Magellan Aerospace Corporation announces financial results

TORONTO, Aug. 16 /CNW/ - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the second quarter of 2010. All amounts are expressed in Canadian Dollars unless otherwise indicated. The results are summarized as follows:

    
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                              Three month period            Six month period
                                   ended June 30               ended June 30
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    Expressed in
     thousands of
     dollars, except
     per share
     amounts            2010      2009   Change      2010      2009   Change
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    Revenues        $181,463  $177,323     2.3%  $359,365  $356,611     0.8%

    Gross Profit    $ 22,310  $ 20,120    10.9%  $ 42,738  $ 41,824     2.2%

    Net Income      $  6,329  $  5,349    18.3%  $  9,425  $ 13,272  (29.0)%

    Net Income per
     share
     - Diluted      $   0.13  $   0.12     8.3%  $   0.19  $   0.37  (48.7)%
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This news 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 news release,

including EBITDA, the terms for which are not defined under Canadian

generally accepted accounting principles. The Corporation defines EBITDA

as earnings before interest, dividends on preference shares, 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.

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Overview

In the second quarter of 2010, the Corporation improved on its performance over the second quarter of 2009 in each of revenue, gross profit, net income and net income per share. Revenue and gross profit for the six month period ended June 30 2010 were also modestly ahead of those of the same period in 2009.

International projects to field new aircraft and engines in both the civil and defence aircraft and defence products demonstrated critical progress, during the second quarter of 2010, towards full scale production. The Boeing 787 program followed up its first flight in the fourth quarter of 2009 with successful tests of critical safety elements of the aircraft, and has accomplished a series of steps toward certification of the aircraft. The Airbus 350XWB program has made progress towards finalizing design, configuration, and production plans to meet re-scheduled first flights in 2012. The F-35 Joint Strike Fighter ("JSF") program has demonstrated a number of key successes in its test flying, and has established a revised low rate initial production plan that will bring the program to full scale production only 13 months beyond original planning dates. The Corporation's participation on the JSF program received additional support from the Government of Canada's announcement of 16 July, 2010, that the JSF F-35 aircraft has been selected for purchase by Canada. The Corporation has secured participation on each of these major programs. This will provide accelerating production rates over the next several years. In addition, the Corporation has specific repair, overhaul or spare parts participation in both civil and defence sectors.

The Corporation continues to achieve improved execution as new technology, equipment, and knowledge is generated across all operating sites. Operations are progressing towards the manufacturing and support of higher level core products, and moving out non-core work to local and emerging market sites. Business development and capture activities continue to focus on increasing the level of core activity within the operating sites, and adding value to the Corporation's key customers.

For additional information, please refer to the "Management's Discussion and Analysis" section of the Annual Report available on www.sedar.com.

    
    Revenues
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                             Three month period             Six month period
                                  ended June 30                ended June 30
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    Expressed in
     thousands of
     dollars            2010      2009   Change      2010      2009   Change
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    Canada          $103,756  $ 85,589    21.2%  $202,540  $169,581    19.4%
    United States     48,650    54,167  (10.2)%    94,716   108,740  (12.9)%
    United Kingdom    29,057    37,567  (22.7)%    62,109    78,290  (20.7)%
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    Total revenue   $181,463  $177,323     2.3%  $359,365  $356,611     0.8%
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Consolidated revenues for the second quarter of 2010 were $181.5 million, an increase of $4.1 million or 2.3% over the second quarter of 2009. Increased revenues in Canada in the second quarter of 2010 in comparison to the same period in 2009 resulted from revenues recorded on the Ghana electric power generation project as well as increased volumes on the JSF program. The decline of the U.S. dollar and the British Pound against the Canadian dollar, over the exchange rates prevailing in the second quarter of 2009, contributed, on a net basis, to a decrease of $22.1 million in revenues in the second quarter of 2010. In native currency, revenues in the United States increased over the second quarter of 2009 primarily as a result of increased volumes on new programs. Revenues in the United Kingdom in the second quarter of 2010 decreased over revenues in the same period in 2009, resulting from decreased customer demand.

