Categories Earnings Call Transcripts, Industrials

Park Aerospace Corp (PKE) Q2 2023 Earnings Call Transcript

PKE Earnings Call - Final Transcript

Park Aerospace Corp. (NYSE: PKE) Q2 2023 earnings call dated Oct. 06, 2022

Corporate Participants:

Brian E. Shore — Chairman and Chief Executive Officer

Analysts:

Brandon Dietz — Huffman Prairie Holdings, LLC — Analyst

Presentation:

Operator

Good morning. My name is Paul, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Park Aerospace Corp. Second Quarter Fiscal Year ’23 Earnings Release Conference Call and Investor Presentation. [Operator Instructions]

At this time, I will turn today’s call over to Mr. Brian Shore, Chairman and Chief Executive Officer. Mr. Shore, you may begin your conference.

Brian E. Shore — Chairman and Chief Executive Officer

Thank you, operator. Welcome, everybody, to our second quarter conference call. This is Brian. With me as usual, Matt Farabaugh, our CFO. As you obviously noticed, we’re trying something a little different this time. I think for as long as I can remember, like forever, we’ve done our investor calls at 11:00 in the morning New York time. We’re trying to do something — we’re trying, let’s call it, experiment after the close call, which my understanding is that’s actually more common. So we’re trying it. Let us know what you think. We’ll be noticing how many people actually are able to dial in, whether it’s more or less. So let’s know what you think.

The earnings release was posted, I believe, around 4:00 or 5:00 this afternoon. There is a presentation which has been posted on our website. Also in the earnings release, there is a webcast instructions as to how you could follow along with the presentation while we’re going through it, which is what we’re going to do today, of course, as you know. Let’s see just checking any other introductory notes I want to share with you. Yeah. There’s something I got to tell you, which is that, I’ve been under the weather a little bit, you may be able to hear in my voice. I’m feeling just fine now, but the problem is I have a lingering cough, which is not a problem for me, but it could get a little annoying for you. So if I start to cough, please bear with me. Unfortunately, the thing that probably triggers cough the most is trying to talk for an hour at a time. I may hand it over to Matt if it’s getting problematical. So I just wanted you to be aware of that. And I apologize in advance for any kind of annoying distractions.

So this presentation, probably about typical for us, maybe it takes about 45 minutes. Of course, after we’re done with the presentation, Matt and I will be happy to answer your questions. And I think that covers them in terms of the introductory remarks. Why don’t we get started? Here we go. When we go to Slide 2, be looking for a disclaimer language. So we won’t go through this, as you know, but please call us if you have any questions about it.

Slide 3, our table of contents, the investor presentation, supplementary financial information, which is attached in Appendix 1. We’re not going to go through that, but please call us if you have any questions about the supplementary financial information.

Let’s go to Slide 4, probably slow down a little bit now, unfortunately. Slide 4 is the second quarter results with the history here as well. Sales for the second quarter, $13.875 million. Gross margin, 29.4%. As I think you know, we really don’t like it when that number is under 30%. So we’re not feeling so happy about the gross margin being under 30%, I’m talking about. And EBITDA, $2.709 million. And the EBITDA — adjusted EBITDA margin percentage, 19.5%. We don’t like that under 20% pretty much either. So those percentages aren’t really things we’re very thrilled about. What did we say about Q2 during the Q1 investor call? So we had a — sorry, that’s the first cough. Sales estimate of $13.5 million to $14 million. So we came in kind of right in the middle of that range at $13.875 million, but adjusted EBITDA estimate was $3 million to $3.5 million. And we came in well under that number, $2.709 million. So let’s talk about that.

Why don’t we go on to Slide 5? So let’s start, outstanding job by Park’s people to make the Q2 sales number considering significant challenges with supply chain disruptions, freight disruptions, severe staffing shortages. I know it’s a broken record, but these things are not going away. A broken record in the sense that we talked about these things a lot recently. These things are not going away. You’d have to kind of live and almost understand how difficult, almost oppressive these things are and how — I want to give credit to our people for making the top — the sales number, notwithstanding of these things. These three things together probably totaled about $750,000 of missed shipments when you combine all three of them. But nevertheless, we still made our top line number. So what happened to our EBITDA number considering you made the top line number, you would think we would make the EBITDA number. So let’s talk about that.

So first of all, there were two customer items, which had a total negative EBITDA impact of about $0.25 million, $250,000 of bankruptcy and another customer related item combined by $250,000 in the quarter. Let’s go on to Slide 6. Significant inflation. Now, inflation is not a new story, of course, but some of it we didn’t fully expect or fully bake into our numbers when we gave you our forecast. Material supply costs, not new, just maybe a little bit more than we were expecting. Freight in, freight out, both ways, freight costs, people costs, absolutely, you name it, probably more expensive, insurance, but we can give you a list of 20 things if you want. Now why don’t we fully pass these increased costs on to our customers in Q2? It’s a very good question. And because like many others, we honor our commitments and our confirmed POs. At Park, honor and integrity are not relative principles, are not negotiable. At Park, honor and integrity are what matter most. Remember I told you, I think, last quarter that one of our suppliers was lecturing us about honoring our POs with our customers and what were they saying, well, everybody else is doing it, meaning not honoring POs. It’s like, well, isn’t that one of your kids you’re told that doesn’t count, whatever. It’s not a good excuse for doing something that everybody else is doing it. It’s kind of sad that adults are thinking this way.

And the other thing is, well, we’re going out of business. So, we haven’t gone out of the business yet, and I suspect we’re doing a lot better than most. So here are those things, I think, are good explanations or good excuses. The lag effect, so what that means is that, we honor our confirmed POs. Now, when we actually recall, then we can take into account these extra costs and pass them on if we choose to, then we can. But that might not be for three, four months down the road. The difference is what — lots of other people, they’re not waiting. They’re just saying fine, we’re not — can’t do [Phonetic] the pricing that we have, the confirmed PO. Now we don’t do that. So we have to wait, and that’s the lag effect. And that’s why we’re always a little behind in terms of passing things on.

