Ladies and gentlemen, thank you for joining us for the Hexcel Q4 2020 Earnings Conference Call. All participants are currently in listen-only mode. After the presentation, we will have a question-and-answer session. I will now turn the call over to Patrick Winterlich, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone, and welcome to Hexcel Corporation’s fourth 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 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 for that request. Today, our speakers 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 fourth quarter and full-year 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 today as we share our fourth quarter and full-year 2020 results. After reading our news release last night, I am sure you will agree that clearly we had a significant mix shift in the business, our demand, our volume, and our financial metrics. I also hope that you recognize how Hexcel has been quick and robust in response to the market challenges arising from the pandemic. The results we are sharing with you today reflect the strong and decisive action that we took swiftly in response to the substantial impact of the pandemic on all those involved in the aerospace industry in 2020. The actions, which are ongoing, include approximately a 35% reduction in global headcount, temporarily idling assets, cutting discretionary expenditures, prioritizing the most critical projects including capital expenditures and right-sizing working capital to generate strong cash flow. So I'm glad that 2020 is behind us. At the same time, it's amazing what you learn about yourself and your organization during such challenging times. I learned how extraordinarily strong, resilient, and action-oriented Hexcel employees are. Throughout the year and despite the uncertainties and the difficult decisions, our team accepted and embraced the challenges we faced, quickly developing options and taking decisive actions. They knew what needed to be done, and they did it. Although 2020 is over, the pandemic headwinds will continue to test us into 2021. As I mentioned in our news release last night, this first quarter of 2021 along with Q3 and Q4 of 2020 are anticipated to be our most challenging quarters during this pandemic. We expect continued inventory destocking into the first part of 2021, which will continue to impact sales volumes and growth for both our customers and Hexcel as contingent on a healthy return to air travel following a successful vaccine rollout. We are guardedly optimistic for a steady recovery in our business as 2021 progresses. 2021 is going to be yet another unusual year as the world gradually emerges from the pandemic, and remaining disciplined will be vital for our success. We will not drop the ball or our guard in relation to the health and safety of our employees. We will continue to work with our customers to provide innovative solutions to meet their needs while at the same time maintaining our focus on delivering operational excellence, cost control, and not allowing waste and inefficiency in any areas of our business. We will remain disciplined in relation to cash management, maintain an optimal level of working capital throughout our business, and control inventory levels to match our customer demand requirements. 2021 will be another challenging year, but I can assure you that Hexcel is ready. Our teams are focused, and we are optimistic that the actions we have taken and continue to take during the pandemic are laying the foundation for another period of robust growth in the years ahead. Now let me turn to our results. First, I'll cover the fourth quarter results and then the full year 2020. Fourth quarter sales of almost $296 million were in line with our forecast. Adjusted fourth-quarter diluted EPS was a negative $0.18 compared to a positive $0.86 last year. Our focus on cash management has been unwavering throughout this pandemic, and in the fourth quarter, we generated another $104 million resulting in $214 million of free cash flow for the year. Turning to our three markets. Fourth quarter aerospace sales were down 66% compared to Q4 2019. All of our major programs were down substantially, with the largest sales impact related to the A350. Build rate reductions driven by the pandemic, combined with the 737 Max grounding and significant supply chain inventory destocking, led to the reduced sales levels. Sales to other commercial aerospace, which includes regional and business aircraft, fell almost 60% year-over-year. Again, the decline was from lower demand resulting from the pandemic. On a positive note, space and defense sales increased almost 4% compared to Q4 2019. Growth in this segment is broad-based across several defense and space programs, particularly U.S. military rotorcraft. Industrial sales declined approximately 29% when compared to Q4 2019. As you know, wind energy sales are our largest industrial sub-market, and most sales declined 42% in constant currency. During the year, we saw a decline in demand for wind energy materials in the United States by our largest wind energy customer, Vestas, which led us to close our prepreg production facility in Windsor, Colorado in November. The decline is attributable, in part, to the commoditization and outsourcing of blades with a changing technology from prepreg to infusion. Wind energy remains a good business for Hexcel, and we are adjusting to the changing market dynamics and introducing new innovations to support our customers. Thus, this continues to be a great customer, and manufacturing continues at our plants in Neumarkt, Austria, and Tianjin, China. Now let's turn to some specifics in our full-year 2020 results. 2020 sales were $1.5 billion, down 36% year-over-year. Adjusted diluted EPS for the year was $0.25. Our full-year results were bolstered by the pre-pandemic Q1 2020 results, which were the strongest of the year. Free cash flow came in strong at $214 million compared to $287 million in 2019. Our liquidity position remains robust, and we have managed working capital tightly during this pandemic. 2020 commercial aerospace sales were about $822 million compared to $1.6 billion in 2019, a decline of almost 50%, an unprecedented decline in demand driven by lower build rates across all programs, including the 737 Max, compounded by inventory destocking across the supply chain. Sales to other commercial aerospace declined by one-third. Space and defense sales for 2020 grew modestly to $448 million compared to $445 million in 2019. Select programs have been impacted by pandemic-induced disruptions. Although we feel these are temporary impacts that will be recovered over time. Moreover, space and defense is traditionally a strong and attractive market for Hexcel, now enhanced by our technologies acquisition, where we continue to be pleased with the excellent performance and sales growth. Finally, turning to industrial. Sales were $232 million in 2020, which was 26.5% lower year-over-year. We have good wind energy demand continuing from the European and Asian markets as we enter 2021, and we are encouraged by growing demand for composites and automotive, marine, and sports applications where we have opportunities for growth. Our technical innovations and strength in material science have led to increased composites penetration in these markets. As always, I want to take a moment to thank our entire Hexcel team. They were challenged in 2020 in ways we never could have imagined. Despite all the uncertainty and distraction, they performed well for our customers and shareholders, and I couldn't be prouder. Our employees accepted the challenge of wearing face masks all day, constantly distancing themselves from one another, dealing with additional concerns about their own health and family's well-being in the midst of a pandemic, and they did this while continuing to deliver the high standards we set. In this context, we achieved our best-ever safety rate performance in 2020. That's just phenomenal and illustrates our deeply rooted safety culture. I also want to take a moment to reassure you that not even a pandemic such as we are experiencing has altered our commitment to continued innovation and customer intimacy. All of our R&D sites are considered essential businesses, and these teams kept up their work in our labs throughout 2020. They continue to advance new technologies that will lead to new and optimized product offerings and improved manufacturing performance. Our advanced composite technology leads our industry, and we're proud that we have been able to continue the work for our customers during the pandemic. Finally, I want to mention that in Q4, we were pleased to expand our contract with Safran to include our Hex Tow IM7 Carbon Fiber for the GE9X engine that powers the 777X, as well as positioning Hexcel for next-generation engines being developed by Safran. This expansion also includes our advanced composites for Safran cabin, seats, and aero systems. Our relationship with Safran spans more than 35 years, and we are proud to partner with this key customer, providing our high-performance materials that support the strength, efficiency, and reliability of their products. Now I'll turn it over to Patrick to provide more details on the numbers.

