Good afternoon, ladies and gentlemen and welcome to AAR's Fiscal 2020 Fourth Quarter Earnings Call. We are joined today by John Holmes, President and Chief Executive Officer; and Sean Gillen, Chief Financial Officer. Before we begin, I would like to remind you that the comments made during the call may include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, as noted in the company's news release and the Risk Factors section of the company's Form 10-K for the fiscal year ended May 31, 2019, and Form 10-Q for the fiscal quarter ended February 29, 2020. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events. At this time, I would like to turn the call over to AAR's President and CEO, John Holmes.

Great. Thank you and good afternoon, everyone. I really appreciate you joining us today to discuss our fourth quarter and our full year 2020 results. Before we get into those results, I'd like to begin by thanking the AAR team for its truly remarkable strength during these unprecedented times. In many cases, we have had to make difficult decisions in order to align our costs with a lower demand environment. And I'm really proud of my teammates for their professionalism and resilience, as we work through the impact of COVID-19. I also want to thank our customers for their unwavering support and for recognizing the unique value that AAR continues to bring. In addition, I'd like to comment on diversity and inclusion. These imperatives have been part of AAR's core values for decades. We have a long history, both internally and within our communities, of supporting and promoting underrepresented groups. However, the events in recent months have prompted us to broaden our efforts to try to understand systemic racism and discrimination and determine how we can continue to improve as a company and as a society. To that end, we are taking several additional steps that will enable us to rebuild our workforce with an even more diverse team, as our industry recovers. Much as AAR has played an industry-leading role in addressing the shortage of skilled labor, so too can we play a leadership role in building a more diverse and inclusive aviation workforce at all levels in the industry. With that, I want to turn to our results. As you all know, the commercial aviation industry has been significantly impacted by the COVID-19 pandemic. In light of the challenging environment, I'm very pleased with our overall performance. Our sales for the year grew 1% from $2.05 billion to $2.07 billion. And our adjusted diluted earnings per share from continuing operations decreased 12% from $2.44 per share to $2.15 per share. Although our earnings for the year were down from 2019 levels, our results reflect three quarters of record sales and earnings performance and the fourth quarter in which we were able to effectively navigate a historic decline in the commercial aviation industry due to the unprecedented grounding of the world's fleet. Sales for the fourth quarter were down 26%, from $563 million to $417 million. And adjusted diluted earnings per share from continuing operations were down 62% from $0.68 per share to $0.26 per share. We took numerous cost reduction actions early in the quarter to offset the impact, which we described in our May 21 8-K, including facility closures and consolidations, exiting unprofitable product lines and exiting or restructuring underperforming commercial programs contracts. These resulted in a pre-tax charge in the quarter of $27.9 million and brought our cost structure into much better alignment with the current revenue base. In addition, our agreement to divest our Composites Manufacturing operation, which we announced a few weeks ago, was not profitable in FY 2020 and is not core to our Aviation Services offering as a step towards further enhancing our profitability. We had launched the sale process earlier this calendar year and are pleased to have agreed on a transaction that furthers our multi-year strategy to focus on our industry-leading Aviation Services and reduce complexity in our operations. All of these actions, along with the actions we are continuing to take in the current quarter, produced permanent changes in our cost structure, which we expect to improve margins as our revenue recovers. Even in this environment, we continue to pursue and win new business and I want to highlight a few examples. During the quarter, we announced an agreement with BASF to distribute and maintain certain aircraft cabin air quality improvement products, as well as a $125 million sole source contract with the U.S. Air Force to produce and repair 463L cargo pallets. We also announced a joint venture with Sumitomo to provide supply chain solutions to the Japanese defense market and to distribute parts from Japanese OEMs to the global aftermarket. In addition, subsequent to the quarter, we announced an extension and meaningful expansion of our agreement with Unison Industries, a subsidiary of GE Aviation. In this agreement, we serve as its exclusive worldwide aftermarket distributor for aviation, military, civil and land vehicle products. The agreement also includes repair services and is valued at more than $1 billion over 11 years. This award demonstrates the value of AAR's distribution model and connected businesses strategy, as well as our ability to use our relative strength to extend and grow our business during the pandemic. Before turning it over to Sean, I also want to touch on the expected agreement we announced yesterday with the U.S. Treasury under the Air Carrier Worker Support portion of the CARES Act. Under that agreement, we expect to receive $57.2 million to pay salaries, wages and benefits to the workforce currently employed in our U.S. airframe landing gear MRO operations. Of the $57.2 million, $48.5 million is a grant and $8.7 million is a low interest prepayable note. As you know, over the last two years we have worked to successfully build a technical workforce for AAR and we have launched initiatives to bring new talent into our industry. This grant helps ensure that those efforts will continue and I really want to thank Congress and in particular the Illinois, Oklahoma, Indiana and Indiana delegations, as well as the administration for recognizing the essential services that our employees provide to the commercial aviation industry. With that, I'll turn it over to our CFO, Sean Gillen.

