AAR Corp posted record sales of $657 million in its fiscal 2024 fourth quarter (Q4), up 19% year-on-year, as the company continued a successful transformation into a higher-margin commercial aftermarket firm.
Earnings-per-share were $0.88, up 6% over the same period in 2023 and ahead of Wall Street’s estimates.
Explaining the company’s strong performance, CEO John Holmes said in an earnings call, “We are benefiting from structural tailwinds from high levels of air travel and an aging fleet, which drives demand for our aftermarket services.”
Robert Spingarn of Melius Research said in a July 18 client note that prior to the pandemic, AAR “was a labor-intensive business with underperforming contracts” generating $1.9 billion of annual sales with operating margins of about 5%. Since then, the company has restructured its operations and exited underperforming contracts and businesses. Signing up aftermarket parts providers to exclusive distribution agreements has helped to organically grow its “margin accretive” parts distribution and trading business, Spingarn noted.
Melius Research predicts that as AAR continues to grow its parts distribution and component repair businesses “margins will continue to grind higher.”
During the earnings call, Holmes noted that on March 1, AAR closed the acquisition of Triumph Product Support, which he described as bringing to AAR “increased scale and differentiated repair capability.” The results of the acquisition exceeded AAR’s expectations in its fiscal Q4 “and we are in the early stages of unlocking significant additional value,” he said.
Following the acquisition, a priority for AAR is investing in the MRO facility in Thailand that it gained from the deal. The shop is set up to handle structural repairs on parts such as nacelles for current-generation aircraft popular in the Asia-Pacific (APAC) region, including the Boeing 787 and Airbus A350. “We will be one of the four providers of structural repair capability in the region to support those large fleets,” Holmes told Aviation Week. “That’s organic growth as the new aircraft mature.”
In response to an analyst’s question during the earnings call about the size of AAR’s APAC business, Holmes said “it’s a large and growing market for us,” with the Triumph Thailand shop playing a complementary role to AAR’s distribution business.
“It’s still early, of course, but we are having some encouraging dialogue about potential further Asian expansion as a result of having that Triumph facility over there now,” Holmes added.
