Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovic from Bloomberg Radio. We've got another
Speaker 1: edition of Bloomberg Business Week Talks, and the chairman and
Speaker 1: CEO of Raytheon Technologies is with me in our interactive
Speaker 1: broker studio. They are the second largest defense company in
Speaker 1: the United States. Sitting next to me is Greg Hayes. Um. Greg,
Speaker 1: so nice to have you here with us. Thanks for
Speaker 1: having me. So. I feel like there's a million places
Speaker 1: I want to start, but maybe where I need to
Speaker 1: start is, let's talk about today we have we heard
Speaker 1: from FED Chief J. Powell again, if I may, You
Speaker 1: and I were talking before we got started, and we're
Speaker 1: talking about transitory. What is transitory? Is that a word
Speaker 1: that CEOs can get their head around, you know, I
Speaker 1: asked that questions, you know several weeks ago when I
Speaker 1: first heard German Paul talk about the effect of transitory
Speaker 1: price increases. And my concern there is what is really
Speaker 1: transitory because if you start to see inflation in labor,
Speaker 1: that's not transitory because labor costs don't go down. They
Speaker 1: may go up more slowly. But what we're seeing right
Speaker 1: now is a lot of a lot of cost pressure
Speaker 1: at the very low end of the labor scale, and
Speaker 1: I don't think that goes away now. Will that translate
Speaker 1: into higher prices across all of the economic spectrum, I
Speaker 1: don't know. But we're also we're seeing inflation in commodities
Speaker 1: in some of the raw materials as well. It's impacting
Speaker 1: what you guys are doing absolutely every day, and so
Speaker 1: I worry the transitory, especially with all of these deficits
Speaker 1: that we're talking to and a half trillion dollar deficits.
Speaker 1: We're pumping a lot of money into the economy. People
Speaker 1: are flush with cash and they're going to spend it.
Speaker 1: That's going to drive prices up. Are we going to
Speaker 1: get off of that drug soon? I don't think so.
Speaker 1: Would you go as so far to say that FED
Speaker 1: policy is wrong based on what you're seeing in terms
Speaker 1: of economic growth and momentum from your clients and customers, Well,
Speaker 1: I don't know that. I would say Chairman Pole is
Speaker 1: necessarily wrong. I think we have to think about not
Speaker 1: just FED policy monetary policy, but fiscal policy. That is,
Speaker 1: how much can we continue to borrow and burden the
Speaker 1: next generation and the generation after that with these huge
Speaker 1: deficits just to satisfy our our desire to have faster
Speaker 1: growth today, is it better to have slower, steadier growth
Speaker 1: that is more sustainable. And I think that's the that's
Speaker 1: the calculus we have to think about. There's it's not
Speaker 1: just monetary it's fiscal policy as well. So when you
Speaker 1: look at the economic growth trajectory or trajector excuse me,
Speaker 1: over the next six to twelve months, how does it
Speaker 1: look to you? That's great? I mean as I think
Speaker 1: about it, and we you know, we have two businesses
Speaker 1: at raytheon technology. We have a commercial aerospace business which
Speaker 1: was just devastated last year down and then we have
Speaker 1: a very very big defense business. Both of those businesses
Speaker 1: are going to experience growth in the next twelve months,
Speaker 1: in the next two or three years. But I think
Speaker 1: the growth on the commercial erroside, because we're coming off
Speaker 1: such a low base, is going to be phenomenal. And
Speaker 1: I think that's the that's the thing that gives me,
Speaker 1: gives me hope. But I think again, the overall economy,
Speaker 1: we're probably gonna see six seven GDP growth this year.
Speaker 1: We haven't seen that in forever. And the question is
Speaker 1: when you get that is inflation than inevitable, but do
Speaker 1: you think that's sustainable? That's six to seven percent. I mean, listen,
Speaker 1: we're coming from a terrible situation. Piece. I think it
Speaker 1: really goes back to this fiscal policy. Do we continue
Speaker 1: to pump money into the economy because that is what's
Speaker 1: going to drive this kind of outsized growth in the
Speaker 1: near term because people will have cash. I want to
Speaker 1: talk about commercial aerospace. I'm just curious are your executives
Speaker 1: you and I were talking to how much you were
Speaker 1: able to work at home? Right, you weren't flying around
Speaker 1: on planes? Planes are important to you and what you do, Um,
Speaker 1: what do you anticipate for business travel? What are your
Speaker 1: guys doing in terms of business travel? So interestingly, you know,
Speaker 1: we just really resumed business travel within the last month
Speaker 1: or so. I've been out on the road visiting factories,
Speaker 1: talking to folks on the on the front lines and
Speaker 1: the shops and in the in the engineering organizations around
Speaker 1: the the company, and we're starting to see it pick up.
