Howmet Aerospace Inc.

Company Overview

Business Model: Howmet Aerospace Inc. is a leading global provider of advanced engineered solutions, primarily for the aerospace and transportation industries. The Company's core value proposition involves producing high-performance multi-materials and vertically integrated machined solutions, including investment castings for jet engines and industrial gas turbines, aerospace fastening systems, airframe structural components, and forged aluminum wheels for commercial transportation. Revenue is generated through direct sales to customers and distributors, with a focus on differentiated products that enable lighter, more fuel-efficient aircraft and commercial trucks, supporting sustainable air and ground transportation.

Market Position: Howmet Aerospace Inc. is a market leader in most of its principal markets, leveraging its advanced technology, materials science expertise, precision engineering, state-of-the-art capabilities, capacity, quality, and long-standing customer relationships. The Company invented the forged aluminum truck wheel in 1948 and continues to advance technology in this area. Its products are critical for next-generation aerospace programs, with the ability to produce over 90% of all structural and rotating aero engine components. The Company faces substantial and intense competition from both U.S. and non-U.S. companies, including Berkshire Hathaway Inc. (Precision Castparts Corporation), VSMPO (Russia), ATI Inc., Lisi Aerospace (France), and Aubert & Duval (part of Airbus, Safran, and Tikehau Capital).

Recent Strategic Developments:

• Consolidated Aerospace Manufacturing, LLC Acquisition: On December 22, 2025, Howmet Aerospace Inc. entered into an agreement to acquire Consolidated Aerospace Manufacturing, LLC, a wholly owned subsidiary of Stanley Black & Decker, Inc., for approximately $1.8 billion in cash. This acquisition is expected to close in the first half of 2026, subject to customary closing conditions and regulatory approvals, and its operations will be included in the Fastening Systems segment.
• Brunner Manufacturing Co. Inc. Acquisition: On February 6, 2026, Howmet Aerospace Inc. acquired Brunner Manufacturing Co. Inc., a small privately-held manufacturer of high-quality fastener products in the U.S., for an all-cash purchase price of approximately $120 million. This acquisition will be included in the Fastening Systems segment.
• Capital Structure Simplification: On December 17, 2025, Howmet Aerospace Inc. redeemed all 546,024 outstanding shares of its Class A preferred stock at $100 per share plus accrued dividends, simplifying its capital structure.

Geographic Footprint: Howmet Aerospace Inc. is a global company operating in 19 countries. In 2025, North America accounted for 72% of sales and Europe for 22%, based on the country of shipment. Key operating regions include the United States, Canada, Mexico, France, United Kingdom, Hungary, Germany, Japan, and China. Long-lived tangible assets are primarily located in the United States ($2,082 million), Hungary ($218 million), United Kingdom ($153 million), France ($130 million), Mexico ($63 million), Germany ($62 million), and Japan ($48 million) as of December 31, 2025.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 34.2% (2025) vs. 31.1% (2024)
• Operating Margin: 24.8% (2025) vs. 22.0% (2024)
• Net Margin: 18.3% (2025) vs. 15.5% (2024)

Investment in Growth:

• R&D Expenditure: $37 million (0.45% of revenue)
• Capital Expenditures: $453 million
• Strategic Investments:
  • Proposed CAM Acquisition: Approximately $1.8 billion cash purchase price (expected to close H1 2026).
  • Brunner Manufacturing Co. Inc. Acquisition: Approximately $120 million all-cash purchase price (acquired February 2026).
  • Capacity expansions in Engine Products to support aerospace and gas turbines market growth and share gains.

Business Segment Analysis

Engine Products

Financial Performance:

• Revenue: $4,320 million (+16% YoY)
• Operating Margin (Segment Adjusted EBITDA Margin): 33.3% (vs. 30.8% in 2024)
• Key Growth Drivers: Growth in the commercial aerospace, defense aerospace, and gas turbines markets, including engine spares growth. The segment absorbed approximately 1,445 net headcount in 2025 to support expected revenue increases.

