Question-and-Answer SessionSo yes, aerospace is obviously really topical right now. So a lot of my questions are going to be focused on AEC. So maybe just first starting off with the most recent quarter, the fourth quarter. The top line at AEC was really strong at 45% organic growth. Can you kind of unpack this for us between the material pull forward that you commented on, some accounting nuances and then -- and what's like the actual underlying demand trends that you're seeing here?Willard StationExecutiv ...

Daily Spotlight 16 March 2026 (852) 3988 6433 michael.meng@bocigroup.com Index Performance | | Last close | % 1D | % YTD | | --- | --- | --- | --- | | HSI | 25,466 | (1.0) | (0.6) | | HSCEI | 8,671 | (0.3) | (2.7) | | HSCCI | 4,330 | (0.4) | 7.8 | | MSCI HK | 14,590 | (1.5) | 6.6 | | MSCI CHINA | 80 | (0.5) | (3.4) | | FTSE CHINA A50 | 14,808 | (0.0) | (3.3) | | CSI 300 | 4,669 | (0.4) | 0.8 | | TWSE | 33,400 | (0.5) | 15.3 | | SENSEX | 76,034 | (1.1) | (10.8) | | NIKKEI 225 | 53,820 | (1.2) | 6.9 | | KOSPI ...

Core Insights - FTAI Aviation's shares increased by 12.3% in February, continuing a strong performance with a 178% rise over the past year and a 38% increase in 2026 [1] - The company's core aviation market is thriving, and its new business, FTAI Power, is poised to support AI data center needs [1] Company Overview - FTAI is primarily known for servicing narrow-body aircraft engines from Boeing and Airbus, with opportunities for cost-effective servicing after long-term service agreements (LTSA) expire [2] - The company benefits from the current market conditions where engine manufacturers are struggling to ramp up production, leading to increased usage of older engines [3] Market Outlook - CEO Joseph Adams indicated a strengthening long-term outlook for the aftermarket, as airlines prefer to extend the life of existing fleets rather than retire them [4] - Total industry maintenance spending is projected to grow from $22 billion in 2023 to $25 billion in 2026, driven by historically low engine retirements and heavier maintenance overhauls [4] Strategic Partnerships - FTAI signed a multi-year agreement with CFM International to provide component and service support for CFM56 engines, which benefits both companies by ensuring engine longevity and allowing GE to focus on servicing newer LEAP engines [4]

Key Takeaways Howmet's commercial aerospace revenues rose 13% in Q4 2025, making up 53% of sales.HWM Engine Products revenues climbed 19.7% on strong aerospace demand.Growth was driven by fuel-efficient aircraft programs and higher engine spare demand.Howmet Aerospace Inc.’s (HWM) commercial aerospace market is playing a significant role in driving its overall growth. In the fourth quarter of 2025, the company’s revenues from the commercial aerospace market increased 13% year over year, which accounted for ...

Financial Data and Key Metrics Changes - Total consolidated sales for Q4 2025 were $321.2 million, up 12% year-over-year from $286.9 million in Q4 2024 [7][16] - Adjusted EBITDA for Q4 2025 was $57.3 million, representing 17.8% of sales, compared to $50 million or 17.4% of sales in the year-ago period [7][17] - Free cash flow generated in Q4 2025 was $51 million, down from $59.3 million in the same period last year [21] Business Line Data and Key Metrics Changes - Machine Clothing segment revenue was $177.5 million, down from $188.1 million in the prior year, primarily due to lower volumes in China [18] - Adjusted EBITDA for Machine Clothing was $48.6 million, with a margin of 27.4%, down from 28.5% in the prior year [18] - Engineered Composites segment revenue increased to $143.7 million from $98.8 million in the prior year, driven by higher volumes across multiple programs [18] Market Data and Key Metrics Changes - Demand conditions in Machine Clothing remain mixed, with stable volumes in North America but pressure in China due to paper overcapacity [8][9] - In Engineered Composites, the LEAP program is projected to grow significantly, with expected double-digit growth over the next couple of years [10][11] Company Strategy and Development Direction - The company is focusing on high-value applications and has exited non-core activities, including a strategic review of the Amelia Earhart facility [6] - Albany International aims to enhance its competitive advantages through innovation and operational excellence, with a balanced and resilient business model [5][6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in recovering from recent equipment failures and expects to make up lost production throughout the year [10][24] - The company anticipates stable demand in Europe and North America for Machine Clothing, while expecting continued growth in Engineered Composites [24] Other Important Information - The company returned approximately $218 million to shareholders through share repurchases and dividends in 2025 [12] - Capital expenditures for Q4 2025 totaled $22.7 million, focused on facility optimization and key customer programs [22] Q&A Session Summary Question: What is the outlook for Machine Clothing given the weakness in Asia? - Management expects to recover from equipment failure and anticipates stability in demand, but remains cautious about Q1 recovery [27][28] Question: Can you provide insights on the LEAP program's alignment with production? - The company is aligned with production, reporting a 27% year-over-year increase in volume for the LEAP program [32] Question: What impact did the European exits have on revenue? - The exits were part of a strategic optimization plan, and while they impacted revenue, they were intentional to improve overall margins [33] Question: What is the status of the CH-53K program? - Management confirmed that issues with the CH-53K program have been resolved, and they do not expect further losses from this program [50][52]

