Howmet at Bernstein Conference: Strategic Moves and Market Insights

On Friday, 30 May 2025, Howmet Aerospace Inc. (NYSE:HWM) presented at the Bernstein 41st Annual Strategic Decisions Conference 2025. Chairman and CEO John Plant provided a comprehensive overview of the company’s strategies, highlighting both its robust market performance and the challenges posed by tariffs. The discussion underscored Howmet’s focus on automation and organic growth, while also addressing the impact of external factors like trade agreements.

Key Takeaways

• Howmet is optimistic about narrow body production, especially from Boeing, and is advancing in LEAP engine parts production.
• The company’s aftermarket revenue has grown significantly, reaching 17% of total revenues, with a target of 20% by 2025/26.
• Automation and process improvements have allowed Howmet to increase production with fewer employees than in 2019.
• Howmet is navigating tariff impacts effectively, with net effects trending better than initially expected.
• The company is expanding its industrial gas turbine (IGT) operations, including a new plant in Japan.

Financial Results

• Tariffs: The net impact of tariffs is improving, with costs trending better than the €15 million initially projected.
• Aftermarket Revenue: This segment now constitutes 17% of total revenues, with a goal of reaching 20% by 2025/26.
• Fasteners: Margins improved by 400 basis points in the recent quarter.
• IGT Revenue: Generated $5.6 billion last year, with expectations for further growth.
• Engineered Structures: Margins have reached 18.4%, occasionally exceeding 20%.
• Free Cash Flow: Guidance for the year stands at $1.15 billion.

Operational Updates

• Narrow Body Production: Increased confidence in production, particularly from Boeing.
• Spare Business: Achieving milestones ahead of schedule, indicating strong performance.
• LEAP Engine Production: Surpassing industry averages in parts production; 500 engine sets with new blades added to inventory.
• GTF Engines: Mass production of improved parts is expected by 2025.
• Automation: Production has increased with half the workforce compared to 2019, thanks to automation and process control.
• SPS Fire Impact: Revenue from the affected plant is being redistributed, with $25 million to $30 million in new orders booked.

Future Outlook

• Tariffs: Expected to have a lower net effect due to strategic actions and changes in rates.
• LEAP Engine Demand: Production rates are expected to rise to meet increasing demand.
• Engine Aftermarket: A steady increase in service parts is anticipated over the next decade.
• Wide Body Ramp: Production ramp-up for 787 and A350 models is expected by 2026/27.
• Capital Expenditure: Increased spending is planned to support organic growth.

Q&A Highlights

• Tariffs: The impact remains a concern, but strategic actions are mitigating effects.
• LEAP Engine Production: Questions centered on production alignment with Boeing’s MAX return.
• Blade Configurations: Market share and new agreements for HPT blades were discussed.
• Wide Body Aircraft: The production ramp-up’s impact on fastener margins was explored.
• AI: While not an AI company, Howmet sees significant opportunities from AI technologies.

In conclusion, Howmet’s presentation at the Bernstein conference highlighted its strategic focus on growth and efficiency amidst external challenges. For a detailed account, refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Hey. Good morning, everybody. Why don’t we get started? I’m Doug Carnett, Bernstein’s global aerospace and defense analyst. And I am thrilled to have with us, again, John Plant, chairman and CEO of Helmet.

And Okay.

John Plant, Chairman and CEO, Helmet: Yeah.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Well but but just to start, I

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: wanted you

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: to give us a little overview where how much how you’re looking at the market for opportunity.

John Plant, Chairman and CEO, Helmet: I I think all the things I talked about on the recent earnings calls, you know, hold hold up in that, I think, if anything, felt a little bit more confident in the, narrow body production, particularly from Boeing being a little bit better than I’d previously considered, or at the same time still being fairly cautious about it. The spares business, has been running well, and if anything, we, you know, achieved our mark, probably a year earlier than, you know, we’d been talking about. And, you know, between content growth, the general, I will say, increase in share plus spares and pricing, mean, everything was working well for us. And, really, the only the only, let’s call it, blot on the landscape was the the you know, my my previous assumption around the, the wheels business for commercial truck was a little bit weaker as I saw it going into the second half of the year, essentially coming off a little bit of uncertainty and make taking account of what we saw in the West Coast ports as a result of some of the tariff dialogue that’s been going on. That’s about it, really.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Yeah. Well well, actually, just to get this out of the way, tariffs. So can you give us a little bit of an update on it’s obviously a moving target here, but how you’re now seeing tariffs impacting Helmet?