Product Portfolio:

• Investment castings (including airfoils)
• Seamless rolled rings
• Rotating and structural parts for aircraft engines and industrial gas turbines

Market Dynamics:

• Principally serves the commercial and defense aerospace and gas turbines markets.
• Demand is expected to increase in 2026 across these markets, including engine spares.
• Capital expenditures remain elevated for capacity expansions.

Fastening Systems

Financial Performance:

• Revenue: $1,745 million (+11% YoY)
• Operating Margin (Segment Adjusted EBITDA Margin): 30.4% (vs. 25.8% in 2024)
• Key Growth Drivers: Growth in the commercial aerospace market and productivity gains, partially offset by lower volumes in the commercial transportation market.

Product Portfolio:

• Aerospace and industrial fastening systems
• Commercial transportation fasteners and installation tools
• High-tech, multi-material fastening systems for commercial and military aircraft, jet engines, industrial gas turbines, commercial transportation vehicles, wind turbines, solar power systems, and construction and industrial equipment.

Market Dynamics:

• Demand in commercial aerospace is expected to increase in 2026.
• Commercial transportation market demand is expected to remain low, with recovery anticipated in the second half of 2026 due to tariff-related, economic, and regulatory uncertainty in North America.
• The Brunner acquisition and the Proposed CAM Acquisition will be integrated into this segment.

Engineered Structures

Financial Performance:

• Revenue: $1,148 million (+8% YoY)
• Operating Margin (Segment Adjusted EBITDA Margin): 21.2% (vs. 15.6% in 2024)
• Key Growth Drivers: Growth in the defense aerospace market. The segment is focusing on optimizing its manufacturing footprint and rationalizing product mix to maximize profitability.

Product Portfolio:

• Titanium ingots and mill products
• Titanium forgings, extrusions, and machining services for airframe, wing, aero-engine, and landing gear components
• Aluminum forgings, nickel forgings, and aluminum machined components and assemblies for aerospace and defense applications.

Market Dynamics:

• Demand in the commercial aerospace market is expected to increase in 2026.
• Focus on profitability optimization through manufacturing footprint and product mix rationalization.

Forged Wheels

Financial Performance:

• Revenue: $1,039 million (-1% YoY)
• Operating Margin (Segment Adjusted EBITDA Margin): 28.5% (vs. 27.2% in 2024)
• Key Growth Drivers: Cost reductions, including lower net headcount, in response to lower volumes in the commercial transportation market, and favorable foreign currency exchange rates, partially offset by higher aluminum cost pass through.

Product Portfolio:

• Lightweight, high-strength forged aluminum wheels for trucks, buses, and trailers (sold under the Alcoa® Wheels brand).
• Advanced wheel designs utilizing MagnaForce® alloy.
• Dura-Bright® surface treatment for corrosion resistance and reduced maintenance.

Market Dynamics:

• Serves the global transportation market.
• Demand in commercial transportation markets is expected to remain low, with recovery beginning in the second half of 2026.
• Increased competition from aluminum wheel suppliers from China, Taiwan, India, South Korea, and Turkey.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $700 million (4.4 million shares) in 2025.
• Dividend Payments: $181 million in 2025 ($0.44 per common share, $2.81 per preferred share plus accrued dividend of $0.8125 per share).
• Dividend Yield: Not explicitly stated, but common dividend was $0.44 per share in 2025.
• Future Capital Return Commitments: Approximately $1,347 million in Board authorization remaining for share repurchases as of February 6, 2026. A dividend of $0.12 per common share was declared on January 20, 2026, to be paid on February 25, 2026.

Balance Sheet Position:

• Cash and Equivalents: $742 million (as of December 31, 2025)
• Total Debt: $3,050 million (as of December 31, 2025)
• Net Cash Position: -$2,308 million (Net Debt)
• Credit Rating: Investment grade ratings from S&P Global Ratings (BBB+, Stable), Moody’s Investors Service (Baa1, Stable), and Fitch Ratings, Inc. (BBB+, Stable).
• Debt Maturity Profile: Principal maturities are $191 million in 2026, $0 in 2027, $300 million in 2028, $700 million in 2029, and $0 in 2030. Long-term debt maturities extend to 2042.

