Peter Arment: Yes, sure. No, I appreciate that. Just staying within Gulfstream. Just I know that you’re not going to update kind of guidance, but I — the deliveries that you missed this quarter, are they expected to recover in the second quarter? How are we thinking about that? Or is this all kind of second half related?
Phebe Novakovic: We will resolve — we expect to resolve all of the supply chain issues. And what you ought to think about is the third quarter and fourth quarter being quite robust. And I think what you’re getting at is the deliveries that we expect to execute for the year at about 145. We’re pretty confident we can get there. If we miss, it’s just going to be by a little.
Operator: Your next question comes from the line of Myles Walton from Wolfe Research.
Myles Walton: Phebe, I was hoping you could talk to how you balance within Marine higher-priority national — the national level of the Columbia class, which is under a lower financial risk cost plus contract versus the higher financial pressure, Virginia class which is under fixed price contract, but you might have to pull resources away and just how you’re managing that from a financial risk perspective?
Phebe Novakovic: So implicit in your question is the fact that Colombia enjoys a higher national rating in terms of urgency than Virginia. We had fully contemplated that with the U.S. Navy when we negotiated the most recent block of Virginia that was in concert timing wise with the Columbia negotiation. So we’re working with the Navy to ensure that the language that we had incorporated into the Virginia contract to accommodate any such impacts on Virginia from a Columbia prioritization could be addressed. And the Navy has been working very closely with us. So we were mindful of that and have been for some time.
Myles Walton: And so I guess just for a clarification, Phebe. Did the current financials reflect that assumption playing out? Or would there be a sort of equitable relief in the future if they agree with the position?
Phebe Novakovic: I’m not going to speculate on how this will be addressed ultimately with our customer. But, this is more of a future issue rather than in the moment issue. That was not the primary driver of the quarter.
Operator: Your next question comes from the line of George Shapiro from Shapiro Research.
George Shapiro: If you hadn’t had the loss of 3 weeks from the bank failures, I assume then the book-to-bill would have been above 1 in the first quarter. And is that likely to continue then in the second quarter where you’re saying we are seeing significant strength now?
Phebe Novakovic: So our plan going before March 10, was that, in fact, we had anticipated a book-to-bill — full book-to-bill of 1:1 on at that point, higher deliveries. So on a going-forward basis, it’s our working assumption that we will continue to see 1:1. And at the moment, we see no reason why that can’t be achieved.
George Shapiro: Okay. So the delivery expectations for next year would still be the same as what you had laid out before?
Phebe Novakovic: We are holding to what we gave you in terms of out-year expectations for Aerospace.
Operator: Your next question comes from the line of Louie DiPalma from William Blair.
Louie DiPalma: Is the lead Columbia approximately 1/3 complete now?
Phebe Novakovic: Yes.
Louie DiPalma: Great. And as a follow-up, you referenced supply chain headwinds with Virginia and Aerospace. Is the supply chain for Mission Systems improving at all?
Jason Aiken: It absolutely is. We saw a good trajectory and gaining some traction in the quarter. That’s part of the reason why volume was up nicely in the quarter, and they seem to be on a good path to overcoming that bottleneck in their system. So gives us confidence for the opportunities we have in the second half of the year.
Operator: Your next question comes from the line of Kristine Liwag from Morgan Stanley.
Kristine Liwag: Phebe, per new plans unveiled last month under the August pack, it looks like Australia could buy up to 5 Virginia-class submarines potentially in the early 2030s. So with the backlog now of 17 Virginia is delivering through 2032, how are you thinking about this opportunity? And what’s the production capacity required to meet this demand?
Phebe Novakovic: So we are working with our Navy customer to clarify timing and capacity and throughput. But at the moment, we have no particular insight, not really deferring to the Navy on and the timing and specificity of their long-range planning?
Kristine Liwag: And if I could sneak another one, maybe switching to combat. Look, it seems like the Army is pushing significantly to ramp artillery production, particularly the 155-millimeter shells and planning to double monthly production to about 24 per month by year-end. And then increasing production 6x over the next 5 years. How are you thinking about this opportunity? And again, do you see — what do you need to do in order to meet this demand? Should it materialize? And are you seeing the orders come through?