So let’s go on to the next slide. Historically high inflation. Yeah, we’ve talked about that, getting that genie back in the bottle. Not looking too promising. Also a lower margin product mix. You’re going to ask, well, why didn’t we anticipate that when you gave the forecast? Well, planning is very “interesting” in this world of supply chain chaos. We do planning, but it’s almost like — whatever. It’s a plan, but it never comes through because we’re always juggling, always moving things around, moving something and moving things out because we’re planning to produce that for this week but the raw material don’t come in. So we’ve got to move something else in that we have raw materials for. So it’s kind of like brute force, a little bit chaotic, maybe sometimes more chaotic. I mean, we’re good at it but it’s an enormous amount of effort. But the bottom line is, we don’t know what we’re going to be producing in a quarter. When we gave you a forecast, we think this is what we’re going to be producing and shipping. We don’t know that because there’s so many uncertainties based upon, especially supply chain disruptions, also workforce issues, freight in, I would say. But that’s the reason why we couldn’t really fully anticipate — we didn’t fully anticipate the product mix. So it’s somewhat of a lower margin product mix. There are some stuff we wanted to ship at the end of the quarter that was higher margin. We just didn’t get there. The raw materials didn’t come in on time, and we just didn’t — we just — it wasn’t possible to get it done.

The supply chain disruptions, they’re causing significant inefficiencies in our manufacturing operations. Most manufacturing people like to have a nice plan and everything, nice and simple and quiet and calm, we’ll do this tomorrow or this next week, we’ll do that three weeks from Tuesday. That’s all nice and good. And then you could throw it all at the window and start over again. And we’re moving stuff around a lot, all the efficiencies, manufacturing efficiencies with manufacturing people like out the window, it doesn’t — they’re gone. That’s what we’re living with.

So not our list of excuses at Park, excuses are not our thing. Bottom line is, we did not make our EBITDA number plain and simple. No quarterly bonus for our people. And you could say that’s kind of harsh. A lot of people, not their fault, but it doesn’t matter. We’re all in this together. And harsh it might be, but at Park, we earn what we get. If we don’t earn the money, we don’t get the bonus, period, end of story, whether people like it or not. That’s our kind of way of doing things at Park. But we still thought you would want to know about some of the key things we’re living with and which affected our Q2. No, it’s not excuses, but I think you want to know.

Let’s go on to Slide 8. Sorry. This is the historical fiscal year results. We’ve shown this for the last few quarters. Things were interesting. We highlight ’20 and ’22 because, obviously, you look at the ’22 sales, much lower, but the gross margin quite a bit higher. And even EBITDA number, not the percentage, the actual number is a little higher. So I want to flag that for you.

Let’s go on to Slide 9. This is something that we’re covering now for the last few quarters. Actually, one of our very good investors suggested it. And always like getting suggestions from investors, we don’t do a piece of it, we don’t just do stuff to make people feel good, but something is a good idea, sure, why not. We don’t have this non-invented-here kind of stuff added to the Park, that’s for sure. Anyway, so no — zero long-term debt. $102.5 million of cash and marketable securities at the end of the quarter. Our management — our investment philosophy, highly secure and liquid securities, treasuries, governments, high-grade commercial paper, as an example, current average maturity of 22 months. And our practice has been the hold of our investments until maturity. That’s kind of important. We’ll get back to in a second. We just mark-to-market reporting of our cash, we talked about it last time. And I did that because I knew this was coming, that as interest rates keep going up and up and up and up, and they’re moving up, that’s for sure. So we have the — it affects how we report our cash on an — for GAAP purposes. Now, the amortized cost basis of our cash is actually quite a bit higher. It’s $107.2 million. And the theory is this that if we hold these — the investments like cash invested in these, I don’t know if we talked about — until they mature, which has been our practice, we’re more likely to result with that higher number, approximately $107 million rather than $102.5 million.

Just FYI, let’s go on to Slide 10. So let’s talk about where some money is being spent. Major expansion, we spent about $500,000 in Q2, about $0.5 million still to go. This total transition tax installment payment, we’ve talked about this over the year. It’s a little bit complicated, nuance, but still the $12.6 million to go, $8.4 million paid to date. This has to do with repatriation. It’s complicated. If you want a better explanation, call Matt, we don’t want to take up your time to go through this explanation again. But the payment made in Q2, $1.7 million. So you see that’s starting to add up. And then also, I don’t if you noted in our balance sheet, inventory build of $3.2 million compared to the beginning of the fiscal year. So that was — that’s really intentional. I just said, we’re having a really rough time with supply chain kind of pulling our hair out. So we have the opportunity to build some inventory strategically and we’re doing that on a theory that we’re hoping that it will kind of make things better in terms of supply chain, give us more kind of predictability, more ability to plan, more ability to meet our commitments to our customers as well. And, of course, just one other thing that you probably know about, every quarter, we have a $2 million — approximately $2 million payment of cash — regular cash dividend. So those are some of the items we’re spending money on, and just FYI, if you’re interested. Cash dividend, yeah, where others cut or cancel dividends, we’ve maintained a regular dividend throughout the pandemic. We paid 37 consecutive years of uninterrupted regular cash dividends.

And then let’s go on to Slide 11. Here we go, $556 million. I always like that number involved. $556 million, that’s a heck a lot of money for a little company like Park or that’s a God damn lot of money, I must say. $27.15 per share since 2005. So remember, we got no long-term debt and still got quite a bit of cash. We have a share repurchase authorization, we talked about this last time, announced on May 23, of 1.5 million shares that we are authorized to buy. We haven’t purchased any of our shares under this authorization, not yet. So you may not agree with this, but our feeling it’s basically your job to buy our stock, not our job. Our job, do everything possible and more to maximize the fundamental value of the Company. That’s how we look at it. I know a lot of people don’t like that, disagree, but what now. So every now and then, the market will make us an offer we can’t refuse. And that’s the thing here. And will that happen? We’ll see. But the stock price is getting interesting, let me put it that way, based on any kind of metric that I think reasonable people might use. Like I said, you can disagree, it’s not our opinion, it’s not our job to buy our stock, that’s yours, if you want to. So we sell [Phonetic] if you want to. It’s our job to do everything within our power to maximize the fundamental value of the Company. That’s what we’re doing 24/7, I think. So last item with interest rates rising or cheap money and — cheap and easy money come to an end, hard-earned honest money finally be worth something.

Let’s go on to Slide 12. Top five, well, boring because that’s same number of — same companies, same names as last quarter. So we got to keep coming up with new pictures and new programs quickly. The SM-3 missile today program of Atlas. It’s a fast one, it’s fast damn missile. Mark 13, I guess, is about how fast it goes in some variant. So the A320neo, you probably think that’s an MRAS of reference. It’s actually GKN because GKN also supplies into the LEAP-1A program and when we — with our materials. The 737-800, that’s NORDAM, that ties in the NORDAM, NORDAM [Indecipherable], WeatherMASTER Radome and it used in a lot of legacy, 737s as well as the MAXs, I understand. Kratos, they’re kind of a regular these days, and this is one of their drones. This is the target drone.

