Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hexcel Second Quarter 2019 Earnings Call. [Operator Instructions]. Thank you. Patrick Winterlich, Chief Financial Officer, you may begin your conference.

Thank you. Good morning, everyone. Welcome to Hexcel Corporation's Second Quarter 2019 Earnings Conference Call. 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 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 2019 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 as we share our second quarter results. We started the year with great momentum in the first quarter of 2019 and carried that forward in the second quarter. We were pleased to see sales growth in all three markets while driving margin improvement, enhanced cash flow and increasing operating income. Earnings per share for the second quarter was an all-time high, reflecting strong margin leverage and our objective to deliver the growing secular penetration in our markets to the bottom line. Sales in the quarter of $609 million were up 11.2% year-over-year and more than 12% in constant currency. Diluted EPS was $0.94, an increase of 25% over the second quarter of 2018. We delivered second quarter operating income of $115 million, up 19% year-over-year, which resulted in an operating income margin of 18.9% compared to 17.6% in Q2 2018. Turning to our three primary markets. Commercial Aerospace sales in Q2 were $416 million, an increase of 8.6% in constant currency as compared to Q2 2018, driven primarily by the A320neo, Boeing 787 and A350 programs. Last quarter, we reported that we had seen very little impact from the Boeing 737MAX rate reduction. As we anticipated, we did experience softer MAX sales in the second quarter than forecast in our initial plan. Demands fell to a level between the announced Boeing monthly build rate of 42 and a higher rate of 52 from some of Boeing's key Tier 1 suppliers. Today we anticipate that MAX demand will continue in this general range, recognizing the uncertainty as time passes before reentry into service. Based on overall market strength and our growing positions, our Commercial Aerospace sales continued to grow quarter-over-quarter, thanks in part to sales in other programs, including those…

Thank you, Nick. I will provide a review of our markets. And as usual, these year-over-year comparisons are in constant currency. As a reminder, currency movements influence our reported results and some of this impact may not be intuitive. The 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, but our costs also translate lower, resulting in a net tailwind to margins. Accordingly, we prefer a strong dollar to a weak dollar. In terms of currency hedging, we employ disciplined hedging strategy that layers in hedges over a 10-quarter horizon, leading to a smoothing impact on currency rate fluctuations. Commercial Aerospace represented almost 69% of total second quarter sales. Commercial Aerospace sales of $470 million increased 8.6% compared to the second quarter of 2018, driven both by narrow-body and wide-body production rates increases, as well as the favorable narrow-body mix shift to the latest generation platforms. Space & Defense represented 18% of sales. For the second quarter, Space & Defense sales totaled $112 million, an increase of 23.4% compared to the same period in 2018. The F-35 program remains a strong contributor to growth and the second quarter results also benefited from growth in other fixed wing programs. Recall that Hexcel's advanced composite materials are on more than 100 different Space & Defense platforms. Industrial comprised 13% of second quarter sales. Industrial revenues totaled $81 million, increasing 17.3% compared to the prior year period. The strength was driven by wind energy sales, which increased 44% year-over-year. We continue to forecast wind energy sales growth throughout 2019, although the year-over-year growth will lessen…

Thanks, Patrick. With the first half of 2019 behind us, we are confident in our ability to deliver another strong year of sales and earnings growth and have revised our EPS guidance accordingly. Hexcel continues to benefit from our broad technology portfolio and leadership position in markets with long-term growth and secular penetration. We are delivering on the commitments to customers through innovation, operational excellence and providing exceptional value. We stay disciplined and take every advantage of opportunities to grow and continuously improve to achieve sustainable financial results while continuing to create shareholder value. Melissa, I will wrap it up, so we'll turn it over to you now for questions.

[Operator Instructions]. Your first question comes from the line of Myles Walton from UBS.

Wondering if you could, maybe, comment a little bit on -- I know you said that the 737MAX pull you're seeing is somewhere between the kind of Tier 1 levels that Boeing has provided funding for as well as the final assembly levels. Do you see any movement going on in that at this point, either today or in your future pull forecast? Or do you see that largely as -- as a stable element from last quarter transitioning to this quarter?

Yes. So again, as we mentioned last quarter, we didn't see any impact in Q1. We think Q2 responded very quickly to the 42 52 mix. And based on what's been communicated, Myles, we don't foresee a change in that going forward. At the same time, in our guidance, we took the opportunity to build in a little bit of conservatism on the revenue adjustment, and that's basically why we held where we did. So overall, until entry to service is defined or there's more news, we're really holding where we are.

