Operator : Good morning, and welcome to the General Dynamics Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nicole Shelton, Vice President of Investor Relations.
Nicole Shelton : Thank you, operator, and good morning, everyone. Welcome to the General Dynamics Second Quarter 2026 Conference Call. Any forward-looking statements made today represent our estimates regarding the company's outlook. These estimates are subject to some risks and uncertainties. Additional information regarding these factors is contained in the company's 10-K, 10-Q and 8-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany this webcast, which are available on the Investor Relations page of our website, investorrelations.gd.com. On the call today are Phebe Novakovic, Chairman and Chief Executive Officer; Danny Deep, President; and Kim Kuryea, Chief Financial Officer. I will now turn the call over to Phebe.
Phebe Novakovic : Thank you, Nicole. Good morning, everyone, and thanks for being with us. You may recall that at the outset of his remarks at the end of the first quarter, Danny described it as a very powerful quarter. This quarter is even better in almost all respects. Earlier today, we reported earnings of $4.24 per diluted share on revenue of $14.1 billion, operating earnings of $1.460 billion and net earnings of $1.160 billion. These results compare quite favorably to the year-ago quarter as well as sequentially. For example, against the year-ago quarter, revenue is up 8.1%, operating earnings are up almost 12%, and net earnings are up 14.4%. As a result, earnings per diluted share are up $0.50 or 13.4%. The operating margin for the entire company is 10.4%, a 40-basis-point improvement over the year-ago quarter, which, coupled with the revenue growth, led to very strong earnings growth. While Aerospace and Marine led the way on revenue increases, each of the other 2 segments had revenue increases as well. With respect to operating earnings, Aerospace led the way with a 26.6% improvement, followed by Marine Systems with a strong 17.5% increase. Sequentially, against a very good first quarter, revenue is up 4.5%, operating earnings are up 2.8% and diluted earnings per share are up $0.14 or 3.4%. On a year-to-date basis, revenue of $27.6 billion is up 9.1%. Operating earnings of nearly $2.9 billion are up 11.9% and earnings per share are up $0.95 or 12.8%. We beat consensus by $0.28 in the quarter on more revenue, more operating earnings and better operating margins than is expected by the sell side. In short, it was a superb quarter and first half. Let me ask our CFO, Kim Kuryea, to provide some detail on our strong order activity, rapidly growing backlog, and superb cash generation as well as other relevant financial data.
Kimberly Kuryea : Thank you, Phebe, and good morning. I'll start with our outstanding cash performance for the quarter. We generated $1.9 billion of operating cash flow, which when combined with the strong $2.2 billion from the first quarter, yields over $4 billion of operating cash flow in the first half of the year. Each of our segments contributed nicely, exceeding their planned cash flows and driving operating working capital down over $1 billion from the end of 2025. Capital expenditures totaled $234 million or 1.7% of sales in the quarter. Compared to the first half of 2025, capital expenditures were up nearly 30% to $437 million. We continue to expect capital expenditures between 3.5% and 4% of sales for the full year. You should expect the profile of our investment to grow significantly in the back half of the year as we continue to invest, especially in our shipyards, to accelerate production and meet future demand. After capital expenditures, our free cash flow was $1.6 billion for the quarter, yielding a cash conversion rate of 142% and $3.6 billion for the first half, a cash conversion rate in excess of 150%. Given our strong cash performance so far, we now expect a free cash flow conversion rate a little north of 100% of net income for the year, let's say, around 105%. That said, we will have a lighter second half than the first, which is due to higher planned capital expenditures, which I've already discussed, and 3 other factors I'll address now. First, pension. We have decided to contribute approximately $500 million to our pension plans. Given favorable market returns over the last few years, the funded status of many of our plans are near full funding, and this contribution will allow us to derisk those plans and eliminate significant volatility going forward. Second, our cash taxes are weighted toward the back half of the year with over $500 million of payments expected. Third, we will be working down some advance payments on new programs at European Land Systems during the second half. Now to round out the cash discussion. From a capital deployment perspective, in the quarter, we paid dividends of approximately $430 million and repurchased about $100 million of our common stock to cover dilution. Finally, we repaid $500 million of notes that matured in June. We have another $500 million of notes coming due in August that we anticipate repaying with cash on hand. At this time, we don't anticipate refinancing these maturities during the year, but we will continue