CPI Aerostructures Inc (CVU) 2009 Q1 法說會逐字稿

Good day, everyone and welcome to the CPI Aero first-quarter 2009 conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Ed Fred, CEO and President. Please go ahead, sir.

Thank you, Regina. Good morning and thank you all for joining us for our first-quarter 2009 conference call. If you need a copy of the press release issued this morning, please contact Lena Cati, of The Equity Group, at 212-836-9611 and she will fax or e-mail a copy to you. Also, if you would like to listen to this call again, you can hear a replay on our website, the investor relations section, in about an hour at www.CPIAero.com.

Before we get started, I want to remind investors that this conference call will contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. Included in these risks are the government's ability to terminate their contracts with us at any time, the government's ability to reduce or modify its contract if its requirements or budgetary constraints change, the government's right to suspend or bar us from doing business with them, as well as competition in the bidding price for contracts.

Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statement contained in this conference call. Additional information concerning these risks can be found on our filings with the SEC.

As has been the case in previous first-quarter conference calls, I will provide our new listeners with a brief overview of CPI Aero and our activities. Based on Long Island, CPI Aero is a world-class manufacturer of aerospace structural parts and assemblies. We are a prime contractor for the US Department of Defense.

During the last few years, we have substantially grown our business to become a subcontractor to some of the largest US aerospace and defense contractors, such as Lockheed Martin, Northrop Grumman, Vought Aircraft Industries, Sikorsky and Spirit AeroSystems.

Since its inception in 1980, CPI Aero has focused on the production of aerospace structural parts and assemblies and developing the required skills and expertise to produce the highest quality products possible. We have carved out for ourselves a niche within the aerospace market and have become one of the country's leading suppliers of structural spares for vintage and out-of-production aircraft and assemblies for new production planes.

Typical assemblies produced by CPI Aero are skin panels, leading edges, flight control surfaces, engine components, cowl doors, wing tips, outer wing panels, nacelles and inlet assemblies for military aircraft such as the C-5A Galaxy, T-38 Talon, C-130 Hercules, A-10 Thunderbolt, UH-60 Black Hawk helicopter, E-2D Hawkeye, the E-3 Sentry and the B-1 Bomber and various structural assemblies for commercial aircraft such as the Gulfstream G650 and the S-92 helicopter.

Before I review our current business environment and the outlook for the remainder of 2009, I will hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details. Then I will briefly wrap things up and open the call to questions. With that prelude, let me introduce Vince.

Thank you, Ed. As reported in this morning's press release, revenue increased approximately 24% to $9,691,236 in the first quarter of 2009 from $7,790,754 in the first quarter of 2008. Gross margin was 22% as compared to 24% in the prior year's first quarter. This decline in gross margin was due to excess costs incurred in the early stages of our new programs related to customer changes to engineering and design requirements.

Pretax income for the first quarter increased 37% to $873,666 compared to $636,965 in the prior year's first quarter. Net income for the first quarter was $545,921, or $0.09 per diluted share, compared to $419,965, or $0.07 per diluted share in the fourth quarter of 2008. This represents a 30% increase.

Selling, general and administrative expenses for the first quarter of 2009 were approximately $1,236,000, or 12.8% of revenue, compared to approximately $1.216 million, or 15.6% of revenue for the same period in 2008. New orders through the first quarter were approximately $4.5 million compared to $10.7 million in 2008. Unawarded solicitations remained at an extremely high level with open solicitations totaling a maximum realizable value of approximately $360 million. At this point, let me hand the call back over to Ed for an overview of the business.

Thanks, Vince. As Vince just reported, the gross margin for the first quarter of this year was slightly lower than that of last year's first quarter. And, as he also explained, this is due in large part to unanticipated engineering and design modifications in some of the new programs we were awarded in mid-2008. And while that may sound negative to some, when put in perspective, it signals the beginning of some very successful programs.

It is always the case that, in new development programs, there are many, many changes in the design, engineering and material requirements of the structure to be produced. Even when those design modifications are anticipated and accounted for, others occur that cause a company to incur overtime and additional expense in order to meet delivery requirements and production standards.

This was the case in two of our three new programs, which resulted in a slightly lower-than-expected gross margin for the quarter. As we point out in the press release however, we anticipate that these excess costs will be recovered and the margins will end up in the range that we expect on a full-year basis. And we are even more pleased to report that through all of this effort, the Company has been successful in delivering the first set of leading edges to Spirit and we have also begun deliveries on the E-2D outer wing panel kits.

