Honeywell International Inc. (HON) Earnings Call Transcript & Summary

Thanks so much. The opening presentation, we have Honeywell. Thanks so much. Sean, thank you. And presenting, we have Mike Madsen, President and CEO of Honeywell Aerospace. I think Mike has a couple of slides, that he will present, and then we're going to go into a fireside style chat. Mike, welcome. Welcome to London. Great to have you here.

Likewise, thank you, Andrew. Good morning everybody, and we'll get right into it. Just a few slides maybe paint a picture of what the business is looking like this year and a few things that we see shaping up over the next few years. First of all, I would say we feel very fortunate to be in the aerospace business right now. It's a great time to be an aerospace supplier. I've never seen a set up as strong and positive as it is right now. Strong OEM growth in both Air Transport and Business Aviation, strong aftermarket in both areas. And I think a stabilizing in a more clear set of defense priorities, all very, very encouraging. From a Honeywell perspective, we feel like we're very well positioned to take advantage of those secular trends, in particular, based on our very attractive cost position as we all went through the cycle in 2020 and 2021, I think we adhered to the adage of not letting crisis go to waste with regard to fixed cost management. Great positions in defense, F-35, national programs, ground-based strategic deterrent, long-range strike and a few others just to name those. In our space franchises, we don't talk a whole lot about space, but we're very proud of what we do there, particularly with stabilization and pointing systems. We've -- when we spoke the last time, I think, a year or so ago, Andrew, we had won about $3.5 billion worth of business in the advanced air mobility space. That's now about $7 billion. So what a difference a year makes. But that continues to be an attractive space for us, not only because of the market itself, but because of the opportunity it's giving us to develop technologies and systems that will be very relevant in the future for aerospace in all market verticals. And then productivity improvements, I get asked the question sometimes, will the margin expansion continue. The short answer is yes, still a lot of opportunity with regard to digitized processes and automation not only with our administrative processes but also in our factories. And you can see some of the figures there and what we've achieved to date. Market outlook, as I mentioned, is looking very strong, and I think it's going to stay that way for the next few years despite some of the challenges that we see in the broader economy. We're seeing double-digit growth in air transport, both in the aftermarket as well as in the OEM space. Business Aviation, sort of a mid-single-digit outlook and then defense, low to mid-single digits as well. And importantly, that defense piece will return to growth for us this year. We're seeing that already in Q1. When I look at our investment priorities, and we'll talk more about this, I'm certain today, I would say a wide range of technologies that we're continuing to invest into all of them associated with the shifting priorities of the aerospace industry, more electrification in particular, and that means power generation, power generation and distribution, actuation and electric systems to help us cool and pressurize the cabin, all of those are, I think, going to be increasingly relevant in a greener aircraft industry going forward. The next-generation cockpit, our Anthem cockpit, which we're very proud of, for all market verticals has been sold into the Business Aviation and also the advanced air mobility space, but has a real potential in general aviation, air transport and military as well. I talked a little bit about advanced air mobility and just kind of a summary of some of our recent wins. In particular, I would mention the Hyundai Supernal win that we had with integrated avionics and other systems in play there as well. So we're starting to see the OEM base shift a little bit there from just the new entrants that we saw a few years ago to some of the more established players, both in aerospace such as Textron and now with Hyundai coming into the space as well. $7 billion in content wins so far. Still a strong pipeline of opportunity there. And again, I'm really happy with this because it gives us an opportunity, as I mentioned, to develop some of these technologies for application to the general aviation, business aviation, air transport and defense spaces. Sustainability. Right now, a lot of offerings that provide sort of these low single-digit reductions in carbon dioxide emissions as well as fuel savings. Honeywell Flight Efficiency used to be called Forge Flight Efficiency. It still has forge in it. And you saw that about 3,000 aircraft today enabling operators to provide more efficient routing and also fuel management on their ground operations. Hybrid power, electric -- hybrid electric power generation with power generation levels of 200 kilowatts to 1 megawatt. We've tested our 1-megawatt generator. You can see it in the center of the slide there. Working quite well and entry into service for those systems in the latter part of the decade. And then, of course, hydrogen as a fuel as well as an element within a fuel cell itself. And with our Ballard acquisition that we did a few years ago, we're well positioned in that space and very excited about it. So in summary, you can see very strong in all market verticals. Very excited to see the recovery that we've seen in the industry. It's quite strong actually. Demand continues to build and output continues to increase as well. So it's a great position to be in, especially compared to a couple of years ago, and execution remains at the forefront of everything we do. So with that, Andrew, I'll turn it back to you.

