Hexcel Corp (HXL) 2008 Q3 法說會逐字稿

Good day everyone and welcome to the Hexcel Corporation third-quarter 2008 earnings conference call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I would now like to turn the call over to your host, Wayne Pensky, Chief Financial Officer. Please go ahead sir.

Thank you. Good morning everyone. Welcome to Hexcel Corporation's 2008 third quarter earnings conference call on October 21. Before beginning, let me cover the formalities.

First I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we 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 including our 2007 10-K and last night's press release.

Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded, or rebroadcast without our express conversion. Your participation on this call constitutes your consent to that request.

With me today are Dave Berges, Hexcel's Chairman and CEO; and Michael Bacall, our Communications and Investor Relations Manager. The purpose of the call is to review our 2008 third quarter results detailed in our press release issued last night. First, Dave will cover the markets, then I will cover the financials and then Dave will return with some comments on our outlook. So let me hand the call over to Dave.

Thanks Wayne. Good morning everyone. Third-quarter revenues were again ahead of expectations with the sales almost 18% higher than last year despite the beginning of the Boeing strike and the onset of global economic worries. Net income of $33 million grew 82% over last year aided by an $11.7 million gain from the sale of a joint venture interest in the quarter.

Adjusted net income then was up 18% for the quarter and 27% year-to-date. We made good progress on our three new facilities in Europe and have now begun the startup sequence in our newest plant, to the wind energy prepreg facility in China.

The incremental fixed and startup costs created a year-over-year drag of 200 gross margin basis points last quarter but only 120 points this quarter. We are awaiting a number of key qualification approvals for our European operations and have just begun the first runs in our China wind facility. I am sure you're more concerned about our outlook for sales going forward, but let's first close on the quarter and I will come back after Wayne with some thoughts about the future.

As usual, let me talk about the recent sales trends using constant dollars to better understand the real volumes. For reference, our reported topline sales of $331 million were 17.9% higher than last year as reported but 15% on a constant currency basis. So the apparent sales growth of about $50 million was actually more like $43 million in real terms.

Commercial aerospace sales were about $177 million for the quarter, up nearly 15% in constant dollars from last year, a significant rise. However this was our lowest quarter for the year and sales were 11% lower than the second quarter. This reflects the usual reductions in Europe due to summer holidays plus the impact of the Boeing strike and the previously announced 787 delays.

Sales to Airbus and its subcontractors were up well over 20% for the third quarter in a row and we benefited across all platforms with only a slight impact coming from the A380 compared to the same quarter last year. Sales of Boeing and their related subcontractors which typically account for about 25% of our total sales were just above the third quarter of 2007 and lower than the runrates in the first half of the year.

We have begun to feel the impact of the Boeing strike which began in early September. It first affected our engineered products segment where we sell and deliver assemblies directly to Boeing facilities.

We're now experiencing the larger impact of the rest of the supply chain as the rest of the supply chain adjusts their production for the shutdown. This includes impacting our equity and earnings from ACM, our 33% joint venture in Malaysia.

Sales to all other aerospace customers were up over 20% for the seventh consecutive quarter as bill rates for regional aircraft and business jets have been particularly strong. While the current economic outlook may slow some of these markets, we expect the resurgence of fuel efficient turboprops to partially offset any softness.

Sales to space and defense markets were $76 million, up over 23% in constant currency terms bringing us to a year-to-date total growth of over 18%, well above our historic 8 to 10% average in part because of new incremental helicopter blade work that were begun this year. In the fourth quarter of 2007, we booked a significant tooling sale for one of these blade programs and thus we expect a tougher comparison in this coming quarter.

Overall sales for our industrial markets of $79 million were up almost 9% in constant currency versus last year. As usual, wind energy sales were strong and remain on track for mid-teens growth. We have now run our first qualification lots in our new Chinese facility and we are on track to open a new wind prepreg facility in Colorado next fall.

