StandardAero’s Earnings Call Contradictions: LEAP Timelines, CRS Delays, and Supply Chain Signals Clash

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $1.6B, up 4.6% YOY
• EPS: $0.40 adjusted EPS, up 24% YOY
• Operating Margin: Adjusted EBITDA margin 14.4%, up 100 basis points YOY

Guidance:

• Revenue range raised by $50M to $6.375B to $6.5B.
• Adjusted EBITDA range raised to $885M to $910M.
• Adjusted EPS range raised to $1.50 to $1.57.
• Commercial aerospace growth expected low double digits to mid-teens (normalizing for pass-through elimination).
• Business aviation growth expected high single-digit to low double-digit.
• Military and helicopter growth expected low double-digit, weighted to back half.
• Adjusted free cash flow guidance maintained at $270M to $300M.
• CapEx guidance $100M to $110M.
• Net debt to adjusted EBITDA target range 2.0x to 3.0x.

Business Commentary:

Strong Financial Performance:

• Standard Aero reported a 4.6% increase in revenue year-over-year, with adjusted EBITDA growing by 12.3% to $230 million, and a record adjusted EBITDA margin of 14.4%.
• This growth was driven by strong demand in commercial aerospace and business aviation, productivity improvements, and pricing strategies.

Commercial Aerospace and Business Aviation Growth:

• Revenue in commercial aerospace increased by 6% year-over-year, and business aviation revenue also rose by 6%.
• Growth was supported by strong demand across platforms, increased flight activity, and continued engine MRO demand.

LEAP and CFM 56 DFW Program Profitability:

• The LEAP and CFM 56 DFW programs reached profitability in the quarter, marking significant progress in learning curve improvements and scaling operations.
• This was a milestone driven by improved throughput, expanded repair capabilities, and increased shop visit slots.

Impact of Supply Chain and Material Pass-Through Revenue:

• The company eliminated $300 to $400 million of low-to-no-margin material pass-through revenue, affecting reported revenue growth.
• This move was aimed at improving margins and is not expected to significantly impact future results due to its contractual nature.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q2 as 'strong,' with 'double-digit earnings growth, record margins,' and 'continued strength in customer demand.' They noted 'operational progress,' 'meaningful progress' on strategic priorities, and raised full-year guidance. The tone was confident: 'We are raising our 2026 guidance... We're executing on our priorities, our growth platforms are progressing, our balance sheet remains strong, and we continue to see robust demand environments.'

Q&A:

• Question from Seth Seifman (JP Morgan): Could you talk more about the supply chain environment and its impact on delays and throughput, given OEMs like GE report increased delinquencies?
  Response: Supply chain planning assumes no recovery from OEMs; any improvement would be upside. The company uses component repair capabilities to manage disruptions, and guidance is not dependent on supply chain assumptions.

• Question from Seth Seifman (JP Morgan): At what point do LEAP/CFM56/CF34 scale to move CRS internal sales beyond ~$20M per quarter?
  Response: LEAP and CFM56 are strong revenue drivers for CRS; they will ramp in concert with internal operations, with external sales providing an extra boost.

• Question from Gavin Parsons (UBS): Could you expand on the assumption for LEAP revenue reaching 'several billion' mid-next decade and capacity needs?
  Response: LEAP is expected to reach $1B annual revenue by end of this decade, with several billion in the early 2030s as work scopes shift to heavier PRSV visits.

• Question from Gavin Parsons (UBS): Is the LEAP revenue projection specific to Engine Services or includes Component Repair?
  Response: The projection includes component repair.

• Question from Gavin Parsons (UBS): What is the cost of the license expansion?
  Response: $180 million.

• Question from Miles Walton (Wolf Research): How much of the license agreement is renewal vs. new expansion?
  Response: The agreement expands to new platforms and authorizations, adds new repairs, and includes improved pricing, not just renewals.

• Question from Miles Walton (Wolf Research): How often do license expansions occur?
  Response: License agreements are longer-term; expansions happen opportunistically when mutually beneficial, not as a constant part of business.

• Question from Miles Walton (Wolf Research): Is part of the EPS raise due to the amortization move?
  Response: Most of the EPS raise is from increased earnings; the amortization move is a small component (~5%).

• Question from Doug Harned (Bernstein): How do you think about longer-term CapEx? Is this a period of heightened CapEx ending?
  Response: Maintenance CapEx is typically ~1%; 2026 CapEx is lower than 2025. Major platform investments (like LEAP, CF34) are significant but not constant. Capital is deployed to highest-return opportunities (e.g., license expansion).

• Question from Doug Harned (Bernstein): With strong demand, are you targeting a specific long-term growth rate?
  Response: There is no precise long-term growth rate due to portfolio diversification across subsectors with different cycles; the focus is on double-digit earnings growth (combining top-line and margin).

• Question from Kyle (Jefferies): What is the line of sight on material shortages resolving in Q3 and impacting CRS?
  Response: Material shortages are not the issue; it's a strategic capacity migration to existing back shops to capture demand, which involves temporary costs of hiring/training and authorizations.

• Question from Kyle (Jefferies): What is the confidence level in achieving low double-digit military growth in the second half?
  Response: Confidence is high, driven by strong demand on F-110, helicopter programs, and increased flight hours from operational tempo; maintenance events lag flying hours but are expected in H2.

