Howmet Aerospace Inc.

Good morning, ladies and gentlemen, and welcome to the HowMet Aerospace First Quarter 2020 results. My name is Shelby, and I'll be your operator for today. As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Paul Luther, Vice President of Investor Relations. Please proceed.

Thank you, Shelby. Good morning, and welcome to the HowMet Aerospace First Quarter 2020 results conference call. I'm joined by John Plante, Executive Chairman and Co-Chief Executive Officer, and Ken Giacobi, Executive Vice President and Chief Financial Officer. After comments by John, we will have a question and answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. With that, I'd like to turn the call over to John.

Good morning, and thank you for joining the call. Given the pre-release of earnings, we'll move swiftly through the slides and then get to your questions. Revenue and profit for the first quarter were in line with the pre-release on April 14th. Moreover, earnings per share was at the favorable end of the expected range. If we move to slide four, please. Then, as we discussed on the last call, on the 1st of April, we separated Arconic Inc., the reported entity today, into two companies. Hammett Aerospace, which is RemainCo., which is primarily focused on the aerospace sector and contains the four business units within the engineering products and forging segment. Arconic Corporation, SpinCo, which is primarily focused on rolled and extruded aluminum products, contains the three business units within the global rolled product segment. The targeted guidance for one-time operational and capex costs related to the separation includes were $175 million. The final costs for the separation will actually be approximately $130 million, excluding tax leakage and debt breakage. One-time separation costs were funded by divestiture proceeds of approximately $190 million. The highlight slide for the combined company of Arconic Inc., which includes the EP&F segment, the GRP segment, and corporate, Performance in the quarter was strong, despite the impact of COVID-19, which surfaced during the last three weeks of March. Additionally, we were impacted by lower year-over-year 7.3 max production rate reduction. Q1 revenues were $3.2 billion, down 9% versus 2019, and down 6% organically, adjusting for the pass-through of lower aluminum prices, currency changes, and the divestiture of businesses. Operating income, excluding special items, was up 19% with a 350 basis points improvement. Moreover, EP&F improved 300 basis points and GRP improved 310 basis points. We have now had five consecutive quarters of year-over-year margin expansion. Earnings per share, excluding special items, was a 62 cents, a record, and up 44% year over year. Adjusted free cash flow excluding separation costs improved 19 million year over year, and the cash balance at the end of the quarter was 2.64 billion. We've taken several actions to deliver and improve our debt maturity profile, which I will discuss later in the presentation. Lastly, Return on net assets was at 410 basis points to a record 14.8% return after tax. Now let me turn it over to Ken for a more detailed view of the financials.