Thanks, John. Our sales in the quarter of $416.5 million were down 26% or $146.2 million year-over-year, including a $7.5 million impact related to the exit of certain contracts. Sales to government and defense customers were 47% of consolidated sales versus 35% in the prior year quarter as our commercial activities were significantly impacted by COVID-19. Specifically, our commercial sales were down 40% year-over-year. As John mentioned, we took a number of steps in the quarter to reduce our fixed costs and overhead including closing our Goldboro and Duluth facilities and exiting or restructuring underperforming contracts and product lines, primarily in our commercial programs business. These actions resulted in a predominantly non-cash charge of $27.9 million which is recorded in the P&L, a reduction in revenue of $7.5 million, an increase in the cost of sales of $15.7 million, an increase in SG&A of $2.8 million and a loss from joint ventures of $1.9 million. We are continuing to take additional actions in Q1 to reduce costs and improve margins. These include the Composites divestiture, as well as continuing to address underperforming programs and additional footprint rationalization. We estimate that all of our actions will reduce our SG&A by over $50 million on an annualized basis. And we will remain disciplined about maintaining these cost savings enabling margin expansion as demand recovers. Gross profit margin in the quarter was 8.7% vs 16.8% in the prior year quarter. Excluding the charges, gross profit margin was 14.1% vs 17% in the prior year period which reflects $0.9 million of adjustments in the prior year period related to facility repositioning costs. Aviation Services gross profit decreased $53.2 million. Our government business across parts, repair, and integrated solutions remained relatively stable and we were able to emphasize our cargo end markets. However, demand in our commercial airline businesses was down as a result of the pandemic including in both parts and maintenance services. Within our heavy maintenance business, although we began the quarter with full hangars, work slowed throughout the quarter and remained at reduced levels which we expect to continue during our seasonally low Q1. In Expeditionary Services, gross profit decreased $5.1 million. We expect performance in this segment will improve as Mobility executes on the Air Force pallet contract and we complete the divestiture of Composites. SG&A expenses were $47.3 million for the quarter. Adjusted SG&A was $46.5 million down $10.8 million from the prior year quarter. This reduction was primarily driven by the COVID-19 related overhead cost actions we took. During the quarter, we elected to draw the remaining available balance under our revolving credit facility as a precautionary measure which resulted in net interest expense increasing $0.5 million to $2.6 million. We expect to repay the facility this quarter such that we maintain cash on hand going forward consistent with historical levels. In the quarter we used $18.6 million of cash in our operating activities from continuing operations, primarily due to a decrease in accounts payable, partially offset by a decrease in accounts receivable, contract assets and inventory. Also during the quarter, we returned $2.6 million to shareholders via a dividend of $0.075 per share. As a condition of accepting payroll funding from the U.S. Treasury under the CARES Act, we are not permitted to pay additional dividends through September 30 of 2021. Our balance sheet remains strong with net debt of $197.3 million and net leverage of 1.3 turns. We have no near-term maturities. And as of the end of the quarter, we had unrestricted cash of $404.7 million. With respect to the CARES Act funding, we expect to receive the funds during our fiscal first quarter. Upon receipt, we will record an increase to unrestricted cash and corresponding liabilities for labor cost pursuant to the grant portion and for the unsecured note. The benefit will flow through the P&L. Specifically, as we incur salary wages and benefit costs in our U.S. airframe and landing gear operations, we will offset the expense on the income statement until the funds are depleted, which is expected to take approximately two to three quarters. Similar to other government workforce subsidies, we will exclude the income from our adjusted earnings. Acceptance of the fund does not undo any of the cost actions taken in the fourth quarter. Thank you for your attention and I will now turn the call back over to John.

