Park Aerospace - Q1 2024

Transcript

Operator (participant)

Good morning. My name is Sherry, and I will be your conference operator today. At this time, I would like to welcome everybody to the Park Aerospace Corp First Quarter Fiscal Year 2024 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star two. Thank you. At this time, I will turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Brian Shore (Chairman and CEO)

Thank you, operator. This is Brian. Good morning, everybody. Welcome to Park's Fiscal 2024 Q1 Investor Conference Call. I have with me, as usual, Matt Farabaugh, our CFO. This morning, we announced our earnings, and in the earnings release, there are instructions as to how you can access and should access the presentation that we're about to go through. You probably want to do that if you haven't done it so far. It's also on our website. Just a comment about presentations, generally. We put a lot of time and effort into these presentations. We take them quite seriously. We look at them as an opportunity to provide you with information that we think will be useful and helpful to you in better understanding Park, better understanding our company. That includes challenges. That includes things where we've come up short.

That includes things where we've done fine. We're just trying to help you understand our company better. We don't need to look at this, these calls or these presentations as an opportunity to hype the company, to promote it. We're not trying to hustle you. That's not what we're here for. That's kind of insulting. We're not trying to tell you what a great job we're doing. That's not the objective of these calls and presentations. I think you know these things because we've mentioned them before in the past. I thought it'd be useful just to remind you a little bit about these things. The presentation probably will take about one hour to go through. These tend to be long.

One reason is that every quarter there are new people dial in, so we want the presentation to stand on its own to some extent. We don't want a new person to have to go back and someone new to Park to look at the last five presentations to figure out what the heck we're talking about. We think that's a little bit asking too much. You know, I had a couple of comments. Most comments are quite positive, about our presentations, and many of our very good shareholders tell me they really appreciate the information that we provide to them. I've had a couple of comments that it goes on too long. I understand that, you know, we're all busy.

I guess my suggestion to you, if you're in that camp, is maybe you want to listen to the replay, and then you can fast forward through the areas, the parts of the presentation that are of less interest to you. Obviously, we'd be delighted to take questions at the end of the presentation. We always like the questions, actually, because it kind of brings out what maybe other people are thinking. You know, one person can ask a question, and probably 10 others are thinking, "That's exactly what I was thinking, too." At the bottom of the first page of the cover page, I guess, of the presentation, it says it's Park's 70th year in business. I just thought you might be interested in that.

If anybody has a question about the secret to longevity for Park, probably not a lot of brilliant stuff, maybe not even very imaginative stuff. We don't take shortcuts. We don't cut corners. You may not like hearing this, but we do most things the hard way. Okay, having said that, why don't we proceed? Let's go on to Slide 2, which is our forward-looking disclaimer language. If you have any questions about Slide 2, please let us know. Slide 3 is a table of contents, the photo here was taken of the 777X was taken by Donna at the Paris Air Show. Let's see. Let's go on to Slide 4. Slide 4, quarterly results.

If you look to the right-hand side, the right-hand column, the Q1, you can see the numbers there. I guess I won't go through each one, but let's kind of read the Q1 numbers in conjunction with the language at the bottom of the slide. You know, what did we say about Q1 during our Q4 investor call? The sales estimate was $14.75 million-$15.25 million. We came in, looks like a little bit above that range, but EBITDA estimate was $3 million-$3.5 million. We came in kind of in the middle of that range. Also would note, back to the numbers in the right-hand column, our gross margin, 31.1%.

As I think you know by now, we don't, we get, you know, pretty upset when the gross margin is under 30%, we're still feeling that the margin is lower than it should be, and we feel our margins are somewhat under pressure. You could say that just by looking at the numbers, because you say, "Well, we exceeded the top line by a little bit. Why didn't we exceed the, you know, the bottom line by a little bit?" It kind of would fit. We'll talk about that in the next few slides. I think that covers it more or less for Slide 4. Let's go on to Slide 5. A little discussion about the quarterly results. Next few slides, right.

First of all, I have to tell you, I have to say outstanding job by Park's people to exceed, at least by little, our Q1 sales estimate and to make our Q4 EBITDA estimate. Under difficult circumstances, especially considering significant challenges. I'll stop here. Somebody said, "Well, you know, you go over the same stuff every quarter." Yeah, we go over the same stuff for 10 minutes every quarter. We live with it 24/7 every quarter. Seriously, we think you should know these things. Even if they haven't changed that much, we think you should know what's going on at Park and what we're kind of living with. Yeah, it is somewhat repetitive, but as soon as these things stop being an issue for us, we'll stop telling you about them.

Our supply chain disruptions and our unreliability, boy, that's not the first time we talked about that. The situation seems to be beginning to improve. But we still have our surprises, and we just got a big one a couple of weeks ago, with suppliers. I just want to stop here and explain. We are talking about Park's supply chain. Very important. We'll get into this later in the presentation. We're not talking about the supply chain generally, related to the old aerospace industry. That's a different story, you know, a very different story. We're just talking about our supply chain on Slide 5 here. We're managing, I want to say I believe we have excellent relationships with our suppliers. That's been to our benefit. You know, tables always turn, chains turn, whatever you call it, at some point.

If things are going your way or the dynamics are in your favor, you treat people not so nicely when those dynamics reverse, watch out what will happen. We always try to treat people, including our suppliers, with dignity and respect, I think that helps us when things are challenging and difficult, as they are now. We're managing the challenges by building inventory where possible and appropriate, providing suppliers with longer lead times where appropriate. Supply chain disruptions continue to be challenging and difficult. There was a comment, you know, that maybe we're kind of late to dealing with the supply chain issues or mediation actions have been weak or something like that. I just want to say, I've been doing this a long, long, long time. A long time.