Thank you, John. Good morning, everyone. Let's move to slide six. So for Q1, revenues were 3.2 billion, down 6% organically. Year-over-year market declines were driven by disruptions from COVID-19 and 737 max production declines, which impacted both segments. Revenues for EP&F were down 4% organically, driven by reductions in commercial aerospace of 7% and commercial transportation of 21%. We did have favorability in defense aero, which was up 17%. driven by the continued demand for the Joint Strike Fighter. Also, our industrial and other markets were up 13% driven by increased demand for industrial gas turbines as natural gas prices are at 25-year lows. GRP revenues were down 7% organically, driven by all end markets with the exception of industrial, which was up 14% year on year as expected. Please move to slide seven. On this slide, we've provided more visibility to the HowMet Aerospace end markets. The left-hand side of the slide breaks down Q1 revenue by market. So commercial aerospace is 58% of total revenue. Defense aero is 15%. Commercial transportation is also 15%. And industrial, combined with our other end markets, are 12%. We expect defense aerospace to continue to grow year over year due to strong demand for the joint strike fighter on both new builds and engine spares. Within the industrial and other market slice of the pie, the highest growth section is IGT, our industrial gas turbines business. The IGT market was at a low level last year, and we expect to see growth in 2020 driven by increased demand for both new builds and spares. Regarding spares, we've previously communicated that airfoil spares represent approximately 800 million of annual revenue. Of the 800 million, approximately 50% relates to commercial aerospace engine spares, and the other half for defense aero and IGT spares. Going forward, we expect reductions in commercial aero spares, but an increase in defense aero and IGT spares. Hopefully this slide gives greater transparency into how MET Aerospace is in markets. We've created the same slide for GRP, which is listed as slide 21 in the appendix. Now let's move to slide eight. Operating profit excluding special items increased 75 million or 19% year over year, resulted in a record margin of 14.1% despite COVID-19 and 737 max impacts. Margin expansion was 350 basis points up year over year combined for total Arconic Inc. If we peel that back, EP&F had margin expansion of 300 basis points and GRP had margin expansion of 310 basis points. Corporate expenses, excluding special items, improved 29% year over year to 36 million, which is on track with our 2020 annual target. If we estimate a Q1 split of Arconic Inc's corporate expenses into the new Halmet Aerospace and new Arconic Corp companies, approximately 20 million of those corporate expenses go to Halmet and 16 million to Arconic Corp. Moving to EPNF, our productivity continues to improve. For the first quarter, EPNF realized 26 million of year-over-year net cost reductions from actions that we took in 2019. The annual target for HowMet Aerospace was $50 million. Therefore, we're ahead of target for the first quarter. Additionally, we've announced another $100 million of incremental run rate net cost reductions and have taken a $16 million after-tax restructuring charge in the first quarter. Turning to price, we had $5 million of pricing increases in the first quarter, which was in line with our expectations. Moving forward, we expect greater price increases in quarters two through four, despite the market conditions. GRP also had good net cost reductions in the quarter. GRP extrusions returned to profitability in Q1, and the Tennessee plant improved profitability by approximately $11 million year over year. Lastly, North American scrap utilization approached 60% to a record level. GRP price was approximately flat to the prior year quarter. So let's move to slide nine. In Q1, we continued year-over-year segment margin expansion for both segments despite COVID-19 and the 737 impacts. To give you even greater visibility, let's quickly move to slide 10. Since Q4 of 2018, EP&F segment operating profit has increased 520 basis points, and GRP's segment operating profit has increased 540 basis points. If we converted the EP&F segment operating profit to a pro forma helmet aerospace adjusted EBITDA, you get a percent of approximately 23.7%, which is in the top quartile of the peer group. Now let's move to slide 11, where we have adjusted EBITDA free cash flow, and earnings per share. The charts show the consolidated company of Arconic Inc., and we've also tried to give you a view of what the estimate would be for Halmet Aerospace. Adjusted free cash flow for the quarter was negative $246 million. That was in line with our expectations due to our Q1 seasonal capital, seasonal working capital build. and an expected incremental $70 million of variable compensation payments tied to 2019 performance. Free cash flow for Q1 was $19 million better than the prior year and is the best performance since our first separation in 2016. Alameda Aerospace's free cash flow is approximately 40% of the total at negative $100 million. Earnings per share excluding special items was a record of 62 cents, up 44% from Q1 of 2019. As expected, earnings per share increased primarily due to operational improvements from segment and corporate productivity. Approximately 65% of the earnings per share relate to helmet aerospace or 40 cents per share. Special items totaled approximately 60 million after tax, and they were primarily driven by separation costs of $50 million and severance costs of $16 million. Most of the severance costs are tied to the new incremental $100 million cost reduction initiative to realign our cost base as we move into a period of demand uncertainty. With that, let me turn it back over to John.

