Breaking Down AAR Corp. (AIR) Financial Health: Key Insights for Investors

You're looking at AAR Corp. (AIR) and wondering if the aviation services provider can maintain its altitude after a year of major strategic moves. The headline numbers for fiscal year 2025 are defintely strong: the company delivered record sales of $2.8 billion, a 20% jump year-over-year, and saw adjusted diluted earnings per share (EPS) climb 17% to $3.91. Here's the quick math: that kind of top-line growth, plus a 34% surge in Adjusted EBITDA to $324 million, shows their core business is firing on all cylinders, especially after integrating the Product Support acquisition. But still, you need to see past the adjusted figures-the GAAP net income was just $12.5 million due to a significant after-tax charge of about $115 million-and understand what the reduced net leverage of 2.72x means for future capital deployment and why analysts are setting an average price target of $89.33. We need to break down where the real value is being created and what risks, like the impact of that charge, are truly behind us.

Revenue Analysis

You're looking at AAR Corp. (AIR) because the aviation services sector is soaring, and you want to know if their revenue growth is sustainable. The direct takeaway is that AAR Corp. delivered a record year in fiscal year 2025, with consolidated sales hitting $2.8 billion, representing a strong 20% increase over fiscal year 2024.

This growth wasn't accidental; it was driven by a strategic acquisition and a massive surge in aftermarket demand. Honestly, the company's ability to map its services to the current market-high demand for parts and maintenance, repair, and overhaul (MRO)-is defintely paying off. You can dive deeper into the full picture in our post on Breaking Down AAR Corp. (AIR) Financial Health: Key Insights for Investors.

Deconstructing the Primary Revenue Drivers

AAR Corp.'s revenue is primarily generated from its core aviation services, which are split between commercial and government customers. In fiscal year 2025, the breakdown remained stable, with sales to commercial customers accounting for 71% of total consolidated sales. The revenue streams are segmented into Parts Supply, Repair & Engineering, and Integrated Solutions, all showing robust growth.

Here's the quick math on the key growth engines that drove the 20% year-over-year sales increase:

• New Parts Distribution: This activity saw exceptional organic growth, accelerating to a 26% increase in the first quarter of fiscal year 2025, driven by both market growth and market share gains.
• Product Support Acquisition: The integration of the Product Support business was a significant contributor to the top line, particularly boosting the Repair & Engineering segment.
• Repair & Engineering: Sales in this segment surged, posting over 53% year-over-year growth in the third quarter of fiscal year 2025, thanks to the acquisition and increased throughput in Airframe MRO facilities.

Segment Contribution and Shifting Sands

While the overall mix of commercial versus government business held steady at 71% commercial, the internal dynamics of the revenue segments changed significantly. The Repair & Engineering segment, for instance, saw its sales climb by a massive 58% in the first quarter of fiscal year 2025, showing the immediate impact of the Product Support acquisition.

But, still, you have to note the risks. The Used Serviceable Material (USM) portion of the Parts Supply segment faced a headwind, declining by 22% in the first quarter of fiscal year 2025 due to a lack of whole assets available in the market. This volatility in USM was offset by the strength in new parts distribution, which is a key management focus.

The table below summarizes the key financial metrics for the full fiscal year 2025, giving you a clear picture of the scale and growth.

The company also continued to optimize its portfolio by divesting its non-core Landing Gear Overhaul business, which, while resulting in a one-time charge, helps focus capital on higher-growth, higher-margin areas like Parts Supply and Repair & Engineering. That's a clear action toward maximizing returns.

Profitability Metrics

If you're looking at AAR Corp. (AIR), the headline numbers for fiscal year (FY) 2025 tell a story of strong operational momentum but a messy bottom line due to one-time events. The direct takeaway is that adjusted profitability is expanding nicely, but you must look past the GAAP (Generally Accepted Accounting Principles) net income to see the real picture.

