WEBVTT - Businessweek Talks- Raytheon CEO Greg Hayes

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<v Speaker 1>This is Bloomberg Business Week with Carol Masser and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic from Bloomberg Radio. We've got another

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<v Speaker 1>edition of Bloomberg Business Week Talks, and the chairman and

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<v Speaker 1>CEO of Raytheon Technologies is with me in our interactive

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<v Speaker 1>broker studio. They are the second largest defense company in

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<v Speaker 1>the United States. Sitting next to me is Greg Hayes. Um. Greg,

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<v Speaker 1>so nice to have you here with us. Thanks for

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<v Speaker 1>having me. So. I feel like there's a million places

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<v Speaker 1>I want to start, but maybe where I need to

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<v Speaker 1>start is, let's talk about today we have we heard

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<v Speaker 1>from FED Chief J. Powell again, if I may, You

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<v Speaker 1>and I were talking before we got started, and we're

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<v Speaker 1>talking about transitory. What is transitory? Is that a word

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<v Speaker 1>that CEOs can get their head around, you know, I

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<v Speaker 1>asked that questions, you know several weeks ago when I

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<v Speaker 1>first heard German Paul talk about the effect of transitory

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<v Speaker 1>price increases. And my concern there is what is really

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<v Speaker 1>transitory because if you start to see inflation in labor,

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<v Speaker 1>that's not transitory because labor costs don't go down. They

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<v Speaker 1>may go up more slowly. But what we're seeing right

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<v Speaker 1>now is a lot of a lot of cost pressure

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<v Speaker 1>at the very low end of the labor scale, and

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<v Speaker 1>I don't think that goes away now. Will that translate

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<v Speaker 1>into higher prices across all of the economic spectrum, I

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<v Speaker 1>don't know. But we're also we're seeing inflation in commodities

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<v Speaker 1>in some of the raw materials as well. It's impacting

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<v Speaker 1>what you guys are doing absolutely every day, and so

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<v Speaker 1>I worry the transitory, especially with all of these deficits

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<v Speaker 1>that we're talking to and a half trillion dollar deficits.

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<v Speaker 1>We're pumping a lot of money into the economy. People

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<v Speaker 1>are flush with cash and they're going to spend it.

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<v Speaker 1>That's going to drive prices up. Are we going to

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<v Speaker 1>get off of that drug soon? I don't think so.

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<v Speaker 1>Would you go as so far to say that FED

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<v Speaker 1>policy is wrong based on what you're seeing in terms

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<v Speaker 1>of economic growth and momentum from your clients and customers, Well,

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<v Speaker 1>I don't know that. I would say Chairman Pole is

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<v Speaker 1>necessarily wrong. I think we have to think about not

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<v Speaker 1>just FED policy monetary policy, but fiscal policy. That is,

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<v Speaker 1>how much can we continue to borrow and burden the

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<v Speaker 1>next generation and the generation after that with these huge

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<v Speaker 1>deficits just to satisfy our our desire to have faster

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<v Speaker 1>growth today, is it better to have slower, steadier growth

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<v Speaker 1>that is more sustainable. And I think that's the that's

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<v Speaker 1>the calculus we have to think about. There's it's not

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<v Speaker 1>just monetary it's fiscal policy as well. So when you

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<v Speaker 1>look at the economic growth trajectory or trajector excuse me,

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<v Speaker 1>over the next six to twelve months, how does it

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<v Speaker 1>look to you? That's great? I mean as I think

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<v Speaker 1>about it, and we you know, we have two businesses

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<v Speaker 1>at raytheon technology. We have a commercial aerospace business which

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<v Speaker 1>was just devastated last year down and then we have

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<v Speaker 1>a very very big defense business. Both of those businesses

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<v Speaker 1>are going to experience growth in the next twelve months,

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<v Speaker 1>in the next two or three years. But I think

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<v Speaker 1>the growth on the commercial erroside, because we're coming off

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<v Speaker 1>such a low base, is going to be phenomenal. And

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<v Speaker 1>I think that's the that's the thing that gives me,

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<v Speaker 1>gives me hope. But I think again, the overall economy,

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<v Speaker 1>we're probably gonna see six seven GDP growth this year.

