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AAR Corp (AIR) Unit Secures $909M Contract from Air Force

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Renowned aviation service provider AAR Corp.’s (AIR - Free Report) business unit, AAR Supply Chain Inc., has won a supply chain management contract from the U.S. Air Force for the Landing Gear Performance Based Logistics One program.

Details of the Deal

The contract is valued at $909.4 million. It was awarded by the Air Force Sustainment Center, Hill Air Force Base, UT.

Per the terms of the contract, AAR Supply Chain will provide services that includes purchasing, remanufacturing, distribution and inventory control to the Air Force depot and field-level, foreign military sales of C-130, KC-135 and E-3 landing gear parts.

Work is scheduled to be completed by Mar 31, 2032 and will be carried out in Wood Dale, IL; Miami, FL; and Ogden, UT.

Our View

The company expects its Aviation Services segment that comprises of AAR Supply Chain Inc. unit, to benefit in fiscal 2017 from its strong position in the growing global aviation market. The company expects to see a favorable trend in government and defense customers for comprehensive supply chain and maintenance programs as these customers continue to seek ways to reduce their operating cost structure.

Recently, AAR Corp. reported third-quarter fiscal 2017 earnings in line with the Zacks Consensus Estimate. Earnings were up 31% from the year-ago figure. Net sales surpassed the consensus mark and were also up 8.4% from the year-ago quarter. In the reported quarter, Aviation Services revenues were up 9.6% year over year due to the continued strong performance for the company's industry leading supply chain management solutions. Going forward, we expect the company to generate similar solid revenue growth and contracts like the aforementioned ones will surely contribute to that.  

Price Movement

AAR Corp.’s share price gained 2.9% on a year-to-date basis, underperforming the Zacks categorized Aerospace-Defense Equipment industry’s gain of 5.7%. This could be because the company operates in a space that is highly competitive and hence have to spend substantially for technological progress that could adversely affect its operations and financial condition. In addition, AAR Corp. is exposed to currency fluctuation risks due to its geographically expanded client base and operations beyond the U.S.



Zacks Rank & Key Picks

AAR Corp currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the aerospace-defense space include Rockwell Collins, Inc. , HEICO Corporation (HEI - Free Report) and TransDigm Group Incorporated (TDG - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rockwell Collins’ 2017 earnings estimates have increased 0.2%, over the last 30 days. On an average, the company posted a positive earnings surprise of 2.07% in the trailing four quarters.

HEICO Corporation’s 2017 earnings estimates have increased 0.8%, over the last 30 days.  On an average, the company posted a positive earnings surprise of 5.20% in the trailing four quarters.

TransDigm Group’s 2017 earnings estimates have increased 1.6%, over the last 60 days.  On an average, the company posted a positive earnings surprise of 6.58% in the trailing four quarters.

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