RTX Corporation: A Strategic Leader in Defense Drones Amid Geopolitical Tailwinds and Backlog Growth

The defense sector is undergoing a seismic shift as nations prioritize advanced air and missile defense systems to counter emerging threats like drone swarms and hypersonic missiles. At the epicenter of this transformation is RTX Corporation, whose robust defense backlog, cutting-edge drone countermeasures, and strategic positioning in key markets position it as a top-tier investment opportunity. Let's dissect how RTX is leveraging these advantages to navigate near-term risks and capitalize on long-term growth.

The Backlog: A Beacon of Revenue Visibility

RTX's defense backlog stands at $92 billion as of Q1 2025, a figure that has surged 8% year-over-year. This backlog isn't just a number—it's a roadmap to predictable revenue. Over half of this total is tied to international contracts, reflecting RTX's global reach. Key drivers include:
- The Netherlands' $750 million air and missile defense deal, bolstering Patriot systems and integrated air defense capabilities.
- A $650 million classified contract likely tied to counter-drone technologies, such as the Coyote system.
- Japan's $250 million order for Evolved Sea Sparrow Missiles (ESSM), critical for neutralizing drone swarms.

This backlog growth underscores demand for RTX's LTAMDS radar and Coyote counter-drone system, both of which are integral to modernizing air defense networks.

Defense Drones: A Market RTX Dominates

The global drone warfare market is expected to grow at a 10% CAGR through 2030, driven by fears of asymmetric threats and the proliferation of drone swarms. RTX is a leader here:
- Coyote System: A high-speed projectile system designed to intercept drones at close range. Its success in U.S. military trials has sparked interest from NATO allies and partners like Qatar.
- FS-LIDS Contract: A $1 billion deal with Qatar for the Flying-Squadron Lightweight Integrated Defense System, which detects and neutralizes drones. This contract is part of a broader $243 billion U.S.-Qatar economic pact, signaling RTX's ability to secure large-scale, strategic partnerships.

Moreover, RTX's $60 million expansion in Tucson, Arizona, is boosting production of “effectors”—missiles and drone systems—underscoring confidence in sustained demand.

Geopolitical Winds in RTX's Favor

The company benefits from two critical tailwinds:
1. European Defense Spending: The EU's pledge of $850 billion over four years to modernize militaries, with a focus on air defense and munitions. RTX's Patriot systems and radar technologies are direct beneficiaries.
2. U.S. Modernization Push: The Pentagon's $800 billion annual budget prioritizes next-gen systems like the Golden Dome air defense network, which RTX is developing.

These trends align with RTX's strategy: 40% of its defense segment revenue now comes from international sales, up from 30% in 2020.

Mitigating Near-Term Risks: Tariffs and Supply Chains

RTX isn't without challenges. Global tariffs could cost the company $850 million annually, but two factors reduce the sting:
- Exemptions for defense sales: U.S. government and foreign military contracts are tariff-free, shielding the defense backlog from most impacts.
- Proactive mitigation: RTX is relocating suppliers, renegotiating contracts, and using “duty drawback” programs to offset costs.

Supply chain and labor risks (e.g., potential Pratt & Whitney strikes) remain, but management's confidence in backlog execution—backed by 10% organic growth in defense (excluding divestitures)—suggests these are manageable.

The Financial Case for RTX

• 2025 Outlook: RTX expects $83–84 billion in adjusted sales, with 4–6% organic growth, driven by defense and commercial aviation recovery.
• Margin Expansion: All three segments (Collins Aerospace, Pratt & Whitney, Raytheon) improved margins in Q4 2024, highlighting operational discipline.
• Valuation: RTX trades at a premium to peers, but its $218 billion total backlog (defense + commercial) and technological leadership justify the price.

Investment Thesis

RTX is a buy for investors with a 3–5 year horizon, particularly if geopolitical tensions persist and defense budgets remain elevated. Key catalysts include:
1. Execution of the Qatar FS-LIDS deal and EU contracts.
2. Continued margin improvements as operational efficiency gains materialize.
3. Further adoption of the Coyote system in NATO and Indo-Pacific markets.

While tariffs and supply chain risks pose short-term headwinds, RTX's diversified backlog and strategic focus on drone defense make it a defensive, growth-oriented play in a sector with clear tailwinds.

In a world where air and missile defense systems are becoming as critical as tanks and aircraft carriers, RTX is building a fortress of contracts and technology. For investors, this is a story of resilience—and of preparing for the battles of tomorrow.