COL
#What I would say is I think Commercial Systems margin in the back half of the year is going to be pretty close to what it was for the first half of the year.
I don't see it changing significantly, <UNK>.
Now I do want to clarify, I guess, a couple of points.
The margin headwind that we had from this mix shift was significant, and we're talking about going from very high margin product sales to lower margin customer funded R&D, and that was a big impact.
And I think going forward we'll still see some of that mix issue, but it won't be quite as dramatic.
And I think we feel pretty comfortable that we're at the margin targets that we've laid out for Commercial Systems are achievable.
Just to add to that, <UNK>.
The margin mix issue is what <UNK> said, it's losing the biz jet revenue and increasing the NRE or engineering revenues.
It's not a mix of new products coming into the market.
We have very good profitability with the new products coming into market.
It's part of our common product line strategy where we are reusing, so you shouldn't view 787 anymore as a new product.
We been in rate manufacturing for that, we're now a 12 month rate, so that's very, very good performance from us.
And I'm not worried about new product versus old product mix looking forward.
First of all, I didn't say that the Company funded R&D is going to be flat.
It's going to be down a little bit it, it will be closer to flat for the third quarter.
So that's part of the answer.
And then the other answer is, continued cost reductions, we're continuing to see benefit from the retirement program flowing through the numbers.
If you think about it from an operations perspective, that benefit gets deferred by a quarter because it's in inventory.
So we will see that benefit flow through as well.
Hello, <UNK>.
I think what you're going to see ---+ you are right.
The IMS segment margins were higher than they normally would be, so I think what you will see is the IMS, I'll say, more normalizing in that 15% to 16% range.
I think Commercial Systems, as I mentioned, is going to be pretty flat quarter to quarter Q3 and Q4, and what you'll see in Government Systems is that the margin is going to maybe tick up a little bit in the third quarter, not much, and the bulk of the margin expansion is going to be in the fourth quarter.
Yes, pretty much.
Unfortunately, every year it seems like our cash flow is fourth-quarter loaded and it continues to be.
And I'd say, if anything, it's probably a little bit more, a little heavier, than normal just because of the sales profile we are looking at.
So, yes, very heavily weighted toward the fourth quarter.
Good morning, <UNK>.
Okay, a lot of questions there.
So let me walk through the program.
First of all, we've won the initial award with two other suppliers.
We'll be delivering roughly 30 radios, I think, into the Army.
They will take those through two test regimes, a development test regime and a contract test regime, to validate those radios against the overall requirements.
So there will be no revenues in FY16 associated with that program, because these are free of charge radios.
We're just providing them to the Army to go through the test.
From the results of the test, then they will go to what I would call a call for improvement for the participants who pass the test to then provide an updated price for the next fiscal year buy.
So I would say, <UNK>, it will probably be this time next year before they make that decision.
Their current plan is is that they would down select from three, if there are still three viable suppliers through the test phase, they would down select from three to two for that annual buy.
Obviously if that's at time next year, there's actually very little revenue opportunity next year either because the revenue will go when the radios are delivered, so it really has moved to an 2018 growth item.
The other thing I will say is that $12.7 billion while I like the top line numbers what that is, is that's the max quantities in every case under the IDIQ contract.
So think of this contract as a huge matrix with max quantities all priced, and they are all added together.
This is not going to be a $12.7 billion contract in my mind, however, it will be very significant maybe more like $4 billion to $5 billion of revenue.
How much comes to us depends on how many contractors, what percentage that we win.
We've said hey, look, at we can easily see $100 million a year revenue stream from this program if not more.
No.
In air transport, it was Intertrade down because we ---+
Right.
Mandates down, you didn't say mandates, pretty substantial headwind in mandates.
MRO roughly flat, and Intertrade up, I'm sorry, Intertrade down.
We've said Intertrade is, I'd say, between $100 million and $150 million of sales a year.
Most of that is in the air transport market.
There was a little bit of both, but I would say primarily globals.
Morning.
That's correct, yes.
I'm sorry, most of that is in the fourth quarter, yes.
Like I said, I think it's going to be relatively flat from the second quarter to the third quarter, and then we're going to see a large significant increase in the fourth quarter.
And that's driven, one, just by the sales volume.
The fourth quarter is always the highest sales volume for Government Systems, and it's going to be especially so this year.
And a lot of those sales are these international programs that <UNK> referred to earlier, and those international programs come at very good margins relative to the average Government Systems margin.
Yes.
In terms of third quarter to fourth-quarter expansion, yes.
I think we are pretty aligned with what the market demand is for challengers going forward.
When we deliver the airplanes versus when they are delivered, I'm going to let them comment on that.
Again, I'm not going to get ahead of Bombardier here.
I think we are pretty well aligned with, again, with what we expect the market to be on those.
I don't want to project Bombardier.
Again, I think it's the furlough time.
I'm certainly watching what's going on at Gulf Stream.
That would probably be the area I would highlight.
We don't have a lot of content on the Gulf Stream programs.
The G650 program is a good content aircraft for us, so we will just watch what they do there.
I think we are pretty well aligned at Bombardier.
Good morning.
That's a program specific question.
Most of that work is sustainable into 2016.
I'd say very little of it is orders that we can completely convert to sales throughout the year.
So think of ---+ even the product sales where we get orders for our 210 or our mids product line.
We will make some sales this year, but we won't sell all that backlog out next year.
So, yes, while this is a second half loaded year, it also gives us the opportunity for next year as well as long as we book these orders.
I would target, Rob, probably around 30%.
We'll always be trying to beat that goal, but with the R&D tax credit I'm thinking about 30%.
I would say this, if I heard your question right.
We are planning on having growth, year-over-year growth, from Government Systems in the third quarter.
Now it will be higher in the fourth quarter on a year-over-year basis, but we're going have growth both in the third and the fourth quarter.
And the things that are going to drive the fourth-quarter growth higher are again some of the international programs that we're in the process of closing out right now.
Yes, the mix, and I'd mentioned also the transition to increased Company funded R&D and that's going to happen on the Government side as well.
Operator, we have time for one more question.
Yes, absolutely, and that will come to us in a couple different ways.
We will provide ---+ in cases, we will be providing services to the airlines, we're also working with engine OEMs where we are providing service to deliver the data to them.
Then they provide a service to the airline around the predictive maintenance.
It depends on where the intellectual property resides.
We'll be able to do that for the things that we have the intellectual property.
We'll be a ---+ think of us as a data delivery source to other companies who own the intellectual property going forward.
So there is great opportunities.
We'll be able to put apps in our aircraft and the ground, we'll be able to drive services and support that.
Again, to the OEMs, to the product OEMs, as well as the airlines.
Thank you.
We plan to file our form 10-Q later today, so please review that document for additional disclosures.
And thank you for joining us and participating on today's conference call.
