StandardAero

Engine services revenue grew by 4% to $1.4 billion, while component repairs rose 9.2% to $195 million in the second quarter. Engine services' EBITDA margin rose to 14.5% due to the elimination of some zero-margin pass-through parts sales, which was also why sales growth slowed in the quarter.

Why it matters: The company is working its way down the learning curve on newer maintenance facility buildouts, and declared it surpassed break-even on its Leap and CFM56 programs in Dallas-Fort Worth in the quarter. We expect engine services margins to continue to increase gradually over time.

The bottom line: We did not alter our forecast, which closely resembles management's revised guidance. We increased our fair value estimate for narrow-moat StandardAero to $42.40 from $41.50 due to the time value of money. We view the shares as 30% undervalued, reflecting the company's prospects for market share growth, excellent access to popular engine platforms, and increased profitability over time. We really like the announcement that by paying $180 million for increased licenses to perform MRO service on a handful of what we surmise are business aviation engines, the company will likely add $25 million in ongoing annual EBITDA by 2029.

Bears say: Investors have shunned the shares of late, circulating bearish narratives about the engine aftermarket. We see the idea that persistently higher fuel prices would affect aircraft utilization enough to sharply reduce demand for engine maintenance as exaggerated and unrealistic. With shop visits booked months in advance and 40% prepaid via service contracts, airlines lack the incentive or latitude to forgo service, even if travel demand were to slump.

StandardAero's fair value estimate is $42.40 per share, which represents 30 times our 2026 earnings estimate and an enterprise value 17 times our 2026 EBITDA estimate.

We believe top-line growth for StandardAero will average 7.4% over our 10-year forecast period, reflecting overall demand for engine servicing, which tracks aircraft usage plus the pricing of engine parts over time. Our forecast predicts that StandardAero will slowly build its share of the engine MRO market, which Oliver Wyman estimates will reach almost $68 billion by 2030, from around 10% share in 2024 to more than 14% in the coming decade.

The key driver of value for StandardAero, in our view, is its ability to continue to capitalize on its position as one of the largest independent providers of engine MRO services and component repairs in existence.

In the engine services business, the company’s position as the first- or second-largest independent servicer of some of the world’s most-popular turbine engines has given it the ability to refine its operations and amortize investments in capacity over many more engine service events than smaller competitors, resulting in slowly expanding margins over time. We forecast engine services EBITDA margins to expand from 13.2% in 2025 to exceed 18% in our forecast period. Far from competing with engine manufacturers, StandardAero is a licensed provider of a good portion of their engine parts distribution, which contributes handsomely to OEMs’ profitability.

The component repairs business is where StandardAero’s profitability gets more interesting. The company has already developed parts repair procedures for 20,000 engine parts, which allow it (or component repair customers) to replace those parts during engine repair without procuring an original replacement from the OEM. This enables StandardAero to participate to a limited degree in the most attractive segment of the engine aftermarket. We expect StandardAero to grow component repairs at nearly 8% annually over the coming decade, and to earn an expanding share of the profit pool available, with EBITDA margins expanding from 28.6% in 2025 beyond 33% in that time frame. Component repairs are not only more profitable than standard engine servicing, but they also add to the profitability of engine repair work by reducing StandardAero’s reliance on and cost for OEM parts.

We expect StandardAero to continue to invest in its component repair business to expand its franchise and EBITDA margins. With 27% of the firm’s goodwill recorded as part of the component repair business as of 2025, we expect that portion to grow to more than 31% with ongoing investment. The company is likely to augment growth in both of its segments from time to time by pursuing acquisitions, for which we expect it to spend an aggregate of $1.4 billion over the next 10 years, very similar to the sums it has deployed since 2016. We expect capital expenditure to level off at around $100 million annually for the duration of our forecast.

We assess StandardAero’s revenue as somewhat insulated from a general recession or business cyclicality, and its operating leverage as moderate. We use a 9.2% cost of equity to value the shares. Since deleveraging somewhat and becoming a publicly traded company, we see StandardAero’s balance sheet risk as fairly low and use a 6.4% pretax cost of debt. With its debt/capital ratio headed below 20% in our forecast, we use an 8.7% weighted average cost of capital to discount its cash flows.

We assign StandardAero a narrow Morningstar Economic Moat Rating, based on intangible assets stemming from the technical complexity of aftermarket maintenance, repair, and overhaul, or MRO, of aircraft engines, which are highly engineered products and very expensive to maintain. The company has amassed a combination of formal intellectual property in the form of licenses, people with specialized knowledge and skills, and the rare physical facilities to rebuild and test turbine engines, which fortify its ability to service engines reliably and efficiently.

