Magellan Aerospace Corporation announces financial results



    TORONTO, Aug. 11 /CNW/ - Magellan Aerospace Corporation ("Magellan" of
the "Corporation") released its financial results for the second quarter of
2009. All amounts are expressed in Canadian dollars unless otherwise
indicated. The results are summarized as follows:

    
    -------------------------------------------------------------------------
    (Expressed in
     thousands,        Three-months ended             Six-months ended
     except per              June 30                       June 30
     share        -----------------------------------------------------------
     amounts)         2009      2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Revenues      $177,323  $172,108      3.0%  $356,611  $333,203      7.0%
    -------------------------------------------------------------------------
    Gross Profit  $ 20,120  $ 17,824     12.9%  $ 41,824  $ 35,145     19.0%
    -------------------------------------------------------------------------
    Net Income    $  5,349  $    783    583.1%  $ 13,272  $  2,834    368.3%
    -------------------------------------------------------------------------
    Net Income per
     share
     - Diluted    $   0.12  $   0.02    500.0%  $   0.37  $   0.11    236.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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    This press release 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 press release,
    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.
    -------------------------------------------------------------------------
    

    The Corporation's performance in the second quarter of 2009 continued to
show improvement year over year, generating increased revenues and gross
profit over the second quarter 2008. The Corporation has now recorded six
consecutive quarters of profitability. Net income for the second quarter of
2009 was higher than second quarter 2008 as the Corporation benefited from a
weaker Canadian dollar, versus the United States dollar in the second quarter
of 2009 over the second quarter of 2008. Single aisle commercial aircraft
continued production at predicted rates and the Corporation also benefited
from strong and steady defence activity, in both original equipment and
aftermarket activity. Strength in the Corporation's proprietary product sales
also continued through the second quarter of 2009.
    Revenues in the second quarter of 2009 were marginally lower than in the
first quarter, as the effect of the weakness in business aircraft demand
started to impact certain Magellan business units. Overall profitability was
maintained, however, through the introduction of improved processes and
management measures across the Corporation.
    As a further challenge, the Corporation foresees the possibility of
weaker demand on certain product lines through the remainder of 2009. The
global economic environment and the delays to market of key new programs,
principally the Airbus A380 and the Boeing 787, are the main factors that
warrant caution. Countering these weaknesses is the acceleration of the
production of the JSF F-35 program that will be felt initially as early as the
fourth quarter of 2009.
    To date in 2009, the Corporation has achieved improvements in operating
efficiency and capacity in its facilities through the continued transfer of
non-core work packages to supplier and emerging market sites. It is also, in
parallel, attracting new complex core work into its facilities to exploit the
newly generated capacity.
    For additional information, please refer to the "Management's Discussion
and Analysis" section of the Annual Report available on www.sedar.com.

    
    Revenues
    -------------------------------------------------------------------------
                       Three-months ended             Six-months ended
                             June 30                       June 30
    (Expressed in -----------------------------------------------------------
     thousands)       2009      2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Canada        $ 85,589  $ 79,002      8.3%  $169,581  $151,981     11.6%
    United States   54,167    59,064     -8.3%   108,740   113,346     -4.1%
    United
     Kingdom        37,567    34,042     10.4%    78,290    67,876     15.3%
    -------------------------------------------------------------------------
    Total revenue $177,323  $172,108      3.0%  $356,611  $333,203      7.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Consolidated revenues for the second quarter of 2009 were $177.3 million,
an increase of $5.2 million or 3.0% over the second quarter of 2008. Increased
volumes in the Corporation's proprietary products increased revenues in
Canada. In native currency, revenues in the United States declined from the
second quarter of 2008 primarily as a result of the reduced requirements on
Boeing and Airbus statement of work. Revenues in the United Kingdom increased
over revenues in the same period in 2008, despite the decline in the British
Pound exchange rate versus the Canadian dollar. Revenues in the United Kingdom
in native currency increased by 22% due to increased production activity on
Airbus programs. The appreciation of the U.S. dollar and the decline of the
British Pound against the Canadian dollar, over the exchange rates prevailing
in the second quarter of 2008, contributed, on a net basis, to an increase of
$10.5 million in revenues.

