StandardAero, Inc. (SARO) September 2026 Conference Transcript

Good morning, everyone. I'll just start off since we're a minute late and it's our fault because the elevators are slow and I know that. So we have the Standard Aero team here, Dan Satterfield, who's the CFO, and Rama Bandada, who's Investor Relations. Maybe we'll just kick it off with a few questions, Dan, if that's okay to start. You know, how do you think about Standard Aero today? You've gone through, you know, the IPO now. I think it's been two, three years. You're in a growth phase, both the commercial business that represents 60% of sales and military and business aviation. How do you think about the growth of your business from 2026 to 2030?

Oh, yeah. Well, we're in a great phase. You know, number one, coming out of the IPO, you know, we significantly delevered, right? And now we're enjoying the fruits of that deleverage and the enormous cash flow that's coming in. The most satisfying part of being part of our business in the aerospace industry is the cash flow that we're generating. And you're going to see our liquidity position continue to improve, billions of dollars of cash flow available to us that we will deploy. You know, we've talked a lot, you know, about, Sheila, about our, you know, five capital deployment areas, you know, organic growth. You know, just this month we opened the expanded CFM, sorry, CF34 facility in Winnipeg, increased our capacity by a third, and that's already full. So a great example of capital deployment in organic area. In terms of license expansions, we did in Q2 the $180 million investment for expanded licenses. That's returning $25 million a year at a minimum in a couple of years, and it'll peak up to about $30 million. So a fantastic return on capital there where we're getting access to new licenses and new repairs that we haven't had access to before. Of course, M&A, we acquired unified turbines, you know, a great bolt-on to the CRS business, new repairs that we didn't have before that we were able to acquire, and that fits right into the CRS platforms that they already serve, but now new repairs on existing platforms. And remember, you know, the great part about that is that we are reducing turnaround times for our customers by repairing parts instead of having to wait for new ones. And then, of course, stock repurchases through the first half, $100 million of share repurchases. We will continue that and are very, very proud to do it. So I think, you know, during the next, you know, second half of the decade, you're going to see additional capital deployment from Standard Aero.

I'll just add on there. When you think about Standard Aero, we used to operate at seven times leverage in the private equity world. We IPO-ed at four times, and now two years later, we're down to about two and a half So that ties to what Dan was talking about, the amount of deleveraging that's occurred. We're a 115-year-old company. You don't last that long if you don't generate cash. And we are, through cycle, we're 100% free cash flow converter of gap net income. We've just gone through a heavy growth investment phase with LEAP over the last three years with CFM56 Dallas, doubling our footprint there. HCF 7000, we're the exclusive heavy overhaul provider on that engine, which is the new engine for SuperMidCabin, which is the fractionals. So these are huge fleets. And we've also done CF34, the expansion that we just completed. So all of these growth platforms that are setting us up for double-digit earnings growth and free cash flow growth over not just a few years, but for decades, that's starting to unwind. We're coming down the learning curve on LEAP. That's a three to five year learning curve that started really in 2025. And so as that comes down, the learning curve is not just about turning the engines faster and getting better margins. It's also about getting more efficient on the working capital. These are all things that are going to generate tremendous amount of free cash flow as we go forward in the next few years. So the last few years was deleveraging. The next few years is going to be a lot of fun because there's going to be a lot of opportunities is for us to put things to work. And we have the natural growth drivers already built in.

I guess, how do we think about where oil prices are today and how we think about your backlog, which is, you know, baseball for the next six to 12 months and how you think about the high level of oil and when that actually impacts demands?

Yeah, we talked about this before. It's a great question. You know, we're not a components business. We're a long cycle business. You know, the MRO events that we are servicing today were built on flight hours over the last five years, beginning in 2022. So that demand profile isn't, you know, day-to-day. It's built up over many periods. And we've not seen a single shop visit impacted this year as a result of disruption in the market. Again, long cycle business. Matter of fact, 2027, Sheila, is baked. On the commercial side of the business, it's booked out. Of course, we're always going to maintain some flexibility for transactional business in our capacity, but for the long-term agreements and the demands into 2027 and into 2028, that is very clear. As you recall, almost 80% of our business is already under long-term agreement. So the transactional side of the house, we maintain for flexibility, but 2027 is solid, high visibility into demand all the way into 2028 on the commercial platforms.

