Magellan Aerospace Corporation - Third Quarter Report - September 30, 2007



    TORONTO, Nov. 12 /CNW/ - Magellan Aerospace Corporation (the
"Corporation" or "Magellan") is listed on the Toronto Stock Exchange under the
symbol MAL. The Corporation is a diversified supplier of components to the
aerospace industry. Through its network of facilities throughout North America
and the United Kingdom, Magellan supplies leading aircraft manufacturers,
airlines and defence agencies throughout the world.

    Financial Results
    -----------------
    On November 12, 2007, the Corporation released its financial results for
the third quarter of 2007. All amounts are expressed in Canadian dollars
unless otherwise indicated. The results are summarized as follows:

    
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                          Three-months ended             Nine-months ended
                              September 30                  September 30
                  -----------------------------------------------------------
    (Expressed in
     thousands,
     except per
     share amounts)    2007       2006  Change       2007       2006  Change
    -------------------------------------------------------------------------
    Revenues      $ 147,926  $ 143,548   3.1 %  $ 442,264  $ 430,546   2.7 %
    -------------------------------------------------------------------------
    Gross Profit  $  14,557  $  13,052  11.5 %  $  46,018  $  40,479  13.7 %
    -------------------------------------------------------------------------
    (Loss) net
     income       $  (2,911) $     221     -    $  (6,392) $  (6,104)    -
    -------------------------------------------------------------------------
    Net loss per
     share        $   (0.04) $    0.00     -    $   (0.08) $   (0.07)    -
    -------------------------------------------------------------------------
    EBITDA(*)     $   9,603  $  11,195 -14.2 %  $  28,346  $  30,684  -7.6 %
    -------------------------------------------------------------------------
    EBITDA(*) per
     share        $    0.11  $    0.12  -8.3 %  $    0.31  $    0.34  -8.8 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    -------------------------------------------------------------------------
    This quarterly statement contains certain forward-looking statements that
    reflect the current views and/or expectations of the Corporation with
    respect to its performance, business and future events. Such statements
    are subject to a number of risks, uncertainties and assumptions, which
    may cause actual results to be materially different from those expressed
    or implied. The Corporation assumes no future obligation to update these
    forward-looking statements.

    (*) The Corporation has included certain measures in this quarterly
    statement, including EBITDA, the terms for which are not defined under
    Canadian generally accepted accounting principles. The Corporation
    defines EBITDA as earnings before interest, taxes, depreciation and
    amortization and non-cash charges. The Corporation has included these
    measures, including EBITDA, because it believes this information is used
    by certain investors to assess financial performance and EBITDA is a
    useful supplemental measure as it provides an indication of the results
    generated by the Corporation's principal business activities prior to
    consideration of how these activities are financed and how the results
    are taxed in various jurisdictions. Although the Corporation believes
    these measures are used by certain investors (and the Corporation has
    included them for this reason), these measures may not be comparable to
    similarly titled measures used by other companies.
    -------------------------------------------------------------------------

    Management's Discussion and Analysis
    ------------------------------------
    The third quarter of 2007 marked a number of transitions towards
commencing work on new programs, as well as experiencing continued increases
in production rates for Magellan for the mainstay products of the current
market. Boeing B787 pre-production activities in support of first flight,
certification and entry into production continued to build. Airbus A380
restart preparations began late in the quarter towards first customer
deliveries, with a return to production forecast for the end of 2007.
Production rates for Airbus A320 and Boeing B737 single-aisle airliners rose
to record levels as global demand continues unabated. In addition, business
aircraft and helicopters are also in a strong growth period, and industry
analysts are forecasting increased volumes through to 2010.
    Magellan benefited in the third quarter from the increasing production
rates in the single-aisle airliner sector, business aircraft and helicopter
sectors. Aerostructure components and assemblies are manufactured for, among
others, the A320 and B737 aircraft, whose production rates are increasing
rapidly, while aerostructure, aeroengine and landing gear products are
delivered to single-aisle airliners, business jets/turbo-props and
helicopters. Pre-production test and certification components continued to be
delivered to the B787 program, and production unit delivery underwent steady
increases in the third quarter. The current delay announced for the B787
program is not expected to impact Magellan's production and delivery plan for
the aircraft. The defence sector remains buoyant with orders for spares and
new equipment continuing while pre-production aircraft components manufacture
for the F35 and F136 engine of the Joint Strike Fighter (JSF) Program
continued at a brisk pace across several Magellan plants.
    Magellan continued to be impacted unfavourably by the delay in production
of the A380 aircraft, however the restart is now scheduled for the fourth
quarter of 2007, and activity commenced in Magellan in the third quarter to
prepare for the required deliveries in 2008.

    
    Revenues
    --------

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                          Three-months ended             Nine-months ended
                              September 30                  September 30
                  -----------------------------------------------------------
    (Expressed in
     thousands)        2007       2006  Change       2007       2006  Change
    -------------------------------------------------------------------------
    Canada        $  73,247  $  67,140    9.1 % $ 211,028  $ 204,343   3.3 %
    United States    44,731     47,730   -6.3 %   140,045    140,959  -0.1 %
    United Kingdom   29,948     28,678    4.4 %    91,191     85,244   7.0 %
    -------------------------------------------------------------------------
    Total Revenue $ 147,926  $ 143,548    3.1 % $ 442,264  $ 430,546   2.7 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Consolidated revenues for the third quarter of 2007 were $147.9 million,
an increase of $4.4 million or 3.1% from the third quarter of 2006. This was
achieved despite the decline in the value of the U.S. dollar versus the
Canadian dollar experienced during the third quarter which had a negative
impact on revenue. If the average exchange rates experienced in the comparable
period in 2006 remained constant in 2007, revenues for the third quarter would
have been $153.2 million ($5.3 million higher) and would have represented an
increase of 6.7% over 2006. The Company continues to experience increased
customer demands and as a result increased sales on a number of programs.

