Our first question will come from the line of Robert Stallard with Vertical Research.

Lisa, I was wondering if I could start with you. I was wondering if you can give us an update on what you think the Aviation business will be doing in the second half of this year and whether the supply chain issues could be alleviated?

Yes. Thanks, Robert. So look, I think the dynamics at Aviation are just exactly how we frame them out. We have very strong demand, and we have to continue to drive better operational efficiency. When we talk about labor, I mentioned that our attrition rate had spiked. It remained elevated for quite some time, but that's now stabilized, which has significantly helped. But we continue to have that newer workforce that just has to further season through the manufacturing floor. Just to put a finer point on that, we have about 50% of our workforce that has less than 5 years of experience compared to 2019 when that was less than 30% that had that experience. So we are continuing to make great progress there with that learning center, and I think it's going to continue to prove out as a successful investment into our factory. We've made some very intense and intentional investments here along with the Career & Learning Center. It gets the right people in the door. It screens them effectively. It sets them up for a better transition when we get them out in the factory. But we've also increased the engineering resources out there on the factory floor. That helps us with the learning curves. It's going to help us with issue resolution more quickly on the factory floor and then just overall quality management so that we have the right products getting out the door at the right time. And I believe we'll see increasing benefit from this effort and energy over time. So simultaneously, when we look at the workforce development, we still are navigating supplier challenges. We have largely managed through the bulk of them, but we still have some key pain points that we are focusing on. And so where we can, we are dual sourcing in these areas that can increase capacity, and it's going to protect our operations. We don't want to see out-of-station work. And so that's what we're trying to focus on, to make sure that we bring that material in so that we don't have those out-of-station inefficiencies. In addition to that, we have initiated a cross-company Supply Chain Council so that we can start approaching some of these suppliers that we see across all of our segments and just really negotiating with them with a much larger position. So as we move to a more pure-play aerospace and defense company, we're going to lean into those efficiencies across the company. So I'm very confident this is going to improve. We are taking concrete steps and really prioritizing the investment where we need to, to see that improved performance. Dave, I don't know if you have any other color you want to add to that?

Sure. So Robert, as you've often heard us talk about, we believe the Aviation business should have incremental margins of about 20% to 25%. If you look right now at the overall productivity challenges we're having, it's not only impacting our overall cost, but also preventing us from delivering additional new aircraft, which, of course, are very much accretive. So looking at the overall opportunity set that Lisa just highlighted, it's probably worth about $150 million of incremental profit to us or about 200 basis points, which would then tie to that 20% to 25% incremental margins. Obviously, we're not going to achieve that tomorrow. But with the focus that Lisa highlighted of our engineering resources, our capital investments back into the factory, we believe over the medium term, we're going to get there. To your overall question about the second half of the year, I would say when we look at Q3, you can expect revenue cadence to have a similar profile to Q2. In terms of margins, I would expect that we wouldn't see margin growth until Q4 of this year versus where we sit today.

Our next question will come from the line of Peter Arment with Baird.

Lisa, maybe just to add, I'd like to follow up on Dave's last comment on the second half of the year kind of volume for Aviation deliveries. You're basically matching last year's levels currently. You're, I think, only 3 units less than last year first half deliveries. Just -- you're investing a lot. I'm just trying to get a better handle on when we should start to think about where that productivity starts to really flow through. You've talked about the capacity additions and the new employees. But just thinking about absolute level of deliveries, is there the ability to kind of give a finer point on when you think that productivity starts to flow through?

I'm not sure we're going to be able to give a finer point on the exact dates of when that flows through. But I think if we look at the various aspects, when you talk about the employees in particular, it's been pretty well proven out that it takes about 5 to 7 years to generate an employee that has all the reps and sets to be able to get through the learning curves of being out there on the factory floor. So when you talk about those new employees that started coming in around 2022, we should start to see that yield next year with employee productivity. And we are starting to see areas across the factory floor where we are seeing that improvement. So I think in the next year, we see the learning curve starting to improve. From the out-of-station work, if we can get some of this dual-sourcing addressed and bring some of these, in particular things like spars into the factory, that will significantly improve our productivity. So look, our goal is to start seeing improvement in this area of overall product deliveries towards the middle last part of 2027.

Our next question will come from the line of Sheila Kahyaoglu with Jefferies.

Maybe if you guys could talk more about Bell and the funding situation for fiscal '26 regarding MV-75? How do we think about it from a procedural standpoint from here, the financial implications? And how are you navigating the workforce, the development program through the end of this year and potentially into next year?