Cash Flow Generation:

• Operating Cash Flow: $1,884 million (2025)
• Free Cash Flow: Not explicitly stated, but operating cash flow increased by 45% from 2024.
• Cash Conversion Metrics: Favorable changes in deferred revenue and other accrued expenses ($91 million), inventories ($56 million), taxes ($8 million), and prepaid expenses and other current assets ($4 million) contributed to operating cash flow in 2025.

Operational Excellence

Production & Service Model: Howmet Aerospace Inc. provides innovative solutions through differentiated products, including investment castings, seamless rolled rings, fastening systems, forged jet engine components, machined and forged aircraft parts, and forged aluminum commercial vehicle wheels. The Company's precision engineering, materials science expertise, and advanced manufacturing processes aim to achieve greater fuel economies, reduced emissions, passenger comfort, and maintenance efficiencies for its customers. Products are sold directly to customers or through distributors.

Supply Chain Architecture: Key Suppliers & Partners:

• Raw Materials: Aluminum, titanium, cobalt, nickel, platinum, ceramics, superalloy materials, and various steels. Raw materials are generally purchased from third-party suppliers under competitively priced supply contracts or bidding arrangements.
• Energy: Energy is a significant input cost.
• Limited/Sole Source Suppliers: Dependence on a limited number of suppliers for certain raw materials and services, such as titanium sponge and specialized metal alloys.
• Customer Revert: Customers' failure to return titanium revert (reusable scrap) can increase titanium purchase costs.

Facility Network:

• Manufacturing: Operates facilities in 19 countries, including major production sites in the U.S. (e.g., Fontana, CA; Rancho Cucamonga, CA; Torrance, CA; Branford, CT; Whitehall, MI; Cleveland, OH; Wichita Falls, TX), Canada (Georgetown, Ontario; Laval, Québec), China (Suzhou), France (Dives-sur-Mer, Evron, Gennevilliers), Germany (Bestwig, Erwitte), Hungary (Székesfehérvár), Japan (Nomi), Mexico (Ciudad Acuña, Monterrey), and the U.K. (Exeter, Glossop, Ickles).
• Research & Development: R&D spending increased in 2025, focusing on technology projects for aerospace and gas turbines markets.
• Distribution: Supported by sales and administrative offices, distribution centers, or warehouses in 16 additional locations globally.

Operational Metrics:

• Cost of goods sold as a percentage of Sales decreased to 65.8% in 2025 from 68.9% in 2024, driven by higher volumes, favorable product pricing, and productivity gains.
• Engine Products absorbed approximately 1,445 net headcount in 2025 to support expected revenue increases, incurring near-term recruiting, training, and operational costs.
• Forged Wheels implemented cost reductions, including lower net headcount, in response to lower commercial transportation volumes.

Market Access & Customer Relationships

Go-to-Market Strategy: Howmet Aerospace Inc. sells its products directly to customers and through distributors. Commercial terms are influenced by industry custom, market conditions, and product line.

Distribution Channels:

• Direct Sales: Utilizes direct sales to major customers, particularly in aerospace and commercial transportation.
• Channel Partners: Products are also sold through distributors.
• Digital Platforms: Not explicitly detailed in the filing.

Customer Portfolio:

• Enterprise Customers: RTX Corporation and GE Aerospace each represented approximately 11% of the Company’s third-party sales in 2025, primarily from the Engine Products segment.
• Customer Concentration: The loss of any significant customer could have a material adverse effect on the business.
• Strategic Partnerships: Long-term contracts with a significant number of customers.