John Plant, Chairman and CEO, Helmet: We gave ranges, in terms of what the gross impact might be if the tariffs were also to snap back to previous level after the ninety days. And, and also then what the net effect was. Of course, it’s almost as though as soon as you say this is it, then things change. So whatever I said then and what I’d say today might be a little bit different given, that maybe now there is some possibility of rapprochement with China. Although, you know, you read articles yesterday about the COMEX situation and you say, you know, what’s happening here?

But because we’ve given the outer limits of what we thought, I think those still hold. Anything, given the fact that we probably got another quarter of probably slightly lower input costs, therefore slightly lower drag as we seek to recover those input costs as a result of the tariffs. Net is probably a little bit lower than I’d said even I put it down to boundary of €15,000,000 for it for the year, but it’s probably trended better than that in the intervening period both on actions we’ve taken and also the fact that 145% for China got rolled back to, was it, 30? And, you know, Europe’s you know, it’s it’s bounced around a bit this month and, you know, like, what’s the latest exemption? You know, it’s it’s difficult to you know, I I I find it difficult to speak cogently about it each day.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: I mean, you’ve you’ve spoken before about mitigation strategies. There was that, you know, well publicized force majeure note that got out there. I mean

John Plant, Chairman and CEO, Helmet: I thought you might bring that up.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: So how how’s that? How how do you maybe you can refresh us on your strategy there for mitigation.

John Plant, Chairman and CEO, Helmet: Well, we we employed and have employed and do employ many different strategists, first of all, to address the the gross effect, for the company. And so whether it’s trade agreements, exemptions, what’s the, code you import things under or indeed just to some limited degree move a little bit of production, but again, that’s fairly limited. It doesn’t strike me as a sensible thing to have wholesale changes of manufacturing strategy given the climate that we’re in. So we do all of that. We were also very clear as we examined each one of our commercial agreements which I thought and do think are pretty strong.

But some of them didn’t call out tariff language per se. So as an input, let’s say, materials cost, if you didn’t call it out, then I I I didn’t feel as though it was right to be exposed and felt that if we did have the emergency that’s that was quoted as the reason for them, then it was justification to say this is clearly the force majeure situation. And we were you know, we cut you can’t do that selectively. It’s either is or it isn’t, and therefore, we did issue a letter. Obviously, it was leaked, and I guess you and many others enjoyed reading it.

And, you know, it it did have quite a trending population of scrutiny for a while, and I thought it should have quietened down. But, where it was necessary, I felt they knew we have, using I said there were two of our divisions that were a little bit more exposed, and one of them, we used it effectively to, to get where we need to be to have full new agreements in place that covered us. And so, you know, so we wouldn’t risk that exposure for the company and our shareholders. So the answer is yes. I did.

And would I do it again? Absolutely.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Yeah. I well, obviously, we’re gonna see how this whole situation progresses, and it seems to change every day. But if we just go over just go to the engine products side right now. You know, Boeing. So Boeing finally appears to be on somewhat of an upward path in terms of production rates on the MAX.

Been waiting for that a long time. And I would think in principle, if we were in what was once a normal environment, you would be, say, delivering into CFM, GE at a rate that would allow them to deliver to Boeing to parallel production rate, and all of those would sort of move together. Right now, we’re in a situation where Boeing’s got a lot of LEAP one b’s sitting around. GE is sort of producing at a rate that all all in total is a little bit less than than they had previously estimated, although they haven’t broken that out between engine types. How how do you think about your production now as it relates to Boeing given that they’re starting to come back?

John Plant, Chairman and CEO, Helmet: At the highest level, and I’ll try to break that down for you. If you look at the aggregate production of parts, and, of course, we supply not only the turbine airfoils but also structural castings, you know, etcetera. If I look in aggregate, then we are producing today, as we were last year, well ahead of the industry. So the how many engines are produced, is is not gated by MSM. It’s a choice, of course, on where parts are used either in the, aftermarket or for OE production.

But right now, I I I, you know, I know that the comment I made, I think it was maybe maybe it’s November of last year where I said on the newly upgraded, for example, you know, the the one a, we were we already put 500 engine sets into inventory, and we’ve continued to build on that. And so

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: I’m sorry. That’s a 500 engine sets with the new Maverick blades. Yeah. Yeah. Yeah.

John Plant, Chairman and CEO, Helmet: Yeah. I I didn’t use that term, but I understand. No. I never used that word.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Okay. The I did, and you could take it for whatever.