Okay. Let’s go on to Slide 13. Not much here except first six months, and this is a pie chart stuff, which I kind of like but not too much shocking stuff here, I would say. But if you look at first six months, it seems to be falling on the pattern of the last fiscal year, more or less, with a couple of percentages here or there. Not a lot of difference. So, whatever it’s worth.

Let’s go on Slide 14. Park loves Niche military aerospace programs. This is always Elena’s project that come up with a kind of cool new programs discussed with you. These are always the biggest ones, but they’re fun, the cool stuff. GBSD, that’s parts and materials. And it’s actually more structures than ablatives. Raytheon MK 56 guided missile, ablated materials, E2-D Hawkeye, there’s some parts we’re producing. Probably the fun one is this helmet and spacing stuff by David Clark. This is for the Orion space program. So in the category of cool, I think that might get the award for this quarter. And you see the pie chart, nothing dramatically different. I think we’ve talked and radomes, rocket nozzles, drones usually in the niche category. We have plenty of their aircraft structure for military, which would be considered niche as well. Niche for us is good.

Slide 15. So we covered this last time, but with a little bit of a different angle, so we’ll try again to cover this topic. New world order, we certainly covered that, the sea change, defense industry based upon the war. Two major impacts, significant increase in defense budgets and spending in Europe, Asia as well as North America. We covered that. Deglobalization, didn’t really touch on that last time. This is individual countries in Europe and Asia, taking more responsibility for their defense needs and spending. These countries are less willing to rely and depend predominantly on the US, NATO, other alliances for their defense needs. Best example is probably Poland, which is really up on the ante, significant increase in spending to both through expands and modernize military.

Let’s go on to Slide 16. And not surprisingly, surprise-surprise, missile defense systems, including the PAC-3 Patriot missile. One of the key areas of emphasis, when people are shooting rockets at you or missiles at you, missile defense systems probably come to mind. As previously discussed, both Lockheed and Aerojet have recently now a significant increase in interest in orders for the PAC-3 missile system. Now Park supports the PAC-3 missile defense system, especially ablative composite materials, and we believe we’re sole-sourced in those program — that program. PAC-3 missile defense system used in Asia, Japan, South Korea, Taiwan, key parts of their — as key parts in their defense systems. And these countries, not surprisingly, or are in process of upgrading their systems and adding systems. It’s kind of a rough world right now, unfortunately. We’re not happy about it. We’re just supporting these programs. If it was up to us, it would be a different world. The Netherlands and Romania, they’re buying PAC-3 missile defense systems. And Poland — thank you, Poland. They’re ordering additional — they already have PAC-3, but they’re ordering more in Poland.

Slide 17. Just continuing on military markets, trends. As previously discussed, Park — we got to go into this because we gave that indication last time which we need to adjust. Park received customer OEM indications regarding significant increases in ablative materials and RAYCARB C2B product requirements to support the PAC-3 and other missile defense systems — program. So last quarter, we said that we thought our ablative and RAYCARB C2B product sales would be well over $10 million in this fiscal year. However, based on recent inputs from our key customers, we believe a $6 million of the RAYCARB product which is planned, that — sales planned for Q4, that in part maybe pushed into next fiscal year. So just for perspective, we’re not saying this is what will happen. If all those C2B Q4 sales were pushed into the final fiscal year, our fiscal ’23 sales of ablatives and C2B product would probably be at $6 million. Now, like I said, we’re not saying that we want to give you the baseline. If you want to guess and please underline guess for me — for us, we would guess about a third of that $6 million stays in this fiscal year, maybe two-thirds moved into next fiscal year. So maybe $2 million of the $6 million, that remains in the fiscal year, the other $4 million maybe gets pushed. So you can do the math however you like.

Slide 18. Big caveat, kind of do the caveat stuff here. The new world order is seemingly far from immune from the serious supply chain and inventory management challenges the defense industry is facing. It has been reported that the US defense industry supply chain is struggling, maybe badly to meet to the significantly increased industry demands.

Okay. So now we’re going to go on to commercial, Slide 19. Thanks for bearing with me here. So commercial market trends and considerations. So we discussed this many quarters now, the industry collapse at the beginning of the pandemic, and subsequent recovery, and lots of details. We’re not going to go all that again. But suffice it to say that the commercial aviation industry continues its strong recovery and rebound from the pandemic and economic crisis. Domestic commercial aviation, it continues to lead the recovery. Domestic commercial aviation generally serviced by single-aisle aircraft like the A320neo family. The customer demand seems to be there to support the continuing robust recovery of commercial aviation.

Let’s go on to Slide 20. But — and there’s a big but here, watch items, watch and caution items. These raise concerns about the sustainability of the recovery. What are they? The obvious ones, so broken record, the economy. Well, people continue to fly if the economy falters badly? I lose — my neighbor loses his job. Maybe I’ll take a — won’t take that really fancy vacation. I lose my job, I’m not going anywhere, you get it. Inflation, oh my goodness. Will the flying public continue to be willing to absorb these escalating ticket prices as the airlines pass on their significantly increased cost for jet fuel and other stuff like people? Labor shortage of pilots, mechanics, flight attendants, ticket handlers, you name it. I have a good friend who runs an airline operation. And every time he used to come that is the first thing he talks about it, I can’t find people. Will the airlines be able to provide appropriate services to the fine public or they’d be required to drastically cut back their schedules and operations? And the $64,000 question, if the commercial aviation industry does falter and airlines seek to defer, push out, cancel new aircraft orders, how will the commercial aircraft industry respond? That’s what we’re trying to in the aircraft industry. Maybe the answer will depend on which OEM we are talking about. If it’s Boeing, I would expect them to respond differently than Airbus. Airbus may try to press their advantage even more aggressively. I’m speculating, I don’t know. I’m just kind of putting it out there.

Slide 21. And, of course, even if commercial — if the commercial aviation industry remains strong, the aircraft industry still needs to deal with its own massive challenges, related to what? I know, broken record, supply chain, labor staffing, inflation. Yes, big things that are not going away, maybe getting worse, I don’t know. You probably know more about it than I do. An interesting new wrinkle to complicate things for all of us, of course, you like simplicity in our presentations. Demand for international travel now recovering pretty nicely. That was not supposed to happen according to all these pundits and all these commentators and industry experts. Not supposed to happen for a couple of years or maybe ever. Maybe international travel is dead forever. But now as a result, a number of these analysts and commentators are now predicting a resurgence for wide-body. Wide-body, longer-range international aviation are generally serviced by wide-body aircraft. There’s a connection. So it’s interesting timing for this predicted wide-body resurgence since Boeing will soon deliver its last 747. Airbus has canceled the A380.

