Ladies and gentlemen, welcome to panel 4, Partners in Production: Investing and Building for National Defense. Please welcome to the stage Miss Caroline Hyde of Bloomberg and our distinguished panelists.
You're going to go in the middle. Onto the stage comes the CEO, Jamie Dimon of JPMorgan, and Chris Calio, CEO of RTX. All that stands between us with you is lunch. And we are going to put fire in your belly. We are going to give you some enthusiasm and some energy to go into that conversation. And we hope that we can stave off any hunger because we're going to add a little bit of caffeine to the situation with this discussion. And I want to first and foremost talk about this entire conversation is about partners in production, of which you were both. But it's also about investing in building. Boy, have we got some investing going on. I mean, we just looked, there was record amounts of venture capital going into the defense tech sector. Last thing I just saw is that SpaceX is potentially worth $800 billion. And then there's a small amount of $1.5 trillion, I think, that you've got as this enormous initiative to focus in on defense and on really resiliency and strategy here in America. Why, Jamie? Why that amount and what is it focused on?
Yeah. So, first of all, welcome everybody. Thrilled to be here. I'm happy this is taking place. I'm happy a lot of this venture capital money is going into things we really need, not things like social media, for example. You know, look, it's been obvious for a while. When Ukraine got invaded by the Russian armies four years ago, it should have shattered any illusion that people have that we're safe. And we missed a lot of stuff. I don't like crying over spilled milk, but we missed it. You hear about rare earths and the speed of change and all the things like that. All of our medical ingredients, 85% come from China. We've written about it, we've talked about it. We're quite patriotic about our company. And then we just started asking what more can we do. We hire veterans, we do a lot of things. We did a deep analysis on what we already do, and this is where it's security related. So it's not, if we do something for Boeing, it's not their commercial aircraft, but it might be their military aircraft. We did analysis, we said we do so much and we want to do at least 50% more over the next 10 years. So that's the $1.5 trillion. And then the $10 billion of investing, which can easily be more than that, is to do special financing for the vendor supply chains that someone like Chris might have. If he wants to double or triple production of his missiles, he's got to get some of them to double or triple their production. They may not have the money or they may need a little bit of advice or help or build a new plant. And then around it, I think very importantly, when I was listening to the conversation just now with the folks up here, also to do research, like what is the shipbuilding ecosystem that needs to be fixed? And then policy. What can we do to do faster, better, quicker? As you all know, you've heard it many times, there's not that much time. So we better get our act together, regulatory wise, policy wise. Obviously, the experts actually building stuff, and we're just a part of that.
A big part of that, Jamie, and you and I talked about this a little bit. You heard all the discussion out there about the need to replenish our munitions, ramp our munitions to a high level for all the reasons you just outlined. Jamie, half of our supply chain is what you'd call a medium or small business. So making sure that they have the access to the capital, that they have the confidence to be able to purchase that long lead material, that long lead equipment, or even better, hire and train people and get the labor that we need. So that's why I think the fund that Jamie's talking about is actually pretty exciting and goes right to the heart of what we would need to ramp security and resiliency.
It's now an initiative, but there feels that there is fire in both of your bellies because time is short. And yet what has happened in the past, I don't want to beautify the problem here. I don't want to dwell too much on history, even though we are in a presidential library. But Chris, from you, what is the learning of the mistake that we made in the last 20, 30 years, a post-Cold War that got us to this situation?
Well, Jamie and I talked about this. Neither one of us likes to take out our violin and complain about what happened in the past. I will say this, when you think about what the Secretary of War has laid out in terms of his key transformation initiatives, I think many of those go to the heart of sort of how we got here. And I think there are actually pretty compelling visions for how we get to the types of levels we need in terms of production. That's the reduction in bureaucracy, the speed and agility, the leveraging of commercial technologies. Half of our business is commercial. So the convergence of the commercial and defense together, and then the longer term contracts so people have visibility and have confidence to invest and order equipment and to hire all those things we just talked about.
