AAR Corp

AAR Corporation (AIR) fell 7.2% the day it detailed its plan to buy 65% of MRO Holdings, and the market has treated the deal as an overpayment ever since. The market is half right. AAR paid at least a full price: on my numbers, MRO’s return stays below AAR’s roughly 10% cost of capital through fiscal 2030, even with the synergies. Where the market is wrong is the multiple. It still values the combined company like the old AAR, even though the deal nearly triples AAR’s airframe capacity and lifts margins toward peers that trade at almost twice its multiple. That re-rating, not a cheap deal, is why my 12-month target is about $157. I bought shares at about $97.50 on Oct 26, when I started this research.

MRO Holdings is an airframe heavy maintenance company with five sites in El Salvador, Mexico, Colombia, Florida, and North Carolina. It expects $1.0 billion in sales in 2026 at a 27% EBITDA margin. The deal values MRO at $4 billion in enterprise value, about 10.7x its 2026 EBITDA, including synergies. AAR will fund it with $2.1 billion of new debt, $780 million of AAR stock issued to the sellers at $135 a share, and a $230 million private placement led by the Pritzker Organization. It’s expected to close by February 2027. The market’s main worry is the debt, with net leverage rising to about 3.6x at closing. Shares sit at $97.34 (as of Oct 26), down from $153.71 in August. Below, I show that most of that decline was sector-wide, that the debt is manageable, and that the combined company deserves a higher multiple than the market is paying.

Company Background

AAR, based in Wood Dale, Illinois, sells parts and services to airlines, cargo operators, aircraft lessors and governments, mostly after aircraft are delivered. Parts Supply, 45% of fiscal 2026 sales, distributes new parts for manufacturers and resells used parts, and holds most of AAR’s inventory. Repair, Engineering and Software, 33%, runs AAR’s airframe hangars and component repair shops and sells maintenance software. Government Solutions, 15%, supports defense customers, and Legacy Commercial Programs, 7%, holds older commercial contracts that AAR reports separately. Commercial customers made up 72% of fiscal 2026 sales. AAR gets paid per part sold, per hour or package of repair work, and under multi-year supply contracts.

Segment	FY2026 sales ($M)	% of total	Growth	Operating margin
Parts Supply	1,487.7	45.0%	35.3%	12.5%
Repair, Engineering and Software	1,080.8	32.7%	16.1%	7.8%
Government Solutions	502.3	15.2%	1.4%	11.3%
Legacy Commercial Programs	237.2	7.2%	-6.8%	0.0%
Total	3,308.0	100%	19.0%	8.4%

Operating margin is segment operating income over sales. The total is after $49.7 million of corporate costs. MRO (about $1.0 billion of 2026 sales) joins after closing.

Management and ownership. John Holmes has been CEO since 2018 and chairman since 2023. He joined AAR in 2001 in mergers and acquisitions and ran operations before becoming CEO. Dylan Wolin became CFO in February 2026, returning after leading AAR’s corporate development, treasury and investor relations from 2017 to 2024. Insiders own about 2.5% of the shares. After closing, MRO’s sellers will hold about 5.8 million AAR shares, roughly 12% of the company, released from lockup in thirds over 18 months.

Pay leans on earnings growth. Holmes’s fiscal 2026 bonus was tied 80% to adjusted EPS and 20% to net working capital turns, and it paid out at 180% of target. His performance shares, 60% of his stock awards, vest 70% on adjusted income, 20% on average ROIC and 10% on relative shareholder return. That’s a mild concern for this deal. MRO adds to EPS even though its return (8.5% by fiscal 2030) stays below my 10.05% cost of capital, so management can earn full pay before shareholders earn theirs. The working-capital metric helps, since it ties the bonus to the cash conversion I’m watching.

The Selloff Was Mostly the Sector, Not the Deal

Most of AIR’s decline since August has had little to do with the MRO deal. From Aug 17 to Sept 28, AIR fell 25.1%, about the same as VSE Corp. (VSEC) at 28.3%, while HEICO (HEI) dropped 18.0%. Airlines fell too, but by much less: the US Global Jets ETF (JETS) lost 7.6%, as oil rose about 15%. That means aftermarket stocks fell roughly 3 times harder than the airlines they service. One possible reason is that high fuel prices push airlines to retire older, less fuel-efficient jets sooner, and those older jets need heavy maintenance. Investors may have priced in weaker future demand for exactly the work AAR does.

Deal day is the cleanest read on what the market thinks of the MRO deal. On Sept. 29, the first trading day after AAR reported earnings and announced the deal, AIR fell 7.2% while VSE slipped 1.8% and HEICO rose 0.8%. Alongside the deal, AAR also posted adjusted EPS up 38% year over year to $1.49. Strong earnings usually lift a stock, but AIR fell anyway. Since its peers barely moved, the 5–8-point gap was the market’s verdict on the deal itself.

