Greetings, and welcome to the Astronics Corporation third quarter 2019 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations. Thank you. You may begin.
Thanks, Christine, and good morning, everyone. We appreciate your time today and your interest in Astronics. Joining me on the call are Pete Gundermann, our Chairman, President, CEO, and Dave Burney, our Chief Financial Officer. You should have a copy of the third quarter 2019 financial results, which were released early this morning, and if not, you can find them on our website at www.astronics.com. Let me mention first, as you are likely aware, that we may make some forward-looking statements during this formal discussion as well as during the Q&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 at 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 prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures to comparable GAAP measures in the tables that accompany today's release. With that, let me turn it over to Pete to begin. Peter?
Thank you, Debbie. Good morning, everybody. Thanks for tuning in to our call. Our agenda this morning, I'll make some comments on kind of the major themes and thrusts affecting our quarter and affecting our business. Dave Burney will plow through some of the specifics on our income statement and balance sheet, and then we're going to turn attention to the future, both the wrap-up to 2019 and the fourth quarter that we're currently in, and an early look at what our expectations are for 2020. As Debbie kind of hinted at, we're going to often refer to adjusted numbers when we're talking about comparisons to last year.
For those not as familiar with the story, we sold a Semiconductor Test Business in February of this year, which was a pretty major contributor to our revenue and income in the middle of last year, the second and third quarter in particular. Comparisons backwards, one needs to be careful if they're looking at adjusted numbers or as reported numbers. Those year-over-year comparisons will get simpler going forward, in the fourth quarter and certainly in 2020. Summary of our third quarter. Top line was about where we expected, at $175 million. It was actually our lightest quarter in over two years, since 2017, down sequentially from our second quarter of $187 million. As we hinted at then and feel more convicted about now, we are being affected pretty significantly by the 737 MAX grounding specifically.
We put a certain amount of product on the airplane line fit. That revenue obviously is not too much affected because Boeing's continuing to build at 42 ships a month. A lot of our sales thrust goes to the aftermarket, to the airlines. The airlines, essentially worldwide, are down about 800 aircraft from where they thought they would be at the beginning of the year. It's a capacity crunch, and it affects different companies different ways. One of the things that we're being affected by is that the airlines are very reluctant to take airplanes down unnecessarily to put on passenger amenities, which is largely what we put on commercial airplanes.
It's hard to quantify the impact of that, but programs in various parts of our business are slipping to the right, and it's playing out in our bookings and playing out in our shipments. Segment-wise, aerospace in particular, obviously a majority of our business was $158 million. Again, our lightest in a couple of years, down sequentially from $174 million in the second quarter and $189 million in the first quarter. That trend obviously is disturbing, $189 million to $174 million to $158 million. We think the third quarter is a low water mark, and we'll talk about the fourth quarter in a bit here at the end of the call. The fourth quarter, we expect to see a rebound based on schedules that are in place. Our test segment in the third quarter is a little bit of a different story.
$17.1 million adjusted revenue, almost double the comparator period from a year ago. That shows some strength in our aerospace and defense markets. Also shows the impact of one of our two recent test acquisitions, Freedom Communication Technologies, early in the quarter. For the year, our adjusted sales are up 7% still, even with the weakness in the third quarter to $566 million. We faced some significant headwinds in the quarter. I want to list them and then talk about them in a little bit of detail. We've talked in the past about our three stragglers, our three struggling companies. They again had a pretty big negative impact on our quarter of $9.2 million, $27 million operating loss year to date. I'll get into the details in a moment. We see a path to reduce that number substantially or eliminate it in the new year.
We'll talk about that in a second. Tariff expenses are also on the increase. In the third quarter, we had tariff expense of $3.2 million. Tariff expense has been increasing as the years progressed, about $1 million a quarter. That's the bad news. Again, we have a plan where we think, everything else being equal, we think we can reduce tariffs roughly in half, in 2020. We also had a small loss on the sale of a product line that's part of our ongoing restructuring efforts. We actually have a large number of restructuring efforts underway. It's turned out 2019 to be a year of restructuring. That loss is $1.3 million in the quarter, not expected to continue or repeat, obviously. We also took a legal reserve of $1.7 million related to an ongoing patent litigation suit that's been going on for almost a decade now.
Started in late 2010. I'll give you some details on that. We tend not to talk about it too much. It's something that is affecting our third quarter, may affect our fourth quarter, and may well not be resolved for who knows how long. It could be another indefinite number of years. Let me take these headwinds kind of in order, maybe simplest to hardest. The simplest one is the tariff expense. One of the efforts we have underway is restructuring our supply chain. We get hit with tariffs out of components that we source basically in China with the ongoing trade war. We're adjusting our supply chain where we can to minimize things that we buy from China. We're moving them to elsewhere in the world.
