East Aurora manufacturer makes deep cuts as its aviation markets crash

May 6--Even before the coronavirus outbreak, East Aurora aircraft lighting and electronics manufacturer Astronics Corp. was hurting, with production of its biggest program -- the Boeing 737 MAX -- shut down.

Now, with the coronavirus bringing air travel to a minimum and devastating the aviation industry, Astronics is absorbing an even bigger blow.

Its first quarter sales plunged by almost 24%, cutting its operating earnings almost in half. And now the company is bracing for even further declines in sales as the aviation industry reels.

In response, it's slashed its workforce by 30% to around 2,000 people companywide.

It froze wages and eliminated its cash bonus plans. It's stopped using temporary labor and consultants whenever it can.

It cut its capital spending plans for this year by more than two-thirds.

It suspended its stock buyback program.

And the company has cut back on marketing, trade shows, travel and other discretionary spending.

In all, those steps are expected to save between $55 million and $60 million this year.

"The situation is far from settled, but if our revenue in 2020 were to drop on the order of 30% to 35% from 2019, the changes we have made should allow us to stay cash positive" and generate operating earnings of between 5 cents and 9 cents for every dollar of sales, said Peter J. Gundermann, Astronics' president and CEO.

"We began the first quarter concerned that the 737 MAX had not gained FAA certification in late December as we had expected, and that Boeing had decided to suspend production in January," Gundermann said. "Then we saw the Covid-19 disruption spread around the globe in March, affecting our operations significantly and affecting our entire industry. That we were able to adjust to the situation and produce an adjusted [operating earnings] of 10% is a testament to the dedication and capability of our entire team."

The uncertainty also has devastated Astronics' stock, which has plummeted by more than 80% since early June. The shares were down 5% Wednesday to just over $7 and hovering around its lowest levels in a decade.

About 55% of Astronics' sales last year were from products that go on to new commercial or business jets -- a sector that has been hit hard during the Covid-19 lockdown, with most major manufacturers reducing the production schedules by 30% to 35%, Gundermann said. Astronics also expects a substantial drop in sales of its in-flight entertainment and passenger power supply systems for aircraft, which accounts for about a quarter of the company's sales.

Its defense and government markets, which account for about 20% of Astronics' sales, are expected to be fairly stable, he said.

"We are prepared to take additional measures as required to achieve our objective of, at a minimum, cash breakeven results," Gundermann said. "Likewise, should there be a recovery, we will be in a position to timely deliver our products."

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