Posted by- Neelam Mathews
Sept 30, 2011
Hexcel -leading global supplier of advanced materials - Carbon Fiber, Epoxy resins and adhesives, glass, aramid and carbon fabrics, prepregs, aircraft flooring addressed the impact the new re-engined narrow body aircraft will have, indicating that ship set values could go up by as much as 50%.
“This had been one of the key questions investors have focused on recently, and a major reason, in our view, for the stock being up 5.25% on a day when the S&P 500 only saw a 0.81% move,” says Kenneth Herbert of Wedbush.
He adds that however, it is important to note that these estimates are preliminary, “and we believe the 50% represents to the upper end of the possible increase.” The company indicated that it will take another 1-2 years before it knows for sure what the precise impact will be, but management feels confident with what they know now to at least put a preliminary estimate out. The upside will be basically the same whether it is the GE LEAP-X or the Pratt & Whitney Geared Turbo Fan (GTF) engine.
To put this in perspective, we believe this will add approximately $125,000 to each narrow-body in terms of ship set value. When both Boeing and Airbus are at full re-engined narrow body production, in the 2018-2020 time frame, this represents approximately an incremental $100 million in upside. At 120 787s a year, that program represents $180 million in sales, according to Wedbush.
This upside reinforces the positive secular composite growth story, and is a key reason why Hexcel will continue to “outgrow” the commercial aerospace original equipment build rates, but it is important to remember that this is several years out in terms of a meaningful impact.