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    AIR
    Earnings call· May 2026(Q4 FY26)

    AAR CORP AIR

    Jul 21, 2026 Source

    Executive summary

    AAR Corp. Q4 FY26 — Strong Organic Growth and Margin Expansion Driven by Parts, Repair, and Software

    AAR Corp. delivered a strong Q4 FY26, achieving record sales and profitability, propelled by robust organic growth across its parts, repair, and software segments. The company successfully advanced key strategic initiatives, including the integration of HAECO Americas and expansion of distribution agreements, while significantly reducing net leverage. Management anticipates continued double-digit sales growth and further margin expansion in FY27, driven by sustained market demand and strategic execution.

    Highlights

    5

    • Adjusted sales grew 26% year-over-year to a record $928 million, including 13% organic growth.

    • Adjusted EBITDA increased 27% year-over-year to $116 million, with adjusted EBITDA margin expanding to 12.5%.

    • Adjusted diluted EPS was up 32% year-over-year to $1.53 per share.

    • Net leverage decreased from 2.17x to 2.03x net debt to adjusted EBITDA, reaching the low end of the target range.

    • New parts distribution grew 19% organically, and the HAECO Americas integration is ahead of schedule.

    Concerns

    4

    • Adjusted EBITDA margin in Parts Supply was down 250 basis points to 14.6% due to a one-time gain in used serviceable material in the prior year and constrained asset availability.

    • HAECO Americas acquisition was slightly dilutive to near-term margins, impacting segment adjusted EBITDA margins by approximately 130 basis points in the quarter.

    • Government Solutions revenue declined 8% year-over-year to $130 million due to reduced activity on the WASS program.

    • Segment margins in Repair, Engineering and Software were impacted by approximately 90 basis points by certain costs in component MRO operations.

    Guidance & targets

    3
    CategoryTargetConfidence
    Total sales growth (excluding legacy commercial Programs segment)
    21% to 23%
    high materiality
    High
    Adjusted EBITDA margin (excluding legacy commercial Programs segment)
    12.25% to 12.75%
    high materiality
    High
    Total sales growth (excluding legacy commercial Programs segment)
    low double digits to low teens
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Parts Supply
    Above-market growth in new parts distribution. Adjusted EBITDA margin was down 250 bps primarily due to a one-time gain in used serviceable material in the prior year.
    New parts distribution organic growth: 19% (excluding ADI acquisition)Commercial distribution organic growth: 28%Government distribution organic growth: 7%Adjusted EBITDA: $61.7M (+18% YoY)
    		$424M39%—14.6% Adjusted EBITDA margin
    Repair, Engineering and Software
    Driven by HAECO Americas acquisition, record growth in component MRO, higher airframe MRO volumes, and increased recurring revenue at Trax. Margins negatively impacted by HAECO integration (approx. 130 bps) and certain component MRO costs (approx. 90 bps).
    Adjusted EBITDA: $36M (+29% YoY)
    		$314M35%—11.5% Adjusted EBITDA margin
    Government Solutions
    Revenue decline driven by reduced activity on the WASS program. Margin expansion of 670 bps was due to expansion of other government programs and strong pallet sales in mobility operations.
    Adjusted EBITDA: $20.8M (+58% YoY)
    		$130M-8%—16.0% Adjusted EBITDA margin

    Operational metrics

    21
    Adjusted Sales
    $928Mup 26% YoY
    Q4 FY26

    Record total sales for the quarter.

    Adjusted Sales
    $3.3Bup 20% YoY
    FY26

    Record total sales for the full fiscal year.

    Adjusted EBITDA
    $116Mup 27% YoY
    Q4 FY26

    Record adjusted EBITDA for the quarter.

    Adjusted EBITDA margin (excluding legacy commercial Programs segment)
    13%
    Q4 FY26

    Already demonstrating ability to achieve the 3-year range provided at Investor Day.

