Good day, and welcome to the Astronics Corporation First Quarter 2020 Financial Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Deborah Pawlowski, Investor Relations for Astronics Corporation. Please go ahead.
Thanks, Christina, and good morning, everyone. We certainly appreciate your time today and your interest in Astronics. Joining me on the call are Peter Gunderman, our Chairman, President and CEO and Dave Berney, our Chief Financial Officer. You should have a copy of the first quarter 2020 financial results that were released this morning. And if not, you can find them on our website atastronics.com.
Let me mention first that we may make some forward looking statements during this formal discussion as well as during the Q and A session. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission. These documents can be found on our website or sec.gov. During today's call, we will also discuss some non GAAP financial measures.
We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results per accordance to GAAP. We've provided reconciliations of non GAAP measures to comparable GAAP measures in the tables that accompany today's release. So with that, let me turn it over to Pete again. Pete?
Thank you, Debbie, and good morning, everybody. We are going to talk through a brief summary of our Q1 to talk through some of the higher issues, But it's probably not what people are most interested in. We're going to spend most of the time on the call, we believe, talking about the COVID-nineteen situation, how it's affecting Astronics and what we're doing about it or have done about it. Before we get into it, although, I thought I would briefly cover 3 goals that we are trying to simultaneously achieve as a company. And they're all 3 important, and they all 3 have to happen.
The first is to protect our employees and the safety of our workplace. We have or had at the beginning of the quarter close to 3,000 employees working in 18 locations around the world. And as the pandemic took over, it became obviously paramount to learn some new tricks and to develop some new practices. And we feel like we've done that pretty well and pretty successfully when we continue to do that in the future. Secondly, we wanted to keep serving our customers with the service and products that they expect to need.
We were reminded over and over in the Q1 and have been recently that we're an essential business and that a lot of very large companies in the U. S. And around the world are highly dependent on our products and they expect us to keep producing and we feel like we've done that reasonably well through the Q1 and up to today. The third thing that we have set out to do is to position our company not only for survival during the pandemic, but for success afterwards. We want to come out of this thing as strong or stronger than we have been in the past.
And we feel like we've taken solid steps to do that, and we'll talk through some of those in the second half of this call. 1st quarter review. Going back way, way back to the beginning of December, we actually thought that the Q1 was going to be a strong start for 2020. I don't mind telling you now. Our internal plan at that point was to see revenues of somewhere in the neighborhood of $190,000,000 We thought that that would be the slowest and lowest quarter of 2020.
Turns out, we were obviously wrong. The reason we thought that Heather's assumptions was that we felt we made a lot of success in the Q4 resolving and cleaning up some issues that have been plaguing us operationally for some time. I won't go through them in detail now, but many of you who follow the company probably remember some of them that had to do with the 3, what we used to call our 3 problem children or problem companies. We also were under the assumption in early December that the 7 37 MAX would be recertified at year end. That was important for us because the grounding as it went on through all of last year had begun to create a capacity crisis for airlines or capacity challenges maybe I should say for the airlines, which we felt was depressing our aftermarket sales, simply because they didn't want to take aircraft out of service to put on our kind of IFE related type products, which we saw in the aftermarket and which is an important part of our business.
Turns out that assumption was obviously wrong. The MAX recertification slid into the New Year and, at this point, is still a little bit up in the air. Conventional wisdom or most people anyway think that that's likely to occur late summer, early fall. We're hoping that's the case. But things actually even degraded a little bit further from that.
We have a pretty good line fit position on the 7/37 MAX. We were delivering through all of 2019 to the tune of about 40 ships a month at $95,000 per ship, making it one of the largest production or the largest aircraft production program that we had as a company in 2019. Everybody on the call is probably aware that Boeing suspended production of the 737 as we entered the New Year. So our Q1 went from 40 ships a month, essentially, to 0, which hurt our revenues. We issued an update on February 3 and it covered a lot of these topics.