For the full FY2025, which ended May 31, 2025, AAR Corp. reported consolidated sales of $2.8 billion, an increase of 20% over the prior year. This growth is translating into better gross margins, a key sign of operational health. Here's the quick math on their core profitability:

• Gross Profit Margin: The margin landed at 19% on a gross profit of $527.7 million.
• Operating Profit Margin (Adjusted): This is the number to watch, as it excludes one-time items. It climbed to 9.6% in FY2025, a solid jump from 8.3% in FY2024.
• Net Profit Margin (GAAP): This metric was dramatically impacted, falling to just 0.5%.

The low GAAP net profit margin is a classic example of why you need to dig deeper. The company's net income was only $12.5 million for the year, but this figure included significant after-tax charges of $115 million related to the divestiture of its Landing Gear Overhaul business and an FCPA settlement. That's a huge, non-recurring anchor on the reported earnings. When you normalize for these charges, the adjusted diluted earnings per share (EPS) was $3.91, up 17% year-over-year, which is a much better reflection of the underlying business performance.

Operational Efficiency and Margin Trends

The trend in profitability is defintely positive, showing management's focus on operational efficiency (cost management). The year-over-year climb in the Adjusted Operating Margin from 8.3% to 9.6% is substantial. This expansion is primarily driven by two things: the favorable contribution from the newly acquired Product Support business and strong growth in the higher-margin Parts Supply segment. They are successfully integrating the acquisition and driving efficiencies in their Maintenance, Repair, and Overhaul (MRO) facilities.

To put AAR Corp.'s performance in context, let's look at the sector. The global MRO market is massive, with demand expected to exceed $282 billion in 2025, and it's growing, with a projected Compound Annual Growth Rate (CAGR) of 2.7% through 2035. AAR Corp. operates in a high-demand environment, which is a tailwind. Still, their gross margin of 19% is a bit below some of their more specialized peers. For instance, a competitor in the MRO space, TAT Technologies, reported a Q3 2025 gross margin of 25.1%. This suggests there's still room for AAR Corp. to improve their cost structure or product mix to close that gap.

The table below summarizes the key full-year FY2025 profitability metrics, giving you a clear, single-view snapshot of the company's financial health:

The focus for investors should be on that growing 9.6% adjusted operating margin. It shows the core business is getting more profitable, which is what you want to see. For a deeper look at the institutional money behind the stock, you can check out Exploring AAR Corp. (AIR) Investor Profile: Who's Buying and Why?

Debt vs. Equity Structure

You want to know how AAR Corp. (AIR) is financing its growth, and the simple answer is they are using a balanced, but slightly debt-heavy, approach to fuel their expansion, particularly after a major acquisition. For the fiscal year ending May 31, 2025, AAR Corp. ended up with a Debt-to-Equity (D/E) ratio of approximately 0.86, which is a manageable level but significantly higher than the industry average.

Here's the quick math on their capital structure. As of the end of FY2025, the company reported total debt of roughly $1,047.6 million against total equity of $1,211.6 million. This 0.86 D/E means for every dollar of shareholder equity, the company has about 86 cents of debt. To be fair, this ratio is a big step down from the leverage they took on for the Product Support acquisition, which they've been actively paying down.

The breakdown of that debt tells a clearer story about their long-term stability versus near-term obligations.

• Long-Term Debt: AAR Corp.'s primary debt load is long-term, sitting at $968.0 million as of May 31, 2025.
• Short-Term Debt: The remaining current portion of debt/short-term borrowings is around $79.6 million, which is a small slice of the total.
• Net Debt: Their net debt position, which accounts for cash on hand, was $880.5 million at the end of FY2025, with a corresponding net leverage ratio of 2.72x. They defintely prioritized deleveraging post-acquisition.

When you compare AAR Corp.'s 0.86 D/E ratio to the sector, you see a clear difference. The average D/E for the broader Aerospace & Defense industry is much lower, sitting at about 0.35 as of November 2025. This indicates AAR Corp. is more leveraged than its typical peer, likely because of its strategic focus on growth through acquisitions, which are often debt-financed. Still, their ratio is closer to the Airlines industry average of 0.89, which is a capital-intensive sector.