    Adjusted EBITDA margin (excluding legacy commercial Programs segment)
    12.7%
    FY26

    Full year adjusted EBITDA margin, excluding the legacy commercial programs segment.

    Adjusted Diluted EPS
    $1.53up 32% YoY
    Q4 FY26

    Driven by strong operational performance.

    Adjusted EPS
    $5.05up 29% YoY
    FY26

    Marking fifth consecutive year of mid-teens or greater adjusted EPS growth.

    Net Leverage
    2.03xdecreased from 2.17x at Q3
    Q4 FY26

    Reached the low end of the targeted leverage range despite funding the ART acquisition.

    Adjusted Operating Cash as % of Adjusted EBITDA
    50%
    Q4 FY26

    Demonstrating meaningful progress toward long-term target of 30% plus.

    Adjusted Operating Cash as % of Adjusted EBITDA
    24%
    FY26

    Full year adjusted operating cash as a percentage of adjusted EBITDA.

    Commercial Sales Growth
    31%YoY
    Q4 FY26

    Sales to commercial customers.

    Government Sales Growth
    5%YoY
    Q4 FY26

    Sales to government customers.

    Commercial Sales % of Total
    73%
    Q4 FY26

    Mix of sales by customer type.

    Government Sales % of Total
    27%
    Q4 FY26

    Mix of sales by customer type.

    HAECO integration margin impact
    40 bpsvs 70 bps in Q3
    Q4 FY26

    Impact on overall company adjusted EBITDA margin. The impact on segment adjusted EBITDA margins was 130 bps in Q4.

    Legacy Commercial Programs wind-down
    ratably over the next three to four years
    future

    Expected timeline for winding down the legacy commercial programs business. Timeline could shift based on speed of exiting inventory and contracts.

    Government distribution organic growth
    34%YoY
    FY26

    Strong organic growth in government distribution for the full fiscal year.

    Software sales (Trax)
    $50Mdoubled from $25M
    FY26

    Trax sales for the full fiscal year, having doubled since acquisition.

    Software sales target
    $100M
    near to medium term

    Clear line of sight to reach this target in the near to medium term.

    Software sales target
    $200M
    out-year

    Longer-term aspiration for software sales.

    Software incremental margins
    40% range
    future

    Expected margins as software offerings scale.

    Industry KPIs

    1
    MetricValueDetails
    Defense program awards$305MUSD

    Product announcements

    2
    ProductTypeDetails
    Airvoyantlaunch
    Paperless Hangar Technologyexpansion

    Deals & partnerships

    3
    WoodwardExclusive distribution agreement for high-demand parts for LEAP, GEnX, and CF34 engines.

    Extends existing relationship with Woodward from defense distribution into commercial distribution.

    Aircraft Reconfig Technologies (ART)Acquisition of a company bringing in-house certification capabilities and proprietary engineering solutions.

    Previously announced acquisition, closed in April.

    U.S. Navy and Marine CorpsFollow-on contract to provide contractor logistics support for their C-40 fleet.$305M

    Demonstrates ability to bring commercial best practices to government customers.

    Capital programs

    2
    Oklahoma City Airframe MRO Facility Expansioncompleted

    Expansion of airframe MRO capacity, completed in March.

    Miami Airframe MRO Facility Expansionunderway

    Expansion of airframe MRO capacity, expected to come online after this summer.

    Risks & headwinds

    4
    WASS program declineongoing

    Government Solutions revenue down 8% YoY to $130 million in Q4 FY26 due to reduced activity.

    Mitigation: Anticipate offsetting impact with growth from other higher-margin government programs and strong pallet sales.

    HAECO Americas integration margin dilutionnear-term, improving through H1 FY27

    Approximately 130 basis point impact on Repair, Engineering and Software segment adjusted EBITDA margins in Q4 FY26 (40 bps impact on overall company adjusted EBITDA margin).

    Mitigation: Integration is ahead of schedule; expect margins to improve and reach consistency with other MRO sites by H2 FY27.

