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AAR Corporation 8-K 2005

Exhibit 99.1

 

 

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[GRAPHIC]

 

AAR CORP.

 

Investor Presentation

 

SG Cowen & Co.

 

November 2005

 

[LOGO]

 

[LOGO]

 



 

Forward-Looking Statements

 

This presentation includes certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information currently available to the Company, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, including those factors discussed under Item 7, entitled “Factors Which May Affect Future Results,” included in the Company’s May 31, 2005 Form 10-K.  Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.  These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company’s control.  The Company assumes no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.  For additional information, see the comments included in AAR’s filings with the Securities and Exchange Commission.

 

1



 

[GRAPHIC]

 

Agenda

 

             AAR Overview

 

             Market Trends

 

             Financial Highlights/Trends

 

             Significant Wins

 

             Summary

 

2



 

AAR Overview

 

                  Global Presence

                  40 AAR locations in 13 countries

 

                  Four reporting segments

                  Aviation Supply Chain

                  Maintenance, Repair & Overhaul

                  Structures and Systems

                  Aircraft Sales and Leasing

 

                  NYSE: AIR

                  TTM Revenues: $783M

                  TTM EBITDA: $67M

                  Market Cap: $531M

                  Average Daily Volume: 228 Thousand shares

                  Current Stock Price: $16.11

 

The aviation/aerospace stock to own…

 

3



 

History of Growth and Profitability

 

                  Proven track record of adapting to market changes

 

                  Profitable 52 out of 54 years in business

 

                  Achieved 18% sales and earnings growth during the 1990s

 

                  After every industry down cycle we’ve reached new heights in sales and earnings

 

Sales ($M)

 

[CHART]

 

4



 

[GRAPHIC]

 

Total Support for Aviation/Aerospace

 

Aviation Supply Chain

                  Supply Chain Management

                  Inventory Acquisition

                  Line Station Support

                  Logistics

                  Replenishment

                  Repair

                  Disposal

                  Distribution

                  Arbitrage

                  Buy/Sell

 

Maintenance, Repair & Overhaul

                  Aircraft Maintenance

                  Landing Gear Services

 

Structures & Systems

                  Mobility Systems

                  Pallets and Containers

                  Shelters

                  Integration/Services

                  Cargo Systems

                  Composite Structures

                  Industrial Gas Turbine

 

Aircraft Sales and Leasing

                  Sales & Leasing

                  Advisory Services

 

5



 

Sales Trend by Segment

 

Aviation Supply Chain

 

Maintenance, Repair & Overhaul

 

 

 

[CHART]

 

[CHART]

 

 

 

Structures and Systems

 

Aircraft Sales and Leasing

 

 

 

[CHART]

 

[CHART]

 

6



 

AAR Global Footprint

 

[GRAPHIC]

 


Asterisks indicate AAR sites within customer facilities

 

7



 

Serving the Worldwide Aviation Industry

 

OEMs/MROs

                  Airbus

                  Alenia

                  Avio

                  BAE Systems

                  Bombardier

                  Boeing

                  Connexion by Boeing

                  EADS

                  GE

                  HAECO

                  Hamilton Sundstrand

                  Honeywell

                  IHI

                  L3 Communications

                  Lockheed

                  MTU

                  Northrop Grumman

                  Pratt & Whitney

                  Sikorsky

 

Airlines

                  Air France

                  Air New Zealand

                  Alaska Air Lines

                  Alitalia

                  American Airlines

                  America West

                  Asiana

                  Britair

                  British Airways

                  China Airlines

                  Delta Air Lines

                  Eva Airways

                  JAL

                  KLM

                  Korean Air

                  Lufthansa

                  Mesa Air Group

                  SAS

                  Shanghai Airlines

                  Singapore Airlines

                  Southwest Airlines

                  Tap Air Portugal

                  United Airlines

 

Cargo Carriers

                  DHL

                  FedEx

                  UPS

 

