Howmet Aerospace Inc. (HWM) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to Howmet's -- I'll call it Investor Day, but really we've called it technology because that's what I'm going to major on today. And I've taken is a great personal risk to take out from PT reading the safe harbor statement. He asked if I knew what 1 was. And I felt confident that I could do it. So with the first slide, just to make sure we do put it up on the screen. Maybe we do need PT to press this button. Here we go. It is now working. So this is a statement regarding, I'd say, forward-looking items that you may hear about today during the course of the presentation and followed with obviously some words around non-GAAP information. So what I intend to do is to, first of all, give you an overview of the company to introduce it for those people who may not be totally familiar and then move then directly to start talking about the industry and then our product lines within Howmet that face into the industries we serve, and during the course, hopefully, see some really interesting things. So today, I will present the first part of the meeting. Ken will follow with some financials, and then myself, with the 4 business unit presidents, to show the depth of management that we have here and also who you've been able to talk to as you've seen the displays. We'll come to the stage, and we'll let the questions roll at that point. So let's start with Howmet. It truly is a story name in the industry. It goes back over 80 years. And we've had a major presence, particularly serving jet engines from Howmet in the past. We have differentiated technologies with a very rich IP portfolio. And so you can see in the middle of this slide in the bottom there, over 1,000 patents that are being granted. And not all the things that we, let's say, invent either by way of product or process do we patent, just so that we can then keep those things hidden from view. And as you come to realize, if you haven't already got there is that we actually are mission critical, both in for defense aerospace and also for commercial aerospace. The reason why I put a picture of a jet engine there in the middle is that, at a couple of times during my presentation, I do want to talk to the engine. And the purpose of this part is to say, over the years, how it's changed. And I'll keep it very simple and at the outset is that if you go back 20, 30, 40 years, most of those engines would have been long and relatively thin. And as you've seen, more recently, you've seen the engines grow wider or fatter and relatively shorter. And that in itself had a major influence on the products that we make as the engine manufacturers and aircraft manufacturers have strived for fuel efficiency and for emissions control. So what is our strategy? The first thing is, as a business, we try to focus on the things that we are good at and seek to grow those at above market rate. And if you go back to 2019 before we split Arconic into Arconic Corp. and Howmet Aerospace, we sold off some 7 businesses that are deemed were either subscale, had poor results. And really, we were better focusing our management time and effort to making it the good, really good. We underpin that strategy with a great deal of discipline, both commercially and operationally. And hopefully, if you've tracked the company over the last few years, you've seen that come to the full by the way of the results that we've achieved. If you go to the top right, we don't treat everything equally. We truly differentiate, not only the products that we keep, but even inside the company, we have clearly disciplined resource allocation with more resources going to those parts of the business that produce higher returns for us and where it's higher returns by our capital or higher margin and that's prioritization of where we'll place our capital dollars and our engineering dollars. And then all of that is underpinned by a very disciplined capital allocation strategy because also, when you think about it, what do you want as shareholders and potential shareholders, it's capital returns, and we believe that we are very good stewards of capital. So let me now introduce to you the 4 segments of the company. We have Engine Products, Fastening Systems, Engineered Structures and Forged Wheels. And while we can go to the individual product lines, which are shown in the, say, bottom section of this slide, for me, the most important thing is that we are either a #1 or a #2. And in fact, if you look across line, essentially, we're #1 in most of the markets we serve. In fact, it covers some 85% of our revenues. And I actually believe that's really important when you think about the robustness of a company and its returns, and you get into concepts about relative market share, et cetera. And across the bottom of the slide, you'll see the customers that we serve, and I don't think there's any need for me to call those out for you. So what do we seek to do, and what problems are we there to try to solve for our customers? Essentially, the battleground today in much of transportation is lightweighting, to produce better fuel efficiency or another way of expressing it is a lower carbon footprint, with reduced emissions, and it's not just carbon dioxide, but it's also nitrous oxide and any other emissions. And that can also include noise because aircraft noise, particularly around airports, is also a really important topic for which, say, the aircraft manufacturer need to be aware because airlines are very sensitive to it. And if we can also, if we can help our customers to improve their operations, whether helping them to make their own production lines more streamlined and efficient that also goes to help our relationships. And then finally, I think you can -- we can demonstrate that we always try to deliver whatever part we do at the lowest operating cost that we can conceive. We're a global company, essentially located in the Western world, which is where the 2 large commercial aerospace companies are and also defense contractors that we serve, and we have 65 manufacturing locations. But we're also able to cover Japan and China, as you see on the far right. And this was just a slide to demonstrate the breadth of our capabilities. I'm going to talk to a bit now the aerospace markets, and tell you what's -- in our view, what's going on there. All of us are very familiar with the consequences of the pandemic upon the industry. And of course, that was overlaid by the particular problems that Boeing have had starting with the 737 at the -- it's grounding at the end of 2019 and then obviously, more recently with the 787. But despite all of that is that the recovery is now occurring. And you can see it, and this is an example of the TSA check-ins, which have risen to now 90% of 2019 levels in the U.S. or in North America. Similar numbers now in Europe. And while China actually was at those sort of numbers some months ago, with the current lockdowns, they have actually fallen significantly from that level. But the most important thing is I think there's a sense of confidence in the airline industry, and that's feeding itself in through, I'll say, the production of aircraft, which I'm going to talk to you more about. For us, what does it mean? It means that I think we have higher than normal growth. And if I normally think of growth in the 4% to 5% region for aerospace companies and passenger air miles, but this is going to be 3 years in 2022 and 2023 and '24 of above-norm growth for the industry, which, hopefully, if we're able to perform against that, then things will look quite good. So commercial aerospace essentially has responded to domestic travel more than transatlantic or transcontinental travel at the moment. You can see these revenue passenger kilometer graphs, which show that by 2023 is that domestic travel, domestic inside the U.S., Europe and China, we believe we'll be back to 2019 levels and then continue to grow from there. In terms of interregional travel, which is, let's say, think international travel, that's still in a recovery mode, and we think it will be getting towards 2024 into 2025 before we reach those previous levels. And that obviously does impact again aircraft production, particularly in the wide-body market. But the most important thing is, despite all the noise, the noise around Boeing, the noise around the pandemic, the noise around individual aircraft certification is that the industry is in a growth mode and should continue to do that at above norm for the next 3 years. How does that translate into production of commercial aircraft. This is a graph that we see of production of narrow bodies. We're not identifying that which is Airbus, an A320 or a 737 in those graphs, but essentially saying that by 2024, we'll be at a rate above 2019 levels. And as you know, from the shipset values that we provided to you is that the commentary is that we have a similar value delivered to an Airbus A320 or 321 to a 737 MAX. So in the short term, fairly agnostic to an increase to either one. But obviously, long term, we'd like to believe that both of our customers will be very successful and have, I'll say, the normal levels of market share, which, I'll say, should be around 50-50 maybe for the future. In widebody, we see that starting to improve in, in fact, early days for considering the widebody market will improve. But when we think about, for example, the committed increase in the Airbus A350, it's only going from 5 to 6, but that's a 20% increase. And so 20% of anything is good for us at the moment, and we see that being to occur as we move from '22 into 2023, and hopefully grows from there and -- which, in our case, may be slightly more accelerated given the fact that 787 is currently in essentially very limited or no-build condition. Let me just cover the defense industry, and I've put up the slide there for the F-35 because 40% of our sales are dependent on that aircraft. And as I think you know, we have a fairly good content, both across the structural parts, fastening parts and also, in fact, a sole supplier for the turbine parts for that current engine. The growth, which has been, I'll say, a little bit delayed from the last couple of years, Lockheed have stated that they've been affected by COVID in terms of their production rates. But you can see that, that rate increase from last year is 142 million to this year's in the 150s and then beyond and then should stabilize is obviously in a good condition. And once we've burned off the inventory for the Bulkhead side of our, our structured part of the business over this year, hopefully, you'll see that continued growth for Howmet. And also, we should begin to start to see the benefits of the increasing spares content of the engines as that park of engines. So I think 700 aircraft currently in the total aircraft park and that increasing at 150 a year. And while not disclosing to you the duty cycle of that engine, then the spares growth will be meaningful on top of the OE growth in years to come. At the bottom of the slide, I just commented on a couple of other programs, the heavy-duty lift helicopter program, the [indiscernible] and then the Apache that's coming up for award. And we're optimistic that we feature in that program or those 2 programs. And in fact, the B-52 that was actually concluded and awarded last week to Howmet, and so we'll be providing the turbine blades to Rolls-Royce for that complete reengining of the B-52, and therefore, say, good news for us. Let me now start to talk to the individual product lines that we have in the company and get to more of the technology focus, which is what today is all about. And I'm going to start by asking that we're going to play 4 videos during the course of today, and this is the first 1 regarding engine products. [Presentation]

