AAR CORP_August 31, 2026

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended August 31, 2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-6263

AAR CORP.

(Exact name of registrant as specified in its charter)

Delaware		36-2334820
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One AAR Place, 1100 N. Wood Dale Road Wood Dale, Illinois		60191
(Address of principal executive offices)		(Zip Code)

(630) 227-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, $1.00 par value

AIR

New York Stock Exchange

NYSE Texas

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 31, 2026, there were 40,194,211 shares of the registrant’s Common Stock, $1.00 par value per share, outstanding.

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PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

AAR CORP. and Subsidiaries

Condensed Consolidated Balance Sheets

As of August 31, 2026 and May 31, 2026

(In millions, except share data)


ASSETS

	August 31,		May 31,
	2026		2026
	(Unaudited)
Current assets:
Cash and cash equivalents	$	104.5	$	84.0
Restricted cash		8.6		23.8
Accounts receivable, less allowances of $14.3 and $14.2, respectively		436.4		386.8
Contract assets		147.3		148.4
Inventories		1,008.9		979.0
Prepaid expenses and other current assets		134.1		120.1
Total current assets		1,839.8		1,742.1

Property, plant, and equipment, net of accumulated depreciation of $247.8 and $242.2, respectively		172.3		166.9

Other assets:
Goodwill		564.8		580.3
Intangible assets, net of accumulated amortization of $61.4 and $53.7, respectively		287.9		281.6
Operating lease right-of-use assets, net		205.3		210.8
Rotable assets, net		150.4		180.3
Other non-current assets		206.4		193.9
		1,414.8		1,446.9
	$	3,426.9	$	3,355.9

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

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AAR CORP. and Subsidiaries

Condensed Consolidated Balance Sheets

As of August 31, 2026 and May 31, 2026

(In millions, except share data)


LIABILITIES AND EQUITY

	August 31,		May 31,
	2026		2026
	(Unaudited)
Current liabilities:
Accounts payable	$	337.9	$	295.6
Deferred revenue		40.8		50.3
Accrued liabilities		272.0		267.3
Total current liabilities		650.7		613.2

Long-term debt		879.6		893.9
Operating lease liabilities		98.8		101.1
Deferred tax liabilities		22.5		23.1
Other liabilities		32.9		20.8
		1,033.8		1,038.9

Equity:
Preferred stock, $1.00 par value, authorized 250,000 shares; none issued		—		––
Common stock, $1.00 par value, authorized 100,000,000 shares; issued 48,750,786 shares at cost		48.8		48.8
Capital surplus		785.6		789.7
Retained earnings		1,197.2		1,157.1
Treasury stock, 8,556,575 and 8,871,272 shares at cost, respectively		(286.0)		(287.9)
Accumulated other comprehensive loss		(3.2)		(3.9)
Total equity		1,742.4		1,703.8
	$	3,426.9	$	3,355.9

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

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AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Income

For the Three Months Ended August 31, 2026 and 2025

(Unaudited)

(In millions, except share data)


	Three Months Ended
	August 31,
	2026			2025
Sales:
Sales from products	$	603.7		$	487.8
Sales from services		314.3			251.8
		918.0			739.6
Cost of sales:
Cost of products		486.0			400.7
Cost of services		255.7			205.2
		741.7			605.9
Gross profit		176.3			133.7
Selling, general, and administrative		107.0			71.8
Earnings from joint ventures		2.8			3.0
Operating income		72.1			64.9
Gains related to sale and exit of businesses, net		—			0.7
Other expense, net		(0.5)			(0.1)
Interest expense		(16.6)			(18.8)
Interest income		0.4			0.3
Income before income taxes		55.4			47.0
Income tax expense		15.3			12.6
Net income	$	40.1		$	34.4

Earnings per share – basic	$	1.01		$	0.96
Earnings per share – diluted	$	1.00		$	0.95

Share data used for earnings per share:
Weighted average shares outstanding – basic		39.6			35.7
Weighted average shares outstanding – diluted		39.9			35.9

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

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AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended August 31, 2026 and 2025

(Unaudited)

(In millions)


	Three Months Ended
	August 31,
	2026		2025
Cash flows provided by (used in) operating activities:
Net income	$	40.1	$	34.4
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		18.8		13.8
Amortization of financing costs		0.8		0.7
Stock-based compensation expense		7.8		5.3
Earnings from joint ventures		(2.8)		(3.0)
Gain related to sale and exit of business		—		(1.0)
Changes in certain assets and liabilities:
Accounts receivable		(50.5)		(8.5)
Contract assets		13.3		(6.4)
Inventories		(41.1)		(51.8)
Prepaid expenses and other current assets		(15.4)		3.5
Rotable assets		27.5		(3.5)
Accounts payable		42.1		10.0
Accrued and other liabilities		(1.3)		(26.7)
Other		16.5		(11.7)
Net cash provided by (used in) operating activities		55.8		(44.9)
Cash flows used in investing activities:
Property, plant, and equipment expenditures		(11.8)		(8.7)
Acquisitions, net of cash acquired		(6.2)		(11.9)
Hangar expansion activity, net		(0.5)		(4.2)
Investment		(7.5)		—
Other		0.4		1.0
Net cash used in investing activities		(25.6)		(23.8)
Cash flows provided by (used in) financing activities:
Short-term borrowings (repayments), net		(15.0)		(97.0)
Proceeds from long-term borrowings		—		153.0
Financing costs		—		(2.5)
Stock compensation activity		(9.9)		(2.4)
Net cash provided by (used in) financing activities		(24.9)		51.1
Increase (Decrease) in cash, cash equivalents, and restricted cash		5.3		(17.6)
Cash, cash equivalents, and restricted cash at beginning of period		107.8		109.2
Cash, cash equivalents, and restricted cash at end of period	$	113.1	$	91.6

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

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AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the Three Months Ended August 31, 2026 and 2025

(Unaudited)

(In millions)


														Accumulated
														Other
		Common			Capital			Retained			Treasury			Comprehensive
		Stock			Surplus			Earnings			Stock			Loss			Total Equity
Balance, May 31, 2026		$	48.8		$	789.7		$	1,157.1		$	(287.9)		$	(3.9)		$	1,703.8
Net income			—			—			40.1			—			—			40.1
Stock option activity			—			1.2			—			0.4			—			1.6
Restricted stock activity			—			(5.3)			—			1.5			—			(3.8)
Other comprehensive income, net of tax			—			—			—			—			0.7			0.7
Balance, August 31, 2026		$	48.8		$	785.6		$	1,197.2		$	(286.0)		$	(3.2)		$	1,742.4


														Accumulated
														Other
		Common			Capital			Retained			Treasury			Comprehensive
		Stock			Surplus			Earnings			Stock			Loss			Total Equity
Balance, May 31, 2025		$	45.3		$	505.2		$	969.4		$	(302.7)		$	(5.6)		$	1,211.6
Net income			—			—			34.4			—			—			34.4
Stock option activity			—			2.5			—			4.2			—			6.7
Restricted stock activity			—			(4.2)			—			0.4			—			(3.8)
Other comprehensive income, net of tax			—			—			—			—			0.4			0.4
Balance, August 31, 2025		$	45.3		$	503.5		$	1,003.8		$	(298.1)		$	(5.2)		$	1,249.3

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

2. Acquisitions

Acquisition of Aircraft Reconfig Technologies

On April 24, 2026, we acquired the outstanding shares of Aircraft Reconfig Technologies (“ART”), a leading aircraft interiors engineering company for $36.3 million including post-closing adjustments for cash, working capital, and indebtedness.

We accounted for the acquisition using the acquisition method and included the results of ART’s operations in our consolidated financial statements from the effective date of the acquisition. ART’s results are reported within our Repair, Engineering, and Software segment. The base purchase price of $36.0 million was paid at closing and post-closing adjustments of $0.3 million were resolved and paid in the three-month period ended August 31, 2026. Transaction costs associated with the acquisition of $1.1 million were expensed as incurred during fiscal 2026.

The purchase price was allocated to identifiable assets and liabilities based on information available at the date of acquisition. The allocation of the purchase price is preliminary and may change in future periods as fair value estimates of the assets acquired and liabilities assumed are finalized, including those related to working capital, intangible assets, property and equipment, leases, and indemnification assets.

The final determination of the fair values will be completed within the one-year measurement period. The preliminary fair value of assets acquired and liabilities assumed is as follows:


Accounts receivable	$	2.1
Inventory		17.5
Intangible assets		14.0
Other assets		0.2
Accounts payable and other liabilities		(12.9)
Net assets acquired		20.9
Goodwill		15.4
Purchase price, net of cash acquired	$	36.3

Acquired amortizable intangible assets include customer relationships of $7.0 million, developed technology of $3.9 million, and backlog of $3.1 million, which are being amortized over 9.5 years, 6 years, and 3 years, respectively. The goodwill associated with the ART acquisition is deductible for tax purposes and is primarily attributable to the benefits we expect to derive from expected synergies including complementary product lines, cross-selling opportunities, operational efficiencies, and intangible assets that do not qualify for separate recognition, such as their assembled workforce.

Acquisition of HAECO Americas

On November 3, 2025, we acquired the outstanding shares of HAECO Americas, LLC and its subsidiary HAECO Airframe Services, LLC (together, “HAECO Americas”) from HAECO USA, Inc. for a purchase price of $78.0 million, which includes estimated post-closing adjustments for cash, working capital, and indebtedness. HAECO Americas provides heavy aircraft maintenance, repair, and overhaul (“MRO”) and modification services across its hangars located in Greensboro, North Carolina and Lake City, Florida.