    
    Gross Profit
    ------------

    -------------------------------------------------------------------------
                          Three-months ended             Nine-months ended
                              September 30                  September 30
                  -----------------------------------------------------------
    (Expressed in
     thousands)        2007       2006  Change       2007       2006  Change
    -------------------------------------------------------------------------
    Gross profit  $  14,557  $  13,052  11.5 %  $  46,018  $  40,479  13.7 %
    -------------------------------------------------------------------------
    Percentage
     of revenue       9.8 %      9.1 %             10.4 %      9.4 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Gross profits of $14.6 million (9.8% of revenues) were reported for the
third quarter of 2007 compared to $13.1 million (9.1% of revenues) during the
same period in 2006. Gross profit, as a percentage of sales, has improved over
2006. Benefits from the Corporation's ongoing rejuvenation of four of its
facilities continue to materialize in the quarter with respect to improved
efficiencies and also better control of scrap in the castings business. The
decline in the value of the U.S. dollar versus the Canadian dollar during the
third quarter of 2007 also had a negative impact on gross margin. Had exchange
rates remained the same as in the first quarter of 2007, gross margin would
have been approximately $2.7 million higher for the third quarter of 2007.

    
    Administrative and General Expenses
    -----------------------------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Administrative and general
     expenses                     $   9,137  $   9,999  $  31,672  $  30,259
    Gain on sale of capital assets   (1,281)      (301)    (1,262)      (301)
    Foreign exchange loss / (gain)    3,107       (297)     5,630       (579)
    -------------------------------------------------------------------------
    Total administrative and
     general expenses             $  10,963  $   9,401  $  36,040  $  29,379
    -------------------------------------------------------------------------
    Percentage of revenue             7.4 %      6.5 %      8.1 %      6.8 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Administrative and general expenses were $10.9 million (7.4% of revenues)
in the third quarter of 2007 compared to $9.4 million (6.5% of revenues) in
the same period of 2006. Included in total administration and general expenses
for the third quarter of 2007, is a gain on the sale of capital assets of
$1.3 million and a foreign exchange loss of $3.1 million that had a negative
impact on administrative and general expenses in the quarter. Without these
items, administrative and general expenses were $9.1 million (6.2% of
revenues) in the third quarter of 2007 compared to $10.0 million (7.0% of
revenues) in the third quarter of 2006.

    
    Interest Expense
    ----------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Interest on bank indebtedness
     and other long-term debt     $   3,191  $   2,162  $   9,053  $   7,174
    Convertible debenture interest    1,487      1,487      4,462      4,462
    Accretion charge for
     convertible debt                   595        573      1,769      1,719
    Discount on sale of accounts
     receivable                         848        975      2,683      2,910
    -------------------------------------------------------------------------
    Total interest expense        $   6,121  $   5,197  $  17,967  $  16,265
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest expense in the third quarter of 2007 was $6.1 million,
$0.9 million higher than the third quarter of 2006 as a result of increased
debt levels necessary to support increased production demand.

    Provision for (Recovery of) Income Taxes
    ----------------------------------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Provision for (recovery of)
     current income taxes         $     484  $    (100) $   1,417  $      83
    Provision for (recovery of)
     future income taxes               (100)       428     (3,014)    (2,350)
    -------------------------------------------------------------------------
    Total Provision for (recovery
     of) income taxes             $     384  $     328  $  (1,597) $  (2,267)
    -------------------------------------------------------------------------
    Effective Tax Rate              (15.2)%     59.7 %     20.0 %     27.1 %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There was a provision for income taxes of $0.4 million for the third
quarter of 2007, compared to $0.3 million for the third quarter of 2006. The
change in effective tax rates is a result of a changing mix of income across
the different jurisdictions in which Magellan operates.

    Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
    -----------------------------------------------------------------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    (Loss) net income             $  (2,911) $     221  $  (6,392) $  (6,104)
    Interest                          6,121      5,197     17,967     16,265
    Taxes                               384        328     (1,597)    (2,267)
    Facility rationalization charge       -          -          -      5,301
    Stock based compensation            400        255      1,050        690
    Depreciation and amortization     5,609      5,194     17,318     16,799
    -------------------------------------------------------------------------
    EBITDA                        $   9,603  $  11,195  $  28,346  $  30,684
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    EBITDA for the third quarter of 2007 was $9.6 million, a decrease of
$1.6 million from the third quarter of 2006. Higher administrative and general
expenses offset increased gross profits in the third quarter of 2007 compared
to 2006.

    Liquidity and Capital Resources
    -------------------------------

    Cash Flow from Operations
    -------------------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Decrease (increase) in
     accounts receivable          $   3,200  $   8,831  $  (1,810) $   9,457
    Decrease (increase) in
     inventories                      2,392      4,229    (20,943)   (15,157)
    Decrease (increase) in prepaid
     expenses and other                 490      3,220     (7,951)     1,391
    Decrease in accounts payable     (3,247)   (19,197)      (130)   (11,109)
    -------------------------------------------------------------------------
    Changes to non-cash working
     capital balances             $   2,835  $  (2,917) $ (30,834) $ (15,418)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities         $   5,132  $   1,659  $ (21,380) $  (1,458)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the quarter ended September 30, 2007, the Corporation generated
$5.1 million of cash in its operations, compared to $1.7 million in the third
quarter of 2006. Cash was generated primarily due to lower accounts receivable
and lower inventories partially offset by lower accounts payable.

    Investing Activities
    --------------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Purchase of capital assets    $  (6,119) $  (6,047) $ (16,464) $ (20,190)
    Proceeds from disposals of
     capital assets                   1,342      3,634      1,695      3,969
    (Increase) decrease in other
     assets                            (564)       949     (2,229)    (1,640)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                   $  (5,341) $  (1,464) $ (16,998) $ (17,861)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the third quarter of 2007, the Corporation invested $6.1 million in
capital assets to upgrade and enhance its capabilities for current and future
programs.

