Operator: Next, we go to Jason Gursky with Citi.
Jason Gursky: Scott, I was wondering if I get you to just put aside the supply chain issues for a moment and just assume that they weren’t there. And talk a little bit about what you’re hearing from your customer in Aviation and how long customers seem like they’re willing to wait for it yet? And if you all could just kind of wave a magic wand and get your production to the right level for the right wait time for those customers, what would that wait time be? For 2-plus years today, we were less than 12 months prior to the pandemic. What’s the right level that we should all be thinking about as things kind of settle out?
Scott Donnelly: Well, look, it’s a good question, Jason. There’s no way to know totally the answer to that. I mean there’s no question that right now, we have customers that would like to see us have delivery dates earlier than what we’re able to promise them. I mean that’s true. I think that obviously, this adjustment that’s going on is that I think for — obviously, for a decade or so, customers knew they could come in when they wanted to get a new aircraft and get something delivered in a very short period of time. That wasn’t true historically, as you know, and it’s certainly not true today. So I do think that we’ve gone through some challenging phase with customers who are kind of accustomed to say, “Well, geez, I should be able to get that in 3 months or 6 months” and say, no, guys, actually, it’s a couple of years.
But I think the market is adjusting to that, right? Customers know what the order backlogs look like in the industry. And people now realize that if you’re thinking about your fleet planning, you’re thinking about your current aircraft and when you’re going to want to do an upgrade that you need to be thinking about that being a couple of years out, not something that you just could come in inside of a quarter or even inside of a year and get a transaction done. So I think we’re probably on the — certainly at a point, where customers would like earlier delivery dates than what we can promise them. But I think customers are getting accustomed to the fact that this is a couple of year kind of a time line and they need to plan accordingly which frankly is not all bad for them either because they can think about how they plan the sale of their used aircraft, it’s a much more — it’s a better market environment for everybody, including those buyers because so many of them currently own an aircraft.
I don’t know if that helps you because I mean, there’s not really a specific answer here, but 2 years that’s a long time, but people have to kind of plan accordingly at this stage of the…
Jason Gursky: Yes. I think what a lot of us are trying to figure out is, once these supply chain issues work their way through, how much we might see production rates across the industry come up over time? If we’re 2 years now, is the sweet spot 18 months, and we can kind of back into what that would mean from a production rate perspective. I think it’s what we’re all trying to better understand.
Scott Donnelly: That math is too sophisticated for me.
Jason Gursky: Maybe an easier one then on Industrial. Can you talk a little bit about the margin and the margin opportunity in that business over the longer term based on new product offerings and product development things that you’re working on today? Just whether there’s any structural opportunity for margins in that business over the longer term.
Scott Donnelly: No, look, I mean, I think we still have margin opportunity. I mean, this business should be a high single-digit margin. I mean it’s got a lot of auto in there. Kautex is a good business. It generates good cash. It generates good margin. But we’re, obviously, right now, you’re still trying to get some of the auto volumes back up around the world, and we have obviously capacity to do that. So better utilization, more efficient utilization of some of that capacity would be obviously be helpful. And that’s part of what’s driving the margin improvement this year. The same is true in the vehicle business. We’ve had strong demand across most of those product lines. Some of them are still recovering from some of the post-COVID.
Some of them still are struggling with a lot of the same kinds of supplier and labor challenges that we talk about in aviation, and that’s — we’re still — have a fair bit of inefficiencies in some of those factories as we manage our way through that. So I do think there’s still some upside in terms of margins in the future.
Operator: Next, move on to Myles Walton with Wolfe Research.
Myles Walton: Scott, I was wanting to lead off on the NetJets agreement. And I realize it’s not in backlog. So maybe this is a little bit of a carton from the horse. But when you sign up to deliver or agree upon 1,500 jets per 15 years in a pre-inflationary market, I imagine that’s probably a little bit more straightforward maybe. I just wonder, how do you do that in a very volatile potentially inflationary backdrop? How do you put the constraints and guardrails in place on those realized sale prices? And just to confirm, does this start to fold in, in ’25?
Scott Donnelly: So look, I want to probably [indiscernible] go into all of the gory details of the arrangement, but we’ve always worked with — there’s always been a factor in how we work with NetJets that takes in consideration market pricing. So it’s not something that’s a fixed price 15-year thing. I mean nobody could do that. I mean in the industry. So there’s adjustments that are made that have to do with market pricing that’s, frankly, a very fair equitable deal because, again, you really have to think of NetJets. I mean they’re out selling aircraft into this marketplace. So we — you think about, I guess, almost a wholesaling right of these aircraft to NetJets and then they have a spread for covering their costs and sales and running their business. So there is a market adjustment scheme that’s incorporated into this thing. So nobody is trying to sit down and imagine what pricing is 15 years from now.
Myles Walton: And then in terms of the initiation of the contract, is it a ’25 start deliveries with the last one running through ’24?
Scott Donnelly: Yes, I think that’s about right. I mean, again, it’s an add-on, right? So we’re — it extends the agreement we already have, and we sit down obviously, every quarter and sort of true up what’s that deliveries that are a year out. So — but yes, I think if you looked at how many aircraft were left on the old agreement versus the new agreement, it’s kind of phasing kind of ’24, ’25 time frame.
Myles Walton: And then, Frank, just to clean up, can you level set us on interest and tax rate for the year at this point, given we only have the quarter left?
Frank Connor: Yes. I mean, interest is expense is going to come in a little better than we had originally guided just given what’s going on with, frankly, our investment in our cash balances and tax is probably going to be a little bit better also than we had guided, maybe 1 point better than our original guidance.
Operator: Next, we move on to Peter Arment with Baird.
