SARO Q4 2025: Free Cash Flow Surges 75% as LEAP, CRS Expansion Drive Margin Upside
Standard Aero (SARO) delivered a record 2025, propelled by robust demand across commercial, business aviation, and military end markets, and a sharp 75% improvement in free cash flow conversion. Strategic investments in LEAP engine maintenance and component repair services (CRS) are compounding, while disciplined capital allocation and operational focus are expanding margins despite persistent supply chain friction. Management’s 2026 guidance signals confidence in double-digit earnings growth and further cash flow acceleration, with pass-through revenue elimination and in-house repair expansion set to reshape the margin profile.
Summary
- LEAP and CRS Programs Accelerate: Rapid scaling of LEAP engine work and CRS repair catalog expansion underpin growth runway.
- Margin Mix Shifts: Elimination of $300–400M low-margin pass-through revenue and in-sourcing repairs drive structural margin improvement.
- 2026 Outlook Anchored in Visibility: High slot fill rates and contract wins provide strong demand visibility and support for double-digit earnings growth guidance.
Performance Analysis
SARO posted 16% full-year revenue growth and a 17% rise in adjusted EBITDA, with both Engine Services and CRS (Component Repair Services) segments contributing meaningfully. Engine Services, which comprises the majority of the business, grew 15% with strong momentum in LEAP, CFM56, and CF34 platforms. CRS, representing roughly 12% of the business, outpaced with 20% revenue growth and a 31% jump in segment EBITDA, reflecting successful integration of the ATI acquisition and expansion of high-value repair content.
Free cash flow conversion leapt to 75% of net income, a sharp reversal from negative conversion in 2024, as SARO unwound working capital tied to delayed engine deliveries and normalized interest and capital market expenses post-IPO. Margin expansion was notable, with total company adjusted EBITDA margin up year-over-year, reflecting both operational leverage and deliberate removal of $300–400 million in low-margin, pass-through revenues from restructured contracts. The company’s net debt to EBITDA ratio improved to 2.4x, restoring capital allocation flexibility for organic investment, M&A, and a newly authorized $450 million share repurchase program.
- LEAP Engine Work Ramps: Inductions increased sixfold with first full overhauls delivered, marking a pivotal scaling milestone.
- CRS Margin Expansion: ATI synergies and new repair development lifted CRS margins by 250 basis points.
- Cash Flow Inflection: $308 million Q4 free cash flow driven by clearing supply-constrained engine backlog.
Operational discipline and strategic investments are translating into durable margin and cash flow gains, even as supply chain constraints and one-off events (Phoenix facility fire, government shutdown) temporarily weighed on CRS growth in Q4.
Executive Commentary
"2025 was another record year for Standard Aero and one in which we made significant progress on our strategic objectives, enabled by relentless focus and dedication to quality and performance by our 8,000 employees worldwide... We expect to see continued growth in our free cash flow generation again in 2026 and into the future."
Russell Ford, Chairman and Chief Executive Officer
"We generated free cash flow of $308 million in the fourth quarter as we delivered engines that had been awaiting parts, in some cases for several quarters. This drove a reduction in our inventory and contract assets of $183 million, marking a meaningful improvement in our working capital."
Dan Satterfield, Chief Financial Officer
Strategic Positioning
1. LEAP and CFM56: Scaling Profitability
LEAP, SARO’s next-generation engine maintenance program, is scaling rapidly, with 60 engine inductions in 2025 (up from 10 in 2024) and the first full overhauls completed. This program is moving down the learning curve, with management guiding for profitability in the first half of 2026. CFM56, an established platform, is also doubling revenue and leveraging new DFW capacity to capture incremental share as market demand persists.
2. CRS: High-Margin Repair Expansion
Component Repair Services (CRS) is a strategic growth and margin lever, with in-house repair revenue up 15% and new repair development accelerating. The ATI acquisition delivered synergy-driven margin expansion, while the Phoenix facility fire and government shutdown were short-term headwinds, already factored into 2026 guidance. The segment’s ability to insource repairs and expand the external customer base is driving both margin and addressable market growth.
3. Pass-Through Revenue Removal: Margin Quality Over Volume
By restructuring customer contracts to eliminate $300–400 million of low-margin pass-through revenue, SARO is intentionally shrinking top-line but structurally lifting margins and reducing working capital intensity. This shift will better reflect true operating performance and free up capital for higher-return opportunities.
