Triumph Group Inc (TGI) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Triumph Group conference call to discuss our FY16 fourth-quarter and full-year results. This call is being carried live on the Internet. There's also a slide presentation included with the audio portion of the webcast.

(Operator Instructions)

On behalf of the Company, I would now like to read the following statement. Certain statements on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks uncertainties and other factors which may cause Triumph's actual results, performance or achievements to be materially different from any expected future results, performance or achievements expressed or implied in the forward-looking statements.

Please note that the Company's reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the press release which can be found on our website at www.triumphgroup.com. In addition, please note that this call is the property of Triumph Group Inc and it may not be recorded, transcribed or rebroadcast without explicit written approval.

At this time, I would like to introduce Daniel Crowley the Company's President and Chief Executive Officer; and Jeffery McCrea, Chief Financial Officer and Senior Vice President of Triumph Group Inc. Go ahead, Mr. Crowley.

Thank you, Stephanie. And welcome to Triumph's fourth-quarter and year-end earnings call.

It's been a really busy four months since I joined Triumph as President and CEO and my leadership team and I have made good use of the time as we prepare the Company for its third decade of growth. We are executing the plan I outlined on our January earnings call while delivering on customer commitments and positioning Triumph for the future.

If you go to slide 4, in my first hundred days at Triumph we completed our diagnostic of the business and defined the game plan necessary to improve operational performance, deliver predictable profitability and drive organic growth. I would like to share a few highlights. First, we implemented a new operating philosophy around building one Triumph Team, increasing accountability for performance.

As part of our new algorithm, previously decentralized and autonomous business units are now reviewed every 30 days at the CEO and staff level against a comprehensive scorecard of operational, financial and new business metrics to ensure we are meeting our commitments. Now out of thousands of programs at Triumph, we started the year with 42 red programs and 74 yellow programs. Through our weekly return to green call, at my level as well, as reviews of the business unit and operating-company levels, we have now reduced the number of red programs by 40% and yellow programs by 20% helping to reduce losses, improve quality and recover delivery schedules.

Our goal is to have no red programs by the end of the year and very few yellow ones. This includes Boeing 747-8, which has now recovered to customer delivery dates and is meeting our quality targets. While sometimes painful for the participants, these return-to-green reviews are highlighting common areas requiring improvement across multiple programs, which we are addressing through Triumph 5 initiatives.

Know also, we are seeing some positive customer feedback on our improving operational performance. Sikorsky recently selected Triumph Group's McComb Geary System's business as supplier of the year for their gear, shaft and housing work on multiple helicopter programs. And two of Triumph's Companies in Seattle and Park City, Utah received the Aspire excellence award in the American Helicopter Society international in recognition of the quality innovation and cost-effective technology of our products.

We will continue our relentless focus on on-time delivery, improved quality and cost reduction as our customers expect and deserve. Last month, many of you read about our new reorganization around four strategic business units. And these include integrated systems, a $1.1 billion business that provides actuation, hydraulic fuel, thermal and geared solutions of our own proprietary designs and those of others.

Second, aerospace structures, a $1.3 billion business supplying fuselages, control services, wings and other large structures and integrated assemblies for both commercial and military platforms. Third, Precision Components, a $1 billion Company that supplies machine, fabricated, composite and interior products for Triumph and OEM customers. And fourth, our product support team, a $300 million-plus Company focused on full lifecycle support to aircraft OEMs and operators.

Note that each of these business areas has five operating companies, except Precision Components which has seven. Why did we do this? Well this action reduced the number of business unit BPs from 6 to 4; aligned similar and complementary product services and processes; it better matches our structure with the customer needs and their buying organizations; and then it better balances the annual sales and spans the control to manageable levels; and then, most importantly, it allows us to organize, operate and report in a consistent manner.

Second, we're consolidating from 47 to 22 operating companies, a reduction of more than 50%. We combined Companies with overlapping abilities who competed in the same market for the same business. For example, we had multiple fuel system, hydraulic gear system and high-speed machining companies.

Secondly, if you grouped similar operating Companies to reduce costs, integrate product road maps, expand our offerings, increase our supply-chain economies and simplify customer interfaces. Each of the new leaders of these four business units is well along on developing new integrated strategies for their portfolio of businesses.

These changes stem from our forensic and initial portfolio review of all of our operating Companies and product lines. As we continue our portfolio review, we expect to take further action that will focus our capabilities and generate cash for other uses. We will regularly assess the strategic fit, competitive positioning, market attractiveness around each of our operating Companies and decisions related to portfolio changes will be communicated separately as approved by the board and implemented.

We will also reduce the number of locations from today's 73 to 60 in our first wave of consolidations. This will begin to address our capacity underutilization. It will reduce occupancy, SG&A and indirect labor costs, and create centers of excellence, individual product lines, while positioning work in lower cost areas within the US and internationally.

Next, we launched a $300 million cost-reduction initiative, which will reduce our supply chain, labor, facilities, infrastructure and expense cost over the next three fiscal years. We've already allocated saving targets by color of money to each function and business unit and generated savings will be used to enhance our competitiveness, reduce debt and fund organic growth. And we have a robust tracking system in place to measure our progress.

Our next step was to establish the transformation delivery office to manage our restructuring and transformation efforts, including the development and deployment of the Triumph Operating System. Now I talked in our last call about our Triumph transformation team. Over the last 12 weeks, we identified 26 specific initiatives to turn around and transform the Company from improving cash from operations, to lean deployment, to updating our go-to-market strategies.

The Triumph Operating System, now under development, will reflect our new operating philosophy and builds on the proven enablers and talent from across our Companies, including those from legacy companies such as GE, UTC and Goodrich. We will choose the best practices from across our many Companies, as well as those from adjacent industries to create a unique operating system that works for us and our customers rather than have multiple ways of doing the same thing.

Next, we strengthen our business development team, who will focus on strategic partnerships, unmet customer needs and discipline capture processes to reverse our negative organic-growth rates. Our recent win with Airbus on their A320 Neo landing actuation system is worth over $500 million over the life of the contract; and we're building a new 150,000 square-foot machining center of excellence in Kansas City in support of Airbus's A350 production ramp.

Our relationship with Boeing, which has been strained in the past, is improving as we do what we say in line with their priorities. And we are proud to be a partner with Gulfstream on G650 program, where our performance on the transition from Tulsa to Nashville has been acknowledged by teams from Savannah.

Our progress on the Embraer E2 program continues to accelerate installing the delivery our first fully joint fuselage earlier this year. We are actively working to expand our precision component and integrated systems support for Lockheed Martin as they seek dual sources on the F-35 program. And we started a new dialogue with Spirit Aerosystems on areas we can support their needs. We also anticipate winning more military orders to complement our strong commercial and business jet backlog.

In FY17, Triumph will increase our new business resource investments as a percent of sales from R&D, bid proposal and marketing and selling. I know, from my recent visits to Boeing in Seattle, Airbus in Toulouse, Spirit, Bombardier, Northrup Grumman and other customers, that there's a strong desire to work with Triumph, given that we are cost competitive and deliver on time with good quality. I'd also like to note that since January, Triumph also partnered with strong alliances of banks on an amendment to, and extension of, our credit facility, which allows us to maintain a strong liquidity position to drive our transformation.

