Federal budget sequestration and other cost-cutting pressures
from prime contractors are rippling down the aerospace supply
chain, compelling CPI Aerostructures Inc. to absorb profit
concessions while seeking similar compromises from its
Edward J. Fred,
president of the Edgewood, N.Y.-based manufacturer of
structural aircraft parts, said CPI has made deals with some of
its customers to insure its long-term participation on key
programs, including the leading wing edge for the Gulfstream
G650 twin-engine business jet CPI is building for Spirit
AeroSystems Inc., Northrop Grumman Corp.s E-2D Advanced
Hawkeye surveillance aircraft and the Boeing Co. A-10
Thunderbolt attack jet.
Price reductions and
adjustments on certain programs contributed to a 33.8-percent
year-on-year drop in CPIs second-quarter net income on a
slight increase in revenue. Fred said that nothing about CPI
has changed from last year, "except the impact of sequestration
for a one-year period."
is spurring CPI, which does most of its business in defense, to
seek more commercial aircraft business. Last year, 63 percent
of CPIs revenues were in defense, compared to 77 percent
in 2011, according to documents filed with the U.S. Securities
and Exchange Commission.
Fred said CPI has a
contract with Wichita, Kan.-based Spirit to build 134 shipsets
of wing leading edges on the Grumman G650. But Spirit now
anticipates being under contract for a total of 400
"In order to get the
ability to build those (additional) 266 sets of leading edges,
we had to take a price reduction in the unit price of delivered
items from unit 135 out," he said, stressing this "management
decision" by CPI will create four to five more years of
production on this program.
CPI made similar
concessions on the E-2D Hawkeye, built for the U.S. Navy, and
the A-10 Thunderbolt, built for the U.S. Air Force.
CPI expects an influx
of cash in the third quarter resulting from two years of
negotiations on engineering and other program changes regarding
While he maintained
CPI will likely rebuild its margins as its rates move back up,
he emphasized this is "not a one-day process. Its a
six-month to one-year process on some of this."
Fred pointed out
commercial CPIs total backlog as of June 30 increased by
$20 million to $411.9 million compared to Dec. 31. This gain
was attributable to a $35.7 million increase in backlog on
commercial programs, which was partially offset by a $15.7
million decrease in backlog for military programs.
Fred did say that,
despite the budget sequester, CPI has recently seen
"acceleration" in new order releases as its customers receive
"more definite information" on key programs. Among these were a
$47 million long-term agreement for Sikorsky Aircraft
Corp.s Black Hawk helicopter fuel panels, which will
reach full production in the current quarter.
While CPIs 2013
revenues will be lower than the $89.3 million reached last
year, the company is "well-positioned to resume growth in 2014
and beyond," said Fred.