Let’s go on to Slide 22. So is this an opportunity for the 777X? Which is, as far as I know, the only aircraft in the mix, which has close to the range in passenger capacity profiles of the 747, A380, maybe. And also, I’ve got to ask this question, how much share will the A321XLR take from the smaller widebodies like the 787, A330? And will the XLR be a damper on the wide-body resurgence? I don’t know, but something to think about. And last silver lining, we’ve discussed this before. Generally, high jet fuel prices provide airlines with extra motivation to more quickly replace the gas-guzzler airplanes with more fuel-efficient modern airplanes, such as the A320neo or the — maybe the 737 MAX. And there are reports of this happening that airlines are swapping out their legacy airplanes earlier than they originally planned because of the very high jet fuel prices.

Let’s go on to 23. So this is a slide that we shared with you every quarter, just kind of give you a summary. Firm pricing deal requirements contract through 2029 with Middle River Aerostructure Systems, they’re a sub of ST Engineering. What is this all about? All these seem like GE kind of engine programs. So what’s the connection? I think most of you know, Middle River, MRAS, was a sub of GE Aviation. And when we entered into this deal, they were a sub of GE Aviation. So with all this GE Aviation legacy work through MRAS. We built a redundant factory for them in GE Aviation, sole source of a composite materials, engine nacelles, thrust reversers on these programs, which we won’t tick off it. They’re mostly — what? The A321 family, COMAC and Bombardier, that really sums it up. 747 is going away as we know.

Let’s go to the bottom right here. This is something we did add in this quarter. Hopefully, it’s not premature. Hopefully, we don’t jinx ourselves as fan case containment wrap for the 9X — GE9X engines for the 777X aircraft. We talked about this before, but the airplane got — getting delayed and pushed out and delayed and pushed out. So we kind of cooled it on discussing it. But now it seems like there maybe resurgence. We produced the AFP composite materials for this containment wrap. As we’re making a comeback, we don’t know. We just have to remind you also that it’s possible that the containment wrap will be designed out. Safran is attempting to redesign the fan case to eliminate the need for the containment wrap. So that’s — that risk has been there for a long time, we just have to remind you of.

Okay, let’s go on to Slide 24. These slides can be tedious, but we’re doing our best here. We’re trying not to go over everything we’ve gone over so many times. So let’s talk about update on GE Aviation’s jet engine program. So, obviously, we started with the big kahuna, the A320 aircraft family with LEAP-1A engines. And you could read what the family includes a whole bunch of different aircraft variants. So we discussed at length over the last several quarters anyway, Airbus’ public indications about its aggressive ramp rate for these programs. Then the supply chain’s publicly expressing skepticism and challenging Airbus about their expectations, and then the failure by certain members of supply chain to meet those expectations and the public tension which exists between Airbus and certain members of supply chain because of all of the above. So we’re not going to go over the details that again, just to kind of remind you this dynamic, so you have the full perspective.

Slide 25. Let’s say, suffice to say, though, that Airbus has indicated its intention to achieve A320neo aircraft family production rates of 65 aircraft a month by early ’24 and 75 aircraft a month by mid-’25. And even though the ramp-up to these rates is admittedly aggressive, Airbus has doubled, tripled, quadrupled down on its commitment to meet these rates. Also, this is a big one, shockingly Airbus recently indicated, I think in the last couple of weeks or so, its intention to achieve a production rate of 50 A320neo aircraft per month by the end of this year. That’s like now. 50 per month. So wow, that’s kind of a big deal. I mean, end of this year, what is that like? Next week? For one thing, according to — one thing, sorry, which according to Airbus was quite clear, there’s a market and the A320neo aircraft family backlog are there to support these aggressive rates. There’s almost no doubt about that. This is not a matter of whether they have customers to buy these airplanes. It’s a matter of can they produce these airplanes and ship the airplanes? And Airbus is very much pressing the supply chain to support these rates. Their current backlog for the A320neo aircraft family is 6,150 airplanes. Now, I’m not an expert at this stuff at all, but I can tell you that’s a heck of a lot of airplanes that they have in their backlog.

Let’s go on to Slide 26, still on the updates. Do we think Airbus will hit these targets, 65 early ’24, 75 mid-’25? Yeah, we think they will or come close. Why? Because they’re hell-bent to get there, and they have a lot of good reasons for it. In our opinion, whatever it’s worth, probably not much, the supply chain should focus its energy on supporting Airbus’s aggressive A320neo production targets rather than publicly challenging, to which we think it’s kind of strange that that’s being done. And Park, we — of course, we’re concerned. A little Park, we staked out our ground on this controversy. June 17, 2022, news release, we announced our full and unwavering support of Airbus’ planned reduction rates for the A320neo family. For us, it’s a privilege and honor for us to be able to support this Airbus A320neo program, which supposedly is going to be the biggest commercial aircraft program ever. We are all in.

Let’s go on to Slide 27. We do this every quarter. So as of the end of July, CFM or LEAP-1A had a 59.75% share of firm orders of the A320neo family of aircraft. The source is Aero Engine News, that’s like the bible. Every month, it’s like, I don’t know, 100 pages. It’s huge amount of data. So this is not like somebody just kind of off the top or they had opinion on stuff. And actually 59.75%, that’s a round the number. I think it’s probably like 59.723% or something like that, very, very detailed information, is the point. Park also recently received updated A320neo engine unit composite material usage from MRAS. Why that happened? Because we look at everything very, very carefully all the data. Everything we hear from Airbus, everything we could possibly integrate into our little computer, and we challenge it and question it. Does it make sense? Does it make sense? And you go back to MRAS and say, you know, some of this information isn’t looking right to us. Why is this information — the usage information so critical is because, remember this, when we supply material MRAS or through their contractors, it’s all supply to the same spec. So we don’t know where it’s going. We don’t know it’s for A320neo or Passport 20 or the 919, 747. So it’s really critical for us to have this usage information. So we can say, all right, if Airbus is producing this many airplanes, and this is the LEAP market share. We know that — what that will translate to in terms of revenues for Park. So anyway, we went back to them, we challenged it. And they said, “yeah, you’re right.” They came back with all different usage information for us. Now that’s — whether that’s more accurate or probably more accurate, but whether it’s totally accurate, we don’t know. We just keep looking and checking, looking and checking.