    
    Gross Profit
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                             Three month period             Six month period
                                  ended June 30                ended June 30
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    Expressed in
     thousands of
     dollars            2010      2009   Change      2010      2009   Change
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    Gross profit    $ 22,310  $ 20,120    10.9%  $ 42,738  $ 41,824     2.2%
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    Percentage
     of revenue        12.3%     11.3%              11.9%     11.7%
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Gross profit of $22.3 million (12.3% of revenues) was reported for the second quarter of 2010 compared to $20.1 million (11.3% of revenues) during the same period in 2009. Gross profit, as a percentage of revenues, increased in part, as a result of favourable product mix and the recognition of investment tax credits earned in the quarter in the amount of $1.4 million. Offsetting the increased margins realized in the second quarter of 2010 over the second quarter of 2009 was the weakening of the U.S. dollar and British Pound. Had the U.S. dollar and the British Pound exchange rates versus the Canadian dollar in the second quarter of 2010 remained the same as in the second quarter of 2009, gross profit would have been approximately $6.6 million higher for the second quarter of 2010.

    
    Administrative and General Expenses
    -------------------------------------------------------------------------
                                Three month period          Six month period
                                     ended June 30             ended June 30
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    Expressed in
     thousands of
     dollars                     2010         2009         2010         2009
    -------------------------------------------------------------------------
    Administrative and
     general expenses       $   9,877    $  12,035    $  19,566    $  22,801
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    Percentage of
     revenue                     5.4%         6.8%         5.4%         6.4%
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Administrative and general expenses were $9.9 million (5.4% of revenues) in the second quarter of 2010 compared to $12.0 million (6.8% of revenues) in the second quarter of 2009. Reduction in administrative and general expenses in the second quarter of 2010 resulted from the absence of a one-time charge of $0.6 million incurred in the second quarter of 2009 for a bad debt provision and the effect on translation of the weakening U.S. dollar and the British Pound exchange rates against the Canadian dollar.

    
    Other
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                                 Three month period         Six month period
                                      ended June 30            ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
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    Foreign exchange
     (gain) loss            $    (865)   $  (3,529)   $     620    $  (5,502)
    Plant and program
     closure recoveries          (820)           -         (820)           -
    Loss on sale of
     capital assets               121            -          118            9
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    Other                   $  (1,564)   $  (3,529)   $     (82)   $  (5,493)
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Other income of $1.6 million in the second quarter of 2010 consisted of realized and unrealized foreign exchange gains (largely on the Corporation's currency contracts) and a reversal of a portion of a provision that was recorded for a pension obligation on a pension plan that is in the process of being wound-up. Other income in the second quarter of 2009 resulted from a foreign exchange gain of $3.5 million.

    
    Interest Expense
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                                Three month period          Six month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
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    Interest on bank
     indebtedness and
     long-term debt         $   3,652    $   3,219    $   7,647    $   6,213
    Convertible debenture
     interest                   1,003        1,350        1,989        1,786
    Accretion charge for
     convertible debt             151          330          297          398
    Discount on sale of
     accounts receivable           89          723          222        1,500
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    Total interest expense  $   4,895    $   5,622    $  10,155    $   9,897
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Interest expense of $4.9 million in the second quarter of 2010 was lower than the second quarter of 2009 amount of $5.6 million. Convertible debenture interest and the accretion expense in relation to the convertible debentures were lower in the second quarter of 2010 than the comparative quarter in 2009 due to the premium paid in the second quarter of 2009 on the redemption of the convertible debentures on April 30, 2009. Lower discount expense on the sale of accounts receivable resulted from decreased amounts of accounts receivables sold in the second quarter of 2010 when compared to the same quarter of 2009. Higher interest rate spreads on bank indebtedness in the second quarter of 2010 when compared to the same quarter of 2009 resulted in higher interest charges.