As in recent quarters, sales to recreation markets were down but for the first time in over a year, our larger other industrial category showed growth thanks to easier year-on-year comparisons and some available capacity. Now let me turn the call back to Wayne for some additional comments on the financials.

Thanks Dave. Gross margins for the quarter were slightly more than $71 million or 21.5% of sales as compared to 23.8% gross margin for the third quarter of 2007 and slightly better than the 21.2% for the second quarter of 2008.

In summary, as compared to a year ago, incremental fixed cost and startup cost to new facilities cost about 120 basis points of the year-over-year difference. Exchange rate swings cost us about 40 basis points and higher commodity materials, utility and freight rates about 100 basis points.

We expect the impact of incremental fixed and startup costs to subside over the next couple of quarters though until the new facilities are fully utilized, their contribution to margin leverage will be less than average. The large movement in exchange rates make year-over-year comparisons difficult.

While we always give the impact on sales which is easy, its impact on our operating income is more complex. Obviously exchange rates distort metrics as a percentage of sales but our objective in hedging is to limit the impact of exchange rates on our operating income dollars.

Our euro hedged rate for the third quarter was around 1.43, more favorable than the actual rate of about 1.51 but still about 10% worse than the hedge rate for the third quarter last year of $1.28 per euro. Our euro hedged rate for the fourth quarter is similar to this year's third quarter rate. If the dollar can hold onto its newfound strength, it will eventually help future results as the hedges are replaced.

As for commodity and energy related costs, there is a two to three-month lag in the lower crude prices working their way through the supply chain. Thus if oil stays around current levels, we should start to benefit as we go into next year.

Selling, general and administrative expenses were well contained, up only about $0.5 million to $26.9 million for the quarter. In fact, on a constant currency basis expenses were lower than last year as we have tightened control on spending. At 8.1% of sales, SG&A expenses were the lowest in recent history.

Also during the quarter, we recorded the previously disclosed $11.7 million after-tax gain on Hexcel's sale of its share in BHA Aero Composite Parts. The pre-tax gain of $12.5 million is included in equity and earnings while the $800,000 of tax provision related to China withholding tax is included in the tax provision.

The net gain increased diluted earnings per share by $0.12. Our effective rate for the quarter was 36.1% as compared to 29.5% in last year's period. This includes a FIN 48 reversal of $1.8 million in 2008 and $1.1 million in 2007.

This year's third quarter tax benefit related to the BH gain. After including the onetime adjustments in the first half of the year of the tax provision from the reinstatement of deferred tax assets, our year-to-date effective tax rate is 37.6% and we continue to review strategies to improve our tax efficiencies.

Our net income from continuing operations was $33 million or $0.34 per diluted share on a GAAP basis. If you adjust for the onetime gains in the BHA sale, then our adjusted non-GAAP income was $0.22 per share as compared to the $0.19 per share for the third quarter of 2007.

Our net debt decreased by $30 million in the quarter to $346 million. The reduction was a result of $21.5 million in after-tax proceeds from the BHA sale and improved working capital. We ended the quarter with almost $49 million in cash on hand and we (inaudible) amounts borrowed under our $125 million revolver facility.

Our lead banks in the revolver are Deutsche Bank and Bank of America. We remain in compliance with the covenants in the revolver and we believe we have full access to these funds.

We expect capital spending for the year to be $175 million and we continue to expect net debt for the year to be in the 340 to $360 million range as we announced in the second quarter. Now let me turn the call back to Dave for some comments on our current outlook.

Thanks Wayne. I know some of you are frustrated when we removed our guidance because of the Boeing strike. Until it's resolved, we can only say that we estimate the impact to be about $0.01 per share for every week on strike plus some potential spillover if there's not a quick and orderly supply chain restart.

Since the start of the strike, credit equity markets have taken a dramatic turn for the worst and while we don't want to reset guidance until the strike impact is understood, I do think it's prudent to cover our current outlook with respective cash flow. Clearly Hexcel has some great growth prospects for the future. And despite the recent gloom and doom, the A350 win, the dramatic growth occurring in our wind business and the increasing demand for our intermediate [modules] carbon fiber requires our continued investment.