Anyway, here we go. Assuming a 59.75% CFM market share and the updated usage data, the 75 A320neo aircraft family per month rate represents approximately $32.5 million per year of revenue to Park before rebates, starting in 2025. Why do we focus on 2025? Because that’s when we expect it, these are being a program and also there’s a built-in price increase in 2025. That’s why we focus on 2025, based on our LTA. So we’re not sure we’re going to update this every quarter because the problem is this, that even if the engine usage information has not changed, the market share comes out every month and changes. So we may be driving you crazy by saying it’s up here or down there by a couple of — by a few hundred thousand dollars every time we do this — do a quarterly — a conference call. So we’ll see about that. But just wanted to give you that information, so you have it.

Slide 28, still on updating GE Aviation. So on a short interval basis, Park’s A320neo derived revenue will not reconcile to what Airbus is doing. It’s just not going to happen. There’s a whole kind of reasons for that. But — and this is key. At the end of the day, the only thing which matters to Park in connection with the A320neo program is how many A320neo aircraft equipped with CFM LEAP-1A engines Airbus produces and delivers. That’s it. Assume we have the usage information correct, the rest is just timing. What quarter goes into — but at the end of the day, what matters to Park is how many of these airplanes are built and delivered with LEAP-1A engines.

A little news on the XLR. We talked — we discuss this, I think, every quarter. Most of this is not new, actually. First test flight June 15. Certification expected next year, and entry into service, 2024. So it has a lot of unique capabilities, in addition, including — they claim — Airbus claim 30% lower fuel burn per seat as compared to legacy airplanes, over 500 firm orders. And Boeing is not planning a response. Is this a game changer? Yeah, I think — a lot of people think it is because this airplane has the ability to replace certain wide-body aircraft with much less expensive operating costs on shorter wide-body missions.

So let’s go on to Slide 29. Okay. Moving on from A320, COMAC 919, here’s some big news. In a recent ceremony at the Beijing Central Airport attended by President Xi of China, the COMAC 919 received its Type certificate from the China FAA, CAAC, kind of China FAA. COMAC still needs to receive the Production certificate. I don’t know if you’re familiar with this, but usually the first thing the OEM will get is a Type certificate but then they need to get a Production certificate, which says every time you make one of these, it’s going to be the same. That’s kind of very superficial way of summarizing. But that’s a kind of concept of a Production certificate. That’s really critical, actually, the Production certificate. So they still need to get that in order to go into volume production. They do source a lot of the key components from Western suppliers. Congratulations, COMAC, for achieving a very important milestone. And this program is potentially a very important program for Park. Unlike the A320, the 919 at this point only uses a LEAP engine. So we’re not sharing the program with somebody else from a Park’s perspective.

So let’s go on to Slide 30. The Bombardier Global 7500, not a lot new here. A very good program for Park. The Bombardier, I think we talked about this last time, they recently announced the Global 8,000 variant with the 2025 entry into service.

Slide 31. This is the sad slide, Boeing 747-8, as you know, Boeing announced it’s terminating production of the Queen of the Skies. The last remaining 747 expected to be delivered this month to Atlas Air. I heard that, actually, one was just delivered and then one is being assembled. They’re getting the last few, so that would go to Atlas Air later in this month apparently. A sad day for one of the best commercial aircraft ever built. I think Atlas Air has more of the 747-8s than anybody. And saying goodbye to the great 747 in Anchorage, Alaska, that’s where the 747 reigned supreme. And I’m telling, you see a lot of Atlas airplane — a lot of Atlas 747 airplanes. There was all — I shouldn’t even say almost, for freight, for cargo that are coming out of Anchorage. Lots and lots and lots 747 operations in Anchorage. Long live the Queen.

So let’s go on to Slide 32, just where things get kind of complicated. So the left part of it — left-hand column is just history. Nothing to earthshaking here. See Q2 $6.1 million. So it’s been in that $6 million to $7 million range per quarter for a while now. Okay. Got it. Then look at the right side of the page, what is this about? GE Aviation programs sales forecast estimate for Q3, $4.25 million to $4.75 million. What the heck does that mean? And this is a good number because this is basically what’s booked. We don’t think we’re going to get any new orders for shipment in Q3. So this is going to be the number. So what the heck is going on here?

Good question. Let’s go on to Slide 33. This gets a little bit, I don’t know, delicate, let’s say. Let’s talk about what’s going on here. First of all, let’s talk about the programs, which we just covered. A320, 50 per month this year, 65 per month early ’24, 75 per month by ’25. When do we have to be at 50 per month to support 50 per month this year, like six, eight, nine months ago. How about 65 per month early ’24? We should be ramping to that level already. 75, yeah, that’s going to follow shortly thereafter. So what the heck is going on here? And 919, it’s got certified, that would be good news. 7500 doing quite well. So what is going on here? We talked about downstream inventory and productive management challenges and dislocations. So we want to talk out of school here. But a lot of loyal investors are very interested in the stuff, but we think we owe you some kind of explanation as to what the heck is going on here. It’s funny, with those inventory management stuff, we — from the electronics industry and all that, electronics industries, you have no visibility. You’re lucky — you have no lead times. There’s no visibility. There’s no forecast. I mean, you’re lucky to — in some of cases with these airplanes, it’s six-, seven-, 10-year forecast. Electronics would be great and happy to have a six-week forecast. But electronics, the industry is very effective at managing inventory and production. We didn’t have these kind of crazy wild swings. That’s the irony of it. In Aerospace, apparently, this is kind of a common thing. It’s not just related to our customers. And I don’t know, apparently it’s not getting better, a very poor track record with managing inventory and production. So it’s always overshooting, overshooting, overshooting, even though there’s these long-term end market forecast that should make it a lot more straightforward to properly plan inventory and production.

So the explanation, well, there’s finished goods inventory. Question is, okay, how much and where? Haven’t gotten a meaningful answer. So you could imagine how exasperating and frustrating this is for us. And that’s what we’re dealing with. At the end of the day, only thing which matters to Park in connection with the GE Aviation programs we support, only thing that matters at the end of the day, how many LEAP-1A equipped 320 — A320 family aircraft Airbus delivers? How many 919, ARJ21 aircraft COMAC delivers? How many Global 7500, 8000 aircraft Bombardier delivers? Period. End of story. But there is a big but though, the downstream inventory and production management dislocations create major challenges for Park in managing our production supply chain. So the thing is, it’s almost like we’re our own worst enemy. [Indecipherable] very flexible, very agile and responsive. I think people — to maybe take advantage of that. At Park, we’ll just turn at a dime, and we will. But our suppliers, no sir, no ma’am. That is not true. So that — it makes it much more difficult for us because maybe we can turn at a dime. Good luck with our suppliers. If we go to suppliers that’s kind of crap, what they’re going to, in two seconds, okay, thank you, we’re going to give your allocation to somebody else. And it’s time to ramp up, oh sorry, we can’t do that because it’s Park gave your allocation away. And you know what’s happening. You know what — sorry, you know what’s going to come. I mean, it’s just math. It’s just math. It’s only a matter of time. I don’t know when, we’ll get that call, oh boy, we overdid it, we got to ramp up fast. And this is what we deal with on a daily basis, weekly — day basis and I know it’s getting better. So like I said, I don’t want to talk out of school, but we had a lot of loyal shareholders that had been with us a long time. And I think your own good understanding, an explanation of why the heck would we be looking at that kind of number for Q3? So that’s our explanation, we’re sticking with it.