Okay. And I guess that goes to -- it looks like that the areas with most conservatism or reserving is -- might be in the Composite Materials margin run rate implied for the second half of the year. Is there anything -- again, aside from some level of conservatism, is there anything in the mix that hurts you in the second half of the year from a margin perspective run rate [indiscernible]?

We don't see anything today. We certainly, with the strong sales continuing, expect to leverage that and continue to deliver strong margins. So, we're certainly glad that many of the headwinds we experienced last year are behind us. We got a little bit of tariffs which are built in. We don't foresee a change in that, but we're monitoring it closely.

Okay. And the last one, just the interest expense you mentioned. Patrick, what is the expectation for interest expense for the year?

So, this year, we'll see a small net gain because we've obviously had to finance the refinancing, so to speak, as we sort of pay off the old and enter the new. But going forward, we've got about a 25 basis points advantage.

Your next question comes from the line of Robert Stallard of Vertical Research.

A couple of quick questions. First of all, on the Airbus front. At the Paris Air Show, Airbus gave a little more clarity on their A320neo plans beyond 2021, expecting the rate to move a bit higher. How would you characterize Hexcel's capitalization to deal with the rate moving beyond 63 a month?

So, Robert, you said A350. I assume you meant the A320?

Sorry, 320. Yes.

Yes, well I think Airbus and the engine guys, they have been talking about that for quite some time. Clearly a path to 63 is in the works. And I know there's further studies to go above and beyond that 65 and even potentially beyond that. But they haven't been officially announced yet. Certainly, we're in a great position to support that growth and looking forward to it.

But in terms of additional CapEx, would this just be a steady sort of percentage of sales relative to what you're seeing at the moment?

Yes, it wouldn't drive big CapEx and it's rolled in to assets that either are under construction as we speak, such as the carbon fiber line and PAN line indicator that come online later next year and will be qualified early 2021. So really, I don't see anything incremental for those programs.

Okay. And then as a follow-up, unfortunate follow-up. I was wondering what your view is on the risk of a no-deal Brexit on your business, whether that could have any implications for 2019 or 2020.

Yes. So, seeing the results in the election, I think there is uncertainty there where Brexit is going to ultimately end up with the deadline looming end of October, I believe. We have been working with our customers. We've been working very closely with Airbus, Safran and the other European customers to protect ourselves in the event that there is a disruption. We'll continue to do that. Right now, I -- I'm hopeful and optimistic that the disruption will be minimal and managed through the supply chain.

Okay. Will you put any, sort of, specific contingency into the guidance for that?

So well, what I'd say is we're obviously looking -- I mean the biggest thing we will do is build a little bit of buffer of inventory around specific supply chains between the U.K. and mainland Europe. But it's not -- we don't believe it's going to be overly significant, other than perhaps a little bit of working capital.

Your next question comes from the line of John McNulty from BMO Capital Markets.

This is Colton Bina on for John. First of all, congratulations on a strong quarter in what seems like a slightly difficult environment. So, on the Industrial front, we expected the growth to moderate some, but it immediately dropped off a little more than we expected, especially given the 44% growth in wind. Can you speak about some of the puts and takes that got you there?

So, I'll start, and Patrick can comment. In wind, if you remember, second quarter of last year, our growth started. So, the comparables are going to get more and more complicated as the hybrid blade, the new blades come into production and ramp up to full scale. So not totally unexpected for our percentage growth to slow down during the course of this year. Still within and pretty much right on where our forecast was. In the automotive side, we see some lumpiness there where programs come in and out, and there was a little bit more of a drop there in Q2 but we'd expect to recover going forward. And then in recreation and winter sports, again that can be very lumpy. And that came in just a little bit below where we had expected.

Okay, thanks. That's helpful. And then changing course a little bit for the follow-up. So, this quarter is the first time in seven quarters, I believe, that you didn't buy back stock. Can you talk some about what drove that decision? Does it have anything to do with the more robust M&A pipeline that you're seeing?

No. Basically, a few simple facts. One, we have told you and continue to target our leverage ratio on the 1.5 to 2 range. We clearly focus on organic investment in key technologies followed by M&A and then return to shareholders, which we have again committed 50% net income return to shareholders. So, you'll look at the ARC deal we did, the debt that we took on, the balance of the organic opportunities we're looking at, and really that's what has driven us to where we are today.

Your next question comes from the line of Sheila Kahyaoglu from Jefferies.

