U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of June 2003

NORTHSTAR AEROSPACE (CANADA) INC.

105 Bedford Road

Toronto, Ontario

Canada M5R 2K4

(Address of registrant’s principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ý Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No ý

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with

Rule 12g3-2(b): .

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NORTHSTAR AEROSPACE (CANADA) INC.
		(Registrant)



Date:	August 22, 2003	By:	/s/ Randal L. Levine
		Name:	Randal L. Levine
		Title:	Vice-President and Chief Financial Officer

NORTHSTAR AEROSPACE REPORTS STRONG MILITARY REVENUES

REPORT TO SHAREHOLDERS — SECOND QUARTER FINANCIAL RESULTS

TORONTO, August 18, 2003 - Northstar Aerospace today reported earnings from continuing operations for the second quarter ending June 30, 2003 of $1.3 million or $0.04 per share compared to $3.1 million or $0.11 per share in the prior year period. Net earnings for the quarter, after discontinued operations were $1.3 million or $0.04 per share compared to $3.7 million or $0.13 per share in the prior year. For the first half of 2003 earnings from continuing operations were $4.0 million or $0.14 per share compared to $5.2 million or $0.18 per share in the prior year. Net earnings, including discontinued operations was a loss of $5.5 million or $0.19 per share in the first half of 2003 compared to a profit of $4.5 million or $0.16 per share in the prior year.

Revenue from continuing operations totaled $41.9 million in the second quarter compared to $45.9 million in the prior year, representing a decrease of 8.8%. For the first half of 2003 revenues were $89.1 million, less than a 1% decrease from 2002.

Earnings before interest and taxes (“EBIT”) margin for continuing operations was 10% for the second quarter compared to 14.2% in the prior year. The higher Canadian/US exchange rate reduced EBIT by approximately $1.2 million ($0.04 per share) in the second quarter. EBIT margins for the first half of 2003 were 12% compared to 12.3% in the prior year after adjusting for comparability between periods. The decrease in the quarter and the first six months is primarily attributable to the impact of foreign exchange.

A more detailed discussion of the second quarter and first half of 2003 is contained in the Management Discussion and Analysis including comments on the comparability of results between the current and prior year. This is attached to the Interim Consolidated Financial Statement for the three and six months ended June 30, 2003.

Commenting on these results, President and Chief Executive Officer, Mark Emery stated:

“The second quarter of 2003 was challenging. The reduced commercial aerospace activities and negative impact of an improved Canadian dollar have had a significant impact on our results for the second quarter and first half of 2003. If the Canadian dollar had remained at the levels it was in 2002, we would have reported similar profits to the prior year. We are adjusting to the new reality and have taken steps to reduce costs and increase profitability but this will take some time before the impacts are seen. Our commercial aerospace manufacturing activities continue to be negatively impacted by the downturn in their markets. We do not expect to realize improvements in our commercial aerospace activities in the short term.

We anticipate the balance of 2003 to show lower results as compared to the first half of the year due to changes in product mix, reduced customer demand in commercial aerospace, pricing changes and the ongoing effects of changes in foreign exchange rates. Military related activities are anticipated to contribute over 65% of our 2003 revenues.

We are focusing increased efforts on cash flow improvements and anticipate positive results in this area by year-end.

At June 30, 2003 the released backlog was $179 million, compared to $238 million at December 31, 2002.

Northstar is well positioned to balance both military and commercial applications for superior longer-term performance under a variety of economic conditions.”

Forward Looking Statements

This report includes “forward-looking statements” that are subject to risk and uncertainty. All statements other than statements of historical facts included in this report, including, without limitation, those regarding the Company’s financial position, business strategy, projected costs and plans, projected revenues, objectives of management for future operations, and certain other items discussed above may be or include forward-looking statements. There is uncertainty over the impact of the September 11, 2001 terrorist attacks and the declining North American economy on the Company’s revenues and earnings for 2002 and beyond. There is also uncertainty as a result of the extend and duration of a downturn in the commercial aerospace market, the impact of lower world wide commercial passenger air travel, air freight traffic and the impact of the level of future U.S. military expenditures. Forward-looking information contained herein is based upon a number of assumptions regarding the Canadian, U.S. and global economic environment and local and foreign government policies and actions. Actual future results of the Company may differ materially depending on a variety of factors, including production rates, timing of product deliveries, Canadian, U.S. and foreign government activities, volatility of the market for the Company’s products and services, worldwide political stability, factors that result in significant and prolonged disruption to commercial air travel worldwide, worldwide political stability, domestic and international economic conditions, and other political and economic risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements’), are included in the Company’s Annual Report for the Year Ended December 31, 2001 - Management’s Discussion and Analysis - Risks and Uncertainties, and in Form 20F under the heading of Risks and Uncertainties. All information

