VSE Pitches Aviation Aftermarket Pivot at TD Cowen, Calls PAG Acquisition “Transformational”
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VSE has pivoted from a “sleepy defense contractor” to a 100% commercial, business and general aviation aftermarket company, growing aviation revenue from just under $150M to just over $1.1B by end‑2025 and targeting margin expansion to “north of 20%” on a consolidated basis within 24 months.
The acquisition of PAG — described as VSE’s largest and most “transformational” deal — was preceded by a year of pre‑diligence and an unsolicited bid, with integration designed to preserve PAG’s exchange/inventory strengths while delivering largely cost‑based synergies over a roughly 24‑month plan.
VSE is highly OEM‑centricnorth of 80%” of new business from OEMs, and expects financial improvements including leverage below 3.5x and being free cash flow positive in 2025 as MRO reduces working‑capital intensity.
VSE (NASDAQ:VSEC) executives used an appearance at TD Cowen’s 47th Annual Aerospace and Defense Conference to outline the company’s multi-year shift toward commercial, business, and general aviation aftermarket services and to discuss its recently announced acquisition of PAG, which management characterized as its largest and most transformational deal to date.
Chief Executive Officer John Cuomo said the company has spent the past five years transitioning from what he described as a “sleepy defense contractor” into a “100% commercial and business and general aviation aftermarket-focused business.” Cuomo said the company grew revenue in its aviation segment from “just under $150 million a year” to “just north of $1.1 billion” by the end of 2025, and is now focused on the next phase of growth.
Cuomo emphasized that the PAG transaction is intended to extend VSE’s maintenance, repair, and overhaul (MRO) footprint globally across commercial, business, and general aviation rotorcraft customers, while also adding technical products and capabilities. He said the company believes the combined platform can support margin expansion, with an internal goal of reaching “north of 20% on a consolidated basis” over the next 24 months.
Cuomo said he had worked on the PAG deal for about a year and viewed it as one of two potential “transformational” opportunities available to the company, noting that PAG was private equity-owned and likely to come to market. VSE pursued the asset ahead of a broader process, performed what Cuomo described as extensive pre-diligence, and ultimately made an unsolicited bid in late summer. According to Cuomo, PAG ran a “mini process” to validate the bid before agreeing to the transaction.
He described PAG’s origins as a “scrappy” business with a broker-like mindset focused on solving customer problems, but said it also scaled through acquisitions. Cuomo contrasted VSE’s more integrated operating model with PAG’s, while noting similarities in culture and how PAG links inventory to its MRO sites. He used an “iPhone” analogy to describe PAG’s exchange model—maintaining swap inventory for many repaired items to reduce turnaround time—which he said is unusual in the market and helps attract customers that lack backup parts.
Cuomo said both organizations operate with small, site-level profit-and-loss structures, and he expects integration opportunities due to PAG being less system- and process-integrated than VSE. He also said management intends to integrate in a way that preserves what made acquired businesses successful, suggesting the company could operate with “five or six kind of core ERP systems with a big ERP database” rather than forcing everything into one system.
Cuomo said the PAG synergy targets shared so far are largely cost-based and that the company has a “very good line of sight” to them. He indicated VSE hopes to provide an update later in the year and may later quantify more opportunistic revenue or commercial synergies once management can validate them, while describing the integration plan as involving roughly “24 months of detailed work.”
Cuomo said competition varies by vertical. In distribution—covering new parts and used serviceable material (USM)—he estimated the business at roughly $700 million of the portfolio and said competitors include Boeing and Airbus as well as public companies such as HEICO and AAR, along with private equity-backed firms.
In MRO, Cuomo said the company’s capabilities span engines and engine accessories/components, avionics, hydraulics and pneumatics, and wheel and brake services. He said VSE is “very OEM-centric,” with engine work often performed as back-shop support for major OEMs. In those relationships, the OEM typically dictates whether work is performed under delegated engineering representative (DER) repairs or under fully authorized arrangements.
Cuomo also described a strategy aimed at participating in more of what he characterized as a larger, OEM-directed aftermarket. He cited a rough estimate of a $150 billion total addressable market for distribution and MRO, with about $100 billion going direct from OEMs and about $50 billion contested among independent players. He said VSE’s model is designed to be “OEM-friendly” by helping OEMs monetize aftermarket programs, protect intellectual property, and better manage large end-user bases. He added that “north of 80%” of VSE’s new business wins come directly from OEMs rather than competitive bidding against peers.
Cuomo outlined three categories of proprietary or intellectual property-related offerings:
OEM Solutions: purchasing IP from OEMs that want to exit or de-emphasize certain products. He said VSE currently has two active programs on Pratt & Whitney Canada’s PT6 engine: a fuel pump acquired from Triumph and a fuel control that was formerly a Honeywell product.
DER repair: developing authorized repairs using in-house DER capability, often to address supply chain constraints while remaining supportive of OEM partners.
PMA parts: a small parts-manufacturing approval (PMA) business that Cuomo said is currently “less than $10 million” in revenue but viewed as a growth area, focused on non-engine and non-hot-section items such as certain seals, latches, and bearings to help mitigate supply constraints.
Cuomo said VSE operates a “technical distribution” model and reported the company distributes about 50,000 to 55,000 active SKUs. He also highlighted a daily focus on aircraft-on-ground (AOG) service performance, saying he and the COO review an AOG report each morning and investigate any miss.
On constraints, Cuomo characterized supply chain issues as persistent and dynamic, and said there remains a labor shortage at the highest technical levels, particularly in engine MRO. He described limited backlog in the business due to short order-to-ship cycles in distribution and typical MRO turnaround times ranging from under a week for wheel and brake work to 30-45 days for certain engine shop work.
Chief Financial Officer Adam Cohn said the company is targeting leverage below 3.5x and described VSE as being in “great shape” following an equity offering used to help finance the PAG transaction. Cohn also said the deal should enhance free cash flow because MRO is less working-capital intensive than distribution, citing distribution working capital that can be “more like 50%” of sales versus “25%-30%” for MRO. He added that VSE has publicly stated it expects to be free cash flow positive in 2025.
Cuomo said the company still expects to be able to execute smaller tuck-in acquisitions alongside the larger PAG integration, noting that small MRO shops can be integrated in a matter of months and that slower integration timelines do not necessarily inhibit inorganic growth.
VSE Corporation (NASDAQ: VSEC) is a provider of aftermarket distribution and supply chain management services serving both government and commercial markets. The company’s solutions span a wide range of industries, with particular emphasis on defense, aerospace and transportation. VSE’s core mission is to ensure mission readiness by delivering critical parts, maintenance and technical support for equipment throughout its lifecycle.
Through its Distribution Services segment, VSE sources, markets and distributes replacement parts and components for commercial truck, bus, rail and specialty vehicle applications.
