Aar Corp. · NYSE:AIR
Aar — Investor Presentation (January 2018)
56 slides from Aar's investor presentation, Jan 11, 2018
Slide 1: Forward-Looking Statements
Forward-Looking Statements This presentation includes certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on beliefs of Company management, as w
Slide 2: Agenda
Agenda Company Overview David P. Storch – Chairman & Chief Executive Officer Operations Review John M. Holmes – President & Chief Operating Officer Sal Marino – Senior Vice President, Parts Supply Eric Young – Senior Vice President, OEM Aftermarket Solutions Nicholas Gross – Senior Vice President, G
Slide 3: Company Overview: David P. Storch
Company Overview DAVID P. STORCH Chairman & Chief Executive Officer • • • • • Chairman of AAR(2005-Current) Chief Executive Officer (1996-Current) President & Chief Operating Officer (1989-1996) President of AAR Trading Group (1987-1989) Education: BA from Ithaca College 4 AAR Corp. All rights reser
Slide 4: Established Player Serving the Global Aviation Services Market
Established Player Serving the Global Aviation Services Market NYSE: AIR ~$2B revenue Leading provider of Aviation Services Over 60 years as a market leader aviation support in to commercial and defense/government markets Over 5,500 employees in over 20 countries Close-to-the-customer business model
Slide 5: Our Mission
Our Mission To be the best at designing and delivering technical, operational and financial solutions to enhance the efficiency and competitiveness of our commercial aviation and government customers 6 AAR Corp. All rights reserved worldwide. Confidential and proprietary document.
Slide 6: Our Values
Our Values 7 AAR Corp. All rights reserved worldwide. Confidential and proprietary document.
Slide 7: Financial Highlights
Financial Highlights • Continued growth projected in revenue and earnings • Leadership position in value-added Aviation Services markets • Long-term favorable aftermarket growth trends • Diverse global base of commercial and government customers • Strong balance sheet with substantial available liqu
Slide 8: Navigated Through Five Major Industry Cycles
Navigated Through Five Major Industry Cycles “Great Recession” Fuel Crisis Conflicts in Iran Economic Downturn Gulf War September 11 Attacks Arab Oil Embargo Sale of Telair Cargo Group Sales ($B) 9 AAR Corp. All rights reserved worldwide. Confidential and proprietary document. After Each Down Cycle,
Slide 9: AAR Transformation – Two years in the making
AAR Transformation – Two years in the making Focus on being an industry-leading Aviation Services company • • Industry-leading parts distribution and trading in aftermarket Growth in Government Programs: secured $4.1B ($3B for INL/A-WASS) in new contracts over the last two years Growth in Commercial
Slide 10: Company Overview
Company Overview Commercial 75% | Government 25% Government 80% | Commercial 20% MRO SERVICES PARTS SUPPLY INTEGRATED SOLUTIONS AIRLIFT MOBILITY COMPOSITES • Airframe • Trading • Commercial & government • Aerial Transport • Mobile tactical shelter systems • Interior structures • Landing gear systems
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Slide 12: Commercial Market Perspective
Commercial Market Perspective Fleet Size and Growth by Region • Fleet growth largest in Asia, especially China and India • Opportunity for more robust maintenance infrastructure 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 0.8% 2.7% 2017 2027 9.0% 4.2% • Consolidation has created more str
Slide 13: Defense Market Perspective
Defense Market Perspective U.S. Defense Budget ($B) $800 Base OCO $700 $700 • High global geopolitical tensions • Emphasis on readiness $600 $500 • U.S. defense spending expected to increase despite budget pressures; Budget Control Act cap relief likely to continue • Spend on new equipment moderniza
Slide 14: Strong Industry Relationships
Airlines Cargo Airlines OEMs Governments #n AIR CANADA@!) A. DELTA .L:-ctJIii1.Hlit CHINA EASTERN AIRBUS rp..._aoEING BOMBARDIER !Y•N --it'JJJSG Ak Tren port ric..Group, Inc. CHINA SOUTHERN fldubm· HAWAIIAN ,. AIRLINES - iatian Regional Airlines Honeywell LOCKHEED MARTIN * Jet2· /U'I Kenya Airways P
Slide 15: Bio | John Holmes
Bio | John Holmes JOHN M. HOLMES President and Chief (16 years with AAR CORP) Operating Officer AAR • • • • • • • President and Chief Operating Officer (2017-Current) Chief Operating Officer, Aviation Service (2015-2017) Group Vice President, Aviation Supply Chain (2012-2015) General Manager AAR All
Slide 16: Aviation Services | Parts Trading and Distribution
Aviation Services | Parts Trading and Distribution PARTS SUPPLY (TRADING) Largest trading company providing airframe and engine assets to airlines, MROs, component repair facilities, leasing companies and other parts providers PARTS SUPPLY (DISTRIBUTION) Largest independent aviation distributor, ser