John Plant, Chairman and CEO, Helmet: Yeah. I I understand what you mean as soon as we make them. But, yeah, we’ve we’ve been in a good situation. And if anything, given the production of the total package of engines last quarter, which was closer to 300 than 400, I’ll give you the exact number you should you need it. But, you know, clearly, we we’ve been running ahead, and and so I think we’re in a really good situation.

You you get a bit more specific because, as you know, the the one b has not changed to the new configuration yet, and that’s at a date yet to be determined. And at the moment, I I I don’t think that there’s any shortage of engines available for for Boeing production. And so, you know, I I I assume that the comments made by Boeing yesterday, which were were obviously really good, in terms of their expectation of production for this month and next quarter. And potentially, after that was you know, that that means there’s, you know, there’s a great availability of parts, and so everything’s good. So, you know, it gives me a lot of optimism.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Well, because, you know, historically, you know, you deliver a lot of a lot of airfoils that are used in OE production. And right now, you know, we’re not really you don’t really need to ramp up on that, I’m assuming, for Boeing right now. But is where is the point that you’re looking at where you may have to take production up for those LEAP one b’s if Boeing stays on a trajectory that they’ve described?

John Plant, Chairman and CEO, Helmet: I I think we’re gonna have to take production up this year is is my feeling. So my my thought is that the the the trend of increase in spares that we saw on the one a last year, which was clearly very positive, then we’re gonna see some of that this year, for the one b, and therefore, that requires more parts. I think the, notwithstanding the inventory of engines in in at Boeing, I do think the production rates have to come up. And indeed, one of the really good things is that if you achieve the increase in production of LEAP, let’s say, plus 20% to the sixteen fifty, 16 90 sort of area or more, then clearly, the rate of production’s gotta increase substantially into the four hundreds or four fifties or or even more, to to to achieve that annual number. And, therefore, that means, the the vector is one of increased, increased requirements.

And so if you when you look at, you know, so what’s occupying my mind at the moment is with all of the, let’s say, hopeful build increases for narrow body and maybe wide body as we go into next year, plus the spare situation, plus all the other things we’re doing, like, for example, you know, IGT and both large turbines plus aeroderivatives and and new small turbines which are being brought into play, then, you know, one of the things you should occupy in my mind is really, you know, increasing overall production. And so, what what do I think about? I think I think I’ve gotta make more. I’m not saying we’re not making enough. I’m just saying we need to make more.

And and if you look at you know, we’ve recently increased our capital expenditure in guided numbers for 2025, and that’s indicative of what we are looking at more.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Can you talk about both for the LEAP and for the geared turbofan as you’ve gone to on each of them, new configurations for the for HPT blades. Can you comment on your market share, how that’s changing going to those new blades, and the types of agreements you have, which, as you’ve said before, you’ve had these long term you’ve set up these long term agreements on these narrow body engines. So

John Plant, Chairman and CEO, Helmet: answering point you make about geared turbofan first, we while the, the GTF advantage is certified, we all know that, but, you know, I know also that we are not yet in mass production of the newly improved parts unit. Yes. We’re making them, and and I can see that we’re gonna have to make a lot more of them, particularly as we go through this year. But today, you know, the it’s it’s in terms of the, you know, the grand scheme of, like, the total engine sets required plus, you know, providing parts to the to the service market, then that it’s not yet at that point. In other words, first off was the leap on a.

The my view is the the story for 2025 will be the, release of mass production tools is occurring, but not yet there. Well, we yes. We’re making so many engine sets a month, but that’s yet to come. And then, you know, next year is gonna be, you know, another large increase of of requirements. Market shares, we we don’t ever talk about them.

I don’t feel as though it’s appropriate to do so. But if you look at in in aggregate of both where we are for turbine blades relative market share. They’ve clearly been increasing, and, I’ve been willing to say that. And, and particularly even more so in the hot section of the of the turbine. And we’re we’re seeing all of those theses played out as the technology becomes more exacting.

And and and indeed, some of the things we’re doing, for example, just use GTF because we’re in the midst of getting ready to do mass production. I mean, those are really sophisticated products taking some of the technologies that were used in some of the military applications, you know, to raise the the thermal performance of of of of the part so you could withstand the actual temperature seen in the engine. So it’s it’s you know, as long as we’re saying, you know, we we we it’s good, happy, we gotta produce more, but I’m shying away from just saying what the market share is.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Well, when you look at producing these new configuration blades that are gonna ramp up over time, can you give us a sense of how you’re still producing the the I guess I would call them the legacy ones of the traditional blades as well. How long should we see sort of two parallel lines running for the for the LEAP and the geared turbofan?

