AAR Reports Record Third Quarter Fiscal Year 2020 Results

WOOD DALE, Ill., March 24, 2020 /PRNewswire/ -- AAR CORP. (NYSE: AIR) today reported third quarter Fiscal Year 2020 consolidated sales of $553.1 million and income from continuing operations of $2.6 million, or $0.07 per diluted share.  Third quarter results included a predominantly non-cash pretax charge of $24.7 million primarily resulting from restructuring and exiting underperforming contracts in commercial programs.  For the third quarter of the prior year, the Company reported sales of $529.5 million and income from continuing operations of $27.4 million, or $0.78 per diluted share.  Our adjusted diluted earnings per share from continuing operations were $0.67 in the current quarter compared to $0.62 in the third quarter of the prior year. 

Consolidated sales increased 4% over the prior year period due to continued growth across our Aviation Services segment, which experienced sales growth of 7%.  Excluding the sales impact of the restructuring actions of $9.8 million, Aviation Services sales grew 9% during the quarter primarily from execution on our government contracts.  Sales to government and defense customers represented 35% of our consolidated sales in the current quarter compared to 33% in the prior year quarter reflecting growth from new government programs. 

"While we saw record results during our third quarter, our attention is focused on the unprecedented impact to our airline customers from COVID-19.  Our strategy to maintain a balanced portfolio across the government, commercial and cargo markets, along with our strong balance sheet, including net leverage of 0.9x, liquidity of over $425 million and no meaningful debt maturities until September 2024, sets us up well to navigate the COVID-19 impact.  We are in discussions with our airline customers and will actively manage our costs to align with the current reality," said John M. Holmes, President and Chief Executive Officer of AAR CORP.

As indicated earlier, during the third quarter, we took actions to improve the long-term operating performance in our commercial programs activities.  These actions will reduce our costs, free up capital and allow for margin improvement upon the recovery of the commercial airline market.

In the fourth quarter, we will be taking actions to reduce our fixed costs and overhead by consolidating facilities with the goal to improve our operating efficiencies.  Further, in response to the impact of COVID-19, we have taken actions including reducing executive compensation, freezing new hiring, reducing or eliminating all non-essential spend, furloughs and, unfortunately, reducing our workforce.  We expect the cost of these fourth quarter actions to be approximately $15 to $20 million with the payback of these actions realized within one year.  We remain prepared to take additional action as warranted to respond to the evolving airline demand environment.

Also during the third quarter, we announced multiple new contract wins including:

• Multiyear distribution agreement with AeroControlex, a large manufacturer of critical components to the aviation industry
  
  
• Expansion of our airframe maintenance services with Air Canada including plans to add A330 maintenance capability to our operations in Quebec
  
  
• Sole-source Indefinite Delivery/Indefinite Quantity contract award with an estimated value of $90 million from the Defense Logistics Agency Troop Support to produce specialized shipping/storage containers and accessories
  
  

Holmes concluded, "We have worked very hard to build an exceptional team at AAR and I am very proud of our accomplishments.  As we enter this uncertain time, we are making very difficult decisions that involve sacrifices by our employees and I want to thank our people for their commitment and flexibility.  I also have been in dialogue with members of the House, Senate and the Administration regarding potential aid to the broader aviation industry and we are particularly supportive of any measures aimed at preserving jobs.  I am confident we will emerge as an even stronger company as a result of the quality and dedication of our team."

Outlook
Given the current macro uncertainty from the impact of COVID-19, we believe it is prudent to withdraw our guidance for the balance of the year.

Conference Call Information                                                          
AAR will hold its quarterly conference call at 3:45 p.m. CDT on March 24, 2020. The conference call can be accessed by calling 866-802-4322 from inside the U.S. or 703-639-1319 from outside the U.S.  A replay of the conference call will also be available by calling 855-859-2056 from inside the U.S. or 404-537-3406 from outside the U.S. (access code 1826378). The replay will be available from 7:15 p.m. CST on March 24, 2020 until 10:59 p.m. CST on March 29, 2020.

About AAR
AAR is a global aerospace and defense aftermarket solutions company that employs more than 6,000 people in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers through two operating segments: Aviation Services and Expeditionary Services. AAR's Aviation Services include parts supply; OEM solutions; integrated solutions; maintenance, repair, overhaul; and engineering. AAR's Expeditionary Services include mobility systems and composite manufacturing operations. Additional information can be found at www.aarcorp.com.        

This press release contains 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, including but not limited to, our position of strength, our actions to reduce costs and their anticipated impact on our results, the availability of potential aid to the broader aviation industry, the anticipated payback timeframe for our cost-reduction initiatives, and our ability to navigate the impact of COVID-19.  These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information currently available to the Company, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, including those factors discussed under Item 1A, entitled "Risk Factors", included in the Company's Form 10-K for the fiscal year ended May 31, 2019, as well as the risks presented by COVID-19, which are more particularly described in the Company's Form 10-Q for the fiscal quarter ended February 29, 2020. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.  These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company's control.  The Company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. For additional information, see the comments included in AAR's filings with the Securities and Exchange Commission.