VSE (NASDAQ:VSEC) CEO John Cuomo outlined the company’s strategy to build what he described as a differentiated aviation aftermarket platform, emphasizing a mix of distribution, repair services, and growing intellectual property-driven revenue streams. In a discussion focused on VSE’s acquisition of Precision Aviation Group (PAG), Cuomo said the deal is intended to be transformational, expanding repair capabilities and shifting the business mix toward higher free cash flow conversion.
PAG deal rationale and what VSE says it adds
Cuomo said VSE has spent the last five to six years building a platform meant to bridge what he sees as a gap in the aviation aftermarket: new parts, used parts, and repair services often sit in separate businesses across the industry. He said VSE’s model aims to bring those elements together to support large OEMs, help them monetize aftermarket opportunities, and serve end users.
Cuomo highlighted PAG’s “centers of excellence” approach, citing examples including Rolls-Royce M250 engine work and avionics capabilities spanning older cargo aircraft through newer platforms such as the 787 and A350, as well as business aviation systems. He added that PAG’s parts activity is tightly connected to its repair operations, carrying parts primarily tied to what it repairs, which he said supports margins and free cash flow.
How VSE’s model differs from prior roll-ups and peers
Cuomo discussed his prior experience building KLX as a roll-up in consumables and expendables, characterizing it as an M&A-driven model with limited intellectual property. He said VSE is structurally different: it is 100% aftermarket-focused, includes more service content, and involves more complex parts and technology.
Cuomo emphasized VSE’s “One VSE” approach—operating as a unified platform rather than a collection of many standalone businesses—and said the company’s strategy prioritizes filling market gaps and simplifying the customer experience (including the ambition for a single invoice and single system) rather than purely financial engineering.
Growth outlook: organic algorithm and market share focus
Cuomo broke VSE’s business into four categories—commercial engines, commercial non-engines, business and general aviation (BGA) engines, and BGA non-engines—and offered his view of market growth rates by segment. He said commercial engines appear to be growing in the low- to mid-double digits, BGA engines in the high single digits to around 10%, and slower growth in areas like rotorcraft and BGA non-engine components around 5%–6%. He added that VSE’s revenue is roughly balanced across these buckets “in round numbers.”
He said VSE’s operating teams are primarily incentivized on organic growth and margin expansion, even as M&A remains a central element of the broader strategy. Cuomo described a total aviation aftermarket of roughly $150 billion, with about $50 billion attributed to services competitors and about $100 billion as OEMs selling direct to end users. He said VSE is “attacking both sides,” with many recent wins coming from OEM-direct channels where VSE supports OEMs in protecting IP, managing aftermarket service, and monetizing end-user support.
Cuomo said VSE has achieved organic growth above market rates over the past five years, and cited roughly 15% organic growth over the past three years. The interviewer noted VSE’s business has grown around a 30% CAGR over the last three years, split roughly half organic and half inorganic, which Cuomo did not dispute. Cuomo said he views 2026 and 2027 as similar in outlook, while expressing discomfort with forecasting too far beyond that due to increasing assumptions.
Margins, IP initiatives, and the path to 20%+
Cuomo reiterated VSE’s margin ambitions, noting that six years ago the company was around 11.5% segment margins and single-digit company-wide margins. He said consolidated margins are now “well north of 15%,” referencing preliminary guidance provided at the time of the PAG acquisition announcement.
He said VSE is comfortable targeting about 20% adjusted EBITDA margins, suggesting a timeframe of late 2027 into 2028, though he noted the company has not provided a precise timeline. Cuomo also said the company believes margins could exceed 20% over time, and that progress above 20% depends heavily on scaling three intellectual property-related revenue streams:
- OEM Solutions: acquiring IP for end-of-life or discontinued OEM products, then contract manufacturing and managing the aftermarket while owning the IP.
- Reverse engineering/alternative sourcing: developing products where VSE owns the IP.
- DER repair: repairs using different processes or incorporating used parts or PMA parts, with VSE owning the repair IP.
On PMA (parts manufacturer approval), Cuomo described it as a reverse-engineered generic version of an OEM part. He said PMA was not part of VSE’s original design because the company historically focused on supporting OEMs and their proprietary content. Over time, he said supply chain constraints have pushed VSE to explore OEM-aligned alternatives—such as different repair approaches, used serviceable material, and selected PMA parts—to help solve shortages while building higher-margin IP content.
Free cash flow, leverage, and integration approach
Cuomo said VSE expects leverage to move higher following the PAG deal, describing a post-close range of roughly 2.5x to 3x, with an overall comfort band of approximately 2x to 3.5x depending on deal opportunities. He also said the company expects to end the year with leverage starting with “a one” before the acquisition closes, and reiterated that the first quarter is typically the heaviest cash usage quarter, making positive first-quarter free cash flow unlikely given business seasonality.
VSE’s CFO (Michael, last name not provided in the transcript) said the company used about $52 million of free cash flow in 2024 and expects to be free cash flow positive in 2025. He added VSE is targeting about 30%–35% EBITDA-to-free-cash-flow conversion on a go-forward basis.
Cuomo said the PAG acquisition changes the business mix from about 60% distribution / 40% MRO to roughly 60% MRO / 40% distribution, which he expects to improve cash generation because MRO conversion is stronger. He suggested the company’s “2027 clean year” free cash flow profile should be meaningfully stronger as a percentage of sales than legacy levels.
On synergies, Cuomo acknowledged investor feedback that the company’s $15 million synergy estimate may be conservative. He said the figure largely reflects cost synergies and some known product margin opportunities, while excluding potential sales synergies and additional supply chain upside. He said synergy upside could potentially be much higher but that management prefers to disclose what it believes it can reliably execute.
Cuomo also described VSE’s integration playbook as a differentiator, emphasizing phased integration by business unit rather than a single large systems conversion. He said the company plans to validate operations early and integrate “in smaller chunks” to reduce risk.
On deal structure, Cuomo said he generally avoids earn-outs but included one for PAG tied to 2026 performance. He said VSE is “100% aligned” with PAG management incentives and would welcome paying the earn-out if PAG outperforms internal expectations. He added PAG’s CEO is expected to remain through year-end, with “real integration” work planned to begin in early 2027.
About VSE (NASDAQ:VSEC)
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.