John Plant, Chairman and CEO, Helmet: I I think it’s gonna be longer than everybody expects in the I mean, you’ve you’ve got a changeover occurring or has occurred in part on the the one a, but I I’m also clear that we’ll still be producing legacy parts through this year and next year. And it it’s also a feature of when an engine comes into an MRO shop, it you know, the question is, do you replace all the turbine blades? And therefore, your choice is you go all the way to the new one. But if the choice by the MRO shop or by the, the owner of the engine is, I can get away with with replacing 25% of the the blades or is it 50%, then you can’t mix and match on the same disc. You have to have all of the same.

So if you want to economize yourself, still got life left in the old blades. Therefore, you gotta put old blades on to to do even though then you have to have an economic equation about how long they’ll last for, what’s the overall sheet, and when will it come back in for the next shop visit. So, you know, that it’s something which we don’t determine. We just say we we know we’re gonna be supplying both old and new, And it you know, it’s a glide path over time. You have more and more of the new, less and less of the old.

And then we’ll do the same thing for the the ETF. Today, it’s mainly legacy production that we’re doing. But by maybe by the end of the year, we’d have crossed over to the majority being new, you know, and then we’ll go around the same sort of path through ’26 into ’27. And then there’s the one b, which is, you know, date date uncertain at this point in time, but expected end of this year, end of next year, sometime. You know, we don’t determine that, you know, to, you know, FAA and the engine maker.

Well and and when you look at this, one of

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: the things that, you know, that’s been significant to us when we look at helmet is that because the LEAP, your turbofan, because, you you know, you’ve had shorter lifetimes for these early blade designs, there’s an aftermarket demand as these come in and need to be replaced. Can you comment on when you go to these new designs, should we see do you expect to see the life expectancy up comparable to what we’ve had on CFM56 on v ’20 ’5 hundreds?

John Plant, Chairman and CEO, Helmet: I I think the question is probably best answered by the engine manufacturer because they know the exact conditions that those turbine blades are gonna face, the effectiveness of the, solutions being put into place, the effectiveness of, let’s say, particulate collection, I will say, mechanisms on the engine, and also, indeed, the robustness of the airflow and consistency. So there’s a lot of stuff to be worked through which, you know, we can only provide margins of performance within a you know, you know, we can engineer to whatever you want by way of bandwidth. So, you know, first of we accept that. But my thought is when I look at this take narrow body, because I think that’s really what you’re referring to, then I think the current legacy blades will continue at a very high level and probably haven’t peaked for another couple of years. And in then, it’d be a very gradual reduction for CFM 56.

So I think that’s currently still growing. Clearly, there’s two effects going on with the new engine blades. The the fundamental, I I think, vector talk about is whenever you run engines at a higher temperature, higher pressure, then the life expectancy of parts is always tends to be a little bit less. No different to, like, a car engine. Is that if you pressurize it, then you will it’s not like extending the life of your oil.

You’re going to a mineral based oil. Then if you’re putting in, let’s say, sodium filled valves, you’re putting a lot of more pressure in the engine and and, you know, higher temperatures, then generally speaking, the parts wear more. And so I think there’s a long term effect where it it’s difficult to see at the moment that the current generations will have the same numbers of cycles in the long term. So my thought is the newer engines are going to see higher frequency of shop visits than the predecessor. I’m not saying that they won’t be better than they are today because clearly improvements are being made.

So I refer to it as a long term trajectory of increase of service parts. And so I think that we will see increases in the number of parts for delivery that will go into engine overhaul every year for the next decade, long term trend upwards because of what I’ve talked about. Very minor said also the CFM hasn’t quite peaked yet. And then you’ve got one other effect, what I call the bubble effect, which is the here and now because the life experienced by the current engine blades which is one of the reasons why we’ve gone from an improved fuel efficiency objective to for this generation to more a robustness solution, is that’s producing a very high demand for the next two, three, four years. Again, we don’t determine that.

But so I think the only thing we are arguing or will not argue but is that the angle of increase will be, I think, a little bit higher in the short term. It will continue to grow every year, but the angle of increase will begin to soften. So you can imagine if you were to graph it out, you know, I draw a sharper slope in the near term and continue the slope upwards, but bend it down a bit, the angle would be slightly lower as the new improved blades come in but still require higher frequency compared to the old, but not the high frequency because of the, you know, problems on the on the current one. So it’s

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: That’s gonna be a that’s not gonna be right away. That’s gonna be a while.