It covered a development effort that we called Avenir, which we had wrapped up in the Q4. It talked about restructuring of our antenna business. It talked about an IP dispute, it talked about suspension of stock buybacks and withdrawing guidance because of the 7/37 situation. But there was no mention in that press release on February 3, COVID-nineteen. Kind of interesting to look back.
And I haven't gone back and studied the transcript from our Q4 call, which was February 26. But I bet on that call, if we were to go back, there was no mention of COVID-nineteen also. A week later, that situation started to change. That's when it became clear that the pandemic was affecting Europe and the U. S.
And even hitting some of the communities that our operations are active in. Kirkland, Washington is one of our largest operations and one of the first places where an outbreak was reported. And we proceeded through March to do all kinds of things to our operations that we've never thought about really before involving social distancing and work from home. And everybody on this call has probably heard all these terms and is familiar with the concept, and I'm not going to go through them in detail. But suffice it to say that approximately half of our employees by the middle of March were working from home, continue to do so today, and half of them are working in our facilities.
I said earlier, we have 18 facilities sprinkled around the world. For the most part, we feel that we've been pretty successful keeping those facilities up and running as essential businesses and effectively doing the kinds of things that we're supposed to be doing. We have a few shutdown by government action. We have a facility in France that was down for a week. We have an engineering operation in India, which is very limited in terms of being on-site, but people are working from home.
And for us, our company, we started the quarter with about 3,000 employees. We did have a handful of positive diagnoses, maybe 12 to 15, no real clusters, but we did have a handful of shutdowns for deep cleaning in our operations. It's been an adventure. At the end of the day, our top line, our revenue for the Q1 came in at about 100 and $57,600,000 That is actually in the range of what we expected when we issued our February 7 update release, but it was our lowest quarterly revenue level since way back in 2017. On that, we reported a net loss of $67,000,000 but if you have read the press release, I'm sure you have, you know that we had a significant write down of intangibles during the quarter of 74,400,000 That is directly related to a change in expectations in the market related to COVID-nineteen and specifically to airline aftermarkets and aircraft production rates at some of our more recent and larger acquisitions where we carried a lot of our goodwill.
That $74,400,000 is a non cash expense, and it essentially removes half of the goodwill and intangibles off of our balance sheet. We used a new measure of profitability adjusted EBITDA and even with the write down or ignoring the write downs, excuse me, with the reduced revenue level, we were still able to put in an adjusted EBITDA of 10.3% of sales. That's a measure that you can probably expect to see in our financial statements going forward. Bookings also in the Q1 were relatively strong at $167,000,000 for a book to bill of 1.07. Dollars There were some significant wins in there that we will be talking about in the future that we are not really able to talk about right now.
So long story short, that's really the depth that I intended to go into for the quarter, depressed revenue levels, a big impairment charge, adjusted EBITDA that was perhaps a little bit higher than people might have expected on that revenue level and pretty good bookings, all things considered. So we'll take questions later on this if anybody wants to go into more detail. I want to dive instead into the COVID-nineteen situation and how it is affecting our business and what we are doing or have done about it. We have done a lot, in my opinion. The first thing we did is really started studying our customer base and our demand streams or the sources of demand that bring business to our company.
And these are categories that are a little bit different than how we typically describe ourselves. And we're kind of custom crafted for the situation at hand. So these numbers are not numbers that people are used to seeing. The first demand stream that we assessed was the government defense demand stream. This is largely our test business and military aircraft or military aerospace.
And if you add those 2 together, you end up with a total that was about 20% of our 2019 revenue, if you do the math, about $155,000,000 or so last year. And from our assessment, this portion of the business appears stable and strong and if anything even seems to be accelerating. This is our test business that does a lot of government work. It's missile programs that we do some power conditioning, some structures work, and it's military aircraft like Joint Strike Fighters is a very large program for us. And across the board, it appears to us that this part of the business quite stable and dependable at this point.
