Honeywell International Inc. (HON) Earnings Call Transcript & Summary

Perfect. A warm welcome to everyone. My name is Markus Mittermaier. I'm the multi industry and electrical equipment analyst here at UBS. And it's great to see everyone in 3D for a change. It's been way too long. So welcome to our Global Industrials and Transportation Conference. And I'm delighted that we have Mike Madsen with us today, President and CEO of Honeywell Aerospace. We also have Dan Satterfield here, we just found out that we actually go back at the same place, Siemens, 2 decades ago. It's kind of interesting, small world. And Sean Meakim here from Investor Relations. A couple of logistical items. You have a little bar code on your table. You can scan that with your phone and through that, a page opens and you can submit your questions. And I see them here on the iPad, and I'll throw that in as we go along. What I plan is to talk about supply chain, margins, market dynamics, commercial recovery and some strategic items in the end. But if you have anything on those topics or anything else, just please submit them through the tool. With that, Mike, welcome. I'm delighted to have you. And I think you have some opening remarks, and why don't we get going with that.

Yes. Thank you. I'll just kind of briefly go through a few slides to set the stage, and we'll get right into some Q&A. So first of all, a few things that I would say just from an overview perspective. I think the setup that we have right now for aerospace as an industry and for Honeywell specifically is tremendous. I've been in this business a long time, and I can't recall a macro environment that's actually more attractive. There's always some headwinds and some challenges, but things look pretty good coming out of the pandemic. We're seeing already very strong demand. It's been sustained for a while now in business aviation, but strong demand starting to come back in air transport. Summer travel schedule is looking strong and the defense budgets have become much more clear and predictable, I think, over the next few years now. Our position in terms of cost is outstanding. I think you look at our margin rates, industry-leading and still a lot more runway there in terms of cost, and then we'll talk a little bit about that. But we see an expansion to 29% operating income within the next few years. We don't talk a whole lot about our defense platform, but Honeywell has a tremendous position on defense platforms on the F-35, of course, but also the ground-based strategic deterrent, the B-21 national programs. We recently announced a selection by Boeing-Sikorsky on the FLRAA program with the engine content there and the APU as well. I think we've talked a bit about our UAM and UAS investments and wins there. This chart is about 3 months old, and it's already outdated. That win rate is up over $4 billion now in terms of total business. Recently, about 7 months ago, announced a new cockpit, the first major, I think, breakthrough in this area that we've seen in the industry in many years with a connected cockpit that has a high degree of user tailorability to it, which I think will be very interesting in all the market verticals. And then, of course, productivity. We're all about productivity and execution, continuously looking to drive stronger execution and stronger productivity through execution. As an example, 75% of our customer transactions right now are machine to machine. We have one instance of SAP, ERP across our entire business. So I can get reports on any site, any product, any customer any time of day. It makes Dan and I's job a lot easier in terms of running the business and breakthrough initiatives, which we'll talk a little bit about. Exciting market outlook. I mentioned it. We're seeing this year a likely outcome, a double-digit percentage growth in the air transport space, mid-single digits in business aviation and low single digits in defense. Air transport, strong growth in the OE side as well as flight hours. Business aviation continued flight hour growth on the back of a tremendous year last year, but also very strong OE growth and then kind of mid- to low single digits in defense as that situation has stabilized over the last 12 months. Tremendous positions on a lot of attractive platforms, the 37 MAX (sic) [ 737 MAX ], the 320neo (sic) [ A320neo ], the A350, where we have the entire mechanical perimeter there. And in the middle, I'll talk a little bit about decoupled revenue. Our goal is always to grow faster than the market. One way you do that is through price. But another way you do that is by growing in ways that are not coupled to flight hours and aircraft deliveries. We did over $800 million last year. We'll do more than that this year. 10% growth in that space. So this is mods, upgrades, connected services, work that we can take and gain and grow where we're not connected to an aircraft or flight hour growth. A little bit about our investment priorities. I mentioned this in