8-K: AAR Corp. Soars in Q2 FY26 with 16% Sales Growth

AAR CORP. reported strong second-quarter fiscal year 2026 results, driven by 16% sales growth, 31% adjusted diluted EPS increase, and strategic acquisitions.

Summary

• Consolidated sales for Q2 FY26 increased 16% to $795.3 million compared to $686.1 million in Q2 FY25, with organic growth of 12%.
• GAAP diluted EPS was $0.90, a significant improvement from a net loss of $0.87 per diluted share in the prior year quarter.
• Adjusted diluted EPS increased 31% to $1.18, up from $0.90 in Q2 FY25.
• GAAP Net income was $34.6 million, reversing a net loss of $30.6 million in Q2 FY25.
• Adjusted EBITDA grew 23% to $96.5 million, with the adjusted EBITDA margin expanding to 12.1% from 11.4%.
• Parts Supply business sales increased 29%, with new parts Distribution organic sales up 32%.
• Sales to government customers increased 23% over the prior year period.
• AAR closed two strategic acquisitions: ADI for $138 million, strengthening new parts Distribution, and HAECO Americas for $77 million, expanding airframe heavy maintenance capacity.
• In connection with the HAECO Americas acquisition, AAR secured $850 million in multi-year airframe heavy maintenance contracts.
• Net leverage stood at 2.49x as of November 30, 2025.
• An agreement to acquire Aircraft Reconfig Technologies for $35 million was announced, expected to close in Q4 FY26.

Sentiment

Score: 9

Explanation: The company delivered exceptional Q2 FY26 results, significantly outperforming the prior year with robust sales growth, substantial adjusted EPS increase, and strong margin expansion. Strategic acquisitions (ADI, HAECO Americas) are immediately accretive, securing significant future revenue ($850M in contracts) and expanding market leadership. The updated full-year guidance is positive, and the balance sheet remains healthy with manageable leverage. The company's unique value chain in aviation aftermarket parts, repairs, and software, combined with disciplined capital allocation and operational efficiency initiatives, positions it for sustained growth and profitability.

Positives

• Total sales increased 16% to $795.3 million, with strong organic growth of 12%.
• Adjusted diluted EPS rose 31% to $1.18, indicating robust profitability.
• Net income of $34.6 million represents a significant turnaround from a net loss in the prior year quarter.
• Adjusted EBITDA increased 23% to $96.5 million, and adjusted EBITDA margin expanded to 12.1%.
• Parts Supply segment showed exceptional performance with 29% sales growth and 32% organic growth in new parts Distribution.
• Sales to government customers increased by 23%, demonstrating strength in this market segment.
• Strategic acquisitions of ADI and HAECO Americas enhance market position and capabilities.
• Secured $850 million in new airframe heavy maintenance contracts, effectively selling out acquired capacity for several years.
• Balance sheet remains strong with net leverage at 2.49x, providing capacity for future growth.
• New business wins include a multi-year agreement with Malaysia Airlines, authorized service center status with Eaton, and Trax system selection by Thai Airways.

Negatives

• Cash flow provided by operating activities decreased to $13.6 million in Q2 FY26 from $22.0 million in Q2 FY25.
• Acquisition, amortization, and integration expenses increased to $10.9 million from $4.4 million in the prior year quarter.

Risks

• Factors that adversely affect the commercial aviation industry.
• Adverse events and negative publicity in the aviation industry.
• A reduction in sales to the U.S. government and its contractors.
• Cost overruns and losses on fixed-price contracts.
• Nonperformance by subcontractors or suppliers.
• Inability to manage operational footprint.
• A reduction in outsourcing of maintenance activity by airlines.
• A shortage of skilled personnel or work stoppages.
• Competition from other companies.
• Financial, operational, and legal risks arising from international operations.
• Inability to integrate acquisitions effectively and execute operational and financial plans related to the acquisitions.
• Failure to realize the anticipated benefits of acquisitions.
• Circumstances associated with divestitures.
• Inability to recover costs due to fluctuations in market values for aviation products and equipment.
• Cyber or other security threats or disruptions.
• A need to make significant capital expenditures to keep pace with technological developments in the industry.
• Restrictions on use of intellectual property and tooling important to the business.
• Inability to fully execute the stock repurchase program and return capital to stockholders.
• Limitations on the ability to access the debt and equity capital markets or to draw down funds under loan agreements.
• Ability to manage debt.
• Non-compliance with restrictive and financial covenants contained in debt and loan agreements.
• Changes in or non-compliance with laws and regulations related to federal contractors, the aviation industry, international operations, safety, and environmental matters, and the costs of complying with such laws and regulations.
• Exposure to product liability and property claims that may be in excess of liability insurance coverage.

Future Outlook

The company provided guidance for the third quarter and full year fiscal 2026. For Q3 FY26, total sales growth is expected to be 20%-22%, organic sales growth 8%-11%, and adjusted operating margin 9.8%-10.1%, with an estimated tax rate of 28%. For the full year FY26, total sales growth is now expected to be 'approaching 17%' (up from n/a), and organic sales growth 'approaching 11%' (up from 'approaching 10%'). Management anticipates continued margin improvement over time by increasing operational efficiencies, realizing synergies from recent acquisitions, and shifting the sales mix towards higher-margin offerings like new parts Distribution and Trax. The momentum seen in these areas is expected to drive continued growth and margin expansion.

