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VSE Corporation VSEC, a leader in aftermarket distribution and repair services, has completed the acquisition of Kellstrom Aerospace Group, Inc. The transaction strengthens VSEC's position in the commercial aerospace engine aftermarket.
This acquisition was valued at around $185 million in cash and 172,414 common shares of VSEC. The purchase was funded through proceeds from a public offering and borrowings under VSEC's existing credit facility.
VSE Strengthens Aviation With Kellstrom Acquisition
This acquisition aligns with VSE’s strategic plan to expand its product and service offerings in the aerospace sector. It presents an opportunity for the company to enhance its position in the growing commercial aerospace aftermarket. The deal strengthens VSE’s original equipment manufacturers (OEM) focused value proposition and supports its efforts to grow distribution and MRO capabilities.
Kellstrom Aerospace brings a strong track record of supporting global OEM partners through its engine-focused products and repair services. This expertise, along with its technical advisory capabilities, complements VSE Aviation’s existing business. The integration is expected to create significant value for both customers and suppliers.
The company will offer customers and suppliers more comprehensive solutions by combining VSE Aviation and Kellstrom. The strong cultural alignment, combined capabilities and shared focus on the aviation aftermarket will allow VSE to capitalize on emerging growth opportunities.
VSEC’s Share Price Performance
VSEC’s shares have gained 77.9% year to date, outperforming the Zacks Engineering - R and D Services industry’s 16.1% growth. This Zacks Rank #3 (Hold) company has strengthened its position in the aviation aftermarket through the acquisition of Kellstrom. The move enhances VSE's competitiveness, positioning the company for accelerated growth and improved financial performance.
Image Source: Zacks Investment Research
The Aviation segment now generates more than 70% of VSE’s total revenues. These revenues come from both the commercial and business and general aviation aftermarket. In the third quarter of 2024, global demand in the commercial aerospace aftermarket remained near record levels, driven by high passenger traffic. However, the market has been facing challenges from declining OEM production rates and ongoing supply-chain disruptions, which continue to affect the availability of new aircraft.
The business in the general aviation aftermarket has also been performing near historic highs. It has entered a period of stability, differing from previous cycles. Private air travel sentiment remains strong.
VSE expects strong demand in the commercial aftermarket to continue into 2025, with near double-digit revenue growth. This growth will be supported by high passenger volumes, OEM production challenges and an aging global fleet. The outlook for the business and general aviation sector is also positive, with low to mid-single-digit growth expected for 2025.