I just want to add one thing to it. You know, this is, you don't need to be a strategic genius. Having the best, strongest military is the best deterrent. And you've had changes taking place in the world, which is the rise of China, whether you think they're an adversary, potential adversary, competitor. But having the best military should have been a policy of the United States writ large. And you talk to some of the politicians, it was not. The military was subordinated to other things, which maybe have very good social values. But now we're in a position where we have a major war in Europe, a much bigger threat in the Indo-Pacific. And now's the time. We should have been thinking about it more. But let's not cry, let's build. Let's just move on and get the job done, right?
Peace through power is something actually you've been writing about for a few years in your annual letter. I think I'm just going to recite what you said in this one, for 2024, 2025. April it was for the year of 2024. 'If it were up to me, I would be stockpiling ammunition, air and missile defense, rare earths, and other critical components, importantly to preserve peace.' Did something happen? Was it Ukraine-Russia that first made you sit up and think, 'Wow, we're behind.' Or was there other anecdotal evidence, Jamie, that you were responding to in that moment?
No, it was Ukraine. I mean, I knew it before Ukraine, but Ukraine was an obvious thing where you had, for the first time, there have been a lot of wars since World War II, but they were usually isolated to smaller parts of the world, smaller parts of the GDP. Didn't threaten directly some of our biggest allies. I mean, I see Ukraine is here, and last night I met with the ambassador from Estonia. These people are threatened. This is not the same thing. Now, we in America, we got the Atlantic and the Pacific. We have peace with our neighbors, which is a wonderful thing. We feel secure. But these other nations don't feel secure. The thread between Ukraine and there is a thread, and you can debate this all day long, between Ukraine, Iran, North Korea, China's aid in abetting all of that, their desire to dismantle the system set up by the Western world after World War II to avoid world war. There's a clear thread there. Now, I was in, you travel, I'm sure you do too. You travel to Japan, Philippines, Taiwan, almost anywhere you go. The question is, will America be there for us when and if the time comes? That's a very big question. And that is what both economic and military is. America was like a consistent big brother you could rely on, and we've become a little less consistent. So it was that kind of threat that now is the time we have to move. A bunch of things changed. I would say Ukraine taught us a significant lesson about the fragility of our supply chain and frankly of our own ability to ramp.
Yeah. I mean, again, orders needed to happen, programs needed to ramp, but there were huge production gaps in some of our major programs. Like Patriot, for instance, there was like a two-year gap. Javelin, multi-year gap. You've got thousands of suppliers that haven't had an order in a couple years. What do you think happens to that supply base? They either atrophy, they lay people off, they go into other endeavors. Reconstituting that supply chain in a moment where you've got a ramp is quite a challenge.
And whose responsibility therefore is that? In many ways, Chris, what's so fascinating is you're responsible in many ways for that supply chain. So is it up to you to give that sense of security and you're able to get through death valleys that startups had to have because you had the power and the force and the size? But then we're just hearing from Joe Lonsdale. Apparently all of this can be done 10 to 100 times cheaper. What is your responsibility in this moment to help ensure that your supply chain feels confident to invest so that you're there to buy up and to ensure that you're there for the government to be able to take that?
No, it's a really good point. And when I say supply chain, I don't mean to refer to it as something separate from us. When we sit in front of our customers, I'll say we are our supply chain. We are the ones responsible for delivering this munition, this all-up round. So we are responsible for that entire ecosystem. So yes, we are responsible for making sure they are investing, they are hiring, they are doing the things to be able to meet this ramp. Anecdotally, you go look at all your bottlenecks, you look at all your key suppliers, you send people out into the field into factories to make sure things are happening.
