The head of one of the largest U.S. aerospace and defense companies said Western manufacturers would be able to de-risk their operations in China but would find it impossible to completely cut ties with China.
Raytheon CEO Greg Hayes said the company “has thousands of suppliers in China, and decoupling . . . is out of the question”.
“We can reduce risk, but we cannot decouple,” Hayes told the Financial Times in an interview, adding that he believed that to be the case “for everyone”.
“Think about the $500 billion in trade that flows from China to the U.S. every year. More than 95 percent of rare earth materials or metals come from China, or are processed in China. There’s no alternative,” Hayes said.
“If we had to pull out of China, it would take us many years to re-establish that capability at home or in other friendly countries.”
Hayes’ comments underscore the difficulties Western manufacturers face amid growing friction between the U.S. and its allies.
In February, Beijing imposed new sanctions on Raytheon and U.S. defense peer Lockheed Martin for supplying weapons to Taiwan. Hayes was also sanctioned.
The sanctions have had little business impact because the groups are not allowed to sell military equipment to China. However, Raytheon has a substantial commercial aviation presence in the country through its engines subsidiary Pratt & Whitney and aeronautical systems and cabin equipment specialist Collins Aerospace. It has about 2,000 direct employees in China.
Both subsidiaries, along with other Western aerospace groups, are suppliers of China’s first large domestically-produced jet, the C919, which made its commercial debut in late May. China is also an important aviation market for Boeing and Airbus.
Still, the company is looking for alternative sources for some of its components.
“We’re looking at de-risking, getting some of the most critical components and having a second source, but we can’t get out of China like we’re getting out of Russia,” Hayes said.
Raytheon believes its decision to rebrand itself as RTX, announced Sunday, will provide a clearer distinction between its commercial aerospace business and its defense activities, which will continue to trade under the Raytheon brand, he said.
On Monday, the first day of the Paris Air Show, Hayes told investors that the company would achieve its 90% target by 2025 despite headwinds over the past two years, including inflation and tight supply chains. million-dollar free cash flow target. Emphasis on civilian and military resources.
Pratt & Whitney has struggled to supply Airbus with enough new engines while supplying existing airline customers with spare parts to fill the gap left by faster-than-expected wear and tear. Pratt & Whitney’s latest-generation GTF engines power the Airbus A220 and some A320-neo family jets, although they have some durability issues, especially in hot and dusty climates.
About 100 planes were on the ground waiting for their engines, he said.
Adding to the challenge is Airbus’ plan to increase production of its single-aisle planes to meet airlines’ recovering demand.
“There is a natural tension between supplying engines to Airbus and supplying spare engines to our customers,” Hayes said.
The company is adding capacity in its supply chain and maintenance operations. A new factory to make turbine blades will open this year in North Carolina. It also launched an upgrade program to help improve the durability of the GTF engine.
On the defense front, supply chain disruptions continue to affect production of Raytheon and Lockheed Martin missile rocket motors, including the Stinger and Javelin missiles. The focus has been on capacity constraints at rocket engine maker Aerojet Rocketdyne, which recently received government funding to help it expand its business.
“These rocket engines are kind of black magic,” Hayes said. “We had quality issues, labor and material shortages.”