AAR Corp. Signs A $125M PBH Deal To Boost African Business

In a bid to expand its aviation and supply chain services across emerging markets, aviation support provider AAR Corp. (NYSE:AIR) recently entered into a five-year contract, with South African Airways Technical (SAAT) Ltd. Notably, SAAT is the largest and the most advanced full-service maintenance, repair and overhaul organization (MRO) in Africa.

Details of the Deal

Bearing a maximum value of $125 million, this deal authorizes AAR Corp. to offer power-by-the-hour (PBH) component inventory management and repair services to SAAT. To provide these services, AAR Corp has joined forces with local joint venture (JV) partner – JM Aviation South Africa (Pty) Ltd.

This tie-up aims at supplying nose-to-tail component and repair management support as well as day-to-day, on-the-ground account management and technical support to South African Airways' (SAA) fleet. Moreover, this JV partnership will allow JM Aviation to work closely with AAR's global parts supply warehouse team in Brussels. Work related to this deal officially began on Oct 1, 2016.

In addition, this JV’s objectives include expansion of SAAT’s MRO services to third-party customers/airlines across the continent. Besides, based on AAR Corp’s global reputation of offering improved operational efficiencies at reduced costs through its customer-centric solutions, SAAT will be able to enhance its fleet readiness at no higher cost incurred.

AAR will also support expansion of SAAT's component repair capabilities, including landing gear, and potentially support a new MRO facility in West and Central Africa to satisfy growing regional travel in sub-Saharan Africa and increasing international travel to the continent.

What Will AAR Corp. Gain from the Deal?

The African continent, which has been experiencing high population growth lately, is characterized by vast distances and has neither very strong road, nor rail systems. Consequently, aviation seems to be the strong alternative option for business, tourism and freight.

However, the aviation industry remains largely untapped and therefore offers a lucrative investment source for aviation support companies like AAR Corp. as well as aircraft majors. In fact, AAR Corp. has been aiming to take advantage of this rapidly growing market in Africa for the last couple of years.

The company’s first PBH component inventory management and repair services contract that it signed in 2014 with Kenya Airways, to support its fleet of 737NGs, outlines AAR Corp.’s first effort in this venture. More recent deals include a PBH contract with Fastjet – the award-winning, Africa-based low-cost airline, illustrating the global reach of AAR's supply chain solutions.

Surely this recent five-year deal reflects significant progress on AAR Corp’s part to expand its business in Africa, wherein the company has recently established a base of operations in Johannesburg.

Stocks to Consider

In this context, we mention here a few other significant stocks in the aerospace and defense sector such as General Dynamics Corp. (NYSE:GD) , Lockheed Martin Corp. (NYSE:LMT) and The Boeing Company (NYSE:BA) .

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