And I think that's a misunderstanding that people don't understand about engine MRO is that it's not long cycle 15 and 20 years like OEM. It's not short cycle like aerospace components. It's driven by five years of previous flight cycles. So you'd have to be like a Terminator and travel back in time and destroy demand in 2022 or 2023 to affect us this year or next year, or even into early 2020 at this point. Terminator. Save that for you.

How do you, I guess, think about your commercial aerospace business that represents 60% of your sales or maybe your top five platforms? Can you go through the top five platforms, how you think about growth? Leap is about $400 million of revenues, going $1 billion by 2030. And how CFM56 changes and RB211 in that top five mix.

So first of all, RB211 is not in the top five.

I'm wrong again on my demand model.

Leap is, of course, an entitlement, you know, that we earned being a very, very trusted partner to the OEs and to the end markets. There are only eight CBSA license holders in the world. We're one of them. And we have, you know, an earlier ramp up in our industrialization on Leap than anyone else with with very few exceptions. Also already building the repair portfolio for Leap in conjunction with GE and Safran. And as we've said, we're very confident in a billion dollars of LEAP revenue by the end of the decade and LEAP achieving incremental margins, incremental to ES, our engine services segment, by that same time period. And that has to do with a very predictable learning curve improvement as you ramp up the program. Very satisfied with the LEAP pipeline. Very satisfied with the type of customers that are coming in. It's quite international, from Asian to European, even Middle Eastern growth on the LEAP engine. So it's broad-based and fundamental, represented by long-term agreements and capacity for transactional work. Also on LEAP, we've got the ability to grow capacity. Of course, LEAP is being serviced out of our San Antonio facility, the largest of all of our facilities. And there's two ways that you can grow capacity on a program like that without expanding footprint. Number one is the learning curve. So the learning curve is the number of hours that a technician takes to push an engine through a shop. And for a brand new engine like Leap, of course, at the beginning, it's much slower. We're already seeing the improvement both in revenue and turnaround times as the technicians get more proficient on the engine. That's a way to increase capacity without changing footprint. Also, the test cell capacity. Test cell, of course, the key, very highly expensive barrier to growth. And for LEAP, we have a full test cell, fully dedicated to LEAP, 100%, and we have a test cell in weighting. San Antonio has a very large test cell array, and all we have to do to the second test cell is correlation. Correlation is making the test cell specific to the parameters of the engine that it's servicing. So we can do that as well. And then we've specifically put LEAP next to RB211 in San Antonio. RB211, nice program. really at this point, it's not significant in its demand profile to the company as a whole in relation to the other programs. But as Leap changes its demand profile, those technicians simply absorb the work for Leap and the capacity goes up. Other platforms that are a growth, of course, are CFM56. And a lot of you have had the opportunity to visit us in Dallas, beautiful facility, and where we've doubled our capacity on CFM56. And we have seven test cells, not all dedicated to CFM56, but a test cell array that can grow with time as well. And there, it's a similar dynamic on the learning curve. Even though we've done 1,000 CFM56s up in our Winnipeg facility, in the Dallas facility, it's a new platform for them. So they're going through a similar learning curve as the LEAP technicians, it's somewhat shorter because this is a program that we do know and our colleagues up north have experience with. But as that learning curve goes up and the turnaround times come down, we have additional capacity and CFM 56 demand looks great. Other platforms where we're seeing growth, of course, are the turboprop engines. You know, one of my favorite set of platforms because, you know, they're highly fuel efficient and really immune to the extent of jet fuel prices, and we're seeing that on the turboprop programs. Also, the customer base is extremely varied, not just commercial operators, but fire and rescue, municipal operators there as well. And that is where we invested most recently in expanded licenses on turbo fans on the BizAv side, but then turbo props on the commercial side. We have additional licenses on that already robust and very profitable suite of engine programs, the turbo props. HTF 7000 on the BizAv side, it's really the number one engine from my former employer, Honeywell. It is the engine of choice for the super midsize aircraft platforms, and it continues to grow at a very impressive rate. And remember, on the HTF 7000, we are the exclusive heavy shop visit provider globally.

