Servotronics has concerns but remains optimistic
Servotronics, which will celebrate its 50th anniversary in August, is well-positioned to endure the current aerospace industry turmoil, as it supplies parts to both of the leading aircraft makers and expects orders to pick up sharply in coming years, its CEO said Thursday.
Speaking at the company’s 10- minute-long annual meeting, Nicholas D. Trbovich, chairman and CEO of the Elma-based maker of servo control parts for airplanes, acknowledged the uncertainties, credit concerns and order cutbacks that “are adversely affecting the commercial aerospace industry.”
He noted that order cancellations and deferrals have been widely reported, including a loss of 72 orders for Boeing Co.’s new 787 Dreamliner jumbo jet. That’s “not good news” for the Chicago-based manufacturer, he said, although its CEO had said that’s not unusual given economic conditions.
But Trbovich touted projections of major growth in the future for airplane makers. That will drive sales for Servotronics.
“The aerospace industry has had difficult times in the past, but quickly recovered and set new records,” Trbovich said. Over Servotronics’ 49 years, “we operated through six recessions and other periods of econoimc uncertainties and subsequently set new performance records.”
In particular, he cited a June 15 report by Aviation Week magazine that aircraft makers have 8,200 orders. “This large number of aircraft creates a reasonable protective cushion and certain stability for years into the future,” he said.
And Boeing itself, in its newest 20-year industry forecast, projected the current global airline fleet of 18,800 aircraft will grow to 35,600 by 2028. That’s down by only 400 from last year’s forecast, and includes the purchase of 29,000 new aircraft and the retirement of 14,250.
That’s $3 trillion in orders, “a huge number,” he said.
And despite the woes of Boeing’s 787, that company still has 846 “booked” orders for the plane, although a fresh delay announced last month could drive customers to rival Airbus. Either way, Servotronics profits; it makes parts for both.
“Our company’s defense/ aerospace business does not appear to be significantly affected by today’s economic circumstances,” he told the gathering of 18 shareholders at the Hilton Garden Inn across from Buffalo Niagara International Airport.
Servotronics makes servo control and other parts for commercial and government planes, jet engines, and missiles. It has parts on Boeing’s Dreamliner and the Airbus equivalent, as well as on the new F-35 and F-22 fighter jets. It also makes cutlery, bayonets, machetes and military knives.
Profits rose 49 percent in 2008, to $3 million, on record revenues of $34 million. But first-quarter profits fell 85 percent to $125,000, as customers delayed or cut orders. “The company’s record performance in 2008 is being followed by a year of global uncertainties,” he said.
For example, officials are uncertain about how much the Obama administration will spend on military aircraft, and how much various bailout and stimulus plans affect Servotronics’ customers. So Trbovich stressed the importance of new product development, to be flexible and responsive to customers.
“It is a time when risk mitigation takes on new meaning, not only because there are new risks, but also because the historical risks have been greatly expanded,” he said. “Our goal is to transform each risk into new opportunities.”
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