The summer looked good for Astronics. The company saw green shoots of a recovery and was ready to resume its production of components for aircraft manufacturers and interiors suppliers. But as the summer came to a close so did that hope of a quick return to 2019 levels of production. And with the 737 MAX still grounded the company finds itself in what CEO Peter Gundermann describes as a “pretty tough” place.
We were beginning to see a resurgence of air travel domestically in the US in the July-August timeframe. And we had the hope at the time that that resurgence was going to continue and strengthen through year-end, that has not happened. Our core market – the commercial transport market – has largely stagnated since that time.– CEO Peter Gundermann
737 MAX Woes
Astronics has significant exposure on the 737 MAX program and that aircraft remains grounded. While there are indications that it might be certified to resume flying before the end of the year airlines are no longer clamoring to get the frames as fast as possible. Boeing now expects to be delivering its existing backlog of assembled aircraft well into 2022. And Astronics has already delivered a significant backlog of components to Boeing for future builds. Assuming the recertification comes later this year Astronics still does not expect to start material volume of deliveries of new aircraft components until the second half of 2021 at the earliest.
A base model 737 MAX carries just under $100,000 in Astronics gear on board. If the airline chooses certain IFE/C options that number can easily double. Boeing was producing 52 per month prior to the grounding. A giant goose egg on the revenue side of the ledger for what was the largest single aircraft program in 2019 hurts a lot. And even when production resumes in earnest it is expected to run at just 31 frames per month.
BizAv to the Rescue
Astronics’ efforts in the business aviation segment, particularly with respect to inflight connectivity systems continues apace, though still with little upside expected until 2021. Gundermann describes says the system delivers “very good success from a performance perspective” but also notes that the size of the market is still unclear. Collins Aerospace oversees the efforts, with Astronics acting as a component supplier with its antenna solution. Until Collins sets the sales target Astronics does not have a target volume to build. Fortunately, the company sees the BizAv market recovering more quickly than commercial passenger services, leading to cautious optimism
But even a solid boost in that segment will be of limited impact overall for Astronics’ outlook. General aviation typically only represents 10% of the company’s annual revenue.
Commercial IFE Potential
Gundermann also highlighted the potential recovery of Astronics’ IFE components business, assuming airlines bring aircraft out of storage. While observing that no one is “inclined to pull the trigger to spend millions of dollars to upgrade an airplane that is sitting in a desert somewhere” he is optimistic that planes returning to service will be updated along the way:
[Passengers] expect and require continual improvement in the IFE and entertainment capabilities in the airplanes. Airlines today understand that. Nobody’s talking about ripping this stuff out and rebuilding their airline after the pandemic without any kind of IFE entertainment options for their customers. We think we’re well past that point as being an option.
Astronics is ready to deliver hardware supporting that evolution, whenever it should come to pass.
Indeed, Astronics notes that its raw material inventory increased significantly in the quarter owing to contractually obligated deliveries of components. The company continues its efforts to adjust those contracts, but expects to eventually work through all of the excess supplies in 2021.
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