    
    Provision for Income Taxes
    -------------------------------------------------------------------------
                                Three month period          Six month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
    -------------------------------------------------------------------------
    Provision for current
     income taxes           $   1,234    $     233    $     992    $     402
    Expense of future
     income taxes               1,219          410        2,362          945
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    Total expense of
     income taxes           $   2,453    $     643    $   3,354    $   1,347
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    Effective Tax Rate          27.9%        10.7%        26.2%         9.2%
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The Corporation recorded an income tax expense of $2.5 million for the second quarter of 2010, compared to an income tax expense of $0.6 million for the second quarter of 2009. 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 reduction of future tax assets derived from temporary differences in Canada also contributed to the higher effective tax rate.

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 news release, including EBITDA (earnings before interest expense, dividends on preference shares, 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 the Corporation's 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.

    
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                                Three-month period          Six-month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
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    Net income              $   6,329    $   5,349    $   9,425    $  13,272
    Interest                    4,895        5,622       10,155        9,897
    Dividends on
     preference shares            320            -          320            -
    Taxes                       2,453          643        3,354        1,347
    Stock based
     compensation                 137          173          307          405
    Depreciation and
     amortization               9,383        9,118       18,305       18,417
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    EBITDA                  $  23,517    $  20,905    $  41,866    $  43,338
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EBITDA for the second quarter of 2010 was $23.5 million, compared to $20.9 million in the second quarter of 2009. As previously discussed, increased gross profit and a reduction in administrative and general expenses resulted in increased EBITDA for the current quarter.

    
    Liquidity and Capital Resources

    Cash Flow from Operations
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                                Three-month period          Six-month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
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    Increase in accounts
     receivable             $  (2,032)   $ (20,168)   $  (9,648)   $ (40,184)
    Decrease in
     inventories                5,880        7,729       10,103       10,559
    (Increase) decrease in
     prepaid expenses and
     other                     (3,136)      (6,475)       9,602       (6,077)
    Increase (decrease) in
     accounts payable           1,215       (4,558)      (8,162)     (17,113)
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    Changes to non-cash
     working capital
     balances                   1,927      (23,472)       1,895      (52,815)
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    Cash provided (used in)
     by operating
     activities             $  16,904    $  (6,268)   $  29,401    $ (17,328)
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In the quarter ended June 30, 2010, the Corporation generated $16.9 million of cash from its operations, compared to cash used by operations of $6.3 million in the second quarter of 2009. Cash was generated mainly by an increase in net income and through the decrease in inventory offset by increases in accounts receivable and prepaid expenses and decreased accounts payable.

    
    Investing Activities
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                                Three-month period          Six-month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
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    Purchase of capital
     assets                    (2,849)      (7,824)      (5,174)     (13,169)
    Proceeds of disposals
     of capital assets             35           88          136          232
    (Increase) in other
     assets                    (4,200)      (1,821)      (6,662)      (2,269)
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    Cash used in investing
     activities             $  (7,014)   $  (9,557)   $ (11,700)   $ (15,206)
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In the second quarter of 2010, the Corporation invested $2.9 million in capital assets to upgrade and enhance its capabilities for current and future programs. In addition, the Corporation advanced $4.0 million in deposits on capital equipment funded largely through government loans and grants.

    
    Financing Activities
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                                Three-month period          Six-month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars                  2010         2009         2010         2009
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    Decrease in bank
     indebtedness           $  (5,522)   $ (16,666)   $ (13,520)   $  (2,624)
    Decrease in long-term
     debt                      (4,632)        (864)      (5,684)      (1,411)
    Increase in long-term
     debt                       5,197       15,000        5,197       15,000
    Decrease in convertible
     debentures                     -      (20,950)           -      (20,950)
    Increase in convertible
     debentures                     -       39,667            -       39,667
    (Increase) decrease in
     long-term liabilities         24         (172)          71         (272)
    Issue of Common Shares          -            -            -            8
    Redemption of
     Preference shares         (4,000)           -       (4,000)           -
    Dividends on Preference
     Shares                         -            -         (400)           -
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    Cash (used in) provided
     by financing
     activities             $  (8,933)   $  16,015    $ (18,336)   $  29,418
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On March 26, 2010, 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 $105.0 million plus a US dollar limit of $70.0 million, with a maturity date of May 21, 2011. 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. On March 26, 2010 the annual standby guarantee fee provided by the Corporation in consideration for this guarantee was reduced from 1.35% to 1.15% (2009 - 1.35%) of the guaranteed amount.