And then also, you talked about the top five, right? CFM 56 wasn't even a top 10 for us last year. It's just entering into the top 10, right? We've never really focused on that until we doubled our footprint here. And it's purposeful, right? You have the second, third mover advantage when you're an OEM. You can wait until you get to a much more mature platform where USM starts increasing and you can start taking share because we have a CRS business that creates USM. You do need retirements to pick up to get USM. So we're preparing for that as retirements pick up to be able to take share, make faster turnaround times through stub builds or module swaps or whatever the market is looking for at that time. Um, so that's still, you know, growing pretty tremendously. It will eventually get to top five, but it's not even, it just entered the top 10, um, a 2100, which is the ubiquitous engine on the, uh, C-130, uh, that is a top program for us as is the 1107 on, uh, V-22 off spree. Um, so, you know, there's, there's a pretty good blend of military, commercial, biz app, where we have exclusive positions on that are all going to be growing as we look at it.

Yeah, on those two fixed-wing military platforms that Rama just mentioned, we have 80% of the work there on those programs and high visibility into the future. As I mentioned earlier, 77% of our business is under long-term agreements. So our ability to see out into the future, 18, 24, 36 months, and even beyond is quite unique.

And Sheila, on those two platforms, future variants, we also get 80% right still.

Can we talk back about the LEAP, if that's okay? As you think about the revenues going from $400 million today to about $1 billion in 2030, how do we think about the number of shop visits? That includes how you think about the market share, and then from a profitability perspective, how we think about the learning curve.

So really two types of shop visits on LEAP. Right now, it's dominated by the C-TEMS, Continuous Time Engine Maintenance Programs shop visits. Those are really shop visits that are intended to bridge an operator to his next PRSV, or Performance Restoration shop visit, the heavier shop visit. So right now, early on the ramp of LEAP, we're seeing more of the C-TEMS, and that is now shifting to the PRSVs. Those are where we are being swamped with RFPs every day on PRSV slot availability out into the future. We're booking those up. And so you'll see shop visits, you'll see the revenue increase steeply towards that $1 billion mark and then continuing on into about a $3 billion mark into the 2030s, driven by that increased heavy shop visit, heavier revenue shop visit, PRSVs. So that dynamic will occur.

Can I ask a quick question? Does the revenue profile change as you go from C-TEMS to PRSVs?

Yeah, the PRSVs are more valuable shop visits. So per shop visit, you're going to see the revenue increase. And so that's fueling the climb from where we are today to that billion-dollar market.

And we don't stop at a billion, right? It goes from a billion to several billion by the middle of next decade. And that's just simple math based upon what the delivery schedules have been and what there will be, and based upon the way the engines are flying and the amount of work that comes out of there. And we don't really need to do much to capture that several billion. It would be adding the second test cell in terms of correlating it, which takes about 12 to 18 months because it's already there, and then adding a second shift. So it's not like we need to do an expansion or anything for that.

In terms of the margin profile, great success story there, right? Leap achieving profitability here in Q2 and right on schedule. from double-digit million industrialization costs at the beginning of the program to black numbers here in Q2. It's right on schedule, and we're very, very happy. Two of the reasons that we've got there, and these are the same reasons that will drive profitability up. Remember that we've said at the billion-dollar mark of revenue, we expect the LEAP margins to be accretive to engine services segment margins. Very confident in that because of the following. First of all, revenue growth, right? we did put in the right amount of indirect costs early in the program to make sure that it's successful. And so as we increase revenue, we're absorbing those indirect costs. And then the learning curve. Again, that's the amount of time, the amount of hours a technician needs to push an engine through the shop up to what we call specified margins, sorry, hours or spec hours. And for the LEAP engine, we anticipate that to take about five years. And we're already seeing it happen because of the turnaround times are decreasing on LEAP, revenue is going up because we're pushing the engines through faster. And of course, all of that has a positive effect on margins. So very confident in achieving that level. Remember also being in the exclusive club of the CBSA license holders. We have commercial advantages that non-CBSA license holders do not And we're taking advantage of those as well. That not only makes us competitive in the marketplace, but also greater markets.