So hopefully, the video can probably explain some of what we do as we go through this, maybe even better than I can. So I've already commented what is Howmet about, which is fuel efficiency and allowing for that, reduced emissions and overall efficiency for the industry. And in the middle of this slide, I draw your attention to so what are the major drivers in that? And clearly, over the last, let's say, 50 years, the increasing temperature, particularly in jet turbines, has been something that the industry had to step up to. Beyond that, we also have to create what we call aerodynamic shapes of our turbine blades and fan blades for the engine and control airflow. And I'm going to be spending quite a bit of time today talking about airflow in the jet engine. We also have to make our parts resistant to the environment. So if you think about some of the countries that aircraft fly in, and the degree of pollution and different type of particulates in the air and how the turbine blades have to withstand that, particularly when they're operating at the elevated temperatures that I'm going to be talking to you about. And then, finally, of course, component integrity. These parts are operating in an extremely harsh environment. And the last thing we want to see is telephone calls of spam, which I hadn't switched off my phone, I'm sorry. And then finally, model-based manufacturing. So we deliver this through casting techniques, cooling techniques, how we create complexity of shape? How we coat, and how we enhance the strength of our parts? And then I'm going to talk a little bit about the way we employ what we call digital manufacturing to create the quality and yields, which are vital to the success of the company. I'm just going to comment one stage further on the engine you see at the bottom there. I've already mentioned short and fat. And the thing which I want to concentrate on is that middle part of the turbine, which is just after the large fans where the combustor is and where the combustion occurs and then what flows from that in terms of the hot gases into the first part of that, the turbine blades. And those are the blades, which then start the spinning process, which then go back up through the external fan you see at the front. And I'm trying to explain to you why that is a really important part of the engine to control both for its output, but also the differentiation and the economics that go with it. So in terms of, again, leading positions in all but one of the segments that we call out here, we're #1 again, sometimes #1, by a very large amount, for example, an RMS of 1.7 on the airfoils is an example. And you can see whether it's airfoils to commercial aerospace and defense, to the industrial gas turbine market, but we also support that with a significant #2 position in structural castings, which is growing. And then seamless rings that we have, which provide the out of boundaries of the engine. In terms of our revenues, you can see those on the right-hand side, going from 45% on airfoils. In the IGT, we've put both oil and gas as well as the industrial gas turbine business to give a composite there. And then you can see rings and structural castings as well. I think every 1 of you is familiar with the sequential transition of technologies in turbine blades from, I'll say, Equiax through, I'll say, is more solidified and then single crystal blade. And I'm going to talk to you about that, but that really is, I think, to some degree, yesterday's news. Let me talk about our materials expertise. Essentially, we operate in 3 fundamental metals, in aluminum, titanium and nickel. And essentially, you can think about increasing temperature applications as you go across those and that applies whether it's for a turbine blade or a structural casting or indeed a ring. Within that, of course, we supply many different alloys, some hundred different types of alloy across those, and we agree what those alloys are in conjunction with our customers. And the selection of the materials themselves are all based upon the performance requirements of the part in terms of temperature, strength, et cetera. So to bring everybody, first of all, to, I call, base 1, which is the different types of turbine blades that there are. I mean, many of you will be familiar with the terms, Equiax, which is basically where the grain structure within that airfoil is essentially random. It's a fine grain structure. I mean they do perform at a very high level. At the same time, is that because those, I'll say, grains or say, crystals within that blade are subject to all different slip angles within it, then the structural integrity of that is, I say, can be compromised in very high temperature and pressure situations. Back in the early '70s, I think it was the Pratt & Whitney engine, which went on the, I think, SR-71, the Blackbird, the reconnaissance aircraft, which had the first application of directionally solidified airfoils. And essentially, what that is, is that you take the grain structure, and you, I'll say, align it longitudinally. And so you can see where this part here has been [indiscernible] to reveal the grain structure and you can see the vertical lines on the airfoil, which enable the increased structural strength to withstand the, I'll say, the lateral stress forces within the engine at those temperatures. And then we go to 1 further stage, which is the single crystal turbine blade. And of course, you see where all of these blades were originally solid in form, but single crystal blade is where every single atom, every ion, every molecule is aligned in a continuous, I'll say, structure, which is equal in every adjacent alignment of every molecule, atom and ion within that single crystal. So it truly is something which provides a unique level of both temperature and pressure capability and is at the pinnacle of metals technology in the industry today. And the question is -- really for ourselves is the degree of difficulty of those parts to make, which is all about then the casting technology that you use, the different, I'll say, temperature gradients within your casting furnaces, the way that you cool different parts of those turbine blades, to produce the increasingly complex shapes that I'm going to talk to you about. But that essentially gives you a root map through the 3 levels of turbine blade at its fundamental level in the industry. So let me go a little bit further now and talk about what's been happening. Of course, the need for fuel efficiency has been the quest for, I guess, every decade in recent times. And so to enable the turbine blades to operate at the current level, temperatures seen in commercial aircraft engines, which is about 2,500 degrees is that because those temperatures are about 200 degrees Fahrenheit and highs above the melting point of the alloys that we use then we need to find the means of cooling them. And so when we have achieved that, essentially, it's the passing of air through those airfoils, which enables that cooling to occur, and therefore, the turbine blades to achieve that level of temperature stability and have it in the environment where it should be melting as we go through. And you can see the sequence of developments we've had from what we call 2D cooling when air is passed through the chambers in just longitudinally and it goes in from the turbine disk at the center, goes through those turbine blades and then is exited by holes, but essentially, it just moves through the 2D cooling level you can see. We've taken that and improved it to what we call 3D multi-wall cooling and there are designs today, particularly at the more sophisticated military applications, which use multiple walled layers with inside the airfoil itself. Over and above that, if you look down to the bottom left, where you can see, it looks like veins in a -- maybe an artery or something that actually is the cause that we have placed inside those airfoils. And you can see at the bottom where the air goes in, and then you can see that it goes in, it goes out of top right, but then it also bends around, goes back down the air foil and back up through different holes. So it's a serpentine path of air control inside the turbine blade. And then if you think about its most extreme, where we're taking those temperatures, maybe even 1,000 degrees higher, which I'll talk to in a moment, is that it's the sophistication of controlling the core inside those airfoils. And then how do you hold them with the microns of tolerances necessary to be able to cast at the temperatures that we do, which happen to be several hundred degrees higher than the next highest in the industry. And that they provide, again, the gradients of capability of metal flow within that to give the complex shapes that we're talking about. So here, you're seeing without identifying exactly the numbers of cores that we're placing inside the casting is that it's all to do with the complexity of the airflow through those serpentine time levels. And you can see on the bottom right, on the 4-wall design and beyond and essentially one of the critical ingredients to Howmet's capability is our ability to control the core technology. And if you were to see the cores that we place inside them, they are at almost a microscopic level in terms of thickness at certain points. And you can see that controlling that core distortion on the very bottom right, to look at what we've done by way of our generations 1 and 2 and that to hold the distortion levels of those cores because, as they distort, when you're casting them, you have to hold them to extreme tolerances. And it's holding those tolerances of the core inside the casting, which allows us to be able to manufacture the airflow passages inside these castings, which on -- by the way, they will happen to be single crystal, where every molecule through every chamber is aligned exactly, and every atom and every ion and every molecule is aligned exactly the same as its next adjacent part to form what we call that single crystal. So this is a really important slide, but that's not the end of the story. So this just gives you sort of graphically or pictorially the difference in temperatures between the F-35, which happens to be a longer narrow engine, by comparison to a commercial jet compared to the current, I'll say, highest commercial jet application. And of course, if we are able today to produce the capabilities of those turbine blades to operate at 3,600 degrees Fahrenheit, clearly, the slowdown of technology [indiscernible] the opportunity is there to take that into commercial aerospace and its requirements in the future. And of course, it's not only about temperature as you'll begin to hear. We've also taken those aerospace technologies and applied them to the gas turbine market. And for those of you in the room here on the right, you've seen those very large turbine blades up to 3 feet at length, very different to the short [ study ] say, 3- or 4-inch turbine blades that we apply for many jet engines and basically applying, I will say, now these same levels of sophistication, maybe not quite to the extent yet, but they are [ core ] blades, which allows air flow to go through them. And they're also dual use turbines. So when we provide a turbine with 1 of our customers, those blades are agnostic, whether it's flowing natural gas through the turbine or hydrogen or indeed any blend of, I will say, input fuel to it. And whether it's a fossil fuel or more synthetic, it doesn't really matter. And you just basically pay at what level you want for what level of compatibility you want when you say or the turbine. So essentially, again, you go to 3D core walls, cooled first stage blades, single crystal technologies. But now, as you can imagine, the complexity of growing a single crystal through over 3 feet of length of a part with, again, every single particle aligned is at another level of complexity. And today, we do have, let's call it, a very high market share, if not a total market share at that level of capability, essentially unique. And then I'll just turn for a moment to our rings business. A ring essentially is that part that goes around the engine to hold it in place and keep all the parts inside should a catastrophic failure occur. Of course, we want to make them thin and of very high integrity. Again, all that mission to reduce weight. And this allows me to introduce to you the concept -- the initial concept of using automation within aerospace because it's very different to, I'll say, my history of coming from automotive, where high degrees of automation are the order of the day. And essentially, it's borne of volume and variety. And by the fact if you take a ring when it comes out of the -- out of the forging press, which is in a high temperature, maybe it's at 1,800 degrees Fahrenheit, it's been subject to extraordinary pressures is that when those parts come out, every one of them is different. And it's really difficult to automate things when every part that you have coming out of your fundamental process is different. So what we've done there is instead of treating them as the same, we've actually come up with a system whereby we optically measure every single ring that comes out. And as we measure it optically both on the outside surface and the inside surface, is that, that then gives us a complete digital mapping of that ring, which enables us, instead of having people there with grinding the parts by hand, is that we bring in, I'll say, guided robotic grinders to be able to produce the part exactly to the shape. And that's contrast very much with the historical process, which would be you'd forge it, you'd hand grind it, you'd look at it, you inspect it, it wasn't quite right, and you need to send in background the same loop several times to do it. So it takes a lot of labor content out, and it makes the quality of the product that much higher. So let me now take you 1 stage further in terms of the jet engine that I've shown on this slide here. I've already drawn your attention to where the combustor sits in the engine, and where the first blades sit, second blade sit, which sequentially see the highest temperatures, and therefore, the -- I would say, the most stress on them, both by way of taking temperature stress, I'll say pressure stress in the engine. And that's where those -- let's say, the center of the turbine begins to get a little bit narrow, maybe 1/3 of the way down. So today's commercial jets, it's a balance between trying to provide the highest degree of temperature. And so you want to run that core at a very high degree of temperature. At the same time, you want to call it because you've got those high temperatures. But then the more you call, it's the more AI you play through that part of the turbine. And while the hot gases, which are exiting out of the back of the engine now creating thrust, you saw that those -- that F-35 with the red at the back end of the jet, where you can see the -- just all that temperature and gases coming out of the back of the engine. In this case, the majority of thrust for most commercial jets is actually provided for the airflow around the outside. It's coming from that main fan, you see at the front of the engine. So the more air you can get going through the main part with the bypass air it is called, is that provides the majority of thrust of the airplane. So the smaller amount of air you can put through the turbine blades the better because it allows more air to go through for the big, large fan blade and the bypass. That produces more thrust. You can then gear it in the geared turbofan to enable that external fan to move slower, and therefore, again, moving more air through the engine. So what does it do? It first of all, it creates more thrust, which also creates lower emissions because you've had the temperature in the center running at a higher level. And then you've also got far less noise because the noise coming from those hot gases in the middle of the turbine are then, I'll say, shrouded by the air coming through the lower flow part of the turbine. So it's about how do we do that? How do we provide for elevated temperature? We've told you the need that we take air to be able to cool the turbine blade, but, at the same time, the critical stage of the next frontier of fuel efficiency is to try to minimize that amount of air and maximize the amount of air going through the bypass part of the engine. So the first part of the journey, I'm going to talk to you about coatings. And so we have invested a lot of money in the way that we coat turbine blades. And in fact, for, I'd say the LEAP range of engines is an example. We cut not only our own blades, but also our competitors as well. It's there for corrosion resistance, oxidation and produce these thermal barrier coatings, you can see. And if you think about it when there's been a recent note about, I'll say, sand particles in the Middle East, creating problems for the turbine blades, it's also to produce, I'll say, the ability to withstand whether it's sand particles or rather, I'll say, particulates in the air. And it's the way that we do that. And you can see on the right-hand side, a turbine blade, where we've applied different coatings at different parts of the blade itself, with oxidation and thermal barrier coating or corrosion resistance coating or indeed no coating. And then the ability, not only to coat the outside of the blade, but also critical to performance, and I'll say, time on engine is also to be able to eliminate corrosion from the inside of the turbine base because you imagine all of those hot gases are also going through the air flows through the center of the turbine blade and then are emitted through the holes that they created. And so the thing that Howmet has done has also enabled the coating of those turbine blades to be done from the inside as well. So we're applying these plasma coats all the way through the internal chambers and those serpentine airflow maps that I showed you earlier. And then the most important, maybe it's on the bottom there, which is to uniformly deposit those thermal barrier coatings across the engine. So that's Stage 1. We coat them on the outside. We coat them on the inside and allow us that performance to start to occur. And then you come to the next level of technology, which is something that we have developed and is, therefore application in the future. And essentially, all those turbine blades you see in this room, you see them, they all look solid to you and that's because we've shown them to you without the holes drilled in them. And that's the reason why we didn't show you where the holes are drilled is because that's priority to each customer and the patterns of airflow, and so we don't show them to you. And obviously, you won't see an F-35 turbine blade in this room because, even if you could see the outside, you wouldn't see the critical things, which are on the inside. But again, we wouldn't be showing you the airflow maps of that particular blade. But most importantly is now, if you think about how do you create the -- the air has got to come out of the blade somewhere. So you drill holes in it. So we've cast it. We've cast it to a single crystal. We've created this chambering effect on the inside and now you drill holes in it. But -- and to drill holes in it, you need a level of work in progress in your plants to be able to have that before the whole drilling, and therefore, it's a level of inventory which you see in the industry, which actually is probably unnecessary. And also, if you think about it, you can only drill a hole where you can get a machine or where you can get a drill to go in it. What about if you'd like holes where you can't access and that becomes really important? And so here, you see at the top -- on the top left there, the cast film cooling holes. And we have this technology where, which you've shown there's the holes, but now we're able to produce holes in this turbine blade. You can see there, which are less than the diameter of 2 human hairs. We don't have to be able to see it, but where we create the whole. You don't have to create a path for a drill to come into it. And even more important than all of that is that you don't have a round hole. You can say, well, is the -- in your whole good enough, they are out? And the answer is no. Because if you can flare that hole, if you can create those holes to flare air at angles across the veins and blades within in the jet, you can then direct the air molecules to stick to the outside of these turbine blades. And that allows for another threshold, another boundary to be exceeded by a further temperature performance and pressure performance within the engine. And so if you imagine it at its extreme, we've done now that you've got 2 conceptual applications. One is where you might say, well, what's the next frontier in terms of even higher bypass ratios for air in a commercial jet think things like an ultra-fan. That level of technology is going to be a smaller central turbine, higher temperatures, but more air. Well, this allows for lesser by the way, those whole structures are actually cast as 1 casting, all a single crystal. And then, of course, if you're at the extreme -- on the military side, let's assume that your avionics and weapon systems on a military jet are taking and pulling an excessive level of current from the engine, and therefore, what you're suffering from is lack of thrust because you're having to direct so much energy to those weapon systems. If you're able to overcome that and think today's engine and maybe apply this level of turbine blade technology to be able to temperature to be elevated to actually reduce the amount of air going to the central core and providing more bypass air and, therefore, increasing thrust, you solve many of the issues regarding next-generation technology without having to go the tens or maybe hundreds of billions to create the next level of military jet engine. So that's where we have reached today in terms of the technologies available to us. It's all about not just temperature. It's not about single crystal, but it's also about the control of air within the engine, and how we enable those differences to occur? I know it's a lot to absorb. I'm still a student at one of my colleagues in this room. He teaches me every week. And then on the right-hand side, the next level of barrier coatings, where you can see at the bottom, this is the surface of the single crystal alloy. And then we've come up with the ability to apply multiple levels of coating, one of these are all in a single core coating process. So we actually enable them to occur so multiple coatings, all at the same time, both on the outside and the inside of the turbine. So maybe that's enough about the frontiers of technology on turbine blades. Maybe it's, I'd say that in 1 sense, like in any engineering department, I say it's really easy to make one. I mean I'd say any full can make one. But to have an economic organization, which is what Howmet is, you have to be able to produce many. And there's the secret for much of what we do, not just in the basic single crystal technology, but also through all those multi-levels of core applications and I'll say, serpentine airflow, I'll say, chambering that goes on in air oil, it's how do you do that? How do you do it at rate? How do you get the yield to make the economics work for you? And a lot of it is about the application of automation within the production, automation in the production of the cores, automation in, I'd say, the way we do our casting, the way we do the automation in our shelf processes, all to reduce variability. And you can see there on the middle, on the left-hand side, us using their data analytics to be able to control that variability of process. And then, of course, rapid prototyping to market. Moving to the right-hand side of the slide, you can see where we've tried to describe to you the process that we go through and then the increasing use of automation, both at the start, all the way through to us x-raying the product as we deliver it with everyone delivery with a unique identifier to our customer. So what are the key messages is that we think Howmet does enable a superior level of turbine performance. We use a variety of alloys. We collaborate actively with our customers, and we have significant and dedicated R&D with a rich intellectual product portfolio to go along with all of this. And we've been willing to invest both in the fundamental processes, but also automation and automation to create the yields and the economics that we achieve. Let me move to now to Fastening Systems and show you the video of fasteners. [Presentation]