Those efforts are advanced stage, and if nothing changes in terms of tariff structure and tariff topics, as we project into 2020, our tariff exposure should be half of what it is this year. We think that's pretty good progress. It's not obvious we'll be able to do much more than that in the course of a year. We think that's going to be a positive, moving a headwind to a tailwind when we look at year-to-year comparisons, 2020 versus 2019. The three stragglers are probably the most important topic. In order of simplest discussion to hardest discussion, Armstrong is a certification company that we've been talking about for a couple of years. We moved it organizationally into our CSC organization in Chicago. CSC stands for Connectivity Systems and Certification.
At the current moment, are basically physically relocating Armstrong from its Itasca operations into one of our CSC facilities in Waukegan, Illinois. We're basically taking our footprint in Chicago from three organizations down to two, and we have kind of restructured and redefined Armstrong's business mission, and it's basically out of the woods. It's operating slightly below break even, but nowhere near the losses that we had seen. What's more so is we have some reason to be hopeful that it could become a very significant contributor to 2020 based on some pieces of work that are outstanding. If we're successful winning those pieces of business, this will actually become a positive topic, perhaps in our next phone call. CCC, Custom Control Concepts, is the second of our three stragglers. It is the Seattle-based company that does cabin management systems for what we call VIP aircraft.
These are private aircraft, commercial aircraft basically converted to private aircraft, like 737s or A320s or A330s or 777s, for example. CCC has been struggling with a development program which they won right about the time we bought the company 18 months ago. That development program has turned out to be a real challenge and been the source of continual losses and heavy engineering expenditures trying to get it under control, even as we essentially rebuilt the company as the thing progressed. The message today is that this development program is on track, we believe, to conclude in right at the end of the fourth quarter, in the middle of December. If it concludes, that will open the door for a reduction in engineering expenses as we enter into 2020.
It'll still be reasonably heavy in the first quarter, but a lot of the efforts in terms of outside consultants and qualification and certification expenses should drop. We expect CCC to be profitable or right at breakeven for the year, especially in the second half. Brings us to our third straggler, AeroSat. AeroSat's our antenna company. We've talked about AeroSat quite a bit. Our strategy has been to try to grow AeroSat into critical mass. That strategy has resulted in significant losses, and we're basically reversing course and have made the decision to reorganize the company and consolidate much of its operations also into CSC in Chicago. AeroSat's located in New Hampshire.
By doing that, we think we'll be able to more efficiently leverage the technical and manufacturing resources required to pursue the AeroSat pieces of business, and we're not sure we're going to pursue all of AeroSat's pieces of business. There have been three or four major thrusts, depending on how you count them, and we're reviewing which of those we want to continue and which ones we don't. We're doing that in conjunction with customers, to the extent we can, and we're expecting by the end of the quarter to publish or take a reserve in the fourth quarter related to that refocusing and the relocation and move of that business. The move itself is expected to happen over the first half of 2020, perhaps in the second quarter.
The quote from me in the press release says we expect that reserve will be at least somewhere in the neighborhood of $5 million, and could be over $10 million, depending on which pieces of business we pursue and which ones we decide to walk away from. The goal with the three stragglers is to turn what has been essentially a $27 million operating loss so far this year into breakeven in 2020. That sounds aggressive, we really believe that we're on the verge of being able to achieve that given the concluding development program at CCC and the pending consolidation and the reserve we're going to take in the fourth quarter for AeroSat. As an aside, we don't talk about this too much on these calls, but if you look back over 2019, we have done a number of restructuring efforts.
It's become a year of restructuring, as I said earlier. It's been pretty comprehensive and touched many parts of our business. It started early in the year with the sale of the SemiTest business. That was a $100 million sale. It prompted a pretty major restructuring of our test segment in terms of reducing costs and reallocating costs. We also added a couple of acquisitions, smaller acquisitions, to our test business, Freedom in the second quarter, a company called Diagnosys in the most recent quarter. We think that the combination of the sale of the SemiTest and the addition of the two companies is going to set our test business up for a nice rebound or away from semiconductor and more towards our traditional aerospace and defense lines of testing in 2020. We're encouraged at the prospects there. I mentioned that we're consolidating Armstrong into CSC.
