MAL Magellan Aerospace Corporation

TORONTO, Nov. 6, 2018 /CNW/ - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the third quarter of 2018 in accordance with the newly adopted IFRS 15, Revenue from Contracts with Customers. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:

 

This news release contains certain forward-looking statements that reflect the current views and/or expectations of the Corporation with respect to its performance, business and future events.  Such statements are subject to a number of risks, uncertainties and assumptions, which may cause actual results to be materially different from those expressed or implied.  The Corporation assumes no future obligation to update these forward-looking statements except as required by law. 

This news release presents certain non-IFRS financial measures to assist readers in understanding the Corporation's performance. Non-IFRS financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP"). Throughout this news release, reference is made to EBITDA (defined as net income before interest, income taxes, depreciation and amortization), which the Corporation considers to be an indicative measure of operating performance and a metric to evaluate profitability. EBITDA is not a generally accepted earnings measure and should not be considered as an alternative to net income (loss) or cash flows as determined in accordance with IFRS. As there is no standardized method of calculating this measure, the Corporation's EBITDA may not be directly comparable with similarly titled measures used by other companies.

1.  Overview
A summary of Magellan's business and significant updates

Magellan is a diversified supplier of components to the aerospace industry. Through its wholly owned subsidiaries, Magellan designs, engineers, and manufactures aeroengine and aerostructure components for aerospace markets, advanced products for defence and space markets, and complementary specialty products. The Corporation also supports the aftermarket through supply of spare parts as well as performing repair and overhaul services.

Magellan operates substantially all of its activities in one reportable segment, Aerospace, which is viewed as one segment by the chief operating decision-makers for the purpose of resource allocations, assessing performance and strategic planning. The Aerospace segment includes the design, development, manufacture, repair and overhaul, and sale of systems and components for defence and civil aviation.

Business Update
On August 13, 2018, Magellan announced the signing of a six-year agreement with Pratt & Whitney to manufacture aluminum castings for their Next Generation Product Family ("NGPF") of engines, powering the Airbus A320neo, Airbus A220, Embraer E2 series and the Mitsubishi MRJ aircraft. The castings will be produced at Magellan's facilities in Haley, Ontario, Canada and Glendale, Arizona, USA. The agreement is expected to generate approximately $81 million in revenue through 2023.

On October 15, 2018, Magellan and Aeromet International Ltd announced that Magellan Aerospace, Haley had joined a global network of foundries licensed to manufacture cast parts using the advanced A20X^TM aluminum alloy.  Developed and patented by Aeromet in the UK, A20X^TM is the world's strongest aluminum casting alloy.

On October 17, 2018 Magellan announced the completion of all hardware deliveries to MDA, a Maxar Technologies company, for the RADARSAT Constellation Mission ("RCM") being built for the Canadian Space Agency.  Over the course of the RCM program Magellan has delivered three satellite buses, three payload module structures, as well as associated software, ground support equipment and launch vehicle adaptors to MDA.  The three satellites will be deployed on a single launch that is schedule for the week of February 18, 2019.

For additional information, please refer to the "Management's Discussion and Analysis" section of the Corporation's 2017 Annual Report available on www.sedar.com.

2.  Results of Operations
A discussion of Magellan's operating results for third quarter ended September 30, 2018

As described in "Changes in Accounting Policies" section of this MD&A, the Corporation's interim results of operations for the three month period ended September 30, 2017 have been restated to reflect the impact of adoption of IFRS 15, Revenue from Contracts with Customers.

The Corporation reported revenue in the third quarter of 2018 of $226.5 million, a $3.9 million increase from the third quarter of 2017 of $222.6 million. Gross profit and net income for the third quarter of 2018 were $37.7 million and $18.6 million, respectively, in comparison to gross profit of $39.6 million and net income of $18.1 million for the third quarter of 2017. 