Slide 17: Aviation Services | Integrated Solutions (IS)
Aviation Services | Integrated Solutions (IS) IS - COMMERCIAL Largest independent and third largest power-by-the-hour (PBH) component repair, inventory pool access and logistics management provider in the world. IS - GOVERNMENT Provide third party logistics, supply chain performance-based logistics
Slide 18: Aviation Services | MRO
Aviation Services | MRO 24,000+ Components repaired annually 3,000 Aircraft Maintenance Technicians >5.5M Man Hours 950+ Aircraft per year 600+ Landing gears per year #1 MRO of the Americas Airframe Maintenance Facilities • 226,000 SF in three 19 AAR Corp. All rights reserved worldwide. Confidential
Slide 19: Expeditionary Services | Airlift, Mobility & Composites
Expeditionary Services | Airlift, Mobility & Composites AIRLIFT Provider of both contractor and government owned (COCO & GOCO) aviation services MOBILITY Total Solution Provider; designs, manufactures, integrates and services a variety of products to support military and disaster relief operations C
Slide 20: Aviation Services | Strategy
Aviation Services | Strategy MRO Services Drive growth through best-in-class services within each discipline and leverage each to reinforce and grow the whole • Strategic relationship with airlines Build technical repair knowledge and collect data Support integrated solutions with component repair G
Slide 21: AAR’s Strategic Imperatives
AAR’s Strategic Imperatives • Pursue connected businesses that reinforce collective growth prospects • Expand margins through differentiated capabilities AAR is the leading independent Aviation Services provider serving global commercial and government markets • Increase our global footprint • Lever
Slide 22: Bio | Sal Marino
Bio | Sal Marino Sal Marino Senior Vice President Aircraft & Engine Part Sales and Corporate Officer (23 years with AAR CORP) • • • • • • • Senior Vice President Aircraft & Engine Part Sales and Corporate Officer (2017-Present) Vice Vice Vice President President President of Airframe and Engine Trad
Slide 23: Aviation Services | Parts Supply
Aviation Services | Parts Supply STRATEGY & FOCUS Opportunistic purchasing: Utilize market reach to make inventory buys from OEMs, airlines and other brokers Inventory alignment: Synchronize airframe stocking positions with PBH programs portfolio Exchange program expansion: Leverage Trading and Prog
Slide 24: Parts Supply | New product offerings
Parts Supply | New product offerings • Introduced four new product lines • Example: ATR parts support offering with ACLAS acquisition • Example: Acquired multiple rotorcraft to trade assets and part out • Establishing 24/7 AOG desk aligned with PBH Programs • Expanded loan, lease, exchange on airfra
Slide 25: Parts Supply | Contractual support
Parts Supply | Contractual support • Exclusive engine parts supplier for 12 years for 20 + annual engine shop visits with a large MRO of wide body engines • Exclusive support with an operator for 5 years on multiple narrow body engine shop visits with set pricing • Exclusive multi year to acquire, r
Slide 26: Bio | Eric Young
Bio | Eric Young ERIC J. YOUNG Senior Vice President, (5 years with AAR) OEM Aftermarket Solutions (Distribution) • • • • • Senior Vice President, OEM Aftermarket Solutions (2015-Current) Vice President and General Manager, Nordisk Aviation Senior Director, Office of the President (2012-2013) Prior
Slide 27: Aviation Services | OEM Aftermarket Solutions (Distribution)
Aviation Services | OEM Aftermarket Solutions (Distribution) RECENT WINS STRATEGY & FOCUS AAR OAS is positioned to benefit from trends facing component OEMs: • • Pricing pressures from Airframe OEM customers Competitive market pressures from surplus, PMA and third party repair shops Competing overhe
Slide 28: OEM Aftermarket Solutions | Case studies
OEM Aftermarket Solutions | Case studies Leading OEM of technologies for hydraulic systems, fuel systems, motion control and engine solutions. Leading OEM of electrical and mechanical components for aircraft engines and airframes. • Exciters, ignitor plugs, harnesses, PMGs across all major platforms
Slide 29: OEM Aftermarket Solutions | Case studies
OEM Aftermarket Solutions | Case studies Sumitomo Precision Products Co. Ltd’s Aerospace Products division, is a major OEM of propellers, landing gears, and heat exchangers. Integrated power generation and distribution systems, a subsidiary of AMETEK, Inc. • Exclusive agreement signed in 2017 coveri
Slide 30: Aviation Services | MRO
Aviation Services | MRO STRATEGY & FOCUS 1MRO approach: World-class quality, performance and safety throughout our facility network and across our portfolio of services RECENT WINS Anchor tenants: Major-base load, long-term customers in each site • • • • Indianapolis occupied by Southwest and Republ