We accounted for the acquisition using the acquisition method and included the results of HAECO Americas’ operations in our consolidated financial statements from the effective date of the acquisition. HAECO Americas’ results are reported within our Repair, Engineering, and Software segment. The base purchase price was paid at closing and transaction costs associated with the acquisition of $3.3 million were expensed as incurred in fiscal 2026.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

The preliminary fair value of the identifiable assets acquired exceeded the total purchase price resulting in a bargain purchase gain of $29.5 million, which we recognized in fiscal 2026. We believe the acquisition resulted in a bargain purchase gain as the seller was highly motivated to divest the business as part of its long-term strategies.

The final determination of the fair values will be completed within the one-year measurement period. The preliminary fair value of assets acquired and liabilities assumed is as follows:


Accounts receivable	$	25.9
Contract assets		15.7
Inventory		16.2
Right-of-use assets		95.2
Other assets		15.0
Accounts payable and accrued liabilities		(35.4)
Deferred taxes, net		(8.0)
Lease liabilities		(17.1)
Net assets acquired		107.5
Bargain purchase gain		(29.5)
Purchase price, net of cash acquired	$	78.0

As part of our integration activities, we are consolidating our facility footprint, which includes closing our Indianapolis, Indiana airframe maintenance facility and relocating the majority of those operations to the Greensboro, North Carolina facility. Expenses incurred for integration activities during the three-month period ended August 31, 2026 were $3.5 million.

Acquisition of ADI

On September 25, 2025, we acquired the outstanding shares of American Distributors Holding Co., LLC (“ADI”), including ADI American Distributors, LLC and other of ADI’s subsidiaries, for a purchase price of $137.1 million. The post-closing adjustments for cash, working capital and indebtedness were resolved in the third quarter of fiscal 2026 resulting in a $0.6 million reduction in the purchase price.

ADI is a leading distributor of electronic components and assemblies to original equipment manufacturers (“OEMs”) across the aerospace and defense industry. The initial purchase price was paid at closing except for $4.5 million, which was placed on deposit with an escrow agent to secure potential indemnification obligations and fund post-closing adjustments for working capital and indebtedness. During the three-month period ended February 28, 2026, the post-closing adjustments were finalized resulting in the release of $1.0 million from the escrow. During the three-month period ended August 31, 2026, an additional $1.4 million was released from the escrow.

We accounted for the acquisition using the acquisition method and included the results of ADI’s operations in our consolidated financial statements from the effective date of the acquisition. ADI’s results are reported within our Parts Supply segment.

The purchase price was allocated to identifiable assets and liabilities based on information available at the date of acquisition. The final fair value of assets acquired and liabilities assumed is as follows:

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)


Accounts receivable	$	13.1
Contract assets		7.9
Inventory		55.5
Intangible assets		75.8
Other assets		5.4
Accounts payable and other liabilities		(28.6)
Net assets acquired		129.1
Goodwill		8.0
Purchase price, net of cash acquired	$	137.1

Acquired amortizable intangible assets include customer relationships of $43.3 million and backlog of $16.4 million, which are being amortized over 12.5 years and 3 years, respectively. We also recognized indefinite-lived trademarks of $16.1 million. The goodwill associated with the ADI acquisition is deductible for tax purposes and is primarily attributable to the benefits we expect to derive from expected synergies including complementary product lines, cross-selling opportunities, operational efficiencies, and intangible assets that do not qualify for separate recognition, such as their assembled workforce. Expenses incurred for integration activities during the three-month period ended August 31, 2026 were $0.2 million.

Acquisition of Aerostrat

On August 11, 2025, we acquired the outstanding shares of Aerostrat Corp. (“Aerostrat”) for a purchase price of $15.0 million plus contingent consideration of up to $5.0 million. Aerostrat is a leading long-range maintenance planning software provider used by airlines, MRO facilities, and cargo companies to automate complex scheduling, ensure production capacity, and simplify aircraft allocation.

The purchase price was paid at closing except for $3.1 million, which was placed on deposit with an escrow agent to secure potential indemnification obligations and fund post-closing adjustments for working capital and indebtedness. During the three-month period ended August 31, 2026, the post-closing adjustments were finalized resulting in the release of $1.5 million from the escrow.

The contingent consideration includes $1.0 million subject to the successful launch of certain product offerings by December 31, 2026 and up to $4.0 million based on the achievement of adjusted revenue targets by August 1, 2028. The estimated fair value of the contingent consideration was $4.0 million at the acquisition date and has been included in the purchase price.

We accounted for the acquisition using the acquisition method and included the results of Aerostrat’s operations in our consolidated financial statements from the effective date of the acquisition. Aerostrat’s results are reported within our Repair, Engineering, and Software segment.

The final fair value of assets acquired and liabilities assumed is as follows:


Current assets	$	0.6
Intangible assets		10.3
Deferred revenue		(0.6)
Net deferred tax liabilities		(2.0)
Net assets acquired		8.3
Goodwill		10.7
Purchase price, net of cash acquired	$	19.0

Acquired amortizable intangible assets include customer relationships of $4.7 million and developed technology of $4.9 million, which are being amortized over 10 years and 20 years, respectively. Intangible assets also include tradenames of $0.7 million, which are indefinite-lived. The goodwill associated with the Aerostrat acquisition is not deductible for tax purposes and is primarily attributable to the benefits we expect to derive from expected synergies including complementary products and services, cross-selling opportunities and intangible assets that do not qualify for separate recognition, such as their assembled workforce.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

3. Revenue Recognition

Revenue is measured based on the consideration specified in a contract with a customer and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer.

Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our contract with the customer is considered one performance obligation as it includes factors such as whether the good or service being provided is significantly integrated with other promises in the contract, whether the service provided significantly modifies or customizes another good or service or whether the good or service is highly interdependent or interrelated. If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocate the transaction price based on their relative standalone selling prices.

The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.

Our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. The majority of our sales from products typically represent distinct performance obligations and are recognized at a point in time upon transfer of control to the customer, which generally occurs upon shipment. In connection with certain sales of products, we also provide logistics services, which include inventory management, replenishment, and other related services. The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point the customer has obtained control of the product. We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers.

For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer. As such, we utilize the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services are transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation.

We are required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved can include customer volume, future labor costs and efficiencies, repair or overhaul costs, overhead costs, and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. For contracts that are deemed to be loss contracts, we establish forward loss reserves for total estimated costs that are in excess of total estimated consideration in the period in which they become known.

We utilize the portfolio approach to estimate the amount of revenue to recognize for certain contracts which require over time revenue recognition. Such contracts are grouped together either by revenue stream, customer or product line with each portfolio of contracts grouped together based on having similar characteristics. The portfolio approach is utilized only when the result of the accounting is not expected to be materially different than if applied to individual contracts.

We also may enter into offset agreements or conditions as part of obtaining orders for our products and services from certain government customers in foreign countries. These agreements are designed to enhance the social and economic environment of the foreign country by requiring the contractor to promote investment in the country. These agreements also may be satisfied through our use of cash or other means of providing financial support for in-country projects with local companies. The amounts ultimately applied against our offset agreements are based on negotiations with the customer and satisfaction of our offset obligations are included in the estimates of our total costs to complete the contract.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

When contracts are modified, we consider whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original goods or services provided, are accounted for as if they were part of that existing contract with the effect of the contract modification recognized as an adjustment to revenue on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct, they are accounted for as a new contract and performance obligation, which are recognized prospectively.

Certain contracts with customers have options for the customer to acquire additional goods or services. In most cases, the pricing of these options are reflective of the standalone selling price of the good or service. These options do not provide the customer with a material right and are accounted for only when the customer exercises the option to purchase the additional goods or services. If the option on the customer contract was not indicative of the standalone selling price of the good or service, the material right would be accounted for as a separate performance obligation.

Under most of our U.S. government contracts, if the contract is terminated for convenience, we are entitled to payment for items delivered and fair compensation for work performed, the costs of settling and paying other claims, and a reasonable profit on the costs incurred or committed.

In the performance of our government contracts, we routinely request contract modifications that require additional funding from the customer. Most often, these requests are due to customer-directed changes in the scope of work. While we are entitled to recovery of these costs under our contracts, the administrative process with our customer may be protracted. Based on the circumstances, we periodically file requests for equitable adjustment (“REAs”) that are sometimes converted into claims. In some cases, these REAs are disputed by our customer. We believe our outstanding modifications, REAs and other similar claims will be resolved without material impact to our results of operations, financial condition or cash flows.

In the ordinary course of business, agencies of the U.S. and other governments audit our claimed costs and conduct inquiries and investigations of our business practices with respect to government contracts to determine whether our operations are conducted in accordance with these requirements and the terms of the relevant contracts. U.S. government agencies, including the Defense Contract Audit Agency (“DCAA”), routinely audit our claimed indirect costs, for compliance with the Cost Accounting Standards and the Federal Acquisition Regulations. These agencies also conduct reviews and investigations and make inquiries regarding our accounting and other systems in connection with our performance and business practices with respect to our government contracts and subcontracts.

Costs to fulfill and obtain a contract are considered for capitalization based on contract specific facts and circumstances. The incremental costs to fulfill a contract, including setup and implementation costs prior to beginning the period of performance, are capitalized when expenses are incurred prior to the start of satisfying a performance obligation. The capitalized costs are subsequently expensed over the contract’s period of performance.

We have elected to use certain practical expedients permitted under Accounting Standards Codification (“ASC”) 606. Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Condensed Consolidated Statements of Income, and are not considered a performance obligation to our customers. Our reported Sales on our Condensed Consolidated Statements of Income include sales and related non-income taxes. We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer.

Cumulative Catch-up Adjustments

Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. These changes are primarily adjustments to the estimated profitability for our long- term programs where we provide component inventory management, supply chain logistics programs, and/or repair services.