The bigger chunk of our business, and the second one I want to talk about, has to do with commercial airplane production, or maybe more specifically airplane production for commercial transports and general aviation or business jets. This means that an airplane is produced. And in order for the airplane to be completed, our products need to be put on it, which means we supply to the OEMs or the top tier suppliers who've been supplied with OEMs. And this category or this demand stream is a little more than half of our revenue last year, about 55 percent of 2019 revenue, if you run the numbers, about $425,000,000 of our business last year. Of the 2, commercial transports and GA or business jets, transports are by far the most important, $350,000,000 out of the $425,000,000 or so.
I'm sure many people on the call follow the industry closely, have been looking at the announcements, So it's not a surprise to see that most producers across the board have talked about planned production rate reductions of about 30% to 35% or so. This planned reduction presumably will affect us almost directly. And we feel we need to model in 30% to 35% reductions, assuming that the aircraft OEMs stick at those rates, at least for the time being. The SAVE demand stream is significantly different. It's aftermarket.
And for us, aftermarket is mostly selling IFE related equipment to commercial airlines around the world. IFU is in flight entertainment and most of you know this, but if you go on to an airplane and you want to use your computer or you want to watch a movie or you want to cruise the Internet, there's a very good chance that you are working with our equipment. And a significant amount of our sales in the normal year goes to airlines. Last year in 2019, it was about 25% of our sales, about $195,000,000 or so. Not all of it is ISV related in the aftermarket, but that's the lion's share of what we do.
And our expectation, based on the status of the airlines, not only in the U. S, but around the world, is that that source of demand is going to drop dramatically. We figure perhaps 80% to 90% by the end of the year. Combining these three demand streams with our existing backlog and our Q1 results, we imagine that 2020 sales could drop somewhere in the region of 30% to 35% from 2019. So, if you run the numbers, and I'm sure many of you have, that puts us in the range of $500,000,000 to 5 $40,000,000 of revenue.
Last year, we did about $773,000,000 I don't mean to suggest this as guidance. Like many companies in the industry, we're not willing to go out and stake a claim at this point or a comment on what we're going to be able to do. But I want to provide color as to how we think the market's evolving. And of course, when you're sitting in my position and you're running a company and you see that kind of demand change, it implies significant organizational and structural and cost changes in order to stay solvent in the face of the demand change. And you need to know what you're shooting for.
So in the mean for now, we are shooting for a revenue level somewhere in that range based on the logic in the analysis that I just talked through. So what have the changes been that get us to where we think we need to be to achieve the 3 goals I talked about earlier, specifically keeping our customers served and positioning the company for survival during the pandemic and success afterwards. First of all, with a big drop in demand comes the drop in material expense. Our material expense is on the order of 35% of sales. And those kinds of reductions are pretty much automatic.
You don't ship the product, you don't have the material expense. There are some challenges with reducing ongoing purchasing requirements.
And
so, the cash may be a little bit of a challenge as we adjust to the lower volume, but we're well on our way with that. Much more significantly maybe, we have reduced our headcount across the company by the order of magnitude of 30% already. We started the Q1 at about 3,000 active employees. Today, we're operating at about 2,000. That's a significant step down, a very painful one for our organization, as you can imagine.
But it's one that we think lines up our cost structure with what our expected demand picture is likely to evolve like. We have a number of employees on furlough at this point, hoping to bring them back if demand warrants it. And in some cases, we expect we're in a little bit of a short loop of low demand, which will come back in the second and third quarters. So, we expect there will be some calling back of people on folks. But for the most part, we are down from 3,000 to 2,000.
Dollars We've also frozen pay adjustments for the year. We've eliminated cash incentives. One of the things that we do as a company is have some pretty broad cash incentive programs that stretch throughout the organization. And it's not just higher level employees or managers that are affected here. Everybody is affected in our little family.
