AAR Corp. Earnings Call Highlights Growth and Integration

AAR Corp. ((AIR)) has held its Q2 earnings call. Read on for the main highlights of the call.

AAR Corp. Earnings Call Signals Strong Growth Amid Integration Challenges

AAR Corp.’s latest earnings call struck an overall upbeat tone, underscoring robust revenue growth, expanding margins, and successful strategic acquisitions, even as management acknowledged near-term integration headwinds from newly acquired heavy-maintenance assets. Executives highlighted accelerating momentum in high-growth areas like new parts distribution and the Trax software platform, balanced against a temporary drag from restructuring and footprint rationalization. Overall, management presented a picture of a business gaining scale and profitability, with short-term operational friction seen as the trade-off for building a more powerful, higher-margin platform.

Broad-Based Top-Line Growth and Upbeat Outlook

AAR reported a 16% year-over-year increase in total sales to $795 million, with 12% of that growth coming organically, underscoring solid underlying demand beyond acquisitions. Management is guiding for Q3 total sales to rise 20%–22% (with 8%–11% organic growth) and expects full-year total sales growth to approach 17%, with roughly 11% organic. For investors, this combination of double-digit organic growth and additional upside from recent deals sets a constructive tone for both near-term and full-year revenue expansion.

New Parts Distribution Drives Parts Supply Momentum

The Parts Supply segment was a standout, with sales up 29% year over year to $354 million. New parts distribution, a key strategic focus, grew 32% on an organic basis excluding the ADI acquisition, demonstrating strong demand from both commercial and defense customers. Profitability followed suit: Parts Supply adjusted EBITDA climbed 37% to $46.5 million and margins improved to 13.2% from 12.4%. Management framed this business as a core growth engine, benefiting from scale, better mix, and expanded OEM relationships.

Profitability and EPS Show Meaningful Upside

Beyond revenue, AAR delivered notable profit expansion. Adjusted EBITDA rose 23% to $96.5 million, with EBITDA margin improving to 12.1% from 11.4%. Adjusted operating income increased 28% to $81.2 million, pushing operating margin up 100 basis points to 10.2%. Adjusted diluted EPS surged 31% to $1.18 from $0.90, signaling strong operating leverage and effective cost control. Management emphasized that these gains came even before fully realizing synergies from recent acquisitions, suggesting further margin upside as integration progresses.

Strategic M&A Builds Scale and Capabilities

AAR underscored its continued use of targeted M&A to build scale and expand its capabilities across the aviation aftermarket. The company completed the ADI acquisition in September for $108 million, adding about $150 million in trailing sales and 400 employees, and closed the HAECO Americas acquisition in November for $77 million. It also announced the pending ART acquisition for $35 million, expected to close in fiscal Q4. Management reported that ADI has performed above expectations so far, with integration on track, reinforcing the company’s confidence in its acquisition and integration playbook.

HAECO Deal Adds Capacity and Wins Major Contracts

The HAECO Americas acquisition is central to AAR’s heavy-maintenance strategy, bringing both significant new capacity and large contract wins. As part of the integration, AAR announced around $850 million of new contract awards over five years, a substantial multi-year revenue pipeline. Once integration is complete, HAECO is expected to add roughly 40% more heavy-maintenance capacity to AAR’s network. While near-term integration is dilutive to margins, management sees this acquisition as foundational to capturing long-term demand in the heavy-maintenance market.

Repair & Engineering Growth Supported by Future Capacity

Repair & Engineering sales grew 7% year over year to $245 million, reflecting healthy demand despite some margin pressure this quarter. Looking ahead, AAR is investing to support further growth: ongoing heavy-maintenance expansions in Oklahoma City and Miami are expected to come online in calendar 2026, adding approximately $60 million in annual revenue capacity. These expansions, combined with the HAECO footprint, should materially enhance the company’s ability to serve airline and OEM customers over the medium term.

Integrated Solutions Delivers Strong Margin Expansion

The Integrated Solutions segment posted solid top-line growth and standout profitability. Sales increased 8% to $170 million, while adjusted EBITDA jumped 50% to $18.5 million. Adjusted operating income surged 82% to $15.1 million, and operating margin improved sharply from 5.1% to 8.6%. Management attributed the margin strength to a favorable program mix and the achievement of government program milestones. For investors, this segment’s performance highlights AAR’s ability to grow higher-margin services alongside more traditional parts and maintenance offerings.

Balance Sheet Strengthens, Supporting Growth and M&A

AAR continued to improve its balance sheet, with net debt leverage falling from 2.82x to 2.49x, squarely within its long-term target range of 2.0x–2.5x. Management expects the company to be cash-positive in Q3 and to see a modest sequential decline in interest expense, reflecting improved financial flexibility even after funding recent acquisitions. Capital allocation priorities remain focused on organic growth and targeted M&A, suggesting the company will continue to pursue bolt-on deals while maintaining disciplined leverage.

