Prepared remarks
Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Textron Second Quarter 2026 Earnings Release Conference Call. Please note that today's call is being recorded and will be available for replay later today. I'd now like to turn the conference over to Scott Hegstrom, Vice President, Investor Relations. Please go ahead.
Thanks, Regina, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release. On the call today, we have Lisa Atherton, our Chief Executive Officer; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. With that, I'll turn the call over to Lisa.
Thanks, Scott. Good morning, everyone. In the second quarter, Textron grew revenue by 3%, continuing a strong start with growth in each of our manufacturing segments, contributing to higher revenues of $500 million or 7% through the first half of the year compared to the first half of last year. We continue to see healthy commercial and military demand environments illustrated by the aviation backlog and a favorable fiscal year 2027 and Future Years Defense Program, or FYDP, budget request for our military franchises. We also recently achieved a couple of key milestones across the business with the rollout of the 500th Citation CJ4 and the 700th Bell 505 helicopter. These milestones reflect the strength of our teams and our ability to design, develop, manufacture, sell and support products that remain highly valued by customers over many years. Before I turn to the segment level comments, I'd like to reiterate my key priorities that I laid out at the start of the year. First, portfolio focus. We quickly took action last quarter when we announced our intent to separate the Industrial segment, putting us on the path to be a pure-play aerospace and defense company. Second is our execution and resilience. I will talk more about this as I go through each of the segments, but there are two fundamental themes here. First of all, customer demand remains very strong. Simply put, people want our products, and we have multiyear backlogs in many areas. With that, we must become more efficient at meeting that demand. We need to more fundamentally address productivity, and that is where I'm focusing the organization. When we assess our production challenges, I see opportunities both externally and internally. Externally, while the supply chain has improved in most areas, we still experience issues with some key components. At the same time, the issues are not just external; they are internal as well. We have a much newer workforce, and we must utilize our engineering team to improve producibility for that workforce. We recognize there is more work to do in order to improve our execution, and I'll touch on that more in the segment discussion. Now moving to the segment results. Textron Aviation had $1.5 billion of revenue in the second quarter, up 1% from the prior year, reflecting higher revenue for both aircraft and aftermarket. Demand across jets and turboprops continued to be robust during the quarter, supporting a backlog of $8 billion. We delivered 40 jets and 44 commercial turboprops in the quarter compared to 49 jets and 34 commercial turboprops in last year's second quarter. In terms of our operational efforts at Aviation, our focus is centered on three areas: investing in the workforce, improving factory execution and strengthening the supply chain. Developments in these areas include, on the direct labor front, attrition has improved materially, aided by our investment in Textron Aviation's Career & Learning Center. After spiking during COVID and remaining elevated, attrition has now returned to more normalized levels, with the improvement even more pronounced among early career hires. In addition, hiring levels have returned to a more normalized pace. As our workforce gains experience and stability improves, we expect to see corresponding gains in productivity and efficiency. In factory execution, we are investing in both our people and our capacity. On the factory floor, we have significantly increased engineering production support as we prioritize engineering resources to improve producibility. Within operations, we are adding targeted capacity in areas such as landing gear, milling and paint to support improved throughput and execution. We are also investing in producibility and process improvements across the King Air and light jet production lines. In supply chain, we are expanding dual-sourcing initiatives to strengthen supplier resiliency and support more consistent parts availability in the factory. At the same time, supply chain conditions continue to improve. While we are still managing a handful of pain points, parts availability has improved significantly in recent years, leaving us with a more finite set of issues. We remain actively engaged with these key suppliers. Alongside our operational focus, Aviation continued to advance its product portfolio and sales momentum during the quarter. In terms of new product development, our Gen3 light jet development programs continue to move toward Federal Aviation Administration certification. The CJ4 Gen3 and M2 Gen3 are currently in the flight test phase of development, and the CJ3 Gen3 is expected to achieve first flight in the third quarter, with all three aircraft expected to enter service next year. Also, the Denali continues to advance through its final phases of flight testing and is pacing to enter service in 2027. From a customer perspective, we entered into a multi-aircraft fleet purchase agreement with Platoon Aviation that positions it to become the