That's happening right now, taking three Chicago operations down to two. We're also now moving AeroSat into CSC. That will downsize significantly an operation in Manchester, New Hampshire to, again, Waukegan, Illinois. We'll still have a sales office. I guess I didn't mention this, but in New Hampshire, we're going to retain an engineering sales program management office, so we keep the critical intellectual property and experts critical to making the technology go. The manufacturing operation itself, with all the overhead and support systems, will be moved to Waukegan. The other thing that happened in the third quarter was we sold an airfield lighting product line. We incurred a small loss on that, but it helps us, again, refocus on the pieces of the aerospace world that we want to continue with into 2020.
The goal of all this is to position the company for significantly improved margins in 2020. Let me say a word about the litigation charge. This is a patent infringement suit or series of suits that was brought against us by Lufthansa Technik way back in late 2010. It's largely been a debate in the U.S. and in Germany. It has recently been expanded into France and the U.K. In the U.S., we were successful in basically defeating the patent, and the case is over and no charges against our company. In Germany, it seems to be going the other way. We've got some indications from the court that have led us to incur charges, including the charge in the third quarter. Our total accruals are of $2.7 million.
Our legal advisors on the ground in Germany suggests that the range of eventual awards could be somewhere in the neighborhood of between $2.7 million and $6.3 million. We're expecting the court to speak some more in the fourth quarter. We're expecting that we could have an increased accrual based in that range. We also expect that an appeal is likely, whether the decision's in that range or outside of it. We expect that an appeal will be filed by one side or the other, perhaps both sides, and that this could go on for a number of years. There's no real obvious end in sight. The technology in question, I guess I would add, is not something we consider critical. It's not something that's important, really, to our product line.
In fact, once we became aware of the situation, we basically designed the technology out and had Boeing and Airbus approval within three months, which is amazing for any kind of change. It's one of those things we have to deal with and have been dealing with for about a decade now. Given all that, I think I'll turn it over to Dave to talk through the income statement and balance sheet, and then we'll come back and talk about the future.
Okay. Thanks, Pete. I'm going to go right to the segment discussion. Pete covered a lot on the consolidated side of things. In the third quarter operating in the aerospace segment, we'll start with. In the third quarter, operating margins contracted in the quarter from lower sales volume, as Pete discussed earlier. We had $3.2 million of tariffs, which was a $2.4 million increase from last year. We also had a $1.7 million increase to the litigation reserve, as Pete just discussed. Losses from the three challenged businesses, all in the aerospace segment, were reduced by $2 million to $9.2 million, including a program reserve of $2.2 million for the VVIP program that Pete mentioned. Tariffs impacted the segment by $3.2 million. The vast majority, if not all of our tariff exposure, is in the aerospace segment. Year-to-date, aerospace operating profit increased slightly to $48.9 million.
As a % of sales, operating profit was down 10 basis points to 9.4%. Aerospace operating profit in the first nine months of 2019 benefited from higher volume. Amortization expense related to acquired intangible assets was $2.3 million lower than the year before. We had slightly reduced operating losses from the challenged business compared to the prior year. These benefits were offset by higher tariffs. If you remember, last year, the tariffs began in the third quarter. We really hadn't seen much in the way of tariff costs last year until we hit the fourth quarter. Moving over to the Test segment, third quarter. In February this year, we divested our Semiconductor Test Business. For comparative purposes, it's important to keep that in mind. Unadjusted test system sales were $19.3 million as reported, down $23.8 million.
The divested Semiconductor Test Business had sales of $2.2 million and $33.6 million in the current year's third quarter and prior year's third quarter respectively. Excluding the divested Semiconductor Test Business from both periods, sales for the ongoing test business increased by $7.6 million, of which for the Freedom Communication Technologies acquisition added $3 million, while organic sales increased $4.6 million. The test segment operating profit was $2.1 million or 10.7% of sales. During the quarter, we expensed inventory step-up cost of $440,000 relating to the Freedom Communication Technologies acquisition. That step-up is fully amortized at this point. We don't expect to see the headwind from that in the fourth quarter. Adjusted for the sale of the Semiconductor Test Business, the test segment had operating income of $133,000, compared with an operating loss of $4.5 million in the prior year period. Year-to-date test segment sales decreased $46.2 million to $53.8 million.
Adjusted test segment sales, excluding the Semiconductor Test Business, were $46 million, up 65% compared with the prior year, driven by growth in the aerospace and defense market and the addition of Freedom. Operating profit for the segment was $4.2 million or 7.7% of sales. Adjusted for the sale of the Semiconductor business, there was an operating loss for the segment of $0.8 million, reflecting the impact of $2 million in restructuring costs that was recorded in the second quarter. Operating loss in the prior year period, adjusted for the divestiture of the Semiconductor business, was $11.1 million. Moving to the balance sheet and cash flows. Our cash from operations in the quarter was very strong at $21.2 million, driven by improvements in net working capital. It's been our best quarter we've had in a while for cash flow generation.