to evaluate market conditions and potential borrowing needs as the year progresses. All in all, we ended the quarter with a cash balance of approximately $4.3 billion and a net debt position of $3.2 billion, down $1.2 billion from last quarter. Next, on to orders and backlog. We had another strong quarter with just shy of $20 billion of orders, yielding an overall book-to-bill ratio of 1.4-to-1 for the company. Book-to-bill in all 4 of our operating segments was greater than 1-to-1. In Aerospace, our dollar-based book-to-bill was 1.5x. This is the strongest first half for orders for Aerospace since 2022 and reflected very solid demand across the entire Gulfstream product line. In the Defense segment, book-to-bill was 1.4x, led by the Combat Systems segment at 2.1x, which received several large contracts, including the production of new armored combat support vehicles, ACSVs, for the Canadian Armed Forces. We ended the quarter with a record level of backlog of $136.5 billion, up 32% from a year ago. Backlog was also a record high for each of our segments. Our total estimated contract value, which includes options and IDIQ contracts, ended the quarter at $186.9 billion. Turning to interest. Our net interest expense in the second quarter was $49 million compared to $88 million in the respective 2025 period, and $118 million for the first half of 2026 compared to $177 million in the first half of 2025. The decrease in our interest expense is due almost entirely to the interest we paid for commercial paper borrowings in 2025. We have not been in the commercial paper market in 2026. Further, our interest income increased in 2026 as we held higher cash balances. At this point, our expectation for net interest expense for the year is approximately $270 million. Finally, the effective tax rate in the quarter was 17.6%, bringing the tax rate for the first half to 17.7%. This rate is a little higher than our outlook for the full year, which remains around 17.5%. Phebe, that concludes my remarks. I'll turn it back over to you.
Phebe Novakovic : Thanks, Kim. Now I will briefly review the financial performance for each of the groups, and Danny will interject additional details. First, Aerospace. Aerospace had a very good quarter with revenue of $3.5 billion and operating earnings of $510 million with a 14.5% operating margin. Revenue is $463 million more than last year's second quarter, a 15.1% increase. To give you a little perspective here, the increase is attributable to 3 more deliveries and higher service revenue at both Gulfstream and Jet Aviation. The 41 deliveries in the quarter are somewhat more than planned. Operating earnings of $510 million are up $107 million, driven in part by the increased revenue, but most importantly, by a 130-basis-point improvement in operating margin. There are no unusual items of significance. As a result, the improvement quarter-over-quarter comes from a lot of measurable improvements across the entire business.
Danny Deep : From an operational perspective, we are off to a strong start to the year. Phebe mentioned 41 deliveries in the quarter. This is 3 more than the year-ago quarter and sequentially as well. We see durable productivity improvements on all new aircraft types with modestly improved margins both year-over-year and sequentially. We performed quite well across all service categories at both Gulfstream and Jet Aviation with improved operating earnings at each, both quarter-over-quarter and sequentially. You might note that the second-quarter overall operating margins are down sequentially despite the fact that operating margins by line of business all improved. This is attributable to a slightly disadvantageous mix plus a modest increase in both G&A and R&D. Phebe?
Phebe Novakovic : Turning to market demand. Aerospace had a 1.5x book-to-bill in the quarter with 16 more airplane orders than the year-ago quarter and 20 more than the first quarter of this year. The book-to-bill over the trailing 12 months is 1.3x. So we see very active interest across all models in the U.S. and Asia, with some cautious concern from customers in the Middle East, but they're still active in the pipeline. In summary, the Aerospace team had a special quarter, both operationally and in terms of order activity. So let's move on to the defense businesses. First, Combat. Combat Systems had revenue of $2.3 billion, up marginally over the year-ago quarter. Earnings of $318 million are down $6 million. Margins at 13.9% are down 30 basis points against the year-ago quarter, due largely to mix. There was increased revenue performance at Ordnance and Tactical Systems and European Land Systems, offset by a decline at Land Systems. Sequentially, revenue is up modestly, but earnings are up 2.6% on a 30-basis-point improvement in operating margin. The real good news story here is the order performance at 2.1-to-1 book-to-bill continues to build strong significant backlog. A large portion of the order activity in the quarter was at Land Systems. Demand for Combat Systems products is strong, primarily driven by U.S. allies. Orders for wheeled and tracked vehicles are up, reflecting the increased threat environment. In addition, OTS continues to have particularly strong growth in munitions.