    Financing Activities
    --------------------

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    (Decrease) increase in bank
     indebtedness                 $  (2,577) $   7,051  $  18,379  $  27,529
    (Decrease) increase of
     long-term debt                    (269)       378     13,557      4,950
    Increase (decrease) in
     long-term liabilities            1,863        340      2,210     (7,697)
    Issue of Common Shares               26         14         65         40
    Dividends on Preference Shares     (400)      (400)    (1,200)    (1,200)
    -------------------------------------------------------------------------
    Cash (used in) provided by
     financing activities         $  (1,357) $   7,383  $  33,011  $  23,622
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Corporation renewed its operating credit facility with its existing
lenders on March 30, 2007. Under the terms of the renewed agreement, the
maximum amount available under the operating credit facility is a Canadian
dollar limit of $75 million plus a US dollar limit of $90 million, with a
maturity date of May 24, 2008. The facility is extendable for unlimited
one-year renewal periods and continues to be fully guaranteed by the Chairman
of the Board of the Corporation. An annual fee of 0.10% of the guaranteed
amount or $175 (2006 - $155) is paid in consideration for this guarantee. Due
to this guarantee, interest is charged at the bankers' acceptance or LIBOR
rates, plus 0.875% compared to the rate charged prior to the guarantee of
bankers' acceptance or LIBOR rates, plus 4.5%. The net annual savings to the
Corporation is approximately $5.3 million assuming an average of
$150.0 million borrowed under the operating facility.
    On March 30, 2007, the Corporation borrowed $15.0 million by way of a
secured promissory note from a corporation with a common director. This note
is due July 1, 2008 and bears interest at a rate of 9% per annum, which was
lower than rates provided by the Corporation's financial advisors for similar
instruments. The note is collateralized and subordinated to the bank credit
facility, thereby assisting the Corporation to remain in compliance with its
senior debt arrangement.
    The Corporation's 8.5% convertible unsecured subordinated debentures
currently outstanding are due January 31, 2008. The Corporation is reviewing a
number of options with respect to refinancing these debentures including
replacement with another form of debt, amending and extending the terms of the
existing convertible debentures with the approval of such debenture holders,
or conversion into common shares.

    Outstanding Share Data
    ----------------------
    As at November 12, 2007, the Corporation had 90,853,698 common shares
outstanding and 2,000,000 outstanding First Preference Shares Series A.

    Risks and Uncertainties
    -----------------------
    The Corporation manages a number of risks in each of its businesses in
order to achieve an acceptable level of risk without hindering the ability to
maximize returns. Management has procedures to identify and manage significant
operational and financial risks. For a more detailed discussion of these
potential business risks, readers should review the "Risk Factors" section of
the 2006 Annual MD&A filed by the Corporation with the Canadian securities
regulatory authorities, which are hereby incorporated by reference.

    Fluctuations in the value of foreign currencies could result in currency
    ------------------------------------------------------------------------
    exchange losses
    ---------------
    A portion of the Corporation's revenues and expenses are currently
denominated in U.S. dollars and Great British Pounds (GBP), and it is expected
that some revenues and expenses will continue to be based in currencies other
than the Canadian dollar. Therefore, fluctuations in the Canadian dollar
exchange rate relative to these other currencies will impact the Corporation's
results of operations and financial condition from period to period. In
addition, the Corporation is subject to currency fluctuations from the
translation of revenues, expenses, assets and liabilities of its
self-sustaining foreign operations using a functional currency other than the
Canadian dollar. The following table demonstrates the change in the Canadian
dollar in the third quarter of 2007 in comparison to the U.S dollar and the
GBP.

    
    -------------------------------------------------------------------------
                                         Beginning          End
                                        of Quarter   of Quarter     % Change
    -------------------------------------------------------------------------
    USD/CAD                                 1.0654       0.9948       (6.6)%
    GBP/CAD                                 2.1333       2.0313       (4.8)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The resulting foreign exchange losses are included in net income in the
period. We cannot predict the effect of foreign exchange losses in the future;
however, if significant foreign exchange losses are experienced, they could
have a material adverse effect on our business, results of operations, and
financial condition.

    Critical Accounting Estimates
    -----------------------------
    The preparation of financial statements requires the Corporation to
estimate the effect of various matters that are inherently uncertain as of the
date of the financial statements. Each of these required estimates varies with
respect to the level of judgment involved and the potential impact on the
Corporation's reported financial results. Estimates are deemed critical when
the Corporation's financial condition, change in financial condition or
results of operations would be materially impacted by a different estimate or
a change in estimate from period to period.

    Cost of Sales
    Average unit cost for products produced under long-term contracts is
determined based on the estimated total production costs for a predetermined
program quantity. Program quantities are established based on management's
assessment of market conditions and foreseeable demand at the beginning of the
production stage for each program, taking into consideration both customer
supplied and independent data. The average unit cost is recorded to cost of
sales as products are completed. Under the learning curve concept, which
anticipates a predictable decrease in unit costs as tasks and production
techniques become more efficient through repetition and management action,
excess over-average production costs during the early stages of a program are
deferred and recovered from sales of products anticipated to be produced later
at lower-than-average costs.
    Estimates of average unit production costs and of program quantities are
an integral component of average cost accounting. Management conducts regular
reviews as well as a detailed annual review in the fourth quarter, as part of
its annual budget process, of its cost estimates and program quantities, and
the effect of any revisions are accounted for by way of a cumulative catch-up
adjustment to income in the period in which the revision takes place.

    Inventories
    Raw materials, materials in process and finished products are valued at
the lower of cost and net realizable value, with cost determined on a moving
weighted average basis. Due to the long-term contractual periods of the
Corporation's contracts, the Corporation may be in negotiation with its
customers over amendments to pricing or other terms. Management's assessment
of the recoverability of amounts capitalized in inventory may be based on
judgements with respect to the outcome of these negotiations. If the
negotiations are not successful or the final terms differ from what the
Corporation expects, the Corporation may be required to record a loss
provision on this contract. The amount of such provision, if any, cannot be
reasonably estimated until such amendments are finalized.