Consolidated Revenue

 

Consolidated revenues for the three month period ended September 30, 2018 were $226.5 million, an increase of $3.9 million from $222.6 million recorded for the same period in 2017. Revenues in Canada increased 8.8% in the third quarter of 2018 compared to the corresponding period in 2017, primarily due to volume increases in defense and rotocraft markets, and the strengthening of the United States dollar relative to the Canadian dollar when compared to the prior period. On a currency neutral basis, Canadian revenues in the third quarter of 2018 increased by 6.9% over the same period of 2017.

Revenues in United States increased by 14.3% in the third quarter of 2018 compared to the third quarter of 2017 when measured in Canadian dollars mainly due to volume increases in wide body aircraft and rotocraft market and favourable foreign exchange impact due to the strengthening of the United States dollar against the Canadian dollar. On a currency neutral basis, 2018 third quarter revenues in the United States increased 9.4% over the same period in 2017.

European revenues in the third quarter of 2018 decreased 14.8% when compared to the corresponding period in 2017 primarily driven by decreased production rates for wide body aircraft offset by the favourable foreign exchange impact as a result of the strengthening of the British pound relative to the Canadian dollar, and the strengthening of the United States dollar relative to the British pound. On a constant currency basis, revenues in the third quarter of 2018 in Europe went down by 19.8% compared to the same period in 2017.

Gross Profit

 

Gross profit of $37.7 million for the third quarter of 2018 was $1.9 million lower than the $39.6 million for the third quarter of 2017, and gross profit as a percentage of revenues of 16.6% for the third quarter of 2018 decreased from 17.8% recorded in the same period in 2017. The gross profit in the current quarter was primarily impacted by production volume decreases offset partially by the favourable foreign exchange due to the strengthening of the United States dollar and British pound relative to the Canadian dollar, and the strengthening of the United States dollar relative to the British pound. 

Administrative and General Expenses

 

Administrative and general expenses as a percentage of revenues of 6.3% for the third quarter of 2018 were consistent with the same period of 2017. Administrative and general expenses increased slightly by $0.2 million or 1.4% to $14.2 million in the third quarter of 2018 compared to $14.0 million in the corresponding quarter of 2017 mainly due to unfavourable foreign exchange offset by lower employee expenses.  

Other

 

Other gain for the third quarter of 2018 consisted of a $0.9 million foreign exchange gain compared to a $2.8 million loss in the prior year. The movements in balances denominated in the foreign currencies and the fluctuations of the foreign exchange rates impact the net foreign exchange gain or loss recorded in a quarter. In addition, a $2.2 million gain on disposal of one investment property was recorded in the prior year.  

Interest Expense  

 

Total interest expense of $1.0 million in the third quarter of 2018 was $0.3 million lower than the third quarter of 2017 amount of $1.3 million mainly due to decreased interest on bank indebtedness and long-term debt as principal amounts were lower during the quarter.    

Provision for Income Taxes

 

Income tax expense for the three months ended September 30, 2018 was $4.8 million, representing an effective income tax rate of 20.5% compared to 23.3% for the same period of 2017. The change in effective tax rate and current and deferred income tax expenses year over year was primarily due to the change in mix of income across the different jurisdictions in which the Corporation operates, the gain recognized in relation to a prior acquisition during the quarter and a reduction in the 2018 United States federal corporate income tax rate.

3.  Selected Quarterly Financial Information
A summary view of Magellan's quarterly financial performance

 

Effective January 1, 2018, the Corporation adopted IFRS 15, Revenue from Contracts with Customers that are discussed in "Changes in Accounting Policies" in this MD&A. The adoption of the standard does not have a significant effect on the Corporation's reported profit and loss.

Revenues and net income reported in the quarterly financial information were impacted by the movements in the Canadian dollar relative to the United States dollar and British pound when the Corporation translates its foreign operations to Canadian dollars. Further, the movements in the United States dollar relative to the British pound impact the Corporation's United States dollar exposures in its European operations. During the periods reported, the average exchange rate of the United States dollar relative to the Canadian dollar fluctuated between a high of 1.3448 in the second quarter of 2017 and a low of 1.2526 in the third quarter of 2017. The average exchange rate of the British pound relative to the Canadian dollar moved from a high of 1.7607 in the first quarter of 2018 to a low of 1.6398 in the third quarter of 2017. The average exchange rate of the British pound relative to the United States dollar reached its high of 1.3920 in the first quarter of 2018 and hit a low of 1.2395 in the first quarter of 2017.