The terms of the amended operating credit facility permit the Corporation to (i) repay the $65.0 million secured subordinated loan from Edco Capital Corporation (the "Original Loan") in whole or in part and (ii) retract up to 20% ($4 million) of the Corporation's 8% cumulative redeemable first preference shares series A (the "Preference Shares") on each of April 30 and October 31 (or the next business day if that day is not a business day) of each year starting with April 30, 2010, together with accrued and unpaid dividends on the shares to be retracted provided there is no current default or event of default under the operating credit facility and after the repayment of the Original Loan and the payment of the retraction amount the Corporation has at least $25.0 million in availability under the operating credit facility. Any permitted retraction amount not used on any prior date can be carried forward to future retraction dates. As a result, subject to such limitation under the operating credit facility and to applicable laws, the Corporation will retract on each of April 30 and October 31, beginning April 30, 2010, any Preference Shares tendered for retraction up to the permitted percentage of Preference Shares.

During the second quarter of 2010 the Corporation repaid $4.0 million of the Original Loan.

On April 30, 2010, the Corporation completed the retraction of approximately 20% or 399,994 of its 2,000,000 Preference Shares as was permissible under the amended operating credit facility. Effective as of the Retraction Date, the holders of these Preference Shares ceased to be holders of these Preference Shares and were entitled to receive the retraction price of $10.00 for each Preference Share held plus accrued and unpaid dividends on the shares to be retracted. As at June 30, 2010, the Preference Shares have been reclassified from shareholders' equity to current liabilities ($8.0 million) and long-term liabilities ($8.0 million). Dividends accrued on the Preference Shares during the quarter have been reclassified from a charge to retained earnings to an expense on the income statement.

Share Data

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As at July 31, 2010, the Corporation had 18,209,001 common shares outstanding, 1,600,006 outstanding First Preference Shares Series A convertible into 1,066,670 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, 2010 was 58,209,001.

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 year ended December 31, 2009 and to the information under "Risks Inherent in Magellan's Business" in the Annual Information Form for the year ended December 31, 2009, which will be filed with SEDAR (www.sedar.com).

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.

The Corporation has adopted these standards as of January 1, 2010 and the adoption of these standards did not have an impact on the Corporation's consolidated financial statements.

Future Changes in Accounting Policies

-------------------------------------

The Corporation will adopt the following accounting standards recently issued by the CICA:

Multiple Deliverable Revenue Arrangements

In January 2010, the CICA issued EIC-175, Multiple Deliverable Revenue Arrangements ("EIC-175"). EIC-175, which replaces EIC-142, Revenue Arrangements with Multiple Deliverables, addresses some aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. These new standards are effective for the Corporation's interim and annual consolidated financial statements commencing on January 1, 2011 with earlier adoption permitted as of the beginning of a fiscal year. The Corporation is assessing the impact of the new standards on its consolidated financial statements.

International Financial Reporting Standards

In February 2009, 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. 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.

IFRS Transition Plan

--------------------

The Corporation commenced its IFRS conversion efforts during 2009. The transition project consists of four elements: planning and awareness rising; assessment; design; and implementation. Resources have been deployed and project management and governance practices are implemented to ensure a timely transition to IFRS. The progresses made to date are as follows:

Planning and awareness raising - As part of planning, the Corporation completed a high level assessment of the major differences between Canadian GAAP and IFRS. Key differences were identified which assisted in the development of the project plan as well as prioritization of issues that would have significant impact to the Corporation. With the assistance of external consultants, the Corporation has conducted sessions to raise awareness in its efforts to transition to IFRS. Throughout 2010, several training sessions were conducted at the business unit level in order to increase awareness and knowledge of the transition to IFRS. Training sessions will continue as IFRS accounting policies are developed and the conversion process continues. Investor relations are involved in the conversion project to ensure that the stakeholders' queries during the time leading up to the conversion are addressed. The Corporation will continue to provide updates on the project progress throughout the conversion period to allow stakeholders to assess the impact of the conversion on our financial performance.