Government

                  Japanese Defense Agency

                  UK Ministry of Defence

                  U.S. Department of Defense

                  US Government

 

Financial

                  CIT Aerospace

                  DEBIS

                  GECAS

                  ILFC

 

8



 

[GRAPHIC]

 

Agenda

 

                  AAR Overview

 

                  Market Trends

 

                  Financial Highlights/Trends

 

                  Significant Wins

 

                  Summary

 

9



 

[GRAPHIC]

 

Commercial Macro Indicators

 

[GRAPHIC]

 

Revenue Passenger Miles (000s)

 

[CHART]

 

Available Seat Miles (000s)

 

[CHART]

 

Continued year-over-year improvements in ASMs and RPMs

 

Source: Air Transport Association of America website

 

10



 

[GRAPHIC]

 

                  MRO spending expected to exceed $25 billion by 2014

 

Market Outlook - MRO

 

[CHART]

 

                  Component repair market is projected to surpass $10 billion by 2010

 

Market Outlook - Component Repair

 

[CHART]

 

                  Commercial airline fleet to grow by 10,000 aircraft over the next 10 years

 

Market Outlook - Fleet Growth

 

[CHART]

 

Source: MRO and Component Repair - AeroStrategy Management Consulting
Fleet Growth - Overhaul & Maintenance magazine, Team SAI and BACK Aviation Solutions

 

11



 

[GRAPHIC]

 

Market Trends – Airlines

 

                  U.S. airline market in turmoil

 

                  Northwest and Delta filings will result in a reduction in fleet size

 

                  Worldwide market under pressure from high fuel costs

 

Industry dynamics driving unprecedented demand for cost-saving alternatives

 

12



 

[GRAPHIC]

 

                  Seeking alternatives for Maintenance, Repair and Overhaul

 

                  AAR provides high-quality, lower cost contract maintenance

                  AAR’s Indianapolis operation is well positioned to capitalize on this demand

                  Eager, experienced workforce

                  Attractive lease agreement

                  Profitable after only 2 Quarters in operation

                  Currently using 5 bays with 5 available for growth

 

                  Looking to reduce costs through innovative supply chain solutions

 

                  AAR enables customers to manage their assets more efficiently while lowering their operating costs

 

                  Remarketing and redeploying aircraft to reduce capacity and costs

 

Growing demand and opportunities for AAR

 

13



 

[GRAPHIC]

 

Market Trends – Defense

 

                  Looking to accomplish more with limited resources

 

                  Smaller, more mobile fighting forces

 

                  Turning to industry to improve operational readiness

 

Growing acceptance of strategic partnerships to improve readiness and contain costs

 

14



 

[GRAPHIC]

 

                  Operations, Maintenance & Personnel made up 70% of global defense spending in 2004

 

                  Defense organizations are adopting commercial best-practices

 

Global Defense Spending - 2004

 

[CHART]

 

                  Aging military fleets requiring more maintenance

 

                  Average aircraft age: 22

 

                              Continued focus on mobility and rapid deployment capability

 

Military aircraft MRO was a $52.7 billion industry in 2004

 

[CHART]

 

Source: Global defense spending and military aircraft MRO – AeroStrategy Management Consulting

 

15



 

[GRAPHIC]

 

 

AAR — ready to respond

 

                  Proven track record and well positioned to take on more defense programs

                  Experience and best practices in program and supply chain management

                  Northrop Grumman

                  Hamilton Sundstrand

                  GE Aircraft Engines

 

                  Ability to supply more specialized mobility products

                  Military missions

                  Terrorist threats

                  Natural disaster relief

 

16



 

[GRAPHIC]

 

Agenda

 

             AAR Overview

 

             Market Trends

 

             Financial Highlights/Trends

 

             Significant Wins

 

             Summary

 

17



 

FY2005 Financial Highlights

 

                  Improved financial performance for FY2005

                  Sales up 16%

                  Gross Margin up 20%

                  Gross Margin % up from 15.6% to 16.2%

                  Income from continuing operations up 307%

 