Revenue for the third quarter of 2018 of $226.5 million was higher than that in the third quarter of 2017. The average exchange rate of the United States dollar relative to the Canadian dollar in the third quarter of 2018 was 1.3066 versus 1.2501 in the same period of 2017. The average exchange rate of the British pound relative to the Canadian dollar moved from 1.6397 in the third quarter of 2017 to 1.7047 during the current quarter. The average exchange rate of the British pound relative to the United States dollar decreased from 1.2974 in the third quarter of 2017 to 1.2611 in the current quarter. Had the foreign exchange rates remained at levels experienced in the third quarter of 2017, reported revenues in the third quarter of 2018 would have been lower by $9.0 million.

As discussed above, net income reported in the quarterly information was also impacted by the foreign exchange movements. The Corporation reported its highest net income in the first quarter of 2017 mainly driven by the recognition of the gain on the sale of the land and building of its Mississauga facility. In the third quarter of 2017, the Corporation recorded a gain of $2.2 million on the disposition of an investment property. In the fourth quarter of 2017, the Corporation recognized the future tax benefit attributable to a reduction in the United States federal corporate income tax as a result of new legislation. 

4.  Reconciliation of Net Income to EBITDA
A description and reconciliation of certain non-IFRS measures used by management

In addition to the primary measures of earnings and earnings per share (basic and diluted) in accordance with IFRS, the Corporation includes EBITDA (earnings before interest expense, income taxes and depreciation and amortization) in this quarterly statement. The Corporation has provided this measure because it believes this information is used by certain investors to assess financial performance and that EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed and how the results are taxed in the various jurisdictions.  Each of the components of this measure are calculated in accordance with IFRS, but EBITDA is not a recognized measure under IFRS, and the Corporation's method of calculation may not be comparable with that of other companies. Accordingly, EBITDA should not be used as an alternative to net income as determined in accordance with IFRS or as an alternative to cash provided by or used in operations.

 

EBITDA in the third quarter of 2018 decreased $0.3 million or 0.8% to $35.5 million, in comparison to $35.8 million in the same quarter of 2017 mainly as a result of lower interest and taxes, offset by higher net income and depreciation and amortization expense.  

5.  Liquidity and Capital Resources
A discussion of Magellan's cash flow, liquidity, credit facilities and other disclosures

The Corporation's liquidity needs can be met through a variety of sources including cash on hand, cash provided by operations, short-term borrowings from its credit facility and accounts receivable securitization program, and long-term debt and equity capacity. Principal uses of cash are for operational requirements, capital expenditures and dividend payments. Based on current funds available and expected cash flow from operating activities, management believes that the Corporation has sufficient funds available to meet its liquidity requirements at any point in time. However, if cash from operating activities is lower than expected or capital projects exceed current estimates, or if the Corporation incurs major unanticipated expenses, it may be required to seek additional capital in the form of debt or equity or a combination of both.

Cash Flow from Operations

 

For the three months ended September 30, 2018 the Corporation generated $30.6 million from operating activities, compared to $41.5 million in the third quarter of 2017. The decrease in cash flow from operations was mainly impacted by the unfavourable change in non-cash working capital balances, largely resulted from the unfavourable change year over year in accounts receivable in that the Corporation started selling receivables under a new program from the third quarter of 2017. This was offset by the decrease in contract assets resulted from timing of production and billing related to products transferred over time.

Investing Activities

 

Investing activities used $14.4 million cash for the third quarter of 2018 compared to $11.9 million cash in the same quarter of the prior year, an increase of $2.5 million from the prior year primarily due to higher deposits recorded in other assets offset by lower level of investment in property, plant and equipment. The Corporation continues to invest in capital expenditures to enhance its manufacturing capabilities in various geographies and to support new customer programs.