Assessment and design - Detailed evaluation of the differences on recognition, measurement and disclosures between Canadian GAAP and IFRS was initiated in 2009 and continues in 2010. The impact to systems, processes, internal control over financial reporting ("ICFR") and disclosure controls and procedures ("DC&P"), and other business activities have been incorporated into the detailed analysis. Efforts to design solutions for the transition to IFRS are ongoing in 2010. The Corporation is determining the changes that are necessary to information technology and data systems including how to accumulate the data necessary for the fiscal 2010 comparatives. As a result of the transition to IFRS, we anticipate that the adoption of IFRS accounting standards will have an impact on processes, procedures and controls due to the fact that IFRS requires more judgement with respect to various accounting treatments. Although impacts are anticipated, to date, we have not made changes nor have made any decisions to make changes that materially affect, or are reasonably likely to materially affect the Corporation's ICFR in fiscal 2010.

Implementation - During the implementation phase leading up to the transition date, new IFRS updates are monitored and any changes that are relevant to the Corporation are identified and addressed. The Corporation is continuing the activities related to selecting and finalizing IFRS 1 and accounting policy choices and approval of these choices by senior management and review by the Audit Committee of the Board of Directors will be completed during the fourth quarter of 2010. Implementation of the accounting policy choices and required modifications to internal procedures controls and systems will be made. This will translate into a training program that will include an accounting manual available to our employees and new internal financial reporting policies and controls, which will be monitored by management throughout the implementation phase which is expected to continue into the early part of 2011.

Results of the Detailed GAAP Assessment

---------------------------------------

While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences on recognition, measurement and disclosures. 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 conversion date are known. Preliminary analysis of some of the impacts of transition to IFRS on specific areas is detailed in the 2009 Management Discussion and Analysis. The preliminary analysis should not be regarded as a complete list of changes that will result from transition to IFRS. It is intended to highlight those areas the Corporation believes to be most significant; however, the analysis of possible changes is still in process and not all decisions have been made where choices of accounting policies are available.

The transition status is currently on track with the conversion schedule which calls for initial reporting under IFRS starting for the interim periods and the year ending December 31, 2011. Future disclosures will continue to report updated progress as well as any additional impacts identified on the Corporation's financial reporting and changes to systems and processes as they are determined.

Outlook

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The economic outlook for the global aerospace market showed additional signs of stabilization in the second quarter of 2010 and a return to growth in most sectors and geographic regions. Generally, the North American aerospace market ranges from stable business and regional aircraft to growing airliner production and strong defence production. Isolated problem areas and weak economic growth across certain areas in the United States and Europe pose risks to this growth. However, there are a number of measures that indicate on both the global and local level that the industry is growing. Many airlines have returned to profitability in the passenger subsector, and increasingly in freight hauling. They are consolidating for strength rather than survival, and the marketplace is supportive of those who are seen to provide value, whether through price or service. Globally, soft spots remain, but on balance, the large global airlines are leading the growth.

As there is a strong link between the health of economies and the health of airlines, the growth in the global passenger and freight activity is encouraging, and more so for the manufacturing industries that depend on this growth. Demand for new aircraft in the civil airline sector remains stronger than previously expected, fed variously by pent up demand in the developed world, and strong new demand in emerging economies around the world. Growth is intensified by the ecological pressures that require lighter, cleaner and more economical aircraft and engines. Production increases have already been announced in 2010, for implementation in late 2010 and 2011. Further rate increases have been announced in the third quarter of 2010 extending to 2012. Order rates are also returning to more traditional levels, following slowness during the global economic crisis.

Defence has continued to be strong in North America and southern Asia, and will continue to expand in the aerospace sector as present military requirements demand more flexibility in aerospace capabilities. This trend should expand globally through the attraction of new aircraft, engines and systems developed to enhance capabilities. Restoration and upgrade of utility aircraft and helicopters to replenish resources after heavy use over the past decade is opening opportunities in these areas. Large new programs include the JSF program, the new United States Air Force aerial refuelling tanker program, a number of new helicopter programs of upgrade and replacement, and associated engine developments

Forward Looking Statements

--------------------------

This news 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.