largest Citation Longitude fleet in Europe. Textron Aviation also entered into an agreement with SD Aviation for two M2 Gen3 jets and a CJ3 Gen2 jet, with options for three additional light jets. We delivered the first SkyCouriers into both the Philippines and the Republic of the Marshall Islands. In both cases, customers took the 19-passenger variant equipped with the optional passenger-to-freighter conversion kit, enabling the aircraft to transition between full passenger and full cargo configurations. In addition, we expanded our global service footprint, highlighted by the opening of a new Melbourne service facility and continued ramping deliveries of the Ascend with NetJets, taking its first five aircraft in the quarter. Moving over to Bell. We had another quarter of solid growth with revenue up 6% from a year ago, driven by increased military and commercial revenue. We continue to make progress on the MV-75 Cheyenne program, which remains a key long-term growth driver for our company. This includes completing the first two wing structures, representing an important step forward in the program's build and development progression. Building on decades of experience with the V-22, the first wing was fabricated with 90% fewer labor hours compared to the initial V-22 wing build, and the second wing build was produced with an additional 40% reduction on that, highlighting the team's focus on affordability and production readiness. As we previously disclosed, the U.S. Army is pursuing an above threshold reprogramming request for an additional $350 million of government fiscal year 2026 funds for the MV-75 program. We anticipate Congress to complete this process within the third quarter. Absent these funds, Textron has made the determination to move forward on a self-funded basis to support the program through the remainder of the government's fiscal year. We believe that it is the best long-term interest and underscores our firm commitment to the U.S. Army and the MV-75 program to continue working during this period. We remain confident in the Army's commitment to the MV-75 Cheyenne as evidenced by the ATR process and the robust funding request in the FY '27 budget, and we continue to stay closely engaged with our customer in support of program execution. Bell's other military and commercial businesses delivered solid performance in the quarter. We continue to drive advancements across our installed base, including progress on our V-22 Nacelle Improvement Program, which has produced a 75% reduction in maintenance hours, resulting in a significant boost in operational readiness and maintainability. On the commercial side, Bell delivered 36 helicopters, up year-over-year from 32 in last year's second quarter. From an operational perspective at Bell, our focus is centered on two critical areas: strengthening the supply chain and improving factory execution. The supply chain team continues to focus on the dual sourcing of critical raw materials needed to support gearbox and rotor blade manufacturing, including gear steel, castings and extrusions. Capital investments made at our drive system center and rotors facility began in the quarter. These improvements are aimed at increasing capacity and throughput while reducing touch labor. We also have a new AI-enabled shop floor scheduling tool that was born in Bell's manufacturing technology center, which has completed testing and started to roll out across Bell's fabrication centers. Alongside our operational focus, Bell continued to see demand across its portfolio, including an order for three additional Bell 407s by Life Flight Network, the largest not-for-profit air medical program in the country, which currently operates 35 Bell aircraft. At Systems, the business had another great quarter with revenue growth of 7%, driven by execution across its programs. Through the first half of the year, Systems generated revenue growth of 10%, reflecting positive momentum in the segment. During the quarter, we began production of the Mobile Strike Force Vehicle at our Slidell, Louisiana, facility for delivery of 65 units to Ukraine. In addition, following the $450 million Pre-Production Development award from the U.S. Marine Corps earlier this year, the Advanced Reconnaissance Vehicle, or ARV, program, completed its systems functional review and continued design work in preparation for delivering 16 prototype vehicles. Our ATAC business also had a good quarter, driven by new contracts kicking off with the U.S. Navy and the U.S. Marine Corps. At Industrial, TSV experienced strong growth in the PTV, while its core E-Z-GO Golf business has stabilized as the lease renewal cycle normalizes. Kautex secured another new business award for its Pentatonic battery systems, representing progress in supporting electrification and future growth opportunities within the segment. I'd also like to thank the teams at Kautex and TSV as they continue to successfully operate the businesses while also supporting the work associated with the separation process. We recently launched the process to pursue a sale of Industrial and are proceeding according to plan. This is an important step as we advance on the path of becoming a pure-play aerospace and defense company. As we look ahead, I am encouraged by the enthusiasm our customers have around our products and the commitment our employees have as we continue to work to improve operational performance. We are clear-eyed about the future, and we are committed to executing on our strategy. With that, I'll turn the call over to David.