Also as just reported, new orders through the first quarter of 2009 were approximately $4.5 million compared to $10.7 million during 2008. This decrease can be directly attributed to the weak national economic conditions, which are affecting buying decisions throughout the military and commercial markets. However, even with this year-over-year reduction in awards for the quarter, we are very pleased with the high level of unawarded solicitations outstanding, which approximate $360 million. Having this amount of potential new business in the pipeline makes us believe that we have a vast amount of opportunity ahead of us to acquire additional new contracts.

This high level is an indication of our reputation that has been elevated in our industry thanks to our impressive list of existing customers. We are now on the radar screens of additional prime manufacturers, including other helicopter and business private jet companies, who are beginning to acknowledge CPI Aero as the premier supplier of aircraft structures.

Even with the large contract awards announced recently, the amount of total bids outstanding continues to remain significantly high as we are now bidding on contracts with these new potential customers. We are hopeful that several of these solicitations will become awards and contracts in the future.

Related to that, and because of our much higher profile, CPI has received many invitations to attend the Paris Air Show in June and visit with senior-level people from many of the major aerospace companies with whom we are either currently call customers or hope to in the future. While it is normally not our practice to attend this event, the opportunity to have face-to-face meetings with the top executives has compelled us to change our outlook about it and now Doug McCrosson, CPI's Senior VP of Operations, and I will participate and further explore new opportunities to increase our business prospects with these major customers.

Based on all of the above factors, we reaffirm our projection that 2009 revenue will be in the range of $42 million to $45 million with the resulting net income in the range of $3.9 million to $4.3 million. You will continue to hear more from us in the upcoming months. As I announced last quarter, we have entered into a very aggressive investor relations campaign, which had me presenting before institutional investors at three prestigious financial conferences during the first quarter of 2009. We will continue this effort as I will be presenting CPI Aero to investors in Chicago on June 1. This presentation was arranged by Next Generation Equity Research for whom CPI participated in a conference in New York City in September of 2008.

This will be immediately followed by a presentation at the Stephens Inc. Spring Investment Conference in New York on June 3 at 11 a.m. Then, just a few days later on June 8, we will present at the Noble Financial Capital Markets Fifth Annual Equities Conference, one of the premier East Coast conferences available to us. Also, for this conference, you will see a press release telling you when I will be presenting so you can listen to the live webcast if you desire. We will also have this presentation posted to our website so it can be viewed at your leisure for 90 days thereafter. These are the three events we currently have scheduled and we will continue to look for others going forward, so we can tell the CPI story in as many venues as possible.

Our annual shareholders meeting is scheduled for June 11 in New York City and we hope to see some of you there. Many of you have already received your proxy statement and those of you that haven't should receive it this week. You will note that the only two voting items on the ballot are the approval of two Board members to serve new terms and a request to approve a new stock option plan. Please note that the primary purposes of this plan are to be able to compensate our Board of Directors without having to use cash, which is significant given our growth rate, and to attract and retain senior-level employees.

Before closing, I would like to thank all of our shareholders for your continued support of CPI Aero and I assure you that your management team and your Board of Directors are working diligently to continue this profitable growth and reach our full potential as the world's premier small business supplier of aircraft structure.

And I would be remiss if I didn't once again thank the CPI management team for sharing my vision of where we can take this Company or more importantly, for making it happen. I would also like to thank all the employees of CPI Aero for executing on that vision and being an integral part in winning such impressive awards as the ones we won last year. I look forward to the future of this Company with great eagerness and anticipation of now executing on these contracts and attaining new ones due to the quality of our work. At this point, I would like to open the floor to questions. Regina, would you allow callers to place questions now, please?

(Operator Instructions). Michael Potter, Monarch Capital.

Hey, guys. Just a couple questions.

Regina, I don't hear a question.

Can you hear me, guys?

Hello.

One moment please.

Okay.

Hello? Hello? Guys, can you hear me?

Michael, please go ahead with your question.

Ed, can you hear me?

I got you now, Mike.

All right. Good.

How are you?

Not too bad. How are you doing?

Good, good.

Let's get this back on the, I guess, on the right track here.

That would be nice.

The Spirit, we delivered the first sets of leading edges?

