Businessweek Talks- Raytheon CEO Greg Hayes

having me. So. I feel like there's a million places I want to start, but maybe where I need to start is, let's talk about today we have we heard from FED Chief J. Powell again, if I may, You and I were talking before we got started, and we're talking about transitory. What is transitory? Is that a word that CEOs can get their head around, you know, I asked that questions, you know several weeks ago when I first heard German Paul talk about the effect of transitory

price increases. And my concern there is what is really transitory because if you start to see inflation in labor, that's not transitory because labor costs don't go down. They may go up more slowly. But what we're seeing right now is a lot of a lot of cost pressure at the very low end of the labor scale, and I don't think that goes away now. Will that translate into higher prices across all of the economic spectrum, I don't know. But we're also we're seeing inflation in commodities

in some of the raw materials as well. It's impacting what you guys are doing absolutely every day, and so I worry the transitory, especially with all of these deficits that we're talking to and a half trillion dollar deficits. We're pumping a lot of money into the economy. People are flush with cash and they're going to spend it. That's going to drive prices up. Are we going to get off of that drug soon? I don't think so.

Would you go as so far to say that FED policy is wrong based on what you're seeing in terms of economic growth and momentum from your clients and customers, Well, I don't know that. I would say Chairman Pole is necessarily wrong. I think we have to think about not

just FED policy monetary policy, but fiscal policy. That is, how much can we continue to borrow and burden the next generation and the generation after that with these huge deficits just to satisfy our our desire to have faster growth today, is it better to have slower, steadier growth that is more sustainable. And I think that's the that's the calculus we have to think about. There's it's not

just monetary it's fiscal policy as well. So when you look at the economic growth trajectory or trajector excuse me, over the next six to twelve months, how does it look to you? That's great? I mean as I think about it, and we you know, we have two businesses at raytheon technology. We have a commercial aerospace business which was just devastated last year down and then we have a very very big defense business. Both of those businesses are going to experience growth in the next twelve months,

in the next two or three years. But I think the growth on the commercial erroside, because we're coming off such a low base, is going to be phenomenal. And I think that's the that's the thing that gives me, gives me hope. But I think again, the overall economy, we're probably gonna see six seven GDP growth this year. We haven't seen that in forever. And the question is when you get that is inflation than inevitable, but do

you think that's sustainable? That's six to seven percent. I mean, listen, we're coming from a terrible situation. Piece. I think it really goes back to this fiscal policy. Do we continue to pump money into the economy because that is what's going to drive this kind of outsized growth in the near term because people will have cash. I want to talk about commercial aerospace. I'm just curious are your executives you and I were talking to how much you were

able to work at home? Right, you weren't flying around on planes? Planes are important to you and what you do, Um, what do you anticipate for business travel? What are your guys doing in terms of business travel? So interestingly, you know, we just really resumed business travel within the last month

or so. I've been out on the road visiting factories, talking to folks on the on the front lines and the shops and in the in the engineering organizations around the the company, and we're starting to see it pick up. But certainly business travel is forever changed. I would think because of Zoom, we don't go back to pre pandemic level. Again.

If you think about commercial air traffic about seventy commercial air traffic is um for leisure that has come back, and it's come back faster, stronger than I think anybody would have said. Now you can just you know, talk to Gary Kelly at Southwest or Doug Parker American I think they were on this morning talking about that. The thirty percent of business travel is the question, and what we think is like half of that of the total

is mandatory travel. That is, we've got to send our technicians out to visit our products, We've got to service our products. That's going to come back, and it will come back relatively quickly. You know. Will we still see big conventions in Las Vegas? Will we still see you get together for sales conventions? I think that will come back. But there's the other question. Will all of it come back?