Source: Author’s analysis; price data from Alpha Vantage, close-to-close returns

The scare: AAR will raise $2.1B in new debt to acquire MRO. That is more than double the $885 million it carries today, lifting net leverage from about 2.0x to 3.6x at closing, by management’s estimate, including synergies. If AAR borrows at about 7%, close to the 6.75% on its existing notes, the new debt costs about $112 million a year after tax, equal to roughly 60% of AAR’s fiscal 2026 net income of $187.7 million. Part of it may also float: on Oct 26, AAR enlarged its variable rate credit line to $1.375 billion to help pay for the deal. For a company with a 12% EBITDA margin, investors see little cushion if demand softens. As I show below, that fear is overstated because cash flow, not interest rates, decides how fast the debt comes down.

Once the deal-day selling ended, AIR traded in line with its peers, which makes the deal-specific penalty small and measurable. Volume ran two to seven times normal for five trading days after the announcement, so I measure the reaction from Sept 28 to Oct 5. Over that stretch, AIR fell 11.2%, while VSE, which made no acquisition, fell 3.7% and HEICO fell 1.0%, a gap of about 7-10 points. On AAR’s pre-deal market value of about $4.6 billion, that’s roughly $340-470 million. Because AAR posted strong earnings at the same time, the true penalty may be somewhat larger. After Oct 5, AIR fell 4.8% through Oct 26, in line with the 4.7% average for VSE and HEICO. For a deal this size, that’s a modest haircut, and I think a fair one. AAR paid about 13.5x MRO’s EBITDA before synergies, so the $75 million of synergies mostly earns back the price rather than adding to it, as the return math in the valuation section shows. The mispricing isn’t the deal. It’s the multiple the market still puts on the company the deal creates. So what did AAR actually buy?

AAR Is Buying Scale It Couldn’t Build Fast Enough

The deal gives AAR something it has been trying to build one hangar at a time: scale. AAR’s annual service hours will jump from 7 million to about 19 million, the aircraft it services each year from about 1,200 to nearly 3,000, and its facilities from 7 to 12. MRO alone runs 115 maintenance lines. In other words, the deal nearly triples AAR’s airframe business overnight. Scale matters because airlines often send whole fleets to one provider, and more lines should let AAR bid on contracts it couldn’t handle before. Building that much capacity on its own would take AAR years, as its recent expansions show.

The MRO deal is the biggest of several capacity moves AAR has made in the past year. AAR has been adding space both ways: expanding its own hangars in Oklahoma City and Miami, which should add about $60 million of annual revenue at full run rate in fiscal 2027, and buying HAECO Americas for $77 million in November 2025. HAECO will add about 40% more heavy maintenance capacity over time, while MRO’s 12 million service hours add about 170% to AAR’s 7 million. Three capacity moves in a year point to demand outrunning space, and building at MRO’s scale one hangar at a time would take years. HAECO is still being integrated, and it is weighing on margins for now.

MRO isn’t just more hangar capacity. It’s a more profitable business that makes more money on every dollar of work. MRO’s annual service hours grew from about 10 million in 2024 to 12 million in 2026, roughly 9% a year, while its EBITDA grew about 20% a year. Bain’s 2024 release describes both organic and strategic growth, so part of that 20% likely came from acquisitions. Even so, MRO’s 27% EBITDA margin compares with AAR’s repair segment operating margin of 7.8% in fiscal 2026. EBITDA margins run higher than operating margins because EBITDA leaves out depreciation, so the true gap is somewhat smaller, but it’s still large. When profit grows about twice as fast as volume, that points to efficiency or pricing power, not just more planes. That’s what AAR is paying for, and the upside is AAR’s own hangar moving toward MRO’s standard.

MRO’s edge comes from three things: lower labor costs, faster turnarounds and better systems. On AAR’s Sept. 29 earnings call, Holmes said MRO has a “significant labor cost advantage, which is a key contributor to their margin profile,” and added that AAR doesn’t see wage pressure in MRO’s markets. Cheap labor is a real part of the story, and management says so, which makes MRO’s margin vulnerable to the offshore maintenance rules discussed in the risks section. Holmes also describes MRO’s turnaround times as industry leading. Speed is capacity: every day cut from a heavy check frees a hangar line for the next plane, with no new building needed. Holmes cautioned that MRO’s turnaround times aren’t directly comparable to AAR’s, because the two handle different mixes of work, so I don’t put a number on the speed advantage. Finally, MRO runs proprietary operating systems that Holmes expects to lift margins at both companies. If those systems spread to AAR’s hangars, that improvement isn’t in the $75 million synergy target.