Geographic Revenue Distribution:

• United States: $4,777 million (57.9% of total revenue)
• France: $625 million (7.6% of total revenue)
• Japan: $513 million (6.2% of total revenue)
• Germany: $439 million (5.3% of total revenue)
• United Kingdom: $376 million (4.6% of total revenue)
• Italy: $264 million (3.2% of total revenue)
• Canada: $187 million (2.3% of total revenue)
• Mexico: $166 million (2.0% of total revenue)
• Poland: $150 million (1.8% of total revenue)
• China: $130 million (1.6% of total revenue)
• Other: $1,025 million (12.4% of total revenue)

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: Howmet Aerospace Inc. operates in cyclical markets, including aerospace (commercial and defense), commercial transportation, and gas turbines. Demand is sensitive to global economic conditions, currency exchange rates, interest rates, inflation, energy prices, and government spending (defense). The commercial aerospace industry is driven by demand for new aircraft and spare parts, influenced by airline profitability and passenger traffic. The gas turbines market is driven by demand for electricity generation, including data center build-out. The commercial transportation market is affected by vehicle production, fleet age, fuel prices, and regulatory requirements.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Berkshire Hathaway Inc. (Precision Castparts Corporation): Competes in titanium and titanium-based alloys, precision forgings, seamless rolled rings, investment castings (including airfoils), and aerospace fasteners.
• VSMPO (Russia): Competes in titanium and titanium-based alloys and precision forgings.
• ATI Inc. (High-Performance Materials & Components segment): Competes in titanium and titanium-based alloys and precision forgings.
• Lisi Aerospace (France): Competes in aerospace fasteners.
• Aubert & Duval (part of Airbus, Safran, and Tikehau Capital): Competes in precision forgings.
• Doncasters Group Limited (U.K.) and Consolidated Precision Products Corp. (owned by Warburg Pincus and Berkshire Partners): Competes in investment castings.
• Weber Metals, Inc. (part of Otto Fuchs): Competes in precision forgings.
• Forgital Group and Frisa (Mexico): Competes in seamless rings.
• Commercial Wheels Competitors: Accuride Corporation, Speedline (member of the Ronal Group), Nippon Steel Corporation, Dicastal North America, Inc., Alux Co., Ltd., and Wheels India Limited.

Emerging Competitive Threats:

• Increased number of aluminum wheel suppliers (forged and cast) from China, Taiwan, India, South Korea, and Turkey attempting to penetrate the global commercial transportation market.
• Several large customers have captive superalloy furnaces for producing airfoil investment castings for their own use.
• Potential for increased international competition due to strategic alliances among engine original equipment manufacturers, aero-structure prime contractors, and overseas companies, especially with "offset" or "local content" requirements.
• New entrants, new product offerings, new and/or emerging technologies (including AI) in the marketplace.

Competitive Response Strategy: Howmet Aerospace Inc. aims to maintain its competitive position through technological expertise, state-of-the-art capabilities, capacity, quality, engaged employees, and long-standing customer relationships. The Company continues to develop and innovate products, deploy technology initiatives, and implement advanced manufacturing technologies, including through the use of new and evolving technologies like AI.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Cyclicality: Exposure to cyclical fluctuations in global economic conditions and lightweight metals end-use markets (aerospace, commercial transportation). Demand is sensitive to regional/worldwide economies, currency exchange rates, interest rates, inflation, and energy prices.
• Aerospace Industry Dependence: Approximately 70% of 2025 revenue from aerospace (commercial and defense), which is cyclical and influenced by airline profitability, passenger traffic, government defense spending, and geopolitical environments.
• Customer Concentration: RTX Corporation and GE Aerospace each represented approximately 11% of 2025 sales. Loss of a key customer or significant changes in their business/financial condition (e.g., quality control issues at The Boeing Company, labor union work stoppages) could materially impact financial performance.
• Raw Material Cost Volatility: Costs of nickel, titanium, aluminum, cobalt, and superalloy materials are influenced by market forces, inflation, supply/demand, and geopolitical events (e.g., Russia-Ukraine conflict impacting titanium prices). Delays in passing through cost increases to customers could impact margins.
• Global Trade Environment: Volatility from tariffs, trade barriers, export restrictions, and sanctions (e.g., U.S. executive orders in 2025/2026) can increase raw material and operating costs, with uncertainty in mitigation success.
• Inflation: Increased costs of materials and labor due to global and U.S. inflation, with potential delays in passing these costs to customers.