Trax Software and Distribution Renewals Support Commercial Momentum

On the commercial side, AAR highlighted growing momentum in its Trax software platform and distribution franchise. Trax was selected by Thai Airways for its EMRO suite, and AAR announced a partnership with Arrow Exchange aimed at enhancing supply-network integration. The company also renewed key exclusive distribution contracts with Collins Aerospace and Arkwin Industries, reinforcing its positioning with major OEMs. The Trax upgrade cycle is approximately 30%–35% complete, with a goal to finish the bulk of customer upgrades by 2028, pointing to a multi-year software-driven revenue and stickiness opportunity.

HAECO Integration to Pressure Near-Term Margins

Management was candid that integrating HAECO and HAECO Americas will pressure margins over the next 12–18 months. Q3 guidance already factors in a slight sequential step-down in margins, driven by acquisition mix and integration-related costs. The integration will involve aligning HAECO operations with AAR’s more disciplined operating model, which will be initially margin-dilutive. However, leadership reiterated that they expect margin improvement over time as synergies are realized and as new contracts and capacity are fully absorbed.

Repair & Engineering Margins Temporarily Compress

Within Repair & Engineering, profitability lagged revenue growth this quarter. Adjusted EBITDA in the segment rose only 1% year over year to $31.2 million, while adjusted EBITDA margin declined to 12.8% from 13.5% and adjusted operating margin fell to 11.2% from 12.0%. Management cited work mix, one-time costs, and component repair dynamics as key factors, along with the fact that only one month of HAECO contribution was included this quarter. The message to investors was that this margin pressure is more cyclical and integration-related than structural, with expectations for recovery as the mix normalizes.

Footprint Rationalization and Operational Rightsizing

AAR is taking tangible steps to optimize its footprint and cost structure, including the decision to exit its Indianapolis heavy-maintenance site over the next 18 months due to high lease costs and labor challenges. Work will be transitioned to other sites, which should improve overall economics but introduce near-term complexity and costs. These rightsizing measures are framed as critical to unlocking long-term margin improvement, particularly in conjunction with the increased capacity from HAECO and ongoing facility expansions.

Deliberate Revenue Realignment at Acquired Facilities

As part of integrating HAECO, management plans to realign revenues at acquired facilities to fit AAR’s disciplined operating model. This means intentionally reducing certain lower-quality or less profitable revenue streams during the transition period. While this strategy will be both revenue- and margin-dilutive in the near term, the company believes it will lead to a healthier, more profitable revenue base once integration is complete, supporting the long-term investment case.

Integration Bandwidth and Execution Risk Acknowledged

The company’s acquisitive strategy brings with it execution risk, and management acknowledged the need to carefully manage integration bandwidth. With multiple integrations underway and ongoing M&A activity, there is potential strain on resources that could temporarily impact operating performance if not managed well. However, management highlighted a track record of developing strong integration “muscle,” suggesting confidence in their ability to absorb these deals without derailing the broader growth and margin trajectory.

USM Partner Dynamics Introduce Volume Risk

AAR also flagged a potential headwind in its used serviceable material (USM) business tied to partner behavior. One partner, Eftai, shifted demand toward aero-derivative markets, reducing volumes in that relationship. Management indicated they have already replaced the volume through broader market sourcing, but this episode underscores a longer-term risk: if partner demand patterns change unexpectedly, volumes could become more volatile. Investors will likely watch this area for any signs of further disruption or margin impact.

Guidance Underlines Continued Growth and Margin Resilience

Management’s guidance reinforced the overall positive narrative. For Q3, AAR expects total sales growth of 20%–22%, including the ADI and HAECO acquisitions, with organic growth of 8%–11%. Adjusted operating margin is projected at 9.8%–10.1%, reflecting modest near-term integration-related pressure but still healthy profitability. The company expects to be cash-positive in Q3 and to see slightly lower interest expense versus the prior quarter, supported by leverage of 2.49x, within its 2.0–2.5x target range. For the full fiscal year, AAR is targeting total sales growth approaching 17% and organic growth approaching 11%, while positioning the ADI, HAECO, and pending ART acquisitions as near-term integration items that should become accretive over time.

In summary, AAR’s earnings call painted a picture of a company in the midst of a strategic scaling phase: revenue is growing double-digits, margins and EPS are expanding, and key acquisitions are enhancing capacity, capabilities, and customer reach. While integration of HAECO and related footprint changes will weigh on margins and add execution complexity in the coming quarters, management’s guidance and tone suggest confidence that these are temporary issues on the way to a stronger, higher-margin business. For investors, the story is one of solid underlying demand and disciplined financial management, with near-term volatility seen as the price of building a more competitive aviation services platform.