The deal also lets AAR shift out of its most expensive hangar and grow where costs are lowest. AAR plans to fully exit Indianapolis, which Holmes called its highest-cost facility, by the end of calendar 2026. MRO recently opened its seventh hangar in El Salvador, which Holmes called “the largest hangar in the world,” with an eighth already planned. Holmes also said AAR would look to expand meaningfully into widebody maintenance at MRO’s sites, as airlines move widebody work from Asia to the Americas. AAR’s mix shifts from its most expensive hangar toward its cheapest, and widebodies open a larger market from the combined business. Neither is in the $75 million synergy target, and growing in El Salvador also adds exposure to the offshore maintenance rules covered in the risks section.

In my view, the largest upside may not be in the hangars at all, but in the parts that go into them. Parts supply is AAR’s fastest-growing business; sales rose 31% to $414.8 million last quarter at a 13.3% operating margin, with new parts distribution up 23% organically. Every heavy check uses parts, and MRO runs about 12 million hours of checks a year. Management left that out of its numbers. The deal presentation says cross-selling is “not captured in plan,” and the $75 million target covers cost savings only. Holmes named component repair as the main cross-selling opportunity on the call: parts are my extension of his point. Every $10 million of added EBITDA would be worth about $3 per share at 15x. Some airlines supply their own parts for heavy checks, though, so it isn’t yet known how much of MRO’s own work AAR could capture. Scale, efficiency and cross-selling are how margins rise, and the next section measures how far.

The Margin Target Depends More on AAR Than on MRO

Management’s 19-20% margin target needs more than its promised synergies. On AAR’s own pro forma figures for fiscal 2026, the combined company would have earned $686 million of EBITDA on $4.3 billion of sales at a 15.9% margin. That’s up from AAR’s standalone 12.1%, but the jump comes from adding MRO’s higher-margin business, not from anything the combination achieves. Management aims for 19-20% within three to four years. Adding the full $75 million of synergies gets it to about 17.6%, a 1.3-2.3-point shortfall or roughly $55-100 million of EBITDA a year. And because the $75 million is fixed while sales keep growing, it moves the margin less each year: by fiscal 2030, only about 1.3 points. The rest must come from MRO outgrowing AAR, AAR’s margin gains, or cross-selling. Management doesn’t show the bridge, so I built it.

In my base case, the combined margin reaches 18.8% by fiscal 2030, just short of management’s target. Starting from 15.9%, AAR’s own margin gains add 1.4 points, synergies add 1.3, and MRO’s fast growth adds 0.2 as its higher margin sales become a bigger share of the total. The biggest piece isn’t the synergies; it’s AAR improving its own business. That assumes AAR grows sales 8% a year and lifts its margin to 14%, the top of management’s standalone target; MRO grows 10% a year at its current margin, and I count the full $75 million of synergies at run rate, as management does for its target, with nothing for cross-selling. The deck labels MRO’s own margin 27%, but its figures ($285 million on $1.0 billion of sales) imply 28.5%, which is what I use. MRO’s calendar year figures are combined with AAR’s fiscal year ending May 31, as in the deck. The chart below shows the bridge.

Source: Author’s base case estimates; data from AAR filings and the MRO deal presentation (Sept 29, 2026)

Two things could close the gap, and the more powerful one is in AAR’s own hangars, not MRO’s. With everything else unchanged, MRO growing 15% a year lifts the margin to about 19.3%, while AAR reaching a 15% margin lifts it to about 19.6%. Each point of AAR margin adds about 0.75 points to the combined margin, more than five extra points a year of MRO growth (about 0.45). The same lever cuts the other way: if AAR stalls at 13%, the combined margin reaches only about 18.1%. Cross-selling would help too, since just $11 million of extra EBITDA by fiscal 2030 would close the base case gap on its own. The target is reachable, but it depends more on AAR running its own hangars better than on the deal itself.

The base case isn’t a stretch because AAR’s margin gain is partly a recovery. AAR’s repair segment margin fell to 5.4% last quarter from 8.8% a year earlier as the HAECO integration temporarily diluted it, and management warned of 12 to 18 months of dilution when it bought HAECO. Part of the 1.4-point gain from AAR’s own margin is just getting back to where it was, which makes the base case more believable. The bear case is different. If the offshore maintenance rules push MRO’s margin down to 24%, AAR’s own margin stalls near 12.5%, and it delivers only 60% of its synergies, the combined margin reaches just 16% by fiscal 2030, barely above where it starts. In that case, the deal benefit is the one-time jump from combining, and little after. Margin drives cash flow, which the next section shows decides how fast AAR pays down the debt.

