Peter Arment: Thanks for that. Thanks John.
John Plant: Thank you.
Operator: The next question is from Myles Walton with Wolfe Research. Please go ahead.
Myles Walton: Thanks. Good morning. Hope to focus on Fastening Systems, if you could, John. The growth there obviously was pretty much on top of the Engine Products growth. Is there a leader in ’24? Is it Fastening Systems? And then maybe just could you provide any color as it relates to where distribution sits with Fastening and where your wide-body recovery is versus pre-COVID?
John Plant: Yeah. And one of the things that I’ve been particularly pleased with has been the improvements in our distribution business inside Fastening Systems. A couple of years ago, maybe three years ago now, we created a separate business within H1 [ph] amalgamated with our OE business. We provided dedicated management to that distribution business. And we’ve seen it indeed have outsized growth relative to the market, and that continued again in a significant way in 2023. So that’s proven to be very good for us. In terms of like where does the final, I’ll say, scorecard land for 2024 in terms of relative growth of Engine versus Fasteners, it’s difficult to say at the moment, I expect very positive contributions from both.
We have to recognize is that we still have to see wide-body demand come back and really be built with a propensity actually to grow higher because that wide-body demand mix should actually show improvements because the relative growth compared to narrow-body, especially given that Boeing is now capped is that, that should be good. At the same time, we note — for example, take the LEAP range of engines is that the — I’ll say, growth of that segment has been reduced a little bit, both in the actual for 2023 and slightly lower build as the initial demands have dropped from. I’ll say, a year ago, we saw a ’24 was going to be looking at 2,200 engines then went to 2000 and I know it’s in the range of, I think, something like 1,875 to 1,950, something like that.
So, we’ve got to see how all that settles out and indeed, it’s a balance of what goes to OE build versus service demand for those engines. So, I mean, the most important thing is both Engine and Fasteners are good. So, I don’t want to handicap it at this point, but it will be — I expect that we’ll be having a good year for both.
Myles Walton: Okay. Thank you.
John Plant: Thank you.
Operator: The next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.
Sheila Kahyaoglu: Good morning, guys. Thank you for the time.
John Plant: Hi, Sheila.
Sheila Kahyaoglu: I wanted to ask about margins. John, maybe you could talk about 2024 margins, just looking at Q1 and the full year, you’re kind of pointing to 23%. And I guess I’m a little surprised that there’s no really an improvement from your Q4 exit rate and you’re still sub 30% on the incrementals. So, maybe if you could just shape that out for us, how you think about that with aero volumes getting better and maybe else troughing. And also, you mentioned something in the — in regards to engine pricing and how you’re locked into long-term contracts and as well as the F35, obviously, that’s a long-term contract, too. So, how do you think about what percentage of your margins are locked in because of LTA?
John Plant: I mean LTA certainly govern the most of our business for the company. And I guess momentarily the number of how much is [indiscernible], but it’s — I’m going to say somewhere up at that. So I’m going to say 75% to 85%, I believe, but can one refine that should need to, as I carry on talking here. Having said that, of course, there are certain agreements which have come up for renewal for 2024 pricing. And indeed, we are probably now 90% agreed for the price structures for 2024. And so, our expectation for the price commentary I’ve already given you is that you’ll see that Q4 was healthy or mutual with 10-K, a very solid year and we expect 2024 to be similar. And within that, you will see some of our Engine Products to indeed be repriced during 2024 and have already been agreed.
So that’s also the good. In terms of margins, I mean, you never get like quarter-on-quarter straight line, you tend to plateau for a little while and then you move again. And our thought really has been that we stepped up to a 23% level in the second half of ’23. And so what should we expect? And I think you’re saying, well, let’s play it again for Q1 and see how we go is the right assumption. I’ve already told you that we have assumed a 28% incremental versus what we converted at 31% in Q4. And this also provides some allowance for the choppiness that I’ve commented on them. So should for example, Boeing not take all the parts that they’ve scheduled out and those have to go into inventory. Therefore, we won’t be taking the profit on them. And so, we’ve assumed that, I’d say, a 3% lower absolute number of conversion.
And therefore, to me, just playing it out seems a very reasonable assumption for the near term. How it flows for the balance of the year? It’s difficult to say at this point in time. In terms of up-to-date market commentary, we actually see wheels demand to be probably a little bit stronger than we had imagined in the short term, and that’s within the numbers we’ve already given you. At the same time, what does the back end of the year behold? I don’t really know at this point. Orders have been into take for — truck manufacturers have been a little bit stronger. And therefore, it bodes well, but of course, those are cancelable depending upon how the general economy goes and we’ll have to wait and see. For me, the most important thing, it’s not like what happens this quarter or next.
But indeed, that market of commercial transportation, we expect to resume growth in ’25 and ’26 and then that continued with, I think, strong continued demand from commercial aerospace and then continuing to defense and for the gas turbine business promises good growth beyond ’24 as we going to ’25 and ’26.
Sheila Kahyaoglu: Great. Thank you.
