Park Aerospace Corp. (NYSE:PKE) Q2 2024 Earnings Call Transcript

Park Aerospace Corp. (NYSE:PKE) Q2 2024 Earnings Call Transcript October 6, 2023

Operator: Good afternoon. My name is Alicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Second Quarter 2024 Earnings Release Conference Call and Investor Presentation. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer session. [Operator Instructions] At this time, I would like to turn the call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Brian Shore: Thank you, Alicia. So welcome, everybody. This is Brian, of course. Welcome to our fiscal 2024 second quarter investor conference call. With me, as usual, Matt Farabaugh, our CFO. Make sure you are accessing the presentation, we announced our earnings just a little while ago and there are instructions as to how to access the presentation we are about to go through. Also, it's posted on our website, if you want to do it that way. So what we are going to do with this presentation, maybe a little bit of a different approach, is that we'll focus on our second quarter dynamics and then longer-term outlook dynamics for our future and we'll skip over some things like the trend information regarding industry trends. And then we'll go right to questions.

But again, we'd probably still take 45, 50 minutes to get through our presentation. And of course, before we proceed, I want to just remind you, mention to you, that we are in our 70th year in business. So let's go do it. Slide 2 is our forward-looking disclaimer information. Let us know if you have any questions. Slide 3 is our table of contents. Our Slide 1 is our Q2 presentation, and we have supplementary financial information in Appendix 1, and we don't intend to cover that or discuss it. If you have any questions about it, please let us know. A picture of the – sorry, A321XLR, which is an important potential program, future program for Park. Let's go on to Slide 4. We'll have to slow down here a little bit. Our quarterly results – so let's start go right to the right-hand column there for Q2.

An aircraft maintenance team in a hanger working on a modern business jet. Editorial photo for a financial news article. 8k. --ar 16:9

If you notice, the revenues are way down since Q1, about $3.1 million, and we'll discuss that in detail, of course. But I also want to highlight for you, and it is highlighted, actually to make it easier, in yellow, the gross margin of 32.7%, which to me is quite outstanding when you look at the comparison in Q1 with a $3 million topline loss and a 32.7% gross margin. That doesn't happen by accident, I don't think. We always comment that we don't like our gross margin going below 30%, and it does every now and then, and we tell you that. I was actually a little bit surprised myself with a topline loss of $3 million. I thought, Boy, our gross margin is going to look so good. So I was very pleased with that number. And we have an EBITDA margin of 21.4% as well, which is pretty good.

Let's go on to the text and the bottom of Slide 4. So what do we say about Q2 during our Q1 investor call, you remember, we said, well, we didn't provide any sales or EBITDA estimates for Q2 is out because we knew there's a burn down coming. We told you about that, but it was kind of new information for us, and we didn't have any quantification of it. So we said, to give you a forecast for Q2 during our Q1 call, I would have been just guessing, and that's kind of do when you would just service. We warned you in a sense, we said, hey, something's coming, but we didn't know yet. We got to spend time with our customer MRAS to understand the scope of the burn down. So now we understand that and we can discuss it with you in detail, which we will.

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Q&A Session

The [second item], why their sales dropped $3.1 million from Q1 to Q2, while it's just coincidence, the sale drop is explained completely, 100% by a $3.1 million drop in GE Aviation Jet Engine Program sales. Just so happens it's exactly the same number. And if you do the math, this is not stuff for brilliant people, but the non-GE Aviation Jet Entry Program sales were essentially identical in Q1 and Q2, obviously, that would make sense. So let's keep going. Let's go on to Slide 5. Since all the GE Aviation Jet Engine Programs which Park supplies into are ramping up and going strong, which they definitely are why the steep drop in GE Engine Program sales in Q2. What's going on here? Well, you already figured it out, it's about the MRAS inventory burn-down, which we'll discuss in great detail later presentation.

So we'll get to that. We'll go into detail about the burn down. But let's just go back to our Q2 a couple of things we want to mention. What other considerations are there related to Q2? How things going with supply chain, freight disruption and staffing challenges? We talk about those three things every quarter for – I don't know, you tell me, a couple of years at least. This had been really important factors for Park and in running our business. The challenges continue, but things seem to be improving. So what does that mean? It's not like they were before the pandemic, the lead times are longer, but it's something that we can count on more. During the worst part of this deal, it didn't matter what the lead times were or we wouldn't begin lead times.

We'd say, look, we'll get it to you when we'll get it to you. We don't even know or we'd be given the lead time and we've blown and it made it very challenging to run our business from a production management perspective, from a supply chain perspective, from a staffing perspective. So a lot better. We still have longer lead times, but as long as we kind of take those into account, we are able to manage our business much better than over the last couple of years. Total missed shipments in Q2, approximately 220,000. The number is down. We still would like to be zero. Our people think we did an outstanding job in bringing the number down. And what is it about? I want to guess, probably you can guess already, international freight, that's been the thing that's really been the toughest for us.