    
    Gross Profit
    -------------------------------------------------------------------------
                       Three-months ended             Six-months ended
                             June 30                       June 30
    (Expressed in -----------------------------------------------------------
     thousands)       2009      2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Gross profit  $ 20,120  $ 17,824     12.9%  $ 41,824  $ 35,145     19.0%
    -------------------------------------------------------------------------
    Percentage of
     revenue         11.3%     10.4%               11.7%     10.5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Gross profit of $20.1 million (11.3% of revenues) were reported for the
second quarter of 2009 compared to $17.8 million (10.4% of revenues) during
the same period in 2008. Gross profit, as a percentage of revenues, increased
in part, as a result of the appreciation of the U.S. dollar exchange rate
versus the Canadian dollar in the quarter and the realization of price
increases over the same period in 2008. Unfavourable product mix and reduced
volumes at several plants in the second quarter of 2009, offset the increased
margins realized in the second quarter of 2009 over the second quarter of
2008. Had the U.S. dollar and the British Pound exchange rates versus the
Canadian dollar in the second quarter of 2009 remained the same as in the
second quarter of 2008, gross margin would have been approximately $4.0
million lower for the second quarter of 2009.

    
    Administrative and General Expenses
    -------------------------------------------------------------------------
                                Three-months ended         Six-months ended
                                      June 30                  June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    Administrative and
     general expenses      $   12,035   $   11,133   $   22,801   $   20,694
    -------------------------------------------------------------------------
    Percentage of revenue        6.8%         6.5%         6.4%         6.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Administrative and general expenses were $12.0 million (6.8% of revenues)
in the second quarter of 2009 compared to $11.1 million (6.5% of revenues) in
the second quarter of 2008.


    Other
    -------------------------------------------------------------------------
                                Three-months ended         Six-months ended
                                      June 30                   June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009        2008
    -------------------------------------------------------------------------
    Foreign exchange
     (gain) loss           $   (3,529)  $      534   $   (5,502)  $   (1,056)
    (Gain) loss on sale of
     capital assets                 -       (1,634)           9       (1,634)
    -------------------------------------------------------------------------
    Other                  $   (3,529)  $   (1,100)  $   (5,493)  $   (2,690)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Other income of $3.5 million in the second quarter of 2009 consisted of
realized and unrealized foreign exchange gains (largely on the Corporation's
currency contracts) due to the weaker Canadian dollar in comparison to the
United States dollar. Other income in the second quarter of 2008 resulted from
a gain of $1.6 million on the sale capital assets offset by a foreign exchange
loss of $0.5 million.

    
    Interest Expense
    -------------------------------------------------------------------------
                                Three-months ended         Six-months ended
                                      June 30                   June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    Interest on bank
     indebtedness
     and long-term
     debt                  $    3,219   $    3,788   $    6,213   $    7,195
    Convertible debenture
     interest                   1,350          444        1,786        1,249
    Accretion charge for
     convertible debt             330           64          398          306
    Discount on sale of
     accounts
     receivable                   723        1,187        1,500        2,268
    -------------------------------------------------------------------------
    Total interest expense $    5,622   $    5,483   $    9,897   $   11,018
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Interest expense of $5.6 million in the second quarter of 2009 was higher
than the second quarter of 2008 amount of $5.5 million. Convertible debenture
interest and the accretion expense in relation to the convertible debentures
were higher in the second quarter of 2009 than the comparative quarter in 2008
due to a higher principal amount of convertible debentures outstanding. Lower
discount expense on the sale of accounts receivable resulted from decreased
amounts of accounts receivables sold in the second quarter of 2009 when
compared to the same quarter of 2008. Lower interest rates on bank
indebtedness in the second quarter of 2009 when compared to the same quarter
of 2008 also resulted in lower interest charges.