Thank you, Nick. To briefly summarize the quarterly results, our 2020 sales were negatively impacted by lower build rates and continued destocking, as we expected and communicated last quarter. Our aggressive cost reduction actions are starting to have an impact, which was demonstrated by sequential margin improvement compared to the third quarter of 2020. Further, we continue to generate free cash flow and deleverage, with particularly strong and disciplined management of working capital. We have increased our liquidity by $239 million at December 31, 2020, compared to the end of the first quarter of 2020. 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 pound, our sales translate lower while our costs also translate lower, leading to a net benefit to our margins. Accordingly, a weak dollar, as we are currently facing, is a headwind to our financial results. We hedge this currency exposure over a 10-quarter horizon to protect our operating income. Quarterly sales totaled $295.8 million. The sales decrease year-over-year reflects production rate decreases by our commercial aerospace customers in response to the pandemic, combined with continued commercial aerospace supply chain destocking. Turning to our three markets; commercial aerospace represented approximately 43% of total fourth-quarter sales. Commercial aerospace sales were $126.7 million, decreased 67% compared to the fourth quarter of 2019, as destocking continues to impact our sales. We expect continued destocking in the first quarter of 2021 at a similar level to what we witnessed in the third and fourth quarters of 2020. Destocking is then forecast to wind down during the second quarter of 2021. We then expect to generally be at a steady state entering the second half of 2021 with destocking largely behind us and realizing a substantial portion of the cost take-out benefits we have implemented and continue to work on. Space and defense represented 40% of the fourth-quarter sales, totaling $119.7 million, an increase of 2.5% compared to the same period in 2019. U.S. military rotorcraft was strong in the fourth quarter. We remain bullish on the outlook for our space and defense business globally. Industrial comprised 17% of fourth-quarter 2020 sales. Industrial sales totaled $49.4 million, decreasing 31% compared to Q4 2019 on weaker wind and recreation markets, partially offset by automotive. We closed our wind energy facility in Colorado during the fourth quarter, as previously disclosed. Recreation markets remain soft due to the pandemic, particularly for winter sports. In contrast, the fourth quarter of 2020 generated the strongest automotive sales since mid-2019. On a consolidated basis, gross margin for the fourth quarter was 10.3% compared to 26% in the fourth quarter of 2019. As we discussed at our last earnings call, we continue to temporarily idle select carbon fiber capacity during the fourth quarter, and it is continuing in 2021 as we maintain alignment with customer demand. The sales mix, particularly lower sales of carbon fiber products, continues to be an earnings headwind. Our view of forward demand continues to be consistent with what we communicated at our last earnings call in October, with Q3 and Q4, 2020, along with Q1, 2021 being the low point of the pandemic downturn. We are staying close to our customers and maintaining our focus on operational excellence with process improvements and cost realignment actions across the business. Fourth-quarter selling, general, and administrative expenses decreased 29.2% in constant currency, or $9.9 million year-over-year as a result of headcount reductions and continuing tight controls on discretionary spending. Research and technology expenses decreased 21.4% in constant currency. We are an innovative material science company, and continued research and technology funding is critical to our future growth. So we have been very selective in our cost reduction actions in this area of the business. The other expense category was likely the severance costs, primarily in Europe. We continue to target eliminating $150 million of annualized overhead costs, including indirect labor. We expect that a significant portion of these cost actions will be completed as we enter the second half of 2021. Adjusted operating loss in the fourth quarter totaled $6.1 million, reflecting the lower sales volume and overhead headwinds combined with the negative sales mix. The year-over-year impact of exchange rates was negative by approximately 40 basis points. Now turning to our two segments. The composite material segment represented 76% of total sales and generated a negative 6.2% operating margin compared to an 18.8% margin in the prior year period. The engineered product segment, which is comprised of our structures and engineered core businesses, represented 24% of total sales and generated an 8.6% operating margin compared to 16.9% in the fourth quarter