AAR Corp (AIR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for joining the AAR Corp. third quarter fiscal 2009 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions). As a reminder, this conference is being recorded.

Now your host for today's conference, Tom Udovich. Sir, please begin.

Thank you, Tyrone. 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 1A 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 the call over to our Chairman and CEO, David Storch.

Thank you, Tom, and good morning, everyone. Joining me today in our Chicago headquarters is Tim Romenesko, our President and Chief Operating Officer, and Rick Poulton, our Chief Financial Officer. We reported our third quarter results last night and I trust that you have had a chance to review our press release. As you all know, the economic environment in the United States has continued to deteriorate with calendar year fourth quarter GDP a negative 6.2% and U.S. unemployment at the highest rate since 1983. As a result of weak economic conditions, both business and leisure travelers have reduced air travel, causing airlines to reduce capacity and seek ways to reduce costs and conserve cash. Capacity in North America is down approximately 8% during the first quarter of calendar year 2009 compared to last year and passenger traffic in North America is down approximately 10%.

International traffic for certain of the carriers is worse, with some carriers reporting declines in international traffic well in excess of 10%. While carriers are benefiting from the impact of lower jet fuel prices, additional capacity reductions may occur as a result of continued weakness in consumer confidence and declining business travel. As airlines reduce capacity, it causes significant changes to their maintenance schedules, which, in turn, drives disruption to the demand pull for parts and services. And we have not been immune to the capacity reductions impacting the industry as we report a 6.8% decline in sales to commercial customers, which excludes our Aircraft Sales and Leasing business. We were impacted at our Indianapolis MRO where we experienced lower sales as a result of United Airlines' decision last spring to ground their 737-300 fleet, as well as Fed Ex's decision to retire a portion of their 727 aircraft.

We are in discussions with other potential customers who expressed interest in this world class facility and we continue to perform work for Southwest. As a result of the weak economic conditions and tight credit markets, we have focused on reducing our investment in our aircraft portfolio. Our equity investment in our joint venture and wholly owned aircraft portfolio is approximately $80 million at February 28, 2009. Of the 33 aircraft in our portfolio, 32 aircraft are on lease and we have one wholly owned aircraft coming off lease in the fourth quarter, which will be disassembled for parts. There are two leased aircraft on our wholly owned portfolio in which the lessee is behind in their payments. We have obtained a judgment against the parents of the operator of the aircraft and expect to recover amounts owed to us. Other than those two aircraft, all the other aircraft continue to operate according to our agreements.

Further, as we de-emphasize this business we are considering combining the activities of our Aircraft Sales and Leasing segment with the Aviation Supply Chain segment for our next fiscal year. While the environment remains challenging, we believe the business strategy we adopted several years ago has positioned us well to respond to these challenges. Specifically, through target investments and business acquisitions, as well as organic growth, we have been executing a strategy of building balance. Balance across our two major customer segments, commercial and defense, as well as balance in our product and services offerings between front-end manufactured content and back-end aftermarket support. Our goals in embarking on this strategy have always been two fold. First, to mitigate short-term earnings volatility by insulating our exposure to any one segment of the industry and second, to generate opportunity over the longer term by creating larger, addressable market opportunities.

Looking back on our third quarter, we see the value in executing this strategy as our results held up nicely despite a very difficult commercial environment and certainly held up much better than we've seen in prior downturns. We remain optimistic on long-term fundamentals for both the commercial and defense markets we serve and continue to position ourselves for long-term success. For example, we recently opened an office in Abu Dhabi, which is staffed by one of our senior marketing executives to address growing opportunities in this region and we expect to see results shortly, and I should say meaningful results. In yesterday's release we discussed that we were a net investor of cash during the third quarter. We used $16 million of cash from operations, as we made significant investments in inventory rotable assets to support our commercial customers. We expect solid cash from operations in the fourth quarter, as we do not have any large planned asset purchases. Thank you all for joining the conference call today and we would like to now open up the line for any questions you may have.

