|From: leigh aulper||5/19/2009 6:10:00 AM|
|New C-17s Not Needed, DOD Analysis Shows|
May 18, 2009
By Amy Butler
Early indications from the Pentagon’s Mobility Capabilities Requirements Study suggest no need for additional strategic airlift beyond the funded procurements of re-engined C-5s and 205 C-17s already planned, says U.S. Air Force Chief of Staff Gen. Norton Schwartz.
The 2005 Mobility Capabilities Study had suggested a requirement of roughly 300 strategic airlifters, and Schwartz says he sees “no major shift in the demand signal.” The 2005 study, however, was discredited in much of Washington as a budget-driven formality under former Defense Secretary Donald Rumsfeld, and a new study has been eagerly awaited.
The new study is now under way, although official results are not expected until the fall. Unlike previous reviews, this study will take into account the requirements associated with increases in Army and Marine Corps end-strength, as well as the new U.S. Africa Command.
Even if more strategic airlift is ultimately needed, Air Force Secretary Michael Donley says an independent study presents several options before considering a buy of additional C-17s, the only aircraft made at Boeing’s Long Beach, Calif., plant.
These include leasing additional Civil Reserve Air Fleet capacity, as well as re-engining all 111 C-5s. Now, the C-5 Reliability Enhancement and Re-engining Program (RERP) calls for modifying only 49 C-5Bs, two C-5Cs and one A model for test purposes.
Boeing’s C-17 program has survived in recent years on congressional earmarks and international orders. The USAF also has nonetheless wished to retire its worst C-5s.
Meanwhile, the first C-5 of the 46 to be inducted into the M-model upgrade production line is slated to arrive at Lockheed Martin’s Marietta, Ga., facility in August with delivery following a year later.
This single C-5 will make up the low-rate-initial-production phase of the C-5M RERP upgrade program. The M upgrade includes a new propulsion system as well as improvements to several bad actors on the aircraft, including hydraulics and landing gear, says Lorraine Martin, vice president of the C-5 Reliability Enhancement and Re-Engining Program for prime contractor Lockheed Martin.
Three C-5s were modified with the M upgrade during the development phase of the program; two were C-5Bs and one was a C-5A.
Operational test and evaluation for the C-5M is slated to begin in September, lasting at least three months. The C-5M includes the General Electric CF6-80C2 engine, which Martin says provides 22 percent more thrust per aircraft. The C-5M can climb to 31,000-feet altitude in 19 minutes carrying 120,000 pounds of cargo compared to the C-5A/B’s 33 minutes to climb to 24,000 feet, Martin says.
Aside from the performance, Lockheed Martin is making some predictions related to the cost of the program. Reduced maintenance of the newer propulsion systems and replacement of the bad parts on the C-5 will “save” $9 billion over the life of the aircraft in the cost of operations and sustainment, Martin says. This is after the $6 billion cost to procure and install the kits, she says.
It is unknown whether shutting down the F-22 line in Marietta, Ga., where the C-5 work is handled by Lockheed, will impact the cost of the RERP effort.
The operational test and evaluation is expected to begin in September and last up to four months.
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|From: leigh aulper||8/19/2009 6:12:16 PM|
|Lockheed Martin C-5 RERP Production Begins |
MARIETTA, Ga., Aug. 19 /PRNewswire-FirstCall/ -- The first Lockheed Martin (NYSE: LMT) C-5 Galaxy strategic transport was inducted into the Reliability Enhancement and Re-engining Program (RERP) production line in ceremonies at the Lockheed Martin facility here August 18. The RERP modifications consist of more than 70 improvements and upgrades to the C-5 airframe and aircraft systems, and include the installation of new higher-thrust, more reliable turbofan engines.
"We have been planning this day for more than a decade and it is a day we have been working incredibly hard to get to for the past two years," said Lorraine Martin, Lockheed Martin C5 vice president. "The aircraft is here; our facilities and our team are ready to go. This aircraft will be a critical asset for the warfighter when it rejoins the Air Force operational fleet next year as a C-5M."
The C-5M is the product of a two-phase modernization effort. The first, the ongoing Avionics Modernization Program (AMP), provides the aircraft a state-of-the-art glass cockpit with modern avionics and flight instruments. Nearly half of the C-5 fleet has already undergone the AMP modifications. RERP is the second phase of the C-5 modernization effort.
The first aircraft to enter the RERP production line is a C-5B based at Dover AFB, Del. This aircraft, Air Force serial number 83-1258, was the first C-5B to come off the production line in 1985. Modernization of this first aircraft is expected to take 13 months. At rate production, the conversion time on future C-5s is expected to be reduced to eight months.
The Super Galaxy climbs higher and faster than legacy C-5s while carrying more cargo over longer distances. It also requires less tanker support. The C-5M is projected to have a much higher mission availability rate due to increased reliability.
An Air Force aircrew based at Dover AFB, Del., recently demonstrated this improved capability by flying non-stop and unrefueled from Dover to Incirlik, Turkey, while carrying 90,000 pounds of cargo on 36 standard military cargo pallets. The crew was able to complete the round trip in two days versus the normal three, and they saved 30,000 pounds of fuel by eliminating an en-route stop.
Current Air Force plans call for Lockheed Martin to deliver 52 C-5Ms (modification of 49 C-5Bs, two C-5Cs, and one C-5A) by 2016. Three C-5Ms, the former Super Galaxy test fleet, have been redelivered to the Air Force. Two aircraft are currently based at Dover. The third C-5M is scheduled to come out of programmed depot maintenance at the Warner Robins Air Logistics Center at Robins AFB, Ga., in early September and will then be ferried to Dover where it will enter operation.
Headquartered in Bethesda, Md., Lockheed Martin is a global security company that employs about 146,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The corporation reported 2008 sales of $42.7 billion.
RERP Production Process Background
After the C-5 aircraft is inducted into the RERP assembly line and the fuel tanks are drained, removal of major systems and equipment, including the current GE TF39 turbofan engines will begin. Lockheed Martin has made a significant initial investment in fixtures and ergonomic work platforms for the C-5 mod hangar at its Marietta facility. Additional investment will be made as the program ramps up its production rate.
Work will then begin on the wing and empennage, wing slats, wing trailing edges, the fuel system, and installing the engine pylon attach fittings and the pylons themselves. This work will be followed by modifications to the cargo compartment, the flight station and landing gear. Also, aircraft systems, such as environmental control, will be reworked, while others, such as the auxiliary power units, will be replaced. The last stage of modifications includes removing wiring for the old systems and installing new wiring.
Finally, the GE F138-GE-100 turbofan engines will be installed. These engines, rated at 50,000 pounds of thrust, are the military version of the CF6-80C2 engine that has recorded millions of flight hours in commercial service. This is the same engine as on Air Force One. It is expected that the F138 engines will have a 20-year on-wing service life before overhaul on the C-5M.
When modifications to the aircraft are completed, both Lockheed Martin and the Air Force will perform functional check flights of the C-5M before its scheduled redelivery to the Air Force. The first production C-5M is scheduled for redelivery to Dover AFB in September 2010.
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|From: leigh aulper||8/26/2009 3:04:05 PM|
|Lockheed Martin Delivers Final C-5B Galaxy Transport Modified Under Avionics Modernization Program |
TRAVIS AFB, Calif., Aug. 25 /PRNewswire-FirstCall/ -- Lockheed Martin (NYSE: LMT) delivered the 50th C-5B Galaxy strategic transport modified under the Avionics Modernization Program (AMP) back to the Air Force in ceremonies here today. This completes the AMP modifications to the C-5B fleet. Modification of the C-5A fleet continues at Travis and at Dover AFB, Del. Current plans call for the entire 111-aircraft C-5 fleet to receive the AMP modifications.
"Completing the B-model fleet marks a significant milestone for the AMP program," said Lorraine Martin, Lockheed Martin C-5 vice president. "We are at the halfway point in AMP aircraft redeliveries, our modification teams have consistently been on or ahead of schedule, and our quality has been exceptional. We are delivering a significant capability to the warfighter, enabling the C-5 to fly wherever it's needed around the world."
AMP is the first phase of a two-phase modernization effort for the C-5. The AMP modifications replace the earlier analog avionics in the Galaxy with a commercially available, digital avionics suite along with an integrated architecture that allows for upgrades. The entire system is designed to increase safety, ease crew workload and enhance situational awareness.
"AMP takes all the gauges you see in a legacy aircraft and consolidates them," said Lt. Col. Mike Semo, Chief, C-5M Program Integration Office at Dover. "So now, instead of knowing a distance to a certain location, you have a top-down view of where the aircraft is compared to where you're going. It gives you a lot more situational awareness, which is very important in a combat zone."
A total of 55 C-5 aircraft (50 C-5Bs, two C-5Cs, and three C-5As) have already been through one of the two AMP modification lines. As of Aug. 20, the AMP fleet has accumulated 70,156 flight hours on 15,967 sorties. The aircraft have been flown to all points of the globe, including regular operations to Europe and the Pacific as well as to Iraq and Afghanistan.
The second phase of C-5 modernization is the Reliability Enhancement and Re-engining Program (RERP). The RERP modifications consist of more than 70 improvements and upgrades to the C-5 airframe and systems. They include installation of higher-thrust, more reliable, more environmentally friendly F138-GE-100 turbofan engines, the military version of the CF6 engine that has recorded millions of hours on commercial airliners all over the world. These engines power Air Force One as well. The first aircraft was inducted into the RERP production line at the Lockheed Martin facility in Marietta, Ga., on Aug. 18.
When a Galaxy has been through both AMP and RERP, it is redesignated as a "C-5M." Current Air Force plans call for Lockheed Martin to deliver 52 C-5Ms (49 C-5Bs, two C-5Cs, and one C-5A) by 2016. Three C-5Ms have already been delivered to the Air Force.
Headquartered in Bethesda, Md., Lockheed Martin is a global security company that employs about 140,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The corporation reported 2008 sales of $42.7 billion.
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|From: leigh aulper||9/21/2009 3:35:39 PM|
|C-5 upgrade might not fly in Congress Decision will affect future of Dover AFB|
September 21, 2009
By JAMES MERRIWEATHER
The News Journal
DOVER -- A week ago Sunday, the pilot and crew of a new C-5M Super Galaxy, the souped-up version of the giant cargo aircraft that has been whining over Dover for more than 38 years, set out to see what the new plane could really do.
Carrying a payload of 176,610 pounds, the aircraft, dubbed "The Spirit of Normandy," climbed to an altitude of 41,188 feet in 23 minutes and 53 seconds, a new world record for jets weighing 551,155 to 661,386 pounds. In rising to that height so quickly and flying horizontally when it got there, the C-5M broke seven other records and set first-time standards in 33 categories that had not been documented previously.
So far, only three C-5 Galaxy aircraft have been retrofitted with new avionics and new engines to become C-5Ms, and all three are assigned to Dover Air Force Base.
The planes essentially are demonstration aircraft, intended to show the worthiness of equipping all 111 of the jet aircraft in the Air Force's C-5 fleet with new avionics.
Lt. Col. Scott Erickson, who has been flying the C-5M since the first one was delivered to Dover in February, is sold on the modified aircraft. He serves as chief of C-5M training for Reserve pilots at DAFB and was the pilot of the record-breaking Sept. 13 flight.
"We're in a familiarization period with the M model, and ground crews, flight crews and everybody are using this time to get familiar with the aircraft," Erickson said a few days after the 90-minute flight that may prove to be historic -- provided the records are certified by the National Aeronautic Association, the arbiter of U.S. records.
"This is all a good part of the process, for us to explore the full envelope of the aircraft."
Count Rep. John Murtha, D-Pa., Sen. Daniel Inouye, D-Hawaii, and lots of other congressmen among those who aren't likely to be impressed with the C-5M accomplishments. They're resisting the Obama administration's call for a shutdown of the assembly line for Boeing's C-17 Globemaster III, describing that newer, smaller plane as the best alternative for the military's airlift needs while sending signals that the C-5 modernization program may be cut short.
Defense Secretary Robert Gates said the Air Force has enough C-17s -- if congressional designs come to pass, the fleet will total 223 aircraft, up from an original order of 180. Murtha, chairman of the House Appropriations Committee, has amended the administration's spending plan for the year that begins Oct. 1 to include $674 million for three new C-17s. The Senate Appropriations Committee, chaired by Inouye, went the House panel one better, agreeing unanimously to provide $2.59 billion for 10 additional C-17s -- in addition to eight aircraft included in a supplemental fiscal 2009 spending bill signed by President Barack Obama in June. Both committees deleted $91.4 million requested by Gates for shutting down Boeing's C-17 assembly line.
