Alex Shen: Unless we start hitting these pockets of resistance, which collapse in — so if we do a quarter-by-quarter analysis, I think it’s really difficult because.
Ross Taylor: Yes, I’m not — I’m trying to get away from that. I’m trying to look at program line. Yes, I’m trying to look at program line.
Alex Shen: So the advent of COVID spiked a lot of different costs. And I think a lot of us, including Ranor and Stadco, but we’re talking about Ranor. I think we’re looking at that and experiencing different types of cost increases and impacts. Some of the impacts also don’t just come from how something is quoted to be a profitable margin and what that percent margin is. Some of it is actually affected by timing of uncontrollable factors such as raw materials as well as timing of customer furnished material and supply chain delays in both those things. So when we have these types of hiccups operationally, what happens is some of the labor weight. So when we have underabsorbed relatively underabsorbed labor because of hiccups, not so much because profitability calculations or expectations are not being met.
They’re not being met, not because the job is not profitably quoted. They’re being met because there are different things that kind of the inputs are lumpy to me. So that causes a ripple effect. I hope I’m explaining myself properly.
Ross Taylor: No, I understood. So basically, what you’re saying is that you are operating in some — at an inefficient level because you’re not running enough business through. A couple of quarters ago, you were running more business through with higher-margin programs. So therefore, you operated at a less inefficient level. than you are now. But that — what’s happening here is if I’m summarizing you correctly is that we’re in a period where you are kind of stuck with somewhat inefficient operational levels.
Alex Shen: So efficiency, I usually equate with things like mass production, but we do things one at a time. So I try to avoid using these mass production type terminologies and stick with what I know. What I do know is when there’s hiccups in the inputs, there’s hiccups on the outputs and those kind of translate the smooth and steady is just not the business model lumpy and lumpier seems to be the business model. And what I try to do is smack down the lumps and make it better. We succeeded very well before and we want to succeed very well all the time.
Ross Taylor: Is there any reason why you cannot begin to succeed very well, particularly given the ramp-up in the programs that we believe you’re involved with?
Alex Shen: So I think the inputs, especially supply chain problems that cause input pickups are beyond my control is the problem.
Ross Taylor: Okay. Let’s move on to a couple of things. With regard to Stadco, you’re involved in — that we’re aware of, you’re involved in two programs for two primes. One is Lockheed Martin Sikorsky with a heavy lift helicopter. One is Boeing with a Gen 4 plus advanced air defense strike fighter. Both of those programs are expected to ramp aggressively in the next year to 2 years. They’re looking at going from low single-digit production to north of 20 units a year of production in both cases. Since you have talked about being basically a artisanal shop or you build things one at a time, one would expect that you would see a meaningful ramp, meaning parabolic, I think, in the F-15EX right? They call it a Viking launch of business coming from those two programs. Am I wrong in my interpretation of that?
Alex Shen: I think we all want you to be right.
Ross Taylor: No. It’s a simple question. You know what you’re involved with. The Board knows what you’re involved with. I’m pretty confident what you’re involved with and I’m just saying, so you want me to be right, but do you have any reason why I’m wrong. Just fundamentally forget the idea that the sun could come up in the West or you know, that means it’s gonna emerge from the sea. Just generally business lines here. You are sitting on the cusp of what appears to be in that business, a major ramp major ramp. Really, the reason why you bought that business and why you spent the last two years turning it around.
Alex Shen: I totally agree with you.
Ross Taylor: Okay. Cool. Do you have any problem — do you need any CapEx in Stadco to meet the expected build rates? Or do you have that capability today to do what you need to do, given that we’re looking out maybe literally in the next 12 to 24 months of seeing these ramps take off?
Alex Shen: As we are looking at meeting customer demand, we are meeting customer demand. As we are looking to forecast or you know how I don’t forecast. I only believe what I can see, so some of these things that come out of our customers don’t materialize themselves into actually orders that have due dates that are perhaps reflecting of these huge ramps in the short term. So in that vein, we do not see a problem meeting customer demand period, whether it’s now, whether it’s six months from now and then further beyond that. Not seeing that. The answers the CapEx question.
