MRO Memo: Kellstrom Acquisition Gives VSE An Edge In Engine Aftermarket

VSE Corporation’s recent $200 million acquisition of Kellstrom Aerospace positions the company to capture a bigger share of the red-hot commercial aerospace engine aftermarket.

The Dec. 3 Kellstrom deal is the third and largest in what is shaping up to be a series of strategic acquisitions made by the Virginia-based company since mid-2023. In April, VSE closed its $120 million acquisition of Turbine Controls, which followed the July 2023 closing of its $124 million purchase of Desser Aerospace.

The $200 million Kellstrom deal highlights how investor interest in aviation aftermarket assets has remained steady through a broader slowdown in mergers and acquisitions (M&A)—and is heating up now even as high interest rates continue to weigh on the deal-making environment. Aftermarket heavyweights TransDigm and HEICO have also been active in dealmaking in 2024.

Kellstrom provides distribution and technical services for the engine aftermarket, supporting OEMs, airlines, lessors and MROs in 75 countries. The company generated roughly $175 million in revenue during the 12 months through September 2024, half of which came from outside North America.

“Kellstrom’s successful track record of supporting a diverse group of global OEM partners through its portfolio of proprietary engine-focused products and repair services, along with its technical advisory capabilities, is highly complementary to VSE Aviation’s business,” VSE CEO John Cuomo said.

The closing of the deal follows the VSE Aviation unit reaching a revenue milestone of $200 million as well as record profitability in the third quarter (Q3). In a Q3 earnings call, VSE’s management attributed the strong performance to balanced contributions from new distribution programs, the optimization of existing distribution programs, MRO market share gains, and new OEM licensed manufacturing programs.

Asked why VSE finds the commercial engine aftermarket attractive, Cuomo said, “I think it’s a combination of factors ... that market is really robust in terms of aircraft that are aging, that are going through more unplanned repairs than anticipated because of build rate declines at the OEMs, coupled with some new engine types that are coming to market where the OEMs are now focused on those engines.”

RBC Capital Markets expects that the Kellstrom acquisition will contribute $185 million to VSE’s revenue in 2025 with earnings before interest, tax, depreciation and amortization (EBITDA) of $23 million (12% margins). With 50% of the revenue coming from engine parts distribution, 20% from engine services, and 30% from used serviceable material (USM) sales, “we see the business as very complementary to VSEC’s core Aviation segment. We believe VSEC should be in a good position to take market share and continue to grow the distribution business,” RBC analyst Ken Herbert said in a Dec. 6 client note.

It is an open question whether VSE will continue its costly but effective M&A shopping spree. Cuomo was non-committal when asked about it during the earnings call.

“2025 is going to be about integrating the businesses, optimizing the businesses, getting our platform and our foundation ready for that next phase of both organic and inorganic growth,” Cuomo said.

That said, “we’ve been acquisitive and will continue to be acquisitive,” Cuomo added.