The Debt Is Manageable If Cash Conversion Improves

The debt is what scared investors on deal day, but in my base case it comes down quickly. Net debt to EBITDA is about 3.8x at closing, 3.1x in fiscal 2028, 2.4x in 2029, and 1.9x in 2030. My closing figures are higher than management’s 3.6x because I leave out synergies that haven’t arrived yet. Management targets about 3.0x within two years and 2.0-2.5x over time, so by fiscal 2029 the base case is already inside its longer-term range. That path depends on AAR turning its EBITDA into cash, which is the real risk, as I show below.

Interest rates were part of the deal-day worry, but even a large rise barely changes the debt path. I assume about 7% on the new debt, close to the 6.75% on AAR’s existing notes. A 2-point rise on the new and floating debt adds only about $47 million of net debt by fiscal 2030, lifting leverage from 1.91x to 1.95x. The model assumes about half the new debt floats; even if all of it did, the hit would only be about 0.08x. Each point of rates costs about $16 million a year after tax on $2.1 billion, small next to the roughly $770 million of EBITDA the combined company should earn at closing. There are caveats: the revolver floats at SOFR plus 1.25-2.25%, about 5.2-6.2% today, and the 6.75% notes mature in March 2029 and will need refinancing. Refinancing them 2 points higher would add about $14 million a year before tax. This is a stress test, not a rate forecast, and it shows rates are a nuisance, not a threat. The real risk is cash conversion.

The debt path depends on how much of AAR’s EBITDA turns into cash, and that’s been weak. In fiscal 2026, only about 28% of AAR’s EBITDA became cash before interest: adjusted operating cash of $94 million, plus after-tax interest, less $37 million of capex on $401 million of EBITDA. That’s largely because the fast-growing parts business ties up cash in inventory. My base case assumes only a slight improvement to 30%. That’s conservative: my DCF, which ties working capital to inventory days, implies AAR converts closer to half its EBITDA at 8% growth, so the debt could come down faster than shown here. If AAR’s conversion instead falls to 22% and MRO’s margin slips to 24%, leverage stays above 3.0x even in fiscal 2030. By fiscal 2029, the bear case sits at 3.4x versus 2.4x in the base case, a gap of about 1.0x, roughly 25 times the effect of the 2-point rate rise. Two things help: MRO generated $203 million of adjusted operating cash flow in 2025, about 71% of its expected 2026 EBITDA, with maintenance capex of only about 1% of sales, and AAR keeps all of MRO’s excess cash for the first two years before the sellers’ 35% share kicks in. AAR’s next report, expected in late December or early January, is the first check on cash conversion. The chart below shows the path under each case.

Source: Author’s estimates; net debt / EBITDA under bear, base and bull cases. Management target from AAR’s MRO deal presentation (Sept 29, 2026).

Management says the deal will add to adjusted EPS in its first full fiscal year after closing, which is fiscal 2028. That’s true, but only barely unless the synergies arrive early. My baseline is AAR’s standalone fiscal 2028 EPS of about $6.80 derived from Seeking Alpha’s consensus growth rates of 19.7% this year and 12.5% after. With no synergies, the deal cuts EPS by about 3.2%; with 25%, it adds 1.3%; with all of them, it adds 14.6%. Management expects the full run rate within three to four years of closing, so only a fraction should show up in fiscal 2028. I assume about 25%, which means the deal adds only about 1% EPS that year. The drag is structural: EPS counts only AAR’s 65% of MRO’s profit, while AAR pays all of the interest, about $112 million after tax, and issues about 7.5 million new shares. In the early years, EPS depends on how fast synergies arrive, so watch management’s progress updates. The chart below shows how accretion changes with the synergies achieved.

Source: Author’s estimates. FY2028 (first full year after close) EPS vs. AAR standalone consensus of $6.80

The debt doesn’t break the thesis, but it does raise the stakes. If cash conversion improves and synergies arrive on schedule, leverage falls below 3.0x within two years, and EPS grows meaningfully from fiscal 2029. If not, AAR stays stretched for longer. The next question is whether today’s share price already prices in that risk.

At Under 13x, the Market Is Still Pricing the Old AAR

I value AIR on EV/EBITDA because it compares companies regardless of how much debt they carry, and this deal significantly changed AAR’s debt. The calculations start with combined EBITDA of $660.6 million: AAR’s trailing $375.6 million plus MRO’s expected 2026 figure of $285 million. Applying a multiple gives enterprise value. From that, I subtract net debt at closing of $2,880.5 million, then the 35% of MRO that the sellers keep, valued at the same multiple, since that slice belongs to them, not to AAR’s shareholders. Dividing what’s left by about 47.4 million shares after the deal gives a per-share value. For AAR and its peers, I use reported trailing EBITDA from Finviz, which is lower than AAR’s adjusted figure, so the valuation leans conservative.