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<v Speaker 1>We haven't seen that in forever. And the question is

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<v Speaker 1>when you get that is inflation than inevitable, but do

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<v Speaker 1>you think that's sustainable? That's six to seven percent. I mean, listen,

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<v Speaker 1>we're coming from a terrible situation. Piece. I think it

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<v Speaker 1>really goes back to this fiscal policy. Do we continue

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<v Speaker 1>to pump money into the economy because that is what's

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<v Speaker 1>going to drive this kind of outsized growth in the

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<v Speaker 1>near term because people will have cash. I want to

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<v Speaker 1>talk about commercial aerospace. I'm just curious are your executives

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<v Speaker 1>you and I were talking to how much you were

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<v Speaker 1>able to work at home? Right, you weren't flying around

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<v Speaker 1>on planes? Planes are important to you and what you do, Um,

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<v Speaker 1>what do you anticipate for business travel? What are your

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<v Speaker 1>guys doing in terms of business travel? So interestingly, you know,

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<v Speaker 1>we just really resumed business travel within the last month

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<v Speaker 1>or so. I've been out on the road visiting factories,

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<v Speaker 1>talking to folks on the on the front lines and

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<v Speaker 1>the shops and in the in the engineering organizations around

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<v Speaker 1>the the company, and we're starting to see it pick up.

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<v Speaker 1>But certainly business travel is forever changed. I would think

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<v Speaker 1>because of Zoom, we don't go back to pre pandemic level. Again.

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<v Speaker 1>If you think about commercial air traffic about seventy commercial

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<v Speaker 1>air traffic is um for leisure that has come back,

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<v Speaker 1>and it's come back faster, stronger than I think anybody

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<v Speaker 1>would have said. Now you can just you know, talk

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<v Speaker 1>to Gary Kelly at Southwest or Doug Parker American I

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<v Speaker 1>think they were on this morning talking about that. The

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<v Speaker 1>thirty percent of business travel is the question, and what

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<v Speaker 1>we think is like half of that of the total

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<v Speaker 1>is mandatory travel. That is, we've got to send our

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<v Speaker 1>technicians out to visit our products, We've got to service

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<v Speaker 1>our products. That's going to come back, and it will

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<v Speaker 1>come back relatively quickly. You know. Will we still see

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<v Speaker 1>big conventions in Las Vegas? Will we still see you

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<v Speaker 1>get together for sales conventions? I think that will come back.

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<v Speaker 1>But there's the other question. Will all of it come back?

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<v Speaker 1>And how soon our own views who probably don't see

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<v Speaker 1>a full recovery in business travel until But again, you know,

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<v Speaker 1>I hope we're wrong. But again it's Zoom has Zoom

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<v Speaker 1>or or WebEx or whatever your your favorite pick, pick

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<v Speaker 1>your pick, your your vehicle. But the fact is it's

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<v Speaker 1>really changed our thinking in terms of productivity and that

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<v Speaker 1>I think about return to the office you know, We've

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<v Speaker 1>had a hundred thousand people showing up to the factory

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<v Speaker 1>floors or the engineering organizations every day during the pandemic,

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<v Speaker 1>but I've had eighty thousand people working at home, and

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<v Speaker 1>I don't think all eighty thousand will ever come back.

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<v Speaker 1>So this is a fundamental change in the in the

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<v Speaker 1>economy and how you do business. There's a lot of

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<v Speaker 1>deals going on. You guys just finished a big deal

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<v Speaker 1>combining assets and combining with United Technologies assets and then

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<v Speaker 1>you took over as the CEO of it all. Uh,

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<v Speaker 1>And that was just as the pandemic was getting going.