Also important, we created a new senior leadership team and added new members, including a new Executive Vice President for our Aerospace Structures business; a new Senior VP of HR; a new CIO; a new Vice President of Internal Audit and Strategic Planning; a new Director of Operational Excellence, formally with Danair Corporation; and a new Director of Communications to support our One Triumph Company initiative. Combined with the planned addition of a New Program Management and Contracts leaders, I anticipate by our next earnings call that 9 of my 16 direct reports will have changed since January.

Note that we are well along on our CFO search and expect to make an announcement during our first quarter. At this point, I would like to thank Jeff McCrae for his continuing contributions to Triumph and his commitment to support our year-end 2016 closeout and 10-K certification efforts.

If you go to slide 5, our top three priorities haven't changed: delivering on commitments, ensuring predictable profitability and driving organic growth. These priorities shape everything we do and the strategic choices we are making regarding discretionary investment. Our actions in the first 100 days are perfectly aligned with achieving these objectives.

If you will turn to page 6, I would like to comment on our financial performance. Triumph recorded comparable sales year over year in FY16, increases in revenue, and our systems and aftermarket business helping to offset declines in our aerostructures segment. We saw strong margins in our systems and aftermarket segments, where systems recorded its highest-ever revenue, operating income and op margins with $216 million of op income and 19% op margin. Similarly, our aftermarket segment delivered increased revenue over FY15 and net operating margins of 18% before inventory write-downs of slow-moving spares.

Our acquisition and integration of Fairchild controls in Maryland helped FY16 sales and expanded our offerings in the area of aircraft environmental controls. Note that this business has now been combined with our other thermal systems operating Company in Ohio.

Note that we will shift our reporting from our three segment structure to our new four business unit structure, in our Q1 call in July, so that our organization, financial reporting and operational performance are all aligned. This will also provide clarity on financial resorts going forward. It will provide a reconciliation between prior-year segments and the new four business unit structure with our Q1 results.

On slide 7, obviously the aerostructures was our obvious disappointment in the quarter, with the combined impacts of the recently announced 747 rate reduction, goodwill and trade-name impairment and write-down from the Bombardier Global 7000 wing development program. Now that said, we believe we've largely derisked all three areas so that we can focus on more efficiently building out the remaining 747 contract commitments, transitioning from development to production on global 7000 and expanding the aerostructures business base and profitability.

Let me talk about Boeing first. Boeing has allowed Triumph to remain at a 1.0 build rate per month through FY17, which ends in March of 2017, after which Boeing will provide guidance as to the going-forward build rate based on market demand.

Maintaining this rate for a longer period allows us to retain an experienced workforce and complete structures at a more efficient rate. We are also making good progress on the Boeing 767 ramp up from 1.5 aircraft per month to 2 per month, and the transition of major assemblies from our Texas facility to our Florida factory.

On Bombardier, as announced, the first flight for the global 7000 is expected this year with entry into service in the second half of 2018. We are back to back with Bombardier on getting the first aircraft in the air later this year with three of our wings already made into fuselages in Bombardier's Toronto final assembly line.

Two more wings are in production in our Red Oak facility and our lower rate production tooling is now on the floor being approved. We're supporting first flight preparations, transition to production and production ramp up at our Red Oak, Texas facility, where 250,000 square feet will be dedicated to Global 7000 wing production. Now, as with any development program, there are both technical and financial issues to work through, but we are collaborating with Bombardier to resolve them quickly and effectively. Our first priority is helping to make the program a success and customer interest in the aircraft remains solid and Bombardier has a strong backlog.

Regarding goodwill impairment, and impairing the aerostructures goodwill in the Vought and MB trade names to levels that are more consistent with the current business space and peer financials, we will now have more headroom against future impairment. Consistent with accounting guidelines, we will also amortize the residual value of the trade names over 20 years, rather than maintaining an indefinite life, which will reduce risks associated with interest, the discount rate fluctuations and revenue changes quarter to quarter. While there is a small impact on EPS, amortization is the right answer, given all the factors considered.

Now taken together, these charges are large, but we believe it is prudent to put these behind us so that we can focus on the future and deliver more predictable financial performance. Of the overall charge, a majority, roughly $950 million, is non-cash.

You will note that we did reserve for our restructuring charges including facilities, consolidations, reductions in force and write-off of excess inventory. Triumph currently lags our peers in both sales per employee and square foot per employee metrics. While these are only two of the many measures we track, they do signal the need to deal with overcapacity and underutilization.

As such, we will implement several facilities consolidations in FY17 by closing or combining five facilities with over 500,000 square feet and plans in place for an additional five facilities in FY18 and beyond, as programs come to a completion. Each consolidation action will be communicated on a staggered basis following coordination with affected customers, employees, and other stakeholders. We anticipate a reduction in force of approximately 1,200 employees or 8% in FY17 tied to the combined effects of program completions, consolidations and cost reductions.

We've reserved for further reductions in force in the out years, and will monitor workforce needs and new business win rates, and will separately communicate further headcount adjustments as they occur. Note that these reductions also affect SG&A to direct staffing as we consolidate the number of operating Companies and locations.

On slide 8, I'd like to touch on our cost-reduction initiatives. All of the changes I've highlighted today are part of the $300 million cost-reduction initiative launched in April to reduce our costs by 10% by the end of FY19. We've allocated all these savings to FY17 with step ups in FY18 and FY19 and all companies' functions within Triumph will continue to this goal.

A large component of the CRI savings come from supply-chain management. Our new supply chain team was launched in April of 2015 and, as discussed in the prior earnings call, we are pursuing savings in areas of raw material, systems, transportation, travel software and temporary labor.

By analyzing our supply-chain spend across all of our Companies, performing category analysis by material type, we've gained far better insight into our opportunities for savings, and we're using data analytics across our ERP system to identify further supply-chain savings. Triumph's supply chain management team has identified over 300 projects that will contribute $30 million of run-rate cost savings for FY17 with $15 million of savings already realized in FY16.

Another major focus for Triumph this year is cash management. We exceeded the high end of our Q4 guidance through smart financing initiatives. FY17 is now the year for stronger cash from operations.

We've baselined our sources and uses of cash for FY17 and have set goals for each business unit to ensure positive cash flow that offsets cash draws associated with the restructure. We are focused on improving our accounts payable, receivable and cash-to-cash conversion as well as reducing raw material, WIP, and finished goods inventories. This focus on basic blocking and tackling will help us free up cash for better uses, including growth and debt reduction.

So in conclusion, having completed my first 100 days at Triumph last month, my leadership team and I are now shifting from diagnostic and game-plan development and filling out our roster to implementation. The next 100 days will be characterized by speed and action as we build our new Triumph Group. As we enhance our performance and competitiveness, I look forward to increasing our organic growth rate and becoming a partner of choice for the many customers we serve.

I'd now like Jeff to provide further detail on our financial performance. Jeff?

Thanks Dan, and good morning, everyone.

