Raytheon…a GOVCON mega-competitor
Just over a year ago, Raytheon and United Technologies Corporation (UTC) underwent a massive merger to create Raytheon Technologies.
Headquartered in Waltham, Massachusetts, Raytheon Technologies is one of the largest global aerospace and defense companies in the world. The company provides advanced systems and services for commercial, military, and government customers, specializing in areas such as avionics, air and missile defense, electronic warfare, C5ISR, space, and cyber.
According to their FY2020 annual report, the company employed approximately 181,000 employees located in 71 countries, as of December 2020. Raytheon Technologies’ largest customer is the U.S. Government, providing the company with 46% of its 2020 revenue at $26 billion.
Organization and recent M&A history
Following the merger, Raytheon Technologies reorganized under the following four business segments:
- Collins Aerospace —This legacy UTC segment provides aerospace and defense products and aftermarket service solutions for aircraft manufacturers; airlines; regional, business and general aviation; and for defense and commercial space operations. The Collins Aerospace business stems from UTC’s merger of UTC Aerospace Systems and Rockwell Collins in 2018.
- Pratt & Whitney — This legacy UTC segment is a global supplier of aircraft engines for commercial, military, business jet and general aviation customers.
Both of the aforementioned segments have suffered financial losses due to the COVID-19 pandemic’s impact on the commercial aviation industry. Raytheon Technologies’ defense business has been cited as critical to the company’s financial standing in the past year. The defense centered business includes:
- Raytheon Missiles and Defense — This segment designs, develops, integrates and sustains air and missile defense systems; defensive and combat solutions; radars; command, control, communications and intelligence solutions; and naval and undersea sensor solutions for the U.S. and foreign government customers.
- Raytheon Intelligence and Space — This segment provides integrated sensor and communication systems for advanced missions, advanced training, and cyber and software solutions to intelligence, defense, federal and commercial customers.
Raytheon Technologies has already engaged in select M&A activities since their reorganization. The company acquired Blue Canyon Technologies, a privately-held satellite manufacturer, to support their U.S. military and intelligence space programs.
For anti-trust purposes associated with the merger, they were required to divest Raytheon’s military airborne radios business and UTC’s military global positioning systems (sold to BAE Systems), and their large space-based optical systems businesses (sold to Amergint Technologies).
In January 2021, the company also sold their commercial cybersecurity-focused Forcepoint business to the global investment firm Francisco Partners.
Raytheon Intelligence & Space
Characterizing each Raytheon business line is an effort in itself. We will provide some highlights on the Raytheon Intelligence & Space (RI&S) business which best suits most of our readers.
The RI&S segment earned nearly $11B in 2020. Approximately 75% of the segment’s business is tied to product development. RI&S products include laser technologies, intelligence surveillance and reconnaissance electro-optical/infrared products, training products, classified space mission systems, and offensive and defensive cyber solutions.
In 2020, RI&S segment leader Roy Azevedo indicated that the segment will shift away from a focus on selling particular Raytheon products towards helping customers define architectures for system of systems, such as those supporting all-domain operations. Azevedo argued that the segment’s expertise in sensors, communications, and networks make them uniquely qualified to tie these aspects together.
RI&S holds several notable contracts, spanning space, cyber, and intelligence priorities. A sample of noteworthy contracts include:
- U.S. Department of the Air Force, Air Force Distributed Common Ground System Contract — In October 2015, Raytheon was awarded this 6-year, $1.3B ceiling value contract to support the U.S. Air Force’s Distributed Common Ground System (DCGS). On this contract, Raytheon continues to sustain, maintain and ensure operational availability of platforms and legacy systems that produce actionable intelligence for the Air Force. The company has been obligated $601M thus far. Raytheon recently won a related $178M contract to provide field support services to the Air Force’s DCGS modernization project.
- National Aeronautics and Space Administration (NASA), Goddard Space Flight Center (GSFC), Earth Observing Systems Data and Information System (EOSDIS) Evolution and Development – 2 (EED-2) – In August 2015, Raytheon was awarded this 6-year, $240 million ceiling value contract to improve data integration and access for EOSDIS, NASA’s system for ingesting, archiving, and analyzing data for the Earth Science community. The company has been obligated $227 million. Raytheon has been the prime contractor on this contract since its inception in 1992. This is under source selection as of April 2021.
- U.S. Department of Homeland Security, Cybersecurity and Infrastructure Security Agency (CISA), Development, Operations, and Maintenance (DOMino) – Originally awarded in 2015, this $1.15B ceiling value contract provides cyber services to at least 100 civilian agencies in an effort to defend networks, websites and email addresses on the .gov domain. Work involves providing design, development, operations and maintenance services to DHS’s next generation National Cybersecurity Protection System. This contract was protested three times by Northrop Grumman and re-awarded to Raytheon each time. Due the classified nature of the contract, the exact period of performance and spend are undisclosed. The re-compete for this is rapidly approaching.
FedSavvy Strategies Takeaway
- The Raytheon and UTC merger have made the new Raytheon Technologies an even larger player in the aerospace and defense industries. During the pandemic, the company’s defense business has become central to the company’s revenue, as their commercial aviation business has suffered losses.
- The RI&S business is still heavily centered on product development, but segment leadership has indicated that their focus may shift towards specific services—they aim to address customers’ architectural problems for systems of systems, with a product-agnostic mindset.
- While Raytheon divested its commercial cybersecurity business, the company stands as a strong competitor for cyber pursuits in the government space. Their cyber capabilities were continuously re-affirmed through their DOMino contract’s survival of three separate protests.
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