While that video is playing, I was because the head of our fastener business describes fast as like a piece of jewelry. So I got one. The only 12 was as I tried to put it around my neck, my dexterity because these things are really fiddly trying to get that thing reconnected around my neck and so I couldn't do it, but that is a piece of jewelry. Jewelry matters because if you respect your product, you'd be amazed at what you can do with it. And that applies to anything which people think to be is it commoditized or not. So let me describe to you what I believe our fastening advantage is. First of all, we have a very broad product offering. But you have a fastening issue, whether it's on an aircraft of any type, whether it's a commercial jet or whether it's a stealth bomber or whether it's a drone, or whether it's another fighting vehicle or whether it's a commercial truck? Or is it a space satellite is that we provide a fastener in terms of a solution for you. We have a significant amount of engineering and provide proprietary products for about 40% of our revenues. We do have brands and brands matter, not just the Howmet brand, but you'll see as I talk brands in 2 places in this presentation and brands matter for us in our fastener business. they say, "Well, what does it faster do? Well, it just buying those 2 things together. And absolutely. But probably the most important thing is they stick, stuck together and you make it easy to do. So it's anti-vibration. And so what we try to provide, whether it's a truck doing, let's say, 0.5 million miles a year and all the vibration of that or whether it's at a commercial, those fasteners have to stay for life of, let's say, life of vehicle in place, not rattling. If you created a racking system or the robotic, I'll say, transfer mechanism in an Amazon warehouse. Those fasteners have to stay in place and they haven't come out. They have to be easy to assemble, and we provide not only fasteners which are easy to assemble, we also provide you with the tools for which you can engage with that assembly. They have to have examples of low profile. So it's like you can have stealth applications. We have to put them sort of fastening dissimilar products together and so think of composite aircraft a need to, I'll say, fastener than mesh across the carbon fiber part of the plan and then fasten it to a titanium structure, but with no air gap. And I'll come to that in a little bit more low maintenance costs with automation on the way through. So the majority of the slide I've covered and say it's about trying to find ease of use to your customer. So they can be placed in [indiscernible]. They can cope with any type of dissimilar or similar materials. They have aerodynamic shapes, and basically, once placed, they don't come out unless you want them to come out. And then if you do, how do you get them out and how do you put them back in and all of that is really important. On the right-hand side, you'll see the first example of a smart installation tool. And often, we are providing that tooling capability of those tools, along with the fastener applications dedicated to whether you're putting up a solar field or whether you're putting it on an aircraft. And I'll come to Lightning Strike in a little bit more detail in a minute. So we're #1, #1 in aerospace, commercial, military, #1 in industrial. And you can see approximately on this slide, the patent coverage, the proprietary nature of our revenues and the revenues, which go to each end market. But again, the theme is, we're #1. We're also leading in innovation. We're #1 in innovation. Just an example, over the last, I'll say, 8 years from 2013, these are the generations of fasteners that we brought to market and with the different applications that they go to. And you can see them listed, and I'll pick 2 or 3 out in subsequent slides to talk to you about, but it's an example of where we invest in the product technology, we work with our customers, and you can see at the bottom on the left, the numbers of patents that we have in terms of protection and then also look at the range of industry-leading brands that we have. And as I said, brands matter to us in this particular industry. So let's give you a first example, which is Flite-Tite. This is the trade name for the suite of fasteners that we supply, for example, on the 787 aircraft. And I think the most important thing is, as you drive that fastener through a whole is that there is no air gap left because when the lightning strikes the aircraft, as it will, the last thing you want is some form of plasma field to be created, which then burns the composite or compromises the fastening to the mesh system on the outside of the aircraft. And why do you want the mesh? The answer is to create the faraday cage around the composite aircraft because in metallics, it's got a natural path for that lightning strike to move around the aircraft in a composite aircraft, it does not. So the value and the values shown on the bottom right is that in terms of shipset value, for example, on a 787 versus a 767, it's a 3x value in terms of provided to the shipset value. And for an Airbus 350 to 330 there a 2x value. So a really important part of the direction of the industry, which everybody knows that there will be more coming, in fact, if you think about 1 of the -- even the narrow-body aircraft, so we take the current Airbus A220, that has got composite wings. And that's here and now with us, and those volumes begin to increase. And I think that increased at a higher rate than we currently have by way in our forecasts. Also in the 777X, even though we know that's now delayed another couple of years is that those wings are also gone composite, which take this new suite of fasteners. Let me just touch base on Ergo-Tech, which basically in the middle, you see that orange -- not orange actually yellow aircraft where you see someone on the outside, someone inside, putting the fastness together. And as you touch the panels, the aircraft. And what we've done, if you look at the bottom right picture, where you see that no knob on top of the fastener, that's where you placed the tool. And so you placed a tool, you twist it in place, it's single-sided. And at the end of the process, the nil breaks off. So you end up with a flat surface finish you see on that force fastener from the left there, we see the [indiscernible] has gone and now it's flat to the fuselage. And you've put it in with the automated tools you see on the bottom right, all of which talk to the exact rate with data acquisition regarding the placement talk of each fastener that is placed on the aircraft. So again, a huge improvement in labor efficiency in terms of aircraft assembly and with all different sizes, which, again, you'll see in the displays on the left-hand side of this room. We then look at FC43s, FC, by the way, was a person's initials, another one of our patents. And it's for basically retention of the faster in place and it enables basically whether it's, I'll say, a drone or a fighter jet, but you can see the people which are maybe on an aircraft carrier, disassembling a panel, the fastener stays with the panel. It allows -- so you haven't got a panel fasteners being dropped on the floor, they're rolling around with the ship. Basically, they're all staying in place. Rapid disassembly, fix and reassembly, and you know you have no foreign debris or particles, which are going to interfere with the performance of the aircraft going forward. And so again, ease of assembly, disassembly and in very harsh environments, where you need very rapid turnaround is the order of the day. We have a Huck BobTail range of fasteners, which -- whether they go is in for a solar field, where, again, a single engineer can put up a solar field with his array of automated tools and fasteners, all single-sided, which enable for a very simple ease of assembly, particularly in very remote locations. They also for wind turbines, but also, and is more mundane applications for trucks, whereby I said whether it's let's say, a 10-year life of that truck those partners are going to stay in place, unless you decide to disassemble them, they will not be vibrating and coming loose as you -- as it goes through all of the vibration exposure that it has. And then finally, on our Industrial Fastener range, a very wide range of applications. In fact, I think Amazon is now our #1 customer in this part of the -- that racking space. And as each new warehouse gets built, and as each old warehouse gets refurbed, is that it takes racking and fastened with Howmet fastening systems. And a very interesting part of the portfolio when you consider the growth in modern logistics and requirements of store product. So what are the key messages? We have brand. We have technology. We have an extremely broad portfolio. It's a one-stop shop, and we supply your needs and they provide the integrity of the fastening system on your product whatever it may be. Now let me turn to our third part of the business, which is also in aerospace called Engineered Structure, and I'll show you a video of this as well. [Presentation]