Before I get into the details of the quarter, let me first give you my high-level views. Obviously a tough quarter, with some significant charges that I will talk you through. But also a quarter in which we see the creation of positive momentum going into FY17.

We saw positive growth and strong earnings from the aerospace systems and aftermarket services segment, as Dan noted, a record quarter for our systems business, while aftermarket continued to demonstrate the ability to deliver best-in-class margins. We saw continued improvement in the performance on the G650 and G280 wing programs, which generated $8 million of positive cash flow in the quarter.

We also delivered on our cash commitment, generating over $250 million of free cash flow during the quarter. We saw renewed confidence from some of our key stakeholders as our bank agreed to nominally amend the existing $0.3 billion credit facility to provide for Q4 and future charges, but also agreed to extend the facility out through April 2021. These positives may get overshadowed by the charges announced in the quarter, but even the charges will work to put us on more solid footing in terms of predicable profitability and help to stabilize our balance sheet as we move forward in FY17 and beyond.

Now moving into the details, please turn to page 10 of the slides. Revenue for the quarter was just under $1.1 billion, down slightly from the prior-year period, with an operating loss for the quarter of $1.2 billion, reflecting pretax charges totaling $1.3 billion of which approximately $215 million represents future cash outflows.

The most significant charge is a non-cash impairment of $645 million related to the aerostructure segment, goodwill and trade name intangible. Based on our current evaluation of the market values segment, we determined that impairment was required in order to reset the book value of the segment.

Going forward, we have also chosen to amortize the remaining balance of the trade name over a 20-year period, roughly $8 million per year. This charge represents our best estimate of the goodwill impairment at this time, which we will finalize when we file our form 10-K.

The next largest impact in the quarter relates to the Bombardier Global 7000 program, where we are recognizing a charge of roughly $400 million. Although significant, we believe this is appropriate at this point in the program as we put behind us issues experienced to date, and will better position us as we enter the recurring production phase of the program where we look to drive improvements.

Moving to 747-8, we discussed last quarter, Boeing's decision to move to a lower production rate would put further pressure on the program. While we continue to have productive discussions with Boeing on mitigating the risk and working towards an ultimate transition of our work scope, we felt it prudent at this time to recognize the rate-reduction impact which results in an additional $161 million forward loss.

We have agreed with Boeing to remain at a rate of 1 per month through our FY17 and our forward-loss calculation assumes a ramp down to a production rate of 1 unit every two months which would be maintained until we exit the contract. From a cash-loss perspective, much of the impact will be realized in FY19 and beyond.

Moving onto restructuring, the actions that Dan described related to the closure and consolidation of a number of facilities, as well as the organizational changes underway, results in a fourth-quarter charge of approximately $76 million. Approximately $55 million of these charges relate to future cash outlays as we execute and complete the restructuring.

We are also projecting additional restructuring charges that will be recorded in FY17 and FY18 as reflected on slide number 12. These actions will drive run-rate savings of approximately $55 million that will be fully realized in FY19. Finally, we recorded a pretax charge of $34 million related to impairing excess and obsolete inventory associated with certain slow-moving programs in the aftermarket services segment, that we have now decided to no longer support.

From an income-tax perspective, we recorded a $142 million valuation allowance against the future realization of net deferred-tax assets. Based on our projection of future taxable income, we believe it is likely we will recognize a tax benefit in the future. However, the relevant accounting rules driven by our recent operating losses require us to establish a valuation allowance.

Now looking at results, excluding charges, adjusted operating income for the fourth quarter was $122 million reflecting an operating margin of 11.6%. And net income was $65 million, resulting in earnings of $1.32 per diluted share and a modified adjusted EBITDA margin of 12.9%.

For the full fiscal year, sales were roughly $3.9 billion, with adjusted operating income of $464 million and a margin of 11.9%. Net income for the first fiscal year, excluding the nonrecurring items, was $263 million, or $5.34 per diluted share with a modified adjusted EBITDA margin of 13.3%.

Looking at our segment performance, sales in aerostructures segment for the fourth quarter were $658 million with lower year-over-year production rates on a number of legacy programs, partially offset by higher rates on the G650 program. As detailed in the next slide, fourth-quarter adjusted operating income was $59 million, and included a net unfavorable cumulative catch-up adjustment on long-term contracts of $20 million.

Excluding the revenue associated with the 747-8 program and the nonrecurring charges, the segment's operating margin for the quarter was 9.9%. Adjusted modified EBITDA for the quarter was $64 million at a margin of 10%.

The next slide shows the cash flow profile for the Gulfstream G650 and G280 wing programs. During the quarter, we did generate $8 million of positive cash flow, which reflected continued improved performance, as well as an acceleration of receipts.

Moving on, in our aerospace systems segment, sales for the fourth quarter were $321 million, an increase of 6% versus the prior-year period. Fourth-quarter adjusted operating income increased 9% from the prior-year quarter to $65 million with an operating margin of 20% and a modified adjusted-EBITDA margin of 20.9%.

Sales in the aftermarket services segment, in the fourth quarter, were $85 million, an increase of 4% versus the prior-year period. While fourth-quarter adjusted operating income increased 14% to $50 million with an adjusted operating margin of 17.8%, and a modified adjusted EBITDA margin of 21.9%. Overall we have continued to see strong and improved performance in both our aerospace systems and aftermarket services segments, reflecting a number of actions taken during the year to improve both cost structure and margins.

Turning now to backlog, our order backlog, as of March 31, was approximately $4.15 billion, a 17% decrease year over year due to a number of declines in key aerostructures programs, to include the slowdown that we've on the 747-8 program, but does not yet include the future ramp up backlog on key growth programs.

Turning to the balance sheet on the next slide, for the fourth quarter, we generated $258 million of free cash flow as we drove significant reduction in our working capital balance, as we closed out a number of open contractual issues with customers, lowered our outstanding receivables through use of customer third-party receivable facilities, and continued to work down inventory balances and manage accounts payable. The banks supporting our roughly $1.3 billion revolver and term loan facility in the quarter agreed to amend the existing agreement to provide covenant relief for the restructuring and other cash charges incurred in the fourth quarter and projected in FY17 and FY18.

In conjunction with the amendment, our bank group also agreed to extend the facility out through April of 2021, which will provide significant liquidity and flexibility as we execute on our restructuring plans and invest in transformation efforts. Additionally, to ensure that we have full access to the credit facility during the FY17, we will be approaching the holders of our notes issued in 2013 to amend the terms of the indenture to conform with the notes issued in 2014, which allows for higher level of secured debt. Absent this consent, we could be constrained as to the level of new borrowings under our revolver during FY17.

To mitigate the risk and to ensure we have adequate liquidity available through FY17, we did choose to make a significant draw on our revolver facility in early April, taking the drawn balance to roughly $800 million versus the $140 million that was drawn as of March 31. We will pay down the revolver once the consent is received from the bondholders. Net debt, at the end of the fourth quarter, was $1.4 billion, and there were no shares repurchased during the quarter and we did not make any voluntary pension contributions.

