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Press release

December 18, 2003

AAR Reports Second Quarter Fiscal Year 2004 Results

WOOD DALE, Ill., /PRNewswire-FirstCall via Comtex/ -- AAR (NYSE: AIR) today reported a return to profitability with net sales of $159.5 million and net income of $0.9 million or $.03 per share for the second quarter ended November 30, 2003. The Company generated $25.1 million of cash flow from operations during the second quarter, driven primarily by improved working capital management. For the first six months of the fiscal year, the Company generated $34.2 million of cash flow from operations. For the second quarter of last fiscal year, the Company reported net sales of $153.1 million and a net loss of $0.7 million or $0.02 per share.

The Company's 4.2% year-over-year sales growth and improved profitability reflect strength across a number of different businesses. In the Inventory & Logistics Services segment, sales growth of 6.2% was driven primarily by increased demand for logistics support services from government customers and higher sales to airline customers. While new parts distribution sales were lower, profitability in the distribution business improved as a result of a more focused operating strategy for the business. Sales in the Maintenance, Repair and Overhaul (MRO) segment were essentially flat compared with the prior year as higher sales at the Company's airframe maintenance facility were offset by continued softness in certain component repair operations. Continued strong demand for manufactured products that support the U.S. Military's mobility requirements and higher sales of cargo systems were the primary drivers of an 8.5% increase in sales in the Manufacturing segment.

Sales to the U.S. and foreign governments and their contractors grew 22% while sales to the commercial aviation market grew at a more modest 3%. Sales to the general aviation market, which is serviced primarily by the distribution business, declined consistent with the Company's strategy for this business. Additionally, the Company experienced lower sales of products to the Industrial market.

"We're pleased to report positive earnings for the first time since the third quarter of fiscal 2003. The operating environment in the airline industry continues to slowly improve and we made meaningful progress on many of our financial goals during the second quarter. As we reported last week, our order backlog has increased 44% since the beginning of our fiscal year and 18% since the end of the first quarter. Additionally, our operating profit is up 61.4% versus the prior year as a result of the improvement to the top line and a continued focus on controlling our expenses," said David P. Storch, President and CEO of AAR. "During the quarter we experienced improvement in several of our key efficiency measures. We improved our working capital turnover to 3.2x from 2.5x in the prior year, and our selling, general and administrative expenses as a percentage of sales declined 50 basis points from the prior year."

Storch continued, "With the overall economy and conditions in the airline industry slowly improving, we are well positioned to meet our airline and government customers' demand for low-cost, value-added solutions which should enable us to improve our operating performance in the future."

AAR (NYSE: AIR) is the leading provider of aftermarket support to the worldwide aviation/aerospace industry. Products and services include customized inventory management and logistics programs, encompassing supply, repair and manufacture of spare parts and systems. Headquartered in Wood Dale, Illinois, AAR serves commercial and government aircraft fleet operators and independent service customers throughout the world. Further information can be found at

AAR will hold its quarterly conference call at 10:30 AM (CST) on December 18, 2003. The conference call can be accessed via dial-in (1-719-457-2665; conference code 776553). A replay of the call will be available (1-719-457-0820; conference code 776553) until 12 AM (CST) on December 24, 2003.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information currently available to the Company, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, including those factors discussed under Item 7, entitled "Factors Which May Affect Future Results," included in the Company's May 31, 2003 Form 10-K. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company's control. The Company assumes no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. For additional information, see the comments included in AAR's filings with the Securities and Exchange Commission.

                          AAR CORP. and Subsidiaries

    Comparative Statement of Operations
    (In thousands except per share data)
                                      Three Months Ended     Six Months Ended
                                          November 30,          November 30,
                                        2003       2002       2003       2002
                                           (Unaudited)           (Unaudited)

    Sales                          $ 159,519  $ 153,051  $ 311,633  $ 304,216
    Cost of sales                    134,389    130,121    265,387    263,521
    Gross profit                      25,130     22,930     46,246     40,695
    SG&A and other                    19,502     19,443     39,150     40,224
    Operating income                   5,628      3,487      7,096        471
    Interest expense                   4,761      4,883      9,674      9,750
    Interest income                      541        377        916        753
    Pretax income (loss)               1,408     (1,019)    (1,662)    (8,526)
    Provision (benefit) for
     income taxes                        492       (356)      (582)    (2,984)
    Net income (loss)                    916       (663)    (1,080)    (5,542)
    Earnings (loss) per share -
     Basic                             $0.03     ($0.02)    ($0.03)    ($0.17)
    Earnings (loss) per share -
     Diluted                           $0.03     ($0.02)    ($0.03)    ($0.17)
    Average shares outstanding -
     Basic                            31,979     31,844     31,915     31,855
    Average shares outstanding -
     Diluted                          32,455     31,844     31,915     31,855

    Balance Sheet Highlights
    (In thousands except per share data)
                                                    November 30,     May 31,
                                                       2003           2003
                                                    (Unaudited)  (Derived from

    Cash and cash equivalents                        $39,198        $29,154
    Current assets                                   383,765        396,412
    Current maturities of recourse LTD                 5,908         24,000
    Bank lines & notes payable                        14,935         35,729
    Current maturities of non-recourse LTD*           32,141         32,527
    Current liabilities (excl debt, bank
     lines and N/P)                                  118,315        111,319
    Net property, plant and equipment                 83,836         94,029
    Total assets                                     666,178        686,621
    Recourse long-term debt                          167,499        164,658
    Stockholders' equity                             294,821        294,988
    Book value per share                               $9.20          $9.26
    Shares outstanding                                32,045         31,850

    * On June 20, 2002 the Company purchased the equity interest in an
      aircraft joint venture from its partner for nominal consideration. As a
      result, the book value of the aircraft and the associated non-recourse
      debt are recorded on the Company's consolidated balance sheet. The debt
      is serviced by the underlying aircraft lease.

    Sales By Business Segment
    (In thousands - unaudited)
                                      Three Months Ended     Six Months Ended
                                          November 30,         November 30,
                                        2003       2002       2003      2002

    Inventory & Logistic Services   $ 69,257   $ 65,198  $ 130,994 $ 126,497
    Maintenance, Repair &
     Overhaul                         53,000     52,388    106,425    99,314
    Manufacturing                     31,796     29,316     56,966    57,303
    Aircraft & Engine Sales &
     Leasing                           5,466      6,149     17,248    21,102
                                    $159,519   $153,051   $311,633  $304,216


Timothy J. Romenesko, Vice President, Chief Financial Officer of AAR, +1-630-227-2090,

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