contained in this report and subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the Cautionary Statements.

Non-GAAP Measure

The Company defines EBITDA as earnings from operations before interest, income taxes, depreciation, amortization and write off of deferred development costs.

The Company has included information concerning EBITDA because it believes certain investors use this measure as a means of measuring continuing financial performance. EBITDA is not a measure of financial performance under Canadian or American generally accepted accounting principles (“GAAP”). As well, this measure has no standardized meaning prescribed under GAAP and may not be comparable to similarly titled measures used by other companies. This measure should not be construed as an alternative to cash flow from operations or earnings from operations as determined in accordance with GAAP as measures of liquidity or earnings.

Donald K. Jackson

Chairman

Attachments:		Consolidated Balance Sheet
		Consolidated Statement of Shareholders’ Equity
		Consolidated Statement of Operations
		Consolidated Statement of Cash Flows
		Notes to Consolidated Financial Statements
		Management Discussion and Analysis

Consolidated Balance Sheets

As at June 30

(in thousands of Canadian dollars)

UNAUDITED

	June 30 2003		December 31 2002
ASSETS

Current
Cash	$	—	$	2,450
Accounts receivable	20,015		21,864
Inventories	86,098		86,844
Other current assets	2,624		2,525
Discontinued operations	—		27,201
Total current assets	108,737		140,884

Property, plant and equipment	53,087		58,490
Goodwill, net	5,770		6,692
Other long-term assets (note 2b)	10,427		16,025
Total assets	$	178,021	$	222,091

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current
Bank indebtedness	$	9,303	$	—
Accounts payable and accrued liabilities	22,999		29,959
Current portion of long-term debt	634		722
Discontinued operations	—		25,730
Total current liabilities	32,936		56,411

Long-term debt	85,886		100,243
Other long-term liabilities (note 2c)	13,293		22,719

Total liabilities	132,115		179,373

Shareholders’ equity	45,906		42,718

Total liabilities and shareholders’ equity	$	178,021	$	222,091

To be read in conjunction with notes to interim consolidated financial statements.

2003 Northstar Aerospace Q2 Report to Shareholders

Consolidated Statements of Shareholders’ Equity

For three and six months ended June 30

(in thousands of Canadian dollars)

UNAUDITED

	Three Months Ended June 30						Six Months Ended June 30
	2003			2002			2003			2002
Deficit – beginning of period as previously reported	$	(103,625	)	$	(96,638	)	$	(96,819	)	$	(95,066	)

Change in accounting policy	—			—			—			(2,357		)

Deficit – beginning of period as restated	(103,625		)	(92,638		)	(96,819		)	(97,423		)

Net income (loss) for the period	1,293			3,727			(5,513		)	4,512

Deficit – end of period	(102,332		)	(92,911		)	(102,332		)	(92,911		)

Capital stock	152,791			152,642			152,791			152,642

Currency Translation Adjustment – Continuing operations	(4,553		)	(3,581		)	(4,553		)	(3,581		)
Discontinued Operations (note 3)	—			(9,326		)	—			(9,326		)

TOTAL SHAREHOLDERS’ EQUITY	$	45,906		$	46,824		$	45,906		$	46,824

To be read in conjunction with notes to interim consolidated financial statements.