Great. Thank you, Sean. Despite the impact of the COVID-19 pandemic, we are pleased with our Q4 and full year results and I'm proud of the courage and dedication of our employees. Our government business continues to be healthy and growing and we are having success placing more emphasis on our cargo end markets. When the environment continues to be very dynamic, our commercial airline businesses have performed better than expected, as a result of the early cost actions that we took in the quarter, as well as our deep customer relationships. In addition, our liquidity and balance sheet remain strong, which we view as a competitive advantage, allowing us to secure new business. Our Unison win is a great example of this. However, we remain very focused on generating cash to preserve and enhance our liquidity position. We expect to continue to make structural changes to our portfolio, which, when combined with the actions we have already taken, will improve the margins of the company as we recover. That said, the duration of the crisis remains very uncertain. And for that reason, we are not providing guidance for FY 2021. We do expect sales in Q1, which is typically our lowest quarter based on seasonality, to be down sequentially from Q4, consistent with prior years. Overall, we are confident in our ability to navigate the current environment and we believe we have an opportunity to use our relative strength to emerge from the crisis even stronger, more profitable and better positioned for long-term growth. With that, I'll turn it over to the operator for questions.

Our first question comes from Robert Spingarn of Credit Suisse. Your line is open.

Hey. Good afternoon, John and Sean. Understanding this is a dynamic time, yes, and obviously very difficult, one of the things, I think, would be helpful for investors is to see if we can figure out where the trough is. And so, in the context of your 40% decline in commercial, how do we think about the months in the quarter? And then, you talked about this sort of seasonality on a sequential basis, but have you troughed? And can we talk about that separately for MRO versus parts?

Yes. Sure. Good question. So from a parts standpoint, we felt the decline very early in the quarter. And I think the levels that we're at now, which are again better than what we expected have been holding the last several weeks. And given the dynamic and the environment, it's difficult to call anything a trough. But we saw a decline and they have been holding steady for the last several weeks. Now, obviously, there's a lot of movement out there, particularly with the North American carriers, in terms of the results of the recent surge and changes they may be making to their fleets. But so far the last several weeks, the parts businesses, both distribution and trading have held in there. For MRO, throughout the quarter, we started the quarter with full hangars. And then, throughout the quarter we delivered aircraft. In many cases, those aircraft were not replaced by an additional aircraft. So we did see decline through the quarter. We are at a depressed level, heading into the summer from where we would normally be. But, seasonally, it's typically a low quarter for us. As it relates to MRO, we have a lot of dialogue with the customers right now about what the fall is going to look like. And I would say that's a very dynamic discussion. We're not yet clear on what the fall maintenance schedule will be. But we're confident that the customers are focused on keeping our facilities as full as possible because they want to make sure that they're available to them as they see a recovery.

Okay. And then – thank you for that. I'd like to dig in a little bit in terms of how the customers are thinking about this. One of the ways that we look at it is the size of the parked fleet. So I guess the parked fleet got up to about 16,000, 17,000 aircraft early on in this thing and now has dipped below 10,000, so that's good news. Has that translated into more business, or are those aircraft that are coming back in not in need of maintenance?