The company's recent actions show a clear preference for fixed-rate, long-term debt to manage interest rate risk. In August 2025, AAR Corp. priced an add-on offering of $150 million in 6.750% senior notes due 2029. This move was strategic: the proceeds were used to repay outstanding borrowings on their unsecured revolving credit facility, effectively converting variable-rate bank debt into fixed-rate notes. This brings their total 2029 senior notes outstanding to $700 million.

The financing strategy balances debt for growth-like the Product Support acquisition-with equity funding, though there is a discussion about potentially issuing more shares to fund future acquisitions and reduce debt, which is a risk to watch for potential investor dilution. This is a classic trade-off: debt is cheaper but riskier; equity is safer but dilutes ownership. You can see their strategic direction in their Mission Statement, Vision, & Core Values of AAR Corp. (AIR).

Liquidity and Solvency

You want to know if AAR Corp. (AIR) has the cash on hand to cover its near-term obligations, and the answer is a clear 'yes.' The company's liquidity position is strong, demonstrating a healthy cushion against short-term risks, even as they invest heavily in growing their core business.

The key takeaway is that AAR Corp. has a solid liquidity buffer, but you must watch the working capital investment, which is currently a significant use of cash. That's a growth signal, but it eats into free cash flow (FCF).

Current and Quick Ratios: A Robust Buffer

AAR Corp.'s liquidity ratios for the most recent period are excellent, signaling a strong ability to meet their current liabilities (short-term debts). The Current Ratio-which measures total current assets against total current liabilities-stood at a robust 2.91 as of August 2025. For context, a ratio between 1.5 and 3.0 is generally considered healthy, so AAR is at the high end of that range. This ratio is also significantly better than the Aerospace & Defense industry median of 1.885.

The Quick Ratio (or acid-test ratio), which excludes inventory-the least liquid current asset-was a solid 1.31. This tells you that even without selling a single part from their warehouse, AAR Corp. could cover over a dollar of short-term debt for every dollar owed. This is defintely a strength, showing immediate financial flexibility.

Working Capital Trends and Cash Flow

The biggest story in AAR Corp.'s fiscal year 2025 (FY2025) financials is how they managed their working capital (the difference between current assets and current liabilities). While the ratios are strong, the cash flow statement shows a significant investment in the business's growth engine. For the full FY2025, the company saw a substantial use of cash to fund working capital expansion, driven by:

• Change in Accounts Receivable: -$109.4 million (Customers owe more money).
• Change in Inventory: -$109.3 million (Stocking up on parts for future sales).
• Change in Accounts Payable: $70.5 million (Using supplier credit effectively).

Here's the quick math: The need to fund a growing balance of receivables and inventory-a net use of over $148 million in these two accounts-is a direct result of their 20% increase in consolidated sales to $2.8 billion in FY2025. They are buying and holding more inventory to support the strong demand, especially in their Parts Supply business. This is a deliberate, growth-focused decision, not a sign of distress.

Cash Flow Statement Overview

The cash flow statement for FY2025 reflects this investment. Cash flow from operating activities (CFO) was $36.1 million. Excluding the accounts receivable financing program, CFO was $28.5 million. This figure is lower than you might expect from a company with a net income of $12.5 million (GAAP), largely because of that working capital build. Still, it was positive.

On the investing side, capital expenditures (CapEx) were a manageable -$34.7 million for FY2025. This means the minimal operating cash flow was almost entirely offset by CapEx, leaving very little free cash flow. Financing activities show a clear focus on strengthening the balance sheet following the Product Support acquisition, with net leverage decreasing from 3.58x to 2.72x by May 31, 2025. They also repurchased $10.1 million in shares during the quarter.

The CEO projects a return to positive cash flows for the new fiscal year (FY2026). The near-term action is to monitor if the investment in inventory and receivables starts to convert back into cash as sales are completed. You can read more about the company's full financial picture in our detailed post: Breaking Down AAR Corp. (AIR) Financial Health: Key Insights for Investors.