Slide 31: Aviation Services | Integrated Solutions - Commercial
Aviation Services | Integrated Solutions - Commercial 2015: International Business Development 2017: Entry into B777, B737MAX, A320NEO & ATR platforms 2011: Airinmar Acquisition 2014: Sabena Brussels Acquisition 2016: AARIVE 2018: AirVolution STRATEGY & FOCUS RECENT WINS • Successful International E
Slide 32: Commercial Programs Market Position
Commercial Programs Market Position >4,100 AC AAR S TO PROVIDER >2,500 AC TOP THREE SI T PROGRESS IN THREE YEARS 1,500 AC GROWING FROM AIRCRAFT 500 850 AC 850 AC 850 AC 750 AC >650 AC 270 AC 325 AC 550 AC 33 AAR Corp. All rights reserved worldwide. Confidential and proprietary document. *All estimat
Slide 33: Flight Hour (PBH) Program Overview
Flight Hour (PBH) Program Overview • • • • • Typically 5 to 15 year terms Fixed coverage list of parts Rate per flight hour, per aircraft, per month Repair only or with inventory support (leased in or sold) Growth lowers our marginal cost to support additional participants pool • • Ramp up based on
Slide 34: Integrated Solutions | Commercial Case Studies
Integrated Solutions I Commercial Case Studies Current program covers Hawaiian’s new A321neo fleet Pool location in Auckland Contract to cover A320 fleet; both NEO and CEO Exclusive MBK located in Honolulu, Oakland & Portland All AOG requirements satisfied within 24 hours in Hawaii & 8 hours in the
Slide 35: Bio | Nicholas Gross
Bio | Nicholas Gross Nicholas P. Gross Senior Vice President, Integrated Solutions - Government • • • • • • • Senior Vice President, Integrated Solutions – Government, AAR CORP, (2016-Current) Chief Operating Officer, Michael Baker Global Services (2013-2016) Executive Vice President, Technical & Pr
Slide 36: Integrated Solutions – Government
Integrated Solutions – Government RECENT WINS STRATEGY & FOCUS Continue the shift from subcontractor to prime contractor but maintain a balanced portfolio comprised of both Focus on performance based logistics (PBL) and contractor logistics services (CLS) opportunities Leverage subcontract experienc
Slide 37: Integrated Solutions – Government | Landing Gear PBL
Integrated Solutions – Government | Landing Gear PBL • AAR Prime Contractor - $909M Landing gear repair / overhaul and supply chain services for the E-3, KC-135 and C-130 aircraft • 15 year performance based logistics (PBL) contract with US Air Force • First of its kind – USAF outsourcing “Item Mana
Slide 38: Integrated Solutions – Government | Worldwide Aviation Support Services
Integrated Solutions – Government | Worldwide Aviation Support Services • AAR Prime Contractor - Ten year performance based contract with Department of State (DOS) to globally operate and maintain DOS’s fleet of fixed and rotary wing aircraft • • • • • • • Awarded to AAR on September 1, 2016 Court o
Slide 39: Airlift Group | Strategy
Airlift Group | Strategy Increase focus on asset light although no FAA 40 AAR Corp. All rights reserved worldwide. Confidential and proprietary document. GOCO (Government Owned, Contractor Operated) •Leverage Part 135 airline’s experience certificate required •Fleet Management and Operations (e.g. I
Slide 40: Digital Services at AAR
Digital Services at AAR ive ortal for IS program customers Complete real-time visibility of pply chain AR inventory network Gets AAR on the desktop of uyers • OEMs and others have solidly stated the value of data and technology • Deploy key technology leadership and digital talent throughout the org
Slide 41: Summary
Summary • Pursue connected businesses that reinforce collective growth prospects • Expand margins through differentiated capabilities AAR is the leading independent Aviation Services provider serving global commercial and government markets • Increase our global footprint • Leverage data and digital
Slide 42: Financial Overview: Michael D. Milligan
Financial Overview Michael D. Milligan Chief Financial Officer • • • • • Chief Chief Chief Financial Financial Financial Officer of AAR Officer of NES CORP (2017-Current) Rentals Holdings, Inc. (2002-2017) Officer of Telenisus Corporation (2000-2001) Partner at PricewaterhouseCoopers (1986-2000) Edu
Slide 43: AAR Strong Financial Position
AAR Strong Financial Position • Robust business fundamentals in Aviation Services • Continued growth projected in revenue and earnings • Diverse global customer base • INL/A award by Department of State • Strong balance sheet to support internal opportunities and external 44 AAR Corp. All rights res
Slide 44: YTD18 Financial Highlights
YTD18 Financial Highlights • Sales of $888.9 million, up 7.3% • Aviation Services up $81.6M versus prior year • Adjusted gross profit increased to $137.0 million, up 7.3% (before Q2 impairment charge of $51.6 million) • Aviation Services increased to $123.8M, up 13% • Adjusted SG&A expenses were 11.
