AAR Corp (AIR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the AAR Corporation fiscal 2009 first quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. And instructions will follow at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Miriam Barreto, Director of Investor Relations. You may begin.

Thank you. Good morning, ladies and gentlemen. And thank you for joining this morning's conference call. Before we begin, we would like to remind you that certain of the comments made today relate to future events which are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please refer to the forward-looking statement disclaimer contained in the press release issued yesterday, as well as those factors discussed under item 1-A entitled risk factors included in the Company's May 31, 2008, Form 10-K. By providing forward-looking statements, the Company assumes no obligation to update the forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. At this time, I would like to turn call over to our Chairman and CEO, David Storch.

Thank you, Miriam. And good morning. Joining me today in Chicago is Tim Romenesko, our President and Chief Operating Officer; and Rick Poulton our Chief Financial Officer.

Fiscal 2009 got off to a strong start with record first quarter sales of $360 million, and $0.45 per share from continuing operations which represents a 25% increase on a year-over-year basis. Sales to our defense customers increased a robust 32% and now represent 40% of total sales. Sales to commercial customers increased 10%. However, excluding the aircraft sales and leasing segment, commercial sales growth was 23%. In the aviation supply chain segment sales increased 8% to $153.5 million, and the gross profit margin improved to 23.1 from 22.4 in the prior year. The sales growth was driven by strong after market part sales and continued strength in performance based logistics programs. Consistent with our communications in July, our aviation supply segment experienced reduced volumes to Mesa Airlines during the period. Reduced sales volumes to Mesa had an approximately 200 basis point unfavorable impact on the growth rate in this segment and we expect a similar impact going forward. We also experienced weakness in our component repair shops.

Sales in our maintenance, repair, and overhaul segment increased 38% to $86 million and our gross margin improved to 14.8% compared to 12.8% last year. Sales increased at our Oklahoma and Indianapolis airframe MRO facilities while business at our Landing Gear business remained very strong. Our Miami airframe MRO experienced lower volumes due to heavy summer utilization by its largest customers. However, in September we expect the workload to double from August levels.

In our Structures and Systems segment, sales increased 53% to $117 million, and the gross profit margin improved to 14.9% from 11.9% last year. Sales were higher at all businesses within this segment, with the majority of the growth fueled by strong sales and mobility products and the impact of the SUMMA acquisition. During the period, we shipped the first products of our new composite center in Sacramento, California, and expect a ramp in sales from the facility over the balance of the fiscal year. We are also nearing the completion of a facility expansion for SUMMA and expect to be delivering products towards the latter part of the second quarter or beginning of the third quarter.

During the first quarter, our aircraft sales and leasing business had no buying or selling activity. Consistent with May 31, we have 37 aircraft in our portfolio, 29 of which are owned with joint venture partners and eight aircraft which are wholly owned. All aircraft in our portfolio are leased. Five aircraft are scheduled to come off lease during fiscal 2009 and we have an agreement in place to sell two of these aircraft in the second quarter. In addition, we are in discussions to either sell or release the remaining three aircraft coming off lease this year. Although we recorded no aircraft sales income from aircraft leasing did contribute to the Company's earnings in Q1.

SG&A as a percentage of sales increased to 10.2% of sales, compared to 10% last year. The increase to SG&A as a percentage of sales was caused by an increase to the allowance for doubtful accounts and severance costs recorded in the first quarter. We have seen a recent increase in airline bankruptcy filings, we will continue to closely monitor our accounts receivable exposure as we have in the past. During the period we acquired 12 million of our 1.75 convertible notes. This resulted in $1.1 million gain in the quarter and reduced the share count used for calculating earnings per share by 408,000. We invested cash during the period primarily for assets to support our supply chain businesses and capital expenditures for our structures and MRO segments. We remain focused on margin improvement and asset turnover and we are encouraged by our first quarter performance and growth in backlog. Thank you all for joining the conference call today, and we'd now like to open up for any questions you might have.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Larry Solow from CJS Securities.