the Investor Day a few months ago. Next-gen UAM -- excuse me, Next-gen navigation for defense and UAM. This is optical navigation, ultra-low cost, ring laser gyros and higher-performing MEMS devices, think in terms of getting to Navgrade capability with a MEMS device and the size, weight, power that, that provides. The cockpit that I mentioned, we talk about it in the context of business aviation in UAM, UAS, but it's actually a cockpit for every market vertical, including defense. Military turbo shaft with the FLRAA win, that's a $30 billion-plus program over the next 40 years. But also a derivative engine on the T55 that we have developed for the Chinook helicopter that will be available within a few years to install on that platform to keep it viable. Lower right here, I draw your attention to vapor cycle cooling systems. As we go forward in the technology space, we're going to see aircraft move away from engine bleed, bleedless engines are going to become the norm, more electric power. So power generation is important, but also ways to pressurize and cool the cabin. And we're developing those systems today, again, for every market. And then I mentioned the decoupled revenue. You can see a picture there of a solid fuel -- hydrogen fuel cell. This uses a solid fuel cartridge rather than compressed hydrogen or liquefied hydrogen, makes it much more convenient from a logistics standpoint. And people ask me, what do small fuel cells do? I say they'll do everything that a battery will do for 1 hour, they'll do for 8 hours. So it's pretty impressive. We talked a bit more about our UAM/UAS wins here, again, up over $4 billion with the win that we just announced with Lilium on the propulsion system, our partnership with DENSO there. Very excited about that. But also fly-by-wire, compact fly-by-wire avionics systems, sense and avoid detection systems, detect and avoid systems, multifunction cooling systems and of course, navigation. We believe that autonomy is the wave of the future, not just in these vehicles, but in mainstream aircraft as well, and we're developing the technologies and introducing the technologies that will make that possible. Sustainability, we've got to talk about sustainability. A lot to offer here from Honeywell, both within my product portfolio, but also the broader Honeywell portfolio, sustainable aviation fuels by 2025, we'll have our APUs running on those and certified to run on 100% SAF. They're already certified for 50% SAF. Of course, we're also actively involved in the production of sustainable aviation fuel through our UOP division. Software, flight efficiency software available today that can save 5% on fuel and carbon emissions per flight as well as making flight more safe. More electric, we can see a picture there. We just recently completed testing, successful testing of our 1-megawatt generator. You think about power generation is going to become increasingly important on these aircraft as they rely less on power extraction for hydraulic systems and pneumatic bleed. And then the fuel cell, you can see a picture there of our small 1-kilowatt fuel cell that we have today for unmanned systems. So a little bit in summary. When you look at our investment, investment continues. People sometimes ask me, "Hey, Mike, are you getting that 27% to 28% operating income on the back of investment?" No, the answer is we continue to increase investment. We can do that because we've done a good job on our fixed costs. Our fixed costs are in order. Our systems are in order. Our automation and digitization is in order. We can focus on investment now. We're not focused on trying to get caught up on fixed cost reductions. The industry is recovering. We're seeing very strong flight hour growth right now in the air transport space, but a lot more to come. If you look at our flight hour posture right now, I would say narrow-bodies are at about 80% to 85% of normal if you think about a 2019 environment, but wide-bodies are still only at 50%, 55%. And we get about 3x the amount of revenue on a wide-body flight hour than we do from a narrow-body. So a lot of tailwind to come there. And then execution, 100% free cash flow conversion is always our role. Over 25% sustained margins through the pandemic. Better than that now with a 29% mid- to long-term target there. So with that, I'll turn it back over to you.

Great. Fantastic. That's a great [ initial overview ] and we'll come back to a lot of those points, I think, and quite impressive that you ran all of this on 1 ERP system. We don't see that often.

Maybe I'll start with some short-term questions and make my way to the longer-term questions here as we go through the discussion. Obviously, short-term, a lot of focus on supply chain. Be it titanium, we talked a lot about this over the last few earnings calls in light of VSMPO. But can you just give us a sense where we stand? Sort of like has anything changed from the last time you spoke at the Investor Day [ and at the ] earnings?