Phebe Novakovic: We have seen the orders come through. And we do not yet have out your clarity on the exact timing of the additional production, but we will see additional production. And because of the priority of the 155, I think the nation has learned a lot about 155 artillery shelf. So we’ve done a lot to increase production already, and we are quite confident that we can go even faster.
Operator: Your next question comes from the line of Matt Akers from Wells Fargo.
Matthew Akers: I wanted to ask kind of a high-level question on pilots for biz jet. On the commercial side, lack of kind of staffing with standing like pilots and crews has been kind of a pacing item. What’s your sense for business jets or your customers kind of better off in that respect? Or could that potentially be a bottleneck for biz jet as well?
Phebe Novakovic: Well, I think during the height of COVID, there was so much disruption at all labor markets that we may have seen some issue then. But frankly, it didn’t impact us. We’re not seeing anything at the moment that is impacting our ability to fly, our customers’ ability to fly or frankly, flying hours.
Operator: Your next question comes from the line of David Strauss from Barclays.
David Strauss: The G700 is in there. Is software validation, the pacing item still? And if so, how far are the way through that are you?
Phebe Novakovic: No, it is not. And we are in pretty good shape here with respect to our certification. And look, this is an extremely mature, safe and sophisticated aircraft. So we’re working very closely with the FAA to ensure that they’ve got the proper resources here to execute the certification, but it is coming.
David Strauss: Okay. A quick follow-up. Jason, you mentioned 8 resumptions of the AJAX payments. Can you update us on kind of the schedule for the liquidation there? How you expect that to play out and also on the Canada program?
Jason Aiken: Yes. So obviously, it was a positive development to see the payments resume here in the first quarter as we expected. The path forward with the customer is an ongoing discussion, we’ve worked through the revised schedule for the program. But some of the other particulars around milestone payments and progress on that schedule are still in the works. So it would be probably remiss of me to get out ahead of that. In terms of the Canadian program, things are continuing to proceed well. That customer for the past 3-plus years has paid on time as per that schedule we negotiated. And so a couple more payments to come this year. And then really, what you can think about it is the entire arrears that we were dealing with some 2, 3 years ago will have been paid down and will be in a normal program cadence and schedule at that point, so by the end of this year.
Operator: Your next question comes from the line of Ken Herbert from RBC Capital Markets.
Kenneth Herbert: I just wanted to see — I wanted to see if we could put a finer point on the Aerospace margins in the second quarter with supply chain issues and other timing around the certification and prebuild. Is it — or second quarter margins expected to be similar to first quarter or was first quarter expected to be the trough for the year?
Phebe Novakovic: I think you may need to think about the second quarter being our lowest quarter and then with a very steep and executable ramp-up in third — third and fourth quarter, I tried to give you guys an awful lot of color in the remarks about the puts and takes on all the margins with respect to Aerospace. But we — we’ll get through the second quarter. And frankly, these first 2 quarters are aberrational in terms of Gulfstream margins, and then we ought to see nice pickup in third and fourth quarter.
Kenneth Herbert: Okay. And then just as a follow-up, just considering the roughly 100 aircraft implied in the guidance for the second half deliveries and the supply chain issues, are you having at this point to maybe look at second sources? Or is there anything else you’re doing now? Obviously, it’s very late in the game, but to maybe improve or do you further derisk the supply chain beyond just the execution?
Phebe Novakovic: So we’ve been doing that for some time. As you all know, the supply chain on the Aerospace side has been taxed for quite a bit of time. So they were not taking any new actions that we haven’t already executed, and we’re just ramping up some of those actions as we — in the first quarter and then as we go into the second. But we have, as I said earlier, a very clear line of sight into the third and fourth quarters and the majority of these suppliers fully anticipate getting better. And we’ll work with the remaining ones to ensure they’ve got the resources to execute the contract.
Operator: Your next question comes from the line of Ron Epstein from Bank of America.
Ronald Epstein: Maybe just a quick question, maybe 2. What are the synergies so far from merging the 2 businesses in kind of mission Tech? How has that gone?
