Q2 2020 Astronics Corp Earnings Call
Greetings and welcome to Astronics Corporation second quarter 2020 financial results Conference call.
All participants are they listen only mode. A question answer session will follow the formal presentation.
Operator system during the conference. Please press Star Zero on your telephone keypad I'd remind this conference is being recorded I would now like turn the conference over to your host Ms., Deborah Pawlowski Investor Relations Fresh products Corporation. Thank you you may begin.
Thanks, Laura and good morning, everyone. We appreciate your time today and your interest in Astronics, joining me on the call or Peter Gundermann, Our chairman, President and CEO and David Bernie Our Chief Financial Officer.
You should have a copy of the second quarter 2020 financial results were released this morning, if not you can find them on our website at Astronics Dot com.
Let me mention first that we may make some forward looking statements. During this formal discussion as well as during the Q1 day session. These statements part of future events that are subject to risks and uncertainties as well. There's other factors that could cause actual results to differ materially from what is stated here today.
These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities Exchange Commission.
You talked with can be found on our website or FCC dot Gov.
During today's call. We will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for result.
Her courts to gap.
We have provided reconciliations of non-GAAP measures to comparable GAAP measures in the table that accompany today's release.
With that let me turn it over to Pete to begin peak.
Thank you Debbie.
Good morning, everybody. Thank you for being with us today.
Our agenda as usual, we'll be to discuss the second quarter and some level of detail.
Spend some time talking about our markets as we see them emerging.
Given the pandemic crisis that we're all working through.
And then finally do some questions and answers.
Before we get going though I wanted to revisit some of the three overlying goals that I talked about in our last call and give you a brief assessment as to how I think we're doing on those three goals.
The first goal was protecting our employees and providing a safe work boys.
Oh from which we can operate and.
I feel today that we are doing a reasonably good job and necessary or most of our facilities have continued to work with only minor disruptions and in general.
We.
Hello, able to stick to our tests and or the expectations our customers place on us.
Well without too much disruption I'm not going to say a whole lot more about those throughout this call because it's kind of a non issue as of today.
Our second objective is to keep serving our customers.
Needs as they direct.
And expect a bus and that's been a little bit more of a fluid environment our customers over the course, so the corridor.
Have a told US a lot of different things.
As late as this week so.
As a this is a challenge for our entire organization to stay in front of what our customers think they're gonna be expecting from us.
In the short term and in the medium term going forward, but I think we're doing a reasonably good job or that we are being as flexible as possible onewest proactive as possible and anticipating what they need and responding when they give us instruction.
The third overarching goal is to position the company for survival through the pandemic and position that for success afterwards, and again I think we're doing a reasonably good job. There certainly in terms of liquidity, which is a with a major concern as we slipped into the pandemic back in March.
<unk>.
With the cooperation up our banks I think we're pretty well positioned to get through the immediate future and Oh, we are.
We have the objective of organizing ourselves and positioning ourselves.
Oh, that's come out of the shoot a strong as possible when this a pandemic passes.
Sorry.
Those overlying goals.
Our valid and I think we're doing a reasonably good job and well probably touch on them individually as we go through the rest of this presentation.
But for now I think we're doing all right.
So.
The second quarter was obviously quite an experience in assessing it it's helpful to keep in mind that a normal times say pre pandemic astronics would generate a majority of its revenue as much as about 70%.
From the commercial transport market, which during a pandemic turns out to be a pretty bad place to be.
That's 70% of our business is basically for the manufacture of commercial aircraft and two operators Airlines people, who operate those commercial aircraft and my I don't feel a need today to describe for everybody what's been going on in that market.
Suffice to say that at the low point and April worldwide commercial flights were down to 20% or what they were before the pandemic they've since rebounded.
Generally to about 50%.
And at the peak, 60% of the world's commercial airplane fleet was part.
That percentage has dropped to about 40%. So airlines have been pulling people or pulling airlines aircraft.
Back into service as traffic has picked up.
During the quarter major manufacturers, including primarily Boeing and Airbus started pulling back on production plans.
They have been pulling them back successive whereas the quarter went on and even this week.
A little bit more than we expected, but we'll talk about that a little bit more later in this discussion so 70% of our traditional market has been involved in commercial transport airplane and it's been pretty badly affected by the pandemic.
Another 10%.