I think our people do an outstanding job in managing the supply chain challenges. An outstanding job, you know, between Mark and Cory and Chris. We got all the production planning that feeds into it as well, because if something, you know, one raw material component doesn't arrive on time, we got to change our production schedule around. A lot of juggling, and I think an outstanding job by our people. Outstanding. Freight, particularly international freight disruptions and unreliability, yeah, that's still a challenge. You know, last quarter, Q4, remember we told you we missed $1.2 million of international shipments to, what was it? To Japan and Italy. Japan and Italy, yeah, blame shipments because of the international freight forwarders. This is a big challenge.

Again, I would tell you, our people are doing an outstanding job in my opinion. Cory, John and others, the team, outstanding job under very difficult circumstances. There is some comment that maybe our people weren't doing a great job. I totally disagree with that. I totally disagree with it in terms of the international freight forwarders. I guess I just want to make that point because I disagree with the comment that maybe we're on top of our game. I think we're really doing a great job in a very difficult environment with international freight forwarding, especially international. Staffing shortages, yeah, they're ongoing, and they continue to be challenging for us. Doing more with less, that's kind of what we do at Park. That's not new. We've always done more with less at Park.

Even when things are better, we do more with less. Let's go on to missed shipments, about $400,000 in Q1. Guess what? Most of that was, guess what? International freight forwarding. That challenge has not gone away. Let's go on to Slide 6. Continuing here, factors which affected our margins in Q1. Inflation. I won't read off all the different items that inflation has affected, but it's still a factor for us. It's leveled off to some extent, but we're still dealing with leveling off at that higher level, and sometimes people miss that point. Oh, inflation is only up, you know, X amount this quarter. Yeah, but it's up off a higher base. That hasn't gone away.

If we have deflation and prices start going down, maybe we get back to where we started from, although that's not something that most economists would wish for, is deflation. Let's go on to Slide 7. Some of the increased costs were passed on to our customers in Q1 in the form of selling price increases. This is something we've discussed in the last few quarters. It hasn't changed, we're still discussing it. Why not all? The lag effect, we discussed the lag effect many times, it's still something we live with. LTA pricing, this is a big deal, LTA pricing, because that doesn't change.

That's the point about inflation may not be up so much this quarter, but it's up off an elevated level and our LTA pricing hasn't changed with, I think you know this, but MRAS, for instance, which is one of our big LTAs, of course, we have a fixed price increase in 2025, but we're sitting here with the current prices until 2025. Let's go on. Supply chain disruptions causing inefficiencies in our manufacturing operations. Absolutely. We talked about that in the prior slide, where those changes, those challenges with supply chain not only causes us to have to deal with supply chain issues, it also causes us to have to deal with production issues, production planning and management. Staffing shortages.

Yeah, it's inefficient deployment of our workforce, increased expenses, costs related to commissioning a new plant. We have the new plant. We're very delighted about that. It's a wonderful new plant, but obviously, the day we commission it and start absorbing the costs, the plant will be fully utilized. That's not a surprise. That was, you know, part of the planning, but it's still a factor which impacts our P&L. Let's go on to Slide 8. We don't really have to talk much about Slide 8. This is the historical annual data that we share with you pretty much every quarter, just for perspective. Let's go on, Slide 9. Top five customers. This is something we do every quarter. Who do we have?

Avio S.p.A., that relates to the Vega launcher, ablative materials. Kratos, and actually, Dynetics, the X-61A Gremlin. That's an aircraft that an unmanned aircraft that Kratos produces under contract. So next one is Middle River. You know who they are. I think that's the Airbus XLR. That's also a photo that was taken by Donna at the Paris Air Show. Meggitt PLC, that ties to the Growler, that's course for radomes. And The Nordam Group, we're choosing this feature this time with The Nordam Group, one of our really good customers, Bombardier Global 8000. This is the, we talk about later, the Passport 20 engine component that we that we work with Nordam on.

And the Passport 20 is the engine on the Bombardier Global 8000. I guess I should explain that. Let's go on to Slide 10. We have our pie chart here. I guess the interesting thing to me is, I just look at this, you know, look at each number, look at just, you know, the graphical depictions that fiscal 2021, that was the big pandemic year, where commercial went way down, military kind of held its own. If you look at 2022, 2023, and Q1 of 2024, the pie charts look pretty similar in terms of commercial, military, and business aircraft. Let's go on to Slide 11. This is an interesting slide. This is actually something Elena does for us every quarter. Elena is the Head of Customer Service.

Park loves niche military aerospace programs. These aren't necessarily the biggest ones. These are ones that we think are interesting and, you know, kind of nice to share. The Predator, you've probably heard about the Predator. We do materials for structures on the Predator. Going to the right side of the page, the Lockheed Martin long-range anti-ship missile, radome materials for that program. Bottom left, Israeli Arrow 3 missile defense system, ablative. This is a really, a big opportunity for Park, a very big opportunity, just starting on it. If you read about it, there's a lot of talk about this missile defense system, not just for Israel, but also for Europe as well.

The JSTARS, the radome, which goes through the JSTARS and the top center, Mk21A, that's a future ICBM technology being tested by the Air Force. It carries the W87-1 re-entry warhead. I'm not gonna say what that's for, but I'm sure you know what it's for. Our, we supplying to that program are ablatives. Let's go on to Slide 12. Here we go, two updates for the price of one. What we're doing is combining the update about the plant expansion and the new film adhesive product that we recently introduced. What we're doing here is we're running the new film adhesive product on our new film line in our new plant. There's your two updates for the price of one. Let's go on to Slide 13.