of 2019. The tax benefits for the fourth quarter and the year-to-date period for 2020 were $12 million and $61 million respectively. The tax benefit was primarily due to losses incurred in various jurisdictions due to the impacts of COVID-19. The 2020 tax benefit was also impacted by discrete tax items of $55 million, primarily composed of an evaluation allowance released in the third quarter of 2020. The pandemic and consequent mix of results across the countries in which we operate is expected to continue to have an impact on the company's overall effective tax rate throughout 2021. Net cash provided by operating activities was $107.1 million for the fourth quarter and $264.3 million for 2020. Working capital was a source of cash of $87.7 million in the last quarter of the year. Capital expenditures on an accrual basis was $3.2 million in the fourth quarter of 2020 compared to $30 million for the prior year period in 2019. Accrual-based capital expenditures were $42.5 million for the full 2020 year. We continue to tightly manage capital expenditures and look for innovative ways to optimize the flexibility of our existing capacity to support new business opportunities in the future. Free cash flow for the fourth quarter 2020 was $104.3 million and $213.7 million for the year. We remain focused on generating and preserving cash as we deleverage. We increased our liquidity by $108 million as of December 31, 2020, compared to September 30, 2020, further strengthening our balance sheet. Our total liquidity at the end of the fourth quarter 2020 was $875 million, consisting of $103 million of cash and an undrawn revolver balance of $772 million. We have no near-term debt maturities. Our revolver matures in 2024, and our two senior notes mature in 2025 and 2027 respectively. Our leverage as of December 31, 2020, is measured on a net debt basis and was 3.6 times compared to 3.25 times at September 30, 2020, which at that time was measured on a gross debt basis. The increase in the leverage ratio was due to the lower 12-month trailing EBITDA, as net debt actually decreased $108 million at December 31, 2020, compared to September 30, 2020. We remain within covenant conditions. Our revolver facility has leverage covenants based on a debt-to-trailing 12-month EBITDA. During the third quarter of 2020, we worked with our bank group to temporarily amend the covenant from a gross debt measurement to a net debt measurement and to increase the maximum allowable leverage for a period of four quarters. While we comfortably remained in compliance with the amended covenant at December 31, 2020, we recognize that the trailing 12-month EBITDA is decreasing more than we had forecast early in the third quarter of 2020. This reflects our projections based on our latest customer demand requirements, along with our belief that the aerospace supply chain destocking will now run through the second quarter of 2021 compared to our previous thinking that it would be largely completed by the end of 2020. We are currently in discussions with our bank group regarding our revolver facility, and we are extremely confident that a mutually agreeable solution will be reached soon to ensure continued covenant compliance. Our share repurchase program remains suspended and is also restricted by the previously referenced revolver amendment. Our board will continue to regularly evaluate capital allocation priorities. To summarize full year 2020 results, total sales decreased 36%. Adjusted operating income was $72 million, and adjusted diluted earnings per share was $0.25. We delivered $214 million of free cash flow during the year, which we used to deleverage. As our earnings release states, we are not providing financial guidance at this time, but I would like to share the following. Our current market outlook, considering the strong pre-pandemic first quarter of 2020, is that we expect 2021 annual sales to be lower than in 2020. We expect the aerospace chain destocking to largely come to an end during the second quarter of 2021. Consistent with prior years, selling, general, and administrative expenses are forecast to be higher in the first quarter of 2021 compared to following quarters due to the timing of recording stock-based compensation expenses. Some additional restructuring costs are anticipated primarily in the first half of 2021 based on labor actions already initiated. Capital expenditures in 2021 will continue to be managed very tightly and are expected to be at a similar level to 2020. We expect to generate free cash flow in 2021 and further reduce debt levels. The tax assumption is more complicated than normal, but we expect the rate to be approximately 24% to 25% in 2021. This change from prior rates is due to a mix of the jurisdictions where we expect to generate income. Over time, we expect the tax rate to return to pre-pandemic levels. With that, let me turn the call back to Nick.