We sent the first left and right side -- there are five per side. This was just one per side. It is what they call the inboard ones, which are the ones that attach to the fuselage. Yes, that's correct. We delivered them last week.

Okay. So now what is the process from here?

Well, that started it. We keep going now. They are going to make engineering changes as we go. However, we are now looking to deliver obviously LEO, which is called leading edge 2, 3, 4, and 5 on each side, which would then be the first aircraft's worth. So at this stage, we are basically into what I will call a limited production run, but a steady stream of work now on the Spirit program.

Okay. So I am assuming once we deliver this first set, they are then going to take a look at them, make sure they meet their particular metrics and if there needs to be changes, they will make changes?

That's correct.

Or that has already taken -- okay, okay. So we are still, as we deliver these first, I guess, five sets, if you will, we are still going to have some fairly high R&D expenses and lower gross margin?

Not necessarily, Mike. I mean getting the first ones out the door are always the hardest because they are making changes and we are seeing things we could do better, etc. So it is not like you need to do the full ten to figure out what you're doing wrong. You do the first two and the learning curve comes down dramatically, which is why we are saying to everyone that our margins are going to be fine for the year. The fact that we had a quarter with a slightly, and I repeat slightly lower margin does not impact the margins for this year at all.

Okay. With regards to Sikorsky, you mentioned a few times that we are, I guess, doing a lot of work with them. Where do we stand on, what was it, the platinum status or gold status?

Gold supplier status, we are in the process of being approved for that. Their goal and our goal is to be approved by the end of this year. They have certain marching orders, if you will, from their parent, UTC, to get X number of people certified, X number of companies certified to gold. We were on that list and we are working very closely with them to make sure that occurs.

Okay, so we are on track for that?

Absolutely.

And where do we stand with Sikorsky right now? Are there some major potential programs or contracts that we are hoping that are going to be awarded soon?

Right. Publicly I have acknowledged that we have about $100 million to $150 million worth of awards or bids into them. Obviously I can't tell you the platforms, etc. But yes, we have a tremendous amount of potential work from them that we are hoping to win some. All would be kind of optimistic, but we are hoping to win significant amounts of work from them.

Okay. And then with regard to Sikorsky, they are doing extremely well right now.

Sikorsky is doing absolutely phenomenally. I rethink I reported at the last conference call, they did approximately $5 billion in '08. Their public projection was $6 billion in '09 and $7.5 billion in '10 and that is why, of course, becoming a gold supplier so that you have got more of that offloaded work was so important to us. They are I think perhaps the only one, if not the only one, there is only two divisions of UTC that are actually projecting growth. So right now, that is a great customer to have.

And once we get this gold status, we that reduce the amount of times for the awards to be granted as well?

Well, you would think so in that the gold suppliers, and there will be a limited number to begin with, hopefully, their hope is to have everybody become a gold supplier because that means they are all at the top quality levels and top delivery performance, etc. But the first few or few dozen that get it will obviously avail themselves to getting more of these contracts with, I will call it, slightly less competition. Because if you kind of even in pricing or even in quality, etc. with another firm and you are a gold supplier, you're going to get it based on what they have told us.

All right, great. All right, guys. I'll get back in the queue. Keep up the good work.

Okay, Mike. Thanks.

Charles Neuhauser, Delafield Asset Management.

Hi. Your stock is under some selling pressure here and I am trying to look at the press release and figure out what somebody would find alarming enough to cause the stock to drop 20%. And you just talked about the gross margin, which I think most people who know what goes on in the business would agree that when you are first shipping parts in a new program, it is subject to the reworking or whatever you referred to and you get that back later.

So the only other thing in the press release that looks alarming is, of course, the first-quarter awards being down more than 50%. And so my question is is that some indication of negative future growth trends or is that in any way expected to change your outlook for the growth and profitability of the business over the next year or so?

Okay, Charlie. That's a good question; I'm glad you asked it. I think you have to look at this a couple of different ways. First of all, I have said publicly, I've said at presentations that our projections for '09, '10 and '11 were not based on an overabundance of new business awards during that period of time. It was based on the fact that, for the first time ever, we had won long-term contracts that would produce awards going forward, releases on a major contract.

So A, that is why, of course, we didn't panic that the number is only $4.5 million for the first quarter. But let me also put it in perspective for everybody. In 2007, which was our record year prior to last year, at 3/31/07, we were only at $1 million in new awards. By June, we had -- at the end of June, middle of June, we had only had $5 million worth of awards, yet we closed the year at $37 million. Okay?

