P1030527.jpg Sean Broderick/AWST

MRO Investments Expand AAR's Parts Pipeline

Company generates 67% of aftermarket revenue from parts, logistics.

AAR Corp.'s investment in more airframe heavy maintenance facilities [http://www.mro-network.com/airlines/aar-buys-two-premier-aviation-facilities-retains-air-canada-work] increases its pipeline to customers that may also use the supplier's growing logistics support services—a combination that executives say provides a differentiator that top OEM parts-supply competitors can't match.

Known for its extensive heavy-check services, AAR has been ramping up its component support and parts-supply businesses. It now has an estimated 1,500 aircraft under some sort of support deal, ranging from 737 Classics to the newest Maxs and A320neos on the narrowbody side, and a similar broad mix on the widebody side. Combined with growing heavy-check and component overhaul work, AAR has ample opportunity to sell parts.

"I'd say the value proposition for us relative to our two largest competitors, Aviall and Satair, is our independence and our channels to market," says John Holmes, AAR president and COO, referring to the Boeing and Airbus subsidiaries. "With the growth of the power-by-the-hour business, with the growth of the MRO business, we have a number of touch points with the customers that allow us to push the OEM's product in a way that our competitors may not be." 

AAR's Aviation Services business, which includes MRO and aftermarket supply and logistics for civil and defense customers, grew about 20% in its fiscal 2018 first quarter, which ended Aug 31. The figure excludes the effect of the previously-announced wind-down of KC-10 logistics work that contributed nearly $27 million in revenue during the year-ago quarter. 

Meanwhile, the company in August announced it received a notice to proceed on a 15-year, $909 million deal to provide the U.S. Air Force with supply chain management support for C-130, KC-135 and E-3 landing gear parts.

AAR's Aviation Services segment reported revenues of $371.3 million in the quarter, up 11% from fiscal 2017's total of $334.6 million. Services represents about 85% of the company's annual sales, with the rest coming from its expeditionary services and airlift work

Within Services, about 67% of revenues are from the supply chain side, including power-by-the-hour deals and parts sales. The rest is from MRO work, including airframe, component, landing gear, and engineering services. 

About 75% of Services's revenue comes from commercial work, and 25% from defense customers.

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