John Plant, Chairman and CEO, Helmet: Yeah. But, I mean, I’m just trying to get like, this is this is this is how I see it. It’s the best of the way I can describe it. So I think myself, fares are gonna increase every year that I can see at the moment. You look at the build out of Morrow shops, it’s being built actually.

Now they’re gonna come in for more services over the next decade or two, and it’s just the angle of increase with Duckoll. You know, maybe it’s unfair to call it a bubble at the moment, but it’s just that you know that certain countries, because of the blocking of holes, let’s say, in combustors with particulates has produced engine temperatures way higher than was envisaged. Therefore, you know, they have to be replaced at far more frequent intervals than ever considered. And now we’re engineering to a higher thermal performance even though, let’s say, things are being done to prevent some of those blockages, but either which way, those new things are gonna be have higher content in them,

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: greater performance. Can can you I I know when you deliver a blade, say, to g, you don’t know if it’s gonna go into aftermarket or OE. But can you give us a a rough sense now of how large your aftermarket is on on engine products?

John Plant, Chairman and CEO, Helmet: Yes. We’ve as a percent of how we’ve said we’ve gone on this March from 02/2019, we were about 11% of our total revenues. We’d achieved, I think, 17% by the end of last year. I said, you know, doing ’25, ’20 ’6, gonna go to ’20, and heck, we got there in in q one.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: So That’s an engine engine product.

John Plant, Chairman and CEO, Helmet: That’s no. That’s total CAMET. If I then, of course, apply that percentage to engine products, then you’ve got a much higher percentage because, I mean, very approximately, if engine is probably I use loosely 50% of the revenue, and therefore, if it’s 20% of the company, it’s 40% of engine. That’s about right. And I can always rely upon Ken who’s in the audience to correct me if necessary.

But then that breaks out because I I’m just giving you the totals for commercial aero, defense aero, IGT, oil and gas, the whole lump there. But if you look at the situation which we described in ’19, which was 400,000,000 for commercial, 400 for the defense and industrial markets, then if you just think about 11%, twenty %, that’s essentially revenue’s grown as well, so it’s double. And it’s pretty much still the same mix. Not quite 50% commercial aero, maybe you know, just under 50, maybe 48, but very, very, you know, very loosely. It’s fifty fifty.

And then it comes down to, you know, obviously, there’s fewer military jets on the same time. You know, they have a higher duty cycles because of the performance required and, you know, air force shop visits are more frequent. And so you go into all of that.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: You know, you’ve you’ve been able to bring margins up over time, which we would assume is both a combination of pricing and operating leverage. Can you comment on at all on what’s been driving your margin improvement and where you expect to go in engine products?

John Plant, Chairman and CEO, Helmet: If if we did a recent West Coast, we participated with someone to do, like, a West Coast to move to to to one of our plants, like a Rings plant, an engine plant. And, you know, I I didn’t actually attend that one. So but I did enjoy the, the summary of it, which was not a great plan. It saves so clean, so good, but those are like top level descriptors. But the thing which I felt was really good was that we’re producing more parts now in 2025 than we did in 2019, but with approximately half the people.

And so the whole thrust that we’ve had by way of, improving our processes, improving process control, you know, and therefore improving yields, the the theme of automation, it has played out for us very well. And put with that, you know, the additional volume, so you got volume leverage, you’ve got productivity, and you’ve got some price as well, then that’s a good cocktail to have. And so, you know, if I if I could use that as a poster child for every one of our operations, that’d be great. I’m not saying they’re all that good, but they all I hope they all will be.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Well, it it did seem that at the Whitehall facility when I was there, you’ve got automation that’s reduced dispersion of output and improves your yields. So my assumption is that this this is playing out at many of your facilities. Is that correct?

John Plant, Chairman and CEO, Helmet: Yes. I really do believe that what we showed, maybe two years ago, by way of a visit, we only probably do it once a decade, showed a level of sophistication with automation, which I I believe is breathtaking, because the one thing you note is the lack of people. But it’s not per se, you know, a a a knock on the use of humans in the process, or it’s not just for the economics of wages. But essentially it’s for the absolute need for the control and tolerances and quality to achieve the throughputs and yields, particularly as we’ve gone to increased air passages through turbine blades, which gives you part in the wall sections and the control of those, you know, both in high volume production but also, I I will say, all moving to, you know, the most sophisticated level of alloy you could use. And so it takes a lot.

And to do that with manual processes, is it’s and it I don’t I just don’t think it’s possible to to have it economically viable. And so that’s part of what we do. And just now, you know, we’ve just in that same site, we’ve just built a new plant. The, you know, the roof’s on. Some equipment has arrived.

