Byline: H. LEE MURPHY
A run-up in revenue at AAR Corp., a supplier of aircraft maintenance services, is fattening profit margins.
In the fiscal year ended May 31, AAR saw a 20% jump in sales to $1.06 billion. Earnings rose 67% to a record $58.7 million, or $1.40 per diluted share.
It was more of the same in the first quarter, ended Aug. 31: Revenue was up 27% to $306.0 million and earnings rose 29% to $15.2 million, or 36 cents a share.
Commercial airlines are outsourcing more repair work to third-party specialists like AAR, allowing the Wood Dale-based company to fill unused capacity. When it took over a sprawling maintenance depot in Indianapolis from United Airlines early in 2005, the company used a single bay of the dozen in the facility. Now it has filled eight bays and is scrambling to find mechanics to accommodate an expanding customer base that includes United as well as Southwest Airlines.
Some analysts believe AAR could bid for United's entire maintenance division, which the Chicago carrier may unload (ChicagoBusiness.com, Oct. 1).
At a low point in 2004, AAR reported a 3.4% operating margin. Last year, the margin rose to 9%; 10% is the goal this year.
"Our margins still aren't quite where we want them to be yet,'' CEO David Storch said at the Oct. 17 annual meeting. "But we're pleased with our progress. Our goal is to get margins to 12.5% within the next three years. That's realistic.''
Troy J. Lahr, an analyst with Stifel Nicolaus & Co. in Baltimore, forecasts fiscal 2008 earnings will rise 27% to $1.80 a share. "AAR is well-positioned to report 18% annual sales growth and approximately 20% earnings growth through 2011,'' he said.
Copyright 2007 Crain Communications Inc.