Thanks, Patrick. While it seems as though everything has changed, in reality, nothing has changed about who we are as a company. We still have the broadest technology portfolio in our industry with leading positions on the world's largest aerospace programs with our advanced composite materials. We continue to generate cash and further strengthen our balance sheet. We're taking this opportunity to strengthen our foundation, especially in the areas of cost control, realigning the business for lower demand for a period of time and cash management, to name a few. The great job our team has done puts us in a position to return to growth with strong leverage once this pandemic is behind us. Clearly, there is still uncertainty; while air travel has increased from the 2020 lows, it remains weak. So the next couple of quarters will be challenging. However, we can see a path forward towards a return to stability, and we view 2021 as a transition period that sits between the trough of the second half of 2020 and a return to growth in 2022. This year, one of our primary objectives is to continue to stay close to, align with, and be responsive to our customers’ needs. Global demand for advanced composites technology for lighter weight, stronger, and more durable materials in all of our markets will only grow, and our technology and products remain unrivaled in our industry. The potential for a significant upturn in 2022 and beyond continues to look promising. The actions we have taken and will continue to take will ensure that Hexcel emerges from this pandemic stronger than ever, strategically positioned for growth to support the future of aerodynamics and sustainability in the markets we serve. We continue to be disciplined and ready for the year ahead. Joanne, we will now turn it back over to you, and are ready to take questions.