    Asset Impairment
    The Corporation evaluates long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. A long-lived asset is considered to be impaired if the total
undiscounted estimated future cash flows are less than the carrying value of
the asset. The amount of the impairment is determined based on discounted
estimated future cash flows. Future cash flows are determined based on
management's estimates of future results relating to the long-lived assets.
These estimates include various assumptions, which are updated on a regular
basis as part of the internal planning process.
    The Corporation regularly reviews its investments to determine whether a
permanent decline in the fair value below the carrying value has occurred. In
determining whether a permanent decline has occurred, management considers a
number of factors that would be indicative of a permanent decline including
(i) a prolonged decrease in the fair value below the carrying value, (ii)
severe or continued losses in the investment and (iii) various other factors
such as a decline or restriction in financial liquidity of an entity in which
the Corporation has an investment, which may be indicative of a decline in
value of the investment. The consideration of these factors requires
management to make assumptions and estimates about future financial results of
the investment. These assumptions and estimates are updated by management on a
regular basis.

    Income Taxes
    The Corporation operates in several tax jurisdictions. As such, its
income is subject to various rates and rules of taxation. The breadth of the
Corporation's operations and the complexity of the taxing legislation and
practices require the Corporation to apply judgment in estimating its ultimate
tax liability. The final taxes paid will depend on many factors, including the
Corporation's interpretation of the legislation and the outcomes of audits by
and negotiations with tax authorities. Ultimately, the final taxes may be
adjusted based on the resolution of these uncertainties.
    The Corporation estimates future income taxes based upon temporary
differences between the assets and liabilities that are reported in its
consolidated financial statements and their tax basis as determined under
applicable tax legislation. The Corporation records a valuation allowance
against its future income tax assets when it believes that it is not "more
likely than not" that such assets will be realized. This valuation allowance
can either be increased or decreased where, in the view of Management, such
change is warranted.

    Foreign Currency Translation
    The functional currency of the Corporation is Canadian dollars. Many of
the Corporation's business undertake transactions in currencies other than the
Canadian dollar. As part of its ongoing review of critical accounting policies
and estimates, the Corporation reviews the foreign currency translation method
of its foreign operations to determine if there are significant changes to
economic facts and circumstances that may indicate that the foreign operations
are largely self-sufficient and the economic exposure is more closely tied to
their respective domestic currencies. Any change, if any, in translation
method resulting from this review will be accounted for prospectively. The
Corporation accounts for its US and UK subsidiaries as self-sustaining foreign
operations.

    Changes in Accounting Policies
    ------------------------------
    Effective January 1, 2007, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) Handbook Sections 1530 Comprehensive Income,
Section 3855 Financial Instruments - Recognition and Measurement and Section
3865 Hedges. The adoption of these new standards resulted in changes in the
accounting for financial instruments and hedges, as well as the recognition of
certain transition adjustments. As provided under the standards, the
comparative interim consolidated financial statements have not been restated,
except for the presentation of translation gains or losses on self-sustaining
foreign operations as part of comprehensive loss.
    The adoption of these Sections is done retroactively without restatement
of the consolidated financial statements of prior periods. The effect of these
changes in accounting policies on net income for the third quarter of fiscal
2007 is not significant.
    The reader is referred to Note 2 in the accompanying unaudited interim
consolidated financial statements for the period ended September 30, 2007 for
further details regarding the adoption of these standards.

    Future Changes in Accounting Policies
    -------------------------------------
    In June 2007, the Accounting Standards Board issued a new accounting
standard, Section 3031 "Inventories", which will replace Section 3030
"Inventories". Section 3031 prescribes measurement of inventories at the lower
of cost and net realizable value. It provides guidance on the determination of
cost, including allocation of overheads and other costs to inventories,
prohibits the use of the last-in, first-out (LIFO) method, and requires the
reversal of previous write-downs when there is a subsequent increase in the
value of inventories. It also requires greater disclosure regarding
inventories and cost of sales. The new accounting standard is effective, for
the Company, for interim and annual financial statements beginning on
January 1, 2008. The Company is currently assessing the impact of this new
standard on its Consolidated Financial Statements.
    In December 2006, the Accounting Standards Board issued Section 1535
"Capital Disclosures", which establishes standards for disclosing information
about an entity's capital and how it is managed. The new accounting standard
is effective, for the Company, for interim and annual statements beginning on
January 1, 2008.

    Controls and Procedures
    -----------------------
    Based on the current Canadian Securities Administrators ("CSA") rules
under Multilateral Instrument 52-109, the Chief Executive Officer and Chief
Financial Officer (or individuals performing similar functions as a chief
executive officer or chief financial officer) are required to certify as at
September 30, 2007 that they are responsible for establishing and maintaining
disclosure controls and procedures and internal control over financial
reporting.
    No changes were made in the Corporation's internal control over financial
reporting during the Corporation's most recent interim period, that have
materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.

    Outlook
    -------
    As 2008 approaches, the global aerospace marketplace offers broad
opportunity for Magellan in the civil airliner, business aircraft and
helicopters, and defence and space sectors. Record production rates in single
aisle airliner production in both Airbus and Boeing provide Magellan with a
strong base of ongoing aerostructures work. Three new generation airliners
entering the marketplace in 2007-2008 (Airbus A380 and Boeing B787) and 2013
(Airbus A350) provide Magellan with access to new technology and manufacturing
processes, new products such as landing gear, and the means to renew
production capabilities.
    The very strong demand for business jets and helicopters has created a
rapidly growing body of work in small to mid-size engines within Magellan's
plants. In the defence sector, the Boeing F-18 continues its strong sales
performance with the GE 414 engine while recent contracts announced for sales
of proprietary defence products show the diversity the company enjoys in this
sector. The Joint Strike Fighter, the largest military aircraft program ever
undertaken, will enter production over the next several years. The JSF program
will bring to Magellan world leading manufacturing technology, strong new
relationships with leading American and European customers, and the stability
of a multi-decade program.
    Magellan also faces the investment challenges associated with the launch
of multiple new generation programs, competitive pressures of the global
distribution of aerospace manufacturing activities, and in the short term, the
heavy weight of unfavourable foreign exchange rates related to the U.S.
dollar. The negative impacts of exchange rates on Magellan are being offset to
some degree by natural hedging through U.S. dollar purchasing. Magellan has
addressed start-up investments for the new programs over the past two years,
and has put a plan in place to meet the production ramp-up costs to be faced
over the next 2-5 years. Magellan is also well advanced on achieving the cost
advantages of the global emerging markets.