So we specialize in titanium, aluminum, lithium, aluminum and other forms of metallic alloys to provide strength with lightness with all of those structural components. And again, providing a level of technology which enables the end product to move to a different level. So if you take the F-35 bulk ad, which you can see half in this room, that's a titanium structure in its predecessor form or a predecessor fighter jet, that would have been made in, let's say, 10 different parts, then fasten them together. And clearly, by us being able to forge something of that scale, that size, in a single forging press, albeit maybe with multiple blows is that, that provides a level of structure integrity, which was previously unobtainable. Secondly, we can make it lighter. And thirdly, you don't pass anything together. So you said that, again, an awful lot of assembly labor in our customers' plants. And so providing those structural blockades, which are mainly titanium, but also aluminum to that program is give you an example of the value that you can bring by applying [ modern ] alloys and modern manufacturing techniques to structural products. So we provide titanium, titanium mill, whether it's in the form of plate and sheet or ingot. So that's 1 part of the business. We have -- we forge and whether we forge titanium, aluminum or aluminum and lithium and provide those structures. And -- or is it just taking titanium in its super grain format and then extruding it or then forging it. And finally, something which you probably never talked to you about before is the ability of Howmet to provide the very large radar structures that we do. And you can see that's 10% of this business. And when you can see the picture on the bottom of the page, where that's a huge structural part, which is in the very large, I'll say, radar sort of facilities that the U.S. has, I'd say, to do it. Maybe in the middle, I'll draw attention to the -- that seat track, which is on the 787. That's all the titanium seat track system, which enables part -- again, as part of that whole lightweighting of the aircraft. So again, #1 position in the way that is defined on this page. Going with these, I'll say, different structures that we have in metals and alloys is some very special patented alloy technology, whether it's using the aluminum-lithium that we do from formerly our sister company of Arconic, or now Howmet titanium advanced alloy structure, which again gives another level of performance to -- and weight to a, I'll say, a titanium structure. And this is also the part of the business where that which was called Firth Rixson and Disc, which I never say, I'd say the word Firth Rixon and never again by just committed to send -- that's where this resides having sold off the European business as being old and inefficient to the modern business I'll talk about in a minute. And then in the middle, you can see this is an example of a large forging press. This is our 50,000 tonne forging press. It's one of those unique assets in the world. And it's 10 stories tall, 5 stories you'll see above ground and 5 stories below ground. It's quite extraordinary and to which we've applied now both new hydraulic and digitally controlled hydraulic system to it to enable us to control both the squeeze pressure and the temperature controls within that press. And so that gives us the ability to do the sort of things I've talked about of those large, I'll say, structures, whether it's for the F-35 Bulkhead or for a [indiscernible] or indeed anything else. We also have a range of other presses. You can see our 35,000 ton, and 15,000 tonne presses where we're producing, for example, aircraft wheels, where we're the #1 in the world of wheel and brake assemblies. And also, I'll talk more about our isothermal press, in fact, on the following slide. This is a picture of our plant inside Savannah, where we had struggled with this plant for many years. And in fact, now it is in, I'd say, reasonable serial production. We were qualified last year on the LEAP-1A and LEAP-1B applications and in now, in fact, taking a significant part of the market share during the course of 2022 for that particular engine. And we see that as a precursor to really filling up and driving this isothermal capability further than we had ever done before. So when you think about it, the applicability of these modern alloys of titanium, aluminum-lithium or aluminum to the aircraft, the only thing you know for sure is there's going to be more of them. And as you lightweight further, it creates more value. And again, for us, the application of titanium in aircraft compared to aluminum, again, is another value enhancer, which goes along with the provision of with composite aircraft. And then finally, on our titanium sheet, these very fine alloys that we provide give us the ability to produce very complex shapes, and we forge them and create the sort of things that you have in heat shields or pylon applications in an aircraft. So what are the messages here? First of all, we have large structures. We have all of the alloy technologies. We're trending more and more towards titanium. We have significant market shares in the segments that we provide and with each generation of technology and aircraft produced, then value is further created. Let me turn to our 4 segments, which is then non-aerospace. And we'll play the video, please. [Presentation]

So those products are also a thing of beauty. They look like jewelry, but they were just too big to form a neckless, and therefore, I didn't. But you can see in the back of the room, those really bright shiny wheels, which -- well, you may think I'm underwhelming you here because you're really addressing the aerospace. This business is what I call a thing of beauty. And what do I mean by a thing of beauty. So let me try to describe it to you. So first of all, this is not a wheels business that you might think of in automotive. It's furthest away from that you could possibly imagine. So what's different about it? Well, first of all, we, Howmet, own the design. That's fundamental. We have the design. We have the #1 brand in the world. So when you think of Alcoa, we sell under the Alcoa brand name. So think -- most of you have heard of Michelin for wheels, for tires. So we like the Michelin of the wheel business. So if you start off, we own the design. We own the brand. We use patented alloys. And then the fourth thing is that we have unmatched global scale, like 4x to our nearest competitor. That gives us a scale advantage that nobody else can match. So if that's not a business that you don't like, I have no idea what you would like. And so that's why I just thought I'd introduce it to you in the way I see it, not that it's a boring wheel. It's round, I'll give you that. So what do we try to do? Again, it's back to fuel efficiency. So on our wheel, when we were at 42 pounds for the average aluminum wheel, we were able to take 1,400 pounds, 1.5 tonnes at a truck, a rig truck and trailer rig. That's pretty significant. And that gives you as the fleet manager, the choice to take the fuel efficiency benefit or, if not, then you can take the payload benefit and just stick more heavy stuff on your truck. But whether it's emissions and -- or whether it's the aesthetics because you've seen the bright, the shiny and they look good. And that's quite different to the dull, boring steel wheel because it's the wheels is our market, it's not aluminum wheels. So it's about weight optimization and then product integrity and providing value, albeit, of course, it starts off with a higher purchase price for your truck in the first place. What you should have also gathered from that video is the very high degree of automation that we have in the business. And in fact, we've taken the -- as an example, while not only our aerospace facilities all operating at better than average and maybe world-class aerospace parts per million defect, our truck wheel business operates at 10 parts per million, which is unheard of. In fact, if those of you who are Six Sigma aficionados, I know that Six Sigma is basically 3 parts per million defect. This is truly approaching an extraordinary level of quality. And again, how do we do it? It's to do with attention to component integrity, accuracy of the forging process, the machining process. And then finally, all of the application of digital tools and techniques to the production. So we're #1. It's getting -- I know pretty boring, so I keep telling you we're #1, and he's #1 in North America, #1. And I shouldn't do the market share for the first time of the aluminum wheel market. That's not the way we define it. We define it as the wheel market. So, for example, in Europe, only 30% of the wheels are aluminum today. 70% is open to us in the future to increase our penetration. And I'm going to explain to you why that penetration not should increase, but will increase. There's a huge difference between the words should and will, and therefore, the application of, hopefully, high market share, I'm not saying 90%, but high market share to the increase, which is going to come, provides us with a level of growth and secular growth of penetration against steel wheels across the globe that we'll see in the coming years. And, by the way, the move from fossil fuel engines to alternative means propulsion in trucks or the automotive industry, that's our friend. So it's more than just metal. I told you it's about design, and how we work with different, I'll say, truck manufacturers to create designs, which are in keeping with their vehicles. And whether it's a tanker or whether it's a cargo truck, very different requirements. And then at the bottom part of the untold story is the application of surface treatments, whether it's Dura-Bright, Dura-Black and provide Flange protection and mirror finishes. So we've given you do bill reflected in the Howmet, the Alcoa wheel, and you can see how much brighter that is then the competitors finish on the right-hand side of that slide just to show what benefit we have in terms of, I'll say, just the way that these things look, which also matters not just to its appearance on the road, but also the ability to wash all the dirt off when it goes through and create the pride with which many fleet managers hold with their trucks. We keep moving. We've -- in the last few years, we've moved from a 42-pound wheel to a 39-pound wheel, and we're now just launching our 36-pound wheel on the market. And again, each 1 of these wheels has a higher structural integrity compared to a steel wheel. Our new product, which we are just launching now in North America and then will be later in Europe is the cover to go on the outside of the wheel, which just happens to be fastened and to the outside would you believe it, Howmet faster. And so might bring it through from our colleagues. And that again is providing a level of fuel efficiency improvement as we control airflow, in this case, around the outside of the wheel. Of course, we must have product integrity because we're producing these in the millions, and we have go through long-term durability tests, high-impact tests and achieve the quality levels of consistency that I've talked about because the last thing you want is a wheel fracturing on any form of vehicle and certainly not on a school bus. We're also the perfect partner for the alternative energy vehicles. Because if you think about it, whether you're going to apply, let's say, for the first A battery electric vehicle. The weight of the batteries, I think all of us know, are very high. So if you take an average, just take a car like a Tesla. I mean, you've put on over 1,000 pounds of weight in that car on and above the heaviest SUV that there is today from the battery pack. So if you're a truck guy running a fleet, you want to create the ability to create with payload. Well, there's 1.5 tonnes for you immediately you take away from the battery pack by just using the aluminum wheels. So every single electric vehicle application that we've seen across truck and bus in the world has gone to aluminum wheels because without it, the trade-off is in terms of what you've invested in the battery pack compared to a wheel. It's just uncomfortable. So the answer is you go there. And the regulations, which are coming through in Europe, where by 2030, our understanding is that 50% -- 51% of all of the truck sales will have to be zero emission vehicles by 2030. So during the next, say, 8 years, the transition from fossil fuel engine trucks to some form, whether it's a hydrogen truck, a battery electric vehicle or anything, they're going to obviously have the features of weight content, which can only be offset easily or relatively or part of the weight content offset by movement on wheel. So our expectation is that, that 30% penetration in Europe goes up very significantly over the next 8 years as each new truck comes out with its alternate, I'll say, propulsion system and we believe fitted with aluminum and wheel. And of course, our intention is to make it a Howmet wheel. I explained to our global capacity, whether it's North America. We've also moved into low-cost countries in Mexico and in Hungary and also into China, and so we have distribution in South Africa and Australia as well. But most importantly is the scale advantage we have. And when you're ForEx your competitor, that gives you an ability to provide a level of efficiency, which enables us to price, but achieve the margins that we do, and therefore, a relatively healthy competitive position. So one of the key messages. It's a business, which I thought was good. I described it as a thing of beauty. I don't want to get too waxing [indiscernible] after all, it's just a business, but it's a business that makes money, with a huge defensible moat around it just in the same way as our fastener business has, our structures business, and of course, the incredible moats that I've talked about regarding our engine business, the first product that I went through. So with that, I'll stop and pass across to Ken, Ken Giacobbe, who will take us through a financial view of the company.