Let's talk a little bit about trends and considerations for aerospace, the aerospace industry, starting with the military markets. Military markets continue to be very strong, fueled by the ongoing war in Europe and major global tensions. There's talk about winning the war, I'm not sure what that even means, but there is talk about it. There's certainly a lot of people in the government are very gung ho for military right now. Optimism abounds about foreign military sales. That's a big deal. You know, we think in terms of our U.S. defense budget, that's kind of only part of the picture. Much demand for foreign military sales that has a big impact on, especially U.S. military, contractors. What will happen when the war ends? That's an interesting question.

See, I told you, sometimes we just want to share with you some things to think about. All wars end at some point, one way or another. It's not something that seems to be discussed very much, especially in terms of the defense industry and, you know, what kind of impact it will have on the defense industry. Will the countries in Western Europe return their spending focus to domestic welfare programs? What about Eastern Europe? What about the U.S.? Maybe it depends on who's running the place. What about defense spending in Asia? That's kind of a different dynamic there. I don't have an answer. I'm just saying it's something to think about that could be important, and it could be an important factor. Let's go on to Slide 14. Commercial. Talking about commercial aerospace markets, optimism abounds.

Paris Air Show, we just showed you a couple of photos from the Paris Air Show. Vibes were borderline euphoric, almost giddy, maybe. Almost giddy claims from the show about the commercial aircraft industry being back and with quotes. I just put my fingers up, you couldn't see that and put up quotes. Putting the horrors of the pandemic in the rear view mirror. IndiGo Airlines, India's leading domestic carrier, kicked off the show, kind of took the oxygens out of the show, in a way, with the announcement of a record-breaking 500 A320 family aircraft order. That's not just a record-breaking for the neo, that's record-breaking for any order, I understand anyway. It was a big deal. 500 airplanes, a lot of airplanes.

What's interesting here about it is to be delivered between 2030 and 2035. That's a long time. Would you order something? Would you order, buy, order a car when you're not gonna get it for, what, eight years? Probably not, you know. What's going on here? Is this a sign of market capitulation? Yeah, maybe. I think that, you know, the backlog for the A320neo in particular is very huge, but it's been kind of stalled out. It wasn't really growing, and the reason was the backlog was so, my opinion, so large, the lead time so large, that the airlines were reluctant to order more.

I think what's happened here, in my opinion again, is airlines realize that it's not gonna get better, and they better get the orders in now for after 2030, or they're gonna miss out even on those orders. It seems like maybe that's there might be a little bit of a market capitulation that airlines are realizing, "We better go and order airplanes. This pipe dream about getting an airplane delivered in three years, that's a pipe dream. That's not gonna happen." Will single aisle orders, which have been somewhat stalled out due to the huge backlogs and extremely long lead times now accelerate? We'll have to watch for that, but it's possible that this big 500 aircraft order, which is delivered not until the 2030s, may be a sign of things to come.

Let's watch for that. The optimism and borderline euphoria are good things for the industry, right? In question marks. Well, just think about that. I don't know. Think something to think about. I'm not saying I have the answer, but, you know, think about times in any industry where there was kind of, very, you know, comprehensive euphoria and what that led to in any industry. Just think about it a little bit. It's just something to think about in terms of where we are in aerospace. I don't know what it means. I'm just saying it's something to think about. We have something down the bottom of the page here, very little tight, but there may be one little issue, minor detail to be concerned about. Let's go on to Slide 15. Well, supply chain.

This is what I was talking about before, and we talked about supply chain things getting better. For Park supply chain, we're not talking at all about the industry supply chain. That's a totally different story, and it's a huge, huge, huge story as far as I'm concerned. Main impediment to recovery and ramp back up for both military and commercial aerospace industries. Demand is certainly there's no question, both on the military side and the commercial side. When will the industry be able to produce the commercial aircraft and military hardware needed to meet the demand? To me, that's like the $64,000 question. Boeing and Airbus seem to be saying supply chain issues will, again, there's that quote, "normalize," whatever that means, toward the end of 2024. Is that realistic or is it in part wishful thinking?

I don't know the answer to that question. It's asking a question. I'm not suggesting the answer. I will remind you that according to some, the supply chain crisis was supposed to have been resolved by the end of last year. Maybe the track record of predicting the end of supply chain crisis isn't, you know, perfect. Let's go on to Slide 16. According to Airbus, the three key supply chain issues are electronic components, meaning semiconductor chips, engines, and raw materials. I'm not sure what raw materials means. I'm just quoting from what, you know, an Airbus representative said. Well, one thing I can tell you is there are no issues for Airbus with raw materials from Park. Here's the kind of key thing here for me, the key question: What is the supply chain crisis really about anyway?

When we talk about supply chain, supply chain, supply chain, what are we really talking about? Is it really systemic workforce shortages and staffing issues? I think it might be. With so many people having left the workforce, we now have what is called full employment in this country. Much money being pumped in the system, so many people are encouraged to leave the workforce, maybe permanently. Let's go on to Slide 17. According to Airbus, this is really a big thing as far as I'm concerned. Airbus, the aerospace industry used to be able to hire back eight out of 10 employees, which it let go. You know, aerospace very cyclical, up and down, up and down. It's a pattern of letting people go, hiring them back, letting them go. We know we don't do that's the pattern in the aerospace industry.

We don't like it very much, that's how it's done. Now the industry has only been able to hire back, listen to this, two out of 10 employees who let go during the pandemic. Wow! Of course, as you know, Park let none of our people go during the pandemic, so no issue for Park about going about people. This is not about Park, this is about the industry. A real human tragedy, in our opinion. What do you mean? What I mean by that is broken people. People left the workforce and don't have the ability to come back to work. They've lost their edge. They've not worked for so long. Their lives have really maybe been destroyed. It's a really sad thing, and we see these people. I'm not speaking theoretically.