Management Comments

• "AAR delivered another outstanding quarter, achieving solid results throughout all segments of our business and advancing our strategic objectives through our recent acquisitions." John M. Holmes, AAR's Chairman, President and CEO.
• "Total sales were up 16%, including organic growth of 12%, led by our Parts Supply business with sales up 29%."
• "Our 16% sales growth translated to 23% adjusted EBITDA growth as we expanded adjusted margins from 11.4% to 12.1%."
• "Over time we expect margins to continue to improve as we increase efficiencies in our operations, realize synergies from recent acquisitions, and shift our sales mix to higher margin offerings, such as new parts Distribution and Trax."
• "The ADI acquisition builds upon our differentiated new parts Distribution activities, adds new OEM relationships through its production-facing distribution channel, and expands our range of product offerings. This acquisition creates a new growth vector for Distribution, which has been our fastest growing activity over the last 4 years."
• "The HAECO Americas acquisition extends our leadership position as the most sought-after airframe heavy maintenance provider in North America. In conjunction with the acquisition, we secured agreements with key customers totaling approximately $850 million, effectively selling out the acquired capacity for the next several years."
• "Our balance sheet remains strong with net leverage at 2.49x giving us capacity to fund our growth through organic and inorganic investments."
• "We are executing on our strategy to build on our position as the leading independent provider of aviation aftermarket parts, repairs, and software."
• "This value chain is unique in the aviation industry, and we expect the momentum we are seeing to drive continued growth and margin expansion."

Industry Context

AAR operates in the global aerospace and defense aftermarket, a sector currently experiencing robust demand driven by increased air travel, fleet modernization, and defense spending. The company's strong performance in new parts distribution and airframe heavy maintenance reflects a healthy market for aviation services. Its strategic acquisitions of ADI and HAECO Americas, along with new contract wins and digital platform expansion (Trax), indicate a proactive approach to consolidating market share and enhancing service offerings. This aligns with broader industry trends of M&A for scale, efficiency, and integrated solutions in the complex aviation supply chain.

Comparison to Industry Standards

• AAR is extending its leadership position as the most sought-after airframe heavy maintenance provider in North America.
• The HAECO Americas acquisition positions AAR as the 2nd largest independent heavy maintenance provider in North America.
• Trax is utilized by over 100 airlines globally, demonstrating significant market penetration for its eMRO enterprise resource planning system.
• The company reported achieving 'above market growth' in its new parts Distribution activities.

Legal Proceedings

• The prior year quarter included after-tax charges of $57.1 million associated with the FCPA settlement and related costs.
• Selling, general, and administrative expenses in the prior year quarter included $59.2 million for the settlement of FCPA allegations and related costs.

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, increased EPS, strategic growth, and potential for future margin expansion. The equity offering increased the diluted share count.
• Employees: The ADI acquisition added approximately 400 employees, HAECO Americas added over 1,600 employees, and the pending Aircraft Reconfig Technologies acquisition is expected to add over 100 employees. Potential for footprint rationalization in airframe heavy maintenance could impact some employees.
• Customers: Expanded service offerings (Airinmar, Eaton, Trax) and increased capacity in heavy maintenance, along with securing $850 million in new contracts, suggest improved service and broader solutions.
• Suppliers/OEMs: Expanded OEM relationships through the ADI acquisition and renewed exclusive distribution contracts with Collins Aerospace and Arkwin Industries.

Next Steps

• Apply successful operating model to improve both the operational and financial performance of the acquired HAECO facilities.
• Rationalize the overall airframe heavy maintenance footprint to drive further margin improvement.
• Close the acquisition of Aircraft Reconfig Technologies in the fourth quarter of fiscal year 2026.
• Continue to increase efficiencies in operations and realize synergies from recent acquisitions.
• Shift the sales mix to higher margin offerings, such as new parts Distribution and Trax.
• Continue to drive growth and margin expansion through momentum in new parts Distribution, airframe heavy maintenance, component repair, and Trax.
• Continue progress on Oklahoma City and Miami hangar expansions.
• Assess opportunistic share repurchases.

Key Dates

Recommendation

AAR Corp. delivered an outstanding second quarter, significantly exceeding prior year performance with robust sales growth, substantial adjusted EPS increase, and notable margin expansion. The strategic acquisitions of ADI and HAECO Americas are immediately accretive, securing significant future revenue and strengthening market leadership in key aviation aftermarket segments. The updated full-year guidance is positive, reflecting confidence in continued momentum. The company's disciplined capital allocation, healthy balance sheet, and unique value chain position it for sustained growth and profitability, making it a compelling investment opportunity.

Keywords

Aviation Services, MRO, Parts Supply, Repair & Engineering, Aircraft Maintenance, Distribution, Aerospace, Defense, Government Contracts, Acquisitions, Financial Results, EPS, EBITDA, Net Leverage, Trax, Airframe Heavy Maintenance