Good day and thank you for standing by. Welcome to the Hexcel Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Patrick Winterlich, Chief Financial Officer. Thank you. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to Hexcel Corporation’s second quarter 2021 earnings conference call. Before beginning, let me cover the formalities. I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the Company’s SEC filings and last night’s news release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO and President; and Kurt Goddard, our Vice President of Investor Relations. The purpose of the call is to review our second quarter 2021 results detailed in our news release issued yesterday. Now, let me turn the call over to Nick.

Thanks, Patrick. Good morning, everyone, and thank you for joining us today as we share our second quarter results and look ahead to the second half of the year. The global COVID pandemic is far from over, but with the growing availability of vaccinations, there is cautious, yet positive momentum as domestic travel appears to be on the rebound and aircraft backlogs have started to grow again. While there remains uncertainty ahead, our focus has shifted toward a return to growth. All of us recognize that the past year and a half has been unprecedented. The global pandemic required Hexcel to take aggressive and swift restructuring actions, which we did. We also took advantage of the lower production levels to drive costs and efficiency improvements. These efforts have positioned us to exit the pandemic more focused and more efficient for a strong rebound. The way our team responded to the challenges has been phenomenal and is reflected in the results we reported in our news release last night. Our robust start to the year continued into the second quarter with results in line with or slightly ahead of our expectations. We achieved strong margin performance, despite lower year-over-year sales, as a result of a favorable margin mix from higher carbon fiber sales. Combined with efficiency improvements and reductions in our overhead costs, we were able to deliver $0.08 of adjusted EPS for the quarter. If you remember back to the second quarter of 2020, we also reported $0.08 of adjusted EPS, however, on sales that were almost 17% higher in constant currency. This demonstrates the cost controls actions that we took quickly in 2020 and that continue today are making a significant difference in the sustained value we offer to our shareholders. As we anticipated last quarter, we believe inventory…

Thank you, Nick. As a reminder, the year-over-year comparisons are in constant currency. Majority of our sales are denominated in dollars. However, our cost base is a mix of dollars, euros and British pounds as we have a significant manufacturing presence in Europe. As a result, when the dollar strengthens against the euro and the pound, our sales translate lower, while our costs also translate lower, leading to a net benefit to our margins. Conversely, a weak dollar is a headwind to our financial results. We hedge this currency exposure over a 10-quarter horizon to protect our operating income. Quarterly sales totaled $320.3 million. The sales decrease year-over-year reflects production rate decreases by our commercial aerospace customers in response to the pandemic combined with the continued supply chain destocking. You will recall that in the second quarter of 2020, OEM production rates were only beginning to be reduced midway through the quarter and that supply chain destocking had not yet begun to any great degree. I say this as a reminder to consider when evaluating the year-over-year sales comparisons. Turning to our three markets. Commercial aerospace represented approximately 48% of total second quarter sales. Second quarter commercial aerospace sales of $153.7 million decreased 24.8% compared to the second quarter of 2020 as destocking continued. We believe the substantial destocking is now behind us as we enter the third quarter of 2021 and that our narrowbody production is generally aligned with OEM production rates. However, our widebody sales are still facing some lingering supply chain adjustments that are expected to conclude by the end of the summer. Space and defense represented 33% of second quarter sales and totaled $106.9 million, decreasing 2.7% from the same period in 2020. While the demand outlook remains favorable for composite secular growth to enhance performance…

