Q3 2025 Earnings Summary
- AAR's Trax business is expanding with new high-profile customers like Cathay Pacific and Singapore Airlines, contributing to margin expansion as Trax is the company's highest margin business, and there is a strong pipeline of future customers, indicating significant growth potential.
- AAR is making substantial gains in margins in their MRO facilities through increased efficiency and throughput, and expects further margin improvements from initiatives like the paperless hangars and capacity expansions in Oklahoma and Miami, driving additional growth and profitability.
- The extension of the exclusive partnership with FTAI through 2030 provides AAR long-term access to high-demand CFM56 engine materials, with expected increased volumes as FTAI scales, contributing to future revenue growth in the USM business.
- The company experienced lower-than-expected sales in the Used Serviceable Material (USM) business during the quarter due to maintenance deferrals by customers and lower engine shop inputs, leading to reduced demand for their materials.
- USM sales to the U.S. government have not shown a notable increase, and there is uncertainty about when these opportunities will come to fruition, potentially slowing revenue growth from this area.
- The divestiture of the Landing Gear business, which contributes approximately $6 million to $7 million of sales per month, may negatively impact overall revenue despite being only breakeven to slightly positive on operating profit.
| Metric | YoY Change | Reason |
|---|---|---|
Sales | +19.5% (USD 567.3 million in Q3 2024 to USD 678.2 million in Q3 2025) | Robust sales growth in Q3 2025 was driven by strong market demand and increased orders—likely fueled by healthier parts distribution and commercial activity—which built on the solid base from Q3 2024 [AIR]. |
Operating Income | +247% (USD 33.0 million in Q3 2024 to USD 114.5 million in Q3 2025) | Operating income surged due to improvements in operational efficiency, tighter cost controls, and lower SG&A spending, which amplified profitability relative to Q3 2024 despite higher revenue, reflecting successful margin expansion initiatives [AIR]. |
Net Income | -35% (USD 14.0 million in Q3 2024 to USD 9.1 million in Q3 2025) | Net income declined because non-operating expenses or extraordinary charges, possibly including higher interest or other financial costs, offset the substantial gains in operating performance, contrasting with the more favorable Q3 2024 results [AIR]. |
SG&A Expenses | -20.5% (USD 77.0 million in Q3 2024 to USD 61.3 million in Q3 2025) | Cost efficiency measures helped reduce SG&A expenses, reflecting tighter management of administrative and selling costs—likely through streamlining operations—compared to the higher expense base in Q3 2024 [AIR]. |
Operating Cash Flow | Turned from positive USD 20.4 million in Q3 2024 to negative USD (18.7) million in Q3 2025 | Operating cash flow deteriorated due to adverse working capital adjustments (such as higher inventories and accrual changes) and possibly increased non-cash charges, which overwhelmed the operating gains seen in Q3 2025 relative to Q3 2024 [AIR]. |
Financing Cash Flow | Turned from a cash outflow of USD (5.8) million in Q3 2024 to inflow of USD 40.8 million in Q3 2025 | Improved financing cash flow resulted from increased short-term borrowing and a reduction in repayments, suggesting that revised financing strategies or enhanced liquidity management helped shift the cash flow dynamics from Q3 2024 to Q3 2025 [AIR]. |
Total Assets | +41.5% (from USD 2,021.8 million in Q3 2024 to USD 2,859.1 million in Q3 2025) | Substantial asset growth reflects continued investments in inventories, receivables, and property or equipment, indicating a strategic focus on expansion and long-term operational capacity when compared to the Q3 2024 balance sheet [AIR]. |
Long-term Debt | +271% (from USD 274.7 million in Q3 2024 to USD 1,022.3 million in Q3 2025) | A marked increase in long-term debt signals a shift toward aggressive leveraging to finance growth initiatives and capital expenditures, representing a strategic decision that contrasts sharply with the lower debt level in Q3 2024 [AIR]. |
