Sales in the Forged Wheels segment could also be negatively impacted by component supply chain constraints at our customers.

Due to the global COVID-19 pandemic and its impact on the commercial aerospace industry to date, there has been a decrease in domestic and international air travel, which in turn has adversely affected demand for narrow-body and wide-body aircraft.

Segment Adjusted EBITDA Margin for the Forged Wheels segment decreased approximately 560 basis points in 2022 compared with 2021, primarily due to aluminum material and European energy cost pass through as well as unfavorable foreign currency movements, partially offset by higher volumes.

Segment Adjusted EBITDA Margin for the Engineered Structures segment decreased approximately 10 basis points in 2022 compared with 2021, primarily due to lower volumes in the defense aerospace market and Boeing 787 production declines as well as continued inflationary cost pressures, partially offset by higher volumes in the narrow body commercial aerospace market.

As a result of the significant decline in Boeing 787 production rates, our sales remained at lower levels throughout 2022.

International travel also continues to be lower than pre-pandemic 2019 levels.

Third-party sales for the Fastening Systems segment decreased $201, or 16%, in 2021 compared with 2020, primarily due to lower volumes in the commercial aerospace market, driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by higher volumes in the commercial transportation and industrial markets.

Segment Adjusted EBITDA for the Fastening Systems segment decreased $5, or 2%, in 2022 compared with 2021, primarily due to Boeing 787 production declines, lower volumes in the industrial market, and inflationary costs, partially offset by higher volumes in the narrow body commercial aerospace and commercial transportation markets.

In July 2022, the Company’s cast house in Barberton, Ohio, which produces aluminum ingot used in the production of wheels for the North American commercial transportation market, experienced a mechanical failure resulting in substantial heat and fire-related damage to equipment.

The downtime related to these plant fires in 2022 and 2021 reduced production levels and affected productivity at the plants.

Segment Adjusted EBITDA Margin for the Fastening Systems segment decreased approximately 200 basis points in 2022 compared with 2021, primarily due to Boeing 787 production declines, lower volumes in the industrial market, and inflationary costs, partially offset by favorable volumes in the narrow body commercial aerospace and commercial transportation markets.

Third-party sales for the Engineered Structures segment decreased $202, or 22%, in 2021 compared with 2020, primarily due to lower volumes in the commercial aerospace market, driven by the impact of COVID-19 and Boeing 787 production declines, and lower volumes in the defense aerospace market, including lower F-35 program volumes.

Segment Adjusted EBITDA Margin for the Fastening Systems segment decreased approximately 80 basis points in 2021 compared with 2020, primarily due to lower volumes in the commercial aerospace market, driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by cost reductions and higher volumes in the commercial transportation and industrial markets.

In 2023, as compared to 2022, demand in the commercial transportation markets served by Forged Wheels is expected to decrease in most regions due to lower OEM builds.

The downtime temporarily reduced production levels and affected productivity at the plant.

The segment added approximately 400 net headcount since the end of 2021 in anticipation of revenue increases into 2023.Segment Adjusted EBITDA for the Fastening Systems segment decreased $56, or 19%, in 2021 compared with 2020, primarily due to lower volumes in the commercial aerospace market, driven by the impact of COVID-19 and Boeing 787 production declines, partially offset by cost reductions and higher volumes in the commercial transportation and industrial markets.

Segment Adjusted EBITDA for the Engineered Structures segment decreased $22, or 18%, in 2021 compared with 2020, primarily due to lower volumes in the commercial aerospace market, driven by the impact of COVID-19 and Boeing 787 production declines, and lower volumes in the defense aerospace market, including lower F-35 program volumes, partially offset by cost reductions.

While regulatory authorities in the United States and certain other jurisdictions lifted grounding orders beginning in late 2020, our sales remained at lower levels throughout 2021 due to the residual impacts of the 737 MAX grounding.

Sales for 2021 were $4,972 compared with $5,259 in 2020, a decrease of $287, or 5%.

The downtime reduced production levels and affected productivity at the plant.

The downtime reduced production levels and affected productivity at the plants.

The Company has the option to assess impairment through qualitative assessment, which includes factors such as general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others.

The decrease was primarily due to lower sales in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines and lower sales in the defense aerospace market, partially offset by growth in the commercial transportation and industrial gas turbine markets as well as favorable product pricing of $97.