Financing Activities

 

On September 13, 2018, the Corporation amended its credit agreement with its existing lenders. The Corporation has a multi-currency operating credit facility with a syndicate of banks, with a Canadian dollar limit of $75 million. Under the terms of the amended credit agreement, the operating credit facility expires on September 13, 2020. Extensions of the facility are subject to mutual consent of the syndicate of lenders and the Corporation. The credit agreement also includes a $75 million uncommitted accordion provision which will provide the Corporation with the option to increase the size of the operating credit facility.

The Corporation used $10.2 million in the third quarter of 2018 mainly to repay bank indebtedness and long-term debt, and pay dividends which was partially offset by the proceeds from the sale of accounts receivables. 

As at September 30, 2018 the Corporation has made contractual commitments to purchase $21.7 million of capital assets.

Dividends
During the third quarter of 2018, the Corporation declared and paid quarterly cash dividends of $0.085 per common shares representing an aggregating dividend payment of $4.9 million.

Subsequent to September 30, 2018, the Corporation announced that its Board of Directors had declared a quarterly cash dividend on its common shares of $0.10 per common share. The dividend will be payable on December 31, 2018 to shareholders of record at the close of business on December 14, 2018.

Outstanding Share Information
The authorized capital of the Corporation consists of an unlimited number of Preference Shares, issuable in series, and an unlimited number of common shares. As at November 2, 2018, 58,209,001 common shares were outstanding and no preference shares were outstanding.

6.  Financial Instruments
A summary of Magellan's financial instruments

Derivative Contracts
The Corporation operates internationally, which gives rise to a risk that its income, cash flows and shareholders' equity may be adversely impacted by fluctuations in foreign exchange rates. Currency risk arises because the amount of the local currency receivable or payable for transactions denominated in foreign currencies may vary due to changes in exchange rates and because the non-Canadian dollar denominated financial statements of the Corporation's subsidiaries may vary on consolidation into the reporting currency of Canadian dollars. The Corporation from time to time may use derivative financial instruments to help manage foreign exchange risk with the objective of reducing transaction exposures and the resulting volatility of the Corporation's earnings. The Corporation does not trade in derivatives for speculative purposes. Under these contracts the Corporation is obligated to purchase specified amounts at predetermined dates and exchange rates. These contracts are matched with anticipated cash flows in United States dollars. The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings. As at September 30, 2018, the Corporation had $52.0 million USD/CAD foreign exchange contracts outstanding with a fair value of $242, expiring monthly until December 2019.

Off Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements that have or reasonably are likely to have a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, the Corporation is not exposed materially to any financing, liquidity, market or credit risk that could arise if it had engaged in these arrangements.

7.  Related Party Transactions
A summary of Magellan's transactions with related parties

For the three and nine month periods ended September 30, 2018, the Corporation had no material transactions with related parties as defined in IAS 24 Related Party Disclosures.

8.     Risk Factors
A summary of risks and uncertainties facing Magellan

The Corporation manages a number of risks in each of its businesses in order to achieve an acceptable level of risk without hindering the ability to maximize returns. Management has procedures to help identify and manage significant operational and financial risks.

For more information in relation to the risks inherent in Magellan's business, reference is made to the information under "Risk Factors" in the Corporation's Management's Discussion and Analysis for the year ended December 31, 2017 and to the information under "Risks Inherent in Magellan's Business" in the Corporation's Annual Information Form for the year ended December 31, 2017, which have been filed with SEDAR at www.sedar.com.

9.     Changes in Accounting Policies
A description of accounting standards adopted in the current year

The following new standards, and amendments to standards and interpretations, are effective for the first time for interim periods beginning on or after January 1, 2018 and have been applied in preparing the consolidated interim financial statements.

a)   IFRS 15 Revenue from Contracts with Customers ("IFRS 15")
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.

