Ken Giacobbe: And Sheila, this is Ken. Just to build on your question around long-term agreements, right? John is right, somewhere in the 75% of the revenue is tied to long-term agreements. That could be plus or minus, say 5% depending on where we are in the renewal process. As you can imagine, on the aerospace side, much heavier on long-term agreements. So, on the engines side of the house, you could be up to 90% of that revenue, could be under long-term agreements.
Sheila Kahyaoglu: Great. Thank you.
Operator: The next question comes from Noah Poponak with Goldman Sachs. Please go ahead.
Noah Poponak: Hey, good morning, everyone.
John Plant: Hey, Noah.
Noah Poponak: John, just one clarification on the original equipment side of aerospace. I couldn’t quite decipher where you’re saying you are now on the MAX rate, if it’s possible to quantify that? And then on the aftermarket side, can you baseline us on what percentage of aerospace is aftermarket at this point? And just how much growth can we expect there in the medium term given the work you’re doing related to time on wing on the engine and elsewhere that’s incremental?
John Plant: Yeah. So, our assumption in terms of our guide — of course, our guide is quite independent of what Boeing or indeed Airbus may build and what they may schedule, it’s our financial assumption and one that I feel appropriate for Howmet. And for the large part, I feel is that we’ve tended to call the market fairly reasonably in the last few years. So, our assumption very clear was at 34% for the average for Boeing 737 for the year. Now what they actually build, I don’t know and what they actually schedule at. I’m going to say at the moment, they say they’re going to continue with their rate 38 assumption as best as we can detect from what we see from our demand schedules. So that’s those specific numbers. In terms of spares, our exit rate for spares in the commercial aviation market, stepped up again.
And so compared to 2019, which is the reference point we’ve used previously. And if you remember, in 2019 revenue from the spares market for — on the commercial side is about $400 million, and it was about $400 million on the defense and gas turbine side. On the gas turbine and defense side, that continues to be steady and an increasing and now that increased to a level, we believe we’ll see something like $600 million of demand in the defense sector and IGT sector. We’re both growing but indeed, the spares for the F35 growing in particular. And in 2025, as an example, we expect the spares business for F35 to be as big as the OE business has been in recent years. So that’s been good. We’ve seen demand increase in ’23, we’re expecting it in ’24 and then ’25.
We should expect it to be a segment continue to grow as that fleet continues to expand. And the fleet, I think, is about 975 aircraft. And while we originally thought it’s going to expand at like the 150 a year, as you know, currently Lockheed is not building or not building nor delivering at that rate. And so, to some degree, you have to be a little bit cautious. But you can expect a 50% increase compared to 2019 levels. In the case of the commercial segment, that did drop at the depths of COVID to half, so something just sub $200 million. And now that’s fully grown back to $400 million, but with the run rate — you see in the third and fourth quarters and then strengthening each quarter is that, that is now at a run rate above $400 million.
And then obviously, to that, you also have to bake in the potential for additional schedules as these reported time on wing issues get, I’ll say, addressed and serviced. And we do expect demand to be picking up in the second half of 2024 and then further strong demand — a very strong demand going in ’25 and ’26. So that we see is very good. And so today, you can assume that our spares business for ’23 is getting about, let’s say, the $1 billion mark, and we expect it to be — that is — therefore, an increased percentage of our revenues and you could expect the percentage, therefore going into the aftermarket to continue to increase as we go into ’25, ’26 after a healthy year in ’24. So, overall, a good picture and indeed, as I said in my commentary, that the thing which is — it’s not demand just to solve the immediacy of a time on wing issue.
I mean, there is a structural shift in spares demand, which I don’t think it’s appreciated yet totally in the newer engines themselves essentially have increased service intervals because as you increase the temperature pressure in engine, the wearing part, so I think the high pressure turbine part of the engine. So, those initial Blade 1, Blade 2, vane one, et cetera, those become a wearable or wearing parts, a bit like brake pads on a car. And so, you can expect to see a structural shift as increased fitment of those engines is in the fleet and it replaces the predecessor CFM56 engine. So, you’re seeing temporary strong demand for CFM56 just to running the fleet at existing fleet harder and a fundamental structural increase in replacement costs which is going to be there.
And I think you’re going to see additional, say, service shops built around the work to service these new engines, but that’s seen that will unfold over the next, say, few years.
Noah Poponak: Okay. That’s really interesting. I appreciate all that detail. Just to make sure I have the MAX assumption correct, are you delivering to about 34 right now and you assume you stay there through the year? Are you in the low 30s right now, and you assume you actually click into that stated 38 without any rate breaks above and beyond that.