Traditionally comes from business <unk> manufacturing rates are down there also maybe not quite as much as commercial transports, but that part of our business is also under stress.
The final 20% comes from government and defense.
Revenue streams.
A man's here has held up reasonably well in fact, it was one of the highlights of our first quarter.
I'll get to it a little bit more in a minute.
So taking all the some new hotel revenue for the second quarter was 123.7 million.
That's actually a little bit higher than we expected from the pandemic here.
But it's certainly a week number for our company down 35% year over year end down 22% sequentially from the first quarter. In fact, it was our lowest quarter since way back in 2013.
Fortunately as we discussed in our May six first quarter call, we implemented a number of cost saving measures across our business pretty early on and tended to preserve cash and rightsizing the business.
Those include pretty substantial.
Capacity reductions, including headcount to the tune of about 25% of our.
Workforce before the pandemic, but weve frozen pay levels and eliminated cash incentives and reduced travel and cut capital spending by two thirds and dropped acquisition initiatives and buyback initiatives and so on and so forth.
Such that at the end of the day, we were able to report and adjusted EBITDA of 7.4%, even with that drastically reduced revenue level from the first from the and the second quarter.
Also positive from our perspective cash from operations was a positive 18.3 million.
They will talk through some of the specifics here on our adjusted EBITDA calculations and just a minute to give color into our performance during the second quarter.
Bookings for the quarter were very low 61.5 million, that's about half of shipments a aerospace in particular took most of the drop.
On the one hand, that's a surprising number perhaps on the upper hand, we think it's kind of a logical de stocking adjustment as our customers.
Just to the new reality of their expected run rate going forward.
We expect bookings to recover in the current quarter pretty strongly.
And.
So.
Well, obviously be keeping our eye on that very closely as this current quarter progressive.
A couple of other topics on the quarter before I turn it over to Dave a couple of weeks ago, We issued a press release.
But bill Textron's Bell has selected us to provide the electrical power and distribution system for there.
Entrance and the Army's fair, a and flare a competition.
Fair stands for future.
Correct reconnaissance aircraft flourish stands for future long range of Salt aircraft.
Is the planned army replacement for the O. age 58, D. in Florida is the planned army replacement for the you age 60 Black Hawk.
These programs are obviously.
Have a while the run they're not guaranteed and bell has not been selected but as one of two parties competing.
In both of these programs and they've selected us to provide.
And the electrical power distribution system based on some core technology, which we've been developing.
For a number of years, and which is proving to be a pretty well accepted in the light aircraft industry.
Our technology is somewhat unique in that it depends entirely on electronic circuit breakers, and solid state starter generator technology, which is much higher reliability and better performance than traditional starter generators.
These this is not our first time around the room with Bell they've selected US also for there are five all five five to five Andy to 80 platform. So we've developed a really good working relationship with them over time.
We're also developing systems or have developed systems for the Textron Denali the plaudits PC 24, and some other aircraft that are merging a in the near future. So we feel like we're building a very strong the market position here in something that will serve the company.
Very well for a for a long time in the future.
The other kind of highlight for the second quarter is our test business, which was a little bit under the radar. These days given all that's happening in aerospace actually had a really good quarter.
Sales up 43% and operating margin of 12.3%, it's still relatively small in terms of our overall business.
But it has very solid prospects in the market and our expectation is that a we're gonna have quite a bit a good news about our test business.
For the rest of this year so.
We're happy to have that as part of our portfolio. These days.
That ends my comments on the second quarter, I think I'll turn it over to Dave to do some specifics cover some specifics in our financials.
Thanks, Pete I guess first though I want to point out on page 10 of the release as a reconciliation of our adjusted EBITDA to net income.
If you're following along here.
As far as Q2 results the quarter track pretty well within the range, we expected regarding the topline.
However, the the operating margin was below our expectation, but can be explained by goodwill impairment recorded for our Pico unit.
And higher than expected noncash charges, particularly relating to inventory and receivables reserves.
Walking through the operating results for the quarter, we had GAAP operating loss of $18.7 million.
Included included in that was several items I wanted to bring your attention some anticipated and others I mentioned previously not.
First as a result of further passenger service unit or P.S. Yoo demand reductions communicated to us during the quarter.
We recorded an additional goodwill impairment of $12.6 million relating to lower customer demand and corresponding reduction in future cash flow expectations at our Pico operation.