The Corporation adopted IFRS 15 using the full retrospective method of adoption. The effect of adopting IFRS 15 is as follows:

Impact on the statement of income and comprehensive income for the three month period ended September 30, 2017:

 

Impact on the statement of income and comprehensive income for the nine month period ended September 30, 2017:

 

Impact on the statement of financial position as at January 1, 2017 and December 31, 2017:

There is no material impact on the consolidated statement of cash flows.

The Corporation's revenue recognition methodology is determined on a contract-by-contract basis. Significant changes to the Corporation's revenue recognition accounting policy as a result of adopting of IFRS 15 are set out below.   

(i) Revenue recognition
Sale of goods
The majority of the Corporation's revenue is generated from the manufacture of aeroengine and aerostructure components for the aerospace market. Prior to adoption of IFRS 15, sales of goods were recognized when the goods were dispatched or made available to the customer, except for the sale of consignment product where revenue is recognized on notification that the product has been used.  Under IFRS 15, revenues are recognized when control of promised goods is transferred to customers in an amount that reflects the consideration the Corporation expects to be entitled to receive in exchange for those goods.  The Corporation accounts for contracts with customers when it has approval and commitment from both parties, each party's rights have been identified, payment terms are defined, the contract has commercial substance and collection is probable. The Corporation recognizes revenue over time using the percentage-of-completion input method, which recognizes revenue as performance of the contract progresses. Contracts that do not meet the criteria for over time recognition are recognized at a point in time. The sale of consignment products are recognized on notification that the product has been used.

Rendering services
The Corporation supports the aftermarket through the supply of spare parts as well as through repair and overhaul services. The repair and overhaul services are satisfied over time as customers simultaneously receive and consume the benefits provided by the Corporation. The Corporation recognizes revenues for repair and overhaul services using the percentage-of-completion input method as the basis for measuring the progress on the contract. 

Input methods recognize revenue on the basis of an entity's efforts or inputs toward satisfying a performance obligation (for example, resources consumed, labor hours expended, costs incurred, time elapsed, or machine hours used) relative to the total expected inputs to satisfy the performance obligation. The estimation of revenue and costs-to-complete is complex, subject to variables and requires significant judgement. The contract value may include fixed amounts, variable amounts or both. The Corporation estimates variable consideration at the most likely amount to which the Corporation expects to be entitled. The estimated variable amount is included in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimation of variable consideration is largely based on assessment of the Corporation's historical, current and forecasted information that is reasonably available. 

Other revenues
Other revenues are recognized at a point in time or over time as performance obligations are satisfied, depending on the nature of the contract.

(ii) Presentation of contract assets or contract liabilities Contract Assets — Contract assets include unbilled amounts typically resulting from sales under long-term contracts when over time method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Contract assets are generally classified as current. Upon transition to IFRS 15, the Corporation reclassed to contract assets $8,853 and $20,174 of trade receivables as at January 1, 2017 and December 31, 2017, respectively in relation to contracts that are recognized under percentage-of-completion input method.  

Contract Liabilities — Contract liabilities consist of advance payments and billings in excess of revenue recognized and deferred revenue. Contract assets and liabilities are reported in a net position on a contract by-contract basis at the end of each reporting period. Advance payments and billings in excess of revenue recognized are classified as current or noncurrent based on the timing of when revenue is expected to be recognized. The current portion of contract liabilities is included in accounts payable and accrued liabilities and provisions and the noncurrent portion is included in other long-term liabilities and provisions in the consolidated statement of financial position.