I'm not watching, you know, financial news and telling you this. These are people we see that try to come back to work and just don't have the ability to do it. They've lost their edge. It's a real sad thing. To me, it is anyway. It's a tragedy. How does this end? How does this get resolved? Any ideas? I mean, that's a real question. I don't really understand how it gets resolved, because if the supply chain issue really is a workforce issue, then where is the workforce going to come from if we have this full employment because so many people have left the workforce? I'm just saying that there's a real, you know, question mark in our minds. I just want to mention one anecdote here, in terms of supply chain.

We have a customer that supplies into a very important military program, which is real hot. I mean, everybody wants this hardware, everybody wants this equipment, everyone wants this system, you know, in the news all the time. They call us and say, "Well, the orders that they placed for our Q2, meaning through the end of August, want to push out to Q3." We're saying: Well, what do you mean? Why would you want to do that, and the program is so hot? These are good people. They don't play games with us. These are really good people. What they say to us? You won't believe this. They said, "Yeah, but we can't hire the people to make the components.

We can't hire the people to make the components." As far as their customer is concerned, or they say it's a supply chain issue, but what's the real issue? The real issue, they can't hire the people to make the components. It's a mess, if you ask me. Let's go on to Slide 18. Changing gears, totally. GE Aviation Jet Engine Programs. This is a slide that we use, or we include in every presentation, although we expanded a little bit, so we went on to two pages. Sorry about that. We had that firm price in the LTA as a requirement contract through 29 with MRAS, Middle River, which is a sub of ST Engineering Aerospace at Singaporean company. We built that redundant factory. That was part of our understanding. The factory is completed in production.

What we basically told Middle River was, once we signed that LTA through 2029, we'll build that factory for you. We'll build that redundant factory for you. We signed, we entered into the LTA, we built a factory. We do what we said we're gonna do. We're sole source for composite materials for engine nacelles and TR, thruster reversers, TRs for multiple programs. I won't go through all them. The first five, or let's go up to A320neo family with those LEAP engines and the 747. The program has been canceled. Still making some spares, though. Not too many, but some. Then we got the two Chinese aircraft, the C919, the ARJ21, and then the Bombardier Global 7500, 8000. Got the nice picture here.

We kept a picture of the 747-8 engine nacelles, even though the program has been canceled. Let's go on to Slide 19. We can skip over the first one. We cover that every quarter. The second item on Slide 19, there's a little bit of an update here. Fan case containment wrap for the GE9X engines for a 777X aircraft that's produced with our AFP composite materials. It's not included in the MRAS LTA, not now, but we've been told that by MRAS, they want included in the LTA. We're kind of waiting to see what happens with the program. Remember, we talk every time we discuss, every time we mention this program, the redesign risk.

The issue here is that the fan case was not able to pass what's called the FBO test, which is a critical test. It's a, you know, it's a non-negotiable test. The only thing that's been certified so far has been the fan case with the case wrap with our materials, which has passed the FBO test. The supplier of the fan case is trying to redesign the fan case to pass the test without the case wrap. So far, that has not succeeded. If it doesn't succeed, then the fan case wrap that we're on will continue throughout the program, I suspect. Next item, these are two new items at the bottom of the page.

MRAS is qualifying two Park proprietary film adhesive formulations, one of which is the Aeroadhere that we announced recently. There's another formulation that we developed that MRAS is just taking over the qualification of as well. Here's a big one, life-of-program agreement requested by MRAS and STE, not by us, requested by executives at MRAS and STE. This is saying, "Yeah, we, after 2029, that's not good enough. We want to change that into a life-of-program agreement." Life-of-program means until the program ends. You tell me, when are these programs gonna end? 2045? 2050? I mean, each program is a little different, but it's a long, long, long time in the future. How much that worth to Park? I don't know.

If you look at the outlook later on in the presentation, it says, once these programs ramp up, you have $50 million, but that's in the 2025-2029 period. After that, the numbers will be higher. You do the math. You figure out how much this is worth to Park. Now what we've done, they've asked us to do this. We provided them with a draft of a life-of-program MOU, and we're gonna start to negotiate, I guess, or work on the details in the next couple of weeks. I think it's a win-win. It's good for Park, but it's also good for the customer. Let's go on to Slide 20. Update on GE Aviation Jet Engine Program. Let's talk about some of the programs.

A320neo, we always start with that program because it's the big dog in the GE Aviation program portfolio. We were talking about this, India's IndiGo Airlines placed that record 500 A320neo family aircraft order at the Paris Air Show. Assuming a 60% LEAP of market share, we'll discuss that a little bit further down in the presentation, that's worth over $20 million of revenue to Park. Airbus already had a huge over 6,000 A320neo aircraft family backlog at the end of 2023, we had this 500 aircraft order. At the Paris Air Show, Airbus reaffirmed their plan to achieve that. Remember that 75 rate, 75 A320neo aircraft family deliveries per month, they're saying now by the end of 2026.

Will Airbus achieve the rate by the end of 2026? Hard to say, but based upon their backlog, which is so huge, there's a high degree of confidence they'll get there at some point. Maybe not, I mean, just my opinion, you know, the Airbus CEO said it's gonna be the end of 2026. If it's not, my guess is it won't be too long thereafter, because there's, you know, so much energy behind on the part of Airbus to get there. How are they doing so far with the planned ramp-up? Now, this is where it gets a little complicated. Let's go on to Slide 21. Challenging road for them so far.