The administration requested $606.9 million for C-5 modernization, but the House committee cut $56.6 million as "funding ahead of need," while the Senate panel cut $45.1 million for the same reason.
Murtha, acknowledging that the jobs of constituents figured in his support for C-17s, noted in a speech at a technology conference in March that one Air Force official had described the C-17 as the "backbone of the nation's strategic air mobility fleet."
"It's time to re-evaluate how large of a C-5A fleet we need," he said, casting a cloud over plans for installing new avionics in the oldest C-5s, "and the committee is looking into the cost of continuing to operate these legacy aircraft."
Inouye offered even more ominous remarks as his committee began its rewrite of the administration's military budget proposal, which was unanimously approved by the committee on Sept. 10.
"The administration has recently been provided with authority to retire the aging, hard-to-maintain, and often broken C-5A force," Inouye said in a statement.
"We expect that in re-examining its airlift fleet, the Defense Department will eventually conclude that purchasing additional C-17s and maintaining the strategic asset of a hot airlift production line is the right solution."
Advantages of C-17
The C-17, deployed in June 1993, is cherished for its ability to use relatively short, unimproved runways, and typically, it's much more reliable than the aging C-5s, the first of which was deployed in 1969. The C-5's redeeming quality is its size, which makes it able to haul more cargo than the C-17. The C-5, for instance, can carry two M-1 Abrams tanks, the Army's main battle tank, while the C-17 can carry just one.
With the C-17s having proved their worth, the C-5 came under attack in the mid-'90s from congressmen and others as a maintenance nightmare. At the time, reliability rates were measured as low as 50 percent, meaning the planes were fit to fly only about half of the time -- even as some planes were cannibalized for parts to keep other planes flying. However, Lockheed Martin, the C-5 manufacturer, asserted that the frames of even the oldest C-5s were good for up to 40 more years and persuaded Congress to embrace the avionics modernization program in 1998. The engine replacement plan was approved a few years later.
From the start, Delaware's congressional delegation, spearheading an effort among C-5 supporters, has helped keep the modernization program on track against long odds through three administrations.
The avionics work is being done by Lockheed teams hosted by DAFB and Travis Air Force Base, Calif., with the planes being flown to Lockheed in Marietta, Ga., for installation of the new, more powerful GE commercial engines. In starting the avionics upgrade program in 2004, Lockheed said it would take on up to 18 local workers at Dover.
So far, 55 C-5s -- including all 50 C-5Bs, 49 of which are slated for new engines -- have been equipped with new avionics. Last month, the first C-5 -- the first "B" model to roll off the assembly line in 1985, which was based at Dover -- was "inducted" into the regular re-engining production line and is expected to be returned to the base in a year or so.
If current plans hold, two C-5Cs, modified to carry outsized loads for NASA, and one "A" model also will get new engines by 2016.
"The C-5's wings and fuselage were carefully evaluated and examined by experts, who concluded that there's another 30 to 40 years of useful life in the basic airframe of the C-5," U.S. Sen. Tom Carper, D-Del., said in a telephone interview.
"The C-17 is a great airplane, but we don't need to continue to run the C-17 production line indefinitely. Parts for the C-17 are built in probably close to 45 states, and a lot of representatives and senators see it as a jobs program. The C-5M carries roughly twice as much cargo and flies almost twice as far without refueling, and we can modernize anywhere from two to three C-5s for the price of one new C-17."
The Air Mobility Command, DAFB's parent organization, lists the cost of C-5 modernization at $90 million per plane in "fiscal 2009 constant dollars." The cost of a C-17 is listed at $202.3 million in "constant fiscal 1998 dollars."
Delaware's delegation continued to push for C-5 modernization even after DAFB was scheduled in 2002 to get 13 C-17s, the last of which was delivered last October. Dover retained 18 of the C-5B aircraft, first deployed in 1986, as 18 older "A" models were assigned to National Guard units around the country.
Better for DAFB
U.S. Rep. Mike Castle, R-Del., said DAFB supporters always had their eyes on the C-17, but wanted to modernize the C-5s as well.
"The C-5M program was essential in maintaining the C-5," Castle said, "and I think we've been successful. I rely on experts at DAFB in reaching that conclusion.
"We're very content to have that mix of C-5s and C-17s, and I'm delighted that the president is recommending continuing the C-5 modernization because that, in my judgment, means DAFB remains that much more viable."
Now, Carper said, it's up to Lockheed to blunt arguments from critics by living up to promises made to win grudging congressional approval for the modernization program.
"The key is for Lockheed to deliver what they're contractually required to deliver," he said.
"They need to deliver C-5Ms at the agreed-to price, and those aircraft have to meet a high rate of mission capability, in excess of 75 percent. If Lockheed does their job, it makes my job a whole lot easier."
No firm reliability measurements are yet available, but Steve Knoblock, Lockheed's lead C-5M test pilot, said anecdotal evidence suggests that the airplane is measuring up to the mission-capable rate quoted by Carper. With the spotlight shining brightly on the plane's performance capabilities, Knoblock said, it should be noted that increased reliability was the main objective of the modernization program.
"Those airplanes have been flying every week, as scheduled, and pretty much on time," he said of the C-5Ms.
Erickson, the lead Reserve pilot trainer at DAFB, agreed. "The flight cancellation rate, anecdotally, is markedly improved," he said.
But still, it's the modernized C-5's engines, widely used on commercial aircraft, that have DAFB's pilots singing its praises. Lockheed credits the engines with empowering the Super Galaxy to climb higher and faster than so-called "legacy" C-5s while carrying more cargo over longer distances.
C-5M has more thrust
Accomplishing one notable feat in May, a C-5M bearing a crew from Dover and 90,000 pounds of cargo bound for Iraq flew nonstop to Incirlik Air Base, Turkey, skipping the normal fueling stop at Rota, Spain. According to Lockheed, the aircraft consumed 13 percent less fuel than what would have been used by other C-5s, saved 30,000 pounds of fuel by eliminating the stop, and was able to complete its mission in two days instead of the customary three.
"You're talking about saving two or three hours of ground time, five hours with descent," Erickson said.
"If we needed to, we could get cargo into Iraq. That's something nobody else is going to do without a tanker" for refueling.
The four new turbofan engines are credited with increasing thrust by 22 percent, which, in Knoblock's words, "is like adding a fifth engine to a B model." It's those engines, Erickson said, that make the C-5M a joy to fly.
"Very much," he said when asked if he liked flying the new plane. "I don't know of many pilots who would turn down extra thrust."
With that, Erickson, Knoblock and four other crewmen departed from interviews in the 436th Airlift Wing's operations center to check out the capabilities of the only "A" model modernized for testing purposes, which was delivered a week or so earlier. Plans were for a local four-hour instrument training mission featuring tactical maneuvers and touch-and-go landings.
As an aside, Erickson said the C-5M's new engines meet the highest standard for aircraft quietness, offering a major benefit for people who live in or near flight paths and get regularly rattled by the distinctive high-pitch whine of departing C-5s.
"The C-5M is the quietest plane at Dover Air Force Base now," Erickson said. "It's even quieter than the C-17s."
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|From: leigh aulper||2/16/2010 4:38:55 PM|
|Conference Call Intel - Cpi Aerostructures (NYSE Amex:CVU)|
Tuesday, February 16, 2010, 3:10 PM ET -
by Maj Soueidan, President GeoInvesting
Listening to conference calls is one of the many strategies I apply for gathering Intel on future prospects of companies. Even though these calls are considered public information, investors just don’t have the time to look beyond a press release, giving us a chance to take advantage of information inefficiencies. I particularly salivate at opportunities to listen to calls between earning releases, such as investor presentations, when investors often become increasingly lazy. I look forward to selling them my shares at higher prices when the company repeats bullish information in its earnings press release.
As I just issued an update on Cpi Aerostructures (NYSE AMEX:CVU) on January 26, 2010, I was eager to listen to an investor presentation replay that took place on February 11, 2010. I hoped to attain a better grasp on my assumption that CVU would report a stellar 2009 fourth quarter as well as glean insight into the growth outlook heading into 2010.
I have been on hundreds of conference calls and I can say that this is one of the most bullish I have experienced. So much so, I added to my position. CEO, Ed Fred, was articulate and inferred several times that his aggressive EPS guidance for 2009 of $0.63 to $0.69 and long term growth expectations, supported by its new business model that focuses more on subcontracted work than primary government contracts, are still in tact. I found this particularly interesting since this is similar strategy Electronic Control Securities (OTC BB:EKCS), a stock I just profiled on the street, has embarked upon.
Unfortunately, the company did not provide specific 2010 guidance. I found this odd since during the presentation the company expressed confidence that it may able to achieve net income of $8 million in 2011 on $75 million in revenues. As in my initial article, I am left to ponder what 2010 might look like. The problem lies with the three year compounded annual growth rate (CAGR) assumption CVU issued at the end of 2008 of 50% to 60% for net income and 30% to 35% for revenues. Without getting too technical, the CAGR formula basically only takes into account your beginning and end year periods. So, over a three year period, as long as you hit the the year three number implied by the formula, it doesn’t matter what happens in year two. Regardless, loaded with the ammo of 2011 expectations and a confirmation of its long-term growth forecast, I came up with a best efforts 2010 EPS target of $0.96. Analyst estimates are calling for 2010 EPS to reach $1.01. I urge investors to make their own assumptions and listen to the conference call replay.
CVU plans to comment on 2010 guidance in its year end press release.
Additional key points from the presentation:
Has long term visibility due to contract pipeline and its emphasis as a subcontractor to defense companies such as Lockheed Martin (NYSE:LMT) , Northrop Grum Hol (NYSE:NOC) and Sikorsky Aircraft
Guidance does not include nearly 400 million of unawarded contract bids
Guidance does not account for the government having to devote funds to the repair of planes that return home from IRAQ.
Guidance does not include upside from contracts CVU is currently involved in.
Room for gross margin improvement from 25% to 30% - 35%.
Happy with results and will continue to get better
Positions: Long CVU,
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|From: leigh aulper||8/11/2010 11:06:52 AM|
|CPI Aerostructures Earnings Teleconference CVU US|
2010-08-10 14:58:30.378 GMT
Event Date: 08/10/2010
Company Name: CPI Aerostructures
Event Description:Q2 2010 Earnings Call
Source: CPI Aerostructures
For more event information and transcripts,
Q2 2010 Earnings Call
MANAGEMENT DISCUSSION SECTION
Good day, everyone, and welcome to the CPI Aero's Second Quarter 2010
Conference Call. At this time, I would like to inform you that this
conference is being recorded and that all participants are currently in a
Thank you. I will now turn the conference over to Mr. Ed Fred.
Edward Fred, President and Chief Executive Officer:
Thank you, Christy. Good morning, and thank you all for joining us for our
Second quarter 2010 conference call. If you need a copy of the press release
issued this morning, please contact Lena Cati of The Equity Group at
212-836-9611 and she will fax or email a copy to you. Also, if you would like
to listen to this call again, you can hear a replay on our website's Investor
Relations section in about an hour at www.cpiaero.com.
Before we get started, I want to remind investors that this conference call
will contain forward-looking statements, which involve known and unknown
risks, uncertainties and other factors that may cause actual results to be
materially different from projected results. Included in these risks are the
government's ability to terminate their contracts with us at any time, the
government's ability to reduce or modify its contracts if its requirements or
budgetary constraints change, the government's right to suspend or bar us
from doing business with them, as well as in the competition - competition in
the bidding process of both government and sub-contracting contracts.
Our sub-contracting customers also have the ability to terminate their
contracts with us if we fail to meet the requirements of those contracts or
if their customer reduces or modifies its contracts to them due to budgetary
Given these uncertainties, listeners are cautioned not to place undue
reliance on any forward-looking statement contained in this conference call.
Additional information concerning these and other risks can be found in our
filings with the SEC.
This morning I will give you a brief overview of our first half results. I
will then hand the call over to Vince Palazzolo, our CFO, so he can walk you
through the financial statement details. Then I will comment on the current
business environment, outlook for the remainder of 2010, and then briefly
wrap things up and open the call to questions.
As reported earlier this morning, for the first half of 2010, revenue was
approximately $23,550,000 compared to approximately $21,129,000 in the first
half of 2009, an increase of approximately 11%.