The market still values AAR as if the deal hadn’t happened. The two most profitable peers, HEICO and FTAI Aviation (FTAI), earn EBITDA margins near 30% and trade at 32.0x and 19.4x. VSE, at a 16% margin, trades at 23.5x, and even AerSale (ASLE), at just 8%, trades at 16.7x. AAR, at 11%, trades at 12.7x, well below the peer median of about 21.5x. Part of that discount is earned since investors pay more for higher margins. But combined with MRO, AAR’s margin rises to about 14.7%, close to VSE’s. Yet at $97.34, the market values the combined company at about 12.6x, slightly below the 12.7x it puts on AAR alone. The chart below plots each company’s multiple against its margin.

Source: Author’s analysis; peer data from Finviz (trailing 12 months, as of Oct 26, 2026); AAR+MRO from AAR filings and the MRO deal presentation. AAR+MRO is valued at the Oct 26, 2026 share price, and “AAR, Sept 28” at its pre-deal price of $115.09, holding EBITDA and net debt at Oct 26 levels.

I use 15x because it’s roughly where AAR itself traded before the deal. On the same Finviz basis, AAR was at about 14.6x on Sept 28, before the deal-day drop, and near 19x in mid-August. So 15x only puts the combined company back at AAR’s pre-deal multiple, before giving any credit for adding a business with more than twice its margin. It’s also conservative against peers: VSE has a similar margin and trades at 23.5x, so 15x still values AAR about 35% below VSE. Debt doesn’t explain the discount either. On Finviz’s figures, VSE’s enterprise value is about $950 million more than its market value, implying net debt of roughly 4.4x EBITDA, more than AAR’s 3.8x at closing. Yet VSE trades at 23.5x. That’s an approximation from enterprise value less market cap, but it’s enough to show leverage isn’t what’s holding AAR’s multiple down. I’m not using HEICO’s 32x or the 21.5x peer median. HEICO earns its premium from proprietary parts, while AAR still has to prove the integration and the cash conversion. At $97.34, the stock trades just below $99, its value at 12.7x with no synergies, so the market is pricing the combined company below AAR’s post-selloff multiple and giving it none of the synergies.

My 12-month target is about $157, roughly 61% above the Oct 26 price of $97.34. It gives equal weight to two methods. The first is the multiple. At 15x, the combined company’s $735.6 million of EBITDA, including the full $75 million of synergies, implies an enterprise value of about $11.0 billion; subtracting $2.88 billion of net debt and $1.07 billion for the sellers’ 35% leaves about $7.1 billion of equity, or roughly $150 per share on 47.4 million shares. That counts all the synergies, which management expects within three to four years, so it isn’t a 12-month value. Applying the same 15x to where my base case puts EBITDA a year from now, about $790 million on the same basis as the peers, less about $2.77 billion of net debt and the sellers’ 35% valued at the same multiple, gives about $164.

The second is a 10-year discounted cash flow model, which tests whether the business’s cash flows support that multiple. At a 10.05% cost of capital, built from a 5.0% 10-year Treasury yield and the betas of AAR and four peers, and 3% long-term growth, it values AIR at about $134 today, or about $150 a year from now. The DCF’s enterprise value works out to about 15.6x today’s combined EBITDA, so the cash flows support the 15x multiple I use. They don’t support it forever: a 15x multiple ten years out would imply 5.7% growth in perpetuity, so I don’t use the DCF’s exit-multiple version. Averaging $164 and $150 gives my target of about $157.

The stock doesn’t need everything to go right. With no synergies, today’s EBITDA at 15x gives about $126 (29% upside), and with half of them, about $138 (42%). Even at AAR’s post-selloff 12.7x, full synergies would be worth about $119 a share, 22% upside, and with no synergies about $99, still slightly above the Oct 26 price. In my bear case, where growth slows to 5%, MRO’s margin falls to 24%, only 60% of synergies arrive and capex rises, the same method I use for my target gives about $78, 20% below where I bought. Valued on cash flow alone with 2% long-term growth, it’s about $48. Against my base case, that’s about 61% upside versus 20% downside from my entry. I rate AIR a Buy with a 12-month target of $157. The table below shows value per share on today’s EBITDA across multiples and synergy outcomes.