Yes, there's no question that the supply chain is a challenge for the industry, not just our industry, but all the industries right now that we're seeing. Just go to the grocery store, you can see that. But I would say there's some reason for optimism. I'm seeing improvement this quarter versus last quarter. I don't know if the challenges have peaked yet or not. I do think that we're going to see more recovery in the back half of this year and as we go into 2023. But we are seeing more output from a supply base. And it's worth mentioning that it's not -- we talk about -- you hear people talk about the microelectronics, and that's certainly a challenge. But it's not just limited to that. We're seeing challenges in castings, forgings, machining, bearings, precision components primarily labor-driven with the smaller and midsized companies and what they went through in the last couple of years. Very closely involved with our supply base, helping them find labor, helping them produce product where we can. And so I'm optimistic that as we get into the second half of the year that, that's going to start to gradually improve. From a titanium perspective, we're in pretty good shape. Honeywell had very, very little reliance on Russian sources of titanium and that which we did, we've managed to decouple from at this point with alternate sources for that product. And we've done that review through our supply base as well. So I feel pretty good about that.

Great. And is there any sort of like marked difference between, say, the commercial side and the defense side on things like castings, forgings or is it [ unanimous ]...

It's pretty similar. Pretty similar, I'd say what you see, the challenge on the commercial side is volume is higher. The challenge you see on the defense side is the product technologies tend to be older and a little more difficult to produce, but fairly evenly mixed.

Got it. Okay. Great. Then maybe on to margins, you highlighted sort of like the margin targets here. We had Q1 down slightly 27.4%. I think on negative mix, we had higher OE in there. How should we think about that? Sort of like how can you offset sort of some of the raw material challenges through pricing that cadence to the 29%? How should we think about that here over the next quarters and years?

Yes. It will be a little bit lumpy. We do expect -- and I think we mentioned in the earnings call, we'll probably see a few clicks down on margin rate in Q2, not 100 basis points, but not 0. And then starting to improve again in Q3 and Q4, particularly as we get more volume leverage. We're seeing volumes up in Q2. It will be up a lot more in Q3 and Q4. And that always helps because you can leverage your fixed cost to a greater degree then. So that's how I see that evolving and then steady improvement as we go into next year. We talk a lot about the fixed cost reductions to enable that, but there's still a lot more juice to be had there. I look at digitization of our planning and purchasing processes as a big opportunity and then working with our supply base to shorten lead times, which has a benefit not only in terms of cost, but delivery as well.

Got it. Okay. And then on to maybe current market dynamics. You mentioned sort of like in your prepared remarks, the narrow-body utilization and wide-body. To what extent does maybe China give you a little bit of pause in your optimism here? We have obviously had lockdown, things look better now most recently, but how do you -- how important is China here for the outlook for the rest of the year?

Yes. It's an interesting question because when you think about China, you think about flight hours within China, but you also think about the effect it has on international travel to and through China. When we've added that all up, it's somewhere between $50 million and $100 million kind of on a gross basis for us in terms of impact on the year. So less than 1%, certainly, but then we're able to redeploy some of that material to other markets that have orders that have not gone through. So it's actually a pretty small effect for us on the year. We're all hoping that it will clear up soon, that the COVID situation will ameliorate a little bit in China and we'll start to see those markets unlock, but time will tell on that.

Got it. Okay. And on the business jet side, sort of the current up cycle and the benefits you saw during COVID, how do you see that sort of extending going forward? And how long does it take for that to be in the P&L? I mean, it's already in the P&L, but at what point do we reach sort of like peak impact on the P&L, right? Sort of what's the delay function between flight hour and P&L on bizjet?

Well, let me take that one first, and then we'll come back to the general market question. On the business aviation side, our revenue picture is pretty close [indiscernible] to flight hours. The majority of the aftermarket business that we have in the business aviation space is on a cost per hour type program. So we build revenues as the flight hours accrue, and it tends to be on one to one. There's still a portion of that business that's event-driven. And so you do see some lag, maybe 3 to 6 months from the time the OPTEMPO increases until the time you start to see an increase in repair events. But that's a much smaller part of that business than it is in, say, the air transport space where it's more 50-50. So it's pretty closely coupled. So we're seeing that now. We saw it last year. Very strong growth in flight hours. Very strong growth in aftermarket revenue there. Still growing, not as rapidly as it did last year. Flight hours are already well above 2019 levels in that market, and I don't see that reversing, honestly. I think there's a lot of -- it could be argued either way that, that could change. But what we saw was premium cabin passengers move from airline service, first-class airline service, into a private aviation experience, and that's been enabled through a lot of the products that the fractionals offer, cards and so forth. I don't see that going back. What I see is, as business travel, particularly international business travel recovers fully, we'll see a continued slight uplift in flight hours in the business aviation space through the balance of this year and into next year. But I think once people move from that first-class cabin into a private aircraft, I don't think they're going back, most of them. So it's a hard change. There you go.