    
    Provision for Income Taxes
    -------------------------------------------------------------------------
                                 Three-months ended        Six-months ended
                                      June 30                   June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    Provision for current
     income taxes          $      233   $      208   $      402   $      208
    Expense of future
     income taxes                 410        1,317          945        3,081
    -------------------------------------------------------------------------
    Total expense of
     income taxes          $      643   $    1,525   $    1,347   $    3,289
    -------------------------------------------------------------------------
    Effective Tax Rate          10.7%        66.1%         9.2%        53.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Corporation recorded an income tax expense of $0.6 million for the
second quarter of 2009, compared to an income tax expense of $1.5 million for
the second quarter of 2008. The change in effective tax rates is a result of a
changing mix of income across the different jurisdictions in which the
Corporation operates. The recognition of previous unrecorded future tax assets
derived from temporary differences in Canada also contributed to the lower
effective tax rate. Due to the recognition of these previous unrecorded future
tax assets, the Corporation's effective tax rate in the current quarter was
10.7% versus a normalized expected tax rate of between 30% - 35%.

    
    Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
    -----------------------------------------------------------------------
    
    In addition to the primary measures of earnings and earnings per share in
accordance with GAAP, the Corporation includes certain measures in this MD&A,
including EBITDA (earnings before interest expense, income taxes,
depreciation, amortization and certain non-cash charges). The Corporation has
provided these measures 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 the various
jurisdictions. Each of the components of this measure are calculated in
accordance with GAAP, but EBITDA is not a recognized measure under GAAP, and
our method of calculation may not be comparable with that of other companies.
Accordingly, EBITDA should not be used as an alternative to net earnings as
determined in accordance with GAAP or as an alternative to cash provided by or
used in operations.

    
    -------------------------------------------------------------------------
                                 Three-months ended        Six-months ended
                                      June 30                   June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    Net income             $    5,349   $      783   $   13,272   $    2,834
    Interest                    5,622        5,483        9,897       11,018
    Taxes                         643        1,525        1,347        3,289
    Stock based
     compensation                 173          295          405          613
    Depreciation and
     amortization               9,118        5,672       18,417       11,495
    -------------------------------------------------------------------------
    EBITDA                 $   20,905   $   13,758   $   43,338   $   29,249
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    EBITDA for the second quarter of 2009 was $20.9 million, compared to $13.8
million in the second quarter of 2008. As previously discussed, the weaker
Canadian dollar when compared to the United States dollar in the second
quarter of 2009 over the second quarter of 2008 contributed to higher gross
profit and other income resulting in increased EBITDA for the current quarter.

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

    Cash Flow from Operations
    -------------------------------------------------------------------------
                                 Three-months ended        Six-months ended
                                       June 30                  June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    (Increase) decrease in
     accounts receivable   $  (20,168)  $    3,111   $  (40,184)  $   (2,236)
    Decrease (increase) in
     inventories                7,729       (7,752)      10,559      (18,990)
    Increase in prepaid
     expenses and other        (6,475)        (652)      (6,077)        (312)
    (Decrease) increase in
     accounts payable          (4,558)       4,518      (17,113)       5,604
    -------------------------------------------------------------------------
    Changes to non-cash
     working capital
     balances                 (23,472)        (775)     (52,815)     (15,934)
    -------------------------------------------------------------------------
    Cash (used in) provided
     by operating
     activities            $   (6,268)  $    3,793   $  (17,328)  $   (1,951)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In the quarter ended June 30, 2009, the Corporation used $6.3 million of
cash in its operations, compared to cash provided by operations of $3.8
million in the second quarter of 2008. Cash was used by increased accounts
receivable, increased prepaid expenses and decreased accounts payable. The
Corporation has partially offset the use of cash in operating activities
through the reduction of inventories in the second quarter of 2009. The
increase in accounts receivable resulted from a net decrease in the amount of
accounts receivable sold under the Corporation's securitization facilities at
the end of the second quarter of 2009 when compared to the same quarter in
2008. One of the Corporation's current securitization facilities in the amount
of $20 million expires on December 31, 2009. The Corporation is exploring the
options of other securitization programs that may be available to replace the
expiring facility.