Just maybe on the last topic. How do we think about ARC and how that's progressing along, whether it's timeline for revenue synergies or integrating new technologies into the workflow?

So, we just had our strategic review -- our internal strategic review last week where we do three days. We have our global team in. ARC obviously was a piece of that. And I have to say I am very excited with not only the progress on the integration but the opportunities and the synergies identified between the teams. We've had the ARC team visit multiple composite fiber locations. Similarly, we've had some of our technology leaders visit ARC so that we could understand the potential opportunities between the two technologies to see how they can further advance our portfolio. So, I'm very excited. I'm excited to see that ARC's performance through this year is projected to be stronger than what we had in our business case for acquisition. I'm excited to see that their strategic growth plan was bigger than what I expected. And I'm just delighted with the fix and I want to go find a few more of those.

Got it. I'm happy you're happy, Nick. And then just on Commercial Aerospace, how do we think about the growth trajectory for that end market given where wide-body production rates are currently? And how do we think about maybe the NMA and the absence of an NMA or a new narrow-body in the near term? So just the outlook for commercial aero.

So, with respect to our midterm guidance, we're still feeling confident in the 6% to 9% growth. Obviously, this year we're seeing the first year of the A350 at rate. Next year, we'll see the first full year of 787 at rate with narrow-bodies continuing to grow in transition from legacy to the NEO and the MAX versions when the MAX turns back around. So, engines and the sales and incremental growth there continues to be strong. To your point on wide-body rates, obviously that's a watch item for everyone. There's strong demand backlog that's been there. But to maintain the rates for a long period of time, clearly, the order intake is going to have to increase both for 787 and the A350. So, we're aligned with our customers, we're helping them as we can. And we're confident that those back orders will continue to grow over time, sustaining the current build rates. And with respect to the NMA, I can just comment that we continue to work with Boeing and the Tier 1s on new technology to position for that opportunity when it gets announced and launched.

Your next question comes from the line of Gautam Khanna from Cowen & Company.

I was wondering if you could help us kind of square the content on the 737MAX you have with the folks that are still at 52, the Spirit and CFM. Maybe what percentage of your reported 37 MAX content relates to those guys? And then, yes, that will give us a sense for what the snapback could be once we get the all-clear on the 37. Any way to frame that for us?

Well, I don't want to get into who we're shipping to customer, specifically, dollar-wise or percentage-wise on the MAX. I can say -- think of it this way: Rough order, think of our engineered product-type support for the MAX to be about half, and the balance is going to be fiber, matrix, core, other assets that are easily redeployable based on demand today. Whereas Engineered Products, it's not impossible, it just takes a little more time.

Okay. That's helpful. And on the fiber side, I would presume that 70%, 80% of it is Spirt/CFM, right? The Albany International, et cetera, I mean ...

Yes. The vast majority of the fiber goes towards the blade through Albany. Yes.

Blades and cases.

Got it. Okay. So, it's fairly de minimis as to what's come down. I mean that's helpful. And then the other thing, just -- if you can speak to the M&A pipeline. I mean ARC -- you got ARC. Is there much out there that's needle-moving, or is it more these technology tuck-ins that you're looking at enter the pipeline?

Well, again, it's hard for us to comment in detail. But again, following our strat review, we've identified technologies that we really like, things similar to ARC, things that we are evaluating and looking at. So, I think there are plenty of opportunities for us to evaluate. Having said that, our discipline is not going to change. I think our team does a fantastic job and due diligence in understanding the fit. We're really not going to deviate from who we are, get out of our core space. But having said that, I think our pipeline is -- it's actually grown.

Your next question comes from the line of Robert Spingarn from Crédit Suisse.

I may have missed it but, Patrick, how did the ARC contribute to revenues in the quarter? I just want to get a sense of what the underlying organic growth was in defense and space.

We're not calling it out specifically. What we said obviously when we acquired it, it was just over $50 million of revenue. And I think you can assume that spread fairly evenly across the year, is what I'll say.

Okay. Would you say that it's growing typically of the rest of the business? Or is it spanning at a higher or lower rate?

Yes. No. I mean it's growing typically. I think that's a fair way to put it.

Okay. And then I wanted to ask you on incremental margins, you had a good incremental margin number of 30% this quarter. Obviously, wind volumes are exceptional there. But when I look at it between the two segments, it's kind of fairly variable and volatile. What's the best way to think about incrementals by the two segments, and what the trend's going to be going forward?