As we look forward to FY17, we are projecting revenue of between $3.6 billion and $3.7 billion, hitting a low revenue point prior to returning to top-line growth in FY18, as production on key development programs begin to ramp. GAAP earnings per share FY17, is projected to be between $4.90 and $5.10 and includes roughly $0.68 associated with expenses supporting restructuring and transformation efforts, $0.15 associated with financing fees related to amending our credit and debt instruments and $0.12 related to our decision to amortize the trade name intangible. Excluding these adjustments, earnings per share would be between $5.85 and $6.05.

The effective tax rate is projected to be 25% during FY17. We do anticipate the second half of the year will be stronger than the first half, based on the timing of our transformation efforts and projected cost-reduction initiatives. We are projecting free cash flow generation sufficient to fund the completion of nonrecurring efforts on the Global 7000 and E2 Jets programs, to fund the G650 and 280 programs, and to fund our investments and restructuring in transformation, with any excess cash generated being focused on paying down debt.

The above earnings and cash-flow guidance does not take into account any potential divestitures that would be executed during FY17. Finally, although I've made a personal decision to leave the Company at the conclusion of our reporting for FY16, I do strongly believe that Dan and his leadership team are doing the right things to drive Triumph forward and get us to a point of generating predictable profitability, driving margin expansion and generating strong cash flows. The actions we're taking in the fourth quarter will work to mitigate future risk and strengthen the performance of the Company.

And with that, I will turn it back over to Dan.

Thanks, Jeff. We'd be happy to take any questions at this point.

(Operator Instructions)

Sheila Kahyaoglu, Jefferies.

Hi, good morning.

Morning, Jill.

It seems like you guys have put together a lot in just four months. Dan, given that this is your first outlook and there's a lot of moving pieces, can you help us understand how you approach setting up guidance? And maybe a few more of the moving pieces, if you can, in terms of profitability?

And the second part of the question is, in terms of the $300 million of cost savings that you have in your plan over three years, is that $55 million a year or how do we think about the drop through to the bottom line? Thanks.

Sure, let me start with guidance and, Jeff, feel free to add in. We really looked at getting our numbers right as it relates to the charges and our analysis of all the business and their potential to generate earnings and cash in FY17 before we got to guidance. And we tried to make sure that we both dealt with issues in the past and then also made sure that we had conservative assumptions going forward.

Because I want to get beyond discussion of adjusted earnings and modified earnings to just pure GAAP earnings and make consensus and not have misses quarter over quarter. So we believe our guidance is achievable. As Jeff laid out, it does reflect the impacts of the restructuring and financing and also the trade name impairment.

But when I look at what we've done in terms of revenue assumptions, interest-rate assumptions, conservatism and budgeting for SG&A, we believe that these numbers are achievable. It still takes hard work; you mentioned the cost-reduction initiatives. We're counting on a contribution in FY17 to make our forecast from both the cash improvement actions and also CRIs; and those numbers increase in FY18 and FY19.

In terms of the deployment of that $300 million of savings, it will be used for both funding growth, reducing our cost structure for cost competitiveness and reducing debt. Jeff.

Yes, I think that is well said. I fully support the plan that we put together. I agree with Dan.

I think we've been prudent and conservative in developing the plan and having incorporated all of the relevant aspects of restructuring into it. And ultimately, as we begin realizing more of the benefits related to the cost-reduction initiatives, I can only see it improving over time.

Okay. So the way to think about it is the $55 million that you laid out? I think you made a comment that it's more weighted towards FY19. So does that increase or is it $55 million a year?

The benefit that we have projected, primarily related to the closure and consolidation of facilities, those efforts are underway and we'll take through FY17 and FY18. But we will start seeing some of that benefit in FY18, but realize the full run-rate benefit in FY19.

Okay. Thanks.

Thanks, Sheila.

Robert Stallard, RBC.

Thanks so much. It's Royal Bank of Canada.

Good morning, Rob.

On slide 20, you've got your usual top-10 programs. I was wondering what your expectations are in FY17 for the two largest, for Gulfstream and Boeing 777? What sort of growth or lack of growth are you expecting in revenues on those two programs?

Well certainly on the G650 we are ramping up in our facility and Nashville; I toured it last month and I was very encouraged by the progress.

We are not only building the wing, but we are installing all the systems, something we will do for Bombardier as well. And we had Gulfstream in to visit and they were very complementary, because, as you know, they are still dual sourcing production of the wing between their own Savannah facility and ours as a risk mitigation.

On Friday, I will be meeting with Mark Burns, in Savannah, to talk about the future of all their platforms and looking at what areas that are slowing down and which ones will be growing in the future so that we can make our plans. Jeff?

Yes, I think the top-line Gulfstream includes G650 which is definitely positive looking forward. You know G450, G550 we would experience declines looking forward. But then we also will start seeing the inflection of G500 and G600 helping to offset some of the declines in the legacy programs.

On 777, as we've talked before, the announced rate reduction from Boeing, that will impact calendar 2017, we have fully mitigated based on picking up additional share on existing components on 777. We think we'll hold as we look forward there.

Just a follow-up Dan. You are saying you don't want to miss going forward. Do think that some of these assumptions are conservative enough taken in these two areas?

Yes, we went through all the backlog in coming up with our forecast by program, by business unit. And we also made sure that we dealt with known overhang on programs that were behind on schedule or might be spending more than budget. Always there's new development programs that have their challenges, but we did try to bound those risks going forward.

We also have, I think, conservative assumptions now around Boeing 747; and they have been quite a great partner here in discussing ways to maintain the rate at the highest possible rate while still staying within their overall sales forecast. So, there's no doubt that there's challenges, but I feel much better about the plan that we have now than prior years.

Just a final one. You mentioned your ambition of reducing the debt level going forward. Do you have a targeted EBITDA or net debt to cap number in mind?

We want to get back to well below our covenants and we understand exactly what it will take to hit all of the measures.

Yes, Rob, I think we still stand by a targeted EBITDA leverage of between 2 and 3 times is where we think is the appropriate spot to operate the business.

Great. Thanks so much.

Seth Seifman.

Thanks very much, good morning. JPMorgan. So I wonder if you guys could talk a little bit more about cash flow and the projection to meet the restructuring cash requirements in 2017.

Are those the cash requirements? Can we back into those based on what you talked about for the $75 million of restructuring charges last year and the $77 million for FY17 and FY18 and some portion of that being in cash? Is that the full amount that we are talking about?

And then, as you look ahead more broadly, I know it might be early for this, but is there any way to think about where on a conversion of net income or conversion of sales basis some kind of broad range that you might see over the longer term?

Yes, Seth, on the first question, I think you're looking at it in the correct way. Keep in mind, the charges that we're taking this quarter, roughly $55 million of that is cash in front of us. Right now some of that is out beyond FY17, but most of the charges that we are projecting on slide 12 for FY17 would be cash in FY17.

The guidance was meant to reflect that we would be able to fully fund those efforts, also fund the completion of development on the Global 7000 and Embraer E2 Jets. As well as the continued funding on the G650 and G280 in line with our business case and still have availability to drive down the debt.

Right, okay. And anything on the longer term?

Yes, so on the longer term, I don't know that I want to comment specifically on guidance as we got there. But obviously, as Dan and the team drives the cost-reduction initiatives, as we drive improvement in cash conversion within the business, we believe we can get back to a much healthier cash-to-earnings conversion rate.

