AIR - Earnings call transcript Q3 2020

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Operator

Good afternoon, ladies and gentlemen, and welcome to AAR’s Fiscal 2020 Third Quarter Earnings Call.

We’re joined today by John Holmes, President and Chief Executive Officer; and Sean Gillen, Chief Financial Officer.

Before we begin, I would like to remind you that the comments made during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as noted in the company’s news release and the Risk Factors sections of the company’s Form 10-K for the fiscal year ended May 31, 2019 and Form 10-Q for the fiscal quarter ended February 29, 2020. In providing the forward-looking statements, the company assumes no obligation to provide updates to reflect future circumstances or anticipated or unanticipated events.

At this time, I would like to turn the call over to AAR’s President and CEO, John Holmes.

begin. may You

John Holmes

very appreciate you our good everyone. afternoon, FY Great. all much, joining really you results. discuss us I XXXX Thank and today QX to

like details Before into COVID-XX. of to make the I some the quarter, get regarding comments I’d

with world thoughts those of the this. lines who and are are directly the healthcare who out on appreciation fighting goes First, to been workers impacted, all our have our around the front

AAR enters you the industry. As this global position a unprecedented is uncertain for situation this of know, an from period aviation strength.

from with We to meaningful customers diverse cargo business have sales a approximately mix XX% commercial of sales government carriers. and

We and impact commercial airline also than liquidity strong less customer of with business as relationships. to our a we balance decrease traffic. have sizeable air a result in That commercial sheet a significant one-times net the leverage, said, strong expect

eliminating reducing respond remain anticipated proactively hiring with in we furloughs steps workforce. costs ensure compensation, to additional that our address order These spend, business executive and, said, reductions In include of to evolving demand. the taking environment. are COVID-XX, as to reducing or the unfortunately, warranted That decreasing to steps aligned we remain impact take action to the freeze, prepared non-essential all a

the have to the as Administration members I respect but House With potential contact for Senate, government not also aviation as well industry. regarding for been with and just direct in airlines, assistance, the of support, the both broader the potential

with to a last efforts, training enhance recruiting technicians. know, we develop schools several over have create partnering quarters and you worked to for the As diligently pipeline programs our various

well at we of measures retaining and all is focus our as safety of as workforce, building aimed and The particularly our customers supportive vendors skilled a priority. jobs. health and people, success top and are our government Given a preserving in

and really uncertainty stress facilities. guidelines business a plans following the with all These remote offices overall And and deal our working, I’m continuity measures, thank in business as climate, part work, want have to across proud opportunity through difficult and best distancing, of time. dedication to of of for employees I AAR and closely this their the people. be aviation. related at our to hard and combined enacted this CDC flexibility very create We’re we for take go the social great team

our record third diluted to quarter I’m had Turning million per from Sales performance. X% operations MRO continuing by per $XXX adjusted from performance strong from from supply and to share We were programs, a the $X.XX our per exceptional These to continued activities. with share parts pleased were and our increased million $X.XX government results. and overall $XXX driven earnings results share.

partner services the to AAR the aviation new which In business that be demonstrate choice announced the continues industry. in quarter, wins, we several of

we announced fleet. Air – with announced Canada to to that AXXX airframe plans services its Specifically, we maintenance expand cover our

Additionally, global large AeroControlex, to lube line. the industry, manufacturer exclusive AAR of the be its pump aviation product APU components to distributor critical selected for the

are already and results growth aftermarket We opportunity. seeing products have the in expertise strong from particular these significant

sole-source accessories. as IDIQ as containers Defense a and shipping secured contract we specialized Finally, storage the million for Agency well $XX Logistics with

taken strength of and in and we described there restructuring the performance continue the that several to release, As actions take are have improve will AAR. to

which results. seen financial impacting have costs increased were programs our certain have we As previously contracts, adversely in commercial discussed, we

cash up capital, contract have us improve to to We flow one will taken two margins. exit action restructure which increase and free others, decisive allow and

to QX, These actions several further pursue in facilities reduce in actions non-cash made consolidating predominantly also the fiscal involve restructuring costs. a our We’ve charge resulted one-time to million. $XX.X which decision additional of

final our quarter-end, the pleased to over sale I’m COCO contract business. within Airlift to we the share that to turning subsequent completed Before of Sean, the

