AAR Corp. (NYSE:AIR) Q1 2021 Earnings Conference Call - Final Transcript

Sep 24, 2020 • 04:45 pm ET

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AAR Corp. (NYSE:AIR) Q1 2021 Earnings Conference Call - Final Transcript

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Q & A
Executive
John M. Holmes

the demand that we see throughout the winter and the spring is getting ready for summer travel.

And we're seeing a lot of movement inside the airlines as much as -- on the one hand, they want to conserve cash and be conservative. On the other hand, they don't want to miss out to the extent that there is an increase in bookings and they have the ability to add more routes.

Analyst
Robert Spingarn

Okay. And then just lastly, you touched on this at the end before. You mentioned the significance of USM in the recovery. So just, can we get a little bit more specific about the trends that you've been seeing? Have owners and operators started to make decisions about parting out? I think last time we convened here, they hadn't gotten to that point yet.

Executive
John M. Holmes

Yes.

Analyst
Robert Spingarn

And are new customers surfacing for USM, who previously preferred not to purchase used serviceable material?

Executive
John M. Holmes

Yes, I'll answer the second part first. Yes, we are seeing indications from customers that previously wouldn't have been interested in aftermarket material, specifically over in Asia that are now -- appear to be more receptive to that. And we do expect that to be a trend.

Going back to the first part of the question. There does seem to be a disconnect out there between announced fleet reductions and actual retirements. We haven't seen as many actual retirements as we would expect at this point. And therefore, we actually haven't seen as many aircraft go to part out, as we would expect at this point. But we do anticipate that.

We are in a very fortunate position with our balance sheet that once we do start to see aircraft that are appealing to us, come available, we're in a position to make those investments once we have a clear sense of what the market is going to look like.

Analyst
Robert Spingarn

Okay. Thank you, John.

Executive
John M. Holmes

Thanks, Rob.

Operator
Operator

And thank you. And our next question comes from Joseph DeNardi from Stifel. Your line is now open.

Analyst
Joseph DeNardi

Yes, good afternoon.

Executive
John M. Holmes

Hey, Joe. How are you?

Analyst
Joseph DeNardi

John -- yes, doing well. I appreciate, kind of, the lack of confidence, I guess, in terms of providing guidance on the commercial business. But you guys highlight how much of the business comes from the defense side and one of the strength there, obviously, is the visibility. So, could you provide some framework around what you're expecting in terms of revenue and gross profit for the defense side, for the year?

Executive
John M. Holmes

Yes. At this point, we expect relatively consistent performance throughout the year. Our defense business has held up well, both on the transactional side, meaning the defense element of our distribution and certainly the program activity.

You did see some movement this quarter. We saw really nice improvement out of mobility, as we mentioned. I would characterize that as elevated activity this quarter. We would expect to see that return to more normal levels in subsequent quarters. But overall, the government business is,