Thank you, Lisa, and good morning, everyone. Turning to Slide 11 of the earnings presentation. Revenues in the quarter of $3.8 billion were up 3% or $111 million from last year's second quarter. Segment profit in the quarter of $353 million was in line with the second quarter of 2025. During this year's second quarter, adjusted net income was $1.62 per share compared to $1.55 per share in last year's second quarter. Manufacturing cash flow before pension contributions totaled $154 million compared to $336 million in last year's second quarter. During the quarter, we repurchased approximately 2.3 million shares, returning $209 million in cash to shareholders. Now let's review how each of the segments contributed, starting with Textron Aviation. On Slide 12, revenues at Textron Aviation of $1.5 billion were up 1% or $22 million from last year's second quarter, reflecting higher aircraft revenues of $17 million and higher aftermarket parts and service revenues of $5 million. The increase in aircraft revenues was primarily due to higher pricing, partially offset by lower volume and mix. The decrease in volume and mix largely reflected lower Citation jet and defense volume, partially offset by higher commercial turboprop volume. Segment profit was $165 million in the second quarter, down $5 million or 3% from a year ago, primarily due to an unfavorable impact from manufacturing inefficiencies and lower aircraft volume and mix, partially offset by lower warranty costs. Backlog at the end of the second quarter was $8 billion. Looking at Bell, revenues of $1.1 billion were up 6% or $58 million from the second quarter of 2025. The revenue increase in the quarter was driven by higher military revenues of $47 million, largely due to higher volume on H1 production in the MV-75 program. Commercial helicopters, parts and service revenues increased $11 million compared to the second quarter of 2025, primarily due to higher pricing. Segment profit of $75 million was down $5 million or 6% from last year's second quarter, primarily due to an unfavorable impact from program performance and from the mix of military programs, partially offset by lower research and development costs. As Lisa mentioned, the Army is focused on its reprogramming efforts for the government's fiscal year 2026. With that, we continue to execute on the MV-75 Cheyenne program on a self-funded basis as we wait for the ATR process to conclude. Backlog in the segment ended the quarter at $7.5 billion. At Textron Systems, revenues of $347 million were up 7% or $23 million from the second quarter of 2025, primarily due to higher volume on armored land vehicles and military training and support services provided by Airborne Tactical Advantage Company, or ATAC. Segment profit of $44 million was up $4 million or 10% compared with the second quarter of 2025, primarily due to lower research and development costs. Backlog in the segment ended the quarter at $3.3 billion. Looking at Industrial, revenues were $848 million, up $9 million from last year's second quarter. Kautex's revenue increased $17 million, largely due to a favorable impact from pricing and from foreign exchange rate fluctuations. Textron Specialized Vehicles revenues decreased $8 million, reflecting lower volume and mix and the impact from the disposition of the Powersports business, partially offset by higher pricing. Segment profit of $59 million was up $5 million or 9% in the second quarter of 2025, primarily due to higher pricing net of inflation, partially offset by lower volume and mix. Pricing net of inflation includes tariffs recovered in the second quarter of 2026 that were previously imposed as part of IEEPA. Finance segment revenues were $14 million, and profit was $10 million in the second quarter of 2026 as compared to segment revenues of $15 million and profit of $8 million in the second quarter of 2025. To wrap up with guidance, we are reiterating our expected full year adjusted earnings per share to be in the range of $6.40 to $6.60. We are also reiterating our expected full year manufacturing cash flow before pension contributions to be in the range of $700 million to $800 million. Our full year guidance assumes receipt of additional FY '26 funding for the MV-75 Cheyenne program. Absent the receipt of any additional funding and inclusive of other outlook assumptions, our adjusted EPS could be negatively impacted by $0.20 to $0.30 and cash flow could be negatively impacted by $150 million to $250 million. This concludes our prepared remarks. We are happy to open the line for questions.
Questions and answers
Our first question will come from the line of Robert Stallard with Vertical Research.
Lisa, I was wondering if I could start with you. I was wondering if you can give us an update on what you think the Aviation business will be doing in the second half of this year and whether the supply chain issues could be alleviated?