Thanks, Patrick. We believe the worst is behind us, and we are cautiously optimistic of a continued and steady recovery during the remainder of 2021 that will propel us into 2022 when we expect a significant return to growth, which will extend into 2023 and beyond. Without a doubt, some of this growth will come from pent-up demand for air travel, yet much of it also comes from airlines ready to replace older, less efficient aircraft with more aerodynamic and fuel-efficient solutions as the world demands long-term reductions in greenhouse gas emissions. No company has a broader or more vertically integrated portfolio of strong, durable and lightweight advanced composite solutions that lead to fewer emissions than Hexcel. The market is demanding lighter, yet high-performing materials, and we anticipate strong pull for our entire portfolio from carbon fiber to prepreg to engineering core for many years to come. Additionally, no team is better prepared to meet a quick ramp-up than our Hexcel team. Over the past several months, while demand retracted, we planned for the inevitable rebound. We have become more efficient, more cost effective and more competitive than ever. Throughout the downturn, we have improved our processes to ensure that we continue making gains, especially in employee safety, quality and on-time delivery. Certainly, there are risks ahead and especially so within the supply chain and the availability of raw materials and labor. It comes down to staying focused and aligned with our customers, and we intend to do just that. I’m excited about the path ahead. Thanks to our great team and our commitment to innovation and continuous improvement through operational excellence, we are poised to drive strong incremental profits, generate robust cash flow and deliver increasing returns to our shareholders. Katrina, we’ll now turn it over to you for questions.

Thank you, sir. [Operator Instructions] Our first question is from Robert Spingarn from Credit Suisse. Your line is open.

Good morning. This is sort of a two-sided question related to margins. But Patrick, I guess your implied second half margin’s a little bit lower than the first half. And does that have to do with your comments just now on sales, or are there some other things that work here? I wanted to factor in inflation here on raw materials and see if you could talk a little bit about that as well, if you’re covered through hedges, not only through the end of this year, but into next year as well.

Yes. Hi, Robert. So, just to be clear, I’m not -- so quarter two was strong. I think that’s what I’ve said. I would not necessarily say that the second half of the year is going to be lower than the first half of the year, if you look at the first half of the year being 3.4%. But, the second quarter was strong because of the mix, driven by the strong variable margin, because of the carbon fiber mix. And you combine that with the efficiencies we talked about and the ongoing cost savings, which will still be there in the second part of the year, but we may not always have the same strong favorable mix. So, that I think -- hopefully, that gives a context. In terms of inflationary pressures, then clearly they exist in the world today. What I would say is that the Hexcel team and our contracts are doing a great job to help us here. We have long-term back-to-back purchase contracts with pricing that’s fixed. So, a lot of our key resins, the pricing won’t move our commercial resins. Acrylonitrile, the base sort of raw material for our carbon fiber, we hedge out. It won’t stop the price moving up, but it will smooth that and certainly protect us from any dramatic impact this year. There is some inflationary pressure on things like our industrial resins, but again, those contracts give us a path through maybe with a quarter delay, but to some extent, again, we’re protected. So, around the hedges in freight may be an area where we’ll see some inflationary pressure, but it shouldn’t be material to our margins, as we close out the year.

Okay. And then just, Nick, if I could squeeze in just a quick one for you, but this A350 freighter opportunity. Could you just speak to that for a moment? It sounds like that would be good. And would an aircraft like that have more or less carbon fiber content?

Well, obviously, from our perspective, more fuel efficient, advanced lightweight aircraft that have a life of 30 years is a great thing and especially the A350 being adopted as a freighter variant is exciting for us. So, obviously a good thing. We do not anticipate a significant change in the shipset content going from a passenger version to a freighter version. But, we’re certainly excited and hopeful that both Airbus and Boeing launch new advanced aircraft for freighter versions going forward.

The next question is from John McNulty from BMO Capital Markets. Your line is open.

Maybe just two related ones on the cost side. So, Nick, you had indicated you were adding labor, weren’t really having any problems with that. Should we be thinking about that as, normally, when you bring up a new facility, there’s a little bit of a ramp-up or a learning curve and there’s some inefficiencies early on. Is that something we should be assuming with the people that you’re bringing on now, or are these more experienced? And then, I guess, the second question would just be on the R&D front, where right now you’re kind of running at a 20% or 25% lower level than you had kind of in the pre-COVID world. I guess, can you speak to the efficiencies that you’ve learned and can you kind of work with, in that lower cost environment? And how we should be thinking about R&D ramping up as we look forward over the next year or so?

