Across-the-board declines in AAR Corp’s commercial aviation services segments last quarter underscore the motivation behind the company’s broad diversification strategy, even as the global aftermarket shows signs of recovery.
AAR’s aftermarket sales dipped 10% to $368 million in the carrier’s fiscal second quarter, which ended February 28. Several major sub-units, including airframe maintenance, landing gear overhaul, engineering services, and parts sales were notably down.
The reasons behind the declines vary, AAR executives say. The calendar year’s first three months are traditionally slow, but winter storms in January and February decimated U.S. airline schedules with tens of thousands of cancellations. This led to deferred maintenance and related procurement, CEO David Storch says. At least some of a $7 million dip in parts revenue from AAR’s fiscal second quarter are linked to this, he notes.
A dip in landing gear overhaul work, which typically generates one shop visit per shipset per decade, can be traced to soft new aircraft delivery figures from the early 2000s.
An empty heavy maintenance hangar in Lake Charles is a sign of a new venture taking time to gain customers.
The declines may be well-understood, but AAR is not leaving recovery to chance. The company followed through on its goal to its boost inventory management work and international presence with one large move, agreeing earlier this month to buy a rotable spares operation complete with 13 power-by-the-hour (PBTH) support deals from Sabena Technics. The deal supports several popular aircraft types, including the, , and .
Strategically, the move both expands AAR’s components arena presence and adds steady work to its pipeline that is less susceptible to contracts linking individual customers to a specific set of services.
“Our inventory management programs today have been more designed around individual customers and providing inventory to that customer,” says AAR CEO David Storch. “This will be our first venture into pooling, where the inventory is available for multiple aircraft operate flying the same platform.”
AAR executives are confident that the Brussels-based operation’s scale will allow it to compete with the region’s major players, including, Industries- Engineering and Maintenance, and .
“We’re hoping that [being an] independent provider will be a point of differentiation that will allow us to capture more business and grow this particular piece of our business,” Storch explained on a recent earnings call.
AAR, motivated in part by the 560that U.S, carriers have in service or on order, also is aggressively pursuing E-Jets work. The company on March 20 announced 12-year, $200 million deal to provide PBTH support to 30 new Mesa Embraer 175s that the carrier will put into service for United Express starting this summer.
“It’s a good fit for the company,” Storch says of the Embraer work. “We have the airframe, landing gear, and component repair capability. As you can see from one of the awards that we announced, we’ve had some success supporting that platform.”
As for Lake Charles, AAR remains optimistic. The company took over the facility from Aeroframe last fall and wrapped up some work it inherited in the deal, but it has been “quiet” since, Storch says.
“We completed the contracts that were there when we took on the business and now we are bidding work, but as we sit here today, we haven’t had any success here,” he acknowledges. ”I think everybody has to be just a little bit patient.”
Storch says AAR’s now-bustling Indianapolis facility went through a similar early dry spell. Abandoned by a bankruptin 2003, the Indianapolis Airport Authority acquired the facility and, soon, AAR as a tenant.
“Look back on the first couple of years of our Indianapolis adventure,” Storch says. “Eventually we got some business and we’ve been able to grow from there,” including a deal to do three C checks on Aeromexicoannounced March 25.
“We still believe that we are positioned well [in Lake Charles],” Storch says. “We just need a little bit more time to break into some accounts.”