You always have to factor in some of the impacts of the amortizations flowing through the P&L. But, definitely, we get past the development on Bombardier and Embraer, we get cash positive on a sustained basis on the Gulfstream programs, those headwinds are behind us; and I don't see any reason that we shouldn't see strong cash conversion versus net income.

Great, thanks. I will stick to that. But thanks very much for all the help, Jeff, and best of luck.

Thanks, Seth.

Cai von Rumohr.

Cowan and Company. And clearly you've been busy, Dan, organization change looks like it makes a lot of sense.

So the Global 7000, you took a large charge there. You did not take a charge on the E2. Could you just explain why you did it on one and not the other and how you feel that program is doing?

Sure, first let me comment on your comment about the organization change. What I found, coming into the business, is that across the six operating [BPs] which were really not necessarily advertised from our reporting; we focus on the three segments. But across those six P&Ls, there was lots of redundancy and overlap.

Multiple ones had machining, composites, systems and aftermarket work. So we've really done, I think, of cleaning that up so that the segment reporting is cleaner. I think it will be easier for folks to follow and for us to drive strategy and cost reduction.

The charge on Bombardier largely puts the development work behind us. I spoke with Bombardier's CEO, Alain Bellemare, yesterday; he is interested in a partnership going forward. So there's strong support for the program.

We certainly are in the final throes of prep for first flight. That's always exciting and very busy. So he and I have agreed that that's our focus.

We certainly look forward to working with them as we look at both the development and recurring cost. And I think he's approaching it with the same mindset that I am about a win-win partnership. As far as Embraer, Embraer is in better shape, in terms of development progress, and we didn't see the need to take such charge.

Yes, I think as we look at programs, we did recognize that the pressure on the Bombardier programs based on the level of development spending that we have experienced. We have not seen that level of development impact on Embraer and, I think, as we look at that program, we are in a much better position as we've [begin] to look at transitioning to production.

Okay. Thank you. And a last one, your cash flow, could you give us some guidance in terms of FY17?

What do you expect GAAP cash flow to be? What do you expect the net restructuring, so would you tell pre-restructuring cash flow? And then, review for us again the cash-out pattern going forward?

With some specificity, if you can, on the 747 given that it should be better near term because you're staying at the higher rate. Thank you.

Yes, so let me try to highlight some of the key pieces in FY17 from the cash flow. We still anticipate, on G650 and G280, roughly $30 million to $40 million use of cash. There is still remaining investment on Bombardier and Embraer between $50 million and $60 million to complete the development effort there.

On the restructuring effort, the charges that we're projecting for FY17 are largely cash. And then roughly one-third of the charges in FY16, fourth quarter that we are taking are related to restructuring. That would be cash realized in FY17; the balance of the cash falls out into later years.

Those are really the key components of the headwinds we are facing. And we think the balance of the business can generate significant cash flow to fund those efforts and potentially allow us to look at debt reduction as we go through FY17.

And Boeing is working with us on the Boeing 747 cash. We expect to get a few ship sets ahead that will eventually burn off in FY18.

Yes, great point. The charge on 747, the cash associated with that is largely cash that will be incurred in FY19 and beyond. So as Boeing has allowed us to stay at a rate of 1 per month through FY17.

I didn't hear a net cash number. It sounds like it's going to be relatively minor, $25 million to $50 million if I net all of those items out. Is that a fair guess?

Yes. We haven't guided to an absolute number; but, a positive number, but a low positive number.

Thank you very much.

Robert Spingarn.

Good morning, Credit Suisse. Just as a follow-on to Cai's question there. I think you should be guiding to a cash-flow number and I'm not sure why we don't see one. But I do want to get into sustainable cash flow and earnings power, Dan.

So when I think about your guidance for FY17, which I think Jeff just said is in the high $5 range, $5.85 to $6.05, ex items. And then, as Sheila pointed out, you've got about $65 million, the $55 million plus the $10 million in recurring savings, at some point. It sounds like that's fully baked in, in 2019. When you factor that together, with the continued organic pressure on a few of the programs, what is a run-rate earnings [hour] for this business based on the current portfolio of programs?

Yes, it's a great question and we have done our own models of what the out years earnings potential is possible to be; and we're not ready to share it with you, but you're asking all the right questions. First, you have got to do the hard work to take the costs out and that's what FY17 is about. But we're not waiting until the end of this year, or the years that follow, to start improving our op margins.

So we will be providing guidance for out years as we progress. At this point, I'm not ready to provide it, but we are certainly doing all of the math that you just laid out. We have our own internal estimates of how the savings are going to flow through each of the four business units; and then how it will translate into earnings, but I'm not ready to share that.

Well, if I take my math a little bit further, I think I would get closer to $7 once you realize the $65 million. And, assuming that you don't have any kind of continued fade in some of the sun setting programs, which be a wrong assumption, because there is a continued fade there.

But starting at $7, we then have a cash conversion issue, because you still have this contract-liability accounting. So when you factor that in, is there an opportunity to rethink that process and eliminate that so that at least from that perspective we have cash earnings lining up better with GAAP earnings?

The comments you made, Rob, are perfectly aligned with some of our top investors that own the stock and we've talked about both those kind of earnings-per-share targets as well as we get away from the contract-accounting approaches of the past.

Yes, and Rob, we are not going to change our approach from a GAAP perspective. But what you will see, as we proceed through the years, is much of that contract liability liquidates primarily around the programs at Tulsa, over the next three to five years.

And you'll start getting back to closer to a pure cash view of earnings. At the same time that's happening, we're also driving cash-positive margins in this business as we start liquidating out that liability.

So Jeff, what's the confidence level that those Tulsa contracts actually have a higher value than where you're booking? Which is a presumption in the write-ups, right?

Yes, so we are very confident in the business case that we've laid out for G650 and G280. We continue to see the level of performance we anticipated on the programs. Keep in mind, we're beginning to get fuller realization of the revenue as we transition the work that Gulfstream had taken away from Spirit and pulling that back into our Nashville facility.

And, as we look at those programs, we still believe that they are on a path where they will be generating cash-positive generation in FY18, which will continue to see improvement in margin there and will set those programs up for the long-term. More optimistic on G650 which, for us, is the more important program.

If I take the longer view, I've looked at every product line in our portfolio as part of our forensic. And they are not all equally positioned in terms of the attractiveness of the markets they are in or their ability to compete.

So we are now in the process of picking which businesses we're going to invest to grow and which ones we'll manage for cash and which ones we could potentially to divest. And that's going to help shape our out year earnings as well as cash. So that's part of our reason for not providing guidance now, but as we get further into that process, we'll have more clarity.

Well, that's understandable Dan, but if I might try one more question related to this. When you look at the current business and understanding, I think, that the negative pressure is really contained in Aerostructures, based on the current portfolio, when would organic revenue bottom?

Well, you heard from our earlier comments that organic growth in both aftermarket and systems is not bottoming; it's growing. In terms of what was reported as Aerostructures, which included both the legacy Vought business as well of our machining businesses, we feel that we are very close to the bottom, in the sense that Bombardier is ramping, Embraer is ramping.