We have recruited. You know, we’re on our way to recruiting a few hundred people this year. And, I mean, today, it’s just there’s a there’s lots of bits of pieces of equipment in it. So if you visit we’re we’re to do one there today, then you’d see, you know, you’d see a few, let’s say, transfer presses. You’d see some early core production, but nothing where all of processes have joined up yet, and all we’re producing is scrap.

Just train on it. We chop it up and then make sure nobody can see what it is we because we try to protect the the the IP. And, you know, that really won’t come on stream to back end of this year into next year. And as the requirements have gone up, we’re actually having to make further increases in investment in that facility, and that will be at a level above in terms of, again, automation, that we envisage to do. So we we are really determined to take it to a level above what you saw a couple of years ago.

So the theme goes throughout the company. And and if I’d looked at one of our fastener plants as an example, you know, we you know, if we’ve got, let’s say, 10 processes to produce something, then, you know, with use of latest equipment capabilities or making sure we use all the capabilities of existing equipment, you know, if we can delete four or five process steps and still produce the part to, you know, the highest quality, That’s what we’re doing.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Yeah. Talking about fast And from

John Plant, Chairman and CEO, Helmet: by the way, did get quite carried away on the, I think his response to your question on the last earnings call. I well, I think I was getting to the point where I was boring you about what we’re doing on aircraft aircraft wheel control. And I thought, I think Doug’s had enough of this already.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Okay. So we’ll switch topics. So but fasteners, what you just touched on. So, you know, we we’ve been expecting, you know, this wide body ramp to occur on the seven eighty seven and the a three fifty. It’s been a little behind schedule in terms of production and Boeing and Airbus.

But once that happened, our expectation was this is going to really help margins in your fastener business. But margins you just reported, you’re up 400 basis points, and this hasn’t this effect hasn’t kicked in yet. Can you talk about what is taking your margins up there and and how we should look at this over the next couple years?

John Plant, Chairman and CEO, Helmet: Well, we could have got a little bit carried away with ourselves, you know, last quarter. That’s possible. I hope not. It it it did turn out, I think, as good as we could have imagined. That’s probably code for saying maybe better than we thought, but that’s good, you know, because we always try to achieve at least our own expectations, if not yours.

And so I do think that the, I’d say, the majority of that has been achieved without the benefit of fundamental mix emanating from the wide body and composite aircraft that’s yet to play. It’s an unusual situation because we most of our plants are multiproduct, multipurpose, you know, customer agnostic, and it makes for much more even production. But in the case of the fasteners for the composite aircraft, they are concentrated on in a couple of plants, and therefore, they’re still, what I think, underloaded. And therefore, theoretically, should volumes ever increase and and, you know, because, you know, the order book is so high for wideband demand is so you know, he thinks he’s gotta increase at some point, so there will be a seven eighty seven goes to seven a month from the, you know, the last several years of one to five. Now I think it’s, you know, moving on to five or is the a three fifty at probably five and a half a month this year or something.

You know, I’m expecting that the problems of you need to get more production will be solved, and therefore, it will play out into our production maybe 2026, ’20 ’20 ’7. And, therefore, again, it it should be positive for us, particularly because we say we’re slightly unbalanced at the moment between, I’ll call it metallic and can can’t you know, pass it go to a metallic type of aircraft to composites. And, therefore, I keep thinking good things, but it never happened yet. You know? I’m you know, I I you know, but it’s gonna happen.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Well, one other thing in here on fasteners, can you give us any kind of an update on this SPS fire and the impact that that it may have on you?

John Plant, Chairman and CEO, Helmet: Yes. We we looked at the situation, considered of of the revenue going through that plan, how much might be moved to existing PCC facilities. And, you know, it’s difficult to get an exact number, but say if there was a 50,000,000, possibly 200, but let’s use one fifty coming out of the plan. So I think half gets redeployed to other BCC plants is my guess, particularly into into California. And then, you know, there’s the balance, and I and and I you know, we have quoted a lot of parts.

We have now booked some healthy orders. I’m trying to remember the number I gave you on the the last call, so I’ll you know, I don’t quite remember it, but I’m thinking, like, 25,000,000. Yeah. 25 to 30 was that sort of area with the prospect of it going up further because we’ve still got hundreds of part numbers to quote. We’ve seen, you know, as you always get this, you know, some people move faster than others, probably according to their need and availability and what images they’re carrying.

