Mark J. Costa
Chairman and Chief Executive Officer at Eastman Chemical
Sure, Dave, and it's good to hear from you. And we are really excited about Advanced Materials and its ability to deliver pretty substantial earnings growth as you just mentioned. and I think to talk about it, it's best to start with the context of last year because it really feeds into why we're so confident about this year. So last year both at the company level as well in particular at the Advanced Materials level, primary demand was incredibly strong at the consumer level, strong in transportation, B&C, durables, a variety of markets, textiles, etc. And so the constraint in serving it, especially in Advanced Materials, wasn't a demand situation. It was a outbound logistics and operational concern because the demand did come back in such a strong way, we, across the world, of course, ran into supply chain outbound logistics constraints in the industry. And we at Eastman had operational constraints.
And so you've got all this primary demand. Then you've got the innovation driving the growth to be well above in markets, especially in durables and transportation and textiles -- well, textiles is Fibers. And you've got these operational constraints, right? They were in three buckets. There were plant shutdowns. And in particular in Advanced Materials, we had to pull forward the line conversion of Tritan because that demand was so strong, we weren't able to serve it with the existing capacity, so we had that line conversion that took a bunch of capacity offline during the second quarter of last year. And then we had a long shutdown in the fourth quarter to expand capacity and improve reliability, and bringing that facility -- set of facilities back up online in December took a lot longer than we expected.
So operationally constrained demand through last year. So when you look at this year from a volume/mix point of view, we expect to have a lot more capacity, and we're in a better logistics position to serve all that demand. The innovation will continue to deliver a lot of strong growth on top of that allows us to have a very large driver on that front.
In addition to that, of course, with the market being so constrained and tight last year, we had extraordinary inflation across the company and in AM, and it really accelerated through the back half of last year in Advanced Materials in particular. And so there was a period of time as always that takes prices to catch up to raws. Now on that front, we did a great job of getting all of our prices back up and especially plastics as well as new contracts and interlayers to recover the distribution energy and raw material headwind that we'd incurred. And as we look forward, those prices are sufficient to cover raw material and energy costs being similar to fourth quarter and a increasing logistics headwind this year. So you've got at least $100 million of spread tailwind that is fairly well defined by the prices we have in place now. So you put those two together, that's very strong growth. But then there's still a cost tailwind as well for this segment. So when you have all those operational shutdowns like we did last year, it's not just the higher maintenance costs, the lost volume opportunities, it also led to a very high air freight expense. At the company level, air freight was probably $65 million last year relative to a normal $10 million and a lot of that was in Advanced Materials.
So our supply chains are in much better shape where we're not going to incur that air freight this year. Already have good plans to materially reduce it back to that more normal level. Not all the way there but good progress. So you've got cost tailwinds, to some degree offset by growth spend, but when you put it all together it adds up to a very impressive earnings outlook for Advanced Materials. And you'll see that immediately in the first quarter with strong sequential improvement as that volume and mix improves without the operational constraints of that fourth quarter, which was over $25 million there, spread expansions [Indecipherable] by those prices that are already in place as we talked about, and the costs will be a bit better. So we feel great about the segment, and it's really a testament to the innovation, right? It's not just about markets. We're growing well above our markets, even in automotive being above the automotive challenges by a significant amount.