Your first question comes from Gautam Khanna from Cowen. You may go ahead.

Yes. Thanks. Good morning, everyone. I appreciate it. Could you provide more details on which programs are experiencing destocking that will extend into Q2? Was there an additional wave related to the 787, or what has changed since last quarter?

So, well Gautam, you could imagine the programs that have the higher rates and higher shifts that content and took the biggest rate production reductions are the ones that impacted the most. Clearly, the A350 was leading that impact, and the 787 on a percentage basis was very near to the same level. So the 737 Max has certainly been an issue, which we set it to build rate reductions and inventory destocking for the past many months and had probably a little bit less impact than the A320 Neo did. So in general, I expect a little bit more 787 and wide-body reduction as we go through Q1 and hopefully soon see some hiccup as those levels stabilize and narrow bodies potentially increase later in the year.

Thanks, guys.

Your next question comes from the line of Mike Sison from Wells Fargo. Your line is now open.

Hey guys, good morning, and glad you all sound healthy. Nick, just curious, historically Hexcel would see sales versus planned delivery somewhere between six months before the delivery. So has there been a change in that? Is the spread a little bit longer or shorter coming out of the pandemic, and is there any differences between maybe narrow and widebody as you look forward and just want to see timing as hopefully deliveries improve in the second half and ‘22.

Yes, Mike, so again when you look at our two business segments on the engineered products versus the composites, there tends to be a little different timing there. It has not changed over the pandemic, and I wouldn't expect it to change. I would point out that we believe there is an opportunity, and we believe the supply chain recovery will amplify that stabilization of the rates and hopefully the increased rates later this year. But as far as the lead time that we ship product to support aircraft build, nothing really materially changes there from our perspective.

Great. Thank you.

Your next question comes from the line of Richard Safran from Seaport Global. Your line is now open.

Thanks, Nick, Patrick, Kurt, good morning. How are you? Hope you are well.

Good morning.

So, Patrick, I know you mentioned, and Nick this is for either one of you, in the past you've talked about incremental margins, and I understand things are getting better. You don't have good visibility yet how quickly things are getting better but with the idea that destocking ends after Q2 and given your remarks about a strong recovery in 2022, I thought you might discuss and elaborate on your prior remarks about how we should think about your incremental margins as volume returns and what they might look like relative to history?

So, Richard, I'll take a first stab at that. So I'm not going to get into specific numbers. I suspect you understand that. I would tell you that the cost actions we're taking and how we're viewing the opportunity during the slowdown to get costs out and drive efficiency within our plants, within our indirect workforce, we fully plan on those benefits living through the pandemic and even as we start to grow. So I'd also point out that we're very closely monitoring and tracking our incremental leverage and we've actually built that into our metrics on how we're measuring our team performance and reporting out to our board going forward.

Thanks.

Thank you, Richard.

Our next question comes from the line of Myles Walton from UBS. Your line is now open.

Thanks. Good morning.

Good morning.

Looking for color on the top line pressure in ’21, do you think you can hold the reported adjusted margins, operating margins versus 2020 or is there a little fade there as well year-on-year?

I think, I mean, as Nick was talking to really in terms of operating margins, clearly Q1, 2020 kind of put that to one side, but I think now with the cost coming out with a bit of stabilization certainly sort of arriving in Q2 and going into the second half of the year, I mean the margins are going to continue to be challenging. We have an overhead headwind, and without some volume, and we have the mix headwinds at the moment with the lower carbon fiber sales. But as we start to pull through stronger carbon fiber sales, especially going into 2022, that is going to help us with incrementals and drivers, but for 2021, I don't see a further decrease in operating income percentage margins, but I would be cautious about our ability to drive them up until we get some volume and a stronger mix combined with the cost takeout.

