Analysis AIR
AAR's takeover target is growing. Its cash flow is going the other way.
AAR plans $1.915 billion of notes to help buy control of MRO Holdings. The target's first-half figures raise a question about how growth turns into cash.
The aircraft maintenance business AAR is buying sold more work in the first half of 2026, yet generated much less operating cash.
Research by Ticker Byline shows that MRO Holdings' operating cash flow fell about 57% from a year earlier while revenue rose 5%. The comparison uses the target's financial statements for the same six months ended June 30.
That divergence matters as AAR moves to fund its purchase of a 65% controlling stake. On November 2, it announced a proposed $955 million note issue due in 2031 and another $960 million due in 2034. Neither the financing nor the acquisition had closed in that announcement.
More sales, less cash
MRO Holdings reported $489.1 million in first-half revenue, up from $465.8 million. Operating profit fell to $99.9 million from $109.3 million, while operating cash dropped to $31.5 million from $72.8 million.
The business's own adjusted measures also weakened. Adjusted operating cash was $50.2 million, compared with $95.4 million a year earlier. The company's cash-conversion measure divides adjusted operating cash by adjusted EBITDA, earnings before interest, taxes, depreciation and amortization with selected adjustments. That ratio fell to 35.4% from 60.2%.
These figures already appeared in an October 27 presentation. The new bond offering gives them fresh relevance: stronger sales have yet to produce stronger cash in the latest comparable half-year.
Part of the earnings case is still being built
AAR's case for the deal includes expanding maintenance capacity. MRO Holdings' adjusted revenue for the twelve months through June includes $80.6 million of estimated sales that newer facilities could have produced at assumed operating levels.
Its adjusted earnings also include estimated facility benefits and savings. Those adjustments describe the business's potential as capacity ramps up. They go beyond the revenue and cash already earned.
When AAR announced the acquisition in September, it aimed to reduce the combined company's net debt relative to adjusted EBITDA from about 3.6 times at closing to 3 times within two years. That plan includes expected savings and makes cash generation central to the deal.
The borrowing replaces some existing debt
The planned notes sit alongside an estimated $230 million credit-line draw and about $232 million of new share proceeds. The note-and-credit-line total is broadly consistent with September's plan for roughly $2.1 billion of new debt.
Some of that money will fund a loan of up to $1.35 billion to MRO Holdings to refinance its existing borrowing. AAR will also issue preferred shares valued at about $781 million to the sellers.
The AAR company profile separates the target's figures from AAR's own results and tracks the funding plan.