Thanks, Ken, and let's move on to slide 12. The health and safety... of our employees is our top priority, and we've added the following precautions to prevent the spread of COVID-19. We've restricted air travel and travel and encouraging employees to work from home where appropriate. We have implemented social distancing standards throughout the manufacturing and office workspaces, and we're ensuring that updated protocols are followed. Lastly, we're continuing to deep clean and sanitize workspaces which have potential exposure. We continue to be a reliable partner to our customers who are critical to national defense, commercial aviation, and the global economy. Let's move to slide 13. I'll now turn to the outlook for which I'll confine my comments to Hammett Aerospace. As discussed on the April 14th preliminary earnings call, we have an incomplete picture of the future demand pattern since many of our customers' production has been significantly impacted. Information flow is currently limited, albeit improving. Hence, we're reducing costs, reducing capital expenditure, temporary suspending the common stock dividend, and improving our debt maturity profile to preserve cash given the lack of clarity. We find ourselves unable to provide reliable guidance at this time. Turning now to COVID-19, We felt the impacts from certain customer shutdowns and suspensions and disruptions within certain shifts within our plants during the last three weeks of the quarter. Today, we have only three smaller plants which are currently closed, and they're in Europe. To mitigate the impact of COVID-19, we have commenced plans to reduce costs by a further 100 million on a run rate basis. This plan is incremental to the 50 million of carrier reactions emanating from 2019 and the actions we took then. Cost reductions are primarily driven by incremental overhead and some manufacturing reductions. Moreover, we will reduce annual capital expenditures by approximately 100 million from the initial target provided at our February the 25th investor day. The four-year capital expenditure estimate of 200 million is driven by lower volumes and us cutting those costs. Lastly, we have temporarily suspended the common stock dividend to preserve cash and provide additional flexibility. Despite the low volumes in 2020, we expect to be free cash flow positive for the year based upon these actions. And this free cash flow is after pension, after interest, and in fact, all items of cash flow. To give greater visibility to the free cash flow, let's move to slide 14 and its key components. We are providing Q1 results and annual estimates. On an annual basis, consistent with previous guidance, corporate overhead, depreciation, and amortization, and cash taxes are unchanged. Pension and OPEB payments have been updated to $210 million based upon final separation calculations. Interest payments have been updated for the new debt issuance, and CapEx has been reduced by the $100 million previously mentioned. Common stock dividends have been temporarily suspended. Working capital will be a net source of cash for the year, as AR, inventory, and accounts payable are reduced. Let's move to slide 15 and talk about our debt maturities. We've taken three actions in April. The first action on April the 6th that we redeemed all of our 2020 bonds for $1 billion. Additionally, we redeemed $300 million of the 2021 bonds. Secondly, on April 24th, we completed a bond issuance for $1.2 billion, which is due in 2025. Thirdly, we initiated two tender offers, one for $760 million for the portion of the remaining 2021 bonds And the second tender offer for approximately $200 million for a portion of the 2022 bonds. These actions will result in the following three benefits. Firstly, we paid off all of the 2021 bonds. Secondly, we'll take pressure off the balance sheet by reducing near-term maturities and terming them out for the five years. Thirdly, we'll be able to add approximately $190 million of cash to the balance sheet. which will add to our very healthy cash balance that we have currently. A pro forma cash balance as of April 24th would be approximately $1 billion. The pro forma cash balance would be after the Q1 seasonal working capital build. Moreover, we have reduced the operational cash requirements from $400 million to operate our business to $300 million based upon the updated seasonal working capital needs pertaining to Hamet. Finally, let's move to slide 16. We have prepared a pro forma capital structure, slide as of April 24th. Pro forma cash would be approximately one of 30 billion, and net debt would be approximately 2.4 times. Additionally, we have an undrawn revolver of some 1.5 billion. And with that, let's move to Q&A.

Thank you. And we will now begin the question and answer session. As a reminder, press star one to be placed in the Q&A queue. Count if you would like to be removed from the queue. We request that you limit yourself to one question only. Our first question comes from Gautam Khanna of Cowan.

Hey, guys. This is Dan on for Gotham. Good morning. Good morning, Dan. Hey, so... We were curious, how does the combination of COVID and the lower aero OE production rates impact your ability to get the pricing benefits that have been laid out previously in 2020 and 2021?

Well, I think in terms of the total dollar amount, we should expect something rather lower, given the expectation of lower revenues. principle of an increase we believe to continue to be valid as it was then and of course what we think is the any LTA renewals really need to look at the three to five year period and not a specific one or two years time frame and the necessary capacities need to be put in place for when the full run rates increase are re-achieved. So, for example, in the case of Airbus, we expect that in a couple of years from now that they hopefully will back up at $60 billion per month or more. And the 737 MAX will be also going very well as the planes on the ground are cleared from what was read from Boeing.

Got it. Okay, thanks. And then... Just real quick, have you begun to see destocking pressures at all from the Aero OE production cuts? And do you guys have a good idea of inventory already in the channel, or is that something that lacks visibility for you?

It's still tough to have total visibility, given the fact that we've only recently had a return to work for those airplane makers. And they are, you know, have been reassessing their own production plans and no doubt reassessing their own inventories. My basic thought is that when we exited 2019, in fact, our arrears were at a higher level than we'd entered the year. And so given the arrears were so high, it would indicate that probably it wasn't an even sort of vast amount of inventory in the... in the pipeline, but I guess it would be part-specific and aircraft-specific. So it's hard to give a very precise answer, but as a basic theme, if your arrears were even higher, despite the massive increase in production that we did achieve and part of the results we achieved last year, and we certainly didn't have a big burndown of inventory and arrears in the first quarter. I don't know it's going to be a massive impact. At the same time, we don't have this ability to do exactly what our customers are carrying.

Your next question comes from Robert Spengarn of Credit Suisse.