If you go back to last year, first quarter of '08 and pull out the Spirit award, okay, we were only at $4.9 million worth of awards. Everybody kind of panicked at this number without putting it into perspective of things.

I think people also have to realize we are a bit different than we were in '06 and '07. We are not expecting to grow the business with $100,000 or $150,000 awards. That was a long time ago when we were just direct to the military. We are now in a situation where a single award can push us right past the $10 million mark. A single award can be worth millions of dollars.

I ask everybody who is listening to go back to last May, the single award from Boeing increased our bids or our awards received that year by $13 million. We are bidding on large, major stuff now. I have got $360 million worth of outstanding bids. Any one of 10 of those could pop me right past anyplace I was last year. And I think people are losing sight of that fact. It is not the same company bidding on the same kind of stuff it was three years ago.

So why it would have panicked people is beyond me unless you're looking for the negative. I mean we did not go out and say, hey, guess what, we only won $4.5 million of awards in the first quarter. Therefore, I am lowering my guidance for 2009. Nothing came out like that at all.

And if you put this all in perspective, I have got to believe we are one of the few aerospace companies in the world right now that isn't lowering their own expectations. LMI, who is a great company, just got on their conference call last week and Ron lowered his estimates for the year and lowered his numbers. We are not doing that. The reason is we are very confident in our 2009 numbers. There is no reason to change them and I just I think people have to look deeper into our numbers and hear my story. I just went out two months ago and told this story publicly. I wouldn't have gone out and done that and put my reputation and opened myself up to SEC scrutiny if these numbers weren't pretty darn firm in my mind.

So in a long-winded answer to your question, I don't believe there was anything negative in this press release. I think we're telling people we are doing exactly what we told you we were going to do and we are required to report these numbers on a quarterly basis. So if it panicked anybody, I apologize I guess, but we are exactly where we expected to be. My projections stand. I am not backing down from anything I have said. And again, an award here or there any time during the year and people are going a look back at this first quarter and think about how silly they were to think we were in trouble.

So the revenue and earnings outlook for this year and next let's say and just from a big picture standpoint is based more on the programs that you are currently involved in that are I guess -- I don't know if the word backlog is exactly technically correct -- but the first-quarter award number that you reported is not particularly relevant to the bigger picture of what you are looking for over the next year, year and a half?

I don't think I could have said that better myself other than to say, yes, they are in my projections going forward. There is a new business component, but it is not like I told you we are going to do $42 million this year and I need to backfill $30 million of it this year in order to get to the $42 million. That is not the case at all. So the way you described it is pretty much right on the money.

Okay, very good. Well, thank you.

J.D. Arbitar, [JRT Capital].

J.D.?

-- for us to go through the numbers and update our models?

J.D., we missed the beginning of the question.

Sorry. Just a request that in the future you could provide the complete income statement so we can update our models instead of waiting for the Q.

We will have to take a look at that J.D. I mean the Q should be out tomorrow, so -- but we will (multiple speakers).

(multiple speakers). When we spoke in Jan -- I think it was January or February, you were talking about perhaps adding a second building. What are the plans on that?

What I said then was, if we got a large chunk of the number of bids outstanding piece and it came in under certain types of programs where it was many assemblies at $4 million and $5 million a year in revenue and that is what blew us way out of the water, then we would have to look at getting a second facility within this complex.

As of right now, that is not the case. As you see, the number hasn't decreased much, which means those bids have not been awarded yet and again, it will depend on where we get the new contracts from. If they are a group of assemblies that require a lot of space, then we will have to take it under consideration. If it is, for example, one assembly, but it is worth $10 million, $15 million a year, then we could still do it right here within this facility. Again, depending on product mix, we could probably do 85 million to 100 million, maybe even 125 million in this facility using a second shift. But if it were a lot of assemblies to get us the same exact revenue dollars, we might have to take on a second facility.

All we have done is look at those as possibilities. We have contingencies if that does occur. Quite frankly, the customers know that we have that potential if required. But as of now, no, nothing has been seriously considered in that vein because we don't have the awards yet.

Okay. And just maybe help us understand a little bit more on the outstanding bid. In some businesses, it is very competitive. There is five, six, eight people bidding on something. This isn't obviously that case. What are the alternatives for your customer? Is it more a make or buy decision for them and just help us with the competitive landscape on the awards that are still out there.