Yes. No, Mike, thanks so much for being here. So maybe we can start with a lot of questions on Aero outlook for 2023. So I think there are some sort of variables in the outflow because it relates to margin. But since you guys reported fourth quarter earnings, what have you been seeing in the business? How have the commercial and defense supply chains trended? And what are you seeing in the wide-body recovery? Why don't we start there?

Well, there's -- first of all, there's no question we remain in a supply-constrained environment. Demand is not a challenge for us right now. In our backlog, we continue to see growth. As a data point there, we've had about $18 billion in business wins in the last 2 years and you compare that to our revenue over those 2 years. It's quite significant. But we are seeing some really positive developments in supply chain and output. Right now, I'm seeing output up about 15% to 20% year-over-year and continuing to build momentum, both in terms of what our suppliers are able to commit to and also the fidelity of those commitments as we move through the quarter. So we're seeing some positive trends in output, which is good. I think that we will start to recouple with demand in the latter part of this year, and then we'll start to see backlog stabilizing as we go into '24. So seeing good output from the supply base and in terms of the market trends, very strong still in the aftermarket side of things, particularly in air transport. We're seeing wide-body growth now with the China situation evolving. We're seeing widebody growth starting to come back. In fact, the growth rate with wide-body flight hour is about 2x what we're seeing in narrow-body right now. So starting to come back to a level that is more like what we're used to. I think we've still got another probably 1 year to 1.5 years before we're all the way back to '19 levels on flight hours though.

And on just widebody recovery, I think one of your competitors had an Analyst Day recently and sort of stated that the widebody recovery in China was sort of maybe ahead. They were more conservative. And I know Honeywell is always very conservative. We have a lot of debates with investors about just how conservative Honeywell is, but we think sort of sets the standard for beat and raise. I'll give that to Sean. But yes, where are you versus the expectation of the wide-body recovery?

I would say it's starting to accelerate is the way I would describe it. I think we'll see narrow-body flight hours back at '19 levels by the end of the year, maybe early '24 and then probably late '24 for wide-body. It depends a little bit on what we see in Europe as well. China is an important market, but still relatively small in terms of global flight hours, I think it's about 12% or 13% of total flight hours, but it is coming back. And it's not just within China, of course, it's travel to and fro to China and across the Asia region. But it's exciting to see because I think I've mentioned it before, in terms of our revenue base, we have about 3x the revenue per flight hour on a wide-body aircraft as compared on a narrow-body. So good to see that coming back.

And what are the near-term source of uncertainty and how do you bracket it? I think, also will OE payments be a question? When do you think that sort of you have more certainty on that in the year?

On the OE side?

Yes.

I would say the OE side remains pretty strong, particularly -- well, both business aviation and air transport, we're seeing solid double-digit growth in demand. In fact, it's a bit of a contest to try to keep up with the demand right now on the OE side, which is a challenge you fear in operations, but it's not a bad problem to have. And we're watching very closely the order books. We stay closely aligned, of course, with Airbus and Boeing. And I'll say, by the way, I think Airbus and Boeing have done a very good job of keeping the supply base informed on what they're planning to build and seeking feedback from the entire supply base on what the supply base can support. I think they're doing the best they can, and I feel like that alignment is pretty tight. But we're watching the order books there. We're watching the order books with Business Aviation. No signs of any sort of pushouts, cancellations, deferral of options, anything like that yet. Business Aviation aftermarket, I didn't mention that earlier, but still growing, of course, at a much slower rate than it did in '21 and '22, where we saw, I don't know, 20% or 30% increases in flight hours. But it seems to be stabilizing sort of at a low single-digit growth rate and particularly strong with the fractionals and corporate flight departments. A little softer with the charters and the managed flight services folks, but stabilizing it, I think, what will be a longer-term growth rate in the low single digits. And we'll watch that really closely. I think if there's one area that we monitor that's tightly related to the economy, it's that business aviation. Yes.