(iii) Disclosure requirements
As required for the condensed interim financial statements, the Corporation disaggregated revenue recognized from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Refer to note 8 for the disclosure on disaggregated revenue.

b)   IFRS 9 Financial Instruments
IFRS 9 Financial Instruments ("IFRS 9") provides guidance on the classification and measurement of financial assets and liabilities, impairment of financial assets, and general hedge accounting. The classification and measurement portion of the standard determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how they are measured on an ongoing basis. The amended IFRS 9 introduced a new, expected-loss impairment model that will require more timely recognition of expected credit losses. In addition, the amended IFRS 9 includes a substantially-reformed model for hedge accounting, with enhanced disclosures about risk management activity. The new standard is effective for annual periods beginning on or after January 1, 2018. The Corporation measures loss allowances for trade receivables and contract assets at an amount equal to lifetime expected credit losses. The Corporation has determined that the adoption of the standard resulted in a loss allowance of $999 net of tax of $348, on trade and other receivables as at December 31, 2017. As a result, the opening retained earnings as at January 1, 2018 decreased by $999. 

c)   Amendment to IFRS 2 Classification and Measurement of Share-based Payment Transactions
In 2016, the IASB issued the final amendments to IFRS 2 Share-based Payments ("IFRS 2") that clarify the classification and measurement of share-based transactions, consisting of: accounting for cash-settled share-based payment transactions that include a performance condition; classification of share-based payment transactions with net settlement features; accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The amendments are to be applied prospectively. However, retrospective application is allowed if this is possible without the use of hindsight. The adoption of the amendment did not have an impact on the Corporation's consolidated financial statements.

d)   IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This adoption of this interpretation did not have an impact on the Corporation's consolidated financial statements. 

e)   Amendment to IAS 40 Transfer of Investment Property
The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. These amendments did not have an impact on the Corporation's consolidated financial statements.

10.         Outlook
The outlook for Magellan's business in 2018

Magellan participated in the 2018 Farnborough International Air Show ("Farnborough 2018").  Official recorded a total of 1,500 exhibitors attending the show representing 48 countries. By the close of the show, there were more than 1,400 commercial aircraft ordered worth US$154.0 billion and 1,432 engines ordered worth US $22.0 billion. 

In conjunction with Farnborough 2018, FlightGlobal released an updated commercial aircraft forecast that foresees the global fleet increasing by 25,000 aircraft by 2037, raising the world fleet to 53,600 aircraft, including freighters. This is an increase from what was previously forecast to be 47,000 by 2036. Single and twin aisle aircraft are forecast to grow at 4% per year with regional aircraft growing at a lower rate of 2%.

To satisfy the steadily growing commercial market demand, Boeing's B737 production rate is now at 52 aircraft per month and is planned to reach 57.7 aircraft per month in 2019. Boeing is considering higher rates by 2020. Airbus' build rate for the A320 is currently at 57 aircraft per month and is planned to reach 63 aircraft per month mid-2019. New engine development and supply chain issues have affected the ramp up of both the A320neo and B737MAX programs which have resulted in a number of incomplete aircraft parked at the OEM's assembly lines. Boeing's 787 and 777 programs remain steady at 12 and 5 aircraft per month respectively. The B787 is expected to increase to 14 aircraft per month in the second quarter of 2019 as the new B787-10 reaches production rate. Airbus' A380 production is now down to 0.53 per month. The A350XWB rate is currently at 8.8 aircraft per month and is planned to reach 13 aircraft per month in 2020. Boeing is building three B777X aircraft in 2018 and is expected to reach between 8 and 9 aircraft per month by 2024.  Airbus' A330 rate has dropped to 4.5 per month however they continue to claim the A330neo is positioned to address future fleet replacements which will require the rate to increase in 2020. There will be 31 A220 aircraft (formerly Bombardier C-Series) delivered in 2018 with 60 planned for 2019. 

Due to its strong economy, the U.S. is expected to help drive recovery in the business jet market. Representing 60% of the global fleet inventory, North America is the single largest market for bizjets. Analysts are also reporting the lowest number of used jets for sale as a percentage of the total fleet in 19 years, which is a leading indicator concerning the health of the market and of pending recovery. The one cautionary note made however is that the residual values of used aircraft are depressed, making it difficult for owner/operators to decide on a new purchase.

In the regional turboprop market, Bombardier delivered its first 90-seat Q400 aircraft to India's SpiceJet in September. This delivery is against a firm order for 25 aircraft plus options for 25 more. Bombardier launched this new variant earlier in 2018 to help gain market share.

