Following the acquisition of Aviation Worldwide Services (AWS), a leading provider of expeditionary airlift services and aircraft modifications to the U.S. and other governments, AAR Corp. (AIR) decided to shift its airlift services and specialized aircraft modifications businesses to Melbourne, Florida.
The prime motive behind the relocation, which will be completed by calendar year 2011, is geographical diversification.
Aviation Worldwide Services has been beneficial to the first quarter of fiscal 2011 results with an EPS of 35 cents, up from 27 cents in the corresponding period of fiscal 2010 and 20.7% increase in the total revenue. It also added five aircraft to its fleet. The acquisition is expected to be accretive to earnings and margins in fiscal 2011 and beyond and is expected to generate $175 million of revenue on an annual basis.
AAR Corp. has gone through various strategic investments in the recent past. In fiscal 2010, the company announced the formation of AAR Global Solutions, a joint venture company that is expected to provide value-added solutions in support of the U.S. and friendly foreign governments’ defense and nation building initiatives.
AAR Corp. is anticipated to perform well once the market recovers due to its industry leading supply chain and MRO positions. New products, equipment and methods will also help the company to obtain numerous contracts. For fiscal 2011, revenue is expected in the range of $1.5 to $1.6 billion and EPS within $1.25 to $1.40.
The aviation industry is constantly undergoing development and change, and it is likely that new products, equipment and methods of repair and overhaul services will be introduced in the future. The industry on a whole has also started showing improvements. We reiterate our Outperform recommendation and the stock retains its Zacks #1 Rank (short term Strong Buy rating).
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