And how soon our own views who probably don't see a full recovery in business travel until But again, you know, I hope we're wrong. But again it's Zoom has Zoom or or WebEx or whatever your your favorite pick, pick

your pick, your your vehicle. But the fact is it's really changed our thinking in terms of productivity and that I think about return to the office you know, We've had a hundred thousand people showing up to the factory floors or the engineering organizations every day during the pandemic, but I've had eighty thousand people working at home, and I don't think all eighty thousand will ever come back. So this is a fundamental change in the in the economy and how you do business. There's a lot of

deals going on. You guys just finished a big deal combining assets and combining with United Technologies assets and then you took over as the CEO of it all. Uh, And that was just as the pandemic was getting going.

How tough was it to get that deal done in terms of the backdrop of where we were, So you have to really step back and think, you tc over the last couple of years, we had done a lot of M and A. But we really made a decision after we had purchased Rockwell Columns that we were going to split off into three businesses, Otis Elevator as a standalone business, Carrier as a standalone business, and then U

T S Arrow as a standalone business. As we were in the middle of that those three spins, Tom Kennedy was the chairman and CEO of Atheon called me and said we should do a deal, which I thought was absolutely insane at the time, but but but hey, here here we are um and it turned out and again the more time and I talked about it, the more

sense it made. But the last four weeks before the deal closed, and we closed on April third of last year, we were working from home and the commercial airline industry was absolutely in the time. Did you have a moment we were like, oh my god, what what did we just do? Probably not because you thought it through and you I think that, you know, there was there was a question because we had made some big commitments to share owners if we were to bring this company together.

We said we're gonna return eighteen to twenty billion dollars of cash to share owners in the first three years after the merger. And it became very apparent that that was going to be tough to do, and so, you know, we quickly pivoted and said, Okay, it's gonna take us four years. But we had faith that the commercial aerospace business was going to come back. We continue to pay a very good dividend, We continued to drive cash, and we took a lot of costs out of the business.

And it was interesting. I always tell people, you know, let's not waste a good crisis, and I know that's probably from a lot of leaders, and in fact is the crisis. That crisis gave us a chance to reshape the company. We were able to take a cost out that we thought was impossible to do, so I think again it gave us the impetus to do the really

hard things that sometimes people don't want to do. So if there's a net net Gregg in terms of what you and we're talking with Greg Hayes every theon technologies, here's of course the CEO. What did you learn from that merger? Is there something? And again it was like I feel like that was happening and then the pandemic layered on top. But is there something when you do a consolidation like that, emerging of cultures, what do you

learn from that? So interestingly, you know, we had an aerospace and defense business at UTC, which was about forty billion dollars, merging with the billion dollar primarily defense business. What we found is that the cultures weren't all that different. But we spent a lot of time talking about values because to bring two companies together, you have to make sure that you're values are the same. So we talked about diversity, equity and inclusion. We talked about the need

to trust one another. We talked about the need to empower our workforce. These are things that I that resonated with our workforce and it really it allowed us to come together by focusing not on a business problem, but on the values that we bring in upon the mission that we have. And I always say the mission of Aratheon Technology is to solve our customers hardest problems. And that is that is something that resonates with people. When they have a mission, they come to work and they

enjoy what they do. Part of that mission is innovation. You guys spend a lot on R and D. What is the innovation for you guys going forward? And I think about things like AI. Is that increasingly a part of whether you look at how defense systems are operating, our our will look at you know, AI is table steaks. I think in the next in the next battle space.

If you think about the challenge of the next war, the future war, it's a war that we fought in cyberspace and outer space, and the key to defending this country, defending our allies is having real time information, and that means taking data off of a satellite, taking data off of an underseas sensor, off of an airborne sensor, processing it quickly, and getting it to a combatant commander in a in the time frame that he can make an

actionable decision. And I just give you one example. UM last December, we work with the Missile Defense Agency and we m detected. We we did a test. We launched or the Navy launched an i cb M off of the coast of Australia. Our sensors up in space, picked it up, tracked it down to our ground station, fed it out to a ship in the Pacific, transmitted that to our missile, one of our missiles, and s M two three A launched and intercepted the missile over Hawaii.

