Ladies and gentlemen, thank you for standing by and welcome to Hexcel’s Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Patrick Winterlich, Chief Financial Officer. Thank you. Please go ahead.

Thank you, Julianne. Good morning, everyone. Welcome to Hexcel Corporation’s second quarter 2020 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 statement 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 2020 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. Looking back at the scenario planning, we do part of our annual strategic reviews, no one could have imagined the specific nature and magnitude of a global pandemic and economic consequences we’re experiencing today. Understanding, learning and adjusting in real time to today’s realities are essential steps to delivering shareholder value. Our One Hexcel team will continue to act quickly and aggressively. We will remain vigilant and responsive to our customers and we will position the Company to be even stronger when growth returns. As you saw in our release last night, the COVID-19 pandemic had a significant impact on our second quarter sales, operating income and earnings per share. These results are disappointing, yet not surprising. Once the pandemics effect on air travel and the global economy unfolded earlier this year, we moved swiftly to assess the steep decline ahead and knew that the impact on aerospace and industrial industries would lead to one of our most challenging years ever. Commercial Aerospace has been impacted significantly as a result of the pandemic, and we expect this downturn will extend for some time to come. As you know, year-over-year, global flights are down more than 50% and major airlines are flying well-below their planned capacity levels. In our Commercial Aerospace market, demand is down for both, wide-body and narrow-body aircraft, as well as business jets. Our industry currently faces declines in deliveries, orders and backlogs, while rising cancellations and deferrals indicate it could take a number of years before we see full recovery. In addition, quarantines, shelter-in-place orders, social distancing and personal income loss are contributing factors that have negatively impacted our industrial segment, especially automotive and recreation as consumers delay or…

Thank you, Nick. As a reminder, the year-over-year comparisons are in constant currency. 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 pounds, our sales translate lower, but our costs also translate lower, leading to a net benefit to our margin. Accordingly, a stronger dollar is favorable to our financial results. We hedge this currency exposure over a 10-quarter horizon to protect operating income. Quarterly sales totaled $378.7 million. The significant year-over-year sales decrease was due to rapid production rate decreases by our customers in response to the pandemic, which was magnified by destocking across our product lines. Turning to our three markets. Commercial Aerospace represented approximately 54% of total second quarter sales. This is a significant shift historically as historically Commercial Aerospace is represented close to 70% of our total revenue. Commercial Aerospace sales of $203.9 million decreased 51.5% compared to the second quarter of 2019. We were expecting a steep decline following substantial production cuts by our customers, combined with destocking of channel inventory. Also sales for the Boeing 737 MAX platform were substantially lower year-over-year. The lower rate 737 MAX production resumption during the second quarter only led to minimal sales as a result of the high-volume of inventory in the supply chain. We expect channel destocking across the major aerospace programs to continue beyond the second quarter of 2020. This is impacting our entire product range including prepregs and direct carbon fiber sales. Carbon prepregs represent the significant portion of our composites business. And as a reminder, those prepregs of carbon fiber impregnated with one of our proprietary resin formulations. We also…

Thanks, Patrick. Before we open the lines for questions, I want to take a moment to recognize our Hexcel team. The past few months have been extraordinary, yet our dedicated workforce has stayed focused and safe, while meeting our customer commitments. We’ve redefined our processes to include extra precautions, maintaining social distancing, utilizing enhanced personal protective equipment. Many have taken pay cuts or furloughs. It has been difficult to say the least, but the team remains strongly committed and determined to deliver a great future for Hexcel. Throughout it all, our team has stepped up in remarkable ways. For example, our plants have produced and donated hand sanitizer throughout the U.S. and Europe. We shipped part of our own inventory of respirator masks to suppliers in need and we donated masks and other supplies to local hospitals in Europe and the U.S. Employees made innovation [ph] boxes for hospitals in some of the hardest hit areas in the U.S. Throughout all the uncertainty and fear, our current safety performance is tracking better than last year. I couldn’t be prouder of the resilience that our team shows every day, even during these challenging times. The Hexcel leadership team and I continue to strengthen inclusion and expand our diversity initiatives throughout the organization. One of our core values is something we call One Hexcel. It means that we have a common purpose and that we support one another in achieving that purpose regardless of who we are, or where we work in our role within Hexcel. We excel on the contributions each individual brings to our Company, as we strive to embody an inclusive and diverse culture consistent with One Hexcel. In summary, let me assure you that Hexcel value proposition is unchanged. We understand that the aerospace and industrial industries will…

Thank you. [Operator Instructions] The first question comes from Gautam Khanna from Cowen. Your line is open.

