AAR Corp. (AIR): SWOT Analysis [Nov-2025 Updated]

You're looking at AAR Corp. (AIR) and seeing a company that just delivered a phenomenal fiscal year 2025, with record sales of $\mathbf{\$2.8}$ billion and adjusted diluted EPS soaring $\mathbf{17\%}$ to $\mathbf{\$3.91}$, and you'd be right to be impressed. But as an analyst, I see a classic case of a high-performer hitting a capacity wall: while they are masterfully capitalizing on the global MRO (Maintenance, Repair, and Overhaul) super-cycle, their immediate revenue growth is constrained because facilities are running near full capacity. The real question for you isn't just how they did it, but what the near-term ceiling is, plus how they plan to capture their share of the expected $\mathbf{\$199}$ billion global MRO market in 2025 while navigating the defintely real threats of a tight used parts supply and the persistent skilled labor shortage. Let's break down the strengths that got them here, the weaknesses holding them back, and the clear opportunities and threats that will define their stock performance over the next 18 months.

AAR Corp. (AIR) - SWOT Analysis: Strengths

Record Fiscal Year 2025 Sales of $2.8 Billion

You want to see a company that can execute on growth, and AAR Corp. defintely delivered in fiscal year 2025 (FY2025). The company recorded consolidated sales of $2.8 billion, marking a strong 20% increase over the prior fiscal year. This isn't just organic growth; it's a strategic expansion driven by the successful integration of the Product Support acquisition and increased volume across their new parts Distribution activities. This kind of top-line performance shows that the demand for their aftermarket services is robust, and they are capitalizing on it.

Here's the quick math on their recent performance:

Strong, Diversified Market Position as a Leading Independent MRO Provider

AAR's strength lies in its independence and diversified customer base across the aviation services market. They are a leading independent provider of Maintenance, Repair, and Overhaul (MRO) services, parts supply, and integrated solutions to a global mix of commercial airlines, government operators, MROs, and Original Equipment Manufacturers (OEMs). In FY2025, commercial customers accounted for approximately 69% of consolidated sales, while government customers made up the remainder, providing a crucial hedge against market volatility in either sector.

The company has also been actively optimizing its portfolio, substantially completing the integration of the Product Support acquisition while divesting the lower-margin Landing Gear Overhaul business. This focus on higher-margin activities, like new parts distribution and airframe MRO, is a clear sign of strategic discipline.

Adjusted EBITDA Margin Improved to 11.8% in FY2025

The real story isn't just in sales; it's in profitability. AAR's Adjusted EBITDA margin expanded significantly to 11.8% in FY2025, up from 10.4% in the previous year. This 140 basis point improvement shows that the strategic initiatives-like the Product Support integration and internal efficiency drives-are paying off in a major way. Higher margins mean more cash flow to reinvest or return to shareholders. That's a strong foundation.

The key drivers for this margin expansion include:

• Growth in high-margin new parts Distribution activities.
• Increased throughput and efficiency in Airframe MRO facilities.
• Contributions from the high-margin Trax software solution.
• Realization of synergies from the Product Support acquisition.

Strategic Digital Platform, Trax, is a Key Long-Term Differentiator

The acquisition of Trax, the proprietary Maintenance, Repair, and Overhaul (MRO) platform, is a game-changer, shifting AAR toward a high-margin Software-as-a-Service (SaaS) model. Trax's gross margins are reported to exceed 70%, which is double or triple that of AAR's other segments, making it a powerful long-term differentiator. This is a smart move into aviation tech.

In FY2025, Trax reached a significant revenue milestone, with its revenue doubling to over $50 million. This was underscored by securing a landmark, multi-year contract with Delta Airlines, the largest in Trax's history, which will replace legacy systems across Delta TechOps' maintenance networks. Trax helps airlines figure out what parts they need, and AAR sells them the parts-a perfect cross-selling loop.

Net Leverage Reduced Significantly to 2.72x from 3.58x

A strong balance sheet is a critical strength, and AAR's disciplined capital allocation is evident in its deleveraging efforts. The company successfully reduced its net leverage ratio to 2.72x as of the end of FY2025, down from 3.58x following the Product Support acquisition. This reduction of 86 basis points strengthens their financial position and provides a solid foundation for continued capital allocation to drive growth, including further investment in Trax upgrades and defense contracts. The goal is to get to 2.5x, so they are very close.

AAR Corp. (AIR) - SWOT Analysis: Weaknesses

MRO facilities are operating at near capacity, limiting immediate revenue growth.

You're seeing a great problem to have, but it's a weakness right now: AAR Corp.'s Maintenance, Repair, and Overhaul (MRO) capacity is stretched thin. The demand for their services is so strong-driven by aging fleets and high flight hours-that their existing hangars have built up a multi-year backlog.

While management is working to bring 15% new capacity online, that expansion takes time to fully ramp up and generate revenue. This high utilization, while efficient, means there's a ceiling on how much revenue the Repair & Engineering segment can generate in the near-term. Simply put, they are turning away some work because they are fully booked. This operational constraint limits immediate top-line growth, even with market tailwinds.