Good morning. John, if I could ask a technical question about the lifecycle of an engine and your participation. When in an aircraft's life cycle will you see your greatest aftermarket events? I'm assuming this is tied to shop visits. And what do those events represent as a percentage of the original dollar content? So if you have X on the original airplane and you get to shop visit one, what does that represent in terms of X as a percentage?

I think the best example I can give you is for the CFM engine, which has recently been replaced, as you know, by the loop engine ranges. And our view is that the peak demand for aftermarket is yet to come. And so let's assume that peak demand per hour estimate is around 2025. And so that would be, let's say, approximately seven years after the engine is replaced. So while we have spares demand during the course of the life of any engine, its peak is normally after the install basis. It's highest, and therefore it's approximately a seven-year lag, and therefore we have that CFM spares yet to peak. So that gives you a general direction for it. It's also influenced by the duty cycle of those airfoils on the engine. And I think you are probably aware that to achieve the fuel efficiencies that are required for the newer engines in the thrust for lower emissions and a lower carbon footprint, those engines are running at higher pressures and temperatures. And so... We do our very best to work with the engine manufacturer to achieve a similar life cycle of the blades, but certainly the impact of those pressure and temperatures is higher. So early on in an engine life, we probably have a slightly reduced duty cycle, but then it's even dead over time. So that gives you about the best answer I can give you to it. I wasn't able to answer your final point about exactly what percentage. I'd have to go get that.

Well, we can do that offline, but I was trying to think about it on an individual aircraft basis as opposed to the fleet as we look at what happens here. But maybe I could try one other thing related. When I go back to your Investor Day slides, which I wouldn't imagine you have close by, but there's a slide, slide 29, that talks about your legacy aircraft. engine platforms, and your next generation platforms. And you're on all the new stuff. You're on most of the old stuff. When we think about those two populations of airplanes and your $400 million in airfoil aftermarket, if I got that number right, how does that 400 divide between the two groups?

That's going to be mainly CFM at this point in time. But there will be, as an example, I mean, I'm just giving you one engine range. Obviously, there will be the larger engines as well. And therefore, you'd have to fill the, let's say, the 777 fleet into those numbers or the A330s in there. So there's a lot of things you put in there. But basically, the way I think about it is that of the If you just took the narrow-body engines and come back to the vast majority of the aftermarket would pertain to the predecessor engine rather than the current engine. We will see that spares demand grow over time for the current engines as well, for the 1A and 1B.

Of course. But what you're saying is there's a lot of NG and a lot of CO in that group.

Yes. Absolutely. Okay.

Thank you very much.

The reason why we petitioned today the spares is to give you a little bit more detail rather than everybody assume that the $800 million all pertain to the commercial aerospace business. We also want to draw your attention to, obviously, supply spares to defense and industrial as well.

Right, of course, but obviously I'm focusing on the piece that's likely to move the most, just during this period of time. Yes. Thank you very much. Thank you.

Your next question is from Seth Seifman of J.P. Morgan. Thanks very much, and good morning.

I was just curious with regard to the, you know, the different product areas that you guys talked about on investor day, you know, the engines, fastening systems, et cetera. I know we don't have guidance for the year at this point, but when we think about, you know, the relative impact of what's happening across aerospace and transportation, and we think about how those, you know, might stack up in terms of the, you know, relative impact on sales and profits in those product segments. Is there any color you can offer just on the relative impact there? And, you know, do you plan to report out on this basis going forward?

Okay. I think the plan to report out is that the been thinking more likely to give segment information than anything else albeit we've always given growth rates by end markets and I understand why maybe the absolute percentages for end markets is also highly relevant so we'll assess that and see whether we put that out there. The way I think about it at the moment is, let's say, approximately 58%, just under 60% of our business space is commercial aerospace. And, you know, I would say a very coarse level of analysis. I think it's just worth a coarse analysis at this stage. If you take the changes currently anticipated by Airbus, for example, narrow body, the A320, more like about a 35% reduction, and wide bodies at about a 40%. And I'd say Boeing wide body probably about the same, but it's a bit more clouded because of the specific bill quantities around the 737. So it's really difficult to give a generalized picture for the 737 at the moment, given that it's not recertified. But I take a broad sweep through it and say down 35%, give or take, as a guesstimate at this point in time. We do need a little bit more time to be able to give a more accurate and clear thought-through picture. On commercial transportation, I'm going to be rather more pessimistic and say that 15% of our end markets, we could see, given, if you take April, there was virtually no truck production. And therefore, I could see us being down close to 50% in that business ultimately. And the current dramatic change in the order intake for Class 8 trucks, as an example, both in Europe and in the U.S. On defense, about 15%, I see a double digits. I mean, maybe it won't be as big as the 17%, but let's assume 15% growth. And then industrial, I'm going to say, you know, trucks 10% would be up, would be a guesstimate at this point of those sales. So that's the way I sort of test as we're trying to re-forecast each quarter and trying to re-forecast the year. as we go through this, you know, I test that against, you know, so the course modeling that I just gave to you, and it triangulates reasonably well at this point, albeit, you know, we do need another quarter to go by, I think, in terms of getting enough information to have confidence in providing guidance, because, I mean, giving guidance is pretty serious. We try to get it to be something which we believe is going to be done wrong. It's not a wish. Thanks very much. Thank you.

