Aircraft

Aircraft sales of $86 million were up only 3% from last year’s third quarter, but the really important news is that 42% of that total was aftermarket compared with 36% last year. The military aftermarket of $21.7 million was up an impressive 38% and the commercial aftermarket of $14.1 million was down only 2% from last year and up $2 million from the previous quarter.

As I mentioned earlier, military sales of $51.6 million were up 35% from last year. In addition to aftermarket increases, we’re witnessing the build-up of the F-35 contract. We also had an increase in our production on the V-22 as we caught up on some past-due deliveries, and in this quarter we had a substantial shipment of F-15 parts to our Japanese licensee.

On the commercial side, we had a weak quarter. Sales were $34.4 million. Boeing OEM sales of $11 million were down 41% from the same quarter last year. You may remember that 90 days ago, we reported an unusually strong second quarter, which led us to believe that Boeing was rebalancing inventory. Looking at this quarter’s sales it would appear that some of those sales were just an acceleration of this quarter’s production. We would expect that $12 to $13 million per quarter would be a more representative quarter at Boeing’s new, reduced production rates.

In addition to the decline in Boeing’s OEM sales, we had somewhat lower revenues this quarter in our business jet product line.

The other really good news in the quarter is the margin performance in the aircraft business. Aircraft margins for the third quarter were over 20%, reflecting the increased percentage of aftermarket revenues, and improving cost performance on our business jet development programs. In the development of new aircraft we’re always engaged in ongoing negotiations of scope changes in response to changes in aircraft specifications. They proceed step-by-step. If and when we successfully complete a major step, we’re able to recognize the positive impact on our overall contract performance. In this quarter that impact was in the neighborhood of $2 million.

As we look out to the rest of fiscal year ’02 we see a continuation of this quarter’s experience; somewhat higher margins than we predicted previously on slightly lower sales. We’re now forecasting for the year aircraft margins of 18 percent on total aircraft sales of $356 million.

We anticipate strong fourth quarter sales in Aircraft - in the neighborhood of $94 million. We’re expecting the continued buildup of our new F-35 program. We should see also increased revenue on the V-22, a more normal quarter for Boeing Commercial, and a stronger quarter in bizjet revenues. This would be the strongest sales quarter for the year, and will result in total Aircraft sales for ‘02 of $356 million. This is a reduction from $362 million that we predicted in our last conference call. Given the results achieved in the third quarter, particularly on the Boeing account, this seems like a more realistic projection.

As we look out to fiscal ’03 we’re expecting a nice increase in the Aircraft business, a $30 million
Increase, for a total of $386 million. The increase will come almost entirely in the military part of the business, and mostly as a result of the buildup of the F-35.

We expect to see increased shipments on the V-22, not because the program rate is increasing, but because a number of swashplate actuators delivered in earlier phases of the program will be rebuilt to the latest configuration.