Technology Disruption:

• Competitive Innovation: Competitors may develop similar or superior technologies, or design around Howmet Aerospace Inc.'s patents.
• AI Risks: Unauthorized use or misuse of AI by employees/vendors could lead to disclosure of confidential data, reputational harm, privacy violations, cybersecurity risks, and legal liability. AI algorithms may also produce inaccurate or harmful results.
• Failure to Innovate: Inability to successfully differentiate products or achieve/maintain technological advantages could adversely affect competitive position.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Supplier Dependency: Dependence on limited or sole-source suppliers for critical materials (e.g., titanium sponge, specialized metal alloys).
• Supply Chain Disruptions: Risks from lack of capacity, labor shortages, material availability, trade barriers, business continuity issues, quality problems, cyberattacks, transportation/logistics challenges, weather, natural disasters, war, or pandemics.
• Mitigation Challenges: Approval, license, and qualification requirements may limit readily available alternative sources.

Capacity Constraints:

• Failure to meet program demand, production targets, or commitments, especially with anticipated production increases in aerospace, could harm reputation, business, and financial condition.
• Inability to ramp up production quickly enough to meet rapidly increasing demand could result in lost growth opportunities.

Workforce Management:

• Talent Shortages: Difficulty attracting, recruiting, training, and retaining qualified and skilled personnel (e.g., in engineering, manufacturing, technology) due to labor shortages and increased competition for talent.
• Labor Relations: Significant portion of employees represented by labor unions; risk of labor disputes, strikes, or work stoppages if successor collective bargaining agreements cannot be negotiated favorably.
• Key Personnel Loss: Loss of key personnel or inadequate succession planning could deplete institutional knowledge, delay business plans, and erode competitiveness.

Financial & Regulatory Risks

Market & Financial Risks:

• Credit Profile Impact: Decline in financial performance or outlook could negatively impact credit ratings, access to capital markets, and borrowing costs.
• Pension Funding: Adverse capital market conditions, declines in liability discount rates, or lower-than-expected investment returns on pension assets could increase liabilities and funding contributions.
• Shareholder Returns Discretion: Dividends and share repurchases are at the discretion of the Board of Directors and depend on various factors, with no assurance of future payments or repurchases.

Regulatory & Compliance Risks:

• Legal Proceedings: Exposure to product liability, personal injury, property damage, and other claims. Potential for government investigations, regulatory enforcement actions, and recalls if products are perceived as defective.
• Global Regulatory Compliance: Subject to various federal, state, local, and foreign laws and regulations, including antitrust, anti-bribery, trade (ITAR, EAR, OFAC sanctions), human rights, and data privacy.
• Government Contracting: Revenue from U.S. and foreign governments subject to procurement laws and regulations; failure to comply could result in penalties, contract termination, or suspension from future contracting.
• Intellectual Property Challenges: Competitors may develop similar technologies or design around patents. Risk of misappropriation of technology, especially with AI use. Enforcement of IP rights can be expensive and insufficient.
• Tax Law Changes: Unanticipated changes in domestic or foreign tax laws (e.g., OECD Pillar 2 framework, OBBB Act) or their interpretation could affect tax expense and profitability.
• Environmental, Health, and Safety: Operations subject to numerous complex and stringent EHS laws and regulations, leading to significant compliance costs and liabilities. Risk of injury or death to employees/third parties at facilities.
• Climate Change: New or revised climate-related laws, regulations, and customer decarbonization requirements could increase production costs or impact demand. Physical risks (flooding, extreme weather) could damage facilities or supply chains.

Geopolitical & External Risks

Geopolitical Exposure:

• Global Operations: Operations in 19 countries expose the Company to economic, political, and legal conditions, including instability, changes in local laws (tariffs, sanctions, exchange controls), expropriation, and civil unrest.
• Conflicts and Wars: Geopolitical tensions, conflicts (e.g., Ukraine, Middle East), and wars can impact global energy markets, leading to volatility and increased prices.
• Trade Relations: Impact of trade tensions and policy changes on business.
• Sanctions & Export Controls: Compliance requirements and business limitations due to trade restrictions.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Aerospace and Gas Turbines: Increased R&D spending in 2025 focused on technology projects for these markets.
• Product Differentiation: Aims to provide innovative solutions through differentiated products like airfoils with advanced cooling and coatings, specially-designed fasteners, and lightweight aluminum commercial wheels.