Okay. Well, this is still definitely a competitive arena and on some things, we are up against five, six, seven competitors. On others, it might only be two or three and in the third case, sometimes it is the company's own internal cost structure. For the most part, that is the reason all of them will try to decide on whether or not to offload work or not. Can it be performed by someone on the outside cheaper and done as well as we do? So to give you -- I can't give you a canned answer if you will. In some cases, it is us against them and in other cases, it is us against anywhere from two to five outside competitors.

Great. Thank you.

(Operator Instructions). John Kohler, Oppenheimer & Close.

Good morning.

Hey, John, how are you?

Good, how are you doing?

Very good.

Good. There was a $14 million reduction in the bids outstanding and the likelihood of that being one bid is probably small, but I was wondering maybe if you could talk about the change in the bids outstanding. Was it a big project that you might have lost and then you bid on another couple or two or how that might have changed?

Quite honestly, John, it is a combination of a couple of things. When we give you this number, our policy -- there is no technical reason for it; it is our own policy within CPI -- if a bid is over 12 months, we drop it out of this number. It doesn't mean we can't get it, doesn't mean it won't come along, but our feeling is for it to be current and relevant at this moment, we put a 12-month limit on the reporting of the number. That is number one.

Number two, as soon as we submit a proposal, we enter that proposal's total dollar value into this number we give you. Now most cases, you will have a customer come back and ask for what they call a BAFO, best and final offer. You will take that contract, you'll take a look again, you will go back to your customer, your potential suppliers, you'll scrub the number, you will say, hey, guys, if we get this, this is worth this much to you. If you have got that much, how much lower could you make your price, etc.? And it will lower our overall price back to the customer on the final round.

So basically it was a combination of those two things and some small losses, and I do mean small. None of the major stuff that we bid on has been awarded to anyone else. We didn't lose a major competition. Though I am going to be realistic, somewhere along the line we are going to lose a major competition. We don't -- it is not that everything we touch is gold. But we believe there is enough in that pipeline that we are going to get our share of great stuff. But that is the answer to your question, is it's a combination of a couple of things.

Okay, that's fine. If you look at demand for solicitations or offers for solicitations from the government, are you seeing any increase by the Defense Department or anything like that?

Not yet, John. Not yet. It is still in the same basic cycle it has been in for the last two years or so, which is very little coming out, even less being awarded. So again, -- and that is one of the reasons nothing -- basically nothing from the government is in our projections just because we have no way of predicting when they are going to go back to their normal spending pattern.

Right. And not to beat a dead horse, and I know the C-5 is not as big a component of CPI's business as it used to be, but I think there is a fair amount of expectation given the recent discussions on Capitol Hill and keeping the C-5 I guess is looking more likely with the move into Afghanistan. Is there anything that you have seen or heard that indicates that repair work might increase on that?

John, we agree with you. Based on their decision to keep the C-5s flying to upgrade at least half the fleet to Ms, which is giving them the avionics upgrade and the reengineering upgrade, we kind of expect something to come down the pipeline too. Logic dictates you don't upgrade the avionics, upgrade the engines and let the structure rot out. So we do anticipate something down the road. I just can't tell you when and I just mentioned the word logic. Right now, I find it illogical that you bring the planes into depot to do those upgrades and don't do the structure while they are down. It doesn't take you any more time, you don't have the plane down for a second period of time. So logically it doesn't make sense to me, but that is why I don't run the government depot I guess.

But yes, somewhere along the line, I would hope, I don't want to say I anticipate because that is probably stepping over the line, I would hope that we would see some increased activity on that C-5 top contract. Given that, that is not in our projections either. And in the overall scheme of things, as disappointed as you as investors are and we as management are about that program, the reality is it has generated $5 million of revenue for us in essence every single year since we have won it.

Now it is one of those things. If you shoot for the sky and you only get one of the stars, okay, you didn't do as well, but $5 million a year to us from '04 through '09 is a significant piece of work. Obviously, as we grow larger, its significance decreases as a percentage. But the fact that we have had $5 million a year from it is not a bad thing.

Right. An earlier caller mentioned that they went through the release and couldn't see any bit of negative news. And I think it was -- problems arise when you do new business and you're building a new product. There is nothing surprising there. But I guess it was an omission that I noticed more than anything else. Prior to the earlier releases after you gave out your year guidance, there was a sentence that said additionally using whatever you projected longer term guidance, that seemed to be missing.