We expect to continue to see solid cash flow generation from operations in the fourth quarter. During the quarter, we repurchased 1.8 million shares of stock at an average cost of $27.42. This exhausted our share repurchase program that had been in place since the end of 2017. In September, our board approved a new $50 million share repurchase plan. Our debt increased to $180 million from $122 million at the end of the second quarter, due primarily to the $50 million share repurchase and the $21.8 million acquisition of Freedom. We continue to be in a comfortable spot with regard to our liquidity and our options we have regarding capital allocation going forward. Our leverage, excluding the $78 million gain on the sale of businesses, is below two times funded debt.
Our capital allocation strategy continues to be investing in M&A and opportunistically returning capital to shareholders via share buyback programs. Going to our tax rate. Our tax rate for the year is forecast to be 21%-25%, higher than what we expect going forward, as the tax on the sale of the Semiconductor Business had a high state tax component associated with it. We expect our tax rate next year to be in the range of 18%-22%. In 2019, our CapEx range for the year has been lowered to $14 million-$19 million, reflecting pushing some programs into next year and canceling some other CapEx programs. That's a significant change from where we were about three months ago.
Our CapEx plans are still being developed for next year, but I expect that we will probably be north of $20 million next year on the CapEx side of things. We'll provide more guidance on that in the fourth quarter earnings release. Pete, that's all I had.
Turning to the future being the fourth quarter of 2019 first. We are expecting fourth quarter sales to be in the range of $175 million-$195 million. That's a wide range, you might think, given that we're well into November already and the year ends at the end of next month. As always, there are a bunch of things that kind of are stacked up in the second half of December to ship, and there's the possibility that some of those slide out into January. The reasonable range is $175 million-$195 million. That means we should see a little bit of a step up from third quarter volume. This gives us some confidence to think that the third quarter is the low point here. This will tighten our 2019 forecast to be in the range of $750 million-$770 million.
Our 2018 adjusted revenue, by comparison, was $719 million, so the midpoint would suggest 5.7% growth. We would expect Aero to end up $680 million to $690 million. Last year was $676 million. Test, we now predict to be $70 million to $80 million for 2019, and 2018 was $48 million after removing semiconductors. A pretty significant increase there. Freedom obviously helping out in the second half. Diagnosys helping out to some extent in the fourth quarter. Again, in the fourth quarter, we expect reserves for the AeroSat consolidation and reorganization and perhaps an increased reserve on the litigation side of things. 2020. The big assumption we're making as we initiate revenue guidance for next year is that the 737 MAX return to service happens sometime around year-end here or shortly thereafter.
We don't pretend to have information that's not generally available out there in the industry, but there are more and more voices all kind of saying the same thing, that it's likely to get the green light sometime in late December or January. That's a critical assumption to our plans going forward. Our stated plans in the press release, we expect consolidated sales next year to be somewhere in the neighborhood of $770 million-$820 million. The midpoint of that range versus the midpoint of our 2019 forecast would suggest 5% growth or so. We're expecting aerospace sales of $690 million-$730 million, so that's a little bit less than the 5% consolidated expectation. We expect Test to be somewhere in the $80 million-$90 million. That's 13% growth, as we see the world today.
Of course, we don't issue bottom-line Guidance, but the big change from 2019 to 2020 is that we are expecting to reduce and eliminate the observed operating losses from the three stragglers, which this year to date is $27 million, and we would expect to cut our tariffs in half, which in the last quarter was $3.2 million, and year to date was $6.8 million. It'll be a busy year, but we think that those are achievable goals that we're dedicated to realizing. I think that ends our prepared remarks, a little bit longer than normal. Christine, we'll take questions at this point.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Kenneth Herbert with Canaccord Genuity. Please proceed with your question.
Hi, good morning, Pete and Dave.
Good morning.
Hey, Pete. Good news on the restructuring effort. It has certainly been a busy year. I wanted to first ask for the revenue guidance in aerospace in 2020. It implies, you said just under 5% growth or about $25 million of an increase, assuming the midpoint this year to end the year. Can you parse that out a bit by maybe how much growth you're assuming from the three businesses versus how much of a tailwind the Max is next year versus just maybe what you're seeing organically across some of the parts of the business?
Yeah, there are a lot of moving parts as you're getting at. Let me talk about 737 MAX first of all. The party line that most people seem to be working towards is continued production rates of 42 a month. We expect that to jump up to the high 40s upon return to service, and we expect it to trend up towards the end of the year, to the high 50s kind of as the year wraps up. That all assumes a January return to service. We're making some assumptions that there's a resumption of normal sales sequences to the aftermarket. The way our aftermarket sales typically work is something like this. We come up with new products, or we respond to the demands of airline customers.
