US components and subassemblies specialist CPI Aerostructures is aiming to increase the proportion of its work coming direct from major prime contractors in a bid to offset the effects of a slowdown in US Department of Defense (DoD) contracts, that led its “disappointing” 2005 results.

Despite defence budget increases and the DoD’s commitment to maintain support for ageing aircraft in the 2006 Quadrennial Defense Review, “there has been a significant slowdown in government contract awards as well as releases under previously awarded contracts,” says president and chief executive Edward Fred. Contract awards fell from $35 million in 2004, to $16.6 million last year.

The company says it has maintained increased levels of factory overhead and indirect labour “in anticipation of releases on contracts, including the US Air Force C-5 TOP contract, that we have already been awarded and the receipt of any additional awards on some of our major outstanding bids. If these events are not forthcoming, we plan on reassessing this position.”

The company is pursuing a strategy of expanding its activities to include subcontracting work for primes: “we believe that pursuing such opportunities will enable us to access programs that we would not otherwise be able to given our smaller size and resources. By increasing our customer base, we are positioned to take advantage of additional market opportunities and reduce the impact of the slowdown in government contract awards and releases."

Fred is positive on the company’s future performance: “some of our outstanding proposals are so significant in size that any single award could increase our revenue and net income substantially."  The company is forecasting stable revenues of $25 million, with a net income of around $2 million, for 2006. But “the receipt of any major award or multiple successes, a return to the historic ordering pattern of the US government or significant releases on our previously awarded contracts will alter these projections significantly.”

The company saw a net income of $1.5 million and revenues of $26 million in 2005, compared with $5 million and $30 million in 2004.

CPI posted a net loss in 2005 of $117,000, compared to a net income of $2.1 million the previous year.

Source: Flight International