Okay. So, let me start with the R&T. We certainly would expect R&T to grow above second quarter levels, and we’re putting plans in place for that as we speak. With respect to labor and efficiencies, many of the add-backs have been experienced Hexcel employees. And throughout my visit, it was exciting to welcome them back and to see the excitement in their eyes and motivation and enthusiasm. So, we really have not had any issues in bringing back experienced people. Certainly anticipating some tightness in those markets, and we’re being pretty aggressive in how we’re recruiting, posting, advertising and staying prior employees. But to really answer your question, we don’t see a big learning curve or think that you should anticipate one.

Our next question is from Gautam Khanna from Cowen. Your line is open.

Yes. I was wondering, Patrick, could you elaborate on where you’re seeing some continued destocking, like which widebody program or programs?

Well, I think the simple answer is all of them. I think we’re probably -- we’re less so in the 350, we’re probably going to get through that program destocking first. We’re really reflecting that that ramp-down happened a little bit earlier and a little bit faster. The 787 ramp down from 14 to 10 to 6 to 5 probably happened a little bit later. So, that’s going to linger a bit further. And perhaps separate to the pandemic destocking, but obviously where now there’s some more sort of delays around the 787, I think it will be a limited amount of destocking, but we could see that even sort of carry on later in the year. So, it’s all widebodies, but hopefully, the 350s finish soon, the 787s carry on a little bit longer.

Okay. And just maybe a definitional question on destocking. Are you seeing that in general you guys are below -- on the widebodies are below the official assembly rate at Boeing and Airbus but on the narrowbodies you’re in line with the official assembly rate? I’m just curious, like -- because we hear that certain people in the supply chain are running at three a month on the A350, whereas Airbus is obviously assembling at a higher rate, allegedly. I’m just curious, like in general, by destocking, are we talking like you’re synced up with the assembly rate on the narrowbodies and not so elsewhere? Thank you.

So, I’ll take a shot at that. So widebodies, clearly, we were well under the production rate stated by the OEs. And again, that’s the supply chain adjustment, the destocking, to get down to the new stable rates. The narrowbodies, basically, we’ve seen that wind down with respect to the delta between the stated OEM build rates and our ship to rates. And pretty much based on the demand, the visibility that we have with the OEMs and their supply chain, which we’re paying very close attention to above and beyond what we typically do, we’re seeing that subside. And that’s why we have confidence that the narrowbodies are pretty much behind us with potentially just immaterial amount carrying on. The real items will be the widebody and some trickle through the summer.

Our next question is from Myles Walton from UBS. Your line is open.

Patrick, I think you said that you expect ‘21, just from a sensitivity perspective, to be below 2020 sales, and that consensus, you’d be below that. And I don’t think consensus has moved since last quarter when you thought you’d be in line. I’m just curious, is the only change that you’ve seen sort of that maybe 10 or 15 fewer shipsets on the 87 because of what Boeing is doing, or are there other moving parts as well?

Well, there’s a million moving parts, but the most significant thing is definitely the 787 Myles. Yes.

Okay. But from a magnitude perspective, that’s what the delta is?

Yes. From a materiality perspective, that’s the largest for sure. Yes.

Okay, perfect. And then, obviously, a great margin performance in composite materials. And you mentioned the carbon fiber mix. But I guess the other mix that I would have guessed worked against you would be the industrial mix as a percentage. And maybe I’m not level set, but I thought industrial margins generally would be below, and obviously that mix was nicely -- or was higher than your aero and defense mix. Was there something special about the industrial mix that was not as dilutive?

No. I mean, you’re right. I mean, the only thing I can point to is the absolute dollars for those industrial sales relative to the euro sales and the higher fiber sales, obviously, is kind of weighted down. There is a small dilutive impact. You’re 100% correct. But, I think, given the relative dollar values of the sales, it’s -- overall, it becomes very marginal.