Thank you, John. Don't mean to disappoint people, but I don't have a video. I've got some numbers, which we think are pretty good. So let me get started here by, first, John's given a very detailed view of our differentiated products, the rich intellectual property that we have, global scale and how this is all translating into strong market positions across all of the segments. Over the past few years, the teams have demonstrated a very strong performance and established a very solid platform for us as we look into the future to grow above our market rates, to expand our margins and also generate healthy cash flows. So although, today, the focus is on technology, I wanted to touch on performance since 2019 and why we believe we're well positioned for the future. So first, we have a disciplined capital allocation approach, which is very balanced. Since 2019, we've paid down over $2 billion of gross debt. In 2021 alone, we paid back $845 million. On top of that, we've refinanced about $600 million of debt at a 3% coupon, which is pretty attractive, that reduces our interest expense drag by about $70 million on an annual basis. We've also repurchased about $1.7 billion of shares over the last 3 years, $430 million of shares last year alone. As we look at our Q1 exit rate in terms of share count, we're at 423 million shares. We've been successful in improving both gross and net pension and OPEB liabilities. To highlight just the pension liabilities, the net liabilities have been reduced by around 25%, and the associated gross liabilities on the pension side have been reduced by over $600 million. This is our plan to reduce mortality, inflation and yield curve risk. We've annuitized many programs, we've made capital contributions, and we made a lot of planned changes. Should discount rates continue to rise in the future, that's a future benefit for our plan. This year, we expect good improvement in pension and OPEB cash contributions. Back in 2020, cash contributions for pension and OPEB were $240 million. This year, we expect that number to be around $60 million. And into the future, it should be less than $60 million. We've outlined that for you in the 10-K. Moving to the commercial and operational performance of the business. The team has improved performance while navigating through some pretty significant headwinds. Despite the commercial aerospace headwind, the team here has been able to improve price, flex variable cost, reduced fixed costs to deliver EBITDA margins of 22.8% in 2021. So that's better than the pre-COVID levels in 2019 of 22.1%. And that puts us in the top decile when we compare to the peer group, which we've put in the appendix for you in the deck. We're optimistic that as the volume starts to come back in we should expect strong incremental margin expansion. You could see this effect in the first quarter of 2022 with our engines business. Volume went up about 18% on a year-over-year basis, and the team delivered EBITDA margins over 27%. Moving to free cash flow. Free cash flow conversion has been over 100% and over the last couple of years. That's driven by reduced interest, lower pension and OPEB contribution and optimization of working capital. This slide here is our guide for 2022. So as we've communicated in the guidance, the revenue is expected to be $5.64 billion and EBITDA margins of approximately 23%, that solid performance, while we're attempting to overcome the headwinds associated with the 787 certification issues, the 737 MAX ramp-up issues, F-35 destocking and inflationary costs. Earnings per share is expected to be $1.39 per share. What gives us confidence in our performance is the operational playbook that we launched in early 2019. Every quarter, we cover the key aspects of the business. We start with the markets, the competitive landscape and new product launches. Then on top of that, left part of the slide here is the operational discipline. What are we doing to flex variable costs, maintaining our fixed cost reductions, working capital, asset utilization and then CapEx. Moving to the top right, in commercial discipline. We do a detailed review of all of the commercial contracts well into the future. We're looking at 2024 contracts right now. Lastly, we do a deep dive around talent management and quality. We've gained very strong momentum with this tool over the years, and that's translated into very strong performance. Regarding margins, we expect future margin expansion in all of the segments as volume returns, and we attempt to mitigate the risk of inflationary costs. Engines, fasteners and structures are expected to benefit from the commercial aerospace volume recovery, but they've also taken out a significant amount of structural cost. Engines will have an added benefit with the increased airfoil sophistication, which is expected to drive further volumes in margins. Lastly, the wheels business is expected to have a volume benefit from all the pent-up demand caused by the supply chain issues as well as the added demand of lightweight products, which are necessary for the electrification of trucks that John just mentioned. Moreover, we're seeing some stability now in metal prices, and they're potentially even actually going down, which will work to our benefit. Cash flow. So we have a long-term target where free cash flow is 90% of net income. As you can see, over the last several years, the dollars have actually improved and we've been over that 90% hurdle. A lot of these actions is how we strengthened our balance sheet over the last couple of years. Last slide I have is around our capital allocation strategy, which, again, we consider is balanced. First, I'll start with CapEx. So prior to the pandemic, we invested a significant amount of CapEx in our engines business and our wheels business. Today, our CapEx focus is on automation and productivity. That's going to help us with more improved yields in the business and also to mitigate labor risk. CapEx in the near term is expected to be less in depreciation, which will be a net source of cash. Next, let's go to net debt paydown. We have a long-term net leverage target of 1.5x to 2x net debt to EBITDA. We're well on our way this year. We'll be sub 3x in 2022. That's where we expect to be. And recently, a lot of our work has just been recognized by Moody's, who gave us an upgrade last month from a Ba2 to Ba1. We'll also be very opportunistic where we can around future debt paydown and then also gross and pension liabilities. Share buybacks and dividends will continue as we continue to have confidence in our free cash flow. And then, lastly, bolt-on acquisitions, we'll be very opportunistic here, most likely in the engine fasteners areas as we try to enhance our competitive advantage. So that's all we have on the finance side. We're going to, next, just talk -- turn it back to John for closing comments before we go over to Q&A.

Thanks, Ken. So maybe what I'm just making these few closing remarks, my 4 business unit leader colleagues could come and take a seat on the stand here or the podium so that they can be ready, in place for your questions, which I'm sure will come. So again, to remind you what was our strategy? It was about focusing on the things which we're good at, applying good operational and commercial discipline, prioritize resources to where the returns are highest and then provide a disciplined capital allocation plan and execute that to continue to demonstrate that we're good stewards of capital. I thought there is another slide, but maybe there isn't. There was a slide showing the whole management team, and I was going to say is one of the best-looking management teams in the business, but that goes without saying. So without that, Ken, I think you could join me, and we'll take it. And I think PT you're going to moderate, I think.

Thank you. So that concludes the presentation portion. And we will now take questions from the audience in the room, and we also can take questions from the audience on the webcast. For those of you in the room, please state your name and affiliation before proceeding with your question. And we do have a few mic runners in the room. So please raise your hand and wait for the mic to come to you before you ask. With that, we can get started.

Just wondering if you could dive a little bit deeper on the airfoil IP advantage you have today and where CMCs come into play and the changing pathways that the OEMs are pursuing in that regard? Where are you in terms of buckling down your ceramic natures core supply? Where are the risks to that strategy? And then while I have you, there was a -- lower right-hand side of the chart had where you were in first generation, second generation and currently versus the competition? How long did it take you to get from first gen to where you are today?

Okay. That's a lot of questions there. So when I get something, I'm going to look like phone a friend in a minute called Boyd, where is Boyd in the room? There's Boyd in the room. So Boyd, can you be by cap with the microphone, just in case we need to call on you because it will exhaust my level of knowledge, then it's Merrick's. And then when we've gone through that, we'll turn to Boyd. So I can't answer the years from Gen 1, 2 to current in terms of, I'll say, controlling the -- that core variability, so I'm going to get Boyd to answer that in a second, but let me start off with CMC. So we've looked at it. And of course, the principal advantage, the first look on CMCs is temperature. And so how far up the temperature gradient can you take these things? And first of all, I am not sure yet that there is a need. Bear in mind, commercial aero was at 2,500. You saw the F-35 at 305 -- or 3600. And I didn't define exactly for you, but I did show you the route map whereby, if today, you want to take that up significantly, we could take it up again with today's technology. And I showed you pathways not only in terms of what we can do way of coatings, but also the way we have -- say, air management within the airfoil and just moving away from basic process like hole drilling. So the technical case in terms of temperature is not made. There's a weight case. And then adverse to that is then one of the issues of corrosion, where the fundamental exposure to any form of water creates a problem with that ceramic technology. But beyond that is weight as an advantage. But to gain the weight advantage against the cost curve, I did the math with Boyd last year sometime. And in fact, taking into the dialogue the former head of boat propulsion, who happens to be in the room, standing against the wall who knows something about it. So we have a reasonable intelligence regarding this. I mean in fact, indeed, looked at the cost structures, where to use, for example, on a shroud on a LEAP engine at the moment and what were the catastrophic failures that were going on there. So at the moment, it seems to be in its infancy. When I sat down with one of our major engine customers and had the whole debate about the application, where they hold themselves out to be more, let's say, wanting to advance material science is that there is a case where you will see that on an aircraft, which will come out in '25, but for a few applications on the engine, none of which are economic, which just what I call playing with the technology. But as and when I think we get deeper into it, when you look at the economics to produce an airfoil -- if you could produce an airfoil with that ceramic matrix composite technology compared to the long-established high-volume, high yield, and we haven't even got to talk about where the yields are on CMC process is that the economics will favor, say, a nickel alloy based form by, I'm going to call it, Factor V minimum. And so the whole system weight case would have to prove them to actually get there. So I don't want to dismiss it. But at the same time, I'm trying to explain to you there's not just one foothill of threshold to get over. You've got multiple foothills and thresholds even if you could ever climb the mountain, and I'm not sure that's the next 2 decades. And that's if you can solve the corrosion issue that's there, and how you're going to have to coat it to provide and with what to be able to provide resistance against coating. So that's as much as I can get. It's probably hopefully more than once, but then Boyd can amplify. But maybe, Boyd, can you address like how many years from not long too to where we are today in terms of controlling that core, I'll say, CPK capability?