We haven't seen it translate yet, but we do expect that there is a backlog of maintenance requirements that's building out there. And as the airlines look to manage their cash, we expect those maintenance events to convert. We do view that though with respect to potential retirements and the introduction of new aircraft into the fleet. And I think those dynamics are still playing out.

Okay. And then this one other thing I wanted to ask you about was part outs and what if anything is happening there.

We haven't seen a significant amount of activity in that area, but it's something we are monitoring closely. The growth in our trading business over the last few years has been somewhat limited by the availability of materials, despite our growth. We are eager to find opportunities to part out aircraft and increase the materials available in the market, allowing us to capture a larger share. Additionally, we anticipate that as our sales team works diligently, airlines that have not traditionally used serviceable material may turn to it due to cost pressures. We could see an increase in customers who usually purchase from original equipment manufacturers exploring alternative sources like USM. As more materials enter the market and we can encourage more customers to take advantage of the cost benefits of buying USM, we expect to see growth in recovery.

And on that point on material coming to the market you just said that the supply material is an important driver. Is that just not happening yet because those who own the aircraft aren't yet sure what they want to do with them?

Yes I think that's a fair assessment. And just because aircraft are parked to retire does not necessarily mean they're going to go straight to part out. That takes time. And there is only a certain amount of available capacity out there in the market to part out aircraft. So there's a lot of factors at play in terms of how that new material or how that used material hits the market.

Okay. Thank you very much. I will step out.

Thanks. Our next question comes from Joseph DeNardi of Stifel. Please go ahead.

Hey good afternoon. John, just maybe along the lines of Rob's question, can you just maybe level set where things are now? Like what was the commercial business down in June or kind of where is it running now?

Yes, we don't want to specifically comment on individual months, but during the quarter, we experienced a 40% decline in total, which accelerated between March and May. However, the levels in June and July are slightly better than those in April and May, though still at a depressed level. Therefore, we are maintaining our current position for now.

Okay. Can you provide more clarity on your discussions with some of the airlines? It seems that some of them are under increased financial strain and might be looking to transfer risk and capital to your balance sheet to capitalize on that. Is this beginning to emerge as an opportunity, or is it too early to tell? Do you foresee this becoming a possibility in the future?

Definitely see that potentially coming out from the airline. We actually already are seeing it from the OEMs. So in the distribution business, there's been a lot of discussions with OEMs at all levels in the supply chain of looking to your point to take advantage of our relative strength in exchange for long-term distribution agreements. We are exceptionally focused on our liquidity position and our cash position. So we're considering those deals very carefully. But we do view that as an opportunity to add strength to the distribution business, which has been a great success story for the last few years.

Okay. And then maybe along the lines of the MRO business coming back are you getting any kind of unusual requests from airlines in terms of how that work is financed? Are they asking you to extend them unusual terms given their liquidity relative to yours?

We went through a number of those discussions several months ago early in the quarter in terms of looking at extended terms for our airline customers. And that was pretty much. I wouldn't call that necessarily unusual. It was pretty much a universal request from all of our partners out there. And we – in turn we flowed that down to our supply base as well. So we have extended terms to our customers, and we've received extended terms from our supply base. And beyond that, we haven't seen any request that I would consider unusual.

Okay. Thank you.

Thank you. Our next question comes from Michael Ciarmoli of SunTrust. Your question, please.

Hey, good evening, guys. John, Sean, thanks for taking the questions here. I know – maybe I'm not sure if this is John or Sean. I know you guys aren't going to give any specific revenue guidance for the year. But I think you talked about taking $50 million of SG&A out of the business probably implies $170 million. Is it fair to say, you're sizing the business for maybe a $1.6 billion revenue run rate just thinking about kind of how you've been running at SG&A? Is that a fair bogey to think about?

