It’s ‘a hell of a lot worse than what we originally projected,’ says the head of the new company formed by the United Technologies-Raytheon merger earlier this year.
Raytheon Technologies’ CEO issued a grim assessment Tuesday that the aerospace sector might not recover from the coronavirus pandemic until 2023.
The comments by Greg Hayes, who leads a new aerospace and defense behemoth created by the merger of United Technologies and Raytheon earlier this year, come as airlines continue to report a steep drop in passenger travel as the number of coronavirus cases surge across the United States.
“The effects of the pandemic on the economy and commercial aerospace has proven to be a hell of a lot worse than what we originally projected even a few months ago,” Hayes said Tuesday, during the company’s second quarter earnings call with Wall Street analysts. “For that reason, we now would expect it will take at least until 2023 for commercial air traffic to recover to 2019 levels. As a result, we're evaluating what further actions and structural changes we need to make to our business to adjust for a prolonged recovery timeline.”
The company has already cut 8,000 jobs, Hayes said.
“Some of those will come back with volume, some of them will be permanently reduced,” he said
Just three months old, Raytheon executives are already looking at restructuring its aerospace enterprise.
“We need to take a look at some of the more structural costs that we have in our aerospace organization,” Hayes said. “That is costs in some high-cost manufacturing locations — what can we get after to restructure those businesses later this year.”
Pure defense companies, such as Lockheed Martin and Northrop Grumman, have been able to weather the pandemic better since they rely almost entirely on government funding that had already been approved by Congress.
Other companies, including Raytheon and Boeing, have had their commercial aerospace businesses decimated by the pandemic as passenger air travel has dropped to record lows and airlines are grounding planes and canceling orders for new ones.
“Advance bookings are not looking up right now, given what's going on with the infection rate in this country and around the world,” Hayes said. “So, if anything, as we looked at this at the end of the second quarter we did that with keeping in mind that this is going to be a tough year for the commercial aerospace customers.
The hard-hit aerospace sector has been concerning Pentagon officials because military aircraft share much of the same supply chain as commercial planes. A strong commercial business could allow a company to place a competitive low bid when competing for Pentagon contracts and make larger investments in military-related research and development.
The Pentagon already has been bailing out companies like engine-maker General Electric, which has said it would lay off 25 percent of its workers. GE makes engines for military aircraft, including the F-16 Falcon and F/A-18 Super Hornet and the P-8 Poseidon.