Consolidated Statements of Operations

For three and six months ended June 30

(in thousands of Canadian dollars except per share amounts)

UNAUDITED

	Three months ended June 30				Six Months ended June 30
	2003		2002		2003			2002
REVENUES	$	41,896	$	45,948	$	89,054		$	89,403

COST OF SALES AND EXPENSES
Cost of Sales	29,447		32,394		62,966			64,645
Selling, general and administration	6,225		4,995		11,282			9,112
Depreciation and amortization	2,031		2,012		4,084			3,938
Interest, net	2,115		2,322		4,894			5,126

Income from continuing operations before income taxes	$	2,078	$	4,225	$	5,828		$	6,582
Income taxes	785		1,161		1,817			1,426
Income from continuing operations	$	1,293	$	3,064	$	4,011		$	5,156
Discontinued operations (note 3)	—		663		(9,524		)	(644		)

Net Income for the period	$	1,293	$	3,727	$	(5,513	)	$	4,512

Income (loss) per common share

Basic
Continuing operations	0.04		0.11		0.14			0.18
Discontinued operations	0.00		0.02		(0.33		)	(0.02		)
Net income per common share - basic	0.04		0.13		(0.19		)	0.16

Diluted
Continuing operations	0.04		0.10		0.13			0.17
Discontinued operations	0.00		0.02		(0.32		)	(0.02		)
Net income per common share - diluted	0.04		0.12		(0.18		)	0.15

Weighted average number of shares
Basic	28,872,167		28,847,318		28,863,921			28,835,658
Diluted	29,794,099		29,735,925		29,785,853			29,724,265

To be read in conjunction with notes to interim consolidated financial statements.

Consolidated Statements of Cash Flows

For six and three months ended June 30

(in thousands of Canadian dollars)

UNAUDITED

	Three Months Ended June 30						Six Months Ended June 30
	2003			2002			2003			2002
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Income from continuing operations	$	1,293		$	3,064		$	4,011		$	5,156
Items not affecting cash:
Depreciation and amortization	2,031			2,012			4,084			3,938
Post retirement benefits	356			275			420			377
Foreign exchange (gains)/losses	9			(6		)	50			58
Future income taxes	684			1,084			1,477			1,300
	4,373			6,429			10,042			10,829
Net change in non-cash working capital balances related to continuing operations (note 2a)	(4,043		)	(1,963		)	(13,132		)	(3,399		)
	$	330		$	4,466		$	(3,090	)	$	7,430

Discontinued operations	—			746			—			469
Cash provided by (used for) operating activities	$	330		$	5,212		$	(3,090	)	$	7,899

INVESTING ACTIVITIES
Capital expenditures	(1,677		)	(2,002		)	(3,809		)	(2,662		)
Decrease (increase) in long-term assets	(309		)	70			(2,764		)	(78		)
Discontinued operations	—			(285		)	(300		)	(146		)
Cash used for investing activities	$	(1,986	)	$	(2,217	)	$	(6,873	)	$	(2,886	)

FINANCING ACTIVITIES
Common shares issued	132			17			149			17
Long-term debt repayments	(403		)	(701		)	(522		)	(871		)
Increase (decrease) in bank indebtedness	2,360			(1,143		)	8,337			(2,839		)
Increase (decrease) in other long term liabilities	(433		)	(707		)	(451		)	(997		)
Discontinued operations	—			(461		)	—			(323		)
Cash provided by (used for) financing activities	$	1,656		$	(2,995	)	$	7,513		$	(5,013	)

Change in cash during the period	—			—			(2,450		)	—
Cash at beginning of period	—			—			2,450			—
Cash at end of period	$	—		$	—		$	—		$	—

See also notes to consolidated financial statements

Notes to Consolidated Interim Financial Statements

For the Quarter ended June 30

(in thousands of Canadian dollars)

UNAUDITED

1. SIGNIFICANT ACCOUNTING POLICIES

Accounting standards

The unaudited interim consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles (“GAAP”) on a basis consistent with those in the 2002 audited consolidated financial statements. These unaudited consolidated financial statements do not contain all the disclosures required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2002 annual report.

