AAR Corp (AIR:NYSE) is one of the world’s leading aviation support companies. Through AAR’s diverse family of businesses, they provide a broad range of products and services to commercial airlines, defense organizations and OEMs. The company’s list of clients include large commercial airlines, regional airlines, cargo carriers, various governments around the globe, and major manufacturers such as GE, Boeing, Rolls Royce, and Northrup Grumman.

AAR’s stock price has struggled recently. One of the main reasons for the weakness in AAR’s stock price is the same reason that has affected the entire aviation industry; the cost of fuel. The rapidly rising energy costs have drastically affected the airline industry. Some smaller airlines have already gone out of business while the larger airlines are trying to stay alive by cutting costs. The airlines cost-cutting measures run the gamut from reducing the number of flights and planes they use to holding merger talks with rival airlines. A second reason for the weakness in AAR’s stock price is simply political uncertainty. Conventional Wall Street thinking says that when Democrats control the White House it will be bad for defense spending which in turn will affect AAR’s defense business negatively.

There are some bright spots for AAR however. With Federal Aviation Administration (FAA) mandates and regulations in place, there is no way around repairing and maintaining airplanes. Airlines have to perform the required maintenance or they cannot fly their planes. When it’s time to replace certain parts or do maintenance the airlines will be forced do it. It seems likely that airlines are going to be using the planes that they have left at full capacity to try to make up the difference for planes and/or routes they are no longer running. AAR does this type of work at cheaper rates than the airlines’ union employees. So cost cutting by the airlines may actually work in favor of AAR. This would leave this key segment of AAR’s business in relatively decent shape.

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