We have good work on the Global Hawk for Northrop Grumman and then we're in discussions with -- on the machining and fabrication side, with all of the OEMs, especially on platforms that are ramping, like A350 and F-35. So we are optimistic in that regard, but the first thing we need to do is get our costs in line and improve our cash management; then we will be in a better position to forecast growth.

Understood, but with this year down almost 10% organically and, again, all of that was Aerostructures, are you saying that you think FY17 could be a bottom for Aerostructures? Or is it FY18?

Yes, our modeling says that we bottom out in FY17. And as Bombardier and Embraer begin ramping in FY18, you start seeing some return to growth.

Okay.

Just as an anecdote, most of my conversations with customers, whether it is Northrop Grumman or Airbus and Bombardier, all swing on are you ready for the ramp? The second question is, can you help us meet all of the short-term delivery dates whether it's first flight or deliveries for their factory; but they are shifting their focus to the ramp and that's going to benefit the Aerostructures business.

Okay. Thank you both.

Sam Pearlstein.

Good morning, Wells Fargo. Can I go back to some of the issues in terms of just the cash flow that you mentioned, Jeff? You mentioned the $30 million or $40 million on the Tulsa programs. I thought it was going to be $30 million or $40 million less of an outflow in FY17 than FY16?

Yes, so if you misunderstood me, we had projected between $60 million and $80 million in FY16 and have stuck with our projection of $30 million to $40 million in FY17. You are seeing a little bit of shifting between the years as we've seen improvement and drove positive cash flow in the quarter on those programs. Some of that is timing that slides into FY17, but the $30 million to $40 million is still a good number.

Okay. And when it comes to the Global 7000, I know that there was a payment you are waiting for from Bombardier that was originally in FY16. Are you now assuming you will get it in FY17 or does any of this change now change your confidence in getting that from them?

No, we believe we will. The milestone is tied to completion of the critical design review program; that design review is on track to complete. We are doing all the closeout documentation now.

And the whole payment profile with Bombardier will be part of our discussions as we work towards a win-win solution with them.

But again, before it was, I know that there's obviously delays in the Global 7000, but I thought that some of the spending in total between the Global and the E2 was supposed to be down in FY17 versus FY16 and now it sounds like it's actually going to be higher? Is that how you described it?

So we had previously thought that we would see a breakeven of cost equal to payments in FY17. With some of the additional effort on Bombardier, we will see a net use of cash on Bombardier in FY17.

Right, but in total, the two programs if I just look at them what you spend in FY16 and what you spend in FY17, how does that compare?

Significantly down.

Okay. And then your discussion on the 747, you're talking about, you're going to get better guidance next year in terms of the go-forward rate and you talked about an impact in FY19. So should I take from that your agreement still goes through the end of your uShip sets and it doesn't actually transfer to Boeing in 2018 as we originally thought, back in the fall?

That's a great question. We did engage Boeing with a discussion about an earlier exit as to whether that would be in their interest, given that they are already planning to take ownership of the assemblies that we are building for the future. And we'll make this decision with them based on the right risk profile, both the transition risk and start-up risk.

That work that we do, with Boeing, they intend to federate; it wouldn't all move to a single supplier. There's some international sources as well as some domestic sources. And so, in having those discussions with Boeing, which they were very receptive to, their main point was, let's get together at the end of the year and update where we are; and at that point, we will be able to discuss whether an earlier exit makes sense based on the market outlook for the freight of replacements.

So we are having the right kind of discussions with them, while they weren't ready to move forward with earlier exit plan at this point. They are open-minded to the concept, if it represents a favorable cost and risk trade for them.

Okay. Thank you.

And just one other comment on Bombardier, that I think is important is, we are in the peak period of concurrency on Bombardier right now. Completion of design, ramp up of ground and flight test and transition to production. It's a very intense period, both from a spend rate, but also a risk-retirement rate.

And so we feel optimistic with the testing we have seen so far. We have a very elaborate wing flap slat arrangement that provides aircraft with incredible lift. And those tests have gone very well and over the next several months we will retire further risks. So we commit to give you updates in the earnings calls as to how we are going to retire those risks and then transition to production.

Okay. That's great, thank you.

Myles Walton.

Thanks, Deutsche Bank. Good morning, I was hoping to start with the $300 million cost initiatives in CRI, Dan. And maybe I haven't gotten it clear, but I'm not sure if we know all of the pieces that add up to that $300 million.

I heard the $55 million in facilities, $10 million on the site realign and then $30 million on supplier issues. Can you give us the roll-up? And then, is it correct that you are thinking your overall cost base is $300 million lower in FY19 versus what it was FY16?

Yes, the contributions to the $300 million, the largest one is supply-chain savings and then there's headcount and then facilities occupancy costs and then expenses, including SG&A. So all of those together, and the numbers that we quoted, make up components of the overall target. And, as I mentioned, we allocated those targets for FY17.

We know what we need from every business unit and every function. For FY18, they have got targets but they are still working on the actions. I mentioned the 300 supply-chain actions.

I'll you an example. We buy raw material from 130 distributors today, because of our prior decentralized arrangement where we had 15 machine shops all doing their own thing. Well, we now know where we spent all that money.

We are bringing it together; we're going to reduce the source of supply; we'll have greater economies of scale for negotiation. And that's just one example of many, but supply chain leads it followed by reductions in force and facilities.

And, our goal is to demonstrate performance quarter over quarter against those targets and provide updates as to how much flows back to the bottom line versus reinvestment in the business.

That is something that we're going to look at, but we still have to maintain our guidance. That's our first priority; and then, beyond that, we want to increase our spend and new business development to reverse the negative growth rate.

Okay. And then the other one. I'm curious on the 2018 -- or feeling comfortable about bottoming out in 2017. It seems like a lot of what could happen in 2018 is far beyond your control there.

The 747 you know is going to be $100 million headwind. The 777 you don't know really what conditions on the ground might be. The Gulfstream program, similarly. So, I'm curious why you are comfortable calling a bottom in 2017 given what you know or programs that you don't actually control and they are large enough to make it so that, that may actually be a bad assumption?

No, it's a fair question. We've done the netting of the programs in decline and sun setting, like C-17 and 747, with those that are ramping up. There is a certain amount of organic need to find to fill the bathtub and sales.

That's primarily being done through dual sourcing and takeaway. So we spend a lot of time these days looking at our business development capture strategies; and that's really been lacking, I think, at Triumph. In the past it has been periodic wins and then a run out of backlog.

And everybody who works at the Company now knows they're part of the business-development team and they have to help us extend the current businesses. Many of the operating companies at Triumph were originally founded by entrepreneurs. Over time, there's been a shift to more managers and we haven't seen the kind of organic growth that I'm used to in my prior roles.

And I think, just by putting an attention on it and a disciplined process around identification of pipeline opportunities, shaping and capturing new business, we will see an improvement. So it will take not just the math around the current backlog, but also some amount of new wins to reverse that trend on revenue; but I'm confident we can do it.

Okay. And then the Global 7000, Global 8000, you didn't just take a charge. I think you're wrote-off the entirety of development expense, maybe plus some?