Near-term headwinds in Used Serviceable Material (USM) feedstock availability.

The Parts Supply segment relies heavily on Used Serviceable Material (USM)-parts harvested from retired aircraft and engines-to offer cost-effective alternatives to new parts. Honestly, this market is tight. The low retirement rate of sought-after airframe and engine platforms means fewer whole assets are available for teardown, which creates a 'structural challenge' for feedstock supply.

This scarcity of USM drives up the price of whole assets, squeezing margins and making it harder to secure the inventory needed to meet the high demand from airlines. While AAR Corp. has strategic agreements, like the extension with FTAI Aviation for CFM56 engine material through 2030, the overall market tightness remains a significant headwind for the USM portion of their parts business. It's a supply-chain risk that you defintely need to watch.

Dependence on government contracts exposes revenue to budget changes.

AAR Corp. maintains a strong presence in the defense sector, which is a stable revenue source but also a point of vulnerability. For fiscal year 2025, sales to global government and defense customers totaled $804.3 million, which represented 28.9% of consolidated sales. The reliance on the U.S. Department of Defense (DoD) is even more concentrated, with sales to the U.S. government and its contractors accounting for $687.6 million, or 24.7% of consolidated sales.

Here's the quick math: nearly one-third of your revenue is tied to the U.S. government's budget and political cycles. Any major shift in defense spending, a contract loss, or a sequestration event could immediately and materially impact the company's financial performance. This concentration of revenue creates a non-commercial risk that the commercial aviation business does not face.

$\mathbf{\$115.0}$ million in after-tax charges related to divestitures impacted 2025 GAAP net income.

The company's strategy to optimize its portfolio by shedding lower-margin businesses, like the Landing Gear Overhaul unit, is sound for long-term margin expansion. But, the near-term financial impact was brutal. Fiscal year 2025 results were heavily distorted by significant one-time charges.

AAR Corp. recorded total after-tax charges of $115.0 million in fiscal year 2025. This charge was primarily associated with the sale of the Landing Gear Overhaul business and costs related to the FCPA (Foreign Corrupt Practices Act) settlement. What this estimate hides is the true profitability picture: the GAAP net income for the full fiscal year 2025 plummeted to just $12.5 million, a stark contrast to the adjusted diluted earnings per share of $3.91. These non-recurring items create noise that obscures the underlying operational strength and can confuse investors who only look at the headline GAAP number.

AAR Corp. (AIR) - SWOT Analysis: Opportunities

Aging global aircraft fleet drives robust, long-term MRO and parts demand.

The fundamental tailwind for AAR Corp. is the aging global commercial aircraft fleet, which creates a non-cyclical, long-term demand for Maintenance, Repair, and Overhaul (MRO) services and parts. The average age of the global fleet has climbed to 13.4 years in 2024, up sharply from 12.1 years in 2023. This unprecedented aging rate forces airlines to increase maintenance frequency and complexity, fueling a super cycle for the MRO market.

This market dynamic translates directly into a massive opportunity. While different forecasts exist, the global civil MRO market is projected to reach approximately $119.7 billion in 2025, surpassing the previous peak in 2019 by 12%. For AAR, which reported consolidated sales of $2.8 billion in fiscal year 2025, this expansive market provides a deep runway for organic growth, especially in its high-margin Parts Supply and Repair & Engineering segments.

Capacity expansion underway, adding 15% MRO network capacity by fiscal year 2026.

Management is making a clear, actionable move to capture this demand by significantly expanding its MRO footprint. AAR is increasing its MRO network capacity by approximately 15% upon completion in fiscal year 2026 through new hangar construction in Miami and Oklahoma City. This isn't a speculative build; the new capacity is already effectively sold out, demonstrating clear customer demand.

The Miami expansion alone is a new 114,000 square foot facility adjacent to the existing hangar, which will boost capacity at that Airframe MRO location by 33%. This new facility, expected to be operational in October 2025, is tied to a dedicated narrow-body maintenance commitment from United Airlines, creating a stable, long-term revenue stream. Here's the quick math on the capacity and demand:

• Miami MRO capacity increase: 33%
• New facility size: 114,000 square feet
• Expected operational date: October 2025
• Network-wide capacity increase by FY2026: 15%

Expanding digital offerings with the recent Aerostrat acquisition.

The acquisition of Aerostrat in August 2025 is a smart, strategic move that expands AAR's digital capabilities and creates a competitive moat. Aerostrat's flagship product, Aerros, is a specialized long-range maintenance planning software that automates complex scheduling and optimizes production capacity for over 5,000 aircraft globally.

The deal, valued at $15 million upfront with up to $5 million in contingent consideration, integrates Aerros into AAR's Trax subsidiary, bolstering its enterprise resource planning (ERP) capabilities. This allows AAR to offer a more comprehensive, end-to-end digital solution for maintenance, repair, and operations (MRO) planning, which is defintely a high-margin opportunity to drive efficiency for both AAR and its customers.