    On behalf of the Board

    (signed)                          (signed)

    Richard A. Neill                  James S. Butyniec
    Vice Chairman                     President and Chief Operating Officer

    November 12, 2007



    
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    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED STATEMENTS OF
     OPERATIONS AND RETAINED EARNINGS

    (unaudited)                     Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands of
     dollars, except per share
     amounts)                          2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenues                      $ 147,926  $ 143,548  $ 442,264  $ 430,546
    Cost of revenues                133,369    130,496    396,246    390,067
    -------------------------------------------------------------------------
    Gross profit                     14,557     13,052     46,018     40,479
    -------------------------------------------------------------------------

    Administrative and general
     expenses                        10,963      9,401     36,040     29,379
    Facility rationalization
     (note 3)                             -     (2,095)         -      3,206
    Interest                          6,121      5,197     17,967     16,265
    -------------------------------------------------------------------------
                                     17,084     12,503     54,007     48,850
    -------------------------------------------------------------------------
    (Loss) income before income
     taxes                           (2,527)       549     (7,989)    (8,371)

    Provision for (recovery of)
     income taxes
      - Current                         484       (100)     1,417         83
      - Future                         (100)       428     (3,014)    (2,350)
    -------------------------------------------------------------------------
                                        384        328     (1,597)    (2,267)
    -------------------------------------------------------------------------
    (Loss) net income for the
     period                          (2,911)       221     (6,392)    (6,104)
    -------------------------------------------------------------------------
    Retained earnings, beginning
     of the period                   93,758     99,894     98,039    107,019
    Dividends on preference shares     (400)      (400)    (1,200)    (1,200)
    Net income (loss) for the
     period                          (2,911)       221     (6,392)    (6,104)
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                       $  90,447  $  99,715  $  90,447  $  99,715
    -------------------------------------------------------------------------
    (Loss) income per common
     share
    -------------------------------------------------------------------------
      Basic and diluted           $   (0.04) $    0.00  $   (0.08) $   (0.07)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED STATEMENTS OF
     COMPREHENSIVE INCOME (LOSS)

    (unaudited)                     Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands of
     dollars)                          2007       2006       2007       2006
    -------------------------------------------------------------------------
    Net income (loss) for the
     period                       $  (2,911) $     221  $  (6,392) $  (6,104)
    Other comprehensive loss:
    Unrealized (loss) gain on
     translation of financial
     statements of self-sustaining
     foreign operations (Note 9)     (9,081)       920    (22,347)    (3,450)
    -------------------------------------------------------------------------
    Comprehensive (loss) income   $ (11,992) $   1,141  $ (28,739) $  (9,554)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED BALANCE SHEETS
                                                          As at        As at
    (unaudited)                                    September 30  December 31
    (Expressed in thousands of dollars)                    2007         2006
    -------------------------------------------------------------------------
    ASSETS (note 5)
    Current
    Cash                                              $   3,786    $   9,896
    Accounts receivable                                  54,837       58,066
    Inventories (note 4)                                280,608      276,462
    Prepaid expenses and other                           16,933       10,396
    Future income tax assets                              5,625        5,914
    -------------------------------------------------------------------------
    Total current assets                                361,789      360,734

    Capital assets, net                                 245,880      265,078
    Other                                                53,302       52,680
    Future income tax assets                              5,409        5,829
    -------------------------------------------------------------------------
    Total assets                                      $ 666,380    $ 684,321
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness (note 5)                        $ 146,409    $ 142,457
    Accounts payable and accrued charges                124,364      128,066
    Convertible debentures                               69,184            -
    Current portion of long-term debt                    16,933        2,039
    -------------------------------------------------------------------------
    Total current liabilities                           356,890      272,562

    Long-term debt                                       13,556       15,902
    Future income tax liabilities                        15,304       20,785
    Convertible debentures                                    -       67,430
    Other long-term liabilities                           4,582        2,748
    -------------------------------------------------------------------------
    Total liabilities                                   390,332      379,427
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock (note 6)                              234,214      234,171
    Contributed surplus                                   2,849        1,799
    Other paid in capital                                11,100       11,100
    Retained earnings                                    90,447       98,039
    Accumulated other comprehensive loss (note 9)       (62,562)     (40,215)
    -------------------------------------------------------------------------
    Total shareholders' equity                          276,048      304,894
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity        $ 666,380    $ 684,321
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (unaudited)                     Three-months ended     Nine-months ended
                                        September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands of
     dollars)                          2007       2006       2007       2006
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    (Loss) net income for the
     period                       $  (2,911) $     221  $  (6,392) $  (6,104)
    Add (deduct) items not
     affecting cash
      Depreciation and
       amortization                   5,609      5,194     17,318     16,799
      Gain on sale of capital
       assets                        (1,281)         -     (1,262)         -
      Facility rationalization
       charge (note 3)                    -     (2,095)         -      3,206
      Stock based compensation
       (note 7)                         400        255      1,050        690
      Accretion of convertible
       debentures                       580        573      1,754      1,719
      Future income tax (recoveries)
       provision                       (100)       428     (3,014)    (2,350)
    -------------------------------------------------------------------------
                                      2,297      4,576      9,454     13,960
    -------------------------------------------------------------------------
    Net change in non-cash working
     capital items relating to
     operating activities             2,835     (2,917)   (30,834)   (15,418)
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities             5,132      1,659    (21,380)    (1,458)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets       (6,119)    (6,047)   (16,464)   (20,190)
    Proceeds from disposal of
     capital assets                   1,342      3,634      1,695      3,969
    (Decrease) increase in other
     assets                            (564)       949     (2,229)    (1,640)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                      (5,341)    (1,464)   (16,998)   (17,861)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    (Decrease) increase in bank
     indebtedness                    (2,577)     7,051     18,379     27,529
    (Decrease) increase of
     long-term debt                    (269)       378     13,557      4,950
    Increase (decrease) in
     long-term liabilities            1,863        340      2,210     (7,697)
    Issue of Common Shares               26         14         65         40
    Dividends on Preference Shares     (400)      (400)    (1,200)    (1,200)
    -------------------------------------------------------------------------
    Cash (used in) provided by
     financing activities            (1,357)     7,383     33,011     23,622
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash                    (67)       449       (743)        91
    -------------------------------------------------------------------------