Yes. And so on the commercial, just for the audience, how do you see build rates evolving over the next 3 years? And taking a longer-term view, what are the key source of uncertainty bottlenecks and -- why don't we start there?

Well, I think that clearly, this year, the build rates are quite high. That's the strongest sector we're seeing right now is air transport OEM. I think there's enough backlog that that's going to continue into next year and probably into '25. And then we'll see. Beyond that, we'll have to see if there's a big shift in the economy or something that could slow things down, but so much catching up to do right now. The demand from airlines, for aircraft has been bottled up now for about 1.5 years. We started really seeing the order rates pick up in '21. And so I don't think that we're going to see much of a slowdown there. I think the supply base will we'll continue to accelerate. We'll see that demand continue to grow and we'll probably recouple next year, early next year. But I don't think that that's going to slow down. If there's any areas of uncertainty, it would probably be if global credit markets really have a challenge and it could slow down things with the leasing companies. But I don't see signs of that yet.

And in terms of supply chain over the next 3 years, like in the dialogue with supply chain, what are the key bottlenecks that need to get better over the next 3 years?

Labor. It's all about labor. We're not yet at a point where we're challenging the capital capacity of the supply base. Now I think we'll probably be there in the '25 time frame not now and probably not even in the first half of '24, maybe even all of '24. It's much better than it was a year ago with the electronic supply chain. I would say mechanical is still working to recover, just -- and it's labor-based, enough people in the workforce to be able to produce all the parts we need. So we're continuing to work on dual sourcing, in-sourcing where it makes sense, looking at selective automation where it makes sense. Alternative means of manufacturing, everything that everyone else is doing. But when you're producing at close to 20% year-over-year and then trying to get more, it's not a bad place to be really.

Yes. That's very good to hear. One of the questions we get are -- I think, is particularly relevant to Honeywell, what are your thoughts on the timing of the next big commercial airframe program? How do you think about that?

No, I think about that quite a bit. I think it's going to be the end of the decade frankly. And the reason is there's a lot of great aircraft out there. The 350 and the 787 are still relatively new aircraft. Airbus has the 321 and the neo and the XLR coming along, very strong aircraft. And of course, the MAX is now back in production. And I think that barring a big shift in fuel prices or something that drives a change in the demand for sort of that intermediate length segment, I don't know that we're going to see another big investment in aircraft for a while. We're sort of planning around that 2028, 2030 time frame.

And when would R&D sort of have to sort of pick up to meet that?

3 to 4 years from now. Yes. So '26 time frame, '27 time frame.

Excellent. Maybe you alluded to business aviation. Can we talk about sort of any structural changes and drivers in the post-COVID world? Should we look at this market any differently?

Well, it absolutely has changed. What we saw was an enormous increase in noncorporate flight activity on business aircraft post 2020, post-COVID, a lot of folks who I presume flew premium cabin in the commercial air transport space are now flying private. And you see that in the fractional products, the card products from companies like NetJets and Flexjet, big increase in demand there. And so far, that has not slowed down or gone down. I think it's -- that's there to stay. So kind of a shift over along with sort of this normal rate of corporate travel as that's come back over the last 1.5 years. And I'd say that's a big change from what we saw in 2019 and driving demand for new aircraft as well through those fractional operators.

Got you. Maybe shifting to defense and space. One of the key trends, as I said, you had some in your slide deck, but I think -- I don't know how much detail you can share, how much analysis you've done, but the latest President's budget. What's key transforming and noteworthy thing in the latest President budget that stands out to Honeywell specifically?