    
    Investing Activities
    -------------------------------------------------------------------------
                                 Three-months ended        Six-months ended
                                      June 30                   June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    Acquisition of Verdict $        -   $        -   $        -   $   (4,240)
    Purchase of capital
     assets                    (7,824)      (4,696)     (13,169)      (9,337)
    Proceeds of disposals
     of capital assets             88        2,639          232        2,784
    (Increase) decrease in
     other assets              (1,821)         142       (2,269)      (1,440)
    -------------------------------------------------------------------------
    Cash used in investing
     activities            $   (9,557)  $   (1,915)  $  (15,206)  $  (12,233)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    In the second quarter of 2009, the Corporation invested $7.8 million in
capital assets to upgrade and enhance its capabilities for current and future
programs.


    Financing Activities
    -------------------------------------------------------------------------
                                 Three-months ended        Six-months ended
                                       June 30                  June 30
                              -----------------------------------------------
    (Expressed in thousands)     2009         2008         2009         2008
    -------------------------------------------------------------------------
    (Decrease) increase in
     bank indebtedness     $  (16,666)  $   13,352   $   (2,624)  $   27,687
    Decrease in loan
     payable                        -      (15,000)           -      (15,000)
    Increase in loan
     payable                        -            -            -       15,000
    Decrease in long-term
     debt                        (864)        (850)      (1,411)     (16,462)
    Increase in long-term
     debt                      15,000            -       15,000       50,000
    Decrease in convertible
     debentures               (20,950)           -      (20,950)     (69,985)
    Increase in convertible
     debentures                39,667            -       39,667       20,778
    Decrease in long-term
     liabilities                 (172)        (334)        (272)        (763)
    Issue of Common Shares          -           20            8           43
    Dividends on Preference
     Shares                         -         (400)           -         (800)
    -------------------------------------------------------------------------
    Cash provided by (used
     in) financing
     activities            $   16,015   $   (3,212)  $   29,418   $   10,498
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    On April 30, 2009, the Corporation amended its operating credit facility
with its existing lenders. Under the terms of the amended agreement, the
maximum amount available under the operating credit facility was decreased to
a Canadian dollar limit of $90 million plus a US dollar limit of $85 million,
with a maturity date of May 22, 2010. The facility is extendable for unlimited
one-year renewal periods by the agreement of the Corporation and the lenders
and continues to be guaranteed by the Chairman of the Board of the
Corporation. An annual standby guarantee fee in 2009 of 1.35% (2008 - 1.35%)
of the guaranteed amount is provided by the Corporation in consideration for
this guarantee.
    On April 30, 2009, the Corporation also completed the following
previously announced financing arrangements:
    (a) the purchase by the Chairman of the Corporation, directly or
indirectly, of $40 million principal amount of a new issue of 10% Convertible
Secured Subordinated Debentures (the "New Convertible Debentures") with a
three year term by private placement; and
    (b) the extension and restatement of a previous secured subordinated loan
from Edco Capital Corporation ("Edco"), which is wholly owned by the Chairman
of the Corporation, to the Corporation to increase the principal amount from
$50 million to $65 million and to extend the maturity date of the loan to July
1, 2010 in consideration for the payment of a one time fee to Edco equal to 1%
of the principal amount of $50 million outstanding and an increase in the
interest rate on the loan from 10% to 12% per annum payable monthly in
arrears.

    (together the "2009 Financing Arrangements")

    As a result of a requirement under a change of control provision in the
previously issued 8.5% convertible unsecured debentures due January 31, 2010
(the "2008 Debentures"), the Corporation was required to make an offer to
purchase the $20.95 million of 2008 Debentures at a price of 102.5% of the
principal amount plus accrued and unpaid interest utilizing the proceeds of
the 2009 Financing Arrangements. In the second quarter of 2009 the 2008
Debentures were fully repurchased by the Corporation.