Is it just parts agreements with the OEMs, the CBSA?

It primarily has to do with parts agreements.

There's also technical engineering access. So when you're doing an MRO repair, we're sharing notes with GEG, sharing their notes with us. If you're not part of that network, you don't get that sort of.

Well, and that's driving, good point. That's driving the repair side of the house. Because we have that full access to the engineering teams at GE, together we're developing component repairs. We're well ahead of anybody else in the CBSA license network outside of the OE in building that repair portfolio. Remember, our CRS business has already 20,000 license-approved repairs at very accretive margins. and that LEAP entitlement will grow as the shop visits grow. Actually, the repair guys should be running at a little bit faster pace and providing that accretive growth. Not only there, but also on CFM 56, we continue to develop new repairs. Customers love our component repair business because not only is a repair less expensive than a new part, it's increasing your turnaround time. Sorry, decreasing your turnaround time.

Can I ask any metrics you could provide around that five-year mark of how you expect LEAP to improve profitability to be accretive, whether it's the amount of time a shop visit takes?

It's primarily that. It's primarily the amount of time that the engine technicians take. And then they are able to increase capacity simply by being faster. And then less time in the shop means higher profitability. And like I said, we've tracked this on a line to the point now where we've hit black numbers. There's really nothing in the way to continue to improve profitability. And then the additional kicker there are the LEAP repairs that we'll be performing as well. That repair portfolio has already grown to 500 repairs, continues to grow every single day, and that'll provide additional juice in the LEAP margins.

Um, can we talk about CFM 56G previously raised that shop visit guidance to 2300 to 2400 annual shop visits? How do we think about standard arrows share in that and where your current capacity is and where you look at to plateau out?

Yeah, we, we don't really discuss market share too much. Um, and so I'll be honest with you, like I said, like CFM 56, this year is the first year it's going to be a top 10 platform for us, right? We have never been a big market share leader there. The way I think about CFM56 and the way you guys should think about it is the parallel to the CF34. Ten years ago, we were a mid-single-digit market share. The CF34, there was close to 10 providers in that engine. We took our time. It's a fleet that has not grown much in the last 10 years. It's been about a flat fleet. Flat fleet, that's an interesting dynamic. And so as our share has grown in that through using CRS and using parts repairs to reduce the turnaround time, that increases our ability to price better. And therefore, we started shoving out the other competitors to now we are the dominant market share there. GE's number two. There's only two other players or three other players left. One is exiting at the end of the year. The second, 2028. Third will be shortly after that. And so we have grown over 10 years on that at the end of the life on a fleet that has not grown. That's basically how we approach the CFM-56. As it's maturing, there is going to be, in the CFM-56 market, people think of it as a monolith. It is something that you can slice and dice in so many different ways, whether it's geography, whether it's fleet size, small fleet operators, medium size operators, large. And then also on the variants, right? There's the Classics, the Tech Insertion, the Evo PIP. We tend to, our customer base is mostly the Evo PIP. These are pretty young engines. A third of them have not gone through their first heavy workshop visit yet. 70% haven't gone through their first or second. So these are young engines that are still flying and the operators still want to fly them a lot. And so that's where we're kind of focused at. And these tend to be more of your medium to large fleet sizes. So, you know, we're actually just getting started in the CFM 56 because that's kind of what we do best is come in at the late stages and we're able to grow through market share gains. And it's big enough that you can have, you know, you can go from the 40 providers that are out there today to, you know, a mid-single-digit, high-single-digit number, and everybody's going to do really well because there's so many different ways to slice this workflow in.

How many CFM 56 repairs do you have? I'm just curious of the 20,000.

We have not disclosed that number. It's competitive.

You said Leap was 500. So I was like, maybe they're getting out more information today.

Usually it's about 2,500 to 3,000.

Makes sense. Can we talk about the Winnipeg facility? You recently opened up. What does that mean? I meant to call you Rama, but it was mid-August and I forgot. So what does Winnipeg mean?