We expect billions in revenues from the years ahead from new wins this year and we must complete recently started carbon fiber capacity to begin the payback. Remember, it takes two to three years from putting the first shovel in the ground until carbon fiber capacity is certified for aerospace use.

As previously disclosed, we expect to spend $175 million in CapEx this year to realize our revenue goals and to meet our customer commitments. For 2009 we are undergoing a thorough review of our capital spending and it's phasing so as to modulate it with the outlook that unfolds.

We have challenged ourselves to fund capital spending from operating activities for the year, though as usual we would expect to require seasonally higher cash usage in the first half. As for our revenue prospects, we expect to see steady growth in space and defense and see no slowing in wind energy. With the recently extended production tax credit, expanded capacity and the global focus on alternative energy sources, we feel good about both the short and long-term prospects for sales to this market.

As for commercial aerospace, our major customers report solid 2009 schedules and significant backlogs. Both Airbus and Boeing have said their customers have financing in place for deliveries through 2009. While the clarity and certainty of the longer-term is not what it was, we see no evidence to cause us alarm or to change our belief that Hexcel can continue to grow well into the future.

Backlog for Airbus and Boeing is now over 7500 planes and surprisingly there were again twice as many net orders as deliveries this quarter. To date, slots created by cancellations and delivery delay requests have been taken by other airline customers, some with newfound funding from oil income or others such as American airlines seeking to improve the fuel economy of their aging fleet.

Last week Airbus announced they were holding the A320 narrowbody rates at 36 per month rather than increasing them to 40 per month as previously planned. But they also said they would increase the wide-body rate from eight to 10 per month by 2010. This growth of wide-body demand is a most important point for Hexcel and one worth further discussion.

By narrow-body, we mean the Airbus A320 and the Boeing 737. Wide bodies include the A330, 40, 50 and A380 at Airbus; principally, the 777, 787 and 747-8 at Boeing. The wide bodies are much bigger on average and they happen to be newer designs and thus much more composite intensive.

Year-to-date, there are four times more narrow bodies built than wide bodies, a four to one ratio. But the current Boeing and Airbus aircraft backlog reflects a two to one ratio. Our average content on a wide body is dramatically more than in a narrow body. The mix shift to larger planes is a very important element to consider in any modeling.

We continue to believe this mix shift and the (inaudible) penetration of composites will allow us to grow even in the event of a modest bill rate pullback after 2009. We hope to give you further guidance on both 2009 and the future in mid-December should the strike be finished and we now would be happy to take your questions.

(Operator Instructions) Richard Safran, Goldman Sachs.

David, I heard -- I understand your comments about 2009. I wanted to know if though you could give us an update to the long-term guidance that you provided previously; also, any changes you may have made in your assumptions. I think last quarter you did reaffirm your 2010 sales.

So the long-term I think you are referring to is the meeting we had last December where we outlined prospects for a $1.7 billion 2010. Of course the concept if you recall was that rather than predict when the 787 was going to -- how it was going to ramp up or the A380 that if you took them at rate, they would amount to something like $300 million of incremental revenues and we could easily get to 1.7.

Of course the world has changed quite a bit since then. Oil has gone through wild swings. Jet fuel, foreign exchange rates, LIBOR have been through a roller coaster. We even learned this week that Joe the Plumber isn't a licensed plumber.

On the other hand, wind capacity has been expanded. We've got some new helicopter blade programs that are giving us growth that we hadn't expected and we are at a much higher base due in part to the weak US dollar. So if you think about it, we are on a pace for about a $1.4 billion year this year. And it only takes 10% growth per year to get to 1.7 by 2010.

I'm not giving new guidance beyond what we have already said. But I -- you know we will have to understand what the build rate scenarios are but this penetration and this sudden shift, pretty dramatic shift to wide bodies for fuel economy does give us some significant encouragement.

