Executive Summary

Q4 FY2025 delivered double‑digit top-line and earnings growth with sales of $754.5M (+15% YoY) and adjusted diluted EPS of $1.16 (+32% YoY); adjusted EBITDA rose 19% to $90.9M and margin expanded to 12.4% (+80 bps YoY) .
AIR posted broad-based strength: Parts Supply led with 17% sales growth and margin improvement; Government mix rebounded to 31% vs 28–27% in prior quarters .
Against S&P Global consensus for Q4: AIR delivered a beat on revenue, EPS, and EBITDA; sequentially, adjusted operating margin improved to 10.5% vs 9.7% in Q3, driven by profitability in Parts Supply .
FY2026 setup: management guided Q1 sales growth of 6–11% (ex-Landing Gear), adjusted operating margin of 9.6–10.0%, and an estimated tax rate of ~28%; net leverage reduced to 2.72x with a target range of 2.0–2.5x in FY2026 .
Capital allocation: $10.1M of buybacks in Q4; $42.5M remains on the authorization; repurchases preferred over reinstating dividends if leverage approaches low end of target range .

What Went Well and What Went Wrong

What Went Well

Parts Supply outperformed: sales +17% YoY to $305.5M, adjusted EBITDA +36% to $52.1M, with margin uplift to 17.1% (from 14.8%) on strong new parts distribution and select whole asset transactions in USM .
Government mix recovery and segment breadth: consolidated government sales +21% YoY; Integrated Solutions adjusted operating income +15% with margin expansion, supported by program growth .
Strategic execution and portfolio optimization: landing gear divestiture completed for $48M (margin accretive); Product Support integration substantially complete, enabling $10M cost synergies; Trax momentum with marquee Delta TechOps win .

Quoted management:

“Adjusted sales were up 12% organically due to strong demand across both our commercial and government end-markets.”
“Trax was selected by Delta to modernize Delta TechOps maintenance and engineering systems… ultimately be the largest of its kind in the maintenance ERP space.”
“We are pleased to finish the year with a strong quarter of cash flow generation… our net leverage has decreased from 3.58x to 2.72x.”

What Went Wrong

Repair & Engineering margins compressed: adjusted EBITDA -6% YoY and adjusted operating margin down to 10.5% (from 11.5%) due to stranded costs during the exit of the New York component repair facility; remediation expected as integration completes in Q1 .
Interest expense remained elevated at $18.4M (vs $18.7M prior year), reflecting higher debt levels post-acquisition; though leverage trends improved, interest continues to pressure GAAP earnings .
USM supply constraints persisted; while Q4 saw some whole asset transactions, management flagged variability and asset availability as a swing factor for near‑term performance .

Financial Results

Sequential quarterly metrics (oldest → newest):

Metric	Q2 FY2025	Q3 FY2025	Q4 FY2025
Sales ($USD Millions)	$686.1	$678.2	$754.5
GAAP EPS ($)	$(0.87)	$(0.25)	$0.95
Adjusted Diluted EPS ($)	$0.90	$0.99	$1.16
Adjusted EBITDA ($USD Millions)	$78.4	$81.2	$90.9
Adjusted EBITDA Margin (%)	11.4%	12.0%	12.4%
Adjusted Operating Margin (%)	9.2%	9.7%	10.5%
Cash from Operations ($USD Millions)	$22.0	$(18.7)	$51.4
Net Debt ($USD Millions)	$935.3	$947.6	$880.5
Net Leverage (Net Debt/Adj EBITDA) (x)	3.26x	3.06x	2.72x

Year-over-year (Q4 FY2024 vs Q4 FY2025):

Metric	Q4 FY2024	Q4 FY2025	YoY Change
Sales ($USD Millions)	$656.5	$754.5	+15%
Adjusted Diluted EPS ($)	$0.88	$1.16	+32%
Adjusted EBITDA ($USD Millions)	$76.4	$90.9	+19%
Adjusted EBITDA Margin (%)	11.6%	12.4%	+80 bps
Adjusted Operating Margin (%)	9.3%	10.5%	+120 bps

Segment sales and operating income (Q4):

Segment	Sales Q4 FY2024 ($M)	Sales Q4 FY2025 ($M)	Adjusted Sales Q4 FY2025 ($M)	Operating Income Q4 FY2024 ($M)	Operating Income Q4 FY2025 ($M)
Parts Supply	$260.3	$305.5	$305.5	$35.2	$49.7
Repair & Engineering	$216.4	$222.6	$222.6	$20.6	$18.3
Integrated Solutions	$163.5	$200.1	$181.4	$1.2	$12.6
Expeditionary Services	$16.3	$26.3	$26.3	$0.4	$3.2
Corporate & Other	—	—	—	$(24.8)	$(10.8)

KPIs and mix:

KPI	Q2 FY2025	Q3 FY2025	Q4 FY2025
Commercial Mix (% of Sales)	73%	72%	69%
Government Mix (% of Sales)	27%	28%	31%
Share Repurchases ($M)	—	—	$10.1; 0.2M shares; $42.5M remaining authorization

