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Howmet Aerospace Inc. HWM and RTX Corporation RTX are two prominent names operating in the aerospace and defense industry. As rivals, both companies are engaged in producing highly engineered aircraft components for commercial and military aircraft in the United States and internationally. Both companies have been enjoying significant growth opportunities in the aerospace and defense space on account of the improving air traffic trend and the expansionary U.S. budgetary policy in the past couple of years. Let’s take a closer look at their fundamentals, growth prospects and challenges.
The Case for Howmet Aerospace
The strongest driver of Howmet’s business at the moment is the commercial aerospace market. The strength in air travel continues, with increasing demand for wide-body aircraft, supporting continued OEM spending. Pickup in air travel is generally positive for the company because the increased usage of aircraft spurs spending on parts and products that it provides.
Revenues from the company’s commercial aerospace market increased 20% year over year in 2024, constituting more than 50% of its business. The sustained strength was attributed to new, more fuel-efficient aircraft with reduced carbon emissions and increased spare demand for engines.
While the commercial aerospace market has remained the major driver for Howmet, the defense side of the industry has also been witnessing positive momentum, cushioned by steady government support. The company has been witnessing robust orders for engine spares for the F-35 program and spares and new builds for legacy fighters. In 2024, revenues from the defense aerospace market increased 15% year over year.
On the flip side, Howmet has been witnessing weakness in the commercial transportation market. In 2024, revenues from the commercial transportation market declined 7% on a year-over-year basis. The company expects demand in the commercial transportation markets served by the Forged Wheels segment to remain soft in the near term due to lower OEM builds.
The Case for RTX Corp.
A steady recovery in commercial air traffic has been boosting commercial OEM as well as commercial aftermarket sales for RTX of late. Its fourth-quarter 2024 results reflected solid organic year-over-year sales growth of 11%. A major portion of this growth was driven by double-digit growth witnessed in the company’s commercial aftermarket sales. In particular, improvement in commercial aerospace boosted quarterly results for both its Collins Aerospace and Pratt & Whitney business segments.
During the fourth quarter, the Collins Aerospace unit registered a 6% year-over-year improvement in its top-line performance, partially driven by a 12% improvement in commercial aftermarket sales. Sales from the Pratt & Whitney unit grew 17.5% year over year, with a 17% rise in commercial aftermarket and a 31% improvement in commercial OEM sales playing the role of two major growth catalysts. RTX’s management expects commercial aerospace recovery to remain robust, which, in turn, should boost its operating results in the near term.
Also, a solid pipeline of defense projects, supported by robust U.S. and international defense spending volumes, sets the stage for impressive growth in the quarters ahead. Some of its notable awards include a contract worth $1.31 billion to advance the F135 Engine Core Upgrade. It also clinched a contract valued at $736 million to manufacture the improved Block II variant of its AIM-9X Sidewinder missiles.
Consequently, RTX witnessed a solid defense backlog of $218 billion as of 2024-end, much higher than its backlog of $90 billion at the end of second-quarter 2024. Such an impressive backlog level strengthens the revenue growth prospects for its defense business, which, in turn, should boost its bottom line over the long run.
RTX’s strong liquidity position also adds to its strength. Exiting 2024, its cash and cash equivalents totaled $5.58 billion, higher than its current debt of $2.54 billion. This reflects a solid solvency position for the stock, at least over the short term.