Danny Deep : So I want to repeat what I said last quarter because performance this quarter further demonstrates the strength and breadth of the combat portfolio, particularly with international vehicles as well as our munitions group. It's encouraging during this period of transition and recapitalization to next-generation platforms for our U.S. land force customers that the overall group continues to provide a healthy growth outlook with very nice margins. You have seen the 2.1x book-to-bill in the quarter. We're confident there is more to come. Phebe?
Phebe Novakovic : So turning to Marine Systems. Once again, our shipyards are each demonstrating strong revenue growth. This quarter's growth of 10.4% was driven by the Columbia and Virginia-class programs, followed by NASSCO and Bath expressed in dollar increases. However, in growth expressed as a percentage of revenue, both NASSCO and Bath outpaced Electric Boat for the first time in my memory. Earnings improved 17.5% on a 40-basis-point improvement in operating margin. We can point to clear and measurable productivity gains. As you know, to support this growth, we have made significant investments in each of our shipyards, particularly at Electric Boat. We will continue to invest as we go forward to support the additional demand we see in the national security interest of the United States. Turning to operating performance...
Danny Deep : As Phebe mentioned, momentum continues to build at each of our shipyards, and we are making good progress with our efforts to accelerate build rates. A great example of this is at Bath Iron Works, where our most recent DDG-51 destroyer delivery was accelerated by almost 3 months versus plan due to the excellent performance of the ship in its sea trial. At Electric Boat on the Columbia program, we had a significant increase in the number of hours earned as compared to both the year-ago quarter and sequentially. In the first half of this year, the hours earned are up 37% versus the same period last year. Material deliveries also continue to improve with a 65% increase in sequence-critical material this quarter over the second quarter last year. Let me state the obvious. This is the segment, given its backlog and improving productivity, where we can accelerate value for our shareholders as we accelerate delivery of submarines, surface combatants and auxiliary ships. Continuous operational improvement has our undivided attention and focus. Back to you, Phebe.
Phebe Novakovic : So finally, Technologies. This group is also experiencing growth in revenue and earnings, albeit not at the pace experienced by Aerospace and Marine Systems. Revenue of $3.6 billion is an increase of 4.1% over the second quarter of 2025. Both businesses contributed respectable growth, but Mission Systems led the way. Operating earnings of $339 million are up 2.1% over the year-ago quarter. Operating margin decreased 20 basis points from 9.6% to 9.4%. The group's order activity was also encouraging with a book-to-bill of 1.1x for the quarter and 1.3x for the trailing 12 months.
Danny Deep : Growth in Mission Systems came from across the portfolio, most notably in Land and Air Systems and in their international portfolio. The international portfolio was up more than 35% since 2024, and we expect that to continue to be a key driver of growth for the year and beyond. In IT services, we've discussed elongated procurement cycles and that continues. But a real bright spot has been GDIT's success in capturing programs under agile contracting mechanisms such as other transaction authorities, or OTAs. GDIT has submitted and won more OTAs in the first half of 2026 than for all of last year.
Phebe Novakovic : So let's turn to guidance for the rest of the year. At the outset, I want to review what we've told you to date. In January, we told you to assume an EPS range of $16.10 to $16.20. In April, our updated guidance for 2026 was an EPS range of $16.45 to $16.55. With that as a predicate, let me proceed to provide our operating forecast for the remainder of '26 with some specifics around our outlook for each business group and then a company-wide roll-up. For 2026, we now expect Aerospace revenue of around $13.8 billion. Gulfstream will still deliver about 160 airplanes. There is some potential upside delivering large-cabin aircraft and some risk on the 280 deliveries for obvious reasons. We anticipate a 14.7% operating margin for the year. The third-quarter operating margin will be about the same as this quarter with a better fourth quarter. In Combat, we expect revenue of about $9.8 billion, coupled with a 13.8% operating margin. As noted earlier, the Marine group has been on a remarkable growth journey. Our outlook for the year now anticipates revenue around $18 billion with an operating margin for the year of 7.4%. In Technologies, we expect revenue of $14.1 billion and an operating margin of 9.4%. So for 2026, company-wide, we expect to see revenue of approximately $55.7 billion and operating margin of 10.5%. You've already heard Kim's commentary about our estimates for cash flow for the year, tax rate and interest expense. All this rolls up to an increased EPS forecast of $16.80 to $16.90 for the year. To wrap up, as we go into the second half coming off a very strong first half, we feel very good about the potential for the second half and the full year. Nicole, back to you.
