarter, and again, look to continue to be strong throughout the year. And on the GTF, well, number one, it's the most fuel efficient, which right now, of course, is, I think, what people are focused on. But beyond that, you obviously know that we've got the fleet health issues that we're contending with. We've got to continue to move engines out of the parking lot into our MRO shops, and we've seen good output there, as Neil talked about. So the demand for GTF MRO is going to continue to be pretty robust. At Collins, again, you've got sort of the three channels: the parts and repair, the provisioning, and the mods and upgrades. And I think where you'll start to see any potential issue would perhaps be in provisioning and mods and upgrades. Provisioning if airlines decide that they want to sort of live with lower stocking levels; and mods and upgrades if the airlines decide they want to maybe defer some of those things. Now we just haven't seen any of the impact on the demand yet, but that's kind of how we're thinking about it, and that's kind of how we're tracking it.

Thanks, Chris. I don't have much to add there, but I'll add a couple of data points, maybe just to help people do some sensitivities as we think longer term about this. On the Pratt business, about half of their segment is aftermarket. And as Chris said, the predominance of that is coming from the GTF, the V2500, and I would throw in there Pratt Canada. When you combine those three elements, they account for over 85% of aftermarket sales. Pratt Canada has a very diverse operation with a wide range of customers and 70,000 units in service, showing strong performance across several business channels. To provide some additional context, Collins' aftermarket represents around 40% of the total segment, with parts and repair making up approximately two-thirds of that aftermarket. So just a little bit of context to help people think about it. Again, very diverse business operating on a lot of what we would call the right platforms, a lot of newer platforms. And keep in mind, out-of-warranty flight hours continue to grow. When you think about all of the deliveries over the last five years, with the growth that we've seen year-over-year, we have more and more hours coming out of warranty every single year. And so those are the aircraft that will continue to fly even in a slightly depressed environment. So as we sit here and look at '26, there's no changes to our by-channel outlooks at this point for commercial OE or aftermarket. We're watching it, but I think we're feeling like, as we look at our portfolio, pretty good line of sight to the demand.

I wanted to ask about aerospace profitability, both Collins and Pratt. So first, on Collins, margins were quite healthy despite the tariff impact and OE growth mix. How would we think about 2026 guidance which suggests the rest of the year margins are flat to down slightly versus Q1, which would sort of buck the seasonal trend? So I guess how do we think about Collins puts and takes on margins? And then on Pratt, Neil, you provided a sensitivity layup for us right here.

Let me start with the Collins margins. I think you said it, Sheila, it was a really strong start to the year despite our last quarter of having to deal with the year-over-year headwind from tariffs. Collins has done a nice job. They're focused on cost. We're taking on more and more OE. And some of that mix is a headwind, frankly. So with all of that, we continue to see margin expansion. You're right, as you look at the rest of the year, the margins remain relatively steady. I think as we continue to see OE mix trend towards more wide-bodies on the growth side, we'll have a little bit of a headwind there. It's a little bit early, as you know, to be adjusting the full year. We just talked about some of the uncertainty in the market. I think we're going to hold off for another quarter to see what second quarter looks like. But we're feeling like the Collins business is certainly on the right trajectory. If we get into the Pratt business, what I would say is the PW2000 is really not a major driver of the aftermarket. Obviously, we have a bit of a bigger portfolio on the 4000s, but we've been planning for that, I'll call it, structured decline for a number of years. And so that's not changing in our outlook here. On the V2500 specifically, we also are well connected with our customers. It's a young fleet. As Chris said, 50% of the fleet hasn't seen a second shop visit. 15% hasn't even seen its first shop visit. So we expect those airplanes to fly. They're also very durable and perform well. So despite the higher fuel prices, I think that they're great aircraft powered by the V2500. So as we look out, we're planning, call it, 1% to 2% kind of retirements for the V2500. The shop visits for the first quarter were on the run rate we expect for the full year, which is about 800. So continuing to see the strength there. Have a lot of visibility into the shop visit pipeline. Keep in mind, we're operating in a material-constrained environment, and so there's significant demand for spare parts and overhauls there. So that's what I would say as it relates to Pratt.

I was wondering if you could give us some help on how to think about AOGs on the GTF, because it's very hard from the outside to track those which were powdered metal impacted and not. So just kind of thinking about at year-end, is there some natural number we should be expecting AOGs that you can point to that would be consistent with your assumptions on MRO output and the charge provision you took a couple of years back? Just so we know that we're tracking to what you've already guided to.

I'll start. And maybe just to address kind of your final point there, like the financial and technical outlook for the powdered metal situation remains on track. And as I said upfront, Gautam, we were really pleased that AOGs came down 15% in Q1 from the end of last year. That was on the back of some very solid MRO performance in Q1. The 1100 output was up 23% year-over-year, as I said. And that was with heavier shop visits up 9 points year-over-year. And so that was enabled by heavy shop visit turnaround time improving by about 20%. So very, very good performance in the shop helping enable the reduction in those AOGs. A couple other of good indicators as well as we think forward, 1100 inductions were up 7% sequentially from Q4 to Q1. And so we're improving that WIP in our shops to support the future growth in MRO output. And we also saw continued progress in material growth across some of the key value streams that are going to be important to MRO output. Structural castings were up 10% year-over-year, isothermal forgings were up 18% year-over-year. So again, those are all the elements that go into continuing to drive MRO output for the year, which in turn is going to continue to drive that downward trend that we talked about here that we saw in the first quarter. I won't give sort of a point estimate as to where we're supposed to be, but I will just say, as you just look at sort of the public data around AOGs, there are some in there that have absolutely nothing to do with engines. There are a number of other factors. Maybe they're going through a mod and upgrade. Maybe they're being returned from use and they need some modifications. And so not all of those are engine-related. I'll also tell you that we continue to have removals for other reasons other than powdered metal. But those are the things that were in existence previously. And we've continued to provide upgrades to improve the durability and reliability. And so we also believe those will continue to have a positive effect as we look forward. So again, pleased with the Q1 performance. Our customers obviously want their assets back. It was a real positive shift this quarter in terms of the reduction. And given all the elements that I just talked about within MRO and those indicators, we continue to believe that that downward trajectory is going to continue.

