RTX's Labor Deal: A Green Light for F-35 Growth and Investor Returns

The resolution of the Pratt & Whitney labor dispute marks a pivotal moment for Raytheon Technologies (RTX), removing a critical overhang on its defense business and unlocking upside for investors. With workers voting to approve a deal on May 27, 2025, the immediate threat of prolonged strikes and F-135 engine delays has been neutralized, creating a clear path for sustained F-35 production and margin expansion. Here's why this breakthrough positions RTX as a compelling buy for growth-oriented portfolios.

Labor Deal: A Win-Win for Workers and RTX

The 19-day strike by 3,000 Pratt & Whitney employees—critical to manufacturing the F-135 engine for the F-35—ended with a compromise that addresses worker concerns while safeguarding RTX's production timelines. Key terms include:
- Wage hikes: A 4% raise in 2025, followed by 3.5% in 2026 and 3% in 2027, plus a $5,000 ratification bonus.
- Retirement benefits: A 20% increase in pension multipliers, transitioning to a 100% company-matched 401(k) by 2028.
- Job security: Pratt & Whitney's pledge to retain Connecticut operations, home to F-135 production.

This deal not only prevents further disruptions but also reduces the risk of future strikes, stabilizing cash flow and enabling RTX to focus on its $83–84 billion sales target for 2025. While the strike cost $200 million in lost revenue, the resolution ensures that delays to F-135 deliveries—already averaging two months in 2023—will not compound, preserving F-35 production goals of 156 units this year.

Why F-35 Production Matters to RTX's Bottom Line

The F-35 program is the crown jewel of RTX's defense portfolio. With over 5,000 aircraft ordered globally, the program generates recurring revenue through engine maintenance, upgrades, and international sales. The Pratt & Whitney F-135 engine, which accounts for ~15% of RTX's total sales, is a profit machine. Its Core Upgrade program, aimed at boosting fuel efficiency and durability, is already driving aftermarket demand.

RTX's Q1 2025 results underscore this strength: Pratt & Whitney's sales rose 14% year-over-year, fueled by F-135 production and commercial aftermarket demand. The labor deal now removes a key obstacle to scaling this momentum.

The Investment Case: Risks Mitigated, Upside Ahead

1. Supply Chain Stability: With labor risks resolved, RTX can meet its F-135 delivery targets, reducing the likelihood of penalties or delays.
2. Margin Expansion: Automation investments and pension cost reductions (via the 401(k) transition) could free up capital for R&D and dividends.
3. Political Tailwinds: Connecticut lawmakers, including Sen. Richard Blumenthal, are fiercely protective of defense jobs in their state—a safeguard against future disruptions.
4. Valuation Attraction: RTX trades at 18x 2025E EPS, below its five-year average of 20x, offering a discount despite its growth profile.

Analysts estimate that resolving labor issues could add $0.50–$1.00 to 2025 EPS, while F-35 production growth could drive mid-single-digit annual sales growth through 2027.

Act Now: The Clock Is Ticking

The May 27 approval of the labor deal removes a major uncertainty, but investors shouldn't delay. RTX's stock has underperformed peers like Lockheed Martin (LMT) by 15% over the past year, despite its strong defense backlog. With the F-35 program entering its peak production phase and global demand surging—particularly in Asia and the Middle East—RTX is primed to outperform.

The company's $850 million tariff-related headwinds remain a concern, but these are offset by the F-35's rising international sales and the U.S. government's commitment to modernizing its fighter fleet. For income-seeking investors, RTX's 1.5% dividend yield, paired with a 5-year average 6% dividend growth rate, adds further appeal.

Conclusion: RTX Is a Buy at These Levels

The labor deal is a turning point for RTX. With production stabilized, costs under control, and the F-35 program firing on all cylinders, this is a rare opportunity to buy a high-quality defense stock at a discount. Investors who act now could capture gains as RTX's fundamentals align with its valuation—and as the world's militaries keep ordering F-35s for decades to come.

Final Takeaway: RTX is a “Buy” with a 12-month price target of $200, representing 25% upside from current levels. The labor issue is behind us—now it's time to bet on the next chapter of F-35 growth.