Strikes to Stability: Why RTX's Labor Deal Signals a Buy Now

The Pratt & Whitney labor strike of May 2025 was a high-stakes showdown that tested the resilience of Raytheon Technologies (RTX). But with the union's approval of a revised contract on May 27—ending a 22-day walkout—the immediate crisis has passed. This resolution not only averts a production meltdown for critical military engines but also unlocks a compelling investment opportunity. Here's why the near-term risks are now outweighed by RTX's long-term strategic stability.

The Near-Term Crisis: A Costly But Manageable Detour

The strike, which idled 3,000 workers at Connecticut plants, posed two immediate threats: cash flow pressure and F-35 production delays. The F-135 engine, produced exclusively at these facilities, is the sole powerplant for the F-35 fighter jet—a program with over $500 billion in lifetime value. Analysts initially feared a $200 million revenue hit during the strike, plus potential penalties for missing Pentagon delivery timelines.

The financial hit was real but not catastrophic. RTX's Q1 2025 results showed adjusted EPS rose 10% to $1.47, driven by robust commercial aftermarket sales (+21% year-over-year) and a 282% surge in operating cash flow to $1.3 billion. The company's $5.16 billion in cash and a backlog of $217 billion provided a cushion.

The Turning Point: A Labor Deal That Stabilizes Production

The revised contract, approved with 74% support, defused the most acute risk: a prolonged strike. Key terms include:
- Wage hikes: 4% in 2025, 3.5% in 2026, and 3% in 2027, easing inflation fears for workers.
- Job security: Guarantees for Connecticut operations until 2029, halting the threat of production shifts to lower-cost states.
- Retirement benefits: A 20% increase in pension multipliers and a transition to a fully company-matched 401(k) by 2028.

This deal ensures uninterrupted F-35 engine production, critical as the Pentagon aims to deliver 156 F-35s in 2025. Analysts at Goldman Sachs estimate the resolution could add $0.50–$1.00 to 2025 EPS by removing contingency costs and avoiding penalties.

Why the Long-Term Outlook Is Stronger Than Ever

RTX's fundamentals remain anchored by two unstoppable trends: F-35 dominance and commercial aviation recovery.

1. F-35 Program: A Cash Machine for Decades
   The F-35 program has 5,000+ orders globally, with upgrades and maintenance contracts extending decades. Pratt & Whitney's F135 engine generates recurring revenue through its lifecycle—each jet requires over $1 million annually in engine maintenance. With the U.S. and allies modernizing fighter fleets, this is a multi-billion-dollar annuity.

2. Commercial Aftermarket Surges
   Post-pandemic air travel has supercharged demand for engine repairs and parts. Pratt's commercial aftermarket sales jumped 28% in Q1, and Collins Aerospace's aftermarket division grew 21%. This trend isn't fleeting; airlines are extending older planes' service lives, boosting aftermarket spend.

3. Margin Expansion on the Horizon
   The labor deal's pension improvements and automation investments (e.g., $300M for digital tools) could boost margins. RTX's Q1 operating margin rose 120 basis points, with Collins and Pratt margins hitting multiyear highs.

Valuation: A Discounted Dividend Machine

RTX's stock trades at 18x 2025E EPS, below its five-year average of 20x. Analysts at Morgan Stanley argue this undervaluation ignores the F-35's scalability and the backlog's $217B pipeline. The dividend yield of 1.5% may seem modest, but RTX has grown payouts at a 6% annual clip over five years, and its free cash flow (guidance: $7–7.5B in 2025) supports further hikes.

Risks? Yes, but Manageable

• Tariffs: New U.S./EU aerospace tariffs could shave margins, but RTX's domestic F-35 focus limits exposure.
• Supply Chain: Parts shortages remain a wildcard, but the backlog's long-term nature allows for prioritization.
• Labor Again? Unlikely soon—the deal includes a “no-strike” clause through 2029.

Bottom Line: Buy RTX Now

The labor deal removes the single biggest overhang on RTX's stock. With the F-35 program humming, cash flow improving, and valuation depressed, this is a rare moment to buy a durable industrial at a discount. Analysts' average price target of $136 implies 10% upside, but bulls see $160+ if margins expand as expected.

This isn't a “trade”—it's a strategic bet on a company that will profit from global defense modernization and commercial aviation's comeback. The strike scare is over. The real rally begins now.