It is missing for no other reason, John, than we just thought it was going to get kind of old to repeat that every quarter for the next 2.5 years. It changed. I had a responsibility to come and tell you it changed downward. I can't leave that hanging out there if it is different.

Right.

So we assumed, we hoped everybody would read into it, okay, nothing is different. And if you listen to my presentations next month or the end of this month into next month, those same 2011 projections are going to be out there; nothing is different. So anybody who is listening, if the numbers -- if there is a point in time where I don't believe we can make those numbers, I have a responsibility to tell you that. If you don't see me telling you that, you shouldn't assume that that means we are not making them, you should assume that means we are.

Okay. Well, that takes care of all my questions. Thanks.

[Paul Berger], [Hammock Investors].

Good morning.

Hey, Paul, how are you?

Good. Could you give us a little more color on what we are calling backorder basically, the solicitations between say prime or government and nongovernment?

Paul, I don't break that out anywhere publicly. The only number I have given is of the 360, about 100 to 150 is Sikorsky. I think you can infer from the discussions we have had here that, with the limited amount of government solicitations that are being offered out there that the percentage of that overall 360 that is direct to the US government, I won't say it is insignificant, but certainly doesn't rival the amount that is out there with prime contractors.

Is there a reason why you're hesitant in breaking it out?

Not at all. I just haven't done it, so I am not allowed to do it here on the call. If that is something that people think is really important to them, we can certainly take a look at breaking it out the next time.

Well, anyway. I will make that request. All right. Thanks, Ed and good luck.

Yes, but I don't listen to you, Paul.

Well, good luck.

Thanks.

[Ron Artinian], Private Investor.

Hi, Ed.

How are you doing, Ron?

Good, good. First of all, congratulations. I think the continuing view of your long-term diversification plan has been terrific. You guys have executed extremely well and you are to be congratulated. I actually got most of my question answered with a previous question, but I am just wondering if you can hazard an opinion based on reconnaissance (inaudible) that we might not get about the military end? And again, you have mostly (technical difficulty), but are you getting any vibes with the new administration in about what the future is of that kind of business? Or does it seem kind of like business as usual or maybe not as usual?

No, and again I'm glad you used the word. This is basically my opinion based on a feeling I am getting based on the defense budgets, etc. It appears that, as we suspected with a Democratic administration, you have the tendency to lose new programs and fund -- when I say new programs, new aircraft programs and fund older aircraft upgrades, repairs, etc.

I think the fact, in the budget, that they want to cut out new production on the C-17, the fact that they want to take the F-22 out and stop producing that and yet, the budget remains very, very high, would seem to indicate that more money will be put into upgrading, modifying, modernizing the older aircraft that are in the fleet right now. That was our thoughts before it happened before the election. It is pretty standard that that is the way administrations go. Republican administrations tend to fund new programs. Democratic administrations tend to fund older programs. And I think based on what you saw from the defense budget, the proposed defense budget, etc., it is going along those lines.

Now, depending on the administration's views towards getting out of Iraq, how long it intends to stay in Afghanistan, whether or not it intends to up its forces there, etc. I think then determines how soon these planes get back and how soon money gets put into the fixing, if you will, of these older aircraft. You obviously have to have them home here to fix them. And so you need some degradation of the effort in those two countries in order to get those planes back here.

So my opinion would be when the effort starts to decrease and the planes start to come home and those planes are examined nose to tail, not only will you see the kind of expenditures that we saw in the past, I think they will be significantly higher because these planes have gone without their normal repair, replacement, whatever you want to call it, for now, up to a three, four, five year period of time.

So when it used to be, okay, a plane needed new cargo doors or whatever, well, if it has been in theater, it probably needs a lot more than that now. And it is one of the reasons we are confident that, if the government goes back to its old or normal spending habits, CPI will have a substantial opportunity to reassume its position as the leading small business supplier of structure. And keep in mind, before the war, not only were we the leading small business supplier, we were the number two supplier in the entire country behind only Lockheed Martin who was the prime manufacturer on most of those cargo planes, etc.

So we are highly confident that when this does turn around, there will be an entire arena back open to us that we are not including in our projections at this moment and that will, again, allow us to take the position we once had. Nothing has changed as far as our ability to produce those same products for that same customer.

Thanks, guys and again, keep up the good work. Really well done.

Thanks, Ron.