2. SUPPLEMENTARY INFORMATION

a) Details of changes in non-cash working capital items related to continuing operations as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2003			2002			2003			2002

Cash provided by (used for):
Accounts receivable	$	2,472		$	1,968		$	(3	)	$	8,499
Inventories	(268		)	(5,739		)	(8,705		)	(10,477		)
Other current assets	(468		)	127			(389		)	397
Accounts payable and accrued liabilities	(5,779		)	1,681			(4,035		)	(1,818		)
Cash used, net	$	(4,043	)	$	(1,963	)	$	(13,132	)	$	(3,399	)

The majority of the company’s non-cash working capital items are denominated in US dollars. The amounts above include the US dollar changes in those assets and liabilities for the period, translated to Canadian dollars at the average rate for the period. The resultant changes measured in Canadian dollars will not equal the changes between the corresponding balance sheet amounts, in which US dollar balances are translated at period end rates.

b) Other long term assets comprise the following:

	June 30 2003		December 31 2002

Debt issue costs net of amortization of $4,139 (2002-$3,800)	$	1,209	$	1,548
Future income tax asset	2,607		4,084
Investment in Vector Aerospace Corporation (quoted market value $7,041 (2002 - $2,246))	4,672		2,019
Other	1,939		1,837
Discontinued operations	—		6,537
Total other long-term assets	$	10,427	$	16,025

c) Other long-term liabilities comprise:

	June 30 2003		December 31 2002

Pensions and post retirement benefits	$	10,875	$	11,105
Environmental remediation – long-term portion	2,203		3,045
Other	215		261
Discontinued operations	—		8,308
Total other long-term liabilities	$	13,293	$	22,719

d) Earnings per share

Diluted earnings per share reflect the dilutive effect of the exercise of options where the grant price was below the average market price for the period ended June 30. The dilutive effect of options for the six months of 2003 was 921,932 shares and for the six months of 2002 was 888,607 shares.

3. DISCONTINUED OPERATIONS

On March 31, 2003, the Company completed a significant capital restructuring of the pump companies with its joint venture partner. Under the agreement, the Company’s common shares in the pump companies were exchanged non-participating preferred shares, which the pump companies must purchase on March 31, 2008 for $18,000.

At December 31, 2002 the Company made a provision to reduce the carrying value of the pump investments to nil given the significant uncertainty about the future of the pump companies.

As a result of the completion of the capital restructuring, the Company wrote off in the quarter ended March 31, 2003, the currency translation adjustment included in shareholders’ equity related to discontinued operations.

Notes to Consolidated Interim Financial Statements

For three and six months ended June 30

(in thousands of Canadian dollars)

UNAUDITED

4. SEGMENTED INFORMATION

The continuing operations of the Company solely relates to the aerospace industry and are organized and managed as business segments outlined below:

Defense – The main products for military markets include helicopter gears and transmissions, helicopter rotor heads, accessory gearboxes for engines used in military aircraft, and maintenance, repair and overhaul (“MRO”) services for certain helicopter transmissions.

Commercial – The main products include components for accessory gearboxes and auxiliary power units for engines used in fixed wing aircraft, machining and fabrication services, and MRO services for helicopter engines, and gyroscope inertial navigation systems.

Sector income statement:

		Three Months Ended June 30				Six Months Ended June 30
		2003		2002		2003		2002

Revenue	Defense	$	27,665	$	27,707	$	59,982	$	55,234
	Commercial	14,231		18,241		29,072		34,169
		$	41,896	$	45,948	$	89,054	$	89,403

Cost of Sales	Defense	16,747		18,335		39,114		37,562
	Commercial	12,700		14,059		23,852		27,083
		$	29,447	$	32,394	$	62,966	$	64,645

Selling, general and administration		6,225		4,995		11,282		9,112
Depreciation and amortization		2,031		2,012		4,084		3,938
Interest, net		2,115		2,322		4,894		5,126

Income from continuing operations before income taxes		$	2,078	$	4,225	$	5,828	$	6,582

The same fixed assets of the Company are used for both the Commercial and Defense aerospace manufacturing segments. Accordingly, the identifiable assets, capital and goodwill expenditures cannot be specifically allocated to these segments.