Yes. We're bringing out a new generation in core bodies about every 5 to 8 years. But, keep in mind, we're actually splitting it. So there's sort of like 2 generations because with the new airfoils that John talked about, where you're going from 2D to 3D, where you have 3 and 4 walls, we actually need to split the core because there's one generation for the very fine features like on the trailing edge, and then there's another generation of core that we need to do the 3D component of that. So it's getting much more targeted to the specific application to the specific needs.

Myles, is that enough?

Right.

Yes, it's okay. I introduced you.

While we're still queuing in the room. I have one from online. Can you comment on forward CapEx requirements, given it's been below depreciation, what is the risk of underinvestment versus overutilizing current fixed cost?

Originally, I thought that by 2023, we might be getting close to depreciation. That was like predicting a further increase in CapEx in next year. I am thinking that was probably too pessimistic. And I got a feeling that we're in for another year or so of sub-depreciation capital requirements. Obviously, it's always going to be volume dependent and technology dependent. But at the same time, if you think about it, all of those investments I've talked about in automation are actually totally discretionary. We don't have to make any of them at all because we wanted to be bear down on CapEx to come to the lowest possible number, need to have done any, but that would not have felt right for the business. And the reason why I observe that is, I think it's always a case you have to do what's right for the business in the long term. And I believe that the benefits of bringing increased automation to the quality, yield and, ultimately, financial performance to Howmet is the right decision, and that's why we're doing it. And as I was describing to someone earlier in the room, it's the -- when visiting one of our facilities recently, I was observing what I felt was an excessive level of our spend improving, let's call it, a molding post, let's say, coming out of the die before it went into shell and casting process and causing us downstream problems. And rather than deal with it in terms of fixing it by welding and grinding later in the process, I'm much more interested in solving it at root cause, which so -- and if that required us to invest in new die capability, I would do it. If that required us to move from in that case, it was a maybe sufficient hydraulic molding press albeit with additional controls around it to one with electric RAM control, I would do so because I fervently believe that having that level of control over your process pays itself multiple times downstream through your whole manufacturing plant. And so I'm going to say I'm a bit of a sucker for a good story, but it has to be a good story. I'm not -- when I say a bit of a sucker, I don't mean I'm clueless. If you wanted to come with a CapEx authorization to me, you might need to know your stuff before you walk in the room. You might need to understand the level of, I'll say, utilization of your existing equipment. You might want to be ready to answer questions about its uptime and how much preventative maintenance routines if you got any good. So you want to be prepared, but I'm a sucker for a good story. So it's a long way of saying, I would invest appropriately for the business, commensurate with what do we need to achieve? And ultimately, what are you trying to do? The answer is, we try to deliver outstanding quality to our customers. And if you don't do that, then why would you ever expect to be, I'll say, good commercially? So I think I'd like to be at the best levels you can be in terms of consistent delivery performance, consistent quality performance. And I think if you do that, then it enables you to hold your head up high in many different audiences. And so feel a degree of confidence that we do execute well. If you take capital to do it, we'll spend the capital. But that's make sure that we spend it appropriately. Don't expect to spend the capital when you've got machines running, doing the same processes less than 50 OEE levels, that would be a bad steward of management of capital. We're not going to do that. So it's how you blend all those things together, but try saying we will do right for the business. We will invest in it. And I try to witness that with investments in, let's say, new manufacturing technologies, new automation levels, all of it to try to improve. And fundamentally, anything that takes variability out of our manufacturing is really good.

I'm Timna Tanners with Wolfe Research. I have some questions under the umbrella of growth and in line with what you were just talking about. As you go through each of your businesses, you have already very high market share. So when we think about growth going forward, are there opportunities to gain market share with your existing customers or like in the Wheels business where you have outsized market share, can you replicate that? Or do they need to keep alternatives. If you could talk to that a little bit? And then the second part of that question is if you could identify within your end markets, if we are of the view that there's a consumer-led recession ahead, where do you see the areas of vulnerability versus areas where you feel quite confident in your long-term agreements holding?

Okay, I'll try and remember the last bit before I realize I'm done with the first one.

Just recession your exposure but -- yes.

I know it, yes. So I really do believe that -- if you're going to be a good CEO -- I'm not saying as I am, but if I was, and if -- and what should you take care of first? What's your first order of business and that's to take care of your revenue line? I mean your revenue line is number one, number two, number three. And by the way, you also have to be good at your downstream, I'll say, operational disciplines and, et cetera, et cetera. So if you were to think of me as someone who can control cost, well, I'd say yes, but I'm actually more interested in taking care of price, market share first. Because there's always a lot more leverage in any business with that than any time I guess. And one mistake on your commercial discipline, take it 5, 10 years to rectify in the manufacturing plant. So let's be clear what's really important. And so when you get to -- yes, we have high market shares. But take -- you mentioned wheels, but I'm only 30% of what I define the wheels market to be. That's lune of a -- I've got 70% of the whole market to go at. That makes it really easy to grow that business through additional penetration. And the key to success will then be how do we hold on to that level of market share while we're going through that. And the best way of doing that is to maintain a level of scale advantage that nobody else can compete with. So it would be clear on what you want to achieve, which is basically you want to help the market transition. You'd like the tailwind behind you because it's always good to have. I would say it's quite electrification or alternative fuels. And if you can then continue to create scale advantage because nobody else can touch you. They can't buy the metals. They can't convert the metals. They just have the whole ability to your whole process even through distribution. Is it an order nobody else can compete with you. That's why I think it would be good. If you look at in our engine business, we can make further strides. I mean we've described to you some of the technologies in airfoils, which is a way of aggregating value in somebody else's business. So if I can aggregate all hole drilling into Howmet, that's a huge new market I can take further growth in. And if we can take it share not just through the high -- I'll say, the first part of where our market share is even higher than our average and it's across the turbine through the other technology we're working on, it's a near net shape titanium blades, which we're working at the moment, that will be another frontier for us to cover an victory, which would then take us further. So yes, there's lots of other things we're doing. We have plans, which obviously I had not made them public, but we have cunning internal plans to improve our share positions in all of our businesses because that's what we do. That's what's expected when we go through our planning process once a year. It's like I have no interest, either me personally or any of our businesses, what I call being a cork on the ocean, which you just go wherever the currents take you. The answer is the only reason why we are here is to create value, which is -- and the first part of that is you've got to grow your business. Tell me how you're going to do it? So those are the sort of things we talk about. When we talk about things like white space, I don't know whether white space resonates with you? That's where we are not. So we can try to be where we are not while not losing our core competence as well. So we have a white space discussion. And let me go to the back end of your question now, which was recessionary pressure. It's probably one of the reasons why I never give you forward margins of telling you what margins will be when we grow up because I don't know. It assumes a level of presence and knowledge I just don't have. Like in 2019, if I have told you we're going to be at these levels of margins, you might have thought I was foolish or overambitious or maybe I had no understanding of there's going to be a pandemic. I had no understanding there's going to be a war in the Ukraine, I had understanding about, I'll say, MAX 73 -- 787 issues. So many things that happen. Inflation -- energy inflation right, there's like so much going on. And to say that you know all these things and can accurately forecast what the outcome will be in 2025, I think you're a fool. Now I mean, I don't mind you writing reports to say what we're going to be, but that's your numbers, not mine. But I feel as though we keep doing the right things and we just basically take care of business, which is grow your top line, control your cost structure, deliver a healthy profit and cash flows out of the business, and you use it judiciously. And that's why you invest with us. That's it. Now recession, I don't know. There's a backlog in our truck business that carries us through '23 and '24, even with the emissions change. '25, I don't know what happens in '25 yet, but I'm confident. In terms of our commercial aerospace business right now, I think the military is pretty solid. I don't see -- with all the -- whether it's the Finland or Swiss or German or Canadians all wanting to buy F-35s. So I think that's a plank under that thing for us. I think the number of Howitzers that we're sort of gifting to Ukraine at the moment, everyone that gets gifted, I think, great because that's another Howitzer. By the way, we happen to produce a lot of stuff around the bottom of those Howitzers, which is really good. There's a really big structural parts for us. And I expect when they sent a few shelves over, they will only replacement as well. So that's all good. So that's -- I think that's okay. And I go commercial aero. We've come off the worst conditions for some time. I worry about the relative angle of growth. Is it this? Or is it that? According to what's the affordability of people for airline tickets, I don't know. It's going to grow. People are going to travel internationally for sure. Asia is going to come back. It's all going to happen. So we're only debating the angle, and I don't see recessionary pressure causing Boeing to take their 31 down. There's other things that could happen, why 31 won't be the right number about pull down, but I don't know. If you look at the backlog for Airbus, it's extraordinary in the narrow-body. So I read a report today for -- the United Airlines guy saying they're so glad that they bought 150 narrowbody jets last year or is it 300, some number. I'll pull my phone out and tell you. So many MAXs and so many 320s in favor of Boeing, and they say that's going to be a strategic advantage for them because you can't get planes right now. If you try and go buy plane from Airbus, you can't get one. So join the queue in 2028 or something. So that seems to be solid. Oil and gas, heck it can't get any worse that it's been for us. So because I've never told you what in my mind is going to be in '25, I've not told you what the revenue is, so I don't know. But I have good feelings you can't quantify them, but just assume that if you're going to place a bet, and maybe Howmet is a good place to bet right now, I could tick off all the things I wouldn't invest in, but that's for a different session than this one. But I'm investing so why don't you. Is that it, Timna. Thanks.

Matt Akers from Wells Fargo. Could you touch on pricing a little bit? I think you said you're looking at LTAs out to 2024. Just what's your latest thoughts on kind of the opportunity...

I think Ken got ahead of himself, didn't they? No, we do. We look at because they -- it's all known. And so I don't think the, I'll say, percentage changes that much. I think the frequency or cadence of what comes up for renewal every year does change. So we told you well in advance that '21 was going to be a big year. We told you that '22 would be a lower year than '21. We never calibrated you against 2020. Haven't given you a '23 number yet at all. At the moment, it's going to be positive. I'll tell you that. But how positive I'm not and choose not to do so today. Maybe that's more for a full discussion or whatever. But the important thing is going to be positive. The only question is how much enough to produce satisfactory margins. Sorry, that was as clear as mud.

Justin Bergner, Gabelli Funds. So if one looks at your metrics on CapEx and R&D, they stack up relatively, I think, low versus your peer group. But you've highlighted a lot of compelling technology here today. So maybe you could just give us a sense of sort of what is the ethos behind the organization in terms of how it pushes technology forward? And then how you're able to do that while keeping CapEx and R&D at a constrained level?