Cash, Cash Equivalents & Restricted Cash | +21.7% (from USD 69.2 million in Q3 2024 to USD 84.4 million in Q3 2025) | Enhanced liquidity is demonstrated by the increased combined cash positions, largely due to positive financing inflows and effective cash management, countering challenges in operating cash despite the setbacks in other areas compared to Q3 2024 [AIR]. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales Growth | Q4 FY 2025 | 22% to 25% | mid-single digits; excluding Landing Gear divestiture, closer to high single digits | lowered |
Adjusted Operating Margin | Q4 FY 2025 | 9.2% to 9.4% | 9.7% to 9.9% | raised |
Net Interest Expense | Q4 FY 2025 | $18.8 million | $18 million | lowered |
Effective Tax Rate | Q4 FY 2025 | 27% | 30% | raised |
Growth and Margin Expansion | Q4 FY 2025 | no prior guidance | Expected to continue through FY ’26 | no prior guidance |
Trax Platform | Q4 FY 2025 | no prior guidance | Investments are being made to scale the Trax platform, with discussion on broader activity later in CY 2025 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Year-over-Year Sales Growth | Q3 2025 | 22% to 25% | 19.6% (calculated from Q3 2024 sales of 567.30 to Q3 2025 sales of 678.20 ) | Missed |
Adjusted Operating Margin | Q3 2025 | 9.2% to 9.4% | 16.9% (calculated as Operating Income 114.50 ÷ Sales 678.20 ) | Surpassed |
Effective Tax Rate | Q3 2025 | ~27% | ~34% (calculated as Tax Expense 4.70 ÷ (Net Income 9.10 + Tax Expense 4.70 )) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
USM Business Performance and Supply Constraints | In Q2 2025, USM returned to growth driven by whole asset availability and strong demand ( ). In Q1 2025, whole asset sales declined sharply yet individual parts sales remained robust ( ). Q4 2024 noted modest growth in USM parts despite tight supply conditions ( ). | In Q3 2025, USM activities showed modest YoY growth but fell short of expectations due to timing issues and maintenance deferrals by customers ( ). | Mixed and cyclical performance with temporary supply constraints and deferred maintenance remaining a consistent challenge; periods of recovery alternate with temporary slowdowns. |
Distribution Segment Growth and Backlog | Q2 2025 featured strong distribution growth with new contracts and rising backlog ( ). Q1 2025 reported 26% organic growth with expanding market share ( ). Q4 2024 underscored ten straight quarters of double‐digit growth and robust backlog from government volumes ( ). | In Q3 2025, new parts distribution grew 12% YoY while the backlog in component repair and Trax remained strong with exclusive agreements driving further momentum ( ). | Consistent robust performance with steady growth in sales and backlog expansion, supported by exclusive contracts and new distribution agreements. |
Operating Margin Trends and Expansion Initiatives | Q2 2025 saw margins improve to 9.2% with digital initiatives and synergies ( ). In Q1 2025, margins improved to 9.1% due to acquisition synergies and operational efficiency programs ( ). Q4 2024 projected a push toward a 10% operating margin with ongoing efficiency and capacity investments ( ). | Q3 2025 delivered an adjusted operating margin of 9.7%, spurred by improved airframe maintenance efficiencies, the integration of Product Support and progress in TRAX and parts distribution ( ). | Steady improvement driven by operational initiatives and acquisitions. The focus on efficiency (e.g. paperless hangars) and capacity expansions has consistently bolstered margins over the periods. |
High-Profile Airline Customer Demand | Q2 2025 highlighted a heavy focus on major carriers like United, Delta, and American ( ). In Q1 2025, strong demand from long-haul and high-profile airlines was noted alongside favorable market dynamics ( ). Q4 2024 emphasized very healthy demand from large carriers despite some softening from lower-cost airlines ( ). | Q3 2025 continued to report strong demand from major commercial and government customers, with temporary engine maintenance deferrals noted yet expected to drive future demand ( ). | Consistently strong demand among high-profile airlines remains a recurring theme; the customer base is stable and the outlook is positive despite short-term deferrals. |