As that strategic have plan our pleased of shift, previously the we complete. to our and discussed, that completes are of of element part exit as business this

With that, it I’ll CFO. turn over our to Sean,

Sean Gillen

John. Thanks,

Our X.X%, activities Aviation million $XX.X contributed sales parts $XX This demand X.X% Services of a or increase. approximately which MRO increase the included represent Improvement driven of in our million execution in and in XX% or government million, $XXX.X year-over-year. were to revenues, the by also up in quarter primarily contracts, revenue. strong our on volumes supply

other contracts our predominantly non-cash actions in John one quarter. business, programs These and of restructured commercial in mentioned, terminated and cost charge reduction $XX.X of resulted a related during million As the which contract a $XX.X in sales establishment one-time revenue in loss we the shows two of as and forward million. of the of $X.X reserves other up P&L in million, charges

Services Aviation which one-time charge. million, driven $XX.X the $XX.X was by profit gross million decreased

Excluding by this year-over-year. profit gross increased our and would charge, have million. programs $X of government profit increased supplies parts Each MRO

Gross profit within Expeditionary Services decreased $X.X million.

a we this large delay in challenges. we a continue experience had operational recovery certain and contract While quarter, a expected award to segment in this

We to are QX reduce and costs actions overhead. restructuring fixed taking in

our Within our Services, and efficiencies, consolidate overhead excess decrease improve will capacity eliminate fixed which and production will we Expeditionary significantly facilities, costs.

along to result going We in performance our forward. expect current these improved backlog, restructuring with actions,

as compensation, Additionally, which cost force. fourth spend, reductions hiring non-essential reducing furloughs, all a quarter, executive or and John reducing in have in reduction COVID-XX, in we included actions light eliminating the discussed, initiated freeze, of

the to and with actions quarter, these costs expect one one-time to payback the steps pre-tax facilities year. the COVID-XX-related million in we $XX total, fourth realized within result $XX on In approximately in of consolidation million

driven and In expenses the were increase costs. investigation XX.X% of sales quarter, in period, prior XX.X% SG&A compliance-related the largely the versus with by

current and to have prior quarter. of X.X% periods, investigation year the been would quarter, severance XX.X% in sales compared Excluding the SG&A in from both costs

to $X.X last expense the offset million in was to due year, million, rates. compared interest borrowings higher $X.X by Net lower year, partially current

$X.X quarter, the cash was our provided operations from activities operating continuing flow During from million.

invest to inventory to in continue supply our activities. support We parts

year, advance performed less we we significantly period. resulted flows in reduced year government as cash prior certain the in program the in on last revenue paid Additionally, our contract under deferred program, which a that

quarter, the share. a dividend returned to million per shareholders During of $X.X we via $X.XXX

and leverage of debt net X.X balance Our $XXX.X strong at remains times. sheet with million net

our upsized million $XXX to we the revolver September year, this $XXX XXXX. million maturity by to and extended Earlier

Our a XXXX. million only other November term loan due $XX maturity is

As $XXX of million. unrestricted the million, which of the had million liquidity $XXX we total of included revolver end of of $XX cash quarter, and availability

addition, available In $XX under of capacity net accounts had we receivable facility our million.

to back you Thank the now attention. over And for your turn I’ll call John.

John Holmes

Great. Sean. Thank you,

year-to-date our we this the raised prudent is we effects at While airline have time. guidance commercial and results, ahead believe tracked on due year COVID-XX it XXXX previously of our market, to with guidance, the pleased which our are QX fiscal to withdraw of

to question this a commercial to impact we volumes government no have said, that environment. will and substantial on COVID-XX from strong our There’s a have our cargo and are expanding That which expected meaningful airline are in we business, potentially grow, continue customers see business.