Are you running a forward loss on the development side and production side? Or have you just written off the development contract and the product contract; would it be positive margin? Can you talk about that, Jeff or Dan?

Yes. How we viewed is effectively taking the development costs and then writing it off. From an accounting standpoint, we view it as a complete contract and view the recurring element net-neutral, as we sit here today, with the charge really reflecting the higher spend on the nonrecurring.

Okay. And the last one, Dan. You're making a pretty big muscle movement in facility, on the Aerostructures side if 25% of the total is concentrated on Aero as far as structures. It could be one-third of the structures' footprint.

So how much of this touches programs that are in sensitive-profit positions? And how much contingency are you baking in that, when you close down a facility, your learning curves aren't going to go against you and there will be even more short-term pain to get the long-term gain?

As it relates to the large structures, none of the planned consolidations affect programs that are currently profitable. As it relates to some of the precision components business, in doing our analysis of where our over capacity is, besides that we anticipate consolidating that have not yet been announced, tend to be in areas that are higher cost and have backlog that's declining. So we would move backlog to other facilities that are more efficient and have lower rates and that will help us on the profitability of the programs and backlogs.

So, this is something I've been through and done before. I've been in the industry now 32 years. I've designed and transferred a number of factories.

And so we know what the risk profile is, what we have to do in terms of customer engagement, employees, planning the work, building ahead, requalification, these are all steps. And it's part of why we formed the transformation delivery office to make sure that these are all planned and executed properly.

So those restructuring charges, you talked about those inclusive of disruption charges as well. We wouldn't see those called out separately at some point?

Yes, it's all-inclusive. We made assumptions in each of the closure and consolidation analysis around disruption and then, build ahead, in time to get things back up and running ops. Okay. Thanks.

David Strauss.

Thanks, UBS.

Back on 747, I know you talked about pushing the cash burn out to FY19 and beyond. But, at this point, you've taken several hundred million in charges against the 747. Jeff, can you help us, what that cash burn out in that period could potentially look like? And maybe some color on what the interim period is going to look like on 747?

Yes, so this last forward loss, as we think of FY17, it's effectively neutral in FY17. Most of the loss, from a cash perspective, is in FY19 and beyond, related to this. Keep in mind that the last 23 units or so that where we have a significant price step down, that is cause for the loss.

That, combined with operating in those out years, at a rate of 1 every two months, is really driving the majority of it. So, as we take a broad cash profile for 747, pretty much net-neutral in FY17. We use a little bit of cash in FY18, but then we start burning cash in FY19 and beyond, assuming we build out through the end of the contract.

Okay. And any guess what the cash burn is out in FY19 and beyond, roughly?

If you think of the cash magnitude of the charge, most of it is out in those years. It builds from FY19 to FY20; that's pretty flat and then we see some recovery in the last year of production as you burn off inventory.

Okay. And then just a couple housekeeping items. Can you give us a sense of where the pension deficit sits at the end of the year? I know you are not looking at any contributions in FY17, but maybe beyond that?

And then I wouldn't think you're paying any cash taxes now, but an update on cash taxes. And then, what you expect the acquired contract liabilities number to be in FY17? Thanks.

Yes, on the pension side, we ended the fiscal year at roughly 80% funded, which leaves us a deficit, purely on pension, of roughly $400 million. On top of that, we still have the post-retirement benefit obligations; that's roughly $200 million. From a tax standpoint, we did not pay any taxes in FY16.

As we think of FY17, we are looking at an effective tax rate of 25%, which is benefited partially by the valuation allowance we are taking this quarter. We would expect the cash tax rate to be a few points lower than that effective tax rate in FY17. And then from a contract liabilities standpoint, year over year, it's relatively flat with FY16.

Thanks.

Ken Herbert.

Hello, good morning, it's Canaccord Good morning, Ken.

Dan and Jeff, in particular, on your potential savings from the supply chain, can you provide any more detail on, not just from a timing standpoint, but specifically when these contracts roll over? Any issues you might see in actually realizing this considering just the natural process here with the massive transformation you're going through to more consolidate the purchasing and bringing the operating companies together as you really push this.

So, from a timing standpoint, how you see that flowing through specifically? But then, also, any potential issues around this you may be looking at or what you've hedged against around your supply chain?

Yes, Ken. As Dan mentioned, as we have brought forth a centralized organization to attack supply chain, Dave identified many initiatives, I would say, spanning the breadth of everything we buy. Obviously, from a Pareto standpoint, they are attacking the larger elements first. Some of it is impacted by timing of contracts rolling off with existing pricing, but that's not necessarily always getting in the way as the team is approaching many supplies where we have existing arrangements in place and looking to renegotiate them.

I think, as we go through the next two to three years, we will pick up more and more steam in the process. The benefits Dan talked about for FY17 that have been realized. What ends up happening is that realization doesn't flow straight to the P&L.

There's the turn through inventory that you have to make. So, as we're realizing the benefits around supply chain, they start flowing through at a period of time once the benefits run.

There's also a tie between strategy and supply-chain savings. Over time, Triumph Group will do more of its own proprietary designs especially out of our systems facility. And that gives you more control over the choice of materials and suppliers, whereas a build-to-print arrangement tends to be pretty prescribed as to where you go.

So we're not only looking at our current backlog and spend approaches, but also how we might influence the choice of materials because 85% of cost is determined at the point of design. So we're working on this in a coordinated way with the four product lines to figure out how to take down our costs by design, not just by squeezing suppliers.

That's helpful. Is it fair to say you'd be looking at -- as you look at make-versus-buy decisions, as you realign the cost structure, you could potentially be bringing more work in-house and that could be competitively the smart way to go?

Absolutely, one of the things that we found, this is launching what I call our better-together initiative, is that we're now having conversations that we didn't used to have between the businesses; and I'll give you an example. Our fabrication business, previously it was five different operating companies.

Now, it's all integrated under one president. We had our senior management meeting last week and he was talking to all of his peers in the systems business and structures business and identifying work that they are currently buying outside that he could do. So we are going to make those changes.

It will not be a wholesale vertical integration, but we'll have areas to fill underutilized capacity in some of our facilities. So definitely, yes.

Great, thank you very much.

Michael Ciarmoli.

KeyBanc Capital Markets. Thanks guys, good morning.

Good morning.

Just a little bit of clarity on the business-segment realignment. Can you give us any color in terms of the longer-term margin targets? Or just, directionally, how we should be thinking about profitability at integrated systems, structures versus components?

And then also, in product support, are you going to continue to have that just as a services-based revenue stream or are you going to try and flow through some of the actual hardware sales into that product support unit?

Yes, great question. The directional guidance for margins is higher and we're going to do that through cost reduction and then exiting businesses that are lower margin. And then, also, working on creating more value out of the products that we've got. And that's not always just by running faster.

We often can design products that combine two separate boxes in an aircraft to reduce size, weight and power, so you get a step-function reduction in cost and you get a margin improvement. So it's working smart, not just harder. The business realignment, it really is helping to transform the Company because we had 45 operating Companies flying in close formation.