Geographic Information

	Three Months Ended June 30
	Canada				United States				Total
	2003		2002		2003		2002		2003		2002

Revenue	$	18,878	$	21,777	$	23,018	$	24,171	$	41,896	$	45,948

Property, plant and equipment and goodwill	$	20,712	$	19,958	$	38,146	$	45,224	$	58,857	$	65,182


	Six Months Ended June 30
	Canada				United States				Total
	2003		2002		2003		2002		2003		2002

Revenue	$	37,366	$	42,816	$	51,688	$	46,587	$	89,054	$	89,403

Property, plant and equipment and goodwill	$	20,712	$	19,958	$	38,146	$	5,224	$	58,857	$	65,182

Sales are attributed to geographic location based on the location of the business unit reporting the revenue. Domestic sales to foreign customers totaled approximately $18,507 (2002 - $21,045) in the second quarter and $36,472 (2002 – $41,047) in the six months of 2003.

MANAGEMENT DISCUSSION & ANALYSIS

For the three and six months ended June 30, 2003

The following discussion and analysis by management of the financial position and results of operations of the Company is qualified by and should be read in conjunction with the Interim Consolidated Financial Statements and Notes thereto for the quarter and six months ended June 30, 2003.

RESULTS OF OPERATIONS

Revenues in the second quarter were $4.1 million (8.8%) below the prior year comparative as a result of lower levels of activity in commercial aerospace. The higher Canadian dollar reduced revenues by approximately $3 million in the quarter. Excluding foreign exchange impacts, revenue for the second quarter would have been similar to the same period in the prior year.

For the six months ended June 30, 2003, revenues decreased by $0.3 million from the prior year as a result of reduced commercial aerospace activity largely offset by increased military aerospace revenues. Using the same exchange rate as for the comparable period in 2002, revenues would have been approximately $6 million higher in the first half of 2003.

For the second quarter and the first six months of 2003, commercial aerospace revenues have declined as a result of decreased activity in machining and fabrication services. These areas are anticipated to remain at depressed levels throughout the balance of 2003.

Compared to the prior year, military related activity for the quarter and the six months ended June 30, 2003 has increased. Increased work related to the Apache build contract accounts for this improvement. For the last half of 2003 military revenues are anticipated to be lower than they were in 2002, primarily due to the effects of changes in foreign exchange rates.

Gross margins, excluding depreciation, for the second quarter were 29.7%, compared to 29.5% for the second quarter of 2002. Gross margins related to military activities for the quarter increased 5.6% year-over-year as a result of increased activity and product mix. Commercial margins for the quarter decreased 12.1% compared to the prior year primarily as a result of lower activity levels in machining and fabrication services, the impact of a higher Canadian dollar and pricing reductions. Using the same Canadian/US exchange rate as the prior year, gross margins for the second quarter of 2003 would have increased by approximately $2 million.

For the six months ended June 30, 2003 gross margins, excluding depreciation were 29.3% compared to 27.7% in the prior year. Increased military related margins partially offset by reduced commercial margins accounted for the net increase. Using the same Canadian/US exchange rate as the prior year, gross margins for the first half of 2003 would have increased by approximately $3 million.

For the last half of 2003 military and commercial gross margins are expected to be lower than the first half as a result of changes to product mix, exchange rates, pricing and lower customer demand.

Selling, general and administration (“SG&A”) expenses totaled $6.2 million (14.8% of sales) for the second quarter compared to $5.0 million in the prior year comparative. The increase is largely a result of severance costs of $1 million incurred in the second quarter of 2003. Due to lower activity levels related to commercial aerospace and efforts to reduce administrative costs, layoffs and staff position reductions occurred in the second quarter. For the six months ended June 30, 2003, SG&A expenses were $11.3 million (12.7% of sales) representing an increase of $2.2 million over the prior year. The increase primarily relates to a one-time insurance recovery of $0.7 million in 2002 and severance costs incurred in the second quarter of 2003.

Depreciation and amortization in the second quarter was $2.0 million, similar to the second quarter of 2002. For the six months ended June 30, 2003 depreciation and amortization was $4.1 million compared to $3.9 million in 2002.

Net interest expense in the second quarter was $2.1 million, $0.2 million lower than the prior year. Net interest expense for the first half of 2003 was $4.9 million compared to $5.1 million in the prior year. The decrease in interest expense results from lower interest rates and foreign exchange effects.

