Chief Executive Officer & Chairman, RTX Corporation
RTX CEO Greg Hayes on U.S. defense spending, Ukraine war and AI impact on the battlefield
RTX CEO and chairman Greg Hayes joins 'Squawk Box' to discuss the state of U.S. defense funding and spending, President ...
About Gregory Hayes
Gregory Hayes, CEO and Chairman of RTX, has been discussing the company's performance and the geopolitical landscape in recent interviews and earnings calls. He stated that RTX is seeing "unprecedented demand" for munitions and defense systems, citing a $75 billion defense backlog. Hayes argued that the U.S. needs to provide Ukraine with additional weapons to support its air defenses, saying "Ukrainians are fighting this war for NATO" and that "the only way they're going to prevail is if NATO and the US specifically steps up to the bar." He also noted that the company is working to increase production of Patriot air defense systems and Iron Dome interceptors, though he said it takes about two years to bring new production online. On the commercial side, Hayes addressed the Pratt & Whitney GTF engine issue, describing it as a "manufacturing quality issue with the powdered metal" used to form turbine disks. He said the company is making progress on inspections and ramping up production, and that the financial impact is estimated at about $6 billion total for RTX's share. Hayes also announced that Chris Calio will succeed him as CEO effective May 2024, while Hayes will remain as executive chairman. He described RTX as "the best positioned A&D company in the world today" with a strong backlog and portfolio of technologies.
Transcript (16 segments)
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Becky Quick0:02
Welcome back to "Squawk Box." Right here on CNBC. I'm at the Business Roundtable in Washington, D.C. today. Joining us now to talk about U.S. defense funding and spending is Greg Hayes. He's the CEO and Chairman of RTX. He's the former Chair of the BRT Tax and Fiscal Policy Committee as well. And, Greg, thank you for being here today.
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Gregory Hayes0:21
Thanks for having me, Becky.
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Becky Quick0:23
I think about Washington from your perspective, and I think you must look at Capitol Hill and think, what is going on? The idea that you're still dealing with a continuing resolution for defense spending. The implications of the billions of dollars in cuts that could mean if something doesn't get passed. What are you thinking?
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Gregory Hayes0:41
Well, I'm actually pretty heartened in terms of what happened yesterday. The minibus passed with very, very strong bipartisan support. I think in the next two weeks we'll see the final spending package, including the defense appropriations, passed as well. So despite all the rhetoric, at the end of the day the folks up on the Hill know they've got to get these bills passed. You cannot put the defense of the United States at risk by partisan politics. That's why we take a very bipartisan view here. It's not about Republicans, not about Democrats. It's about doing right for America. I'm actually more encouraged than discouraged at this point.
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Becky Quick1:19
There are some reports overnight that President Biden, when he puts out his budget for 2025 on Monday, is going to be looking for a 1% increase in defense. That's below what had been anticipated earlier. What would that mean?
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Gregory Hayes1:32
Well, the problem with a 1% increase is when you have 4% inflation, what you're talking about is a 3% decrease in defense spending. Quite frankly, I hate to say this, as much as we spend on defense, which is about 3% of GDP, is a relatively historic low given the challenges we face geopolitically. I'm assuming the President's budget will be met with some skepticism when it gets to the Hill. Again, the good news is there's a process there with the NDAA, the National Defense Authorization Act, that takes a look at each individual program, each capability, each requirement and comes up with typically a very sound baseline for the budget. I think 1% is just a starting point.
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Becky Quick2:20
The President has been in favor of extending additional funds to Ukraine. And that's met some resistance on Capitol Hill. You can say from the extremes of both parties. Really there's more on the conservative side of things where people are raising questions about that. Why is that important?
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Gregory Hayes2:39
I think, we talk about the supplemental and spending another $40, $50, $60 billion for Ukraine's defense. The fact is what most of that money will do will go to support American defense industries here in the U.S. to restock the stockpiles that have been depleted by the transfer of material, of weapons to Ukraine over the last two years. I think people think we're sending a big check to Ukraine. It's really not the case. 80% of that money will be spent right here in the U.S. and go to replace stockpiles whether it's HIMARS or Patriots or missiles. Those are American jobs it's going to create. It's not welfare to the Ukrainians.
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Becky Quick3:20
Look, a lot of people will say, why should we be spending that money to help other people overseas when we have so many problems at home? How do you make that case to the American public, outside of the jobs equation?
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Gregory Hayes3:32
The security situation is, I think, of paramount importance that people understand. The fact is Ukrainians are fighting an existential battle for their existence. And we have a moral obligation to defend that democracy. And the fact is if we don't help Ukraine defend democracy, there's no telling where Putin ends. You know, would you want to be in the Baltics, Estonia, Latvia? Can you imagine if all of a sudden Putin decides to take on a NATO ally? Then you're talking about American lives, American military supporting our NATO allies. This is an existential threat to democracy, but one we can afford. I think again, we're not talking about the difference between guns and butter. We're not giving short shrift to Americans. But this is money well spent. Hundreds of thousands of Ukrainians have lost their lives defending the country, no Americans. We have to keep in mind this is the right thing to do.
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Becky Quick4:33
Yesterday, Palantir won a defense contract for a defense program for mobile locations that can really help with AI and advanced learning, advanced computer learning on the battlefield. How much of a setback is that for RTX and what's the future of AI when it comes to defense?
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Gregory Hayes4:54
Well, first of all, kudos to Palantir and to Alex, they have a great product. Great AI product. We compete against them in a number of different applications, but in this case, they won a big program. Disappointing. It's not the end of RTX in any way, shape, or form, but the fact is AI is the future of defense. When you think about how do you connect the battle space? One of the challenges you have today is all these disconnected systems. If you're on a ship, a submarine, a tank, how do you make all of those systems talk to one another? That's where AI is going to come in, to give the combatant commander real-time information instead of waiting weeks or days for information in terms of how to prosecute the battle. We're going to give them that information instantaneously through the connected battle space. We're just at the very, very beginning of seeing what AI can do, but I think it's going to be the preeminent technology or game changer as we think about defense policy in the next decade.
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Becky Quick5:59
Chairman Powell from the Federal Reserve is here speaking in Washington once again today. Most CEOs we talk to will say they need to see lower interest rates. That would help tremendously with business. You have been one of the few outspoken CEOs who says you don't think the inflation problem is solved, and you have concerns about that. What do you see?
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Gregory Hayes6:19
Well, look. Inflation is not dead. We still see inflation around 4%, 4.1%. We see unemployment at 3.7%.
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Becky Quick6:29
The most recent readings are closer to 2.7% inflation.
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Gregory Hayes6:33
In terms of what you're looking at, in terms of core inflation versus what we're seeing across the board, inflation is still out there and it's driven by labor cost. When you have 3.7% unemployment in this country, there are not nearly enough workers for jobs. That's putting upward pressure on wages and upward pressure on interest rates, I think. So it's hard to say we need to drop rates back down to what they were during the pandemic. What that will do is drive inflation higher. And that's exactly the opposite thing of what we want to do. You go to the grocery store today, it's incredible how expensive things have become. We need to figure out how to create more jobs, more opportunities for people that have good paying jobs in this country.