There's a series of bidding exercises and proposal exercises, and then there's usually a flight test or some period of time when an airline will take some hardware and they'll actually put it on a number of their aircraft and they'll observe it and they'll test it and they'll fly it and they'll see what they think, and then they go forward. Where we're getting a little bit sideways here in our aftermarket pursuits is that those trials, those flight trials, are being pushed out. We're making some assumptions that those flight trials resume shortly after the 737 is lifted, and it will result in sales, particularly in the second half of the year. We are not being very aggressive, frankly, in that range with the 3 struggling businesses. I would dare say that from today's perspective, there's upside potential to our forecasts there.
We had pretty big revenue increase expectations from the three. We were pretty disappointed with the AeroSat results. We talked earlier about a launch of what we thought was going to be a pretty good program back in April 1st, which maybe turns out to be a bad day to launch a program of any type. April 14th, there was a meteorite that hit a satellite that pretty much grounded that effort. That grounding continues to today. We are seeing pretty good growth this year out of CCC. We actually are going to come close to doubling revenues there if the fourth quarter goes as they think it will go. We are being more conservative in our growth expectations for the three of the trio next year. The big contribution from the three in our plan will be simply to stop the losses.
There are pieces of business that all three are looking at that could drive growth. As always, we'll look at that range, and we'll update it as we can as time goes on, and it'll be a quarter by quarter kind of thing. Today, based on what we expect to happen with the 37, what we expect to happen with the three stragglers, and what we are observing in the rest of our business, we're thinking that's a comfortable range.
Okay, that's helpful. I appreciate all the detail. If I could then, just to jump down to the margins, and who knows exactly how the fourth quarter shakes out. Pre any incremental sort of restructuring charge, it looks like on the three businesses, if you run a loss of $30 million-$35 million for the full year and call it $8 million to $8 and a half million or so with tariffs, if you get break even next year on the three businesses and tariffs, you've got $35 million-ish or so give or take margin tailwind heading into 2020. I just want to make sure I got that correctly, and second, if there's any other sort of moving pieces specific around margin next year we should be thinking about.
Ken, I think on an annualized basis, your number makes sense, keep in mind, it's not like a water faucet that you just turn it off on 12/31, and everything's restructured, and the losses disappear starting on January 1. As Pete mentioned, the AeroSat restructuring will be occurring as we move through the first and into the second quarter. Certainly, we expect by the time we get to the second half of the year, that those annualized numbers that you talked about should be realized as we go into the second part of the year. Probably won't start out in the first quarter that way.
Fundamentally, your numbers are on target.
Yeah. Okay. No, I can appreciate it. It's clearly going to be a steady gradual improvement with second half, really when you see the benefit of the restructuring. Then, of course, you'll start to anniversary that in obviously 2021, as well. Okay, I'll pass it back there. Thank you very much.
Our next question comes from line of John John Tanwanteng with CJS Securities. Please proceed with your question.
Good morning, thank you for taking the questions.
Hi, John.
Hey, John. Pete, can you just talk about the program reserve in CCC? What was that all about?
It's a continual effort. Essentially, the company, a long time ago, about the time when we bought it, bit off a program which it was not set up to execute well on. Eventually that became pretty clear, and we've been in a struggle, basically, to get this program executed. The reason we're pursuing it and the reason we didn't abandon it up front is we actually think the technology will prove to be quite valuable over time on a competitive basis. It's something the market seems to want in certain classes of aircraft, and it's a pretty high profile program with a high profile customer. Of course, in the aerospace industry, when you run into trouble on a program, you can decide to fight it out and execute it and keep the customer happy, or you can turn and walk away.
If you turn and walk away, chances are you might as well never show up at that customer again, ever. We decided to stick with it, and the program charges are basically realizations at certain points in time that we're not quite as far along as we thought we would be, and the estimate to complete the program is higher than we thought it would be, and the accounting rules say that you got to take those charges as you recognize them, not as you incur them. Dave, do you want to clarify that at all?
Yeah, that's right. This program was crossed into the loss contract program a year and a half or two years ago. You continue every quarter to revise your estimated cost to complete. There was a lot on this project that was kind of unknown. We got into this year, every quarter, we expected that we had adequately accrued for the cost estimate. We continued to run into some stumbling blocks there. Now we estimate that the program's about 90% complete, with the finish line in sight here. The additional cost really was related to the additional time it took. If you remember, a couple of quarters ago, we thought we'd be done in September, I think it was. Three, four months adding on to this adds cost to the program.
