Pete Skibitski: Any risk to Defense program revenue in the next couple of years that you see in the past? Is it just budgets passing on time or any other risks that we should think about?
Patrick Winterlich: I mean I don’t want to be complacent. There’s always budgetary risks. But right now, I think this is one of the strongest sort of periods, healthiest periods, if you like, for Space & Defense and looking forward we’ve seen for a long time. So as confident as we can be without absolute guarantees. We see growth in the next couple of years in Space & Defense.
Pete Skibitski: Okay. Thank you.
Operator: We’ll go next now to Kristine Liwag at Morgan Stanley.
Kristine Liwag: Great. Nick, and Pat, it’s clear from your commentary that you’ve invested in headcount and infrastructure ahead of the OEM, but can you provide an update on which specific production rates you can support today for the 737, 787 and A350?
Nick Stanage: Well, first, I’ll tell you, we’re aligned with our customers, and we’re flexible and going to continue to stay aligned. If you look at the — let’s start with Boeing on the MAX. We’re in the low 30s and clearly, Boeing is working hard to transition up to 38. And we have that capacity, and we have — we’ll share more on what specifically we’re putting in our 2024 plan, but we’ll be prepared to do that, as well as hitting 50 in the 2025, 2026 timeframe. 787, we’re at 4 to 5, and clearly, Boeing intends to go to 10 by ’25, ’26 timeframe. So we’re — there’s going to be a gradual ramp-up there. I’ll let you pick the number for ’24 and getting to the 10 and 26. But you could estimate a pretty linear stable transition, which is what the OEs have done for the last several years when they’re ramping up rates.
If you look at Airbus, we’re in the mid-50s. And again, I’m looking in total for the year, I’m not looking at Q3. We were much lower than mid-50s in Q3, with a ramp rate up to 75 in 2026. So Airbus really is not giving specific milestones on the incremental positions in ’24 or ’25. So again, if you just draw a straight line along that curve, we’ll be aligned with that, and perhaps we’ll share more when we provide 2024 guidance. And the A350, we’re at 6. Airbus has been candid that they’re moving to 9 by the end of ’25. And again, it’s a great program for us. We have great shipset content, and we’re looking forward to continued widebody order intakes, which have ramped up a lot of momentum on the widebodies based on the need for improved efficiency and longer routes because of some of the pattern changes.
So that kind of gives you a little color on where we are versus what we’re positioning for in the ’24, ’25, ’26 timeframe.
Kristine Liwag: Thank you for the color. And maybe a follow-up question on wind. Pat, you mentioned that wind transitioned to a lower technology that Hexcel decided not to pursue. So how much revenue is left in wind in Austria? And how much more of a step down do you expect?
Nick Stanage: Well, let me take that. Again, our largest wind customer is Vestas — has been Vestas. And Vestas has been the market leader, and we’ve done business with them for 20 — probably 20-plus years with plants positioned to support them very well. They were vertically integrated. They produced their own blades. They had differentiated technology, and that model worked for many years. Vestas decided that they needed to refocus their business and they decided blades were not core, so they went more to an outsourcing model, which pushed the technology more to a commodity type infused glass prepreg infused material, not a prepreg, but an infused material. And that really didn’t fit our strategy going forward. So the new blades that are being — the new wind turbines that are being developed by Vestas and many others, utilize outsourced blades made utilizing commodity-type technologies the way we define that space.
If you look at our current business, we’ve got a nice book of business, the legacy business, which is served out of Austria, serving Vestas, Europe. And again, there’s some challenges in that market related to inflationary pressures, regulatory pressures that have softened demand, but we still have our positions, and we think there’s a long tail on that demand profile that will go on for several years, although at a much reduced run rate level from where Hexcel was two, three, four years ago.
Kristine Liwag: I really appreciate the color. Thank you.
Operator: We’ll go next now to John McNulty at BMO Capital Markets.
John McNulty: Yes, thanks for taking my questions. So I guess the first one is just on the implied fourth quarter range, which is actually — it’s pretty broad. I mean it’s toward the end of the year. But I guess, can you help us to understand what puts you at the low end of that range, which is implied about $0.42 or so? And what would put you at the higher end of the range at $0.56? Can you help us to think through the puts and takes there?
Patrick Winterlich: Yes. I mean the biggest put and take is clearly the top line, John. I mean, we’ve obviously got the midpoint at $1.8 and $1.87 as you can see. And I guess that’s where we’re really focusing, and that’s what we’re targeting to deliver for the year. But we’re also recognizing there is uncertainty in the aerospace supply chain right now, and that could pop to the positive this quarter if things suddenly align and we get a pull-through material to support the ramp rates that we know the OEMs are trying to do. But likewise, as we’ve seen several times over the last couple of years, there are bumps and hiccups in this aerospace supply chain as the world sort of starts to normalize and get back to where we were pre-pandemic in sort of an efficient flowing industry.
So we’re focusing really on the midpoint as our target to deliver, but we’ve left the range wide because we do — unfortunately, we recognize that there are still risks and challenges out there. Now that could fall in our favor, but we certainly wanted to recognize that there could be headwinds.
John McNulty: Okay. And just to be clear, would you say the midpoint of the range reflects kind of status quo on the supply chain or modest improvement? Or I guess, how should we think about that?
Patrick Winterlich: I would — well, it certainly is — it’s not a seasonal — it’s not another Q3 season. It’s a return to sort of a more normal run rate of sales not seasonally impacted. And then, yes, hopefully, it’s the current, if not less, slightly less of supply chain issues. But more or less where we are today without the seasonality is how I would describe it.
John McNulty: Got it. And then maybe just as a follow-up question, you spoke to pulling back on inventory and a bigger focus there. And I think you’d mentioned a $20 million sequential improvement. I guess, how much farther do you think you can pull back on those rains while still being ready for what potentially is a bigger ramp-up from some of your customers as you look to 2024?
