StandardAero (SARO) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We are affected by factors that adversely impact the commercial and business aviation industries
2. 02Our business, financial condition, results of operations and prospects have been and may continue to be adversely affected by these and other similar events that impact the commercial and business aviation industries
3. 03We depend on certain component parts and material suppliers for our engine repair and overhaul operations, and any supply chain disruptions or loss of key suppliers could adversely affect our business, results of operations and financial condition
4. 04Inflation has adversely affected us and may continue to adversely affect us by increasing our costs beyond what we can recover through price increases
5. 05Future outbreaks and infectious diseases could adversely affect our business, results of operations and financial condition
6. 06Competition in our business is intense given the market in which we participate and the range of services that we provide within that market
7. 07Loss of an OEM authorization or license could negatively impact our ability to service an engine platform and damage our competitive advantage in such platform’s market
8. 08A portion of our revenue is generated from engine platforms that are mature and for which the installed base is flat or declining. If we are unable to offset the resulting declines in revenue as engines are retired, then our business, results of operations and financial condition would be adversely affected
9. 09A significant portion of our revenue is derived from a small number of customers
10. 10operations and financial condition would be adversely affected if our relationships with the customers for whom we provide services as a subcontractor are reduced or discontinued
11. 11We do not have volume commitments with our customers and, therefore, do not have guaranteed future sales
12. 12The prices that we charge under our fixed-price contracts are predetermined and we bear the risk that our costs or lead time may exceed our estimates
13. 13Damage to our reputation or the reputation of other parties in the aerospace industry could hurt our business
14. 14Our operations depend on our facilities, which are subject to physical and other risks that could disrupt our business
15. 15Implementing new or expanded platforms, products and services and keeping pace with technological or process developments in our industries may require significant capital and operational risk
16. 16development by our competitors of patents or methodologies that preclude us from providing aftermarket services could adversely affect our business, financial condition and results of operations
17. 17Acquisitions, joint ventures, business combinations and inorganic investments may prove risky for us
18. 18our becoming subject to material liabilities as a result of failure to negotiate adequate indemnification rights

Risks Related to Financial and Accounting Matters

1. 19Our reported financial results may be adversely affected by changes in GAAP
2. 20If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected
3. 21We may be subject to risks relating to changes in our tax rates or exposure to additional income tax liabilities
4. 22We are dependent upon continued availability of financing to manage our business and to execute our business strategy, and additional financing may not be available on terms acceptable to us

Risks Related to Information Technology, Intellectual Property and Cybersecurity

1. 23If we or our third-party partners fail to protect Confidential Information and/or experience data security incidents, there may be damage to our brand and reputation, material financial penalties and legal liability, which would materially adversely affect our business, results of operations and financial condition
2. 24A disruption of our IT Systems and capabilities could lead to business disruption and could harm our reputation and result in financial penalty and legal liabilities, which would reduce our revenue and have a material adverse effect on our business, financial condition and results of operations
3. 25If we are unable to maintain, protect or enforce our rights in our proprietary technology, brands or other intellectual property, our competitive advantage, business, financial condition and results of operations could be harmed
4. 26If third parties claim that we infringe upon their intellectual property rights, our operations could be adversely affected

Risks Related to Government Regulation and Litigation

1. 27We will not be able to operate our business if we fail to comply with or obtain and maintain the necessary regulatory approvals
2. 28obtain and maintain recognized quality approvals, such as AS9110 (the standard for repair stations)
3. 29Our operations outside of North America are exposed to various risks, which could adversely affect our business, results of operations and financial condition
4. 30potentially adverse tax consequences from changes in tax laws, requirements relating to withholding taxes on remittances and other payments by subsidiaries and restrictions on our ability to repatriate dividends from our subsidiaries
5. 31We are subject to environmental, health and safety laws and regulations, violations of which could result in substantial costs, liabilities and impacts on our business and operations
6. 32The strategic priorities and financial performance of our business are subject to market and other dynamics related to efforts to reduce greenhouse gas emissions, which can pose risks in addition to opportunities
7. 33Sustainability and environmental, social and governance (“ESG”) matters may adversely impact our business and reputation
8. 34If we fail to comply with government procurement laws and regulations, we could lose business and be liable for various penalties or sanctions
9. 35We may be subject to periodic litigation and regulatory proceedings, which may adversely affect our business and financial performance
10. 36We may face large liability claims, which could adversely affect our business, results of operations and financial condition
11. 37the type and amount of maintenance on aircraft and component systems performed by our customers

Risks Related to Management and Employees

1. 38We are dependent on our senior management team and highly trained and qualified employees, and any work stoppage, difficulty hiring similar employees, retention issues or ineffective succession planning may materially adversely affect our business, results of operations and financial condition
2. 39If we face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected
3. 40We have in the past, and may in the future, have underfunded pension plan liabilities. We have required, and may require, current and future operating cash flow to fund these shortfalls
4. 41The requirements of being a public company may strain our resources, increase our costs, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members

Risks Related to Our Indebtedness

1. 42Our substantial indebtedness could adversely affect our financial condition, limit our ability to raise additional capital to fund our operations and prevent us from fulfilling our obligations under our indebtedness
2. 43Despite our level of indebtedness, we and our subsidiaries may still incur substantially more debt. This could further exacerbate the risks to our financial condition described above and impair our ability to operate our business
3. 44We may not be able to generate sufficient cash flows from operations to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful
4. 45Additionally, the New Credit Agreement permits us to pay certain dividends or make other restricted payments in the future, subject to certain limitations. Any dividends or other restricted payments would reduce our cash available to service our debt and the related risks that we now face would increase
5. 46unable to compete effectively or to take advantage of new business opportunities
6. 47In addition, the New 2024 Revolving Credit Facility has a springing financial covenant, which under certain circumstances, requires us to maintain a maximum consolidated first lien net leverage ratio and may require us to reduce debt or take other actions in order to comply with this ratio
7. 48Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly
8. 49We are a holding company with no operations and may not have access to sufficient cash to meet our financial obligations

Risks Related to Ownership of Our Common Stock

1. 50Our share price may change significantly, and you may not be able to resell our common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result
2. 51These broad market and industry fluctuations may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock are low
3. 52We are controlled by Carlyle, whose interests in our business may be different than yours
4. 53the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees
5. 54Future sales, or the perception of future sales, by us or our existing stockholders in the public market could cause the market price for our common stock to decline
6. 55Our ability to raise capital in the future may be limited
7. 56If securities analysts do not publish research or reports about our business or if they downgrade our common stock or our industry, or if there is any fluctuation in our credit rating, the price of our common stock and trading volume could decline
8. 57Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management
9. 58In addition, Carlyle has the right to designate eight of our nine directors and will continue to have the right to designate a majority of our directors until it owns less than 25% of our outstanding shares of common stock
10. 59Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval
11. 60Our amended and restated certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities
12. 61We currently do not intend to declare dividends on our common stock in the foreseeable future and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates
13. 62Our ability to use our net operating loss carryforwards and certain other tax attributes may become subject to limitation
14. 63Uncertainties in the interpretation and application of existing, new and proposed tax laws and regulations could materially affect our tax obligations and effective tax rate