Financial Data and Key Metrics Changes - In the first quarter of fiscal year 2026, Woodward reported net sales of $996 million, a 29% increase year-over-year, and earnings per share of $2.17, up from $1.42, reflecting a 54% increase [5][14] - Free cash flow for the first quarter was $70 million, significantly higher than the previous year's $1 million [21] Business Line Data and Key Metrics Changes - Aerospace segment sales increased to $635 million, a 29% rise, driven by a 50% increase in commercial services sales [15] - Industrial segment sales reached $362 million, up 30%, with core industrial sales (excluding China On-Highway) increasing by 22% [17][18] Market Data and Key Metrics Changes - The aerospace market saw robust demand growth in both commercial and defense OEMs, with commercial services exceeding forecasts [8][15] - The industrial segment experienced strong growth across power generation, transportation, and oil and gas, with marine transportation sales increasing by 38% [17][18] Company Strategy and Development Direction - The company plans to wind down its China On-Highway product lines by the end of the fiscal year, aligning with its long-term growth strategy [10][19] - Woodward is focusing on expanding service capacity and improving turnaround times, including facility enhancements in Prestwick, Scotland, and Rockford [9][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising full-year sales and earnings guidance due to strong first-quarter performance and market outlook [12][22] - The company anticipates challenges in supply chain alignment and inventory efficiency, with a focus on improving operational excellence [7][10] Other Important Information - The company expects to incur $20 million to $25 million in costs related to the wind-down of the China On-Highway business, with no revenue spillover expected into FY 2027 [97] - Capital expenditures are projected to increase significantly due to ongoing automation projects and facility buildouts [21] Q&A Session Summary Question: Will the $245 million of commercial aftermarket sales in the first quarter be the low point for the year? - Management indicated that it is hard to predict if this will be the low point, as they expect increasing repair and spare part sales driven by strong market demand [25] Question: What are the drivers behind the growth acceleration in oil and gas and marine transportation? - Growth in oil and gas was attributed to both OEM and services-driven demand, while marine transportation growth was driven by increased shipyard output and high fleet utilization [35] Question: How does the profitability of the commercial aerospace OE business compare to the segment average margin? - The commercial aerospace OE business has lower margins compared to the segment average, but there are opportunities for improvement through higher production rates and better supply chain alignment [91]

Financial Data and Key Metrics Changes - In the first quarter of fiscal year 2026, the company reported net sales of $996 million, a 29% increase year-over-year, and earnings per share of $2.17, up from $1.42, reflecting a 54% increase [14][6] - Free cash flow for the first quarter was $70 million, significantly higher than the previous year's $1 million [21][20] Business Line Data and Key Metrics Changes - Aerospace segment sales increased to $635 million, a 29% rise, driven primarily by a 50% increase in commercial services sales [15][14] - Industrial segment sales reached $362 million, up 30%, with core industrial sales (excluding China On-Highway) increasing by 22% [17][14] Market Data and Key Metrics Changes - The aerospace market saw robust demand growth in both commercial and defense OEMs, with commercial services exceeding forecasts [8][5] - The industrial segment experienced broad-based growth across power generation, transportation, and oil and gas, with marine transportation sales increasing by 38% and oil and gas sales by 28% [17][8] Company Strategy and Development Direction - The company plans to wind down its China On-Highway product lines by the end of the fiscal year, aligning with its long-term growth strategy for the industrial segment [10][19] - Strategic priorities include meeting OEM demand growth, providing world-class service for repair and overhaul, and shifting R&D focus to customer value demonstration [11][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in raising full-year sales and earnings guidance due to strong first-quarter performance and market outlook [12][22] - The company anticipates challenges in supply chain alignment and inventory efficiency, with investments aimed at improving operational capabilities [7][8] Other Important Information - The company expects to incur $20 million to $25 million in costs related to the wind-down of the China On-Highway business, with no revenue spillover expected into FY27 [97][96] - Capital expenditures for fiscal 2026 are projected to increase significantly due to facility buildouts and automation projects [21][20] Q&A Session Summary Question: Will the $245 million of commercial aftermarket sales in the first quarter be the low point for the year? - Management indicated that it is hard to predict if this will be the low point, as they expect increasing repair and spare part sales driven by strong market demand [25] Question: What are the drivers behind the growth acceleration in oil and gas and marine transportation? - Growth in oil and gas is driven by both OEM and services, while marine transportation growth is attributed to increased shipyard output and high fleet utilization [35] Question: How does the company view the profitability of the commercial aerospace OE business? - Management noted that while the profitability is below the blended margin, there are opportunities for improvement through consistent production and supply chain alignment [91] Question: What is the expected impact of the $1.5 trillion 2027 NDAA package on Woodward? - Management stated that it is difficult to predict the impact without visibility into current inventory levels, but they are prepared to respond if demand increases [100]