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<v Speaker 1>How tough was it to get that deal done in

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<v Speaker 1>terms of the backdrop of where we were, So you

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<v Speaker 1>have to really step back and think, you tc over

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<v Speaker 1>the last couple of years, we had done a lot

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<v Speaker 1>of M and A. But we really made a decision

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<v Speaker 1>after we had purchased Rockwell Columns that we were going

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<v Speaker 1>to split off into three businesses, Otis Elevator as a

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<v Speaker 1>standalone business, Carrier as a standalone business, and then U

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<v Speaker 1>T S Arrow as a standalone business. As we were

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<v Speaker 1>in the middle of that those three spins, Tom Kennedy

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<v Speaker 1>was the chairman and CEO of Atheon called me and

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<v Speaker 1>said we should do a deal, which I thought was

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<v Speaker 1>absolutely insane at the time, but but but hey, here

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<v Speaker 1>here we are um and it turned out and again

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<v Speaker 1>the more time and I talked about it, the more

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<v Speaker 1>sense it made. But the last four weeks before the

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<v Speaker 1>deal closed, and we closed on April third of last year,

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<v Speaker 1>we were working from home and the commercial airline industry

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<v Speaker 1>was absolutely in the time. Did you have a moment

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<v Speaker 1>we were like, oh my god, what what did we

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<v Speaker 1>just do? Probably not because you thought it through and

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<v Speaker 1>you I think that, you know, there was there was

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<v Speaker 1>a question because we had made some big commitments to

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<v Speaker 1>share owners if we were to bring this company together.

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<v Speaker 1>We said we're gonna return eighteen to twenty billion dollars

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<v Speaker 1>of cash to share owners in the first three years

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<v Speaker 1>after the merger. And it became very apparent that that

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<v Speaker 1>was going to be tough to do, and so, you know,

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<v Speaker 1>we quickly pivoted and said, Okay, it's gonna take us

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<v Speaker 1>four years. But we had faith that the commercial aerospace

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<v Speaker 1>business was going to come back. We continue to pay

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<v Speaker 1>a very good dividend, We continued to drive cash, and

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<v Speaker 1>we took a lot of costs out of the business.

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<v Speaker 1>And it was interesting. I always tell people, you know,

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<v Speaker 1>let's not waste a good crisis, and I know that's

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<v Speaker 1>probably from a lot of leaders, and in fact is

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<v Speaker 1>the crisis. That crisis gave us a chance to reshape

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<v Speaker 1>the company. We were able to take a cost out

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<v Speaker 1>that we thought was impossible to do, so I think

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<v Speaker 1>again it gave us the impetus to do the really

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<v Speaker 1>hard things that sometimes people don't want to do. So

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<v Speaker 1>if there's a net net Gregg in terms of what

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<v Speaker 1>you and we're talking with Greg Hayes every theon technologies,

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<v Speaker 1>here's of course the CEO. What did you learn from

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<v Speaker 1>that merger? Is there something? And again it was like

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<v Speaker 1>I feel like that was happening and then the pandemic

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<v Speaker 1>layered on top. But is there something when you do

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<v Speaker 1>a consolidation like that, emerging of cultures, what do you

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<v Speaker 1>learn from that? So interestingly, you know, we had an

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<v Speaker 1>aerospace and defense business at UTC, which was about forty

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<v Speaker 1>billion dollars, merging with the billion dollar primarily defense business.

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<v Speaker 1>What we found is that the cultures weren't all that different.

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<v Speaker 1>But we spent a lot of time talking about values

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<v Speaker 1>because to bring two companies together, you have to make

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<v Speaker 1>sure that you're values are the same. So we talked

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<v Speaker 1>about diversity, equity and inclusion. We talked about the need

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<v Speaker 1>to trust one another. We talked about the need to

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<v Speaker 1>empower our workforce. These are things that I that resonated

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<v Speaker 1>with our workforce and it really it allowed us to

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<v Speaker 1>come together by focusing not on a business problem, but

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<v Speaker 1>on the values that we bring in upon the mission

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<v Speaker 1>that we have. And I always say the mission of

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<v Speaker 1>Aratheon Technology is to solve our customers hardest problems. And

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<v Speaker 1>that is that is something that resonates with people. When

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<v Speaker 1>they have a mission, they come to work and they

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<v Speaker 1>enjoy what they do. Part of that mission is innovation.