No. Great. Maybe on Defense & Space. You mentioned sort of like that low single-digit kind of growth environment. Given what's going on in the world, all the unfortunate events, Russia, Ukraine, et cetera, I think you had flagged about 1 billion of very short cycle exposure in that business. How do you see sort of like that near-term demand picture evolve in D&S?

Yes, I do see some upside coming from that. I'll say right upfront. It won't be the kind of uptick that we saw, say, in 2002 and 2003 when the U.S. made its foray into Afghanistan and Iraq and the big uptick that we saw in purchasing there with budgets going up $200 billion in the U.S. I don't see anything like that. But I do see an uptick as particularly in 2 frames. One is Western European countries start to bolster their stockpiles of tactical equipment and then also probably some purchase volume from places like Poland, we'll start to see. We're already seeing -- you see the traffic around Javelins. We've started to have inquiries from customers about products for those kinds of platforms. I think we'll see most of that turn into revenue in '23 and even into '24, probably not this year. It will take a little while for the purchasing to work its way through the system and the equipment to materialize and be sold. But again, not hundreds of millions of dollars, smaller than that, but not negligible either. Unfortunately, I would say. It's an area where I'd rather not be growing the business.

Right. Yes. Got it. Maybe on commercial recovery. I see Miles back there. I'm sure he's going to be interested in that question. To what extent are your production rates aligned with Boeing and Airbus? How should we think about that one?

First of all, very closely aligned. We have a great collaborative relationship with the team and Jürgen Westermeier's team at Airbus and the team under Bryan Barrett at Boeing weekly, literally, and sometimes more frequently, very tightly connected with what's going on, not only in terms of their aircraft delivery rates, but also the build rates and the inventory position they have on our equipment. So it's very, very tightly aligned. Now that said, you can't say, well, there goes the 737, Honeywell sold an APU because there are white tail aircraft, there's material inventory. We have all of that built into our SIOP process, and our financials reflect that. So it's very tightly aligned. I think the thing that we're going to see is that the aircraft deliveries and our shipments will start to recouple over the next 18 months as the MAX deliveries accelerate and as the 87 (sic) [ 787 ] delivery and backlog starts to come down. I think there's still over 100 787s there. So that's quite a few aircraft. But very tightly aligned. I give a lot of credit to the Boeing and Airbus team, all of our OEMs, really, for that alignment.

Okay. Great. And then you mentioned this in your prepared remarks as well that the fact that on the wide-body side, you have 3x higher sort of dollar exposure per flight hour. And we have 55%, I think you said. How should we think about sort of your mix between passenger and freight in that segment?

Yes. It's -- first of all, it doesn't change things a whole lot for us whether the aircraft are being operated -- if you think cargo operation, whether you're using them strictly as belly cargo aircraft, or whether they've put cargo into the passenger section of the aircraft or whether they're flying them as passenger aircraft, for us, a flight hour is a flight hour is a flight hour. What we are seeing, of course, is as those aircraft start to accommodate passengers, more of that freight is moving back into the traditional carriers. But it doesn't really change the revenue per flight hour very much for us in any event. What we're seeing is if you think about this in a normal year, say, '18, '19, it's hard to remember what's normal. But '18/'19 time frame, you would see about 75% of global flight hours consumed by narrow-body aircraft and 25% by wide-body. Right now, it's about 85-15. And again, the widebodies are only operating at about 55% of where they were. So as that comes up, that's going to have a big impact as things shift from passenger freight to traditional freight or -- and passengers occupy those aircraft, it won't change things very much in terms of the revenue picture for us.

Great. Perfect.