Okay. And just a clarification, you mentioned the destock sort of stabilizes into Q2. Does that imply sort of a flat revenue profile or just maybe what does stabilization in Q2 versus Q1 mean?

Well, I think, I mean destocking will, I mean it's not going to be zero as we go into the second half of the year, and the 787 destocking is probably going to be the program that comes later just because of the timing of what happened. I think we've had a double whammy obviously through these three as we called them trough quarters Q3, Q4, ‘20 and Q1 ‘21. I think as we come out of that, and destocking winds down, we're going to stabilize more closely to actual build rates. And so we should start to see a little bit of positive growth; we're not getting carried away, but a little bit of growth in the revenue line. And then as build rates start to increase as we get into the second half of the year, hopefully that trend will continue further.

Okay. Thank you.

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

Hey, good morning, guys.

Good morning.

I am curious about how working capital was impacted in 2020. Could you provide an overview of what to expect for 2021, particularly when considering the differences between the first and second halves of the year?

So first half, second half, getting into details. I mean our ability to take out working capital is obviously different in 2021 compared to 2020. We responded as you would expect in a very robust and disciplined way, and we took out appropriately a lot of working capital in 2020 in response to the downturn. Our inventory came down, our receivables came down, offset by our payables. As the business stabilizes, as you would imagine, our working capital is going to kind of level off. Now we will be very disciplined. We will maintain sort of the days on hand or the days payable, days receivable as strongly as we can, and we will limit any growth as the business grows back. So you would expect perhaps more pressure on working capital in the second half of the year than the first year, but we will continue to be very disciplined. That's what I would differentiate, but you're not going to see another 2020 working capital adjustment.

Of course. Okay. Thanks for the color.

Thanks.

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

Yes. Thanks for taking my question. Just with regard to the cost-cutting initiatives that you've got in place, can you quantify how we should be thinking about that the improvement in ‘21 versus ‘20 from a cost perspective and just the timing of when that will sequence in? It sounds like it's more half loaded, but a little any irregularity you can give would be great.

Yes. Sure. Good morning, John. I mean we're starting to get some of that cost benefit in the fourth quarter, and we'll get more in the first quarter. We continue to take cost-out actions, and they will continue through the year, but I think as we called down, I think in the script in the narrative, by the middle of 2021, a decent portion of that cost saving will be in place, will be flowing through, and so yes, that will help margin. It will help those incremental margins, and importantly, we need more volume. We need more carbon fiber to help the overall mix come through, but those three things combined should start to help, push our margins back up in the second half of the year and then even more so as we go into 2022.

Got it. Thanks for the color.

Our next question comes from the line of Craig Conrad from Jeffries. Your line is now open.

Good morning.

Good morning.

To follow up on one of the questions before, I mean you mentioned in the script sales are down in 2021 without providing guidance. But I mean how are you thinking about H1 versus H2 and given the impact of destocking in H2 2020, is there any way to think about the magnitude of recovery or growth in H2, or maybe quantify the impact of destocking to kind of frame that tailwind as you get into the second half and enter 2022?

So I start by saying first half of 2021 is going to be, going against a comparable of a very strong quarter in 2020. So you can imagine there is going to be a marked reduction in Q1 that will carry into the first half. We don't see a recovery being a snapback. We think it's going to be gradual. We think the OEs are going to be disciplined in how they ramp their rates back up, work with a supply chain because again the rates will ramp up and compounded with that will be supply chain replenishment. So we see a gradual increase going into the second half of the year. And that's about all the color we really prepared to provide at this time.

Thank you.

Thank you, Greg.

Your next question comes from the line of Michael Ciarmoli from Truist Securities. Your line is now open.