So Winnipeg, where the company was founded 115 years ago, and you're really the core of the company. Very important site. a whole, actually, campus of facilities there. The biggest facility in Winnipeg is Plant 6, where we do the CF34 and the CFM56. Recall I said earlier, we've done 1,000 CFM56 overhauls in that shop. However, the CF34 platform for the dynamics that Rama mentioned before continues to grow. We are the consolidator of choice. Matter of fact, on all of our 41 engine platforms, we typically end up being the consolidator of choice. CF34 is by no means, you know, in its end of life phase, but it is becoming more mature and the demand continues to grow. So having, you know, owning our land up there, we decided with the help of the Manitoba government, big government sort of unveiling as well, we increased the facility size by a third. A couple of things will happen there. That shop was absolutely packed with people and material that now have room to grow and to spread out. You'll see efficiency or we'll see efficiency rates climb like crazy just for the ability for the technicians to access their parts and material. It's also providing additional floor space for more engine throughput. So the CF34 platform is, you know, one of my favorites. You know, a strong profitability, great turnaround times, actually really low working capital demands because of our strong repair portfolio for the CF34, our USM capacity on CF34, one of our greater programs. So that's going to provide extra profitability and growth for many years to come.

And one of the knock-on effects of that, because the demand had come in so quickly and so strong, and that 40% expansion, the backlog's already there for that. So it's not like we need to go out and find it. It's already booked up. And so what happened was we were spilling work into other facilities in Winnipeg where we do helicopter and military that we're using to store CF-34 material. And so by having this expansion, not only did it expand the CF-34 facility, it frees up capacity for military where we're winning a lot of new NATO contracts. And so we don't need to expand capacity there. Just this capacity has a knock-on effect of giving us more military capacity.

That's great color. One of the growth drivers you mentioned was additional licensing agreements. You recently signed $180 million with a turboprop OEM. I think it's set to contribute $25 million of EBITDA per year starting in 2029. Can we talk about what these licensing agreements mean in the first place and what the 180?

It's turboprop and turbofan. Yeah. So business aviation turbo fans or commercial turbo fans and also commercial turbo props. Fantastic investment. You know, we talked about our capital deployment. This is one of one of our favorite ones, you know, with it's like an acquisition with a, you know, seven times multiple. So getting access to the really variants of existing engines is providing additional revenue and profitability on already profitable programs. You know, the turboprop suite of engines is quite profitable. So it's simply that, getting access to new engine variants and the associated component repairs with an entitlement of $25 million a year by 2029. And by the way, I'll be disappointed if it doesn't grow to $30 million. I'll tell you now. It's going to expand to $30 million shortly thereafter. These are programs that are long-lived, and we expect to see entitlement margins on this for many, many years.

Can we talk about the military business? You've alluded to it several times. How do we think about the military business growth rate relative to commercial going forward?

Going forward. Okay, good question. You know, in Q2, it went slightly, you know, backwards for, you know, really funding outlay delays. But going forward, we are on the platforms that are never cut, right? the fixed-wing transport aircraft, primarily represented by the C-130, the AE-2100 engine that flies on that, and the 1107 engine that flies on the V-22 Osprey, which is the tilt rotor transport aircraft for the Marine Corps. These programs don't have replacements in the near future, and it will continue to fly. And on these programs, recall, we have 80% market share at a minimum. So those are continuing to grow, as well as now attack platforms like the F-35, where we do important European NATO work. That shop is filled to the gills, as well as demand on the F-110 engine, which is on the F-16, where we do the new build. And we've had specific requests to increase capacity there. Thankfully, that's in our big shop in San Antonio, where that's not a problem. Also, the J-85 trainer program, the U.S. Air Force continues to beg for more capacity there as they need more pilots. And the J-85 is the first turbofan engine that a new pilot will fly on. And there's a backlog of demand for new pilots. So in those programs, we see really long-term growth. And again, a very high transparency into growth into the future. So the military business will continue to be an important, you know, different cycle business versus the commercial business. Runs really, you know, fuel costs immune. And as operating tempos, of course, increase with conflicts, we'll see growth there as well.