I wouldn't think about the SG&A target necessarily in the context of revenue sizing. I would think about the SG&A target really around improving our margins. As you can tell, we're taking a lot of action during this period of time and we're taking quick actions to really change the structure of our cost base as Sean mentioned in many cases on a permanent basis going forward. We've had a number of margin improvement targets for a long time and we're really using this time to accelerate our efforts in that regard. I don't know, Sean if you want to –

Yeah. I would just add Mike, my comment was over $50 million and it's across ISG&A so indirect spend, as well as SG&A, just wanted to clarify that.

Got it. Got it. And then can you just talk about – you kind of talked about some of the conversations with the airlines. But can you maybe talk to some of the integrated program the power-by-the-hour contracts? I mean, it seems like we're going to be an environment here of reduced flying hours for quite some time. I think – United just said they expect 65% capacity through this third quarter here. What are the implications on those existing contracts you have with your broad airline customers?

Yeah. So we also are prepared for an extended period of depressed flying. And that's the way we're modeling the business in the way we're sizing the business. As it relates to commercial programs in particular that's a business that you did see significant decline in that business right away, because just by definition you build based on flight hours and many of those customers had grounded all – nearly all of their fleet during the period of time. As Sean mentioned, we did take some charges in that area, because those contracts to the extent that they are flexible enough to work in this environment, we leave them in place. To the extent that, the contract will not match the customers' operation and our requirements going forward, we're looking to restructure and stay with that customer. But in some cases, we've chosen to exit an agreement. And as we've talked about for the last couple of quarters that business even before COVID had been under pressure due to market dynamics and changes in costs in the supply chain. And once again we're taking this opportunity to restructure that business so that when we come out of it, it's much more profitable going forward.

Okay, I understand. That's helpful. I have one more question and then I'll return to the queue. Inventory levels have increased. With a significant reduction in capacity, like United's projected decrease of 65%, how do you plan to reduce inventory given the current lack of flying hours and minimal demand in the supply chain if distributors are well-stocked? Does this situation make it challenging to sell inventory when consumption is low? How are you approaching the goal of converting that inventory into cash in this tough environment?

No great question. Converting inventory to cash is a very challenging priority for us. The increase in inventory is tied to pre-COVID agreements that had investment commitments, and we have mostly honored those commitments to our partners, especially in the distribution business. This has driven much of the inventory increase. We feel confident about our position and the parts we carry, particularly in the commercial programs business, which consists of high-moving and high-consumption parts due to the nature of the contracts. In a typical environment, these would be in high demand. However, as you mentioned, we are not in a typical environment, so we are intensifying our efforts to effectively market this material and get creative with the trade of materials we have against other services that may be needed from our customer base. We are trying to move it as best as we can, but there remains significant uncertainty regarding how the overall fleet will develop. We may find that certain asset classes, which we expected to have a shorter life, may actually be extended due to delays in new aircraft deliveries. We are keeping an eye on that as well. Additionally, I want to highlight our initiative to convert customers to used serviceable material. This is an opportune time, especially when we have material readily available to leverage the benefits of purchasing used material at significantly reduced prices for customers who have demand.

Got it.

We are observing a notable increase in activity in Asia and have recently begun to see more movement in Europe. Significant changes have also occurred in North America. We are focusing our efforts on markets that are further along in their recovery as we aim to move our material.

Got it. Is there any pricing pressure on that material, either from your existing parts trading or from an increase in the availability of parts? Are you noticing any erosion in pricing in the marketplace?

We have observed a decline in pricing at the whole aircraft level and have noticed some transactions occurring at significant discounts compared to pre-COVID levels. While we have seen some fluctuations in certain higher-value line replaceable units, we anticipate this trend will continue. However, I cannot provide any macro statistics regarding values at the part level at this time.

Got it. Thanks, guys. I will jump back in the queue.

Thank you. Our next question comes from Josh Sullivan of Benchmark. Your line is open.

Hey, good afternoon, John and Sean.

Hi, Josh.