Security threats worldwide and what is widely recognized as an arms and technology race between China, Russia and the U.S. are driving a surge in the global defense market. As a result, the U.S. defense budget is expected to rise over the next two years. Additionally, U.S. allies are increasing their defense spending in what the U.S calls defense burden-sharing.  Most countries have concerns over their own sovereignty and freedom in the current geopolitical climate. Many of them are prioritizing the purchase of new fighters, trainers and rotorcraft through fleet modernization programs. 

Fleet modernization is expected to bring relief to rotorcraft manufacturers still suffering from the downturn in the oil and gas sector. A recent example saw a Leonardo-Boeing partnership win an order for 84 MH-139 helicopters in a competition to replace the U.S. Air Force's UH-1H Huey's. As well, the U.S. Navy is considering how to replace its aging Bell TH-57 SeaRangers. The U.S. Navy expect to purchase 105 helicopters. The U.S. Army is also soliciting proposals for up to 500 Future Attack Reconnaissance Aircraft. Other notable modernization programs are with Germany, India, Poland and Japan.  Germany wants to replace its aging CH53G's and Sea Lynxes. India is searching for new multirole aircraft and utility helicopters. Japan is looking to replace its Bell AH-1's while Poland wants to purchase new naval and attack aircraft. 

In the fighter market, Lockheed Martin announced in September a finalized contract for US$11.5 billion with the U.S. Department of Defense for the production and delivery of 141 F-35 Lightening II aircraft. The order consisted of 102 F-35A's, 25 F-35B's and 14 F-35C's. The unit cost was confirmed to be the lowest per aircraft price so far. An F-35A in Low-Rate Initial Production Lot 11 ("LRIP 11") is now US$89.2 million, down 5.4% from LRIP 10. The F-35B LRIP 11 price was lowered 5.7% to US$115.5 million and F-35C lowered 11.1% to US$107.7 million. Lockheed stated that as additional cost savings initiatives are implemented, they are on track to reducing the cost of an F-35A to US$80.0 million by 2022.

The Canadian Government's process to replace legacy CF-18 fighters has been launched. A draft request for proposal ("RFP") is expected to be issued before the end of this year with Airbus, Boeing, Dassault, Lockheed Martin, and SAAB being prospective contenders. Preliminary responses will be assessed then followed by a formal RFP in the first half of 2019. Contract award is expected by 2022, with the first replacement jets arriving in 2025/2026. An interim plan to buy legacy F-18s from Australia is developing. This is to provide mission capability until permanent replacement aircraft are available. Delivery of the first jet from Australia to Canada is expected in 2019. An upgrade/overhaul program will be required prior to first flight with upgraded jets expected to be available in 2022.

Commercial aerospace programs continue to be the main driver of growth for the industry. However as global threats increase and aging fleets require replacement, the defense market is now expected to grow as well.  Magellan is benefiting from the positive trends in the current aerospace market with certain divisions currently experiencing revenue growth.  Continuing efforts are being made to position all divisions on current and future growth programs.

Additional Information
Additional information relating to Magellan Aerospace Corporation, including the Corporation's annual information form, can be found on the SEDAR web site at www.sedar.com.

Forward Looking Statements  
This news release contains certain forward-looking statements that reflect the current views and/or expectations of the Corporation with respect to its performance, business and future events.  Such statements are subject to a number of uncertainties and assumptions, which may cause actual results to be materially different from those expressed or implied. These forward looking statements can be identified by the words such as "anticipate", "continue", "estimate", "forecast", "expect", "may", "project", "could", "plan", "intend", "should", "believe" and similar words suggesting future events or future performance. In particular there are forward looking statements contained under the heading "Overview" which outlines certain expectations for future operations. These statements assume the continuation of the current regulatory and legal environment; the continuation of trends for passenger airliner and defence production and are subject to the risks contained herein and outlined in our annual information form.  The Corporation assumes no future obligation to update these forward-looking statements except as required by law.

 

 

 

SOURCE Magellan Aerospace Corporation