Yes. Thanks, Robert. The dynamics at Aviation are exactly as we described. We have very strong demand, and we have to continue to drive better operational efficiency. When we talk about labor, I mentioned that our attrition rate had spiked. It remained elevated for quite some time, but that's now stabilized, which has significantly helped. But we continue to have that newer workforce that just has to further season through the manufacturing floor. To put a finer point on that, we have about 50% of our workforce that has less than five years of experience compared to 2019 when that was less than 30% that had that experience. So we are continuing to make great progress with the Career & Learning Center, and I think it's going to continue to prove out as a successful investment into our factory. We've made some very intense and intentional investments here along with the Career & Learning Center. It gets the right people in the door. It screens them effectively. It sets them up for a better transition when we get them out in the factory. But we've also increased the engineering resources out there on the factory floor. That helps us with the learning curves. It's going to help us with issue resolution more quickly on the factory floor and then just overall quality management so that we have the right products getting out the door at the right time. And I believe we'll see increasing benefit from this effort and energy over time. Simultaneously, when we look at the workforce development, we still are navigating supplier challenges. We have largely managed through the bulk of them, but we still have some key pain points that we are focusing on. Where we can, we are dual sourcing in these areas to increase capacity, and it's going to protect our operations. We don't want to see out-of-station work. And so that's what we're trying to focus on, to make sure that we bring that material in so that we don't have those out-of-station inefficiencies. In addition to that, we have initiated a cross-company Supply Chain Council so that we can start approaching some of these suppliers that we see across all of our segments and negotiate with them from a much larger position. As we move to a more pure-play aerospace and defense company, we're going to lean into those efficiencies across the company. I'm very confident this is going to improve. We are taking concrete steps and really prioritizing the investment where we need to, to see that improved performance. Dave, I don't know if you have any other color you want to add to that?
Sure. So Robert, as you've often heard us talk about, we believe the Aviation business should have incremental margins of about 20% to 25%. If you look right now at the overall productivity challenges we're having, it's not only impacting our overall cost, but also preventing us from delivering additional new aircraft, which, of course, are very much accretive. So looking at the overall opportunity set that Lisa just highlighted, it's probably worth about $150 million of incremental profit to us or about 200 basis points, which would then tie to that 20% to 25% incremental margins. Obviously, we're not going to achieve that tomorrow. But with the focus that Lisa highlighted of our engineering resources, our capital investments back into the factory, we believe over the medium term, we're going to get there. To your overall question about the second half of the year, I would say when we look at Q3, you can expect revenue cadence to have a similar profile to Q2. In terms of margins, I would expect that we wouldn't see margin growth until Q4 of this year versus where we sit today.
Our next question will come from the line of Peter Arment with Baird.
Lisa, maybe just to add, I'd like to follow up on Dave's last comment on the second half of the year kind of volume for Aviation deliveries. You're basically matching last year's levels currently. You're, I think, only three units less than last year first half deliveries. You're investing a lot. I'm just trying to get a better handle on when we should start to think about where that productivity starts to really flow through. You've talked about the capacity additions and the new employees. But just thinking about absolute level of deliveries, is there the ability to kind of give a finer point on when you think that productivity starts to flow through?
I'm not sure we're going to be able to give a finer point on the exact dates of when that flows through. But if we look at the various aspects, when you talk about the employees in particular, it's been pretty well proven out that it takes about five to seven years to generate an employee that has all the repetitions and experience to get through the learning curves on the factory floor. So when you talk about those new employees that started coming in around 2022, we should start to see that yield next year with employee productivity. We are starting to see areas across the factory floor where we are seeing that improvement. So I think in the next year, we see the learning curve starting to improve. From the out-of-station work, if we can get some of this dual-sourcing addressed and bring some of these, in particular things like spars, into the factory, that will significantly improve our productivity. Our goal is to start seeing improvement in this area of overall product deliveries toward the middle to last part of 2027.
Our next question will come from the line of Sheila Kahyaoglu with Jefferies.
Maybe if you could talk more about Bell and the funding situation for fiscal '26 regarding MV-75? How do we think about it from a procedural standpoint from here, the financial implications? And how are you navigating the workforce, the development program through the end of this year and potentially into next year?
