Defense Contract Volatility and Long-Term Growth in the Aerospace Sector: Raytheon's Strategic Position in Naval Modernization

The U.S. defense sector remains a cornerstone of aerospace and defense (A&D) investment, driven by geopolitical uncertainty and the modernization imperative of the U.S. military. Within this landscape, Raytheon Technologies Corporation (RTX) has carved out a unique niche in naval modernization, securing a series of high-value contracts that underscore its strategic positioning. However, the sector is not without volatility—defense budgets are subject to political cycles, industrial base constraints, and shifting threat perceptions. For investors, the key lies in distinguishing between short-term contract fluctuations and long-term growth drivers. Raytheon's recent wins in naval self-defense systems and radar technology offer a compelling case study.

Raytheon's Naval Modernization Playbook

Raytheon's dominance in naval defense systems is evident in its recent contract portfolio. The company was awarded a $205 million contract in September 2025 to continue producing and upgrading the Phalanx Close-In Weapon System (CIWS), a critical last-line defense against anti-ship missiles and drones. This contract, which spans until 2029, includes upgrades to the MK 15 system, which has already proven its value in real-world scenarios—such as the USS Gravely's destruction of a Houthi missile in early 2024News | RTX's Raytheon awarded $205 million contract for…^[1]. The Phalanx system is deployed on over 50 U.S. Navy ships and is used by 24 allied nations, making it a global standard for ship self-defenseRaytheon Books $205M Navy Contract for MK 15 Weapon System^[2].

Complementing this, Raytheon also secured a $52.9 million contract for the AN/SPY-6(V) radar system, a key component of the Navy's air and missile defense architectureRaytheon wins $52.9M U.S. Navy Radar Contract^[3]. The SPY-6(V) is part of the Aegis Combat System, which provides real-time tracking of ballistic missiles, aircraft, and unmanned systems. These contracts highlight Raytheon's dual focus on both point-defense systems (CIWS) and wide-area surveillance (SPY-6), ensuring layered protection for naval assets.

Aligning with the Navy's 30-Year Modernization Plan

The U.S. Navy's 2025 shipbuilding plan, which spans 30 years (2025–2054), aims to expand the fleet to 381 battle force ships while modernizing aging infrastructureAn Analysis of the Navy’s 2025 Shipbuilding Plan^[4]. Annual funding for this plan averages $40.1 billion, with $35.8 billion allocated for new-ship construction. Raytheon's contracts align with this plan by addressing two critical pain points:
1. Operational readiness: Upgrading existing systems like the Phalanx ensures that current ships remain combat-effective amid rising threats from hypersonic missiles and drone swarms.
2. Industrial base resilience: By securing long-term production contracts (e.g., the Phalanx work through 2029), Raytheon helps stabilize the Navy's shipyard infrastructure, which is grappling with delays and an aging workforceNavy budget seeks to boost modernization of fleet, shipyards^[5].

The Navy's budget also includes $989 million for shipyard modernization and $2.7 billion for science and technology programs, including autonomous systemsGAO-25-106286, SHIPBUILDING AND REPAIR: Navy …^[6]. While Raytheon's current contracts focus on legacy systems, its involvement in radar and missile defense positions it to benefit from future investments in unmanned and AI-driven naval platforms.

Navigating Volatility: Risks and Opportunities

Defense contracts are inherently volatile. The Navy's 2025 plan projects a temporary fleet shrinkage to 283 ships by 2027 before growth resumesAn Analysis of the Navy’s 2025 Shipbuilding Plan^[7]. This volatility stems from structural challenges, such as the Constellation-class frigate program, which faces delays due to design changes and supply chain bottlenecksGAO: US Navy’s shipbuilding woes continue, as …^[8]. For Raytheon, this means navigating a landscape where demand for its systems may fluctuate based on shipbuilding cycles.

However, Raytheon's diversified portfolio mitigates this risk. Beyond naval systems, the company is a major player in missile defense (e.g., the $380 million MRIC contract for surface-to-air missilesRaytheon Books $380M Navy Contract for MRIC Production^[9]) and cybersecurity. This diversification ensures that even if naval modernization slows, Raytheon can pivot to other high-growth areas like space or cyber defense.

Long-Term Growth: A Case for Strategic Resilience

For investors, the key question is whether Raytheon's current contracts signal a sustainable growth trajectory. The answer lies in the intersection of geopolitical demand and technological obsolescence. As asymmetric threats (e.g., drones, cyberattacks) evolve, the Navy's reliance on systems like the Phalanx and SPY-6 will likely increase. Moreover, the global proliferation of advanced missile technology—particularly in regions like the Middle East and Asia—creates a tailwind for U.S. allies to adopt Raytheon's systems.

Data from the Congressional Budget Office (CBO) suggests that the Navy's 30-year plan requires a 40% increase in annual funding compared to current levelsAn Analysis of the Navy’s 2025 Shipbuilding Plan^[10]. While this is politically ambitious, it underscores the long-term tailwinds for companies like Raytheon that supply mission-critical systems.

Conclusion

Raytheon's strategic positioning in naval modernization reflects a blend of short-term contract execution and long-term technological relevance. While defense budgets are subject to political and industrial headwinds, Raytheon's focus on layered defense systems and global partnerships provides a buffer against volatility. For investors, the company's recent wins—particularly in radar and missile defense—signal a strong alignment with the Navy's 30-year modernization goals. As the U.S. and its allies grapple with an increasingly contested maritime domain, Raytheon's role as a key supplier of naval self-defense systems is likely to remain a durable growth driver.