Every quarter, I report that we have increased our estimate for the development costs on the Hawker 4000. I then provide assurance that this is the last time that will happen because we’re sure that we’ve considered everything that could go wrong, and built that into our estimate. Well, unfortunately this quarter is no exception to that pattern. We have increased our development cost estimate on the program by $1.6 million. This time around, the major culprit is the estimated cost of redesigning the electronics to deal with parts obsolescence. It’s hard to believe, but this development job got started almost ten years ago, and we are literally in the situation where some of the components that were originally designed into the electronics are no longer available in production, and we need to redesign to accommodate replacement componentry.

We have one other problem program. You’ll remember that nine months ago we took a loss reserve for some braking system manifolds sold to Messier-Bugatti on the A380. Unfortunately in our recent review of that program, we have increased our estimate-at-completion by another $1.3 million to complete qualification tests and the documentation required to satisfy aircraft maintenance requirements. We really do believe that this is the last increase we’ll see on this A380 program.

As I mentioned, our revenue forecast for commercial aircraft for the year was $181 million. Given the first quarter performance, we’re now increasing that forecast by $3 million to $184 million. So, in total, we’re increasing our forecast for the whole of the Aircraft business from what was $479 million to a new estimate of $486 million.

Margins in the Aircraft business were down, to an uncharacteristically low 12.5%, compared to 14.2% last year and our projection for this year of 14.1%. Low margins in the quarter, though, were the result of the loss reserves taken on the Hawker 4000 and the A380. Margins were also reduced by the termination of our sales rep. Presuming that Aircraft margins return to more normal level for the balance of the year, we think that we can still finish the year at 14%.

Space & Defense

Sales in the Space and Defense segment were $37.1 million in the quarter, an increase of $3.9 million or 12%. The Flo-Tork acquisition, which we completed in November, contributed sales of $700,000. So, our organic growth was $3.2 million or 10%. The major contributors to the growth in the quarter were Tactical Missiles, where sales were up by 42% to $6.9 million. The increase reflects the restart of production on the TOW Missile, and increased foreign military sales of Maverick.

Our strategic missile business was also up in the quarter by $1.7 million to a total of $4 million. The build-up is largely the increasing refurbishment work on Minuteman Missile components.

Satellite controls were up $700,000 to just over $11 million. We’ve been predicting that the military satellite business will moderate as the year goes by, but the first quarter was still very strong.

Satellite launch vehicles, missile defense and defense controls were all at a sales level comparable to last year. As I mentioned, the Flo-Tork acquisition provided $700,000 in sales, mostly work on the Virginia Class submarines.

Two weeks ago, at our Annual Meeting, we increased our forecast for the year in Space and Defense to $138 million to incorporate the sales anticipated from Flo-Tork. We’re running slightly ahead of that pace in the first quarter, but given that it was a fourteen-week quarter, and that we expect the satellite business to settle down, we’ll stand with the $138 million forecast for now.

Margins in Space and Defense were only 4.8% for the quarter. In this segment margins were drastically affected by the sales rep termination. Absent that unusual effect, margins would have been 8.9%, very close to the 8.7%, which we forecasted for the entire year. We expect to return to our planned margin levels in subsequent quarters and, if so, we’ll average 7.7% for the year.