From a process perspective, as we discussed, the Army is working through their normal ATR process, or above threshold reprogramming process. That allows them to realign funds inside of their own budget, but it has to go back to Congress for Congress to sign off to move that authority from one program to the other. They have worked through that process pretty diligently over the last several months. It's normal around this time of year for this to occur. Our understanding at this point is that it has been approved through the OMB process and should be sent to Congress soon. We anticipate any day. But based on the congressional calendar, my expectation is this could stretch out until September before Congress gets to the point where they actually sign off on the realignment of those funds. Absent that, we made the determination that it is in the best interest of the overall long-term health of the program for us to continue forward. We have communicated that well with the Army, and we are working with them to make sure that they understand the work is progressing on the development of the program as we move forward. If you look at overall Bell's results through the quarter, they actually performed very well in the quarter with revenue up 6%. It did impact the profitability because of the way we addressed this potential ATR going forward. We took a very conservative booking rate as we have not yet received that ATR. With that program adjustment, if we had not had that adjustment, Bell's margins would have been very comfortably inside their guidance range for the quarter.
Our next question will come from the line of Gautam Khanna with TD Cowen.
And just to follow up on that last question and answer. So to be clear, are you guys moving forward with the supply chain, not slowing them down on the MV-75? And then relatedly on the booking rate adjustment, did you assume some learning curve loss, if you will, in the adjustment? Or why was that adjustment made if you expect the funding fairly imminently?
Regarding the supply chain, we are still working with our supply chain. We have put minor spending caps on the supply chain to stay within that $350 million range. That is what we had anticipated to execute on during this quarter anyway. We're working with our suppliers to make sure we stay inside that cap because we want to make sure that we don't lose any momentum that we have gained with the suppliers to date.
Sure. So it's not a change in the learning curve. It's a conservative approach to the booking rate because the ATR hasn't been awarded yet. That was a Q2 impact, and then we'll see how it plays out in Q3.
Got you. And just to put a fine point on the other impact to guidance to revenue, if that money doesn't come through, did you say it was $350 million? Or what is the revenue impact if the MV-75 money doesn't come through?
So it would be roughly around that, but we don't perceive a situation where our Bell revenue guidance will change in this scenario. To put a finer point on it, the way we look at it right now, obviously, we said there's a $0.20 to $0.30 impact from a totality perspective. When we look at our different businesses right now, we'd expect from a guidance perspective we would likely be above the guide at our Industrial business from a margin perspective. On the high side of the guide at Systems, assuming Bell gets the ATR, we think we'd be comfortably in the guide, and we would expect Aviation would be on the low end of the guide. So that's kind of the puts and takes overall that drive the $0.20 to $0.30 impact. And overall, on revenue, we see ourselves roughly in line across the businesses today.
Our next question will come from the line of Gavin Parsons with UBS.
Gavin, having a hard time hearing you.
Can you hear me?
You're back. Yes.
Thanks for the color on the Aviation margin opportunity. That is very helpful to quantify. Is that purely internal productivity? Or does that also include an assumption that the supply chain improves? I'm trying to get a sense for how much of that is under your control versus dependent on external supply chain improvement.
So it's certainly a combination of both. But when you look at external suppliers, for example, you saw Lisa highlighted earlier, we can also work that via dual sourcing. So it certainly is a combination of both, and solving the external supply chain issues along with investing our engineering resources to make our planes more producible is kind of the secret sauce to improving the overall picture. I'd say it's roughly a 50-50 split between external improvement and internal productivity, but we certainly want to drive our own destiny when it comes to our external suppliers as well.
Our next question will come from the line of Seth Seifman with JPMorgan.
Is there, I guess, a limit on — if you don't get the ATR by a certain time, a limit to how much you'd spend?
We are trying to manage this to the $350 million threshold that we had expected to have by the ATR. That's what we're internally managing to. On October 1, when the FY '27 budget is initiated, even if there is a continuing resolution, the government would go back to its normal spending with the company. So we are managing this over the next approximately nine weeks to make sure that we stay within the $350 million, while also progressing the program as needed to get it ready to continue to move forward toward first flight.
Our next question will come from the line of Myles Walton with Wolfe Research.
First, a clarification, if you could, David, on the tariff relief. Can you just size that? And then Lisa, on the fourth quarter MV-75 program strategy, if you're under a continuing resolution, do you sort of assume that everything in the budget documents, which obviously is quite bullish, do you assume that's where you should run the program? Or do you take a more conservative approach?
The way the process would work with a continuing resolution is the government is only going to be authorized to spend at the levels that they were approved for in 2026, which was around $1.2 billion. They also had an additional $310 million from the reconciliation budget. They would have a percentage of that allowable for us to spend on a continuing resolution. We would probably be somewhat conservative in the fourth quarter, but in line with what we expected to perform when we put together our operating plan. We've been working that process with the Army to make sure that we continue to progress toward the goals of first flight, and we feel like we're pretty solidly funded through the first six months of FY '27 to give the government time to get through their continuing resolution process.
