AAR (NYSE:AIR) reported fiscal 2027 first-quarter sales growth, margin expansion and record first-quarter cash flow, while also announcing an agreement to acquire a 65% controlling interest in airframe heavy-maintenance provider MRO Holdings.
Chairman, President and CEO John Holmes said the proposed transaction represents a major expansion of AAR’s aviation aftermarket platform across parts, repair and software. The company expects the acquisition to close during its fiscal third quarter ending February 2027, subject to customary regulatory approvals.
First-quarter results
Adjusted EBITDA margin expanded by 100 basis points to 12.7%. Excluding Legacy Commercial Programs, adjusted EBITDA margin was 13.3%, within the company’s previously stated three-year target range. Adjusted diluted earnings per share increased 38% from the prior year to $1.49.
The company generated $57 million of adjusted cash from operations, equal to 48% of adjusted EBITDA, which Holmes described as record first-quarter cash flow. AAR ended the quarter with net leverage of 1.81 times.
- Parts Supply: Sales rose 31% to $414.8 million. New-parts distribution grew 23% organically, with commercial distribution up 21% and government distribution up 28%. Adjusted EBITDA margin increased 150 basis points to 15.3%.
- Repair, Engineering and Software: Sales increased 31% to $297.5 million, reflecting the HAECO Americas acquisition and organic growth in airframe MRO, component MRO and software. Adjusted EBITDA margin declined 120 basis points to 11.9%, as the HAECO Americas integration remained dilutive.
- Government Solutions: Sales increased 4% to $138.8 million, while adjusted EBITDA margin expanded 460 basis points to 15.3%. Growth in Mobility Systems and newer higher-margin programs offset a decline in WOS activity.
In Legacy Commercial Programs, AAR liquidated $24 million of rotable assets, contributing roughly $5 million of margin during the quarter. Chief Financial Officer Dylan Wolin said the segment’s current run-rate revenue is estimated at $35 million to $40 million per quarter.
Updated outlook
For the fiscal second quarter, AAR expects sales growth excluding Legacy Commercial Programs of 14% to 16% and adjusted EBITDA margin excluding the segment of 13.0% to 13.4%.
For the full fiscal year, the company raised its sales outlook and now expects low-teens growth excluding Legacy Commercial Programs. Both the second-quarter and full-year outlooks exclude the anticipated impact of the MRO Holdings acquisition.
Holmes said AAR continues to see strong demand in its markets. During the question-and-answer session, he said the company was not seeing a slowdown in Parts Supply bookings or hearing from maintenance customers that would suggest weakening demand.
MRO Holdings acquisition
AAR agreed to acquire a 65% controlling interest in MRO Holdings at an implied enterprise value of about $4 billion. MRO Holdings operates five facilities in El Salvador, Mexico, Colombia and the U.S. and provides heavy maintenance services for narrow-body and select wide-body aircraft.
Holmes said approximately 90% of MRO Holdings’ sales are generated from U.S. customers. The business recently opened its seventh hangar in El Salvador, which Holmes called the world’s largest hangar, and has plans for an eighth hangar at that location.
For calendar 2026, MRO Holdings is expected to generate approximately $1 billion of adjusted sales, $285 million of adjusted EBITDA and more than $200 million of adjusted operating cash flow on a pro forma basis, according to AAR.
The combined airframe maintenance network would grow from seven to 12 facilities across five countries, with roughly 19 million service hours and nearly 3,000 aircraft maintained annually. Holmes said the expanded network would provide additional opportunities to direct work to AAR’s component MRO operations, deepen relationships with OEM distribution partners and generate more data for its software offerings.
AAR expects the deal to raise its revenue by approximately 30% on a pro forma basis and increase adjusted EBITDA margin from roughly 12% to 16% before synergies. The company expects the transaction to be accretive to adjusted EPS in the first full fiscal year after closing.
Financing, synergies and leverage
AAR expects to finance the acquisition with approximately $1 billion of equity and $2.1 billion of new debt. The equity component includes about $780 million issued to current MRO Holdings shareholders at $135 per share and approximately $230 million through a private investment in public equity, or PIPE, transaction.
Current MRO Holdings shareholders are expected to own approximately 12% of AAR shares following the transaction while retaining a 35% stake in MRO Holdings. AAR will have options to increase its ownership over time, including an option to acquire an additional 5% and the remaining 30% in equal tranches on the second, third and fourth anniversaries of the initial closing.
The company expects about $75 million of run-rate cost synergies within three to four years, primarily from procurement, selling, general and administrative savings, and shared systems and operating practices. AAR’s new medium-term adjusted EBITDA margin target is 19% to 20%, including identified cost synergies but excluding potential revenue synergies.
Net leverage is expected to be about 3.6 times at closing, including the full amount of run-rate synergies. AAR expects leverage to decline to roughly three times within 24 months following closing on a realized-synergies basis and return to its 2.0 to 2.5 times target range over the medium term.
About AAR (NYSE:AIR)
AAR Corp. is a global provider of aviation services supporting commercial aviation, government and defense customers. The company supplies aircraft parts and equipment, manages inventory and logistics, and provides maintenance, repair and overhaul services for aircraft and components.
AAR’s offerings include parts distribution, supply-chain management, aircraft maintenance, airframe and component repair, and mobility solutions for government and defense operators. Its services are designed to help airlines, aircraft operators and government agencies maintain fleet readiness and manage aviation assets.
Founded in 1955, AAR is headquartered in Wood Dale, Illinois, and serves customers across North America, Europe, Asia and other international markets.
