AAR, Corp. (NYSE: AIR), which provides products and services to the aviation, aerospace, and defense industries worldwide, today issued a press release responding to an FAA mandated letter of suspension of operations at the company’s landing gear operations in Miami.

Let’s get right to it.

New to the AAR story?

AAR Corp. provides products and services to the aviation, aerospace, and defense industries worldwide.

It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (MRO); Structures and Systems; and Aircraft Sales and Leasing.

Through its Aviation Supply Chain and MRO segments, AAR provides everything from aircraft parts, maintenance and logistics support, to the actual maintenance and repair of aircraft at its 4 MRO facilities at various locations throughout the U.S.

In addition, through its Structures and Systems segment, AAR provides vital products and services to the U.S. military including specialized construction of mobile shelters and pallets, as well as support and products for various military aircraft and aircraft support, storage and maintenance functions.

Finally, through its Sales and Leasing segment, AAR buys, sells and leases used aircraft for itself, on behalf of others, and through joint ventures.

Want More?

• Read: My latest company analysis and quarterly earnings breakdown here.
• OR: Read why I recently added to my AAR position by clicking here.
• OR: Read my initial write-up on AA’s landing gear issues with the FAA here.

AAR Told To Cease Operations at their Miami Facility

Spat with FAA has been brewing for quite some time

AAR Corp. disclosed Wednesday that the Federal Aviation Administration has issued an “Emergency Order of Suspension” that effectively shuts down operations at the company’s landing-gear services maintenance station in Miami.

Those that have been following the situation might recall that in mid/late 2008 when there was a controversial letter sent by the FAA to AAR claiming that some of the maintenance that they were performing on certain landing gear elements was not up to spec, and might be in violation of certain FAA mandates.

You can read my entire breakdown of the situation by clicking here.

The part in question is called a landing-gear truck beam.

The truck beam is the main component of the landing gear. It goes across the entire component from axle to axle, and looks like an upside-down T.

This vertical bar acts as a shock absorber and is very important in terms of landing stability and strength of the entire mechanism.

The FAA’s notice refers to an enamel paint applied to the inside, or “bore,” of the horizontal bar, and the potential for that paint to obstruct a drainage hole in the beam, thus masking potential corrosion and preventing proper drainage.

You can read my entire take on the situation Incorporatedluding some possibly disturbing news on a plane that collapsed while refueling that was serviced using one of the AAR’s truck beams here.

So What’s the Latest?

According to reports, AAR On Wednesday, said that the FAA had in mid-July 2008 issued a written notice of alleged discrepancies at the Miami site, “to which the company responded with corrective actions on July 29.”

In early November 2008, the company said, officials met with FAA representatives to further discuss its corrective actions, and as recently as Jan. 30, 2009, the company received a follow-up letter in which the FAA identified what the company said were “items that required further attention.”

The company “was in the process of responding to that request when it received the order of suspension,” AAR continued.

It didn’t identify the areas that the FAA wants corrected, but I can assume that they are different than the previous landing gear truck beam issue, or then again, maybe AAR has failed to correct this problem even with all the previously mentioned hoopla?

Beyond saying that officials are committed to resolving the FAA’s concerns “as expeditiously as possible,” AAR didn’t say when it expects the station to recover its FAA operating certificate.

The good news for us for the time being is that AAR said the Miami site generates 6 percent of the company’s overall revenues.

The bad news is that as this story lengthens and gets out there, AAR’s reputation could get damaged if it comes to light that they aren’t adhering to strict FAA standards, and that one of their maintenance facilities had to be shut down, even termporarily, as a result of this shortfall.

The situation definitely bears watching. I’ll post more when I know more.

New to the AAR Story?

• Read: My latest company analysis and quarterly earnings breakdown here.
• OR: Read why I recently added to my AAR position by clicking here.
• OR: Read my initial write-up on AA’s landing gear issues with the FAA here.

*Variables You Should Know About AAR Corp. (NYSE: AIR)
Current Recommendation:	BUY
The Company:	AAR Corp. provides products and services to the aviation, aerospace, and defense industries worldwide. It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (MRO); Structures and Systems; and Aircraft Sales and Leasing.
Why Buy Now:	Excellent risk/reward profile at current price Cyclical business possibly near a bottom in fundamentals Stable margins, rapidly increasing cash flow US military and defense spending will continue and could possibly increase in the foreseeable future Diversified company, operating in 4 primary segments with no segment representing more than 50% of total revenue and each one showing double digit growth The beauty of their operations lies in the synergies that exist between all their business segments There are no direct competitors that do exactly what AAR does Seasoned management
Market Cap:	$660.5
Revenue (TTM):	$1,480.00
Cash/Debt:	$139/ $526
Current Price:	$17.00
Risk Rating (?):	6.5 (Above Average)
Position Size (?):	1/2 (10-22-07), 1/4 (1-8-08), 1/4 (1-9-08), 1/4 (3-3-08), 1/4 (10-24-08)
Buy Around Price (?):	$30.00 (10-22-07), $34.00 (1-8-08), $31.25 (1-9-08), $26.00 (3-3-08), $11.75 (10-24-08)

*As of 2-11-09. Except share price, all values in millions.

View original at: PeakStocks.com

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