    Pursuant to a similar change of control definition in the Corporation's
outstanding Preference Shares' terms, the Corporation is required to retract
its outstanding Preference Shares at a price of $10.00 per share plus accrued
and unpaid dividends, unless such retraction contravenes any instrument of
indebtedness of the Corporation or the terms of the Ontario Business
Corporations Act (the "OBCA"). The Corporation is currently not in the
position to retract the Preference Shares as it is prohibited from doing so by
the terms of its operating credit facility and any default in the operating
credit facility would result in the Corporation being unable to pay its
liabilities as they become due and constitute a contravention of the OBCA.
Accordingly, the Preference Shares continue to be classified as equity
instruments. In addition, dividends for the period ending April 30, 2009
totalling $0.4 million have not been declared and remain cumulative as at June
30, 2009. Subsequent to June 30, 2009, dividends for the period ending July
31, 2009 totalling $0.4 million have also not been declared and remain
cumulative.

    
    Share Data
    ----------
    
    As at July 31, 2009, the Corporation had 18,209,001 common shares
outstanding, 2,000,000 outstanding First Preference Shares Series A
convertible into 1,333,333 common shares and $40.0 million convertible
debentures convertible into 40,000,000 common shares. The dilutive weighted
average number of common shares outstanding, resulting from the potential
common shares issuable on the conversion of the convertible debentures, for
the three and six month periods ending June 30, 2009 were 48,209,001 and
35,349,726 respectively.

    
    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 more information in relation to the risks inherent in Magellan's
business, reference is made to the information under "Company Overview" in
Management's Discussion and Analysis for the quarter ended June 30, 2009 and
to the information under "Risks Inherent in Magellan's Business" in the Annual
Information Form for the year ended December 31, 2008, which is filed with
SEDAR (www.sedar.com).

    
    Changes in Accounting Policies
    ------------------------------
    
    On January 1, 2009, the Corporation adopted CICA Handbook 3064, "Goodwill
and Intangible Assets". This new section replaces the existing standards for
"Goodwill and Other Intangible Assets" (CICA Handbook Section 3062) and
"Research and Development Costs" (CICA Handbook Section 3450). The new
standard (i) states that upon their initial identification, intangible assets
are to be recognized as assets only if they meet the definition of an
intangible asset and the recognition criteria; (ii) provides guidance on the
recognition of internally generated intangible assets including research and
development costs; and (iii) carries forward the current requirements of
Section 3062 for subsequent measurement and disclosure of intangible assets
and goodwill. The adoption of this new section did not have a material impact
on the Corporation's consolidated financial statements.
    On January 20, 2009, the Emerging Issues Committee ("EIC") of the AcSB
issued EIC Abstract 173, which establishes that an entity's own credit risk
and the credit risk of the counterparty should be taken into account in
determining the fair value of financial assets and liabilities, including
derivative instruments. The Corporation adopted this EIC on January 20, 2009
and applied the EIC retrospectively, without restatement of prior years to all
financial assets and financial liabilities measured at fair value. The
adoption of this new EIC did not have a material impact on its consolidated
financial statements.