I do think we're going to see that there's a shortage of freight aircraft because a lot of freight has been getting moved. There's been a systemic shift here, right? People are buying more things online. It was going that way anyway. Anybody go to the mall lately? Anybody even know if there is a mall? I actually went to the mall to go to the Sears to buy some tools and I realized the mall was gone. It doesn't even exist anymore, like don't tell anybody I did that. But the point is, is that trend was occurring anyway, it was really accelerated by COVID right? So people buying things online. What that's going to mean is more -- you might say, well, still the same amount of stuff, but more stuff has got to get to your house now instead of to the warehouse or to the store. So freight in general is going to increase. All forms of it. And as these aircraft go back into passenger service, this isn't all that profound, right? There won't be that many passenger aircraft to carry the freight. So there's going to be a need for more freight aircraft, conversions of older aircraft. And I think one of the things we're seeing is I think that's going to help offset a little bit of what might otherwise happen with the retirement of older, not old-old, but older narrow-body and wide-body aircraft, think 67s (sic) [ 767 ] and older 777s. Some of those are just going to go into freight service.

Right. Interesting. Okay. No, great. Before I switch to some more of the longer-term strategic questions, if there are any questions in the room, feel free to submit them here, and I'll ask them for you. If we sort of like take the 30,000-foot view for a moment here and you think about all the platform exposures you have, be it bizjet, commercial defense, how do you think about that today strategically in terms of white spaces and areas you sort of want to focus on over the next years?

Yes. First of all, we always try to develop families, technology from a family standpoint. I get the question a lot on UAM/UAS space is how much risk are you taking there? The answer is really very little. First of all, we vet the companies we work with. There's hundreds that are in this space, and we try to select very carefully those we work with. Second is we try to ensure that the products that we're developing for that space are applicable in every market vertical. So vapor cycle cooling for the cabin, same system can be used to cool a directed energy weapon laser system or a business aviation cockpit. Same way with power generation, same way with the navigation devices that we're developing. So when we look at the defense space, when we look at the commercial air transport and business aviation space, same thing. We try to develop technologies that can be reapplied in areas. Where I would say the focus is for all of those market verticals is on more electric, power gen, power distribution and then the devices that will have to be available to accommodate a more electric aircraft, like cabin pressurization. Cabin pressurization today occurs through an air cycle machine that takes bleed air off an engine. That's how the cabin area is cooled. That's how the cabin is pressurized. Another 10 to 20 years, those systems are likely going to go away. You're going to have an air pump and a vapor cycle cooling system similar to what you have in your car or refrigeration system. That's what we're developing today. We see those as being applicable immediately in the business aviation and urban air mobility space. Hence, we're going there first. But it will occur in air transport. On the defense side, next-generation navigation will be a big part of what we do. What I mean by that is non-GPS technologies. We're already the world's leader in inertial navigation with ring laser gyros and MEMS devices. We're focused on taking those MEMS devices and making them perform as well as a ring laser gyro at a fraction of the cost and weight, and then taking a foray into with partnerships here, optical navigation devices that we can couple with those. So now you have GPS, of course, but in a GPS-denied environment, the ability to do both optical as well as inertial navigation. So a big focus there. Business aviation, of course, sustaining our leadership position in the cockpit, auxiliary power units and also looking a bit at wheels and brakes. We don't talk a lot about wheels and brakes. We have a great wheels and brakes business in the air transport space. We'd like to do more on narrow-bodies and business aviation there, too, possibly through a partnership.

Interesting. Okay. I actually got a question from the audience. Is the space race on your mind? If so, how? And how material could that...

Yes, it is. Space is a very interesting environment. It's been interesting for several years now as commercial entrants like Blue Origin and SpaceX have really displaced state-owned entities, if you will, for launch vehicles and increasingly for on-orbit systems. What we're looking at there and what we think is an attractive space for us is in the area of the bus. We've historically not been a payload provider, we're a bus provider. RF systems stabilization in pointing systems and now working with companies like [indiscernible] to be able to develop an integrated attitude control system, a critical component of the bus that we could then replicate across multiple satellite constellation. So really like that space. And then, of course, continuing to participate in areas like manned space, where we have the system on the Orion launch -- or the Orion vehicle, the navigation and cockpit systems for that and launch vehicle systems as well, particularly in the launch vehicle space around propel and control and electromechanical actuation.

Interesting.

So staying close to what we do well, but maybe doing it in a more integrated way to take risk off of the plate of some of the smaller companies that are now doing network as compared to the old days.

Interesting. So a lot of potential sort of new areas and growth areas, right? The key question, obviously, that investors then wonder about is, okay, 29% margin target, right? CapEx, R&D expenses, et cetera. I assume that is all baked into -- all these initiatives you highlighted is baked into that outlook. How should we think about sort of CapEx needs maybe the next 3, 5 years?