Our next question is from Pete Skibitski from Alembic Global. Your line is open.

Hey Patrick, just wondering if you could provide us any more color on maybe the cadence of margins in the back half of the year. I would think you guys would have some feel for the mix in 3Q and 4Q. And then, also, it sounds like -- so, you talked about the step-up in capacity utilization. I would think you’d have some feel for that. So, are we thinking that 3Q will be down on a little bit higher volume in the third quarter, but maybe fourth quarter is the high for the year? I’m just wondering if you could provide us any more color on that.

Yes. I’m really not going to get into a quarterly guidance on margin cadence. I mean, what I will say is, I pointed out 3.4%. I said it’s going to be low single digits for the whole year. I’ll go as far as saying, I don’t think there’s going to be anything dramatically different between Q3 and Q4. But, I think we’re not going to get into quarterly specifics.

Okay. All right. Fair enough. Maybe just one last one for me then. You guys I thought had an interesting release earlier this month with regard to doing some work for receiving, [ph] an automotive suspension provider. And there was talk about, I guess, them being a mass production automotive supplier. So just wondering, is this -- are you guys feeling like this could be a big breakthrough in the automotive space for you guys, or is it way too early, or how promising could this be?

Well, I’m not going to go as far as to say a big breakthrough, but I am excited with the advancements that our team continue to make on new products, new processes, not only for structural, but for quick curing to make the solutions even more efficient. So, we continue to do well -- very well, with European car manufacturers and BMW being one of the leaders in that pack. So, again, we have multiple initiatives underway to work with our customers to help them identify solutions that put them in a better position to win in the marketplace. So, we feel good about that and we look forward to continued growth.

Our next question is from David Strauss from Barclays. Your line is open.

Nick, as we think about into ‘22 and ‘23, just given the level of the magnitude of destocking that you’ve seen, would you actually expect to see a bit of a restocking effect on the other side? So, what I’m implying is that your rates could be above the actual manufacturer production rates as we get on the other side of this, at least for a little bit of time.

That’s a great point, David, and we’ve actually spent a fair amount of time making sure we’re not surprised by some incremental buffer that will be required in the various supply chains. Obviously, the 320, with the most aggressive and near-term ramp rate is an item we’re looking at, but widebodies as well, as the rate starts to come back, I do think some of the supply chain probably has driven down their inventory to preserve cash and maybe tighter than what they can run at higher rates. So, we’re definitely putting that into our forecast and our evaluation to make sure we’re not cost short.

Okay. And Nick, could you just maybe level set up in terms of where you stand from a capacity utilization standpoint today, thinking mainly on the composite material side?

Utilization? Capacity utilization, it varies. I mean, in my tour of the U.S. sites, I saw sites that were basically running full out and areas within plants that are basically at or near capacity, while we have other assets and sites idled. So, around fiber, Patrick pointed out that we continue to ramp up precursor and carbon fiber assets throughout the year, and we plan to do more before the end of the year. But, we still have a fair amount of capacity in place that will prevent the need for major CapEx investments for a few years.

Our next question is from Paretosh Misra from Berenberg. Your line is open.

Can you talk about your other commercial aerospace category, the business and regional jet? In terms of what sort of build rate and demand ramp-up are you expecting in the second half, and how are the inventories in that business are looking?

Well, we don’t specifically get into build rates. I can tell you, we’re excited on the new platforms, some of which are just coming into production with Gulfstream. We’re excited with the opportunities we have with Dassault and potential big wins in that space. Obviously, similar commercial aerospace, there’s a migration to more efficient composite aircraft and components, and we love the space for that. Clearly, there’s a long way to go to catch up with pre-pandemic levels. But, we’ve seen some optimism with respect to hours, flight hours and the demand on the biz jet, especially the larger class size. And again, we remain excited and bullish on that for the balance of the year.