Price sensitivity: value per share

EV/EBITDA ↓ / Synergies →	0%	50%	100%
12.7x	$99	$109	$119
14.0x	$114	$125	$136
15.0x	$126	$138	$150
16.0x	$138	$150	$163
17.0x	$150	$163	$176

Source: Author’s model. Current price: $97.34 (Oct 26, 2026).

One more check keeps the bull case honest: on returns, AAR paid a full price for MRO. To test whether AAR overpaid, I divide MRO’s after-tax operating profit plus after-tax synergies by the $3.85 billion AAR is effectively paying ($4.0 billion less about $150 million of tax benefits). With full synergies, the return starts at about 6.5% and rises to about 8.5% by fiscal 2030 in my base case, still below AAR’s cost of capital of about 10%. In the bear case, it reaches only about 5.7%; in the bull case, about 10%. MRO doesn’t disclose its depreciation, so the model assumes 3% of sales. So AAR didn’t get a bargain: in my base case, the deal earns its cost of capital only if MRO keeps growing past fiscal 2030. But both things can be true at once. AAR paid a full price for MRO, yet the market still values the combined company at AAR’s post-selloff multiple. The upside in my target comes from that re-rating, not from the deal being cheap.

The Risks Center on MRO’s Margin

The thesis has some real risks, and the biggest ones hit the same thing: MRO’s margin.

Offshore maintenance: Labor costs are a key part of MRO’s margin, and Washington is tightening oversight of foreign repair stations. Under the 2024 FAA Reauthorization Act, airline reporting of foreign heavy maintenance and drug screening are already in force. Still awaiting codification are Part 65 licensing for sign-off staff, surprise inspections, and extra oversight of weaker countries. The FAA hasn’t said which countries’ licensing will count as equivalent; if El Salvador, Mexico, or Colombia don’t qualify, MRO would need more costly U.S.-certified staff for sign-off roles. Each point of MRO margin is worth about $10 million of EBITDA, or about $2 a share at 15x after the sellers’ 35% share, so a 5-point hit would cost about $10 a share. Two offsets: MRO’s two U.S. sites aren’t affected, and Holmes says AAR sees no wage pressure in MRO’s markets, though that’s management’s view.

Cash conversion: As shown above, only about 28% of AAR’s fiscal 2026 EBITDA turned into cash before interest, largely because its fast-growing parts business ties up cash in inventory. If that doesn’t improve, leverage stays above management’s 3.0x target even in fiscal 2030. Slower paydown would leave less room to buy the rest of MRO and would likely delay the re-rating my target depends on. AAR’s next report is the first test.

A demand peak: Part of today’s demand exists because Boeing and Airbus are delivering new jets late, so airlines keep older planes flying, and older planes need more heavy checks. When deliveries catch up, or if higher fuel prices push airlines to retire less efficient jets early, that demand could ease. Heavy checks and parts ride the same tailwind, so both would slow together, possibly while AAR still carries elevated debt. If MRO’s growth stalled entirely, the 2030 margin would reach about 18.0% instead of 18.8%. Longer term, the deal presentation projects the global fleet growing from 29,000 to 42,000 aircraft by 2035, which should cushion the downturn.

Integration: This is AAR’s seventh acquisition in four years, and the last one isn’t finished. HAECO is still diluting the repair margin, which fell to 5.4% from 8.8%, with recovery promised by about mid-2027. MRO is roughly 50 times HAECO’s $77 million price, so the stakes are far higher. If AAR delivers only 60% of the $75 million in synergies, the shortfall costs about $9.50 a share at 15x. On the positive side, Holmes said AAR has already dropped unprofitable work at HAECO and replaced it with better contracts.

Deal and financing terms: The deal still needs regulatory approval, and the permanent debt hasn’t been priced; AAR’s $700 million of 6.75% notes also mature in March 2029. AAR can buy the sellers’ remaining stake in stages: 30% in three 10% tranches on the second, third and fourth anniversaries of closing, plus 5% at any time. The price is tied to AAR’s own trailing EV/EBITDA multiple, with a floor of 13.5x and a cap of 15.25x. At the deal value, each 10% would cost about $277 million, roughly 0.3x of leverage, and more if MRO keeps growing. That creates a catch for my thesis: if AAR re-rates toward 15x, the rest of MRO gets more expensive. The sellers will also own about 12% of AAR, and their lock-ups expire in thirds at 6, 12 and 18 months after closing, so their selling could weigh on the shares.

Customer concentration: About 90% of MRO’s sales go to U.S. customers, mostly large airlines, so losing a major contract or a customer in financial trouble would hurt. Those same airlines must now report their foreign heavy maintenance to the FAA, and if that scrutiny pushes them to bring work back home, MRO’s Latin American hangars would feel it first.

