Earlier this month, Aar Corp. (AIR) entered into a series of related transactions with Mesa Air Group, Inc. (MESA).
 
AAR and Mesa amended their parts supply and maintenance agreements for Mesa’s CRJ-200 and ERJ-145 aircraft fleet to provide Mesa with increased flexibility to respond to demand fluctuations in the 50-seat aircraft market. In consideration for these amendments AAR will receive a cash payment from Mesa along with 15 million shares of Mesa’s common stock. AAR will return to Mesa $6.1 million aggregate principal amount at maturity of Mesa’s 2023 notes.
 
AAR does not expect to increase its stock ownership in Mesa, and may sell down its position from time to time as market conditions permit. AAR has generated approximately $30 million in annual sales supporting Mesa’s CRJ-200 and ERJ-145 fleets.
 
Management believes that such agreements will further increase its cash flow from operations.
 
During the first quarter of fiscal 2010, the company generated $34 million of cash flow from operations and ended the first quarter with $122.8 million of cash and cash equivalents on hand from $112.5 million in the first quarter of fiscal 2009. However, weak conditions in the commercial markets have stretched sales and margins in the aftermarket businesses supporting commercial airlines.
 
The global airline industry continue to experience significant financial difficulties, with several carriers filing for bankruptcy protection and recent warnings regarding industry profitability largely due to volatility in oil prices and the economic downturn. Additionally, the recent surge in oil prices also remains a problem. Furthermore, we do not expect a significant recovery in the global airline industry even in 2010.
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Read the full analyst report on “MESA”
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