travel the will airlines As and and will we low utilization will AAR that and and cancel and to grow, opportunities be aircraft. be as to for new orders aircraft required. for will air capital demand believe On of parts aftermarket airlines, existing prices, aircraft likely extend return for cause fuel return constraints, possibly with note, for there service, services will combined

used due money increased supply we, benefit parts. for demand the as the in parts of will using upcycle, greater in competitors focus which believe aircraft aftermarket, largest grown to had aftermarket on as recent the we world, the survive And Moreover, in the length retired. struggle the as or our their core competition to activities. are to increasingly years as from materials aftermarket be supplier will there airlines Additionally, look save will decrease

I want to a reiterate position. that AAR is in strong

exceptional sheet. We event. can do proud an better are I’ve just markets end to amazing confident are be into heading and emerge before I and this even seen balance this we joined that in stronger. of what we we position I’m team, AAR an across such diversified part adversity, today and and X/XX, will I’m have in times and even geographies of company

With turn operator it the to that, questions. for I’ll Thanks. over

Operator

Instructions] from comes Spingarn. [Operator of first Our Robert the line question

Robert Spingarn

afternoon. Good

John Holmes

Rob. Hey,

Robert Spingarn

John challenging is very this time. a and obviously, Sean,

if you wanted based maybe you’re anyway the you’ve on by So, through far you there’s declines capacity we any you customers? I ASM on to And businesses? frame, looks to from some Is how of as these we like course, seen this. start that decline the and what in or perhaps that fairly March there started, wish sense have the up relates come asking what there for your if to best through you have hearing so work algorithm that various what your heavy can business or with?

John Holmes

an but take there’s to by me piece algorithm, let sure not company. the try if across it Well, piece

remaining strong on that there. this we side, the significant quarter, we As government continued point, or expect the government saw quarter, in we see third government the in we see the business the mentioned continuing growth And at side. past we growth and on

in contracts for the business parts supply providers as some our well, I parts businesses, we have with cargo well to business, MRO as as that mentioned. providers potentially in as Cargo the up customers, expect hold through cargo engine expand, cargo the and engine activity overall we or

daily. head a MRO, of hangars. is our Right environment have and But of summer. meaningful change They’re we fair we constant all terms this and and major airline work, the anticipate now, full. in we does customers with the decline In in a in of are as we customers, that work amount really a contact dynamic largely very towards

the us out one in schedules different been, of is particular solid can The everything and are lines this they we, it the at of recognize provider, keeping importance we maintenance main information We’re many for part of that with to message MRO getting us like that the – they’re all customers customers, and and full. encouraging together. of terms time of work we’ll in of of do that the putting companies keep different our they has

we activity expecting facilities into head meaningful decline that summer. across are as said, the the a in maintenance we Now

early up and holding last businesses, terms – business some third parts both in out the of we suggest to then airline until that’s used, the quarter see would or those just in that new Asia it’s days. been few sales, continued. and the And the parts of actually and new up, We decline – has tell both did

But business with PBH up, tracks – anticipating have a we the but decline parts tracks parts ASMs. that, seen business business business tracks the days. the And business been that are – has we holding commercial and with in last few just

Robert Spingarn

percentage I Okay. the Could us cargo, on line? top you guess, refresh of that overall the of business the just is

John Holmes

out, typically, we commercial we XX% see between Yes. But but It’s it – not the of it and XX% and fluctuates. something typically put business.

Robert Spingarn

Of business. commercial the

as And pressures other I is the at think intensity, all Sean. – business? we ask least, part don’t cost if you, would right is versus this to your maybe about for you how thing But wanted Okay. cost, is structure? describe to these the or it’s if I various fixed the it way your for labor your variable of you given know ask

Sean Gillen

Yes.

And Given the the of you sales variable, of nature you most cost activities, our that of if about parts supply our about think cost our obviously business, inventory on is shipping the because are we think it is of have with procure or that associated and sales, variable it’s in the we the really we’d costs other parts buy activity. So the shelf market. right?

a have nature people fixed Where commercial and hangars that the so in and of I on And where fixed in a bit part there some programs, activity. supply – the MROs. fixed more the the the it. it’s the variable obviously, think other variable in variable chain cost There a then some highly support lot cost contracts labor more of a of hangars greater and structure are costs in support, the the is company. you Again, is the the support has to terms infrastructure supply pockets to nature infrastructure have across more areas. some But we whole and to

Robert Spingarn

your parts the Okay. You for ability… And working should capital to next Do do continue here? working you just in draw best given How about capital about me do activity, quarters to we for the how have the trends is, think decline you parts? down? inventory, last then be think few active that from the of we one obviously in

John Holmes

Yes.