Financial Data and Key Metrics Changes - In Q1 2026, Woodward reported net sales of $996 million, a 29% increase year-over-year, and earnings per share of $2.17, up from $1.42, reflecting a 54% increase [12][4] - Free cash flow for the first quarter was $70 million, significantly higher than the previous year's $1 million [19][12] - The company raised its full-year sales and earnings guidance based on strong Q1 performance [20][11] Business Line Data and Key Metrics Changes - Aerospace segment sales increased to $635 million, a 29% rise, driven by a 50% increase in commercial services sales [13][12] - Industrial segment sales reached $362 million, up 30%, with core industrial sales (excluding China On-Highway) increasing by 22% [16][12] - The aerospace segment achieved a margin of 23.4%, up from 19.2%, while the industrial segment's margin improved to 18.5% from 14.4% [15][17] Market Data and Key Metrics Changes - Demand in the aerospace sector was robust, particularly in commercial services and defense OEM, with commercial services exceeding forecasts [6][4] - Industrial growth was strong across power generation, transportation, and oil and gas, with marine transportation sales increasing by 38% and oil and gas sales by 28% [7][16] - China On-Highway sales were $32 million, higher than planned, indicating volatility in this market segment [16][17] Company Strategy and Development Direction - The company plans to wind down its China On-Highway product lines by the end of the fiscal year, aligning with its long-term growth strategy [9][18] - Woodward is focusing on expanding service capacity and improving turnaround times, including facility enhancements in Prestwick, Scotland, and Rockford [8][10] - The R&D focus is shifting towards customer value demonstration on selected technologies to increase content on next-generation platforms [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand across markets and the ability to meet OEM growth, despite some supply chain challenges [11][42] - The company anticipates continued benefits from operational excellence and supply chain stabilization, although inventory levels may remain higher than desired [19][21] - Management highlighted the importance of addressing supplier challenges and maintaining production levels to meet customer demand [42][84] Other Important Information - Non-segment expenses for Q1 2026 were $37 million, compared to $22 million in the previous year [18] - Capital expenditures for the quarter were $44 million, with expectations for increased spending in the remaining quarters due to facility buildouts [19] Q&A Session Summary Question: Will the $245 million of commercial aftermarket sales in Q1 be the low point for the year? - Management indicated that it is hard to predict, but they expect increasing repair and spare part sales despite not anticipating the same level of spare LRUs shipping [23] Question: What are the drivers behind the growth acceleration in oil and gas and marine transportation? - Growth was driven by both OEM and services, with high utilization of existing fleets leading to increased overhaul activity [32] Question: How does the profitability of the commercial aerospace OE business compare to the segment average margin? - The commercial aerospace OE business is considerably below the blended margin, with opportunities for improvement through consistent higher rates and supply chain alignment [85] Question: What are the expected costs related to the wind-down of the China On-Highway business? - Expected costs are between $20 million and $25 million, primarily related to personnel and contract cancellations [90] Question: How does the company view the potential impact of the $1.5 trillion NDAA package on spare parts? - Management noted uncertainty regarding the impact, as visibility into current inventory levels is limited [93]

