StandardAero IPO: Taking a deeper dive into the aerospace play
AInvestThursday, Oct 3, 2024 8:32 am ET
2min read
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StandardAero (SARO) made a notable debut in the public markets with its initial public offering (IPO), raising $1.4 billion by offering 60 million shares at $24 each, above the expected range of $20 to $23. The company originally planned to offer 46.5 million shares but increased the size due to strong demand, making it the third-largest IPO in the U.S. in 2024. Private equity firm Carlyle, which acquired StandardAero in 2019, sold a portion of its shares, while also remaining the majority shareholder post-IPO.

StandardAero provides aerospace engine maintenance, repair, and overhaul (MRO) services for fixed and rotary-wing aircraft, catering to commercial, military, and corporate aviation markets. Its customers include major original equipment manufacturers (OEMs) like GE Aerospace, Rolls-Royce, Honeywell, and Pratt & Whitney. The company benefits from long-term contracts, with 77% of its revenue in 2023 coming from these agreements, ensuring a predictable and recurring revenue stream.

SARO's business model aligns well with favorable market trends, including increasing aircraft usage, rising demand for MRO services, and geopolitical factors that support its military and defense segments. Despite some concerns about slowing global growth, StandardAero's exposure to essential maintenance services and long-term contracts with key players in the aviation industry position it favorably for future growth.

Once trading began, SARO opened at $31, reflecting a 29% rise from its IPO price, drawing considerable investor interest. Some of the proceeds from the IPO will go towards paying down StandardAero's debt, a key concern given the firm’s substantial debt load of $3.3 billion as of June 2024. StandardAero's financials show promising growth, with revenues up 12% year-over-year to $2.53 billion in the first six months of 2024, driven primarily by a 22% increase in commercial aerospace revenue.

Financially, SARO has shown steady improvement, with operating income rising by 15% in the first half of 2024 to $210.6 million, while net income turned positive at $8.6 million, compared to a net loss of $12.6 million in the same period in 2023. However, the company's significant debt load remains a concern, although the IPO proceeds will help reduce this burden and allow for future investments in growth and acquisitions.

StandardAero's IPO follows the successful debut of Loar Holdings (LOAR), another aerospace company that has seen its stock rise 163% since its own IPO earlier in 2024. Like LOAR, SARO is benefiting from strong demand trends in the commercial aerospace industry, though it focuses on aftermarket engine services rather than component manufacturing.

The underwriters for SARO's IPO included major financial institutions like J.P. Morgan, Morgan Stanley, and BofA Securities, among others. Additionally, cornerstone investors like Blackrock, Janus Henderson, and Norges Bank contributed to the IPO's success, highlighting strong institutional confidence in the company’s future.

In comparison to Loar Holdings, which focuses on aerospace components, StandardAero offers more stable, recurring revenue due to its heavy involvement in maintenance and repair services. Both companies are riding the bullish trend in the aerospace industry, but SARO's focus on services rather than manufacturing gives it a unique positioning in the market.

Overall, StandardAero's IPO was a significant success, drawing strong demand and positioning the company for further growth. While it faces challenges related to its debt load, the IPO proceeds will help alleviate some of this pressure. With its solid financial performance, strong market position, and favorable industry trends, SARO is well-placed to perform well in the public markets, similar to the trajectory seen by Loar Holdings.

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