I think we are doing better with that as well, but we still got surprised with international freight. Our margins continue to be affected by inflation and cost related to recently commissioned new plant in Kansas. We'll go into details about those things which we covered those in the last two or three presentations. You want to go back and take a look, kind of questions about unless nobody just want to flag those things continue. Let's go on to Slide 6. Important here, before we move on, I believe you must give a special shout out to Park's people for their outstanding job, in my opinion, and delivering the margins they achieved in Q2, considering a $3.1 million drop in revenues compared to Q1. So there always will be some quarter-to-quarter variability based on product.

It was in our favor. So let's say that it was in our favor in Q2. But notwithstanding all of that, our Park people did an outstanding job in Q2, in my opinion. So Park, you probably was burn-out pretty well. We are not the fanciest company in town, we don't have lot of people from the fancy aviation schools. But our people are old school and our people know when to make money for owners and to me, that's probably pretty important for our owners. I mean, you could tell me if you disagree, but if I was an owner, I would think, I want people who are dedicated to making money for me. In my opinion, our Q2 was one of our best Park quarters. What I would say that? Because when things are going great and your sales are up and everybody is a hero, but as you get the employee of the year – sorry, the company year award, to me, that doesn't mean anything.

When the chips are down, you still deliver and perform, that to me is an indication of a very good solid company. So it's just my opinion, and you could just disagree. Let's go on to Slide 7. I wouldn't talk about Slide 7 too much. It's in every presentation. Just kind of a perspective and reference. Let's go on to Slide 8. Okay. We always do our top five customers every quarter. So we are continuing this tradition, Aerospheres, very rapid. Israel, they wrap Israeli aircraft for us, Israeli aircraft makes the Gulfstream G280, if you're aware that that's actually made under contract with Gulfstream. So they made the top five, Kratos is in our top five. I think pretty much every quarter, wonderful, wonderful customer. We love them. And we had a great photo here of the Valkyrie, and it's doing a loyal wingman demo flight.

With guess what? The F-35 and F-22. So I would think of the three different airplanes, the Valkyrie is probably lower cost of the three. So I'm being a little sarcastic, I guess. Middle River, we could use a lot of programs here, but with the Comac 919. LifePort, they kind of throw some circuitous means, took over some of the AAR structures business that we used to supply into. Nordam, we chose the 737-800, that's where the WeatherMASTER Radome, which is on the 737 one. Let's go on to Slide 9. Our pie charts, I always like to use, I don't know if you have any opinion about it let me now, but let me know, I think they're useful. Look at the difference of 2021, the pandemic year, 2022 and 2023, very similar. First six months of 2024, commercial down a little bit.

Why is that? That's because the burn down, burn down was all commercial in Q2. So okay, let's go on to Slide 10. Another one of our traditional slides, we love niche military aerospace programs, which we certainly do. This is the latest project every quarter. She's our Head of Customer Service, MK125 Warhead. That's on the SM2, SM3 that stands for standard missile, you probably know that. This is a picture of the standard missile 60s, are some outstanding missiles. I believe the SM2 was a hypersonic missile. The Alenia C-27J Spartan, a radome materials. So of course, we just have a lot of stuff, lot of materials in Sikorsky. MK-41 Vertical Launching System, a little bit different here. The parts using our material, it's actually not [indiscernible], we have a pie chart.

Rocket nozzles, drones, radomes, we consider those to be niche markets for Park. But even for us, aircraft structures is a niche market. We don't go for the big programs for structures where it's a lot of margin pressure, it's just not really for us. Okay. Let's go on to Slide 11. And here's what we're going to skip, this Slide 11 through what was it figured out, yes, through 15, pretty much as very few changes from Q1. So if you want to ask questions about it that's fine, but let's just skip over it. I include it – we include it just for perspective in context. Let's jump to Slide 16. Okay. So this is a slide that we include every quarter just to kind of give you the lay of the land, GE Aviation Jet Engine Programs is obviously very important to Park.

So we have – for those who don't know, Firm Pricing LTA that's a requirements contract from 2019 to 2029 with MRAS, Middle River Aerostructure Systems, which is a sub of ST Engineering Aerospace, a large Singaporean aerospace company. We built a redundant factory when they – we said, we'll build you a factory, if you – we signed the LTA. So of course, we live up to what we say and the factory is complete, it's in production, you all know that. So let's go on to the next item, sole source for composite materials, for engine nacelles and thrust reversers, all these programs. So you are probably thinking if you don't know us too well, what's going on here. These are all the GE Aviation programs. What's the connection? Well, that would be an excellent question because there are all GE Aviation programs.

So the connection is that, when we first got involved and did the LTA and everything, MRAS was a sub of GE Aviation, subsequent to when we are getting on these programs. GE Aviation sold MRAS to ST Engineering. That's the little secret there. Boeing 747, those are spares and they cancel the program, we are still making spares. Let's go on to Slide 17. So let me explain something. Park Composite Materials are sole source on a primary structure component for the Passport 20 Engine, for the Global 7500, 8000, not included in the MRAS LTA. This is a little confusing, because for the nacelles and thrust reversers, that is included in the MRAS LTA. This is a different structure. This is a primary structure in the engine, and that actually is not part of – that's not an MRAS program.