Pre-tax income, was approximately $3,130,000 compared to the pre-tax income
of approximately $2,216,000 for the same period last year.
Net income for the first half of 2010 was approximately $2,066,000 or $0.32
per diluted share, compared to net income of approximately $1,449,000 or
$0.23 per diluted share in the first half of 2009.
Selling, general and administrative expenses for the first half of 2010 were
approximately $2,870,000 or 12.2% of revenue compared to approximately
$2,575,000 or 12.3% of revenue for the same period of 2009.
So with that prelude, I will now hand the call over to Vince Palazzolo our
CFO, so he can walk you through the financial statement details.
Vincent Palazzolo, Chief Financial Officer:
Thank you, Ed. As reported in this morning's press release, comparing the
second quarter of 2010 to the second quarter of 2009, revenue increased 10%
to $12,544,625 from $11,437,691. Gross margin was 26.7% as compared to 24.8%.
Pre-tax income increased 31% to $1,826,254 compared to $1,389,489. Net income
increased 33% to $1,205,254 or $0.18 per diluted share, compared to $903,489
or $0.14 per diluted share.
Selling, general and administrative expenses were approximately $1,485,000 or
11.8% of revenue, compared to approximately $1,386,000 or 12.1% of revenue
At this point, let me hand the call back over to Ed for an overview of the
Edward Fred, President and Chief Executive Officer:
Thanks, Vince. As Vince just reported, the gross margin for the first half of
2010 was higher than that of the prior year's first-half. We expect that
there will continue to be normal quarterly ebbs and flows in our gross margin
as our new programs progress, but we arrived at our 2010 guidance based on a
24 to 26% gross margin range and expect to end up in that range.
New orders through June 30 of 2010 were approximately $31.1 million
significantly higher than the $4.9 million reported this time last year.
Additionally, during April we received a $10 million increase to our overall
order from Boeing on the A-10 re-winging program.
The total award amount of all of our programs should increase significantly
over the next two quarters as we expect to receive follow-on releases on some
of our major programs. There is also a real business potential from the
approximately $288 million of unawarded solicitations outstanding, once these
programs are funded and/or awarded.
In the past several years, our reputation has been elevated in our industry,
thanks to our impressive list of customers, the success we've experienced on
the important programs that we're working on and the exposure we've had and
contacts we've made at various aerospace and defense institutional investment
We are now in the midst of establishing relationships with additional prime
manufacturers, including other helicopter and business private jet companies
who've come to recognize CPI Aero as a premier supplier of aircraft
structure. Among the unawarded bids outstanding, are contract opportunities
with these potential customers. We look forward to reporting on our progress
of turning solicitations with these prospects into awards and contracts in
As previously announced, based on the visibility we currently have, we
project that 2010 revenue will be in the range of 48 to $51 million, with
resulting net income in the range of 4.3 to $4.8 million. It is our
expectation that our three major long-term production programs, the A-10, the
E-2D and the G650, will be in full scale production and generating consistent
revenue during 2011 and we therefore project that 2011 revenue will be in the
range of 78 million to $81 million, with resulting net income in the range of
8.9 to $9.5 million.
Additionally, using 2008 as the base line, our 2011 guidance affirms our
expectations for a three-year compounded annual growth rate for revenue, in
the range of 30 to 35%, with the resulting compound annual growth rate for
the net income in the range of 50 to 60%.
In early April, we completed a registered direct offering and raised 3.5
million in net proceeds through the sale of 500,000 shares of our common
stock. Through this offering, we strengthened our financial position in
preparation for continued growth and enhanced the potential liquidity of our
CPI's future has never been brighter and we'll continue to get that message
out to the investment community as often as possible. During the first half
of this year, CPI presented at the Roth, Cowen, B. Riley, Stephens and Noble
conferences with much success. And we are scheduled to present at the D.A.
Davidson Aerospace and Industrial Conference in November.
Through our ever continuing positive financial results, and the exposure we
received at these venues, the company's stock price which began the year at
$6.01 has seen a 52 week high of $11.12 just a week ago.
Additionally for the first time in CPI Aero's history, we now have
independent research coverage of the company, not just by one firm, but by
three firms. Roth Capital, initiated coverage on CPI in mid-July, followed
just days later by Stonegate Securities. And last week CapStone Investments
also initiated its report on us. So our efforts to get the message out and
increase investment community awareness of CPI, is obviously having a
Before closing, I would like to thank all of our shareholders for your
continued support of CPI Aero and I assure you that your management team and
your Board of Directors are working diligently to continue this profitable
growth and reach our full potential as the world's premier small business
supplier of aircraft structure.
And I would be remiss if I didn't once again thank the CPI management team
for sharing my vision of where we can take this company, but more importantly
for making it happen. I would also like to thank all of the employees of CPI
Aero for executing on that vision and being an integral part in winning such
impressive awards as the ones mentioned earlier. I look forward to the future
of this company with great eagerness and anticipation of now executing on
these contracts and then attaining new ones due to the quality of our work.
Now, before I open the floor to questions, we had two questions sent to us
previously, so I'll respond to those first.
: The first one comes
from a Robert Urbanic. The question is, are there plans to list the shares of
CPI Aero on the New York Stock Exchange?
Currently, we are on the New York Stock Exchange, not the big board
obviously. We are on the NYSE Amex. When the American Stock Exchange was
purchased by the New York Stock Exchange, we moved over along with that
purchase. And a separate exchange has been created for companies that came
from the Amex, but we're two small to list on the big board. At this time, we
are still way too small to list on the big board, keep in mind that prior to
yesterday, our market cap was somewhere between 70 and $75 million, which is
way, way, way too small to be listed on that. But again, we are on the New
York Exchange. At this point there're only two major exchanges, the NYSE and
the NASDAQ. We are on the NYSE in a sub-division of that board.
And second question comes from a Kevin Stone. And he asks, please have Mr.
Fred update us on CPI, UTX, Sikorsky, Supplier Gold status. If I remember
correctly the expectation was for CPI to have already received this status.
Mr. Stone, we are still in the process. Nothing CPI has done, to delay the
process. We're dealing with a very very large institution, obviously in
Sikorsky. I won't give you the exact date, because I don't think, I should be
giving out Sikorsky information, but we are being presented to the Supplier
Gold Board this month, the month of August. You are correct, it was supposed
to be both June and July. Again, nothing that we've done incorrectly. We have
met all the standards to be Supplier Gold, that's why we're being presented
later this month. And we fully anticipate getting approval. I cannot give you
a timeframe as to how long the approval will be after we present it. But
again, we're very very confident that we will be approved and in the very
near-term, we'll be able to announce the distinction of being one of the 15
or so Supplier Golds with Sikorsky.
Now at this point, I would like to open the floor to questions, Christy can
you allow callers to place questions now please?
Your first question comes from the line of Rick Hoss of Roth Capital
<Q - Richard Hoss>: Hi, good morning.
: Hi Rick. How are
<Q - Richard Hoss>: Good thanks. Just on gross margin and I know the range is
24, 26. Is there anything you can give us and the reason why it was the
stronger than that range?
: Just the mix of
programs in this quarter put it slightly higher than what we're going to call
the average, does that mean we're going to have a significant drop off in the
quarter. No, not necessarily....
: Right, yeah. No,
the mix should still stay in the range. It will probably be in the higher end
of that range as we become more efficient on some of these newer programs,
much more quickly than anticipated but that's really the only reason Rick.
<Q - Richard Hoss>: Okay. So there is a component to process improvement than
within that number?
: Oh, absolutely,
<Q - Richard Hoss>: Okay. And then on the SG&A, a little bit of a pick up
sequentially. Is that just a function of revenue, being that much higher or
is there a couple of things in that number?
: Well the quarter
was lower, the overall was higher, that's because with the stock price moving
as much as it did, we had tremendous stock volatility in the Black-Scholes
calculation. We pay all of our directors' fees or much of our director's fees
in stock options versus cash. We're not a company that wants to spend a lot
of cash on that kind of activity. And because of the volatility in the stock,
the stock option non-cash expense was very, very high which in general made
the overall SG&A much higher.
Other than that, I mean, I think you can see that growth in revenue for us is
not necessarily dependent on increased SG&A in a percentage basis certainly.
So, just - a couple of hundred thousand more at the half year but again,
we're not looking at for example, we have the projection out there for 2011
to take sales from almost 50 to almost 80, we don't anticipate a major gear
up or ratchet up in SG&A to accomplish that. It's not necessary.
<Q - Richard Hoss>: And the last question from me, the 288 million in
<Q - Richard Hoss>: I'm assuming none of this is in guidance?
: Minimal amounts,
Rick. We always have a piece of new business in our guidance.
<Q - Richard Hoss>: Okay.
: It's not usually a
significant piece. Major awards out of that $288 million would add to the
guidance we have out there.
<Q - Richard Hoss>: Okay. And so just thinking of historical performance
perspective, of the bids that you typically solicit or you place, what
percent do you think is just a reasonable expectation for a win?
: Rick, we can't give
you that anymore, because our business model has changed to some extend. When
we used to be 100% direct to the U.S. government, we could anticipate wining
13, 14, 15% of the bids outstanding, even though the industry average was in
the vicinity of five.
Now with the way we bid, the fact that we're bidding major large contracts to
major OEM's, it's not the same. For example with Spirit, we are one for two.
Now I can't sit there and tell you that in my package I'm going to win 50% of
my bids, kind of the same thing with Boeing. So it's not a percentage basis
anymore that we can go off of, skew - if I gave you that answer it could very
well skew. I can win one contract right now, in that number that would be 20%
of the overall outstanding at the moment. Now that might be the only one I
win and lose seven others. Am I really at 20% or am I at 12%? So that's not
as easy to quantify anymore.
<Q - Richard Hoss>: Okay. The point being that this 288 million is really -
if you're successful, it would be a descent upside potential for your outlook
for '10 and '11?
: 100% correct.
<Q - Richard Hoss>: Okay. Thank you, gentlemen.
: Okay. Thanks Rick.
Your next question comes from the line of Marco Rodriguez of Stonegate.
<Q - Marco Rodriquez>: Good morning, guys. Thanks for taking my question.
: No problem, Marco.
How are you?
<Q - Marco Rodriquez>: Doing well. I was wondering if you could talk a little
bit about your top line in the quarter. Did everything come in according to
your internal plan?
: Absolutely, right
on the money actually.
<Q - Marco Rodriquez>: Okay. And then kind of following up on a previous
question in regards to Sikorsky and the gold member supplier status, could
you provide a little more color in regard to this presentation that either
you are making or somebody is making to the...
: Sure. We obviously,
internally have had to prepare presentations to make to what I'll call the
Sikorsky team that comes out and does the analysis of whether or not you
qualify. We are done with that process. We obviously have a 100% on-time
delivery. We've had a 100% quality. Then the third element of this is a lean
manufacturing score. The last two times they've been in, to audit us, our
lean manufacturing score has exceeded their requirement, which now has us
eligible to be presented.
They will take - make a presentation that the Supplier Gold team that visits
the company, will now take CPI, put the presentation in their format and
present CPI to the Sikorsky Supplier Gold Board of Review if you will. And
present to them why they believe CPI is now deserving of Supplier Gold
status. Once that is done, then UTC is notified that Sikorsky is making us
Supplier Gold. What that does, is allow other divisions within the UTC family
to know that CPI is Supplier Gold. So if anything comes off in Hamilton
Sundstrand or Pratt & Whitney or any company like that, they can go to a list
and say, "huh, let me see, this company CPI makes structural parts, they do
assembly. Let me see if there is anything that can do with us, since they're
now Supplier Gold."
So, that's really the process. We're being been presented by the localized
committee to the Board of Review, in the coming weeks, in the month of August
and we'll see where it takes it us from there.
<Q - Marco Rodriquez>: Okay. So just represent, so you're not present at that
: No, we are not.
<Q - Marco Rodriquez>: Okay, all right. And then I was wondering if you could
update what was your cash flow from operations and CapEx for the quarter? And
then kind of discuss the expectations of your cash flow for the second half
of this year?
: The full Q will probably be
filed tomorrow. Our cash flow for the quarter was slightly negative due to a
build up of some of those bigger programs. We anticipate that our cash flow
for the remainder of the year will come back around to the way it was in the
fourth quarter of last year and be positive again as we start delivering on
those orders. So, but it was slightly negative in the second quarter. Was
that the whole question?