Magellan Aerospace Corporation is one of the world's most integrated and comprehensive aerospace industry suppliers. Magellan designs, engineers, and manufactures aeroengine and aerostructure assemblies and components for aerospace markets, advanced products for military and space markets, and complementary specialty products. Magellan is a public company whose shares trade on the Toronto Stock Exchange (TSX: MAL), with operating units throughout Canada, the United States, the United Kingdom and India.

This release should be read in conjunction with the Corporation's 2009 audited financial statements and accompanying notes, Management's Discussion and Analysis contained in the Corporation's 2009 Annual Report and the Annual Information Form which will be filed with SEDAR (www.sedar.com).

    
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    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (unaudited)
    -------------------------------------------------------------------------
                                Three month period          Six month period
                                     ended June 30             ended June 30
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    Expressed in thousands
     of dollars, except per
     share amounts               2010         2009         2010         2009
    -------------------------------------------------------------------------
    Revenues                $ 181,463    $ 177,323    $ 359,365    $ 356,611
    Cost of revenues          159,153      157,203      316,627      314,787
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    Gross Profit               22,310       20,120       42,738       41,824
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    Administrative and
     general expenses           9,877       12,035       19,566       22,801
    Other                      (1,564)      (3,529)         (82)      (5,493)
    Dividends on
     preference shares            320            -          320            -
    Interest                    4,895        5,622       10,155        9,897
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                               13,528       14,128       29,959       27,205
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    Income before income
     taxes                      8,782        5,992       12,779       14,619

    Provision for income
     taxes
      Current                   1,234          233          992          402
      Future                    1,219          410        2,362          945
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                                2,453          643        3,354        1,347
    -------------------------------------------------------------------------
    Net income              $   6,329    $   5,349    $   9,425    $  13,272
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net income per share
      Basic                      0.35         0.27         0.50         0.69
      Diluted                    0.13         0.12         0.19         0.37
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
    (unaudited)
    -------------------------------------------------------------------------
                                Three month period          Six month period
                                     ended June 30             ended June 30
    -------------------------------------------------------------------------
    Expressed in thousands
     of dollars amounts          2010         2009         2010         2009
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of the
     period                 $  86,833       67,675    $  84,137    $  59,752
    Dividends                       -            -         (400)           -
    Net income                  6,329        5,349        9,425       13,272
    -------------------------------------------------------------------------
    Retained earnings, end
     of the period          $  93,162    $  73,024    $  93,162    $  73,024
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF
    COMPREHENSIVE INCOME (LOSS)
    (unaudited)
    -------------------------------------------------------------------------
                                Three month period          Six month period
                                     ended June 30             ended June 30
    -------------------------------------------------------------------------
    Expressed in thousands
     of dollars amounts          2010         2009         2010         2009
    -------------------------------------------------------------------------
    Net income              $   6,329    $   5,349    $   9,425    $  13,272
    Other comprehensive
     income (loss):
    Unrealized gain (loss)
     on translation of
     financial statements
     of self-sustaining
     foreign operations         6,525       (7,719)      (1,385)      (2,804)
    -------------------------------------------------------------------------
    Comprehensive income
     (loss)                 $  12,854    $  (2,370)   $   8,040    $  10,468
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED BALANCE SHEETS
    (unaudited)
    -------------------------------------------------------------------------
                                                        As at          As at
                                                      June 30    December 31
    Expressed in thousands of dollars amounts            2010           2009
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash                                            $  21,657      $  22,641
    Accounts receivable                                92,322         82,850
    Inventories                                       136,521        147,248
    Prepaid expenses and other                         28,683         38,458
    Future income tax assets                            4,819          3,958
    -------------------------------------------------------------------------
    Total current assets                              284,002        295,155
    -------------------------------------------------------------------------

