AAR Corp

AAR Corp (AIR) was another strong performer which, fortunately, was an oversized (~9%) position for us. AAR provides after-market maintenance services for airplanes. We believe this company is benefitting from an aging fleet of airplanes, caused by Boeing’s and Airbus’ inability to satisfy industry demand. At the same time the company is making a transformation from low value add heavy maintenance of airframes, to higher margin component repair and distribution services. During the last quarter reported at the end of March, they also noted that government defense contracts are now 30% of the total business, currently growing at a 50% rate. In other words, we believe this company benefits from a multi-year industry tailwind and a company transformation, and any potential war is mildly beneficial to their earnings.

AAR Corp is a diversified provider of aftermarket aviation services, offering parts supply, maintenance and repair, and integrated solutions to commercial airlines, government agencies, and defense customers worldwide. The company operates at the juncture of two durable demand drivers: a robust commercial aerospace aftermarket supported by strong global air travel demand, and a growing government and defense business that benefits from the increasing need for military operational readiness. During the quarter, shares contributed positively to performance after the company delivered a strong fiscal third-quarter earnings report, with revenue, earnings, and profitability all exceeding expectations driven by solid organic growth, particularly in its parts supply business.

We continue to add to some of our existing portfolio holdings that benefit from multi-year tailwinds, such as airplane maintenance (AAR). This sector is poised for growth as demand for maintenance services increases, driven by the expanding global fleet and the need for compliance with safety regulations. AAR's strong fundamentals and strategic positioning within the aerospace industry make it a compelling investment opportunity.

AAR's strength in both new and used airplane parts drove outperformance in revenue and margins, as did the continued growth in its software product for digital hangars. This performance highlights AAR's competitive position in the market, benefiting from the ongoing demand for its products and services, particularly in the context of a data-intensive economy.

We added significantly to our position in AAR Corp (AIR) as we expect significant earnings growth regardless of macro-economic conditions. AAR Corp benefits from large inside ownership and has a track record of superior execution, making it one of our 'sleep-well' names during volatile times. Despite being a detractor in the short term due to market volatility, we believe AAR Corp holds a strong investment thesis in the long run.

We added significantly to our position in AAR Corp (AIR) as we expect significant earnings growth regardless of macro-economic conditions. AAR Corp benefits from large inside ownership and has a track record of superior execution, making it one of our sleep-well names during volatile times. The company holds strong investment theses in the long run despite being impacted by overall market volatility.