<Q - Marco Rodriquez>: Yes. Okay, so...
: CapEx, you asked about
CapEx, that was the other part of the question. I knew it, I remembered
<Q - Marco Rodriquez>: Right.
: CapEx is - it was actually
fractionally lower this quarter than the - this previous six month quarter -
six month period.
<Q - Marco Rodriquez>: And then so given your expectations for cash flow for
the remainder of the year, is there any expectation that you'll be perhaps
passing your line of credit again or anything of that nature?
: Not in the current cash
flow projection, no.
<Q - Marco Rodriquez>: Okay. And then last question I have in regard to the
bids outstanding, if my memory is serving me correctly, I believe that
Sikorsky was or may be perhaps still is maybe 40 to 50% of that. Is that
still the status?
<Q - Marco Rodriquez>: Okay, great. Thanks a lot guys.
: You got it. Thank
Your next question comes from the line of Michael Callahan of CapStone
<Q - Mike Callahan>: Good morning, guys and nice quarter.
: Thanks Mike.
<Q - Mike Callahan>: One question I had on the revenue going forward. It
looks like there's quite a bit of growth based on the - first of all, the
second half of the year and then obviously accelerating in the next year.
Well, I guess first on 2010, I know you expect to be on pretty much full
production on the major programs, but do you have any insight as to the
timing of how that might flow through, because obviously there's going to be
a big pick ups since this current quarter?
: The third quarter
will be up slightly from the second and then the fourth quarter is where
you'll see the biggest increase getting us up in to our revenue guidance
range, if that's what you're asking?
<Q - Mike Callahan>: Yeah.
: And then 2011
should, again, as it happens every year with CPI, 2011's first quarter will
be much better than 2010's first quarter and then going forward the build-up
will be steady and consistent quarter-to-quarter throughout 2011. We're now
hitting stages with our delivery schedules that we'll be building two versus
- build three of these and then wait, because we have to test them and do
this and do that, with them all getting into production phase, the quarterly
revenue stream will be even more predictable than it is today.
<Q - Mike Callahan>: Okay, thanks. And then I guess, with fourth quarter
increase where really - that's where you see a substantial amount of the
growth, is that - going to be consistent year-on-year pretty much?
: Well, what is it
going to be - it's going to be consistent with previous years, for whatever
reason, and I guess the reason's probably obvious, is - other companies our
other customers. First it was the U.S. Government, who would let out a whole
bunch of new contracts in early October each year and you'd go ahead and
start working on them very rapidly and that's what boosted the fourth quarter
prior to what's going to sub-contractors. Now obviously they want to deliver
as much to the U.S. Government as they can, or to their - if it's a
commercial program to their customers. And so the fourth quarter just seems
to have a big push put in it. I think what's going to happen though now with
the production in 2011 timeframe and with the clearly defined delivery
schedules, is it will be much more predictable and I'll call it much more of
a steady growth versus a big push into the fourth quarter that we've seen
every other year. So '10 will have the big push in the fourth quarter again,
and then I think '11 will be a much smoother increase from first through
fourth on a much more linear basis.
<Q - Mike Callahan>: Okay. Thank you.
<Q - Mike Callahan>: And then just maybe one more thing on your bids
outstanding. Are you guys looking to maybe change the mix of your business,
heavier weighted towards commercial with the current business you're going
after or are you still to seeing a lot of opportunity on the military side?
<A - Edward Fred, President and Chief Executive Officer>: Right now, a lot of
it's still on the military side as a subcontractor. Commercial, I think will
start to pick up -- the ability I should say to bid on commercial things.
It'll start to pick up I think as 787 starts to define itself before over the
worries of whether or not they can be produced on time, the delays that
Boeing has experienced.
I think once that happens you'll either see - we'll either see us have the
opportunity to bid on 787 work or bid on other commercial work as a
subcontractor because those companies are taking on 787 work. So to me that's
the big driver right now in commercial at least for us. Is 787 getting it on
schedule, getting it start to - into production and again we'll see, either
the ability to directly bid on 787, or we will get indirect opportunities,
because the other companies are gearing up for 787.
<Q - Mike Callahan>: Okay, great. Thank you. That's all from me.
: Thanks Mike.
Your next question comes from the line of Russ Silvestri of SKIRITAI Capital.
<Q - Russell Silvestri>: Hey good morning, can you hear me?
: Yes, sir. Russ, how
<Q - Russell Silvestri>: Fine, thanks. A couple of things, one, you didn't
mention Spirit at all, I was curious about that. Second, I was - the other
questions I have related to the SG&A in particular, how much of the SG&A
component was stock-based compensation? And also just a little bit
depreciation as well on the cash flow?
: I will start with
stock-based compensation. In the six months period, half a million dollars in
round number or 97, if you want the exact number.
<Q - Russell Silvestri>: Depreciation?
: Depreciation for the six
month number is 174. Okay?
<Q - Russell Silvestri>: The third question relates to Spirit Aero. It wasn't
mentioned anywhere in the press releases, and I was just curious what's going
: Simply, because
right now, we're not in a high level of production; we're in a bit of a dip
with them, as planned nothing surprising. Because they're in their test
flight mode, if you've been following General Dynamics conference calls and
press releases. They've flown I believe three or four planes now, one set
that we're - one set of leading edges that we've worked on is now going
through bird strike. We're slowly building units six, seven and eight. And so
we're in the expected lull on the 650 program. Once they get flight
certification, which they're expecting by the end of the year, we go back
right on to the schedule that they'd given us previously, which will generate
a bunch of revenue in '11 and certainly in '12.
So 650 is right where we hoped it would to be. I don't know how much any of
you on the call follow them, but in their call, their CEO once again, General
Dynamics CEO once again reiterated they have over - they have - he's saying
200 firm orders on the G650. Any dropouts they've had have been back filled
with new customers and some of the articles that are being printed say
there's at least 250 orders now. I'm not going to speak for General Dynamics
certainly, but you can read from that what you will, whether it's 200 or 250.
Just keeping in mind that all of my projections are based on only 134, so if
we get to 200 somewhere along the way, that will be an increase to our
revenue in the out years or what have you. If its 250, if it's 500, if it's a
million, they will all be out year increases.
<Q - Russell Silvestri>: Got you. And what kind of revenue do you generate
: I can't really
discus that Russ, because then that gives out, if you will to the general
public, the cost that Spirit is paying for certain parts and they would
really frown on me doing that.
<Q - Russell Silvestri>: Okay. And then last question I'll ask is that - as
it relates to 2012, in the past, I mean you've gone forward and given us, the
year out guidance, usually at this time of the year and I was wondering, are
you expecting to do that at the end of the third quarter or when do you -
would we expect to see or hear about 2012?
: I would think at
the end of third quarter when I make my third quarter conference call
announcement, it will be in the press release and in our public projections.
<Q - Russell Silvestri>: And what will cause you to change your target growth
on revenue and earnings particularly for 2012?
: What would cause me
to change 2012?
<Q - Russell Silvestri>: Just you - you come out with your revenue guidance
and your earnings growth of 50 to 60% with top line growing 30%, what would
cause 2012 to be different than 2011?
: Well, first off,
that that was done in 2008, for a three year period. But at this point, I'm
not sure it's going to be 30 to 35 or 50 to 60. We're still analyzing that.
If I knew that for sure, I would've announced it in this quarter, to be
honest with you. I'd like to give you folks as much information as I can.
We're still trying to put that together looking at some of the contracts that
might be close to award before I go - I don't want to put out a 2012 now and
revise it three months from now. It's a little silly. But, we're looking at
the company continuing to grow and we can get more specific about it probably
three months from now.
<Q - Russell Silvestri>: Thank you very much.
<A - Edward Fred, President and Chief Executive Officer>: Okay, Russ. Thanks.
Your next question comes from the line John Kohler of Oppenheimer & Close.
<Q - John Kohler>: Good morning, gentlemen. How are you?
: Hey John, how are
<Q - John Kohler>: Good, thanks. Thanks for the additional balance sheet
information. Thought it was pretty helpful.
: Yeah, we're glad. No
<Q - John Kohler>: I did get a question out of it. So, you're lucky.
: That's good.
<Q - John Kohler>: I noticed there was an increase in the treasury stock
<Q - John Kohler>: And I was wondering, when those were purchased and what
was the reasoning behind that?
: It wasn't that they were
purchased. I traded in shares of stock, in order to exercise stock options,
so I bought, I used cash for a part of it and some of the shares I held as
part of it.
<Q - John Kohler>: Okay, great.
: So those shares go into
<Q - John Kohler>: Got you. Okay. Next question, you sort of touched on it
before on the gross margin and the mix. I'm curious if I could get a little
more information on the improved time and product cycle efficiency that
you're seeing. Is that meeting your expectations or you still have some more
to go in meeting those and how much more improvement, do you think you can
bring out of them?
: Well, I think the way I
guess, I would characterize it is. We always expect to make improvements once
we're into a program. Have the improvements come a little bit quicker, than
we might have anticipated? Yes, absolutely, I think that's why you saw the
<Q - John Kohler>: Right.
: This quarter. But again,
that's also involved in product mix. So, for example, part of the programs
that made up this mix, we're very - we're becoming more efficient more
quickly. That doesn't mean next quarter, if we work on some - another new
program and it has a high level of revenue that we're as efficient on that
<Q - John Kohler>: Right.
: In general, why you see the
tremendous growth, in everything in 2011, and '12 because we certainly expect
to be completely efficient on all of those jobs. How much more we can squeeze
out is very difficult to tell. I mean that's not necessarily predictable.
We're always looking for new ways. And whatever that is whether it's a better
assembling methodology, whether it's lowering the factory overheads that go
into the overall general rate of the entire company. We are always
consistently looking to keep SG&A down wherever possible, because quite
honestly it adds nothing to the bottom line of the company. So if we can keep
it down, we'd do it, and that's really the best answer I can give you right
<Q - John Kohler>: Okay. How are you holding out on floor space?
: We're still good. We're
still good. We took I think 4,000 square feet next door, literally next door
building that has probably 25% usage now due to the bad economy and used it
for storage. So all of our shipping boxes that you had seen when you came to
visit us et cetera have been moved to that location which created more actual
production or assembly space within the company. So we're still in the
terrific shape there.
<Q - John Kohler>: Okay. Sounds like you can have a shift if you need to...
: As long as the things - the
kinds of things we're working on now. If we win a whole lot of these bids
that are out or we will win a variety, we may have to take more space but
that will be a pleasant problem to have.
<Q - John Kohler>: Okay. And then last question, I'll let someone else take
over. You mentioned in the press release the E-2D and the C-2A for wing panel
<Q - John Kohler>: Can you break that out, is it possible? What the split was
between the two on that $27.6 million award? Was it predominantly Hawkeye or
: We actually can't
tell you that, because we don't know it necessarily. They told us they need X
number of wings. At this moment, we don't know what that breakout is but
we'll find out eventually, between C-2 and E-2. We don't know that answer.
<Q - John Kohler>: Okay, great. Thanks very much.
: Okay. Thanks John.
Your next question comes from the line of Michael Potter of Monarch Capital.
<Q - Michael Potter>: Hey guys. Congratulations on...
: Hey, Mike. How are
<Q - Michael Potter>: Another really good quarter.
: Thank you. And
before you ask your question, let me just tell everybody Mike's solely
responsible for the full balance sheet and income statement you see on our
press release folks so, thank him not me.
<Q - Michael Potter>: Yeah, please send me the gifts. Anyway, just a couple
of quick questions, on the Supplier Gold, if I heard right, you mentioned
that 50% of the bids outstanding were with Sikorsky?
: That was just about
right, about 130, 150 million, somewhere in that middle entity.
<Q - Michael Potter>: Will the Supplier Gold status will that help to break
the log jam that's been occurring there for a long time?
: We can only hope
so. Again I think I've said this a numerous times. Historically, when they've
given out Supplier Gold to a company, they've also accompanied it with a
decent sized award. So, yes we're hoping that we've got a $130 million worth
outstanding with them that we get a nice chunk of business to go along with
that Supplier Gold award. The log jam is constantly being - we constantly try
to break it even without Supplier Gold. We literally have a person up in
Sikorsky every single week of the year and sometimes two days of the week,
because A, they're that bigger a customer - that important a customer to us,
B, the general vicinity allows us to the up there within an hour and half,
ferry ride and we're trying to get as much of their business in this facility
as we can. So, I do believe it will help amazingly, if we're able to get the
<Q - Michael Potter>: Okay. And then on the Boeing, on the A-10 opportunity,
want some additional work. Can you just review exactly, is there a further
opportunity for Boeing to offload more work and on the - I guess orders that
we received so far, does that cover all the wing sets that Boeing is
contracted to provide the Air Force?
