Raytheon boss says it is ‘impossible’ to completely break away from China

Western manufacturers will be able to de-risk their operations in China, but it will be impossible to completely cut ties with the country, according to the head of one of America’s largest aerospace and defense companies.

Raytheon Chief Executive Officer Greg Hayes said that the company “has several thousand suppliers in China and separating them . . . is impossible”.

“We can de-risk, but not decouple,” Hayes told the Financial Times in an interview.

“Think of the $500 billion in trade that goes from China to the US every year. Over 95 percent of rare earth materials or metals come from China, or are processed in China. There is no alternative,” Hayes said.

“If we had to pull out of China it would take us years to re-establish that capability either domestically or in other friendly countries.”

Hayes’ comments underscore the difficulties facing Western manufacturers amid growing friction between China and the US and its allies.

In February, Beijing imposed new sanctions on both Raytheon and US defense peer Lockheed Martin for arms supplies to Taiwan. Hayes has also been placed under sanctions.

The sanctions have had little commercial impact as the groups are not allowed to sell military equipment to China. However, Raytheon has a substantial commercial aerospace business in the country through its engine subsidiary, Pratt & Whitney, and aviation systems and cabin equipment specialist Collins Aerospace. It has approximately 2,000 direct employees in China.

Both subsidiaries, along with other Western aerospace groups, are suppliers of China’s first large indigenous jet, the C919, which made its commercial debut in late May. China is also an important aviation market for Boeing and Airbus.

Nevertheless, the company is looking for alternative sources for some of its components.

“We are looking to de-risk and have other sources to take some of the most critical components but we are in no position to pull out of China the way we did out of Russia,” Hayes said.

Raytheon believes its decision to rebrand itself as RTX, announced on Sunday, will allow a clearer distinction between its commercial aerospace businesses and its defense activities which will continue to trade under the Raytheon brand, he said.

Hayes told investors on Monday, the first day of the Paris Air Show, that the company will still meet its goal of achieving $9 billion in free cash flow in 2025, despite headwinds over the past two years including inflation and a strained supply chain. Emphasis on resources both on the civilian as well as military side.

Pratt & Whitney is juggling to supply enough new engines to Airbus, while at the same time supplying parts to existing airline customers, to fill the gap left by rapid wear and tear. Pratt & Whitney’s latest generation GTF engines power the Airbus A220s as well as some A320-neo family jets, although they have some durability issues, particularly in hot and dusty climates.

He said around 100 aircraft are on the ground waiting for engines.

Adding to the challenge is Airbus increasing production of its single-aisle aircraft to meet resurgent demand from airlines.

“There’s a natural tension between delivering engines to Airbus versus delivering spare engines to our customers,” Hayes said.

The company is bringing in additional efficiencies in both the supply chain and its maintenance operations. A new factory to make turbine blades will open in North Carolina this year. It has also initiated an upgrade program to help improve the durability of the GTF engines.

On the defense side, supply chain snarls continue to influence the production of rocket motors for missiles for both Raytheon and Lockheed Martin, including the Stinger missile and Javelin. The lack of capacity has focused on rocket motor maker Aerojet Rocketdyne, which recently received government funding to help it expand its operations.

“There’s a little bit of black magic in these rocket motors,” Hayes said. “We have quality issues, shortages of labor and materials.”