John Kohler, Oppenheimer & Close.

Just a follow-up if I could.

Do you have a coupon, so you were allowed to ask two, John? Is that how it works?

I know. I am a monopolizer.

That's all right.

Could you talk a little bit about your supplier base and how they are holding up given that everyone else seems to be lowering expectations in business? I am just wondering how you are seeing them hold up at this time.

Our base is doing extremely well right now quite honestly and part of their reason was -- keep in mind, as we saw started to develop this base for these major programs, the 787 wasn't in as much trouble as it is now. And when I say trouble, I don't mean it is in trouble, but the delays weren't as broad, I don't think they were expected to last as long, etc. So we went to places that weren't overloaded with 787 work because we knew we needed dedicated supply chain in order to accomplish all that we wanted to accomplish. And since we are doing as well as we predicted we would do, we are keeping all of them busy. None of them at this moment, and when I say none, don't hold me to zero, but most, if not all, are not experiencing any financial difficulties whatsoever. We are keeping them busy. They do have other customers that are keeping them busy. So right now, although we monitor it very, very closely, right now, we don't have any supplier that appears to be in any kind of distress whatsoever.

Great. And you are happy with product quality overall?

Oh, absolutely. Absolutely. We are, and our customer is, which is more important.

Okay, excellent. Thanks again.

Sure thing.

(Operator Instructions). There are no further questions. I will now turn the conference back to management.

Okay. I have two questions that were emailed to us, so I will read those now, answer them and then we can end the call. One of them comes from -- actually they both come from the same person. The first question is -- Mr. Fred, will you please shed some color on the use of composites in your business?

In our vintage business, if you will, very little composite work. The older aircraft, obviously, weren't made with composites. However, in the new stuff we are doing, the Spirit and some of our other customers, there are some composite pieces inside in the assembly and so we obviously have a supply chain that includes those manufacturers of composites. And so far, everything that has been made of composite has worked out extremely well.

Again, composites are not new to us; they just happen to be new to the fact that we are putting them in assemblies. But with the background in the aerospace industry that much of this Company has, it is not a foreign element to us, if you will.

The other question the gentleman asked is, and this is a long one, so bear with me. Over the last couple of quarter or so, you have communicated a forecast through 2011. If this forecast unfolds as you have communicated, will you need to raise additional capital via debt or equity? Also you seemed to communicate there was a possibility of upside to this forecast as new awards are a possibility. Assuming additional award wins affected your forecast positively, do you see a situation where you would need to raise additional capital via equity or debt to finance the additional growth? Please share your insights as the possibility of raising additional capital through equity or debt offerings under the above scenarios.

Okay, as it stands right now, we have a $2.5 million line of credit with Sovereign Bank who was recently purchased by a major bank from Spain. So they have a huge parent now. We have a line with them. We also have a term loan with them. Now, at this moment today, we believe we have enough debt structure to go ahead and continue to fuel our growth. That could change based on new contracts, as you stated there and if that were the case, we would evaluate what is the best scenario for the Company to follow. Is it to raise equity, create a little more liquidity or experience some level of dilution, even if it is minor or would we go out and raise more debt?

I would think that with the relationship we have with Sovereign that if we went back to them and said here's all the new business we have just won, we would like you to increase the line, I would like to believe, even in this tough debt market, that they would at least be amenable to taking a look at it and considering it.

At this second, I will tell you that I don't have a preference right now. Meaning I am not sitting here thinking about do I want to raise money or do I want to go out and get new debt. We do think about it in general terms. We are ahead of the curve in that regard, knowing that we could receive some contracts that would require additional financing from one venue or another. But I don't have the answer for you at this moment as to what it would be.

It would significantly depend on what kind of contract it was, how big it was, how much upfront money was required to get the contract started and then quite frankly, if it were even in our minds to do an equity raise, I would go to all of my major shareholders and ask them what they felt. We have some very, very large institutional shareholders. I would not arbitrarily go out and raise money without giving them the benefit of having their say. And in the end, myself, Vince obviously as the CFO and our Board of Directors would make a decision based on the input we get from that outside opinion.

And if there are no more questions, Regina.

There are no further questions.

Okay. Then I would like to thank everyone for participating in this call. I hope we cleared up any negative ideas people had and just keep in mind, if I don't change a projection or I don't give you bad news, then there is none because I will give you bad news when I have it. Okay? Thank you very much.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.