For the three-month period ended August 31, 2026, we recognized unfavorable cumulative catch-up adjustments of $(3.4) million. For the three-month period ended August 31, 2025, we recognized no cumulative catch-up adjustments.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

Contract Assets and Liabilities

The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period. For instances where we recognize revenue prior to having an unconditional right to payment, we record a contract asset. When an unconditional right to consideration exists, we reduce our contract asset and recognize an unbilled or trade receivable. When amounts are dependent on factors other than the passage of time in order for payment from a customer to be due, we record a contract asset which consists of costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract assets and contract liabilities are determined on a contract-by-contract basis.

Net contract assets and liabilities are as follows:


		August 31,			May 31,
		2026			2026			Change
Contract assets – current		$	147.3		$	148.4		$	(1.1)
Contract assets – non-current			45.7			42.9			2.8
Contract liabilities:
Deferred revenue – current			(40.8)			(50.3)			9.5
Deferred revenue on long-term contracts			(20.2)			(6.9)			(13.3)
Net contract assets		$	132.0		$	134.1		$	(2.1)

Contract assets – non-current is reported within Other non-current assets and deferred revenue on long-term contracts is reported within Other liabilities on our Condensed Consolidated Balance Sheets. Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers.

During the first quarter of fiscal 2025, our Mobility Systems’ business received a stop-work order from our U.S. government customer on the Next Generation Pallet contract as the program was terminated for convenience by the customer. Under the conditions for the termination for convenience, we have the right to submit a proposal for recovery of our incurred costs. In conjunction with the termination, we expensed equipment and inventory of $12.7 million in the first quarter of fiscal 2025 and recognized a contract asset of $9.5 million reflecting the estimated recovery on our incurred costs.

During the third quarter of fiscal 2025, we submitted our termination settlement proposal to the customer and increased our contract asset to $13.5 million based on the revised estimated recovery. In conjunction with the termination settlement proposal submission, we also expensed an additional $1.0 million of equipment and other costs.

Changes in our deferred revenue were as follows for the three-month periods ended August 31, 2026 and 2025:


		Three Months Ended
		August 31,
		2026			2025
Deferred revenue at beginning of period		$	(57.2)		$	(46.7)
Revenue deferred			(162.3)			(87.0)
Revenue recognized			160.9			93.7
Other ⁽¹⁾			(2.4)			(0.7)
Deferred revenue at end of period		$	(61.0)		$	(40.7)

(1)Other includes cumulative catch-up adjustments, foreign currency translation, acquisitions, and other adjustments.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

Remaining Performance Obligations

As of August 31, 2026, we had approximately $866 million of remaining performance obligations, also referred to as firm backlog, which excludes unexercised contract options and potential orders under our indefinite-delivery, indefinite-quantity contracts. We expect that approximately 70% of this backlog will be recognized as revenue over the next 12 months, an additional 15% of the firm backlog over the following 12 months, and the balance thereafter. The amount of remaining performance obligations that are expected to be recognized as revenue beyond 12 months primarily relates to our long-term programs where we provide component inventory management, supply chain logistics programs, and/or repair services.

Disaggregation of Revenue

Third-party sales across the major customer markets for each of our operating segments for the three-month periods ended August 31, 2026 and 2025 were as follows:


	Three Months Ended
	August 31,
	2026		2025
Parts Supply:
Commercial	$	325.4	$	254.5
Government and defense		89.4		63.3
	$	414.8	$	317.8

Repair, Engineering, and Software:
Commercial	$	277.5	$	206.6
Government and defense		20.0		19.8
	$	297.5	$	226.4

All sales within the Legacy Commercial Programs operating segment are to commercial customers, and there are no significant sales to commercial customers in the Government Solutions operating segment.

Consolidated sales by geographic region for the three-month periods ended August 31, 2026 and 2025 were as follows:


	Three Months Ended
	August 31,
	2026		2025
U.S./Canada	$	613.3	$	519.1
Europe/Africa		189.6		99.7
Asia/South Pacific		102.8		89.7
Other		12.3		31.1
	$	918.0	$	739.6

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

4. Restricted Cash

Restricted cash represents cash on hand that is legally restricted as to withdrawal or usage. As of August 31, 2026, restricted cash includes $5.7 million on deposit with escrow agents related to our recent acquisitions and $2.9 million required to be set aside by a contractual agreement to provide servicing related to receivable securitization arrangements.

The restrictions related to our acquisitions lapse at the time of resolution of certain contingencies including tax contingencies. The restrictions related to the receivable securitization arrangements lapse at the time we remit the customer payments collected by us as servicer of previously sold customer receivables to the purchaser.

5. Accounts Receivable

Financial instruments that potentially subject us to concentrations of market or credit risk consist principally of trade receivables. While our trade receivables are diverse and represent a number of entities and geographic regions, the majority are with the U.S. government and its contractors and entities in the aviation industry. The composition of our accounts receivable is as follows:


	August 31,		May 31,
	2026		2026
U.S. Government contracts:
Trade receivables	$	36.3	$	32.5
Unbilled receivables		11.7		8.8
		48.0		41.3
All other customers:
Trade receivables		366.4		318.5
Unbilled receivables		22.0		27.0
		388.4		345.5
	$	436.4	$	386.8

6. Equity

Stock-Based Compensation

In July 2026, as part of our annual long-term stock incentive compensation, we granted 217,562 shares of performance-based restricted stock and 91,749 shares of time-based restricted stock to eligible employees. The grant date fair value per share for these shares was $129.47 (the closing price per share of our common stock on the grant date). We also granted 15,004 shares of time-based restricted stock to members of the Board of Directors with a grant date fair value per share of $109.99 (the closing price per share of our common stock on the grant date). No stock options were granted in fiscal 2027.

In July 2026, we granted 161,500 shares of restricted stock to our Chairman, President, and Chief Executive Officer which is tied to our stock price performance. The restricted stock grant vests on July 31, 2031 with the number of shares ultimately vesting based on our stock price meeting or exceeding certain stock price hurdle thresholds on or prior to July 31, 2031 which include stock prices of $175 (one-third of the shares will vest), $200 (an additional one-third of the shares will vest), and $250 (the remaining one-third of the shares will vest). The fair value of the grant was estimated at $15.0 million using a Monte Carlo simulation model for the market-based grant.

Expense charged to operations for restricted stock during each of the three-month periods ended August 31, 2026 and 2025 was $7.1 million and $4.2 million, respectively.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

The total intrinsic value of stock options exercised during the three-month periods ended August 31, 2026 and 2025 was $1.1 million and $4.6 million, respectively. Expense charged to operations for stock options during the three-month periods ended August 31, 2026 and 2025 was $0.7 million and $1.1 million, respectively.

Stock-based compensation expense is recognized on a straight-line basis over the requisite service period based on the equity’s grant date fair value. For participants who are or become retirement-eligible during the service period, stock-based compensation expense is recognized over the period ending on the date the participant becomes retirement-eligible.

Earnings per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares related to outstanding stock options.

At August 31, 2026, no stock options were determined to be anti-dilutive. The potential dilutive effect of 64,000 shares relating to stock options was excluded from the computation of weighted average common shares outstanding – diluted for the three-month period ended August 31, 2025. These shares would have been anti-dilutive because the exercise price of these options was greater than the average market price of the common shares for the period.

7. Inventories

The summary of inventories is as follows:


	August 31,			May 31,
	2026			2026
Aircraft and engine parts, components and finished goods	$	749.6		$	737.2
Raw materials and parts		197.7			185.7
Work-in-process		61.6			56.1
	$	1,008.9		$	979.0

8. Supplemental Cash Flow Information


	Three Months Ended
	August 31,
	2026			2025
Interest paid	$	4.4		$	8.5
Income taxes paid		2.5			5.6
Income tax refunds received		0.3			—
Operating lease liabilities arising from obtaining or re-measuring ROU assets		0.2			1.6

9. Sale of Receivables

On February 23, 2018, we entered into a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell. The term of the Purchase Agreement runs through February 22, 2027, but, the Purchase Agreement may also be terminated earlier under certain circumstances. The term of the Purchase Agreement shall be automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.

We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under ASC 860, Transfers and Servicing, and de-recognize the sold receivables from our Condensed Consolidated Balance Sheets. At August 31, 2026, we have utilized $22.1 million, which reduced the availability under the Purchase Agreement to $127.9 million.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

During the three-month periods ended August 31, 2026 and 2025, we sold $61.1 million and $49.2 million, respectively, of receivables under the Purchase Agreement and remitted $61.8 million and $46.2 million, respectively, to the Purchaser on their behalf. As of August 31, 2026 and May 31, 2026, we had collected cash of $2.9 million and $11.8 million, respectively, which was not yet remitted to the Purchaser as of those dates and was classified as Restricted cash on our Condensed Consolidated Balance Sheets.

We recognize discounts on the sale of our receivables and other fees related to the Purchase Agreement in Other expense, net on our Condensed Consolidated Statements of Income. We incurred discounts on the sale of our receivables of $0.2 million and $0.2 million during the three-month periods ended August 31, 2026 and 2025, respectively.

10. Financing Arrangements

A summary of the carrying amount of our debt is as follows:


	August 31,			May 31,
	2026			2026
Senior Notes	$	700.0		$	700.0
Amended Revolving Credit Facility with interest payable monthly		185.0			200.0
Debt premium, net		2.1			2.3
Debt issuance costs, net		(7.5)			(8.4)
Long-term debt	$	879.6		$	893.9

Credit Agreement

On December 14, 2022, we entered into a new credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A. as administrative agent for the lenders (the “Credit Agreement”) that included an unsecured revolving credit facility (the “Revolving Credit Facility”) that we can draw upon for working capital and general corporate purposes. In conjunction with the Credit Agreement, we terminated our revolving credit facility under the credit agreement dated April 12, 2011, as amended, (the “2011 Credit Agreement”) with the outstanding borrowings under the 2011 Credit Agreement at the date of its termination rolled over to the Credit Agreement.