Nicole Shelton : Thank you, Phebe. [Operator Instructions] Operator, could you please remind participants how to enter the queue?
Operator : [Operator Instructions] Your first question comes from David Strauss from Wells Fargo.
David Strauss : Maybe, Phebe, with the backlog increase that we saw this quarter at Aerospace, could you talk, maybe in terms of years of production, how far out that extends and how much you could take production up from kind of current levels to start to eat into that backlog?
Phebe Novakovic : So you've followed us long enough to know that some time ago, we ceased giving you the details about model and years out. That became a very competitive issue. But look, we will -- the supply chain has stabilized. We're getting -- coming down our learning curves on all of our products. We're still working through some of the challenges on completion. So it's just a question of pace. So we'll take all of this into due consideration and give you some real clarity next year what to expect.
David Strauss : Okay. And a quick follow-up on Marine. It has consistently exceeded kind of expectations and the growth outlook that you've outlined. And it looks like for the rest of the year, you're forecasting kind of minimal growth in the second half of the year. Maybe if you can just talk about kind of the longer-term trajectory here. I mean I know it's law of large numbers at this point, but is there a reason to believe that Marine growth meaningfully decelerates kind of from the levels that we've seen?
Danny Deep : Yes. Let me take that one. I think the second half as compared to the first half is really just a function of material receipts, stuff that we received in the first half that we're actually now installing. And as you know, it's important to reflect that we've increased sales for 2026 over 2025 by almost $1.3 billion, which exceeded even what we thought. I think we'll see it continue to grow, maybe not quite at that pace, but certainly, we're getting up into, as you say, a law of large numbers. But we don't have any expectation that it will slow down much because there's just volume out there that we have to execute on. But it's natural tail off in the second half of the year compared to the first.
Operator : Your next question comes from Ron Epstein from Bank of America Merrill Lynch.
Ronald Epstein : So on Marine, just following up on Marine, where are we on build rate on Virginia-class now, right? I mean, are we still like 1.3 a year, 1.4? I mean, is there -- can you maybe put something around that?
Danny Deep : Yes. We don't typically give the exact build rate. We leave that to the Navy. But as you know, we're trying to get to 2 Virginia-class and 1 Columbia in the early 2030s time frame. And we're on that path, and we're actually where we expect to be at this point in the process.
Ronald Epstein : Okay. So you're making strides with the supply chain. It's my understanding that, that was one of the hurdles.
Danny Deep : Yes. I mean we have seen significant improvements in their pace and the cadence of delivery. I mean, there are still some challenging areas, as I think we mentioned in the last call, where we have single sources of supply. But generally, the supply chain is improving, and we're counting on it to continue to improve.
Ronald Epstein : Great. And Phebe, one for you. How are you thinking about the budget process now as we go into fiscal '27? You probably know the budget process better than anybody in Washington. How are you thinking about it? Like how should we think about it? It seems like there's so much volatility in terms of there is going to be reconciliation, there isn't; there's a baseline, there's not; there's midterm. So kind of broadly, how do you think about it?
Phebe Novakovic : Yes. So I would say that there are a lot more factors today influencing the budget than there have been historically. But from our perspective, a lot of our programs are funded in the base budget. But the reconciliation is important, because if you stop and think about it, weapons production has been on very low-rate production or fairly minimally sustaining production for quite some time. And in order to gear up production to meet the current threat environment, we need additional funds and the entire industry does. And so this is, I think, from a national security perspective, meritorious. So there are a lot of moving parts on all of this, and we'll continue to support our customers and the Congress as best we can.
Operator : Your next question comes from Myles Walton at Wolfe Research.