Slide 34. Let’s go on to the forecast for Park. So you see — first of all, you got to Q3. Q2 actual, we stated that. Q3 forecast, nothing earthshaking here. $3.25 million — sorry, $13.25 million to $13.75 million sales. $3 million to $3.5 million adjusted EBITDA. Now we really wanted to give you a Q4 forecast at this point. And we actually have the first draft, we actually have it. But it really — it wouldn’t have been meaningful. And mostly because we use two big variables from Q4. One is this C2B product, we touched that in Slide 17 at some length. We just don’t know how much of that is in pushed into next fiscal year. So it really makes Q4 very up in the year. And also, the forecasting that we’re receiving over the GE Aviation programs, quite suspect. So it would not be possible to provide you with a meaningful forecast for Q4 at this time. So we’re sorry about that. Like I said, we really wanted to, but it just wouldn’t be meaningful.

Let’s go to Slide 35. Dealing with time, not so good. Sorry about that. I said 45 minutes. It’s already 45 minutes. So we covered this. These slides are pretty much what was in the last presentation. So we’ll just skim over it. I’ll just start by saying, forecasting, highly problematic or probably not very meaningful in the current environment with supply chain chaos and disorder, significant inflation, serious recessionary concerns and staffing challenges, very difficult to provide short-term or even — and certainly long-term forecasting wouldn’t be that meaningful. But we go through what we think our outlook is because we think we can’t provide you meaningful input on the Company’s outlook. Even if there is an economic recession, a lot of people say there already is, but even if there is a recession, so we’re not going to go through that. Feel free to read it, ask us questions if you like.

So let’s skip over to Slide 38, where we have the kind of bottom line at the end here based upon the above considerations, there are serious concerned about the economy, inflation, workforce shortage and supply chain chaos. We believe the outlook for Park is quite positive. And like I said in the past three — prior three slides, we went through why we believe that.

Let’s go on to Slide 39, a major expansion, Newton, Kansas. We can cover this pretty quickly because — I’m not even going to read the numbers to you. I mean, there’s really not much news here. Last time while many others were slashing their capital budgets, or canceling their capital budgets altogether, we push forward and completed our expansion.

Okay. Let’s go to Slide 40, James Webb Space Telescope, this is our cool slide, fun slide. I think this is our second fun, cool slide. So a reminder, 21 of our proprietary SigmaStruts are incorporated into the James Webb. James Webb, along with our struts is established at Lagrange 2 Orbit Point, which is about 1 million miles from Earth. That just kind of blows my mind. I think those struts will reduce their move [Phonetic] factory in Kansas. They are 1 million miles from Earth. So Donna and Elena, are in charge of this. And we have so many really cool photos, images from the James Webb. And I said, okay, you girls have to choose three. So that was hard, you should probably have to choose 100. These images are just so unbelievable to me, just so awesome. I don’t know what — I can’t explain what they are. And Elena is our resident James Webb geek, so she could probably give you a great explanation as to what these images are about. But I did see something interesting, an article where it said that — the recent article indicating that James Webb is seeing stuff, which is not supposed to be there. I thought it’s very interesting. I digress for a second. Isn’t that the whole point, seeing what is there rather than what’s supposed to be there and that’s what kind of science is all about, not — it doesn’t matter what you believe is true, science is about the truth, reality, not what you believe or what’s supposed to be there. That’s how science progresses. That’s how the humankind progresses, I think. So not getting hung up on what people believe are supposed to be there. For Einstein, I mean, time and space was supposed to be absolute. Supposed to be absolute. But it doesn’t matter what they’re supposed to be, they’re not. Anyway, I’m digressing, like I said, but I just found that kind of very interesting, and I don’t want to spend a lot more time on James Webb that this article about seeing stuff not supposed to be there.

Okay. Let me move on. Slide 41. So sorry about this, and a lot of you are looking forward to a really great update on the ADL. Just a reminder, our materials are currently sole sourced qualified on ADL’s ADRS program for the 737 legacy aircraft. And there are many thousands of 737 legacy aircraft in service around the world. You can look it up. I think it’s over 5,000. However, recently, Park asked — sorry, ADL asked us to low-key it about the ADRS program. So we’re not going to provide any new updates on the program at this time, except to say we continue to work actively on the program opportunity and we’re also very pleased to have the opportunity to participate in this exciting potential new program. So sorry about that again, but we want to honor ADL’s request at this point.

42, this is kind of a big one, Slide 42. We’ve been talking about space set aside in new factory for project initiatives. So let’s update major potential project initiatives in new plant. So we’ve been talking about this for several quarters, but we haven’t told you what we have in mind. But now in the big reveal, we’re going to tell you about one of the main projects that we have in mind. And this project relates to Automated Fiber Replacement, AFP manufacturing of aerospace composite structures. A final decision has not been made on the project, but Park has conducted significant due diligence on the project. The capital investment for the equipment, including all support equipment necessary to provide complete AFP manufacturing capability to interested customers is estimated to be approximately $10 million. Although the equipment location decisions are not — are still being reviewed, we believe that all the equipment involved, and there will be a lot, would fit in our recently completed major expansion in Newton, Kansas.

Let’s go on to Slide 43. Continuing with this update in AFP. So what is AFP? AFP manufacturing utilizes robotic technology and is a form of additive manufacturing technology as compared to the subtractive manufacturing technology utilized by conventional hand lay-up of composite structures. That’s an important point. If Park proceeds with the investment in AFP manufacturing, it should be seen as a long-term strategic investment. It would not be a quick payback investment, which would be long-term, would be strategic. At this point, AFP manufacturing is generally done in-house by large aerospace OEMs, not people like Park. But we believe there may be a niche for us in AFP manufacturing of aerospace composite structures. If Park proceeds with this project, it may, at least to some degree, also, though, be a build-it-and-they-will-come type project. So it will take some conviction and courage to do this, but we normally aren’t short of those things, I don’t think. There are many potential advantages to AFP manufacturing of aerospace composite structures compared to traditional hand lay-up manufacturing, which is what we do now and what most companies do. Labor cost reductions relating to elimination of certain manual processes just don’t do them with AFP. No ply cutting and no manual lay-up.