Yes. We spend a lot of time going through that obviously, and all the components within the budget, we participate primarily in the RDT&E, the O&M and the procurement elements of the budget, much less in MILCON and military personnel elements of the budget. So there's quite a bit of transparency. I would say kind of starting at a macro level, it's stabilized And it's more clear. It was more clear last year, it's more clear this year where the priorities are. And those priorities have changed substantially since 2019. 2018, 2019 time frame, really still all about the conflicts that we saw in Iraq and Afghanistan, now pivoted much more toward a defense of the Asia Pacific region. A preparation more toward a great peer conflict sort of posture. And what that means is platforms like the F-35, long-range strike, shipborne systems, aircraft, on aircraft, on ships as well as the ships themselves, communication systems, satellite systems, and a recapitalization and improvement of the nuclear triad have all been prominent areas of the budget and we participate in all of those. And so we're seeing the budget shift from sort of fifth-generation aircraft, ground-based systems more toward these systems. And then superimposed on top of that with the situation in Ukraine right now, we're starting to see a demand increase for navigation products with missiles and ammunition series. So we're starting to see that roll through with things like the GMLRS, HIMARS and systems like that. We're starting to see demand pick up there.

So should we be thinking that this plays into Honeywell's strength?

Yes, I think so. It plays into our strength certainly in the space side, on the advanced aircraft side, on the RF and SATCOM systems side, pointing and navigation systems for satellites and now, of course, with the navigation products. I think we're going to see a significant uptake there in the next couple of years as that demand firms up.

How do you see the evolution -- I think historically, you sort of highlighted international sales being important for Honeywell. How do you see the evolution of international sales over the next several years?

Well, I think that's also an area that's going to get revitalized. We're already seeing some interest. You've seen the countries in Europe starting to increase their defense spending, kind of getting closer to that 2% of GDP number that NATO always advocates, and what that's translating to is 2 things. One is demand for U.S.-based systems as well as indigenous systems. And that's an area that we're focused on as partnering closely with the OEMs for those systems so we can participate to a greater extent in those sales as well as just the U.S. systems. We've had a partnership recently that we talked about with Civitanavi. That was based on being able to play a larger role in navigation products here in Europe, for example.

So I think last spring, we saw that when it was way too early to figure out what was happening, you and I sort of spoke about it in Deer Valley. It is interesting. It seems that the change that's ongoing is more structural in nature than I think we would have guessed even a year ago. But maybe looking at the direct impact from the budgets, maybe it's slower than we would have guessed. So how and when will this impact Honeywell?

Well, it's starting to impact us now. We'll be back to a growth posture in 2023. I anticipate growth in '24 and '25 as well. It just takes time for priorities to get substantiated and instituted in the budgets and for those budgets to get approved. We went through a cycle last year where it took a long time for the budget to get approved in the defense -- the defense budget that is. That's done and now we're starting to see that flow. And so it's now. It's really right now. Yes.

Okay. That's great. One of the initiatives you have sort of been highlighting is within Aero is retrofits, modification and upgrades. I think you sort of highlighted this as a high-margin opportunity, $800 million to $1 billion next year. Can we just talk about where we are, where do we stand and what's the progress like?

Yes, retrofits, mods, upgrades, services, all of those play an important role for us in enabling us to grow faster than the market. Otherwise, we just kind of rise with the tide. We don't want to do that. We had targeted last year $950 million in retrofit, mod and upgrade revenue. We actually came in about $100 million higher than that. It's going to be $1.1 billion this year. And I anticipate that to continue to go up at about a 10% CAGR. And that may be conservative. We have some really exciting SATCOM systems coming out in 2024. Think Ka-based SATCOM system that allows you to use multiple constellations in the same system. So you can switch back and forth between the constellations, including WGS Constellation for the defense applications. So we're excited about that. A continued stream of Epic cockpit upgrades as well. So that business is going to continue to grow. And we're really happy about that. It solves customer problems. It's a great source of decoupled revenue for us. And it's short cycle, which I like in the aerospace business. Short cycle is always good.

Interesting. And so you think all the trends that sort of supported the outperformance is still there?

Yes, absolutely. We're seeing the orders come in, and we've got a strong pipeline of products that we're developing to support that as well. So...

That's great. Services and connectivity. Always, I just remember, every time you go to Paris, there's a big services and connectivity presentation.

Yes. And there will be again this year.

Okay. Okay. Can we just talk about what's there? What are the big opportunities for you over the next several years there, key programs?