Yes, sure. Thanks, Sheila. From a process perspective, as we discussed, the Army is working through their normal ATR process, or above threshold reprogramming process. That allows them to realign funds inside of their own budget, but it has to go back to Congress for Congress to sign off to move that authority from one program to the other. So they have worked through that process pretty diligently over the last several months. It's normal around this time of year for this to occur. And our understanding at this point is that it has been approved through the OMB process and should be sent to Congress soon. We anticipate any day. And -- but based on the congressional calendar, look, it's my expectation this could stretch out until September before Congress gets to the point where they actually sign off on the realignment of those funds. So absent that, we made the determination that really is in the best interest of the overall long-term health of the program for us to continue forward. We have communicated that well with the Army, and we are working with them to make sure that they understand the work is progressing on the development of the program as we move forward. So if you look at overall Bell's results through the quarter, I mean, candidly, they actually performed very well in the quarter with revenue up 6%. It did impact the profitability because of the way we addressed this potential ATR going forward. We took a very conservative booking rate as we have not yet received that ATR. And so with that program adjustment, if we had not had that adjustment, Bell's margins would have been very comfortably inside their guidance range for the quarter.

Our next question will come from the line of Gautam Khanna with TD Cowen.

And just to follow up on that last question and answer. So to be clear, are you guys moving forward with the supply chain, not slowing them down on the MV-75? And then relatedly on the booking rate adjustment, did you assume some learning curve loss, if you will, in the adjustment? Or why was that adjustment made if you expect the funding fairly imminently?

Sure. So regarding the supply chain, we are still working with our supply chain. We have put, I'll say, minor spending caps on the supply chain to stay withinside that $350 million range. That is what we had anticipated to execute on during this quarter anyway. And so we're working with our suppliers to make sure we stay inside that cap because we want to make sure that we don't lose any momentum that we have gained with the suppliers to date. And I'm sorry, your second question, again, could you please state that?

Yes. So the reduction in the booking rate, was that an assumption on learning curve loss? Or what -- why do you change the booking rate if the level of business activity is the same on the program?

Sure. So it's not a change in learning curve. It's a conservative approach to the booking rate because the ATR hasn't been awarded yet. And that was a Q2 impact, and then we'll see how it plays out in Q3.

Got you. And just to put a fine point on the other impact to guidance to revenue, if that money doesn't come through, did you say it was $350 million? Or what is the revenue impact if the MV-75 money doesn't come through?

So it would be roughly around that, but we don't perceive a situation where our Bell revenue guidance will change in this scenario. And then to put a finer point on it is the way we look at it right now, obviously, we said there's a $0.20 to $0.30 impact from a totality perspective. When we look at our different businesses right now, we'd expect from a guidance perspective, we would likely be above the guide at our Industrial business from a margin perspective. On the high side of the guide at Systems, assuming Bell gets the ATR, we think we'd be comfortably in the guide, and we would expect Aviation would be on the low end of the guide. So that's kind of the puts and takes overall that drive the $0.20 to $0.30 impact. And overall, on revenue, we see ourselves roughly in line across the businesses today.

Our next question will come from the line of Gavin Parsons with UBS.

Gavin, having a hard time hearing you.

Can you hear me?

You're back. Yes.

Thanks for the color on the Aviation margin opportunity. That is very helpful to quantify. Is that purely internal productivity? Or does that also include an assumption that the supply chain improves? And just trying to get a sense for how much of that is under your control versus dependent on external supply chain improvement.

So it's certainly a combination of both. But when you look at external suppliers, for example, you saw Lisa highlighted earlier, we can also work that via dual sourcing. So it certainly is a combination of both, and solving the external supply chain issues along with investing our engineering resources to make our planes more producible is kind of the secret sauce to improving the overall picture. But I'd say it's certainly kind of 50-50 split for both, but we certainly want to drive our own destiny when it comes to our external suppliers as well.

Our next question will come from the line of Seth Seifman with JPMorgan.

Is there, I guess, a limit on -- if you don't get the ATR by a certain time, a limit to how much you'd spend?

So we are trying to manage this to the $350 million threshold that we had expected to have by the ATR. And so that's what we're internally managing to. And then on October 1, when the FY '27 budget is initiated, even if there is a continuing resolution, the government would go back to its normal spending with the company. So we are managing this over the next, say, 9 weeks to make sure that we stay withinside the $350 million, but also progressing the program as needed to get it ready to continue to move forward with the desires of first flight.

