Commercial aviation sales at AAR Corp. rose 7% sequentially in the company’s most recent fiscal quarter—an encouraging sign that the aftermarket is starting to recover, particularly in the U.S.
The 7% commercial increase for the three months ended Feb. 28—the company’s fiscal 2021 third quarter—wiped out a 4% sales drop on the defense side within the company’s dominant Aviation Services business that generates 95% of its revenues. More importantly, it suggests that activity among its commercial customer base is trending in a positive direction.
“We did see a sequential increase in hangar activity due to increased demand supporting anticipated leisure travel,” AAR CEO John Homes said on the company’s March 24 earnings call.
AAR’s year-over-year figures underscore the depth of the commercial aviation slump amid the coronavirus pandemic. AAR’s commercial sales at $204.7 million last quarter were down 42% from its comparable fiscal 2020 time period. The slump has reduced its commercial revenues to 52% of its Services total, down from 67% in the year-earlier period.
The slow recovery is not spread evenly across AAR’s affected businesses. Airframe heavy check work is recovering at a faster pace than parts, Holmes said—a trend that was expected.
“Typically, you do see maintenance activity pace ahead of parts requirements because repairing aircraft generates parts requirements,” Holmes said.
While parts sales were flat, AAR saw “a broader customer base returning to the market on the parts side, both in new parts sales and [used serviceable material] sales,” Holmes said. Demand, which had been bolstered by increased business from cargo operators in recent quarters, spread to some passenger operators as well, Holmes added—yet another encouraging sign that the recovery is broadening.
“All of that still added up to relatively stable performance, but it was encouraging to see some of those customers come back,” Holmes said.
Geographically, AAR’s rally is more prevalent among U.S. operators, which historically have generated 65% of its commercial revenues.
“We mentioned before that we do have some international activity that is pacing behind what we’re seeing in the U.S.,” Holmes said, citing its two major Canadian airframe operations as examples. “Canada has been closed like what you’re seeing over in Europe. So those operations still have a ways to go to get back to pre-COVID levels. But in the U.S., we’re definitely seeing a recovery pacing ahead.”
AAR’s positive commercial MRO outlook echoes sentiments expressed by GE Aviation earlier in March. The enginemaker is projecting sharp upticks in engine overhauls in the coming quarters, with a potential return to 2019 shop-visit levels in the 2023-24 time frame.
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