AAR Corporation: Outperforming the Aerospace Sector Through Supply Chain Resilience and Aftermarket Innovation

In an aerospace sector grappling with supply chain bottlenecks and labor shortages, AAR Corporation (AIR) has emerged as a standout performer, leveraging strategic supply chain resilience and robust aftermarket growth to outpace industry peers. With fiscal year 2025 revenue surging 20% to $2.8 billion and adjusted diluted EPS rising 32% year-over-year to $1.16 in Q4 2025AAR reports first quarter fiscal year 2026 results^[1], AAR's financial outperformance contrasts sharply with the broader industry's mixed results. While the aerospace and defense sector reported a 11.99% revenue growth in Q2 2025, it simultaneously faced a -1.97% contraction in operating incomeAAR reports fourth quarter and fiscal year 2025 results^[2], underscoring the challenges of translating top-line gains into profitability. AAR, however, has navigated these headwinds through a combination of strategic acquisitions, operational efficiency, and deepening partnerships with key defense agencies.

Supply Chain Resilience: A Strategic Edge

AAR's ability to mitigate supply chain risks has been a cornerstone of its success. In April 2025, the company formalized a Supply Chain Alliance with the U.S. Defense Logistics Agency (DLA) Aviation, becoming the first partner in this initiativeAAR and Defense Logistics Agency Aviation sign Supply Chain Alliance^[3]. This collaboration streamlines procurement processes by centralizing contract management, enabling AAR to respond swiftly to defense logistics demands. The alliance builds on a similar partnership with DLA Maritime in 2024, reflecting AAR's proactive approach to securing critical supply chain nodesAAR and Defense Logistics Agency Aviation sign Supply Chain Alliance^[3].

Strategic acquisitions have further bolstered AAR's resilience. The Q1 2026 acquisition of Aerostrat, a provider of supply chain analytics software, enhanced AAR's Trax platform, improving inventory forecasting and parts distributionAAR reports first quarter fiscal year 2026 results^[1]. These investments paid off: AAR's Parts Supply segment saw a 27% sales increase in Q1 2026, driven by expanded market share and new distribution capabilitiesAAR reports first quarter fiscal year 2026 results^[1]. Meanwhile, facility expansions in Oklahoma City and Miami—already sold out—position AAR to meet surging demand for airframe maintenanceAAR Corp (AIR) Q4 2025 Earnings Call Highlights^[4].

Aftermarket Growth: Fueling Profitability

The aerospace aftermarket, a segment where AAR holds a dominant position, has become a key driver of its outperformance. In Q3 2025, AAR's adjusted EBITDA surged 39% to $81.2 million, with margins expanding to 12% from 10.3%Earnings call transcript: AAR Corp Q3 FY2025 reports record sales^[5]. This growth stems from a 20% year-over-year increase in Parts Supply sales and a 17% organic rise in the segmentAAR reports first quarter fiscal year 2026 results^[1]. AAR's focus on innovation—such as integrating advanced software solutions into its distribution network—has allowed it to capture a larger share of the $922 billion global aerospace and defense marketAerospace and defense industry performance and outlook^[6].

The company's financial discipline has also amplified returns. AAR reduced its net leverage ratio from 3.58x to 2.72x in fiscal 2025AAR reports first quarter fiscal year 2026 results^[1], while adjusted operating margins expanded to 9.6% from 8.3% in 2024AAR reports fourth quarter and fiscal year 2025 results^[2]. CEO John Holmes emphasized that these improvements are “a direct result of our focus on portfolio optimization and operational efficiency,” positioning AAR to capitalize on long-term industry tailwindsAAR Corp (AIR) Q4 2025 Earnings Call Highlights^[4].

Sector Context: AAR's Outperformance in a Challenged Landscape

While AAR's results shine, the broader aerospace sector remains under pressure. Despite a 11.99% revenue growth in Q2 2025, the industry's operating income contracted by -33.57% over the trailing twelve monthsAAR reports fourth quarter and fiscal year 2025 results^[2], reflecting persistent cost inflation and production delays. AAR's ability to grow adjusted EBITDA by 18% in Q1 2026 to $87 millionAAR reports first quarter fiscal year 2026 results^[1], even as the sector's average EBITDA margins declined, highlights its competitive differentiation.

The company's debt management further sets it apart. With a leverage ratio of 2.72x, AAR's balance sheet is significantly stronger than the industry's 5.49x averageAerospace & Defense Industry financial strength ratios^[7], enabling it to invest in growth without overextending. This financial flexibility is critical as the aerospace sector faces a projected $664 billion market size by 2033, driven by rising air travel and defense modernizationAerospace Market Size, Growth Forecast 2035^[8].

Conclusion: A Model for Aerospace Resilience

AAR Corporation's outperformance in a challenging sector underscores its strategic agility. By fortifying its supply chain through DLA partnerships and acquisitions, while scaling its aftermarket services, AAR has positioned itself to capitalize on both near-term demand and long-term industry trends. As the aerospace sector grapples with production bottlenecks, AAR's focus on innovation, operational efficiency, and financial discipline offers a blueprint for sustainable growth. For investors, the company's ability to convert industry headwinds into competitive advantages makes it a compelling case study in aerospace resilience.