On March 1, 2024, we entered into an amendment (the “Revolver Amendment”) to our Credit Agreement, which governs the Company’s existing revolving credit facility (the revolving credit facility as amended by the Revolver Amendment, the “Amended Revolving Credit Facility”). Among other things, the Revolver Amendment (i) increased the aggregate commitments under the Amended Revolving Credit Facility to $825.0 million from $620 million under the Revolving Credit Facility, (ii) increased the maximum leverage ratio permitted under the financial covenants applicable to the Amended Revolving Credit Facility and (iii) included an additional pricing level that will increase the applicable interest rate margins on the Amended Revolving Credit Facility to 250 basis points (in the case of secured overnight financing rate (“SOFR”)) and 150 basis points (in the case of Base Rate loans) if our adjusted total debt to EBITDA ratio exceeds 3.75:1.00.

Under certain circumstances, we may request an increase to the lending commitments under the Credit Agreement by an aggregate amount of up to $300 million, not to exceed $1,125 million in total. The Credit Agreement expires on December 14, 2027. Borrowings under the Credit Agreement bear interest at an applicable variable rate based on SOFR plus 112.5 to 250 basis points based on certain financial measurements plus 10 basis points if a SOFR loan, or at the offered fluctuating Base Rate plus 12.5 to 150 basis points based on certain financial measurements if a Base Rate loan.

Borrowings outstanding under the Amended Revolving Credit Facility at August 31, 2026 were $185.0 million and there were $7.7 million of outstanding letters of credit, which reduced the availability of this facility to $632.3 million.

Our Credit Agreement requires us to comply with leverage and interest coverage ratios and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets. Our Credit Agreement also requires our significant domestic subsidiaries to provide a guarantee of payment under the Credit Agreement.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

Senior Notes – Original Issuance

On March 1, 2024, we issued $550.0 million aggregate principal amount of 6.75% Senior Notes due 2029 (the “Notes”) to fund a portion of the purchase price for the acquisition of the Product Support business. The Notes were issued pursuant to an indenture (the “Base Indenture”), dated as of March 1, 2024, between us and Wilmington Trust, National Association (the “Trustee”), as trustee, and a First Supplemental Indenture, dated as of March 1, 2024 (together with the Base Indenture, the “Indenture”), among us, the Note Guarantors (as defined below) and the Trustee.

Our domestic subsidiaries that guarantee the Amended Revolving Credit Facility (collectively, the “Note Guarantors”) guaranteed (the “Note Guarantees”) all of the Company’s obligations under the Notes and the Indenture. The Notes and the Note Guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”).

The Notes bear interest at a rate of 6.75% per year, payable semiannually in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2024. The Notes will mature on March 15, 2029. The Company may redeem the Notes, in whole or in part, at specified redemption prices if redeemed during the twelve-month period beginning on March 15 of the years indicated below:


2026	103.375	%
2027	101.688	%
2028 and thereafter	100.000	%

The Notes are jointly and severally guaranteed by each of the Note Guarantors. The Notes and the Note Guarantees are the general unsecured obligations of us or each of the Note Guarantors and, as applicable, (i) rank equal in right of payment to all of our or such Note Guarantor’s existing and future senior indebtedness, (ii) rank senior in right of payment to all of our or such Note Guarantor’s obligations that are, by their terms expressly subordinated in right of payment to the Notes or the Note Guarantees, (iii) are effectively subordinated to all of our or such Note Guarantor’s secured indebtedness, to the extent of the value of the assets securing such indebtedness and (iv) in the case of the Note Guarantees, are structurally subordinated to indebtedness and other liabilities of our subsidiaries that are not Note Guarantors.

The Indenture contains customary covenants, including limitations on the ability of us and our restricted subsidiaries to (i) incur debt, certain disqualified stock and preferred stock, (ii) create liens, (iii) pay dividends or distributions or redeem or repurchase equity, (iv) prepay subordinated debt or make certain investments, (v) transfer and sell assets, (vi) engage in consolidations, mergers or dispositions of all or substantially all of our or their assets, (vii) enter into agreements that restrict dividends, loans and other distributions from subsidiaries and (viii) enter into transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications described in the Indenture. In addition, the Indenture contains a number of customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Notes and certain provisions related to bankruptcy events.

Senior Notes – Subsequent Issuance

On August 14, 2025, we issued an additional $150.0 million aggregate principal amount of our Notes (the “Additional Notes”). The Additional Notes were issued under the existing Indenture and other than with respect to the date of issuance and the offering price, the Additional Notes have the same terms as the Notes.

Debt issuance costs of $2.5 million were incurred in connection with the Additional Notes which were issued at an original issuance premium 102% of their principal amount, or $3.0 million. The premium and debt issuance costs are amortized and recognized as interest expense using the effective interest rate method, or, when the results are not materially different, on a straight-line basis over the expected term of the related debt. The premium and debt issuance costs are classified within Long-term debt on our Condensed Consolidated Balance Sheet and are amortized into interest expense over the contractual term of the Notes.

At August 31, 2026, our variable and fixed rate debt had fair values that approximated their carrying values and were classified as Level 3 in the fair value hierarchy as their fair values are determined based upon one or more significant unobservable inputs.

At August 31, 2026, we were in compliance with the financial and other covenants in our financing agreements.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

11. Other Non-current Assets

Investment in AAR Sumisho Aviation Services (“ASAS”)

Our investments in joint ventures include a 50% ownership interest in a joint venture to provide aviation aftermarket supply chain solutions to Japanese defense and global commercial markets. Each of the partners in the ASAS joint venture have provided financial guarantees to third-parties to guarantee the payments for ASAS’s financing arrangements, including inventory purchases. No liabilities have been recognized on the outstanding guarantees. We are unable to estimate our maximum exposure under these guarantees as they are largely dependent on the volume of inventory purchase orders outstanding.

Our sales to the ASAS joint venture, including service fees earned by us on providing support to the ASAS joint venture, were $4.2 million and $5.0 million during the three-month periods ended August 31, 2026 and 2025, respectively.

Investments in Aircraft Joint Ventures

Under the terms of servicing agreements with certain of our aircraft joint ventures, we provide administrative services and technical advisory services, including aircraft evaluations, oversight and logistical support of the maintenance process and records management. We also provide evaluation and inspection services prior to the purchase of an aircraft and remarketing services with respect to the divestiture of aircraft by the joint ventures. During the three-month periods ended August 31, 2026 and 2025, we received $0.6 million and $1.1 million, respectively, for such services.

Investment in xCelle Americas, LLC (“xCelle Americas JV”)

Our investments in joint ventures include a 49.9% ownership interest in a joint venture to provide component repair services including overhaul of nacelles on next generation aircraft. In March 2025, we provided a loan to xCelle Americas JV for $3.3 million with semi-annual principal payments over the five-year term of the loan. Interest is payable semi-annually at SOFR plus 2.7%.

Our sales to the xCelle Americas JV were $0.2 million and $0.1 million during the three-month periods ended August 31, 2026 and 2025, respectively.

Investment in xCelle Asia Limited (“xCelle Asia JV”)

In December 2025, we invested $7.1 million for a 49.9% interest in the xCelle Asia JV based in Thailand. The xCelle Asia JV operations include nacelle MRO services, including on-wing and on-site inspections and rotable support for next generation aircraft nacelles.

12. Accumulated Other Comprehensive Loss

Changes in our accumulated other comprehensive loss (“AOCL”) by component for the three-month periods ended August 31, 2026 and 2025 were as follows:


		Currency
		Translation		Pension
		Adjustments		Plans		Total
Balance at June 1, 2026		$	(2.1)	$	(1.8)	$	(3.9)
Other comprehensive income			0.7		—		0.7
Balance at August 31, 2026		$	(1.4)	$	(1.8)	$	(3.2)

Balance at June 1, 2025		$	(2.4)	$	(3.2)	$	(5.6)
Other comprehensive income			0.4		—		0.4
Balance at August 31, 2025		$	(2.0)	$	(3.2)	$	(5.2)

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

13. Sale of Landing Gear Overhaul Business

On December 19, 2024, we entered into an agreement to divest our LGO business to GA Telesis for $51 million subject to post-closing adjustments for working capital, cash, and debt. In the third quarter of fiscal 2025, the LGO assets and liabilities were reclassified to assets and liabilities held for sale and we recognized a non-cash, pre-tax impairment charge of $63.0 million to adjust the carrying value of the LGO assets to their estimated fair value. Goodwill of $14.6 million was also reclassified to assets held for sale and was included in the determination of the impairment charge.

The LGO business was reported within our Repair, Engineering, and Software segment. The divestiture did not represent a strategic shift that will have a major effect on our operations and financial results and, therefore, did not qualify for presentation as discontinued operations.

The sale closed in the fourth quarter of fiscal 2025 with net proceeds received of $48.0 million. We recognized $6.6 million of additional loss on the sale resulting from purchase price adjustments in the fourth quarter of fiscal 2025. We recognized a gain of $1.0 million in the first quarter of fiscal 2026 for the final resolution of the purchase price adjustments.

14. Business Segment Information

During the fourth quarter of fiscal 2026, we changed our operating segment structure to realign our former Integrated Solutions segment which resulted in the following changes:

●

Combined our government programs activities and our Mobility Systems business, previously reported as Expeditionary Services, into a new operating segment named Government Solutions;

●

Re-positioned our software platform to our Repair and Engineering segment, which was renamed Repair, Engineering, and Software; and

●

Legacy Commercial Programs, the remaining business unit within the Integrated Solutions segment, is now separately reported as its own operating segment.