That's a GE Aviation program. That's why that component is not included in the MRAS LTA. But you shouldn't believe that the Passport 20 Engine Program is not in the MRAS LTA for all the nacelles and TR materials. It is in the LTA. And a fan case containment wrap for the GE9X engine for the 777X aircraft, that's produced with our AFP composite materials, not included in the MRAS LTA, not yet anyway. And the reason I say that, is this program seems like it's about to move and MRAS already said they want to get it in the LTA. So let's see what happens with that, but not at this point. I mean it is to MRAS, just not in the LTA yet. MRAS qualification of two proprietary Film Adhesive formulations in progress. That's wonderful news that the qualification's in progress.

Park, MRAS, I always put them first. MRSA/Park LTA through 2029. It's recently amended to include three Park Film Adhesive product forms for composite bond and metal bond. Again, very wonderful news. And then the Life of Program agreement we talked about that last time, it was requested by them. What's it worth to Park? I don't know. I mean, what's Life of Program? 20 years, 25 years? I don't know. And if you look at – I think it's our outlook, was at Slide 34, we say it's about $55 million a year. So you could do your own math and figure that out. Now, starting, if we continue after 2029, which most betting people would say, yes, we are going to continue. That normally will be higher because pricing would go up at that point, of course. But just do your own math, if you want to calculate on your iPhone.

So Slide 18 update on GE Aviation Jet Engine Programs, the A320neo Aircraft family, the CFM LEAP-1A engine, that's the 319neo, 320, 321 and the A321LR and XLR. This is the big dog, this is the big kahuna in the GE Aviation in terms of our GE Aviation work. Airbus has a huge backlog, and I would do say that's huge of A320neo family aircraft at 6,720 airplanes. That's a lot of our airplanes, I mean, I'm sorry. During the Airbus' first half earnings call on July 2023, they just reaffirmed their plan to achieve a rate of 75 A320neo. Airbus family deliveries per month in 2006. You got a little nuance there? If they were saying at the end of 2026, not saying that anymore. They're just saying 2026. I don't know if I'm reading too much into it, but they're just not saying end of 2026 anymore.

So I don't know. I'm not sure what's going on there. Maybe it's nothing. Will Airbus that rate at 2026? Hard to say, but based upon their huge backlog, huge backlog, there's very good reason to believe they'll get there in 2026, for some time in the not too distant future thereafter. Here's a nice picture of A321neo, that's their biggest seller in that family at this point. How is Airbus doing with your planned ramp-up? Let's go on the slide, what is it, 19? Not too bad according to reports, 2023 year-to-date through August, I have September in here yet. I've been working in the presentation for a couple of weeks. September's info was not, I don't think, reliable yet, so I just didn't go there. Airbus delivered an average of 43.5 Neo aircraft per month.

So we're getting there. But here's something interesting, delivered an average of 15 in the last four months through August. So you would say that's moving in the right direction, I think you would say that. Clearly, though, based upon a huge backlog, they would already be at a rate of 75 per month and not for supply chain restrictions, limitations that's probably obvious to you. What about the engines, though, for the A320neo Aircraft family? What about those engines? While we review, the A320neo aircraft family offers 2 approved engine options, namely the CFM LEAP-1A engine and the Pratt 1100G GTF engine. Now we supply – Park supplies into the A320neo Aircraft family using the CFM LEAP-1A engine. We have no content on the A320neo family using that Pratt engine.

Now here's something really, really interesting. The CFM LEAP-1A market share firm engine orders for A320neo family of aircraft that's been hovering around approximately 60% last 2 years or so. You know that because every quarter, we talk about it. So you people that are pretty regular at Park, you've heard that 60% more or less number, that kind of 59%, 60%, 61% range for a while now. But what happened, let's go on to Slide 20. That's all changed. In the last few months, the LEAP-1A has broken out as a clear market share winner for the A320neo Aircraft family. Now in red, the CFM LEAP-1A market share of firm orders for the A320neo Aircraft family has jumped to 66% at just July 31, 2023. Well, that's a huge jump. Why is that? This huge jump in market share is quite remarkable when it considers there are 12,348 firm engines – sorry, firm engine orders for the A320neo Aircraft family.

I mean, you're so much balanced in the market share – a significant change, like a 60% of market share would be considered to be highly unlikely. In other words, if there are 20 engines ordered, somebody gets five orders. Well, that's good, you really move the needle. But with over 12,000 engine orders, it takes a lot to move that needle. 6% is just shocking, huge number. Well, what's going on here? Shocking to me anyway, that's my opinion. I mean maybe other people don't agree, but what's going on here though, why? Slide 21. Just a little aside, the delivery rate of 75 A320neo family aircraft per month, a 66% LEAP-1A market share translates into 1,188 LEAP-1A engines per year. I'm just doing math, sorry, I mean, if you got a little calculator on your iPhone, you can do that yourself.

