Now, to the commercial airplane part of the business. Sales for the quarter were just over $30 million, down 17% from the year previous. It’s a change of about $6 million. Of that change, over $2 million is a reduction in sales of original equipment to Boeing. Another $3.4 million is a lower level of activity in business jets, mostly reflecting the fact that we’re completing the development programs on both the Hawker Horizon and the Bombardier Challenger, and our production deliveries to both Gulfstream and Cessna are running at about half the level they were in last year’s second quarter. Our aftermarket revenue of $12.8 million in the quarter was up only $200K from the same quarter a year ago, and about $400K above the level of last quarter. So, as yet, we have not seen a really dramatic increase in aftermarket revenues in the commercial airplane business.

So, that wraps up the second quarter.

As we look to the balance of fiscal ’04, we’re expecting a slight increase in quarterly sales to Boeing so that we’ll finish this year at about $32 million, $3 million short of our forecast. Secondly, our forecast for sales on the Raytheon Premier looks to be high by $1 million and our forecast for new programs looks optimistic by $2 million. So, if we make those adjustments and reduce our forecast for commercial aircraft by $6 million, that gets us down to $129 million for the commercial side, and a total of $405 million for the Aircraft business.

Margins in the Aircraft business continue to be our strong point. Margins for the quarter are 15.4%. We’re down in comparison to an unusually high 17.5% margin for the second quarter of last year. We had anticipated that margins would be in the current range, recognizing the impact of the low margin on the Joint Strike Fighter Program and the expenditure associated with the proposal activity on the 7E7. We had been projecting 16.2% for the year and we’re optimistic that the mix shift in the next two quarters - less JSF and more aftermarket sales - will allow us to finish at about 16%, pretty close to our original forecast.

Before I leave the Aircraft segment, I want to make my one and only comment about fiscal ’05. Given the replanning of the JSF Program that’s in process at the aircraft level, we’re not yet sure of our workload for ’05. We’re guessing that $10 million per quarter might be a reasonable expectation. If that occurs, the growth in other aircraft programs and in the aftermarket may only maintain the Aircraft sales level achieved in ’04 and our Company’s overall growth will be generated in our other three segments.

Space - Q2’04

Sales were $19.4 million, 10% less than last year, and 12% down from the previous quarter. This reduced sales level does not come as a surprise. Last quarter, I described at some length a recall problem on some solenoid-operated thruster valves. This is a product line that we acquired from PerkinElmer and, in transferring the production to our Company, we attempted to make some manufacturing improvements. In the process, we made a costly mistake. The problem is an under tolerance condition in some very small parts with the potential result of unreliable operation. There were 508 valves that had the potential for this problem. Of those, 364 had been delivered to customers and needed to be recalled. Most of those came back during the quarter and the repair work was a major production activity. We set up a loss reserve last quarter for $1.8 million. So, the cost of this effort did not get expensed this quarter. On the other hand, the effort expended on this task reduced substantially the capacity to build and deliver new hardware for which we could book sales and get paid. As a result, sales in the quarter were down from what would have been a normal shipment level in this year. The recall and repair task is on schedule and on budget. None of our customers are happy that this has happened, but most have been extremely reasonable and cooperative, and, in a few cases, customers have been actually complimentary of the extraordinary effort put forth by our staff to recover from this unfortunate event.

As I mentioned, since so much of our staff in East Aurora was tied up in this recall and repair activity, our shipment level of new hardware was unusually low. This, of course, had the expected impact on reduced margins. That, by itself, would have been bad enough, but the problem was compounded by the fact that, in our space mechanisms business, we had a couple of qual failures on two different programs.

In the satellite mechanisms product line, we are a designer and manufacturer of very specialized electromechanical actuation for satellites and space vehicles. A typical contract involves a lot of cost in design, development and qualification, and generally relatively few pieces of hardware. If we’ve quoted the job correctly, our expenditure level matches what we’ve planned, our design is successful and gets through qualification testing without too many problems, and this can be a good business. In this particular quarter, we had a couple of examples of what happens when things don’t work all that well.

One is a $1 million contract covering $500K in non-recurring, and about 10 actuators at a little over $40K apiece. In the most recent quarter, and before the hardware was delivered, we encountered a couple of design problems in qualification - bearings that wouldn’t stand up, and flexures that broke. As a result, the design will be changed and new parts will be made, and there will be an increase in costs on the program of about $400K, all of which is booked in this quarter.