(Operator Instructions). Our first question is from Larry Solow of CJS Securities. Your line is open.

Hi, good morning. Could you maybe discuss your aviation supply. Looks like your margins actually were surprisingly held up pretty well, which I know they have the last couple quarters. But are the, first of all, the bigger ticket items are those lower margin where your kind of your sales were kind of down a little bit and was due to better mix or what was the a little color on that?

Well, Larry, the volumes were lower in big ticket items and at the component shops.

Right.

And the margin on big ticket items, it's volatile. Sometimes they are modest but other times they can be significant. We experienced in the quarter, a general softness in demand for parts and then it was exacerbated by the lack of any engines or large structural components.

Larry, it's Rick. I'd add to what Tim said, only also by pointing out that as part of what we described as some of the revenue weakness, which was really out of our component repair shops, those tend to be a little lower margin than the other aspects inside supply chain. So you're getting a little bit of margin lift as those things show some softness.

Got it. I know you've had some weakness in the European component shop and you talked about some potential actions taken and I guess I see you've had some headcount reductions there and severance costs. Any other actions you could take or -- ?

We're working it. We're working both the cost side and the business development side. We've got a team in there now working on improving the performance there. We've got some things that we're working on that are going to help. So, it's a priority.

Got you. And then just last question. Can you kind of maybe just discuss -- I see recent, looks like recent trends are at least stabilizing. You mentioned the last couple of weeks in your press release. But during the quarter did things get progressively worse in the aviation supply as capacity started to come off or how did that play itself out?

It got better, actually. February was a strong month and we're seeing the volumes in March continue to track.

Okay. And then in MRO, in the Indianapolis facility, could you just give us the update. I guess it's only Southwest now and how many hangars are they occupying?

It's fluctuating between seven and eight.

Okay. And that's all Southwest?

Correct.

Okay.

But that includes some winglet work and things like that that produce less revenue than a solid maintenance line.

Okay.

The hangar count is not necessarily indicative of the activity level.

Got you. Okay. Good, thank you.

Thank you, sir. Our next question or comment is from Tyler Hojo of Sidoti & Company. Your line is open.

Good morning. Just quickly on the 33 aircraft that you guys own, how does that break between JV and wholly owned?

26 JV, Tyler, and seven wholly owned.

Okay, great. And I was hoping that maybe you could comment a little bit just in regards to the work stoppage in the Miami landing gear facility. Maybe if you could quantify what the impact in the quarter was and how maybe that is going to impact any potential sequential uptick in business in the fourth quarter.

Hi, Tyler. We think that the impact on revenue was between $3 million and $3.5 million. We expect to have that flow through relatively quickly. The rework that's being done is in process, so I think we'll be through the bulk of that in Q4 and in Q1. We think that the margin and the operating income impact is about $1 million that came out of the third quarter that will go into Q4 and Q1.

Okay. And I guess just based on some of your prepared comments there, I mean, is it safe to say that you really don't have a whole lot of visibility? I guess just using Indy as an example, with the seven to eight days, just in regards to that capacity going up or staying stable or going down. Is visibility just not very good in order to maybe comment further there?

No, I think we have fairly decent visibility. I mean, we feel very good about our relationship with the customer we have today and, obviously, we've been working diligently of late to replace the business that disappears as a result of groundings and we have some stuff that we're working on that we have confidence in our ability to capture some of the stuff that we're looking at.

Okay.

We would anticipate that Indianapolis a year from now will be in a stronger position than it is today.

All right. And the work with Southwest, the expectation was that was going to go up in the fourth quarter. Is that correct?

I don't know that for sure. I think there are changes in the Southwest fleet planning as well, so I wouldn't count on that.

Okay. All right, great. Thanks very much.

Thank you. Our next question or comment comes from Eric Hugel of Stephens, Inc. Your line is open.

Good morning, guys.

Hey, Eric.