Hey, good morning, guys. Thanks for taking my question. Maybe just say on what Greg just was asking. I mean, obviously there is a lot of uncertainty out there. But what's really preventing you from giving more granular guidance this year? I mean we all know what Boeing and Airbus rates are going to be presumably you're closer to them. You don't have any aftermarket exposure, which is really short cycle. So the hesitancy, I mean does that suggest the demand signals or the stated rates from Boeing and Airbus you're not really confident there? I mean, I think we can all see the wide-body pressures, maybe can you just kind of frame up maybe look the biggest fund knows are that's preventing you from giving more of the more detailed level projections?

Well, I'll start by saying we are absolutely intimate and connected with our customers, recognizing that it's a very dynamic time. So when I step back, and we step back and look at the uncertainties out there, you've got vaccinations happening at different rates all over the world, and I think everyone would say they're happening slower than we had hoped and expected. So when exactly will the majority of the population receive vaccinations? And then most likely there will be a lag on when will the mass public and business feel confident to get back on the planes, provided that borders are reopened and they're allowed to fly and land without quarantines. So I don't know anyone, or I haven't read anything, that clearly defines when those dates are going to happen, and it's evolving over time. So to stay connected with Airbus and Boeing and Safran and all of our customers, what we're focusing on is being responsive and being exactly aligned with respect to our working capital with their needs, recognizing that if they need to adjust, they will; if they need to adjust downwards, they will. And at this point in time, we just do not have the clarity to feel confident that we can report a forecast that is meaningful.

That's fair. Maybe just the follow-up. Did Airbus's rates on the growing to 47 per month catch you guys off guard, or was that a factor?

So I haven't heard rate 47 coming off while I mean.

Yes, not going to rate 47, I mean slowing that down was that sort of a surprise for you guys?

I just had a disciplined approach in bringing the supply chain back on, and I do that very positively; ramping up to 43 and 45 and evaluating for further rate increases going forward. So it wasn't a surprise.

Got it, helpful. Thanks a lot, guys. Appreciate it.

Thanks, Michael.

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

Hey, good morning.

Good morning, Phil.

So your $150 million structural cost outs are on track. How much does that run rate have we realized exiting 2020? Just trying to gauge how much more you are left in the tank?

So they are on track. I mean we haven't put specific numbers to specific time frames. I think we sort of say they will be largely in place by the middle of this year. We undoubtedly had a portion sort of a little bit even in Q3 more coming through Q4, and we'll see more in the next couple of quarters. I don't really want to start to try and get a slice and dice specifically, but we continue to work on those costs, $150 million continues to be the target we're working to, and by the middle of this year a very large portion of that will be in place.

Okay, and then in the raw material environment, obviously, we've seen a lot of strange volatility this year in lumber and fuel and iron ore and plastics and everything in between. How is the raw material environment for you all going? I know it's typically a pass-through. You try to pass it through, but what's the raw material environment looking like right now, and how are you going to manage through it?

Yes. I mean by propylene is relatively steady as we've said many times. We have some long-term supply contracts, and so that protects us with a lot of the pricing. A clear element, which we now hedge is the base raw material for our carbon fiber; there has been pressure on the propylene market that does prices have gone up compared to the middle of, say, 2020. But again, the impact on us is mitigated because of those factors, so overall I would say not too much of an impact, Phil.

So we shouldn't think about raw material volatility as a headwind in ‘21 versus ‘20?

Nothing major. No.

Okay. Thanks very much.

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

Hi, good morning, everyone.

Good morning.

Good morning, Noah.

Just curious if you guys have any insight into what's going on with the 787 quality control issues? Obviously it doesn't tie to you; it's a Boeing manufacturing issue, but just given that in composite structural components, I thought you might have more insight there than I do. And then as they're building but not delivering airplanes, what does that mean for Hexcel? I mean, I know it's kind of folds into the overall inventory destocking, but it would seem to be even more on that program.

So we have no more insight, Noah, in 787 manufacturing issues and/or what's going on with a fuselage. I will say I'm confident that Boeing have that under control, and if that issue is not already gone, it will go away. With respect to the inventory and what's going on at Boeing concerning build rates and winding down 787, Patrick's point clearly goes down to rate 5 or at or around rate 5. There is going to be some incremental headwind on supply chain adjustments for a quarter or two. The 737 will be interesting to see the burn-off of the inventory destock and the ramp back up of the production from the very little rates they are running today. But again, we're still optimistic that we'll start to see that in the second half of 2021.