What's that worth to Park? Well, for your outlook, it would be worth $36 million per year. Just do the math again, do the math, because we know what our content for engine is, $36 million per year. That's just for the A320neo family. Currently, our 8,144 firm LEAP-1A engine orders. What's the firm orders worth to Park? Well, that's a little bit more difficult to say because some of those airplanes will be delivered after 2029. And like I said, if you're betting first and you're going to bet it will continue after 2029, but our prices will go up at 2029. Now the price is also going up at 2025 or maybe an offset. So this year, next year, price will lower, they go up on 2025. So you try to [indiscernible] other. But you could do your own math, you can multiply 8,144, by – you want 30,500.

So that's how much it is per – that's 30,500 per unit, not million. That's about $0.25 billion. So that's just kind of a rough – kind of guesstimate, that's not the program. The program will continue and there will be more orders, I would expect. What happened anyway? So back to the main point here. Why is the market share firm engine orders for the A320 aircraft family? Why is the chip that's so abruptly and dramatically in favor of the CFM LEAP-1A engine? Very serious issues to Pratt 1100G. Now we talked about this a little last time we go at durability, but we're talking about a different category of issues. Now these issues have been extensively reported. And as a result, we will not attempt to cover them in detail here. However, the Pratt 1100Gengine issues are expected to ground 350 A320neo family airplanes per year through 2026, which has met with as many as 650 groundings in the first half of 2024, that's not some analyst or commentator, that's from the company.

That's what they're saying. You run an airline, you don't make that much money to begin with. You don't want airplanes grounded, that is death for an airplane, you can never have an airplane grounded. That's why it's such a serious issue. Now let's go on to Slide 22. And this also comes for the company. It's not somebody's opinion. The inspection and repair work is expected to take up to 300 days per engine. So we're talking about rounding airplanes for a long time, a very tough situation. It's difficult to fully comprehend the full implications of the crisis and where it's going, but the story may not be over, maybe far from over. My take on it is, whenever it seems like a crisis can't get any worse. It does. That's just my take on it. Will this crisis lead to significant additional A320neo Aircraft family market share gains for LEAP-1A engine?

Many believe it will, what do you think? I mean the dilemma is that people are ordering these airplanes, a lot of them. They got to choose which engine they're going to go with – so think about that a little bit. Let's go on to Slide 23. So the top item that's still in the A320neo family. This is the A321XLR. I just want to highlight that. That's it – suppose to be, what? Entry in to service in the second quarter of next year, Boeing doesn't have response. And this is a real important program for Park. A lot of – we see a lot of writing about it now. I think people in industry are getting pretty excited about this aircraft. We covered it in more detail in the past, and I won't do that for you. But it's definitely, we would say a plus.

Comac 919 with those LEAP-1C engines. Comac plans to achieve a production rate of 150 C919 aircraft a year within five years. That's what they say. That's not some analysts. That's what they say. No, when we get to our outlook, I think on Slide 34, we're only assuming 100 so just keep that in mind. They don't currently have over 1,000 orders and two 919 aircraft are currently in service with China Eastern. Let's go with a nice picture of it here. Let's go on to Slide 24, still on the 919. China Eastern recently announced an order of 100 additional 919 aircraft to be delivered between 2024 and 2031. It's the largest 919 order to date. And then GallopAir of Brunei recently announced order of 15, why would I even tell you that? 15 orders doesn't sound that much.

The reason is because until now, the Comac airplanes have been considered to be China market airplanes only, like they sell a lot of these, but only into the China market. Well, obviously, Brunei, if you know your geography, that's not a part of China. So that's why I thought I'd highlight that very interesting. And then let's talk about the Comac ARJ21, that's the regional jet with those GE CF34-10A engines. For the Comac, 112 aircraft have been delivered and service, 775 open orders. And here you go, GallopAir of Brunei, they announced an order of 15 these airplanes. So again, previously thought to be a China-only kind of market, but Brunei's not in China. So here's a nice picture of the ARJ21, a regional jet. Let's go on to Slide 25. Okay.

So the 777X with 9x engines. We talked a lot about the – last few quarters about the issue with the fan case redesign, if the fan case redesign is successful, then the case wrap won't be needed. I'll give you my perspective based upon things I know, which is, I guess, considerable. I think that chances of that happening are kind of fading away. So I think just – my opinion is, this will be a real important exciting program for Park for a long time to come. Planned entry into service 2025, currently an active program for Park, if you know that, this is currently an active program for Park. I don't want to say too much more about it, but I feel quite encouraged that this is not going away, and it's going to be moving up a potentially significant program for Park.

So we're happy about that. What we've got to give honorable mention, the 747, we're still making spares of 747. Slide 26. This slide you're familiar with, a couple of changes, though to it. GE Aviation Jet Engine Program sales history, I won't go into the history, just look at the slide – in the column though, look at Q1 to Q2, $6.2 million to $3.1 million, there is a $3.1 million difference, and I think that's about half, isn't it? Yes. For Q3, we got $4 million booked, but we're not – it's not a forecast because there's so much uncertainty, which we'll talk about a little bit more. We get it, it's a burn down, we got it in Q3 and Q4. So I mean, look, we wouldn't expect to be less than that, but we're not giving you that as a forecast.

