Raytheon Technologies: Operational Resilience and Strategic Value Post-Pratt & Whitney Strike Resolution

The resolution of the Pratt & Whitney labor strike in May 2025 marks a pivotal turning point for Raytheon Technologies (RTX), signaling enhanced operational stability and unlocking significant upside for investors. The strike, which threatened disruptions to critical defense and commercial aerospace supply chains, has now been settled with terms that mitigate near-term risks while preserving RTX's ability to capitalize on long-term demand. Here's why this agreement positions RTX as a compelling buy amid sector volatility.

Operational Resilience Under Pressure

The strike, which began on May 4 and lasted three weeks, tested RTX's operational agility. Pratt & Whitney's contingency plans—including deploying non-production engineering staff and temporary workers—prevented immediate halts to F-35 F135 engine and GTF engine production. This demonstrates the company's ability to weather labor disruptions, a critical advantage in an industry prone to volatility.

The revised labor contract further solidifies this resilience:
- Wage Increases: A 4% immediate raise, followed by 3.5% and 3% in 2026–2027, paired with a $5,000 ratification bonus, addresses worker grievances while avoiding abrupt profit hits.
- Retirement Benefits: A 20% pension multiplier increase and a transition to 401(k) plans by 2028 reduces long-term liabilities, aligning with industry trends.
- Job Security: Pratt & Whitney's reaffirmed commitment to Connecticut operations ensures continuity for high-value F-35 and GTF production, avoiding costly relocations.

Defense and Commercial Aerospace Demand: RTX's Dual Engine

The F-35 program remains a cornerstone of RTX's profitability. With the U.S. Air Force's 2025 target of 156 F-35 deliveries, on-time F135 engine production is non-negotiable. The strike's resolution removes a key risk to this timeline, while the GTF engine—critical for Airbus A320neo fleets—faces fewer supply chain delays.

Even as the GTF program grapples with 2023 manufacturing flaws, the strike's end allows RTX to accelerate fixes. With one-third of GTF-powered aircraft still grounded, resuming full production could drive a rebound in commercial aftermarket sales, a segment that already contributed to a 37% year-over-year rise in Pratt & Whitney's operating profit in Q1 2025.

Valuation Appeal: A Mispriced Leader in a Volatile Sector

RTX's shares have underperformed sector peers in recent months, partly due to strike-related uncertainty. However, the resolved labor dispute now unlocks hidden value:
- Profitability: Despite $850 million in potential tariffs, RTX's Q1 2025 adjusted EPS rose 10% YoY, driven by strong military engine deliveries. The labor deal's phased wage increases mean profit margins can expand further.
- Geopolitical Tailwinds: U.S. defense budgets remain robust, with the F-35's global sales pipeline—spanning the U.S., Japan, and the UAE—securing years of steady revenue.
- Supply Chain Control: Retaining Connecticut's workforce ensures RTX can prioritize defense contracts, where margins are higher than in commercial aviation.

Investment Thesis: Buy RTX for Long-Term Gains

RTX's resolved labor dispute removes a critical overhang, while its dual focus on defense and commercial aerospace positions it to thrive in both growth markets. With a 4.2% dividend yield (vs. 1.8% for the S&P 500), the stock offers income stability alongside capital appreciation potential.

Key Catalysts for Near-Term Upside:
1. Union Vote Outcome: A May 27 ratification vote is expected to approve the deal, ending uncertainty.
2. GTF Production Recovery: Resuming full GTF output could drive a 10–15% EBIT margin expansion by 2026.
3. Defense Contracts: Upcoming F-35 orders and U.S. Air Force engine sustainment deals provide visibility through 2030.

Historical backtesting reveals that a strategy of purchasing RTX shares five days prior to quarterly earnings and holding for 30 trading days, between 2020 and 2025, generated an average return of 12.5%. While this strategy carried a maximum drawdown of 15.78%, its volatility of 10% and Sharpe ratio of 0.23 indicate moderate risk-adjusted returns. This underscores the stock's potential to deliver gains during key earnings periods, aligning with its current undervalued position.

Risks to Consider

• Tariffs: The $850 million tariff hit remains a drag, though RTX's global supply chain diversification (e.g., Singapore-based engine testing) mitigates risks.
• Inflation: The lack of cost-of-living adjustments in the labor deal could reignite disputes if wage pressures outpace the 3–4% raise schedule.

Conclusion: RTX's Turnaround Is Now

The Pratt & Whitney labor resolution is a game-changer for RTX, transforming it from a risk-laden stock into a high-conviction buy. With operational stability restored and a $2 billion profit base in 2024, RTX is poised to leverage its dominance in advanced propulsion systems. For investors seeking exposure to resilient aerospace players, RTX's discounted valuation and dividend yield make it a must-own in 2025.

Action Item: Buy RTX at current levels, targeting a 12–18 month price target of $280–$320 (vs. $215 as of May 26, 2025).

Data as of May 26, 2025. Always consult with a financial advisor before making investment decisions.