On the tariff question, the big impact on tariffs this quarter was at TSV within our Industrial segment. We received a gross refund of IEEPA tariffs of $21 million for TSV. The net impact on the results was about $18 million.
Our next question will come from the line of Noah Poponak with Goldman Sachs.
Dave, I just want to make sure I understand the Aviation margin progression you're pointing to. So it sounds like you're saying Q3 is relatively flat sequentially, Q4 up. Do you still get to the low end of 11% to 12% for the full year? And if I took 11% as a starting point for 2026 and assumed you achieved the 20% to 25% incremental for a few years, closer to the end of the decade you would add that 200 basis points you talked about to get into the 13s. Is that sort of the quarterly and annual shape of the margin you're now looking at?
I think you described 2026 very well. I'll probably wait until January to give you guidance on 2027.
And just to follow up on Myles' question. What is the potential for needing reprogramming of dollars on MV-75 multiple years in a row? Is '26 unique because the acceleration happened after the funding process? Or could we potentially need reprogramming and have this risk for a few years ahead?
This is a unique, one-off ATR event because the acceleration request happened after the Army had submitted their FY '26 budget to Congress. When we met with them a year ago and laid out what the funding needs were for '27 and subsequent years, that is what you see reflected in the current FYDP requests for 2027 and beyond. We view this as a one-time event, and we will manage very closely to the allowable budgets going forward to meet our expectations.
Citation jet or Aviation business jet deliveries for the year, do you still see that at the same level as where you started the year's plan or guidance at the beginning of the year? Or are you now expecting that to be lower?
We obviously aren't going to get into deliveries. But from a revenue perspective, we see ourselves in line versus our previous guidance for the year.
Our next question comes from the line of David Strauss with Wells Fargo.
Can you hear me?
Got you.
The press release mentioned that you've initiated the sale process for Industrial. Is the sale of all of Industrial the more likely path from here as compared to spinning it out?
We're early in that process. We are pursuing a dual path of initiating the sale process while also doing the work required to effect a spin if needed. We have the wheels in motion and are talking with a significant number of inbound parties on the sales side. That interest has been very encouraging. Kautex and TSV have good foundations, and we're pleased with how the sale process is progressing. However, we are still in the early phases of NDAs and discussions, and we are simultaneously preparing for a spin if a sale does not materialize as we'd like. We've seen various levels of interest in all of Industrial as one piece and in different parts and pieces. We will evaluate that over the coming weeks, and you'll be updated soon.
And then a follow-up on MV-75. We've talked a lot about the FY '26 situation. What about timing on getting the LRIP contract? Any change to expectations on the size of the charge associated with when you actually sign that contract?
No change in our outlook right now. Assuming a Q4, Q1 LRIP award exercise, we have the expected charge in the range of $60 million to $110 million.
Our next question comes from the line of John Godyn with Citi.
First, Lisa, I wanted to follow up on all of the new jets for 2027. You mentioned a bunch of Gen3 light jets and the Denali. Could you talk about customer reaction to that and elaborate on the very strong demand trends that you're seeing?
We just wrapped up Oshkosh last week and saw strong interest coming out of that event. The backlog is reflective of strong customer enthusiasm for the Gen3 upgrades and other new products. I won't provide specifics on which aircraft we intend to deliver and when, but there is a lot of energy, which is reflected in the backlog. We are specific with how we book backlog—it's deposits and guarantees with delivery expectations—so that is firm backlog you see represented for those aircraft.
If I could ask a bigger-picture question on MV-75 and Bell. We've seen a lot of innovation in rotorcraft—autonomous tiltrotor aircraft and other concepts. The MV-75 has modern capabilities. Could you talk about the direction of rotorcraft innovation arcs and where you see that market going and how Bell is positioned?
From a technology perspective, tiltrotor provides advantages in speed and range. Bell has decades of tiltrotor experience built into the MV-75. We're on our fifth generation of tiltrotor and have over 850,000 hours of V-22 experience that informed the MV-75. The capabilities of tiltrotor are broadly accepted across the industry. We first flew our demonstrator in 2017 and flew it autonomously in 2019. About ten years ago, we had concepts on the design board for a fully autonomous tiltrotor. We are also working on the X-76 program with DARPA's SPRINT, which is a tiltrotor that converts to a jet. I believe tiltrotor is positive for the future warfighter by delivering range, speed and runway independence, which are key operational needs.