So, for example, Boeing were fast out the gate on this one,

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: and

John Plant, Chairman and CEO, Helmet: they put a huge team who’d be peeled behind, and we’ve, you know, been in a supportive situation to to do that and even one or two special applications to ensure that production continuity could occur, for example, on the July. So that you know, we’ve we’ve doing that and working with them very well. And, you know, it’s it’s less of an Airbus type of play from that plant for the sum. And then, you know, the rest is into, into both distribution and to the engine makers, and we have lots more to bid. We’ve got three customers already where we have production orders for, you know, as soon as we can make them.

You know, not not this month Yeah. But, you know, hopefully, towards the back end of the year into next year, we’ll be making some more of these parts. You know you know, as I said, you know, as inventories dwindle more and more orders, I guess, what the total is eventually, I don’t know, hopefully north of 30. You know, it can’t be more than 70. So it it picks somewhere between forty, fifty.

Who knows?

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: But if we go back to another area, which is when you, not too long ago, said that now you’re becoming an AI company as well. No.

John Plant, Chairman and CEO, Helmet: I I didn’t say we were gonna an AI company. I just said that AI is giving us this extraordinary opportunity. And I think if you throw AI into any of those calls, it’s worth $10. You know? That that’s a joke, just in case you you know?

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Oh, okay.

John Plant, Chairman and CEO, Helmet: I’m not right now. I will put that in. But it’s it’s electricity demand for us. Yes. Yes.

Yes. AIV, you know, if you do a if you do a chat GBT search 10 times electricity to a Google search, so please use any form of those, you know, what do you have? Grok or, you know, per is it capacity or something? I can’t keep up with all the names, but there’s lots of them. Use that, and then, you know, more electricity, more data centers, which are increasing anyway, and therefore more electricity, and therefore

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: AI Yeah. Is good. So you you talked about I guess you’ve you’ve gotten an agreement in Japan now on provide in IGT related to this. And I know you talked about discussions with some of the other big players, like Renova. Can you give us an update on how you expect that IGT trajectory to go?

I believe IGT is about 10% of of revenues.

John Plant, Chairman and CEO, Helmet: A little bit less than that, but you’re you’re in the ballpark. $5,600,000,000 area of revenue last year. I’m hopeful it’ll be more this year. But, again, it’s one where we’re building capacity like crazy to, you know, also to be able to meet what our customers want. You know, we are bottleneck breaking.

We are addressing yields, you know, and there’s also, particularly with some of the newer turbines, there’s, again, the same trajectory of changeover from, you know, more solid blades to cored blades, which is, again, value that we see in both quantity increases and sophistication increase, therefore, content. And, yes, we we in fact, we in the, let’s say, IGT network and let’s say we’ve got nearly three plants aimed at that, even though that’s supported by some other, let’s say, core operations, then we’re ex we’re building a new one in Japan. But it’s not just dedicated to, you know, the Mitsubishi Heavy. It also supplies into other other customers. So we do supply all customers.

And we’re also expanding in Europe, and we’ve put capacity by way of additional machine tools into being put into our plant in The US, but we’re not expanding footprint there. And so, you know, there’s a lot of good things happening. And, also, we made that small technology acquisition last year, which is also giving us a level of capability on tooling to produce these very large blades. You have extreme, I will say I’ll say extremes of where you’re relieving, you know, the tension in the parts because of the length with the level of, you know, I’ll say, thermal energy we’re putting into it during the casting process. And and therefore, we’re actually using tools with servo motors to adjust as we as we mold cores and so it’s it’s it’s a bit of a PR thing saying what a great technology.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Okay. Moving to engineered structures. This is another one where you took margins up a lot. And can you comment on you know, you had 18.4% margins. I know you’ve changed leadership there a little while back.

I mean, a lot’s been going on. I mean, what should we think of that business in terms of margins going forward?

John Plant, Chairman and CEO, Helmet: If I if I look at that business, first of all, when when I if I look at the allocation of my time, it was one where I probably paid more attention over the last few years, you know, just all to engine and to fasteners and and wheels and and maybe didn’t pay as much attention. Or maybe it’s like most things I do, I I think it’s where do you have the most impact? You know, focus where you can be really, really good. And, also, in in that business, it was more one of, triage because, you we had the COVID downdraft. 40% of body had disappeared.

Then you had wide body. Titanium is inside that business. That’s more of a wide body play than a than a narrow body play. And then add to that the fact that, say, our customer for big structural parts, so think bulkheads for f 30 fives as an example. And Lockheed are underbuilt over several years during, let’s say, COVID and beyond and hadn’t really achieved the, say, 150 rate that was talked about.