Good morning.

Can you comment -- I mean, I guess one of the key buzz words that we've been hearing from a lot of your, I guess, fellow aftermarket peers has been over and above sort of the weak traffic numbers we've been seeing, sort of trends of airline destocking. But those trends don't seem to -- they can only last a couple of quarters. Can you talk to us about where you think we are in that cycle and, sort of, is maybe February and March improving? Maybe a sign that we're close to the end of sort of this destocking?

I think it's a little too hard to predict Eric, only as it relates to trying to understand what's happening to the fleets. I think if the fleets stabilize you're probably correct, but if the fleets continue to come down a little bit, then you could have more of that effect going forward. But our sense is that if you track the business on a weekly basis, obviously, which we're doing, the business is showing some strength. So demand seems to be stabilizing, if you will, possibly increasing slightly. Okay. We clearly had a lull back in December and we've seen some pickup since then.

Okay. Great. With regards to -- I guess you recently -- I guess maybe a couple months back, there was a big award that you guys won, I guess it was make tactical shelters for the FMTV but I guess it was supposed to start up in the third quarter and I guess ramp to maybe full by the fourth quarter. Is that sort of on track? Is that how we should be thinking about it?

It is on track, Eric. It is, yes.

Okay. Are there any other big sort of programs? You referred to a couple of them. Your defense numbers looked really strong.

The numbers are strong. The performance, particularly at the mobility systems business is strong. We're continuing to win new business and we're doing a good job delivering against our backlog.

Can you talk about the sustainability of that kind of growth, maybe high single-digit growth? Is that sustainable or is like, maybe, the revenue level sustainable?

No, I think there is going to be at least a modest uptick in revenue and the outlook continues to be good through our early fiscal 2011. So we're encouraged.

Can you comment on the defense side also, on the performance based logistics opportunities you're seeing out there?

There are opportunities that we're working. Clearly, we are continuing to execute well on the programs that we have and we're looking to add to them.

But nothing that we would -- nothing material that you would sort of think is in the relative near-term, just sort of just general environment?

Right.

Okay. Thanks a lot, guys. I'll get back into the queue.

Thank you, sir. Our next question is from [Jim Aultsho] of [ABH Advisory Service]. Your line is open.

Good morning, gentlemen. I've got a couple of questions relating to the aircraft leasing, both the planes you own outright and the joint venture. First of all, do you have any leases that are expiring this year?

We have a lease, as we indicated, that expires this quarter. The aircraft comes off lease in May and the aircraft is attractively priced. It's wholly owned by the Company and the aircraft will go into disassembly where we have demand for the parts for that aircraft. Other than that, I don't believe we have any other aircraft that comes due this fiscal year.

Just the one. We do have some later in the calendar year.

How many later in the year, in the calendar year?

For the full fiscal year '10 we have -- it's either six or seven repricing. They don't start until Q2 and they spread out through the balance of the year, so I'm just going off the top of my head here, but it's somewhere in the three to four range, probably.

You just said repricing. What does that mean?

Meaning leases coming to term.

Oh, okay. Okay. Could you give a breakdown of what kind of aircraft you have in the fleet, I mean how many, I don't know if you want to go plane by plane, but how many are new generation and how many are narrow bodies and how many wide bodies?

We have three wide bodies, we have two 767-300s on lease long-term with United and we have one 747-400 on lease with Northwest Delta. We have three A320s on lease and then we have the balance of the fleet would be 737s 300s and 400s and one 737-500.

Okay. Just final questions and put together. First of all, do you anticipate, particularly with the 737s, any need for any write-downs and in light of what you said about de-emphasizing this business, are you planning to offer any of the planes in the fleet for sale?

We do have a couple of the airplanes offered for sale, but at this moment we think we have a good position in the aircraft and we're de-emphasizing because the capital markets are not extremely bullish in this kind of activity. So we do not see the same opportunity. There's a huge spread between what buyers want to pay and what sellers think the assets are worth and we see that continuing for a period of time.