Bottom Line: A Buy for the Re-Rating

The market is right that AAR paid a full price for MRO Holdings, but it’s wrong to value the combined company at AAR’s post-selloff multiple. Most of AIR’s decline since August was sector-wide, the deal nearly triples AAR’s capacity at higher margins, and the added debt is manageable. Yet the stock trades at about 12.6x EBITDA. At 15x, roughly AAR’s own pre-deal multiple, and backed by a DCF that supports that multiple today, my 12-month target is about $157, and even today’s EBITDA with no synergies is worth about $126. I rate AIR a Buy.

This is a two- to three-year idea, not a quick trade. The synergies take time to arrive, and the market is unlikely to re-rate AAR until the combined results show up in its numbers. Investors should expect volatility around the closing and the first combined quarters. The dated events that will show whether it’s working are in the Catalysts table below.

Update, Nov 10, 2026: Since Oct 26, AIR has risen 19% to $115.61, and the combined company now trades at about 14.1x EBITDA, so part of the re-rating has already happened. The thesis hasn’t changed, and my $157 target still implies about 36% upside from here.

Industry and Competition

AAR’s advantage is scale in a market short of hangar space and mechanics. After the deal it will run about 19 million service hours a year across 12 facilities, and airlines that send whole fleets to one provider need that kind of capacity.

Industry drivers: The deal presentation projects the global fleet growing from about 29,000 aircraft to 42,000 by 2035, roughly 4% a year. Late deliveries from Boeing and Airbus keep older jets flying longer, and older jets need more heavy checks and parts. Flight hours drive the work, so air traffic matters more than new orders.

Regulation and macro: The 2024 FAA Reauthorization Act tightens oversight of foreign repair stations, which matters for MRO’s Latin American hangars. Jet fuel prices affect how long airlines keep older planes, interest rates affect AAR’s floating-rate debt, and defense budgets drive Government Solutions, 15% of sales.

Moat: Hangars, FAA certifications and trained mechanics take years to build, as AAR’s own expansions in Oklahoma City and Miami show. Fleet-wide maintenance contracts run for several years, and Parts Supply adds multi-year distribution agreements with parts makers.

Five forces

• Rivalry: Moderate. Heavy maintenance is fragmented and won contract by contract. Tight capacity supports pricing today, but airlines rebid fleets every few years.

• New entrants: Low. Space, certification and skilled labor take years to build, and labor is the binding constraint.

• Supplier power: Moderate to high. Parts makers control distribution rights and can move them, and skilled U.S. mechanics are scarce.

• Buyer power: High. A handful of large airlines buy most heavy maintenance, award whole fleets at once, and can move work in-house.

• Substitutes: Moderate. Airlines’ own maintenance shops, alternative (PMA) parts instead of original ones, and new jets, which need little heavy maintenance in their early years.

Competitor table

Competitor	Ticker	Overlap	Sales ($M)	How AAR compares
VSE	VSEC	Parts distribution, component repair	1,360	Smaller but more profitable (16% EBITDA margin vs. AAR’s 11%); no airframe maintenance
HEICO	HEI	Alternative parts, component repair	5,180	Larger and far more profitable (28%) because it makes its own parts, which AAR doesn’t
FTAI Aviation	FTAI	Used engines and engine modules	3,110	Engine-focused (32%), little airframe overlap
AerSale	ASLE	Used parts, airframe heavy maintenance	304	Much smaller and barely profitable (8%); competes head-on in used parts and hangars

Sales and EBITDA margins are Finviz trailing 12 months as of Oct 26, 2026. AAR’s sales were $3,490 million on the same basis, about $4.5 billion with MRO. The biggest airframe rivals, ST Engineering and Lufthansa Technik, which run heavy-maintenance hangars in the Americas, and airlines’ in-house shops, are foreign-listed, private or not reported separately, so they aren’t in the table.

Financial Summary

Metric	FY2024	FY2025	FY2026	FY2027E	FY2028E
Revenue ($M)	2,318.9	2,780.5	3,308.0	4,672.6	5,068.5
Revenue growth		19.9%	19.0%	41.3%	8.5%
Adjusted EBITDA margin	10.5%	11.7%	12.1%	16.3%	17.1%
Adjusted EPS	$3.33	$3.91	$5.05	$6.04	$6.89
Free cash flow ($M)	13.2	-6.2	57.7	n/a	219.9
Net debt / EBITDA	3.76x	2.72x	2.03x	3.77x	3.07x
Inventory days		131	133	131	131

FY2027E and FY2028E treat MRO as owned for the full year (the deal closes in February 2027). FY2027E EPS is AAR on its own, from consensus growth. FY2028E EPS includes MRO and 25% of synergies. Historical free cash flow is adjusted operating cash flow less capex. FY2028E is cash available for debt paydown after interest, in my base case. FY2027E net leverage is at closing.