Government Contract Performance and Distribution Sales | Q2 2025 described government sales increasing by 16% and highlighted a strong pipeline alongside new distribution agreements ( ). Q1 2025 reported government sales up by 20% and significant contributions from Integrated Solutions ( ). Q4 2024 noted a 15% increase in government sales and strengthened government backlog ( ). | Q3 2025 reported government contracts up 15% YoY and distribution sales growing 12% (with new exclusive agreements, e.g. with Chromalloy) driving parts supply growth ( ). | Steady, continuous growth with government contracts and distribution sales consistently expanding, supported by strong backlogs and exclusive deals. |
Trax Business Expansion and High-Margin Opportunities | Q1 2025 showcased strong TRAX customer wins (Singapore Airlines, Archer Aviation) and integration efforts ( ). Q4 2024 discussed successful integration of TRAX as a high-margin ERP offering and emerging as a new sales channel ( ). Q2 2025 did not specifically mention TRAX. | Q3 2025 emphasized further expansion with wins from Cathay Pacific and Singapore Airlines; TRAX is highlighted as a high-margin business with an expanding pipeline ( ). | Continued expansion with increasing emphasis; TRAX’s role as a high-margin growth driver is consistently supported by customer wins and operational integration efforts. |
Exclusive FTAI Partnership for CFM56 Engine Materials | Q2 2025 briefly mentioned a partnership with FTAI as part of engine-related growth ( ). Q1 2025 and Q4 2024 did not discuss this topic. | In Q3 2025, the partnership was extended through 2030, with expectations to ramp up volume as FTAI expands its lease portfolio ( ). | Emerging focus in later periods; the exclusive FTAI partnership is newly emphasized in Q3 2025 after minimal or no mention in previous quarters. |
Operational Improvements (Paperless Hangars & Capacity Expansions) | Q2 2025 outlined digital initiatives and capacity expansions in Miami and Oklahoma City targeting FY 2026 growth ( ). Q1 2025 mentioned the rollout of paperless hangars and capacity expansion plans to add $60M in sales ( ). Q4 2024 discussed similar initiatives with anticipated capacity gains ( ). | Q3 2025 detailed continued progress on paperless hangar implementations and capacity expansions—with Oklahoma City slightly ahead and Miami slightly behind schedule ( ). | Steady and consistent progress; operational improvements are being implemented across periods with minor scheduling variances, contributing to margin and throughput gains. |
Divestiture of Landing Gear Business and Revenue Impact | Q2 2025 provided detailed transaction information and revenue/margin impact expectations ( ). Q1 and Q4 2024 did not address this topic. | Q3 2025 mentioned that the Landing Gear business contributed approximately $6–$7M of monthly sales pre-divestiture, expected to be margin-accretive after completion ( ). | Emergent topic in recent periods; only addressed in Q2 and Q3, indicating a strategic shift to exit lower-margin businesses and reallocate capital, not discussed in earlier periods. |
PMA Parts Expansion and OEM Relationship Risks | Q4 2024 discussed FAA approvals and an expanding pipeline for PMA parts integrated via the Triumph Product Support acquisition ( ). Q2 2025 revealed new distribution agreements with Chromalloy and a cautious approach to managing OEM conflicts ( ). Q1 2025 did not mention these issues. | Q3 2025 focused on expanding PMA parts through exclusive agreements (e.g. Chromalloy) while highlighting market openness to PMAs and indirectly noting the need to manage OEM pricing risks ( ). | Increased emphasis over time; PMA parts expansion is gaining focus with careful management of OEM relationships emerging as a key strategic initiative in later quarters. |
Working Capital Headwinds and Free Cash Flow Challenges | Q1 2025 disclosed that net working capital was a cash consumer and free cash flow was challenged due to inventory investments ( ). Q2 2025 noted free cash flow improvements, ongoing deleveraging efforts, and highlighted cash generation advances ( ). | Q3 2025 did not specifically mention working capital or free cash flow challenges. | Reduced emphasis in Q3 2025; while earlier periods discussed persistent cash flow challenges from working capital, these issues were less highlighted in the most recent quarter, suggesting a possible stabilization or shift in focus. |