Our next question will come from the line of Myles Walton with Wolfe Research.

First, a clarification, if you could, David, on the tariff relief. Can you just size that? And then Lisa, on the fourth quarter MV-75 program strategy, if you're under a continuing resolution, do you sort of assume that everything in the budget documents, which obviously is quite bullish, do you assume that that's where you should run the program? Or do you take a more [indiscernible] approach -- yes?

Yes. So I'll hit it first, and then I'll pass it over to David for the tariff. So the way the process would work with the continuing resolution is the government is only going to be authorized to spend at the levels that they were approved for in 2026, which was around $1.2 billion. They also had an additional $310 million from the reconciliation budget. So they would have a percentage of that allowable for us to spend on a continuing resolution. So we would probably be somewhat conservative in the fourth quarter, but in line with what we expected to perform when we put together our operating plan. So we've been also working that process with the Army to make sure that we continue to progress towards the goals of first flight, but feel like we're pretty solidly funded through the first, I'll say, 6 months of FY '27 to give the government time to get through their continuing resolution process.

On the tariff question, so the big impact on tariffs this quarter was at TSV within our Industrial segment. We got a gross refund of IEEPA tariffs of $21 million for TSV. The net impact on the results was about $18 million.

Our next question will come from the line of Noah Poponak with Goldman Sachs.

Dave, I just want to kind of make sure I understand the Aviation margin progression you're pointing to. So it sounds like you're saying 3Q is relatively flat sequentially, 4Q up. Do you still get to the low end of 11% to 12% for the full year? And then I guess if I took 11% as a starting point for 2026 and assumed you achieved the 20% to 25% incremental for a few years, closer to the end of the decade, you would add that 200 basis points you talked about to get into the 13s. Is that sort of the quarterly and annual shape of the margin you're now looking at?

So I think you described 2026 very well, and I'll probably wait until January to give you guidance on 2027.

Okay. And then just to follow up on Myles' question there. I guess, what is the risk or -- not risk -- but just what is the potential for facing this need for reprogramming of dollars on MV-75 multiple years in a row? Is '26 unique in that the acceleration of schedule was after the funding process? Or could we potentially need reprogramming and have this risk for a few years ahead?

No, no, you got it right. So this is, I'll say, a unique one-off having to do this ATR process because of the acceleration request happened after the Army had submitted their FY '26 budget to Congress. So when we met with them a year ago and laid out what the funding needs were for '27 and sub, that is what you see reflected in the current FYDP requests that they have for 2027 and beyond. So we view this as, I'll call it, a onetime event, and then we will manage very closely to the allowable budgets going forward to meet our expectations.

Okay. And Citation jet or Aviation business jet deliveries for the year, do you still see that at the same level as where you started the year's plan or started guidance at the beginning of the year? Or are you now expecting that to be lower?

So from -- we obviously aren't going to get into deliveries. But from a revenue perspective, we see ourselves in line versus our previous guidance for the year.

Our next question comes from the line of David Strauss with Wells Fargo.

Can you hear me?

Got you.

Okay. So the press release mentioned that you've initiated the sale process for Industrial. So is the sale of all of Industrial, the more likely path from here as compared to spinning it out?

Yes, I think we're early in that process. We are kind of doing a dual path of initiating the sale process as well as the work required to do a spin. We have the wheels in motion for -- and are talking with, candidly, a significant number of inbounds on the sales side. And so that interest has been very encouraging. And I think with the good foundation that we have at both Kautex and TSV, we're just -- we're actually quite pleased with how that sale process is going. But we are in the early phases of those, I'll say, NDAs and talking with folks simultaneously, still working towards the spin if something were not to fall out the way we'd like in a sale process. But -- and in terms of how we would do that, that's yet to be seen. I think we've seen various levels of interest of all of Industrial in one piece. And in some cases, it's been in different parts and pieces. So we will evaluate that over the coming weeks, and you guys will be sure to know soon.

Okay. And then a follow-up on MV-75. So we've talked a lot about kind of the FY '26 situation. But what about timing on getting the LRIP contract? Any change to expectations on the size of the charge associated with when you actually sign that contract?

No change in our outlook right now. I mean, assuming a Q4, Q1 exercise, we have that in the range of $60 million to $110 million.