So at a minimum, people are seeing 5% to 10% pay reductions at the higher level in the organization. Cash wages will be down closer to 30% to 50%. We've reduced all discretionary expenses, travel, trade shows, that kind of stuff. And we've also really taken an aggressive cut to our capital spending plan. When we started the year, we thought we'd be in the neighborhood of $20,000,000 to $25,000,000 Our current plan has that closer to $8,000,000 So a significant drop in capital spending.
And probably goes without saying that we have dropped acquisition initiatives and we have dropped stock buyback initiatives. So we think these cost management, cost reduction initiatives have shaved about $135,000,000 or so from where we thought we would be in 2020 when we began the year. So what? And again, this is more color than we normally give on the bottom line. But in the current situation, we think it's a service to target what we think even though we're reluctant to call it guidance at this point.
But we believe that if demand turns out to be in the $500,000,000 to $540,000,000 range that we, 1st and foremost, should be cash positive. That's an important benchmark for us because we view while we've always been conservatively financed, obviously, when you take that big a hit to your revenue and a big hit to EBITDA, covenants can come into play. And we're not in a crisis situation with our banking arrangement today, and we weren't at the end of the Q1. But we anticipate that demand continues as we expect that we could be by the end of the year. I'll come back to that in a minute.
Dave is going to talk through our financing strategy going forward in a moment. So we think that what we have done at $500,000,000 to $540,000,000 will make us cash positive. We also think that we should achieve a positive adjusted EBITDA of the high single digit percentage of sales. So somewhere 5% to 9% of sales. That's our objective.
It's also important to note though and I think our activities to date kind of prove this that if demand turns out to be different from our expectations, we've got another a number of other levers that we can continue to consider pushing or pulling to keep ourselves cash positive, 1st and foremost, but also to achieve a reasonable EBITDA given the situation. And it's anyone's guess at this point about how things are going to evolve towards the end of this year and in the next year, lots of head scratching going on about that around the world, not only at our company. But we are committed to this plan. We want to stay safe for our employees. We want to keep serving our customers and we want to position the company for survival and success subsequently.
So switching to the 3rd topic, liquidity and the balance sheet. We drew down $150,000,000 on our existing revolver at the end of the Q1. We had a reasonable quarter for cash anyway, so we ended up the quarter with 188,000,000 dollars cash on hand. I talked moments ago about the expectation that we're not in a problem situation at the moment. If demand turns out like we think it will, we could run-in the leverage covenant challenges towards the end of 20 20.
So we got out in front of that situation and initiated a discussion with our banking group. Dave and his team led us through that, Dave, while you summarize how that went and where we ended up.
All right. Thanks, Pete.
As Pete mentioned, we a little over a month ago, as we started pulling together the forecast as the pandemic information was coming to light, it became clear that if our sales were indeed going to drop to the levels Pete had just talked about, Even with changes that we were going to make to the cost structure, that we were going to
bump up, I
guess, and probably exceed our maximum leverage coverage ratio. So, proactively,
we started working with the bank group
and ultimately got a deal done that we closed yesterday.
And some of the highlights of
the deal is we resized the credit facility down from $509,000,000 to $375,000,000 We suspect maximum leverage coverage covenant through the Q2 of 2021. And beginning in Q3 of 2021, the maximum leverage covenant will come back into play at 6x adjusted EBITDA and it will step down in subsequent quarters, down to 5.5x in the Q4 of 2021 and then step down beyond that into 2022. The new minimum liquidity covenant, and that minimum liquidity covenant essentially is cash plus the available revolver and that needs to be at least $180,000,000 The plan our plan is, in the next week, we will pay down the outstanding revolver balance to carry about $50,000,000 of cash on our balance sheet. That'll give us about $50,000,000 of space on that covenant or $180,000,000 of liquidity $230,000,000 of liquidity versus $108,000,000 requirement. We have a new minimum interest coverage ratio of 1.75 times that will be measured quarterly.
