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OPERATOR: Good day, ladies and gentlemen, and thank you for joining the AAR Corp. third quarter fiscal 2009 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions). As a reminder, this conference is being recorded.
Now your host for today's conference, Tom Udovich. Sir, please begin.
TOM UDOVICH, DIRECTOR FINANCIAL PLANNING AND ANALYSIS & IR, AAR CORP.: Thank you, Tyrone. Good morning, ladies and gentlemen, and thank you for joining this morning's conference call.
Before we begin, we would like to remind you that certain of the comments made today relate to future events which are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please refer to the forward-looking statement disclaimer contained in the press release issued yesterday, as well as those factors discussed under item 1A entitled risk factors included in the Company's May 31, 2008 Form 10-K. By providing forward-looking statements, the Company assumes no obligation to update the forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. At this time, I would like to turn the call over to our Chairman and CEO, David Storch.
DAVID STORCH, CHAIRMAN & CEO, AAR CORP.: Thank you, Tom, and good morning, everyone. Joining me today in our Chicago headquarters is Tim Romenesko, our President and Chief Operating Officer, and Rick Poulton, our Chief Financial Officer. We reported our third quarter results last night and I trust that you have had a chance to review our press release. As you all know, the economic environment in the United States has continued to deteriorate with calendar year fourth quarter GDP a negative 6.2% and U.S. unemployment at the highest rate since 1983. As a result of weak economic conditions, both business and leisure travelers have reduced air travel, causing airlines to reduce capacity and seek ways to reduce costs and conserve cash. Capacity in North America is down approximately 8% during the first quarter of calendar year 2009 compared to last year and passenger traffic in North America is down approximately 10%.
International traffic for certain of the carriers is worse, with some carriers reporting declines in international traffic well in excess of 10%. While carriers are benefiting from the impact of lower jet fuel prices, additional capacity reductions may occur as a result of continued weakness in consumer confidence and declining business travel. As airlines reduce capacity, it causes significant changes to their maintenance schedules, which, in turn, drives disruption to the demand pull for parts and services. And we have not been immune to the capacity reductions impacting the industry as we report a 6.8% decline in sales to commercial customers, which excludes our Aircraft Sales and Leasing business. We were impacted at our Indianapolis MRO where we experienced lower sales as a result of United Airlines' decision last spring to ground their 737-300 fleet, as well as Fed Ex's decision to retire a portion of their 727 aircraft.
We are in discussions with other potential customers who expressed interest in this world class facility and we continue to perform work for Southwest. As a result of the weak economic conditions and tight credit markets, we have focused on reducing our investment in our aircraft portfolio. Our equity investment in our joint venture and wholly owned aircraft portfolio is approximately $80 million at February 28, 2009. Of the 33 aircraft in our portfolio, 32 aircraft are on lease and we have one wholly owned aircraft coming off lease in the fourth quarter, which will be disassembled for parts. There are two leased aircraft on our wholly owned portfolio in which the lessee is behind in their payments. We have obtained a judgment against the parents of the operator of the aircraft and expect to recover amounts owed to us. Other than those two aircraft, all the other aircraft continue to operate according to our agreements.
Further, as we de-emphasize this business we are considering combining the activities of our Aircraft Sales and Leasing segment with the Aviation Supply Chain segment for our next fiscal year. While the environment remains challenging, we believe the business strategy we adopted several years ago has positioned us well to respond to these challenges. Specifically, through target investments and business acquisitions, as well as organic growth, we have been executing a strategy of building balance. Balance across our two major customer segments, commercial and defense, as well as balance in our product and services offerings between front-end manufactured content and back-end aftermarket support. Our goals in embarking on this strategy have always been two fold. First, to mitigate short-term earnings volatility by insulating our exposure to any one segment of the industry and second, to generate opportunity over the longer term by creating larger, addressable market opportunities.
Looking back on our third quarter, we see the value in executing this strategy as our results held up nicely despite a very difficult commercial environment and certainly held up much better than we've seen in prior downturns. We remain optimistic on long-term fundamentals for both the commercial and defense markets we serve and continue to position ourselves for long-term success. For example, we recently opened an office in Abu Dhabi, which is staffed by one of our senior marketing executives to address growing opportunities in this region and we expect to see results shortly, and I should say meaningful results. In yesterday's release we discussed that we were a net investor of cash during the third quarter. We used $16 million of cash from operations, as we made significant investments in inventory rotable assets to support our commercial customers. We expect solid cash from operations in the fourth quarter, as we do not have any large planned asset purchases. Thank you all for joining the conference call today and we would like to now open up the line for any questions you may have.
OPERATOR: (Operator Instructions). Our first question is from Larry Solow of CJS Securities. Your line is open.
LARRY SOLOW, ANALYST, CJS SECURITIES: Hi, good morning. Could you maybe discuss your aviation supply. Looks like your margins actually were surprisingly held up pretty well, which I know they have the last couple quarters. But are the, first of all, the bigger ticket items are those lower margin where your kind of your sales were kind of down a little bit and was due to better mix or what was...
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