Okay. So when you say de-emphasize, does that mean just that you're not going to be looking to add more planes or you're actively looking to get out of this business and sell what you have?

Well, I think clearly on the front end we haven't added an aircraft into our portfolio since November '07. So I think that the facts speak for themselves in that regard in terms of adding and in terms of selling, we have been a seller of these aircraft since then. We continue to operate the leases and look for opportunities to sell the assets. So that would be the way I would characterize it.

Thank you very much.

Yes.

Thank you. Our next question or comment comes from Tom Lewis of [Highroad Value]. Your line is open.

Yes, good morning.

Hi, Tom.

I was looking for a little clarification on -- you clearly you're enjoying a nice, some nice growth in your mobility business. Can you talk a little bit about the extent to which this might be due to capabilities you've added in the last few years as opposed to just the government's need to project its presence? Also, can you talk about the -- what sort of visibility you might have against the day that this is not going to be a source of growth anymore and about your alternative uses for these capabilities or your ability to otherwise manage those assets at reduced volumes?

The first part of the question, Tom, is we've expanded our product line quite dramatically. We made the acquisition of Brown Engineering a couple years back and, year and-a-half back or so, and Brown Engineering gets us into the command and communications world and environment. We think that the world continues to show opportunities going forward. We feel good about the breadth of the product line today versus where it was in the past. We have capability where we now have these mobile shelters going on the back of the trucks and things of that nature. We're getting a lot better at stuffing the shelters than we were in the past.

So yes, I think the product line is definitely broader than it was in the past. And I think as it relates to moving forward -- as I said in my opening comments, we feel very good about the balance to our portfolio that we have today and historically when the commercial airline business has been a little softer, that business has been a little stronger and vice versa to some extent as well. So I think that the story is around how we're faring through this downturn versus how we fared through previous downturns, which you know, you've been with us you through.

Yes.

I think we're in a good position in that business. I don't see world tensions diminishing in appreciable fashion. They may move from theater to theater, but clearly the U.S.'s capability of moving into different theaters becomes more pressing. And one theater that's developing, quite frankly, for the Company is the Southwest United States. So there's a broad range of applications for our product today as the product continues to broaden itself.

So maybe moving to Texas wasn't such a good idea? (Laughter) Okay. Now, with respect to the Aircraft Sales and Leasing, is there anything in this -- your willingness to or your decision, talking to de-emphasizing, I mean, you've got -- clearly where we are cyclically speaking and the state of the, the present state of the capital markets, but if we think about this business compared to maybe the way we would have perceived it five or ten years ago, is there more to it than that or is it just those two factors.

It's also resource allocation for AAR. We see greater opportunities elsewhere. We feel really good about our positions in the other three markets. We've always been just a dabbler in that market. I think it's time for us, at least, to dabble a little bit less.

Okay and this one last little question, kind of under the vein of resource allocation. You had the opportunity during the quarter to buyback some of your converts. It was real obvious early in the quarter, prior to the end of last calendar year, that there were a lot of motivated sellers among the holders of various convertible bonds out there. My sense is it's a lot less so, but do you still see an opportunity to meet with a motivated, with motivated sellers on this part of managing your capital structure?

Yes, Tom, from time to time we're getting phone calls from capital market folks who are representing people who have bonds that they would like to liquify. That has not diminished and I can't really tell you what that's going to look like 90 days from now, but as we sit here today, those opportunities still exist for the Company.

Okay. Great. Thanks a lot, guys.

Yes.

Thank you, sir. Our next question or comment is from Jon Braatz of Kansas City Capital. Your line is open.

Good morning, gentlemen.

Good morning.

When we look at the MRO facility in Indianapolis, did we see the full brunt of the slowdown and the loss of Fed Ex and United Airlines in the quarter or did that get progressively worse as the quarter progressed?

No, you saw the full brunt within the quarter.