Trends: Sales rose 43% in two years, led by Parts Supply, and the EBITDA margin gained 1.6 points. MRO lifts the margin to about 16% from the first year.

Cash use: Acquisitions (Product Support in 2024, HAECO Americas in 2025, MRO in 2027) and hangar expansion, with no dividend. After closing, debt paydown comes first.

Earnings quality: In FY2025, adjusted EPS of $3.91 compared with $0.35 under GAAP, because of one-time items excluded from adjusted results. By FY2026 the gap had narrowed to $0.19 ($5.05 vs. $4.86). Adjusted operating cash flow excludes AAR’s receivables financing program. KPMG, AAR’s auditor, gave clean opinions on the fiscal 2026 financial statements and internal controls, and AAR reported no material weaknesses. The controls review excluded four businesses bought during the year, including HAECO Americas, which together were 7.6% of revenue. That’s standard after acquisitions, and MRO will likely be excluded the same way next year.

Cycle check: Aftermarket demand is near a high while late deliveries keep old jets flying, so the forecast fades growth to 3% by FY2036 rather than projecting today’s pace.

Catalysts

Catalyst	Expected timing	Estimated price impact	How I’ll know
Q2 FY2027 report	Late Dec 2026 or early Jan 2027	±7% (my estimate)	Adjusted operating cash flow as a share of EBITDA. Above 30% supports the base case; near 28% is a warning
Deal closes	By Feb 2027	Up to +7%	Closing 8-K. Removes the deal overhang; the measured deal penalty was about 7 to 10 points
First full combined quarter	Q4 FY2027 report, around July 2027	About +9%	Combined EBITDA margin near 16%. Re-rating from today’s 14.1x to 15x is worth about $126
First synergy update	Same report	About +5%	Run-rate savings on track for 25% in FY2028 (about $19M, worth about $6 a share at 15x)
FAA licensing equivalency list	Pending, no date set	About -9% if MRO’s countries miss	FAA rulemaking. If El Salvador, Mexico or Colombia don’t qualify, MRO’s margin could drop up to 5 points (about $10 a share)

Price impacts are measured from $115.61, the Nov 10 close, using the model’s sensitivities. The figure for the next report is my judgment, since that report mainly sets which leverage path applies.

What Would Change My Mind

Right when: the combined EBITDA margin is near 16% in the first two quarters after closing (10-Q); AAR converts more than 40% of EBITDA to cash (quarterly adjusted operating cash flow); net leverage is below 3.0x by fiscal 2029 (10-K).

Wrong if: conversion stays near 28% through fiscal 2027 (trim); MRO’s margin falls below 24% (sell); leverage isn’t on track for 3.0x by fiscal 2029 (review the position).

Leg fit: AIR is the commercial aftermarket leg’s only holding. Older fleets flying longer drive demand for heavy maintenance and used parts, which is most of what AAR and MRO sell. Commercial customers were 72% of AAR’s fiscal 2026 sales, and about 79% after adding MRO, whose customers are mostly U.S. airlines.

Scenarios

Assumption	Bear	Base	Bull
AAR sales growth, FY2028-30	5%	8%	11%
AAR EBITDA margin by FY2030	12.5%	14%	14.5%
MRO sales growth, FY2028-30	5%	10%	15%
MRO EBITDA margin	24%	28.5%	28.5%
Synergies achieved (of $75M)	60%	100%	100%
Capex % of sales	3%	1.5%	1.3%
Target / exit multiple	12x	15x	16x
Long-term growth	2%	3%	3.5%
Value per share	$78	$157	$208
Return from $115.61 (Nov 10)	-32%	+36%	+80%

Each value averages a multiple-based 12-month target and a DCF rolled forward one year, the same method as the base-case target.

Worst Case and Position Plan

Worst case: growth slows to 5%, MRO’s margin falls to 24%, only 60% of synergies arrive, and the stock is valued on cash flow alone with 2% long-term growth: about $48 a share, 58% below the Nov 10 close of $115.61.

Portfolio impact: at a 10% weight, the worst case costs about 6% of the portfolio.

Size: 10%, the maximum at purchase and the whole commercial aftermarket leg.

Sell triggers: a “wrong if” signal is met, the price passes $157 with nothing left in the thesis, or the position grows past the 15% hard cap.

This is my personal research, not investment advice. I own AIR, bought Oct 26, 2026, and may buy or sell without notice. Views are my own, not my employer’s. Figures come from AAR’s SEC filings and releases, Finviz, and my own model, and estimates may prove wrong.