AAR has been very active in signing up customers for power-by-the-hour contracts in recent years. Have these been a key contributor to the company’s recent double digit growth rates?
We’ve had a good deal of success over the last couple of years signing up PBH customers and many of those are starting to kick in and contribute positively to our results. The pipeline of activity is full. We’ve signed up a lot of work and are now being very selective now in terms of the types of agreements we go after to ensure they fit with the portfolio of aircraft customers we are building. PBH agreements is a market we continue to be excited about. The combination of offerings we have in terms of repair capability, supply chain capability on the inventory side and the digital tools introduced have made us a good option.
As well as commercial work, the company is also very active with U.S. government work. What is the split between commercial and government projects?
It’s around 70-30 in favour of commercial work. We have a long-term goal to have this figure around 50-50. AAR has been 50-50 at various points before, depending on each market. We like the balance between the two markets, because to a certain extent, the government side is hedged to the commercial segment and vice versa. We want to continue to maintain that balance and we are confident that this will be the case as our government contracts ramp up.
AAR has adopted a very global outlook ranging from components support in New Zealand to setting up an airframe joint venture in India. Is AAR showing a greater focus on a specific region?
The India joint venture is particularly exciting. Considering the aircraft deliveries projected for India over the next decade, the ability for that market to expand is really fascinating. It’s among the top five fastest growing aviation markets in the world and AAR is trying to be proactive during what we still consider to be the early days of this expansion. To find a strong partner like Indamer while also choosing a location in Nagpur for the facility will help us further our goals. A JV concept of this type is new to AAR – we haven’t re-fielded an MRO facility overseas before. We view this as a model of other things that could eventually be possible in Asia and Asia-Pacific.
Would this inevitably mean a move into China?
China is definitely somewhere we are looking at. We do a fair amount of business there today, most of which is transactional. Ultimately, we are open to facilitating in China. We recognise that in order to have a long-lasting impact in a market such as China, it’s smart to have a partner based there. Recent discussions on this matter have been encouraging.
Are partnerships something AAR is always actively seeking?
Considering our position in the industry as an independent services provider makes it important to consider partnerships. We occupy an interesting place: we are a customer, partner and competitor to the same entities. Underneath the service, there will mostly always be a chance for value creation for all sides by working together.