Good morning, guys. Can you maybe -- I don't know if you have a number offhand or just give me an idea what organic growth was? I guess if we backed out the SUMMA, Avtech, and the Avborne acquisitions, I think I come up with like a 10 to 12% number. Is that a ballpark range?

Yes, Larry, if you normalize for the effect of the acquisitions and the change in the sales and leasing segment on a year-over-year basis you'll get a number about 12%.

Okay. Great. And was there any share repurchases? I see the share count was down a little more. Was that just -- sequentially, I know the 400,000, but it was actually down 700. Was that just because of the lower average share price?

Yes, it's just probably dilution from stock options and things like that, Larry, would be a little bit different because of where the share price is right now. But there were no repurchases to answer your question.

Okay. And then last question and this may be a difficult one to answer, but with oil now at 100, I mean, I guess things aren't that fluid and don't change that quickly. But -- and clearly the capacity cuts that are pending are probably about to happen so that's going to go forward but is there -- how do you think that changes views going into '09, calendar '09?

Well, we feel better about oil at 100 than we did at 135. We'll feel better about it at 60 or 80 than we do at 100. As the price of oil moves downward it's more positive for our customers, I think it's more positive for everybody. So yes, we're -- it would be more positive -- as it goes down, it's more positive for us.

Okay. Great. Thanks.

Our next question comes from Troy Lahr from Stifel Nicolaus.

Thanks. Can you just update us on some of the outsourcing opportunities that are taking place, maybe what's taking so long on the defense outsourcing and then how is airlines' attitudes changed towards outsourcing with the pull back in oil here?

Yes, it's interesting, Troy. Obviously we're getting some decent sales growth through our businesses, without making any major announcements. The flow is quite robust. There's -- we were hopeful of having a couple of larger deals signed by now, but there's just -- it's hard to get people get to that point right now. And maybe they're focused on other things. I'm not certain. But our business is very strong. The deal flow is very strong. We feel very good about the supply chain businesses. And hopefully we'll be able to convert some of the discussions we're having with people into firm contracts. We are a little surprised that some of the stuff hasn't happened by now, but at the same token, there's still ample flow and we're very focused on -- the things we're talking about on margin and cash flow and getting good returns, getting our assets to turn, things of that nature, and we want to make certain that as we enter or look to enter into deals of this nature, that they are -- meet our criteria.

Most of your discussions center around defense companies or also commercial airlines starting to get back into the mix?

Yes, we're having discussions in both camps, in both our defense businesses and also our commercial customers, yes.

Okay. Thanks. And then, I mean, you talk about the backlog, $500 million. How much of that is covered for 2009 or how much of your 2009 sales are covered by your backlog? I mean, should it be like 70%? 60%? I mean, what's the number we should think about.

Just to be clear, Troy, your question is how much of that 500 will come in for the balance of fiscal '09?

Yes.

We don't have an exact number on that, but I think it's fair to say, probably somewhere between half and three quarters of it.

Okay. Perfect.

What we're trying to signal with that backlog is just show you that the pace of activity within the Company is strengthening and if you look at the sales growth, you look at the sales on an organic basis, in every respect we're getting good double-digit growth and we don't see that going up at this stage.

Then lastly, just on the share repurchase, or buying back on the conversion, should we expect that to continue or were you just being very opportunistic this quarter or is this more a function of acquisitions not occurring?

We're going to look very closely at our cash, at our ability to generate cash from the businesses and as we generate cash from the businesses we will look for the best ways to apply that cash and we felt during this period that this was a good way to apply our cash.

Okay. All right. Thanks, guys.

Our next question comes from the line of Tyler Hojo from Sidoti Inc.

Good morning. Question about aircraft values. I know you mentioned that you signed agreements on two of the 737-3's that are coming off lease this year and I guess you mentioned that you have or are in conversations on the other three. But David, if you wouldn't mind just talking about pricing trends and I guess, what I'm really trying to get at or what I'm trying to get out of you is are you selling these aircraft that are on books today at a level that's going to basically reap you a profit?