Speaker 1: But certainly business travel is forever changed. I would think
Speaker 1: because of Zoom, we don't go back to pre pandemic level. Again.
Speaker 1: If you think about commercial air traffic about seventy commercial
Speaker 1: air traffic is um for leisure that has come back,
Speaker 1: and it's come back faster, stronger than I think anybody
Speaker 1: would have said. Now you can just you know, talk
Speaker 1: to Gary Kelly at Southwest or Doug Parker American I
Speaker 1: think they were on this morning talking about that. The
Speaker 1: thirty percent of business travel is the question, and what
Speaker 1: we think is like half of that of the total
Speaker 1: is mandatory travel. That is, we've got to send our
Speaker 1: technicians out to visit our products, We've got to service
Speaker 1: our products. That's going to come back, and it will
Speaker 1: come back relatively quickly. You know. Will we still see
Speaker 1: big conventions in Las Vegas? Will we still see you
Speaker 1: get together for sales conventions? I think that will come back.
Speaker 1: But there's the other question. Will all of it come back?
Speaker 1: And how soon our own views who probably don't see
Speaker 1: a full recovery in business travel until But again, you know,
Speaker 1: I hope we're wrong. But again it's Zoom has Zoom
Speaker 1: or or WebEx or whatever your your favorite pick, pick
Speaker 1: your pick, your your vehicle. But the fact is it's
Speaker 1: really changed our thinking in terms of productivity and that
Speaker 1: I think about return to the office you know, We've
Speaker 1: had a hundred thousand people showing up to the factory
Speaker 1: floors or the engineering organizations every day during the pandemic,
Speaker 1: but I've had eighty thousand people working at home, and
Speaker 1: I don't think all eighty thousand will ever come back.
Speaker 1: So this is a fundamental change in the in the
Speaker 1: economy and how you do business. There's a lot of
Speaker 1: deals going on. You guys just finished a big deal
Speaker 1: combining assets and combining with United Technologies assets and then
Speaker 1: you took over as the CEO of it all. Uh,
Speaker 1: And that was just as the pandemic was getting going.
Speaker 1: How tough was it to get that deal done in
Speaker 1: terms of the backdrop of where we were, So you
Speaker 1: have to really step back and think, you tc over
Speaker 1: the last couple of years, we had done a lot
Speaker 1: of M and A. But we really made a decision
Speaker 1: after we had purchased Rockwell Columns that we were going
Speaker 1: to split off into three businesses, Otis Elevator as a
Speaker 1: standalone business, Carrier as a standalone business, and then U
Speaker 1: T S Arrow as a standalone business. As we were
Speaker 1: in the middle of that those three spins, Tom Kennedy
Speaker 1: was the chairman and CEO of Atheon called me and
Speaker 1: said we should do a deal, which I thought was
Speaker 1: absolutely insane at the time, but but but hey, here
Speaker 1: here we are um and it turned out and again
Speaker 1: the more time and I talked about it, the more
Speaker 1: sense it made. But the last four weeks before the
Speaker 1: deal closed, and we closed on April third of last year,
Speaker 1: we were working from home and the commercial airline industry
Speaker 1: was absolutely in the time. Did you have a moment
Speaker 1: we were like, oh my god, what what did we
Speaker 1: just do? Probably not because you thought it through and
Speaker 1: you I think that, you know, there was there was
Speaker 1: a question because we had made some big commitments to
Speaker 1: share owners if we were to bring this company together.
Speaker 1: We said we're gonna return eighteen to twenty billion dollars
Speaker 1: of cash to share owners in the first three years
Speaker 1: after the merger. And it became very apparent that that
Speaker 1: was going to be tough to do, and so, you know,
Speaker 1: we quickly pivoted and said, Okay, it's gonna take us
Speaker 1: four years. But we had faith that the commercial aerospace
Speaker 1: business was going to come back. We continue to pay
Speaker 1: a very good dividend, We continued to drive cash, and
Speaker 1: we took a lot of costs out of the business.