We're just saying this is what we know, and we're not giving you a forecast. We just don't feel comfortable. Now one thing I want to add is on the right hand – in a little box here, see, $9.4 million. Remember we said earlier, same amount of non-GE Aviation Programs in Q1 and Q2. So that annualized, it's $37.5 million. And I just want to – just to remember that number, $37.5 million, if I forget when we get to our outlook. So we'll talk about that again when we get to that outlook. I think on Slide – I don't know, 35 or something like that. Okay. Let's go to Slide 27. Okay. Now this is the painful part of the presentation. GE Aviation sales are all about the MRAS inventory burn down, still in time, the sharp drop-off in Q2 GE Aviation program sales is all about MRAS's burn down of Park inventory carried by them and its subcontractors.

Now this is a really key point. The MRAS calendar year 2022 build plan, that's their build plan, not our plan. They're build plan. This is what they plan to build in 2023. We got to build plan too, I think, 2028 or 2029. This comes from them, not us. It translates into approximately $20 million – sorry, $23 million of calendar year 2023 Park Aviation GE Program sales. It's very easy to do the math. Once we know how many units they're going to build, we know how much material is used per unit, we know what we sell the material for. So it's very easy to do that math to get to $23 million. That's a pretty precise number, assuming the build plan is correct and normally it is, that's approximately $5.75 million per quarter. So the MRAS calendar 2023 build plan is reduced to some extent, this is just a side point.

Because MRAS is carrying excess finished structures inventory as well. I was reluctant to put this in, this could be confusing. This is just saying, their build plan would be more, except they have their own inventory. That's nothing to do with Park inventory. As far as Park's concerned, what matters is their build plan, okay? That's what matters. That says, this is how many units they're going to build, and that will drive how much material – Park material they're using. But since MRAS' 2023 build plan translate to $5.75 million in Park GE Program sales per quarter. Why were Park GE Programs sales only $3.1 million in Q2? I guess we already kind of gave away the little secret, but what explains $2.65 million, that's just math. That's taking $5.75 million subtracting $3.1 million.

Which translates to $2.65 million gap to doing Park's expected Q2 GE Program sales based upon the build plan and parts actual Q2 GE Program sales. Well, again, now it's all about the burn down – the MRS burn down of Park's inventory carried by MRAS as subcontractors. The inventory burn down explains 100% of the gap or short flow, which makes sense because – as we had the programs are ramping up, the programs are going strong. So why would the number be down? Well, that's the explanation. That's 100% of the explanation. Let's go on to Slide 28. Why the inventory burn down? Why the surprise about the excess Park inventory being carried by MRAS? I'm going to say something, I mean, very sincerely, MRAS is a wonderful customer. The relationship between MRAS and Park is very special and unusual and Park is very fortunate to have such a wonderful customer as MRAS, and that's such an unusual relationship with MRAS.

And this is not just BS. No way, it's not true. I've been doing this job for a long time. And I've got with lots of customers over the years, some really good, some were not so good. But this customer's special, I would say, quite special, and the relationship with them is quite special to really a true partnership. If you run a while, you get nervous when a customer talks about being partners because that means when they want something, you're partners, when you want something, you're not a partner anymore. But with MRS, I gave you a dozen examples without even thinking about it. It's been a true partnership, win-win, true. Their sourcing people are very enlightened, I would say, very enlightened people. But to put it kindly, maybe inventory management, if not the aerospace industry's strongest suit.

What's going on here? I'll give you my opinion. I'm not extra in the aerospace industry. It's a strange industry, no doubt. It's very risk adverse and adverse is to change, but that's for obvious reasons because of safety. The FDA doesn't want some OEM or a contractor to make and change – to willy-nilly to airplanes or structures and systems, that would be like a danger, chaos, would be dangerous. But there are some collateral effects in my opinion, again, related to this being risk averse and resistant to change. So what happens in the aerospace industry, in my opinion, again, is the players tend to go on autopilot too long, they tend to overshoot. They just kind of get something locked in, and they're not paying attention to the signals that much.

There are not that much agility, let's say. So it may be a little bit of a byproduct of being risk averse and resistant to change, which is good – to be that for safety. So what happens is, that could lead to increasing oscillations with these overshoots. You wait too long, you wait too long, you're not reacting. And then by the time you realize, you're six months late and react and then you have to – the correction is – could be pretty extreme. So for Park, I mean, we're not going to change the aerospace industry. We chose to be in the aerospace industry. What does it mean for us? We need to be really agile, flexible, have a lot of urgency and how we manage our business. We're certainly not singling out MRAS, they're probably better than a lot of other companies in the aerospace industry.

But this is, I guess, try to be kind of delicate about – this is what's going on here and why we have this surprise and this inventory burn down. Will this kind of inventory surprise happen again? Likely it will happen to [indiscernible], how close do we work with MRAS? We work with them really closely. There's nothing hidden or anything like that. It's very transparent. It's happened before, likely it will happen again at some point in the future. So there maybe, like, it will be some degree of quarter-to-quarter volatility in our GE Program sales because of inventory management challenges, maybe some of the rollercoaster from time to time. That's just what it is, in my opinion. Slide 29. But by considering all the wonderful things which have resulted from the relationship with MRAS and the many wonderful things still expected to come from the relationship on balance, there's no question whatsoever in our minds that we are extremely fortunate MRAS as a customer on balance, not even close when you consider the plus and minuses.