Our operating segments are comprised of:

●

Parts Supply, primarily consisting of our sales of used serviceable material (“USM”), including aircraft, engine and airframe parts and components and distribution of new parts (“Distribution”);

●

Repair, Engineering, and Software primarily consists of MRO of airframes (“Airframe MRO”), MRO of other components (“Component MRO”), and our software platforms, including Trax, Aerostrat, Airvoyant, and Airinmar;

●

Government Solutions primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S. Department of War (“DoW”), the U.S. Department of State (“DoS”) and foreign governments and the engineering, design, integration, manufacture, and repair of pallets, shelters, and containers; and

●

Legacy Commercial Programs consists of asset-heavy flight hour-based component repair programs for commercial airlines and distribution of consumables and expendables inventory.

Our previously reported segment financial information has been recast to conform to our new segment structure. The change in our operating segments had no impact on our previously reported consolidated results of operations, financial condition, or cash flows.

The accounting policies for the segments are the same as those described in Note 1 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended May 31, 2026. Cost of sales consists principally of the cost of products, including material used in manufacturing operations, direct labor, and overhead.

Our Chief Operating Decision Maker (“CODM”) is our Chairman, President, and Chief Executive Officer and he evaluates performance on our operating segments using operating income as the primary profitability measure. Our operating segments are aligned principally around differences in products and services and are consistent with how our CODM allocates resources, assesses performance, and makes decisions.

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

The Company has not aggregated operating segments for purposes of identifying reportable segments. In some cases, inter-segment sales are recorded at fair value, which results in intercompany profit on inter-segment sales that is eliminated in consolidation. Corporate selling, general, and administrative expenses include centralized functions such as legal, finance, treasury and human resources with a portion of the costs allocated to our operating segments.

Exit from Legacy Commercial Programs Operations

During the fourth quarter of fiscal 2026, we announced our intention to exit our Legacy Commercial Programs business and expect the wind-down of this segment will take approximately three to four years as the Legacy Commercial Programs’ existing customer contracts are terminated or exited and its rotable assets are sold. As the wind-down occurs, the fair value of the segment will progressively decrease which will ultimately result in the full impairment of the Legacy Commercial Programs goodwill of $16.4 million in a future period or periods.

Prior to fiscal 2027, our rotable assets which were previously supporting long-term commercial programs were depreciated on a straight-line basis over their estimated useful lives. As part of the wind-down, the rotable assets are now being actively sold and not primarily supporting long-term programs. Effective June 1, 2026, we no longer recognize depreciation expense as the fair value of the rotable asset pool is in excess of its carrying value. During the three-month period ended August 31, 2025, we recognized depreciation expense of $1.7 million associated with the rotable asset pool. Sales of rotable assets were $29.0 million and $6.5 million during the three-month periods ended August 31, 2026 and 2025, respectively.

Significant expenses for each segment are as follows:


		Three Months Ended August 31, 2026
								Selling,			Other
					Cost of			General and			Segment			Operating
		Sales			Sales			Administrative			Items			Income
Parts Supply		$	414.8		$	330.4		$	30.8		$	(1.7)		$	55.3
Repair, Engineering, and Software			297.5			239.9			42.6			(1.0)			16.0
Government Solutions			138.8			110.5			9.2			—			19.1
Legacy Commercial Programs			66.9			61.6			2.4			—			2.9
		$	918.0		$	742.4		$	85.0		$	(2.7)		$	93.3
Corporate and other															(21.2)
															72.1
Other expense, net															(0.5)
Interest expense															(16.6)
Interest income															0.4
Income before income taxes														$	55.4

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)


		Three Months Ended August 31, 2025
								Selling,			Other
					Cost of			General and			Segment			Operating
		Sales			Sales			Administrative			Items			Income
Parts Supply		$	317.8		$	256.5		$	23.3		$	(2.9)		$	40.9
Repair, Engineering, and Software			226.4			177.3			28.5			0.6			20.0
Government Solutions			133.9			113.4			7.8			—			12.7
Legacy Commercial Programs			61.5			58.2			3.5			(0.6)			0.4
		$	739.6		$	605.4		$	63.1		$	(2.9)		$	74.0
Corporate and other															(9.1)
															64.9
Gains (Losses) related to sale and exit of businesses, net															0.7
Other expense, net															(0.1)
Interest expense															(18.8)
Interest income															0.3
Income before income taxes														$	47.0

Selected financial information for each segment is as follows:


	Three Months Ended August 31, 2026
	Third-Party		Inter-segment		Total
	Sales		Sales		Sales
Parts Supply	$	414.8	$	16.9	$	431.7
Repair, Engineering, and Software		297.5		17.4		314.9
Government Solutions		138.8		1.8		140.6
Legacy Commercial Programs		66.9		2.6		69.5
	$	918.0	$	38.7	$	956.7


	Three Months Ended August 31, 2025
	Third-Party		Inter-segment		Total
	Sales		Sales		Sales
Parts Supply	$	317.8	$	2.1	$	319.9
Repair, Engineering, and Software		226.4		22.0		248.4
Government Solutions		133.9		0.4		134.3
Legacy Commercial Programs		61.5		0.9		62.4
	$	739.6	$	25.4	$	765.0

Sales by type of product/service for each of our operating segments were as follows:


		Three Months Ended
		August 31,
		2026			2025
Government Solutions:
Government programs		$	106.0		$	111.7
Mobility Systems			32.8			22.2
		$	138.8		$	133.9

Legacy Commercial Programs:
Component repair programs		$	63.1		$	53.9
Distribution of C&E inventory			3.8			7.6
		$	66.9		$	61.5

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

For our Parts Supply and Repair, Engineering, and Software segments, each of those segments is comprised of similar products and services within the individual segment.


		Three Months Ended
		August 31,
		2026			2025
Capital expenditures:
Parts Supply		$	0.4		$	0.3
Repair, Engineering, and Software			8.9			5.8
Government Solutions			1.6			1.9
Corporate and discontinued operations			0.9			0.7
		$	11.8		$	8.7


		Three Months Ended
		August 31,
		2026			2025
Depreciation and amortization: ¹
Parts Supply		$	8.3		$	2.9
Repair, Engineering, and Software			10.1			8.1
Government Solutions			2.1			1.6
Legacy Commercial Programs			0.1			1.8
Corporate and discontinued operations			6.0			4.7
		$	26.6		$	19.1

¹Includes amortization of stock-based compensation.


		Three Months Ended
		August 31,
		2026			2025
Earnings from joint ventures:
Parts Supply		$	1.8		$	2.9
Repair, Engineering, and Software			1.0			0.1
		$	2.8		$	3.0


		August 31,			May 31,
		2026			2026
Total assets:
Parts Supply		$	1,169.3		$	1,099.9
Repair, Engineering, and Software			1,586.8			1,598.2
Government Solutions			309.5			282.8
Legacy Commercial Programs			240.1			250.2
Corporate and discontinued operations			121.2			124.8
		$	3,426.9		$	3,355.9


		August 31,			May 31,
		2026			2026
Investments in joint ventures:
Parts Supply		$	17.6		$	15.8
Repair, Engineering, and Software			33.9			33.2
		$	51.5		$	49.0

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AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

August 31, 2026

(Unaudited)

(Dollars in millions, except per share amounts)

Performance Guarantee

In conjunction with the fiscal 2021 sale of our Composites business, we retained a performance guarantee to a customer of the Composites business (the “Customer”) under an existing contract providing flap track fairings on the A220 aircraft (“A220 Contract”). The term of the A220 Contract and our performance guarantee extend for the duration that A220 aircraft are in service and the Customer continues to maintain support for the A220 aircraft. The performance guarantee does not contain a financial cap.

In March 2022, the buyer of the Composites business (the “Buyer”) filed for bankruptcy and moved to have the bankruptcy court reject the A220 Contract. The Customer also notified us that it believes the Buyer has failed to timely deliver products in accordance with the terms of the A220 Contract and that the Customer has incurred losses related to the asserted non-compliance that the Customer believes is covered by our performance guarantee. To date, the Customer has provided us with limited details in support of the extent of the Customer’s claimed losses with respect to the A220 Contract and its contention that we may be responsible under our performance guarantee to reimburse the Customer for any portion of its claimed losses. The Customer filed suit against us during the fourth quarter of fiscal 2023 claiming damages of at least $32 million.

In this regard, while we are continuing to seek additional detail around the facts and legal basis underlying the claim for losses the Customer attributed to the A220 Contract and the Customer’s corresponding claim under the performance guarantee, we strongly disagree with the premise of the Customer’s claim based on the information available and known to us at this time, and we believe that we have numerous defenses available against this claim that we will vigorously pursue. While it is reasonably possible that we will incur a loss from the claim under the performance guarantee, we are unable to estimate the range of loss on this claim. There can be no assurance that the Customer’s claim under the performance guarantee will not have a material adverse effect on our operations, financial position and cash flows.

In the fourth quarter of fiscal 2026, we were awarded $1.5 million for reimbursement of a portion of our legal fees incurred in connection with the Buyer’s bankruptcy proceedings. We expect the Bankruptcy Court to release the funds to us in fiscal 2027.

Enforcement Proceeding in Nepal

As previously disclosed, the Company became aware via news reports that Nepal’s Commission for Investigation of Abuse of Authority (“CIAA”) apparently initiated a criminal proceeding in April 2024 against over 35 entities and individuals, including AAR International, Inc., a subsidiary of the Company. The charges alleged violations of Nepalese public procurement law and were related to the same transactions in Nepal that the Company previously self-reported, as described above. The proceeding also named a former AAR International, Inc. employee, as well as John Holmes in his capacity as president of AAR International, Inc. at the time of the alleged conduct.