The R&D number we show, I don't believe it's the real number because there's a lot of our R&D hidden in cost of goods sold. So it's a bigger number than you see optically. And Ken and I have chatted about to what degree do we correct that, it's not been an impediment for us. But you couldn't do the sort of things that we're talking about today. And by the way, these are not just paper things. If you want to give me an order for one of these extremely complex, single-crystal, 4-wall chambered, non-hole drilled, whatever, we'll sign you up. So I think we spend at an appropriate level. We're not trying to invent the next, I'll call, like autonomous cruise control aspect of a vehicle where that technology is changing rapidly. We're not an electronics guy. So there's a different level associated with us. And aerospace is a longer run cycle industry anyway. So you got to put that into context. At the same time, I think we invest at least as much, if not more. And given our scale as a percentage, it's -- is actually very healthy. In terms of capital, my feeling is that in predecessor management maybe in the former, let's call it, Alcoa Howmet, maybe there is some degree, a little bit of maybe investing too much, particularly in vanity projects. We are very much more focused. And I really am interested in making sure that the capital we've got is working is a high order of productivity before we go and invest in new. But I'm really interested in investing in new where I see it giving us the advantage I've already told you about in terms of quality, delivery or fundamental performance which will also be a form of improved labor efficiency. So it's a really difficult question to answer because you start off with the premise. I think you did, which was that we were low, I wouldn't agree. I think we're actually 4 percentage point higher than some other aerospace peers that I see. What I think is really good is that our free cash flow, as a percent of EBITDA, is 50%. Now that's something I should focus on because I think that's really meaningful. As a percentage of net income, it's really good. And we're investing in the exciting technology we've talked to you about today, and we have no capacity constraints. I mean what more could you want? And we can command good economics with our customers. And people don't pay if you don't deliver the levels of technology that we are showing. I mean, you don't -- you might go and buy a fancy shirt, but you want to make sure it's a nice Italian material or something, sea island cotton, I don't know. But you don't pay for something which is not good. Plays throughout any B2C, B2B or even now the new expression out there, B2H industry, business to human, new one.

So one thing I'd add to that, too. So we don't have centralized R&D anymore which is very targeted in each of the 4 segments. So everybody up on the stage here has dedicated R&D facilities at their location. So fasteners is unique, no more centralized. But John is right, there's a lot of R&D embedded in the processes which are in the COGS line.

John handled the question, I can pass across to my colleague -- they're saying, please don't.

Yeah, that's smooth deal. One for Merrick. David Strauss from Barclays. So I wanted to touch on engine products margins that are -- you highlighted that are now above where they were pre-pandemic. Your volumes are still a lot lower. I know you've had structural cost savings, pricing, but how have you gotten there? What has allowed the margin stall rate being much higher? And you kind of teased us with the potential, I guess, for higher margins on the more complex airfoils that are coming through. So the opportunity that's to come from here?

Merrick, did you want to have a go or do you prefer like because that's a trap? That's a trap question, but do you want to go for...

I'll let you go. Yeah. I have only been in the job for a few weeks.

When I think about the transitions that we've been making in engine by way of, first of all, focus, we've also been able to improve our market shares and making more of the same is always really good, particularly in engine business, and therefore, making more of the same and with the ability -- and we've never given you breakdowns of where we move price, but engine has been part of it. And we've also seen the ability to reduce our structural cost. So it really is a consistent theme, but in case of engines, I think the one thing that I see more than anything is making some more of the same is actually being helpful to us. And anytime you can do that is good. Now what I've also said, I think on the last earnings call is that we would -- we have raised it. I don't think we should be planning on anything for the next couple of quarters within the year because I mean that's a big step. Maybe we'll draw breath and we'll get to the next foothill in '23, who knows? But I think we have, hopefully, a couple of quarters of consolidation get ourselves because we're still recruiting like crazy. We've -- we're ahead of our Q2 recruitment plan at the moment, which is all good because that gives us the confidence that tomorrow is going to be better than today. So the answer is a bit to the Timna's question that means -- we're still growing. There's no recessionary hit in the engine business at the moment. No, yes, we have, as we've -- I think the -- when I look at the sophistication of going from CFM56 to LEAP or actually, when I see the sophistication, which I talked to you about on the call in -- was it May, early May, this month? Where I described to you -- I gave you a loose description of the improvements you're making on the geared turbofan for example about what's coming there. Each of those developments, so you start -- as though you started in, let's say, 2018 and it's static. We will be bringing through a level of new turbine blades across the whole of that -- those narrow-body programs, some of which are still yet to come, and some which are coming right now. And those are all advancements on what was CFM blade. And so those level of sophistication, plus having come [ loan of cost ], plus ability to improve price and share, it's all good. There's nothing that's not good. I like every bit of it. I don't know what else to say. It's just good, David. And I still think you got ahead of yourself.

Paretosh Misra from Berenberg. In the Engine Products business, where does the chunk of your intellectual property sit? Is that on the equipment side or the cooling technology solidification side or the alloy design side? In other words, where is your edge versus your -- versus number 2 in the industry?

If you see multiple forms Paretosh. So for example, if you take the equipment that I showed you, we actually either manufacture, for example, our owning casting furnaces, or we take somebody else is, and then we customize it considerably. And the reason why we do that is that we don't want anybody, I mean anybody. First of all, would not allow you to come into the plant, even if you're a customer. Secondly, we would not want a machine tool manufacturer to know what we do because then that might be shared by somebody might be visiting and seeing how that's been changed because the gradient -- the say, temperature gradient control that we employ, the way we call at different points during that single crystal formation, the way we place our crystals in the molds, and I'll say the way we extract even the way we prep and place the, I'll say, ceramic structures inside the casting, every one of those has unique characteristics, which are not seen by anybody in the industry, seriously, not by anybody. And we want to keep it that way. So we try to keep control over that knowledge in terms of the manufacturing side of the equation. We don't let anybody see the way we have our nesting techniques on the levels of our, I'll say, parts ready to go into the cast post formation of the shell. We don't allow anybody to see that because that's, again, another level of knowledge, which we wouldn't want anybody to know, share. And then even how we prepare our core, every one of those things is so important to us that we really don't let even our customers into the plant to see it. And it's not because we want to be arrogant, it's because that we are really trying to protect that knowledge. And so whether it's starting with the design and indeed, even the materials that we use to manufacture our cores, that is critical to us because the dimensional control over those is -- gives us the advantage then all the way through the subsequent processes. So I'm going to say it starts in design and goes all the way through the process. And we try to keep it as hidden away as possible. We try to -- we even don't allow the whole manufacturing process to be done in one manufacturing plant because we don't want anybody to actually see soup to nuts what's done. So we put it in different manufacturing plants. So you can't see. You might know what's happened here, but you have no clue what happens next or before or so on. Maybe it's a victim of paranoia. I don't know. But I think it's worthwhile to do. And certainly, we try to be totally respectful over things which are, let's call it, black programs, which we do as well for the military because they are black. And we don't want people to know see how, why, et cetera. So, say, we've been very respectful today. We haven't shown you a single part that shows you how the airflow occurs. We showed you the outsides, but without trying to be -- you can't see -- it's just a part. You can't see what goes on. It doesn't matter. It's -- I mean that gets to it. I think -- and there's George afterwards.

So sort of following up on something you mentioned a moment ago. I read recently that 57% of the A320 family aircraft are being delivered with LEAP engines. And then I read a good story explaining why the geared turbofan is actually superior, especially as the A320 gets longer and heavier. And I have 2 questions, I guess. The first is, are you indifferent between which engine is on the A320 as they're delivered? And do you have a guess on how this share will shake out over the next couple of years?

I think it's a really interesting question. It's not me fully busting to get -- to form an answer. It's just that when the original geared turbofan was brought out, it was a new engine, brand new, new concept. And there's always going to be some people say let the teething problems be exposed first. And surely enough -- or sure enough, there was some, specifically I think if you went at one stage to India, so I think the Air India fleet [indiscernible] there was a lot of issues, which Pratt had to step up to and solve. And the initial duty cycle for both our engines, both LEAP and CFM -- and geared turbofan wasn't what was they originally really thought. But maybe it's the case of every new engine, and certainly, the GTF was off. Of course, everybody worked at it, it improved. But you tend to get, I'll say, any airline gets embedded in its own maintenance shops and what type of engine it does. It's probably people in the room know more about it than I do. But my guess is, it's -- you locked into an engine for a period of time, you'll gradually change if you want to. It would appear from the outside that may be the fuel efficiency of a GTF and maybe the noise efficiency is slightly higher. I don't know, but I think it might be. And against that, I don't know what the acquisition cost is, no clue. I know that for us, the parts we provide, the GTF has a shorter turbine length in terms of number of stages. So that will be reduced compared to a LEAP. On the other hand, the external fan you see on every GTF application is aluminum lithium, which is one of those in the back of the room. So we supply that 100%. So between those 2 for us, we're like -- it's the same value.

George?

Yes, John, I know you've been asked this before, but at what point does price increases you didn't get are limited? I mean you look at Pratt investing in a new plant. You make margins already that they could only dream about. So at what point do they just sit there and say, we can't keep paying more money to one of the suppliers out there or they're going to do it themselves or maybe that the Pratt -- is it technology you have that proprietary that you kind of have pretty much unlimited demand in terms of what you can ask?

Unlimited is a function of time, isn't that, because everything is limited by time in this world. I feel we provide great value on that engine, great value to Pratt, great value to the military. And at the same time, I recognize that the announcement that they've made about building a new plant in Asheville in North Carolina. My thought has been though, from the fact pattern is that when Pratt sold its Polish turbine, airfoil turbine capability in 2016, they made the decision that they would reenter but with their own rather than something that I think they maybe have bought because they always had bad results from that, and they made that decision in 2017. So it's not that decision happened in response to there was a price move on F-35. That's not the case at all because the time line sequence doesn't work. At the same time, could they, should they, would they? The answer, I don't know. What I do know is that we have renewed our contracts. I know it could come for renewal again. I know that we've just renewed our commercial aero contract on the GTF Pratt engine, and that goes out till 2030. So that's pretty significant. I mean I'm not going to go into like what shares or the rest of it, but it's okay for how much I can tell you that. And then who knows what the future is. What I can tell you is that the increase in spares are low on the F-35. So my guess is that the value of the spares, by 2025 or 2026, is double today's delivered value. Now when I say double, I'm not actually giving you the dollar figure because I don't want to at the moment, but it's something that I get out of bed for. Now capacity has to be put in for that because there is no capacity on that -- left for those dies. So either we'll put it in or maybe Asheville will come up. I don't know. Then the question got to be is that when you've spent $650 million, and you've done it across hole drilling, machining, coating, casting, metal prep, I don't know how much you're going to make because $650 million doesn't go a lot in an engine business. So you got to work that out. Second business is have you yet worked out the tolerances you have to control your cores. You know even what your core technology is, by the way, because we do. We happen to know what they're trying to -- the answer is how -- what do you know about the stability of that core, whether you could ever make one? So there's lots of questions to be answered yet, George. So the answer is I don't know. I'm not a soothsayer. What I'd just tell you is we're okay. If they make some, great. It may take a bit of a way of the increase that we would otherwise get. Years from now, who knows. I just think they -- I would like them to believe that we provide good value. At the moment, for me, there seems to be people want more. I don't think I've satisfied you because I know that it's difficult to satisfy you.