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted Operating Margin (%)	Q4 FY2025	9.7–9.9% (guided in Q3)	Actual 10.5%	Raised (actual above guide)
Sales Growth (%) ex-Landing Gear	Q4 FY2025	High single digits (guided in Q3)	Actual +12% adjusted sales YoY	Raised (actual above guide)
Sales Growth (%)	Q1 FY2026	—	6–11% (ex-Landing Gear)	New
Adjusted Operating Margin (%)	Q1 FY2026	—	9.6–10.0%	New
Effective Tax Rate (%)	FY2026	—	~28%	New
Net Leverage Target (x)	FY2026	2.0–2.5x	2.0–2.5x (reiterated)	Maintained
Net Interest Expense ($M)	Q4 FY2025	~$18M (guided in Q3)	Actual $18.4M	Slightly higher

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 FY2025)	Previous Mentions (Q3 FY2025)	Current Period (Q4 FY2025)	Trend
Digital/Trax momentum	Trax wins; Cathay selection post-Q2	Trax contributing to margin; growth opportunities	Delta TechOps multi‑year implementation; aim to double Trax revenue again	Strengthening
USM asset availability	USM demand improving; availability better	Variability in USM results; market dynamics	Whole asset transactions boosted Q4 USM margin; availability remains swing factor	Improving but variable
Tariffs/macro	—	—	Decline in shipments to certain Chinese customers due to tariff behavior early in quarter	Headwind localized
Portfolio optimization	Announced Landing Gear divestiture	Charge recorded; sale expected Q4	Sale completed ($48M), margin accretive	Completed
Government programs	DLA contract additions; Airinmar extension	Government sales stable; margin improvement	Government sales +21% YoY; near‑term DoS headwinds on Iraq WASS to be offset by wins	Mixed near-term; constructive medium-term
Hangar capacity/utilization	Miami/OKC expansion plans	Progress on expansions	Capacity already sold; OKC online Q1 CY2026; Miami Q3 CY2026	Tight capacity, sold-out
Leverage and capital returns	Pro forma net leverage 3.17x	Net leverage 3.06x; guidance on ~30% tax, margin	Net leverage 2.72x; buybacks; repurchases preferred to dividends	Deleveraging, buyback-favorable

Management Commentary

Strategy and portfolio: “We substantially completed the integration of the Product Support acquisition and completed the divestiture of our landing gear overhaul business.”
Trax growth path: “Trax was selected by Delta… This multi‑year implementation will ultimately be the largest of its kind in the maintenance ERP space.”
Margin drivers: “Adjusted operating margin increased to 10.5%… primarily as a result of strong growth and favorable mix in Parts Supply.”
Government mix: “Sales to government customers increased 21%… with particular strength in our Integrated Solutions segment.”
Airframe MRO demand: “Our core customers… will remove maintenance work from others long before they would remove it from us.”

Q&A Highlights

Guidance range drivers: USM environment and timing of larger transactions explain the wider Q1 sales growth range (6–11%) .
Segment margin cadence: Repair & Engineering expected to see margin improvement post NY facility exit; most incremental opportunity in R&E and continued strength in Parts Supply .
Tariffs impact: Decline in shipments to certain Chinese customers; no broad-based “stocking up” behavior observed .
Capital returns: If leverage reaches lower end of target and absent M&A, buybacks preferred over reinstating dividends .
Hangar demand: New capacity in OKC and Miami already sold to customers; OKC expected online Q1 CY2026, Miami Q3 CY2026 .

Estimates Context

Q4 FY2025 actuals vs S&P Global consensus:

Metric	Consensus	Actual	Result
Revenue ($USD Millions)	$695.3*	$754.5	Bold beat
Primary EPS ($)	$1.00*	$1.16	Bold beat
EBITDA ($USD Millions)	$82.2*	$90.9 (Adj)	Bold beat

Note: Values retrieved from S&P Global*. EBITDA consensus/actual may reflect differing definitions; AIR reports adjusted EBITDA as non‑GAAP .

Forward look (Q1 FY2026):

Consensus EPS $0.98* vs actual $1.08 (reported subsequently), and consensus revenue $689.5M* vs actual $739.6M; consensus EBITDA $82.2M* vs actual $75.7M (definition differences may apply). Values retrieved from S&P Global*.

Key Takeaways for Investors

Mix and margin story intact: Parts Supply continues to deliver outsized growth and margin expansion, underpinning company-level margin gains and a strong beat vs consensus in Q4 .
Government reacceleration offsets macro noise: Government sales rebound and Integrated Solutions margin expansion balance tariff-related softness in China .
Repair & Engineering margin inflection likely: Stranded costs from NY facility exit should fade; synergy realization and sold-out hangar capacity support FY2026 margin uplift .
Deleveraging and buybacks: Net leverage down to 2.72x; with $42.5M remaining authorization and preference for repurchases over dividends, capital return remains a potential catalyst .
Digital optionality via Trax: Delta win validates scalability; management aims to double Trax revenue again over time; supplier portal rollout in FY2026 adds incremental growth path .
Near-term trading lens: Q1 guide implies seasonal moderation but continued margin discipline; watch USM asset flow and government program mix as quarterly swing factors .
Medium-term thesis: Above-market growth in Distribution, synergy capture, and capacity additions set a path to sustained double-digit adjusted EBITDA margins and leverage to accretive M&A .

AAR CORP (AIR)·Q4 2025 Earnings Summary