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No pain, no gain at AAR

The past 12 months have been a period of transformation for AAR. After diversifying its product offering in the 2000s, the largest independent MRO in the US – and the third largest in the world –made the decision to refocus on its core services business.

In March, AAR sold off subsidiary Telair Cargo and put its manufacturing arm up for sale, at the same time the firm has been streamlining its remaining businesses and just two weeks ago announced the closure of its MRO facility in Arkansas, citing overcapacity in the regional aircraft market.

Yesterday (July 13) the MRO published its full year results for 2015 (the 12 months ending May 31) highlighting the financial impact of restructuring. Those costs saw the group post an operating loss of $11.9m for the year, following a $73.2m loss in Q4. In comparison last year AAR made an operating profit of more than $125m.

The costs incurred by structural changes are, however, short-term pain for long-term gain, according to the group’s CEO, David Storch. “This was a pivotal year for AAR. We have taken numerous actions to position the company for future growth. Our balance sheet is very strong and the company is more nimble.”

This will, said Storch, enable the firm to invest further in its businesses and take advantage of opportunities to expand.

“We are focused on growing our industry-leading aviation and expeditionary service businesses as we are confident in our prospects to provide customers with a best-in-class value proposition,” he said.

From looking at the firm’s financials for last year, the good news is that the company has reduced its debt by close to half a billion dollars, to just $154m, and that sales in its aviation services business unit were up 6.9 per cent on the previous year to $1.32bn.

Commercial airline customers accounted for 75 per cent of those sales, up from 63 per cent in the previous year – seeming to indicate that the MRO’s shift in focus is beginning to take effect.

However, while revenues were up in the aviation services business – boosted by “strong growth” in supply chain sales – gross profits for the division fell by 16.6 per cent year on year to $143.8m.

In discussing the changes at AAR, Storch talks about four phases. The first was divesture, the second AAR’s share repurchase and the third was “realigning the corporate office”.

Now the company is into stage four: “Using our strengthened balance sheet to grow our remaining services businesses.”

The proof will, as they say be in the pudding, and the whole sector will be looking to see the impact of the restructure on AAR’s bottom-line over the next 12 months.

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