AAR International, Inc. does not accept or admit these charges, and neither AAR International, Inc. nor Mr. Holmes appeared before the Special Court for several reasons including because the Company believes that any proceedings before the Special Court lack appropriate due process protections.

Based on news reports and a summary judgment from the Nepalese court, we understand that several defendants were convicted in connection with the charges, including AAR International, Inc. The conviction against AAR International, Inc. purportedly carries a fine of approximately $0.9 million as well as a prison sentence of 1.5 years. AAR understands that Mr. Holmes was not personally convicted, but because under Nepalese law it is the responsibility of the company’s principal business executive to accept the sentence of the company, Mr. Holmes has been assigned the company’s sentence by the court. The Company does not currently intend to participate in the proceedings, and does not intend to pay the fine, believing the proceedings and outcome lack due process. The Company does not believe that the outcome of these proceedings will have a material adverse effect on the Company’s operations, financial position, or cash flows. We recognized a liability for the $0.9 million fine in the second quarter of fiscal 2025.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions)

General Overview and Outlook

During the fourth quarter of fiscal 2026, we changed our operating segment structure to realign our former Integrated Solutions segment which resulted in the following changes:

●

Combined our government programs activities and our Mobility Systems business, previously reported as Expeditionary Services, into a new operating segment named Government Solutions;

●

Re-positioned our software platform to our Repair and Engineering segment, which was renamed Repair, Engineering, and Software; and

●

Legacy Commercial Programs, the remaining business unit within the Integrated Solutions segment, is now separately reported as its own operating segment.

We report our activities in four business segments:

●

Legacy Commercial Programs consists of asset-heavy flight hour-based component repair programs for commercial airlines and distribution of consumables and expendables inventory.

During the fourth quarter of fiscal 2026, we announced our intention to exit our Legacy Commercial Programs business as it requires significant asset pools and no longer meets our capital return thresholds. We anticipate that the wind-down of this segment will take approximately three to four years as the Legacy Commercial Programs’ existing customer contracts are terminated or exited and its rotable assets are sold.

In fiscal 2026, we completed one acquisition in our Parts Supply segment and three acquisitions in our Repair, Engineering, and Software segment to further expand our products and services portfolio and our global footprint:

●

In September 2025, we acquired American Distributors Holding Co., LLC (“ADI”) for $137.1 million. ADI is a leading distributor of electronic components and assemblies to original equipment manufacturers (“OEMs”) across the aerospace and defense industry,

●

In November 2025, we acquired HAECO Americas for $78.0 million. HAECO Americas is a provider of heavy aircraft MRO and modification services across its hangars located in Greensboro, North Carolina and Lake City, Florida.

●

In April 2026, we acquired Aircraft Reconfig Technologies (“ART”) for $36.3 million. ART is a leading aircraft interiors engineering company which adds Federal Aviation Administration (“FAA”) Organization Designation Authorization to our engineering services capabilities. This enables us to issue supplemental type certificates and Parts Manufacturer Approval (“PMA”) without reliance on third parties.

●

In August 2025, we acquired Aerostrat Corp. (“Aerostrat”) for $19.0 million, including estimated contingent consideration of $4.0 million. Aerostrat is a leading long-range maintenance planning software provider used by airlines, MRO facilities, and cargo companies to automate complex scheduling, ensure production capacity, and simplify aircraft allocation.

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Pending Acquisition of MRO Holdings

On September 28, 2026, we entered into a definitive agreement to acquire a 65% interest in MRO Holdings which is a leading global provider of aircraft MRO services. Under the terms of the agreement and subject to closing conditions, we will acquire MRO Holdings for approximately $3.0 billion including the repayment of $1.3 billion of MRO Holdings’ existing borrowings as part of the transaction.

We expect to fund the acquisition, including related expenses, through approximately $2.1 billion of new debt, approximately $780 million of our equity issued to existing MRO Holdings shareholders, and approximately $230 million of proceeds from a private investment in public equity (PIPE) offering. We have also secured a debt financing commitment to backstop the contemplated new financings. The acquisition is expected to close in the third quarter of fiscal 2027, subject to customary closing conditions, including regulatory approvals.

We will have the option to acquire the remaining 35% ownership interest of MRO Holdings with 5% exercisable at any time within six years of the closing of the acquisition and the remaining 30% exercisable in three equal tranches of 10% on the second, third, and fourth anniversaries of the closing of the initial acquisition. We will control the MRO Holdings’ Board of Managers and expect to consolidate its financial results. Transaction costs associated with the transaction of $7.3 million were expensed as incurred during the first quarter of fiscal 2027.

Parts Supply

Our Parts Supply segment primarily consists of aftermarket distribution of new, OEM supplied replacement parts and sales and leasing of USM. We have established formal, exclusive distribution relationships with OEM suppliers of aircraft components, which are utilized by aircraft operators and aircraft repair and maintenance operations. We are a leading independent distributor of factory new aircraft parts for the aftermarket. We also distribute components and assemblies to OEMs through our recent ADI acquisition.

We also have an interest in a joint venture supporting the distribution of OEM parts to customers in Asia.

USM is an important category of the aviation aftermarket in which parts removed from engines or airframes can be refurbished to be utilized as replacement parts in the aftermarket. We utilize a network of third-party repair facilities to perform this work. USM parts often represent a cost-effective and more timely solution for operators when compared to sourcing new parts. We take an active role in sourcing USM inventory by monitoring the market for opportunities to acquire used aircraft and engines. After acquisition, we manage the process of disassembly, repair and inspection of the various parts or discrete components that can be sold to customers.

Repair, Engineering, and Software

Our Repair, Engineering, and Software segment primarily provides Airframe MRO, Component MRO, and integrated software solutions.

Our Airframe MRO services are primarily comprised of major airframe inspection, MRO, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment and engineering services and support for many types of commercial and military aircraft. Component MRO services are primarily comprised of repair and overhaul services for structural components, engine and airframe accessories, and interior refurbishment.

Our software solutions primarily consist of comprehensive, cloud-based, mobile, and AI-enabled aviation aftermarket software, which provide greater value across all aspects of airline and MRO technical operations. Trax is a cloud-based system of record for aircraft maintenance which is enhanced by mobile apps for real-time work execution. Aerostrat is an advanced platform for long-range heavy maintenance planning used by global airlines to automate complex scheduling to ensure heavy maintenance capacity and minimal aircraft out-of-service time. Airvoyant is an artificial intelligence (“AI”) platform that automates the procurement workflow from requisition to invoice (end-to-end) through intelligent sourcing decisions using data science and agentic AI. Airinmar provides warranty claim management in support of our airline customers’ maintenance activities.

To meet growing customer demand, we recently expanded our Airframe MRO Oklahoma City operations with the construction of a new 80,000 square foot facility with three bays and warehouse space adjacent to our existing hangar. This facility inducted its first aircraft in early calendar 2026. We are also expanding our Miami airframe maintenance operations with a 114,000 square foot facility with three bays adjacent to our existing hangar. The new Miami facility is expected to be operational before the end of calendar 2026.

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Government Solutions

The Government Solutions segment primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the DoW, the DoS and foreign governments and our Mobility Systems operations which provides products and services supporting the movement of equipment by the U.S. and foreign governments and non-governmental organizations.

Fleet management and operations of customer-owned aircraft are performed for the DoS under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018. Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft. Supply chain logistics programs are primarily comprised of material planning, sourcing, logistics, information and program management and parts and component repair and overhaul.

Mobility Systems designs, manufactures, and repairs transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities. The containers and shelters are used in numerous mission requirements, including armories, supply and parts storage, refrigeration systems, tactical operation centers, briefing rooms, laundry and kitchen facilities, water treatment, and sleeping quarters. Shelters include both stationary and vehicle-mounted applications. Mobility Systems also provides engineering, design, and system integration services for specialized command and control systems.

Legacy Commercial Programs

The Legacy Commercial Programs segment primarily consists of asset-heavy flight hour-based component pool and repair programs for commercial airlines and distribution of consumables and expendables inventory. Flight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components.

Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable. As we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets.

Discussion of Results of Operations


	Three Months Ended August 31,
	2026			2025			% Change
Sales:
Commercial	$	670.8		$	523.3		28.2	%
Government and defense		247.2			216.3		14.3	%
	$	918.0		$	739.6		24.1	%

Gross Profit:
Commercial	$	123.3		$	89.5		37.8	%
Government and defense		53.0			44.2		19.9	%
	$	176.3		$	133.7		31.9	%

Gross Profit Margin:
Commercial		18.4	%		17.1	%
Government and defense		21.4	%		20.4	%
Consolidated		19.2	%		18.1	%

Consolidated sales for the first quarter of fiscal 2027 increased $178.4 million, or 24.1%, over the prior year quarter primarily due to an increase in sales to commercial customers. Consolidated sales to commercial customers increased $147.5 million, or 28.2%, over the prior year quarter primarily due to strong demand and volume growth in our new parts Distribution activities, including from our recent ADI acquisition, which contributed sales of $35.3 million. In addition, our recent HAECO Americas acquisition contributed sales of $46.6 million. Our consolidated sales to government customers increased $30.9 million, or 14.3%, primarily due to volume growth in our Parts Supply segment from new parts Distribution activities, including from our recent ADI acquisition, which contributed sales of $8.4 million.

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Consolidated cost of sales increased $135.8 million, or 22.4%, over the prior year quarter, which was largely in line with the consolidated sales increase of 24.1% discussed above.

