Is AAR's Strategic M&A and Digital Integration Momentum Sufficient to Sustain Margin Expansion and Outperform Aerospace Peers?

AAR Corporation (NYSE: AIR) has emerged as a standout performer in the aerospace MRO (Maintenance, Repair, and Overhaul) sector, driven by a strategic acquisition wave and digital transformation initiatives. With record sales of $2.8 billion in fiscal 2025 and adjusted operating margins expanding to 9.6%-a 130-basis-point improvement from 2024-investors are scrutinizing whether AAR's momentum can sustain its outperformance against peers. This analysis evaluates the durability of AAR's margin expansion, the role of its M&A strategy, and the competitive dynamics shaping its trajectory.

Strategic M&A and Integration: A Catalyst for Growth

AAR's acquisition of Triumph Group's Product Support business in 2025 marked a pivotal step in its strategy to consolidate market share in high-margin aerospace services. The $3 billion deal, finalized in July 2025, added critical capabilities in mission-critical components and defense-anchored supply chains, positioning AAR to capitalize on elevated demand for commercial and military aviation services according to the acquisition announcement. By Q3 2025, the integration of this acquisition had already contributed to a 20% year-over-year revenue increase, with operating margins in the Parts Supply segment surging to 12.9%-a testament to the segment's dominance in new parts distribution according to market analysis.

The company's disciplined approach to integration has been a key differentiator. AAR's focus on operational efficiency, such as streamlining supply chains and leveraging scale, has mitigated typical post-acquisition margin drag. For instance, the Repair & Engineering segment saw margin expansion driven by internal efficiency initiatives, including automation and workforce optimization. This contrasts with peers like AerSale (NASDAQ: ASLE), which reported a 13.9% revenue decline in Q3 2025, underscoring AAR's superior execution in integrating acquisitions as financial reports indicate.

Digital Integration: Trax and the Future of MRO

AAR's Trax software platform, an integrated supply chain solution, has further amplified its competitive edge. By digitizing inventory management and customer service, Trax has enabled faster response times and reduced operational friction, directly boosting margins. In Q1 2026, the Parts Supply segment's 12.9% operating margin highlighted the platform's role in enhancing gross profit retention according to performance data. This digital-first strategy aligns with broader industry trends, where MRO providers are increasingly adopting technology to differentiate in a fragmented market.

However, AAR's digital initiatives face scrutiny. While its 9.6% adjusted operating margin in 2025 outperforms the industry average for MRO providers, it lags behind specialized peers like TAT Technologies, which reported a 25.1% gross margin in Q3 2025 according to financial analysis. The disparity suggests that AAR's cost structure or product mix may still require refinement to close the gap with niche players.

Margin Trends and Peer Comparison: A Mixed Picture

AAR's Q3 2025 operating margin of 10.5% reflects a 220-basis-point improvement year-over-year, driven by strong performance in Repair & Engineering and Parts Supply according to earnings release. This outpaces peers such as AstroNova, whose Aerospace segment achieved a 36.8% operating margin but operates in a smaller, niche market as financial reports show. However, GE Aerospace's Q3 2025 operating margin of 20.3%-supported by robust demand across commercial and defense aviation-highlights the challenges AAR faces in scaling its margins to industry-leading levels according to official results.

The key to AAR's sustainability lies in its ability to balance scale with specialization. While its broad portfolio of services provides resilience, it also dilutes margins compared to hyper-focused competitors. For example, TAT Technologies' 410-basis-point margin expansion in Q3 2025 was fueled by higher-margin revenue streams and disciplined cost management according to company announcement. AAR's margin trajectory, while positive, will need to accelerate to match such performance.

Sustainability of Growth: Risks and Opportunities

AAR's long-term success hinges on three factors: the durability of its M&A integration, the scalability of its digital tools, and its ability to navigate macroeconomic headwinds. The company's 2025 guidance-projecting adjusted operating margins of 9.8%–10.1% in Q3-suggests confidence in sustaining its current trajectory according to market analysis. However, rising input costs and supply chain volatility could pressure margins if not offset by pricing power or efficiency gains.

On the opportunity side, AAR's focus on defense-anchored services positions it to benefit from sustained U.S. and global defense spending. The Parts Supply segment's 12.9% margin in Q1 2026 underscores the potential for growth in this area, particularly as legacy aircraft fleets require more frequent maintenance according to market data. Additionally, the Trax platform's adoption by commercial airlines could unlock new revenue streams, further diversifying AAR's margin profile.

Conclusion: A Strong but Cautious Outlook

AAR's strategic M&A and digital integration have undeniably fueled margin expansion and outperformance against weaker peers. However, the company's ability to sustain this momentum will depend on its capacity to refine its cost structure, accelerate digital adoption, and compete with specialized MRO providers like TAT Technologies. While AAR's 9.6% adjusted operating margin in 2025 is a strong benchmark, investors should monitor its progress against industry leaders and its ability to translate scale into margin leadership. For now, AAR remains a compelling play in the aerospace MRO sector, but its long-term outperformance will require continued innovation and operational rigor.