On the cargo business how sustainable is the current strength? Maybe if you could just talk about what the pipeline or lead times look like for cargo conversions?

Yes, there is clearly a lot happening in that market. We have the traditional cargo carriers, and we are focusing our efforts there. Our sales team, which previously managed numerous commercial passenger accounts, is now being redirected to concentrate on cargo markets due to a decrease in activity in those accounts. This shift includes not just parts but also heavy maintenance. We recently worked on our first 747 cargo aircraft in our Miami maintenance facility, marking the first time we've handled a 747 there in a long while. We've completed that work and shipped the aircraft off, and we aim to collaborate more with that customer. This area presents a significant opportunity for us, both in maintenance and parts.

And then, just how is the conversation going with the airlines on their long-term MRO needs? I mean, at one point pre-COVID, the market was very tight for labor, both for you and the airlines internally. But as far as the MRO outsourcing model, as the airlines restructure, you're having those longer-term conversations about maybe what outsourcing can bring to them?

Yes, I would say that this is a very dynamic environment and definitely aligns with what you see regarding their maintenance needs being connected to their expected flight activity. To my knowledge, no one we are in contact with is considering bringing work in-house; everyone is committed to the outsourcing model. There is significant interest from our customer base in ensuring that top-tier providers like AAR are available to service the aircraft when demand recovers. I would say that recent developments here in the U.S. have shifted expectations further out compared to what people thought a month or six weeks ago. However, everyone anticipates a recovery. Different customers have varying timelines for that recovery, but they all recognize the necessity for an outsourced maintenance provider. Keeping our facilities operating and ensuring that we retain our workforce is a major focus, so we are prepared when they begin to require maintenance on a larger scale.

Got it. And then, just one last question, following up on one of Rob's inquiries about part outs. Regarding your relationship with Napier Park, are you expecting to materially utilize that joint venture as those parts become available? And how significant do you think that could potentially become?

That is a great question. We are very excited about the partnership that we have with Napier. We've deployed only a fraction of that capital to date. And so there's a great deal of dry powder to go out and look for opportunities. That said, there's still so much moving in the market, it's difficult at this moment to tell what a good deal really is. And so, we're paying very close attention to it. But we're also mindful that, what we see today may look a lot different in a month. And we're approaching that market for acquisitions that ultimately could go to tear down or short-term lease very cautiously.

Got it. Thank you.

Thanks.

Thank you. Our next question comes from Ken Herbert of Canaccord. Your question please.

Hey, John and Sean. Good afternoon.

Hi, Ken.

Hey, John, I wanted to ask, if sitting here today, as you look at your fiscal second and third quarters for the MRO business, can you provide any quantification or commentary on how your backlog for MRO looks this year, maybe just relative to prior years, specifically for the second and the third fiscal quarters?

Yes. The backlog is lower than it was about a year ago. We are encouraged by the conversations we're having with our customers, even though there will be less work available. They want to ensure that their top-tier providers, like AAR, are the ones that get the work, allowing us to maintain our operations. We have closed our facility in Duluth and have reduced our footprint utilization at some other locations, which unfortunately led to a reduction in our workforce. We have adjusted our MRO operation for a much lower labor utilization going into this fiscal year compared to last year. Despite this smaller footprint, we are sold out at approximately the same percentage as we would be in a typical year, though it is based on a significantly lower volume.

Got it. And if my calculations are correct it looks like with the facility closures from a man-hour basis, you've maybe taken your capacity down by somewhere in the 10% to 20% range?

Yes, closer to the higher end of that range.

Okay. Okay. Very helpful. And can you just remind us the split of your capabilities in MRO between wide-body and narrow-body? You mentioned the 47 down at your Miami facility. And are you seeing any opportunity yet to maybe take share from cargo carriers that historically have sent the wide-body aircraft for MRO over to Asian or other lower-cost markets?

