Hexcel Corporation Jefferies Global Industrials Conference 2026

Well, when you look at the original equipment for commercial aerospace market, it's been a very choppy recovery post-pandemic. Production rates overall peaked in 2018 at 1,734 units overall, but for wide bodies, they peaked in 2019. Since then, there's been a big drop-off, and it hasn't recovered. Even in 2025, we were only 85% recovered in terms of total aircraft, and wide bodies were only 50% recovered. For example, in 2019, which was the peak for the A350, there was 112 units delivered. Last year, 2025 was only 57. As a material supplier for mostly original equipment on the commercial side, it's been a choppy recovery. As a result of the lower production, we had to mothball a lot of lines. Most recently, we had 4 of our 14 carbon fiber lines that were mothballed.

As a result, we had a lot of fixed costs that wasn't being absorbed, and that impacted margins. What we've seen in the last year is production rates finally start to recover in a sustainable way that we can say is going to get to the targets that the OEMs have been forecasting. For example, Airbus has been saying they want to get to 12 aircraft per month on the A350 by 2028. We now see that happening. In fact, what I would say is that at the beginning of the year, we thought production rates were going up, so we said we were going to hire 400 people. We've already hired those 400 people. We were going to bring one of the four lines back up into production in the back half of this year, in November. We did that in March.

A line that we were going to bring up next year, we're pulling into November of this year. A line that we had started before the pandemic and stopped building, we were going to bring that up in 2028. We're pulling that into 2027. We're starting to see the production rates. In fact, as those production rates go up and we get more operating leverage, when the OEMs hit all of their targets, that's going to generate $500 million of incremental annual revenue for us. Then on top of that, we'll have $200 million more of defense. That creates $700 million of growth over the next three or four years. It's about a 10% growth rate for that time period. That growth rate creates operating leverage for us, which drives margins and improves cash flow.

What we've said is, when we get to those levels of production, we have a path back to 18% margins, which is where we were pre-pandemic. We'll also grow into our capacity. We don't need to make capital investments for new capacity as those rates go up. Our CapEx is going to be less than $100 million for the next several years, five years or so. That means that we'll generate $1 billion of cash flow over the next four years, 2026 through 2029. We're set up for a really good growth period as those production rates recover, particularly on the wide bodies. Another point I'll make about wide bodies is, before the pandemic, there was a need for a big replenishment cycle. That essentially got put on hold.

If you look at the fleet today, of the 5,000 or so wide bodies, 40% of them are more than 20 years old. This replenishment cycle that got delayed is going to be coming with a vengeance. Even when we get up to the high levels of production of 12 aircraft per month in 2028, we're likely to stay there for a very long time, and that's going to be great for Hexcel. Our biggest program is the A350. We make the entire material system. It's $4.5 million to $5 million per ship set, and we're going to get to 12 aircraft per month and stay there for a long time. On top of that, Airbus has said they want to increase the rate even higher than 12. They want to expand the freighter, which is more material.

They're even considering a stretch version of the A350, the 2000, which would be more material. We feel like we're in a good position. With no wide body on the slate for replacement in the next two decades, we feel very good about our position on the A350 and in wide bodies.

Confidence is building, and there have been challenges and obstacles. On the narrow body aircraft, it has been engines. Particularly the GTF has been slow and not being delivered for new production. But even the LEAP has had some infant mortality issues and created time on wing. Those are getting sorted out. On the wide bodies, it has been more interiors, particularly seats. The seats, particularly the first class seats, are highly customized because of the more premium travel that the airlines are seeing, and those all require certification. With more stringent requirements and staff shortages at FAA and EASA, that has impacted seat deliveries and some interiors. The difference, though, is before there were some structural elements for the A350, for example, that were in short supply, like the center fuselage. You cannot build an aircraft without a center fuselage.

You can build it if a seat has not been delivered or if it is not certified. You can just park it and then put the seat in when it is ready, and then deliver it. That has been one of the factors. Now, what I would say is our confidence level has gone up on production for a number of reasons. One is we get the skyline for all the OEMs, which is their master schedule that looks 2 or 3 years in advance. In addition, on the Airbus side in particular, we do a bottoms-up survey of the top 20 or so locations that take material for the A350 or the A320, and we confirm what the demand is. But then we also have our firm purchase orders, and we get, in our case, 5 months firm purchase orders.

We already have purchase orders that are firm for the rest of the year, and that justifies our estimate, which was 80 units for this year, even maybe a little bit of upside to that. So our confidence level on the near-term production rates is quite high for those reasons.

Right. Well, first of all, CapEx is zero because we already made all that CapEx back in 2018, 2019. So that's really low. The OpEx, there is a little bit of cost. It's not material, but there's some costs. You have to hire people. So those are some of the reasons why when we said in the last earnings call, for example, that the back half of the year was going to be strong, we raised our guidance, but people pointed out that if they did the math, it looks like the margins in the second half of the year were going to be slightly lower than the first half. Well, the first half was great. We got lots of operating leverage. We got some pricing. The margins were good. What we said in the second half is we have the normal seasonal slowdown in August and December.