Okay. Got it. That's scheduled complete mid-December. You don't see any barriers at this point to it getting over the line?
We sure hope not. That's the plan. There's a customer review process in mid-December. We're working hard to meet our requirements for that review. If we're successful, kind of the engineering phase of this program will be concluded. There will be ongoing support requirements and refinements because the hardware is not actually going to fly for a little while. It'll be relatively low level. At the moment, we've got a lot of external costs. We have a lot of external consultants helping us with this development program. It's a major push. That's part of why it's so expensive. We expect a lot of those related expenses, both in terms of outside companies doing work for us and the qualification certification cost to drop significantly as year-end comes.
I would add to that, too. The other piece to this that kind of falls through the cracks or gets hidden is the distraction from other programs, that that organization is so focused on getting this to the finish line, that there are a number of other programs that will benefit by having the attention of these engineers on them when they can move off of this program.
Okay, great. Thank you for that color. Dave, what are your total, I guess, projections for problem unit losses, legal reserves, program charges, and restructuring costs in Q4 and maybe into 2020, if you can get that far out?
Well, as Pete mentioned, there's a range of potential possibilities with regard to the restructuring. At the low end, probably $5 million-ish, but there's a lot of moving parts to this yet. We're going to learn a lot over the next month or so and to finalize that plan. At the low end, as Pete mentioned, we think it would be about $5 million for restructuring there. We actually think the CCC business, as Pete mentioned, it will not generate a loss in the fourth quarter.
That's dependent on sales, which are going to butt up right against the end of the year.
Right.
There's a good chance CCC is actually positive in the quarter.
Right. I'm sorry, what were the other ones?
Oh, just the legal reserve. I think Pete bracketed it $2.7 to $6, increasing potentially to $6.3, right? Is that kind of what you're getting at?
Yeah.
Okay.
That's an unknown number. The number for the AeroSat transition is unknown at this point. We're actively reviewing the various business pursuits that the company's been involved with, and what we decide to go forward with and what we, more importantly maybe, don't decide to go forward with will result in various charges from specifically inventory and maybe some goodwill impairment kind of charges.
Yeah.
We're looking at it program by program.
Yeah, included in those, there would be a lot of non-cash type charges. Again, depending on if there's inventory relating to a program that we decide we do not want to pursue. Included in Pete's numbers were non-cash charges, as well as severance and reorganization costs.
Okay. Got it. Pete, I'm surprised you didn't talk about the win with Rockwell and SES and Vista Global for AeroSat. How do you see those ramping through the years in terms of install rate and incremental profit from each one?
Yeah, thanks for that, John. I did not mention it. That's one of the things that we're investigating and trying to get better insight into. Yeah, Rockwell Collins or Collins Aerospace has decided to enter the business jet satellite connectivity market using a derivative product of ours that we are developing at AeroSat. Yeah, we think it's a confirmation that there's a lot of potential demand there to draw a company like Collins into it. We're pleased that they've picked our antenna to work with. There's not been a hard launch on that. There's a launch on the program, they're not actually doing sales at this point. It's more tying up the loose ends of the technology, improving the network, and doing those kinds of things.
It's a little premature to know for sure what the expected volume is going to be, both for 2020 and 2021. We're expecting purchase orders shortly, and we're expecting the hard launch of actually putting hardware on airplanes and initiating the sale process first quarter 2020 or so.
Okay. Great. Last one from me. How should we think of the core aerospace margins outside of the three PLM businesses in 2020?
I think they're healthy.
Yeah. When we can get the headwinds behind us here going into 2020, I think we should be able to see the segment operating margins for the aerospace business start to push back into that mid-teen % range. We've been there before, the last couple of quarters have been disappointing. I think we should be able to push back up into that mid-teen % range. I think next year, to add a little bit more color on the way we expect the year to progress, partly due to the 737 situation and partly due to some other programs that we expect to roll out. We expect the year to build in terms of the top-line growth, with the second half being much heavier than the first half. Actually, the first quarter probably being our weakest quarter.
Okay, great. Thank you so much, guys.
Our next question comes from the line of Josh Sullivan with Seaport Global. Please proceed with your question.
Good afternoon.
Good afternoon.
Just on the test growth, can you outline some of the contracts or opportunities, what you're looking at for 2020?
Well, we sense that there is a better funding environment in general in military tests. That's a turnaround that we've been waiting for some time, dating back to before the Trump administration took office. Part of it is better funding along those lines, and part of it is some of the recent thrust that we've had, both with our acquisition of Freedom, which takes some of our radio test capabilities and expands it into the governmental market, I guess I would call it. As well as our expectations for Diagnosys. Maybe we'll talk about Diagnosys a little bit. Earlier this year, we won a program with the New York City Transit Authority to provide a test architecture for one of their rail lines, one of their new programs. Our main competitor there, it turns out, was this company called Diagnosys.