Except in the Q1 of 2021, which will drop down to 1.5x. We have additional restrictions on acquisitions and share repurchases. And there's a LIBOR floor of 100 basis points on the pricing grid. So, right now,
for modeling purposes,
we're at about 3.25 percent or 3.25 basis points for the effective borrowing rate on our drawn facility. As Pete mentioned, we expect to be cash flow positive. And from a very high level, if you use the range of EBITDA that Pete mentioned earlier of 6% on $500,000,000 The math comes out to $30,000,000 of EBITDA. We expect about $8,000,000 of CapEx and about $1,000,000 of interest expense. Not anticipating any cash taxes, so that gets us into about a $15,000,000 cash positive range for the year, just using the example that Pete threw out there as far as
cash flow positive. Some of the things that
we're keeping an eye on is, typically as revenue goes down in a typical situation you see some cash flow pickup as your working capital drops. We're expecting to get stretched by some of our customers on our cash collections. We're expecting some drop in our inventory levels. I think these 2 are going to offset each other largely. And we've taken some actions to extend our payables by a couple of weeks to our supply chain.
So, also, we haven't built in a significant amount of working cap reduction when I talk about positive cash flow, I think that could be upside to us to the extent that we can manage our inventory levels proportionately to the sales drop. I think
that's it. Thanks, Dave. And I think that concludes our prepared remarks. Again, our three goals, protecting employees and creating a safe workplace,
at
this point,
we feel like we've done that pretty well. Certainly, standards will change as the pandemic fight continues. And I think we're well plugged into what best practices are. We'll continue to do the best we can with that situation. I think we've done a good job hitting our customers' delivery requirements.
In many cases, we continue to deal with continuing development of new programs, especially on military side, which have not abated at all as part of this process. And I think with the steps we've taken in terms cost management and the modified facility with our banking group, which has been very helpful to us, We feel like we're well situated. Excuse me, not only survive the situation, but to prosper on the other side. So with that being said, Christina, you can open it up for questions now.
We'll go to our first question from John Tanwanteng with BJS Securities.
Good morning, guys. Thank you for taking my question.
First of
all, nice quarter and Thanks for all the color and detailed color. It's just a little bit better than most people have been fearing. I think first, how should we think about the pacing of the quarters as you see it, knowing what you have in backlog and when that will deliver? And assuming the down 30% to 35% commentary, maybe as you exit the year, what kind of production run rate and traffic are you kind of assuming to
choose that when you exit? It's a good question. We are expecting that the second quarter could be materially lighter because of shutdowns and customers shutdown and stuff. But at the same time, we haven't seen the level of cancellations, particularly on aftermarket programs that we kind of expected to see. So we're waiting to see how those 2 forces kind of play out.
But I think the safe assumption is that we're going to be materially low in the second quarter and it will strengthen in the Q4. It actually is going to be the strongest. And part of that is timing on some bigger programs, especially in our test business.
Got it. So do you expect Q2 or Q3 to be your trough at this point, given that you do have backlog?
We don't know. It depends on how the customer deliveries kind of play out. I think our current expectation is that Q3 will be a little bit stronger than Q2, but it could go the ROI.
Okay. Thank you for that. And you gave some good color on what your expected cash flows are, I assume, that range. What was that kind of $15,000,000 in free cash flow inclusive of cash restructuring cost would those be?
Yes. It wasn't inclusive of that. And as of now, we haven't called out the any restructuring charges at this point that isolate those, but they're netted in with those cost reduction numbers.
Okay. So that's included in the $15,000,000 kind of it, I think? Yes. Okay. Got it.
And then, Steve, any update on how that I think you gave a good breakdown just generally on commercialization, but any update on the business jet side and kind of the problem businesses and how they're looking from last year to this year given you expect to improve this thing?