We had size but not scale. We had no integration of our supply chain other than what's happened in the last eight or nine months. So it's definitely a better structure and we don't have five businesses, let's say, that all do fuel systems or hydraulics or actuators calling on the same customers.

As far as product support, our business has traditionally been maintenance, repair, overhaul. I was in Hot Springs recently, it's just 1 of 16 locations that I visited so far; and I saw our thrust reverser business, as well as how we repair damage to structural components, like wings and flaps. That's an amazing capability.

They are able to turn things and power today that normally production would take weeks or months, but we want to do more than that. We want to be a partner to the operators and the OEMs over their full life cycle. So design for sustainment, spares provisioning, ship side, aircraft side, maintenance and also carrying some amount of inventory.

Many of the OEMs are in-sourcing lifecycle support and yet they want partners to be a delivery agent for some of those services. So I don't want you to think of Triumph anymore as simply a maintenance, repair and overhaul, but as a partner to the OEMs.

In our initial discussions with Boeing and Airbus, Bombardier and others, Northrop Grumman, have been encouraging in that regard. We have to show a good value proposition, but the ability to do high mix, quick-turn support to support the aircraft that are out there is key.

We're also looking at how the demand for sustain is changing. Aircraft are getting more reliable. The old history of doing sea checks every few years; now, they are starting to retire aircraft at ages as young as seven to eight years.

And so they don't see an extended life in other markets as maybe was done in the past. So the way we approach the market also has to change.

And this is just examples of some of the new strategies that are coming out of the four business segments which didn't happen before because the operating BPs essentially were a thin veneer over the 45 operating companies and not an integrating function. Now we're going to have true P&Ls that take all of these related businesses to say, okay, how do we go to market?

How do we take out costs? Had do we add more value? And that will apply to product support as well.

Got it. That's helpful. And just a last one.

As part of this process, was wondering if you are going to become a little bit more transparent with your dollar content per shipset. I know you always just give us the top-10 programs, but we never really have the clarity into what the shipset content is. Has that been part of the discussions at all?

It has.

Yes, Mike. We've always been reluctant to provide shipset value. Obviously, we want to provide as much color as we can to help folks understand the business.

We still maintain sensitivities around shipset value from a competitiveness standpoint. We'll obviously continue to evaluate what makes sense and then how to present that to the investor community going forward. But as we sit here today, the intent wouldn't be to provide shipset value.

Thanks, guys.

Ronald Epstein.

Hello, good morning it's actually Kristine Liwag calling in for Ron. We're from Bank of America.

Morning, Kristine.

Good morning. Dan, I think a significant driver of the issues facing the 747 today can be attributed to lower-than-expected production rates of the program. And right, a year ago, it seemed that the 747 would trough at 1 per month and, today, we're at 0.5 per month.

When you look at the 777 backlog today, it seems like there could be downside risk to Boeing's lowered rate of 7 per month. What are some of the lessons learned that could prevent the 777 from becoming like the 747 in the future?

It's a good question, Kristine. I think being overweighted on any one platform, one segment, one market, is too risky.

And you will see more of a diversification of our business going forward. Even today, as we ramp up our business jet portfolio to replace many of, I'll call it, wide-body revenue that we've had in the past, I'm looking at other sources of revenue to make sure that we are not overly dependent on a handful of programs.

As far as Boeing, I was in Seattle last month, I toured all of the line, 737, 787, 777, 737, 767, and we have content on all of those aircraft, but we could do much more. I think we could certainly do more in support of 737. That's why I mentioned that we've approached Spirit AeroSystems for areas we could support them.

And we're interested in doing more on 787. And there's a number of areas where, as part of Boeing's cost-reduction initiatives on 787, they're looking at alternative suppliers; so we're going to have to earn it. It won't be easy, but we're not going to repeat the lesson of having such a big chunk of our sales tied to one platform.

Great, and for the market share win that you mentioned for 777, how do margins on that incremental content compare to your current 777 margins?

They're relatively in line, Kristine. 777 has always been a strong performer for us and the additional work will continue in that vein.

If you go down to are Stuart, Florida facility and you see where we build these huge composite flaps for the 777, that's an area where I'd like to do more and to create center of excellence around the control services, as an example. Not view these programs as one-offs, but rather part of a family of products within a given design.

Great, and lastly, to increase your content on some of these existing programs and you said, an existing supplier is not taking on that incremental content. Can you walk through the logic of why they would not want to do that incremental volume? And why they would be willing to give that to you?

Sure, if you look at the lean thinking and the machine that changed the world, all the books around lean, the idea of dual sourcing and then shifting workload based on which supplier is performing better on cost, schedule and quality is a proven technique and they are all employing it. They want competition. We don't want to be overly dependent.

I won't name the competitors, but there's a number of competitors in this space that are raising prices. If they have niche positions on a given product, we've heard complaints from some of the OEMs; and so they've come to us for both structures and machining and actuators. So there's an opportunity for us in that desire for competition and in ramp up.

I mentioned F-35 as their rates go up. We're in discussions about how to help them from both a supply-risk mitigation, so that they don't run short on parts, and also to come down on their price-learning curve. So we're going to exploit that.

At the same time look for opportunities to get on new platforms as they're started. But it all starts with delivering on our commitments. If we don't deliver, we're not going to get that opportunity. So my initial focus is on making sure that all of our businesses are hitting their marks is there for a reason.

Thank you very much.

Kyle Lanphear.

Hi, guys. I'm with JPMorgan Asset Management. Will the amended credit facility be an exhibit to the K when that's available?

We will file that as an 8-K.

Okay. As an 8-K. And I'm looking for some clarity on the need for the consent from the 2013 notes. The indenture provides for $1.175 billion of secured credit facilities. Are just trying to align with the existing indenture or do you anticipate that you will need to draw above that amount?

No. We really want to align it with the current indenture. The 2013 note was there before we took on the term loan, which was captured in the 2014 note. And what we are looking to is to conform those two notes, which would then avoid any risk of having any restrictions on our use of senior facilities.

Okay. And does that explain the draw of $800 million on the existing? I was just trying to understand why draw up and then pay down?

Yes, just as a pure risk mitigator. If we have any issue with the high-yield note holders, that provides us with more than sufficient liquidity as we go through 2017.

Okay. That helps. Thanks, guys.

Since there are no other questions, this concludes the Triumph Group's FY16 fourth-quarter earnings conference call.

I'd like to make just a quick closing comment, Stephanie, if I may. And first, I just want to say that Q4 was really a unique quarter for Triumph Group, because we were simultaneously dealing with a lot of past issues as well as restructuring the Company for the future, so we don't see this sort of quarter again as we go forward.

We've got a new operating philosophy. It's going to be implemented by a new leadership team and an updated business structure; and this is going to create the foundation for our profitable growth in our third decade. So I look forward to reporting on our progress against this game plan in July and delivering on our commitments in FY17. Thank you all.

Thank you. And this concludes Triumph Group's FY16 fourth-quarter earnings conference call. This call will be available for replay after 11:30 am today through May 11, 2016 at 11:59 pm. You may access a replay by dialing 888-266-2081 and entering access code 1671426.

Thank you all for participating and have a nice day. All parties may now disconnect.