On the heels of that win, we ended up in discussion with Diagnosys, and one of the mutual observations was that what they have complements well what we need. One thing led to another, and we explored teaming arrangements, and we explored subcontracting arrangements, and we ended up deciding with the owners of Diagnosys, it was a privately owned company, that the best path forward was an acquisition. We feel that together, we're a pretty strong force in this kind of mass transit train test market, which we think is a growing market. The logic here is, if you think of trains, modern trains, they're increasingly digitized, they're increasingly connected, they're increasingly complex, mission-critical type systems compared to trains of yesteryear.
Operators, which are generally municipalities and government agencies, are realizing that they have the basic decision that maybe the army might have to make, or the Marines, when they want to develop a testing and verification capability for all of their required equipment. The military, the Marines, let's say, have long been in the practice of developing a standardized test architecture, which can be customized by various add-on pieces of equipment or add-on connectors and boxes so that a big test or a standardized tester can be deployed on a number of test items consecutively. You don't have to have dedicated test equipment for each of the items that you want to test, maybe, say, in a forward deployed situation.
The municipalities are realizing they can use that same logic, that same architecture, to save space and increase commonality and to decrease costs when they want to test the various components and elements on a train. We think that with Diagnosys as part of Astronics, we are no doubt on the leading edge of this market. If things go the way we think they're going to go, we could have other program wins to announce in the coming months. The New York City program is a program called R211, for those in the know. It could be just the beginning of what we think could be an interesting vein of business for us to explore.
Got it. No, that's helpful. Just dovetailing into that, has there been any change in the M&A perspective? You went through some of the dynamics behind Diagnosys, just how has the strategy evolved, call it, over the last 12 to 18 months?
Well, we've looked at a lot of things. I can't tell you that we've seen a whole bunch of things that are kind of right down the aisle for us. It seems like there's a lot of money chasing a few items, so the prices have been really high. Those are observation things we've experienced. I think, we've certainly learned a little bit from our experience. We've stumbled here on a couple of things. You learn every time you stumble, for sure. The CCC experience taught us something. The AeroSat experience certainly taught us something. They had some common elements to them. Overall, acquisitions have been an important part of how our company's evolved. In the midst of all that, there are other acquisitions that have gone very well for us.
I would say that it's too early to tell for sure how Freedom and Diagnosys are going to work out. Telephonics was certainly one that we enjoyed. PECO has been a really big plus for us. The test business that we bought from EADS has been a mainstay of our test business, including the semiconductor capability that it brought with it. I don't think we're a company that's ever going to buy everything that moves or bid on everything that moves. As we get older and as we collect battle scars, we're getting a little wiser, and we look for certain things. All that said, acquisitions will continue to be part of what we do in the future, for sure.
Got it. Is there any update on your position in the free Wi-Fi trend, and particularly with Delta or any other customers?
I don't think we have anything new to say other than, I guess personally speaking, my observation is that it's becoming more and more of the discussion in the industry. The industry is again distracted by the whole 737 thing that's really cast a shadow over the entire world. Even airlines that don't fly the 737 are dealing with increased levels of demand. I guess our assumption, our observation is that that's where the world's trending. More and more people expect free Wi-Fi, and they expect it continuously. Nobody expects to pay for it anymore. Maybe in really expensive hotels, but even that's getting less and less common, and it's usually something they give away when asked. We're fans. That's a big thing for us. Our conviction is that people are increasingly committed to their personal electronic devices.
They want to use them, they carry them everywhere, they expect it for free. The aircraft world is a world that's ripe for continued development and better service, and that's kind of our sweet spot. We think free Wi-Fi is a big deal.
Got it. Appreciate the time.
Thank you.
Our next question comes from the line of Michael Ciarmoli with SunTrust. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the questions here.
Good morning.
Just to stay on Test for a second. As we look into 2020 organically, you've got Test going at $85 million at the midpoint from $75 million. Is that just a function of Freedom and Diagnosys, or do you expect any organic revenue growth in there?
Well, it's a little tricky to measure organic just because freedom and Diagnosys are largely, it's a poor term maybe, but they're kind of bolt-on acquisitions in that they're augmenting initiatives that we already have underway. It's one of those situations where we're hoping that, in both cases, one plus one can equal a little bit more than two. It's hard to answer your question because some of the work that we might otherwise plan to do in our other test locations, Orlando and Irvine in particular, we might transfer to some of those other businesses.
Okay.