    Net (decrease) increase in cash  (1,633)     8,027     (6,110)     4,394
    Cash, beginning of period         5,419      3,793      9,896      7,426
    -------------------------------------------------------------------------
    Cash, end of period           $   3,786  $  11,820  $   3,786  $  11,820
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in thousands of dollars except share and per share data)

    1.  ACCOUNTING POLICIES

    Basis of presentation

    The accompanying unaudited interim consolidated financial statements have
    been prepared by Magellan Aerospace Corporation ("the Corporation") in
    accordance with generally accepted accounting principles in Canada with
    respect to preparation of interim financial statements on a basis
    consistent with those followed in the most recent audited consolidated
    financial statements. Accordingly, these unaudited interim consolidated
    financial statements do not include all the information and footnotes
    required by generally accepted accounting principles for annual financial
    statements and therefore should be read in conjunction with the audited
    consolidated financial statements and notes included in the Corporation's
    Annual Report for the year ended December 31, 2006.

    In the opinion of management, the unaudited interim consolidated
    financial statements reflect all adjustments, which consist only of
    normal and recurring adjustments, necessary to present fairly the
    financial position at September 30, 2007 and the results of operations
    and cash flows for the three and nine month periods ended September 30,
    2007 and 2006.

    2.  CHANGE IN ACCOUNTING POLICY

    The Corporation adopted the Canadian Institute of Chartered Accountants
    (CICA) Handbook Section 3855, Financial instruments - Recognition and
    Measurement: Section 3865, Hedges: Section 1530, Comprehensive Income and
    Section 3861, Financial Instruments - Disclosure and Presentation on
    January 1, 2007. The adoption of these new standards resulted in changes
    in the accounting for financial instruments and hedges. The comparative
    interim consolidated financial statements have not been restated, except
    for the presentation of translation gains or losses on self-sustaining
    foreign operations. The principal changes in the accounting for financial
    instruments and hedges due to the adoption of these accounting standards
    are described below.

    a)  Comprehensive Income

    Comprehensive income includes the Corporation's net income and other
    comprehensive income. Other comprehensive income includes unrealized
    exchange gains and losses on translation of self-sustaining foreign
    operations.

    b)  Financial Assets and Financial Liabilities

    Under the new standards, all financial instruments are classified into
    one of the following five categories: held for trading, held-to-maturity
    investments, loans and receivables, available-for-sale financial assets
    or other financial liabilities. All financial instruments, including
    derivatives, are included on the consolidated statement of financial
    position and are measured at fair value except for loans and receivables,
    held-to-maturity investments and other financial liabilities, which are
    measured at amortized cost. Held for trading financial investments are
    subsequently measured at fair value and all gains and losses are included
    in net income in the period in which they arise. Available-for-sale
    financial instruments are subsequently measured at fair value with
    revaluation gains and losses included in other comprehensive income until
    the instrument is derecognized or impaired.

    As a result of the adoption of these standards, the Corporation has
    classified its cash and cash equivalents as held-for-trading. Accounts
    receivable are classified as loans and receivables. Accounts payable and
    long-term debt have been classified as other financial liabilities, all
    of which are measured at amortized cost.

    c)  Derivatives and Hedges

    All derivative instruments, including embedded derivatives, are recorded
    in the statement of financial position at fair value unless exempted from
    derivative treatment as a normal purchase and sale. All changes in their
    fair value are recorded in income unless cash flow hedge accounting is
    used, in which case changes in fair value are recorded in other
    comprehensive income. The impact of the change in the accounting policy
    related to embedded derivatives was not material, as at January 1, 2007.

    Hedge Accounting
    ----------------
    At the inception of a hedging relationship, the Corporation documents the
    relationship between the hedging instrument and the hedged item, as well
    as the risk management objectives and strategy for undertaking various
    hedge transactions. This process includes linking all derivatives to
    specific assets and liabilities on the consolidated statement of
    financial position or to specific firm commitments or forecasted
    transactions. The Corporation also assesses, both at the inception of the
    hedge and on an ongoing basis, whether the derivatives that are used are
    effective in offsetting changes in fair values or cash flows of hedged
    items.

    Under the previous standards, derivatives that met the requirements for
    hedge accounting were generally accounted for on an accrual basis. Under
    the new standards, all derivatives are recorded at fair value.

    As at January 1, 2007 the Corporation's derivative contracts were not
    designated as hedges and as a result are recorded on the Consolidated
    Balance Sheets at their fair value. Any change in the fair value during
    the period are reported in foreign exchange in the Consolidated Statement
    of Operations.

    The adoption of these new standards was done retroactively without
    restatement of the consolidated financial statements of prior periods.
    The effect of these changes in accounting policies on 2007 was not
    significant.

    3.  FACILITY RATIONALIZATION

    During 2006, the Corporation undertook a program to rationalize and
    modernize four of its facilities. As part of this rationalization
    program, the Corporation sold portions of its surplus real estate in the
    third and fourth quarter of 2006 and realized gains on the sales of
    $2,095 and $3,566, respectively. To prepare this real estate for sale,
    machinery and equipment was disposed of for minimal proceeds.
    Accordingly, a non-cash charge of $5,301 ($0.04 per share on an after tax
    basis) was recorded in the financial statements in the second quarter of
    2006.

    4.  INVENTORIES

    Due to the long-term contractual periods of the Corporation's contracts,
    the Corporation may be in negotiation with its customers over amendments
    to pricing or other terms. Management's assessment of the recoverability
    of amounts capitalized in inventory may be based on judgements with
    respect to the outcome of these negotiations. If the negotiations are not
    successful or the final terms differ from what the Corporation expects,
    the Corporation may be required to record a loss provision on this
    contract. The amount of such provision, if any, cannot be reasonably
    estimated until such amendments are finalized.