Thanks. Good morning, guys.

Good morning.

Maybe, gentlemen, for both of you, I guess, just on the channel inventory. You mentioned in my ticket number, I think you said quarters [indiscernible] But I wanted to make sure. How much of the destocks do you think you fell to in Q2 and any sense for how much longer we should expect it, and on which programs, if you can identify them, the inventory overhang is greatest?

So, I’ll take a shot to start with. And again, if you look at the destocking, it’s pretty much directionally related to the percentage of the build rate reductions across the platforms. And the impact to Hexcel is clearly going to be greatest for those programs where we had high build rates that have come down significantly and high shifts that content. And you guys see the math, with the A350 being clearly one of the biggest. 737 MAX obviously has had some inventory correction that’s been happening throughout the year, even in Q1, based on what was going on. In Q2, we really started seeing the magnitude of the Commercial Aerospace reductions across the board. And it’s our belief that’s going to continue very strong into Q3. We’re hopeful that it’ll subside. But again, it’s going to be very dependent on where Boes ultimately land on 2021 production rates, which as you know, are still being discussed and evaluated, based on revenue passenger travel. So, we’re keeping a close eye on it. We have good visibility, we’re getting better visibility with -- we’re working very closely with our customers to understand what’s in their supply chain and throughout. So, Gautam, that’s kind of where we are. We certainly see an extension into Q3.

Yes. Maybe just any specific comments on the 787 program where it’s a more gradual decline in production rate than what we’re seeing on the 350 and some of the platforms? Are you seeing customers starting to get ahead of that and destock more dramatically than the more gradual decline we’re seeing in that program? Thank you.

I would say nothing really jumped out abnormal. It’s kind of along the lines of the production rate. So, we haven’t seen a major surge of 787 inventory come out in a slog, and we expect that to gradually work through the pipeline.

Thank you very much, guys.

Thank you, Gautam.

Your next question comes from Robert Spingarn from Credit Suisse. Your line is open.

Yes. Hi, good morning. Just following up on what Gautam was just saying. We’ve heard some other suppliers say on the 787 that they’re calibrating to 10. But of course, they’re going to have to calibrate to 7, probably a year from now. And so, when you factor in the destocking and the continued decline, it sounds like that’s one program that could be a lingering source of pressure. Is that fair?

Yes, I think that is fair, going from 14 to 7. It’s not only the build rate dependent but when you’re at a rate of 14, buffer stocks are much bigger than they’re required when you are running at a rate of 7. So it’s rightsizing to that build rate, rightsizing buffer stock. And until we get to a run rate at the 7 number, if that’s the final number, there’ll be continued squeezing of that supply chain, Robert.

Yes. And Nick on that, to what extent have the major customers, so I’m thinking Airbus and Boeing, to what extent are they looking at what your minimum production thresholds are to maintain a safe -- a secure supply chain. They talk about it all the time. But, is that a real conversation that’s actually happening? What are the minimums that you can produce at? Because to some extent we look at the balance between returning aircraft from the dessert versus new aircraft, to some extent it’s what do you want to plug into the capacity. How the new aircraft do we needed versus old aircraft and then factoring the health of supply chain?

Yes, coupe of comments. I mean, historically, we’ve seen that the longer planes are idled and sitting out but less likely they’re to get pulled back in the production. Having said that shifting, we’re talking basically daily with Boeing, Airbus and virtually all of our customers to stay aligned with them. I would have to tell you with Boeing and Airbus specifically, we have not had the question on what is our minimum production level to be sustainable. Simply, because of a strength of our balance sheet, flexibility we have, the responsiveness we’ve taken in taking costs out, and just how critical we are to both their operations. So, we’re very-aligned. I think they have confidence in us. I think, they seem that we work hand in hand with them to help them get through their troubled times. And that’s what we’re continuing to do today.

Your next question comes from Richard Safran from Seaport Global.

So, I wanted to just first ask a question about R&D, thinking a bit strategically. So, R&D was down. You’re clearly proud of your cost controls, you say that. At the same time though, you’re looking to move into some new defense markets. And I thought you might comment on what the right balance of R&D should look like when current markets are in decline, but you’re also looking to expect into new markets?