Your next question is from Josh Sullivan of The Benchmark.

Good morning. Hi, Josh. Just a question on free cash. You're going to be positive here for the year in 20 with working capital as a source of cash. But if we look at 21 and what the OEMs have communicated on production rates, just as they stand now, would you be cash flow positive in 2021, or would working capital go the other way?

Do I believe that we should operate, that we should be exactly the same as when I went through the 2008-2009 financial crisis, albeit with a different industry, an industry with much slimmer margins than aerospace that was in all of the company. But then we were cash flow positive when capital was coming in and cash flow positive when capital was going out. And so that's where I start, because I think that's really important. And my expectation at this point, bear in mind, we haven't given guidance, so we haven't given you a number But we expect to be cash flow positive in 2020, and we'll see an inflow, and we'll be cash positive in 2021 when we'll see an outflow. So at this point in time, that's what I believe to be the case. And I wouldn't be saying this if I didn't really believe it. Got it. Thank you.

As a reminder, if you would like to ask a question, please press star 1. Your next question is from David Strauss of Barclays.

Good morning. Apologies if I missed this before you joined the call. But, John, have you offered any color, any range of what you would think would be the right level for decremental margins as we go down here over the next couple quarters?

We haven't given decremental margins. What I talked to quite a bit when we were doing that virtual bond venture for the debt raise was that we consider that 80% of our cost structure is variable. Now, it doesn't all flex instantaneously, as I'm sure you're well aware. There are things which move instantaneously, which is, for example, if you don't make the part, you don't buy the material. So you can expect material costs by and large to flex according to usage. And then, you know, the more extreme would be some of the staff costs, particularly in Europe, when any adjustments would need to be made after consultation with the European Works Councils and those sort of things. And so when we think about that, that takes a longer time to flex it in accordance with the future demand outlook that we believe we'll see. And so that's what we're trying to do. So there's a guide in terms of what's truly fixed versus variable, and the variable is in accordance with time. the basic philosophy being there's very little that should be considered to be permanent fixed. It's all to do with passage of time.

Okay. And as a quick follow-up, your comment on working capital being a net source this year, does that happen in Q4 or does it happen before that? I mean, I think you typically use working capital through at least the first half of the year.

Typically, we've been a working capital user. One of the things we tried very hard last year for Arconic Inc. was to, rather than as we, all of the cash flow for the company in previous years had really been achieved in the fourth quarter. We advanced that significantly last year, so we were generative in the third and fourth quarters, and We were clearly driving on that to really only have our first quarter being a quarter of cash outflow. It's a bit too early to say whether that will be achieved given the uncertainty that we're dealing with at the moment. But that's basically direction where we believe to be now. What I expect to happen is, if we're working carbon, I think receivables and payables will reflects i think for the most part you know just according to the days that we have and the activity levels the most uh the most difficult one will be inventory management and my expectation is there that uh in the earlier part of the remaining three quarters of the year we will have a degradation of days of inventory a part of it's just to do with you know the uh to respond and flex on input materials in real time when you have uncertain customer schedules and when plants have been temporarily closed, receiving docks closed, and therefore if you can't deliver product, it's not surprising your inventory will increase a bit. But then there's also the effect of an irreducible amount of inventory between machine stations and extrusion stations in the forging presses in the business. And so my expectation is that we will see both for Q2 and for the year, but to a lesser extent as we go through the year, as we work this down. So days will, by the end of the year, days will be better than they are in Q2, but not as good as previously, just because of the scale of, I'll say, demand contraction that is there potentially. Albeit, we'll be grappling with it and driving inventory down in absolute dollars as we go through the year. So it's just, again, it's one of time. And so we seem to be a little bit more inefficient in the second quarter than improving efficiency there afterwards, but in terms of inventory, you know, dollars. But I struggle to believe that given the scale of diminution of, on the commercial airspace business, that we'll be as efficient as we were in those terms as of 2019.