4. Capital Allocation: Flexibility Restored
With leverage at 2.4x and robust cash flow, SARO is positioned to deploy capital across organic investment, M&A, and buybacks. The $450 million repurchase authorization signals confidence in intrinsic value and balance sheet strength, while management remains disciplined in evaluating strategic fit and ROI for all capital deployment decisions.
5. Pricing Power and Supply Chain Navigation
Tight MRO capacity and persistent parts shortages are supporting above-trend pricing, with SARO capturing price increases above historical norms. Management is proactively investing in labor pipelines and internal training to avoid workforce constraints as industry-wide retirements accelerate.
Key Considerations
SARO’s 2025 performance reflects a multi-year transformation, with strategic bets on next-gen engine platforms and component repair now showing operational and financial leverage. Investors should monitor the following:
Key Considerations:
- LEAP Program Profitability Timeline: Management expects LEAP to reach profitability in H1 2026, a critical inflection for margins and long-term earnings power.
- CRS Repair Development Pace: Continued acceleration in new repair capabilities and in-sourcing will determine CRS’s ability to sustain high-20s margins and expand addressable market.
- Supply Chain and Labor Resilience: While parts shortages are easing, on-time delivery remains below historical levels; internal training and retention programs are mitigating labor risks.
- Capital Allocation Mix: Balance between organic growth, M&A, and buybacks will shape future EPS growth and strategic flexibility.
Risks
Persistent supply chain delays and episodic facility disruptions (such as the Phoenix fire) remain operational risks, though management’s guidance assumes gradual improvement rather than a rapid return to pre-pandemic reliability. LEAP and CFM56 ramp-up losses, while narrowing, still dilute margins until full profitability is achieved. Military segment growth is constrained by flight hour lag and limited near-term visibility on European rearmament, while pricing power could moderate as MRO capacity normalizes. Any reversal in commercial or business aviation demand, or a resurgence of supply chain bottlenecks, would challenge the double-digit growth outlook.
Forward Outlook
For Q1 2026, SARO expects:
- CRS margins and growth below normal levels due to Q4 fire and government shutdown spillover (already factored into full-year guidance).
For full-year 2026, management guided to:
- Revenue of $6.275–6.425 billion (4–6% top-line growth, masking >10% underlying growth net of pass-through removal).
- Adjusted EBITDA of $870–905 million (10% YoY growth at midpoint), with margin up 70 bps to ~14%.
- Adjusted EPS of $1.35–1.45 (18% YoY growth at midpoint).
- Free cash flow of $270–300 million (36% YoY growth at midpoint).
Management emphasized that 2026 slot fill rates are high across major platforms, with new contract wins and incremental capacity coming online as learning curves progress. Guidance assumes continued gradual improvement in supply chain and no normalization of MRO pricing in the near term.
- LEAP and CFM56 expected to reach profitability in H1 2026.
- CRS segment guided to 11% revenue and earnings growth, with margins in the 28.5–29.5% range.
Takeaways
SARO’s 2025 results and 2026 guidance reflect a business at the intersection of secular aerospace demand and disciplined operational execution.
- Margin Transformation Underway: Removal of low-margin pass-through revenue and scaling of in-house repairs are structurally lifting margin quality and cash conversion.
- Growth Platforms Reaching Inflection: LEAP and CFM56 are set to turn profitable, with contract wins and capacity expansions providing multi-year visibility.
- Capital Deployment Optionality: Restored balance sheet strength enables SARO to pursue organic, inorganic, and shareholder return strategies without constraint.
Conclusion
SARO exits 2025 with accelerating free cash flow, expanding margins, and strong demand visibility across all major segments. Strategic investments in LEAP and CRS are compounding, while operational discipline and capital allocation are positioning the business for compounding value creation. Investors should watch for LEAP profitability, CRS repair mix, and evolving supply chain dynamics as key drivers of the 2026 and multi-year trajectory.
Industry Read-Through
SARO’s results confirm that MRO (maintenance, repair, and overhaul) demand remains robust, with capacity constraints and supply chain friction sustaining elevated pricing across the aerospace aftermarket. The shift toward in-house repair development and away from pass-through revenue is a margin play that other MROs may emulate as supply chains gradually normalize. Persistent labor shortages and aging technician demographics are driving industry-wide investment in training pipelines and retention programs, a trend likely to benefit incumbents with established programs. For OEMs and airlines, SARO’s experience underscores the importance of diversified repair capabilities and the value of long-term contract visibility in managing supply risk and maximizing fleet uptime.