Okay, and Patrick, how should I expect 2021 free cash flow to compare to 2020?

I think, I mean, as I kind of directly said, it's going to be lower because we're not going to have the same working capital opportunity. I mean, we're not guiding to a specific number, but I think that's the shape I would put on it.

Basically, just think of it as kind of directionally flattish and then before working capital and then extract the working capital benefit.

More or less.

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

Thanks. Patrick, I know you highlighted the headwind from a weaker dollar in the quarter. How does that impact going forward kind of where you hedged given that the dollar is depreciating a fair amount here?

Yes. I mean, so this is where the hedging does come into play. Again, I'm not going to get into specifics, but we don't see the same headwinds going into 2021 versus 2020. So because of our hedging portfolio and what we have in place, it's going to be a lot more neutral in 2021. I know that might sound ironic to your point, given the slightly lower, sorry, the weaker dollar, but because of the hedges we have in place year-over-year for us, the dollar is not too much of a headwind.

Okay, and Nick, I guess thinking about the 2022, I know it's a way out, but as we're building our model down and thinking about the aero business at least as it relates to large commercial aircraft, when you expect to pretty much be in line with delivery rate other than maybe on the Max at that point in 2022?

Absolutely. I would accept that given we shipped a fair amount prior to the aircraft build rate, and I think the stability in the markets and the gradual increase, our business will certainly have the capability and capacity to support that easily. So I think we will be aligned. Again, I also I am not underestimating some of the supply chain replenishment that will help the business going forward on a one-time basis as the market starts to recover.

Okay. Thanks very much.

Thanks, David.

Your next question comes from the line of Austin Moeller from Canaccord Genuity. Your line is now open.

Hi there. This is Austin on for Ken. Just to switch gears over the defense business. Can you talk about what the shipping rate is for the F35, and the outlook for that program this year?

Unfortunately, we do not give the build rates for ships at specific military programs simply because they're isolated and it’s competitive information. We don't share.

Okay. Well, just on a different point for the defense business, are there any new program opportunities in the next few years that you're pursuing, or how should we think about the program mix in that business over the next few years, and are you pursuing anything in the space sector in particular?

Well, yes, so I would say as the leading composite supplier in the space and defense industry, and the fact that our IM7 fiber is basically the benchmark, we're working on multiple new programs, advanced programs for manned and unmanned as we speak today. So certainly we would expect opportunities to continue to present themselves and for us to continue to be the fiber of choice and have great content on those applications as we go forward.

Okay. Got it. Thank you, guys.

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

Hey, good morning, everybody. Thanks.

Good morning.

So in 2015, you guys were expecting $3 billion in sales in 2022 to come in and half that. I know this is a hard question. As you think about the long-term planning process in the next five years, do you see an ability to maybe get back to that $3 billion sales level at some point?

2015, well, we clearly didn't predict the pandemic. We're continuing to work our strategic planning process. We're continuing to drive the innovation on materials and processes and goods. We're continuing to expand our portfolio, as we have done with our technologies, and we will continue to evaluate organically as well as through M&A opportunities and collaboration. So I would answer that by we don't have our crystal ball. We're working our strategic planning process aggressively with the team. I like the pipeline. We have our key activities we have in place, but unfortunately, it is a bit premature for us to make any judgments on when we will deliver $3 billion or any respective number. I can assure you though that I am challenging the team in composites, advanced material, light weighting, sustainability, and zero emission aircraft. I am excited with the opportunities and even more excited with Hexcel's position and the efficiencies we are driving into the business. So we will hit that number. I just can't give you a date.

Okay, Nick. Thanks, and just a quick clarification. Did you ever pause 787 chipsets?

We never paused 787 chipsets.

Okay. Thank you very much.

You are welcome.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.