On the commercial aircraft side, sales were up 23% to almost $38 million. Our OEM sales to Boeing Commercial were up by over $1 million to $8.2 million. Sales to Airbus were up $700K to $3.8 million. Business jet sales were up over $2 million to a total of $6.3 million, mostly the result of increased activity on the Hawker Horizon and the Gulfstream 450. The commercial aftermarket was up over $2 million to a total of $15.1 million. Our forecast for the aftermarket of $56 million for the year is looking quite good since we're more than half way there. That will be a 7% increase from last year.

Margins in the Aircraft business were 13.8% for the quarter, down from 15.4% in the same quarter a year ago. Our guidance for this year was also 15.4%. However, in this quarter, we've taken a couple reserves in the Aircraft segment which depressed our margins. The first was the result of a tactical decision with respect to the A400M development program which caused us to set up a contract loss reserve. The second has to do with some work on the braking system for the A380. Were it not for these reserves, our margins in this quarter would have been well beyond the 15.4% margin of last year. So, let me tell you about the reserves.

On the A400M, we are developing hydraulic flight control actuators and the associated electronic controls. Our original approach involved a U.K. partner who was going to do the electronics. That company's proposed pricing for the program was in dollars and was based on a cost estimate anticipating a dollar / pound exchange rate which was substantially lower than today's rate. As a result, our partner has not been an enthusiastic participant and, during the quarter, we decided to dissolve the partnership and take on the electronics design and development ourselves. This task will involve about $1.6 million in non-recurring costs. The positive result of this near-term investment will be higher margins on the production deliveries and a better overall return on the program.

The other significant reserve we took in this quarter has to do with a program we have not talked about much, and that's the A380, the Airbus super jumbo. First, let me describe a little of our history with Airbus.

Historically, we have been a supplier of servovalves to the companies that build flight control actuators for Airbus. At one time, these were two different French companies. A few years ago, they were merged and they're now owned by Goodrich. We do build one flight control actuator for Airbus and that's the aileron for the A330. This was a job won by AlliedSignal prior to our acquisition of that business in 1994. It did not get us off to a good start as an actuator supplier to Airbus in that the original AlliedSignal design had serious problems and we had to redesign the actuator and retrofit the entire fleet. So, we've been content to be a servovalve supplier to Goodrich and, with that history in mind, we did not compete for the flight controls on the A380. Given the uncertainty as to the eventual production rate on the A380, and the substantial investment involved to compete for flight controls, we were quite comfortable with our decision to sit this one out. Goodrich won the flight control actuation.

Sometime after the Goodrich selection for the flight controls, we were approached by Messier Bugatti to provide a rather extensive collection of valves and manifolds for their production of the braking system. We decided to use this situation as an opportunity to develop and extend the capability of our aircraft controls operations in the U. K. Considerable design and development work was completed on these products before we signed a production contract. It has been a challenging development task. In the interest of low weight, the manifolds are titanium and the system is running at 5,000 psi. We have already delivered nine sets of hardware to support Messier's production for the early airplanes. However, we recently encountered a number of test anomalies having mostly to do with purchased hydraulic components on which there's very little industry experience at 5,000 psi. As a result, the component suppliers have had to re-design their hardware and we will have to re-build and deliver again the production hardware. The cost for this turnaround is estimated at $800K and, in this current quarter, we set up a reserve for that amount which gets this expense behind us. Having set up this reserve, we do expect that, going forward, production deliveries on this program will be nicely profitable.

Because we will not recover these increases in costs in this year, we're revising our margin guidance for our Aircraft business down to about 14.7%.

Space & Defense Q2'05

Sales of $30.9 million were up 17% from a year ago, an increase of $4.5 million. As was the case last quarter, our satellite business was very strong with sales of $10.4 million. This is the result of a recent flurry of activity in the military satellite business.

Sales of defense controls products, just under $7 million, were almost identical with last year's second quarter. The launch vehicle business was pretty steady at close to $2 million. Our strategic missile business was up $1 million because of increased refurbishment activity on Minuteman.