Our CapEx expenditures tend to be fairly steady, a relatively large portion of that is used to sustain existing business, I don't know, 20% to 25% of it is for new business. It tends to be different things, but it goes up and down a little bit, but not a lot. The bigger area for us will be growth in the investment space, IR&D. We expect to continue to grow our IR&D expenditures, both in dollars as well as a percent of sales. And that's baked into that operating income expansion plan. We will see 29% operating income with a fairly significant and healthy increase in IR&D spend as a percent of sales. And we can do that because every dollar we're generating now, 27% falls to the bottom line. I'm not siphoning it off to fix my ERP system or to consolidate footprint towards integrated businesses. A lot of that's behind us.

Perfect. One of these growth areas, I want to double-click on a little bit, urban air mobility or unmanned aircraft. I think you talked about EUR 3.5 billion of content wins in this area. And I think EUR 2 billion, if my notes here are up to date, in revenues by 2030. What needs to happen? So what's the critical path? Obviously, there's a lot of sort of smaller companies involved here. But like how do you think about the critical path for that to happen?

I think there's 2 things that we watch very closely there. The first one, of course, is making certain that our customers are meeting their milestones. We view this as a partnership. We're watching their performance as much as they're watching ours. We work very much shoulder to shoulder as a team with our -- Pipistrel, Lilium, Vertical, Archer, all the folks we're working with. We want to make certain that they're staying on track because if they don't win, we don't win. If they don't succeed, we don't succeed. So watching their milestone adherence when have they gotten through CDR, when have they gotten through first flight, when have they gotten to a certification status. That's one. And then kind of related to that is the regulatory environment. The regulatory environment is still shifting around. I would say right now, EASA, the FAA, Transport Canada all have a slightly different view on how to certify these vehicles. We have actually tended to pick partners who are working to the higher or highest certification standard. We think that's a safer approach. It's going to take more time. It's going to cost more money, but we know their vehicle will be operable in almost any environment as opposed to someone who's pursuing a cert that doesn't reflect rotorcraft requirements or maybe as a Part 23 cert. So we've tended to focus with customers that are going to meet this higher standard. It's taking a lot more effort for things like HERF and lightning and all of that. But we know that the systems we develop will be in good stead when we do that. That's what we're watching. I say this all the time, it's fundamentally not a technology problem. We have no problem putting boxes on an aircraft today, pushing a button and having it fly across the country and land. That's a very doable thing. It's the regulatory environment and getting the aircraft certified.

And as you work with sort of like these companies that you've mentioned, sort of, obviously, different sizes, right? So like what I was wondering comes back to Dan, sort of like what we discussed before around the interface of working with smaller companies while in a big corporation. How do you make sure that you have enough agility within Honeywell to really sort of not ending being sort of the bottleneck on your side, right?

Yes. The way we made a decision that turned out -- you know the old thing about a blind squirrel, right? I got the blind squirrel. We made a smart decision that turned out to be a very smart decision 2 years ago to create a stand-alone business unit to focus on this space. And I can tell you it wasn't an easy decision at the time because we had it buried within our avionics business because most of the content that we were developing at the time was in the electronics area, and there was a pretty passionate argument by my business team to say, no, let's keep it there. We'll shepherd it, steward it. And I looked at it and said, "Well, we don't just develop electronics for these vehicles. We're developing navigation equipment, propulsion equipment, cabin cooling and environmental control systems, services, logistics services. I said, if it sits in 1 business area, how are we going to pay attention to all those other things? And I also felt like it would be bottom of the inbox. Look, if you've got a business that's generating $10 million a year of revenue, it's got all these pursuits out there in the horizon, the tyranny of the day always takes over, right? Today's critical requirement always takes over. So the way I dealt with that was I said we're going to have a stand-alone business unit. And as Stephane Fymat, who has a very entrepreneurial background, and guys like Andrew Barker, who founded their own businesses, if you look at Stephane's team, it's -- they're all entrepreneurs. I said, "You guys, here's your sandbox. This is your space. I'm going to have a minimally invasive approach to how you guys run things. Go." And that's been the key to success, small business within a big business.

