Subscription required

By Bryan Corliss

Feb. 15, 2023, © Leeham News – Howmet Aerospace is taking a “cautious and conservative view” that Boeing will build 30 737s a month this year and Airbus will build 53 or 54 A320s and A321s.

That’s what CEO John Plant told investors Tuesday, as Howmet reported its year-end and fourth-quarter earnings. 

That’s far more conservative than the 737 build rate that Spirit AeroSystems had projected the week prior, Plant acknowledged. Executives with the Wichita airframer project sending 42 737 fuselages a month to Boeing by the end of this year.

Howmet, which fabricates fasteners and casts pieces for aerostructures and jet engines, reported annual profit of $1.3 billion for last year, up 12% when adjusted for one-time items. For the fourth quarter, its adjusted profit was $336 million, up 13%.

• Howmet ended last year with excess inventory
  
• Company still projects 17% growth in Commercial 
• Howmet hiring, but not everyone is sticking around

Howmet ended year with tens of millions in excess inventory

Boeing building 42 737s a month would be good news, Plant said.

“I mean, as such it’s great, and we’d love it,” he said. “There’s nothing which would give us more, I will say, pleasure and benefits than things (at those) rates.” 

But Howmet ended last year with $70 million to $100 million in excess inventory, because actual deliveries by commercial jet OEMs lagged behind their projected build rates.

“If you go back again, in the middle of the year last year, we were talking with Boeing about rate 38,” Plant said. But “by the time you took out planes from inventory, build rates were actually more like in the 20s. … What was the level of actual build? We don’t know.” 

So in projecting what this year will be like “we’re going to take a cautious and conservative view of 2023 until we know more and see consistent aircraft build rate increases,” the CEO said.  

He said he knows the projections “are cautious … that they’re below what many other people have and calling out 30 for a 737 or 53-54 for an A320, those maybe seem to be low.”

But Plant called on investors to “take it as this is something that helps us plan the baseline of our business, get our cost structures up properly.”

“If things turn actually better,” he added, “we’ll welcome it.” 

Company still projects 17% growth in Commercial Aerospace

Even with the lower projections, Howmet forecasts solid growth in 2023.

“Backlogs of aircraft demand at Boeing and Airbus are at all-time highs for narrow-body aircraft,” Plant said. “Wide-body demand is increasing rapidly, and further rate increases are expected.” 

Howmet expects 17% growth in deliveries from its Commercial Aerospace business in 2023, he said. It’s projecting Boeing will build about 30 787s next year, while Airbus will build 65 to 70 A350s.

“We expect to see strength improving in the second half,” Plant said.

The CEO said that in particular, he sees demand for A350s and 787s going up.

“From what I see of airline demand and particularly, the amount of 747s which are flying around, (and) A380s, I think if they could access 787s or A350s, they would be desperate to do so,” he said. “I think airlines need them not only for their own profitability, but also for their own carbon footprint. And I really do think there’s a case for looking at that carbon footprint, and we need those composite-based aircraft.”

Howmet hiring, but not everyone is sticking around

Like much of the industry, Howmet has wrestled with supply chain and labor issues.

Plant told analysts that Howemet’s supply chain was sometimes a constraint. “I’ve got a list of items today where we’re in … a low or no-build condition because of availability.” 

“While we think we have scheduled appropriately, we’ve had outages of somebody else’s forge or say metal cinturing,” he said. 

And with raw materials, “where we buy base metal, we had no issues all the way through. But where we buy somebody else’s alloy metal, that’s given us heartaches for sure, and that heartache definitely increased in the back end of 2022.”

As far as labor, Howmet over-hired in some segments last year, due to expectations of higher demand from OEMs. “We were in that pretty lethal band of having unfortunately stepped up to what customers had scheduled and then didn’t require.” 

Attrition is higher than expected, CFO Ken Giacobbe said. “We did not have significant new headcount additions in the fourth quarter. However, we hired approximately 1,000 new employees to offset Q4 attrition and absorbed incremental training and production costs.”

However, while having too many employees on the payroll hurt last year’s profits, it does set up Howmet to better handle expected rate increases in 2023, Plant said. 

“We are set up pretty well for the first quarter to be able to produce at this level or above,” he said. “Should it reach those heavy rates of 38 and 42 (737s) for example, or if Airbus is at the 57-58 (A320s) – provided we know that they’re heading that way, and we’ve got about six months’ lead time, we’ll be in good shape to meet it.”

Howmet needs to do more to retain workers, Plant acknowledged. 

“We’ve been particularly good at being able to recruit labor to meet our needs,” he said. “I’ll recognize that sometimes the stability of that labor hasn’t been everything we wanted.

“We’ve put increased discipline around our own recruitment process to make sure we have a higher level of retention, improved training routine, etc.,” Plant said.