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<v Speaker 1>You guys spend a lot on R and D. What

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<v Speaker 1>is the innovation for you guys going forward? And I

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<v Speaker 1>think about things like AI. Is that increasingly a part

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<v Speaker 1>of whether you look at how defense systems are operating,

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<v Speaker 1>our our will look at you know, AI is table steaks.

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<v Speaker 1>I think in the next in the next battle space.

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<v Speaker 1>If you think about the challenge of the next war,

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<v Speaker 1>the future war, it's a war that we fought in

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<v Speaker 1>cyberspace and outer space, and the key to defending this country,

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<v Speaker 1>defending our allies is having real time information, and that

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<v Speaker 1>means taking data off of a satellite, taking data off

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<v Speaker 1>of an underseas sensor, off of an airborne sensor, processing

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<v Speaker 1>it quickly, and getting it to a combatant commander in

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<v Speaker 1>a in the time frame that he can make an

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<v Speaker 1>actionable decision. And I just give you one example. UM

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<v Speaker 1>last December, we work with the Missile Defense Agency and

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<v Speaker 1>we m detected. We we did a test. We launched

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<v Speaker 1>or the Navy launched an i cb M off of

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<v Speaker 1>the coast of Australia. Our sensors up in space, picked

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<v Speaker 1>it up, tracked it down to our ground station, fed

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<v Speaker 1>it out to a ship in the Pacific, transmitted that

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<v Speaker 1>to our missile, one of our missiles, and s M

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<v Speaker 1>two three A launched and intercepted the missile over Hawaii.

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<v Speaker 1>All of that without human intervention, which is phenomenal. That's

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<v Speaker 1>what AI is. You have to have that type of

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<v Speaker 1>machine learning AI if you're going to be successful, because

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<v Speaker 1>hypersonics are coming right. Think about hypersonics right, We're talking

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<v Speaker 1>about things that travel mock five plus. You don't have

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<v Speaker 1>time for someone to say, how do I target that?

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<v Speaker 1>You have to of the systems that know how to

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<v Speaker 1>get through those things and can take action. So that's

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<v Speaker 1>increasingly our defense world. It's not my father who fought

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<v Speaker 1>in World War Two, It's not that kind of and

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<v Speaker 1>we know it hasn't been that way hand to hand,

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<v Speaker 1>comment are people on the ground. This is where it's

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<v Speaker 1>increasingly going. It's it's technology versus technology. You know, we

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<v Speaker 1>we've we've lulled ourselves into a sense of complacency in

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<v Speaker 1>these last twenty years because of this, the asymmetric nature

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<v Speaker 1>of war against terrorists. The fact is the Chinese and

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<v Speaker 1>Russians have been spending a lot of money. They're ahead

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<v Speaker 1>of us on hypersonics. We have to catch up. Um.

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<v Speaker 1>But again that the idea that you know, we're a

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<v Speaker 1>defense business, and that that word is important because having

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<v Speaker 1>a strong defense is about deterrence and the best way

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<v Speaker 1>to prevent a war is to make sure your your

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<v Speaker 1>enemy or in front of me understands that there's no

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<v Speaker 1>winning this. And I think that's where we're trying to solve. Well,

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<v Speaker 1>we think about the biggest breakthrough for your industry is

0:10:50.320 --> 0:10:52.680
<v Speaker 1>it hypersonics? Is that the thing that you think will

0:10:52.760 --> 0:10:54.640
<v Speaker 1>will So I've never heard of that, so it was

0:10:54.679 --> 0:10:56.480
<v Speaker 1>interesting to have you talk about it. Is that where

0:10:56.480 --> 0:11:00.360
<v Speaker 1>we're going is that the biggest breakthrough speed Trump's stealth.

