Western manufacturers will be able to de-risk their operations in China but will find it impossible to cut ties completely with the country, according to the head of one of the US’s largest aerospace and defence companies.
Greg Hayes, chief executive of Raytheon, said the company had “several thousand suppliers in China and decoupling . . . is impossible”.
“We can de-risk but not decouple,” Hayes told the Financial Times in an interview, adding that he believed this to be the case “for everybody”.
“Think about the $500bn of trade that goes from China to the US every year. More than 95 per cent of rare earth materials or metals come from, or are processed in, China. There is no alternative,” said Hayes.
“If we had to pull out of China, it would take us many many years to re-establish that capability either domestically or in other friendly countries.”
Hayes’ comments underline the difficulties facing western manufacturers amid growing friction between China and the US and its allies.
Beijing in February imposed new sanctions on both Raytheon and US defence peer Lockheed Martin for supplying weapons 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. Raytheon, however, 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 about 2,000 direct employees in China.
Both subsidiaries, along with other western aerospace groups, are suppliers to China’s first large homegrown jet aircraft, the C919, which made its commercial debut at the end of 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 at de-risking, to take some of the most critical components and have second sources but we are not in a position to pull out of China the way we did out of Russia,” said Hayes.
Raytheon believes that its decision to rebrand itself as RTX, announced on Sunday, will allow for a clearer distinction between the commercial aerospace businesses and its defence 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 would still meet its target to achieve $9bn of free cash flow in 2025 despite headwinds over the past two years, including inflation and a strained supply chain that is stressing resources both on the civil as well as the military side.
Pratt & Whitney has been juggling to supply enough new engines to Airbus while at the same time delivering spares to existing airline customers to fill gaps left by faster-than-expected wear and tear. Pratt & Whitney’s latest-generation GTF engine powers the Airbus A220s as well as some A320-neo family jets, although they have had some durability issues in particular in hot and dusty climates.
About 100 aircraft were on the ground awaiting engines, he said.
Adding to the challenge is Airbus’s planned increase in production of its single-aisle aircraft to meet resurgent demand from airlines.
“There is a natural tension between delivering engines to Airbus versus delivering spare engines to our customers,” said Hayes.
The company is bringing on additional capacity both in the supply chain and in its maintenance operations. A new factory to manufacture turbine blades will open this year in North Carolina. It has also launched an upgrade programme to help improve the durability of the GTF engines.
On the defence side, supply chain snarls continue to impact the production of rocket motors for missiles for both Raytheon and Lockheed Martin, including Stinger missiles and Javelins. The focus has been on capacity constraints at rocket motor producer Aerojet Rocketdyne which recently received government funding to help it expand its operations.
“There is a bit of black magic to these rocket motors,” said Hayes. “We’ve had quality issues, shortages of labour and materials.”