Earnings for continuing operations, before taxes, for the second quarter and first half of 2003 were respectively $2.1 million and $0.8 million below the prior year comparatives. These decreases are primarily a result of the impact of the higher Canadian dollar and one time severance expenses in the second quarter. During the quarter the impact of the strengthening Canadian dollar was approximately $0.04 per share reduction in earnings before interest and taxes (“EBIT”). Using the same exchange rate as the second quarter of 2002, EBIT from continuing operations would have increased by approximately $2 million. Using the same exchange rate as the first six months of 2002, EBIT for 2003 would have increased by approximately $2 million.

Income tax expense for continuing operations for the second quarter was $0.8 million compared to $1.2 million in the prior year. Income taxes for the first half of 2003 of $1.8 million increased $0.4 million from the prior year comparative. The difference in effective tax rates between 2003 and 2002 relates to the utilization of tax loss carry forwards.

Income from continuing operations after tax for the second quarter decreased $1.8 million year-over-year from $0.11 per share to $0.04 per share. For the first six months of 2003 the year-over-year decrease was $1.1 million from $0.18 per share to $0.14 per share.

Net income for the three months ended June 30, 2003 was $0.04 per share compared to $0.13 per share for the prior year. Net income for the first half of 2003 was a loss of $0.19 per share compared to income of $0.16 per share for the prior year. The decrease is primarily a result of the write-off of the currency translation adjustment related to the discontinued operations in the first quarter of 2003.

Sector Revenue and Gross Margin Analysis

	Quarter ended June 30 (in millions)						Six months ended June 30 (in millions)
	2003			2002			2003			2002

Revenues
Defense	$	27.7		$	27.7		$	60.0		$	55.2
Commercial	14.2			18.2			29.1			34.2
Total revenues	$	41.9		$	45.9		$	89.1		$	89.4

Gross margin (% of revenue)
Defense	39.5		%	33.8		%	35.6		%	32.0		%
Commercial	10.8		%	22.9		%	18.0		%	20.7		%
Total gross margin %	29.7		%	29.5		%	29.3		%	27.7		%


*Comparability Summary Table*

	Quarter ended June 30 (in millions)						Six months ended June 30 (in millions)
	2003			2002			2003			2002

Income from continuing operations – before interest and taxes, as reported	$	4.2		$	6.0		$	10.7		$	11.7
Adjustments:
Benefits insurance recovery	—			—			—			(0.7		)

*Income from continuing operations, before interest and taxes – comparable basis*	$	*4.2*		$	*6.0*		$	*10.7*		$	*11.0*
% of Revenue	*10.0*		%	14.0		%	*12.0*		%	12.3		%
Add:
Depreciation and amortization	2.0			2.0			4.1			4.0

EBITDA, continuing operations – comparable basis	$	6.2		$	8.0		$	14.8		$	15.0
% of Revenue	*14.8*		%	18.0		%	*16.6*		%	16.8		%

BALANCE SHEET

Total assets related to continuing operations, decreased by $11.9 million in the quarter and $10.3 million year-to-date to $178 million as at June 30, 2003. The higher Canadian dollar reduced total assets by approximately $10 million in the quarter and $19 million in the first half of 2003.

Working capital related to continuing operations of $75.8 million decreased by $3.6 million in the second quarter and $7.2 million year-to-date. Excluding the impact of changes in foreign exchange rates, working capital increased $1.6 million in the quarter and $2.7 million year-to-date.

Fixed assets declined $3.1 million in the quarter due to the impact of foreign exchange rates. The decrease in goodwill is solely related to the impact of foreign exchange.

LIQUIDITY AND CAPITAL RESOURCES

A significant portion of the Company’s assets and liabilities are denominated in US dollars. The amounts included in the Consolidated Statement of Cash Flows for changes in these US dollar assets and liabilities are calculated in US currency and then translated to Canadian dollars, at the average exchange rate for the period. For this reason, the resultant changes measured in Canadian dollars will not equal the difference between balance sheet amounts. In the balance sheet, US dollar balances are translated to Canadian dollars at period end exchange rates.

At June 30, 2003, the Company had total net debt of $95.8 million. Bank indebtedness increased by $3.0 million during the second quarter of 2003. At June 30, 2003 the Company had bank indebtedness of $9.3 million compared to cash of $2.5 million at December 31, 2002. During the three and six months ended June 30, 2003, cash flows were negatively impacted by working capital changes.