Well, John, I was hoping we'd get through the call with all
the other stuff going on without talking
about those 3, but once you bring it up, I think we're in good shape. I mean Armstrong have basically merged into CSC at this point. The buildings are sold, the people are moved, and it's almost not identifiable as a separate standalone business at this point. CCC completed their Avenir development in December. The Q1 was their weakest quarter of the year, but we expect results there to strengthen them.
And then, basically, approach breakeven. One of the watch items, though, to be frank, is that the kinds of airplanes that buy their type of equipment are disproportionately operated out of the Middle East and oil prices are a driver of wealth there and oil prices are low. So historically, there has been some kind of linkage between oil prices and demand in that type of market. We are watching that pretty closely. Our antenna business Aerostat, has been significantly restructured and focused on a tail antenna program with Russell Collins as a customer.
That's going really well for Collins Aerospace, I should say. That's the one we think really well. We are still early in the year and the program is getting linked out. But we are not expecting that business to be profitable this year, but we think it is on a good track. And we have always been enthusiastic about demand in that particular area, that particular point of the market.
We may have finally found the avenue to get there that we were hoping for. So far so good with all three of those things. What was your other question, John? I feel like I
just grabbed on part of it. I think that answered most of them, but I do have one last one. Given just the pretty deep cuts and restructuring you've been making, are there any changes to your incremental margin that maybe come out as a trough? And as demand comes back and maybe you do pull back on some of the temporary cost reductions that you've taken?
It's a difficult question because it's hard to see how or when this situation changes. We feel like we've got clarity to the end of the year. But as you obviously know, nobody really knows how this pandemic is going to be tamed and what the ramifications are going to be for resurgence to the airline industry. There's a lot of attention going into making airplanes safe. We're actually involved in that, not necessarily a topic for today, but something we're working on.
And there are lots of attention lots of attention is being given to treatments and vaccines. I guess our thought is that it's just very unpredictable to know how the recovery is going to come back. And I will say that we're handicapped a little bit because we have been involved in development programs and engineering expenses and projects that are more than what a typical $500,000,000 company might do. We're scaled more to an $800,000,000 company. And we've gone from $800,000,000 to $500,000,000 but those obligations and opportunities and there's significant opportunities we feel have not gone away.
So how the margins play out is dependent on that kind of yin and yang element of doing that work for customers who are demanding it and expecting it. And when the airline industry gets opportunities and starts flying with load factors above like 10%.
I would add to that. If I could be a little bit optimistic that coming through a experience in a situation like this, I would be surprised if we don't identify and find ways to be more efficient than we have been over the last few years. I expect that we will find those opportunities. I can't quantify what they are, but I think when you look through a difficult experience like this, you tend to come out the other side with better processes and some more efficiency in the way you do things.
I just want to point out too that for Dave, that's an incredibly optimistic perspective. And that's not something we usually look for from Dave around here, but anyhow, let that go.
I appreciate that, and it is quite rare. Thank you for the color, guys, and good luck on this.
Thanks,
Jack. We'll go to our next question from Michael Ciarmoli with SunTrust.
Hey, good morning guys. Thanks for taking the questions. Glad to hear everybody is safe and healthy. Maybe, Pete, just looking at this forecast for the year, what's your confidence level in shipping the 2 68 megawatt backlog? I mean, is there if I put together the current quarter plus that backlog, you'd have $425,000,000 in revenues.
But is there a risk that that backlog is canceled, deferred, pushed out? Any color you could provide there?
There is definitely some risk to that, Michael. As I said earlier, we spent a lot of time probing around our customers. Some of our biggest customers sell the other customers and those customers are airlines and airlines are in a little bit of a chaos. So it's been a little bit unclear how what the quality is in a lot of that backlog. But I will tell you that we've been a little bit surprised that we haven't seen more deferrals and cancellations than we have.