Well, I think the most obvious thing for me to say about the year-over-year trend is really Composite Materials has stepped up much more strongly because Composite Materials had the headwinds last year. The wind energy, resin and the AN in particular, as well as the Roussillon startup costs were all within Composite Materials in 2018. And so that, hence taking those away, you see that nice step-up year-over-year. Engineered Products is a bit more lumpy. And I tried to sort of say in the earlier narrative, 2018 was a little bit strange in that we had a weak -- weaker-than-normal Q1 in '18 and a stronger-than-normal Q2 in '18. But really, if you look at the segment over the first 6 months year-over-year, it's fairly similar performance in that sort of 12% to 14% tunnel I've talked about before. So, year-over-year, it's really the headwinds moving away from composites that I would point to.

Okay. So where would you say it settles on a go-forward basis once we don't have the noise?

I can tell you, he's not going to respond because, unless he tells me continuously improving and driving for margin expansion, we're not going to really provide a top-end range.

And we're not guiding for 2020 at this point.

Okay. Well, fair enough. Last one, Patrick, also for you. Just on -- as CapEx declines, what's the effect on cash taxes, going forward, as -- imagine depreciation would come down somewhat?

On cash taxes, so, I mean -- so our underlying rates, going forward, is 24%. So, the average effective tax rate for the year will be a bit lower than that given the first few quarters. Our cash tax rate, I would kind of guide you, at the moment, to between sort of 18% to 20%. It will obviously vary from time to time and it's a little bit lumpy. But I would kind of point you in that direction.

Your next question comes from the line of Paretosh Misra from Berenberg.

Just going back to the wind business. Just wondering if you could talk about the margins there. Is that a higher-margin business relative to the rest of the segment?

No. If anything, our Industrial businesses tend to be a little bit lower in margin than our composite businesses -- or the rest of the composite business, the Industrial sector. But we have a much lower level of invested capital, and we don't have the carbon fiber assets, for example, to support. And so, we can generate good returns on what I would say are slightly lower margins.

Got it. Fair enough. But is that in line with the rest of the Industrial, or is it higher than the rest of the Industrial?

Yes. I mean Industrial, you start to get into a bit of a mixed bag. But yes, you could say it's more typical for Industrial, a little bit lower than the Commercial Aerospace and Space & Defense market.

Got it. And then just a second follow-up. On the raw materials side, can you just talk about what are you seeing and what are your expectations for that rest of the year?

Well, it cleared a nice trial year-over-year, certainly through the first two quarters has been lower priced this year than last year. Although that's combined with the fact we're now hedging and we're kind of smoothing it out. We're still seeing a year-over-year improvement. Our resins, as you know, a lot of those are part of long-term contracts, which are back-to-back with our long-term commercial contracts. So, we're kind of -- we mitigate risks there. And other than that, I don't think there's anything too dramatic at this point in time to actually point out.

Your next question comes from the line of David Strauss from Barclays.

I wanted to ask about Decatur timeline for getting narrow qualified there, and what kind of headwind are you seeing in your numbers this year from getting that capacity expansion qualified?

So, David, we expect both the carbon fiber and PAN lines to come up second half of 2020. Then it will start the qualification process getting fully qualified in early 2021. We're on schedule. We actually have been expediting that a bit to support some demand we're seeing. Having said that, we've replicated these lines indicator on the PAN side. So, with respect to the headwind experienced in Roussillon, it's going to be a small fraction and it's built into our guidance. With respect to carbon fiber, it's the first carbon fiber line we've put in Decatur. We have them in Spain and we have them in Salt Lake City. But again, we're replicating existing technology with a lot of the team that is in Salt Lake City. So, I would expect -- we would expect those headwinds to be relatively immaterial as well.

Okay. I wanted to ask about free cash flow. So, you gave this $1.8 billion forecast out through '23. You previously had this $1 billion forecast, I think, through '20. So, if you -- taking those two, it implies somewhere $1.2 billion, $1.3 billion in the '21 through '23 period. How should we expect that to proceed? Is it a linear ramp? Or what does that look like during that period?

Yes. I mean again we're confident on the '16 through 2020, the $1 billion, we're on course for that. And we called out the longer term '19 through '23, $1.8 billion, as you say. In terms of the ramp or whatever, the trajectory towards that, yes, we do foresee steady growth in, obviously, earnings and then cash from operations. And we guided to the CapEx certainly for the next three years, '19, '20, '21, $500 million to $550 million. So, I don't expect any dramatic step changes through that period. There isn't one year that's suddenly going to be dramatically different. So, whether it will be perfectly linear or not, I'm not going to say, but it's going to be a fairly steady growth to that $1.8 billion.