Consolidated gross profit for the first quarter of fiscal 2027 increased $42.6 million, or 31.9%, over the prior year quarter. Gross profit on sales to commercial customers increased $33.8 million, or 37.8%, over the prior year quarter with the gross profit margin increased to 18.4% from 17.1%. These increases are primarily due to the mix of products sold and volume growth in our Parts Supply segment, including from our recent ADI acquisition.

Gross profit on sales to government customers increased $8.8 million, or 19.9%, with the gross profit margin increased to 21.4% from 20.4% in the prior year quarter. These increases across government customers are primarily attributable to strong demand and growth in our Government Solutions segment.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased $35.2 million, or 49.0%, over the prior year quarter and selling, general, and administrative expenses as a percent of sales increased to 11.7% from 9.7%. These increases were primarily due to incremental expenses of $22.0 million related to recent acquisition activity.

Interest Expense

Interest expense decreased $2.2 million in the first quarter of fiscal 2027 compared to the prior year quarter reflecting the impact of both lower interest rates and lower average borrowings. Our average borrowing rate on our Amended Revolving Credit Facility was 5.34% in the first quarter of fiscal 2027 compared to 6.14% in the prior year quarter.

Income Taxes

Our effective income tax rate for continuing operations was 27.6% in the first quarter of fiscal 2027 compared to 26.8% in the prior year quarter. The increase in the effective tax rate was primarily attributable to higher non-deductible expenses in fiscal 2027.

Operating Segment Results of Operations

Three-Month Periods Ended August 31, 2026 and 2025

Parts Supply Segment


	Three Months Ended August 31,
	2026			2025			% Change
Third-party sales	$	414.8		$	317.8		30.5	%
Operating income		55.3			40.9		35.2	%
Operating margin		13.3	%		12.9	%

Sales in the Parts Supply segment increased $97.0 million, or 30.5%, over the prior year quarter primarily due to a $42.6 million increase in sales in our new parts Distribution activities from increased demand and growth from new and expanded distribution agreements. In addition, the ADI acquisition contributed sales of $43.7 million during the first quarter of fiscal 2027. Whole asset sales in our USM activities increased $3.9 million in the first quarter of fiscal 2027 over the prior year quarter. Sales in the Parts Supply segment during the first quarter of fiscal 2027 also included sales of $4.7 million related to the wind-down of the Legacy Commercial Programs rotable asset pool.

Operating income in the Parts Supply segment increased $14.4 million, or 35.2%, over the prior year quarter, and operating margin increased to 13.3% from 12.9%. These increases were primarily due to improved profitability across the mix of products sold in our USM activities.

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Repair, Engineering, and Software Segment


	Three Months Ended August 31,
	2026			2025			% Change
Third-party sales	$	297.5		$	226.4		31.4	%
Operating income		16.0			20.0		(20.0)	%
Operating margin		5.4	%		8.8	%

Sales in the Repair, Engineering, and Software segment increased $71.1 million, or 31.4%, over the prior year quarter primarily due to growth within our Airframe MRO services of $54.3 million. The HAECO Americas acquisition contributed sales of $46.6 million during the quarter. In addition, the ART acquisition contributed sales of $7.8 million during the quarter.

Operating income in the Repair, Engineering, and Software segment decreased $4.0 million, or 20.0%, from the prior year quarter and the operating margin decreased to 5.4% from 8.8%. These decreases were primarily due to lower profitability in our Airframe MRO activities and the recognition of compensation expense of $4.9 million related to the Trax contingent consideration.

Government Solutions Segment


	Three Months Ended August 31,
	2026			2025			% Change
Third-party sales	$	138.8		$	133.9		3.7	%
Operating income		19.1			12.7		50.4	%
Operating margin		13.8	%		9.5	%

Sales in the Government Solutions segment increased $4.9 million, or 3.7%, over the prior year quarter primarily due to higher volumes across the Mobility Systems’ pallet product line.

Operating income in the Government Solutions segment increased $6.4 million, or 50.4%, over the prior year quarter and the operating margin increased to 13.8% from 9.5%. These increases were primarily attributable to higher volumes within our Mobility Systems activities.

Legacy Commercial Programs Segment


		Three Months Ended August 31,
		2026			2025			% Change
Third-party sales		$	66.9		$	61.5		8.8	%
Operating income (loss)			2.9			0.4		625.0	%
Operating margin			4.3	%		0.7	%

Sales in the Legacy Commercial Programs segment increased $5.4 million, or 8.8%, from the prior year quarter primarily due to increased parts sales as we wind-down the Legacy Commercial Programs operations. Sales of rotable parts were $24.3 million in the current quarter compared to $6.5 million in the prior year quarter.

Operating income in the Legacy Commercial Programs segment increased $2.5 million, or 625.0%, over the prior year quarter with the operating margin increasing to 4.3% from 0.7%. These increases were primarily due to the increased volume of rotable parts sales partially offset by unfavorable cumulative catch-up adjustments of $3.4 million related to our long-term, flight hour programs where we provide component inventory management and repair services.

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Liquidity, Capital Resources and Financial Position

Our operating activities are funded and commitments met through the generation of cash from operations. Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital. In addition to operations, our current capital resources include an unsecured revolving credit facility under the credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders (the “Credit Agreement”), and an accounts receivable financing program. Periodically, we may also raise capital through common stock and debt financings in the public or private markets. We continually evaluate various financing arrangements, including the issuance of common stock or debt, which would allow us to improve our liquidity position and finance future growth on commercially reasonable terms. Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including the overall health of the credit markets, general economic conditions, airline industry conditions, geo-political events, our debt service obligations, and our operating performance.

At August 31, 2026, our liquidity and capital resources included working capital of $1,189.1 million inclusive of cash of $104.5 million. We expect that our cash on hand, coupled with future cash flows from operations and other available sources of liquidity discussed below, will provide ample liquidity to enable us to meet our cash requirements for at least the next 12 months and foreseeable future thereafter.

Borrowings

On March 1, 2024, we entered into an amendment (the “Revolver Amendment”) to our Credit Agreement, which governs the Company’s existing revolving credit facility (the revolving credit facility as amended by the Revolver Amendment, the “Amended Revolving Credit Facility”). Among other things, the Revolver Amendment (i) increased the aggregate commitments under the Amended Revolving Credit Facility to $825.0 million from $620.0 million under the Revolving Credit Facility, (ii) increased the maximum leverage ratio permitted under the financial covenants applicable to the Amended Revolving Credit Facility and (iii) included an additional pricing level that increases the interest rate margins on the Amended Revolving Credit Facility to 250 basis points (in the case of loans based on the secured overnight financing rate (“SOFR”)) and 150 basis points (in the case of Base Rate loans) if our adjusted total debt to EBITDA ratio exceeds 3.75:1.00.

Under certain circumstances, we may request an increase to the lending commitments under the Credit Agreement by an aggregate amount of up to $300 million, not to exceed $1,125 million in total. The Credit Agreement expires on December 14, 2027. Borrowings under the Credit Agreement bear interest at a variable rate based on SOFR plus 112.5 to 250 basis points based on certain financial measurements if a SOFR loan, or at the offered fluctuating Base Rate plus 12.5 to 150 basis points based on certain financial measurements if a Base Rate loan.

At August 31, 2026, borrowings outstanding under the Amended Revolving Credit Facility were $185.0 million and there were approximately $7.7 million of outstanding letters of credit, which reduced the availability under this facility to $632.3 million. There are no other terms or covenants limiting the availability of the Amended Revolving Credit Facility. As of August 31, 2026, we also had other financing arrangements that did not limit availability on our Amended Revolving Credit Facility, including foreign lines of credit of $9.9 million.

On March 1, 2024, we issued $550.0 million aggregate principal amount of 6.75% Senior Notes due 2029 (the “Notes”) to fund a portion of the purchase price for the acquisition of the Product Support business. The Notes bear interest at a rate of 6.75% per year, payable semiannually in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2024. The Notes will mature on March 15, 2029.

On August 14, 2025, we issued an additional $150.0 million aggregate principal amount of our Notes (the “Additional Notes”) at an original issuance premium 102% of their principal amount, or $3.0 million. Other than with respect to the date of issuance and the offering price, the Additional Notes have the same terms as the Notes.

Our financing arrangements require us to comply with leverage and interest coverage ratios and comply with certain affirmative and negative covenants, including those relating to financial reporting and notification, compliance with applicable laws, and limitations on additional liens, indebtedness, acquisitions, investments and disposition of assets. Our financing arrangements also generally require our significant domestic subsidiaries to provide a guarantee of payment. At August 31, 2026, we were in compliance with the financial and other covenants under each of our financing arrangements.

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Sale of Receivables

We maintain a Purchase Agreement with Citibank N.A. (“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150.0 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell. The term of the Purchase Agreement expires after February 22, 2027, but, the Purchase Agreement may be terminated earlier under certain circumstances. The term of the Purchase Agreement is automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.

We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under Accounting Standards Codification 860, Transfers and Servicing, and de-recognize the sold receivables from our Condensed Consolidated Balance Sheet. At August 31, 2026, we have utilized $22.1 million which reduced the availability under the Purchase Agreement to $127.9 million.

Stock Repurchase Program

On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program, under which we may repurchase up to $150 million of our common stock with no expiration date. No repurchases were made during the three-month period ended August 31, 2026. Since inception of the renewal authorization, we have repurchased 2.4 million shares for an aggregate purchase price of $107.5 million. The timing and amount of repurchases are subject to prevailing market conditions and other considerations, including our liquidity and acquisition and other investment opportunities.

Cash Flows from Operating Activities

Net cash provided by operating activities was $55.8 million in the first quarter of fiscal 2027 compared to a use of cash of $44.9 million in the prior year quarter. The increase in cash provided by operating activities over the prior year of $100.7 million was primarily attributable to working capital changes, including increased inventory investments in both new parts and used serviceable material in the current year.