: Okay. First answer,
the first contract that we got, basically 70, $71 million. We got another $10
million added to that, I'll call it unsolicited. We didn't put out a bid for
it. What we are doing is providing wing subassemblies, if you will, the wing
tip, the pylons, various either flaps or slats or panels or whatever. I think
they wanted to see how good we really were. To a lot of companies, CPI is
still a very small, very unknown entity.
Once they saw the quality of what we produced and how we went about our job,
they came back to us and said, when your stock gets here, we're putting in
light, we're putting in various tubing, we're doing this, we're doing that.
We think we'd like to give you that so that we don't have to do it here. You
can add more and more to your assembly. And that's what accounted for the $10
million worth of extra work that was added to that.
Now you ask is there more potential? Absolutely. We're discussing with them
now more of that same exact potential where they've said, "well you did this
really - now you've added the lights and they look terrific and we love what
you did on the flashing thing at the end of the wing tip; how about these
things too." So we're constantly talking to them about increasing the scope
of what it is we do, okay. So that's the answer to your first question.
The second part is as of right now we are under contract that the $81 million
that we have in contracts from them is for the 242 chipset orders they have
with the U.S. Government. Now, there's an awful lot of talk going on that
that 242 will go up somewhere over 300 chipsets. There are about 368 10s.
There's a discussion as to how many of them are sitting in the desert. It's
anywhere from 0 to 20 or 30. But they have asked the U.S Government to
re-outfit the entire fleet with the new wings. We'll see if that occurs. If
that occurs, obviously we would expect to be producing X number more units
<Q - Michael Potter>: Okay.
<Q - Michael Potter>: That's perfect. Thanks guys.
: Thanks Mike.
[Operator Instructions]. Your next question comes from the line of Scott
Hudson of MSI Fund
<Q>: Hey guys. Regarding the three major long-term production programs, can
you give me sort of a feel as to how those trend, post 2011, do they - I
mean, is it a drop-off - a significant drop-off or is it kind of a ramp down?
How does - how should I look at that?
: It's neither. It's
still an increase on all three major programs. 2011 is just the first year of
: If you do a little
core -- industry research and look at GD's delivery schedules for G650s, look
at Boeing's delivery schedule on A-10 wing sets. You'll see '12, '13, '14
should all increase on those three programs. There's nothing here - we don't
want you to have the impression that 2011 is our banner year, it's our banner
year compared to every year prior. It is not our banner year going forward.
We anticipate if we continue to bring new business into this company that
'12, '13 and '14 should all be better than '11 because the three major
programs are all going to be better than they were in 2011.
<Q>: Got you. Thanks so much.
: My pleasure.
Your next question comes from the line of Paul Berger of TLA Associates
: Oh, no.
<Q>: Good morning guys.
: How are you Paul?
<Q>: Good. On the outstanding bids...
<Q>: I'm interested separately the half that's with Sikorsky and the other
half. Can you give us any more color and has anything been added or dropped
out? And do you see any fruition?
: I can't give you
any more color. I really can't talk about who the customers are and what the
programs are et cetera. As far as drop out, it was a very quiet quarter.
There wasn't a lot of drop out. There wasn't a lot added, which is not
atypical for summer months quite honestly for whatever reason besides
vacations and the obvious. No major proposals tend to come out during this
period of time. So, there was - like I said little bit of dropping out, a
little bit of adding in some of the dropping out were in programs that went
away, but as we told you guys in the past, that number we give you is only
for things that are less than 12 months old. There are one or two that are
more than 12 that we've taken out, but are still very active, not going
anywhere, not going to be un-awarded in our opinion.
As far as fruition, yeah, we're hoping a lot of it comes to fruition. There's
a healthy chunk of it right now that we know is extremely active and will be
awarded. Now will it be us? I sure hope so, I can't guarantee that obviously.
We know - where we're highly competitive and where we may not be as
competitive and - we kind of figure that into our winning percentage and
possibility going forward, okay?
<Q>: Very good, yeah.
: I thought maybe
you'd fell asleep on this, Paul.
<Q>: I was thinking about it.
<Q>: Thanks Ed.
: Sure, thanks, Paul.
There are no further questions. I will now turn the conference back to
Edward Fred, President and Chief Executive Officer:
Thank you, Christine. Since, nobody has the question, I'll address it very
briefly and simply tell you, no, we have no idea why the stock price did what
it did yesterday. There was no news, there was no secretive news, there's no
anticipated bad news, whatever occurred yesterday occurred, again, completely
outside the realm of anything we said, did, or had control over. So again, I
assumed somebody would ask the question today, you didn't. So I just felt
that I would address it. But there is no knowledge on our part as to why the
stock performed the way it did yesterday, so.
With that I will thank you all for participating in the call, we'll talk to
you again in three months. And thanks for your support.
Ladies and gentlemen, this concludes our conference for today. Thank you all
for participating, and have a nice day. All parties may now disconnect.
This transcript may not be 100 percent accurate and may contain misspellings
and other inaccuracies. This transcript is provided "as is", without express or
implied warranties of any kind. Bloomberg retains all rights to this transcript
and provides it solely for your personal, non-commercial use. Bloomberg, its
suppliers and third-party agents shall have no liability for errors in this
transcript or for lost profits, losses, or direct, indirect, incidental,
consequential, special or punitive damages in connection with the furnishing,
performance or use of such transcript. Neither the information nor any opinion
expressed in this transcript constitutes a solicitation of the purchase or sale
of securities or commodities. Any opinion expressed in the transcript does not
necessarily reflect the views of Bloomberg LP
|RecommendKeepReplyMark as Last Read|
|From: leigh aulper||10/7/2010 10:32:50 AM|
|Upgrades To Giant C-5 Galaxy Airlifter Greatly Increase Performance & Reliability |
16:49 GMT, October 5, 2010 The U.S. Air Force currently operates two types of jet-powered cargo planes capable of traveling intercontinental distances: the giant C-5 Galaxy and the smaller but more nimble C-17 Globemaster III. There are 111 Galaxies in the fleet, and the service plans to own a total of 222 Globemasters when production is completed. No other nation has anything remotely approaching the reach or carrying capacity of the U.S. airlift fleet. But the C-17 has lately been the darling of the fleet while the C-5, although capable of carrying far more cargo, has been something of an embarrassment. The main reason why was that the C-5 was equipped with aged, under-powered engines that caused chronic reliability problems. It wasn't hard to convince Congress that additional C-17s needed to be bought, because C-5s were out of service so much of the time.
Now that looks likely to change, thanks to a series of upgrades that will transform many Galaxies into a vastly improved "M" variant. The C-5M is so much better than earlier "A" and "B" versions that it's almost as though the Air Force has bought a new plane:
-- Carrying 45 tons of cargo, the C-5M can fly 900 nautical miles farther than earlier versions of the Galaxy without refueling, and 2100 nautical miles farther than a C-17.
-- Carrying the same load to a destination 4,200 nm distant, a C-5M requires only 5400 feet of runway to get airborne, compared to 6300 feet for an earlier Galaxy and 7800 feet for a C-17.
-- If filled to make maximum use of its cargo capacity, a C-5M can transport twice as much cargo as a C-17 -- six troop carriers versus three, 36 pallets versus 18 -- while flying 50 percent farther.
-- When moving comparable loads, C-5Ms cost 35 percent less than C-17s to carry a pallet of cargo a given distance, and consume 40 percent less fuel -- while generating considerably less greenhouse gases.
Of course, the C-17 has important virtues too, such as the ability to back up on the ground using thrust reversers and land in some places where C-5s do not fly. But after a year of testing three pre-production models of the upgraded C-5M, a delighted Air Force is beginning to realize that its ugly duckling may now be as good or better than the C-17 swan in many measures of performance. In March, the Air Force Operational Test & Evaluation Center in Georgia rated the C-5M as "effective, suitable and mission-capable" -- adjectives that didn't used to be applied to the Galaxy very often. Although the program to modernize the plane's electronics and engines ran into some cost problems, it looks likely the improvements will pay for themselves through greater productivity, improved fuel efficiency and reduced maintenance costs.
There's a lot of talk these days about bolstering the efficiency of the military, with much of the discussion focusing on process improvements where progress is hard to measure. But the Air Force's C-5M program offers a different, more concrete path to achieving big savings. A plane that once spent much of its time in hangers awaiting repairs will now be highly mission-capable, and unlike other strategic airlifters will be able to fly straight from the East Coast to the Middle East without having to refuel -- producing huge savings in logistics costs. The Air Force has taken a mature but sound airframe (30 years of service life remaining) and made it markedly more flexible, reliable, versatile and productive. The engines are actually ten times more dependable on the C-5M than they were on earlier versions. They're even more environmentally friendly. If Pentagon policymakers ever decide to reward medals for bolstering efficiency, the people who are executing the C-5M effort deserve to be early recipients.
Loren B. Thompson, Ph.D.
Early Warning Blog
|RecommendKeepReplyMark as Last ReadRead Replies (1)|
|To: leigh aulper who wrote (199)||10/7/2010 10:55:03 AM|
|From: leigh aulper|
|Aeroplane upgrades could futureproof US Air Force fleet|
By David Axe |04 October 2010
SkyLifter blimp could carry entire buildings 1,000 milesSocial network connects driversRenault goes electro-bonkers at the Paris Motor ShowEven four decades later, its dimensions are awe-inspiring. The C-5 Galaxy cargo plane, built by Lockheed Martin, is 247 feet from nose to tail. Its wings measure 223 feet across. Resting on its 28 wheels, the airlifter towers 65 feet over the tarmac. Fully loaded with up to 135 tons of cargo, the C-5 weighs more than 380 tons and can still reach speeds of up to 520 miles per hour. The biggest aeroplane in the world by some measures when the first of 127 copies entered US Air Force service in 1970, today the Galaxy has been eclipsed by the slightly larger Russian An-124. But it's still one of the biggest machines ever made.
For all its impressive dimensions, the C-5 has been a lacklustre performer. Just five years after entering service, the Galaxy fleet began to suffer structural cracks that required building all-new wings for the first 77 copies -- a process that lasted until the mid-1980s. In the meantime, the Air Force restricted the plane's payload to a modest 25 tonnes. Ten years later, the Galaxy's TF-39 turbofan engines -- four per plane providing 43,000 pounds of thrust per engine -- began acting up.
The Air Force's stated goal was that three-quarters of C-5s would be ready to fly at any moment. In reality, just over half were in flying condition. By the turn of the century, the giant plane had developed additional problems. Its avionics, state-of-the-art when designed in the 1960s, couldn't meet the UN's Global Air Traffic Management standards, meant to ensure flight safety in crowded airspace. Increasingly unsafe and often unable to fly, the C-5 was "getting old," said Lorraine Martin, a Lockheed vice president.
In 2000, the Air Force took a hard look at its biggest aeroplane. There were two basic choices: replace the C-5 with newer but smaller Boeing C-17s, or do something to fix the Galaxy's reliability and safety problems. The results of that study led directly to a cavernous hangar at a Lockheed facility in Marietta, Georgia, where today a highly-skilled workforce is using specially-developed tools and procedures to conduct industrial surgery on a steady procession of finicky old C-5s. The result is an essentially brand-new aeroplane -- and potentially a new philosophy for the world's biggest and most powerful air force.
The C-5 has forced the Americans to redefine what "old" really means for military aeroplanes. Where once planes were simply discarded after a preset number of flight hours, today with carefully considered upgrades they can keep going and going. The implications are enormous for the military, and for the taxpayers that fund it.
Diagnosis and prognosis
The Air Force's study of the C-5's health concluded three things: the aluminium airframe with the new wings had 80 percent of its life remaining; the engines, and the avionics, did not. Fixing the latter might cost $150 million per aeroplane, compared to $250 million for a factory-fresh C-17. But if $100 million bought another 40, 50, even 60 years of service for the biggest aeroplane in the Western world, it was well worth the cost, proponents argued. Against the wishes of many elected officials, the Air Force decided to buy new engines and avionics for the 52 healthiest C-5s rather than funnel that money into newer C-17s. The new aeroplane would be designated the C-5M Super Galaxy -- "M" for "Modernised."