Chris has mentioned to me a couple of things like it's also workers. For him to do this, he needs workers who are experts in advanced manufacturing, welding, and things like that. So part of the effort should be and will be philanthropic. So if you need to build more welders, we may go in and help double that welding school, do something like that that creates the ecosystem. And this is what happened, by the way, before World War II, before we got involved in World War II. You got 'Freedom Forge.' It's a book I haven't read yet. A bunch of generals gave it to me. I am going to read it. And I'm going to double down again. America's got to get its act together.
Well, Tim Cook would say he doesn't have the labor force to make an iPhone in the US, and I know you don't want investment going into social media. But what is it therefore that gets the labor market into the place we need it to? Because boy, do we not have the engineers that we need in defense tech? We don't have the manufacturing skills to put into what we want to scale up from a footprint perspective.
First, I think we've got to continue to invest in the training and development. We've got a number of partnerships with trade schools, community colleges where we help shape the curriculum for what we need today. Not everyone needs to go to a four-year college. And we want to show people that there are high-paying, highly skilled jobs in defense and commercial aerospace manufacturing. How do we tailor the curriculum to draw those people that have those skills? The second piece is that's only going to get you so far. So when we talk about innovation and investment in technology, underreported is the advanced manufacturing that we've got to invest in. There are a number of defense tech companies here that are in advanced manufacturing. Many of which we've invested in and they are actually in our supply base. How do we continue to leverage the advancements they are making in advanced manufacturing and digital technologies to help us relieve bottlenecks and just ramp production faster to make up for that shortfall in labor? The labor is only going to get you so far. You're going to need technology in our shops as well.
On the labor front, as I know this is something you think about a lot, are we thinking about it as early as we should be in terms of primary education? At what point do we need to re-kilter the way in which people are coming out of formal education in the US?
If I could change one thing, I would start right away. I go to K through 2. And I'll give you one example. There's a school in, I grew up in Jackson Heights, Queens. The school right next to that in Queens is called Aviation High School, which you're probably familiar with. A lot of people go, they're minorities from all around the city. Their parents make them go, by the way. They have regular high school: math, science, history, etc. But they also learn how to maintain a small Cessna aircraft, hydraulics, electrical systems, engines, etc. I think a thousand kids or 500 graduate a year. 95% get jobs making $70,000 to $80,000 a year. That is what we should be doing. Different types of schools, different training. But every school should be looking at the output, what jobs are these kids getting, and then work with local business, collaborate, because we know collaboration works better than anything, as opposed to keeping the education system separate from the employment system and what jobs. Once you start asking a principal, 'Did your kids graduate? Did they get jobs? How much do those jobs pay?' That'll be pretty powerful. And maybe we can have policy to do things like that.
There are examples like that around the world. We just have to deploy it effectively in the United States.
How much do you have to pay for entrance at the moment, Chris? How much are you thinking that it's about showing there's a good salary at the end of this?
Frankly, that's not even the concern because the demand is there. The demand is there on the defense side. The demand is there again, half of our business is commercial aerospace. So we need that highly skilled labor and we're willing to pay for it. So it's not a matter of we're worried about what we'd have to pay people from an entry-level perspective. We will pay a full and fair wage, competitive wage, because we need it. The demand is really robust and we've got commitments to a lot of our customers, many of whom are sitting here today, that we've got to make. So the labor is a big part of that.
Labor is a big part. Then there's, as we said, the advanced manufacturing, the innovation. This is where in many ways what your initiative is also about, because we talked about security resiliency, about $1.5 trillion. There are bits of it that, as you said, are being allocated to funding startups. How much do you see that as an obligation of the banks as well as the venture capital community, because it feels as though VCs are running towards defense tech right now willing to lend?
Well, there's a whole mosaic of how you finance these things, from venture capital. And we get involved in some of that. But one of the uplifting things is just listening to folks like Joe Lonsdale, the military. I've met a bunch of companies here. It's staggering how good they are, how smart they are, how they're fixing stuff, how they want to do the right thing. So it's already working. It's just we've got to continue to work. And we'll be in that whole continuum of financing, education, policy, research that can help drive it. We're just part of that system. There's hopefully a lot of people going to be doing the same stuff. We'll have partners with a lot of people. We'll partner with other banks if we have to.