Speaker 1: And it was interesting. I always tell people, you know,
Speaker 1: let's not waste a good crisis, and I know that's
Speaker 1: probably from a lot of leaders, and in fact is
Speaker 1: the crisis. That crisis gave us a chance to reshape
Speaker 1: the company. We were able to take a cost out
Speaker 1: that we thought was impossible to do, so I think
Speaker 1: again it gave us the impetus to do the really
Speaker 1: hard things that sometimes people don't want to do. So
Speaker 1: if there's a net net Gregg in terms of what
Speaker 1: you and we're talking with Greg Hayes every theon technologies,
Speaker 1: here's of course the CEO. What did you learn from
Speaker 1: that merger? Is there something? And again it was like
Speaker 1: I feel like that was happening and then the pandemic
Speaker 1: layered on top. But is there something when you do
Speaker 1: a consolidation like that, emerging of cultures, what do you
Speaker 1: learn from that? So interestingly, you know, we had an
Speaker 1: aerospace and defense business at UTC, which was about forty
Speaker 1: billion dollars, merging with the billion dollar primarily defense business.
Speaker 1: What we found is that the cultures weren't all that different.
Speaker 1: But we spent a lot of time talking about values
Speaker 1: because to bring two companies together, you have to make
Speaker 1: sure that you're values are the same. So we talked
Speaker 1: about diversity, equity and inclusion. We talked about the need
Speaker 1: to trust one another. We talked about the need to
Speaker 1: empower our workforce. These are things that I that resonated
Speaker 1: with our workforce and it really it allowed us to
Speaker 1: come together by focusing not on a business problem, but
Speaker 1: on the values that we bring in upon the mission
Speaker 1: that we have. And I always say the mission of
Speaker 1: Aratheon Technology is to solve our customers hardest problems. And
Speaker 1: that is that is something that resonates with people. When
Speaker 1: they have a mission, they come to work and they
Speaker 1: enjoy what they do. Part of that mission is innovation.
Speaker 1: You guys spend a lot on R and D. What
Speaker 1: is the innovation for you guys going forward? And I
Speaker 1: think about things like AI. Is that increasingly a part
Speaker 1: of whether you look at how defense systems are operating,
Speaker 1: our our will look at you know, AI is table steaks.
Speaker 1: I think in the next in the next battle space.
Speaker 1: If you think about the challenge of the next war,
Speaker 1: the future war, it's a war that we fought in
Speaker 1: cyberspace and outer space, and the key to defending this country,
Speaker 1: defending our allies is having real time information, and that
Speaker 1: means taking data off of a satellite, taking data off
Speaker 1: of an underseas sensor, off of an airborne sensor, processing
Speaker 1: it quickly, and getting it to a combatant commander in
Speaker 1: a in the time frame that he can make an
Speaker 1: actionable decision. And I just give you one example. UM
Speaker 1: last December, we work with the Missile Defense Agency and
Speaker 1: we m detected. We we did a test. We launched
Speaker 1: or the Navy launched an i cb M off of
Speaker 1: the coast of Australia. Our sensors up in space, picked
Speaker 1: it up, tracked it down to our ground station, fed
Speaker 1: it out to a ship in the Pacific, transmitted that
Speaker 1: to our missile, one of our missiles, and s M
Speaker 1: two three A launched and intercepted the missile over Hawaii.
Speaker 1: All of that without human intervention, which is phenomenal. That's
Speaker 1: what AI is. You have to have that type of
Speaker 1: machine learning AI if you're going to be successful, because
Speaker 1: hypersonics are coming right. Think about hypersonics right, We're talking
Speaker 1: about things that travel mock five plus. You don't have
Speaker 1: time for someone to say, how do I target that?
Speaker 1: You have to of the systems that know how to
Speaker 1: get through those things and can take action. So that's
Speaker 1: increasingly our defense world. It's not my father who fought
Speaker 1: in World War Two, It's not that kind of and
Speaker 1: we know it hasn't been that way hand to hand,
Speaker 1: comment are people on the ground. This is where it's
Speaker 1: increasingly going. It's it's technology versus technology. You know, we
Speaker 1: we've we've lulled ourselves into a sense of complacency in
Speaker 1: these last twenty years because of this, the asymmetric nature
Speaker 1: of war against terrorists. The fact is the Chinese and
Speaker 1: Russians have been spending a lot of money. They're ahead
Speaker 1: of us on hypersonics. We have to catch up. Um.