Second we noted are recorded.
Severance accruals totaling $4.9 million relating to reorganization plans and layoffs affecting most of our facilities.
Third we increased our reserves relating to receivables and inventory by $2.4 million during the quarter.
These items summarized to about $20 million of charges that affected operating income during the quarter.
Another item of note below the operating income line and reflected in other income or expense, we recorded a non cash impairment of a minority equity investment.
Small startup business of $3.5 million.
Some added color on our goodwill.
As as mentioned, we took another impairment to goodwill in the aerospace segment relating to our Pico unit.
He goes largest customers Boeing providing passenger service units and other content on several Boeing aircraft.
Including 737, Max Triple seven Triple seven Axxent 787.
As build rates for those aircraft have been delayed and or reduced it has driven a significant reduction in our forecast for pico over the over the next several years.
This is specifically what has driven the impairment for this quarter.
We recorded a goodwill impairment relating to Pico in Q1 relating to lowered expectations. We had at that time and again in the second quarter received instructions that there would be further reductions or delays, thus driving our recent downward revisions to our forecast.
For Pico.
We currently have $58.4 million of consolidated goodwill on our balance sheet.
21.9 million isn't the test segment and 36.5 million is in the aerospace segment.
With the Pico unit accounting for 20.2 million of the remaining goodwill.
Hopefully that had some some color to the to the goodwill situation.
We have.
Next I wanted to talk to liquidity.
First and most importantly, we continue to be in compliance with all of our debt covenants.
And we expect to remain that way based on our current forecast.
All things considered we had a decent cash flow for the from operations in the quarter totaling $18.3 million.
Enabling to pay down $10 million on revolver during the quarter.
Outstanding balance on our revolver at the end of the quarter was $173 million, we had cash of $46.6 million, giving us net debt of 126.4 million.
We're roughly 1.8 times trailing four quarter EBITDA as calculated by our credit agreement.
Oh, okay.
Ill recap the amendment that we that we did it up to our credit facility that we talked about last quarter, but some of you may not have had been on the call in early may we amended the credit facility.
Facility matures in February of 2023.
It's a $375 million revolving credit facility.
In the key financial covenants under the amendment.
There are as follows the maximum leverage covenant has been waived until the third quarter of 2021.
Referred to as a suspension period.
Then it begins phasing in starting at six times EBITDA in Q3 of next year as defined in the agreement decreasing to 5.5 times in Q4.
And 4.5 times in Q1 of 2022, and then returns to 3.75 times leverage after that.
Theres two key financial ratios.
No covenant ratios during the suspension period, there was a minimum liquidity in a minimum interest coverage ratio.
We're required to maintain minimum liquidity of 180 $880 million.
Liquidity is defined as cash plus undrawn balance on the revolver.
We had about $68 million of liquidity or negative cash flow cushion as of the avail available at the end of the year.
Should we expect will be more than enough to cover us over the suspension period.
Also required to maintain we're required to maintain interest coverage ratio of 1.7 times adjusted EBITDA.
Other covenants include temporary restrictions on acquisitions share repurchases and dividends.
Yes.
At the high end of the pricing grid.
Which were at right now we're paying about three in a quarter percent interest.
With a LIBOR floor of 100 basis points, plus 225 basis points spread on that so the effective interest rate is three in a quarter percent.
That's all ahead.
Okay. Thanks, Dave we're going to turn the conversation a little bit more now to the future and what we see happening in our markets and where we expect things to go specifically through the end of 2020.
Which is only six months away.
And I'm going to revert to a structure that we introduced unused for the first time in our left in our first quarter call, which is a little bit of a different presentation. Then how we normally looked at our business on a little bit different than the tables that are attached to our press release.
Well, we basically want to divide the business in two different revenue streams to try to assess how those revenue streams are likely to evolve.
In the current climate.
The first one that I want to address is the government and defense revenue stream.
These are products that are basically sold the government entities around the world or too.
Mumbled military forces.
And for US It basically includes military aircraft production.
And almost all of our test business.
[noise] those two combined last year were about 20%.
Of our revenue [laughter] Susan.
And our feeling has been and continues to be that this portion of our business.
Is strong and stable and.
To some extent human accelerating the test side in particular seems to be accelerating.
So that portion of our business, 20% pre pandemic.
We think it's in good shape.