Myles Walton : Phebe, I was wondering if you can maybe talk about the M&A backdrop, which you haven't been as active in, in the last several years. But I'm curious if there's any interest in reengaging given obvious balance sheet strength, the DoD's relatively negative view on share repurchase overall. What does your M&A pipeline look like? What kind of properties would even be attractive to you at this point?
Phebe Novakovic : Nice try. Look, this is something we always look at and something we never talk about. I just think that's imprudent. But it's always on our mind. So you can rest assured about that. You want to ask another question?
Myles Walton : Would you say there's any shift in the way you look at it, even if you can't speak to it?
Phebe Novakovic : No. No, we've consistently looked at it this way when we have met some of our other obligations with respect to cash, or if there's a particularly attractive bolt-on out there. But we are doing what we always have done, it's understand the marketplace and see what if anything makes sense. But golly jeez, we just never talk about it.
Myles Walton : Okay. Maybe one that maybe, Dan, you can talk to, or Phebe, on the missile framework agreements. Have you seen in Combat, within OTS, much of that coming your way on second-source solid-rocket motors, particularly with some of the interest of aggressive dual sourcing?
Danny Deep : Yes. So we are a subcontractor, both at OTS and Mission Systems, to a number of the missile primes, and we have some content on all of the missiles for the most part with things like actuators and motor cases at OTS and guidance systems and other components at Mission Systems. So the framework agreements that the primes have signed up to, we have mirrored agreements with them to ramp up. And so we're, again, a part of the supply chain, but certainly not a prime there.
Operator : Your next question comes from Robert Stallard of Vertical Research.
Robert Stallard : This might be for you, Phebe, or for Danny. But it sounds like the supply chain across the group is getting better. I was wondering if you could confirm that. And if there are any areas of concern that still exist as you look forward to the rest of the year?
Danny Deep : Yes. I would say, broadly speaking, when we look across the areas that maybe we highlighted in the past that were causing some difficulties, there has been a noticeable improvement in the cadence. Areas of concern haven't really changed where we have single sources of supply for large complex components, and that can be somewhat of a pacing item. But when we look across the entire enterprise in each of the operating units, there has been a noticeable improvement in the supply chain, and that's a really good thing.
Robert Stallard : Okay. And a quick follow-up. There was some news overnight about the Virginia-class submarine Block VI being approved by the Secretary of the Navy. I was wondering if you could give us some sort of preliminary thoughts on how the next block of submarines could differ from Block V in terms of contractual terms or accounting or something like that?
Phebe Novakovic : So we saw that as well. We're told that these contracts will be coming soon. And when we get those, let's give you the clarity that you're seeking here. I think that's best done after the awards are granted.
Operator : Your next question comes from Doug Harned from Bernstein.
Douglas Harned : On Combat, you've gotten some really, really good increases in backlog. And as we had looked at this before, we saw a lot of the growth coming from European Land Systems. But now these awards are much outside of Europe. When you go forward, how do you see growth now across geographies? Do you have more optimism in a sense about growth coming from the U.S.?
Phebe Novakovic : So I think what we expect to see is double-digit growth continuing at European Land Systems given the threat environment and the demand for combat support vehicles as well as other systems, OTS because of artillery missile components, 155. And then within Land Systems, this is a transition period, as we talked about before, but the double-digit growth at OTS and ELS ought to drive high-single-digit growth for the group going forward.
Douglas Harned : And then switching over to Gulfstream. You're in a great demand situation, certainly working on the supply chain. But as you go forward, you'll soon have the full portfolio of G400 and G800 out there, how do you think of having that portfolio of aircraft with commonality? Which customers does that portfolio breadth particularly appeal to? And does it give you some margin opportunities ahead in pricing?
Phebe Novakovic : So we built this family of aircraft to satisfy the missions that we knew that our customers flew, and they're varied. Some customers want a suite of airplanes, from the large ones to the medium-sized ones, depending on where they fly, how they fly, and who they fly. There are others who are primarily driven by large cabin given their missions. And so we see -- this is the intent of this whole family of aircraft. So there are certainly some benefits as we continue to come down our learning curve there. And of course, as you know, we never discuss pricing, but from my point of view, given the broad spectrum of offerings that we have and will have once the 300 and 400 are out in the market, new product has driven demand. That's always been our view, and it continues to remain our view. This is a wholesome portfolio.