Not even close. No. Nothing to talk about, not even close. Now there may be quarter-to-quarter GE Program sales volatility in the future, we're happy to work through and deal with the volatility and challenges presented by it, because to us, overridingly important consideration in long term, is a long-term outlook for GE program sales, which we explained on Slide 34. Yes, it causes – we have to – of course, it's a challenge towards our production management, with supply chain management and with our staffing management. We're happy to deal with it. We're happy to deal with it, on balance, not even close. So where are we going with the burn down? Based on the information we have, we have a lot. We believe the burn-down will likely be completed in our Q3 and our Park inventory carried by MRAS will be "normalized", by the end of Q3, we put normalized in quote for a reason, because that's kind of a complicated term.

Let's go on to Slide 30. One more consideration regarding inventory management. As a general matter, we kind of touched on this already, is very important to avoid overcorrecting, as doing so kind of overshooting, can create additional volatility with increasing sine wave amplitudes and inventory swings like oscillations. So you probably know what that means. Sine waves that kind of go up and down, you've seen that. This is a concern of ours and others, we're not the only ones, and I won't mention who, but we're not alone that's concerned. If our concerns are well found then it could result in a significant spike in demand in our Q4 and into 2025. So that shouldn't be a real surprise. We shall see. But in the meantime, we're keeping our antenna up and our to the ground.

Let's go on to Slide 31. This is kind of I think, kind of summing it up for us – for me anyway. In any event, what do we think about all this? What do we think about all of this? We think mostly short-term noise is static. Now we – like I said, we have to deal with – from a management perspective, the oscillations, the up and downs. But in terms of what matters to Park, in the long term, mostly short-term noise is static, we think the freight train, the "Juggernaut", is coming down the tracks at us 100 miles per hour and it cannot be stopped. You got to look on Slide 34, we're not fooling around here. We think we better be ready or we too will be overrun. That's what we think about it. So let's go on to Slide 32. Okay. Financial outlook.

How are we doing with time? Yes. Financial outlook for Park and GE Program is a little bit of an update. Okay. Because of uncertainty with Q3, because the burn down. In Q4, because they've just spiked. Very difficult for us to provide a meaningful forecast for Q3 and Q4. We're not going to – what's the point of guessing? We're not going to – we're just doing you a disservice. When will we be able to resume and provide a quarterly long-term forecast estimates? I'm not sure, we'll definitely keep you posted. But we were able to provide the following updated revenue outlook for GE Aviation Programs and financial outlook for Park generally. And we believe the GE Aviation Programs and Park outlooks are much more meaningful and significant than quarterly forecast estimates because the quarters go up and down because who knows why, but the key thing to us is, what's the long term outlook?

What are the long-term prospects? That's more meaningful for us and that we have a better feel for as well. What's the timing for the outlook? We have the outlook and one year to – what people say, what year is that? It's like, we're not sure what year it is. I mean, if the CEO of Airbus says that you're going to be at 75 A320neos in 2026. What am I supposed to say? No, he's wrong? I don't know. But I mean – so we don't know, why play the guessing game? I'm not sure. But as I said, and this is a key thing for Park, the freight train is coming, it can't be stopped and we better be ready. And Slide 33. These are the assumptions we use. I won't go through them. This is the same assumptions that we shared with you last quarter. Going to Slide 34.

I'm going to stop here, I know we're running late. But this slide requires a little bit more discussion. See the $55 million number? Is that an aggressive number? Well, let's go through it, let's go through the math. A320neo, 1,188, remember, we talked about that number before. We're just doing the math. 75 per month, 66% market share. We're not assuming that market share is going to go up. It might. We're not assuming that. And we know what the revenue per unit is. There's $36 million per year from the A320neo. This is assuming 2025 to 2029, 2025, 2029 pricing. That's for 20. That's for the Global 7500, 8000 aircraft. 90 airplanes? That's the low end of the build plan. We have low numbers and high numbers from the MRAS for the build plan. That's the low end.

So we're being aggressive? C919? What I'd tell you, we're – sorry, that yes, Comac said they're going to be in 150 in five years, that means 300. These are – you got to convert two engines per airplane, okay? We're just using 100 equivalent – 200 engines, 100. Now let's talk about that. The A320, they're predicting 900 airplanes per year, the 737 they're just talk now, but if they go to 57 per month, that's 684 airplanes per year. We're talking only 100, which is 50 less than what Comac says? Is that aggressive? I don't know. Again, the revenue per unit, those numbers we know. ARJ21, that's the regional jet. 55 is lower, in the low end of the build plan range. There's 2 numbers high and low. This is lower than the build plan range. Are we being aggressive?