    
    Future Changes in Accounting Policies
    -------------------------------------
    
    Sections 1582, "Business Combinations", 1601, "Consolidated Financial
Statements", and 1602, "Non-controlling Interests".
    In January 2009, the CICA issued Sections 1582, "Business Combinations",
1601, "Consolidated Financial Statements", and 1602, "Non-controlling
Interests".
    Section 1582 will be converged with IFRS 3, "Business Combinations".
Section 1602 will be converged with the requirements of IAS 27, "Consolidated
and Separate Financial Statements", for non-controlling interests. Section
1601 carries forward the requirements of Section 1600, "Consolidated Financial
Statements", other than those relating to non-controlling interests.
    Section 1582 applies to acquisitions made from January 1, 2011 in which
the acquirer obtains control of one or more businesses. The term "business" is
more broadly defined than in the existing standard. Most assets acquired and
liabilities assumed, including contingent liabilities that are considered to
be "improbable", will be measured at fair value. Any interest in the acquiree
owned prior to obtaining control will be remeasured at fair value at the
acquisition date, eliminating the need for guidance on step acquisitions. A
bargain purchase will result in recognition of a gain. Acquisition costs must
be expensed.
    Under Section 1602, any non-controlling interest will be recognized as a
separate component of shareholders' equity. Net income will be calculated
without deduction for the non-controlling interest. Rather, net income will be
allocated between the controlling and non-controlling interests.
    These new standards will become effective in 2011.

    International Financial Reporting Standards

    In February 2008, Canada's Accounting Standards Board ("AcSB") confirmed
that Canadian GAAP, as used by publicly accountable enterprises, will be
converged with International Financial Reporting Standards ("IFRS") effective
January 1, 2011. While IFRS uses a conceptual framework similar to Canadian
GAAP, there are significant differences on recognition, measurement and
disclosures. The transition from Canadian GAAP to IFRS will be applicable to
the Corporation for the first quarter of 2011 where current and comparative
financial information will be prepared in accordance with IFRS. In the period
leading up to the changeover, the AcSB will continue to issue accounting
standards that are converged with IFRS, thus mitigating the impact of the
transition to IFRS at the changeover date. The International Accounting
Standard Board will also continue to issue new accounting standards during the
conversion period, and as a result, the final impact of IFRS on the
Corporation's financial results will only be measured once all the IFRS
applicable at the conversation date are known.
    The Corporation commenced its IFRS conversion efforts during 2008. The
transition project consists of several elements: planning; awareness raising
and training; assessment; design; and implementation. With the assistance of
external consultants, the Corporation has conducted sessions to raise
awareness in its efforts to transition to IFRS. As part of planning, the
Corporation completed a high level assessment of the major differences between
Canadian GAAP and IFRS. During 2009, work has been initiated relating to
assessment and design. This involves detailed evaluation of the differences on
recognition, measurement and disclosures between Canadian GAAP and IFRS, and
design of solutions for the conversion to IFRS. The assessment and design also
entails establishment of issue-specific work teams to focus on generating
alternatives and making recommendations in identified areas related to IFRS
recognition, measurement and disclosures. The Corporation will establish a
communications plan, develop staff training programs, and evaluate the impacts
of the IFRS transition on other business activities.

    
    Outlook
    -------
    
    The Corporation has a cautious outlook for the balance of 2009 and 2010.
The Corporation anticipates that the business aircraft sector will reach its
bottom late in 2009 and, by the end of 2010, will begin a gradual recovery. It
is also expected that 2010 and beyond will see a modest reduction in single
aisle commercial aircraft production if travel demand is not restored in
future years to previous levels of travel.
    Defence spending is forecasted to be stable through 2011-2012 in both new
aerospace equipment and in the aftermarket. The transition from legacy
programs to new replacement programs is underway in the United States and
Europe, and the Corporation anticipates new work in key new programs
commencing in late 2009 and early 2010. The new work falls within the core
areas of the Corporation, will introduce newer technologies, and is
anticipated to have extensive production runs.
    To offset somewhat the slowing demand for single aisle commercial
aircraft, the Corporation has exposure to anticipated growth sectors of the
global aerospace industry, in terms of the Boeing 787, the Airbus 380 and the
Joint Strike Fighter. The Corporation has captured opportunities on these new
civil and defence programs, has continued to modernize its facilities and
update its capabilities, and has taken measures to hopefully address
contingencies that may arise during the economic uncertainty of 2009 and 2010.
Notwithstanding these opportunities, a major challenge will face the
Corporation financially should the Canadian dollar continue to strengthen
against the U.S. dollar.