That is the dialogue we're having. There are certain facilities, like our Rockford and Miami locations, that are designed for wide-body aircraft. We have expressed interest in bringing some of that work back, which has been a topic of discussion for a long time. Given the current environment, there is definitely renewed interest in repatriating some of that work. However, there are no specific deals in place at this moment; it’s an ongoing conversation. To revisit your earlier question, I want to emphasize that our capacity in the MRO business is primarily influenced by the availability of labor rather than our physical footprint. Even though we've reduced our footprint, if we have the demand and can secure the labor to meet that demand, we could maintain the same production levels from this reduced footprint as we did pre-COVID. Additionally, as Sean mentioned, several changes we've implemented, such as optimizing our footprint, position us for greater profitability when demand returns.

Okay. That's helpful. Looking at the current downturn, there is speculation that as airlines begin to demand MRO and parts and services again, there will be significant availability of green time, especially for engines and other capital-intensive assets. How much of a lag do you anticipate in the recovery? Will it be weeks or possibly quarters? How are you approaching this in relation to MRO and parts trading in other areas of your business?

Yes. I would consider it a matter of quarters at most. Many airlines have already begun utilizing that available green time. Our customers quickly shifted into a cash conservation mode, opting to swap out engines on parked aircraft instead of sending them for overhaul. They are also cannibalizing any removable line replaceable units. This trend is already in motion. However, we believe there is actually a considerable amount of deferred maintenance accumulating. When flying resumes, we may see a much faster and more substantial increase in demand for parts and maintenance, as that green time is being utilized right now.

Thank you for the helpful information. I have one last question. Congratulations on the Unison renewal. As I review your distribution business across both military and commercial sectors, considering the new contracts you have secured in recent quarters, the renewals like this one, and the potential for new OEM relationships, can you tell me if this business in fiscal 2021 might remain flat compared to fiscal 2020? Additionally, could you provide more details about your expectations for that business?

We expect the government half of that business to be up in fiscal 2020. Even with the new additions depending on the timing I would still say the commercial portion of that business even with new wins there would likely not be enough net new revenue to get the commercial business flat – you know have it.

Yeah. Yeah.

Our next question comes from Joseph DeNardi of Stifel. Your line is open.

Yeah. John just along the lines of the prior question. If it takes airlines until 2023 to get back to pre-COVID levels of flying and revenue perhaps, do you get back there before them like the same time or after?

I think it depends on how ultimately the fleet shakes out. So to the extent that you have more retirements in fleets that see more new aircraft deliveries and more retirements we lag. To the extent that you see, airlines recover and either defer or cancel new aircraft deliveries and they've built up as I said before a pretty deferred a pretty significant amount of deferred maintenance, you could see an increase well before.

Got it. And then when you look at that – when you look across your exposure to aircraft type kind of across the business obviously there are aircraft types being exited in the U.S. pretty quickly. When you look at what's being retired are there any surprises? And do inventory levels on the balance sheet reflect some of those risks currently?

Yeah. First of all, no surprises. As a matter of fact, we think one the larger ones American was – that was announced many months ago and that was expanded a little bit but that was kind of already out there. So no surprises and certainly, whether it's the 747 you've seen a lot more retirements obviously in the wide-body 777s etc., that's less significant to us. So not as – not as concerned about that. And you've got MD-80 or MD-80, MD-90 that have retired again no surprises there. So I think, so far we're not seeing – what we're seeing is tracking with what we would expect. And again, we're very eager based on the – particularly the engine support contracts we have with certain shops to get our hands on material that previously prior to COVID would not have been available to us, so we can support demand. And albeit, the overall demand will be depressed, but we expect to be able to support a greater percentage of that demand as things recur.

Got it. Thank you very much.

Thank you. Our next question comes from Robert Spingarn of Credit Suisse. Your line is open.

Hey. Just a follow-up to Joe's question there on the – when I look at the $600-plus million in inventories on the books here, what you're saying John is not a rather insignificant piece of that would be the red programs. When I say red I'm talking about some of the programs you just mentioned. So, anything with four engines and MD-80s 90s and 757?