Okay and then just quickly, on a separate topic back I guess on wind energy, a lot of alternative energy stocks have really been getting beaten down; concerns about lower oil price obviously and concern over the ability to finance new energy project etc. You commented that wind energy sales were on track. I just want to know if you have any comment on how -- what's been happening to these alternative energy stocks might affect wind energy growth going forward.

Well if I paid attention to what has happened to stocks and consider that an indicator of what's happening in our end markets, we would be pretty sad today. But I can't even say -- I know specifically what's happened to the wind energy stocks.

I think fuel prices have come down pretty significantly but this trend to alternative energy sources and to reduce global warming has been pretty dramatic for three or four years. It was very strong when we were $20 a barrel and just $150 a barrel just made it look more interesting.

But I still think that the real driver for this is independence from oil and carbon emissions. Renewable energy targets are not about trying to save money. I think the demand is going to continue there.

As for financing, I think the financing tends to be a little bit more reliable in many of the end markets with government assistance and large utility companies. But I haven't seen any indication from our customers that they feel any softening.

Stephen Levenson, Stifel Nicolaus.

You quantified what you think the strike impact is in terms of earnings per share at $0.01 a week. Can you give us a little more detail as how it impacted gross margin?

I would say not much in the third quarter because we had some backlog or pent-up demand that we were able to put in its place. I think it remains to be seen what will happen in the fourth quarter as it starts to affect more operations and we have run down what past due positions we had.

You know a short duration strike -- I guess we're already past that. But a shorter duration strike, I think we have a chance to sale through without a great deal of difficulty. But the more you take a plant down, the more you have stranded fixed costs you can't exactly shed. So I am a little bit concerned about what impact it might have on gross margins. But I think the $0.01 per share per week is sort of the bottom-line indicator.

Okay thanks. Do you see A380 with a positive comparison in the fourth quarter or do you think it's going to take a little longer?

I think it's been gradually creeping up. It hasn't been as dramatic as we might have hoped. If we put the 787 and A380 together at this stage, they are about in the neighborhood of 10% of our commercial aerospace sales. So we would like to see it continuing to grow and it has been gradually. But it's no great shakes. It's not back to what it was two years ago.

Thanks. On the China wind plant, it's going through qualifications. Do you see it generating actual revenue in the fourth quarter or do you think it's going to take until '09?

I assume we will have some revenues in the fourth quarter depending on the wind qualifications are a little less rigorous than aerospace.

Okay, thanks. Last two items, any more updates on HexMC for A350 or other models?

Well I meant to look but (multiple speakers) with respect to RNT -- we don't break it out. RNT is starting to see some HexMC spending for the A350. But as with Boeing, Airbus isn't familiar with HexMC. It is a new concept to them. The fact that we have had some more time under our belt and experience, I am hopeful.

But nothing starts out as HexMC baseline on a new product program if they haven't used it before. So, you're always competing against baseline technology which might be aluminum or titanium. And then there are others that think they can compete with HexMC.

In the case of the 787, we had a bit of a late start but we won most of the battles that we fought. So I am hopeful for the A350 that we will start to convince Airbus of the benefits of HexMC and we're starting to spend money to prove that point.

Thanks and on the tooling, anything with HexTOOL?

No, no dramatic progress from where we were last time, a lot of good trials going on out there, a lot of people testing it, a lot of people doing prototype -- we're hopeful for some incremental sales from that product line.

Okay, last item. Is -- your customer for the uranium enrichment centrifuges had a press release yesterday about things ramping up. Can you give us an update on how that program and contract are looking for Hexcel?

Still looks to be exactly what we negotiated in the initial contract with them.

Which means the bulk of the revenue doesn't really begin until 2010, is that correct?

Yes, Steve you will see sales starting in 2009. 2010 will be a bigger year than '09. But you will see steady sales in 2009.

Cristina Fernandez, UBS.

For 2009, your cash flow guidance of to be neutral, what are you assuming for working capital? And then as you look out after 2009, at what point do you think free cash flow can turn positive?

Cristina, with respect to 2009, we haven't got into any -- we will get into the details of the guidance in December when we get into 2009. We are expecting some modest growth but we will get more into that in December.