And Sheila, just generally speaking, our revenue and budget comes from the O&M line. And the O&M line, right, it hasn't declined below 3% growth since the Vietnam War. And if you slice it even further, you look at the flight cycles, particularly tied to our engine platforms. If you look at the five-year defense plan, you'll see that that growth puts you in that high single-digit kind of range. And that's just the organic side. And then new awards and then op-tempo and what's going on in the Middle East, that'll add to that growth rate.

Can we talk about ES margins? It's 80% of your business. Well, I guess the profitability is a little less. How do we think about margins, volume-based, volume, pricing, how that all plays into margin expansion going forward?

Yes, margins continue to grow, right? And we're really satisfied with the growth of earnings in Q2. They are going to continue to be bolstered by the ramp up on those two, you know, zero margin platforms, now slightly black, LEAP and CFM 56 Dallas. Those will march steadily upwards. And we have an extremely strong continuous improvement program where even on mature or mid-cycle programs, we continue to see an entitlement of improved margins on those programs. HCF 7000, we continue to see improved margins there year on year. And now CF34, I can't wait to see the efficiency rates go out of the roof on this extremely large program in Winnipeg as a result of the expansion of the facility. Where else can we go and see increased margins? On the BizAv, Pratt & Whitney programs, there we're also becoming the consolidator of record. Remember on even some of our older platforms, they simply don't die. And, you know, when I joined the industry, when I joined Standard Aero coming from Honeywell, I was like, okay, well, some of these programs are really end of life. But as the smaller providers drop out, the demand comes to us. And so these really high margin older programs continue to live on. So we'll see – I have high confidence now with achieving profitability on the RAMP programs in our margin profile going forward, plus now the additional adder on the license expansion where we spent that capital allocation in Q2.

And we've historically, over the last 10 years, have done about 40 to 50 basis points of margin improvement in engine services organically through continuous improvement. So – and, you know, lately it's been closer to 80 basis points. And so we expect to see, you know, continued growth from the margin, primarily from that.

Maybe if we could talk about CRS quickly, as I know we're kind of running out of time here. How do we think about the growth drivers from CRS? And the business has been through a little bit of a transition in the first half of 26. You know, what are the ongoing transformations there at the moment?

CRS, of course, fantastic business with margins in the 30 percent range. You know, what's unique about CRS, if you haven't followed them, is their ability to generate revenue on their own through new product introduction or new repair development. New repair development being a great engine of revenue growth. Again, huge demand for that as customers see new repairs lower their turnaround times. So we've expanded our engineering team there, dedicated a group of engineers that only are doing NPI. not only for third-party repairs, but remember there is an insourcing effort. Repairs that the engine services group has been doing with third parties, we're now bringing that internally back to Standard Aero as Standard Aero develops additional capacity to bring those repairs in. All of these repairs, I guarantee you, are accretive to CRS, so that's a huge driver of growth. The other advantage that we've been taking advantage of is pricing, as you mentioned, Sheila, at CRS. There's a unique pricing capability there as we have intellectual property that no one else has. You know, it's a very fragmented market, and you'll see lots of shops have one or two or a half dozen types of repairs. We have 20,000 repairs, and we could price for that. Again, customers are willing to pay those margins for improved turnaround times. And then, you know, the CRS will grow on the platforms that are growing at ES. So we will do all of the LEAP repairs at CRS, the CFM-56 repairs at CRS, CF34 is going to be done at CRS, so they'll benefit from that as well. Not only that, CRS does engine platforms that we don't service at engine services, including wide-body platforms.

Maybe as we're out of time, one thing that investors might underappreciate about Standard Aero today to close.

It's really the – I think it's the exciting – how I led. There's going to be an exciting period coming up with our extremely strong cash flow generation. We've not shown you what we can do here since the IPO. On capital deployment, you're starting to see those now with the leap in CFM56 investment cycle coming to an end. You're now seeing Standard Aero invest in new areas of growth. The license expansion is just one of them.

Over the next several years, there is billions of dollars of liquidity that we will put to use on a very disciplined return set of metrics. and then i would add in there one thing that dan said earlier that i don't think investors understand that 27 is baked 28 is starting to get baked we are a very long cycle business it's you know we're not components for long cycle well thank you so much dan rama for being here Appreciate it.