Well, I mentioned the multi-constellation Ka-band system. Another one that we've got coming out at the end of this year is a cockpit based L-band system. If you think about today, cockpit communications are mostly HF radio. And it's not as reliable as we'd like it to be. It's heavy. The systems are heavy. And they have limited functionality. It's basically voice communication. We have a system coming out at the end of this year, the Aspire 350 product. That's an L-band system that will allow the operators to replace one or both of the HF radios in the cockpit. So people sometimes say, "Are you guys planning a bigger role in HF radios?" and I say, "No, we're replacing them." And with something that's more reliable allows voice communications, text communications, aircraft data communications, thinking harsh communications, all of those in 1 system." So that's coming out. And then beyond that, we're also looking at and have just started development work on systems that will be what I call an all-in-one thinking antenna on top for SATCOM and an antenna on the bottom for air to ground. We think particularly for Continental transport, that will be very attractive. Again, allowing operators to use the lowest cost network to do their comms and having a choice.

And you had a slide just maybe a sort of shifting to R&D priorities. So where are we in the R&D cycle? What are the key R&D priorities in aero? As I said, you did have a slide, maybe we can sort of dive into the road map for the next 3, 4 years?

Yes. Really, I would say a couple of things, some traditional sort of areas of investment, but also I think aerospace is at one of those watershed points. You think about when pressurized aircraft first were developed, then you think about the dawn of the jet age in the late '50s and the early '60s, I think we're at another one of those points right now with electrification. And it's been brought about due to the advent of higher voltage DC power systems, 400-, 800-, 900-volt systems that enable us to do things with electronics that used to be done with hydraulics, pneumatics, and that's going to take a lot of weight off the aircraft. It's going to be more reliable, more green because you don't need to use bleeding your off engines to run things like cabin pressurization systems. Now what that does, though, is it makes a significant change in the technology that's on the aircraft. Think larger generators, electric actuation, electric cooling systems, vapor cycle-based cooling systems for the aircraft instead of air cycle machines, and we're excited about that because it gives us a chance to play, quite frankly, a larger role in some systems that we've been just component providers in, like aircraft surface actuation. So we're moving into that space in a big way, using the Advanced Air Mobility investments that we're making as a way to develop that technology and reapply it. Compact fly-by-wire flight controls, electromechanical actuation, electric air pump systems for cabin pressurization, vapor cycle cooling and then, of course, generators and power distribution systems. Those are sort of the newer areas. Superimposed on top of our HTF product line, our business jet engine product line, which is in the middle of a development cycle right now for a next-generation engine that will be available in about 3 years. And then the T55 recapitalization that we're doing for the U.S. Army with the 714C to name a couple. And I think also navigation, I mentioned earlier, alternate navigation is another area of focus for us. The world is going to want to operate in an environment where they cannot rely solely on GPS navigation. Systems today use GPS and inertial navigators, we're going to continue that, but also developing things like optical and celestial navigation systems to go on top of that.

So a lot of -- it assumes a lot of things in the funnel. So does that mean that R&D you can do it with the current level of R&D by being more efficient or does that mean that sort of we are entering new R&D cycles for Honeywell aerospace?

Both, both. We'll continue to have R&D levels better in the 5% to 8% of revenue, is kind of where we'd like to operate. We're there now. We'll continue to do that. But of course, as revenue grows, that investment level will come up. And then we're always, always, always looking at efficiency in our -- you don't hear about Honeywell having development program problems. We constantly, constantly look at ways to shorten cycle time and reduce estimate and complete EACs. The last, I don't know, 5 years I've run a net negative EAC growth on my programs. So small increases, larger decreases, and we're constantly driving that mindset of how do we do things faster with less money and more effectively in our development program execution. It's one of our strengths, actually.

So the scale is basically the increasing scale of the business because it sounds there's a lot of revenue coming in, it will effectively bring more...

That's right. And that allows us to reinvest in those products at a similar or maybe even slightly increased rate as a percent of sales.

Okay. That's great. So energy transition, and I think you have addressed a lot of this stuff, but clearly, fuel efficiency, a big focus for you. And I think, there are -- I think for Honeywell, just given other things you do, I think it's a much broader story. But, a, can you just talk about fuel efficiency, your digital capability is just making aircraft more efficient, but then also, you do have the sustainable aviation fuel collaboration with PMT because as I said, I think very few of your peers can have a -- you seem to be able to have -- deliver a much more comprehensive solution than the peers. So can you talk about that?