With respect to becoming positive cash flow of significance, it really will just depend upon on how quickly the A350 ramps up and how much money we spend there.

Okay and then on your hedges, where are you hedged against the euro for 2009 and 2010 and then at what rate?

For 2009, we're probably about half hedged and it's roughly speaking is probably in the low 140's and just a small amount into 2010.

Al Kaschalk, Wedbush Morgan.

David, I realize you may not want to answer specifics on this question and given what's going on or what you may not have clarity on for Boeing. But where are you at in terms of personnel or idling some of the facilities or potentially going forward given what you know today?

Well the plants that ship directly to Boeing have had pretty significant temporary layoffs that took place very soon after the strike started. It has expanded a bit since than.

We obviously have done some of the easy things, cut back on overtime and minimized expediting freight charges. So far we're pretty comfortable with how we've wound up. I am hopeful that the talks that are restarting Thursday lead to some quick results here. But we will do what we need to do to adjust as best we can.

Secondly, on gross margins and I realize it was asked earlier, but I think startup costs, the drag has dropped from if I recall correctly 200 basis points or accountability now down to 120. Where do you see that over the near-term? Does that get cut in half again in Q4 or is it because of the volumes maybe slowing here that maybe that ramp-down isn't as successful in the next quarter or two?

I would expect it to likely be in the neighborhood of 100 basis points for a couple more quarters. We've got additional startup of China which we didn't really have in the first half. We will have that followed by work on the Colorado facility.

Right now in two of the prepreg plants in Europe, we are waiting qualification approvals on a number of key materials. We ran pretty strong in the second quarter and now there's a little bit of an idling while we await the qualifications.

So by the time we are done with five new plants, I think you will see some pretty nice results. But in the meantime, we do expect continued year-over-year pressure at least until we get to the second quarter where we have got the easier comparisons.

Clarification on the capital expenditures, did I sense that the number you've kept to 175, there's probably some flexibility in that given if we get a little bit longer strike on Boeing in terms of what you plan to do or is it really (inaudible) the balance of the 175 that's not spent yet you really have allocated and planned to spend? Could you just touch on that a little bit?

Well the 175 is fully committed. There is not any modification we do with that. We've got equipment that's coming in that we need to get up and running and start producing revenues. So there's really not any chance of changing the 2008 outlook.

Finally, I was hoping you could give a little bit more color on the wind business and visibility on your customers and specifically maybe if possible, the geographic breakdown on what you did see in Q3 and if that plans to change going forward namely US installations versus European.

Well remember, we're selling to people who are making blades. And to date or at least until last year, almost all of the blades for our customers were made in Europe. So we manufactured in Europe, shipped to European blade making factories and then our customers shipped turbines to elsewhere in Europe, the US, Canada, Asia. So our sales and our production was all in Europe.

In the last two years, both Vestas and Gamesa have built blade making facilities in the US and in China. Our manufacturing is still in Europe so some of our materials were being exported to the US or exported to Asia but most are still in Europe. As our plant comes up in China, we will obviously be supplying China from China and the same will be true in the US.

That could technically help margins in that segment?

(multiple speakers) Well I think I always expect that increased volume would give us some increased leverage. But all of these factors are done in concert with our customer and factor in transportation costs and the like. So we work pretty closely with our customers and I wouldn't expect any big margins swings because of the location of production.

John McNulty, Credit Suisse.

My first question is on your space and defense platform. You said the part of the growth you saw was being driven by a range of US military programs. Which programs have really been driving your military business?

I wouldn't point to any individual program. The helicopter -- across the board, helicopter demand both civil and military both US and Europe has been driving it the most in the last I would say two years, maybe three years. Recently the F22 and some of the startup for joint strike fighters starting to show up and as I said in the last three quarters, we have some incremental helicopter blade programs, some related to outsourcing by our customers that gave us a bit of a step function in our runrates in space and defense. So that's mostly helicopter programs.