The investors are going to be very happy with the return that we have on these two sales. The pricing was good pricing, in line with our expectations when we made the investments. And we will end up with very healthy returns from the sale of these two assets.

Okay. And on the other three, I mean, is your expectation to basically sell those at lease expiration?

Well, we have one additional aircraft that comes off lease here in the second quarter. We are in active discussions on the sale of that aircraft. The other two aircraft come off lease in the second half of the year. And those two aircraft were in advanced discussions with people on leasing those aircraft. Those aircraft are a little newer and, right now there's -- we view it as more a better use to go ahead and put those out for lease with other players. So that's being worked on as we speak.

Okay. Very good. And then I guess a follow-on to that. Yesterday you guys issued a release in regards to remarketing some aircraft with United. And I'm just trying to get an understand of is this something that we're likely going to see a bit more of and can it be a meaningful growth driver going forward? Any comments you could provide.

It's a good question. Obviously, United went on to the markets and looked for folks who could help them in this regard. And they selected AAR and we are out there, aggressively trying to move this hardware for them. We, through our aircraft sales and leasing business, we have an advisory service capability and we've been out there trying to help financial institutions understand their positions with some of the assets they have, as well as help them reposition some of those assets. So it's hard to say exactly how that will shake out for us. But we have over the past, we developed this advisory service capability close to 2001 and had some success through the earlier part of this decade and I would expect that as aircraft are being repositioned, that AAR will have its hands in a few of these. So yes, I mean, I wouldn't get overly excited about it but it's another way for us to make some money.

Okay. And how does that work? I mean, is that a flat fee per aircraft?

In this case, in the case of the United, it's a flat fee. We get a flat fee for moving the aircraft for them.

Okay. And is that pretty typical, just with the--?

Yes, mostly. In some cases it's a percentage and some cases you get a flat fee. It depends on the circumstances.

Okay. Very good. And just one last for you. I think the aggregate top line for the quarter was something like 18%. I think, David, last quarter indicated you were sticking with that 5% kind of all-in number for top line growth. Any reason to think that changes here?

I don't see any real reason for that. I think our businesses -- I think what we're trying to signal here is that we had a pretty good first quarter and first quarter is seasonally a little bit lower than other quarters that we typically experience and due to aircraft operating as opposed to being down for maintenance. There's some unusual dynamics going on today with aircraft in the process of being parked. But if you look at our -- monitoring our businesses, if not weekly, daily, things seem to be pretty brisk. So yes, we're holding to our growth rates.

Great. Thank you very much.

Our next question comes from Eric Hugel from Stephens, Inc.

Good morning, guys. Could you talk about with regard to now this is the second quarter where you've had these sort of bad debt write-offs and I know they get $1.5 million last quarter, $1 million this quarter, I guess not a shock, given sort of the current environment. But I guess you can't point to any one customer and say yes, but I mean, is it reasonable to expect that we're going to continue to see these types of charges going forward, at least for the next couple of quarters?

My sense is that the environment is such that you're going to see continuation of bankruptcies around the with airlines, with the confluence of worldwide economy as well as the price of oil. As the price of oil moves down, it takes some of that risk away but you can assess the world economy as well as we can. My sense is that you're going to continue to see bankruptcies and you're going to see a little pressure on us in this regard for at least the next couple, three quarters. That would be my guess.

Can you discuss maybe briefly then sort of what steps you're taking with customers to sort of minimize this?

It starts on the front end, obviously, in selecting who you issue credit to. And then it goes to credit terms and it goes to collections and hopefully we can control some of the assets, and have agreements that allow us to sell those assets if in fact the customer doesn't pay their bills. So, we've -- unfortunately, we've been through this drill many times, so we know what it's like to work through these tougher financial environments and airline bankruptcies is not something that is new to us. Something that we've experienced here. I've been here since 1979, we've seen a rash of bankruptcies through all the decades. We have that drilled down pretty good.