    5.  BANK INDEBTEDNESS

    The Corporation has an operating credit facility, with a syndicate of
    banks, with a Canadian limit of $75,000 plus a US limit of US$90,000
    ($164,532 at September 30, 2007). Bank indebtedness as at September 30,
    2007 of $146,409 (December 31, 2006 - $142,457) is payable on demand and
    bears interest at the bankers' acceptance or LIBOR rates, plus 0.875%
    (6.0% at September 30, 2007). Included in the amount outstanding at
    September 30, 2007 is US$87,053 (December 31, 2006 - US$82,325). At
    September 30, 2007, the Corporation had drawn $146,409 under the
    operating credit and had issued letters of credit totalling $1,914 such
    that $16,209 was unused and available. A fixed and floating charge
    debenture on certain of the Corporation's assets is pledged as collateral
    for the operating loan. The Chairman of the Board has provided a
    guarantee for the full amount of the credit facility. An annual fee of
    0.10% of the guaranteed amount or $175 (2006 - $155) is paid in
    consideration for the guarantee.

    6.  CAPITAL STOCK

    The following table summarizes information on share capital and related
    matters as at September 30, 2007:

    -------------------------------------------------------------------------
                                                   Outstanding   Exercisable
    -------------------------------------------------------------------------
    Common shares                                   90,853,698
    -------------------------------------------------------------------------
    Common shares stock options                      4,845,050     1,448,010
    -------------------------------------------------------------------------
    Preferred shares                                 2,000,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted average number of common shares outstanding during the
    three-month and nine-month periods ended September 30, 2007 was
    90,849,933 and 90,843,678, respectively.

    7.  STOCK-BASED COMPENSATION PLAN

    The Corporation has an incentive stock option plan, which provides for
    the granting of options for the benefit of employees and directors. The
    maximum number of options for common shares that remain to be granted
    under this plan is 3,501,653. Options are granted at an exercise price
    equal to the market price of the Corporation's Common Shares at the time
    of granting. Options normally have a life of five years with vesting at
    20.0% at the end of the first, second, third, fourth and fifth years from
    the date of the grant. In addition, certain business unit income tests
    must be met in order for the option holder's entitlement to fully vest.

    The Corporation accounts for stock options issued after January 1, 2003
    using the fair value method. Compensation expense recorded during the
    three-month and nine-month periods ended September 30, 2007 was $400 and
    $1,050, respectively (September 30, 2006 - $255 and $690). In the nine-
    month period ended September 30, 2007, there were 1,430,000 stock options
    issued at an exercise price of $3.20. The fair value of these options was
    $1.57.

    The fair value of stock options is estimated at the date of grant using
    the Black-Scholes pricing model with the following weighted average
    assumptions:

    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    Risk-free interest rate                               4.0%          4.0%
    Expected volatility                                  46.0%         46.0%
    Expected average life of options                   5 years       5 years
    Expected dividend yield                               0.0%          0.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Black-Scholes option pricing model used by the Corporation to
    determine fair values was developed for use in estimating the fair value
    of freely traded options, which are fully transferable and have no
    vesting restrictions. The Corporation's employee stock options are not
    transferable, cannot be traded and are subject to vesting restrictions
    and exercise restrictions under the Corporation's black-out policy which
    would tend to reduce the fair value of the Corporation's stock options.
    Changes to the subjective input assumptions used in the model can cause a
    significant variation in the estimate of the fair value of the options.

    8.  SEGMENTED INFORMATION

    The Corporation is organized and managed as a single business segment
    being aerospace and the chief operating decision maker, for the purposes
    of resource allocations and assessing performance, views the Corporation
    as a single operating segment.

    Capital assets are based on the country in which they are located.
    Domestic and foreign capital assets consist of:

    -------------------------------------------------------------------------
                                            As at September 30, 2007
                                  -------------------------------------------
                                    Canada       US         UK       Total
                                  -------------------------------------------
    Capital assets                $ 118,667  $ 107,221  $  19,992  $ 245,880
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                            As at December 31, 2006
                                  -------------------------------------------
                                    Canada       US         UK       Total
                                  -------------------------------------------
    Capital assets                $ 122,082  $ 120,553  $  22,443  $ 265,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Revenue is attributable to countries based on the location of the
    customers. Domestic and foreign revenues consist of:

    -------------------------------------------------------------------------
                                         Three-months ended September 30
                                  -------------------------------------------
                                                     2007
                                  -------------------------------------------
                                    Canada       US         UK       Total
                                  -------------------------------------------
    Revenue
    Domestic                      $  23,131  $  38,012  $  28,259  $  89,402
    Export                           50,116      6,719      1,689     58,524
    -------------------------------------------------------------------------
    Total revenue                 $  73,247  $  44,731  $  29,948  $ 147,926
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                         Three-months ended September 30
                                  -------------------------------------------
                                                     2006
                                  -------------------------------------------
                                    Canada       US         UK       Total
                                  -------------------------------------------
    Revenue
    Domestic                      $  21,204  $  39,691  $  27,499  $  88,394
    Export                           45,936      8,039      1,179     55,154
    -------------------------------------------------------------------------
    Total revenue                 $  67,140  $  47,730  $  28,678  $ 143,548
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                          Nine-months ended September 30
                                  -------------------------------------------
                                                     2007
                                  -------------------------------------------
                                    Canada       US         UK       Total
                                  -------------------------------------------
    Revenue
    Domestic                      $  70,204  $ 121,171  $  88,231  $ 279,606
    Export                          140,824     18,874      2,960    162,658
    -------------------------------------------------------------------------
    Total revenue                 $ 211,028  $ 140,045  $  91,191  $ 442,264
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                          Nine-months ended September 30
                                  -------------------------------------------
                                                     2006
                                  -------------------------------------------
                                    Canada       US         UK       Total
                                  -------------------------------------------
    Revenue
    Domestic                      $  70,539  $ 115,676  $  80,420  $ 266,635
    Export                          133,804     25,283      4,824    163,911
    -------------------------------------------------------------------------
    Total revenue                 $ 204,343  $ 140,959  $  85,244  $ 430,546
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The major customers for the Corporation for the three-month and nine-
    month periods ended September 30, 2007 are as follows:

