Pension Income That Is Not OperatingThin moat

RTX (RTX) — moat facet

About $1.9 billion of RTX's 2025 profit came from two pension lines, one of which is shrinking every year.

Part of RTX's reported profit comes from its pension plans rather than its factories. In 2025 non-service pension income was $1,182 million1, and a separate FAS/CAS operating adjustment added $753 million to operating profit2. Together they come to about $1,935 million, equal in size to about 29% of net income3.

FAS/CAS operating adjustment ($M)1,65420211,39920221,127202383320247532025RTX Forms 10-K FY2023 and FY2025
Halved in four years.

The FAS/CAS adjustment reflects the difference between pension cost under accounting rules and the cost RTX recovers "through the pricing of our products and services to the U.S. government"4. It is real money, collected from the government customer, and it is shrinking: it was $1,654 million in 20215.

The non-service income depends on investment returns and interest rates. RTX estimates that a 25 basis point change in the discount rate moves its pension obligation by roughly $1 billion6.

RTX has been reducing the exposure. In November 2025 it transferred about $2.5 billion of pension obligations for about 60,000 retirees to Prudential7.

The 2025 buy-out was a deliberate reduction of the pension book. RTX transferred about $2.5 billion of obligations for about 60,000 retirees to Prudential and recorded a non-cash charge of about $300 million8. The trade is a smaller, less volatile pension line at the cost of a charge today.

The pension income also sits outside the segments. Segment operating profit of $10,746 million in 20259 excludes both pension lines, so the segment margins on these pages describe the businesses without the cushion, and the company-level figures include it.

The pension contribution to profit is declining, which is healthy but a headwind. The number to follow is the FAS/CAS adjustment; if it keeps falling toward zero while Raytheon's margin still rises, the defence business is earning its improvement.

Moat trajectory: Narrowing

FAS/CAS adjustment $1,654M (2021) to $753M (2025).

The number that tests this moat
Reported
FAS/CAS operating adjustment, full year
$753M (2025), from $1,654M in 2021

Pension recovery inside operating profit; its decline is a headwind that segment gains must cover.

