Deep Sail Capital: Innovative Aerosystems ($IA) Investment Case

In their Q3 2026 investor letter, Deep Sail Capital introduces Innovative Aerosystems ($IA), formerly Innovative Solutions & Support ( ISSC), as one of three new positions opened during the quarter. The fund returned -15.8% net in Q3, as several emerging growth longs declined sharply in what Portfolio Manager Sean Westropp calls a “two-sided market.” In that market, megacap leaders hit new highs while small and microcaps trade near 52-week lows despite, in many cases, unchanged fundamentals. Deep Sail believes the gap is more likely to close than widen. The firm sees IA as a small-cap aerospace company in the middle of a significant transformation, from niche avionics supplier into an aerospace systems platform. It describes IA as the type of small-cap compounder it tries to find early.

Investment Highlight: Innovative Aerosystems ($IA)

Business Overview

• IA designs, manufactures, integrates and services avionics and aerospace systems for commercial, business aviation and military customers.
• Products include cockpit displays, flight-management equipment, radios, inertial reference units, autothrottles, autopilots and flight-control computers.
• Customers include Boeing, Lockheed Martin, Pilatus, Textron, FedEx, American Airlines and the U.S. government.
• About 65% of revenue came from products and 35% from services in the first nine months of fiscal 2026.

Roll-Up of Orphaned Product Lines

• Deep Sail explains that large aerospace companies such as Honeywell and Moog own hundreds of small product lines too minor to move the needle for them. These lines can be very meaningful to IA.
• IA acquires the IP, tooling, customer relationships and manufacturing rights, then moves production into its own footprint. It earns high-margin revenue from installed fleets that may stay in service for decades.
• The firm views IA as resembling a smaller, more niche TransDigm. Each acquisition also expands IA’s technical capabilities as an integrated systems supplier.

Business Quality

• Deep Sail sees certification and installed-base advantages as the largest moat. Replacing a certified component requires costly engineering, testing and renewed FAA certification.
• IA held 171 patents at the end of fiscal 2025.
• Gross margin was 52.4% and operating margin was 24.4% in the first nine months of fiscal 2026.
• Revenue grew from $34.8 million in fiscal 2023 to $84.3 million in fiscal 2025, while adjusted EBITDA rose from $9.6 million to $24.8 million.

Management

• Deep Sail views CEO Shahram Askarpour as one of the best CEOs of any sub-$1 billion company. Askarpour joined IA in 2003, has more than 40 years of aerospace experience and holds a PhD.
• The firm credits his IA NEXT strategy, which combines organic development with acquisitions from Honeywell and Moog and the purchase of Aydin Displays.
• Deep Sail notes that the expansion has been funded largely with internal cash and reasonably priced debt rather than stock issuance. It also notes that Askarpour owns about 4% of the company.

Growth Runway

• Deep Sail believes IA could sustain 20%+ annual growth for a long period. It points to three drivers: continued acquisitions, an aging global aircraft fleet, and the Liberty Flight Deck.
• IA won Liberty’s first production program with a Japanese eVTOL developer. According to the letter, that customer’s order book exceeds 400 aircraft, with potential forward-fit value above $50 million.
• The firm views the win mainly as validation of Liberty. It notes management expects multiple additional Liberty wins over the next two years, none of which Deep Sail believes are priced in.
• Management’s long-term target is $250 million of revenue at 25–30% adjusted EBITDA margins. Deep Sail calls this target aspirational.

Valuation

• At about $19 per share, IA’s market cap is roughly $340 million. Its pro forma enterprise value is around $400 million after the Aydin borrowing.
• On consensus fiscal 2027 estimates of $119 million revenue and $33 million EBITDA, IA trades at about 12x forward EBITDA, which the firm finds cheap.
• Deep Sail notes that reported growth was depressed by lapping elevated F-16 revenue. Management says the underlying business grew about 40% excluding F-16, and that this lumpiness is now behind it.

Risks

• Deep Sail acknowledges revenue lumpiness and customer concentration, with Lockheed Martin at 36% of fiscal 2025 revenue.
• The firm views integrating Aydin, IA’s first whole-company acquisition, as the biggest risk, though it believes the strategic fit is excellent.

Deep Sail Capital sees multiple ways to win with IA. The firm points to profitable recurring aftermarket cash flow, further compounding through orphaned product acquisitions, and Liberty as an organic opportunity that could eventually outgrow the legacy business. It expects near-term catalysts from Aydin integration, additional Liberty wins and F-16 normalization, supported by an $82.9 million backlog. Deep Sail believes all this is available at a valuation that does not require perfection.

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