    Used Serviceable Material (USM) margin constraintongoing

    Adjusted EBITDA margin in Parts Supply down 250 basis points due to a one-time gain in prior year and narrowed spread from constrained asset availability.

    Mitigation: Conservative expectation for USM, robust expectation for higher-margin distribution growth in FY27.

    Component MRO operational costsQ4 FY26 (not expected to continue)

    Approximately 90 basis points impact on Repair, Engineering and Software segment margins in Q4 FY26.

    Mitigation: Costs are not expected to continue going forward.

    What to watch in Q1 FY27

    5

    HAECO Americas integration margin impact

    next quarter
    Current130 bps impact on segment adjusted EBITDA margins in Q4 FY26
    TargetContinued improvement

    Why it matters

    Key to overall MRO segment profitability and achieving long-term margin targets.

    The acquisition had an approximately 130 basis point impact on segment adjusted EBITDA margins in the quarter. This is an improvement over what we saw in the third quarter and is consistent with our expectation that margins will continue to improve as we complete our integration activities during the first half of FY '27.

    Q&A highlights

    5

    How have new parts orders trended for commercial customers since May, and are there tailwinds to government sales from recent hostilities?

    Commercial distribution growth has been consistently strong, driven by existing agreements, new ramps, and price increases. Government distribution saw 34% organic growth for the full year, with strong demand from the DLA, despite tougher year-over-year comps.

    “Our growth in distribution on the commercial side has been actually relatively consistently strong throughout the year and throughout the recent months. And just to break that down for you, growth in distribution is kind of roughly 50% coming from increase in same-store sales, if you will, existing distribution agreements, a little bit less than 50% is coming from the ramp-up of new agreements and then a little bit is coming from price increase.”

    asked by Scott Mikus · answered by John Holmes

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Execution and Acquisitions

    AAR Corp. successfully closed four separate acquisitions in FY26, executing complicated integrations involving site consolidation, workforce repositioning, and detailed customer coordination. The integration of HAECO Americas is pacing ahead of schedule, with expectations to reach consistent margins with other airframe MRO sites by the second half of fiscal 2027. The company also acquired Aircraft Reconfig Technologies in April, bringing in-house certification capabilities and proprietary engineering solutions.

    02

    Software Platform Expansion and Traction

    The company launched Airvoyant, an AI-driven procurement solution, in April, which is now entering beta testing with launch partners and generating broad interest. Trax continues to expand its relationship with Delta, reaching Phase 2 of implementation with over 10,000 professionals using the software. Aerostrat, a long-range heavy maintenance planning tool acquired in FY26, has also seen tremendous success in the marketplace, exceeding expectations.

    03

    MRO Capacity and Component Growth

    AAR is making progress on airframe MRO expansions, with the Oklahoma City facility completed in March and the Miami facility expected to come online after summer. The company also won multiple new awards with leading airlines, driving double-digit organic sales growth in component MRO activity, particularly in its Asia operation in Thailand for structures repairs and in the U.S. for mechanical components and engine accessories.

    04

    Government Programs Mix Shift

    While activity on the WASS program supporting the State Department is expected to continue decreasing, AAR anticipates offsetting this impact with growth from other higher-margin government programs and strong pallet sales in its mobility operation. This mix shift contributed to a significant 670 basis point increase in adjusted EBITDA margin for the Government Solutions segment in Q4 FY26.

    05

    Distribution Model Success and Pipeline

    The company's two-way exclusive distribution model has gained significant traction in the market, leading to strong momentum and numerous opportunities. A new exclusive distribution agreement was signed with Woodward for high-demand parts for LEAP, GEnX, and CF34 engines, expanding on an existing defense distribution relationship. Management noted a full M&A pipeline, with several long-tracked opportunities aligning for potential future acquisitions.

    AI-generated summary of the company’s earnings call. Not investment advice.