Yes. Great question and great timing. Since last week, we had our global team for three days of strategic plan reviews. We do that every year and it’s the pre-cursor to get ready for our Board’s strategic plan reviews in September. The only difference this year, they were done virtually. And I have to say with the technology, we really had productive discussions. Having said that, we focus and we live on technology and partnering with our customers to work on new opportunities. Space & Defense have quite a few new opportunities in unmanned flight, electric vehicles, drones, other. What we would look at as maybe a little more niche applications with many more suppliers. But, there’s a lot of activity in that area, and we’re prioritizing that and we’re working and allocating our resources accordingly in that space. I wouldn’t -- I don’t want to send a message that we’re only focused on Space & Defense. We have opportunities in Commercial Aerospace, on some new initiatives with new technology and lower risk areas, where we can displace older technology and those are being emphasized and refocused and prioritized. And then, in the Industrial segment where you tend to have the ability to drive demand a little quicker, the life cycles aren’t quite as long. That’s another area where we’re targeting some specific investment and allocation of resources. So, R&T is a huge element. We spend a lot of time continuing to look at the technology that we’re focused on, look at the technology that we’re deferring or we’re putting on the backburner for the time being, make sure we’re really supporting our customers on what they need near-term and midterm.

Thanks. Just switching to free cash flow for a minute, because I thought that was the bright spot in the quarter. Cash flow looked pretty good, excluding that $20 million payment. So, I want to know if you could expand on Patrick’s opening remarks and discuss more about that second half, how it looks for, just more specifically in terms of inventories, receivables and payables. Should we expect working capital be comparable source of cash in both, Q3 and Q4 or is it more of the bulk of it in Q3?

Well, let me start, and Patrick maybe want to chime in here. But, clearly, the push in the organization is to right-size our inventory with the new demand levels and new production levels. And I believe, we believe we’ve seen, we’ve reviewed during our strategic review that there’s plenty of opportunity throughout our supply chain, including raw materials, work in process and even some finished goods. As we took such quick actions on the costs and restructuring and the organizational restructuring, there’s some inventory that unfortunately is on the water, it’s in the pipeline, it’s being delivered and it takes a little time to slow that down. So, we fully see the second half of the year being a source from working capital. And quite honestly, it’s a big priority and especially around inventory.

Yes. The only thing I would add, just to echo Nick, really we took the pain on the payables in Q2, so [Technical Difficulty] quickly to reflect the lower receipts of materials, raw materials coming in. Receivable is obviously a bit of a double edged sword that came down over these cash. I mean, ultimately we want to grow revenue again and turn that around. So, we probably had a lot of that benefit. But it really is inventory, as Nick said. We have a huge opportunity at -- the second half of the year should be stronger than what we’ve seen year-to-date. Yes.

Your next question comes from Sheila Kahyaoglu from Jefferies. Your line is open.

Patrick, you talked about double-digit margins being hard to achieve for 2020 versus your previous expectations, clearly mix is a big impact with carbon fiber. Can you talk about the trajectory of this and how we should expect that to improve?

Well, I’m not going to get into specific numbers. But, clearly, with greater insight and you can’t have perfect visibility upfront, but I think the magnitude of the impact from our customers and the market dynamics were stronger than we initially expected. And yes, the [Technical Difficulty] in the supply chain were larger, the destocking. And so, we are going to push as hard as we can in 2020. But clearly, the double-digit is going to be a huge challenge. As we go forward, we’re going to drive ourselves back into double digits, and we should actually see very-strong incremental, once we get the top line growth. Now clearly, the uncertainty is around that top line. But once that emerges with all the cost alignment, the right sizing that we’re doing, we’re putting in the right foundation. We’ll be in a very strong position to not only get into low-double-digits but push ourselves back up to levels we saw previously.

And just on the mix impact a little bit more, given obviously wide-bodies have more carbon fiber, is that where we should be looking to see the growth start up, and that’s where we could see margins improving?

I mean, we provide carbon fiber broadly across the spectrum of programs. I mean, yes, the A350 is clearly the largest single program, and that has an impact. But narrow-bodies, through the engines, through the nasals [ph] the casings and secondary structure prepreg, also pull carbon fiber. So, generally, as we see the carbon fiber prepreg pull again on the way back up, that will drive strong incremental margin. That makes impact to some way down and it will help us significantly on the way back out.