And Patrick, does working capital kind of grow in line with sales? Or what do you -- I don't think you've commented at all about what you expected in terms of working capital.

Yes. I mean that's our objective. We'll do our best to obviously manage our days of receivables and our days of holding inventory. But I mean, inevitably, as we grow, we will see some working capital growth and we'll manage that as tightly as we can.

Your next question comes from the line of Curt Siegmeyer from Keybanc Capital Markets.

Just a follow-up on the Industrial business. On the wind piece, how would you describe what inning you think we might be in on the investment cycle there? And I know, Nick, you said that the nonwind piece tends to be lumpy as well, and I was just hoping maybe you could give a little bit more color on how you kind of see that piece of the business performing in the second half on a year-over-year basis.

Yes. So again, a couple of data points, and I don't want to get too far ahead. We're not quite ready to give guidance on 2020. But if you just look at Vestas backlog and how it grew every quarter last year, and Q1 backlog in wind is up 12% from where it ended 2018. So, the demand continues to be very strong. On the flip side, production tax credits, which have been winding down, those expire at the end of the year unless some new incentive is put in place, which could have some impact. But as of right now, we continue to see strong demand, strong forecast and guidance going forward and new technology being developed to enable the longer blades, which continue to get more efficient, which helps justify the new farms. I think there also was an announcement recently where a totally unsubsidized wind farm was announced in Denmark. So really, wind needs to stand on its own. It needs to be competitive. And I think it's getting very close to that point.

Okay, that's helpful. And then in Space & Defense, can you give us any more detail on maybe some of the other programs that may have been better or worse versus last year? And then how rotorcraft performed in the quarter?

So, on the fixed wing, we did see a nice program step-up in Europe, a nice program step-up on fixed wing in a program in India. We also had a handful of other fixed wing programs in the U.S. that stepped up, which, combined was a nice bump. I can't share the names of those, but we're excited with the path. Rotorcraft was fairly neutral, maybe a bit lumpy and down a little bit on the military, down a little bit on the civil. But again, one quarter, and we've pointed out that, that does tend to be lumpy. So, it just really didn't drive growth quarter-over-quarter. V-22 was down a little bit, in line with our guidance and in line with the current production build rates.

Your next question comes from the line of Chris Kapsch from Loop Capital Markets.

Yes. I had a quick one, just on the depreciation expense. I get it to up, I think you said, well, $4.2 million year-over-year second quarter. But in the first quarter, it was up $8.9 million. So sequentially, D&A is down $4.7 million. Just looking for an explanation. And what should we expect those levels to be over the balance of '19?

Yes. So, we guided to a $20 million step-up in depreciation year-over-year, 2019 over 2018, and I basically stand by that. Roughly $5 million a quarter, it might be a little bit lumpy. What we saw in the first quarter, and I'm pretty sure we called it out, was we had a onetime write-down of some program tooling in our Industrial business. And so that sort of gave a bit of a hike to the first quarter. But I'd almost put that to one side. Really, the underlying rate is roughly a $5 million per quarter step-up, a little bit lower in the second quarter admittedly. But I think I would stand by that $20 million year-over-year increase plus the onetime event we had in the first quarter. So maybe $22 million, $23 million now for the full year.

Is the second quarter, was there some benefit on that from FX? Or I guess it would be modest if there was any.

There's obviously a little bit of FX translation in there, but it's not big.

Got it. And then just following up on the wind discussion, what -- so have you had any luck basically transferring your technology to non-Vestas wind energy customers? Or is that still work in process?

So, we have multiple wind customers that we are demonstrating and developing our new technology, which has proven to be very efficient with respect to installation time and cure time and even surface finish. So, I'm excited with the progress we've made with these customers. It's really too early to highlight them, point them out. But I think we have made real strong progress.

And then just one follow-up on the PTC. I've seen this create prebuys in the past sort of cycles. So, is that just in this case an EU, or is it North America as well? The PTC exploration that you reference.

It's actually only North America. And what you need to remember is that about 2/3 of our wind sales are outside of the U.S. So, the PTC only really affects 1/3, and it's the North America. This is the U.S. subsidy that is being phased out. It doesn't affect Europe or Asia, China, at all.

Your next question comes from the line of Hunter Keay from Wolfe Research.

This is Will for Hunter. On NMA, given the ongoing MAX situation, are you seeing some deemphasis on this platform? So, has there been some or less urgency to invest in new technology for the NMA?