The next portion I want to talk about the bigger chunk of our business, 55% last year has to do with airplane production for commercial transports and for business Jets.
Either direct to the Oems or through other companies that are in turn selling to be Oems.
Again about 55% of our volume last year.
And over the two transports and business Jets.
Transports are by far the most important probably 80% of that total.
[noise] most producers up to today have announced volume reductions in their production plan of 35% to 45% or so going forward, which affects our volume to them directly.
This reduction is somewhat higher than we originally expected or expected when we last talked in May I think the numbers, we gave them were 30% to 35%.
So.
The reductions have come a little bit more substantially.
And we're obviously keeping our eyes are years tunes through further developments, but for the immediate future. That's where we think that bogey is going to be a reduction of 35% to 45% about part of our business.
The third portion is the aftermarket for commercial transports.
For us.
Was about 25% of our sales last year and these are primarily inflight entertainment connectivity related equipment sold the commercial airlines and leasing companies around the world again, 25% of our volume last year.
We now expect this portion of our business to drop about 50% from where it was last year, which is actually a pretty substantial improvement over the expectations that we stated in our may six call. When we predicted that those reductions could be 80% to 90%.
At this point, we would say the reductions are going to be about 50% and that's based on obvious we communication with our customers order activity and orders that we've taken in.
So airplane production has basically.
Gone down from when we talked in May, but the aftermarket has come up.
And it's almost a wash between those two as we'll see in a minute.
We're finally, introducing a third or fourth element of our kind of demand flow and this is what I would call a design build capability, which we have had kind of working in the background for some period of time with.
Our CSC operation in Chicago, where we have for quite Awhile offered design services.
Selectively to outside companies, sometimes in the aerospace industry, but a lot of times not in the aerospace industry, but we have limited our approach and our interest to technologies, which we think are relevant to what we would otherwise someday do in aerospace.
For example, maybe it's things like near field Communications high speed data transfer.
In the current environment, maybe some sanitation sanitization and cleanliness initiatives with outside companies.
And Weve paired this capability on the design side with the ability to support the customers also with manufacturing initiatives and that's been a in work for sometime now I would say you're going to have couple of years.
But it's starting to come to fruition.
And we expected to start contributing pretty substantially here going forward.
To the tune of approximately $20 million are so potentially through the rest of the year depending on timing.
That's up from a typical runway of maybe two or 3 million a quarter that we're talking about maybe 10 million a quarter it starts to be substantial.
We have some orders.
In this area that we can't talk about more specifically today because of customer concerns or timing, but I expect we will over the coming weeks.
So when you combine those puts and takes with our existing backlog and our second quarter cumulative results.
We imagine still the 2020 sales could be just north of 500 million somewhere in the 500 to 525.
Million dollar range, that's substantially similar to what we've talked about in May.
Except the Topsides come down from what was then 540 million.
Want to be a little careful.
To point out that this isn't necessarily guidance at this point.
More of a thesis that were.
Working to and testing everyday and.
Offering to you today in the interest of being transparent Justin all the things that we see happening in our markets and where we think it's all going to shake out.
I might comment a little more specifically that our current backlog is 307 million.
And of that 178 million is still planned for 2020 delivery.
Which means we need another 40 million or so.
To book and ship yet this year to hit the low into that range and normal circumstances that would be a pretty achievable thing.
For us to do so that's kind of the target we're looking at and of course.
It would be helpful. If the 178 million of current backlog scheduled for this year than shift into the future, which given our customers fluidity. These days there is always that risk.
We think further that with the actions taken to date and the way were structured right now that if demand does settle in that $500 million to $525 million range.
We should be cash positive for the year.
We should achieve an adjusted positive a bit of.
High single digits.
Keeping in mind that if demand turns out to be different we'll have to deal with it but we are certainly very tuned these days to everything our customers are telling us.
And and were.
Poised and positioned to respond as quickly as possible both to the upside and to the downside if necessary.
I think that ends our prepared comments, so Laura let's open it up for questions.
At this time will be conducting a question and answer session.
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My first question comes from line of catch up with Canaccord. Please proceed with your question.
Hi, good morning, Pete and Dave.
Good morning.
Pete I just wanted to first follow up on your comments regarding maybe a little better trends you're seeing on the 25% of your business the commercial transport aftermarket specifically the IC market.
Relative to your comments coming out of the first quarter.