Robert Spingarn

Speakers] us some give [Multiple sense?

Sean Gillen

I evolving situation. think, is indicating and an yes, this definitely – as think I there, you’re

we a we as existing where inventories. liquidity parts now, very satisfy And business in demand. using But the right certainly arise, out see that to down We’re the and mode required we opportunities are make we the investments. as right now, we and would to drawing see are focused operate we on settle potentially to on look stock things have

Robert Spingarn

the both, color. Okay. Thank you, for

Operator

Our next from the Herbert Canaccord. question of comes Ken from line

Ken Herbert

afternoon, Yes. John Hi, and good Sean.

John Holmes

Hi, Ken.

Ken Herbert

restructured, obviously, forward? now John, wanted the now set just how two of in called this first pretty that you’ve do I how that taken I level you’ve well business view in business. you you’ve left? And out, And exited, you to the is what’s businesses? about risk we action terms do mean, one it about commercial ask these contract programs think moving

John Holmes

So over the actions to took those I feel good indicated had as the of we been address we’ve quarters. that for headwind a contracts. last about They us, couple

were in response occurred restructurings our those So customers. that within to

they so able they’ll happy were we those I’m an And those cash and as actions. will improvement actions. an And said, that provide to we in result take as a flow of – improvement in margin

those uncharted contracts, have certainly of will certain how though, and in COVID-XX, those have hours fleets seen hour support. across reductions of be built as gotten In of contracts in in hour of the the are we’re that flight name we we by protections terms minimum on those protections enforced. context, although, there, waters all And implies, flying airlines power the the of

so we’re of in how assess impact as our dialogue they with of COVID-XX. their a support all a of the fleets will about as result customers forward going our And look, program own

Ken Herbert

great. aggressively. you MRO look cutting if seem question, one maybe think just I be us specifically the pretty the that’s and And the about way you. is, spending earlier airlines Okay, across to this to parts on follow-up to as discretionary help Thank supply businesses, obviously, could

of of curious, the But the the the two there’s just and on I a how business, imagine But maybe timing about would see those I’m parts on the coming side, side, parts a a comment trading talk you’d maybe distribution and MRO on you it the standpoint, can parts earlier, timing organization? lag. the maybe should the we and distribution soon, on your sort fairly through imagine, bit this, about out see I side MRO that fairly of quickly. parts then you certainly, to the would just impact, from and this how on of rolls trading think

John Holmes

Yes.

decline we you On really, the in cannibalize the trade the trading, expect, that’s have both terms last ground of would to fairly expect up think, see that few I parts as last It airlines couple just fleet actually expendables. We was volume. days. evolve. was parts specifically, would in holding days, just on in parts it right. have side, And well in It to the decline actually into started activities, meaningful in consumables aircraft from a terms day-to-day and we ground, look decline largely of – the business are of those distribution

decrease But – on I they not cannibalized. that would airlines the side parts aren’t see what we So, some that’s the those that to necessarily then replenishment that volume there. slowdown expect see and on could through be we’ll orders well. But new a have go as as parts shelf, overall,

when side, working are maintenance On ahead start provided those be service. in a back make the the those expect sure would into of events pace again, that I – that parts And in would aircraft activity our comes the handle to we business. they deferrals. are the closely back, customers to maintenance to to position aircraft recovery And a with we’re maintenance put

Ken Herbert

with to just and be look? Okay, that what at can finally, within there been out the or And Asia? least, Are great. you that I parts seeing outlook that China comment mean, seem China you’re just your specifically how And seeing specifically there? air economy speculation up. maybe there of some you has look does travel, of on picking customers

John Holmes

we activity, And China. last great is In out particularly have answer two question. the some have. seen Yes, weeks, the we of

in decline to particular, about of less all see meaningful volume the across we order a of – and impacted a into bit out started Asia. halfway in quarter, through third China, Going

weeks, But in increased we a – have the last some seen two activity.

gear As week, matter in received And dollar in landing environment, a from we that’s of purchase multimillion carrier. big a a fact, environment. this a last order order Chinese for any particularly

with market that So of life there are signs returning. definitely

Ken Herbert

luck. good and much very you Thank Great.

