Feb 29 -
Summary analysis -- AAR Corp. ------------------------------------- 29-Feb-2012
CREDIT RATING: BB/Stable/-- Country: United States
Primary SIC: Transportation
Mult. CUSIP6: 000361
Credit Rating History:
Local currency Foreign currency
13-Oct-2006 BB/-- BB/--
18-Apr-2003 BB-/-- BB-/--
The ratings on AAR Corp. reflect Standard & Poor's Ratings Services' view of the risks associated with its participation in the highly cyclical airline industry, which is competitive and thus limits profitability. The company has higher financing requirements to support growth initiatives, including potential additional acquisitions. AAR's established business position, diversity from defense operations, and our expectations of an overall appropriate financial profile partially offset these factors. We view AAR's business risk profile as "fair" and its financial risk profile as "significant" according to our criteria.
On Dec. 2, 2011, AAR Corp. acquired Telair International GmbH and Nordisk Aviation Products AS (both not rated) from Teleflex Inc. (BB/Stable/--) for $280 million, its largest acquisition to date. The company initially financed the acquisition with borrowings under its $580 million revolving credit facility, but subsequently refinanced a portion of those borrowings with the proceeds from $175 million of unsecured notes. The increased debt will result in modest deterioration in credit protection measures, with pro forma debt to EBITDA increasing to about 3.5x from 2.8x in the 12 months ending Nov. 30, 2011, and funds from operations to debt declining to about 30% from 36%. Actual credit ratios will likely deteriorate in fiscal 2012 (ending May 31, 2012) because they will incorporate the increased debt from the acquisition but only half a year of the acquired businesses' earnings and cash flow. However, we expect that some debt reduction, growth at the existing AAR operations, and a full year of earnings from Telair and Nordisk will result in FFO to debt 30%-35% and debt to EBITDA of 2.5x-3x.
Wood Dale, Ill.-based AAR is a major independent provider of aviation support services, operating in four business segments: aviation supply chain (31% of sales for the first six months of fiscal 2012); government and defense services (31%); maintenance, repair, and overhaul (MRO; 19%); and structures and systems (19%).