Operator : Your next question comes from Sheila Kahyaoglu with Jefferies.
Sheila Kahyaoglu : I wanted to ask 2 questions on margins. One on Aerospace. So on Aerospace, as we think about margins, up 100 bps from first half of '25. How do we think about the margin baseline from here, whether it's model mix? Phebe, I think you mentioned Q3 will look similar to Q2 given timing of higher G&A and R&D. How do you think about opportunities for upside for Aerospace margins from here?
Danny Deep : Yes. I think from a margin standpoint, as Phebe mentioned in her remarks, I think the third quarter will look a lot like the second quarter with the fourth quarter being the strongest from a margin standpoint. And that is, as Phebe mentioned, the fact that we're coming down the learning curve on all of the airplanes, but also due to favorable mix. And I think the margins, you can expect them to continue to be in that neighborhood with some slight variability all associated with mix.
Sheila Kahyaoglu : Okay. And then on Marine, you raised the margins up 10 bps. It seems small, but a big deal from where you guys have come from. I guess, can you provide an update on where the workforce supply chain is from here on Marine? Any risks? And is this a good baseline to work off of?
Danny Deep : Yes. From a workforce standpoint, we've been really pleased with our ability to attract and retain the necessary number of workers in our shipyards and...
Phebe Novakovic : And the Navy has been a help.
Danny Deep : And the Navy has been a great help with that in a lot of different ways. And so from a ramping standpoint, we are hitting exactly what we need to hit from a resource standpoint on that front. So very positive from that perspective. And then as you mentioned, from a margin standpoint, the improvement in margin is a function of throughput and improvements on the deckplates and with the supply chain improving. And we can expect that, that will continue a slow, steady drumbeat as we continue to focus on executing.
Operator : Your next question comes from Seth Seifman with JPMorgan.
Seth Seifman : I wanted to ask about -- like, of course, most of our conversations tend to revolve around subs, but you talked about the high percentage growth in surface ships, and it was pretty nice growth in the first quarter as well. When we think about the growth potential for that portion of the business over the next several years, given what's been in recent shipbuilding budgets and what may be ahead of us, is there any way to dimensionalize the growth opportunity outside of the submarine portion of the business?
Phebe Novakovic : Yes. So at Bath, growth will continue as we improve our throughput and productivity, which they are doing and have done materially over the last few years. And at NASSCO, again, it will be driven by increased demand and coming down our learning curves on the oilers and other support and supply ships. NASSCO is very well positioned and has been for some time. It's a high-performing shipyard, and it has the capability, design and manufacturing capability to design and produce complex auxiliary ships, sub tenders, oilers. So we like very much the positioning that NASSCO is in, and we see some growth there as well with additional product coming in, because they have additional capacity, by the way.
Seth Seifman : Excellent. Very good. And then one follow-up on Technologies and GDIT. We've seen the administration be very vocal about a desire to shift to fixed-price contracting. When you think about the impact there for GDIT, how quickly do you see that change happening?
Phebe Novakovic : So we've always encouraged fixed-price contracting when it's appropriate and the customer is interested. So we see additional interest in fixed price, which we welcome. And we're also very interested in agile acquisition programs and pipelines that allow us to bring product quickly to our customers. GDIT is very fast in what they execute, and their investments that they've made over the last few years have well positioned them in the marketplace.
Operator : Your next question comes from Gautam Khanna with TD Cowen.
Gautam Khanna : I was wondering, Phebe, if you could opine on Aerospace margin potential a couple of years out. I know, about a year or 2 ago, you did. I mean, you did it then.
Phebe Novakovic : We haven't -- let me interrupt you, because we haven't given you, I think in the whole tenure of this leadership team, any kind of out-year. I think once or twice we've given you some out-year color. We're not going to go there on margin. But let's just say both Jet Aviation and Gulfstream are high-performing companies, and they'll continue to improve over time. You can ask another question.
Gautam Khanna : Yes. Just relative to prior peak, given the model introductions you're doing, et cetera, is that a reasonable baseline to prior peak margins?