Can you talk about with the aircraft that are coming off of lease that you have contracts for, with regards to those sort of the contracts, I mean, is there any contingencies that are contingent upon the customer obtaining financing. Obviously given the condition of the credit markets right now that might be an issue. Can you talk about sort of potentially, I mean are those pretty solid, they have financing and you're pretty confident that those are going to be -- I mean, those are slam dunk sort of things to get done and also could you give us a number maybe in terms of modeling purposes if the contracts are signed and it's a done deal can you give us sort of a game number?

Well, let's start off with the first part of your question. And that is, we're not usually out there forecasting sales in this regard and in this particular case, we have a contract signed for the sale of the two aircraft. We have a high level of confidence in the customer's ability to finance the aircraft. In n terms of signaling what the game might be, I don't think that would be smart on our part go ahead and do that. So we'll hold off on that. But suffice it to say, Eric, that it meets -- you've seen what our historical returns have been I believe in that area and this one meets our historical returns.

Maybe Rick, some housekeeping items. Can you give us what free cash flow, or cash flow from ops, D&A, CapEx, all that fun stuff is for the quarter?

Sure. D&A for the quarter was $11 million. On top of that we had about a little over $8 million of CapEx. And our operating cash flow was -- we consumed just over $10 million of cash flow from operations. So obviously, the depreciation and amortization number is inside there. And -- but those are your three data points.

Can you talk about -- I know one of the focuses when we've talked with you guys has been obviously and one of the sort of things that you've been talking about is sort of focusing on consistent free cash flow generation. I know we saw that in the back half of the year, something you were definitely focused on. You even had a comment on it in your fourth quarter release. Can you sort of put -- can you sort of talk about first quarter, the usage now of cash relative to -- I mean, is this sort of seasonal and would you expect that to quickly swing back to sort of positive or is this sort of we're going back into inventory accumulation, sort of working capital usage mode now?

We saw some very good opportunities and we decided to seize on those opportunities. The focus is still on cash generation. We may from time to time look at opportunities as we see them. I mean, if you take a look at the margin growth that we're experiencing in that supply chain group and you take a look at the sales growth, notwithstanding a pullback from the Mesa operation, I think we're utilizing the cash I think intelligently and we're positioning the Company for further growth. So we will continue to look for opportunistic buys in this regard. Secondly, we have a tremendous demand in our -- two of our businesses in particular, the SUMMA operation, and the landing gear operation, in both cases we're investing in those businesses. We also are in the final throes of developing or coming online with a paint capability in Indianapolis and these all require capital in this period. And we're highly confident that we'll get very good returns from those investments.

Great. I'll get back in the queue.

Great.

Our next question comes from John Braatz from Kansas City Capital.

Good morning gentlemen, couple questions. David, going back to that receivable in this quarter. Was that related to a receivable -- was that related to a specific event or sort of a general sense of the current environment?

Specific accounts, John.

Okay. Okay when you look at your position with Mesa relative to where you were three months ago, have you been able to reduce your exposure to Mesa or is it sort of at a similar level to where it it was three months ago.

No, we -- as you heard from David earlier, we reduced the size of the relationship with Mesa, so right off the bat we're not quite as big and in particular that reduction came around the supply chain business. In addition to just taking down the size of the relationship, we've also restructured some of the terms and some of the main features of these agreements including some of the payment terms and all with an eye towards reducing some of our balance sheet and cash flow risk.

Okay. Would you envision any more let's say improvement, if you want to call it that, or are you pretty much where you want to be with Mesa at this point?

We'll keep monitoring the situation, Mesa's been a good customer for us and is honoring all aspects of their contractual relationship with us. We know they have some challenges as a business, as all airlines do, but we'll keep working with them and if we think it makes sense to continue to adjust, we'll do that.

Okay. Secondly, I think it was probably about three weeks ago that Southwest -- I believe Southwest announced some capacity reductions. Up until that point they really hadn't reduced anything. Do any of their capacity reductions influence your operations, have an impact on your operations in Indianapolis?

At this time, we're still a business as usual with Southwest at Indianapolis. We're very busy with them. I think we're doing a good job for them. At this point at least we expect that to continue.