Okay for the JSF program, it seems like basically that is just starting to ramp up now. When do you expect to see sort of a sizable ramp-up that people have been waiting for for a while?

I would always take the long on anybody's bet on that the way it has been going. I would say in a couple of years it would start to register.

Okay. You have also spoken that the space and defense business can historically hit -- has been a little bit lumpy at times. Has any lumpiness resulted in some of your sales maybe hitting in the third quarter that you thought might have come in the fourth quarter?

I don't think there was anything in particular in the third quarter that seemed out of wack. We have had a very strong four quarters in a row. I think the only difference that I would point to is that we did have a tooling revenue lump in the fourth quarter of last year. We might even have disclosed it, Wayne, did we (multiple speakers)

That's correct.

Which was (multiple speakers)

5 or $6 million.

Yes, so we have got that comparison and then mostly it's helicopter blade programs we will have left. So the historical 8 to 10% growth seems like a pretty good proxy. Just this year was different because of the incremental programs.

Great, thank you.

I think one other one that occurs to me is the A400M which has obviously been delayed or being delayed, we had some pretty significant sales to A400M through recent quarters as a number of major components were manufactured in a batch and in some cases remanufactured with materials that weren't originally designed. So we had a pretty good run of A400M sales this year that we would expect to see slow going forward.

Karl Oehlschlaeger, Macquarie Capital.

Dave, you spoke about the step function in the space and defense business, to follow up on the last question. That step function is something that is going to continue to go on going forward, right? It's not like it's -- they're going to go back from outsourcing to you guys?

I don't think so. I think we just have sort of a new level from which to have our growth going forward. I don't currently envision it moving up or down dramatically from this new baseline.

Okay, one of the things to just sort of follow-up on the question about 2010, you don't know exactly how it's going to play out. But you had also previously said sort of the mid-teen margin would be something that you would be looking at in 2010.

But more recently given what's happened with FX and commodity costs I guess that might look -- that was going to look a little bit more difficult. How does that stand now with FX and commodity prices sort of moderating?

Well I don't think we're ready to give 2010 guidance, much less 2008 guidance. But I am encouraged that oil has come back down and hopefully (inaudible) will come down in coming quarters. Freight and resins generally are tied to oil so we are encouraged that that craziness seems to be settling out.

The dollar seems to be strengthening, so we are encouraged by that and as I said, the PTC. On the other hand we have got LIBOR, who knows where that is going to end up but that is definitely a bit of a hurt and program delays like 787 and A400M are certainly worse than what we saw before.

I think the FX adjustment year-to-date I believe is about 110 basis points and that is real and I don't know how we get that back. And then you have to think about the startup costs. I think year-to-date we are at about 140 basis points.

So adjusting for those two, we would be at a 13.5. So from a 13.5, 15 doesn't look too too terrible, too far to go if we can get the growth. But assuming that FX doesn't go back to where it was, we would be off by 110 basis points if nothing else changed. So we still believe that we should be in the mid-teens. We still aspire to be in the mid-teens, still hope to find a way to get there.

Okay and then on -- you he spoke about the differences between the wide bodies and the narrow bodies and how that mix is going to benefit you going forward. Can you talk about the magnitude, how much more content that you have a wide body versus a narrow body sort of in general?

We might give a little more on that in upcoming investor meetings. We have disclosed the 787 is $1.5 million. We have disclosed that the A380 is north of $3 million. There have been some speculation of A350 which is out a ways of being a pretty big number in 3 or $4 million range. We haven't given a number yet.

And if you were to go back two or three years and do some backwards calculation on what our average sales per airplane built was, you'd see we used to sort of average $0.5 million. So you're talking about a pretty significant multiple that the newer planes versus -- the newer wide bodies versus the older narrow bodies and we will have to see if we can find a way to give you better color on it in the future. But it's a multiple, it's not a percentage.

Nigel Coe, Deutsche Bank.

Dave, you said Boeing strike is about $0.01 a week. Did you actually give the impact on the Q3 numbers?