Our next question comes from the line of John Godyn with Citi.

First, Lisa, I just wanted to follow up on all of the new jets for 2027. You mentioned a bunch of Gen3 light jets. You mentioned the Denali. Maybe you could just sort of talk about the customer reaction to that and talk about and elaborate on the very strong demand trends that you're seeing.

Yes, sure. I mean, we actually just wrapped up at Oshkosh last week. We saw lots of demand even just coming out of that event. As you can see in the backlog that we are representing here in our press release, it's very exciting for folks to kind of see these Gen3 upgrades coming. And so I'm not going to give, I'll say, specifics on which ones we intend to deliver and when. But I would say there's a lot of energy, and that's reflected in the backlog that you're seeing. And we are very specific with how we book backlog, it's deposits and it's guarantees of when we would deliver those crafts. So that is firm backlog that you see represented there for those aircraft.

Okay. And if I could just ask a question on MV-75 and Bell, but a little bit bigger picture. We've seen a lot of innovation in rotorcraft. Last week at Farnborough, we saw the Anduril Thunder autonomous tiltrotor aircraft. Obviously, the MV-75 has modern capabilities, no question about that. But maybe you could just talk about big picture, the direction of rotorcraft innovation arcs and kind of where you see that market going and how Bell is positioned?

From a technology perspective, I think what you're seeing underscores the benefits of tiltrotor for speed and range. And I think what we have achieved at Bell over the last many decades, I mean, we're on our fifth generation of tiltrotor, we have over 850,000 hours of tiltrotor experience on the V-22 that have been built into this. So I think it's only good for the future war fighter to have tiltrotor capabilities, and you're seeing this broadly accepted across the industry. I think our experience that we have and what we've done with the MV-75, you may know this, we flew this first in 2017 with our demonstrator, the V-280. We flew it autonomously in 2019 on that demonstrator. About 10 years ago, we actually have on the design board, what we call the V-247, which is a fully autonomous tilt rotor. And so we also have the X-76 program that we're working with DARPA's SPRINT, which is a tiltrotor that converts to a jet. So look, I think it's only positive for the industry to fully grasp and appreciate the need for range and speed for the future war fighter and frankly, runway independence, which is key to how they operate.

Our next question will come from the line of Ron Epstein with Bank of America.

So maybe -- I have a question and a follow-up. So on the production efficiency, Lisa, Cessna has made a lot of airplanes over the years. So I always kind of get befuddled by there has to be a change in the process or whatever. I mean aerospace learning curves tend to be, what, sort of a 15% learning curve where you double volume, you get more efficient by 15%. What's changed? Like, what -- when you look at the -- from your seat now and you look at what's going on in Wichita, what's different or what's changed that makes you feel like you can get more out of that business? I agree with you completely. It seems like you can. But what haven't they been doing over all these years they've been building all these airplanes?

Yes. Look, I think there's a complexity issue there. We build, counting, maybe 21 or 22 different type models across Aviation. I think that has increased over the last several years. We're looking to make sure that we do those all very well. I think what you saw significantly that's changed is about 5, 6 years ago, the workforce turnover that occurred. And so that is the aspect of it that we really have to focus on. And it's not just at Cessna and Beechcraft, it's also out in our supply base. They also have that same workforce turnover. And so when those suppliers don't give us, say, an engine or a spar or a hydraulic unit, that impacts the out-of-station work that newer workforce is not used to doing the workarounds. And so I think that's where we really have to lean in on this career learning center. We really have to lean in on training our supervisors because they're dealing with a younger workforce coming through there. And look, I think we'll get there, and I think the industry will get there, but it's going to take us being very diligent and focused on getting them there. So it's something I feel very passionate about of making sure that we lean into our workforce.

Got you. Got you. And then maybe just a follow-up to -- or an extension of John's question. And I've spoken to some other people to explain about this before in the past. So you guys have Aerosonde, you've got Pipistrel, which got the Voyager, Cessna does the Skyhawk and Skylane. But how much you guys do in unmanned systems? Seems pretty limited given the toolkit that you have. One would think with all the bits and pieces that you have across all those different businesses that you guys could be dominating unmanned systems, particularly if you think about maybe some of the larger category 3 or 4 drones, that kind of thing that seemingly with limited investment, you all could be a real dominator there because you have all the technology under your roof. It just seems like you have to put it together in different ways. I'm just curious how you think about that and particularly as you lean into Textron becoming more of a defense and aerospace player?

