Aircraft Forecast for '07

Looking into fiscal '07, we're anticipating a 7% overall increase in aircraft sales to a total of $548 million. We're projecting only a modest increase in military sales to a total of $321 million and that increase will come primarily in the aftermarket. On the other hand, on the commercial side, we're looking for a $32 million sales increase or 16% to a total of $227 million. We're expecting increased revenue on the existing fleet of Boeing Commercial airplanes, as well as, the beginning of production revenues on the 787. We'll see a $3 million sales increase on Airbus to a total of almost $20 million. As the Hawker Horizon and Challenger 300 move further into production, our Business Jet product line will increase by $8 million to a total of $39 million. Given the dramatic growth in the commercial aftermarket in '06 from $65 million last year to over $81 million this year, we're projecting only a modest increase of $4 million in '07.

Increased sales in '07 will produce a modest increase in operating profit, but on a margin basis, we are projecting a slight decline to just under 12%. The factors influencing this decline are, first of all, the changing balance of the business as the commercial proportion increases and, secondly, the continuing need for a relatively high-level of R&D. As we prepare our forecast for next year, we think it's prudent to plan that our R&D expense will at least maintain the current level if not increase. Although we will have completed development on the baseline 787, the 787 derivatives will likely require further modification in the interest of weight reduction. In addition, the Airbus decision to design a completely new A350 will have a major impact on the R&D expense we will incur if we're a successful bidder. When the A350 was going to be an update of the A330, we would have been able to draw heavily on designs already in existence. The new airplane, with a bigger fuselage and a bigger wing, will require a more substantial effort in the design of completely new flight control actuation.

Space & Defense Q3'06

Space and Defense sales were $36.1 million in the quarter, an increase of 17% or over $5 million. Sales of propulsion controls and positioning mechanisms for satellites and space vehicles totaled nearly $12 million. This is an increase of about 30% from a year ago. It came primarily in sales of standard propulsion controls for commercial satellites. The other major increase was in defense controls, a term we use to describe electric actuation for positioning guns on military vehicles. Sales, in the quarter, were almost $7 million, up from only $4 million a year ago. The programs that provided the increase were primarily the Marine Corp LAV-25 in the U.S. and in Europe the Hagglund's CV90-30 and Wegmann's PzH 2000.

In the quarter, our Launch Vehicle business of $1.3 million was down as was Strategic Missiles and Missile Defense. The reduction has mostly to do with program schedules on the THAADS and the Ground Based Missile Defense programs. Tactical Missile volume at $7 million was up only slightly from last year.

Space and Defense margins for the quarter of 10% were considerably above last's year average of 8.6%.

Space & Defense for '06

In the fourth quarter, we're looking at slightly lower sales on satellites and on the Shuttle program and we're projecting margins at 9%. These results would bring us in very close to our previous guidance of sales for the year of just over $148 million resulting in margins of 9%.

Space & Defense '07 Forecast

Looking into fiscal '07, we are projecting a very respectable 15% increase in sales to a total of $170 million. However, there will be an important change in the mix of business. There will be a sizeable reduction in Tactical Missiles sales. In '06, we'll end the year with $29 million in revenue. But in '06, the VT1 program will complete, as will Vertical Launch ASROC. In '07, there is no new Maverick order. TOW and Tomahawk are at a slightly lower level. The result will be sales of less than $14 million or half of the '06 level.