Thanks for that, Nick. And maybe if I could ask one more. Just going back to the labor issue, given the narrowbody build rate ramp-up ahead, do you have any sense as to how much in terms of headcount increase you’ll have to implement over the next 6 to 12 months?

Well, we’re not going to give that. Perhaps when we give next year’s guidance, we’ll elaborate a bit. But, I can tell you, one of the specific sites I visited in the last couple of weeks has recently ramped up, calling back 100 people. So, every site is different. We’re bringing people in as we -- as the demand necessitates. And we’re pretty much in lockstep. I would also say, we’re continuing to drive the continuous improvement projects. So, we’re even bringing in some labor to work on those advancements and productivity enhancements that will pay dividends down the road as rates return.

[Operator Instructions] Our next question is from Robert Stallard from Vertical Research. Your line is open.

Nick, since the last call three months ago, we’ve seen Airbus give an update on its build rates and not really much change on the A350 looking out over the next couple of years and, of course, Boeing also couple [ph] of 787 again. So, I was wondering if this news has pushed out your expectation for when the widebody side of your business will get back to full rate.

Actually, it hasn’t. I’ll tell you, again, this is from my perspective after getting out in the U.S. and hitting every one of our sites, seeing how our team has rapidly ramped back up to travel to visit customers, to visit suppliers, to visit our sites. There’s no doubt in my mind, global travel is going to come back and it’s going to come back strongly. Now, vaccines have to accelerate, borders have to open up, but I can tell you for myself, to get into Europe, to visit our sites, to visit our customers is imperative going forward. So, personally, based on all the data and all the market news that I keep up on, I’m more optimistic on business coming back quicker than was anticipated 6, 12 months ago.

Okay. And then, earlier on in your commentary, you noted that there’s still uncertainty related to the pandemic around giving guidance. I was wondering if there’s one specific thing or several things that you need to see clarify themselves before you feel comfortable enough giving financial guidance again.

Well, I don’t know if it’s one thing. But certainly, getting Europe to open the borders so that there can be free travel, unrestricted travel between the U.S. and Europe, and Europe and the U.S., that’s paramount for us to get back up and having confidence on where we are. At the same time, the rates and the stability -- and I always look to our customers, Airbus and Boeing, and when they start providing guidance. So, I’m optimistic that we’re going to see that as we come into the second half and put us in a great position for 2022, but time will tell.

Our next question is from Richard Safran from Seaport Global. Your line is open.

So, I wanted to ask you first about space and defense, specifically rotorcraft. Lockheed noted some improvement in rotorcraft, helicopters. So, on that segment, I don’t think I’m going out on a limb here saying you really outperformed in 2Q. So, I was wondering if you’d comment on, with respect to what you’re seeing in space and defense with rotorcraft, are the RMS results something where we could see a pickup in the back half?

Yes. I mean, I think if you take rotorcraft particularly, I mean, it’s going well. ‘21 quarterly sales are above 2020 sales, including Q1 2020. So, a nice positive trend, CH-53K and other platforms starting to step up and move in the right direction. I don’t think it’s going to -- I think, it will be a steady increase through the rest of this year and into 2022, which I think is what we’ve called out generally across our space and defense market that we expect to see sort of medium to long term low-single-digit growth, and rotorcraft falls within that. I mean commercial, civil helicopters, whatever, are a pretty low percentage, it is dominated by the military craft.

Nick, I just wanted to follow up very quickly on the comment you just made about business jets. Would you be willing to comment if you’re seeing a bit of a pickup in small and mid-cabin aircraft? I know in an earlier quarter, you had made some comments about it. I thought just maybe you have a remark or two on that.

Well, again, I think, the traffic, and if you look at the data on used aircraft and the sale is positive momentum. And again, not much more color, other than it pretty much stood out that the large class was leading the pack with respect to the growth and the recovery. I expect and anticipate that the mid and smaller class will follow soon.