Clearly, you're hitting on some key strategic issues that we're going to have to take a look at and address. And I think moving to a more pure-play aerospace and defense company is going to allow us to do that. We are initiating a lot more cross -- I'll say, crosstalk and engineering design across the business and what we've got across the various portfolio. I think we've worked on this, I think, in the fly-by-wire aspect of this. I mean that is an evidence of what we're doing in order to bring to bear what we can do across all of Textron underneath our own roof. But you raised the exact right point. I mean we should be leaning into this where it makes sense in the higher end of unmanned air vehicles. I think that's one thing you'll see me push towards the higher end, not the Group 1s and Group 2s. But I think there's a lot of capability there across the company that we need to lean into.

One would think an unmanned Skyhawk fantastic. I mean, like, just such a robust vehicle and has volume, seemingly, I mean, [indiscernible] you could do something pretty cool with it. Just a thought.

Yes. No, thanks. I mean, we'll take that straight to the team. And there's a lot there, and I think we can do across the company.

Our next question will come from the line of Kristine Liwag with Morgan Stanley.

And Lisa, maybe following up on Ron's question here. I mean when you think about the DoD, the DoW and the emphasis on speed of capability and more iterative acquisition approaches, we're also hearing some of your peers move quicker by using existing platforms and technology to deliver integrated solutions more quickly. So I guess from your comment to Ron's question, it sounds like you've got opportunities to combine existing platforms, autonomy, sensors and mission systems for these kinds of requirements. So I was wondering, as you think about potentially monetizing that or leaning into it, what's your appetite for more Textron-funded capabilities to get these solutions quicker? And are you seeing any movement in the customers' support for more company-funded R&D to get to market faster?

Yes, Kristine. So look, I mean, we've talked about this, frankly, with the customer pretty regularly. I'll say a significant portion of the research and development that we do across all of Textron actually does exactly what you're saying. And frankly, I feel like we've been leaning into that for probably the last 15 to 16 years. We are where we are with the MV-75 because of the investment that we made in our own company and our own technology. We are where we are with the armed reconnaissance vehicle because we made investment as a company into those capabilities. So I think we're going to continue to do that. We'll continue to watch what the requirements and needs are from the military and try to match that very quickly. We are a commercially minded company that can take that R&D and apply it to military applications. So I think we're going to continue to do that as we've demonstrated so far.

Great. And then with that, is there some sort of target that you would like to be regarding internally funded R&D? Is there a sweet spot for that initiative?

No. I think where we've been spending at this point, I think, is the appropriate level of spend. And because we've seen it yield, I think we're in that right sweet spot right now.

Our final question will come from the line of Doug Harned with Bernstein.

Lisa, last quarter, you talked about at Aviation getting to an equilibrium level in a sense of 200 jets per year. And when you look toward that kind of goal, right now, do you see the issues basically supply chain and some of the internal labor issues as if you could resolve those quickly in a sense, and I know it takes time, you could be at that 200 level? And when you look at the gap perhaps between what you can deliver and that goal, how does that affect, if at all, order flow coming in, given that there's a fairly long backlog there right now?

Yes. I think what you're seeing is that we started there with that number and then worked our way back to the initiatives that were required in order to meet that goal. So what you're seeing us detail this quarter is the efforts that are being made in order to meet that stated goal of 200 a year. And then what we're seeing in the demand cycle is that we can definitely support that demand cycle at that level. So these things need to line up. And what we're outlining this quarter is the steps that we're making in order to achieve that.

One of the pieces you mentioned was doing more dual sourcing. And is this something that is a sort of a step change upward in that goal? Or is this more an evolution of things that have been happening for some time?

So I think we've always do, I'll say, make-buy decisions as we look to be more efficient through the factories. Where we're really stepping it up is where we have seen things have highlighted or been illuminated through the factories. I'll take spars again as a key example. These are very critical components, and we need to not be limited by one supplier. So we are being more diligent in finding those critical components and being more dual-sourced in those areas. So I think we're -- we have always done this, but we are taking a step up at where we can see critical components and where we can get dual-supply source.

And I'm guessing now, I think you said it earlier, you're probably not going to give us a picture of when you expect to close that gap to the equilibrium level. But any sense on that?

I think we're making great progress. And as we move towards the end of this year and we get into a guide for '27, we'll talk to you about it back then.

And that will conclude our question-and-answer session and our call today. Thank you all for joining. You may now disconnect.