CPI Aerostructures takes $44.7 million write-off on A-10 jet outlook

CPI Aero chief executive Douglas McCrosson on a CPI Aero chief executive Douglas McCrosson on a manufacturing floor in Edgewood on March 25, 2014, where leading edges for the Gulfstream G650 aircraft are made. Photo Credit: Heather Walsh

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CPI Aerostructures Inc. Thursday took a $44.7 million one-time noncash charge for the second quarter related to the Defense Department's plan to retire the A-10 jet, known as the Warthog. The write-off resulted in a quarterly net loss of $29.7 million, or $3.50 per diluted share.

Shares of the aerospace assemblies maker plunged 27.9 percent after trading opened Thursday but recovered much of the decline to close at $10.16, a loss of 10.17 percent.

Not counting the charge on the A-10, the Edgewood company posted earnings per share of 20 cents on revenue of $21 million, compared to 21 cents per share and $21.1 million in the year-ago quarter.

CPI Aero had been making leading edges for an anticipated 242 A-10 replacement wings as a subcontractor to Boeing since 2008. But CPI Aero said that it had decided to take the charge in part because of a fiscal 2015 defense appropriations bill passed by the House of Representatives in June that included no funding for A-10 operations. A Senate appropriations committee bill, which has yet to be voted upon by the full Senate, would provide funds for only a third of the current A-10 fleet, and no money for replacement wings.

In telephone interview, CPI Aero chief financial officer Vincent Palazzolo said the A-10 program is expected to end in 2015 with the completion of about 130 to 145 replacement wings.

Still, Palazzolo said CPI Aero is reassuring its 303 workers that no layoffs are on the horizon.

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"We have 30 guys working on the program, but nobody's going anywhere," he said. "We have plenty of work once this winds down."

In taking the A-10 write-off, CPI Aero expects to reap more than $14 million in tax benefits and may be able to recoup part of its investment from Boeing and the U.S. government.

Not counting the A-10 charge, CPI Aero said it remains on track to meet its revenue guidance of $83.5 million to $85 million for 2014. For 2015, the company is predicting record revenue of $90.5 million to $94 million.

After the write-off put CPI Aero in the red, lenders Santander Bank and Valley National Bank agreed to waive a covenant that requires the company to earn at least $1 every quarter, Palazzolo said.

The A-10 was built by Fairchild-Republic Co., the Farmingdale company that closed in 1987.

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