We recently downgraded our recommendation on AAR Corp. (AIR) from Outperform to Neutral. The downgraded rating is backed by the risk of lowering U.S defense budget toward military flight operations, which is anticipated to curtail the company’s prospects and financial results.
Moreover, a highly capital intensive industry, in which the company operates, depends on the continuing availability of debt and equity capital. The risk of an inability to obtain financing on favorable terms appears harmful for the company.
Moreover, the company faces strong competition from the big and small industry players across the globe and is exposed to the uncontrollable factors like the risk of currency fluctuation, due to its wide spread client base.
Moreover, the company purchases and leases aircraft and engines to its customers on an operating lease basis the terms of which are subject to new aircraft deliveries, availability of used aircraft and engines in the marketplace, competition, financial condition of the customers and a fluctuating demand in the airline industry. These factors appear detrimental to the company’s performance, going forward.
However, the above negative indications gradually dilute; as we find the record of the company’s continued contract wins from its significant client like US Army, Navy etc, as well as from the friendly foreign governments. Such contracts involve providing value-added solutions toward defense and nation building initiatives in the domestic market and beyond.
Moreover, the company appears well positioned to generate huge revenue from its products, services and capabilities and expects a steady improvement in sales figures and operating margins for the fiscal 2012.
Furthermore, the aviation industry as a whole has started showing signs of improvements, with a fair chance of posing stronger demand for air transport in the near future. This is expected to bring in a positive trend in commercial air transport market creating a robust demand for maintenance and spare parts, equipment and methods of repair and overhaul services. Such a demand surging environment is anticipated to aid AAR to maintain a satisfactory position in the industry.
Based in Wood Dale, Illinois, AAR Corp. provides various products and services to the aviation and defense industries worldwide. The company operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul; Structures and Systems; and Government & Defense Services. The company competes directly with its peers, such as Goodrich Corp (GR), Boeing Co (BA), and Lockheed Martin Corporation (LMT).
AAR CORP (AIR): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
GOODRICH CORP (GR): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
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