According to reports in 2023, year-to-date through May, Airbus delivered an average of about 40 A320 family aircraft per month. That's not what they want. It's not what they want with a, you know, that kind of backlog. That's not what they want. Remember, middle of last year, I think they expressed or stated their target or objective to get over 50 deliveries per month by the end of last year, and they did. I think in November, December, they exceeded 50, but here we are, the first five months of this year, back to 40. Really struggling. Now in May, I think they got back to over 50. I don't know if that's a trend or, you know, that was just the month of May. Really struggling.

I mean, if they could be at 75, they'd be at 75 right now. There's what? There's a supply chain issue, and it's very significant, holding back their ability to ramp up as quickly as they want to. The A320neo aircraft family offers two approved engines. You know this, the LEAP engine, which is the one we're on, and then the Pratt 1100G engine as well. As at the end of April 2023, CFM LEAP had a 60.0, that's a precise number, by the way, market share of firm engine orders for the A320neo family of aircraft. Recently, this is kind of, maybe it's important. Recently, widely reported serious durability issues with the Pratt 1100G engine. All new engines have growing pains, no doubt about it, especially with new technology.

The reported Pratt engine durability issues seem to be far worse than durability issues reported on the LEAP engine option for the A320neo aircraft family. Let's go on to Slide 22. According to GE Aviation, they've already made improvements to the LEAP engine regarding durability, and test results have yielded very good results. Sorry, next item. Here's an important question: Will the Pratt 1100G durability issues lead to an increase in CFM's A320neo family aircraft program market share to even greater than 60%? It's something interesting to think about, you know. These are serious issues. They're widely reported. Let me just ask a question. Let's say, you're a big airline, and you're ordering A320neo aircraft, and you're going to need to select an engine pretty soon.

What engine are you going to select? Maybe you even like Pratt, but are you going to take a chance that by the time your aircraft is delivered, these durability issues will be resolved? I mean, you're not going to be emotional, I think. You're running an airline. You want to make, you know, make the best decision. So it's a question as to whether these durability issues, which, again, are widely reported, will move the market share more in CFM, the LEAP engine's favor. These are, like I said, serious issues. There's, I think, one airline that here's the thing about airlines: They don't make that much money. Their margins are thin, so it's really a problem when their airplanes are on the ground, they're not flying. That's what happens with durability issues. The airplanes are on the ground a lot more.

There's one airline who claims that it cleared, had to clear bankruptcy because there's so many of the airplanes were grounded. It's not a minor issue, so we'll see what happens, but I just think it's something you might want to be aware of. Going to the next item. Assuming that 60% market share and assuming 75 aircraft deliveries per month, that basically translates to that number, 1,080 LEAP-1A engines per year. Next item, interesting. Remember we talked about the A321XLR in prior presentations? What happened is that the aircraft made its debut at the Paris Air Show, but with a LEAP engine, and Airbus plans to achieve certification of the aircraft with a LEAP engine.

They're going to first certify the aircraft with a LEAP engine. As you know, Boeing doesn't have a response for that aircraft. Slide 23. Just a couple other programs we'll touch on. The C919 with a CFM LEAP-1C engine. COMAC plans to achieve a reduction rate of 150 C919 aircraft a year within five years. That's what COMAC says. Okay? COMAC currently has over 1,200 orders. The China Eastern Airlines just conducted, recently conducted its first passenger flight with a C919. Here's the issue, or here's the dynamic: Basically, COMAC will be able to sell all the airplanes they can produce because they control the market in China. If they can produce it, those airplanes will be sold in the Chinese market.

Whether they'll be sold outside the Chinese market, that's another question. I'm not even sure that's the objective of COMAC and the Chinese government at this time. The Global 8000 variant, prototype first flew in May of 2023 and expect to enter service in 2025. Let's go on to 2024. Just a little bit of a nostalgia thing here. Well, not only nostalgia, we've got the old and the new. We got the Boeing 747 going bye-bye, the new airplane, this 777X, that's set to enter service in 2025. We talked about the case wrap. We talked about the potential redesign, it's still a program we feel real excited and happy to be on, hopefully it'll work out our way.

I think it will. My opinion, I could be wrong, but we'll see what happens. I think we'll know in the next year how this is going to break, or maybe even sooner than that. Let's go on to Slide 25. GE Aviation Jet Engine Program sales history. Q1, we had $6.2 million, which is kind of in the range of more or less of the last couple of years, some ups and downs, not the 2021 year. That was the pandemic year. What you probably noticed is we're not providing a forecast for Q2 for either GE Aviation programs or for Park. Why are we not doing that? Just a little bit of background here. Airbus has been a pretty aggressive company in the last, you know, three, four, five years.

During the pandemic, Airbus was known to be pretty aggressive with their customers. Customers who wanted to push out or cancel orders, Airbus was not allowing them to do that. Airbus also has been quite publicly aggressive with the supply chain for, you know, a couple years now. Almost uncomfortable with these kind of public battles with the supply chain, where Airbus has been very aggressive, very vocal about pushing the supply chain, pushing the supply chain, pushing the supply chain to ramp up, ramp up, ramp up, so that they can get to the rates that Airbus can get to the rates they want. It's been an interesting battle. Some companies have done a pretty good job with meeting Airbus's expectations. Some companies in the supply chain, maybe companies like Safran, maybe companies like Airbus. Sorry, companies like MRAS, Safran.

I mean, how many components does it take to make an A320neo? I don't know the answer to that question, but you know, it's a lot, lot. How many suppliers supply into that program? I don't know the answer, but it's a lot, lot. A lot of the key suppliers can be meeting Airbus's expectations, but if there's even a few, and there's a lot more than a few that are not, what happens? Airbus is not able to produce the aircraft. What are they going to do? They're going to say, "Well, we have to slow down our rates." The suppliers, the good suppliers that really try to keep up with the expectations, what are they caught with? They're caught with a lot of inventory. That's what's happened here. We don't know the details yet.

