AAR CORP. 10-Q Summary: Quarter Ended November 30, 2025
Business Context and Reporting Period
This filing covers the quarterly period ended November 30, 2025 (Fiscal Q2 2026). AAR CORP. operates in four segments: Parts Supply, Repair & Engineering, Integrated Solutions, and Expeditionary Services. The company provides aviation aftermarket products, maintenance, repair, and overhaul (MRO) services, and logistics solutions to commercial and government customers.
Key Financial Metrics
| Metric | Three Months Ended Nov 30, 2025 | Six Months Ended Nov 30, 2025 |
|---|---|---|
| Total Sales | $795.3 million | $1,534.9 million |
| Gross Profit | $156.9 million | $290.6 million |
| Gross Margin | 19.7% | 18.9% |
| Operating Income | $67.0 million | $131.9 million |
| Net Income | $34.6 million | $69.0 million |
| Diluted EPS | $0.90 | $1.85 |
| Cash & Equivalents | $75.6 million | $75.6 million (as of Nov 30) |
| Long-Term Debt | $952.7 million | $952.7 million (as of Nov 30) |
| Working Capital | $1,096.1 million | $1,096.1 million (as of Nov 30) |
Cash Flow (Six Months): Operating activities used $31.3 million (vs. $3.4 million provided prior year). Investing activities used $237.1 million, primarily for acquisitions. Financing activities provided $255.4 million, driven by a common stock offering.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 15.9% year-over-year (Q2) and 13.9% (YTD), driven by commercial demand and new acquisitions.
- Profitability Surge: Net income turned from a loss of $30.6 million in Q2 2024 to a profit of $34.6 million in Q2 2025. This is largely due to the absence of a $55.6 million FCPA settlement charge recorded in the prior year.
- SG&A Reduction: Selling, general, and administrative expenses decreased 33.4% year-over-year, primarily due to the one-time legal settlement costs in the prior period.
- Acquisitions: The company completed three significant acquisitions in the period:
- HAECO Americas: $76.5 million (Nov 2025).
- ADI (American Distributors): $137.7 million (Sep 2025).
- Aerostrat: $15.0 million base + $5.0 million contingent (Aug 2025).
- Divestiture: The Landing Gear Overhaul (LGO) business was sold in the prior fiscal year, with final adjustments recognized in this period.
Guidance, Outlook, and Risks
- Outlook: Management expects long-term strength in aviation products and services. The company is expanding facilities in Miami and Oklahoma City to meet demand.
- Capital Markets: In Q2 2026, the company raised $273.9 million via a common stock offering. Long-term debt includes $700 million in Senior Notes (6.75% due 2029) and $260 million drawn on a revolving credit facility.
- Legal Contingencies:
- Russian Litigation: A final judgment of $1.8 million remains; a $11.2 million liability was reversed after a favorable ruling.
- Performance Guarantee: A customer claims at least $32 million related to a sold Composites business; the company disputes the claim and cannot estimate the loss.
- Nepal Proceedings: A $0.9 million fine was recognized; the company does not intend to pay, citing lack of due process.
- Subsequent Events: Agreements signed to acquire Aircraft Reconfig Technologies ($35 million) and invest in xCelle Asia JV ($7.1 million). Intent to sell corporate headquarters building for ~$26 million.
Investor Verification Checklist
- Acquisition Integration: Verify the timeline and cost synergies for the recent HAECO Americas and ADI acquisitions, which drove significant revenue but impacted operating margins in Repair & Engineering.
- Working Capital Trends: Investigate the $31.3 million cash outflow from operations, attributed to timing of vendor payments and inventory build-up.
- Legal Exposure: Monitor the status of the $32 million performance guarantee claim and the enforceability of the Russian judgment outside of Russia.
- Debt Covenants: Confirm continued compliance with leverage ratios given the recent debt issuance and acquisition activity.
- FCPA Settlement Impact: Note that the strong Q2 2025 results are partially a function of the absence of the $55.6 million non-deductible charge recorded in Q2 2024.