Cash provided by operating activities related to continuing operations in the second quarter was $0.3 million, representing a decrease of $4.1 million compared to the second quarter of 2002. The year-over-year change for the second quarter is largely due to working capital changes and lower net income. The Company continues to fund a significant portion of the work-in-progress related to the Apache build contract from cash generated from operations. This situation is anticipated to improve once the Company receives full progress billings on this job, which is expected to begin in Q4.

For the six months ended June 30, 2003 cash used in operating activities increased $11.0 million over the prior comparative, primarily as a result of working capital changes. The Company is focusing significant attention towards the reduction of inventories through the implementation of lean manufacturing techniques, which is anticipated to improve future cash flows.

Cash used in investing activities related to continuing operations for the second quarter of 2003 was $1.9 million and $6.6 million for the first six months, which included capital expenditures of $1.7 million for the second quarter and $3.8 million for the first six months of 2003. During the quarter, cash invested to increase the investment in Vector Aerospace amounted to $0.2 million and $2.6 million in the first six months of 2003. Cash used in investing activities related to continuing operations for the second quarter of 2002 was $2.2 million and $2.9 million in the first half of 2002. The 2002 amounts included capital expenditures of $2.0 million for the quarter and $2.7 million for the six months ended June 30, 2002.

Cash provided by financing activities related to continuing operations for the second quarter was $1.7 million and $7.5 million for the first six months of 2003. This included an increase of bank indebtedness of $2.4 million in the second quarter and $8.3 million for the first half of 2003. In the second quarter of 2002, cash used in financing activities from continuing operations was $2.5 million and $4.7 million for the first six months of 2002. The year-over-year change is primarily related to increases in bank indebtedness and debt repayments.

At June 30, 2003, the Company had approximately $10 million of borrowing capacity available under its existing credit facilities. The Company believes it has adequate credit facilities to meet its cash requirements for the remainder of 2003.

INVESTMENT IN VECTOR AEROSPACE

During the past nine months, the Company has acquired shares in Vector Aerospace Corporation (“Vector”) and today owns approximately 9.9% of Vector’s common stock. Vector’s business is in the Maintenance Repair and Overhaul (MRO) sector while Northstar’s primary business is the manufacture of precision gears, transmissions and auxiliary gear boxes. Less than 5% of Northstar’s existing revenues relate to activities that currently compete with Vector. Northstar does not consider the companies to be competitors.

Northstar, together with a limited number of other Vector shareholders proposed an alternate slate of directors for Vector at the Vector Annual Meeting held on May 23, 2003. At that meeting, the incumbent management slate of directors was elected by a very narrow margin. Subsequent to the Vector Annual Meeting, additional shareholders indicated a willingness to support an alternate slate of directors and Northstar requisitioned a shareholders meeting of Vector to elect a new Vector board. A majority of the directors proposed for election are not related to Northstar. The Vector Shareholders’ Meeting is scheduled for November 7, 2003. Northstar expects to issue an Information Circular relating to such Vector Shareholders’ Meeting.

DISCONTINUED OPERATIONS

On March 31, 2003 the Company concluded an agreement with its joint venture partner resulting in Northstar’s common shares being exchanged for non-participating preferred shares. The pump companies must purchase the preferred shares on March 31, 2008 for $18 million. The preferred shares are classified as a long-term asset on the balance sheet and are carried at a nil value.

On March 31, 2003 the Company wrote off as a charge to discontinued operations in the Income Statement the currency translation adjustment (“CTA”) related to discontinued operations, which was previously included as a separate component of Shareholders’ Equity. The CTA write off for discontinued operations amounted to $9.5 million. Shareholders’ equity was not affected by this write-off.

OUTLOOK

The Company expects the balance of 2003 to be challenging. Continued weakness in the US dollar coupled with the ongoing reduction in commercial aerospace markets has adversely affected results for the first half of 2003 and is expected to do so in the last half of the year.