0:11:00.600 --> 0:11:02.680
<v Speaker 1>So we've talked about stealth for the last thirty years.

0:11:02.679 --> 0:11:05.360
<v Speaker 1>We're gonna have stealthy airplanes. But the fact is, if

0:11:05.360 --> 0:11:08.400
<v Speaker 1>you can have and hypersonics that you know started at

0:11:08.440 --> 0:11:10.800
<v Speaker 1>Mack five, but you're talking about up to Mock twenty,

0:11:10.840 --> 0:11:15.400
<v Speaker 1>which is about seventeen thousand miles an hour fast, fast, right,

0:11:15.559 --> 0:11:19.560
<v Speaker 1>really fast, the ability to defend against hypersonics is a

0:11:19.720 --> 0:11:24.320
<v Speaker 1>huge market. And I think about raytheon technologies. So we

0:11:24.360 --> 0:11:26.520
<v Speaker 1>have missiles, the s M three, the s M six

0:11:26.600 --> 0:11:29.920
<v Speaker 1>that can intercept these missiles in space. But also we're

0:11:29.920 --> 0:11:31.680
<v Speaker 1>gonna have a layered defense and so you're gonna use

0:11:31.760 --> 0:11:34.880
<v Speaker 1>high powered microwaves, you're going to use high powered lasers,

0:11:34.880 --> 0:11:37.400
<v Speaker 1>You're going to use a multitude of layered defenses. And

0:11:37.440 --> 0:11:39.679
<v Speaker 1>that's really where we're going to focus our investment. You know,

0:11:39.679 --> 0:11:41.880
<v Speaker 1>we're gonna spend six billion dollars on R and D

0:11:42.040 --> 0:11:45.440
<v Speaker 1>this year, a big number, but we have to stay

0:11:45.440 --> 0:11:47.520
<v Speaker 1>ahead of the game, right right. We've seen that in

0:11:47.600 --> 0:11:49.880
<v Speaker 1>terms of we've learned that restently with the cybersecurity world.

0:11:50.120 --> 0:11:52.040
<v Speaker 1>What do you think of the billionaires going into space?

0:11:52.360 --> 0:11:54.760
<v Speaker 1>Is this a good I know, I know, I either

0:11:54.760 --> 0:11:57.200
<v Speaker 1>thought you're gonna think I'm crazy, But I do wonder

0:11:57.280 --> 0:12:00.040
<v Speaker 1>about the private sector increasingly. I grew up with the

0:12:00.080 --> 0:12:01.800
<v Speaker 1>dad who was involved in the space program. It was

0:12:01.840 --> 0:12:05.120
<v Speaker 1>all government, you know, with contractors, but this is now

0:12:05.160 --> 0:12:08.920
<v Speaker 1>private sector. So interestingly, space tourism will be a niche

0:12:08.920 --> 0:12:11.520
<v Speaker 1>market for a long time at two fifty thous dollars

0:12:11.600 --> 0:12:14.720
<v Speaker 1>a ride a long long time, well ten or fifteen years,

0:12:14.760 --> 0:12:17.839
<v Speaker 1>which is about my planning horizon. Um, that'll be too

0:12:17.840 --> 0:12:21.480
<v Speaker 1>old to worry about it, um. But the fact the

0:12:21.480 --> 0:12:23.520
<v Speaker 1>fact is, I think, you know, what they have done

0:12:23.559 --> 0:12:27.480
<v Speaker 1>with commercialization of space transport is phenomenal. I would have

0:12:27.520 --> 0:12:29.640
<v Speaker 1>never believed that NASA was not going to be the

0:12:29.679 --> 0:12:32.959
<v Speaker 1>provider of rockets to space. So I think tourism will