Great. Thank you so much.

Your next question comes from Myles Walton from UBS. Your line is open.

Good morning, gentlemen. This is Louis Raffetto on for Myles. I just want to go back to -- I know, Patrick, you mentioned that the first quarter you were essentially shut down the MAX, you did restart in Q2. So, can you confirm are you producing, because you had some peers out there who basically said, they’re not shipping anything on the MAX until at some point in next year?

What I will say is we’re shipping at low levels. It is still pretty low levels, but we are shipping small quantities of material.

Okay. And then, also, you talked in the past about the fungibility I guess, specifically I think around the carbon fiber. Have you had any, let’s say, worthwhile conversations with customers, whether they be Industrial or anywhere else or is it sort of considerably shut down a large part of it? So just curious how those conversations going?

Yes. I mean a lot of our assets are fungible, but it takes time. So, we absolutely are having conversations with customers about industrial applications for our carbon fiber, applications for our prepreg and other sources where we can get some short-term wins. It doesn’t happen overnight, but we can redirect the vast majority of our composite sort of sector segment lines and we will do that. We’re not going to chase commodity, low-margin with no value-add. We’re still going to stick to our principles, we want to provide some value. We may be a little bit more flexible around that. But, if we can bring in some Industrial recreation, automotive applications that utilize some of our carbon fiber for respectable margins, we are definitely going to do that. And those conversations are taking place.

Okay. Thank you very much.

Your next question comes from Phil Gibbs of KeyBanc Capital. Your line is open.

Hey, thanks very much. Good morning.

Good morning.

The labor reduction is targeted to be about 30% on the cost side. How much of that you think you got in the second quarter and how is the rest going to be baked in?

Yes. I mean, I think we called out -- I mean in total cost, in pure costs, we were probably very close to sort of 25%, 30%, we’re in the range. These things do take time. We called out 1,600 heads, but then you combine that with furloughs and salary reductions, temporary salary reductions and benefit cuts and short time working. So, as we sort of worked our way through the quarter and it’s not taking our line switch, we played as many of those cards as we could to improve our cost base. So, the permanent 1,600 heads, those are clearly in place. As we indicated in the script, we are continuing to work on further permanent restructurings. Some of that takes longer because of rules and regulations in other geographies, especially around Europe. And we will continue to push. But, we’ll combine that again with more furloughs in short time working [indiscernible]. So, I’m not going to be precise. I mean, it’s hard to be exactly precise. But, we got a large chunk of saving in Q2. We’re going to see that again in Q3. And as we get towards the end of the year, we’ll have a large portion of that done. But, I would flag some of the European progress could even stretch into next year.

Okay. I appreciate that. And then, how much severance cash costs should we expect over the next couple of quarters, associated with these actions?

So, again, I’m going to call out a specific number. The vast bulk of the $13 million, so the 95% incentive that number was really severance related this quarter. It will be less than that in the second half, but there will be further severance costs that come through.

And then, last question is just on the wind energy market. Can you talk a little bit about these outsourcing issues and how that impacts you in the short run and long run? It seems like a new revelation. Just trying to understand it.

Yes. I mean, what we’re starting to see -- I mean, the energy market is highly competitive, the price of oil is obviously sort of increasing that pressure, wind energy is trying to compete. And we’re seeing this sort of emerge over some time. But perhaps, it’s getting even stronger now. The wind energy manufacturers are just having to really push and focus on costs. And they’re doing everything they can and we’re seeing an increasing shift for these outsource plays. And so, really we’re just flagging that market is going to have increasing challenges. As we see it going forward, we’re going to try to be as competitive as we can as always, drive our efficiencies, but we do see that market and cost pressures continuing.

Your next question comes from Noah Poponak from Goldman Sachs.

The release dates that you’re going to temporarily suspend some operations at a few sites during the third quarter, and I think that states doing to align production and inventory. So, I read -- that reads us incrementally more inventory destocking in the third quarter versus second quarter. Do I have that correct or is it a similar rate of that action in 3Q versus 2Q?

So, I would say a couple of things. Destocking and we’re idling assets within our plants, we’ve been doing that going back into the end of March-April timeframe, based on customer demand and it made the most sense for us to allocate the resources to. What we really pointed out in the earnings release is the carbon fiber assets that were idling are above and beyond what we had idled earlier in the quarter. And that’s going to continue along with seasonality that we typically see in Europe in the third quarter timeframe. So, we do see significant pressure and expect more destocking in the third quarter.