Long-term, stable revenue from expanded Defense Logistics Agency (DLA) contracts.

AAR's government business, which saw sales to government customers increase 21% year-over-year in the fourth quarter of fiscal year 2025, provides crucial stability to balance the commercial aviation cycle. The company cemented this stability by signing a new indefinite-delivery/indefinite-quantity (IDIQ) contract with the Defense Logistics Agency (DLA) Troop Support in September 2025 with a total potential value of up to $85 million.

This new contract, which has a one-year base period and four one-year option periods, focuses on providing specialized shipping and storage containers. Furthermore, AAR's position as the first non-OEM to secure a 20-year base Supplier Capabilities Contract with the DLA in 2022 was reinforced in March 2025 with the expansion of distribution support for Unison parts. These long-term, high-value contracts ensure a predictable, resilient revenue stream that anchors the overall business performance.

AAR Corp. (AIR) - SWOT Analysis: Threats

You're looking at AAR Corp., a key independent player in the aviation aftermarket, and you need to know where the landmines are. The biggest threats are not a lack of demand-the market is strong-but rather the operational and cost pressures that can erode margins, plus the ever-present risk of a cyclical downturn. The labor shortage and supply chain issues are defintely the most immediate headwind, forcing up costs and limiting the capacity to capitalize on the current MRO (Maintenance, Repair, and Overhaul) super cycle.

Persistent skilled labor shortage in the aviation maintenance industry.

The aviation maintenance sector's skilled labor shortage is a persistent structural threat that directly impacts AAR Corp.'s core Repair & Engineering segment. This isn't a temporary blip; it's a demographic crunch. As of 2025, the demand from commercial air transport alone is expected to drive a 10% shortage in certificated mechanics, representing a deficit of roughly 5,338 mechanics just to keep the commercial fleet flying.

The broader maintenance workforce deficit is projected to be 17,800 personnel in 2025. This shortfall is compounded by a wave of retirements, with nearly 40% of all current mechanics-over 90,000 workers-expected to reach retirement age by 2031. Labor scarcity is a direct driver of wage inflation, which saw maintenance labor rates grow by 10% or more in some segments in the prior year, squeezing MRO margins. AAR Corp. has the facilities to grow, but they need the talent.

Ongoing supply chain disruptions and material cost inflation.

Supply chain weaknesses continue to be a major operational risk, translating directly into higher costs and longer turnaround times for AAR Corp.'s Parts Supply and MRO segments. The total cost of these supply chain challenges to airlines is estimated to exceed $11 billion in 2025, a figure that reflects the industry-wide friction. For MRO providers, this cost pressure is acute.

Here's the quick math on the cost impact from the supply chain bottlenecks in 2025:

While material cost inflation averaged 7.7% in the prior year, industry experts project it will rise by a further 6.3% in the next year, meaning cost relief is coming slower than the industry would like. More than half of industry executives don't expect these disruptions to subside for at least 18 months. This forces AAR Corp. to carry higher inventory and absorb or pass on volatile material costs.

Intense competition from Original Equipment Manufacturers (OEMs) and large MRO peers.

AAR Corp. operates as a leading independent MRO provider, but it faces formidable competition from Original Equipment Manufacturers (OEMs) and their captive MRO arms, as well as massive global MRO networks. These competitors, such as Lufthansa Technik, GE Aerospace, Rolls-Royce, and ST Engineering, benefit from significant scale and integrated digital ecosystems.

The competitive landscape is consolidating, with strategic mergers and acquisitions (M&A) driving vertical integration, which can limit an independent provider's access to proprietary parts and maintenance data. OEM programs that mandate the use of their parts or service networks pressure AAR Corp.'s market share. For AAR Corp., whose full-year sales were $2.8 billion in fiscal year 2025, competing with these integrated giants requires constant focus on cost efficiency and specialized service differentiation.

Risk of a global economic downturn reducing air travel and MRO demand.

Despite the current strong demand environment-with the global MRO spend forecast to be $120 billion in 2025-AAR Corp.'s business is inherently cyclical. A significant global economic downturn would be a major threat, as the company's revenues directly track airline maintenance budgets.

The core risk is that financially stressed airlines will defer non-essential maintenance, which is a common cost-saving measure during a recession. This impacts MRO demand and service contract renewal rates. Also, AAR Corp.'s stock is more volatile than the market average, with a high beta of 1.616, indicating greater downside risk during periods of broad market uncertainty. The current high net debt leverage, expected to be around 3.3x in FY2025, makes the company more sensitive to a sudden drop in cash flow caused by an economic contraction.

• A recession causes airlines to defer heavy maintenance checks.
• Lower air travel volume reduces flight hours, decreasing immediate MRO needs.
• Economic weakness pressures airline profitability, leading to cost-cutting that targets MRO spending.

Action: Monitor the leading economic indicators and keep a tight grip on that 3.3x leverage.