Now, going to Slide 44. What is this not? We’re not interested in automation to replace our existing people. A lot of companies talk about that. That’s not what’s going on here. But, and a big but, since it is and may continue to be indefinitely very difficult to properly staff our operations, AFP automation may be a very useful strategic approach of supplementing our existing workforce in order to facilitate expanded manufacturing activities. It’s been a strategic, I should say, manufacturing activities, cost savings related to very high material utilization rates from AFP additive manufacturing process compared to much lower yielding material utilization rates associated with the hand lay-up substrative. Just think about it. When you do subtractive manufacturing, you’re subtracting stuff, you’re taking stuff out of the equation, throwing it out. So material yields with subtractive manufacturing lay-up could lead to significant yield loss 10%, 20%, 30%. I mean, that’s huge. And AFP manufacturing is not because at AFP, we’re not subtracting, we’re only adding. So that’s a big difference. Also significantly improved quality, reliability, repeatability and consistency associated with the AFP automation, process automation, which is kind of typical of automation as compared to manual operations. It’s also potentially suited — better suited for volume manufacturing, especially of larger composite structures.

Now, the disadvantages, let’s go on to Slide 45, AFP manufacturing. AFP manufacturing, like most automated processes, may not be well-suited for a lower volume production, especially of awkwardly designed quirky composite structures. So quick turns, more volume, the economics may not always be there. Also, and this is a big thing, this is a very big barrier to entry, significant upfront investment. We told you the dollars, but the learning curve cost, it’s a big, big deal. So a lot of companies say God, it’s not for us. There are still due diligence which needs to be completed, and there is no hard deadline for the final decision on the AFP project. We’re hopeful to be in a position to make the decision in the near future, and we’ll keep you posted. So this is — we don’t know if we do it or not, we may not. We thought we should share with you what we’re doing, which we put in a lot of time into, we don’t know we will work on it. And potentially, though, I think it could be a pretty exciting project for Park, although, like I said, it’s kind of a long-term concept rather than a quick ROI or payback.

Let’s go on to 46, Slide 46. Park’s people, changing gears here completely. Update on our great Customer Flex program. So you can see the numbers, percentages. It just wouldn’t be possible to continue to get the job done under the current very challenging circumstances without our Customer Flex program. That’s not just hyperbole, this is a fact. I mean, every day, our Customer Flex program comes into and it becomes a factor for us, has an impact on our ability to get things done. Park’s current people count, 99 people, that’s not a good number. Ideal headcount, people count, would be 125. Minimum people count to properly operating a function, 115. So what’s going on here? What is going on here? There a number of factors, but one important factor, this may not be politically correct, but I’m not here to be politically correct, I’m here to tell you what we’re thinking and what we believe. One important factor is that, certain other companies, mostly larger companies, have been aggressively targeting our people for recruitment. People in LinkedIn, it’s so easy to find them. They want people from this function and that function.

Slide 47. So maybe this is just capitalism and the free market at work. Sure, isn’t that great? But is it? Some of these companies which are targeting our people, were given huge amounts of government money. Where did the money come from? From us, other taxpayers like us during pandemic, huge bucks. This government money, funded again by us and other taxpayers, was intended to incentivize the recipients, not to lay off their people. But in some cases, recipients laid off significant numbers of people, anyway, thousands. In some cases, the recipients of the government money funded by us are still losing very big bucks. So you tell me, is it just capitalism and the free market at work for the government to take our hard and honestly earned money, tax money, and give it to others who have done nothing to earn it or deserve it so those others can use that money to aggressively target and recruit our people. Is that capitalism?

Slide 48, maybe it’s crony capitalism or phony capitalism or no capitalism at all. What do you think? And one more thing about these companies who are targeting our people. What will they do as soon as the people they recruit and hire are not needed? Is it they’re going to keep them? Well, maybe you can come up with your own opinion about that. In any event, whatever the cause or the politics of it all, we’re dealing with our workforce challenges as we always do. We don’t give up. We keep going. We don’t sell out. We don’t sell our souls. We keep coming up with new ideas. We keep working at it. But we’re not looking to sell out. We’re looking to use this challenge as an opportunity to actually upgrade our workforce and make sure we have the right kind of people working at Park. Latest idea, which seems to have some promise is bringing on a weekend shift. I could tell you that Courtney, Nancy and Corey as well is something we’re putting — they’re putting so much effort into — all the time, all the time, all the time, working and working and working and coming up with new ideas, meeting with prospective employees, promoting Park, promoting the Park culture, a lot of effort. And it’s worthwhile to do it right rather than to do it wrong. And that’s my opinion.

Slide 49, back to Park’s people, another not so great story, inflation. Now, we’re not talking about Park’s inflation, we’re talking about the inflation that people deal with in terms of living every day. Even though we didn’t cause it and we’re not in a position to stop it, it’s very hard to hear people talking about choosing between buying gas and food. It’s very hard to hear that. And this is not rocket science. Any high school economics student will tell you, if you pump trillions of dollars into an economy which was already recovering from the pandemic, then you seek to shut down the oil and gas industry, you will cause significant and persistent inflation, not transitory inflation. And the people who cause this inflation, they’re smart people, they knew what they were doing. They understood consequence of their actions. But in our opinion, they just didn’t give a damn. They just don’t care about our people, how their actions are going to hurt our people — are hurting our people. To them, our people are expendable, they don’t matter. But to us, our people are not expendable. Our people matter the most, our people are precious.

Slide 50. So we recently implemented an inflation pay premium for all of our people who are making approximately $60,000 or less per year. As I say, we did not cause this brutal inflation, and we’re not in a position to cover all the sins, all the damage done by this brutality, but it bothers us, it bothers us a lot to see our people suffer. So we implemented this inflation pay premium to do what we thought we could do to help our people. And you should know, since sometimes numbers matter, that this recently implemented inflation pay premium will cost us approximately $150,000 per year going forward indefinitely.

