By Chris Sloan
January 23, 2025 © Leeham News: Composites supplier Hexcel is ready, willing, and able to return to pre-pandemic production, profitability, and revenue benchmarks but can only move as quickly as its OEM clients up the supplier chain.
“While OEM production (rates) are increasing, recent history has clearly shown that ramping up aircraft build rates continues to be a challenging process. (OEM) Production levels in 2024 were only 68% of 2018 levels. Hexcel is close to about 80% as compared to 2019 levels,” concedes Hexcel’s Chairman, CEO, and President Tom Gentile.
Though the company forecasts its core commercial aviation aerospace sales to advance by high single-digits, the Gentile waves cautionary flags. “Because of the continued [start, stop, start ] production environment, uncertainty remains in relation to the outlook for our 2025 performance. Sales growth may be impacted by potential delays to the recovery in production rates.” The choppy rates have obvious knock-on effects on revenue and operating leverage – ultimately weighing down profit margins that will likely need until 2026 or 2027 to recover to pre-pandemic levels. “Daunting” and “Maximum” are words Gentile uses to describe labor, materials, and utilities inflation over the last 3-4 years. Not one to waste a good crisis, Hexcel is pledging to use this to its advantage. “It gives us time to work on our productivity and future factory initiatives to drive productivity to offset some of the (inflationary environment).”
The good news/bad news combination of bullish demand and constrained supply—a refrain common to all of commercial aviation—echoes through the halls of Hexcel.
Shipset Status: Program by Program Updates Offer Clues To OEM Rates
Hexcel is well positioned as the shift to composites and next generation materials, continues its unabated march forward. A350 and 787 generate the most revenue and production, obviously due to their sheer fuselage size and greater use of composites. But, the narrow-body programs hold their own with volume. The uneven production rate curve is causing consternation in the program production rate updates from Hexcel. With OEM’s guiding production rate increases, stability continues to bedevil every airframe model line and their suppliers, none more so than the MAX.
“Heading into 4Q results, we were expecting a mulligan quarter from Hexcel due to Boeing’s strike from mid-September to early November. The timing and duration of the strike created an overhang and set up difficult comps for 1H25 as Boeing ramps up production. Hexcel’s results were respectable given the challenging operating environment. On the earnings call, management noted that the only Boeing and Airbus commercial aero programs that drove y/y sales growth for Hexcel this quarter were Airbus’ A320neo and Boeing’s 787 – which was not impacted by the strike,” said a Melius Research Report.
MAX Wild Card
For the 2025 modeling, Hexcel is building in low 30s as an average aircraft per month (APM) for the [whole] year. “The reason for that is, Boeing has said publicly they want to get back up to 38, they’ve got some aircraft that they’re going to deliver that are out of inventory, so the production rates may be lower. We are taking into account there could be some de-stocking with all the inventories in the system,” Gentile explains. Though the numbers are conservative, Hexcel pledges that they have the capacity in place should demand increase. “Build rates have been all over, Boeing is going up. But MAX is still a bit of a special situation,” said Gentile, pointing to fluctuating APMs in 2024 from the mid-30s to the low-20s. The hardest call is the MAX coming out of the strike; Boeing is probably in its 20s right now. And it’s really going to be down to how well they can grow that,” added Patrick Winterlich, Chief Financial Officer.
Boeing’s Luckier 7s
The carbon fibre-heavy 787, unaffected by the strike, provides much-needed stable production rate relief. Hexcel is sticking to the status quo on the 787, guiding toward 7 APM with the ability to flex–particularly with Boeing’s announcement of a new Dreamliner line in North Charleston. “Our shipset value is between $1m and $2m on it. The expansion, as I understand it, will allow them to go from kind of a historic rate of 7 aircraft per month to high as 12. It would be great for Hexcel, because it’s a good shipset value,” Gentile proclaims. The Triple 7 is sticking to an expected 3-4 APM in 2025.
Riding The Airbus Wave
Hexcel asserts the Airbus A320neo shipset rate remained relatively stable though most of 2024 in the mid-50s, dipping slightly to about 50 in Q4. This constitutes 602 units, which was an increase. “For 2025, we’re really expecting probably low 60s in terms of aircraft per month. So kind of low 700 units in terms of total deliveries,” Gentile prognosticates.
The A350XWB is Hexcel’s most lucrative platform, generating $4.5m to $5m per shipset. The chief executive says, “We were pulling at 6.5 to 7 for Q1 to Q3. Q4 was a little bit less — but as we look at the outlook for ’25, again, we’re thinking 6 to 7 and mid-80s in terms of total units that range.” Hexcel is more than ready for the recently announced rate escalation. “They’ve reiterated that they’re still on track for 12 aircraft per month by 2028 so it’s just a question of what’s the ramp curve,” he added.
The A220, with Hexcel content value pegged in the $200,000 to $500,000 range is an emerging growth opportunity, but has a lumpy curve like everything else. “We were pulling at 10 to 9 for most of the year. It dropped a little bit in Q4. And the outlook for 2025 is we expect to be pulling at about 10 to 11 units per month.”
The CFO caveats all shipsets that Hexcel is about 4 to 6 months ahead of Airbus’ assembly, so they will always are going to be a little bit higher in terms of the amount of material that supplier ships relative to the planes that the OEM sells.
The Next Clean Sheet Single-Aisle: Enter Embraer?
Gentile isn’t disclosing any conversations he’s had with Embraer over a possible next generation replacement for the Boeing 737 MAX and A320neo.”There’s certainly plenty of demand for that sort of thing,” he says. Regardless of OEM, long-term growth for Hexcel will come from the launch of next-generation commercial aircraft, and the development of new propulsion systems. “The decision on identifying what material systems these platforms will utilize are taking place right now and will continue over the next several years with service likely to be after 2030,” he allows.
Though the company’s current innovation efforts are focused on developing materials for these future platforms, they are equally focused on refining the production process for composites to support the high rate production requirements of next-generation aircraft.
By The Numbers
Commercial Aerospace sales reached $278.3m in the fourth quarter of 2024, a 4.6% increase compared to the same period in 2023. The growth was driven by modest gains in Airbus A320neo and Boeing 787 sales. However, the Boeing 737 MAX sales were lower year-over-year, primarily reflecting LEAP 1-B and nacelle sales during the quarter. Other areas of Commercial Aerospace experienced growth in the fourth quarter of 2024, led by strong performance in regional jets. The commercial aerospace market represented approximately 59% of total fourth-quarter sales of $473.8 million.
Hexcel’s overall sales for the full year of 2024 totaled $1.9bn, representing a 6.4% increase from $1.7 billion in 2023. Commercial Aerospace sales, which account for 63% of the company’s total revenue, reached $1.194bn, an 11.9% increase compared to 2023. This growth was driven by strong performance in widebody aircraft, including the Boeing 787 and Airbus A350, followed by gains from the Airbus A320neo. Sales of the Boeing 737 MAX declined year-over-year. Other Commercial Aerospace sales rose 9.5%, reflecting growth in regional jets, with the broader commercial aerospace category increasing 6.7% due to regional jet strength.
CFO Winterlich attributes much of the revenue growth to “volume, which is then topped up by some pricing.”
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