Intellectual Property Portfolio:

• Patent Strategy: Worldwide patent portfolio consisted of approximately 1,020 granted patents and 180 pending patent applications as of the end of 2025. Patents generally concern particular products, manufacturing equipment, or techniques.
• Trade Secrets: Significant number of trade secrets, mostly regarding manufacturing processes and material compositions, providing important market advantages.
• Trademark Strategy: Worldwide trademark portfolio consisted of approximately 1,590 registered trademarks and 70 pending trademark applications as of the end of 2025. Examples include Howmet®, Huck® fasteners, and Dura-Bright® wheels. Exclusive licensee of the "Alcoa" name and logo for wheels, hubs, and related products.

Technology Partnerships: Not explicitly detailed in the filing beyond general R&D focus.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company's talent review and succession planning process is an ongoing priority, sponsored and led by the Chief Executive Officer with oversight by the Board of Directors.

Board Composition: The Board of Directors, through its Cybersecurity Committee (formalized in 2022), is actively engaged in overseeing and reviewing the Company’s cybersecurity programs and risk management. The Cybersecurity Committee comprises three members and meets at least quarterly.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 25,430 employees in 23 countries at the end of 2025.
• Geographic Distribution: Approximately 26% of the U.S. workforce (3,860 employees) are represented by labor unions.
• Skill Mix: Focus on qualified and skilled personnel with relevant industry and technical experience, particularly in engineering, manufacturing, and technology.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Utilizes workforce planning, increased hiring efficiency, and new technology for job postings. Committed to military recruiting, adding U.S. Department of War SkillBridge Program partnerships in 2025.
• Retention Strategies: Offers onboarding programs, robust leadership and development opportunities, and expanded tuition assistance program in 2025 to include certifications.
• Employee Value Proposition: Provides competitive wages, benefits, and terms of employment.

Diversity & Development:

• Development Programs: Created Frontline Leader Program and Plant Manager Development Initiative to bolster internal talent pipeline. Employees use a human capital management platform to identify career options, skills gaps, and progress within the Company.
• Culture & Engagement: Strong health and safety culture, with annual health and safety goals embedded in operating plans to achieve zero incidents. Mentoring program builds readiness for future leaders.

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Emissions Targets: Subject to new and proposed legislative and regulatory initiatives (e.g., cap-and-trade, greenhouse gas limits) and customer decarbonization requirements.
• Renewable Energy: Increased energy costs and/or costs to transition to renewable energy sources could impact the Company.

Supply Chain Sustainability:

• Supplier Engagement: Compliance with environmental laws and regulations, including increased indirect costs from suppliers' compliance, may impact results.

Social Impact Initiatives:

• Community Investment: Not explicitly detailed in the filing.
• Product Impact: Differentiated technologies enable lighter, more fuel-efficient aircraft and commercial trucks, contributing to a lower carbon footprint and more sustainable transportation.
• Health & Safety: Strong health and safety culture, internal policies, standards, rules, and procedures. Annual health and safety goals and objectives embedded in operating plans to progress toward zero incidents.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: Not explicitly detailed in the filing.
• Economic Sensitivity: Markets for Howmet Aerospace Inc.'s products are cyclical, particularly aerospace and commercial transportation. Demand is sensitive to global economic conditions, currency exchange rates, interest rates, inflation, and energy prices.
• Industry Cycles: Commercial aerospace is driven by airline industry profitability and passenger traffic. Defense aerospace depends on government spending. Commercial transportation is affected by vehicle production, fleet age, and regulatory requirements.

Planning & Forecasting: The timing and level of future aircraft builds by original equipment manufacturers are subject to changes and uncertainties, which may cause future results to differ due to changes in product mix.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• Environmental: Operations are subject to numerous complex and increasingly stringent health, safety, and environmental laws and regulations.
• Government Contracts: Contracts with U.S. and foreign governments are subject to various procurement laws and regulations.
• New Technologies: Growing laws and regulations focused on the development, use, and provision of new technologies like AI, which may impose obligations, limit use, and result in reputational damage or penalties.