Okay. Yes. So, with your normal seasonality, if the year-over-year rate of decline in aerospace revenues was the same in the third quarter versus second quarter, the absolute dollars would be a bit lower from that. Should I think about the rate of decline as well also being a larger rate of decline in 3Q versus 2Q?

I don’t think so. I think, we’ve made a fair adjustment in the second quarter. We moved quickly. Patrick may want to add some color there. But, I don’t see a dramatic change.

I think, the magnitude of the underlying decline, Noah, is probably similar, I mean, plus or minus. But then, you need to layer on seasonally. So, that’s the difference, as Nick said, that we would make probably.

Right. So, it would be down on year-over-year, give or take, roughly the same amount, but -- and then, that would make it down a little bit sequentially?

Yes, you could say that.

Directionally, yes. The items that made the Space & Defense segment growth rate negative in the quarter, are those items that last for a few quarters moving forward, or was that pretty one quarter timing specific?

Hard to be precise on that, Noah. I mean, fundamentally, we remain optimistic. And I think, we use the word bullish around Space & Defense. We see that market sector holding up for us, the U.S. in particular is remaining strong. The softness within Europe, some of it was pandemic, some of it’s going to be budgetary pressures. But overall, I think, we really see as timing. Fundamentally, the build rate in Space & Defense, we don’t see is shifting or coming down. So, there may be a bit of bump form quarter to quarter, this year may be a little bit noisy. But, we still see the overall performance this year to be robust. And so, as I say, we remain optimistic. So, I don’t think I would point to anything specific in Europe or elsewhere. And if anything, we see robustness in the U.S., which is very encouraging. And medium term, a lot of new programs, which Nick alluded to, I think on the first question.

And just last one for me, Patrick, on the margin question. If I gave you the hypothetical that Boeing and Airbus did not need to cut production rates further anymore from all of us, they were able to hold what they’ve announced so far. In that hypothetical, would you be able to get the operating margin back into the double digits in 2021?

Our objective is definitely to drive ourselves to that. I think, your question is a little bit specific, even if hypothetical. But, given some top-line certainty and some top-line growth, we will align our cost to drive to double-digit and keep going up. Yes.

Your next question comes from John McNulty from BMO Capital Markets.

Maybe just one last question on the cash flow side, so normally second half is 70% to 80% or so of your free cash in any give year. I know this is a pretty extreme year, so certainly not normal. But, I guess is that -- would that be a relatively decent metric to think about in terms of the rest of the year’s cash flow, figuring that you’re going to have -- incrementally you are going to have more on the inventory help; you’re going to have maybe a little bit less on the earnings help? How should we think about that?

I think directionally, you’re in the right space. I mean, Q2, we were able to drive some -- what we thought was very good cash numbers. Obviously, we don’t have the top-line, EBITDA is under pressure. But, yes, we have a lot of opportunity with inventory, and second half of the year will be a lot stronger than the first half of the year. Yes.

Your next question comes from Paretosh Misra from Berenberg. Your line is open.

Thank you. Good morning. Nick, Patrick and Kurt. So, I just wanted to go back to this new revenue opportunities that you’re exploring for your products for carbon fiber, opportunities outside Commercial Aerospace. Are you looking to gain market share from another composite producers, some competitor or these are currently applications, which are basically metal-based, some other material where you’re just looking to grow the use of composite? Like, is it more a substitution story or market share gain story?

I’d say, it’s predominantly new opportunities, new applications requiring new materials. Some of that may be displacement of prior metals or others. But, some of the drones, some of the new unmanned vehicles, some of the technical opportunities we’re seeing in industrial are for new models, new innovative solutions going forward. So, predominantly, new opportunities. Although there are some areas where we have enhanced technology from a cost and overall performance standpoint that we do think has some opportunities to displace existing materials.

Thanks. And maybe just to follow up on the FX impact, just wondering if you have tried to quantify, what kind of headwind on operating margins you might see in Q3 from FX base on current exchange rates?

I mean, I think, we called about 40 -- 30-40 basis points year-to-date. I don’t expect this to be significantly different in the second half of the year. It will be a continued headwind, just based on hedges we have in place versus 2019. But, I don’t see it becoming significant.

