Aircraft - Q3’04

Aircraft sales of $102 million were up slightly from a quarter ago, but down $1.2 million from the same quarter a year ago. The change is all in the military part of the business. Last year, in the third quarter, we had very large shipments, over $4 million, of sub-assemblies and components for the F-15 in Japan. A more typical program rate for that business would be less than a $1 million a quarter. In addition, in last year’s third quarter, we had $15 million in revenues on the Joint Strike Fighter development programs. We’re now down to $13.4 million and, as we mentioned 90 days ago, we expect revenues to settle to about $11 million a quarter as the heavy design and development effort is largely completed and we move into system integration testing of hardware that’s already been built.

The good news in the military aircraft business is that we have seen an improvement in the aftermarket, almost $24 million, in quarter three, up from $20.7 million a year ago. Ninety days ago, we updated our forecast for the military aftermarket to a total of $90 million for the year and we’re hopeful that a strong fourth quarter, in the neighborhood of $26 million, will bring us very close.

Last quarter at this time, we were projecting a total for the year in military aircraft of $276 million. The major change since then is that our Joint Strike Fighter Program was about $3 million stronger in the third quarter than we anticipated and, so, we’re now projecting a year-end military aircraft result of $279 million.

Sales of commercial aircraft hardware for the quarter were $33.2 million, up about $500K from the same quarter a year ago. The commercial aircraft aftermarket came in at just over $13 million, a $2 million increase from a year ago. Some of this increase was offset by a small reduction in original equipment deliveries to Boeing, $8 million this year vs. $8.6 million last year, and an $800K reduction in revenues from business jets. Deliveries to Airbus at about $3 million a quarter have been stable.

We believe that the strengthening in the commercial aftermarket will continue and that we’ll have a bigger fourth quarter. We expect that our business at Airbus and on engine controls will continue at roughly the current level and we expect in the fourth quarter to see a small uptick in business jets. All in all, we’re increasing our forecast for commercial aircraft for the fiscal year by $2 million to a new total of $131 million.

Given these changes in both military and commercial aircraft forecasts, we now have fiscal ’04 up to a total of just under $410 million, up from $405 million, which was our estimate a quarter ago.

Margins in the aircraft business of 14.7% were down from the 16.9% of a year ago. On the other hand, I’ve pointed out on a number of occasions that, for the aircraft business, margins at or around 15% are more typically sustainable over the long haul. Margins in any particular quarter are always affected by the mix of products sold. Although aftermarket sales were up somewhat in this quarter from a year ago, the results at that time were influenced in a positive way by some other factors, including the large volume in parts and assemblies sold on the F-15 in Japan.

On a year-to-date basis, our aircraft margins are 15.5%, and we’re hopeful that we’ll achieve a number like that in the fourth quarter and that, therefore, that will be a good average for the year.

Looking into fiscal ’05, we’re happy to report that we’re forecasting an Aircraft business that’s ever so slightly larger than our sales in ’04 - $415 million vs. $410 million. The increase is all occurring in the commercial part of the business where we’re forecasting a $5 million increase for Boeing Commercial, a $5 million increase in deliveries on business jets, and a $6 million increase, or slightly above 10%, in our commercial aircraft aftermarket. This, with a couple other small changes, would get us to commercial aircraft revenues of $148 million. On the other hand, our military revenues, which I’ve just said we expect at $279 million for ’04, will decline by about $12 million. As I mentioned a quarter ago, revenues on the Joint Strike Fighter program were very high, $17 million to $18 million, in the first two quarters of ‘04. This quarter, JSF revenues were $13 million and we’re expecting $10 million next quarter, for a total for the year of just over $59 million. In line with the current scheduling on the program which anticipates a slowdown in the completion of the B airplane for the Marines and a hold on the C airplane for the Navy, we’re anticipating $44 million in sales next year, or a decline of about $15 million.