You know, we're going to be meeting with MRAS in the next couple of weeks to figure out what the plan is, but we have what's called a burndown, because it's not really Park inventory we don't think, it's finished goods inventory, finished structures inventory, where they just got ahead. They tried to meet Airbus's expectations, but Airbus is not able to produce the airplanes they want to produce, not because of MRAS or Safran, but because of the dozens and dozens and dozens of other suppliers just not meeting expectations. I just gave you the information. Only 40 airplanes per month for the first five months of this year. That's a very low number. That's not what they want, not meeting the expectations. What happens to all the good suppliers that really try to support Airbus, is they get stuck with inventory. That's what's happened here.

The inventory needs to be burned down. I don't think it's our inventory. We need to get the details and facts. We just sit down with MRAS and figure out, okay, how much inventory we're talking about. Here's the key thing: What's the burn down plan? Over what period of time this inventory, how much is it, is going to be burned down? Until we have that information, we don't really know what we're going to be looking at in terms of our GE program sales for the short term. It could be a fairly, in a week, fairly light for the next couple of quarters, but we don't know, and we don't want to guess. I mean, there's really no point in doing that.

The better thing would be to explain to you the situation rather than guess at something that would not be meaningful, because it would just be a guess. I would expect that the GE Aviation program number to be down. I just don't know how much it'll be down. We don't know how long it'll be down. The good thing is that inventory is a finite, there's a finite amount of inventory. It can be quantified. If we're effective at this, we meaning us, MRAS, and maybe their customer, we should be able to come up with a fairly credible burndown plan.

When we get to our next quarter, we'll have that information, and we'll be able to tell you, okay, this is what happened in Q2, but also what's the expectation, let's say, for Q3 and when the burndown will be done. Just for reference, if you look at the current rates for the A320, the Global 7500, the COMAC airplanes, let's say the inventory gets normalized, it should be more or less at the rate of last year, $23 million, $22 million. That's when things are normalized. Once the inventory is normalized, once the inventory is burned down, then our rates will align with the end market rates. In other words, the production rates of these airplanes. Okay? I just want you to have that perspective, that what we have here is an event that's going to distort our numbers temporarily.

We don't have the detailed information yet to be able to share with you. The key thing is, once the inventory, which is finite, is normalized, our sales will be aligned with the end market's production rates. At this point, based upon today's end market production rates, that is kind of like that $23 million number for last, $22 million-$23 million for last fiscal year. Let's see. I think that kind of covers this issue, and I think we should just go on to the next group of slides. What are we doing here? We're going over what we went over in our Q4 presentation, this outlook we call it. I'll explain why we're doing that as we go through the outlook again.

The reason is that we, you know, I'll give you a little bit of a, of a, you know, of a teaser, I guess we'll call it that. The reason is that we didn't really know if people, our audience, our investors, got it, you know, in quotes again. We won't go through all this preliminary information in great detail. The first item on 26, we're saying we're really not in a position, not even talking about the burndown we just spoke about, to kind of give you a year-over-year forecast, because it's so uncertain as to when things will ramp up. Because of what? Supply chain issues. Like I said, Airbus says they're going to be at 75 within 2026. Are they? We don't know.

That will drive a lot of the year-over-year predictions for us, the forecast for us. We'd rather talk about, okay, we know or we believe anyway, that at some point, these issues will normalize, supply chain issues, staffing issues, inflation issues, freight issues, all the things we're talking about. At that point, we'll be dealing with more, let's call it a normalized market. For that reason, we're providing an outlook on the theory that these things will resolve over the next few years, and then we'll have better visibility into where we're going. Let's go on to Slide 27. Slide 27 just says, "These are the assumptions we're making," I'm just going to cover them already. We'll go through those again. Slide 28. Let's slow down here and take a couple of minutes because this is something important. How do we do this?

We just looked at the programs, we assumed certain rates for the A320neo. That's that 1080 number. That's the 75 airplanes per month at a 60% LEAP market share, the revenue per engine, that comes from our customer. This is just math. You can just multiply across, the same thing with Passport 20. I think that Bombardier's been producing about 40 airplanes a year for the last few years. We thought maybe move it up to 45, that would be 90 engines, two engines per airplane. C919. Remember I told you they're predicting 150 airplanes per year in five years? We're assuming 100 because there's, again, two engines. Why do we assume 100?

Well, the A320neo, which is the, another, single aisle, they're talking about being at 900 a year. The 737 MAX, they're talking about being at 600 a year. A 100 a year, we thought wasn't too aggressive. Really, like us, like we said, it's a function of how they're able to ramp up, not really the market. The limitation or the issue for the C919 is not the market, it's how quickly COMAC is able to ramp up. ARJ21, last year, they produced, they shipped, 26 of these airplanes, that would be, you know, times two. 50, we think, is really conservative.

The GE9X, we're not giving you the details because we're trying to protect the confidentiality of the program, but we think the assumptions we're making are quite conservative in terms of units. We do have the revenue per engine number. It's just the units that we don't want to disclose at this point. We're wondering about why this didn't have more of an impact, as well as the next slide, which is the outlook for Park. We thought about this, you know, we receive a lot of books from investment bankers with these, you know, offering memoranda, with forecasts that are basically hockey stick forecasts. You know, somebody's doing $30 million of sales, two years from now they're gonna be $60 million or EBITDA, the same kind of, you know, steep ramp-up hockey stick.