We will.
Ah, JPMorgan. They're everywhere.
What about, as you said, many startups you've financed with RTX? Would you beef up? Would you buy? How are you looking at the competition that's coming, but also what could be a nice little acquisition?
I think Jamie would tell me and advise me the valuations are too high for us to do that. But really, we kind of look at it in a couple ways. Because you're absolutely right, the defense tech space is booming. There are many people that are bringing commercial innovation to the defense area. So yes, in some cases we are investing and then we end up using them as a supplier or partner, do demonstration programs to advance technology. In other places, we're looking at our legacy products and say, where can that defense tech be infused, whether that be AI, autonomy, other things, to extend the life or the capability of that legacy program. So it's across the board. And for us, again, it's continuous investment. This is a long cycle business. We're going to invest at the RTX level about $5 billion this year in R&D and CapEx. We've got to continue to invest. When we look at our technology roadmap, it's the investments in things that can apply to both commercial and defense: things like AI, things like autonomy, things like high temperature materials, advanced manufacturing. Again, you're seeing the commercial acumen and companies coming into defense. We've got to continue to leverage our commercial business for the good of the defense industry.
And I'll just give a real example. MP Materials, Emil Michael. We have people in the Department of War who are now doing work on how to do this like a takeout. It's a magnet company. It was a very smart way to do it. It gives them a chance to succeed. We helped investment bank them, but we already invested in a company that's going to do the same thing for antimony. And we have a bunch of companies already working on, literally 10 or 12 on the medical side, to do exactly the same thing. So you seek them out, but they will be there. They may need sometimes a government contractor backstop, but it's already happening.
So in theory, taking 10% of certain strategic companies is a good thing. We were hearing Gavin Newsom rail against that. That's anti-capitalism.
That's from the People's Republic of California. We need to do certain industrial policy, and we should do it right. And done right, I think, is you give benefits out there. I wasn't against the CHIPS Act. I think what we should have done is made, you know, given supply contracts, free land, double the R&D deduction, double the wage deduction. Let the market decide who gets the money. When the government decides who gets the money, it usually becomes a problem. So you can go through each of those deals. There should be rational policy that we need to get through the valley of death for whatever it is we're doing. And I think that is doable. So some of those I would probably criticize. I don't know all the details of them, though. There may be things that I just don't understand, so it's hard for me to have a definitive opinion.
Does the valley of death still exist, do you think, for startups from RTX's perspective? Because with capital now going to startups, is that the issue or where else are we seeing that transition where we can actually get to a real end point where there is a PO for these companies? I'm gonna let him answer that. But before, just so you know, there's a valley of death for big companies, too.
Well, usually driven by complacency, arrogance, bureaucracy, which is partially the reason we got here in the first place.
Good points there, Jamie.
That's something that as a large company, we're always guarding against. And frankly, the infusion of investment into defense tech has helped us there, too. It's not our divine right to be able to continue the positions we have. We've got to go out and compete and earn that every single day. Which is why I'm saying we've got to continue to invest each and every year to make sure that we're continuing to stay up on technology, on advanced manufacturing, all the things that we're going to need to continue to serve our customer. I will say this, it is one thing to design and innovate. It's another thing to build a prototype. And then it's an entirely different ballgame to then scale manufacturing to the levels that are needed. And that's one area where we spent a lot of time. We're not perfect. Our customers in this room would tell you today that we're not perfect. We've got to continue to ramp to meet our commitments. But to take the levels that we need, you're going to need some real focus and expertise on how to scale manufacturing.
Focus, expertise, and also running roughshod through bureaucracy is what I heard on the previous panel. Is that what's needed from your perspective as someone who's waiting for government contracts as your business model? Are we starting to see the walk as well as the talk?