GE9X, we're not going to give the unit numbers, but I can assure you it's conservative. Now the number – the total numbers went up. Why is that? Because the revenue per unit went up because we have new pricing and the price is – we're taking into account the new pricing, that gives you the $77.5 million per year, pretty conservative number of units, I would say. So let's talk a little bit about some of the footnotes here. Okay. So Item three, footnote three, A320neo aircraft. Park is using Film Adhesive materials – qualified and use this program? Is that aggressive? Well, I know, you tell me we're qualifying and that's a lot of money for MRAS as well, qualifying their Film Adhesive product with them. They're hiring engineers. They can invest, why would they be doing that?

If they don't plan to put the film adhesive on the programs. Is that aggressive? Well, I don't think so. Let's talk about some more. Item five, Passport 20, Item six, which relates to the 919 and Item seven, which relates to ARJ. We're assuming that every one of the cases, our film adhesive is not used in the program. Why is that? Because I mean, clearly, MRAS once again, their Film Adhesive products were in all these programs. They don't want to have to buy film adhesive for brand X and also for brand Y. Why are we doing it? Because we're being conservative. Why are we assuming rather they're not in the programs? We're being conservative? So you tell me, the $22.5 million, is that an aggressive number? That an aggressive number? I don't think so.

We're just doing math here folks. Do people think that we're kind of overdoing it or promoting or hyping. I don't know where that – I don't know where you see that. Let's go on to Slide 35, okay. Park Aerospace Corp. financial outlook, principally based upon growth estimates of programs on which Park sole source qualified, an update. All right. This is pretty much very similar, although we've updated the you estimated GE Programs or incremental sales of 32.7%, that's just doing the math again. And there are footnotes on the next slide, Slide 36, which explain the math here, which we pretty much know, there's not too many changes. The $20 million for the ADL, Kratos, Valkyrie. Somebody said he saw [indiscernible] numbers high. It's like, okay, I know where you get that – the information from.

To me, this number is conservative, quite conservative. But I guess we'll see about that. Non-GE programs incremental sales, well, that's interesting because remember, we're using baseline of 2023, where there's non-aviation sales were $32 million and $8 million brings it up to $40 million. That's the assumption here. $32 million plus $8 million is $40million. That seems like what we say, 5% a year over five years, something like that. Where are we in Q1 and Q2? We're $37.5 million. So $5.5 million of the $8 million has already been achieved. Now that's Q1 and Q2. We could go down. I mean, I'm not saying that we're going to – that number will move up now. But we still always does – based on timing of programs. That's just how airspace works.

But I just want to point out, again, are we being aggressive? I don't know. I don't see it. And the rest of the math, you could just follow through and follow along yourself, you can see how we get to $36.5 million of EBITDA for outlook. Let's go – so Slide 36, I'm not going to go through these items, just trying to explain in detail the kind of things we already talked about and how we could do the math. If you have any questions let us know. Slide 37, let's stop there for a second. Just remember, very importantly, this is an outlook. This is not a forecast. Why do we say that? Because the outlook does not take into account lots of other programs we're working on. We're not sole-source qualified yet, we're working on it. Now some will hit and maybe some won't, but some will.

And some of them are pretty big, significant revenues. The bullet items, the first one, boy, we're talking big stuff here. The second one, okay, we announced, we have a new Film Adhesive product line. What do you think, we don't want to sell any of it? The only Film Adhesive sales in any of the outlook is for the A320neo, nothing else. Nothing else in GE. What about other customers? You think we're not approaching other customers? Of course, we are. And we have a lot of interest customers. So kind of like, yes, we are actually planning to sell that product to others. It helps a lot, by the way, they'd say, yes, we're getting qualified in a big program in terms of credibility. The Asian JV, we talked about that before. Structures assembly, integration project.

That could be a big one, technology license could be big. Israeli Arrow 3 Missile Defense System could be big. So I just want to make a point again, none of that stuff is included in our outlook. And we're not going to do that. We're not going to quantify it for you because some will hit some won't. But some of these are big ones. They're like binary. It might be 0. It might be a lot more than 0. But it probably won't be somewhere in between. Let's go to Slide 38. Okay. These are updates – I guess by coincidence, almost, on the three programs that totaled $20 million in the outlook, the ADL program, the Kratos program and the Park [indiscernible], I think all, everything is positive. I guess the only thing to highlight is a Kratos replicated program.

That's something that DOD has announced recently. This is, I think, a very positive new news for Kratos and to Valkyrie, very positive news. It seems like the government is really going forward with these unmanned systems. And the Valkyrie seems to fit right with – right in there, whenever these – any article I see about it, Valkyrie's always mentioned, I mean, about the replicated program. About the PAC-3 missile, everybody wants it, and what's holding it back, I guess, the supply chain. Let's go on to slide – almost missed, 40. Okay. On Slide 40, kind of going long on time. We're getting there. Hang in there for a second, please. So this is a slide we shared with you before, $74.2 million. So we're paying down that transition taxes, toll and payment.