Chris and Neil, very good results. SpaceX is going public at a very lofty valuation, and its IPO will probably create generational wealth for a lot of its employees. We've also seen Shield AI raise capital to $12 billion valuation. Anduril is looking to raise capital at a $60 billion valuation. Just how are you thinking about that in the context of retaining your best employees and engineers, so they don't join a defense tech company where they get significant upside from the equity valuation?

Yes. Thanks, Scott. I thought where you were going there is that we were undervalued. I was hoping the point you were making there. Yes, good, good. All kidding aside, again, this is something we think about a lot in terms of the defense ramp-up. With unemployment at 4.3%, how do we make sure that we can attract and retain the labor that we need, in some cases, it's classified labor, which can be even more difficult because you got to get it cleared and the like at many of our facilities. So our labor strategy is something that we are laser-focused on. Now you mentioned our engineering population. If you look at RTX-wide, we've got roughly 180,000 people, about a third of those are engineers. And they are clearly the lifeblood of the company, when you think about innovation being the bedrock of everything that we do. And so I think there's a couple of things that come into play there. Number one, we've got to continue to be competitive just from a compensation perspective, and that's something we're always looking at. And then number two, I will tell you that you walk the floors within RTX, you will see an uncommon dedication to the mission. And I think people get really excited about the work that we do and the mission that we play to connect and protect the world, in particular, on the national security side, given how critical our products are to national security and to allies. So it's not easy, to your point, Scott, there are people that will go, take a leap to go somewhere where they see that there might be some runway with an early-stage company. But by and large, we've been pretty successful at retaining our top folks. And again, I think that comes down to the core mission that we serve.

I just wanted to follow up on the March commercial engine deliveries. With the first quarter in line with plan, and obviously, still the mid to high single for the full year growth, how do we think about the cadence into the second quarter and second half of the year? And I guess within that, as a result of just the supply chain incremental risk from higher input costs and everything else, are you seeing any incremental risk on your, I guess, Pratt supply chain from suppliers around the world just as a result of the war in Iran?

Thanks, Ken. Let me start with the supply chain piece. Right now, and as you know, we've been talking about this for a long time, Pratt has been laser-focused on ramping up critical supply chain elements: Structural castings, turbine airfoils and many other parts that go into the engine. And I think we've done a nice job there. So continue to see growth in those key elements, materials that are going to the engine. And so we're not seeing anything new crop up. Obviously, with the kind of growth rates we're talking about, because you've got to keep in mind, we're not only feeding the OEM growth rates, we're feeding the aftermarket as well, it's pretty substantial. But nothing new to report there. As it relates to the delivery profile, as planned, we were allocating materials between MRO and original equipment in the first quarter. You saw that in the sales number and in the delivery numbers for the quarter. And as you look at the implied performance for Pratt through the rest of the year, we still expect OE to be low single-digit sales. And as you said, up mid- to high single-digit unit delivery. So we'll continue to grow the number of new engines we delivered this year, and that will happen pretty ratably as we think about the rest of the year. Now keep in mind that we experienced a strike in the second quarter last year, making this year's second quarter easier to compare. However, we anticipate that the negative engine margin will increase over the next several quarters as we adjust the material mix between MRO and OE while continuing to fulfill our commitments to Airbus.

Could you specifically address the state of negotiations with Airbus and what they are looking for in terms of engines from you? Also, could you discuss the interior side of the business at Collins and its current status regarding the anticipated increase in widebody production?

Yes. Thanks, David. On your first question, as Neil said, we're going to continue to see OE deliveries step up throughout the year. And when we get to the end and execute on that plan, it's going to be a record number of GTF engines that we've delivered and that delivery share is going to remain above the program share. So continue to be pleased about that. In terms of the discussions with Airbus, those are always ongoing. And we're always talking with them about what's going on industrially, what's going on from a supply chain perspective and balancing, of course, the needs of the GTF fleet health and our mutual customers. And so those conversations will continue to go on. I will tell you that our focus is on making sure that we are investing for the growth we see both on the OE and the MRO side. On the MRO side, you heard us talk about some of those investments that we've made in Singapore that we're going to then translate into other parts of our network. We're going to be adding a forging press in our Columbus, Georgia facility. We're going to be adding a new tower for powder production at our HMI facility in New York. You heard Neil talk about the turbine airfoil ramp-up at Asheville. These are all investments that we're making because we continue to see the demand both on the OE and MRO side. And again, the relationship with Airbus is an important one for us. It's one that we, of course, greatly value. And it's one that has spanned decades. And it will continue to span decades. And we will continue to work through our issues, as we always do, in a constructive and transparent manner. And I have no doubt that we'll ultimately get there to where we need to be on volumes going forward.

And maybe just a comment on interiors. Had a good quarter. Sales were up double digits, so call it, low teens, if you will, in the first quarter. We're continuing to work through a couple of certification requirements on a handful of bespoke programs. But business has a good trajectory. We're expecting solid growth for the full year, and pretty good line of sight to mods and upgrades for the remainder of the year. So feeling good about that today.

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