Great. Thanks for all the detail. Thank you.

Your next question is from Carter Popeland of Mellitus Research.

Hey, thanks a lot for the time. I'm sorry, I was off for a second, John, if you address this, but I just wondered if you could speak to just given your military exposure and some of the capital that's been flowing in, even on the commercial side, in terms of, you know, payments from your, you know, your customers and that impact on the working capital situation. If you're seeing any changes there, it seems like money is increasingly flowing at If it wasn't, just any color there would be helpful. Thanks.

Okay. No, we've seen no change in our receipts from customers at all. Everybody's paid and been paying to terms. We always have a – at the end of any month, there's always a tiny delicacy in terms of being – Exactly on time. We've never achieved 100% 30 days or 45 days, whatever the number is, in terms of receipts. But we're up at a very high level of collection percentage, and we've looked at that very carefully and all receipts very carefully, and there's no change.

Okay. Okay, great. And then with respect to the areas of business where you've got – a substantial portion of the sales volume that may go through distribution. And I'm thinking about fasteners here. You know, how, how do you, how do you get comfortable that you've got the risk appropriately sized there given the sort of ongoing uncertainty around rates and whatnot? How are you thinking about those portions of the business relative to, you know, the aggregate whole? Thanks.

We've looked both at the OE build and projected rates and that which goes through distribution, where, of course, it's always you have less visibility. Of course, our distribution sales are not really very high, neither in the context of Fasteners nor in the context of Total Hermit. And therefore... Well, we're, I think, appropriately cautious. Currently, I think we believe we've got a handle on where that is, albeit, you know, if we were surprised to the upside, that would be great. If we were surprised to the downside, I don't think it's going to be that significant to us overall.

Okay.

Thanks, John.

Thank you.

Your final question is a follow-up question from Josh Sullivan of The Benchmark.

You come back and squeezed one more in, eh?

I figured there was time. Just to follow up on the defense side of the business, can you talk about the F-35 exposure? How much of that is OEM versus aftermarket at this point as that program matures? And then are defense customers talking to you about taking advantage of any of the available commercial capacity to maybe build inventories either as buffer stock or as spares inventory? So

F-35 was... I'm supposed to give you the answer in aggregate before I sort of give you more granular commentary. It's essentially all OE at this point in time, very little spares. That's not to say the spares aren't required, because they are, because the duty cycle of that engine, given the military duty cycle, is far less than the average commercial engine. But then, as you've, I think, seen from our previous text, I mean, that engine is operating up to 1,000 degrees higher temperature. And that is in particular when the aircraft has less airflow through it as it hoppers in the air and has those capabilities for certain versions of that jet. So even with its reduced duty cycle compared to a commercial jet, given it's still fairly new in the market. The spares part of the business has been, I'll say, fairly limited, albeit it's still there. When I think about F-35, we were the critical turbine blades. Well, all critical, yes, but the ones which are the most exacting to manufacture. which are the ones which have, I'm going to say, the extraordinary levels of coring to achieve the multi-level of chambers that they have within them too, and then how the air comes out of the training edge, then the more difficult ones were really tough for us to make. And so we were under pressure all the way through 2019 to produce more blades I recognize that it is possible. I don't think we were the limiting factor on the engine, but we were close to it. And sought to increase that capacity with additional dyes and improved yields as we went through the year. We believe that the combination of that plus the additional capacity that we brought online and put into our Whitehall engine facility has been helpful for that situation and we've seen signs of improvement but we're also clear at the moment we could sell everything that we could make given the I'll say unfulfilled basic demand that we have so we're trying to build to a higher rate a rate bill for which is higher than the rate build in 2019. And then we've tried to prepare for additional rate increases also in 2021 and 2022. So the alleviation of capacity from the commercial side has been helpful to it, but that wasn't the singular issue in terms of us meeting the rate increases. It's also to do with tooling as well. Right now, what I think about is we can improve rates. We know that there are large spending and efforts to fulfill as well on top of the increase in bills that's there. And so I look at it as a very positive thing for us in going through into 2021 and 2022 and beyond because then we have additional rate increases to provide for. plus the spares, packages that are required to be fulfilled are going to be also a good thing in the future for Hamas. Got it. Thank you. Thank you very much. I think that was the last question. So if we could close the call, please.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.