First, Lockheed needed partners. For avionics, the Maryland-based, number-two US arms-maker tapped Honeywell in New Jersey. Honeywell would provide new radios, autopilot, collision-avoidance sensors and electronic displays to replace the 1960s-style, round dials in the cockpit. General Electric, the Connecticut-based company that built the C-5s original TF-39 engines, won the contract to provide more powerful, reliable and fuel-efficient and also quieter CF-6 engines as replacements.
Lockheed and the Air Force were bullish about the project's prospects. They estimated that the C-5M fleet would save a million dollars a day in maintenance and fuel costs compared to the unmodified C-5s. General Norton Schwartz, then chief of US Transportation Command, anticipated a big improvement in the percentage of Galaxies ready for action. "For me, 75 percent is the floor, not the ceiling," he said.
While the Air Force inspected its C-5s at eight different air bases scattered across the US, in order to find the best candidates for surgery, Lockheed prepared its Marietta facilities to receive the first giant airlifter. That meant installing tailor-made, six-story scaffolding in four of the site's massive hangars. "The scaffold looks like a web that encompasses the aircraft," Martin explained. "Our folks can work right up to the aircraft with their eyeballs next to the [wing] leading edge."
Lockheed was familiar enough with the Galaxies to know that each one would require special treatment. Over the years and thousands of flight hours apiece, the Galaxies have stretched, compressed and warped in different ways. That especially applies to the support pylons that connect the engines to the wing. "None of the original holes and fittings are in the same place from aeroplane to aeroplane," program official Jeff Armentrout said. "You must fit the new pylon very precisely. It's meticulous work ... a lot of it done by hand from inside the fuel tank" in the wing.
To get a perfect fit the first time, every time with the new, custom pylons, Lockheed brought in laser scanners capable of precisely measuring the distance between rivet holes. In total, Lockheed spent $24 million getting Marietta ready for C-5 work. Outfitted with lasers, standing atop the new scaffolding, Lockheed's 350 C-5 surgeons were ready to receive their first patient. It arrived in 2005. After the plane's leftover fuel was carefully offloaded, work got underway.
In the beginning, surgery took between 12 and 18 months per jet. The first C-5 rolled out of the hangar in May 2006 and flew for the first time in June. It and the next two Super Galaxies would spend the next three years in testing in Marietta and at an Air Force base in California. In 2007, Wade Smith, one of the engineers on the test program, reported cautious optimism. "We have no problems with the engines," he said. "The increased thrust has been very impressive."
By 2009, cautious optimism had given way to outright bragging. At a base in Delaware, the Air Force loaded up one of its new C-5Ms with 80 tons of cargo, intending to bust several altitude, payload and time-to-altitude records. In a 90-minute flight, the Super Galaxy broke 41 records, including one set in 1989 by a supersonic Russian bomber. "This doesn't happen very often ... not in one flight," said Kristan Maynard, an official from the record-keeping National Aeronautic Association.
Armentrout dubbed the improved C-5 a "rocketship." It might have taken 40 years, but the one-time biggest plane in the world was finally living up to its potential.
While the first three C-5Ms conducted tests and broke records, Lockheed kept bringing additional planes into its hangars for modification. Confidence increasing, the company said it would hire more workers to boost the production rate to 11 or more Super Galaxies per year.
Testing began shifting into war zones. In February, a C-5M delivered cargo to Iraq for the first time. And in July, two C-5Ms teamed up with eight older Galaxies for a comparative exercise delivering 100 US Army helicopters to Afghanistan from a Navy cargo yard in Rota, Spain.
The contrast between the new and old Galaxies was stark. The eight older C-5s together managed just 23 missions, compared to 23 missions for the two C-5Ms, according to Colonel Patrick Cloutier, one of the mission's commanders. The C-5Ms carried 55 percent of the total cargo, despite flying one fewer mission than their older kin. The Super Galaxy ended the 30-day operation with a 96-percent reliability rate. The older C-5s scored 82 percent. "In short, the C-5M did what it was designed to do: deliver cargo more effectively and efficiently than its predecessor," Cloutier said.
As such, the Super Galaxy promises to relieve some of the headaches associated with the war effort in land-locked Afghanistan. Owing to restrictions on shipping arms through China, Russia and Iran and Taliban attacks on convoys through Pakistan, roughly a quarter by weight of all supplies for the NATO war effort arrives by air. The air bridge accounts for a growing percentage of the cost of the war. As it proved in July, the C-5M could help reduce those costs. Not bad for an aeroplane that's older than most of the people who fly it.
"This really is a modern aircraft for a modern Air Force," boasted Lieutenant Colonel Mike Semo, an Air Force officer attached to the modernisation program. But it's a modern aircraft with its origins in the 1960s. For an Air Force that has traditionally fixated on always buying the latest, brand-new hardware -- F-22 and F-35 stealth fighters, C-17 cargo planes, killer drones -- the C-5M is a powerful reminder that newer isn't always better. With the right design and some careful surgery, old aeroplanes can evolve.
|RecommendKeepReplyMark as Last Read|
|From: leigh aulper||11/1/2010 12:34:13 PM|
|CPI Aero Awarded Supplier Gold Status from Sikorsky Aircraft Corporation|
EDGEWOOD, N.Y.--(BUSINESS WIRE)-- CPI Aerostructures, Inc. (“CPI Aero®”) (NYSE Amex: CVU) announced today that Sikorsky Aircraft Corp., a subsidiary of United Technologies Corp. (NYSE:UTX - News), has awarded CPI Aero its Supplier Gold status. UTC’s Supplier Gold program recognizes superior performance in quality, delivery, lean manufacturing and customer satisfaction. CPI Aero has manufactured complex structural assemblies for various models of Sikorsky aircraft, including the UH-60 BLACK HAWK and S-92®, helicopters since 2005.
“CPI Aero’s designation as a Gold Supplier validates our commitment to becoming best-in-class for quality and delivery performance, implementing our lean culture, and delivering world class customer satisfaction. We are delighted to be a key supplier to Sikorsky,” said Edward J. Fred, Chief Executive Officer and President of CPI Aero, Inc.
Mr. Fred continued, “CPI Aero’s team members viewed the Supplier Gold program as an opportunity to focus on achieving operational excellence across the organization. We worked cooperatively with Sikorsky supply chain personnel to identify areas that could be improved and then executed a plan to close those gaps and deliver best-in-class results. Moving forward, our goal is to not only sustain this superior performance level by continuing to fine tune our customer service and operations, but also to aim for even higher levels of quality and service for our customers.”
Al Altieri, Vice President Supply Management for Sikorsky Aircraft Corp., added, “CPI Aero’s clear commitment toward customer satisfaction is imbedded in their culture. The Company’s success is a tribute to the extensive continuous improvement plan they have implemented, as well as of the organization’s ability to understand our business and plan accordingly. We congratulate Ed and his entire team for this hard-earned and well-deserved achievement.”
Sikorsky Aircraft Corp., based in Stratford, Conn., is a world leader in helicopter design, manufacture, and service. United Technologies Corp., based in Hartford, Conn., provides a broad range of high-technology products and support services to the aerospace and building systems industries.
|RecommendKeepReplyMark as Last Read|
|From: leigh aulper||11/17/2010 1:00:37 PM|
|Q3 2010 Earnings Call|
• Edward Fred, President and Chief Executive Officer
• Vincent Palazzolo, Chief Financial Officer
• Marco Rodriguez
• Richard Hoss
• Michael Callahan
• John Kohler
• Michael Potter
• Russell Silvestri
MANAGEMENT DISCUSSION SECTION
Greetings and welcome to the CPI Aerostructures Incorporated Third Quarter 2010 Conference Call. At this time, all
participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.
[Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce to your host, Edward Fred, President and Chief Executive Officer for CPI
Aerostructures Incorporated. Thank you, Mr. Fred. You may now begin.
Edward Fred, President and Chief Executive Officer
Thank you, Rob [ph]. Good morning and thank you all for joining us for our third quarter 2010 conference call. If you
need a copy of the press release issued this morning, please contact Lena Cati of The Equity Group at 212-836-9611,
and she will fax or e-mail a copy to you.
Also, if you would like to listen to this call again, you can hear a replay on our website's Investor Relations section in
about an hour at www.cpiaero.com.
Before we get started, I want to remind investors that this conference call will contain forward-looking statements,
which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially
different from projected results. Included in these risks are the government's ability to terminate their contracts with us
at any time, the government's ability to reduce or modify its contracts if its requirements or budgetary constraints
change, the government's right to suspend or bar us from doing business with them, as well as competition in the
bidding process for both government and sub-contracting contracts.
Our sub-contracting customers also have the ability to terminate their contracts with us if we fail to meet the
requirements of those contracts or if their customer reduces or modifies its contracts to them due to budgetary
constraints. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking
statement contained in this conference call. Additional information concerning these and other risks can be found in our
filings with the SEC.
Page 2 of 11
This morning I will give you a brief overview of our first nine months results. I will then hand the call over to Vince
Palazzolo, our CFO, so he can walk you through the quarter's financial statement details.
As reported earlier this morning, for the first nine months of 2010, revenue was approximately $36,526,000 compared
to approximately $31,045,000 in the first nine months of 2009, an increase of approximately 18%.
Pre-tax income was approximately $5,301,000 compared to pre-tax income of approximately $3,575,000 for the same
period last year.
Net income for the first nine months of 2010 was approximately $3,495,000 or $0.53 per diluted share, compared to net
income of approximately $2,359,000 or $0.38 per diluted share for the same period last year.
Selling, general and administrative expenses for the first nine months of 2010 were approximately $4,052,000 or 11.1%
of revenue compared to approximately $3,689,000 or 11.9% of revenue for the same period of 2009.
So with that prelude, I will now hand the call over to Vince Palazzolo our CFO, so he can walk you through the
quarter's financial statement details. Then I will comment on the current business environment, our guidance for the
remainder of 2010, as well as 2011 and 2012 and then briefly wrap things up and open the call to questions. Vince?
Vincent Palazzolo, Chief Financial Officer
Thanks, Ed. As reported in this morning's press release, comparing the third quarter of 2010 to the third quarter of
2009, revenue increased 31% to $12,976,084 from $9,916,347. Gross margin was 26% both periods. Pre-tax income
increased 60% to $2,131,363 compared to $1,358,662.
Net income increased 51% to $1,429,363 or $0.21 per diluted share compared to $944,662 or $0.15 per diluted share.
Selling, general and administrative expenses were approximately $1,181,000 or 9.1% of revenue compared to
approximately $1,144,000 or 11.5% of revenue in 2009.
At this point, let me hand the call back over to Ed for an overview of the business.
Edward Fred, President and Chief Executive Officer
Thanks, Vince. As Vince just reported, the gross margin for the third quarter of 2010 was the same as that of the prior
year's third quarter. We expect that quarterly ebbs and flows in our gross margin will continue as our new programs
progress, but we arrived at our 2010 guidance based on a 24% to 26% gross margin range and expect to end up in that
range. New orders through November 5th of 2010 were at a record high at $57.7 million, significantly higher than the
$17.5 million reported this time last year.
As I stated during the last quarter's call, this award growth was driven in part by the fact that we received the expected
follow on releases on all three of our major sub-contracting programs, the A-10, the E-2D and the G650. These releases
take us out into the 2012 timeframe and give us a predictable revenue stream, which has allowed me to issue the 2012
guidance recorded this morning. There is also a real business potential from the approximately $384 million worth
amount of unawarded solicitations outstanding once these programs are funded and/or awarded.
In the past several years our reputation has been elevated in our industry, thanks to our impressive list of customers, the
success we've experienced on the important programs that we're working on, and the exposure we've had and the
contacts we've made at various aerospace and defense institutional investment conferences.
We are now in the midst of establishing relationships with additional prime manufacturers, including other helicopter
and business private jet companies who come to recognize CPI Aero as a premier supplier of aircraft structure. Among
the unawarded bids outstanding are contract opportunities with these potential customers. We look forward to reporting
on our progress of turning solicitations with these prospects into awards and contracts in the future.
Page 3 of 11
As previously announced, based on the visibility we currently have, we project that 2010 revenue will be in the range
of 49 million to $51 million with resulting net income in the range of $4.6 million to $4.8 million.
It is our expectation that our three major long-term production programs, again, the A-10, the E-2D and the G650 will
be in full scale production and generating consistent revenue during 2011, and we therefore project that 2011 revenue
will be in the range of $78 million to $81 million with the resulting net income in the range of $9.2 million to $9.5
Additionally, we currently estimate that the 2012 revenues should be in the range of $88 million to $91 million with
resulting net income in the range of $11 million to $12 million.