Let’s go on to Slide 51, closing thoughts. Sorry to go on so long. It’s already an hour, but we just had our closing thoughts now. So let’s see if we can wrap it up. At Park, during and throughout the pandemic, the topic here or the theme is, we earn what we get. At Park, during and throughout the pandemic, we kept all of our people. We laid off nobody while many others were getting — were cutting their employees loose by the thousands. We’ve made money every quarter while many others were losing money by the bucket loads. We maintained our quarterly cash dividend while many others are slashing their cash dividends or canceling them altogether. We continued and completed our major plant expansion while many others were slashing their capital budgets and spending or canceling them altogether. We maintained our outstanding balance sheet of significant cash and zero long-term debt while many others were leveraging their balance sheets, just to stay alive. We paid our taxes and lots of them while many others were paying none, maybe generating NOLs sort of don’t pay tax in the future either. We took no government handout or corporate welfare money, although easily could have taken it, lots of it. I was told by lots of people, Brian, what’s wrong with you, it’s free money, take it, go take it, you take millions of dollars, while many others were taking huge amounts of government handout money funded by taxpayers like us, when it comes from us.

Slide 52. At Park, we earn what we get, we don’t ask for or accept government handouts or corporate welfare. What do we want from the government? Not to — I was asking, but I’ll tell you anyway. Our only ask would be to stop taking our hard earned, honest and decent money, giving it to other companies which have not earned it and do not deserve it. What are the keys to success in life and business? For Park, achieving great things through sacrifice and dedication. For certain others, we’re not sure. What is it? Hiring better lobbyists? Make sure you’re at the front of line for government handouts and favors? What sense of value is that? What kind of values are those? It’s kind of sad. But at Park, we’re not like the others. At Park, we play for keeps.

So at the end of every presentation, we always feature some Park people, a crew or department. So bottom right, this is Park’s Solution, a mix team, a crew. We have William, looking very cool with his shades on. We’ve Johnny. Johnny is the — how should I say, the guy has done this longest. I don’t want to say old-timer, but Johnny is the veteran and Daniel. Daniel is new to the team but I understand Daniel is doing very well. Great new addition to our Solution Mix Crew. So let me tell you something. We used to have electronics locations. And I kind in my head, I think we had about 14 locations, which had Solution Mix room around the world. And every time I go visit a location, I go to the mix room. Why is that? That because that’s always the dirtiest, crappiest looking room. The resin is dripping everywhere, it’s caked on the floors. And then when I turn into the factories, often the management, local management, would try to steer me away from the mix room. Of course, that means that I would be more trying to go. I’ve probably been in mix rooms hundreds, maybe 300, 400 times over the years. I’m — it’s not an exaggeration. I have, probably, 300 or 400 times. This is by far the cleanest mix room — Solution Mix room I’ve ever seen anywhere in my life. And I never asked these guys to do anything. They did this on their own. So it means so much to us, it means so much to me, that people take the initiative to create such a wonderful environment, such a beautiful mix room. And I know you probably haven’t been to 300 other mix rooms, but if you had, you would know what I’m talking about. They didn’t clean this up for this picture. This is how it looks all the time. Beautiful. As people say, get off the floor. Yes, maybe we should have a little picnic eating off the floor in the mix room. So to me, it means a lot, very special. And thank you very much to William, Johnny and Daniel for doing such a wonderful job in terms of keeping the mix room in such a beautiful condition.

Okay. Operator, that ends our presentation. And Matt and I’ll be happy to take questions at this time.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Brandon Dietz with Huffman Prairie Holdings. Please proceed with your question.

Brandon Dietz — Huffman Prairie Holdings, LLC — Analyst

Hey, Brian. How are you doing today? Thanks for taking the question.

Brian E. Shore — Chairman and Chief Executive Officer

Good. How are you doing?

Brandon Dietz — Huffman Prairie Holdings, LLC — Analyst

Not too bad. I just wanted to follow up real quick on the GE Aviation Q3 guidance. Pretty decent size reduction from Q2 to Q3. And I may have missed some of your commentary. But can you provide maybe just a little more detail? I mean, is this just the calendar shift into Q4? Do you expect to recoup kind of those missed sales in following quarters? Just hoping to get a little more detail around that reduction.

Brian E. Shore — Chairman and Chief Executive Officer

So if you missed it, we did a pretty — I did a lot of commentary on this point. And you probably want to go back and listen to it. I don’t really want to — I surely don’t want to go over the commentary again, and I don’t want to try to sum it up unfairly because there a lot of factors here. And somewhat it is a little bit delicate, let’s put it that way. But I think what I did was I try to be as candid as possible out of respect for you and other long-term shareholders that are really interested in what’s going on. My suggestion is go back, listen to that portion of the call if you haven’t, then give us a call and ask if you have any other follow-up questions about that point, if that’s okay.

Brandon Dietz — Huffman Prairie Holdings, LLC — Analyst

Okay. Yeah. Yeah. That’s definitely okay. We can follow up with you on that. I did have a question on the 2025 $32.5 million figure. I’m pretty impressed by the increases you guys have noted over the last few quarters, if I go back and — kind of back into the shipset value that implies, it’s pretty decent, I think, 8% to 13% increase over the last few quarters. Is that just pricing? Or are you able to provide any commentary on what’s driving the increase in the shipset that you guys are seeing?

Brian E. Shore — Chairman and Chief Executive Officer

Yeah, that’s just for the A320 also. So, the — I guess, a couple of things going on here, a few. One is, we have these new usage numbers. Remember, as we had a question whether the prior usage assumption was correct. Remember, we ship something, we don’t know what program it’s going to. There’s all these programs are shipped to the same spec. So the usage information is really critical to us. So the usage information change went up, more square feet of material for shipset for A320. Second thing is that, in ’25, there is a built-in pricing increase based upon our LTA. So that’s fixed. It’s part of our LTA. And the third thing is, as I mentioned that, by 2025, we also expect that film adhesive would be on the A320 program. So those are the three factors that would affect the A320 unit numbers, let’s put it that way.

Brandon Dietz — Huffman Prairie Holdings, LLC — Analyst

Okay. Okay. Excellent. All right. That’s everything I had. Once again, appreciate you. Appreciate the time.

Brian E. Shore — Chairman and Chief Executive Officer

Oh, yeah. I appreciate your time and long call listened to. But thank you.

Brandon Dietz — Huffman Prairie Holdings, LLC — Analyst

Thanks.

Operator

[Operator Instructions] There are no further questions at this time. I would like to turn the floor back over to Brian Shore for any closing comments.

Brian E. Shore — Chairman and Chief Executive Officer

Thank you very much, operator. And thank you all for listening. I apologize for going so long. This is the longest we’ve ever done, I’m pretty sure. Also I apologize for the coughing. I can only imagine just how irritating and listening to that. So I got through it without probably some distracting coughing noise. So thank you for bearing — for hanging in there and bearing with me on that little issue. So thanks again for listening, feel free to give Matt and me a call any time if you have any follow-up questions. And have a good autumn and we’ll talk to you soon. Take care.

Operator

[Operator Closing Remarks]

Disclaimer

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