Our next question will come from the line of Ron Epstein with Bank of America.
On production efficiency, Cessna has made a lot of airplanes over the years. Aerospace learning curves tend to be about a 15% improvement when you double volume. What's changed at Wichita that makes you feel you can get more out of that business? What haven't they been doing over all these years they've been building airplanes?
There's complexity: we build around 21 or 22 different model types across Aviation, and that has increased over the years. Significantly, the workforce turnover that began about five to six years ago changed the dynamics. We need to focus on workforce development, and that applies to our suppliers as well. When suppliers don't deliver engines, spars, or hydraulics, that creates out-of-station work, and a newer workforce is less familiar with those workarounds. That's where we must lean in on the Career & Learning Center, training supervisors, and supporting the younger workforce. I feel strongly about investing to get them up to speed. We'll get there, but it takes diligence and focus.
On unmanned systems, given the portfolio you have—Aerosonde, Pipistrel, Skyhawk platforms—how much do you do in unmanned systems? With the toolkit you have across businesses, it seems you could be a major player in higher-category drones with limited investment. How do you think about that as you lean into aerospace and defense?
You raised a key strategic point. Moving to a more pure-play aerospace and defense company will allow us to better combine capabilities across the portfolio. We're initiating more cross-functional engineering collaboration. We've done work in fly-by-wire that demonstrates what we can do across the company. I agree we should lean into higher-end unmanned air vehicles rather than the smallest groups. There's capability across the company we need to better harness, and that's a direction I plan to push toward.
One would think an unmanned Skyhawk could be fantastic—such a robust vehicle and volume. With limited investment, you could do something pretty cool with it.
Thanks. We'll take that to the team. There's a lot of capability across the company, and we can do more there.
Our next question will come from the line of Kristine Liwag with Morgan Stanley.
When you think about DoD emphasis on speed of capability and iterative acquisition approaches, peers are moving quicker by using existing platforms and technology to deliver integrated solutions more quickly. From your comment to Ron, it sounds like you have opportunities to combine platforms, autonomy, sensors and mission systems. As you think about monetizing that, what's your appetite for more Textron-funded capabilities to get these solutions quicker? Are customers supportive of more company-funded R&D to get to market faster?
We have discussed this with customers regularly. A significant portion of our R&D across Textron already does exactly that—develop capabilities to be applied quickly to customer needs. We've been investing in this for 15 to 16 years. MV-75 is where it is because of our internal investment, and the ARV is a result of company-funded development as well. We'll continue to invest where it makes sense and match military requirements quickly. We're a commercially minded company that can take R&D and apply it to military applications, and we intend to continue doing that.
Is there a target for internally funded R&D? Is there a sweet spot for that initiative?
No specific numerical target. The level of spend we have been doing is appropriate, and because we've seen it yield results, I believe we're in the right sweet spot now.
Our final question will come from the line of Doug Harned with Bernstein.
Lisa, last quarter you talked about Aviation getting to an equilibrium level of 200 jets per year. If you could resolve supply chain and internal labor issues quickly, could you be at that 200 level? And when you look at the gap between what you can deliver and that goal, how does that affect order flow given the long backlog?
We started with that target and are now executing the initiatives required to meet it. What you're hearing this quarter are the efforts needed—workforce development, engineering support, capacity additions—to achieve 200 jets per year. The demand environment supports that level of deliveries. These elements need to align, and we are outlining the steps we're taking to reach that goal.
You mentioned doing more dual sourcing. Is this a step change upward or an evolution of what you've been doing for some time?
We have always made make-versus-buy decisions to improve factory efficiency, but we are stepping up the effort in areas where the factory has highlighted specific critical constraints—spars being a key example. These are critical components for which we cannot be limited to a single supplier, so we are more deliberately implementing dual sourcing where it matters. We've done this before, but we are elevating the approach in targeted areas.
Any sense on when you expect to close the gap to that equilibrium level?
I think we're making great progress. As we move toward the end of this year and provide guidance for 2027, we'll discuss this further then.
That will conclude our question-and-answer session and our call today. Thank you all for joining. You may now disconnect.