Okay. All right. And then secondly, during the year we saw there were a couple FAA issues, landing gear and on the Boeing plane I think it was. Is there anything you can do to, I guess, and I don't want to assign blame or anything like that, to be somewhat more proactive or work with the FAA more quickly so that these things don't get out into the public view because it does cause a little bit of investor anxiety. Is there anything that can be done in a private manner so that these things are resolved let's say more quickly.

Absolutely. I mean, we could have done a better job here and lesson learned, if you will. Tough lesson. A hard lesson, and shame on us to some extent. But yes, definitely we're much more cognizant. It was an unfortunate wake-up call in this context. But keep in mind now, safety of flight was never an issue. Quality was never an issue. More about relationship management more than anything else and yes, we can do a better job in the relationship management end. I have, since this event, held meetings with the senior people from the flight safety and flight standards group within the FAA in Washington, D.C. and I will be meeting on a one-on-one basis with the head of the Miami FSDO on April 6th. So yes, clearly we could have done a better job at the front end here.

David, is it true, is my understanding correct that let's say an FAA inspector in Oklahoma could have a different interpretation of the rules of an FAA inspector in Miami?

I wouldn't necessarily characterize it that way, but I would say that the local FSDOs are powerful in and of themselves and need to be reckoned with in the locale in which they're operating. In this case here, we've been in the Miami operation now since the late '80s. My interpretation is that we let the relationship get away from us and we have to do a better job on the front end in that relationship aspect.

Okay. All right, thank you.

But you should know also that the FAA holds the Company in very high regard and that was what was conveyed to me when I was in DC. I just want to reiterate it, this was never a safety of flight issue, never a quality issue and, as you can tell, the parts have not been recalled or anything of that nature.

I understand. Thank you.

Okay, all right.

Your next question or comment comes from J.B. Groh of D.A. Davidson. Your line is open.

Good morning, guys. Just a couple clarification questions on the margins. On the structures, the margin came down a little bit sequentially, is that just a mix issue or why -- remind me why it was so strong last quarter and dropped a little bit this quarter.

I think if you looked historically, JB, you would see that this quarter's performance is more in-line with what you would have seen as a trend line. We've been ratcheting up the margin in this area, but somewhere in the 15% or just under is more in-line with what you have seen historically. So last quarter's was a little bit of an aberration and it was product mix oriented.

Okay. And then on the Aircraft Sales and Leasing, of course, that looks kind of strange. Is that due to the parting out of the aircraft or what makes that number look a little odd?

Sorry, which number?

In the Aircraft Sales and Leasing.

The gross profit or -- ?

Yes, gross, it shows up as like a 50% gross profit margin. I'm just guessing that has something to do with parting out the aircraft or -- ?

It's just lease revenue. That tends to be a very high margin area when you have very little revenue. In the past, if you look back, when we sell an aircraft from our own portfolio you have more sales and then you start to actually have a slightly lower margin. But the lease revenue on tends to be a very high margin area, JB, so it's just kind of a law of small numbers here.

Okay. I'm not sure, Rick, if you gave a depreciation and amortization number for the quarter.

We didn't but I'm happy to share that with you. It's $9.7 million for the quarter.

Okay. Thanks a lot. That's all I have.

Thank you, sir. Our next question or comment is from [Henry Kennedy] of Overhaul & Maintenance. Your line is open.

Hi, good morning. You mentioned before that your long-term strategy includes growth, internal growth and acquisitions. Could you speak a little bit about what kind of acquisitions you might at least be interested in over the next year, where they might be or are you looking at anything in commercial overhaul or are you trying to sort of balance your portfolio away from commercial overhaul?

Henry, just to be clear, the comment up front was that we had made acquisitions and targeted some of our organic growth in an effort to achieve balance in the enterprise. So, going backwards, there was an effort to get more defense exposure, a little more front-end content exposure and that's where we had been emphasizing. As we look ahead, we continue to see organic investment opportunities, as well as acquisition opportunities, are all ways for us to use some of the cash we generate. I don't know that we have a specific priority right now, but we are interested in serving both major customer segments. And we're interested in continuing to serve them both with front-end content as well as aftermarket services, so I think all of the above are in solution side for us.