A lot of that's really kind of fantasy stuff. It's not real. This is a little different here. What are the chances we're gonna lose the A320neo program? You know, I mean, I guess you never say zero, but I would say less than 1%. This is not predictions, hopes, and dreams. These are programs we're on. The only question is how many airplanes Airbus produces with the LEAP engine. That's the only question that's meaningful. This is not a hockey stick prediction. This is not hopes and dreams. These are reality things that we're talking about. Programs are on, qualified on sole source. I just wanted to explain the basis of this, and that's how we get to this $50.625 million per year number. Let's go on to Slide 29. Let's stop here for a second as well.

Something we shared with you last quarter. We just take the baseline. This is a Park outlook. This is outlook, not a forecast. We take the baseline year, last year, $54.1 million sales, $11.5 million EBITDA. We look at the GE programs, incremental sales. That's just taking that $50.625 million number from the prior slide, and subtracting the 2023 revenues. That's the incremental revenue, $28 million. $20 million from these other three programs, which we think is a pretty conservative number. There's a comment that maybe this number is aggressive. I would say we completely disagree with that. We believe this number is actually pretty conservative. Non-GE program, incremental sales, $8 million.

We just took the baseline from 2023, which is about $32 million, assuming about 5% a year growth or 25% over the period from the outlook year to the outlook year, $20 million. We think that's a start. $8 million. We think that's pretty conservative. $110 million in total. EBITDA, estimated EBITDA contribution from the incremental revenues. We assumed 37% contribution percentage, when Matt and I did the math pretty carefully, probably a good number. Not an aggressive number, that's for sure. It might even look conservative. Adjusted to base year EBITDA, $2.5 million. This is assuming that the things we talked about at the beginning of the presentation, which affected our margins in Q1 and prior quarters, that those things normalize.

$2.5 million we think is a good number, but also a conservative number. That's how we get to $35 million of EBITDA. Let's go on to Slide 30. We're not gonna go over these footnotes. We kind of just went through them. These are just explanations as to how we did the math. Let's go on to Slide 31. We'll stop here for a second because this is important stuff. Park financial outlook present. We're just principally based upon growth estimates of programs on which Park is sole source qualified. What does that mean? The above outlook is not a forecast, it's just an outlook. That does not consider growth on these programs. We have a whole list of these program opportunities here. These are examples.

This analysis does not consider any other revenue opportunities, including, for example, revenue opportunities related to. We're not gonna cover each one of them. Second one, film adhesive, except for the A320neo. We're not considering any film adhesive. Going down to the middle of the page, the structures, assemblies, integrations project, which Park is in serious discussions with an existing customer. Significant, potentially very large, significant, I mean, revenue-wise. Next one, technology license agreement under discussion with a large OEM, relates hypersonic missile to systems, potentially very large. We're talking about lots and lots of dollars here. Last one, Arrow 3 missile defense system. Again, potentially very large. We actually covered that in the slide relating to some of the niche aerospace military programs that we're working on. Let's go on to Slide 32.

Why are we doing this? Why are we reviewing our financial outlook? Let's go through some history. On February 9 of this year, we announced that the Board of Directors had approved an increase in our regular dividend, and the stock price reacted, we thought, appropriately. Market response to the announcement made sense to us. I think the stock went up to about $16.90, and that would be equivalent to $15.90 because there was a $1 special dividend that in between the announcement and the current market price. $15.90. March 2003, S&P announced that we're deleting our common stock from the S&P SmallCap Index, and that pretty much wiped out the entire gain. We didn't feel so good about that.

We also mentioned to you last time, of those other companies in the S&P SmallCap Index, how many pay dividends and how many paid over $28 a share since 2005? Probably, maybe none. Obviously, that has an impact upon our stock price and our market cap. Continuing, on May 11, 2023, that's when we announced our Q4, and that's when we provided you with this outlook that we just reviewed. Went through it again because we thought maybe it wasn't, we didn't make it clear. We explained at the time, this is key, that the financial outlook formed the basis of the Board's decision to increase the regular dividend. That's why it's not a forecast.

We did this outlook, and we reviewed it with the Board when we decided to increase our regular dividend because we weren't looking at hopes and dreams. We were saying: Look, this is an outlook. This is kind of like what we consider to be a pretty good thing. Maybe you wouldn't say sure thing. You wouldn't ever say sure thing, but a pretty reliable thing to count on. Yeah, we were very comfortable increasing the regular dividend on that basis. Let's go on to Slide 33. What was the market response to the provision of our financial outlook? Not much, which surprised us a lot. We didn't understand that. Why was there such an immediate reaction? We're not sure. Is the market efficient?

You know, the theory that the market's efficient is kind of like this big computer that takes into account all the data, all the information, that comes out with the, you know, the right company value. Is the market broken? Maybe. What I consider to be a very smart institutional investor recently mentioned to me that he thought the market was broken. Maybe the investing public just doesn't believe us, maybe don't believe that our outlook is real, even though we've explained again, that it's not a forecast we're talking about, for the most part, quote, programs are already sole source qualified on. We're not talking about any of those old programs we listed a couple of slides ago that are significant programs, some of which, my guess, will have a big impact on Park's future.

We believe us, maybe the market doesn't. Shortly after we announced Q4, we implemented Rule 10b5-1, company stock purchase plan with Needham. Under that plan, through the end of our Q1, we purchased about 129,654 shares of common stock at an average price of $12.87, total cost of $1.668 million. The key thing here is that through the end of this, the first quarter, it was only two weeks from when we implemented the plan to when the first quarter ended. We're only talking about what happened in the first quarter, that amount was the maximum we were allowed to purchase under the plan, under the SEC rules and regulations.