Source: RTX Form 10-K FY2025, segment results ↗
⚠ Threats to the moat
⚠ THREAT 01
A Quarter Point Moves $1 Billion
A quarter-point change in interest rates moves RTX's pension obligation by about $1 billion, a risk unrelated to its business.
References
  1. ReportedIn 2025 non-service pension income was $1,182 million, and a separate FAS/CAS operating adjustment added $753 million to operating profit.
    RTX Form 10-K for fiscal 2025 - consolidated financial statements and notes: income statement, cash flow, dividends and repurchases, long-term debt of $37,700 million, goodwill by segment, pension income, the 2024 resolution of certain legal matters, the Raytheon contract termination and the accelerated share repurchase. — FY2023-FY2025 · publ. 6 February 2026 · source ↗
  2. ReportedIn 2025 non-service pension income was $1,182 million, and a separate FAS/CAS operating adjustment added $753 million to operating profit.
    RTX Form 10-K for fiscal 2025 - Item 7 segment review and Note 20: net sales and operating profit by segment for 2023-2025, organic sales drivers (commercial aftermarket, OEM, military), sales by customer type, products and services, segment assets, capital expenditure and research and development - totals across segments: segment sales and profit, eliminations, acquisition accounting and FAS/CAS adjustments. — FY2023-FY2025 · publ. 6 February 2026 · source ↗
  3. Moat Explorer calcTogether they come to about $1,935 million, equal in size to about 29% of net income.
    Moat Explorer calculation from RTX's Form 10-K FY2025, Q2 2026 earnings release and market data ($ millions unless stated). Goodwill plus intangibles 53,343 + 31,845 = 85,188; 85,188 / 171,079 = 49.8% of total assets; other assets 171,079 - 85,188 = 85,891. Reported against adjusted EPS 2025: 6.29 - 4.96 = 1.33, of which 1.15 acquisition accounting. Return on equity 6,732 / ((65,245 + 60,156) / 2) = 10.7%. Net debt: 37,700 + 204 - 7,435 = 30,469 (December 2025); 31,858 + 5,296 + 229 - 8,305 = 29,078 (June 2026). Net interest 1,749 / operating profit 9,300 = 18.8%. Dividends paid 3,574 / free cash flow 7,940 = 45%; free cash flow covers dividends 7,940 / 3,574 = 2.2 times. Pension items 753 + 1,182 = 1,935; 1,935 / net income 6,732 = 29%. Trailing twelve months to June 2026: revenue 88,603 + 46,784 - 41,887 = 93,500; net income 6,732 + 4,198 - 3,192 = 7,738. P/E 255.27 / 7.738 = 33.0; P/S 255.27 / 93.50 = 2.73. Year-end P/E = market value / net income and P/S = market value / revenue: 2021 128.81 / 3.864 = 33.3 and 128.81 / 64.388 = 2.00; 2022 148.36 / 5.197 = 28.5 and 2.21; 2023 120.99 / 3.195 = 37.9 and 120.99 / 68.920 = 1.76; 2024 154.03 / 4.774 = 32.3 and 1.91; 2025 245.90 / 6.732 = 36.5 and 2.78; 2020 108.60 / 56.587 = 1.92 (loss year). Revenue growth since 2023: 93.50 / 68.92 - 1 = 36%; market value 255.27 / 120.99 = 2.1 times. Share price against 52-week high 189.40 / 226.88 - 1 = -16.5%. Peers: Lockheed Martin plus General Dynamics 121.09 + 92.75 = 213.84 (below RTX's 255.27); RTX / Northrop Grumman 255.27 / 73.08 = 3.5 times. Q2 2026 operating margin 2,811 / 24,708 = 11.4%. Price over 2025 adjusted EPS 189.40 / 6.29 = 30 times. 2024 legal and termination cash 1.5 / free cash flow 4.534 = 33%. Pension sensitivity about 1.0 billion per 25 basis points, so about 4 billion per point; 4,000 / equity 65,245 = 6%. Enterprise value over trailing sales 285.82 / 93.50 = 3.1 times; price over 2026 consensus adjusted EPS 189.40 / 7.24 = 26 times. Purchase obligations after 2026 about 47 - 29 = 18 billion. Forecast extension: 2028 revenue 103.18 x 1.07 = 110.40 and EPS 7.85 x 1.084 = 8.51, extending 2027 consensus growth (not consensus). — 2020-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in RTX's Forms 10-K and 10-Q, earnings releases, earnings call and market data; operands shown in the source line.
  4. ReportedThe FAS/CAS adjustment reflects the difference between pension cost under accounting rules and the cost RTX recovers "through the pricing of our products and services to the U.S. government".
    RTX Form 10-K for fiscal 2025 - consolidated financial statements and notes: income statement, cash flow, dividends and repurchases, long-term debt of $37,700 million, goodwill by segment, pension income, the 2024 resolution of certain legal matters, the Raytheon contract termination and the accelerated share repurchase. — FY2023-FY2025 · publ. 6 February 2026 · source ↗
  5. ReportedIt is real money, collected from the government customer, and it is shrinking: it was $1,654 million in 2021.
    RTX Form 10-K for fiscal 2023 - the three-segment recast of 2021-2022, the GTF family powering more than 1,700 aircraft for 70 operators, backlog of $196 billion, the Carrier and Otis separation and Chinese sanctions on Raytheon Missiles & Defense. — FY2023 · publ. February 2024 · source ↗
  6. ReportedRTX estimates that a 25 basis point change in the discount rate moves its pension obligation by roughly $1 billion.
    RTX Form 10-K for fiscal 2025 - Item 1A risk factors: competition on price, delivery and technology; customers buying parts from suppliers other than the original equipment manufacturer; discounts and guarantees to win engine positions; new defence entrants; GTF durability; reputational harm; pension sensitivity to the discount rate; tariffs. — FY2025 · publ. 6 February 2026 · source ↗
  7. ReportedIn November 2025 it transferred about $2.5 billion of pension obligations for about 60,000 retirees to Prudential.
    RTX Form 8-K of 13 November 2025, Item 8.01 - transfer of about $2.5 billion of pension obligations for about 60,000 retirees to Prudential. — November 2025 · publ. 13 November 2025 · source ↗
  8. ReportedRTX transferred about $2.5 billion of obligations for about 60,000 retirees to Prudential and recorded a non-cash charge of about $300 million.
    RTX Form 8-K of 13 November 2025, Item 8.01 - transfer of about $2.5 billion of pension obligations for about 60,000 retirees to Prudential. — November 2025 · publ. 13 November 2025 · source ↗
  9. ReportedSegment operating profit of $10,746 million in 2025 excludes both pension lines, so the segment margins on these pages describe the businesses without the cushion, and the company-level figures include it.
    RTX Form 10-K for fiscal 2025 - Item 7 segment review and Note 20: net sales and operating profit by segment for 2023-2025, organic sales drivers (commercial aftermarket, OEM, military), sales by customer type, products and services, segment assets, capital expenditure and research and development - totals across segments: segment sales and profit, eliminations, acquisition accounting and FAS/CAS adjustments. — FY2023-FY2025 · publ. 6 February 2026 · source ↗
Sources
Generated September 28, 2026