All of that without human intervention, which is phenomenal. That's what AI is. You have to have that type of machine learning AI if you're going to be successful, because hypersonics are coming right. Think about hypersonics right, We're talking about things that travel mock five plus. You don't have time for someone to say, how do I target that? You have to of the systems that know how to get through those things and can take action. So that's

increasingly our defense world. It's not my father who fought in World War Two, It's not that kind of and we know it hasn't been that way hand to hand, comment are people on the ground. This is where it's increasingly going. It's it's technology versus technology. You know, we we've we've lulled ourselves into a sense of complacency in these last twenty years because of this, the asymmetric nature of war against terrorists. The fact is the Chinese and

Russians have been spending a lot of money. They're ahead of us on hypersonics. We have to catch up. Um. But again that the idea that you know, we're a defense business, and that that word is important because having a strong defense is about deterrence and the best way to prevent a war is to make sure your your enemy or in front of me understands that there's no winning this. And I think that's where we're trying to solve. Well, we think about the biggest breakthrough for your industry is

it hypersonics? Is that the thing that you think will will So I've never heard of that, so it was interesting to have you talk about it. Is that where we're going is that the biggest breakthrough speed Trump's stealth. So we've talked about stealth for the last thirty years.

We're gonna have stealthy airplanes. But the fact is, if you can have and hypersonics that you know started at Mack five, but you're talking about up to Mock twenty, which is about seventeen thousand miles an hour fast, fast, right, really fast, the ability to defend against hypersonics is a huge market. And I think about raytheon technologies. So we have missiles, the s M three, the s M six

that can intercept these missiles in space. But also we're gonna have a layered defense and so you're gonna use high powered microwaves, you're going to use high powered lasers, You're going to use a multitude of layered defenses. And that's really where we're going to focus our investment. You know, we're gonna spend six billion dollars on R and D this year, a big number, but we have to stay

ahead of the game, right right. We've seen that in terms of we've learned that restently with the cybersecurity world. What do you think of the billionaires going into space? Is this a good I know, I know, I either thought you're gonna think I'm crazy, But I do wonder about the private sector increasingly. I grew up with the dad who was involved in the space program. It was all government, you know, with contractors, but this is now

private sector. So interestingly, space tourism will be a niche market for a long time at two fifty thous dollars a ride a long long time, well ten or fifteen years, which is about my planning horizon. Um, that'll be too old to worry about it, um. But the fact the fact is, I think, you know, what they have done with commercialization of space transport is phenomenal. I would have never believed that NASA was not going to be the provider of rockets to space. So I think tourism will

be a niche market. But if you think about what's happening with satellite communication right lower thor but everything that is star length that the Ellins got up there for for internet access, there will be thousands and thousands of satellites going around the Earth to provide real time whether it's weather data, Internet access communications links, whatever it might be. So space is the fastest growing market. Hey, one last question, um, and I'm going to try and squeeze this in the

BUK seven the seventh. This is I know you guys are involved, it's important to your bottom line. What do you think is the outlook for that? So I think you know, you know Dave Calhouns has said it well. I think you know we've we've got to get people confident in the airframe. And I would tell you that it is. It is a great airframe. We we have a lot of content on that airframe. We do the avionics,

we do a number of different systems. Um. I think the FAA has been very, very proactive in trying to assure that as a return to flight it's going to be safe. And I firmly believe it is a very safe aircraft. Having said that, I think you know, Airbus has done a great job of taking advantage of the situation. And you know he almost done a great job. He's he's got an aircraft, it's got a little bit more capability, he's got a little bit better engine. Bret and Whitney's

a little plug there. Um, But I think it's uh, you know it's it is a good aircraft, and I think you know there's there's room in the market for both Boeing and Airbus in that narrow body space. All right, Gonna leave it there, Please come back. I love this UM and love to talk more because you guys are really at the intersect sin of so much commercially as well as defense wise. Craig, thank you so much. Greig Hayes, he's the chairman and CEO of Raytheon