By Bjorn Fehrm
April 22, 2020, ©. Leeham News: With the COVID-19 meltdown of airline traffic and aircraft deliveries, we place a special focus on the airliner industry supply chain in the next months.
Hexcel Corporation reported its 1Q2020 yesterday. In addition to the absence of MAX deliveries for a year, the mounting COVID crisis meant revenue was down with 11% year on year and profits 40%. The merger with Woodward Inc. is off. “This is the time for crisis management, not a merger,” said management.
Hexcel is one of two key suppliers of carbon fiber materials to the world’s aircraft, defense and space industries. The other key supplier is Toray Inc. of Japan. Hexcel is the dominant supplier to Airbus, whereas Toray is the leading supplier to Boeing.
Hexcel started making honeycomb kernels (from which’s shape it got its name) made from aluminum or glass/carbon fiber matrixes and then progressed into fiber materials.
Today, carbon fiber materials are the key products delivered as tows, fabrics, and prepregs. The Company also provides the different resins needed to create a finished Carbon Fiber Reinforced Polymer (CFRP) part.
The first quarter of 2019 included a full Boeing 737 MAX production. The drawdown of the 737 MAX production started in 2Q2019. At the end of the first quarter of 2020, in addition to a lower MAX production and no A380 deliveries, Hexcel had to close a number of its carbon fiber plants as COVID-19 confinement began in several countries.
This affected revenue which is down 11% year-on-year, $541m versus $610m 1Q2019. Profits declined by 40% as a result, $42m versus $72m. The impact of the virus crisis for the rest of the year is challenging to judge, according to Hexcel. It has withdrawn its 2020 outlook as a result.
It has no visibility from Boeing about 737 MAX production start or production rates for other programs. Airbus has communicated drawdowns in both single-aisle and widebody production. Hexcel, also, must plan for stock adjustment effects at the OEMs as these reduce production.
Management has taken several measures to prepare for a long down period:
Hexcel is well prepared for the crisis, according to management. The cost base is aggressively cut with about 30% and liquidity is at an all-time high at $636m, which is 26% of 2019 turnover.