    
    On behalf of the Board

    (signed)
    James S. Butyniec
    President and Chief Executive Officer
    August 11, 2009


    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (unaudited)


                                Three-months ended        Six-months ended
    (Expressed in thousands          June 30                   June 30
     of dollars, except    --------------------------------------------------
     per share amounts)          2009         2008         2009         2008
    -------------------------------------------------------------------------
    Revenues               $  177,323   $  172,108   $  356,611   $  333,203
    Cost of revenues          157,203      154,284      314,787      298,058
    -------------------------------------------------------------------------
    Gross Profit               20,120       17,824       41,824       35,145
    -------------------------------------------------------------------------

    Administrative and
     general expenses          12,035       11,133       22,801       20,694
    Other                      (3,529)      (1,100)      (5,493)      (2,690)
    Interest                    5,622        5,483        9,897       11,018
    -------------------------------------------------------------------------
                               14,128       15,516       27,205       29,022
    -------------------------------------------------------------------------
    Income before income taxes  5,992        2,308       14,619        6,123

    Provision for income taxes
      Current                     233          208          402          208
      Future                      410        1,317          945        3,081
    -------------------------------------------------------------------------
                                  643        1,525        1,347        3,289
    -------------------------------------------------------------------------
    Net income             $    5,349   $      783   $   13,272   $    2,834
    -------------------------------------------------------------------------
    Net income per share
    -------------------------------------------------------------------------
      Basic                      0.27         0.02         0.69         0.11
      Diluted                    0.12         0.02         0.37         0.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    (unaudited)

                                Three-months ended        Six-months ended
                                     June 30                   June 30
    (Expressed in          --------------------------------------------------
     thousands of dollars)       2009         2008         2009         2008
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of the
     period                $   67,675       52,242   $   59,752   $   82,747
    Effect of change in
     accounting policy              -            -            -      (32,156)
    -------------------------------------------------------------------------
    Adjusted retained
     earnings, beginning
     of period                 67,675       52,242       59,752       50,591
    Dividends                       -         (400)           -         (800)
    Net income                  5,349          783       13,272        2,834
    -------------------------------------------------------------------------
    Retained earnings, end
     of the period         $   73,024   $   52,625   $   73,024   $   52,625
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF
    COMPREHENSIVE INCOME (LOSS)
    (unaudited)

                                Three-months ended         Six-months ended
                                      June 30                   June 30
    (Expressed in          --------------------------------------------------
     thousands of dollars)       2009         2008         2009         2008
    -------------------------------------------------------------------------

    Net income             $    5,349   $      783   $   13,272   $    2,834
    Other comprehensive
     income (loss):
    Unrealized (loss) gain
     on translation of
     financial statements of
     self-sustaining foreign
     operations operations     (7,719)        (998)      (2,804)       4,300
    -------------------------------------------------------------------------
    Comprehensive (loss)
     income                $   (2,370)  $     (215)  $   10,468   $    7,134
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED BALANCE SHEETS
    (unaudited)
                                                          As at        As at
                                                        June 30  December 31
    (Expressed in thousands of dollars)                    2009         2008
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash                                             $    2,378   $    5,362
    Accounts receivable                                 106,762       67,435
    Inventories                                         166,527      178,474
    Prepaid expenses and other                           16,949       10,717
    Future income tax assets                              4,084        5,097
    -------------------------------------------------------------------------
    Total current assets                                296,700      267,085

    Capital assets                                      273,747      277,207
    Technology rights                                    31,063       32,567
    Deferred development costs                           64,594       69,225
    Other assets                                         16,435       15,970
    Future income tax assets                              9,630        8,643
    -------------------------------------------------------------------------
    Total long-term assets                              395,469      403,612
    -------------------------------------------------------------------------
    Total assets                                     $  692,169   $  670,697
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                $  170,960   $  177,766
    Accounts payable and accrued charges                108,720      125,116
    Current portion of long-term debt                     2,108       52,321
    -------------------------------------------------------------------------
    Total current liabilities                           281,788      355,203