John Holmes

Thanks, Ken.

Operator

the Stifel. [Operator Instructions] line Our from comes Joseph next question from of DeNardi

Joseph DeNardi

you that more billion rate? Is track parts? how business guys. ASMs, to year little evening, a $X with can deviation about quantify of John, expect so good a just or the bit run the Hey, much you

John Holmes

don’t If then at third; elements third, look parts the the a MRO, a we if Aviation government third – a a it’s out split between But a typically third Aviation third, split commercial. and roughly those you of Services, it’s we segment. third a roughly programs. in And Services programs, and

tracking So, by we with would ASMs. power the see the hour programs commercial

the the we it half, the put more business government of with And the which see that that business, would the would bit portion I tracking with ASM. of and of then remaining than exception inside a cargo parts of parts portion business, business half the

Joseph DeNardi

And you Okay. months. about to I expect? U.S. couple tracking the some in talking that ASMs, a when airlines what of Is ballpark would mean, with are next declines of the say XX% of XX% you

John Holmes

Yes.

Joseph DeNardi

Okay. airlines commercial And the and with then of much on MRO, parts the versus PBH? the airlines between commercial piece, the U.S. business how is foreign

John Holmes

Yes.

commercial is Our XX% international. about roughly business

about by So, XX% I XX% ASMs, when that and so talk international – domestic. would would it, look weight we I call geography,

Sean Gillen

as And know…. you

Joseph DeNardi

Okay.

Sean Gillen

hangars some repair New ...in similar that’s facilities two in Canada, component there; five the gear two U.S., Miami; and then narrow-body Amsterdam. in York facility market, then in think the in which the and I domestic landing dynamic and services

and Canada. So overweight MRO, the U.S. towards within its specifically, domestic market

Joseph DeNardi

it. Got

access Okay. can access you much of have some would talk that? And of then you you Sean, when and to just about think you to, How kind liquidity? look

Sean Gillen

Yes.

script, in upsized the So, liquidity, just we about as we in have of fall. my million mentioned $XXX back I the revolver

million $XXX has. that liquidity is the XXXX, And total in years upsized available maturity the we the and fall to of million now to that’s in until the time. $XXX company from So it X.X at

and there’s AAR in a under ago an couple of availability put some program that. also years financing We

today good. liquidity, think, where sit on of terms we we I in So, feel

We’re the in and planning taken the obviously today. banks our discussions over stays last, make months contingency we the about that actions that same. it But to where with we’ve and six good feel it, sure call sit

Joseph DeNardi

just yes Okay. more ahead. And go then – one

Sean Gillen

fixed overhead The cash as as company. taking, we’re add. cost, in of actions with eye and costs of obviously the position an well I’d terms the the Yes, improving all both to are

Joseph DeNardi

what environment or that more do John to look put actions of much would sort frame get And Okay. And versus you maybe of when of then cost contracts? just revenue kind if underperforming you then, things reduction Sean, in assume? how And place, the COVID-XX the you was does worse? that can

Sean Gillen

Yes.

the to $XX.X specific of provided that’s the So QX the people as between overhead evenly the as to million split the is That QX $XX the kind actions, obviously charge in and The million, programs. for QX for restructuring the actions actions estimate million for people range actions, provided actions. roughly $XX facility action. are well facility we and

of And here things a I’d deteriorate, watching reflects tracks the in environment still It’s ASM, some talked that say, activity closely. early. terms to in relatively the hangars we’re situation you with of demand and things about the should

As needed. if in we ready additional would take script, action be we mentioned the to

Joseph DeNardi

you. Thank

Operator

from line [Operator of question Ciarmoli Instructions] the Michael Next comes from SunTrust.