During the second quarter of 2003 more than 66% of the Company’s revenues were derived from defense customers. This has increased by approximately 6% from the prior year comparative primarily as a result of the decline in commercial aerospace activity. The trend towards increased defense revenues in proportion to total revenues as compared to 2002 is expected to continue and results from ongoing weakness in commercial revenues. The increase in defense activity also relates to the higher activity in the Apache build contract, which began in the second half of 2002. This contract is expected to continue to generate revenues until the end of 2004. Although the Company has performed work on the Apache transmission components before, this is the first contract to deliver complete assembled new transmissions. As with most new work, there is a learning curve; the Apache build contract is no exception. As further experience is gained and costs decrease, the Company anticipates margins will improve on this contract. We expect defense margins to be negatively impacted in the last half of 2003 as a result of changes in volume, exchange rates and product mix.

There continues to be uncertainty regarding the duration and extent of the continued softening in the commercial aviation market. A number of the Company’s commercial aerospace customers have indicated that their requirements will likely be lower in the latter half of 2003. The Company anticipates lower commercial revenues and margins in the last half 2003 as compared to the first half.

The Canadian dollar has appreciated against its US counterpart in the first six months of 2003 from a Canadian/US exchange rate of $1.57 (December 31, 2002) to $1.35 (June 30, 2003). The vast majority of the Company’s revenues are US dollar based. The stronger Canadian currency will continue to negatively impact revenues, margins and cash flows in 2003 as compared to 2002.

Northstar’s aerospace operations are well positioned for long-term growth. The Company believes that its mix of commercial and defense work will continue to enhance its future success.

Backlog for continuing operations, at June 30, 2003 was approximately $179 million compared to $238 million at December 31, 2002. Of the $59 million decrease, $31 million is a result of the higher Canadian/US exchange rate. The balance of the reduction primarily relates to work completed on programs in the first half of 2003. Further purchase orders are anticipated later in 2003. Backlog only includes the value of purchase orders in hand with respect to long-term customer supply agreements.

FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” that are subject to risks and uncertainties. All statements, other than statements of historical facts included in this report, including, without limitation, those regarding the Company’s financial position, business strategy, projected costs and plans, objectives of management for future operations, and certain items discussed in “Risks and Uncertainties” below may be or include forward-looking statements. There is uncertainty over the impact of potential terrorist attacks, the war in Iraq and the uncertain North American economy on the Company’s revenues and earnings in 2003 and beyond. As a result of these factors and others, the extent and duration of the soft commercial aerospace market and the impact of lower world wide commercial passenger air travel cannot be accurately estimated. Also, the impact of the level of future U.S. military expenditures and its impact on the Company’s revenues cannot be estimated with a high degree of accuracy. Forward-looking information contained herein is based upon a number of assumptions regarding the U.S. and global economic environment and local and foreign government policies and actions. Actual future results of the Company may differ materially depending on a variety of factors, including production rates, timing of product deliveries, U.S. and foreign government activities, volatility of the market for the Company’s products and services, worldwide political stability, factors that result in significant and prolonged disruption to commercial air travel worldwide, worldwide political stability, U.S. military activity, domestic and international economic conditions, and other political and economic risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements”), including those set forth under the caption “Risks and Uncertainties” below, are disclosed herein. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the Cautionary Statements.

The Company disclaims any intentions or obligation to update or revise any forward looking statements or comments as a result of any new information, future event or otherwise.

NON-GAAP MEASURES

The Company defines EBITDA as earnings from operations before interest, income taxes, depreciation and amortization including the write-off of deferred development costs.

The Company has included information concerning EBITDA because it believes this measure is used by certain investors as a measure of continuing financial performance. EBITDA is not a measure of financial performance under Canadian or United States generally accepted accounting principles (“GAAP”). As well, this measure has no standardized meaning prescribed under GAAP and is unlikely to be comparable to similarly titled measures used by other companies. This measure should not be construed as an alternative to cash flow from operations or earnings from operations as determined in accordance with GAAP as measures of liquidity or earnings.

REPORT TO SHAREHOLDERS — SECOND QUARTER FINANCIAL RESULTS

Three Months Ended June 30

Six Months Ended June 30

RESULTS OF OPERATIONS

Sector Revenue and Gross Margin Analysis

Income from continuing operations, before interest and taxes – comparable basis

$

4.2

$

6.0

$

10.7

$

11.0

Three Months Ended
June 30

Six Months Ended
June 30

NORTHSTAR AEROSPACE INC 6-K