AAR Corp Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kenneth Herbert - RBC Capital Markets - Analyst : Hey, good afternoon, John and Sean, and Denise. First, John, you made a comment, again, USM. I think you said down slightly in the quarter, but you expected, I think, you said that to be temporary. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2025 / 9:00PM, AIR.N - Q3 2025 AAR Corp Earnings Call Can you just maybe get a little bit more about what you're seeing in that marketplace and which gives you confidence that USM sounds like could be up in the fourth quarter? And how do we think about that then into fiscal '26?

Question: Kenneth Herbert - RBC Capital Markets - Analyst : And just as a follow-up, there's certainly been some more concern about capacity growth amongst US airlines initially and maybe now a few in Europe. Can you just comment on if you're seeing any of that impact your business? And maybe how much would we have to see capacity go down before you would, in fact, start to see impacts on different parts of your business?

Question: Kenneth Herbert - RBC Capital Markets - Analyst : Great. thanks, John. I'll pass it back there.

Question: Louie DiPalma - William Blair & Co LLC - Analyst : John, Sean, and Denise, good afternoon.

Question: Louie DiPalma - William Blair & Co LLC - Analyst : Great. Nice work on the margin expansion. That's been a focus for investors. And I was wondering, you provided the information that the Landing Gear, I think, is generating roughly $20 million in revenue a quarter. Should that divestiture potentially add like 32 to 40 basis points to the EBITDA margin when it closes?

Question: Louie DiPalma - William Blair & Co LLC - Analyst : Okay. Great. And another question, your Trax business, one, the deal with Cathay Pacific, and you previously announced a win with Singapore Airlines. Should these deals contribute to margin expansion as they scale? And are there other Trax deals in the pipeline, as it seems you have momentum there in the APAC region?

Question: Louie DiPalma - William Blair & Co LLC - Analyst : Awesome. Thanks, John.

Question: Michael Leshock - KeyBanc Capital Markets - Analyst : Hey, good afternoon, everyone. You had called out the increased throughput at MRO facilities and those have been running at, at or near full capacity for a while now. So it's good to see that improvement. Could you talk about the efficiency improvement and maybe how big of an impact it's had on margins? And then secondly, do you see more room for increased throughput in the near term?

Question: Michael Leshock - KeyBanc Capital Markets - Analyst : And then maybe an update on defense opportunities? You had talked about the USM parts with DOGE. How has the activity there increased versus maybe three months ago? And looking forward, when could we realistically expect those opportunities to come to fruition?

Question: Michael Leshock - KeyBanc Capital Markets - Analyst : Great. I'll leave it there. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 27, 2025 / 9:00PM, AIR.N - Q3 2025 AAR Corp Earnings Call

Question: Scott Mikus - Melius Research LLC - Analyst : Hey, John, Sean. Sorry, I think I got disconnected earlier.

Question: Scott Mikus - Melius Research LLC - Analyst : Yeah. I saw the press release on you extending the partnership with FTAI through 2030 on the CFM56 engine. I'm just wondering, did that extension of the agreement, did it come with any change in economics or increase in scope? And then kind of how should we think about it ramping from this point through the end of this decade?

Question: Scott Mikus - Melius Research LLC - Analyst : Okay. And then thinking about the tariff situation, it's very fluid. I'm thinking, are you potentially doing any bulk buys of parts for your parts distribution business to preempt any tariffs? And is there the possibility that if there's not broad exemptions for tariffs that it could drive more demand for your component repair business?

Question: Scott Mikus - Melius Research LLC - Analyst : All right. Thanks for taking the questions.

Question: Joshua Sullivan - The Benchmark Company LLC - Analyst : Hey, good evening. Just as far as the BELAC distribution agreement with Chromalloy. There's a conversation around lessors and their interest in PMAs. I mean what's your sense as you get into this distribution arrangement that the lessor market is going to be a good customer?

Question: Joshua Sullivan - The Benchmark Company LLC - Analyst : And then I guess tying that -- maybe a separate question, but tying it into your comments earlier about DOGE. I mean what are your thoughts about potential PMAs entering into that conversation as well?

Question: Joshua Sullivan - The Benchmark Company LLC - Analyst : Got it. And then I guess just one last one on Trax. As it becomes a broader-based platform, when do we hit that tipping point, where we really see some -- a lot of activity for air distribution or products flowing through the Trax platform?

Question: Joshua Sullivan - The Benchmark Company LLC - Analyst : Okay, thank you for the time.

Question: Michael Ciarmoli - Truist Securities Inc - Analyst : Hey, good afternoon, guys. Thanks for taking the question. John or Sean, I just want to make sure. It sounded like the top line miss versus your expectation, I think you were looking at '22, [you have that] higher USM. So I wanted to make sure I had that. And then just, I mean, on the engine maintenance deferrals, I mean, should we be thinking of that as something maybe a little bit more ominous when we couple that with what we're seeing out of the airlines? And I think there's always been some chatter and reports of some of these advanced bookings, especially in Canada, really showing some weakness. So I'm just thinking, you hear an airline defer an engine most likely because they're not flying? Or how can we reconcile that?

Question: Michael Ciarmoli - Truist Securities Inc - Analyst : And then just what about the sort of -- more questions on USM, I guess. We've actually seen some of the US carriers maybe talking about accelerating some retirements, which maybe that's just a healthy return to normal in terms of retirement as a percent of fleet. Are you seeing those signals? Didn't you get access to that material? I mean, some of these customers, some of the carriers have said that are some of your customers. So do you think there's going to be -- I don't want to say a bow wave of USM, but do you think you get some more shots on goal here?

Question: Michael Ciarmoli - Truist Securities Inc - Analyst : And then just last one, housekeeping. What was the organic growth? I may have missed it, the organic growth in the quarter, Sean?

Question: Michael Ciarmoli - Truist Securities Inc - Analyst : Got it. All right. Thanks, guys. I'll jump back in the queue.