How can we monitor that from the outside, sort of the way to the EUR 2 billion...

Just ask me questions all the time on how it...

Okay. We'll do that. I'll take you up on that offer.

Yes. Yes, it's actually quite an interesting experiment we've had because every once in a while those guys come to me and they're going to do something, I go, "Okay, go." And so it's not like they're completely on their own. I think we struck a good balance. They've got the ability to operate with a fair degree, if you'll excuse the pun of autonomy. But with -- under the auspices of Dan and I, with a funding limitation that they have and of course, with the ability to access the full capability of our big company from a resource standpoint. So it's really -- imagine if you took a start-up and you plunk them down in the middle of a big company and they have access to all those resources. That's how we operate them.

Right. Very helpful. I actually have 1 more question here, which kind of dovetails a little bit into what you said around sort of certification and so forth. It's a bit more general. So with what happened on the MAX and sort of recertification there. What's your sort of -- how should we think as investors about the new baseline certification time line for new platforms, be it on bizjet or commercial?

Yes. I think we're going to go through a bit of an S-curve. The FAA is appropriately stepped back and looked at the experience with the MAX and said, what should we do differently? What should OEMs do differently? I think they're still working through that a little bit as we've seen, right? There's still some push and pull. And I think in the short run, that's going to extend the time lines. But like everything else, industry will figure out how to deal with that, how to get more efficient at it and eventually, they'll compress back down. The pressure for developing an aircraft more rapidly is never going to go away. It's never going to stop. That pressure is always going to be there. So any time you deal with new requirements, at first, it's a bit of a setback from a schedule standpoint. And then you figure it out and you get good at it. And ultimately, your cycle times get better than they were before. I have no doubt that all of our OEM customers will do that, take a little while. But I don't think we're going to say, okay, now it's 10 years or now it's 12 years or whatever. The world won't wait for better.

Got it. Okay. No, thanks for that, I appreciate it. And we're almost out of time, but I want to squeeze one more in, if I could, around software. Because I know that's a big topic sort of like Honeywell-wide. And I think sort of aerospace is about 10% of the 100 billion TAM for Honeywell Connected Enterprise roughly. So how should we kind of think about the biggest opportunity for software growth within aerospace and defense? And sort of how much of that is kind of embedded solutions that's linked to your hardware versus like stand-alone software? How should we think about that?

Yes. The answer is it's huge, and I think that TAM is understated actually. If you think about it today, we have about a $400 million, $500 million software business just in navigation and terrain databases, FMS software today. That's a software business. That's a recurring revenue stream. Every month, people are downloading and updating their databases and their software. That business will continue. But where we've not really tapped in yet. And I think the supplies, particularly in the defense vertical, is applying connected worker, connected factory, all of that kind of capability that we have today and have sold quite successfully into the commercial space, a non-aerospace commercial space, we can sell that to our commercial and defense aerospace customers. Think about warehouse automation. Think about connected worker and factory connectivity, the ability to manage assets more effectively. Now go apply that in a, I don't know, a DLA warehouse, right? That's a huge opportunity that we're just starting to scratch the surface of. That's a software solution. Same thing applies, frankly, with our building solutions, which is also software and hardware, security, healthy buildings, energy management. And as the ramp towards sustainability and carbon neutrality ramps up, everybody is going to want that. And I think historically, we've thought of ourselves as an aerospace company that sells airplane stuff, we're also increasingly starting to sell to our aerospace customers, the non-airplane stuff, and that's a huge opportunity.

Got it. Excellent. And with that, unfortunately, we're already at the end of time, unless there's like a final remark that you wanted to share with us or anything that we forgot to address that's important in the last 30 seconds here.

Yes. I would just say, first of all, thank you for everyone for being here this morning. Thanks for hosting us today. Again, I'll end the way I finished, which is I think the setup for the aerospace industry and particularly for Honeywell is tremendous right now as we come out of the pandemic. People are anxious to travel. People are anxious to get out there and see their relatives, businesses anxious to grow. Are there concerns about fuel prices? Yes. Are there concerns about a recession? Sure. But boy, I'll tell you, I've never seen a stronger setup, at least for us, coming out of this than I see right now. So I'm excited about what the next few years are going to bring.

Great. Thank you very much, sir. Great to have you.

Awesome.