Yes. So, our R&T team continues to work with Boeing and their subs on the technology solutions that we put forward. Clearly, attention has been on the 737MAX. But I suspect most, if not all of that technical solution, is behind them. And now it's in the regulatory process. So, we continue to work. We do not see, feel that efforts have stopped. But at the same time, there has not been a launch date or a program announcement. So, Boeing needs to define that path.

Your next question comes from the line of Ken Herbert from Canaccord.

I just wanted to follow up on the ARC Technologies acquisition you did earlier this year. I think you mentioned it's performing maybe a little bit better than you'd expected. Is there any specific areas you could comment on where you're seeing that better performance, and anything unique or you could call out as part of that relative to your expectations initially?

I don't think there's one particular program or platform I -- as Hexcel, they're very diversified on what they support. Clearly, a big part supports the JSF and Lockheed Martin. And when I referenced doing better than what we had anticipated, that's probably due to our team's conservatism in building the business case, our package that we prepared, our proposal and offer on that business. So again, it's really strong growth, strong opportunities on lots of programs, many of which are classified, so we certainly can't talk about. But it's pretty much broad-based growth across their technologies.

Okay. And I apologize if I missed this. But Nick, can you just comment again on where you're seeing, perhaps more M&A opportunity now here moving forward or maybe more pipeline growth there and maybe just what the -- maybe what the highest priorities for you would be as you look at M&A opportunities?

Yes. So again, the highest priorities haven't changed. They're around technology, innovation, ways where we can enhance our existing portfolio around advanced materials and advanced Composite Materials. So, I think the ARC acquisition was a great example of how we look at these technologies, as well as acquisition of OPM and additive manufacturing and our continued pursuits there and recent qualification with Boeing materials. So, think of those type of bolt-ons that fit within our space, that have solid financials and that wouldn't distract our team.

Your next question comes from the line of Noah Poponak from Goldman Sachs.

Patrick, actually, a D&A follow-up. Just back to that effort to solve for the incremental operating margin. Will annual D&A actually decline at some point beyond 2019 based on the CapEx reduction you've had? Or will we just see slower rates of increase?

Yes. I think that goes to the latter point there. No, I don't see it declining. I do see the rates of increase coming down year-over-year, sort of reflecting the lower level of capital with -- the CapEx we've had for 2 or 3 years now. But I don't see the D&A actually declining for the next foreseeable future anyway.

Okay. Is it a pretty big step down in the rate of increase in 2020 compared to what it is in 2019?

That's a good point. So, what I highlighted there back in 2019. So, without the ARC acquisition, 2019 would have probably only been a $16 million step up. And I think I mentioned that before. So depends what you call sizable. But if you imagine '19 without ARC, it would've been $16 million. 2020 is going to be a small step down from that, I would imagine.

Okay. Got it. And then on the MAX, is it possible to just quantify the millions of dollars revenue impact in the quarter?

We're not going to get into specific dollars. I think we've provided lots of color on that. You know our shipset content and I'll let you do the math on your assumptions.

Fair enough. And then, Nick, maybe just more broadly on it. I would love to get your perspective on the supply chain, which you have really good broad perspective into, had some challenges before the grounding. The OEM and others have talked about being able to maybe clean some of that up in the grounding. So, any perspective on the kind of system-wide supply chain cleanup? Has it -- has that happened? And with Boeing stating 57 next year, where do you see the supply chain's ability to make that move from -- some at 42 back to 52, to 57 in a sort of relatively short period of time?

Yes. So again, I think everybody recognizes the unprecedented ramp-up especially on engines. I mean if you think of engine in the cell ramp-up for both NEO and the MAX, I don't believe the markets ever seen that type of growth for a new engine. And as we've seen and recognized, there were some challenges on the supply chain around engines and other components. So, there's no doubt in my mind, the supply chain has had the opportunity to catch up, and in some cases put in inventory that would be expected to support the types of rates that Airbus and Boeing are going to. Having said that, there's some inventory building up. And one of the things we're working and making sure we stay close to are the potential supply chain as the rate starts going back up. And I'm confident Boeing will be thoughtful in their proposed ramp once entry into service is confirmed and regulatory approvals are in place. So again, I think the supply chain is in a better shape. Again, going from 52 to 57, going from 60 to 63, those are big numbers, so -- I think we certainly are in a very good position to support those recovery and ramping back up for Boeing as well as staying aligned with Airbus.

Thank you for joining us today. This concludes today's conference call. You may now disconnect.