Michael Ciarmoli

Hey, guys. here. the good taking evening, for questions Thanks

John Holmes

Hi, Mike.

Michael Ciarmoli

Maybe, performing John be contracts that of I wrong life what underperforming as once of contracts good happening and pretty got back, off loaded, program. prevents went two thought, locked they over the the going would and just from commercial the you the you always us forward? what well side, those little Maybe a go kind can there? give background to or Sean, on to

So can us you background little there? give a

John Holmes

what – when changes impacted, difference Yes. pretty was at to what ended you charge. That’s where drove that fleet it. for negotiations we felt. customer, recent try restructure correct we’ve signed occurred we element those had the what the In of had we position and ultimately, the a And in months to a up versus contract expected that. or between in needed to the customers we of was And with significant the customer side we take actually both – contract situations, that

side, our that business. had On expansion we rapid pretty into a

these of that stretched up signed, were that those agreements signed we that and these supply and operators – our regard. into a contractual as the got of And recall, some time. agreements period lot look were earliest different earlier we And lot of in you we a a these the operations it agreements and protections But of evolved lot – chain. was were one different that pretty that of environments. And a with business. we over contracts for of our in pricings, If

Michael Ciarmoli

hate it. helpful, sobering Got you good that’s this a question. and than look, as have But of That’s maybe to a us. segue. view ask better kind guys you I

you have might how you carriers customer a specifically, on of these bankruptcy basis. analysis at done on your global forced look or guys of to carriers As analysis I any lists, many sort mean, an consolidate? be

I expansion where of is you you had at might prove customer just customer seeing these be looking who and to here mean, by – I some not valid rapid anymore? said there. you are be and some risk that mean, might it contracts long-term

John Holmes

limit a customers, by we’re hour of would I look power of just statement and that say, at liquidity orders. all contract wouldn’t the commercial I taking our the position to our

We’re in management our and them very having active exposure about are of the said customers, close largest own terms and plan. portfolio. with with got our very dialogue And them looking very and relationships feel whole we’ve across we in financial good their their that,

about I may some in limit occur So, we’re to to good exposure. own and those do an environment are analysis said going can everything AR that, our see And we Having feel on failures. where our certainly where you going to overall, we’re portfolio. done our we’ve

Michael Ciarmoli

here? resizing not if we side some expect liquidate can tailwind Got there do improved parts the countercyclical clearly for mean, I you’re distribution, parts silver of guys lining, thinking the much you be near-term maybe, a do, might mean, on – I cash fact, guys volumes? generation the cash you Sean, you inventory maybe sort lower do of it. a I if envision about of is in sort investing in If trading, business? mean,

Sean Gillen

Yes.

in the where obviously, mentioned, the last as we’ve part only somewhat terms taking growth the in business that growth. and share notable outgrowing capital-intensive assets it’s It’s environment, as of think, not inventory over been the we’ve years a you into industry, invested support that. been a – few I of

As the inventory the inventory investments you the we to and have balance the cash. point, sheet focused with we’re very, turning into made position, position, obviously today sit we very here on your

So you’ll a I and on less as think see maybe inventory conversion shelf what monetize the have. on higher put we you

do As going of levers to. we we’re balance in talked what here, and in, driving given then about the other specifically, be And that I both we’re will sheet, environment. we’re think environment that the AR of some in AP, to terms the the of manage on current those,

Michael Ciarmoli

Got last… it. the And just

John Holmes

would… I Yes,

Michael Ciarmoli

Sorry?