Yes. We're trying to close the loop on that. We work very closely with Lucian Boldea and -- my peer over in PMT. I talk to Lucian almost every day about SAF because it's not just, well, what is SAF. We want to make certain that we're producing SAF that's optimized for the aviation industry. Honeywell is the world leader in the technologies to produce sustainable aviation fuel. We've had this technology for over 20 years. And the question isn't how to produce SAF, it's how best to produce SAF. We want to produce a sustainable aviation fuel that maximizes the heating value, has the right lubricity properties, the right anticorrosion properties. So working closely with him and our partners in the refining industry to be able to not only show how to do it but actually produce it. And then, of course, getting our products ready to run on SAF. Our products will all be ready to go 100% on sustainable aviation fuel by 2025. It's really just a matter of running the necessary tests to demonstrate compatibility. It's not a -- from a risk perspective, it's pretty low risk. So we're doing that. And I think sustainable aviation fuel, along with the things we're doing today to improve the efficiency of engines, APUs, flight efficiency, flight routing, fuel management and things like that will be the solution for the next say, 5 to 15 years. Beyond that, hydrogen will play a larger role. And hybrid systems, think batteries, combined with turbo machines, fuel cells combined with turbo machines, that allow you to optimize your power levels, your emissions, your fuel consumption on the ground versus in the year. And that will be sort of the solution for 2035 and on. And we're working on both of those simultaneously.

Got you. So maybe we can talk about urban air mobility because, frankly, we did a call with you, and I was a bit skeptical and then Ron had a conference on emerging trends last year. And I think every start-up, every urban air mobility start up that I had drinks with like basically was using your technology. And what has happened in the past year? And what is the competitive landscape here? Because you seem to be doing very, very well there. Who is your competition and what differentiates Honeywell there? And how have you been able to sort of get such a nice chunk of this business?

Well, I'll tell you, it's an exciting space. First of all, I believe strongly in the space. Crew costs are a significant part of airline and cargo operators, right, expense. And it's also -- I don't know if anybody's noticed, there's a pilot shortage. There's also a shortage of people to operate on the ground. People can get hurt, equipment doesn't get hurt, people get hurt. So from a safety perspective, a cost perspective, a capacity perspective, there's a lot of energy around how do we operate aircraft, not just advanced air mobility and urban air mobility aircraft, but regular aircraft with reduced crew operations. You think about when a company flies cargo from the U.S. to China, there's 4 people onboard that airplane. 4 crew members on, 4 pilots onboard that airplane. Do we need to have 4 pilots onboard that airplane. How do we operate the aircraft with less crew. How do we enable people operating urban air mobility and cargo vehicles, short-haul cargo vehicles to do so with less, maybe a pilot operation that requires less training, right? Think of more as an operator unless as a pilot. If we're going to have an operation that moves cargo 150 kilometers from a cross-dock facility to a warehouse, and it requires a 1,500-hour ATP pilot, we're not doing it right. So we believe that there's going to be this macro force that will continue on how to operate with less crew and more autonomously. And it's really not a technology problem as much as it is a regulatory problems. It's both, but we've got to solve both. We're excited about that space, not only because of the prospect for moving short and medium range and even long-range cargo autonomously. But of course, urban air taxis and mobility in that regard, and the ability to apply those technologies back into other aircraft, regular normal aircraft, I'll say, historically conventional aircraft perhaps. And that's why we're investing in the space because it is the future. It brings to bear all of our capabilities as a systems integrator, which plays to our strength. And we're also seeing a very interesting evolution in this area with the OEMs. It was the startups. The startups are still there. We're starting to see traditional aerospace companies come in the play here like Textron with their acquisition of Pipistrel, and the great work that they're doing, by the way, with e-aviation at Textron. Very exciting. And now also some entrants like Hyundai coming into this place, which makes total sense given their expertise in electric systems in particular. So we're -- it's not just a technology development effort. It's shaping of regulations, and it's a partnership with, in some cases, new customers.