Our next question is from Mike Sison from Wells Fargo.

This is actually Richard on for Mike. Just on the Industrial segment, just curious, you noted strength in automotive and recreation. Maybe just a little more color on that. And also, what is the current state of the wind energy market? Have we seen that bottom out? Have you seen any change in sort of customers on their supply chains and that sort of thing?

Yes. So, I’ll take a shot and Patrick can add some additional color. With respect to the industrial market, again, there is 30-plus segments in there, and we participate, monitor, contribute to all of them. Obviously, the automotive, we’ve got certain differentiated technology, we continue to push. We continue to work with the OEs, especially on the premium end and the high performance, to find opportunities where we can differentiate and offer advanced solutions, utilizing our technology and materials. Marine has stepped up nicely as well as rec. And we’ve got various wins within both categories, none of which individually moved the needle significantly, but they all add up and we continue to pursue those. So, Patrick?

Yes. I mean, I think that’s right. And just sort of reflecting back on Myles’ question as well a little bit, I mean, you have to think some of the things we supply into industrial, high-end automotive are woven carbon fiber. And so, margins associated with that -- sort of those product lines are not greatly below some of the aerospace lines. Now, overall, they are lower on average and it is slightly dilutive. But I think there is a mix. And certainly, as Nick was alluding to, the high-end auto pulls a lot of fabric, and where that Hexcel carbon fiber, that can be attractive business.

Great. And then just on, I guess, the composite materials, the increased mix of carbon fiber that you mentioned, do you expect mix to continue to be the same for the rest of this year, or what’s your expectation?

Well, what I tried to kind of allude to that in the script, it’s going to be a little bit lumpy. I mean, we’ve obviously got the growth we have now, but as other product lines come back, the mix gets diluted a bit. And so, we will occasionally see a step-up in carbon fiber, and that will help a particular quarter and give us a boost. I mean, I’m not talking significant changes quarter-to-quarter, but it depends on the overall mix. I wouldn’t assume that every single quarter is going to get the same carbon fiber mix boost. I think that’s the simple answer.

Our next question is from Sheila Kahyaoglu from Jefferies. Your line is open.

Patrick, you may as well give guidance at this point because we’re asking all the questions anyway. But on the 787 destocking lingering a little bit longer, can you tell us how you’re thinking about that lingering? And what that impact on profitability would be, given last quarter you quantified or kind of gave us some guidelines on the A350 and what that would mean for profitability?

The line is breaking up a little bit, Sheila, but I think you were asking about the 787 impact for the rest of the year. I mean, obviously, we don’t have specifics. Boeing had called out, they’re going to operate at a below grade 5 level for a period of time. We’re staying very close to that and we’ll flex appropriately. Obviously, having gone through a fairly significant destocking related to the pandemic, hopefully, there shouldn’t be too much, but there may be some. And I think I mentioned that earlier. So, we’re staying agile, and that also kind of -- my comments around the sort of revenue expectations for the year, we obviously see an impact from that 787 adjustment. And you mentioned something on the A350, Sheila. Could you repeat...

Yes. Sorry, Patrick, if you could hear me now. On the A350, last quarter, you mentioned -- and Nick corrected me nicely, but on the A350, you mentioned, at some point when you were at 5 per month, you were at double-digit peakish margin. So, kind of how we think about the 787s impact on your profitability profile?

Well, I mean, the 787 is a great program. It’s obviously a smaller program than the 350 for us. We want all the programs to come back. I mean, the point we were making was specifically, we were kind of trying to tell the world, don’t think we have to get back to rate 10 on the A350 in order to make mid-teens plus margins. So, that was the specific point. Now, obviously, if we can bring back 787 sales and the 350 creeps from 5 to 6 and upwards, that’s just going to help boost us to mid-teens and high-teens performance.

