Christopher Kubasik: Yeah, Doug. Let me take that one. Yeah, let me start with where we are on margins. I mean, we have well-documented that our margins have declined in the last couple of years. We acknowledge we have had some performance issues across the portfolio. But I also want to mention that we have consciously made investments in some high-growth programs and businesses, which impacted the margins in the short-term, but we believe create value in the long-term, and I think Space is probably the best example that we keep highlighting in that regard. Investor Day we did step up our cost savings goal to $1 billion gross run-rate savings by the end of ’26 that goes across the entire enterprise. We’re calling that program LHX NeXt, as you well know.
And look, I agree with you that there’s differences by segments for a variety of reasons, and we’re setting out a framework, three years out. So we put the 100 — the 100 basis points is kind of the floor. If I go through or maybe in the — in some form of order relative to the ability to realize the 100 basis points either earlier or exceeded, I’d like to start with Communication Systems. I think we all know that that has a commercial business model and the potential for more international growth. I think those will be key drivers. We run that like a commercial factory where we make the radios. We look at the quality, the cost of poor quality, the real throughput yield. We’re making investments in equipment and training that gives us potential upside.
And in that regard, pretty much every dollar falls to the bottom line. We’re also looking at the models and seeing if we can be more aggressive on increasing our software sales as an example in addition to the hardware. So, CS would probably be at the top of my list. Aerojet Rocketdyne, we’ve only had it for five months. We’re starting to see some improvements. Big, big volume increase, big investment in capacity, and negotiating the new contracts. Maybe I’ll just mention now since owning them, we’ve already turned in 200 proposals for over $13 billion. Of course, we have to win them and negotiate them, but clearly, the demand is outweighing the supply. So feel good about the potential there, and the ability to return to their historical margins or even better.
Scott asked about IMS. I think I laid that out. I think there’s upside there with the shift to international. Again, we have the WESCAM business that provides designs and builds and delivers turrets or cameras or gimbals, whatever you want to call them. Again, that’s a commercial business model which has accretive margins to the business and end of the day, it comes down to stabilizing the volatility and the program performance, and I think with some leadership changes and better negotiations on new contracts, we should be in a better shape there. And then, of course, Space or SAS, it does have the highest mix of cost plus contracts, Doug, as you know. So most of those savings go back to the customer. But again, the investments that we’ve made to get into some of these new markets, such as Space, will be decreasing or have decreased.
So I don’t know if that gives you a little more granularity. I think as we get closer to 2026, we’ll be able to be more specific, but the 100 basis points is the floor, and that’s kind of my order of how I’d put them. I don’t know, Ken, if you agree or have different thoughts there.
Kenneth Bedingfield: No, I think you hit it well.
Christopher Kubasik: All right.
Operator: Our next question comes from the line of Ron Epstein with Bank of America. Please proceed with your question.
Ronald Epstein: Yeah. Good morning, guys. One of the big focuses at the Investor Day was the Space business. And maybe if you can give us a deeper dive into how that’s going, work on the SDA transport and tracking layers, and maybe continued opportunities for growth in that business.
Christopher Kubasik: Yeah. Space, we keep talking about Space and highlighting. That is kind of the model for our trusted disruptor strategy. So we’ve one — we’re really just on the tracking for SDA. So we won tranche zero, we won tranche one. And as I mentioned just a couple of weeks ago, we were awarded tranche two. So I think we’ve gone from four satellites to eight satellites to 18, so and there will be a tranche three and beyond, I would expect. I can tell you that in each of those successive contracts, the margins that we bid and expect have increased, which was part of our strategy. So the team is performing well. We have satellites waiting to be launched. So we’re looking at these annuity-long cycle constellations, and we’ve talked about the missions really migrating from the air domain to the space domain, and I think we’re seeing it here.
And these satellites will have single-digit useful lives, and they’ll need to be repopulated over time. So I kind of look at this as an annuity where in several years, the tranche zero satellites will deorbit and they’ll need additional satellites to be launched. So three for three. Quite proud of the team, and I think our customer is obviously pleased with our performance. I did mention we do have a pretty good business in weather satellite, so it was exciting to see us get some international opportunities. You don’t necessarily see that all the time in the Space business. So that’s some additional growth. And we still provide payloads for exquisite satellites where we’re a sub to the primes. Most of those are classified. So pretty good backlog.
We also mentioned it at Investor Day. We’re investing in building a satellite factory here in Florida and that ground has been broken and we’re excited about that. So we’ll be able to turn satellites at a pretty quick pace here in the near term.