0:12:32.960 --> 0:12:35.360
<v Speaker 1>be a niche market. But if you think about what's

0:12:35.360 --> 0:12:39.319
<v Speaker 1>happening with satellite communication right lower thor but everything that

0:12:39.520 --> 0:12:41.800
<v Speaker 1>is star length that the Ellins got up there for

0:12:41.800 --> 0:12:45.080
<v Speaker 1>for internet access, there will be thousands and thousands of

0:12:45.160 --> 0:12:48.839
<v Speaker 1>satellites going around the Earth to provide real time whether

0:12:48.880 --> 0:12:53.200
<v Speaker 1>it's weather data, Internet access communications links, whatever it might be.

0:12:53.280 --> 0:12:57.880
<v Speaker 1>So space is the fastest growing market. Hey, one last question, um,

0:12:57.920 --> 0:12:59.360
<v Speaker 1>and I'm going to try and squeeze this in the

0:12:59.400 --> 0:13:01.880
<v Speaker 1>BUK seven the seventh. This is I know you guys

0:13:01.920 --> 0:13:04.880
<v Speaker 1>are involved, it's important to your bottom line. What do

0:13:04.880 --> 0:13:07.880
<v Speaker 1>you think is the outlook for that? So I think

0:13:07.920 --> 0:13:10.280
<v Speaker 1>you know, you know Dave Calhouns has said it well.

0:13:10.320 --> 0:13:11.720
<v Speaker 1>I think you know we've we've got to get people

0:13:11.800 --> 0:13:14.640
<v Speaker 1>confident in the airframe. And I would tell you that

0:13:14.640 --> 0:13:16.400
<v Speaker 1>it is. It is a great airframe. We we have

0:13:16.440 --> 0:13:19.280
<v Speaker 1>a lot of content on that airframe. We do the avionics,

0:13:19.360 --> 0:13:22.000
<v Speaker 1>we do a number of different systems. Um. I think

0:13:22.000 --> 0:13:25.200
<v Speaker 1>the FAA has been very, very proactive in trying to

0:13:25.520 --> 0:13:28.000
<v Speaker 1>assure that as a return to flight it's going to

0:13:28.040 --> 0:13:30.040
<v Speaker 1>be safe. And I firmly believe it is a very

0:13:30.040 --> 0:13:33.120
<v Speaker 1>safe aircraft. Having said that, I think you know, Airbus

0:13:33.200 --> 0:13:36.040
<v Speaker 1>has done a great job of taking advantage of the situation.

0:13:36.200 --> 0:13:38.719
<v Speaker 1>And you know he almost done a great job. He's

0:13:38.800 --> 0:13:41.760
<v Speaker 1>he's got an aircraft, it's got a little bit more capability,

0:13:41.800 --> 0:13:46.160
<v Speaker 1>he's got a little bit better engine. Bret and Whitney's

0:13:46.480 --> 0:13:48.760
<v Speaker 1>a little plug there. Um, But I think it's uh,

0:13:48.880 --> 0:13:50.600
<v Speaker 1>you know it's it is a good aircraft, and I

0:13:50.640 --> 0:13:52.280
<v Speaker 1>think you know there's there's room in the market for

0:13:52.360 --> 0:13:55.120
<v Speaker 1>both Boeing and Airbus in that narrow body space. All right,

0:13:55.200 --> 0:13:57.280
<v Speaker 1>Gonna leave it there, Please come back. I love this

0:13:57.440 --> 0:13:59.160
<v Speaker 1>UM and love to talk more because you guys are

0:13:59.160 --> 0:14:02.280
<v Speaker 1>really at the intersect sin of so much commercially as

0:14:02.320 --> 0:14:05.040
<v Speaker 1>well as defense wise. Craig, thank you so much. Greig Hayes,

0:14:05.040 --> 0:14:06.720
<v Speaker 1>he's the chairman and CEO of Raytheon