Munro Global Growth Small & Mid Cap Fund on AAR Corp.
Thesis
AAR provides aircraft parts and maintenance services to an airline industry that must keep existing planes flying longer because of a structural shortage of new aircraft. The fund considers its recently announced acquisition strategically, commercially and financially sound and says it could expand AAR’s revenue and profit base by more than 35%. Although the market reacted negatively to the acquisition financing and geopolitical disruption, Munro retained its constructive view. The long-duration aftermarket demand opportunity underpins the investment case.
“We remain constructive on the stock; the structural shortage of new aircraft forces older fleets to fly longer, directly underpinning robust aftermarket demand.”
Key risks
- Middle East conflict weakening air travel and airline maintenance spending
- Debt and equity financing associated with the large acquisition
- Geopolitical disruptions and high energy prices affecting the airline industry