Got it. Thanks, guys. Good luck with everything.

Thank you.

Your next question comes from Pete Skibitski from Alembic Global Advisors. Your line is open.

Hey. Good morning, guys. I think, it was on the last call you talked about in Engineered Products, some of the less complex work at the Kent, Washington site kind of migrating to lower cost suppliers. And obviously we kind of saw sales down pretty sharply in 2Q there within that segment. So, I’m just trying to understand how much of that was -- impacted that work migrating to other suppliers versus how much was underlying market softness?

Yes. So, that’s -- we flagged it up because that agreement -- that movement in the market, so as you say, the lower cost supply is going to take place. Most of what we saw, to be honest, in the second quarter was pandemic and general build rate. If anything, what that’s going to do is stop from that transition from a headline revenue perspective. And we’ve seen a large reduction already. And so, as the some of the underlying business comes back, we just won’t get as much coming back, because of that transition taking place at the same time. So, I would say, largely what we’re seeing to-date is not that transition. But, the stat down we saw in Engineered Products, so to say, is probably going to smooth the transition whereas we expected it perhaps to be more of step at certain point in time.

Last one for me in the Industrial markets. So, you’ve been down pretty good for three straight quarters now in Industrial. I’m just trying to feel, obviously, my guess is you’d expect another double-digit decline in the third quarter. The comps easier, as you head into your fourth quarter. Do you expect to see maybe inflection up in the fourth quarter in Industrial or maybe because of this incremental wind headwind, you’re going to see softness in the 2021 there?

Yes. We’re really avoiding giving any guidance, simply because of all the uncertainty in the markets and the adjustments being done and just to be consistent. So, we’re working closely with our key customers on new opportunities; we’re working closely with them on rightsizing their supply chain. So, I don’t know want to get into giving any direction on what we expect to see quarter-over-quarter from a sales perspective.

Your last question will come from Ron Epstein from Bank of America.

Just maybe broadly. The whole call, there’s been a lot of focus on cost cutting and so on and so forth. How do you know when you’ve cut deep enough, right? I mean, because ultimately things will turn, right? It seems reasonably dark right now. But the pandemic will pass. There’ll be some sort of fix for all this? So, how do you assure that you just don’t cut too far that when things do get better, you haven’t cut into bone, as they say, broadly? So how do you think about that?

So, we stay aligned for one thing. We align with our customers. Their programs on advanced technology for next generation, airplanes, components, engines and the cells, they may have slimmed it down with respect to what the priorities are, but they haven’t stopped those initiatives, nor have we. So, we continue to stay very close to our customers. We continue to look at how we’re allocating our challenges throughout the business working with our team to make sure that we’re not into the bone. And we -- Patrick and I spend a large portion of our time doing just that. And it’s not only in our in R&T. Keep in mind that some of our assets to train the skill-set we need in certain assets can take up to a year. So, the fact that we have fungible assets, we can move around, allocate and optimize our footprint and our cost structure, take in the customer demand, but also they take into consideration how do we maintain the appropriate level of skilled resources throughout the organization to capitalize on the growth when the growth comes back. So, it’s not just R&T. R&T is big, no doubt, but it’s throughout the entire organization. And we monitor it real time if we need to cut another couple of percent or if we need to add back a couple of percent we adjust daily and weekly.

And then, maybe just one quick sort of follow-on. In the prepared remarks for the call, you guys mentioned that there was more carbon fiber in the channel than you had anticipated. What was the cause for that? Is it just your visibility is only so far, or is it just that things have been worse for longer than maybe everybody was anticipating?

I think, it starts with the lead times and the complexity and the vastness of the supply chain itself. And you can look, pick a program, you might have 50 ship, 60 ship choose [ph] and everybody’s got a different point in delivering their piece of the puzzle, whether it’s an engine fan blade or a flap or a shroud or primary structure. So, the supply chain is very complex. I think, our best visibility is clearly with Boeing and Airbus and what they’re doing internally, less so when you start going down to the Tier 1s. Even though we work with them, we don’t have perfect visibility in it. And again, I would also say, you’ve got the combination of visibility is one factor, but you also have the fact, as production rates are going down, that supply chain continues to get squeezed even more. And we’ve seen a combination of both.

We are out of time for questions today. This will conclude today’s conference call. Thank you for your participation. You may now disconnect.