AAR Corp. (AIR) reported discouraging results for the third quarter of fiscal 2010. During the quarter, sales were $309.6 million, down from $338.8 million in the third quarter of fiscal 2009.
Net income was $9.9 million or 26 cents, down to almost half of $17.2 million or 43 cents in the year-ago quarter. Reported EPS was below the Zacks Consensus Estimate of 35 cents.
Sales to defense and government customers were down 1% year over year, and represented 48% of total sales while sales to commercial customers declined 15%. 
Sales in the Aviation Supply Chain segment declined 14% to $122.6 million due to the decline in demand for parts support in comparison to the year ago level.
In February 2010, Aar Corp. won supply chain services and logistics support contract from USAF’s KC-10 fleet for 600 million. This business will become fully operational in the fourth quarter.
Sales in the Maintenance, Repair, and Overhaul segment declined 9% to $70.1 million. During the quarter, the company began heavy maintenance work on new and expanded awards for Hawaiian Airlines, Allegiant Air, and Alaska Airlines and landing gear overhaul for an unannounced major U.S. carrier.
This new business has impacted sales to existing customers due to reduced maintenance requirements across the industry caused by fleet reductions and lower discretionary maintenance spending. 
Sales in the Structures and Systems segment declined 3% to $116.9 million due to weaker sales of cargo systems and composite structure products.
During the quarter, the company generated $36.5 million of cash flow from operations and ended the period with $117.5 million of cash and cash equivalents compared to $112.5 million at the end of fiscal year 2009. 
During the third quarter, Aar Corp. repaid $20 million, the remaining balance on its revolving credit agreement.  Since fiscal year 2009, the company has reduced its outstanding debt obligation by $75 million, bringing down its net debt to total capitalization ratio to 22.2%.
AAR is expected to benefit as the commercial markets recover based on its industry leading supply chain and MRO positions.  Additionally, a strong financial position will enable it to pursue opportunities across its markets.
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