AAR CORP. Delivers Record Q4 and FY2026 Results, Announces Segment Realignment and Strategic Updates
Summary and Key Highlights
- Q4 Sales: \$928 million, up 23% year-over-year
- Q4 GAAP Diluted EPS: \$1.27
- Q4 Adjusted Diluted EPS: \$1.53, up 32%
- Q4 GAAP Net Income: \$51 million
- Q4 Adjusted EBITDA: \$116 million, up 27%
- Q4 Adjusted EBITDA Margin: 12.5%, up from 12.4%
- FY2026 Sales: \$3.3 billion, up 19%
- FY2026 GAAP Diluted EPS: \$4.86
- FY2026 Adjusted Diluted EPS: \$5.05, up 29%
- FY2026 GAAP Net Income: \$188 million
- FY2026 Adjusted EBITDA: \$401 million, up 24%
- FY2026 Adjusted EBITDA Margin: 12.1%, up from 11.8%
- Net Leverage: 2.03x, within target range (2.0x-2.5x)
- Strong Operating Cash Flow: \$98.7 million in FY2026; \$94.3 million when adjusted for receivable financing
CEO Statement: Momentum and Margin Expansion
John M. Holmes, Chairman, President & CEO, emphasized continued momentum driven by organic growth and acquisitions. The Parts Supply segment grew 39%, including 19% organic growth in new parts Distribution. The Repair, Engineering, and Software segment saw 35% sales growth, led by increased Component MRO activities and recurring revenue at Trax.
Holmes highlighted the company’s ability to expand adjusted EBITDA margins despite short-term dilution from the HAECO Americas acquisition. He expects further margin expansion as sales shift to higher-margin offerings and integration synergies are realized.
Strategic Segment Realignment and Wind-Down of Legacy Program
- AAR announced a new reporting structure: Four operating segments—Parts Supply; Repair, Engineering, and Software (RE&S); Government Solutions; and Legacy Commercial Programs.
- Wind-down of Legacy Commercial Programs business: Reflects focus on growth, margin expansion, and additional cash flow generation.
- Combined adjusted EBITDA margin (excluding Legacy): 13.0% in Q4 and 12.7% for FY2026.
Recent Strategic Updates & Notable Contracts
- Multi-year commercial distribution agreement signed with Woodward: To provide consumable parts for CFM LEAP, GEnx, and CF34 engines.
- Component MRO Facility Award: Wellington, Kansas facility received the Collins Aerospace Supplier of the Year Award.
- Expanded Airbus repair offering: Includes Airbus A320 slat repair at Chonburi, Thailand facility.
- Launch of Airvoyant: AI-powered aviation procurement solution connecting buyers and suppliers.
- Acquisition of Aircraft Reconfig Technologies: Adds FAA Organization Designation Authorization (ODA) capabilities.
- \$305 million contract awarded: Contractor logistics support for U.S. Navy and Marine Corps C-40A fleet, ensuring operational readiness and long-term sustainment.
Operational Performance and Margin Analysis
- Sales to commercial customers: Increased 31% in Q4 and now represent 73% of consolidated sales (up from 69% last year).
- Sales to government customers: Increased 5% in Q4, mainly due to ADI acquisition.
- Operating margins: Q4 GAAP margin of 8.6% (down from 9.7% last year) but adjusted margin improved to 10.6% (up from 10.5%). FY2026 GAAP margin of 8.4% (up from 6.7%), adjusted margin of 10.2% (up from 9.6%).
- SG&A expenses: \$99.6 million in Q4 (up from \$77.4 million), primarily due to acquisition, amortization, and integration expenses (\$11.3 million vs. \$0.3 million).
- Interest expense: \$16.3 million in Q4, down from \$18.4 million.
- Share count: Increased to 39.6 million diluted shares due to equity offering.
- Net debt: \$816 million at year end, down from \$880.5 million.
Segment Performance
| Segment | Q4 Sales (\$M) | FY2026 Sales (\$M) | Q4 Op Income (\$M) | FY2026 Op Income (\$M) |
|---|---|---|---|---|
| Parts Supply | 423.8 | 1,487.7 | 53.7 | 186.2 |
| Repair, Engineering & Software | 314.4 | 1,080.8 | 21.7 | 84.6 |
| Government Solutions | 130.2 | 502.3 | 18.7 | 56.7 |
| Legacy Commercial Programs | 59.6 | 237.2 | 1.5 | — |
Guidance for FY2027
- Q1 FY2027 Sales Growth (excluding Legacy Commercial Programs): 21%-23%
- Q1 FY2027 Adjusted EBITDA Margin (excluding Legacy): 12.25%-12.75%
- Full Year FY2027 Sales Growth (excluding Legacy): Low double-digits to low teens
Non-GAAP Financial Measures & Adjustments
- Adjustments include acquisition/integration/amortization expenses, bargain purchase gains, losses/gains related to divestitures, impairment charges, severance, FCPA settlement costs, contract termination costs, and legal judgments related to Russia/Ukraine.
- Adjusted EBITDA for FY2026 was \$401.1 million (up from \$324.2M), with a margin of 12.1% (up from 11.8%).
- Net debt to adjusted EBITDA improved to 2.03x (down from 2.72x).
Balance Sheet and Cash Flow
- Total Assets: \$3.36 billion (up from \$2.84 billion)
- Total Liabilities: \$1.65 billion (up slightly from \$1.63 billion)
- Equity: \$1.70 billion (up from \$1.21 billion)
- Cash and equivalents: \$84 million (down from \$96.5 million)
- Operating cash flow: \$98.7 million in FY2026, \$94.3 million adjusted for receivable financing
- Capex: \$36.6 million in FY2026
- Acquisitions: \$259.4 million in FY2026
- Equity offering: \$273.9 million proceeds
- Long-term debt: \$893.9 million (down from \$968 million)
Potential Price Sensitive Information for Investors
- Record sales, earnings, and EBITDA—signals robust growth and margin expansion, potentially driving share price higher.
- Segment realignment and wind-down of Legacy Commercial Programs—focus on higher growth and margin segments may improve profitability and cash flow.
- Successful integration of acquisitions—notably HAECO Americas and Aircraft Reconfig Technologies, with synergies expected.
- Major new contracts—including \$305 million U.S. Navy/Marine Corps support.
- Launch of new AI-powered product (Airvoyant)—could provide competitive advantage and new revenue streams.
- Guidance for continued double-digit sales growth and margin expansion in FY2027.
- Reduction in net leverage and strengthening balance sheet—increases financial flexibility for future growth and acquisitions.
- Higher share count due to equity offering—may dilute earnings per share but provides capital for expansion.
- Non-GAAP adjustments and reconciliation—important for investors to understand underlying profitability and cash flow.
Risks and Forward-Looking Statements
The company notes that forward-looking statements are subject to numerous risks, including factors affecting the aviation industry, government contracts, acquisition integration, labor shortages, competition, international operations, debt management, compliance, and legal exposures. Investors should review risk disclosures in the company’s SEC filings for a full understanding of potential uncertainties.
Disclaimer
This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. All financial data is based on company filings as of July 21, 2026. Investors should conduct their own due diligence and consult with their financial advisors prior to making any investment decisions. Past performance is not indicative of future results.
