AAR (NYSE:AIR) executives said the company delivered “another outstanding quarter” in its fiscal 2026 second quarter, citing broad-based sales growth, improving profitability, and progress on a series of strategic acquisitions aimed at expanding parts distribution and repair capabilities.
On the earnings call, Chairman, President and CEO John Holmes emphasized strong performance across segments and highlighted two completed acquisitions—ADI and HAECO Americas—along with a third pending deal for Aircraft Reconfig Technologies (ART), which is expected to close in the fiscal fourth quarter. Interim CFO Sarah Flanagan detailed quarterly results that included double-digit organic growth and margin expansion at the consolidated level.
Second-quarter results: sales growth and higher profitability
Profitability also improved. Adjusted EBITDA increased 23% to $96.5 million and adjusted EBITDA margin rose to 12.1% from 11.4%. Adjusted operating income increased 28% to $81.2 million, and adjusted operating margin expanded 100 basis points to 10.2%. Flanagan attributed the margin improvement to operating efficiency efforts, strength in the parts supply segment, and government programs. Adjusted diluted EPS rose 31% to $1.18 from $0.90 a year earlier.
Parts Supply leads growth; distribution model cited as differentiator
Holmes said the quarter’s 16% total sales growth was led by the Parts Supply segment, which grew 29%, driven by “above-market organic sales growth of 32%” in new parts distribution (excluding ADI). He described new parts distribution as AAR’s fastest-growing activity, averaging more than 20% organic growth in each of the last four years, and credited the company’s “two-way exclusive” distribution model for market share gains.
Holmes said AAR’s distribution contracts typically run five to 10 years and are structured so AAR does not distribute competing products in a given market and the OEM does not use another distributor. He said the company has seen a 100% renewal rate in recent years and noted renewals during the quarter with Collins Aerospace and Arkwin Industries (a TransDigm unit). He also pointed to a synergy example: Eaton named AAR’s Amsterdam facility an authorized service center for hydraulic components across Europe, the Middle East and Africa.
In segment results, Flanagan reported Parts Supply sales of $354 million. Segment adjusted EBITDA rose 37% to $46.5 million, and adjusted EBITDA margin increased to 13.2% from 12.4%. Adjusted operating income rose 35% to $42.8 million and adjusted operating margin increased to 12.1% from 11.5%, which Flanagan said reflected operating leverage and cost discipline as the business scales.
During Q&A, Holmes said the 32% organic growth in new parts distribution was “overall…volume driving that growth,” with price escalation playing a smaller role. He added that AAR was seeing significant growth from existing distribution contracts and contributions from new contracts ramping up. When asked about possible airline destocking, Holmes said the company was not seeing evidence of that and cited backlog as supporting continued growth. Flanagan later said roughly half of the new parts distribution growth came from commercial customers and half from defense.
Repair and Engineering: demand remains strong; integration to pressure near-term margins
Repair and Engineering sales increased 7% to $245 million. Flanagan said demand remained strong for airframe heavy maintenance, and AAR continued to focus on efficiency and throughput. Adjusted EBITDA increased 1% to $31.2 million, but segment adjusted EBITDA margin declined to 12.8% from 13.5%. Adjusted operating income was essentially flat at $27.4 million, while adjusted operating margin declined to 11.2% from 12.0%.
Flanagan said the margin pressure reflected work mix within the airframe heavy maintenance network, one-time costs and component repair, and a “slight impact” from the HAECO Americas acquisition, which contributed only one month of operations during the quarter. She said AAR expects to improve the acquired operation’s EBITDA margin over 12 to 18 months, moving it from low single digits to margins in line with AAR’s current Repair and Engineering margins.
Holmes also discussed ongoing airframe heavy maintenance expansions in Oklahoma City and Miami, which he said are expected to come online in calendar 2026 and add about $60 million in annual revenue. Later in Q&A, Holmes said the new capacity would have a more pronounced impact in fiscal 2027, with a slight contribution from the Oklahoma City site expected around February and Miami coming online around July, reaching full run rate in fiscal 2027.
