Annual Meeting Remarks, 1/12/05

01 / 12 / 2005

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Mark Trabert, Deputy General Manager of Aircraft Group

Good morning. In late 2001, Moog was selected by Lockheed Martin to be the supplier of several critical primary and secondary flight control systems for the airplane. Since that time, the F-35 has driven the growth of our military aircraft business, and we expect it to form the core of that business for years to come. In addition to the financial benefits of the F-35, there are substantial strategic benefits to Moog as well, which I’ll talk about in a few minutes.

The F-35 is a Tri-Service Program to develop the next generation fighter to replace the aging fleets of the U.S. Air Force, Marine Corp, and the Navy. The Defense Department’s strategy is to develop a highly common platform that will meet the future needs of all three services without having to bear the cost of undertaking three separate airplane development programs. A unique feature of the program is the involvement and financial commitment of partner nations during the airplane’s development phase. There are currently eight countries that have made financial commitments to the F-35, all of which are expected to be sources of future foreign military sales of the airplane. The program is currently transitioning from the design phase to initial production of the first Air Force aircraft. Design activities for the Marine Corp and Navy variants will continue in the coming year.

During the past year, the Marine Corp variant underwent a significant redesign to reduce its weight. Weight is always an important aspect of an airplane’s design, however, it is especially critical for the Marine Corp version of the F-35 because that airplane has the unique requirement to take off and land vertically. Though this redesign has been somewhat of a setback for the JSF Program, the new program Plan has been formally reviewed and approved by DoD and has the full support of the services. The F-35 continues to enjoy support in both the Administration and the Congress and is one of the few major weapon systems not targeted for cuts in the DoD’s FY06 defense budget proposal.

Low Rate Initial Production to Begin 2007

As I mentioned earlier, Lockheed is in the process of building the first Air Force aircraft, which is expected to fly in the late summer of 2006. The first Marine Corp variant is now planned to fly in the fall of 2007 and the Navy variant will have its first flight in early 2009. Altogether, Lockheed will produce twenty-two aircraft during this development phase of the program. The first low rate production program is scheduled to begin in 2007. The services currently plan to buy about 2,500 aircraft over the life of the program, with an additional 2,000 aircraft estimated for foreign military sales.

Moog’s role as the designer, integrator, and producer of the Primary Flight Control Actuation System, the Leading Edge Flap Actuation and the Wingfold Actuation puts us on the critical path to first flight of the F-35. Lockheed can’t fly the airplane without our hardware. Together with our partners, Parker Hannifin and Curtiss-Wright, we have finished the initial design of these systems and are in the process of qualifying them for flight. We have delivered our first hardware to Lockheed’s lab so they can integrate and test our systems with other critical systems on the airplane. We will deliver certified hardware on the first aircraft during the first half of this year. Despite the significant technological and management challenges we’ve faced on this program, we have made tremendous progress in developing our systems in support of Lockheed’s critical milestones.

$1 million per shipset

In my opening remarks, I talked about the F-35 being at the core of Moog’s military aircraft business for years to come. In production, we estimate our original equipment content to be over $1M per airplane. Based on Lockheed’s current estimate of delivering over 4,000 airplanes, including international sales, that’s more than $4B in OEM revenues for Moog over the life of this program. With such a large fleet of aircraft flying, we also expect the
F-35 to provide significant, highly profitable aftermarket revenues over and above our OEM sales, making the F-35 Program the largest in our company’s history.

In addition to the obvious financial benefits the F-35 brings to Moog, this program also plays an important strategic role for our company’s future. The F-35 will be the first production airplane to incorporate the next generation electrohydrostatic flight controls technology, and Moog is the company providing this system. Also, the airplane industry is transitioning from a business model wherein the airframe companies, like Lockheed and Boeing, used to buy components and integrate large subsystems themselves, to a model where the airframers depend on system suppliers to develop, integrate and deliver large, complex subsystems to the airplane. On this program, Moog is developing the management tools, filling the skills gaps and gaining valuable experience in managing the type of complex programs that will differentiate us from most of our competitors in the future.

As you can see, the F-35 is key to the future of Moog’s aircraft business. Financially, if it proceeds as planned, the F-35 will be the largest program in our company’s history. Strategically, the F-35 is providing Moog with the technological and managerial credentials that will be critical for positioning our company as a leader in the evolving aircraft industry of the future.

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