    Long-term debt                                       75,768       11,803
    Future income tax liabilities                        12,521       11,392
    Convertible debentures                               37,852       20,544
    Other long-term liabilities                           7,631        7,947
    -------------------------------------------------------------------------
    Total long-term liabilities                         133,772       51,686
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock                                       234,389      234,381
    Contributed surplus                                   4,396        3,991
    Other paid in capital                                13,565       11,645
    Retained earnings                                    73,024       59,752
    Accumulated other comprehensive loss                (48,765)     (45,961)
    -------------------------------------------------------------------------
    Total shareholders' equity                          276,609      263,808
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity       $  692,169   $  670,697
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                Three-months ended         Six-months ended
                                      June 30                   June 30
    (Expressed in          --------------------------------------------------
     thousands of dollars)       2009         2008         2009         2008
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income             $    5,349   $      783   $   13,272   $    2,834
    Add (deduct) items not
     affecting cash
      Depreciation and
       amortization             9,118        5,672       18,417       11,495
      Net gain (loss) on
       sale of capital asset        -       (1,634)           9       (1,634)
      Employee future
       benefits                 1,672       (2,009)       1,821       (2,867)
      Deferred revenue            152           80          220          155
      Stock based
       compensation               173          295          405          613
      Accretion of
       convertible
       debentures                 330           64          398          306
      Future income tax
       expense                    410        1,317          945        3,081
    -------------------------------------------------------------------------
                               17,204        4,568       35,487       13,983
    -------------------------------------------------------------------------
    Net change in non-cash
     working capital items
     relating to operating
     activities               (23,472)        (775)     (52,815)     (15,934)
    -------------------------------------------------------------------------
    Cash (used in) provided
     by operating activities   (6,268)       3,793      (17,328)      (1,951)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Acquisition of Verdict          -            -            -       (4,240)
    Purchase of capital
     assets                    (7,824)      (4,696)     (13,169)      (9,337)
    Proceeds from disposal
     of capital assets             88        2,639          232        2,784
    (Increase) decrease in
     other assets              (1,821)         142       (2,269)      (1,440)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                (9,557)      (1,915)     (15,206)     (12,233)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    (Decrease) increase in
     bank indebtedness        (16,666)      13,352       (2,624)      27,687
    Decrease in loan payable        -      (15,000)           -      (15,000)
    Increase in loan payable        -            -            -       15,000
    Decrease in long-term
     debt                        (864)        (850)      (1,411)     (16,462)
    Increase in long-term
     debt                      15,000            -       15,000       50,000
    Decrease in convertible
     debentures               (20,950)           -      (20,950)     (69,985)
    Increase in convertible
     debentures                39,667            -       39,667       20,778
    (Decrease) in long-term
     liabilities                 (172)        (334)        (272)        (763)
    Issuance of common shares       -           20            8           43
    Dividends on preference
     shares                         -         (400)           -         (800)
    -------------------------------------------------------------------------
    Cash provided by (used
     in) financing activities  16,015       (3,212)      29,418       10,498
    -------------------------------------------------------------------------

    Effect of exchange rate
     changes on cash              122          (59)         132          264
    -------------------------------------------------------------------------

    Net increase (decrease)
     in cash during the period    312       (1,393)      (2,984)      (3,422)
    Cash, beginning of period   2,066        2,855        5,362        4,884
    -------------------------------------------------------------------------
    Cash, end of period    $    2,378   $    1,462   $    2,378   $    1,462
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    %SEDAR: 00002367E




For further information:

For further information: James S. Butyniec, President and Chief
Executive Officer, T: (905) 677-1889 ext. 233, E: jim.butyniec@magellan.aero;
John B. Dekker, Vice President Finance & Corporate Secretary, T: (905)
677-1889 ext. 224, E: john.dekker@magellan.aero


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