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Why Shares of AAR Were Up Today

By Lou Whiteman – Jun 29, 2020 at 5:32PM

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The aerospace maintenance company has sold an unprofitable division as part of a broader streamlining.

What happened

Shares of AAR (AIR 0.14%) climbed more than 10% on Monday after the aerospace maintenance and parts distribution company announced a divestiture. Selling business units is not easy during a pandemic, but AAR was able to get a deal done.

So what

On Monday morning, AAR said it has entered into an agreement to sell its aerospace composite manufacturing business to an affiliate of Architect Equity. The unit to be sold designs, fabricates, and assembles products for commercial aerospace and defense customers.

Terms of the deal were not disclosed, but AAR said the composites business was unprofitable in fiscal 2020. The business to be sold employs about 150 people at locations in Florida and California.

A plane on the assembly line.

Image source: Getty Images.

"This divestiture is consistent with our multiyear strategy to focus our portfolio on our core services offerings," CEO John M. Holmes said in a statement. "It will reduce complexity and allow us to further prioritize our efforts on our market-leading aviation aftermarket operations."

The sale is part of a broader campaign to cut costs and streamline the business. AAR is also closing a Minnesota repair and overhaul facility, consolidating a North Carolina facility into one in Michigan, and has furloughed about 1,000 full-time employees. It is also further reducing headcount by using fewer contractors.

Now what

It's a tough moment to be in the commercial aerospace business, with COVID-19 eating into demand for travel and forcing airlines and private operators to cut back on spending. Shares of AAR have lost more than half their value since late February even after Monday's gain.

The aerospace cycle and pandemic-specific slowdowns are beyond AAR management's control, but the company seems to be doing what it needs to do to make sure it survives the downturn. That was enough to produce a solid rally in the shares on Monday.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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