AAR beat its guidance, then agreed a deal expected to lift leverage from 1.81x to about 3.6x

A strong quarter, overtaken the same day

AAR reported the August 2026 quarter, and by the company's own yardsticks it was a good one. Sales excluding the legacy commercial programs it is winding down grew 25.5% by our arithmetic, above the range the company guided in July. Of the 24.1% total growth, 13.3 points came from acquisitions; the company's organic figure was 10.8%. The guide for the full year moved up to low teens.

The year before ended as guided. In March the company guided total sales growth for the year of "approximately 19%" and reported sales up 19.0%. It also guided cash flow to be positive for the full year, and operating cash flow was positive for the year.

Then, the same day, AAR agreed to buy a controlling stake in MRO Holdings, a heavy-maintenance business for airframes. A quarter that would ordinarily be the whole story became the lesser one, because the deal changes what an owner holds by more than any single quarter could.

Leverage was falling, and the deal would turn it around

Leverage is net debt measured against the company's adjusted EBITDA, its earnings before interest, tax, depreciation, stock pay and one-off items. In July the chief executive described the company as at the low end of its targeted range, with room to keep investing and then pay debt down again. About ten weeks later the company said the deal is expected to take net leverage to about 3.6x at close, counting savings it has yet to make. By our arithmetic, without those savings it is about 4.0x.

At the end of August, the latest reported date, leverage was still 1.81x. The roughly $2.1 billion of new debt is committed but not yet raised; 2.2 million private-placement shares were due on 1 October. If the deal closes, the owner who held AAR in July will hold a more indebted company with more owners. The sellers receive non-voting convertible preferred stock, according to AAR's deal filing; by our arithmetic the share count rises by roughly a fifth on an as-converted basis.

Two-fifths of combined adjusted EBITDA from one business

MRO Holdings expects about $285 million of adjusted EBITDA this calendar year. By our arithmetic MRO would supply about two-fifths of the combined adjusted EBITDA on roughly a quarter of the combined sales. AAR would consolidate all of MRO's adjusted EBITDA although just over a third of it belongs to the sellers.

The company now asks to be judged on a margin of 19% to 20% a few years after close, savings included. By our arithmetic the named savings alone reach about 18%. The rest must come from growth, mix or margins elsewhere. The chief executive attributes part of MRO's margin to a labor cost advantage and does not expect the wage gap to close; the case rests on that margin holding.

The HAECO integration is still unfinished

AAR is also still integrating HAECO Americas, bought in November 2025 for $78 million, which the chief executive calls a big turnaround project. In March the company guided that repair margins would return to pre-acquisition levels in its fiscal third quarter. In July the chief executive called the integration ahead of schedule, naming the second half of the fiscal year and, when asked, the fourth quarter; on 29 September he repeated that the integration should be complete by the end of this fiscal year; he said margin should trend back up toward its earlier level once the Indianapolis facility closes at the end of this calendar year. The repair segment's margin is below a year ago but above the quarter before.

The trend is not worsening on the segment's last two reported quarters. The quarter named slipped while the company called the work ahead of schedule, and it has just agreed to a much larger deal.

What we will know, and when

Cash flow is the figure that needs the most care: operations produced cash against an outflow a year earlier. By our arithmetic about half of it came from the line for rotable assets, repairable aircraft parts the company is selling down. The company said it will keep selling rotable assets as opportunities arise. By our arithmetic receivables rose 12.8% in the quarter while sales fell 1.1%, so receivable days rose from the quarter before; in July the chief financial officer said he wanted year-over-year progress on receivable days and inventory turns; by our arithmetic both improved: receivables rose 20.1% and inventories 17.1% from a year earlier, against 24.1% sales growth and 22.4% higher cost of sales.

We will not see MRO Holdings' margin in AAR's results until the deal closes, which the company expects in its fiscal quarter ending February 2027, subject to regulatory approvals; it also expects the deal to be accretive to adjusted earnings per share in the first full fiscal year following close.

In July AAR told its owners what the room on its balance sheet was for: more investment, then paying debt down again. By late September it had committed that room to one deal. What remains to be shown is a margin AAR has not yet run and an integration it has not yet finished.