AIR Q3 Deep Dive: Parts Distribution and Software Bolster Growth, Margins Expand

September 24, 2025 at 10:10 AM EDT

AIR Cover Image

Aviation and defense services provider AAR CORP (NYSE: AIR) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 11.8% year on year to $739.6 million. Its non-GAAP profit of $1.08 per share was 9.8% above analysts’ consensus estimates.

Is now the time to buy AIR? Find out in our full research report (it’s free).

AAR (AIR) Q3 CY2025 Highlights:

Revenue: $739.6 million vs analyst estimates of $688.8 million (11.8% year-on-year growth, 7.4% beat)
Adjusted EPS: $1.08 vs analyst estimates of $0.98 (9.8% beat)
Adjusted EBITDA: $86.7 million vs analyst estimates of $82.15 million (11.7% margin, 5.5% beat)
Operating Margin: 8.8%, up from 6.6% in the same quarter last year
Market Capitalization: $2.78 billion

StockStory’s Take

AAR delivered third quarter results that surpassed Wall Street expectations, driven by robust demand for new parts distribution and expanded software offerings. Management highlighted that organic sales growth in its parts supply segment was especially strong, helped by wins in both commercial and government markets. CEO John Holmes attributed performance to “continued market share gains” and noted, “our exclusive distribution model resonates with OEMs, and it’s helping to drive continued market share gains.” The company also saw solid contributions from its Trax software solution and the recent acquisition of AeroStrat, further diversifying its revenue base.

Looking ahead, AAR’s outlook is built on sustained momentum in its parts supply and software segments as well as ongoing cost efficiency initiatives. Management expects organic sales growth near 10% for the full year, with Holmes emphasizing, “parts supply is definitely leading the way,” and reaffirming expectations for above-market growth in distribution activities. Investments in digital solutions and capacity expansions are also expected to play a key role, as the company focuses on expanding its addressable market and improving operational margins.

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to gains in parts supply, software integration, and an expanded product portfolio.

Parts supply momentum: The parts supply segment experienced significant organic growth, particularly in new parts distribution. Management reported that exclusive distribution agreements with original equipment manufacturers (OEMs) contributed to continued market share gains in both commercial and defense end markets.
Software offerings advance: The Trax software platform continued its positive trajectory, highlighted by a major win with Delta Airlines and JetBlue’s upgrade to cloud-based mobility solutions. The acquisition of AeroStrat further expanded AAR’s portfolio into maintenance planning software, broadening its reach among large airline customers.
Capacity expansions underway: Ongoing expansions in Oklahoma City and Miami are set to add 15% capacity to AAR’s maintenance, repair, and overhaul (MRO) network in 2026. These investments are expected to support future demand and improve service throughput.
Cost discipline and efficiency: The company continued its rollout of a paperless hangar solution, which increased throughput without expanding physical footprint. Management also highlighted a reduction in selling, general, and administrative (SG&A) expenses as evidence of improved cost control.
Government and commercial growth: Both government and commercial customer segments contributed to top-line gains, with government sales growing 21% and commercial sales up 15% year over year. Management views this balanced demand as a strength for resilience in changing market environments.

Drivers of Future Performance

AAR’s guidance centers on sustained above-market growth in parts distribution, software-driven expansion, and operational leverage from ongoing efficiency initiatives.

Exclusive distribution model expansion: Management believes new and existing exclusive distribution agreements with OEMs will continue to drive above-market growth, citing a robust pipeline and growing recognition among manufacturers. CEO John Holmes noted that “as we continue to win more business, more doors are open to us.”
Digital solutions and integration: The company expects further growth from its digital offerings, especially through continued adoption of the Trax and AeroStrat platforms. Investments in e-commerce marketplace capabilities are underway, with announcements expected next year, aimed at driving cross-sell opportunities and deeper customer engagement.
Operational risk and investment balancing: Management acknowledged the need to balance inventory investments supporting parts supply growth with sustaining positive cash flow. They also highlighted that supply dynamics in the used serviceable material (USM) market remain fluid, which could impact margins as supply and demand shift over time.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the pace and scale of new exclusive distribution agreements with OEMs, (2) the successful ramp-up and integration of AeroStrat and digital marketplace initiatives within the Trax platform, and (3) progress on MRO capacity expansions in Oklahoma City and Miami. The ability to manage inventory investment while maintaining profitability will also be a central focus.

AAR currently trades at $80.21, up from $78.37 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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