Valuation Analysis

You're looking at AAR Corp. (AIR) and trying to figure out if the market has it right-is it overvalued, or is there still runway for growth? Honestly, the valuation picture is a little mixed, which is common in the aerospace and defense sector right now, but the analyst consensus points to a clear opportunity.

The stock price has seen a strong run, climbing by roughly 32.83% in 2025 alone, which is a great sign of momentum. As of mid-November 2025, AAR Corp. (AIR) was trading around $81.81, sitting comfortably within its 52-week range of $46.51 to $89.69.

Here's the quick math on key valuation multiples for the Fiscal Year 2025 (ending May 31, 2025), which is what you should focus on:

• Price-to-Earnings (P/E) Ratio: The trailing P/E is high at 174.25x, mostly due to a temporary earnings dip to $12.50 million in FY2025.
• Forward P/E Ratio: Analysts see a huge earnings rebound, dropping the forward P/E to a much more reasonable 17.71x based on 2025 estimates.
• Price-to-Book (P/B) Ratio: The P/B sits at 1.80x for FY2025, which is not cheap but is generally in line with a growing industrial company.
• Enterprise Value-to-EBITDA (EV/EBITDA): This multiple, which accounts for debt, is at 13.52x for FY2025. This is a bit higher than the Industrials sector median of 9.9x, suggesting a premium for AAR Corp.'s growth and market position.

What this estimate hides is the impact of recent strategic moves, like the acquisition of HAECO Americas, which is expected to significantly accelerate the Repair & Engineering segment. This is why the market is willing to pay a higher multiple today for future earnings. If you want to dive deeper into who is holding this stock, you should check out Exploring AAR Corp. (AIR) Investor Profile: Who's Buying and Why?

On the income distribution side, don't expect a payout. AAR Corp. (AIR) does not currently pay a dividend, so the dividend yield and payout ratio are both 0.00%. They are clearly prioritizing reinvestment into the business-like that big MRO acquisition-over returning capital to shareholders through dividends.

The Wall Street consensus is defintely bullish. The average 12-month price target is around $89.33, which suggests an upside of about 9.48% from the current price. The overall analyst consensus is a 'Moderate Buy' to 'Strong Buy,' with the majority of analysts recommending a 'Buy' or 'Strong Buy.'

Here is a summary of the analyst sentiment:

The takeaway is that the stock is not cheap on trailing earnings, but it looks reasonably valued-even slightly undervalued-when you factor in the massive earnings recovery and growth analysts are forecasting for the near term. The stock is a 'Buy' if you believe in the execution of their growth strategy.

Risk Factors

You're looking at AAR Corp. (AIR) after a record year, which is great, but a seasoned investor knows to map the risks before celebrating the $2.8 billion in fiscal year 2025 sales. The company is navigating a complex aerospace aftermarket, and while they delivered a strong $3.91 in Adjusted diluted EPS, several internal and external pressures could derail that momentum. We need to focus on supply chain fragility, labor constraints, and the financial implications of their recent growth strategy.

The biggest near-term operational risk is the persistent supply chain disruption, which continues to challenge the entire aviation sector. Honestly, if AAR Corp. can't get the parts, they can't service the planes, and that directly impacts their ability to meet customer demand, especially in the high-growth Parts Supply segment. Plus, the industry-wide shortage of skilled workers puts upward pressure on labor costs and could degrade service quality, which is a silent margin killer.

Here's the quick math on the financial and strategic risks that surfaced in the 2025 filings:

• Debt Load: The debt-fueled acquisition strategy, while driving growth, resulted in a significant debt balance. While they've reduced their net leverage to 2.72x from 3.58x post-acquisition, they still carry over $1.02 billion in debt against only about $80 million in cash. That's a high debt-to-cash ratio.
• Integration and Divestiture: There's always a risk that the anticipated benefits from the Product Support acquisition won't fully materialize. To be fair, they did substantially complete the integration and optimized their portfolio by divesting the Landing Gear Overhaul business, which is a clear, decisive action.
• Regulatory and Litigation Costs: The company took a massive hit in FY2025 with an after-tax charge of $115.0 million related to the sale of the Landing Gear Overhaul business and an FCPA (Foreign Corrupt Practices Act) settlement. This kind of non-operational expense can instantly wipe out GAAP net income, which ended the year at a slim $12.5 million.