• Question from Christine Leeweg (Morgan Stanley): How do supply chain issues (e.g., GE's 20% delinquencies) impact your inventory management and ability to source parts?
  Response: Supply chain issues are managed through materials management focused on constrained parts (castings, forgings); guidance is set assuming no improvement, and contract assets were reduced in Q2 due to better management.

• Question from Christine Leeweg (Morgan Stanley): Does working capital improve in 2027 as inventories normalize?
  Response: Not guiding to 2027 yet, but improvement is not expected as supply chain issues persist.

• Question from Josh Korn (Wells Fargo): Is there further opportunity to eliminate more pass-through revenue?
  Response: There is a larger pool of low-margin pass-through revenue, but the current $300-$400M elimination was a major contract-by-contract effort; further impact is not expected to be material.

• Question from Josh Korn (Wells Fargo): Has working capital benefited from lower pass-through so far?
  Response: The primary working capital benefit in Q2 was from materials management; the pass-through benefit will be seen primarily next year.

• Question from Ken Herbert (RBC Capital Markets): What are you seeing in terms of M&A opportunities in H2 given elevated multiples?
  Response: The M&A pipeline is robust with more opportunities coming across; the company remains disciplined on strategic fit and will act where appropriate.

• Question from Ken Herbert (RBC Capital Markets): Have you seen issues with HTF 7000 material ramp?
  Response: No issues with HTF 7000 material ramp have been seen.

• Question from Andre Madrid (U.S. Bank Corp. BTIG): At what point do fuel price increases impact demand and maintenance schedules?
  Response: Impact is long away; airlines first pass fuel costs to tickets, then may optimize routes/flights, but maintenance schedule changes are last. Current high load factors (~mid-80%) show no impact yet.

• Question from Andre Madrid (U.S. Bank Corp. BTIG): What is the mix of heavy shop visits implied for LEAP to reach several billion in revenue?
  Response: No specific mix guidance provided; revenue growth will come from both CTEMs and increasing PRSVs as work scopes shift.

Contradiction Point 1

LEAP Program Revenue Milestones

Conflicting timelines for LEAP program profitability and revenue scale.

Gavin Parsons (UBS) - Gavin Parsons (UBS)

2026Q2: The LEAP program reached profitability in H1 2026 as planned. - Russell Ford(CEO)

What are the underlying assumptions and capacity needs for LEAP revenue to reach "several billion" in the mid-next decade? - Gavin Parsons (UBS)

2026Q2: The LEAP program is expected to reach $1 billion in annual revenue by the end of the decade. - Russell Ford(CEO)

Contradiction Point 2

Nature of CRS Material Delays

Contradictory explanations for CRS segment material input delays.

Kyle (Jefferies, for Sheila) - Kyle (Jefferies, for Sheila)

2026Q2: The issue is not a material shortage but a strategic decision to capture growing demand using existing internal capacity. - Russell Ford(CEO)

What is the line of sight for resolving material input delays impacting the CRS segment in Q2, and have they been resolved in early Q3? - Christine Leeweg (Morgan Stanley)

2026Q2: Constrained parts (castings, forgings) drive challenges. - Dan Satterfield(CFO)

Contradiction Point 3

Supply Chain Outlook and Its Impact on Guidance

Contradiction on whether supply chain recovery is assumed in financial forecasts.

Seth Seifman (JP Morgan) - Seth Seifman (JP Morgan)

2026Q2: All planning and guidance assume no recovery in the OEM supply chain. ... Guidance is not dependent on supply chain recovery. - Russell Ford(CFO)

Can you discuss the current supply chain environment, the impact of increased delinquencies, and the path to normalized throughput? - Gavin Parsons (UBS)

2026Q1: The cash flow guidance is not dependent on a significantly better supply chain. Instead, it relies on improved working capital management... - Russell Ford(CFO)

Contradiction Point 4

Working Capital Dynamics and Future Expectations

Contradiction on the expected trajectory of working capital and inventory normalization.

Christine Leeweg (Morgan Stanley) - Christine Leeweg (Morgan Stanley)

2026Q2: No forward guidance was provided for 2027. It would be surprising if supply constraints 'broke loose' and caused a sudden inventory release. - Dan Satterfield(CFO)

Will working capital improve in 2027 as inventories normalize? - David Strauss (Wells Fargo)

2026Q1: The higher-than-typical Q1 working capital outflow was primarily due to an increase in contract assets... The full-year free cash flow guidance remains unchanged, with an expectation that working capital will decline in the second half and cash flow conversion rates will normalize. - Dan Satterfield(CFO)

Contradiction Point 5

Characterization of CRS Segment Capacity Pressure

Contradiction on whether CRS pressure is due to strategic capacity management or supply chain constraints.

Kyle (Jefferies, for Sheila) - Kyle (Jefferies, for Sheila)

2026Q2: The issue is not a material shortage but a strategic decision to capture growing demand using existing internal capacity... It is a conscious, temporary measure, not a supply chain issue. - Russell Ford(CEO)

What is the line of sight to resolve CRS segment's Q2 material input delays, and have they been resolved by early Q3? - Krista Friesen (CIBC)

20260226-2025 Q4: The two main drivers... will impact both revenue and earnings, implying that the growth in those items will be below normal levels and likely below expectations for the year-over-year margin change. - Daniel Satterfield(CFO)