Sales to Airbus were up 8% to a little over $5 million. Business jet revenues of $12 million were up over 90% from a year ago, reflecting the move into production of the Hawker Horizon and the Challenger 300.

Commercial aftermarket revenues of $23.1 million were up 8% from a year ago. This is the highest commercial aftermarket revenue level we've seen in many quarters.

Three weeks ago, we announced that we've been selected to provide the lateral control electronics on the 747-8. This is a new application on the 747. It's flight control electronics for the aileron and the spoilers. This will be the first time our company will deliver flight control electronics to Boeing for a commercial transport. Historically, this kind of equipment has been the purview of the flight control computer companies, BAE Systems and Honeywell. Neither of these companies have a well-developed actuator capability. On the other hand, our major actuator competitors don't have demonstrated flight control electronics capability. So we regard this selection on the 747-8 as an important milestone in our strategic positioning as a supplier of complete flight control systems from the flight control computer on through to the actuation which moves the surfaces.

Aircraft Margins

Aircraft margins of 10% remained at the low level of the most recent quarter. We know that many of you have been expecting that our Aircraft R&D would trend down as we near completion of development on the 787. In this quarter, however, total Aircraft R&D of $15.5 million was actually up $2.1 million from the most recent quarter and up almost $7 million from a year ago. R&D on the 787 was $11.3 million, up from $10.4 million last quarter. We do think that the effort on the 787 has peaked in that we have completed qual hardware, flight test hardware, and we've begun qualification testing.

In addition to the very high R&D, there is one other impact on Aircraft margin performance that is notable. Sales are up in large part because of $8.3 million in revenues on the 787. We're in the very early stages of production on that program and it shouldn't surprise anybody that cost levels on the early hardware are substantially higher than they will be over the life of the program. So there isn't typical margin contribution on those incremental sales.

Aircraft Guidance for '07

Given the strength of the Boeing business and our strong start on the 787, we're increasing our sales projection for Aircraft by $9 million to a new total of $557 million. We're actually taking the commercial forecast up $13 million, including a $3 million increase in the aftermarket. We are moderating our aftermarket forecast on the military side, so our military sales projection is now $318 million.

We are projecting an improvement in Aircraft margins for the balance of the year to over 12% so we'll finish the year with average Aircraft margins of 11.2%.

Space & Defense Q2