Typically can you provide any more detail on maybe where you're seeing the strains either geographically or maybe this maybe some airlines taking advantage of obviously the aircraft being parks to pull forward. Some work anymore sort of color around that would be helpful.
Yeah, you've hit on a couple of parts of the answer I'm.
We are seeing increased activity in those areas of the world better doing best managing the virus. So.
That involves Asia to some extent and China, specifically, we're seeing higher quote activities. There are also in Europe.
And also more narrow body maybe than wide body.
The wide body worlds under a lot more pressure the airplanes are part of the turnaround or the recovery is expected to take a little bit of a longer period of time. So our sense is that some airlines are expected to bring back narrow body airplanes.
Sooner than later, so I don't know if there are initiating programs as much as.
Sticking with programs that already were planned or scheduled.
And that's different than what we may be expected, where we thought everything was going to get slammed on.
Hold.
So.
This was more of a it's less of a production lines. So it's a little less.
We are difficult to predict going forward out beyond say six or nine months, but for now it seems like.
Higher portion of those programs are being maintained than what we originally expected.
So I.
I think the the next couple of quarters will be very instructive as to whether those rates maintain themselves going into next year.
With a little bit of luck the feared fall.
Pandemics surge is less than than some people expect and maybe vaccine trial show a little bit more promise and there will be more of an appetite on the part of airlines to continue those investments that upgrades.
But but I can't really swear to that at this point all we can say is.
As of today, our backlog in our volume at our activity for.
If the field kind of retrofit activity is is higher than we thought it would be so that's a good thing.
That's that's encouraging and in this environment are you still getting sort of normalized pricing on these products or are you feeling incremental pressure.
Airlines, maybe look to do some of these programs to get a little bit more aggressive on on price or is able to pull things forward.
No I would not say that there is a major pricing impact related to the but pandemic.
Situation.
Okay, that's great and just finally on obviously the sort of the downward revisions you're getting from your customers on the always try to the business I mean, clearly we've all been following the INOMAX and what your customers have been talking about.
Just to level set is it are you sort of looking this year that Max for you is about still they give or take $40 million to $50 million headwind and what's your sort of confidence or visibility as you head into 21 about about volumes and how much that business could be up for you now.
Next year.
That.
That is a been a real wildcard for us this year actually [laughter] for the last 18 months.
When we last talked I think we were pretty clear we had orders in place for 21 ships a month.
That was reduced days later to under 10, a month and now all those have been have come into question.
So we're not sure what our 737 deliveries are expected to be for the rest of the year.
For a good news or bad news, we've got enough other things compensating that you know it's not a one for one hit to our revenue expectation, but it's certainly puts a lot of pressure on our Pico operation in particular, where we make most of our.
All right.
Production line content for Boeing aircraft, including the 737 that reduction that I talked about just now basically drove the impairment charge that they've talked about relate specific to Pico. So.
At this point, it's a major headwind, we still think we're in that $500 million to $525 million range.
Which I guess, if you want to be an optimist creates upside opportunity for 2021.
As that airplane comes back into production in serious volumes.
Great. Thanks, Pete I'll pass it back there.
Thank you.
Our next question comes from the line of John.
Thanks.
Securities You May proceed with your question.
Good morning, guys. Thank you for taking my question.
Okay Mike.
Good morning.
I think Pete you said, you expect bookings to recover pretty strongly in the quarter here.
Are you expecting that from aftermarket or or new business lines. The ones that you mentioned.
And you know given that you expect an increase from Q2 hour added that's where it would be.
Yeah that 40 million hurdle you need to reach on the book and ship it during the second half.
To meet your goals for the year or <unk> or maybe that soft guidance that you gave.
Yeah, most of that a design build backlog has actually been achieved already in this quarter. So that you would you could say that 40 million dollar target as all already you know chipped away at it pretty substantially already this quarter.
But what do I expect a I expect continued.
Strength in aftermarket.
Sales and hopefully that's the one that we're keeping our eyes on the most.
But also on general production flow because there was a de stocking element as business jet manufacturers and commercial transport manufacturers is there a lot of them are shut down for.
Major parts of the second quarter I didn't talk about that too much in my prepared script, but it's hard to deliver when there's nobody that you know AMPU the truck on the other side.
So that.
Helped build inventory to some extent and as they as customers adjusted their lower rates.
They need to do a rationalize their order flow with us. So we think that was a major element.
