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AAR Corp. (AIR - Analyst Report) has agreed to sell 10 of its 737-400 aircraft to Malaysian Airline System, Berhad (MAS). The deal will be carried out through AAR’s joint venture. The transaction, which is expected to be complete by the third quarter of fiscal 2013, would have an approximate value of $20 million; and the payment would be made in cash.

The sale will record a slight gain in the company’s account. Also, since the sale is taking place through the joint venture accounting, there will be no impact on the sales of the company.  

Since their acquisition by the joint venture in 2007, the aircraft have been on lease with MAS. The sale forms a part of the strategy AAR is adopting to reduce its investment in aircraft leasing.

After the sale takes place, AAR’s aircraft portfolio will comprise 6 aircraft in joint venture and 2 aircraft in its wholly owned portfolio. However, it can be seen as a considerable decline from the peak year 2007, where the company was in possession of 31 aircraft in joint venture along with 11 aircraft which were wholly-owned.

Although the company is in the process of reducing its leased aircraft portfolio, it will not forego the sales and re-marketing of aircraft, where the company has a successful track record along with an established market.

Illinois based AAR Corp. provides a wide range of high-quality, and cost-effective technical services. We currently hold an Outperform recommendation on the stock. AAR Corp. has a Zacks #3 Rank, implying a short-term Hold rating (1-3 months). The company competes directly with its peers such as Hexcel Corp. (HXL - Snapshot Report) and Lockheed Martin Corporation (LMT - Analyst Report), both holding a Zacks #3 Rank.

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