Yeah, it's correct. The wide-body exposure is very limited and we actually in the quarter, we wrote down our positions on the MD-80, 90 we wrote those positions off. There was some ATR material that we wrote off as well. So anything truly red, we've already taken action on.

Just curious what do you think of something like the 777s that came out of Delta that are 10 years old? I mean, what's going to happen to airplanes like that? I understand in that specific case they own them they'll have to release them. But is there going to be a market for something like that at least on a part out basis?

Yeah. I mean, there could be. I think about, I don't know five or six years ago, when the 767 was dead and we couldn't give away ADC material. And then all of a sudden Amazon started flying and it became one of the hottest asset types around. There's no question. I mean, that's a great aircraft and it's hard to predict where they might find a home, but we certainly would – yes, yes, like it's hard to predict whether it'll find a home but we certainly would expect use for an aircraft of that type.

Okay. And then Sean, I have one for you and it touches on some of the things that have already been discussed. But in looking at the cash flow in the quarter, some of the working capital accounts moved differently than I might have expected specifically receivables and payables. And then more – the other thing, I wanted to ask you about is, how do we think about breakeven operating cash flow. What level of revenue supports a breakeven operating cash flow?

Yes. On the first part in terms of the balance sheet and net working capital items in the quarter, accounts receivable given the decline in the topline, we were able to work that down pretty significantly and have it be a big provider of cash. So, I'd say some of that was in line with just activity declining in that kind of new AAR being put in they were able to work down in the quarter. And then on accounts payable, I'd say in a similar way there was a lot less new purchasing activity because we tried to really focus on cash flow generation. So, this was taking things that weren't aged, but the payables were coming due and managing them at the end of the fiscal year. So, that's the two biggest. And then on contract assets as the activity in the hangers come down that kind of comes down in line with some of those activity, which is a net provider of cash because of that dynamic. In terms of kind of where does the topline need to be in terms of breakeven, for us, we're kind of not giving guidance on that, but when we think about where the balance sheet is and the amount of inventory we have and focus on turning the inventory into cash, I'd say there's not a kind of bright line of where sales for the whole company needs to be as long as we can kind of continue to focus on inventory and limit new buys. Caveat being that as we take advantage of our relative position of strength for things like Unison and other items that come up, we're going to want to put some capital to work on new positions to expand our market share in this period of time.

Okay. All right. Thanks very much Sean.

Thank you. Our next question comes from Michael Ciarmoli of SunTrust. Your line is open.

Thank you for the follow-up, Sean. I understand you're not providing guidance again, but how are you approaching the expected level of adjustments or charges going forward? Are there any that we should anticipate in the upcoming quarters, such as ongoing facility costs or severance? It's obviously difficult to predict customer contracts and bankruptcies, but I'm trying to get a clearer idea of what we should expect in terms of any non-operational or non-recurring charges.

Yes. Good question and we'll kind of stay away from forecasting or guiding on that. But there are activities that continue to take place in Q1. One Composites we included it in the 8-K. I mentioned previously that that would be about $20 million charge associated with the divestiture of that business. And I would expect there's other kind of activities whether it be headcount or facility. And then we're reviewing the portfolio on some of these contracts, but I can't say today what that would look like.

Sorry I would just add that we're very focused on any action that we take it results in a one-time event that that action is going to have a meaningful improvement on the profitability of the company going forward.

Okay.

Yes. I would say that over time it will improve, but I would not expect sequential improvement. And again, the reason we're not giving guidance is because we are in such a dynamic environment right now.

Yes, truly understand. Got it. Thanks guys.

Thank you. At this time, I'd like to turn the call back over to management for any closing remarks.

Great. Well thank you. Thank you everybody for the time and interest today. We really appreciate it and we hope everyone stays safe out there. And we look forward to talking about our Q1 results in 90 days. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.