In early April we completed a registered direct offering and raised $3.5 million of net proceeds through the sale of
500,000 shares of our common stock. Through this offering, we've strengthened our financial position in preparation
for continued growth and enhance the potential liquidity of our stock. CPI's future has never been brighter and we will
continue to get that message out to the investment community as often as possible.
CPI participated in the DA Davidson Aerospace and Industrials Conference on Tuesday and as most of you know, a
full sell-side firm, Sidoti, initiated research coverage on us in their initial micro cap research product. We are proud to
report that Sidoti gave us the highest ranking of the nine companies that appeared in their first report. Sidoti joins Roth
Capital, Stonegate Securities and Capstone Investments as firms that currently cover CPI Aero. So our efforts to get the
message out and increase investment community awareness of CPI are obviously having a significant impact.
Lastly, we just announced the Sikorsky Aircraft Crop., a subsidiary of United Technologies Corp. has awarded us its
Supplier Gold status. UTC's Supplier Gold program recognizes superior performance in quality, delivery,
remanufacturing, and customer satisfaction. I think it's important to point out here that this award is a highly exclusive
recognition as CPI is now one of only nine suppliers in the entire Sikorsky worldwide vendor base that has received it's
designation. We are only one -we are one of only two structural suppliers to achieve this level and the only one in
North America. So this puts us in some very select company.
Before closing, I would like to thank all of our shareholders for your continued support of CPI Aero and I assure you
that the management team and your Board of Directors are working diligently to continue this profitable growth and
reach our full potential as the world's premier small business supplier of aircraft structure.
And I would be remiss if I didn't once again thank the CPI management team for sharing my vision of where we can
take this company, but more importantly for making it happen. I would also like to thank all the employees of CPI Aero
for executing on that vision and being an integral part in us obtaining Supplier Gold as it requires a complete team
effort, which you put for. You should be very, very proud of yourself.
I look forward to the future of this company with great eagerness and anticipation of now executing on these contracts
and then obtaining new ones due to the quality of our work. Finally, since this is our last conference call of the year, we
want to be among the first to wish to all the very best for the holiday season and for the coming year.
Now, before I open the floor to questions, we did receive a question through our IR firm, and I'll answer that one first.
It comes from Mr. Kevin Stone [ph], and the question is, Mr. Fred, please provide some color on the possibility of
another money raise, the likelihood, the timeframe, the reason. Mr. Stone, at this time, we don't see any need to do a
money raise. There is not one anticipated.
The raise we did with Roth Capital back in April, we feel gave us the necessary working capital to go ahead and reach
the numbers that we've projected for 2011 and 2012 that's not to say we would never do another one. If we won an
often new contracts that are required us to capitalize even further, I guess that's the possibility, but as of now, we don't
see that at all. There is no anticipated money raise at the moment. So I hope that answers your question. Right now,
there is nothing on horizon for us to be doing anything like that.
Okay. And with that, I'd like to open the floor to questions. Rob, can you allow callers to place questions now, please?
Page 4 of 11
Yes, sir. [Operator instructions] Thank you. Our first question is coming from the line Marco Rodriguez of Stonegate
Securities. Please state your question, sir.
<Q - Marco Rodriguez>: Good morning, guys. Thanks for taking my questions here.
<A - Edward Fred, President and Chief Executive Officer>: No problem, Marco. How are you?
<Q - Marco Rodriguez>: I'm doing very well, and yourself?
<A - Edward Fred, President and Chief Executive Officer>: Good. Thanks.
<Q - Marco Rodriguez>: All right. I was wondering if you could provide an update on the potential bids outstanding
with Sikorsky. I believe on the last call you mentioned that roughly 50% of those bids outstanding what was then. So if
you can provide an update there and also any kind of color you might be able to provide in regards to high need of any
of those potential bids?
<A - Edward Fred, President and Chief Executive Officer>: Okay. Their absolute number, which I've reported is
about $125 million or so is still approximately the same. Obviously, we've had some of those solicitations in the system
for quite a while yet under a year they wouldn't appear in that number. And with the awarding of Supplier Gold, we
hope and anticipate that perhaps some of those rewards will be forthcoming in the not too distant future based on this
new level of customer satisfaction we've attained if you will.
So that number is pretty much the same. Obviously, it's a smaller percentage of the overall, so the overall has gone up
almost $100 million, but Sikorsky is a great customer we would not have received this designation from them if they
didn't see us as a great supplier, so I think there's a lot of good things that will come down the road.
As far as the other things we have in the hopper, I really can't talk about them too much, because they are not public
information. I'm sure my customers don't want me speaking about the programs that they are bidding out at this
moment until they are obviously awarded. But, as I said in my script, there's a lot of new potential here with company's
that we've never done business before which opens the door to a variety of other things. So we are very, very pleased
with what that number is right now, what it's made up of, and the potential new customer that could come with that.
<Q - Marco Rodriguez>: Okay. And then kind of a follow-up in regard to that the new potential customers, can you
maybe classify from a high level where you kind of stand in the process of whether it's building the relationship or
actually waiting for them to hear back from some bids you've done? Can you kind of help me?
<A - Edward Fred, President and Chief Executive Officer>: In some cases, you know it is we're still building
relationships with companies, but I'll be honest with you. Our outstanding bids didn't go up from 288 million last
quarter, well, last time I reported them to 384 million this year without us having submitted bids and some of them are
to those new potential customers.
So in that case we are sitting, waiting to hear whether or not we will be in the down select or whether or not there will
be a best in final or whether or not we will be simply be selected as the supplier of choice by any of these. None of
these apply in the skies. These are real programs. I think that they are in our sweet spot and fits in our core
competencies. So we believe we will be very competitive of on all the new stuff that we put in.
<Q - Marco Rodriguez>: Okay. Perfect. And then in regard to your 2012 guidance, can you discuss what might be
your kind of main assumptions there, the potential drivers behind them, and kind of how you might see the revenues
building over that year? Was it kind of an even spread or a little bit lumpy?
<A - Edward Fred, President and Chief Executive Officer>: We don't give quarterly guidance; I'm not going to get
too specific there other than say to you if you look back at us historically, you will see that we have a tendency just to
Page 5 of 11
grow quarter by quarter. This company does – our first quarter is usually not as good as our second. Our second isn't as
good as our third. Yet, if you go back, our quarters tend to be better than previous years year-over-year. So in that
regard, I think that trend will continue.
The drivers behind the growth at this very moment are simply the additional business on the kinds of programs we
already have. I go back to anybody who is listening, my background is accounting, I'm not a marketer, I'm not an
engineer, I don't get really carried away with making projections unless somebody can convince me that we are very,
very safe in making them. So I mean, you have to assume from that that there's a pretty solid piece of existing business
in there already, of course, as a new business piece, but it's not something I'm uncomfortable with. It's something that
historically we've always been able to achieve, so that's why I'm comfortable with my projection.
So I mean the growth drivers in it, I think, would be the same three major new programs, I guess, I can't hold them new
anymore, the three major programs, G650, E-2D, and A-10, all of them still upscheduling as we go forward. '10 was an
okay year for them, '11 is where they both, or I should say, really start to kick into their production phase, '12 will be an
even bigger production phase, '13 will be equal to or better and then the programs will either start to phase out in a slow
basis or there will be additional business from all of them and then on half of that, growth can always come even in
those numbers from the bids and quotes we have outstanding right now.
Again, as I've stated at many investor conferences, my numbers don't include massive amounts of awards from
Sikorsky or massive amounts of awards from that $384 million number. So if we were to win a significant percentage
of that outstanding number, that's upside to us. That's stuff that we have not baked into the system if you will. So,
plenty upside potential going forward. And from my own personal feeling, a limited amount of risk that I'm going to
make my numbers. If there was any doubt in my mind, I wouldn't go out with them.
Keep in mind this is a company that we're now with a projection in 2008 for 2009, '10, and '11, '09 we hit on the
money, '10 we're right on target, I reaffirm the '11, probably a half dozen times already and now I've been comfortable
enough to come out with 2012, which again how many companies are coming out with a projection for two years from
now. So given all that, I think, that's what you should see as the flavor in our going forward numbers.
<Q - Marco Rodriguez>: That's perfect. And lastly just a couple of housekeeping items. What was the cash flow from
operations, depreciation, amortization and CapEx for the quarter?
<A - Edward Fred, President and Chief Executive Officer>: We don't have it sitting in front of us.
<Q - Marco Rodriguez>: Okay
<A - Edward Fred, President and Chief Executive Officer>: The Q will be filed tomorrow?
<A - Vincent Palazzolo, Chief Financial Officer>: Tomorrow.
<A - Edward Fred, President and Chief Executive Officer>: Tomorrow, and that will all be in those numbers.
<Q - Marco Rodriguez>: Okay. Perfect. Thanks a lot, guys.
<A - Edward Fred, President and Chief Executive Officer>: Okay. Thank you.
Thank you. Our next question is coming from the line of Rick Hoss of Roth Capital Partners. Please state your
<Q - Richard Hoss>: Hi. Good morning.
<A - Edward Fred, President and Chief Executive Officer>: Hey, Rick. How are you?
<Q - Richard Hoss>: Pretty good. Thanks.
Page 6 of 11
<A - Edward Fred, President and Chief Executive Officer>: Good.
<Q - Richard Hoss>: Ed, the 100 or so sequential improvement in bookings, that – of the delta, can you give us the
depreciation or the percentage that has come from potential new customers?
<A - Edward Fred, President and Chief Executive Officer>: I would say to you it's probably about 85% in that $100
<Q - Richard Hoss>: Okay. And were these bids placed prior to your awarding of Supplier Gold or with this a catalyst
that we've been looking at enabled you to open up additional doors with new – potential new customers?
<A - Edward Fred, President and Chief Executive Officer>: Well, I think, actually I think, they all were submitted
prior to Supplier Gold; we just got that last week. I think what it does though, Rick, is Supplier Gold now gives us even
more credibility and when people are evaluating our bids and et cetera, we have something to point to that says we are
about as good as it gets. We're delivering on time, giving you 100% quality, giving you the customer satisfaction you
require from us.
So while I don't think it had any influence on how we prepared those bids, it will certainly have an influence on how
those bids are reviewed by the potential customer and of course going forward it will get named in every proposal we
ever put out.
<Q - Richard Hoss>: Okay. And then as far as government prime work goes, do you have any increased visibility or
additional thoughts from resumption of historic spending habits, any change there?
<A - Edward Fred, President and Chief Executive Officer>: Yeah. At this point, Rick, we are still seating in the
boat. We haven't seen an increase in the activity. As I tell people all the time, I mean, our competitors are friendly.
We've known them for years and years and years. They have not seen an increase in activity. So – as of this time, I
wouldn't dream of putting new business from or return business from that marketplace into my projections in any way,
shape, or form, which again, as I just told Mark a while, when you see my presentation where people see my
presentation that's the second line item that's in there that talks about where there's potential growth that I have not even
included in my projections.
If we ever go back to eventually you have to. This play, it has to come home at some point. And when they do, the
inspections that they've done on them are going to turn up obviously a variety of requirements, certainly structurally
between damage and sand blasting et cetera, et cetera and when that market opens back up again, we see no reason that
CPI won't be considered certainly the lead or one of the two leads in replacing these damaged structural parts. Keep in
mind before the Iraq war, we were the second largest supplier of structure to the U.S. government trailing only
Lockheed Martin who was the OEM on most to them, okay.
Well, if we gain that position again and only go back to what we were doing prior to the war, that's $20 million or $30
million worth of revenue a year that I don't have baked into any of my projections. If it increases the way I think it
would given this repair work really hasn't been done for five or six years, and a lot of our competitors have dropped by
the wayside because they weren't diversified like us, they couldn't get into sub-contracting like we did, certainly not
fast enough, and are no longer in that mix. I think it's a very real possibility that when this business returns, we're going
to be a major player in it and it can have significant increases, upside increases to the numbers we've got out there
<Q - Richard Hoss>: Okay. And then last question from me, gross margin I know that you've given the range of 24 to
26 pretty consistently and last couple of quarters have been at the high end of that. Based on the maintenance of the net
income numbers, does that imply a gross margin that would sequentially be lower and if so is there a particular reason
for that or is this just you being conservative?