Trade & Export Controls:

• Export Restrictions: Subject to U.S. and foreign laws concerning trade, including the International Traffic in Arms Regulations, Export Administration Regulations, and sanctions administered by the U.S. Department of Treasury’s Office of Foreign Assets Control.
• Sanctions Compliance: Compliance with sanctions, regulations, and embargoes.

Legal Proceedings:

• Grenfell Fire Litigation: Howmet Aerospace Inc. is involved in U.K. litigation and a U.S. derivative complaint related to the Grenfell Fire, though Arconic Corporation indemnifies Howmet Aerospace Inc. for associated liabilities. A settlement for the U.S. derivative complaint was approved in February 2026 with no material impact on the Company's results.
• French Tax Authority Audit: Received an adverse decision from the Paris Administrative Court of Appeal in March 2023 regarding a 2010-2012 tax assessment. The French Administrative Supreme Court upheld the tax and interest assessment ($10 million) in July 2024 but remanded the penalty assessment. Howmet Aerospace Inc. paid the assessment in December 2023 and continues to protest penalties.
• Other Litigation: Involved in various other lawsuits, claims, investigations, and proceedings related to environmental, product liability, safety and health, employment, tax, and antitrust matters.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 18.0% in 2025 (vs. U.S. federal statutory rate of 21%).
• Rate Drivers: Benefits from U.S. deduction on Foreign Derived Intangible Income ($38 million), federal and state R&D credits ($23 million), excess benefit for stock compensation ($18 million), U.S. tax accounting method changes ($17 million), various other tax credits ($16 million), and release of valuation allowances related to U.S. foreign tax credits ($8 million) and U.S. state tax losses/credits ($6 million). Partially offset by incremental state/foreign taxes ($24 million), U.S. tax on Global Intangible Low-Taxed Income (GILTI) and other foreign earnings ($19 million), nondeductible expenses ($14 million), charges related to the One Big Beautiful Bill Act ($10 million), and net charge from expiration/reinstatement of China tax holiday ($8 million).
• Geographic Tax Planning: International tax structure and transfer pricing are considered. Foreign U.S. GAAP earnings generally exempt from future U.S. tax when distributed, but may be subject to U.S. state tax and foreign withholding taxes.
• Tax Reform Impact: The OECD Pillar Two model rules (15% global minimum tax) implemented in multiple countries effective January 1, 2024, have not had a material impact on the effective tax rate. The July 4, 2025 enactment of the One Big Beautiful Bill Act resulted in a $10 million charge.
• Future Outlook: Anticipates an effective tax rate between 20.5% and 21.5% in 2026.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: Maintains insurance coverage for various risks.
• Risk Transfer Mechanisms:
  • Bank Guarantees: $4 million outstanding as of December 31, 2025, related to customs duties, plant expansion, rental, and environmental obligations.
  • Alcoa Corporation Guarantee: Provides a guarantee for Alcoa Corporation's long-term energy supply agreement (expires 2047), with a fair value of $5 million as of December 31, 2025. Arconic Corporation indemnifies Howmet Aerospace Inc. for 50% of any liability. A surety bond of $80 million was obtained by Alcoa Corporation to protect Howmet Aerospace Inc.'s obligation.
  • Letters of Credit: $76 million outstanding as of December 31, 2025, primarily for workers’ compensation, environmental obligations, tax matters, and insurance. Includes $43 million retained for pre-separation workers' compensation claims and $9 million for Arconic Corporation and Alcoa Corporation environmental obligations, for which Howmet Aerospace Inc. is reimbursed.
  • Surety Bonds: $44 million outstanding as of December 31, 2025, primarily for customs duties, workers’ compensation, environmental-related matters, and contract performance. Includes $19 million for pre-separation workers' compensation claims, for which Howmet Aerospace Inc. is reimbursed.
  • Supplier Finance Programs: Offers voluntary supplier finance programs at no cost to the Company, providing liquidity to suppliers.
  • Derivative Instruments: Uses commodity derivative financial instruments and interest rate swaps/cross-currency swaps to manage economic risk and hedge variability in future payments.