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                       September 30          September 30
                                  -------------------------------------------
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Major Customers
    Canadian operations
      - Number of customers               3          3          3          4
      - Percentage of total
         Canadian revenue               36%        37%        36%        46%
    US operations
      - Number of customers               1          3          1          3
      - Percentage of total
         US revenue                     42%        56%        42%        58%
    UK operations
      - Number of customers               1          1          1          1
      - Percentage of total
         UK revenue                     66%        87%        78%        83%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  ACCUMULATED OTHER COMPREHENSIVE LOSS

    Other comprehensive loss includes unrealized foreign currency translation
    gains and losses, which arise on the translation to Canadian dollars of
    assets and liabilities of the Corporation's self-sustaining foreign
    operations. The unrealized currency translation loss for the three-month
    and nine-month periods ended September 30, 2007 was $9,081 and $22,347,
    respectively (2006 - gain of $920 and loss $3,450). This loss is
    reflected in the consolidated balance sheets and has no impact on net
    income (loss).

    10. FINANCIAL INSTRUMENTS

    The Corporation's policy is not to utilize derivative financials
    instruments for trading or speculative purposes. The Corporation may
    utilize derivative instruments in the management of its foreign currency
    and interest rate exposures.

    (a) Fair Value

    The Corporation has determined the estimated fair values of its financial
    instruments based on appropriate valuation methodologies, however, with
    the exception of the convertible debentures, considerable judgment is
    required to develop these estimates. Accordingly, these estimated fair
    values are not necessarily indicative of the amounts the Corporation
    could realize in a current market exchange. The estimated fair value
    amounts can be materially affected by the use of different assumptions or
    methodologies. The methods and assumptions used to estimate the fair
    value of financial instruments are described below:

    Cash, accounts receivable, bank indebtedness and accounts payable and
    accrued charges

    Due to the short period to maturity of these instruments, the carrying
    values as presented in the consolidated balance sheets are reasonable
    estimates of their fair values.

    Long-term debt

    The fair value of the Corporation's long-term debt, based on current
    rates for debt with similar terms and maturities, is $28,748 at
    September 30, 2007.

    Convertible Debentures

    The fair market value of the Corporation's Convertible Debentures,
    calculated based on available market data at September 30, 2007 was
    $68,935.

    (b) Credit risk

    The Corporation's financial assets that are exposed to credit risk
    consist primarily of cash and accounts receivable.

    The Corporation, in the normal course of business, is exposed to credit
    risk from its customers, substantially all of which are in the aerospace
    industry. These accounts receivable are subject to normal industry credit
    risks.

    (c) Interest rate risk

    The Corporation is exposed to significant interest rate risk due to its
    bank indebtedness being at variable rates. For the nine months ended
    September 30, 2007, the Company made interest payments on long-term debt
    and convertible debentures of $5,634 (2006 - $4,720).

    (d) Forward foreign exchange contracts

    The Corporation has entered into forward foreign exchange contracts to
    mitigate future cash flow exposures in U.S. dollars and Norwegian kroners
    (NOK). Under these contracts the Corporation is obliged to purchase or
    sell specific amounts of U.S. dollars and NOK at predetermined dates and
    exchange rates. These contracts are matched with anticipated operational
    cash flows in U.S. dollars and Norwegian kroners.

    The Corporation has a foreign exchange contract outstanding at
    September 30, 2007 as follows:

    -------------------------------------------------------------------------
                                                                    Exchange
                                                        Amount          rate
    -------------------------------------------------------------------------
                                                                     0.17948-
    Maturity - less than 1 year - NOK                   49,726       0.18514
    Maturity - less than 1 year - U.S. Dollar Put    $   6,000        1.1975
    Maturity - less than 1 year - U.S. Dollar Call   $   6,000        1.1530
    Maturity - less than 1 year - U.S. Dollar        $  52,100        1.0055
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair values of these foreign exchange contracts were favourable by
    approximately $544 as at September 30, 2007.

    11. EMPLOYEE FUTURE BENEFITS

    The total benefit cost in the registered plans for the three-month and
    nine-month periods ended September 30 includes the following components:

    -------------------------------------------------------------------------
                                    Three-months ended     Nine-months ended
                                       September 30          September 30
                                  -------------------------------------------
    (Expressed in thousands)           2007       2006       2007       2006
    -------------------------------------------------------------------------
    Current service cost          $     467  $     578  $   1,401  $   1,733
    Interest cost on projected
     benefit obligations              1,577      1,614      4,731      4,840
    Expected returns on plan
     assets                          (1,771)    (1,363)    (5,312)    (4,090)
    Amortization of net
     actuarial loss                     148          -        445          -
    Amortization of past
     service costs                      120         70        360        211
    -------------------------------------------------------------------------
    Net benefit cost recognized   $     541  $     899  $   1,625  $   2,694
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. RELATED PARTY TRANSACTIONS

    During the three-month and nine-month periods ended September 30, 2007,
    the Corporation sold receivables to a corporation with a common director
    in the amount of $69,761 and $144,333, respectively (September 30, 2006 -
    $16,156 and $46,906), for a discount of $826 and $1,768, respectively
    (September 30, 2006 - $218 and $519) representing an annualized interest
    rate of 7.5% and 7.5%, respectively (September 30, 2006 - 8.5% and 8.3%).
    Included in this balance, as at September 30, 2007, is a reserve of
    $4,988 (2006 - $3,053).

    13. SUPPLEMENTARY INFORMATION

    Foreign exchange loss on the conversion of foreign currency denominated
    working capital balances and debt for the three-month and nine-month
    periods ended September 30, 2007 was $3,107 and $5,630, respectively
    (September 30, 2006 - gain of $297 and $579).
    





For further information:

For further information: Richard A. Neill, (905) 677-1889 ext. 230, Vice
Chairman; John B. Dekker, (905) 677-1889 ext 224, Vice President Finance &
Corporate Secretary


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