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [5][17] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [5][18] - Operating profit for the year was $9.1 billion, with margins expanding by 70 basis points to 21.4% [18] Business Line Data and Key Metrics Changes - In the Commercial Engine Services (CES) segment, orders were up 35% and revenue grew by 24%, with services orders up 27% and revenue up 26% [5][20] - In the Defense and Power Technologies (DPT) segment, orders increased by 19% and revenue was up 11%, with profit rising by 22% to $1.3 billion [5][21] Market Data and Key Metrics Changes - The company reported a backlog of approximately $190 billion, up nearly $20 billion from the previous year [7] - The installed base of engines is 80,000, with over 2.3 billion flight hours accumulated [27][28] Company Strategy and Development Direction - The company aims for substantial revenue, EPS, and cash growth in 2026, with expectations for revenue to increase in low double digits and operating profit to reach $9.85 billion to $10.25 billion [7][8] - Investments are being made in U.S. manufacturing to support both commercial and defense customers, with a focus on improving time on wing and reducing cost of ownership [7][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing robust orders and a strong backlog as indicators of future performance [32][33] - The company is focused on continuous improvement and leveraging technology to enhance customer value and operational efficiency [28][29] Other Important Information - The company is transitioning its segment reporting to reflect organizational changes, with aeroderivative engines moving from CES to DPT [22][23] - The company plans to invest approximately $500 million in MRO to support LEAP engine capacity expansion [11] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted strong momentum in services growth and expressed confidence in achieving mid-teens growth in 2026, driven by increased work scopes and pricing [31][32] Question: What is the profitability outlook for LEAP engines? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, with improvements in supply chain visibility and readiness [40][44] Question: How are turnaround times improving for mature engines? - Management indicated that improvements in turnaround times are driven by better material availability and efficient execution on the shop floor, which enhances productivity [48][50] Question: What are the implications of the agreement with FTAI? - The agreement is aimed at enhancing third-party aftermarket options, which supports asset values and lowers costs of ownership for customers [93] Question: What is the expected cash flow outlook for 2026? - Management indicated that there are no abnormal cash flow expectations for 2026, with a focus on managing inventory growth and contract assets [94][95]

Financial Data and Key Metrics Changes - In Q4 2025, orders increased by 74%, revenue grew by 20%, and EPS rose by 19% to $1.57, with free cash flow up 15% [5][17] - For the full year, orders were up 32%, revenue increased by 21%, operating profit grew by $1.8 billion, and free cash flow rose by $1.5 billion [5][18] - Operating profit for the year was $9.1 billion, with margins expanding by 70 basis points to 21.4% [18] Business Line Data and Key Metrics Changes - In the Commercial Engine Services (CES) segment, orders were up 35%, revenue grew by 24%, and profit increased by 26% to $8.9 billion [5][19] - In the Defense and Power Technologies (DPT) segment, orders increased by 19%, revenue grew by 11%, and profit rose by 22% to $1.3 billion [5][20] Market Data and Key Metrics Changes - The backlog reached approximately $190 billion, up nearly $20 billion from the previous year [6] - The installed base of LEAP engines is expected to triple between 2024 and 2030, with significant capacity expansions planned across the global MRO network [10][11] Company Strategy and Development Direction - The company aims for substantial revenue, EPS, and cash growth in 2026, with expectations for revenue to increase in the low double digits [6][24] - Investments are being made in U.S. manufacturing to support both commercial and defense customers, with a focus on improving time on wing and reducing cost of ownership [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, citing robust orders and a strong backlog as indicators of future growth [30][31] - The company is focused on leveraging its extensive installed base and R&D investments to drive continuous improvement and customer value [26][72] Other Important Information - The company is transitioning its segment reporting to reflect organizational changes, with no impact on total company metrics [22] - A significant portion of R&D spending is directed towards improving customer experience and developing next-generation technologies [71] Q&A Session Summary Question: Can you elaborate on the commercial aftermarket backdrop? - Management noted that there are no concerns about demand momentum continuing into 2026, supported by a strong backlog and expected growth in shop visits and spare parts [30][31] Question: What is the status of LEAP profitability? - Management confirmed that LEAP original equipment is expected to be profitable in 2026, aligning with previous plans [41] Question: How are turnaround times improving for mature engines? - Improvements in turnaround times are driven by better material availability and efficient execution on the shop floor, leading to increased productivity [44] Question: What are the expected losses from the GE9X program? - Losses for the GE9X program were around a couple of hundred million in 2025, with expectations for these losses to double in 2026 [48] Question: How is R&D spending allocated? - R&D spending focuses on enhancing customer experience, developing new technologies, and supporting next-generation defense programs [71]