Noah Poponak from Goldman Sachs. Your customers continue to cite your section of their supply chain as an area of shortages, and it's been hard to get the full answer on that. Maybe you can just update us on the latest there. Is that a market share opportunity? And then, John, I know you said on the last earnings call, you're still in negotiations and still formulating the full answer related to the industry moving away from VSMPO, but if there's any update you can provide on that today as well, would be helpful.

Okay. I have tried to answer the structural casting shortfall. Since I've tried to answer the Asheville, North Carolina question, I never seem to succeed in getting that. And on the last call, I did say that I'd heard from a previous earnings call that someone said they were short of titanium casting, which is really good because we didn't provide one, so that couldn't be us. Today -- and I also went a bit further because I got a bit peaky or something like that, I just said if people needed stuff from us, they would have come and picked them off our dock at the end of the month, rather than just leave them there. So do you really need them or not? So I don't think we're a pacing item at all. So we're keeping pace for the most part with our commitments. We're not perfect. Nobody is. At the same time, I know that we're also providing at full, if not slightly higher than maybe our contract requirement is. So at the moment, we're okay. Now where exactly will it be? Can we be assured over the next 18 months, 2 years that we're going to be in -- growing everything? I doubt it. We'll have our moments. I have no doubt we'll fail somewhere. But it won't be the lack of trying, because you just -- it's just by part number costs, the tens of thousands that we provide, it's always difficult because sometimes someone may not schedule it. They drop them in, and then they say, by the way, you're late. I think it was in their book, we'll late. We're not. We haven't accepted the order, but they'll say -- they'll now announce to the world you're late. So there's a lot of stuff to get said. But this so-called 70 engines miss that maybe Pratt commented on, and they're worried about do they keep in line with Airbus, I can tell you categorically, that's not been us. That's not been.

Okay. Do you know it to be the competitor or is it a case of once there's supply chain messiness across?

I've never spoken to the competitors. So I don't know. I mean I have an idea, but that's just rumor, and I don't talk rumor. I will tell you that I don't know -- and I'd rather say to you, I don't know. And the second part of your question was titanium. I think it's either August 4 or 6, whatever the Thursday is, we're going to update you on that. And we'll probably throw out a number for I think I said what a Q4 number might be for this year based upon -- I think we bid against the RFQs for lots of different opportunities, let's call it. And as those are landing, we'll give you an update. Bear in mind that, of course, the amount of inventory to be burnt off on titanium is significant. So I mean Boeing, either from great planning, they've got quite a stockpile. Or it could be they're not being producing some of the widebodies in quite the contrary that they thought. I don't know, but I'll tell you is that right now, there's inventory to be burnt off. Some people have maybe predictive reclaims happening, I don't know. But we'll get something and I'll tell you I'll give an update. And then I doubt we'll give you 2023 guidance in -- I'll wait until the end of the year to do that.

The industry immediately started putting out RFQs across the board really...

Yes. Yes. So we have them from every, let's call it, aerospace company, both airframe and engine manufacturer that's around and to look at potential switchover, to looking for additional titanium sources. Meanwhile, I also said to you on the call that some of our customers continue to buy from VSMPO.

Would you give a range of how many RFQs you're responding to?

All of them.

Again?

All of them.

How many is it?

I didn't know. Quite a few. Because for the partner -- none of it means anything because it's like part number by part number. It's like this and that. And they come in at random, it seems. So I could ask Ramiro the question. But if he gave you a number, it would be meaningless. And I'm talking to protect him as well.

Yes. [indiscernible] numbers and something, eventually we can fill in the algebra, but that's fair enough.

Yes. At least I gave you a relatively short answer because when I don't want to tell you something, I'll give you a very long answer.

So I have one question here from the webcast. Can you expand on your isothermal capabilities and the magnitude of improvements and success that you've added? You have a pathway to become #1 player as you are in most of your markets.

Well, that's a big ask. I think we are making good strides. It's been a thorn in our side for many years, both the stability of process, I think, and also the engineering knowledge around this manufacturing, I feel as though we've got on top of it. We are now qualified on 2 major engine applications with a shared market share with one of our competitors. And all I know is that, that site has gone from being in the red to being in the black, which is a good thing because I like profitable sites. I would like to try to continue to grow that business. I don't know enough yet to know how far we can take it. It's not been -- the important thing was to get to what I believe it could be, which was stability, capability, a solid supply situation to, I'll say, mainline products rather than the other niche bit here or there. And I think we've achieved that. Now we've got to build on it. And I don't know.

John, this is Scott Mikus from Melius Research. Going back to Noah's question, the RFQs that you're responding on, should investors expect any deals from those to be accretive to the margins for the overall business? And then a different question. In the past, I think you had mentioned that you had 1.5x the shares of your next closest competitor on airfoils. Where does that stand today?

I think it's 1.7x. I'll say it's about the same. It's my guess. Doesn't move that quickly. I don't think that the margin we'll get from titanium plate will be incremental to -- it'll be incremental to the company, but it won't be incremental to the margin rate of the company because our structures business is our weakest business in terms of margin. Ignore the quarter, I think it's like a 14% last year. I think it does not take out of some of the extraordinary level of good work that's been done in the business by way of operating efficiency and commercial arrangements or it's been overshadowed by the 787 and other wide-body issues, plus the downdraft because of the burning off of the F-35 inventory. So I think my view is that is more normal high teens business, could even be more. But it's not the average for the company. It will never be a 25% margin business. It's just not that nature. So whatever titanium we take on, first of all, it's going to be beneficial because I wouldn't do it without improving as a cost of capital, but I don't think you should expect it to be incremental to the 23% margin, no. Neither would you notice it to be detrimental to it either.

And we have another one from online. When we think about future engine combustion technologies, such as sustainable aviation fuel, hydrogen, hybrid, electric, et cetera. How does this impact your engines business? Do you think it's a risk?

Well, first of all, if it's any form of SAF and there's a whole debate around what's the carbon dioxide emission from an SAF or it's been interesting to see the whole thing from start to finish on it. But if you're burning any form of, let's say, hydrocarbon-based fuel, it's going to emit CO2. We're indifferent to whether it's burning, let's say, jet fuel coming from the cracking process of oil or whether it's an SAF fuel, the turbine blade, the turbine and the engine doesn't know any different. We have to make sure they could perform. And I think today, there are -- SAF fuel has already been pumped through engines, which you supply the airfoils and other structural components. So I don't think that changes anything. I think if it's a hydrogen solution, and there's a whole interesting debate to be had around infrastructure, size of tanks on planes, I mean how many seats can you go on a plane if you got full of hydrogen, et cetera, the whole collimate. There's lots and lots of really interesting stuff. But assuming that you can't, and I don't need to wait, whether you can or you can't, but if you can produce a hydrogen plane, again, turbine componentry doesn't know the difference. It will just stick it through turbine, no change. If it's an electric -- battery electric plane, that's different. It's a motor, it's not a turbine. So in that case, then that would be a problem. Having said that, because I would like to go a bit further is that today, you might be able to get an application of a very small plane with 3 or 4 seats in it, maybe a little transport between Washington and New York and something like that or in the Norwegian fields or something, but a hedge-hopper. But putting a battery pack in an Airbus A320, it doesn't bear thinking about because the -- I'm going to call kilowatt-hour capability or fuel density that you have on a battery pack compared to a fossil fuel engine is like, I don't know, 100 size or 10 -- it doesn't really matter. The answer is it has to be a rather large battery, which also means that you can't get the thing off the ground. Or if you can get it off the ground, you can only put 3 people in the plane. So having 3 people on an Airbus A320 doesn't really make economic sense. So I think you've got not only problems regarding battery and motor technology, you've got fundamental problems to be overcome in terms of energy concentration, and therefore, molecular technology at the battery level, which is so far off the mark that it's not realistic, not for this decade nor next. But then I'm going to have to live with that prediction in 2 decades' time, I don't think. Well, at least I won't be leading Howmet by then. I don't think. I don't know. It's possible. But I'm just trying to say to you that it's a lot of really interesting stuff. There's a lot of papers. And I read them, and I try to understand it. But then I come to what's the application and the realism around it. And at the moment, I can't get there. So I'm optimistic that with the deployment of some of the stuff I've told you today about how further forward we can drive the fuel efficiency and emissions of today's generation. So there's a lot further to go without even changing from, I'll say, a nickel-based alloy for construction. So I happen to be rather optimistic that we've got some really good stuff. And there's nothing that I can see that's going to overtake it at all for a long period of time to come. And that doesn't mean to say I'm a climate denier or anything like that. Don't go there. It's just -- it's not happening at the moment in aerospace.

Another one came in. You mentioned the Pratt commercial contract through 2030. Can you remind us where we stand on the F-35 here?

I don't think we've given that, about the next renewal date for that, so I don't think I'm going to do that.

And then one more. Can you talk about your position in aftermarket? And do you have the opportunity to further grow that?

We supply the aftermarket through many of our customers today whether it's a fastening part or whether it's an engine part. So we sell, say, to a GE Aviation or Pratt & Whitney. That's how we go to the aftermarket. It's all wrapped up in the volume variety analysis we do at the time of each LTA renewal of how much we structure to OE versus aftermarket at that time. Spares is growing. The issue has been -- I mean not on the defense, and oil and gas has been pretty stable, good, healthy all the way through the pandemic. It's been the commercial aerospace part of the spares market that probably climbed 80% during this period. We see it growing back. I think it's going to be 20%, 30% plus this year. It could be well be much higher than 30%, but it's coming off a fairly small base. So I don't think it's going to revolutionize the absolute dollars. If we do that, and if we were to get another 20%, 30%, 40% next year, then that begins to make a difference. And to make the biggest difference, we'd like to see wide-body come back. At that time, real dollars flow, mix improves, life gets better.

All right. I think we're there. So with that, we'll conclude the Howmet Aerospace 2022 Technology Day.

Well thank you very much, everybody, for attending. Thank you for the people on the live webcast and those people who see the replay. Appreciate it. Thank you for your questions. Thank you.