So there's some reason for hope. And let me give you a little bit of color on some of these things. A lot of what we've been involved in from an aftermarket area in particular, our fleet modifications typically are quite a bit more involved than just our products. So they involve MRO space and time, and they involve seats maybe and they involve certain monuments that are going into a cabin. And to the extent that the trains left the station, so to speak, on some of those modifications, it appears that major airlines are continuing with those programs and just getting the program back.
I think the ones that are in more trouble are the modification programs that were planned, like, for the middle of next year. And they're in engineering at this point, and there aren't commitment to purchase orders outstanding for the products. I think that's our working thesis right now. I think it's reflective and it's way too early to put the call list to the bank, but we have seen evidence in the airline industry, in particular, that there's an expectation of a lot of churn. Some be Some of them are going to be moving away from certain fleets or certain models and others may be picking those airplanes up.
And we tend to do reasonably well in the aftermarket side in that kind of an environment because invariably some airlines will pick up fleets that aren't equipped the way their normal fleets would be. And increasingly, it is normal for airlines to want to have our product on it. So they look for consistency across their fleet. And we see some evidence that that could be a meaningful driver of our business, not necessarily this year because I think everybody is holding on to their bootstraps. But as we come out of this and as the airline industry settles down, That's going to be something that we're going to watch very carefully.
Related to that is the fact that leasing companies have become significant supporters of our business. They like having the main brand products on their aircraft. So they're increasingly buying bigger portions of the fleets from their OEMs, Airbus and Boeing in particular. And they're increasingly when used aircraft come through and get reissued, they're offsetting the airplanes with our equipment. So that churn, we think, could work to identify in time.
Got it. That's helpful. And then what about your modeling, I guess, for the OEM transport declined 30% to 35%. Do you guys have you thought about or looked into what kind of inventory is in the channel and what might have to be burned down from some of your other customers, the Tier 1s who or you're not going directly. Could that exacerbate some of the OEM declines?
And does that maybe run a lower risk to your inventory working capital tailwind?
Our major OEM shipments in our business, a lot of it comes out of our pitot operation in Portland, Oregon, PSUs, passenger service units and certain structural components and certain induction molded components. And we've really been on a fine tune just in time type of situation there for a long, long time where we build the parts and load them up into a crate and a Boeing truck pulls up at 5 in the afternoon and picks up the crate and takes it up to the production line in Edvard or wherever and then comes back the next day and gets another one. So I don't there might be a little bit of inventory, but it's nothing material. The other big source of product that we ship is more on the wide body side. It's IFE related.
It usually doesn't go direct from our facility to Boeing, but it goes through the major IFE companies, Panasonic, Thales, Radiac. We don't have as much visibility into that pipeline, but when you think about it, the aircraft going down the production line are all fleet aircraft bought by specific airlines who want them configured for their particular fleet. So Boeing is going to order BSE or maybe the airline, I don't know how it works with the IFB companies, but there are specific ships that match to specific airplanes, and there's no real reason to build up inventory either at the IFE company or on the production line Boeing or Airbus. So we don't think that's a major source either. There could be some inventory in the aftermarket, but even in the aftermarket, it's usually fleet purchases, ship certain materials bought for an airplane.
So I don't feel like we think that's a major concern for our business. Does
that make sense?
That makes sense. No, that's helpful. I will jump back in the queue here, guys. Thanks.
Okay.
And we will
take our next question from Austin Moller with Canaccord.
Hi. This is Austin on for Ken.
Hi.
Hi. So just a quick question about the Boeing production on the MAX. So where does the strong expand with the MAX shipments, how they were started? And sort of how do you expect going to have to 0 in the MAX now that production is going again? And do you think that performance could be a little better than what's in the guidance if we get a recertification for the MAX?
Well, there are things that I know and can talk about and there are things I don't know and often I still talk about those. But what we don't know is when Boeing is going to restart production of the MAX and what their production rate is going to be. That's obviously something for them to work out. And I'm sure it's linked to FAA certification and that's something they know much better than I do for sure. I can say that we are building and we're building 15 of plus 20 ships at the Montmore or so.