Let's go on to Slide 34. Purchases that occur, if any, in our Q2, will be slowed until we report that quarter. We're not talking about that. We told you in the past, I know some of you didn't like this, we prefer the investing public to buy our company stock, since that did not seem to happen in a meaningful way in response to the provision of our financial outlook to the investing public during our Q4 investor call, we did. We went and did that. We'd prefer the, you know, the investor, investment community responded, they didn't, we did. Let's go on to Slide 35. This is a change of gears here. We're just kind of giving you an update.

We now, as of the end of the quarter, Q1, we had $81 million in cash. We still have that $12.5 million transition tax installment payment, payments that have to be made, they're to be made within two years. The last payment is made in June of 2025, that money won't be around for long. The solution treater for the ADL project, $6 million. Joint development project capital investment, $5 million. This is kind of a derivative of what we used to call the AFP project. The difference here is that this would be working directly with a customer joint development project. Additional buybacks? Well, we'll see what happens with that. It's like cash remaining after all this stuff is about $57.50 million dollars.

We just wanted you to see that number for perspective. Let's go on to Slide 36. The balance sheet, cash and capital allocation. We have a zero long-term debt. You know the story about our cash dividends, so I won't go through it, except to mention again, it's been $583 million that we've paid in cash dividends since fiscal 2005. Our thoughts about our cash and capital allocation. I'd like to change gears for a second here. I know it's late, and we're 55 minutes into the call, you know, something came up, I guess, after we announced Q4. Two different institutional investors called me. They're good people. I'm glad they mentioned this to me.

Both said to me, "Brian, you know, you're underpaid, and, you know, you should pay yourself more." I think that their point was then maybe we'd, Park would be inclined to do more buybacks, less dividends. I think that's what they're getting at. Nobody's ever said that to me before, and I'm glad they did, because, you know, when two people say something like that within three days of each other, and I don't think they were talking to each other, maybe other people are thinking the same thing. I don't remember ever talking about my situation. Let's just backtrack for a second. I want to tell you something else.

I've been on the Board since 1983, and I can tell you with 100% confidence that whenever the Board is talking about dividends, buybacks, what to do with our cash, never once have I come up, my personal situation come up, or my family situation. It's never been considered. It's never been discussed. It's just not on the, you know, not on the table. I want you to know that. Let's go back to me. All right? I think my pay is $220,000. I think that's what it is. You can look, check the proxy statement. I'm not 100% sure about that.

In many years, I reduced the pay in order for the company to be able to afford to pay for maybe holiday gifts or additional bonuses for the workforce to some extent anyway. Every year, without exception, the Board offers me more money and bonuses. Every year, I turn the Board down. I never accept it. What's going on here? The Board wants to pay me more. These two shareholders said maybe I should be paid more. Well, this may sound like a strange thing to say, but I'll say it since it's been brought up. You couldn't pay me enough to do this job. It's just not something that could happen.

The sacrifices I've made, the things that I want to do that I won't get to do, the people I would have liked to spend time with, that I will not get to spend time with. Just, kind of a fact of life for me. I'm not complaining. I'm just telling you the reality. I don't do this job for the money. See, that's the key thing. I do it because I care about Park. I want Park to have a future. That's a key thing for me. I care about our people. I care about our people a lot. I love our people, and I also care about the long-term investors. I just want you to understand the motivation here. I appreciated the comment. I appreciated that somebody had the kind of guts, whatever, two people, to actually tell me this.

It led to my thinking, well, maybe I should kind of air this out a little bit and not keep it, you know, kind of let's say quiet. Let's go on to Slide 37. We're almost done here. The Park family, the secret to our success. The following is an excerpt from a recent message to the Park family. I'm not going to read it. You can read it if you'd like, at your convenience. The key thing here is that the Park family culture is really everything for us. Without our Park family culture, we would be really nothing, would be lost. Let's go on to Slide 38. In the Park family, we go for greatness. The path to greatness is arduous and difficult and hard. Others may settle for mediocrity. At Park, we're not like the others.

At Park, we play for keeps. We are now in our 70th year of playing for keeps. You know our tradition. Every quarter, we share a photo of one of our teams. This is the special, we call it Park Special R&D Group. I'm not going to provide you the names because, you know, it'll make it easier for the people to our south to steal our people. Outstanding job by our R&D group, developing two film adhesive formulations. Polymer chemistry formulation R&D is very challenging. We've been doing this for a long, long, long, long time, even electronics. The large majority of project groups are started, never get to the finish line. The fact that we developed two formulations, one of which we commercialize, Aeroadhere, and one of the other is being the process.

We're starting the qualification with MRAS, like I said, very, very, very good. We're working other projects as well, not just these two, these two are outstanding. Something else. What about doing the film adhesive trials, the qualification runs, the internal qualification runs? We haven't had the workforce to do that. Who did it? The R&D group. They staffed the qualification runs and the film adhesive qualification and trial runs. What about the new plant? You know, we have a new plant qualified. Well, you had to do trials and qualification runs for the new plant. We didn't have the staffing to do it. The R&D people stepped up, they did it. Remember at the beginning of the presentation, I said, we do more with less.

Well, you know, in our R&D group, you can see it. There's one person wasn't able to make the photo op. I think he was out for the day. This is our whole R&D group. We do more with less. Outstanding and great accomplishments by a pretty small group of people, I would say. I'm saying that from the basis of experience, actually. Okay, well, thank you very much for listening, operator. If there are any questions at this time, we'll be happy to answer them.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset while pressing the star keys. We will pause for a brief moment to pull for any questions. There are no questions at this time. Do you have any closing comments?

Brian Shore (Chairman and CEO)

Okay. Well, thank you, everybody, for listening. Have a great summer. If you have any follow-up questions that you want to ask Matt or me, feel free to give us a call. Have a good day. Thank you.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.