John Holmes

expect just Sorry, may do from Mike, do terms dislocation I that acquisition. they acquisition as small and asset into to Sean’s of opportunities things. completely we add see exit the market, players potential a in may both decide opportunities result clearing of And out, point, this want in terms that going and to has players market to opportunities, see on of see of potential the very come that we talent was other that, to competition some of large focus we

big can like out been we’ve why And We’ve versions things So, such seen come stronger. a long balance that situations strong of so sheet reason before. we a maintain here these this of even time. we a is

Michael Ciarmoli

Yes. would No, agree, I John.

mean, fleet. we older I that may but we in older sense. pressure even see longer, still planes some inventory, might excess of parts I the retired lot planes could We might a trading. pricings. The I one, agree service that makes generally parts and the see older just be see a think in which last reduced marketplace, on

do of have XXXs parts inventory of ultimately for dislocation you that if the bit of about prices little out in be go you some them, if some a near-term there whether would there longer-term the see they’re a guys platforms, pricing of after marketplace? a we is think the or XXXs, popular attractive opportunistic carrying? as And the Do Would view some to you’re really opportunity? you you

John Holmes

talked to Yes, answer shape we’re time to that that definitely. things to We correctly, quarters. we would absolutely. The going where the The I see mode is last material are exceeded far to that quarters for about we’ve up, several are demand mention And in in want here need a the how aftermarket because for absolutely. now. but has several this supply far,

decline material, that a get hands lower given have that’s anyone as on so, job we fulfill our to meaningful on relationship the more you’re coming percentage make demand, obviously, before of result an we material it and And increase you able – there, supply. going even the and out we’re we that, as position sure demand our given been position to more make have in have that we best the else. hands be the and is should choice referenced our the of and time And in But investments get as that to a in to, past material to market. our and it correctly have though might be a and network right a in the on we

Michael Ciarmoli

in back jump guys. the I’ll Helpful. luck it. you queue. Got Good

John Holmes

you. Thank

Operator

line from Suisse. from question of Next Spingarn Robert Credit comes the

Robert Spingarn

in service come there, some back just things. to some models with the the wanted of back be may of on might opposite I inventory? here, Mike’s obsolesce go essentially question might that take, One, Thanks. older two out the models of

John Holmes

Yes, happen. could And… that could That happen.

Robert Spingarn

notable you you in that to Are particular, write if be that had would anything, exposed off?

John Holmes

that the that – in there it’s the that cite inventory where at of we to carry paying a close wouldn’t tied demand attention long-term we’re particular, wave was to. any events of contracts. lot And certainly outstrip maintenance class, inventory again, I point. this – amount of we is something asset And that’s find. the But could bow Yes. a

or if the that overall decrease even do feel pretty you see we’ve right early got in now. inventory an good demand, we retirements position So about some

Robert Spingarn

business you I just this to on a mentioned might might and the earlier in you a into you And potential of then could spike how how bit? was, to other behavior the go least think of the elaborate customer it’s thing wanted fit of business, terms I area at that, in changing And Okay. that then little retirements because a acceptance less USM? what for be guys recently. back And if discussed aircraft mean

John Holmes

Yes.

a USM important think lower-cost been are their platforms development that the USM they right closely extent remember managing USM. we that become it’s airlines on would that have than really you on more is solution. And I of see the may before, a much environments to like greater costs to And see available be greater this, adoption in market. where fortunate the

out play as So, with that is play well. out a that see seen we’ve could in dislocations and dynamic that past we

Robert Spingarn

Thank Okay. much. you very

Operator

from Next from Stifel. of question DeNardi comes the Joseph line

Joseph DeNardi

Yes, sounds the thanks. Or it’s Thank or get it seeing disruption with like on degree you folks John, they more you. usual be? defense Is being business right? able to where as need some there. of that not business, some to less labor just are

John Holmes

meaningfully it’s very a No, as and our revenues Sure. been good quarter. we had – defense I the up in quarter government were mentioned, programs

procurement take And protest to time us usual. process due the that, awards government. continued as grow. so as on long it’s inside the side largely well Those business process, I’d to of a pipelines the government the add the for has as

great a franchise. built But we’ve

these are expect before than time. We’re ever would come performance or to there, over bid to growth portfolio chunks portfolio. we been but as past our past to broad-based able more continue contracts in awarded it’s I – on have And going because contracts of to see

Joseph DeNardi

Thank you.

John Holmes

Thank you.