In addition to the impact from the pandemic, the timing and level of future aircraft builds by OEMs are subject to changes and uncertainties, such as declines in Boeing 787 production rates due to delays in its recertification, which may cause our future results to differ from prior periods due to changes in product mix in certain segments.

A decrease in material costs partially offset by an increase in other inflationary costs is expected to contribute to a net decrease in sales as the Company generally passes through these costs.

Although domestic air travel now approximates pre-pandemic levels, China domestic air travel is still below pre-pandemic 2019 levels on an average monthly basis in 2022.

Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income.

Third-party sales for the Forged Wheels segment increased $242, or 36%, in 2021 compared with 2020, primarily due to higher commercial transportation volumes and an increase in aluminum material cost pass through.25Table of ContentsSegment Adjusted EBITDA for the Forged Wheels segment decreased $16, or 5%, in 2022 compared with 2021, primarily due to unfavorable foreign currency movements, partially offset by higher commercial transportation volumes.

In mid-February 2020, a fire occurred at the Company’s forged wheels plant located in Barberton, Ohio. 

The Company currently views the risk of an Alcoa Corporation payment default on its obligations under the contract to be remote.

A change in the assumption for the expected long-term rate of return on plan assets of 1/4 of 1% would impact earnings by approximately $3 for 2023.In 2022, net income of $146 (after-tax) was recorded in other comprehensive loss, primarily due to the increase in the discount rate and amortization of actuarial losses, partially offset by plan asset returns that were less than expected.

Management’s focus and the related results enabled Howmet to end 2022 with a solid financial position.

In 2023, management projects sales to increase as we expect solid growth in the commercial aerospace market, and the Company’s strong position in that market is expected to continue.

Sales related to the 737 MAX improved in 2022 year over year, contributing to commercial aerospace growth.

Existing favorable contracts and the ability to sell products into established markets are additional positive evidence.

We expect commercial aerospace growth to continue, with narrow-body demand returning faster than wide-body demand.

Management continued its focus on liquidity and cash flows as well as improving its operating performance through profitable revenue, efficient operations, and margin enhancement.

Earnings per share is expected to grow as management continues to focus on operational performance.

Total Segment Adjusted EBITDA(1) increased 13% from 2021 due to favorable sales in the commercial aerospace market, cost reductions, and favorable product pricing, partially offset by Boeing 787 production declines and lower sales in the defense aerospace market and inflationary costs.

Segment Adjusted EBITDA for the Forged Wheels segment increased $102, or 53%, in 2021 compared with 2020, primarily due to higher commercial transportation volumes, fixed cost reductions, and maximizing production in low-cost countries.

Management continued to focus on actions to improve Howmet’s cost structure and liquidity, providing the Company with the ability to operate effectively.

Third-party sales for the Engine Products segment increased $416, or 18%, in 2022 compared with 2021, primarily due to higher volumes in the commercial aerospace and oil and gas markets as well as an increase in material cost pass through and favorable product pricing.

In 2022, Sales increased 14% over 2021 primarily as a result of higher sales in the commercial aerospace market, an increase in material cost pass through of $225, and favorable product pricing of $67, partially offset by lower sales in the defense aerospace market.

Segment Adjusted EBITDA Margin for the Forged Wheels segment increased approximately 360 basis points in 2021 compared with 2020, primarily due to higher commercial transportation volumes, fixed cost reductions, and maximizing production in low-cost countries, partially offset by aluminum material cost pass through.

On April 27, 2022, Moody’s upgraded Howmet’s long-term debt rating from Ba2 to Ba1 citing the Company’s ability to improve its financial leverage, strong cash generation, and well-balanced financial policies and affirmed the current outlook as stable.

Segment Adjusted EBITDA Margin for the Engine Products segment increased approximately 230 basis points in 2022 compared with 2021, primarily due to higher volumes in the commercial aerospace and oil and gas markets as well as productivity gains, partially offset by an increase in material cost pass through.

Third-party sales for the Engineered Structures segment increased $65, or 9%, in 2022 compared with 2021, primarily due to higher volumes in the narrow body commercial aerospace market as well as an increase in material cost pass through and favorable product pricing, partially offset by lower volumes in the defense aerospace market, including lower F-35 program volumes, and Boeing 787 production declines.