We've been shut down for January, February March, but we've resumed that now and we have purchased orders going out for a few months. And as far as we know, that's what we think we're going to be continuing at. I've read, I think a lot of people have that Boeing expects to start slow and ramp to 30. It could be that they want to keep the supply chain going at 20 a month, which means they're going to build some inventory and they're going to eventually get us beyond that. And then we will be shipping less than they are building.
I don't know how that is going to work out. I know that some suppliers I see have gone down from 20 a month. They stated that publicly. But today, that is not been our experience.
Okay. So you're expecting going forward for the time being to maintain 20 a month? That's the
best information we have, yes.
Okay. And so just sort of shifting gears over to business jets, it seems like OEM build rates are down, but they are starting to see some more business jet retrofit activity. And so do you have any color on that part of the business at all?
Not really. That's not been an active part of our business. Certain of our product lines could be adjusted to more adequately address the aftermarket. But today, we're primarily line fit.
Okay. And so have you seen any changes sort of in the airline industry in general associated with the risk around the Potanta Technic lawsuit?
No, not at all. No. That's an ongoing process, of course. And we have got some events scheduled for the summer, which we are wondering if they are going to actually happen because they are open here. But no, we don't see any market ramifications to that process at this point.
Okay. And just
One other comment there just since you brought it up. We and just to make it clear, the infringing technology, even if we're found to be infringing at the end of the day, we designed out of the system way back in 2014, and we got Boeing enabled us to actually approve the design changes in what I consider record time like 3 months or something. So everything we've done since then and to today is really not subject to that suit.
Okay. So I guess Okay. So I guess, irrespective of the outcome of the lawsuit, it doesn't really change what you're currently delivering to Boeing and Airbus
goal? No.
Okay. And then can you comment at all on the public test business and what happened to that or for public transit?
Well, it's an active pursuit and we are working hard on our New York City program that we announced earlier last year and there are others that we are pursuing. So our plan is to have that be a very active part of our test business, increasingly active as the year wears on. So we are expecting a couple of other program wins and announcements, timing is a little bit fuzzy. Municipalities are working from home just like everyone else. Your question maybe is wondering more specifically whether the pandemic will affect demand for public transit.
And I think in the short term, that's likely the case. I mean, I understand ridership is way down, for example, in New York City. But I think the municipalities that we're in touch with, these are long range, very expensive programs that still weigh beyond our company. And I think there's a commitment that public transportation is going to become more important in the future, not less important. So we're not seeing any pandemic related delays associated with those programs at this point.
Okay. So even in New York City, that's sort of continuing forward in the pipeline irrespective of the demand shock going on?
Absolutely. Yes.
Okay. Thank you so much for the color. Appreciate it.
Thank you.
We'll go to our next question from Scott Lewis with Lewis Capital Management.
Hey, good morning Pete, Dave, Debbie.
Hi, Scott.
Hey, I was just wondering about the, I think approximately 400 MAXs that Boeing has parked. Has ISV been delivered or purchased for those airplanes yet? Or might that be some additional revenue when those start being delivered?
Probably a little bit of both. For the most part, I would say I am speculating here a little bit, Scott. It's a good question. I haven't specifically gotten to it. But my working assumption is that most of those airplanes were ordered long ago on the airline.
The narrow line trend really picked up in the last couple of years. And most of the lines are installing IRPs after delivery. So I would think most of them will get whatever they're going to get aftermarket once they're delivered. But I have to flag that question and I got to I'm just not completely confident in my answer. I think over time, line fit is going to become more of a standard for narrow body like it is for wide bodies.
Today, a wide body airplane is you just don't see wide body airplanes built without power, for example, from nose to tail. The IFE configuration can vary depending on who the customer is. But for the most part, given it would be a in seat power system and a feedback video system. But