Okay. Thank you.

Thank you. Our next question or comment is from Rick D'Auteuil of Columbia Management. Your line is open.

Yes, just a follow-up on the landing gear shutdown. Has there -- can you characterize the customer response once you were back up and running, I guess only five days later. Has there been any kind of backlash or negative response?

No. I would say there was concern, obviously, around disruption as we were going through it. But we tried to keep the customers as current as we could in terms of what was happening. Since it's been resolved, we've been visited by all of our customers, basically, and I would say that there's no backlash, if you will, in terms of gear coming into the facility for repair.

You don't expect to lose any material business from that event?

That's right and we're working hard to make sure that that doesn't happen.

Okay. Thank you very much.

Thank you. And our next question or comment is from Larry Solow of CJS Securities. Your line is open, sir.

Just a follow-up to Rick's comments and I believe someone else asked about Southwest. Am I not mistaken, didn't Southwest recently actually expand their relationship with your landing gear services?

We do landing gear for Southwest, yes.

Right, but didn't they -- I think I read in one of the aviation magazines they actually increased their exposure, their planes's volume at your facility. Is that incorrect or -- ?

I'm sure that that's correct.

Okay. All right. Just one question on SG&A. It seems like if you strip out the severance, it looks like it's about flat on a year-over-year basis. Is that a kind of good way to look at it going forward or -- ?

In absolute dollars, Larry, you're correct in your assessment. We're very focused on managing SG&A, very focused given the environment.

Okay. And then just last question. Any color -- how about the other, the other MRO facilities, how's Oklahoma doing and Avborne?

They're both busy.

Okay. That's good. Okay. Good. Thanks.

Thank you. Our next question or comment is from Stan Mann of Mann Family Investment. Your line is open.

Good morning, gentlemen. I have a question on the use of cash. You did comment that you're possibly on acquisitions, et cetera. In this current market with financing not available, would you say the use of cash would be more for buying in converts and maybe paying down debt, et cetera? So could you comment on the way you view use of cash in this environment?

Stan, first of all, hello.

Hello. Good morning, gentlemen. Been a while.

Good morning. I think it's around balance. It's clearly looking for our use of cash, yield and return on capital, wherever we feel we can get the best return for our capital. Right now if you look at the quarter that just ended, we felt very good about putting some capital to work, taking advantage of some buying opportunities and we put some capital to work on investment in longer-lived assets. We for instance acquired a ship set, a 777 landing gear for approximately $8 million from Delta Air Lines and secured a multi-year contract from them as a result of putting that capital to work. We also acquired some bonds that we felt were attractively priced at a 9% yield. Our cost of incremental capital is lower than that, it's a real positive arbitrage. So yes, I think it's a balance. We're constantly looking for ways to maximize the dollars that we put to work.

Well, what I was getting at, it's less likely that we'll see a large acquisition as we've seen in the past couple of years in the current environment. That's all I was asking.

Yes, I would say that if we were to do an acquisition, it would be obviously accretive, first of all. Secondly, I think we would be looking for a way to finance it that would be appropriate. But at this moment, we have a couple of minor situations that we're looking at. I think the opportunity would have to be a good opportunity that made sense for our portfolio.

Okay. Second question. On operating margin, it slipped, obviously. But if you put back some of the non-recurring severance, et cetera, do you still see your near-term goals above 10% operating margin?

Yes.

Seems like we reached pretty close in this quarter if you back things in.

Yes, correct. And it's hard but yes. Keep in mind, Sam, also, one of the strategies to get the margins from 10 to 12.5, for instance, is around the Aircraft Sales and Leasing portfolio. So we're going to be diminishing that and that will create a little bit more pressure on bringing the margins up in the short-term.