Is it fair to say, maybe I'm incorrect, but it does seem that as the labor markets has evolved over the past 12 months, pilot shortage sort of seems to be -- near-term pilot shortage of this cargo versus passenger there's sharper focus there. Is that a fair statement?

Yes, it is. And I really think that cargo, frankly, will be the leader in this reduced pilot operation and ultimately singled in autonomous operation. Think about a -- if you think about an eVTOL that can move 1,000 kilograms of freight from a multimodal cross-dock facility. Think shipping containers coming in on a truck or a train, the ability to then disaggregate that and move it without an airport from that cross-dock facility to a warehouse where electric vans can then deliver it to your home. As more and more e-commerce takes hold, the capillaries in that network are going to continue to increase. We can't build more roads, and we don't really want to build more airports. So I think eVTOL cargo is going to play an important role in that ecosystem.

And so how has the time line in the past 12 months -- time line for commercialization evolved and maybe we have 4 minutes left. Maybe we can talk about sort of the regulatory because you clearly sort of highlight that it's becoming -- particularly for cargo it's more a regulatory issue than a technology issue. So, a, maybe you can address time line for commercialization evolution over the past 12 months? And how is the regulatory environment evolving?

Well, it's moved a little to the right in terms of the commercialization of the products. We were looking at, say, '24, '25. I think it's going to be more like '25, '26 for the first entrance right now. And then ramping pretty rapidly in the '28 to '30 time frame. I have to say that from a regulatory perspective, some positive developments. YASA really led the way with the rule making around how to certify one of these vehicles. And we're starting to see the FAA align now with that, which is good because you don't want 2 sets of rules, you want the same vehicle to operate in both places. And then, of course, the other agencies are starting to fall in line too. So that's a good sign. And I can tell you that all the companies we're working with are, normal technical hurdles that they run into. But surprisingly, I say or maybe not surprisingly, moving along quite well. I think it will be '26, '27 though, before these vehicles -- are '25, '26 time frame perhaps when you get certainly...

What are the political hurdles to adoption? Is there a partisan difference or?

I'm not seeing partisan differences. I think that people are keenly interested in noise, they're keenly interested in the regulations around where these vehicles will operate and that they can do so safely, and all of that's appropriate, of course. It's important to be conscious of those things. But seems to be getting solved in time and I think particularly EOS and FAA are doing a nice job of staying abreast on that.

And I guess we have 2 minutes. I'll ask about Anthem. You highlighted it. Can you just talk about it?

Very excited about Anthem and not just for the advanced air mobility space, but for all markets. Look, the thing that's interesting about Anthem -- and if you come see our technology labs in Phoenix, you'll see what I'm talking about, a cabinet that was the size of a roller-board suitcase that had 40 or 50 pounds of equipment, and it is now replaced by a module the size of a book that weighs less than half of what the systems that went into these cabinets. One module does what 3 did before. So instead of a big rack like this that goes into the avionics band, an airplane, you're talking about things that are the size of a book. And the ability to not only locate those where you want to place them in the aircraft, but be able to host other processing on the aircraft, which takes systems off, takes weight off. So it's lighter weight, higher power, more capable, always connected, tailorable. The screens can be tailored to different airlines and operator's requirements. It's got a built-in web browser. So -- and a user interface that if you know how to use an iPad, you know how to use Anthem. It's that simple. It's very, very easy to use. And when we talk about moving to reduced crew operations, part of that is not just fewer crew members, but crew members that don't have to be so highly trained in something like an avionics system, it's intuitive for them. And that will be important as we start to talk about the proliferation of these devices. So really excited. It will be certified in a couple of years here. It's about halfway through the development right now, and it's on, we've got it flying on a Polatis PC-12, and it's working great.

So just in conclusion, just to summarize what you're saying, it does seem that year-to-date, things are as good as you've expected. Supply chain is on track. Mix is getting better. It's still -- we're still in March. It's still early, but the message seems to be as good as expected, maybe some upsides, obviously, some economic uncertainty and also, clearly, the message here, a lot of opportunities for growth, profitable growth began to '23. Is that a fair way to summarize?

I couldn't have said it better myself, Andrew.

Thanks so much.

Yes. Thank you.

Thank you.