Phebe Novakovic : Look, the prior -- yes, again, I'm going to interrupt you, because the prior peak was really all around 1 product, and this is now a portfolio of products. From large cabin to midsized cabin, they carry different margins with them. By definition, they do. So it's a more complicated, more robust and I think, frankly, a richer product offering for the market to avail itself of, and we're seeing that. So we're not going to get into the business of how good can it get at the moment, but you will see continued performance within this construct of this new business model that we've got as a result of the investments we've made in these family of aircraft.
Gautam Khanna : Great. And then just on the shipbuilding contracts, the submarine contracts you're awaiting, is there any -- like what forces the urgency on the customer side to place the order? I just wonder what capabilities are lost if they delay? Because we've been waiting for quite some time. I'm sure you guys have been aware that the Street has been expecting these for about a year now. And I just wondered what consequence happens if we go another quarter?
Phebe Novakovic : Yes. I think the customer and the submarine industrial base are aligned around the need for getting these contracts out, particularly to stabilize the industrial base and to ensure that we continue to have long lead material for these contracted in advance of these long-term development programs. But as I noted, we're told that the contracts will be coming soon. And so we're confident that when they come out, I think it will be as we expected and very welcomed by the supply chain in particular.
Operator : Your next question comes from Kristine Liwag with Morgan Stanley.
Kristine Liwag : Phebe, I want to dive in a little bit deeper into GDIT. In the past few quarters, you've talked about how AI was a big driver of growing demand, particularly in defense. So when we think about these AI models maturing and pilot programs going to larger product deployments, how do you think about the role of AI? And how is GD positioned in that ecosystem? Ultimately, is this more of an acceleration of earnings growth for now? Or do you think operational efficiencies in AI could potentially shrink the addressable market?
Phebe Novakovic : Are you asking across the company as a whole or GDIT?
Kristine Liwag : Maybe GDIT in particular for this question.
Phebe Novakovic : Yes. So let's step back a minute and remember how GDIT has been strategically thinking about innovation in general for the last few years. And they've invested in what they call their digital accelerators, which we've talked about before, including an early focus on AI and automation. And that focus has provided them the skills to build and secure and connect the latest technologies and apply them to a growing number of agencies and systems. And what we're seeing is AI tightly integrated in with cybersecurity and opportunities that, frankly, are spanning most of GDIT's portfolio. It also helps to have deep and rich relationships with a number of the OEMs and partners. So GDIT has been very agile in its strategic, I think, planning as well as implementation of AI and automation as well as other important technology improvements.
Kristine Liwag : Great. Super helpful. And Phebe, my follow-up question, I know it's longer term, so maybe you won't answer it, but I hope you would. When we look at the pricing model for Aerospace, it's clear that in the past decade or so, we've seen the premium end of the business jet market really more look like the luxury market. In the luxury market, you see margins north of 20% EBIT over time. I guess with your portfolio, which is arguably the strongest brand, and also with the refresh of the portfolio, it is really unique in the market. Is there upside to your pricing power over time where you can get towards those luxury-type margins? I mean, it is much harder to build an aircraft versus handbags and champagne, but those guys have higher margin.
Phebe Novakovic : I got you. So I'm going to quarrel with you on 1 word, luxury. I would argue that is a misapprehension or characterization of these, but really are tools. And for almost all -- for all of our Fortune 500, Fortune 100 companies and both public and private, they are business tools. There are some high net worth individuals who participate in the market, but even they will tell you -- even in those cases, they'll tell you this is really about efficiency -- safety, efficiency and efficacy in doing their jobs. So I think that's important. These are not luxury yachts that sail around the Mediterranean. These are airplanes that get the job done for our customers, whatever their mission is. So look, we are well-positioned in the marketplace because we have all these new products that we've heavily invested in and that we are producing and producing at scale and well with the attention we've always had on quality and safety. So I think by definition, that positions us well in the market without getting into any specificity about out-year margin performance, but we believe in the capability of both Jet Aviation and Gulfstream to continue to improve and continue to produce with this family of airplanes. Does that help you?
Kristine Liwag : It does. Thank you, Phebe.
Operator : Your next question comes from Scott Deuschle with Deutsche Bank.