No we didn't and it wasn't as big a hit just because it only affected a couple plants which we were able to downsize pretty quickly. So it's probably inside that $0.01 a week with some of that cost carrying over into the fourth quarter.

And then secondly on the SG&A, 8% is a great number, 8% of sales. It was about 8.4 last quarter. Have we transitioned to a new plateau in SG&A?

As a percent of sales, I would expect it to continue to get better as long as we grow topline. I don't mean that we won't add any SG&A but the fact is we've really zeroed in on a couple of key markets, really focused down. That's part of what all the restructuring and reorganization was in the last two years.

So I guess the answer is yes. I wouldn't expect to see double-digit SG&A as a percent of sales as long as our sales continue to grow. I would hope that it will continue to improve.

That was pretty big because that's two points lower than it was in 2006.

In 2006 we had three or four business units and we were weaving Kevlar for people and selling to 500 electronics customers to get $50 million of sales. So we're very focused now so you should expect it to be lower.

And then on CapEx, there's been a couple of questions on this already. But 175 in 2008, if the environment is as bad as we think it is in 2009 and all of a sudden the backlog starts to erode a little bit, where could that CapEx number go? It's been significantly below $100 million in the past, close to $50 million. Could it get down to those kinds of levels or do the programs you're working on keep it at historically high levels?

You would have to give me some specifics. I mean if you had said Airbus canceled the A350, we would do something pretty radical maybe. If you said (inaudible) canceled the uranium enrichment program, if Vestas said they're going to shut down their China or US blade making plants; all those things would require some adjustment.

Otherwise sort of the global economy and revenue passenger miles are indicators that we keep an eye on but our customer schedules and build rates are what we have to support and have capacity for. So I don't see 2009 turning bad. There's a question of what 10, 11 and 12 will look like and hopefully we will be able to adjust as we go.

But let's say 2010 production was down say 20% for Boeing and Airbus, is there much slack in that CapEx budget?

20%, narrow body? Wide-body? 787? A350?

Let's say narrow body.

Narrow body, I don't know if we would do much of anything.

Okay, and then just a quick one for Wayne. When do we start to see D&A start to ramp up?

Nigel, you'll start seeing it next year more so than this year.

Michael Lu, ThinkPanmure.

You mentioned the $0.01 a week impact related to Boeing and the immediate actions that we are taking. If the strike is unresolved by year-end, let's say it extends into 2009, how much would the impact be? Or do you believe that you'll be able to hold to the $0.01 a week? And if so, could you highlight additional actions above and beyond what you have taken already?

Geez, Michael. I don't want to be thinking about this going past the end of the year. You know, we will do what we need to do. We did that after September 11 and we will deal with that as the time comes.

I think the infrastructure that we have in place that has been scrambling for two years to catch up with demand is just to the point where we are sort of operating in a normal take a deep breath kind of mode. I don't really see -- I don't have any desire to take out significant amounts of fixed cost for a temporary problem when I know the long-term prospects are still so strong.

I understand. You also mentioned the wind business was on track for mid-teens growth. But based on the current near-term opportunities, do you believe growth can accelerate above and beyond the high teens level near-term? In other words, are you in discussions with -- later stage negotiations with additional (multiple speakers)

I do think it can grow better. I think 15% year-over-year growth is the worst year that we had. We have been limited by the industrial capacities, the capacity of bearings or gearboxes or blade manufacturers. So to the extent everyone has added capacity to grow if also players can keep up, I do think that the growth could get better.

I am very encouraged that there are new blade molds now available in China and the US so that our big prepreg using customers are not trying to compete by shipping out of Europe. So I do think growth could get better in that market.

Also yesterday the Congress had canceled two commercial imagery satellite programs. Was Hexcel involved in either of those programs?

If we were, I probably couldn't disclose it but I wouldn't say that it would have caused me to change my guidance that I haven't given.

Ladies and gentlemen, that does conclude the question-and-answer session. That also concludes today's conference. Thank you for your participation and have a wonderful day.