And so there’s a large inventory of those parts to burn off as well. So a lot of things which were going on but were still being done and improved everything we did was just holding where we were, let’s say a 14 margin business, which in a structures context, you know, isn’t bad. In fact, you know, sometimes that business is better than some other coal companies. So, know, our dog, if you wanna call it that, you know, well, you know, some sort of BCG analysis was, was still pretty good. But I always felt that with a bit more love, care, and attention, it could do a lot better.

And that’s why I, you know, wildly went out and said, I think this could be a high teens business. I I don’t often do that because I don’t and I’m not sure if that’s really a margin predictor. It’s just like increase like a ceiling, and I felt this could be a high teens margin business. And we did move up, and we’ve done a lot of really good things. So, yes, we’ve done some change of leadership.

Yes, we’ve spent more time and attention. Yes, for example, on that long winded answer I gave you about aircraft wheels, which is also inside that business, I was telling you about process control improvements just because, you know, using that as a poster child for a lot of things we were doing there. And I could give you yields in melt shops and on titanium production, all the rest if you want to, on, you know, what weights we use in terms of the electrode production, things which would bore you, I’m sure. No. We can do that.

We can I’m happy to do that. Okay. Well, anytime you wanna do it, We could spend the rest of our time today if you want to. But there’s a lot of things that have been happening, and, you know, I think the team have been doing great. And so we did the 18%.

So it was getting towards high teens, and then we went crazy and broke the 20%, number. And then we did a few other things like got rid of a couple of bad businesses, sold one, closed one, you know, all within that, and yet you didn’t really notice it because revenue continued to climb, which is the best time. Let’s, know, deal with those things while revenue is going up and but still be very laser focused on what you’re really good at. And increasingly, we’re, again, spending time looking at what are we really good at in that business because we’d like to stay ideally, you know, with a two handle on the on the number rather than in my underachieving high teens. But, you know, it’s

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: yeah. Good quarter. Good quarter. But a

John Plant, Chairman and CEO, Helmet: good quarter. So And I and I don’t like going backwards.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Okay.

John Plant, Chairman and CEO, Helmet: That’s part of my DNA.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Okay. Okay. That’s good. So in terms of going forwards, you know, free cash flow this year, the guide to 1,150,000,000.00. You know, when you look at that, what factors are out there that could take that higher or lower when you look at the variables involved?

John Plant, Chairman and CEO, Helmet: It’s gonna come down to, what, final cash tax bill? Guessing at that. The first capital, just said, is high, and then our ability to thrift production to be more working capital efficient. So those are the main things. There could be a tiny bit issue in terms of we’re always looking for opportunities to relieve our gross liability on pensions.

So we’re always like, Fine, can we do something there? But, essentially, it’s, the main things which are gonna be I’ll say the big drivers are between, you know, those three, work capital, fixed capital, and, and, obviously, profitability as well, but I’m taking that for a given because we’ve told you what that number is. Know,

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: is at two two point one something. Again, got quite carried away. Can you give us a sense in this, just sort of the CapEx outlook? Because there is a lot I know I know you’re thinking about a lot of potential investment needs here as you ramp up in different areas.

John Plant, Chairman and CEO, Helmet: You know, the the best deployment of capital for us is is organic growth. If you look at the return profile of the company, it’s it’s it’s really good, superior to buying, shares back. It doesn’t mean to say you shouldn’t buy your shares back. I’m just saying that, you know, there there is a return on capital of that of that marginal dollar, then I’d prefer to put fixed capital. At the same time, you know, I also think you have to respect the, things like conversion ratios.

So, I don’t think even though I think so, could we spend more? Yes. But I do think it’s high quality companies should be converting their net income. I I’ll use 90% as the long term metric for us. You know, we had some years above a hundred, you know, probably in the I’ll say just after COVID.

We’ve had several years now, like, ’88, ’80 ’9, but we’ve blended out somewhere in 90 to a %, probably a hundred. And so I just think self you know, maybe we’ll end up, you know, around that 90, but with the first for capital, if I if I put another 10 or 20 or 30 into fixed capital, that might be a really good thing. But I I also don’t wanna go too far because I do think, again, good companies convert in, you know, net income into a high conversion ratio. It’s part of what you should do.

Doug Carnett, Global Aerospace and Defense Analyst, Bernstein: Well, I think we’ve gotta wrap up here. But, John, I wanna thank you for joining us today. This has been great. Thank you. We’ll have that Mel Yield discussion another time.

John Plant, Chairman and CEO, Helmet: Thank

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