And then lastly, a little update on I think it's the A-400 project, where that stands, when you might begin seeing some revenue flow?

So, we're making good progress. We are waiting on some final inputs from Airbus in terms of some of the details on the specifications on the program. I think it's progressing well from our end. And I think it's -- I'm not sure that Airbus is out there with a production date but we're expecting to deliver in late fiscal '09.

Okay. All right. Thank you much.

Our next question comes [Stan Mann] from Mann Family Investments.

I just have a simple question on your operating margin goals. Do you still see this 12% as your future goal point?

Absolutely. I mean, if you take a look at this quarter, you have some -- you have some issues with the credit adjustment, if you will or the bad debt adjustment, I should say and -- but if you look at the year-over-year, first quarter last year I think was 9%. And we should have been -- or was a little less than that, actually.

8.8.

8.8%. So, if you backed out I guess the bad debt, we would have been 9% or higher. So yes, I think, Stan, that the focus is around margin generation. We had no aircraft transactions in the quarter. Next quarter we will. Those come out of joint ventures so those will add nicely to our operating margins and yes, we're holding to our goal of being at that 12.5% level.

Okay. Second, what do you see on -- you should start accumulating cash or paying down debt. What do you see on your strategic plan acquisitions? Do you see that slowing down near term and doing more work with the balance sheet? Could you kind of put some detail on that, if possible?

Yes, I mean, we're -- if you look at the multiple that we are attracting, it looks -- it appears that our shares are pretty good investments. So as we generate cash, we're going to look at different ways that we can put that cash to work. Some of which might be through acquisitions to go ahead and continue to broaden our portfolio and balance our portfolio and also through looking at how we can strengthen the balance sheet and give our shareholders a good return.

Okay. Very good job in the quarter in this environment. Thank you.

Thank you, sir.

Thank you.

Our next question comes from (inaudible) from Citadel.

Good morning, guys. I was wondering if we could get a little more detail on your organic growth by segment in the quarter. Aviation supply chain was all organic, wasn't it?

Yes.

Correct.

And how much of the -- what was the impact of the Mesa slowdown on organic growth in aviation supply chain in the quarter?

As David said, he thought we said that it's approximately 200 basis points of growth rate so in dollar terms that's about $10 million.

Okay. Great. In addition to that, it looks like growth slowed from the fiscal fourth to the fiscal first. What's going on there?

Are you asking about supply chain or in general?

Yes, just in supply chain, yes.

Well, I think if you look backwards, there's a very recognizable seasonal pattern to the Company and to the business and in particular the supply chain segment so it's pretty common that the first quarter of a new fiscal year is lower in absolute dollars than the fourth quarter of the prior year. It's reflective of obviously airline customers, commercial accounts obviously try to have as many aircraft as possible in the air during the summer months.

Right. Right. But it's the slowdown in the organic growth rate is what I'm really focused on. It was over 14% in the fourth quarter, and even adjusting for a slowdown with Mesa, it would have been roughly 10% in the first quarter. Just the year-over-year growth rate.

I wouldn't read too much into that and I think the growth rate has been fairly steady. There is some -- from time to time there's a little bit of lumpiness so you might have a transaction that closes in a period that it doesn't get duplicated next period. But I think trend-wise, the business has been growing in this 10 to 15% range each quarter and I don't think there was any aberration this quarter at all.

Great. Okay. What was your organic growth rate for MRO and for Structures and Systems?

We don't -- we didn't have those stats available, so maybe what I would tell you hence, is reiterate some guidance we've given in the past. In our Structures and Systems, the piece that would be non-organic would be the impact from SUMMA and SUMMA in the past we've talked about that as being roughly $25 million a quarter business. Top line.

Okay.

And in the MRO, the only difference would be the impact of the acquisition of Avborne and we've previously talked about Avborne being about a 50 million to $60 million a year acquisition as well.

Okay. No, that's helpful. Thanks. And your backlog grew nicely, what's the split there between organic and acquired?

