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AAR Secures Long-Term Aviation Contract from Kenya Airways

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AAR Corp. (AIR) made headlines yesterday by being the first American aviation company to win a five-year multi-million dollar contract from Kenya Airways to offer support services to its 737NG aircraft fleet. AAR Corp. will also place inventory on site in Nairobi and will provide supplementary rotable pool support services from its new supply chain hub in Brussels.

Africa’s aviation sector is projected to be a sustainable growth platform for foreign companies looking to invest. Notably, to tap on the emerging growth opportunities in this region, the U.S. has been gradually increasing its investments for the last two years under the Obama administration’s “Doing Business in Africa” (:DBIA) program. AAR Corp. has been actively navigating Africa’s aviation sector and the latest deal will further help in strengthening the company’s footprint in Kenya.

Announced in Dec 2012, the DBIA initiative serves to reduce the gap between American business and upcoming markets in Africa. The program aims to introduce and connect interested American parties with distributors and potential customers.

Africa’s aviation sector was beset with troubles in the past related to strong state protectionism, high taxes and charges, safety issues owing to outdated aircrafts, inadequate infrastructure and lack of effective regulations.

The steady influx of foreign investments and tie-ups has managed to drive the continent’s aviation sector. The prospects of aviation in the region will likely get a further push as Africa’s ample resources will continue to attract mineral-hungry companies.

Meanwhile, the rising trend of air travel by Africa’s middle class is set to play a major role in driving further momentum in the continent’s aviation industry. African airline operators are looking to add 800 new aircraft to their fleet in the next 20 years. Besides Kenya, countries like Nigeria, Egypt, South Africa and Ethiopia are spending significantly to develop their aviation capabilities. This will certainly expand growth avenues for AAR Corp. in the coming years.

However, AAR Corp. will continue to face stiff competition from the dominant European Airlines and the increasing presence of Middle Eastern airlines in Africa.

Currently, AAR Corp. carries a Zacks Rank #3 (Hold). Some better-placed aerospace equipment providers include CAE Inc. (CAE), Curtiss-Wright Corp. (CW) and B/E Aerospace Inc. (BEAV). All these stocks have a Zacks Rank #2 (Buy).

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