AAR (AIR) Stifel 2024 Cross Sector Insight Conference summary

Company Overview and Business Segments

• Focuses on aviation aftermarket services, with 70% commercial and 30% government exposure.

• Key activities include parts supply, repair and engineering, and integrated solutions.

• Largest customer is the U.S. Department of Defense; major commercial clients include United, Southwest, Air Canada, and Delta.

• Recent Triumph acquisition expanded component repair capabilities, added a Thailand facility, and increased APAC exposure.

• Highly diversified customer base includes major airlines, cargo carriers, OEMs, and government agencies across 150+ countries.

Market Environment and Growth Drivers

• Strong travel demand and delayed new aircraft deliveries are extending the aftermarket cycle, benefiting service providers.

• Aircraft retirements remain below historical levels but are expected to rise, supporting used serviceable material (USM) supply.

• USM business is currently supply-constrained but offers high margins and is expected to accelerate as retirements normalize.

• Distribution segment has seen significant organic growth, driven by market share gains, strong OE partnerships, and proprietary PMA parts development.

• Recent large distribution agreement with Triumph for actuators will ramp up in 2026 and is expected to be a meaningful growth driver.

Financial Performance and Outlook

• Pro forma sales reached $2.5 billion with an adjusted pro forma operating margin of 8.9% for the last twelve months ended February 29, 2024, including Triumph Product Support results.

• Targets 5%-10% organic sales growth and 10%-15% earnings growth over the next 3-5 years, outpacing the global aftermarket.

• Operating profit margin improved from 5.5% pre-COVID to low 8% range, with a goal of reaching 9%-10%+.

• Triumph acquisition is expected to add nearly 100 basis points to margins and be accretive in the first full fiscal year, with $10 million in run-rate cost synergies.

• Hangar expansions in Miami and Oklahoma City will increase capacity by 15% by late 2025, supporting growth and incremental margins.