On margin trajectory, Holmes said AAR views the current period in Repair and Engineering as a “low point” given integration work at HAECO, but expects margins to return to prior levels and eventually exceed them. He also said AAR’s component repair business runs at “mid- to high-teens” operating margins, and the company plans to leverage its heavy maintenance scale to drive more component repair volume.
Integrated Solutions and Trax: government program momentum and customer wins
Integrated Solutions sales rose 8% to $176 million, primarily driven by government programs. Adjusted EBITDA increased 50% to $18.5 million, while adjusted operating income rose 82% to $15.1 million and adjusted operating margin improved to 8.6% from 5.1%. Flanagan said results benefited from mix and government contracts reaching key milestones.
Holmes also highlighted progress in AAR’s software and IP-enabled offerings through Trax. He said Trax signed an agreement with Aeroxchange intended to improve integration with customers and give Trax users access to Aeroxchange’s networks of parts and repair suppliers through Trax applications. Holmes also said Trax was selected by Thai Airways to provide its eMRO, enterprise resource planning suite, e-mobility apps, and cloud hosting solution. In Q&A, Holmes said the previously announced Delta Air Lines win has helped open doors for Trax, noting Delta is serving as a reference customer and implementation is progressing well. He added AAR is about seven months into what he described as an approximately three-year implementation at Delta. Holmes said Trax is about 30% to 35% through its customer upgrade cycle, with a goal to complete the bulk of upgrades by the end of 2028.
Acquisitions, leverage, and outlook
AAR’s acquisition activity was a major focus of the call:
- ADI: Acquired in September for $138 million. Holmes said ADI is a distributor of electronic components and assemblies and moves AAR “up the value chain” by supplying parts to OEMs for manufacturing. He said ADI had approximately $150 million in sales over the prior 12 months, employs about 400 people, has performed above expectations early, and is integrating as planned.
- HAECO Americas: Acquired in November for $77 million. Holmes said AAR will apply its operating model to improve performance over 12–18 months through revenue optimization, cost reduction/process improvements, and footprint rationalization. He said the company announced roughly $850 million of new contract awards over five years tied to the acquisition and plans to exit its Indianapolis heavy maintenance site over the next 18 months, shifting work to other locations, including the acquired facilities.
- ART: Announced agreement to acquire Aircraft Reconfig Technologies for $35 million, expected to close in fiscal Q4. Holmes said ART adds interior reconfiguration capabilities, engineering and self-certification expertise, and a robust IP portfolio, and could help accelerate parts PMA development efforts. He did not disclose ART’s revenue.
Flanagan said net debt leverage declined to 2.49x from 2.82x in the first quarter, reaching AAR’s long-term target range of 2.0x to 2.5x, driven by earnings growth, balance sheet management, and an equity offering. For the third quarter, she said the company expects to be cash positive and expects interest expense to be slightly lower than the prior quarter.
Looking ahead, Holmes guided to fiscal Q3 total sales growth of 20% to 22%, including acquisitions. He said expected organic sales growth for Q3 is 8% to 11%, excluding the landing gear divestiture and acquisition impacts. The company expects Q3 adjusted operating margin of 9.8% to 10.1%. For the full fiscal year, AAR expects total sales growth “approaching 17%” and organic sales growth “approaching 11%,” reflecting strong first-half performance and the benefit of recent acquisitions.
About AAR (NYSE:AIR)
AAR Corp. (NYSE: AIR) is a global provider of aviation products and services to commercial, government and defense customers. The company offers a comprehensive portfolio of maintenance, repair and overhaul (MRO) solutions, component repair and overhaul, and engineering services designed to support a wide variety of fixed-wing and rotary aircraft. Leveraging FAA and EASA certifications, AAR delivers turnkey maintenance programs and ad hoc repair services that enhance aircraft availability and reliability.
In its Aviation Supply Chain Services segment, AAR sources, stores and distributes parts for both commercial airlines and military operators.