Speaker 1: But again that the idea that you know, we're a
Speaker 1: defense business, and that that word is important because having
Speaker 1: a strong defense is about deterrence and the best way
Speaker 1: to prevent a war is to make sure your your
Speaker 1: enemy or in front of me understands that there's no
Speaker 1: winning this. And I think that's where we're trying to solve. Well,
Speaker 1: we think about the biggest breakthrough for your industry is
Speaker 1: it hypersonics? Is that the thing that you think will
Speaker 1: will So I've never heard of that, so it was
Speaker 1: interesting to have you talk about it. Is that where
Speaker 1: we're going is that the biggest breakthrough speed Trump's stealth.
Speaker 1: So we've talked about stealth for the last thirty years.
Speaker 1: We're gonna have stealthy airplanes. But the fact is, if
Speaker 1: you can have and hypersonics that you know started at
Speaker 1: Mack five, but you're talking about up to Mock twenty,
Speaker 1: which is about seventeen thousand miles an hour fast, fast, right,
Speaker 1: really fast, the ability to defend against hypersonics is a
Speaker 1: huge market. And I think about raytheon technologies. So we
Speaker 1: have missiles, the s M three, the s M six
Speaker 1: that can intercept these missiles in space. But also we're
Speaker 1: gonna have a layered defense and so you're gonna use
Speaker 1: high powered microwaves, you're going to use high powered lasers,
Speaker 1: You're going to use a multitude of layered defenses. And
Speaker 1: that's really where we're going to focus our investment. You know,
Speaker 1: we're gonna spend six billion dollars on R and D
Speaker 1: this year, a big number, but we have to stay
Speaker 1: ahead of the game, right right. We've seen that in
Speaker 1: terms of we've learned that restently with the cybersecurity world.
Speaker 1: What do you think of the billionaires going into space?
Speaker 1: Is this a good I know, I know, I either
Speaker 1: thought you're gonna think I'm crazy, But I do wonder
Speaker 1: about the private sector increasingly. I grew up with the
Speaker 1: dad who was involved in the space program. It was
Speaker 1: all government, you know, with contractors, but this is now
Speaker 1: private sector. So interestingly, space tourism will be a niche
Speaker 1: market for a long time at two fifty thous dollars
Speaker 1: a ride a long long time, well ten or fifteen years,
Speaker 1: which is about my planning horizon. Um, that'll be too
Speaker 1: old to worry about it, um. But the fact the
Speaker 1: fact is, I think, you know, what they have done
Speaker 1: with commercialization of space transport is phenomenal. I would have
Speaker 1: never believed that NASA was not going to be the
Speaker 1: provider of rockets to space. So I think tourism will
Speaker 1: be a niche market. But if you think about what's
Speaker 1: happening with satellite communication right lower thor but everything that
Speaker 1: is star length that the Ellins got up there for
Speaker 1: for internet access, there will be thousands and thousands of
Speaker 1: satellites going around the Earth to provide real time whether
Speaker 1: it's weather data, Internet access communications links, whatever it might be.
Speaker 1: So space is the fastest growing market. Hey, one last question, um,
Speaker 1: and I'm going to try and squeeze this in the
Speaker 1: BUK seven the seventh. This is I know you guys
Speaker 1: are involved, it's important to your bottom line. What do
Speaker 1: you think is the outlook for that? So I think
Speaker 1: you know, you know Dave Calhouns has said it well.
Speaker 1: I think you know we've we've got to get people
Speaker 1: confident in the airframe. And I would tell you that
Speaker 1: it is. It is a great airframe. We we have
Speaker 1: a lot of content on that airframe. We do the avionics,
Speaker 1: we do a number of different systems. Um. I think
Speaker 1: the FAA has been very, very proactive in trying to
Speaker 1: assure that as a return to flight it's going to
Speaker 1: be safe. And I firmly believe it is a very
Speaker 1: safe aircraft. Having said that, I think you know, Airbus
Speaker 1: has done a great job of taking advantage of the situation.
Speaker 1: And you know he almost done a great job. He's
Speaker 1: he's got an aircraft, it's got a little bit more capability,
Speaker 1: he's got a little bit better engine. Bret and Whitney's
Speaker 1: a little plug there. Um, But I think it's uh,
Speaker 1: you know it's it is a good aircraft, and I
Speaker 1: think you know there's there's room in the market for
Speaker 1: both Boeing and Airbus in that narrow body space. All right,
Speaker 1: Gonna leave it there, Please come back. I love this
Speaker 1: UM and love to talk more because you guys are
Speaker 1: really at the intersect sin of so much commercially as
Speaker 1: well as defense wise. Craig, thank you so much. Greig Hayes,
Speaker 1: he's the chairman and CEO of Raytheon