AAR has entered into a definitive agreement with Triumph Group to purchase Triumph Product Support for $725 million in cash. As part of the transaction, AAR expects to receive estimated tax benefits with a present value of approximately $80 million. Including the estimated tax benefits, the effective purchase price multiple is expected to be 11.7x FY2024 EBITDA and 9.9x including estimated run-rate synergies of $10 million.
Triumph Product Support is a leading global provider of specialised maintenance, repair, and overhaul capabilities for critical aircraft components in the commercial and defence markets. The company provides MRO services for structural components, engine and airframe accessories, interior refurbishment, and wheels and brakes. Additionally, Triumph Product Support designs proprietary designated engineering representative (DER) repairs and Parts Manufacturer Approval (PMA) parts.
Triumph Product Support services both the commercial and military aftermarkets across five primary locations with a highly skilled workforce of over 700 employees. The business is projected to generate approximately $280 million of revenue and $55 million of EBITDA, representing an EBITDA margin of 20%, in its fiscal year ending March 31, 2024.
“Today we are very excited to announce the execution of an agreement with Triumph to acquire its Product Support business. Triumph Product Support has built an excellent reputation for high quality and differentiated repair offerings. This highly strategic acquisition will deepen and broaden our customer relationships globally and expand our footprint. Furthermore, the addition of this high-margin business is expected to further increase our operating margin and is expected to be accretive to our earnings. We look forward to welcoming Product Support’s talented team to AAR,” said John Holmes Chairman, President and Chief Executive Officer of AAR.
AAR’s acquisition of Triumph Product Support is supported by a fully committed bridge facility. AAR intends for permanent financing to include a mix of debt and equity to maintain a strong balance sheet to support future growth. AAR will target pro forma net leverage to be approximately 3.0x at closing, inclusive of a potential equity issuance subject to market conditions. After closing, we expect strong combined free cash flow to enable further deleveraging. The transaction is expected to close in the first quarter of the 2024 calendar year.
AAR extends Alaska Airlines MRO relationship
AAR announced it has signed an agreement to extend the company’s existing airframe MRO services with Alaska Airlines through 2030 and expand its heavy maintenance partnership. AAR has committed to growing its dedicated airframe narrowbody capacity to provide Alaska Airlines with a minimum of six lines of maintenance support. To support this, AAR plans to add a new three-bay hangar adjacent to its existing seven-bay facility at Will Rogers World Airport in Oklahoma City, pending final approval by the Oklahoma City Airport Trust. The proposed new hangar will provide AAR an additional 85,000 square feet of MRO space to accommodate all 737 variants, including the 737-10. The project is anticipated to be funded by a grant from the state of Oklahoma, as well as rent concessions over time from Will Rogers World Airport. The facility expansion is projected to create more than 200 additional careers at AAR in Oklahoma City, which the company expects to fill through its robust workforce development initiatives.
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