Some of our R211 business, for example, would probably move out of Orlando, or Orlando will subcontract to Diagnosys, which is in Boston.
Okay.
I don't view them. It's not going to be easy to really measure how much of it's acquisition growth and how much of it's organic growth. I would view it more as organic.
Okay. Just on Aero in 2020. 787 rate cut, 777X getting delayed. Does that enter into the forecast? Next year it sounds like you're going to have a little bit more strength in the second half, which might be when you start feeling some of those, especially the rate cut on the 787. How is that contemplated in the 2020 outlook?
Yeah, that's baked into the numbers. The 777 is something that we have quite a bit of line-fit content on. 87, much less so directly to Boeing. Yeah, we've got those kind of baked into the numbers, assuming that the cuts and the extensions, the delays don't turn out to be greater than we expect.
Okay. Just the last one for me. The bookings trajectory and kind of backlog. Any kind of real-time update in terms of how the bookings are tracking now? Maybe how you expect to end the year in terms of backlog? I think you called 3Q sort of the bottom here. Can we assume that that's maybe the bottom for bookings too in aerospace?
Would hope so. We don't have an update for the fourth quarter. Obviously, we expect bookings to rebound here in order to support those revenue levels for next year. I think we're seeing it on test. It's not quite as evident on aerospace at this point. Based on scheduled programs that are in backlog, we're reasonably confident on a step-up in revenue in the fourth quarter. The first quarter we would expect to be kind of at that increased level also. Expand from there. Again, assuming that 37 gets back in the air at or near year-end.
Got it. Perfect. Thanks a lot, guys.
Thank you.
Our next question comes from the line of George Godfrey with C.L. King. Please proceed with your question.
Thank you, and good morning. Thank you for taking my questions. Two questions, Pete. The first one is, you stated very clearly you don't really have any other information on the Boeing 737 getting certified and coming back into service before the end of this year or January, and you're making your best estimates. If we take a more pessimistic outlook and that continually gets pushed out, what can you do at Astronics specifically to try to mitigate that downside? Do you just have to sit there and kind of just take the punches as they come in? Thanks.
Yeah. I think we're kind of in that position, unfortunately. If it gets extended significantly at all, the odds increase of a production slowdown or even a suspension, which would have a significant effect on our company, of course. We put 95,000 or so, plus or minus, on each new airplane, and that does not assume any passenger power, for example. If you add passenger power to it can easily double. If they go from 42 airplanes, which is where we are today, to zero, that would obviously hurt us, and we'd have to scramble around and look at what we can do. It would be a uncomfortable development for sure, because a big part of our cost structure isn't necessarily production-related. It's all the support and engineering that goes into our products.
If I kind of flash forward to that potential reality, I guess I would say that we would be really reluctant to cut costs in that way because those technical skills are our lifeblood, really. We would be reluctant to cut that. It would be a bad development if that were to happen, no doubt.
Understood. My second question is, you talked about the meteorite hitting the satellite and changing some of the program outlooks for AeroSat. When I think about those three businesses, I always thought the greatest variability in revenue was on the AeroSat piece. Are there other programs for other reasons that may or may not look as attractive today due to competition, product development costs, that are also causing you to want to consolidate that facility beyond the platform of program issue with the meteorite? Thanks.
That's a good question. I think the best way to look at it isn't at a program-by-program review, but rather the overall review, kind of a top-level observation. I guess from my perspective, we think that the technology's important and the technology's good, and the technology's valuable. We have had a lot of trouble cracking the code, frankly. I mean, we've missed badly on what our revenue expectations were, and in some cases, they were clearly things that we could not control. I mean, some people might think we should control or be able to control meteorites. I don't think we can. That's something that was just an external factor that affected a program that we were kind of counting on at that point in time.
There are other issues where, sooner or later, when it happens kind of over and over and over again, we have to sit back and look at, is it smart for us to continue to spend money like we've been spending money to pursue things that we've, like I said, not been able to crack the code? The collection of thinking is that, again, the technology's good, there are valuable programs to apply it to, and there are markets that we want to pursue, and certainly that business jet market is one of the ones that we want to continue to pursue. We want to do it in such a way that we don't risk the kind of all-or-nothing financial impact of executing on the programs in the short term.
By doing the consolidation or the reorganization, whatever you want to call it, we can leverage assets that are otherwise kind of free and clear, already paid for. The incremental return on the satellite program or the antenna programs, when we find success, will be greater. The downside risk of another meteorite hit, for example, are greatly reduced.
Understood. Thank you.
Thank you.
We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Well, thanks everybody for tuning in. We appreciate your time. We look forward to talking with you again soon. Have a good day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.