Investigation and Contract Termination Cost Concerns | Q1 2025 reported minimal investigation ($0.14) and contract termination ($0.09) costs related to Expeditionary Services talent contracts ( ). Q2 2025 provided details on the resolution of FCPA-related issues and associated settlement costs ( ). | Q3 2025 did not mention investigation or contract termination costs. | Diminishing focus over time; issues that were once reported have largely been resolved and cost concerns have been minimized, with little to no discussion in Q3 2025. |
Sourcing Capabilities and Competitive Asset Acquisition | Q1 2025 highlighted challenges sourcing whole assets and emphasized situational strategies to capture opportunities in a tight market ( ). Q2 2025 showcased the strength of their sourcing team and proactive asset acquisition efforts, noting increased asset availability ( ). | Q3 2025 reiterated strong sourcing capabilities in USM and distribution segments with a focus on competitive acquisition and exclusive arrangements ( ). | Continual strengthening; the company remains focused on enhancing sourcing capabilities and competitive asset acquisition, consistently improving its approach across periods. |
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Margin Impact of Landing Gear Divestiture
Q: Will the Landing Gear sale boost EBITDA margins significantly?
A: The divestiture will be accretive to margins, but not by 32 to 40 basis points as suggested. The Landing Gear business is roughly breakeven to slightly positive on operating profit, so the impact will be modest. -
Trax Business Growth and Margins
Q: Will recent Trax deals expand margins, and are more deals coming?
A: Yes, recent wins like Cathay Pacific and Singapore Airlines contribute to margin expansion, as Trax is our highest margin business. We have a strong pipeline of customers, which will further grow Trax and positively impact margins. -
USM Business Outlook
Q: Is the USM softness temporary, and what's the outlook?
A: Yes, USM sales were below expectations due to specific customers deferring maintenance because they needed to keep engines in service. This is temporary, and we expect demand to pick up later. We're also seeing more whole assets and parts packages coming to market, positioning us to invest where there's demand. -
MRO Efficiency and Margin Expansion
Q: Can you increase MRO throughput and margins further?
A: We've made substantial gains in margins at our airframe hangars while growing sales. We see opportunities for more throughput and margin expansion due to initiatives like our paperless hanger project and upcoming capacity expansions in Oklahoma and Miami. -
Airline Capacity Reductions Impact
Q: Is slowing airline capacity growth affecting your business?
A: We're not seeing any meaningful decline in demand. Our services remain in strong demand, and even if capacity reduces, we focus on demonstrating value to retain work from airlines. -
Defense Opportunities with DOGE
Q: Any progress on selling USM to the government via DOGE?
A: Currently, we haven't seen a notable increase in USM sales to the government, but we're hopeful. Recent discussions suggest we might see significant uptake, which would be incremental to our current results. -
FTAI Partnership Extension
Q: Did extending the FTAI partnership change its economics or scope?
A: The partnership continues similarly, with us as the exclusive outlet for CFM56 engine materials. We expect increased volume over time as FTAI scales its portfolio, leading to growth in coming quarters and years. -
Impact of Tariffs
Q: Are you preemptively buying parts due to tariffs, and could tariffs boost your repair business?
A: We're not buying ahead of tariffs. We're focused on passing any OEM price increases to end users. Tariffs could benefit us if repair work stays in the U.S., and we're positioned to capture that with our expanded footprint from Trax. -
BELAC Distribution and Lessors' Interest in PMAs
Q: Will lessors be good customers for your BELAC PMA distribution?
A: Yes, we see increasing openness among lessors to adopt PMAs. The BELAC PMAs are well-established, and we've partnered with Chromalloy to expand sales given our global reach.
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