Well, we'll have to get back to you offline on that.

Okay. Great. And this remarketing deal is pretty interesting. It sounds like you'll start really as soon as possible, so it could impact the second quarter. Any sense of timing going forward, should this be done by the end of fiscal '09 or will it be more of a calendar '09 event, so continuing into fiscal 2010?

Yes, I mean, United's expectations of taking those aircraft out of service will obviously have something to do with when any transactions close and United will I'm sure continue to adjust some of their timing or they have the potential to adjust some of the timing. It's very difficult for us to predict because it's a function of what their requirements will be. Their stated intention is to get out of their 737 fleet by third quarter of next -- of '09, calendar '09 and then obviously there's also a function of what the market demand is for the aircraft. So hard to say. It's a long way of saying hard to say exactly.

One last question. Who would have guessed a week ago that ILFC might actually be on the market. I know it's probably early to think about the impact that they may have on your leasing business, but any initial thoughts of what that may do to the industry?

Yes, first of all, ILFC has been toying with this idea for quite some time. The weakness in AIG has been known to those folks for a while and actually the chap who is CEO of ILFC is the largest individual shareholder of AIG. They have been toying with this for quite some time. The impact on the industry -- the impact on the leasing market should not be too dramatically different. I'm assuming that they are going to successfully be spun out of the -- I guess today it's owned by the US -- largely owned by the US Government. So I think -- I don't think the US Government wants to be in the aircraft leasing business too long. So most likely that business will be independent and they probably will have some success in arranging financing and I'm not going to say necessarily business as usual, but the bigger impact is on the order books of the Boeing and Airbuses where they have I think $18 billion on backlog with those two guys. In terms of the impact on the leasing business as we know it today, we're not expecting an impact from that.

Great. Thanks very much.

We did some quick calculations on the organic growth rate for the structures and MRO segments and they're both approximately 16%.

That's terrific. Thanks very much.

Our next question comes from Alex Hamilton from Jesup & Lamont.

Hi, good morning. Actually, most of my questions have been answered. Just two very quick questions. One, back to the financing, you didn't seem to blink an eye in terms of the financing. I guess the main question, have there been any iterations, either up or down, in terms of the rates that you've seen in terms of financing?

Can you be a little more specific, Alex? When you say didn't blink an eye at the financing, what are you talking about?

Well, you seem to be pretty sure that the financing's going to be in place. I guess my question is on the rates of that financing, has it gotten cheaper or more expensive or has it stayed the same?

Financing for what?

Aircraft.

Aircraft we're going to sell?

Yes.

Okay. I mean, I think our response was for the aircraft we're going to sell, we were not concerned about the prospective buyer's ability to finance.

Okay. And then any -- can you comment on the -- despite the seasonality that you saw in the MR&O business, which is pretty much expected, can you comment one way other as to kind of your general impression? I mean, it seems -- my impression, and I just wanted to hear what your view was, is it seemed to have held up pretty nicely, especially given all the headwinds.

Yes, I think we share that view. It was a relatively tough summer with a fair amount of disruption. We lost the United lines at Indianapolis and were able to pick up work to replace that. It was slow in Miami. So yes, I think we feel the first quarter, all things considered, was decent in MRO. And we're optimistic that we're going to be in a position to improve from those levels.

Great. Thank you.

Our final question comes from Eric Hugel from Stephen's Inc.

Hey, guys. Just a couple of follow-ups. I guess on the ILFC question, maybe just from a broad perspective, if you have ILFC which is sort of almost probably hands down probably the lowest cost capital guy out there, sort of leasing aircraft, he can offer the lowest prices. If he's going to go to potentially a spinout or maybe a less well-capitalized company, does that raise the prices across the board pretty much for aircraft leasing? And that would be a positive for you guys down the road?