Even though the firm does not have a published track record of maintaining returns above its cost of capital, we think it is more likely than not that it will generate excess returns for at least the next 10 years, considering its industry-leading throughput and the catalog of engines it is licensed to service. StandardAero delivered 9.1% return on invested capital in 2025, a touch above our 8.1% estimate of its cost of capital. We believe its ROICs are historically deflated by goodwill and intangibles on its balance sheet resulting from a series of recapitalizations while it was under private equity ownership. Some of its intangible assets include proprietary technology that the company licenses from the original equipment manufacturer. We forecast ROICs exceeding 16% over the next decade, as growing earnings outpace additions to and amortization of intangible assets. StandardAero earns low-teens EBITDA margins in its engine services segment, representing 88% of sales, and nearly 29% in component repair, which make up the faster-growing remainder of sales. We rate both segments as having a narrow moat.

Aircraft repair stations must be certified by the FAA or equivalent regulatory authority before they can perform maintenance work on aircraft engines. StandardAero must also license authorization from OEMs to perform services on each engine platform, which it does for over 40 engine platforms in service today, including some of the most frequently flown engines such as the bestselling CFM56, and its successor, LEAP. This creates a barrier to entry as OEMs have discretion over how many independent MROs are approved to work on a platform. Although the engine MRO market is fragmented, with numerous single-site and small operators, StandardAero’s 2024 revenue accounted for 10% of Oliver Wyman’s estimate of global engine MRO industry spending.

Typically, the driving factor for aircraft operators’ choice of MRO provider is the turnaround time they can promise and deliver. Airlines are willing to pay for timely service to keep their engines running, decrease the need for spare engines, and avoid plane downtime, which can cost them tens or hundreds of thousands of dollars in lost revenue per day, depending on the aircraft. As StandardAero’s technicians move down the learning curve by handling greater volumes of engines over time, the company can reap the benefits of moving engines through its facilities more efficiently and predictably than less-experienced competitors. As timing, not price, drives purchase decisions, we believe StandardAero enjoys some pricing power over its smaller competitors.

Four-fifths of StandardAero’s sales come from engines for which it is the first- or second-largest MRO provider. We think StandardAero’s moat widens as it handles a greater volume of a particular engine because it can achieve higher margins as it traverses the learning curve, especially its opportunity to refurbish parts instead of replacing them. We think being a significant distribution channel of parts for the OEMs allows the largest MROs to secure a more consistent supply, reinforcing their ability to maintain quick and/or predictable turnaround times.

We limit our rating to narrow because StandardAero operates mostly at the more competitive end of the engine aftermarket value chain, which includes small independent repair shops, the engines’ OEMs themselves, and some airlines that perform maintenance in-house. It does not originate the design or manufacture of engines or their components, which usually engender switching cost advantages, nor does it have regulators’ authority to reverse-engineer and produce copies of them.

Its component repair business does allow StandardAero to participate to a limited degree in the more-attractive parts manufacturing end of the aircraft engine value chain where highly engineered thermal coatings, machining processes, and unique metallurgy represent valuable intellectual property. Refurbishing used engine components to achieve like-new performance eliminates the need to purchase replacement parts from the OEM and allows StandardAero to sell or install them for less than it would cost to replace an OEM part. StandardAero works with OEMs to add authorized repairs to its portfolio, which tally more than 20,000 unique repairs. New repair techniques must also receive approval from aviation regulators before being used on customer engines. Developing new repairs requires significant upfront investment and engineering expertise, making it hard for smaller competitors or new entrants to compete. Management has stated it seeks to grow the component repair services segment, by greater cross-selling to the service segment and by acquisition. We think successful expansion of this segment should marginally widen StandardAero’s moat over time.

If StandardAero lost its service licenses from OEMs on a meaningful portion of its engine repair catalog, or through severe labor disruption lost the services of its experienced technicians, we might consider downgrading its moat from narrow to none, especially if competitors took meaningful market share as a result of such disruption. Mostly since OEMs have historically expanded their MRO networks over time, we see such risk as remote enough that we do not model it in our 10-year forecast.

Supply chain disruptions and delivery delays caused a shortage in commercial aircraft that have vastly increased demand for MRO services in order to extend fleets’ useful lives.

StandardAero established its position as one of the primary independent MROs servicing the CFM56 and Leap engines, which will account for a significant portion of commercial flight hours for many years.

Higher growth in component repair services will expand consolidated margins and reduce reliance on OEMs via some component insourcing capabilities.

Independent MROs depend on OEM intellectual property licenses to compete in the aftermarket, and the contracts governing these can be canceled without compensation.

Over-investment in a particular engine platform could hinder cash flow if it does not generate returns as expected.

Airlines looking to expand their in-house maintenance services could reduce the need for independent MRO providers like StandardAero.