AAR Corp. is defintely not sitting still, though. Their mitigation strategies are clear and actionable. To combat supply chain risk, they are diversifying suppliers and building buffer inventory. More importantly, they formalized a Supply Chain Alliance charter with the U.S. Defense Logistics Agency (DLA) Aviation in April 2025, which should help streamline their government logistics services. For the labor issue, they are investing in training programs and partnering with technical schools to attract and retain qualified employees. You can read more about the core business in Breaking Down AAR Corp. (AIR) Financial Health: Key Insights for Investors.

What this estimate hides is the geopolitical risk; a reduction in sales to the U.S. government, which makes up about 29% of consolidated sales, due to shifting defense priorities or contract changes, would be a major revenue shock. Keep an eye on the government contract renewal cycle.

Growth Opportunities

AAR Corp. (AIR) is positioned for continued growth, driven by a strategic portfolio optimization and a significant tailwind from the aging global aircraft fleet. The company finished fiscal year 2025 with record performance, providing a clear foundation for near-term expansion. Your focus should be on how their investments in high-margin segments translate into the projected double-digit earnings growth.

The core of this future growth is simple: commercial and government customers need MRO (Maintenance, Repair, and Overhaul) services more than ever. AAR Corp. (AIR) reported full fiscal year 2025 sales of $2.8 billion, a robust 20% increase over the prior year, with Adjusted Diluted EPS hitting $3.91. That's a strong financial trajectory.

Here's the quick math on forward momentum: analysts project a forward revenue growth rate of 12.71%, which is significantly higher than the sector median of 4.89%. Plus, the forward EBITDA growth rate is estimated at 20.10%, well above the sector median of 6.66%. This tells you the market is defintely pricing in margin expansion from their strategic moves.

Key Growth Drivers and Strategic Moves

The company's strategy centers on scaling its high-demand segments and leveraging technology. They are actively expanding capacity to meet the multi-year backlog in the Repair & Engineering sector, which is a smart move since all existing hangars are near capacity.

• Parts Supply Expansion: Capturing market share through expanded inventory and new distribution activities.
• MRO Capacity Boost: Launching two hangar expansions in Miami and Oklahoma City, estimated to add 15% in total capacity by fiscal year 2026.
• Trax Software Innovation: Strengthening their integrated software solutions with the acquisition of Aerostrat, which enhances their Trax software capabilities for new business wins.
• Government Contracts: Converting a large pipeline of government opportunities, reinforced by a new parts Distribution Supply Chain Alliance charter with the U.S. Defense Logistics Agency (DLA).

The focus on portfolio optimization is also clear; they substantially completed the integration of the Product Support acquisition while divesting the lower-margin Landing Gear Overhaul business for $48 million in fiscal year 2025. This streamlines operations for better margins.

Competitive Edge in a Growing Market

AAR Corp. (AIR) maintains a strong competitive position because it operates as a leading independent provider in the aviation aftermarket. Unlike competitors tied to a specific OEM or airline, AAR Corp. (AIR) offers unbiased, objective solutions, which is a major selling point for diverse clients. Their global footprint, spanning operations in over 20 countries, allows them to provide localized support, a critical advantage for managing complex logistics and maintenance schedules.

The company's investment in its Trax software platform is a crucial technological advantage, positioning them at the forefront of digital innovation in aviation aftermarket services. This focus on integrated software solutions helps clients improve efficiency and reduce costs, making AAR Corp. (AIR)'s service offering more sticky.

The table below summarizes the financial performance that underpins this growth outlook:

You can dive deeper into the ownership structure and market sentiment by Exploring AAR Corp. (AIR) Investor Profile: Who's Buying and Why?, but the takeaway is that the strategic investments made in fiscal year 2025 are starting to pay off in margin expansion and market share gains.