In 2023, as compared to 2022, demand in the commercial aerospace, industrial gas turbine, and oil and gas markets is expected to increase.

Segment Adjusted EBITDA for the Engineered Structures segment increased $8, or 8%, in 2022 compared with 2021, primarily due to higher volumes in the narrow body commercial aerospace market and favorable product pricing, partially offset by lower volumes in the defense aerospace market, including lower F-35 program volumes, and Boeing 787 production declines as well as inflationary costs.

In 2023, as compared to 2022, demand in the commercial aerospace market is expected to increase.

Segment Adjusted EBITDA Margin for the Engine Products segment increased approximately 230 basis points in 2021 compared with 2020, primarily due to cost reductions and favorable product pricing, partially offset by lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, and lower volumes in the defense aerospace market.

In 2023, as compared to 2022, demand in the commercial aerospace and industrial markets is expected to increase.

Income from continuing operations before income taxes increased 87% from 2021.

Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and Howmet’s experience with similar operations.

Third-party sales for the Fastening Systems segment increased $73, or 7%, in 2022 compared with 2021, primarily due to higher volumes in the commercial aerospace market, with narrow body recovery more than offsetting Boeing 787 production declines, higher volumes in the commercial transportation market, and an increase in material cost pass through, partially offset by lower volumes in the industrial market.

The increase was primarily due to higher sales in the commercial aerospace market, an increase in material cost pass through of $225, and favorable product pricing of $67, partially offset by lower sales in the defense aerospace market.

The decrease was primarily due to structural cost reductions and favorable product pricing.

As a result, the Company expects higher metal costs to contribute to increased sales in 2023.

We expect increased sales related to the Boeing 787 in 2023 year over year.

The segment added approximately 950 net headcount since the end of 2021 in anticipation of revenue increases into 2023.Segment Adjusted EBITDA for the Engine Products segment increased $24, or 4%, in 2021 compared with 2020, primarily due to cost reductions and favorable product pricing, partially offset by lower volumes in the commercial aerospace market driven by the impact of COVID-19 and Boeing 787 production declines, and lower volumes in the defense aerospace market.

Segment Adjusted EBITDA Margin for the Engineered Structures segment increased approximately 70 basis points in 2021 compared with 2020, primarily due to cost reductions, partially offset by lower volumes in the commercial aerospace market, driven by the impact of COVID-19 and Boeing 787 production declines, and lower volumes in the defense aerospace market, including lower F-35 program volumes.

Third-party sales for the Forged Wheels segment increased $137, or 15%, in 2022 compared with 2021, primarily due to an increase in aluminum material and other inflationary cost pass through and higher commercial transportation volumes, partially offset by unfavorable foreign currency movements.

Sales for 2022 were $5,663 compared with $4,972 in 2021, an increase of $691, or 14%.

Cash provided from operations is expected to increase for the full year in 2023 compared with 2022, resulting from a continued focus on operating performance and on capital efficiency.

Additionally, an increase in material and other inflationary costs is expected to contribute to an increase in sales as the Company generally passes through these costs.

Such actions included procurement efficiencies and overhead rationalization to reduce costs, working capital initiatives, and maintaining a sustainable level of capital expenditures.

Howmet Aerospace Inc.,  is an American aerospace company based in Pittsburgh, Pennsylvania. The company manufactures components for jet engines, fasteners and titanium structures for aerospace applications, and forged aluminum wheels for heavy trucks. Howmet operates 27 facilities in the United States, Canada, Mexico, France, the UK, Hungary and Japan.

Howmet Aerospace Inc. provides advanced engineered solutions for the aerospace and transportation industries. It offers jet engine components, aerospace fastening systems, and titanium structural parts for mission-critical performance and efficiency in aerospace and defense applications, as well as forged wheels for commercial transportation. The company, formerly known as Arconic Inc., is headquartered in Pittsburgh, Pennsylvania.

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(USD)	Dec 2023	Q/Q
Revenue	1.7B	+4%
Gross Profit	501MM	-
Cost Of Revenue	1.2B	+4%
Operating Income	326MM	+6%
Operating Expenses	175MM	-
Net Income	236MM	+26%
R&D	9MM	-
G&A	83MM	-5%
Amortization	68MM	-
Interest Expense	52MM	-4%