<A - Edward Fred, President and Chief Executive Officer>: Honestly, we're being conservative. We always watch
product mix to see if you might have somewhat less profitable job contributing for revenue et cetera. It's very possible
that it's going to hit the higher end of that range, just like it's very possible that it's going to hit the high end of revenue
and net income range, but I think given the projections we give as a company, which most companies don't do, ranges
Page 7 of 11
at least give me a little bit of room. But, do I think we're going to end the year at 24% gross margin? No, I don't.
<Q - Richard Hoss>: Okay. Thank you, Ed.
<A - Edward Fred, President and Chief Executive Officer>: Okay. Take care, Rick.
Thank you. Our next question is from Michael Callahan of CapStone Investments. Please state your question.
<Q - Michael Callahan>: Hi. Good morning, guys, and nice quarter.
<A - Edward Fred, President and Chief Executive Officer>: Thanks, Mike.
<Q - Michael Callahan>: I guess, my first question is it's really about the new bids that you guys have [indiscernible] I
know you can't go too much deep [indiscernible] in aggregate a little bit about the kind of a whole bucket that we're
looking at. Is it trending maybe a little bit more towards the commercial side or are you still seeing lot of opportunity
on the defense side or and also maybe with these new customers that are going to be signed with the traditional
business or are again are you looking maybe at some commercial programs as that looks like more favorable spot in the
market with medium term?
<A - Edward Fred, President and Chief Executive Officer>: The stuff we just did on the mix of both commercialish
I call it and military. Going out in the future, we see the same things you had mentioned that there's going to be an
opportunity to participate a little more in the commercial arena, which we welcome the opportunity to do that. I like to
keep commercial as a nice element of CPI, but I don't want to get too heavy commercial just because it can change on a
dime based on world economies, based on aircraft accidents, et cetera, et cetera. So we never want to get overly heavy
in the commercial arena.
That said, we have very little commercial right now and when I say commercial, I'm evenly bringing in G650 in
classifying in this commercial, which it really is and it's business executive jet. The only commercial aspect we have is
the S-92 helicopter out of Sikorsky, which is used for search and rescue; I'll call it high level governmental
transportation, transportation to and from oil rigs, things like that. So we do not have much of a concentration, if you
will, of commercial at all.
So while the new stuff is not highly commercial, we are looking at opportunities to get into the commercial
marketplace through sub-contracting arrangements. There's an awful lot of work out there once the primes get
themselves streamed out on their aircraft and we will want to participate in somewhat, no doubt about it.
<Q - Michael Callahan>: Okay. Thanks. I think just kind of a follow-up then on 2012 guidance. The revenue growth
assumption into 2012 decelerates substantially from 2011 and I get it pretty far out into the future, but I guess that's the
same point, it almost seems like really the only thing baked into there is G650 coming up to full production. And I
guess correct me if I'm wrong there, but also are you anticipating maybe picking up some orders and that maybe some
of the prime contracting business falling off a little bit or are you really just not counting on many orders at this point
<A - Edward Fred, President and Chief Executive Officer>: Well, right now, Mike, I'm not going to go out on a
limit and predict that the items we've been bidding on et cetera; we are going to win two or three huge ones. I mean that
would be kind of silly on my part that to me [ph] people to believe it's going to be a huge number and have to back off
it. The 2012 number is based on increased production as you said.
G650 will be huge that year, A10 will be higher, E-2 will be higher, some of our other programs that we're anticipating
will be higher, but it doesn't bake in any of the large new stuff that we have the potential of winning. So, could that
number go up? Absolutely. But, I guess what I'm trying to say in my projection is, if I lost pretty much everything, of
the large stuff I've got in court [ph] right now. If I lost it all, I'm still going to do 2012's number.
Page 8 of 11
I win my smaller contracts, I'll win the stuff that I usually win, and I will get to the 2012 number. If I win one or two
major programs again between now and then that number will go up. But, I don't want to give people the impression it's
a 110 million today, and then have to come back and say oh, you know I told you guys 110 and you priced us
accordingly, and now it turns out, I didn't win what I thought I'd win, so I'm only at $91 million. That doesn't make
sense to me, it's just not my style.
The 88 to 91 is the number, I am highly confident in, based on the business we have in hand and the historic wins we
get on a year-to-year basis. Anything big and new could make that number go up substantially.
<Q>: Okay, thanks. That's very helpful. I guess I asked only 2010 question, are you going to [indiscernible] answer fit
for me. Thank you.
<Q - Michael Callahan>: Okay. Take care.
Thank you. Our next question is coming from the line John Kohler of Oppenheimer. Please state your question, sir.
<Q - John Kohler>: Hi, Oppenheimer & Close, jut to clarify, how are you gentlemen?
<A>: Good John, how are you? I would have said it for you.
<Q - John Kohler>: Thanks. I was wondering, one of my questions have been answered already, but I was wondering
if you can talk about discussions that you've had with clients on the big – your big three programs, about getting
<A>: We do that constantly. You know obviously, if you think about who we're doing it with, is also prominent, an
entity all through itself. Spirit in essence is a lot like us, a major – they are major subcontractors – where we're just a
subcontractor. So, they relay a network from Primes as well for the most part, be it Gulfstream, be it Boeing et cetera.
And Boeing obviously 737, 787, they are having their issues at the moment.
So, while we talk to them constantly about trying to get some of that work, and I will tell everybody, I would love to
get some 737 or some 787 working here. I think they would be the right commercial programs to be on. It's very hard to
go out and get any from them, when they are still having their own issues with them. So, we are in their phase, we are
there, they know who we are. They have seen the quality of the work we are doing. I have no doubt – I have no doubt
that we'll certainly be considered when they get themselves back to where they want to be and look to offload work.
Right now, I'm also being logical about this. CPI is not the biggest thing on there mind right now. They are trying to
get, for example, 787, they are just trying to get at the flight without having a landed in the emergency case, so.
<Q - John Kohler>: Right. Okay, so the additional work on the 650 or on A-10 are probably [inaudible] more on,
extraneous factors in you capability?
<A>: Exactly, right.
<Q - John Kohler>: Okay. And then I know you made some big leaps in the production floor. And you mentioned in
your earlier comments about the potential returns for parts and refurbishment of existing aircraft. How do you look at
your ability to handle an influx of orders along those lines, if it is sizable, it'll be smaller parts given [indiscernible]?
<A>: If we have that kind of influx, if we go back to our [indiscernible] days with the U.S. Government, we were doing
30 million a year in revenue on replacement parts, on variety of aircrafts, on 100 extra contracts, the reality is we would
need more space, it's just no way around it. What's great about our complex and our landlord is there is space available
all over here, including next floor to us, where we could take the space necessary and move things in. Now whether that
means I'd move that military business in there, it remains to be seen. It's also possible that given the amount of work we
would have from one of our other prime contractors and pick – take your pick. I think A-10 program could fit, we
Page 9 of 11
might or Sikorsky, we might actually move all of one of those companies work to a facility next to us and designate it
as their facility.
<Q - John Kohler>: All right.
<A>: You know if it – if it makes them more willing to give us more business, so we've a facility totally dedicated to
them than that's what we would do, and I wouldn't hesitate to do. It's not expensive, it would just be basically leasing
space, because all of the corporate overhead et cetera, will remain right here in this building. So it would simply be an
assembly facility, which is not expensive real estate. You don't have to do a lot to make it workable. And again, the $30
million of revenue or $20 million extra dollars of revenue, the cost of leasing space is quite insignificant.
<Q - John Kohler>: Right, okay great, thanks so much.
<A>: You're welcome John, take care.
Thank you. [Operator instructions]. Thank you, gentlemen we've next question coming from the line of Michael Potter
of Monarch Capital Group. Please state your question sir.
<A>: Mike you almost disappointed me. I was wondering where you were.
<Q - Michael Potter>: Congratulation guys on a Great quarter.
<A>: Thank you, thank you
<Q - Michael Potter>: Just a quick question Ed. I know we have discussed it in the past. Has the contract mature?
Should we assume that we should be able to get further efficiencies and scale where historically we were in the low 30
on a gross margin side? Is there a room for our margins to improve from the current range?
<A>: Absolutely, they can improve. Will they ever get to the range they were, what we directed US government 32 to
35, I am not sure that's possible given the high competition in the non-US government direct arena. That's said, can it
get better than 26 or 27? Yes. I think it can absolutely approach to 30s without gap.
<Q - Michael Potter>: Okay.
<A>: More importantly though, I think what's great about these programs is that because their production programs,
because they are maturing et cetera, I think where you see the growth in CPI, where you should be looking for in
honestly, is not in gross margins necessarily, but take a look at the growth in operating margins. Take a look at the fact
that we -- when we put out the projection in 2008, we projected 30 to 35% growth in revenue, but 50 to 60 in net
income. And you're seeing that develop as we produce our quarterly results.
That's where you're going to see it, because we can produce all of that new revenue without having to add any type of
SG&A or certainly any significant SG&A. And you're seeing that in the percentages of SG&A versus total revenue. So
yes, I absolutely believe we will improve gross margins, as we go forward, but where I really look forward is
improving our operating margin, which we have been doing now very successfully for the last two years.
<Q - Michael Potter>: Okay, all right, great. One other question, on the B-52 program, and I know we're not on this,
that I guess is a very, very large program to upgrade the B-52 in the country, the Boeing one. It's primarily avionics and
engines, I am assuming, correct?
<Q - Michael Potter>: Is there opportunity for us on the structure for that program as well?
<A>: Specifically no at this moment. In general, yeah, I think absolutely, because again you go back to the ideas that
okay, you can improve the avionics and this is the same discussion Mr. Steve [ph] got. You can improve the avionics,
Page 10 of 11
you can improve the engining. Eventually, the structure has to be modified, replaced, repaired, done whatever to, and
that's where CPI is going to be available to do those things. I think the more we build our reputation with Boeing, the
better opportunity we'll have to get some of the business when it comes, and it must, because let's face it, if you the
greatest engines in the world, the most terrific avionics, if the structure is widening out, you don't have an airplane that
can fly. So while it's not part of this immediate upgrade or modification that is being done on B-52 or on the C-5
RERP, or – avionics, I think both of those things are to come down the line.
<Q - Michael Potter>: So the $10.5 billion contract of Boeing, one, including B-52, none of that is structure.
<A>: Very, very little. Very little.
<Q - Michael Potter>: Okay, great guys. Thank s a lot.
<A>: Thanks Mike. Take care.
Thank you. Our next question is coming from the line of Russ Silvestri of SKIRITAI Capital. Please proceed with your
<Q - Russell Silvestri>: Hi, good morning Ed.
<A>: Hi Russ, how are you?
<Q - Russell Silvestri>: Good. Could you give me a little idea on the, I think you mentioned a $100 million of growth
with new customer or 85% of it with new customers in that realized value. Is that a much of a use it or lose it type of
budget that you would might expecting to year end here?
<A>: No, not for those programs that we're talking about. Not for what we bid on. It is not – I have a big one [ph]. It is
not direct to the U.S. government, which means it isn't based on, we got to get this on budget early before – at this point
we have a ton of time anyway, but before September 30th. It's not like that at all.
<Q - Russell Silvestri>: Okay. That's all I have. Thanks.
<A>: Okay. Take care.
Thank you. Our next question is coming from Marco Rodriguez from Stonegate Securities. Please state your question.
<Q - Marco Rodriguez>: Hi, guys. A quick follow-up – in regard to the bids outstanding that you have, is there any
way you kind of quantify what might be kind of like the biggest one versus other opportunities?
<A>: I can't do that because again these are not public bids. They have not been posted on a website, where anybody
could go and bid on them. As I just said, they're not directed U.S. government. If they were, I can tell you that. I can
tell you what it was for and everything else, but these are – the best I can do for you is these are prime manufactures of
aircraft, who are looking to sub out structural assemblies that hit our niche, right were we wanted to and that we are –
we know no matter what, we are incredibly competitive on these now. I'd like to believe we're going to win a nice talk
[ph] of business from those, but I don't control that completely, but we absolutely know from feedback that we're in a competitive range on all of these programs, so that is certainly a good news for us.
Thank you. Gentleman, there are no further questions at this time. I'd like turn the floor back to management for closing
Edward Fred, President and Chief Executive Officer
Okay. I just like to thank everybody for joining us with the call and we'll -- I guess it will be a while before we talk to
you again. But again, thank you well for participating.
This concludes today's teleconference. You may now disconnect your lines at this time
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