Aircraft maintenance service specialist AAR Corp. (NYSE:AIR) reported fiscal 2025 fourth-quarter earnings on Wednesday, July 16, that highlighted its record full-year revenue of $2.8 billion (up 20%). It also reported a 32% increase in Q4 adjusted EPS to $1.16 (from $0.88 a year ago). Management confirmed 14% organic sales growth in Q4 and net leverage improved to 2.7x in Q4, further aligning with long-term deleveraging targets and ongoing portfolio optimization.

The following insights delve into material business developments impacting AAR's growth outlook, operational leverage, and competitive positioning.

Record Margin Expansion and Deleveraging Signal Strategic Execution for AAR

Adjusted EBITDA margin expanded by 140 basis points to 11.8% in fiscal 2025, and the reduction in net leverage from 3.06x to 2.72x in Q4 was fueled by $51 million in Q4 operational cash flow and $48 million from the landing gear divestiture. Furthermore, AAR repurchased $10 million of shares in Q4 at an average cost of $52.37 per share.

"We delivered record full-year results of $2.8 billion, up 20% over the prior year. Adjusted EBITDA margin increased 140 basis points to 11.8% in fiscal 2025, which reflects strong growth across our core segments. We generated record adjusted diluted earnings per share of $3.91 compared to $3.33 last year. We continue to reduce our net leverage, and our strong balance sheet, along with our disciplined capital allocation strategy, has us well-positioned for investments that will drive continued growth."
— John Holmes, Chairman, President and Chief Executive Officer

The combination of improved profitability and a strengthened balance sheet increases AAR's operational flexibility and potential for both organic and inorganic scale.

Trax Acquisition and Digital Strategy Deliver Accelerated, High-Quality Revenue Growth

Trax secured a multi-year contract with Delta Air Lines and is positioned to benefit from both new wins and legacy client upgrades that can quadruple or quintuple average license values. Management highlighted that digital and IP-enabled offerings -- led by Trax's eMRO and eMobility solutions -- represent a differentiated, high-margin growth vector within AAR's evolving portfolio.

"Our goal is to, again, double the revenue of Trax. And we are excited about all those opportunities."
— John Holmes, Chairman, President and Chief Executive Officer

Management expects that customer upgrades will unlock further margin expansion, structurally increasing recurring, software-driven revenue streams less exposed to cyclical aviation maintenance spending.

Parts Supply and Distribution Outperformance Underscores AAR Market Share Gains

Parts Supply segment sales in Q4 surged 17% year over year to $306 million, powered by over 20% organic growth in new parts distribution. Distribution now anchors AAR as the foremost independent provider globally, positioning the business for continued partnership opportunities with OEMs (original equipment manufacturers).

"Distribution led the way this quarter with another quarter of 20% plus growth we mentioned, we saw that throughout the year. So distribution has really been the driver there. ... within distribution, you have had a relatively even split in terms of growth in the commercial market and the government market."
— John Holmes, Chairman, President and Chief Executive Officer

Sustained above-market parts distribution growth of over 20% signals structural share gains and reinforces AAR's ability to drive consistent, outsized returns in both expansionary and constrained industry environments

Looking Ahead

For fiscal 2026, AAR guides to organic sales growth approaching 9%, based on its FY2025 adjusted sales base of $2.68 billion, with Q1 expected to deliver 6%–11% sales growth and adjusted operating margins between 9.6%–10%. The company is positioned to realize the full $10 million in annual cost synergies from the Product Support acquisition, and the continued rollout of digital and capacity investments is expected to drive further operating margin improvement. Management confirmed that additional M&A remains a strategic focus, with repurchases prioritized over dividend reinstatement, should leverage fall comfortably within the 2.0x–2.5x range.

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