AAR CORP. 10-K Summary: Fiscal Year Ended May 31, 2026
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended May 31, 2026. AAR CORP. is a leading independent provider of solutions to the global aviation aftermarket, serving commercial and government aerospace customers in over 20 countries. During the fourth quarter of fiscal 2026, the Company restructured its operating segments into four distinct units: Parts Supply, Repair, Engineering, and Software, Government Solutions, and Legacy Commercial Programs. The Company also announced its intention to exit the Legacy Commercial Programs business over a three-to-four-year period due to capital return thresholds.
Key Financial Metrics
| Metric | Fiscal 2026 | Fiscal 2025 | Change |
|---|---|---|---|
| Total Sales | $3,308.0 million | $2,780.5 million | +19.0% |
| Gross Profit | $622.0 million | $527.7 million | +17.9% |
| Operating Income | $277.8 million | $185.2 million | +50.0% |
| Net Income | $187.7 million | $12.5 million | +1,393.6% |
| Diluted EPS | $4.86 | $0.35 | +1,288.6% |
| Operating Cash Flow | $98.7 million | $36.1 million | +173.4% |
| Total Debt Outstanding | $900.0 million | $968.0 million | -7.0% |
| Working Capital | $1,128.9 million | $955.9 million | +18.1% |
Note: Fiscal 2025 results were significantly impacted by a $55.6 million FCPA settlement charge and a $72.4 million loss on the sale of the Landing Gear Overhaul business.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated sales increased $527.5 million, driven by a 20.6% increase in commercial sales and a 14.9% increase in government sales. Growth was fueled by new parts distribution activities and four strategic acquisitions.
- Acquisitions: The Company completed four acquisitions in fiscal 2026:
- ADI ($137.1M): Electronic components distributor (Parts Supply).
- HAECO Americas ($78.0M): Heavy aircraft MRO provider (Repair, Engineering, and Software).
- Aircraft Reconfig Technologies ($36.0M): Aircraft interiors engineering (Repair, Engineering, and Software).
- Aerostrat ($19.0M): Maintenance planning software (Repair, Engineering, and Software).
- Profitability: Operating income surged 50% year-over-year. This improvement is largely attributable to the absence of the significant one-time charges incurred in fiscal 2025 (FCPA settlement and LGO divestiture loss) and strong organic growth in high-margin distribution activities.
- Segment Performance:
- Parts Supply: Sales up 35.3% to $1,487.7 million; Operating income up 18.8%.
- Repair, Engineering, and Software: Sales up 16.1% to $1,080.8 million; Operating income flat at $84.6 million due to lower-margin pre-integration operations from HAECO Americas.
- Government Solutions: Sales up 1.4% to $502.3 million; Operating income up 61.5% to $56.7 million.
- Legacy Commercial Programs: Sales down 6.8% to $237.2 million; Operating income dropped to zero due to a $4.9 million inventory reserve related to the exit strategy.
Guidance, Outlook, and Risks
Outlook and Strategy: Management expects long-term strength in aviation products and services. The Company is focusing on higher-margin businesses with stronger returns on capital. The wind-down of the Legacy Commercial Programs segment is expected to take three to four years. The Company continues to invest in software capabilities, including the launch of the AI-powered procurement solution, Airvoyant.
Key Risks and Contingencies:
- Government Contract Uncertainty: Sales to U.S. government agencies (23.8% of total sales) are subject to funding changes, competitive bidding, and termination for convenience. A proposed 50% reduction in the Department of State budget could negatively impact revenue.
- Legal Proceedings:
- Russian Bankruptcy Litigation: A final judgment of $1.8 million remains outstanding, with a liability of $2.1 million (including interest) recorded on the balance sheet.
- Performance Guarantee: A customer has filed suit claiming damages of at least $32 million related to a divested business; the Company believes it has strong defenses but cannot estimate the range of loss.
- Nepal Proceedings: A subsidiary was convicted in Nepal with a fine of approximately $0.9 million; the Company does not intend to pay the fine, citing lack of due process.
- Cybersecurity: The Company faces evolving cyber threats, including ransomware and state-affiliated attacks, which could disrupt operations or compromise data.
- Debt Covenants: The Company must maintain compliance with leverage and interest coverage ratios under its credit agreements.
Investor Verification Checklist
- Acquisition Integration: Verify the timeline and financial impact of integrating HAECO Americas and ADI, specifically regarding margin normalization.
- Legacy Commercial Programs Exit: Monitor the progress of the three-to-four-year wind-down and the realization of asset sales to ensure no further unexpected impairments.
- Government Funding: Track U.S. Department of State and Department of War budget appropriations to assess the stability of the Government Solutions segment revenue.
- Legal Resolutions: Review updates on the Russian judgment enforcement and the $32 million performance guarantee lawsuit.
- Debt Maturity: Confirm the status of the $700 million Senior Notes due 2029 and the $200 million Revolver balance relative to covenant compliance.