Our next question is from Noah Poponak from Goldman Sachs. Your line is open.

Patrick, if I just plugged in your 2Q operating margin into the third and fourth quarter, it would make the full year shake out to something in the mid to high 4s. So, by guiding to low-single-digit, if I define that, it’s below 5. It sounds like you’re telling us that the third and fourth quarter will average something less than the second quarter. Is that fair?

Your overall shape is about right, Noah. Let’s say that. Low-single-digit is below 5. Yes, I agree with that.

And the discussion on the longer-term margin and where it can be when you’re back to $1.8 billion to $1.9 billion of total Company revenue, where you were a few years ago? At that point in time, the margin was kind of 17%, 18%. In calling it mid-teens rather than just getting back to where you used to be, is that purely a function of widebody, and you can be a little bit below where you used to be, but close with much lower widebody rates because of everything you’ve done on the cost side, and you would just need widebody closer to where it used to be to get all the way back?

I think, it’s really just the degree of specificity that we’re putting out there. I mean, we’re saying mid-teens plus. We could be 16%, 17%. We’re obviously looking to drive it as much as possible, as we called out previously, holding on to as much $150 million overhead takeout to overcome the depreciation headwind is a key part of this. A little bit of mix is going to impact it. But absolutely, when we get to the $1.8 billion, $1.9 billion level, we will be looking to push to the same levels we were previously. Perhaps we’re being a little bit cautious in saying mid-teens-plus, but we will be driving it as strongly as we can.

Got it. And just last piece of that, obviously, you have much higher depreciation today than you did in the historical period of time you’re referencing. Is that the entire depreciation variance you’re referencing, or is there still a little bit more of that ahead of you?

Well, I mean the depreciation difference is going to be what, $60 million, $65 million. That’s essentially what I’m talking about as the headwind.

Okay. And that being today versus, call it, 2016?

Yes. So we’ve got about -- well, I’m kind of looking forward a year or two by the time it’s going to take us to get to $1.8 billion, $1.9 billion, our depreciation is not going to grow very much at all. And I’m just looking back exactly to 2015, 2016 levels. Yes.

Our last question is from Ron Epstein from Bank of America. Your line is open.

Maybe just a question, a bigger picture question on composites in general. And maybe in two parts. One, where do we stand on cold cure and the ability to get composite throughput quicker? Because that seems like that would be something that would be good for future narrowbody. And then, two, how should we think about the recent issues on 787, and what that means for composite usage on aircraft, given the production difficulties that they had? Is that just a Boeing-specific thing, or is that a composite thing?

So, first thing, Ron, I’ll address the cold cure. And whether it’s cold cure or accelerating cure rates, in conjunction with accelerating laydown rates, and whether or not autoclaves are needed or not, that all helps the entitlement grow within the aerospace. And clearly, you can imagine that’s a large portion of our focus, whether we’re talking about industrial applications for automotive or working with the OEs on the next new narrowbody material. So,, curing, the efficiency of curing, the ability to make even more product near-net shapes using composite is just going to continue to grow and the entitlement is going to follow. With respect to the 787, let’s not forget, airplanes are big complex devices. And last I remember, there were problems with aluminum and metal planes in the past. So, I view this as -- and I don’t have the specific details, but some escape that was discovered based on the scrutiny that Boeing is putting on their products, and they took a step back and decided to fix it very quickly by taking down some of the rate on 787. So, I expect them to put this behind them very quickly. And I would also add that I think what both Boeing and Airbus and many of our other customers have continued to find is that the composite manufacturing processes have evolved dramatically and the efficiencies and cost benefits in the processing that -- keep in mind, composite planes are relatively new compared to metal planes, but the progress made is phenomenal and is going to continue to accelerate. So I look at this as a development production item that will be resolved and composites will continue to prosper.

Thank you, speakers. Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. And have a wonderful day. You may all disconnect.