Cash Flows from Investing Activities

Net cash used in investing activities was $25.6 million during the first quarter of fiscal 2027 compared to $23.8 million in the prior year quarter. The increase in cash used in investing activities over the prior year of $1.8 million was primarily related to a loan provided to a third-party for USM engine investments partially offset by lower acquisition-related payments.

Cash Flows from Financing Activities

Net cash used in financing activities was $24.9 million during the first quarter of fiscal 2027 compared to cash provided of $51.1 million in the prior year quarter. The increase in cash used in financing activities over the prior year of $76.0 million was primarily related to the $150.0 million debt offering in the prior year quarter.

Critical Accounting Policies and Significant Estimates

We make a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended May 31, 2026 for a discussion of our critical accounting policies. There have been no significant changes to the application of our critical accounting policies during the first quarter of fiscal 2027.

Forward-Looking Statements

This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, or targets, goals, commitments, and other business plans, and often may also be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms.

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These forward-looking statements are based on beliefs of our management, as well as assumptions and estimates based on information available to us as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including: (i) factors that adversely affect the commercial aviation industry; (ii) adverse events and negative publicity in the aviation industry; (iii) a reduction in sales to the U.S. government and its contractors; (iv) cost overruns and losses on fixed-price contracts; (v) nonperformance by subcontractors or suppliers; (vi) our ability to manage our operational footprint; (vii) a reduction in outsourcing of maintenance and repair activity by airlines; (viii) a shortage of skilled personnel or work stoppages; (ix) competition from other companies; (x) financial, operational and legal risks arising as a result of operating internationally; (xi) failure to complete, integrate, and realize the anticipated benefits of acquisitions, including execution of related operational and financial plans; (xii) circumstances associated with divestitures; (xiii) inability to recover costs due to fluctuations in market values for aviation products and equipment; (xiv) cyber or other security threats or disruptions; (xv) a need to make significant capital expenditures to keep pace with technological developments in our industry; (xvi) restrictions on use of intellectual property and tooling important to our business; (xvii) inability to protect the value of our intellectual property; (xviii) our ability to manage our debt and fund our other liquidity needs; (xix) limitations on our ability to access the debt and equity capital markets or to draw down funds under loan agreements; (xx) non-compliance with restrictive and financial covenants contained in our debt and loan agreements; (xxi) changes in or non-compliance with laws and regulations related to federal contractors, the aviation industry, international operations, safety, and environmental matters, and the costs of complying with such laws and regulations; and (xxii) exposure to product liability and property claims that may be in excess of our liability insurance coverage. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described.

For a discussion of these and other risks and uncertainties, refer to our Annual Report on Form 10-K, Part I, “Item 1A, Risk Factors” and our other filings from time to time with the SEC. These events and uncertainties are difficult or impossible to predict accurately and many are beyond our control. The risks described in these reports are not the only risks we face, as additional risks and uncertainties are not currently known or foreseeable or impossible to predict accurately or risks that are beyond our control or deemed immaterial may materially adversely affect our business, financial condition or results of operations in future periods. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk includes fluctuating interest rates under our credit agreements, changes in foreign exchange rates, and credit losses on accounts receivable. See Note 1 of Notes to Consolidated Financial Statements in our Annual Report on Form 10- K for the year ended May 31, 2026 for a discussion of accounts receivable exposure.

Foreign Currency Risk. Revenues and expenses of our foreign operations are translated at average exchange rates during the period, and balance sheet accounts are translated at period-end exchange rates. Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations for the quarter ended August 31, 2026.

Interest Rate Risk. Refer to the section Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended May 31, 2026. There were no significant changes during the quarter ended August 31, 2026.

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2026. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Therefore, effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of August 31, 2026 to provide reasonable assurance that information required to be disclosed in the reports that are filed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported in a timely manner.

There were no changes in our internal control over financial reporting during the quarter ended August 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

The information in Note 15 to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference. There are no matters which constitute material pending legal proceedings to which we are a party other than those incorporated into this item by reference from Note 15 to our Condensed Consolidated Financial Statements for the quarter ended August 31, 2026 contained in this Quarterly Report on Form 10-Q.

Item 1A – Risk Factors

There have been no material changes in the risk factors disclosed under Part I, Item 1A “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2026 with the exception of the addition of the following risk factors:

The acquisition of MRO Holdings may not be completed on a timely basis, or at all, and the failure to complete the acquisition could adversely affect our business, operating results and financial condition.

We have entered into a definitive agreement with respect to the acquisition of a 65% controlling interest in MRO Holdings (the “Acquisition”). We can provide no assurance that the Acquisition will be consummated on a timely basis or at all. Pursuant to the stock purchase agreement that we entered into relating to the Acquisition (the “Purchase Agreement”), the Acquisition is subject to a number of closing conditions. Many of the closing conditions will not be within our control, and we cannot predict when or if these conditions will be satisfied. There can be no assurance as to when, or if, the conditions to closing of the Acquisition will be satisfied or waived or that other events will not intervene to delay the Acquisition or result in the termination of the Purchase Agreement. Any delay in completing the Acquisition could cause us not to realize some or all of the benefits that we expect to achieve if the Acquisition is successfully completed within our expected timeframe. Similarly, delays in the completion of the Acquisition could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the Acquisition.

If the Acquisition is not completed, our ongoing business, financial condition, financial results and stock price may be adversely affected, and we will be subject to the following risks: (i) depending on the reasons for the failure to complete the Acquisition, we could be liable for monetary or other damages in connection with the termination or breach of the Purchase Agreement; (ii) we have dedicated, and will continue to dedicate, significant time and resources, financial and otherwise, in planning for the Acquisition and the associated integration, the benefit of which we would lose if the Acquisition is not completed and which could otherwise have been devoted to other opportunities that may have been beneficial to us; (iii) while the Purchase Agreement is in force, we will be required to conduct our business, and cause our subsidiaries to conduct their businesses, in the ordinary course in all material respects, and will be restricted from amending our organizational documents in a manner that would adversely affect the Acquisition; (iv) these requirements and restrictions may adversely affect our ability to execute certain of our business strategies; (v) we may experience negative reactions from the financial markets or from suppliers, customers, regulators and employees, and may not be able to retain key management personnel and other key employees; and (vi) we may be subject to litigation related to any failure to complete the Acquisition or related to any enforcement proceeding commenced against us to perform our obligations pursuant to the Purchase Agreement.

Furthermore, we are subject to the following risks in connection with this pending Acquisition:

●

We currently have a significant amount of debt and expect to incur additional debt in connection with the Acquisition, which could adversely affect our financial condition and our ability to react to changes in our business;

●

The financing commitments we have obtained in connection with the Acquisition are subject to customary conditions and if such financing is not available, we may remain obligated to complete the Acquisition;

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We will incur substantial transaction fees and costs in connection with the Acquisition;

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We do not currently control MRO Holdings and will not control its business or assets until the consummation of the Acquisition;

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While the Acquisition is pending, we and MRO Holdings will be subject to business uncertainties that could adversely affect our respective businesses;

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Uncertainties associated with the Acquisition may cause a loss of key employees, and we may be unable to attract and retain key personnel during the pendency of the Acquisition and thereafter;

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The assumption of unknown liabilities in the Acquisition may harm our financial condition and results of operations;

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Item 6 – Exhibits

The exhibits to this report are listed on the following index:

Exhibit No.	Description		Exhibits

10.	Material Contracts	10.1*	Form of AAR CORP. Fiscal 2027 Short-Term Incentive Plan (filed herewith).

		10.2*	Form of AAR CORP. Fiscal 2027 Restricted Stock Agreement for Ratable Vesting (filed herewith).

		10.3*	Form of AAR CORP. Fiscal 2027 Restricted Stock Agreement for Cliff Vesting (filed herewith).

		10.4*	Form of AAR CORP. Fiscal 2027 Performance Restricted Stock Agreement (filed herewith).

		10.5*	Form of Fiscal 2027 Director Restricted Stock Agreement (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended May 31, 2026).

		10.6*	Form of AAR CORP. Fiscal 2027 Special Performance-Based Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 24, 2026).

31.	Rule 13a-14(a)/15(d)-14(a) Certifications	31.1	Section 302 Certification of Chief Executive Officer of Registrant (filed herewith).

		31.2	Section 302 Certification of Chief Financial Officer of Registrant (filed herewith).

32.	Section 1350 Certifications	32.1	Section 906 Certification of Chief Executive Officer of Registrant (filed herewith).

		32.2	Section 906 Certification of Chief Financial Officer of Registrant (filed herewith).

101.	Interactive Data File	101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2026, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at August 31, 2026 and May 31, 2026, (ii) Condensed Consolidated Statements of Income for the three-months ended August 31, 2026 and 2025, (iii) Condensed Consolidated Statements of Comprehensive Income for the three-months ended August 31, 2026 and 2025, (iv) Condensed Consolidated Statements of Cash Flows for the three-months ended August 31, 2026 and 2025, (v) Condensed Consolidated Statement of Changes in Equity for the three-months ended August 31, 2026 and 2025, and (vi) Notes to Condensed Consolidated Financial Statements.**

104.	Cover Page Interactive Data File	104	Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

*	Management contract and compensatory arrangement.

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

		AAR CORP.
		(Registrant)



Date:	September 29, 2026	/s/ DYLAN Z. WOLIN
		Dylan Z. Wolin
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

		Page
Part I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Cash Flows	7
	Condensed Consolidated Statements of Changes in Equity	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

Part II — OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 5.	Other Information	39
Item 6.	Exhibits	40

Exhibit Index		40
Signatures		41