AAR Corp.

What they do

AAR sells new and used serviceable aircraft, engine and airframe parts, and performs airframe and component maintenance, repair and overhaul. It also runs fleet management and performance-based supply chain programs for the U.S. Department of War, Department of State and foreign governments, and provides software platforms including Trax, Aerostrat, Airvoyant and Airinmar. In fiscal 2026 the company realigned into four segments: Parts Supply; Repair, Engineering, and Software; Government Solutions; and Legacy Commercial Programs, the last of which it intends to exit.

Revenue drivers

• Parts Supply — New parts distribution and sales of used serviceable material, including aircraft, engine and airframe parts and components; CEO cited 39% segment sales growth in Q4 FY2026 with 19% organic growth in new parts distribution.
• Repair, Engineering, and Software — Airframe MRO, Component MRO and software platforms; reported 35% Q4 sales growth driven by Component MRO, higher Airframe MRO volumes and recurring Trax revenue, and was expanded by four fiscal 2026 acquisitions.
• Government Solutions — Fleet management and operation of customer-owned aircraft, performance-based supply chain logistics for the DoW, DoS and foreign governments, and Mobility Systems (pallets, shelters, containers).
• Legacy Commercial Programs — Asset-heavy flight-hour-based component pool and repair programs and consumables distribution, now reported separately and slated for a three-to-four-year wind-down because it no longer meets capital return thresholds.

Recent performance

Fiscal 2026 sales rose 19% to $3.3 billion and GAAP net income was $188 million, or $4.86 diluted EPS, versus $12.5 million and $0.35 in fiscal 2025. Fourth quarter sales were $928 million, up 23%, with GAAP diluted EPS of $1.27 and adjusted diluted EPS of $1.53. Adjusted EBITDA was $401 million for the year, up 24%, as margin rose from 11.8% to 12.1%. Operating cash flow was $98.7 million for fiscal 2026, and net leverage stood at 2.03x at year end. The nine months ended February 28, 2026 included a $35.7 million bargain purchase gain and a $9.8 million gain on the sale of the headquarters building.

Strategy

AAR has reshaped its portfolio into four segments and announced it will wind down Legacy Commercial Programs over roughly three to four years, selling rotable assets as customer contracts terminate. It completed four fiscal 2026 acquisitions: ADI for $137.1 million, HAECO Americas for $78.0 million, Aircraft Reconfig Technologies for $36.0 million and Aerostrat for $19.0 million, expanding distribution, heavy MRO, interiors engineering and maintenance-planning software. Management says it is focused on shifting sales mix to higher-margin offerings, integrating HAECO Americas and realizing acquisition synergies. Capital priorities include maintaining net leverage within a 2.0x to 2.5x target range while continuing to fund growth.

Risks

• Commercial aviation cyclicality — Sales to commercial customers were $2,384.1 million, or 72.1% of fiscal 2026 consolidated sales, exposing AAR to airline and OEM demand swings.
• Legacy Commercial Programs wind-down execution — Exiting the segment requires terminating customer contracts and selling rotable assets over approximately three to four years, which may not proceed as planned.
• Acquisition integration — Four fiscal 2026 acquisitions, including HAECO Americas, must be integrated and are expected to be short-term dilutive to margins.
• Tariffs, trade and geopolitical disruption — The company cites trade wars, tariffs or retaliatory countermeasures, ongoing conflicts, supply chain disruptions and labor issues such as the Boeing union work stoppage as industry risks.

Outlook

Management expects further adjusted EBITDA margin expansion as sales mix shifts to higher-margin offerings, HAECO Americas integration completes and acquisition synergies are realized. It reported net leverage of 2.03x, within its 2.0x to 2.5x target range, which it says provides flexibility to keep funding strategic growth. CEO John M. Holmes said the company is positioned to continue creating long-term value, and disclosed a combined Parts Supply, RE&S and Government Solutions adjusted EBITDA margin of 13.0% in Q4 and 12.7% for the full year.