Operator

from SunTrust. line the Michael from comes of question Ciarmoli Next

Michael Ciarmoli

for to John, again, this follow-up. one. taking thanks, Hey, just

guys with lower-cost domestic greater thoughts right their and of could seeing they’re see lower now? adoption. cost What employees? you’re on your USM their option. usually doing support carriers? Or is of on – what you the are customers given You kind that it the your what How you were MRO the are a some Do in-house think with now, right more think do You workforce they’re to do trying and you side? there’s evolves hitting reevaluate you on think MRO

John Holmes

– I point. I think think a you that’s could good

come some I work on think see to new you could net market. the

a backdrop to to work, as if if or contract certainly environment that. would agreement union to airlines them a to outsource – another Given looking the do be they’re might this – that alter look allow they

see market. So new we work could on net come the

not you seen would some competitors have the through. I that expect this domestic of make also may

see, are while aid that’s a about in amount dialogue the market, to could So to that are mechanics very focused workforce of we’ve I new the the bring available could and, time, potential extent preserve our you a a to extent that capacity, least, necessary. for to on we the space. with And mentioned, to of there workforce, be hangar period in in government we’re position on at been a contraction expand as the

now. It’s right all is quarters. But want demand many so we got And few forecast to moving the cost that now, difficult support to play that our to over that just next there’s make how we base out. rightsized going right we’ve parts sure the to see

Michael Ciarmoli

out? we I that think be what is a And do labor we downtick mean, plays or thinking environment it. in see should Got rates? fluid but quick you do about a guys pretty labor right obviously, how this now, rates

John Holmes

takes to aid that early not a do government available. extent does little of potential workforce. a think lot what what the to preserve it’s speculate have may – think and the with aid what out that do on that there there’s to government be that. actions the I To I

seen of it’s tell. come that to right early supply that several labor a see may haven’t rates. impact You on market now, in pretty we the could years to But and labor

Michael Ciarmoli

Helpful. right. All Thanks, it. Got guys.

John Holmes

Thank you.

Operator

from Next line Ken Herbert the question from Canaccord. comes of

Ken Herbert

opportunity Does of that? the or growth area specifically, Hey, appreciate the John, your I In a of the about is thinking developments quarters, follow-up. talked you’ve investment. PMA, change on couple last recent maybe

John Holmes

long-term strategy. No, a not as

We long-term PMAs, cetera, digital, as strategy. well investment pace portfolio, whether projects generally unfolding. right moderate going we a you those services are those as to all DERs, That can said, for all as of the and of imagine, inclusion we as of our is property we’re look greater the part inclusion now, defined in that’s with intellectual at core demand believe – continue see the our how of as or all that the taking et well to of the that

Ken Herbert

on development, be Okay. package? ecosystem, you that would of of potential be of specific aspects you’re of for sort would the or bailout the other the on pushing this AAR, I various And that and supply the the sort watching as MRO we or bailouts follow for parts specifically helpful whether of there you particularly mean, airlines for of scenarios it watch are as as some side? sort parts any part the for be lobbying

John Holmes

with conversations our Well, the several a last lot government, been again, days. in personally over involved I’ve of these the

the Services It maintenance ours, because the to link the a the United Our bailout needs address keeping broader in like companies airlines. aid needs Aviation aircraft than points particularly address vital are to are industry, around flying. heavy package or a that, in States just more

industries own we than airlines outsourced us other to go years, we’re And is few longer make and demand, particular, that that extent the technicians a preserve in labor the that they those maintenance aviation seen to America. including no in or given to – there have as that want are let and don’t the in is to to tightness we’ve sure various And that have faster in the lose the many companies, And activities industries. we we heavy over want tightening recover last from technicians able other those capability. that our decrease capability, that make – we sure – giving might,

largely So our grants or either providing forgiveness the aid companies preserving with would conversations ours, in have of the workforce. loans that to towards been directed like form be around

Ken Herbert

Thank Great. much. you very

Operator

questions no line. have phone we the time, on this At

John Holmes

your you, the and everybody, for appreciate interest thank again, Well, and we support, really time. Okay.

Operator

participating. this for concludes call. gentlemen, and today’s conference Ladies you Thank

now disconnect. may You

AAR (AIR) 29 Mar 202020 Q3 Earnings call transcript