    Capital assets                                    247,520        254,700
    Technology rights                                  27,374         29,158
    Deferred development costs                         56,212         59,510
    Other assets                                       31,906         24,909
    Future income tax assets                           16,469         17,186
    -------------------------------------------------------------------------
    Total long-term assets                            379,481        385,463
    -------------------------------------------------------------------------
    Total assets                                    $ 663,483      $ 680,618
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                               $ 127,696      $ 140,590
    Accounts payable and accrued charges              127,212        135,373
    Preference shares                                   8,000              -
    Current portion of long-term debt                   2,245          2,321
    -------------------------------------------------------------------------
    Total current liabilities                         265,153        278,284
    -------------------------------------------------------------------------

    Long-term debt                                     73,398         73,716
    Convertible debentures                             38,531         38,182
    Future income tax liabilities                      11,090         10,281
    Preference shares                                   8,000              -
    Other long-term liabilities                         8,961          9,803
    -------------------------------------------------------------------------
    Total long-term liabilities                       139,980        131,982
    -------------------------------------------------------------------------

    Shareholders' equity
    Capital stock                                     214,440        234,389
    Contributed surplus                                 5,015          4,708
    Other paid in capital                              13,565         13,565
    Retained earnings                                  93,162         84,137
    Accumulated other comprehensive loss              (67,832)       (66,447)
    -------------------------------------------------------------------------
    Total shareholders' equity                        258,350        270,352
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity      $ 663,483      $ 680,618
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    MAGELLAN AEROSPACE CORPORATION
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited)
    -------------------------------------------------------------------------
                                Three month period          Six month period
                                     Ended June 30             Ended June 30
    -------------------------------------------------------------------------
    Expressed in thousands
     of dollars amounts          2010         2009         2010         2009
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income              $   6,329    $   5,349    $   9,425    $  13,272
    Add (deduct) items
     not affecting cash
      Depreciation and
       amortization             9,383        9,118       18,305       18,417
      Net loss on sale of
       capital asset              121            -          118            9
      Employee future
       benefits                  (936)       1,672       (1,663)       1,821
      Deferred revenue             44          152          116          220
      Stock based
       compensation               137          173          307          405
      Accretion of
       convertible
       debentures                 151          330          297          398
      Future income taxes        (252)         410          601          945
    -------------------------------------------------------------------------
                               14,977       17,204       27,506       35,487
    Net change in non-cash
     working capital items
     relating to operating
     activities                 1,927      (23,472)       1,895      (52,815)
    -------------------------------------------------------------------------
    Cash provided by (used
     in) operating
     activities                16,904       (6,268)      29,401      (17,328)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital
     assets                    (2,849)      (7,824)      (5,174)     (13,169)
    Proceeds from disposal
     of capital assets             35           88          136          232
    Increase in other
     assets                    (4,200)      (1,821)      (6,662)      (2,269)
    Cash used in investing
     activities                (7,014)      (9,557)     (11,700)     (15,206)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Decrease in bank
     indebtedness              (5,522)     (16,666)     (13,520)      (2,624)
    Decrease in long-term
     debt                      (4,632)        (864)      (5,684)      (1,411)
    Increase in long-term
     debt                       5,197       15,000        5,197       15,000
    Decrease in convertible
     debentures                     -      (20,950)           -      (20,950)
    Increase in convertible
     debentures                     -       39,667            -       39,667
    Increase (decrease) in
     long-term liabilities         24         (172)          71         (272)
    Issuance of common
     shares                         -            -            -            8
    Redemption of
     preference shares         (4,000)           -       (4,000)           -
    Dividends on
     preference shares              -            -         (400)           -
    -------------------------------------------------------------------------
    Cash (used in) provided
     by financing
     activities                (8,933)      16,015      (18,336)      29,418
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Effect of exchange
     rate changes on cash         722          122         (349)         132
    -------------------------------------------------------------------------

    Net increase (decrease)
     in cash during the
     period                     1,679          312         (984)      (2,984)
    Cash, beginning of
     period                    19,978        2,066       22,641        5,362
    -------------------------------------------------------------------------
    Cash, end of period     $  21,657    $   2,378    $  21,657    $   2,378
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

%SEDAR: 00002367E

SOURCE Magellan Aerospace Corporation

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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