In the short term. Well, you still have moved up operating profit dollars tremendously in the last three, four years, so --

That's correct.

It's a really different ballgame.

Yes, that's correct.

Anyway, I think it's a good job in this environment. Thank you.

Thank you very much.

Thank you. Our next question or comment is from Eric Hugel of Stephens, Inc. Your line is open.

Hi, guys, just a couple of follow-ups. The MRO segment, I guess 2.9% growth year-over-year, but you had the Avborne acquisition in there. What was the organic growth? Or what was Avborne, round about?

Avborne, we've talked in the past, Eric, about the size of Avborne and so just to reiterate that, that's somewhere between $10 million and $15 million per quarter. So I won't get any more specific than that, but you can kind of play around with the numbers based on that information.

All right. So the organic growth in that business was something like maybe 10% to 13%, 10% to 15% or something like that and that would have been impacted by the MRO, by the (inaudible) Okay. Second, can you talk about it, the Aviation Supply Chain, one of the impacts, and I'm just trying to sort of work my brain through, you talk about the FX impact. Is that FX impact more sort of just visual in terms of your having lower sales but higher operating income? Or is there no net impact? Or are there real sort of EPS impacts there?

The EPS impact would be much more modest, so that's why we're not really talking about it at an EPS level. We have a pretty good natural hedge through the operation, but on the top-line you see the impact.

Can you talk about how much the top-line impact was with regards to FX?

It was in the neighborhood of a couple million dollars, Eric.

Okay. What was CapEx in the quarter?

Just under $7 million, $6.8 million.

Okay. Can you give us an update on how things are going with regards to the ramp-up on the new composites expansion, as well as how things are going with Summa, I know there's some headwinds there with regards to Gulfstream.

On composites, the Sacramento facility is up and running. Looking for more work, but nonetheless operating. In terms of SUMMA, the volumes continue to be strong there. I'm actually going to be visiting there this afternoon. We're encouraged by some of the prospects we have down there. We do have some work to do on some particular programs. But we'll work on those, work through them. So I think on balance, I think we feel good about what's going on down at SUMMA.

Can you give us maybe around a ballpark figure as to sort of this new composites facility. I mean, is it sort of delivering meaningful additional contribution or is it still just pretty small right now?

It's still small. But it positions us very nicely as the demand for composite materials increases. So it's a great facility with tremendous capability that puts us in a nice place in a market that we see as really taking off here in the next three to five years.

And your goal is still over that time period, what, you said $80 million to $90 million of sales?

We're looking at the composite business in total is for $100 million from the two businesses.

Okay.

We're doing today, roughly, $35 million? Approximately $35 million today and we're looking to get to $100 million in five years. That's been our plan. Now, we have two -- if you look at the operation out in Sacramento, we have two very large defense oriented contracts that are being worked at this time and are too hard to handicap whether we'll be successful or not, but if we are we'll get to that target quicker, sooner rather than later.

Right. That's perfect. Thanks a lot, guys.

Thank you, ladies and gentlemen. Our next question is from Tyler Hojo of Sidoti & Company. Your line is open.

You guys just answered my follow-up question. Thanks.

Thank you, sir. Our next follow-up is from J.B. Groh of D.A. Davidson. Your line is open.

Yes, one more question. Just on inventory, is there a way to look at that in terms of aging and quality in light of all these retirements that we're seeing. Is there a way you can sort of give us a framework to think about that?

Yes, JB, we monitor that closely by looking at turns data and we also do look at aging data for our inventory. We haven't seen any fallback in our major metrics there and in particular with aging, more than 85% of our inventory balance has been acquired within the last 18 months old and we feel pretty good about our carrying values in that product.

Okay. That's 85% less than -- okay. That's good. Thank you.

Thank you. I show no further questions or comments at this time, sir.

Well, thank you very much for your participation today. Have a nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Have a wonderful day.