                  Generated record cash flow from operations of $51M in FY2005

 

                  Cash and available credit lines of $118M as of 5/31/05

 

                  Reduced total recourse debt by $18M in FY2005

 

                  Total assets of $732M as of 5/31/05

 

18



 

Financial Trends

 

Sales

EBIT

 

 

[CHART]

[CHART]

 

 

Selling, General and Admin

EBITDA

 

 

[CHART]

[CHART]

 

Note: FY2003 EBIT of $6.3M excludes $5.4M of impairment charges.  FY2002 EBIT of $7.4M
excludes $75.9M of impairment charges and $10.1M of special charges.

 

19



 

First Quarter FY2006 Highlights

 

                  22% sales growth and 109% net income from continuing operations growth

 

                  25% growth in commercial/regional sales; 16% growth in defense services sales

 

                  Asia and Europe sales up 45% and 9%

 

                  EBIT margin of 5.5% vs. 4.0% last year

 

                  Diluted EPS increase from $0.07 to $0.15 per share

 

                  Investments led to $22M cash outflow from operations

 

20



 

Quarterly Financial Trends

 

SALES

EBIT

 

 

[CHART]

[CHART]

 

 

NET RECOURSE DEBT

DILUTED EARNINGS PER SHARE

 

 

[CHART]

[CHART]

 

Diluted EPS Graph Note: Blue bar is diluted EPS as reported.  Burgundy bar shows diluted EPS without
tax benefit and discontinued operations

 

21



 

[GRAPHIC]

 

Agenda

 

             AAR Overview

 

             Market Trends

 

             Financial Highlights/Trends

 

             Significant Wins

 

             Summary

 

22



 

Significant Wins

 

                  Mesa Air Group

                  Providing end-to-end supply chain management solution                                                                                        [LOGO]

                  Valued at $200M in sales

 

                  Airbus A400M Military Transport Aircraft

                  Designing and manufacturing cargo loading systems for Airbus                                                                            [LOGO]

                  Valued at $300M in sales

[GRAPHIC]          

 

23



 

Significant Wins

 

                  United Kingdom Ministry of Defense

 

Provide parts logistics and supply chain management solutions for fleet of AWACS aircraft

 

[GRAPHIC]

 

Valued at $400M in sales

 

 

 

                  U.S. Air Force

 

AAR selected to supply specialized pallets to the USAF

 

[GRAPHIC]

 

Received $54M in orders to date as part of a five year contract

 

 

 

24



 

Special Recognition

 

                  FAA recognized AAR for excellence in training and education on the part of their Aviation
Maintenance Technicians

                        AAR received Diamond Certificate of Excellence Awards at all FAA-certified Repair stations                 [GRAPHIC]

                        AAR received Corporate-level Diamond Award

                        Special recognition for 100% participation by eligible Aviation Maintenance Technicians

 

25



 

[GRAPHIC]

 

Agenda

 

             AAR Overview

 

             Market Trends

 

             Financial Highlights/Trends

 

             Significant Wins

 

             Summary

 

26



 

Strong Momentum, Primed for Growth

 

                  Commercial aviation opportunities

                  Improving macro trends and industry changes

                  Pressure to pursue cost-saving alternatives

                  AAR has capacity, experience and know how to provide value-added solutions to customers

 

                  Defense services opportunities

                  Emphasis on cost control and operational efficiency

                  Increased partnering with industry

                  AAR ready and able to take on more business and supply more products to defense customers

 

27



 

                  Solid financial performance in FY2005

 

                  Strong performance in the First Quarter FY2006

 

                  Significant new wins and recognition

                  Mesa supply chain management program

                  Airbus cargo systems

                  U.S. Air Force pallet contract

                  U.K. Ministry of Defence AWACS program

                  FAA recognition for excellence

 

The aviation/aerospace stock to own…

 

28


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