We paid $3.2 million in our Q1. $9.3 million, as far as I'm concerned, you should consider that to be money spent. I mean, that's one, that's old. It's almost like debt. Like, we don't have any debt, but it's almost like debt. And that money – and that gets paid. There's two more installments. The last one is in June 2025. That money will be gone on June 2025. So you got to consider that money gone. The $6 million for the Kratos project, and we'll see about that. And there are a lot of other projects, some of which we kind of referenced in some of the outlook discussions that programs that would require investment. So we'll see about it. But it looks like kind of conceptual number, $58 million, $59 million. That's not a forecast, but it's kind of how we look at things in terms of, okay, this is how much money we have.

This is kind of how much money is committed. And obviously, we hope to be generating cash as well. So that's why I say it's not a forecast. But for us, it's conceptually important. 41. Our balance sheet cash dividend history and buyback. Every quarter, we cover this. We got 0 long-term debt dividend history. For others, cut or cancel the dividend, Park maintained its regular quarterly cash dividends throughout the pandemic, an economic crisis. Park has paid 38 consecutive years of uninterrupted regular quarterly cash dividends without ever skipping a dividend, reducing dividend amount. And a big one in blue, Park has paid $586 million, $586 million or $28.60 per share in cash dividends since the beginning of fiscal 2005. And as I always say, that's a hell lot of money for a little company like Park.

And as announced on May 23, 2022, our Board authorized Park's purchase of up to 1.5 million shares in company's stock, end of May 12, 2023, Park implemented Rule 10b5-1 program, which expired, by its terms on July 7, 2023. Under that plan, we purchased 221,099 shares of our common stock at an average price of $13.02, total cost of $2.879 million. On August 11, 2023, we implemented another 10b5-1 program, which expires, by its terms, today. Under that plan, no Park stock has been purchased. And we're just about wrapping up here. The Park family – sorry, slide, was it 43? Yes. The secret continues, the secret to our success continues. Okay. We've given you an update on our Customer Flex Program. We haven't done that the last couple of quarters just because we're trying – for brevity, but total participation is 62%.

Don't read something negative in that. We have quite a few new people, and it takes a little while for them be qualified, to be in the Customer Flex program. So still a very important program, very, very important for our success now and in the future. Park family, the Park family current people count, 119, that number a little higher than you're used to? Our short-term plan is to add another 15 employees and increase our Park people count to 134 million Park people. So what's going on here? But before we get to that, just be advised that doing this cost about $1 million per year, extra cost? Or if you want to use 110 people as a baseline, which is kind of where we have been for last couple of quarters, that's $1.5 million of extra cost to our P&L.

We're talking about – and here's something interesting, this can happen relatively quickly, particularly for the production workers. Now why is that? Well, to my shock, we started using social media for recruiting people, Glory, Courtney, Nancy, they come up with really great ideas. I said, okay, whatever. But what do I know? I mean, I'm just not very good in this stuff. It's really helped a lot, it's made a big difference. And I think the other thing that's more important is that the Park family culture has taken hold. Courtney says it's a great place to work. And we really believe that. Not an easy place to work, great place to work. And I was a little frustrated because I felt, boy, we're doing all the right things. We don't lay people off.

We love our people. Our people are family to us, we treat people family. Why is it harder [indiscernible] people. I think we just had to stick with it a little while longer. And now it's taken hold. The word, I think, is out. And we got a line out the door of people – can come work for us right now. So that's good news. But watch our cost because we could get up to 134 number pretty quickly, especially for production workers, half about – half of the 15 is going to be production type workers. So, okay, that's good news. Let's go on to Slide 44. I guess it's good news. I mean when you look at it, Slide 44. As previously stated, we need to get ready for the Juggernaut or we too will be overrun. So our great Park people are committed to making money for owners every quarter.

We run our business for Park's future, for the long term, not for the next quarter. That kind of commitment is maybe what you call enlightened self-interest, I think that's a term where people realize, for us to have the future, we need to make money for owners every quarter. If you're an owner, you want people – make money for you. But what do we mean here? We run a business for the Park's future. In other words, we're hiring people or hire people in advance. So we're ready for the Juggernaut and we won't get overrun. So in other words, they're not running for the quarter, they're running for the future. And our intermediate plan is to increase our Park people count to 143 people. So let's see what happens with that. At Park we're so very fortunate and blessed to have a great Park people we have.

At Park, our people have been playing for – play for keeps. And we now have on our 70th year of playing for keeps. And our tradition is, we always feature some group or crew from Park. This is our Aerospace Composite Structures crew. So really emphasizing this because we're looking at significant structures and assembly program opportunities we're working on right now. So this crew is very important. We're already due it a little bit. This is also a very great group because they do other things. They do ITAR work. I can't explain that to you, that's – I'm not the one to do that. They are in the Customer Flex Programs, so they can do two or three other jobs. So very wonderful to have people like this. Anyway, operator, and everybody else, thanks for listening.

That concludes our presentation. We are ready to take any questions that might be out there.

Operator: Great. Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] All right, Brian. I am not seeing any question at this time. I would like to turn the floor back over to you for closing comments.

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Brian Shore: Okay. Well, this is Brian again. Thank you very much, operator. Thank you all for listening in. Feel free to give Matt or me a call if you have any follow-up questions. And you have a good day, and we'll talk to you again soon. Take care. Bye.

Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.