In our bookings in the second quarter, obviously, we don't expect I mean, an annualized 60 million dollar quarterly rate is.
It doesn't get us where we need to go so oh, yes based on our communication with customers on what we think is coming.
We would expect the bookings to recover pretty.
Significantly in the third and fourth quarter.
Got it Okay, and then just going to the test business what was the driver strength there you mentioned that.
You are seeing acceleration there are there specific program is at the I think you had a big transit program that was starting this year just give us a little color on what what what is going on under the Hood and what we can expect in the second half of the if that business.
I'll talk about bookings first and I guess I would say that there are the there's a large number of programs all kind of coming in at once from our test businesses various initiatives nothing thats a super huge it's not a one trick pony at all.
Well, it's a whole surge of business in general that's been feeding our current results.
You're right. We we are working hard on our on the transit order that we one for New York City.
But that's not a major driver of results at this point, yet either it's getting bigger.
It's still not that big I think the one of the most exciting things. It's just there's a.
There's a there are a number of high value targets.
And if we can get one or two or three of those we will have a pretty different situation on our hands with that business and and I expect they will all kind of play play out over the next three or four months.
So so these are things that will affect us this year, a little bit but affect us next year, even more so.
That's what I was saying 10% of our business traditionally has been test with aerospace dropping and test to growing that you know that could get up to 20% or or more.
Next year too early to tell but if were successful in some of these new programs, that's where that business should be so it's encouraging to see the margin profile improving there also.
Got it and just a follow up to that do you think that 12% operating margin sustainable going forward or is there going to be lumpiness as we've got some quarters.
Well test is lumpy, but the way the business is structured right now we don't it's not like it used to be all we are heavily involved in the semiconductor business that we had.
[laughter] $50 million swings from one quarter. The next one days or are not with us. So we're not lumpy in that sense.
And the bookings were getting right now should make it a little smoother just because it's a lot of little orders rather than a few big orders.
Got it thanks for telling us.
Sure.
Our next question comes from the line of Michael Ciarmoli Suntrust Robinson Humphrey you May proceed with your question.
Hey, good morning, guys. Thanks for taking my question.
Pete just back to the aftermarket.
I just want to try and gauge the confidence level. There. It seems like you know the current quarter aftermarket mix.
Benefited more the suppliers in general with a backlog of work, but are you actually seeing you know.
Did you see trends pick up in May and June and what do you. What are you seeing in July have you seen that activity store to reinforce the view or is it just more.
Indications quoting activity just trying to get a sense if the backlog just perform or the aftermarket performed better in the quarter because of the backlog that was already in place and shops were full and airlines were doing worker.
Are you seeing kind a tangible signs.
Pickup and work out there.
It's a good question and.
I guess I'd tell you a two perspectives on it most of what we did in the second quarter.
And have lined up right now we are things that were already in backlog, so we're delivering to that.
The existing orders so to speak.
But it's also true that are booking activity has picked up from a low in April pretty substantially and you don't get orders on until your quote them a few times right. So.
I can't tell you that were seen bookings.
Already that are driving that higher assumption, but what we're not seeing is the cancellations and delays that we expected and in communication with customers, they're trying to decide.
If they're going to bring back say there there.
There are three seven LNG fleet next year, they've got to get and they want to modify it or maybe they need to do that this fall. So those are the kinds of discussions that we're having.
And it is true to that you know aircraft utilization has picked up as you know quite a bit in regions in the world where.
The travel restrictions have been decreased and the virus is a more under control.
[noise] and.
It's taken a little bit of a setback in late June in early July with what's happened here in the U.S., which is disappointing that's really hurt domestic narrow body travel, but in a lot of places around the world. You know there a couple of steps ahead of us here and and so we're seeing more quoting activity there and more interest from.
Airlines than we are here so.
There are definitely is some risk in that assumption, but from today's perspective based on what we expect to happen over the next six months are we're more optimistic on the aftermarket certainly than we were back in May.
Got it and then just even though the aftermarket mix I know you know, even historically you called out 25% of 19.
From the airline customers, specifically was there more which was there more of a waiting towards wide bodies narrow bodies was equally split and I guess im trying to figure out a lot of these older wide bodies or you know even try and carriers look into de prioritized wide bodies, you know that does that fall into the category.