Scott Deuschle : Danny, are G700 margins approaching mature levels at this point? Or is there still a meaningful gap between where margins are today on G700 and where mature margins might ultimately land?
Danny Deep : Yes. I think we're still coming down the curve, specifically around completion. So I think there's still more opportunity, and we're seeing that both on the G700 as well as the G800. So I think there's still more room for them.
Scott Deuschle : Okay. And then Phebe, can you share an update on the G300 and G400 development time lines, and your latest expectations as to the timing of EIS for each of those aircraft?
Phebe Novakovic : Yes. Well, as you know, I'm no longer in the business of estimating EIS given that the regulators set the pace. But with respect to the 300, and thank you for raising that because I think it's important to recognize that we're going to have a gap in production from the end of the 280, which the final 280 ought to deliver in the second quarter of next year, and the onset of the 300, which late '27, early '28, somewhere in that. And so we'll have a planned production break, so that if you infer from that quite correctly, that we'll talk more about large cabins next year. On the 400, we've whipped up our efforts on the 400, and we'll have more to say over the next couple of quarters about where we think the 400 will be, but these new airplanes are coming, and we're pretty excited about it.
Scott Deuschle : Does that production break create any kind of absorption pressure that we should be aware of?
Phebe Novakovic : No, not given the agreement we have with our partner, who, by the way, has, in this environment, continued to perform beautifully and has its relentless excellence emphasis on quality. But for obvious reasons, some production may lag a little bit at the end of this year. And then we have this bit of a gap on the 300.
Nicole Shelton : So Dara, I think we have time for 1 more question.
Operator : Our last question comes from John Godyn with Citigroup.
John Godyn : I wanted to just double-click on Aerospace supply chain, if you don't mind. Obviously, it's humming for you guys. There are other players out there that have been struggling a bit. Do you feel like you guys are doing something special, obviously, executing well, but special, or perhaps the issues that we're seeing elsewhere are idiosyncratic to those companies?
Danny Deep : Yes. I can't speak to the situation at some of these other companies. I can tell you that for the major components, Gulfstream has a very clear relationship that has really given the supply chain visibility into our production plans for whatever period is appropriate. And so they are able to keep up now, and our expectation is they will be in the future as well. So I don't know what the others are seeing, but we're pretty tightly integrated with these key suppliers, and they're keeping up.
Phebe Novakovic : And their ability to -- the supply chain's ability to continue to produce and produce on schedule has been very helpful in ensuring that we continue to drive our orders. And orders were, of course, a big component of our -- a significant component of our cash for this quarter. So it's really a team effort between Gulfstream and its suppliers.
John Godyn : Excellent. And if I could just ask a follow-up. Earlier, Ron, Phebe, asked about the outlook for Defense, and you mentioned the resiliency in the portfolio. I just wanted to re-ask that, but with a focus on the Technologies portfolio specifically. Maybe you can speak a bit about the sensitivity of that portfolio to extended CRs or alternatively to the upside, a budget environment that's more in the direction of Trump's request?
Phebe Novakovic : So we have handled, in the Technologies group, which are both fairly relative to our portfolio at large, faster cycle businesses. We've managed the CRs pretty well. So I would expect us to be able to do so as long as they're not too extended. I think both businesses are poised for some growth. Particularly, Mission Systems, as you recall, has gone through a transformation from a lot of legacy systems into investments in new programs and new products, and that is beginning to take off. So we continue to see continued strong growth there and the steady growth that we have seen -- steady incremental growth we have seen at GDIT. And look, they've got a pretty robust pipeline at about $120-plus billion. That's a qualified pipeline out there. So that positions them well to continue to perform across their hundreds of programs. That's both for Mission Systems and GDIT. And it's all about your ability to meet your customers' needs quickly and with excellent products and quality on time.
Nicole Shelton : Great. Well, thank you, everyone, for joining our call today. As a reminder, please refer to the General Dynamics website for the second quarter earnings release and highlights presentation. Finally, we want to let you know that we expect to hold our Q3 earnings call on Friday, October 30, at 9:00 a.m. We will resume our normal schedule for the fourth quarter call. If you have additional questions, I can be reached at (703) 876-3152.
Operator : This concludes today's call. Thank you for attending. You may now disconnect.