Slide 45: 1H FY18 - Financial Results
1H FY18 - Financial Results Sales Gross Profit (Loss) Adjusted Gross Profit * $ $ $ 126.0 (38.4) 13.2 $ $ $ 147.3 18.3 18.3 $ $ $ (21.3) (56.7) (5.1) -14.5% nm -27.9% Sales Operating Income (Loss) Adjusted Operating Income* Net Income (Loss) Adjusted Net Income * Diluted EPS Adjusted Diluted EPS * $
Slide 46: Financial Position
Financial Position YTD FY2018 Significant Cash Sources & (Uses) • • • • • • • • • LT Rotable equipment Capex Acquisition of Premier Stock buyback Paid dividends Sale of aircraft JVs Additional cash from operations Other non-operating cash flows Net debt increase ($28.4M) ($17.9M) ($22.9M) ($5.2M) ($
Slide 47: Key Financial Goals
Key Financial Goals • Organic sales growth of 5%-10% • Earnings per share growth of 10%-12% • SG&A as % of sales to 10% or less • 15% - 20% ROIC on capital on new deals • Year-over-year improvement in ROIC • Working capital turnover of 3.5x – 4x • Max leverage of 3.5x EBITDA 48 AAR Corp. All rights
Slide 48: FY 2019 - Financial Guidance
FY 2019 - Financial Guidance* Sales = $2.1B to $2.2B Adjusted EBITDA = $180M to $190M Diluted EPS = $2.50 to $2.80 49 * Assumes contribution from INL/A - WASS AAR Corp. All rights reserved worldwide. Confidential and proprietary document.
Slide 49: Closing comments
Closing comments • Strong leadership team • Our end markets are healthy and growing • Robust opportunity pipeline • Strong Balance Sheet AAR is well positioned 50 AAR Corp. All rights reserved worldwide. Confidential and proprietary document.
Slide 50: Appendix
52 AAR Corp. All rights reserved worldwide. Confidential and proprietary document. Appendix
Slide 51: Non-GAAP Financial Measures
Non-GAAP Financial Measures Adjusted gross profit, adjusted SG&A expenses adjusted operating income, adjusted net income, adjusted diluted earnings per share from continuing operations, adjusted EBITDA, adjusted return on invested capital and net debt are “non-GAAP financial measures” as defined in
Slide 52: Non-GAAP Financial Measures
Non-GAAP Financial Measures Expeditionary Services gross profit (loss) Impairment and other charges Expeditionary Services adjusted gross profit Consolidated gross profit (loss) Impairment and other charges Consolidated adjusted gross profit Selling, general and administrative expenses Less: Impairm
Slide 53: Non-GAAP Financial Measures
Non-GAAP Financial Measures Operating income Impairment and other charges Adjusted operating income Average invested capital Adjusted return on invested capital $ 25.6 54.2 $ 71.5 - 79.8 1,068.9 71.5 999.9 7.47% 7.15% 55 AAR Corp. All rights reserved worldwide. Confidential and proprietary document.
Slide 54: Non-GAAP Financial Measures
Non-GAAP Financial Measures Operating income (loss) Impairment and other charges $ (17.4) 54.2 $ 36.6 - Adjusted operating income 36.8 36.6 56 AAR Corp. All rights reserved worldwide. Confidential and proprietary document. SIX MONTHS ENDED NOVEMBER 30, $ in millions 2017 2016
Slide 55: Non-GAAP Financial Measures
Non-GAAP Financial Measures Income (Loss) from continuing operations Impairment and other charges Gain on asset disposal Depreciation and intangible amortization Stock-based compensation Interest expense, net Income tax expense (benefit) Adjusted EBITDA $ (11.9) 54.2 - 28.5 5.4 3.6 (9.1) $ 22.0 - (2
Slide 56: Non-GAAP Financial Measures
Non-GAAP Financial Measures Income (Loss) from continuing operations $ (11.9) $ 22.0 $ 50.2 Impairment and other charges 54.2 g 5 Gain on asset disposal 5 (2.6) (2.6) Depreciation and intangible amortization 28.5 24.3 52.9 Stock-based compensation 5.4 49 11.0 Interest expense, net 3.6 24 a2 Income t