You know they might not get retrofitted with the latest and greatest have you guys got any insights there.
I'm shooting from the we capture a little bit because these retirement decisions are ongoing as you know, but but in general.
We're encouraged I guess I would say that older wide bodies are being retired.
In favor of continuing to operate those old wide bodies and not buying new ones right. So.
There's a surplus and wide body.
Dearth of demand right now, but in general people aren't holding onto the old wide bodies with VX would be.
Taking advantage of low oil prices for example, which was one of the pieces in the industry a month ago two months ago in general there retiring those older airplanes, which which realistically from a retrofit standpoint for us for IC, maybe weren't great candidates anyway, because lot of those airplanes are at this point are really old.
[music].
And unlikely to get much attention. So there's been the shift going on in that and passenger entertainment over the last 10 years, whereas say 10 years ago. It was all wide bodies essentially it was all wide body and very very little narrow body, it's become more and more narrow body, which is a really.
Good thing for us because narrow bodies are more in favor and there are more of them to retrofit right now.
So so I don't know how that all plays out exactly but more athree hundred twentys and more seven three sevens being built we think it's good for us.
And.
The increasing expectation on the part of flying consumers are passengers all around the world is that.
They don't really care, whether they are on their on an athree hundred 20 are there on a 787 they want to have entertainment. They want to have things to do so more plans are better than fewer plans more seats are better than fewer seats and.
And I think we're better off with narrow body, becoming more and more prominent part of the fleet compared to wide bodies, so that makes sense.
That makes sense.
And it just the last one on on the OE side I mean, it sounds like.
The Max isn't a total state of flux and I'm, assuming your prior view with based on that 216 and.
Now, it's it's down to 125, but it sounds like you know that'll obviously be the headwind, but what about.
You're shipping rates on the on the 77 in the Athree 50, where are you now on those you know clearly planes have been getting delivered or you. You know 77 had you still been shipping at can you know just trying to get a sense of how big those headwinds are gonna be and if you're seeing dealt with the Oems right now.
I think we are most of the 70 its most of the wide body work in those two platforms. In particular 77, an athree hundred 50 are we're indirect suppliers to the major I have for you guys.
So Panasonic tell us, though the act I mean, Airbus cells, and Athree hundred 50, or a bunch of Athree hundred fiftys to an airline.
That airline picks their IP provider, the IP provider buys equipment from us. So there's it's a little bit of a build to order.
Kind of production schedule.
I don't think we would say that theres a whole lot of inventory in the channel.
Okay.
Perfect. That's that's helpful. Thanks, guys.
Sure.
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Thanks, Pete say I was wondering if you could just give us your.
Current thoughts on the tail model into offering for the business jet is anything changing that.
Competitive side of that offering.
Okay.
We're working with.
New program with Collins.
And SCS and.
And from our perspective, it's going pretty well we are they.
We actually have a press release, that's an work on some flight tests that have happened recently that were very positive.
I can tell you that there is increased excitement because large business jet utilization rates are up they've survive the pandemic pretty well for various reasons and.
So there's a from from Oh, my understanding from a Collins perspective, they're very enthusiastic about the program.
And we think we're on the something pretty good here its still early in the development stage or are in the commercialization stage, but there.
Slide ahead, with a stcs and things like that so so we're we're pretty optimistic.
You know the pandemic has negatively affected business jet production plans going forward, but aircraft utilization for the fractional guys and some of the biggest buyers of business Jets.
It's up so people, who can waterflood private I guess for safety reasons. So we think it you know, it's not going to help us a whole lot in.
A 2020, but it's it's got a lot of promised for 2021 and.
With all the restructuring at all the things we've done with that business.
We're in relatively good shape. The crew there has done a good job latching onto this program, which weve really narrow the focus of the business and and so far so goodwill.
We hope to have that press release out before this call today, but it didn't make it.
Okay, and just to clarify that that kind of the new revenue bucket of this design service of 20 million was that in your previous soft guidance assumptions of a 500 to 525.
It was but at a slightly lower level I mean, theres. Some theres some timing questions as to when these things are going to get going.
But we're more confident today than we were back in May that we have some real programs that are going to be consequential.
Okay, great. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn this call back over to Mr., Pete Gundermann for closing remarks.
No closing remarks, thank you for your attention today, and we'll look forward to talking to you at the end of our third quarter.
I have a good day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a break.
Yes.
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