I don't necessarily see that. I mean, ILFC, I think, what, has 1,000 airplanes in their portfolio, if I'm not mistaken. 900. And there's 18,000 airplanes in the world. I'm not so certain that a change in their ownership structure is going to have much of an impact on the world leasing market. I wouldn't expect that. I think the biggest risk I think to the ILFC story is the order book and the backlog because like I think I indicated, I think it's been public, publicized, they have $18 billion of aircraft on order. I think that is more of a -- I think a -- kind of a white flag than a red flag than what might happen to the worldwide leasing market.

Sure. And I just wanted to sort of go through the segments, looking at your Q1 sort of operating margins, especially I guess on the Aviation Supply Chain, 23-1. I guess I look back historically and it looks like Q1 margins are sort of the low point and then as you get into Q2, Q3, Q4, the rest of the year, you see about 100 to 200 basis point step up. I've gone back for the last three or four years and that's sort of just been the pattern, it looks pretty seasonal. Is there anything that you would think that you wouldn't sort of expect that to happen? Going forward this year?

As David commented, Eric, on some of the fluctuations and volatility in the operating margins, particularly in the aviation supply chain segment where it can be impacted by specific transactions. So I wouldn't expect that you'll continue to see kind of volatility within some kind of normal range in this segment. But, we're across the Company driving for improved margins so irrespective of that volatility, we're looking to see margins improve.

Okay. With regards to -- I was very pleasantly surprised with your -- with the Structures and Systems margins. Was that sort of something -- was there very positive mix did you sell a lot of containers in the quarter? And not expecting that to sort of revert -- I mean, how should we expect that? Is that sort of efficiency improvements, sort of how should we think about sort of going forward? Is that sort of -- is there margin ramp there?

So there's a lot of good things going on within the Structures segment, both from top line perspective and margin perspective. There's initiatives within the businesses to improve margins. There's I think some I'd say relatively low hanging fruit, maybe. But on the other hand, the mobility business is hitting on all cylinders and delivering excellent performance. So I think we're really very positive about the growth opportunities there and I think there is room for margin improvement across those businesses.

Can you give us an update -- I know on the Brown acquisition you talked about sort of shelters being a huge growth opportunity for you guys over the next couple of years, not only in terms of building new shelters, but also on the integration front. Can you sort of maybe give a little clarity into that, a little more?

I'd say that they're doing very nicely and they're looking at some really kind of game-changing opportunities.

Okay. With regards to the maintenance repair and overhaul, it sounds like -- was there any sort of gap in the line at Indy in the first quarter as the United aircraft sort of rolled off and the other lines came on that might have impacted?

There was. There was a gap of -- in some cases a few weeks, in some cases a little less. Then you also had the -- kind of the transition impact as well. Kind of retraining and tooling, get ready for the new lines.

Sort of just thinking about this, sort of in the first quarter you guys sort of had a gap which would have affected your sort of overhead absorption rate at Indy. You said Miami was somewhat slow and that should be picking up as we get into the second quarter. Obviously they have some absorption. And you were still able to do 14.8% operating margins. Am I sort of thinking correct directionally well -- we could see sort of a nice step up as we get into the second, third quarters as we don't have that gap and as Miami business sort of picks up?

Well, obviously there's a lot of moving pieces all the time, right?

Yes.

But yes, no, I think as I said earlier, there were some headwinds in Q1 that were able to overcome and it gives us encouragement for the next quarter and beyond.

And finally, the United deal, is that exclusive?

It's exclusive for a particular lot of aircraft and exclusive with some agreed-upon carve-outs of other names, yes.

So you don't have -- I think there were like 94 aircraft or something like that that they were flying. I guess they don't own all of them. How many of those aircraft does United actually own.

Eric, you can get that from their public data, but roughly about half. Owned about half and half are about leased. As Tim said, it's an exclusive arrangement with a few carve-outs. They had sold a couple of airplanes already and they are in discussions with some parties that they had already started so those are obviously grandfathered into the deal. But that's not like you're competing with four other guys to sell these aircraft?

Like you're a pool of brokers that they hire to sell these aircraft?

Not beyond the names that we grandfathered in to them.

Thanks a lot, guys.

I would like to turn the conference back to our speakers for conclusion.

Thank you very much for participating today and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.