The promise of greater technology and revenue synergies for a government customer demanding more from the industry led to last year's creation of Raytheon Technologies. Now in year two, here is how that is playing out for the company's segment focused on systems and solutions integration.
Two priorities have been at or near the top of Raytheon Technologies’ agenda since last year’s merger that created the company: get the integration right and navigate the pandemic-caused economic tumult.
Raytheon certainly has more control over priority number one but much less on the second. The pandemic remains an overhang over the company’s commercial aerospace business, albeit with those headwinds lifting as travel ramps back up.
Within Raytheon itself, Roy Azevedo has been tasked with leading the consolidation of two legacy segments into the intelligence and space business that he is president of.
Technology synergies and greater capacity for investment in developing new innovations drove the combination of “old” Raytheon with United Technologies Corp. From Azevedo’s perspective, that big picture idea for what is now “RTX” in shorthand becomes more pronounced at the segment level.
“Intelligence and Space: its legacy and our future is going to be based on discriminating technologies,” Azevedo told me. “We’re part of the technology play and some of that has already borne some fruit in some of our revenue synergies.”
Raytheon Technologies climbed two spots year-over-year to reach No. 2 on the 2021 Top 100 with $6.6 billion in prime contracts. Overall revenue for Arlington, Virginia-headquartered Intelligence and Space was $15 billion in calendar year 2020 on a pro forma basis. Raytheon sees the segment’s sales growing low-to-mid single digits this calendar year.
What is now a 37,000-employee Intelligence and Space organization was formed by combining the legacy Raytheon Intelligence, Information and Services segment with the Space and Airborne Systems segment. Azevedo led the SAS segment as president before the merger.
IIS was certainly the most complex of “old” Raytheon’s segments given that business housed much of the company’s technology and solutions integration work, mainly centered around software.
Intelligence and Space sounds very much the same, given how Azevedo said the business has around 5,000 programs with none representing more than 2 percent of “new” Raytheon’s annual revenue.
The revenue split is around 80-20 between defense and civilian customers with 10 percent from international markets. Azevedo characterized the segment’s offerings around three main areas: sensing and effects; command/control and communications; and cybersecurity, training and other services.
“Part of the strength of this business is the diversity,” Azevedo said. “It does provide a level of protection, because we’re so diverse, against possible budget fluctuations.”
Back to the revenue synergies: Azevedo said Raytheon was awarded nearly $100 million of them during year one when it comes to joint efforts between the company’s Intelligence and Space and Collins Aerospace business segments.
Those two divisions have other “rather large proposals” that are being evaluated by government customers, Azevedo added.
One of those agency decisions to watch is a takeaway bid for the Federal Aviation Administration’s $3.5 billion telecommunications contract called FENS, for which Raytheon is teamed with MetTel. There again is an example of Raytheon’s Intelligence and Space and Collins Aerospace segments working on the same opportunity,
It is also worth noting that Raytheon already is a partner to MetTel on the governmentwide EIS next-generation telecom contract awarded nearly four years ago.
Along with the revenue synergies, the other big rationale behind the merger that Azevedo pointed to was the sharing of technologies between the commercial aerospace and defense sides of Raytheon.
“We’re often having conversations and there are plenty of forums that have been available at all levels of our organization, where we go out and talk to the other businesses to see what we may be able to partner with,” Azevedo said.
One example he offered was how Intelligence and Space works with the engine and propulsion making Pratt & Whitney segment of Raytheon. The former segment does not buy many motors like P&W does, but Azevedo said their technologies and scientists often contribute to what Intelligence and Space is working on.
“We pull them in for even things like independent reviews of design, and using their expertise is something that’s already demonstrating to be a valuable asset for this business,” Azevedo said.
Internal focus has obviously been paramount for Raytheon to make the most out of the merger, but an opportunity that emerged late last year to acquire small satellite maker Blue Canyon Technologies was one the buyer could not pass up.
Azevedo said when Raytheon looked at where it was in the space value stream, the company found it was not a player when it came to payloads onto satellites.
“We never were looking to get into some of the big satellite programs as a prime because that is going to be something that is very, very long term,” Azevedo said. “If you take a look at where the modernization of space is going, it’s proliferated LEO (low earth orbit) small satellites.
“So in terms of the market and customer desires, that matched.”
As did the augmenting technologies Blue Canyon has, such as stable electro-optical infrared payloads to help identify objects from long distances.
Stability is the word Raytheon hopes will both further define the world at-large and the commercial aerospace market it participates in as well, even as a recovery in travel continues to take shape.
That slow return to pre-pandemic travel activity, including international, would also give Raytheon the commercial-defense balance it envisioned as a merged company.
“With regards to the defense side of things: we had a great first year, we’ve had a great first quarter, we’re going to leverage all of that first quarter to continue through the year and continue the growth that we experienced in our first year,” Azevedo said.
(A future episode of Project 38 will feature my full conversation with Azevedo that also includes his views on Raytheon’s plans for the post-pandemic future of work, what that means for recruiting and retaining talent, and digital transformation trends across industry and government)