Robert Spingarn: Hey, good morning. John, I’m going to ask again about the 737. You’ve been crystal clear that the situation is unclear. Having said that though, I’m curious if somehow Boeing gets above 20 later this year, is there enough inventory in the channel, whether you have it or they have it or GE has it to support higher production rates at Boeing? Or can you ramp quickly? How do we think about when you’d need to signal? And what – how you might respond?
John Plant: Yes. So should Boeing produce rate 38. I’m very clear that we’ll be at rate 38 with them. And should GE reinstate the planned increase to the 19, 25 level of LEAP engines, which is obviously part of indicating to the 1b that we’ll be able to meet rate – what the – again, on labor, you can see while we’ve increased the overall guidance, and therefore, our labor recruitment will be fairly robust is that we have enough flexibility to be able to cope with those rate assumptions. Because, again, we’ll know months ahead of they’re actually achieving that. It won’t be like go from, let’s say, rate 15 to rate 38 in a month, it’s going to happen slowly and gradually if it occurs.
Robert Spingarn: Okay. Okay. And then just as a follow-up. When we look at the commercial aero sales at fasteners and its structures, they outpaced versus the Engine Products segment despite the issues at Boeing. I was wondering if you could add some color on how you managed to decouple your commercial aero growth from Boeing’s bill rates?
John Plant: I think to some degree, it reflects the revenue potential and earnings potential of Howmet when it achieves the increased rates. And so while Boeing sales in the 787 might have been building a three. But we were building in the first quarter of our parts at a rate significantly above that. So let’s assume rate six or even in rate seven. And so this that’s obviously a very good dynamic for the business and then showed with I thought, which was excellent margin improvement in the business, which was a combination of operational performance, commercial performance and the mix. And when that happened, we’ve put on 500-plus basis points in margin improvement year-over-year. And there’s still – I don’t know what it was, 200 basis points sequentially.
So all really good. And obviously, we’re trying to work out exactly what that will be. As the assumption I made is that we get down to rate 5 on the 787 and obviously, a much lower rate on the 737. Albeit as you know there’s a metallic fasteners they don’t quite have the richness of mix that we will get on a composite aircraft. At the same time with Airbus, as you know, the A350 is a composite-based aircraft. And so the rate increase that we’ve seen there and also as we prepare for a further rate increase in 2025, then again, that’s all looking positive for Howmet.
Robert Spingarn: Does that mean that possibly the first quarter is a high point with regard to some – something like a 787 fasteners or if you were a rate 7 and they’re at rate 3 and you get the point.
John Plant: Yes. I mean, what we’ve guided to you in Q2 is that, in fact, revenues would be slightly higher than Q1. So we’re still expecting overall to be good. But very much for our year would be – we’re cautious because of the rate assumptions I’ve given you on the 737 and therefore, expecting to have the impact of that. Plus, also, as you heard me talk about on my prepared remarks is that we are expecting weakness in our commercial wheels business in the second half of the year. So far, we’ve been pleasantly surprised by the strength in that segment. Clearly, we hope it continues, but our planning again for some reduction because we’ve already heard customers like PACCAR reducing their commercial Class 8 truck build as they go forward.
So again, it’s a different number in the U.S., maybe a 10% truck build reduction we’re thinking of in North America and maybe something a little bit higher in Europe, offset by whatever penetration we can achieve in terms of aluminum versus steel. So – but the important thing I thought in this quarter was that we were able to really operated a really a good level and achieved a rate increase, let’s say, 26.5%, 27% EBITDA margin, doing like 28.5%. And that’s really good because obviously it’s a supply – its more leverage at the operating margin and the EBITDA margin level. So it was all good. So it’s a cautious assumption on commercial truck in the second half, cautious assumption around Boeing MAX production coming off, as I talked about earlier, a rate 38 scheduling in Q1.
Robert Spingarn: Thank you, John.
John Plant: Thank you.
Operator: The next question is from Doug Harned with Bernstein. Please go ahead.
Doug Harned: Good morning. Thank you.
John Plant: Good morning, Doug.
Doug Harned: I want to switch away from Boeing here for a moment. And earlier this year, GE started making the first shipments of its redesigned LEAP-1A, HPT blades to Airbus. These are intended to last longer in harsh environments. And we expect to see that similarly for the LEAP-1B eventually a year from now, we’re going to see something done in the Geared Turbofan. When you look at these new designs, for blades, how do you see that affecting your outlook in terms of – presumably, these are more expensive? The amount of turnover you might have in the aftermarket and better pricing potential on these new designs?
John Plant: Okay. Maybe the best thing I can do is to give you a picture of the revenue walk for the company first and then return to the specific question, obviously improved durability as a second subject. So in our assumption, is that we are thinking that we’ll have a, let’s say, a hit from the MAX reduction assumption from the 34 rate we’d assume in Q1 to the 20 rate. And so that’s something well over $100 million of a hit. And then we see that being offset with an increased reimbursement of our defense sales. And you saw those up 12% in Q1, which was significantly higher than our assumption, which was mid-single-digits. So I think that’s $60 million-ish, give or take. On wheels, we think the first half is going to be stronger than we thought.
So let’s call that $50 million-ish on wheels. And then with our other sectors that we serve, for example, like oil and gas, you heard us talk to a 15% increase there. And while IGT was flat in Q1, we’re thinking of a mid-single-digit increase for the year for IGT and industrial, there’s another $60 million. So essentially, all of all of the MAX [indiscernible] more it gets covered by those items. And then the big one, I think, is our assumption around spares, which is we’ve put in an increased revenue assumption of over $120 million plus on our spares lift. And that reflects, let’s say, a further aggregate 25% lift in our spares business year-on-year and more like 35% on commercial aero. So it’s pretty significant. And now the rate – the spares revenues are substantially above 2019 levels, a 2019 was about $800 million, I think $1.1 billion plus in that area.
