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Moog Projecting Near-Term Dip Followed By Steady Aftermarket Uptick

Flight-controls specialist will benefit from 787, A350 fleet maturations

Motion and controls specialist Moog saw its commercial aftermarket sales increase about 5% in fiscal 2017, and expects a decline during the next 12 months before a steady uptick as more next-generation aircraft it has components on begin to mature, top executive John Scannell says.

"We're planning for a softer commercial aftermarket as we believe many of our airline customers fulfilled their long-term 787 spares needs in fiscal '17," Scannell, Moog's CEO, told analysts on a recent earnings call.

The company generates about 25% of its $2.5 billion in annual revenue from its commercial aerospace work--including manufacturing and aftermarket support. Among its major programs in ramp-up phases: primary flight controls for the Boeing 787, Airbus A350 and Embraer E-Jet E2. In fiscal 2017, which ended Sept. 30, its commercial aftermarket revenue was $118.4 million, up $5.3 million year-over year.

The company's primary aftermarket drivers are initial provisioning (IP) for new operators, and demand generated by out-of-warranty aircraft, which generally begins five years after delivery. Some 787s are entering the post-warranty phase, while the A350 program still has a few years to go, Scannell says. As both fleets steadily mature and the E2 follows several years behind, Moog's aftermarket should begin to benefit with both IP and post-warranty demand.

"It's a slow grind upwards, but it's starting to happen, and we continue to see that as we get to the end of the decade and into next decade," he says. "Fiscal '18 will see a continued ramp of the A350 program and the initial production the E2 jets. We're now on a steady path to improve margins in this business, a trend that will be further helped by the pickup in the aftermarkets towards the end of the decade."

The company's Aircraft Controls unit margins were 10.1% in 2017, up from 9.3% in 2016. Projected 2018 margins for the unit are 10.6%, Scannell says.

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