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Press release

July 13, 2010

AAR Reports Fourth Quarter and Fiscal Year 2010 Results

  • Fourth quarter sales of $372 million and diluted earnings per share of $0.29
  • Fourth quarter cash flow from operations of $59 million; fiscal year 2010 cash flow from operations of $153 million
  • Acquisition of Aviation Worldwide Services (AWS) closed; integration efforts on track

WOOD DALE, Ill., /PRNewswire via COMTEX/ --AAR (NYSE: AIR) today reported fiscal year 2010 fourth quarter consolidated sales of $372.3 million and net income attributable to AAR of $11.2 million, or $0.29 diluted earnings per share. For the fourth quarter of last fiscal year, the Company reported sales of $371.7 million and net income attributable to AAR of $14.2 million, or $0.36 diluted earnings per share.

Consolidated gross profit margin was 17.9% for the fourth quarter compared to 16.4% last year. Selling, general and administrative costs increased $7.2 million, to $42.8 million. The increase was primarily attributable to the acquisition of AWS, including $1.1 million of acquisition related expenses. During the fourth quarter of 2010, the Company generated $59 million of cash flow from operations.

In the fourth quarter of fiscal year 2010, the Company formed the Government and Defense Services segment. This new segment includes the results of AWS, Defense Systems and Logistics (previously reported in the Aviation Supply Chain segment) and Integrated Technologies (formerly known as AAR Brown International and previously reported in the Structures and Systems segment). Prior year information has been revised to conform to the new segment presentation.

Following are the fourth quarter highlights for each segment:

Aviation Supply Chain - Sales declined 9% to $103.3 million and gross profit decreased 6% to $17.1 million compared to last year's fourth quarter, resulting in a gross profit margin of 16.6%. The year-over-year sales decline was primarily due to lower engine parts sales to commercial customers. Sequentially, sales increased 14.9% over the third quarter primarily due to increased demand for airframe parts support.

Government and Defense Services - Sales increased 82% to $80.5 million and gross profit increased 83% to $16.9 million over last year's fourth quarter, resulting in a gross profit margin of 21.0%. The sales increase was driven by revenue from AWS and the KC-10 program, which became operational in February 2010.

The integration of AWS is on track and its operating performance is meeting the Company's expectations. During June and July 2010, AWS began providing additional airlift support deploying both fixed and rotary-wing aircraft under two separate new awards.

Maintenance, Repair and Overhaul - Sales declined 18% to $79.7 million and gross profit declined 26% to $10.6 million compared to last year's fourth quarter, resulting in a gross profit margin of 13.3%. During the fourth quarter, the Company performed on several previously announced contract wins, which helped mitigate soft conditions in the MRO market. The Company expects year-over-year sales growth in the MRO segment beginning in the second quarter of fiscal 2011.

Structures and Systems - Sales declined 7% to $108.9 million while gross profit increased 15% to $22.1 million over last year's fourth quarter, resulting in a gross profit margin of 20.3%. Although the Company experienced a decline in sales at its mobility products business, the year-over-year margin improvement is due principally to a combination of favorable product mix and improved operating efficiencies within that business unit.

Full Year Highlights

For the Company's fiscal year 2010, sales were $1,352.2 million, a decline of 5% versus the prior year, and net income attributable to AAR was $44.6 million, or $1.16 per diluted share.

Commenting on fiscal year 2010 performance, David P. Storch, Chairman and Chief Executive Officer of AAR CORP. stated, "While the pace of the recovery in the commercial markets was not as brisk as expected, we remained focused on capturing new business, delivering quality and cost effective solutions, maintaining a lean cost structure, and generating cash. I am pleased with our new business wins during the year, including the KC-10 performance-based logistics program valued at $600 million over nine years; contracts providing mobility products valued at $300 million over five years; long-term programs to manufacture composite products for the Bombardier C-series and Sikorsky S-92 platforms, together valued in excess of $100 million; several multi-year airframe maintenance contracts and one engineering services contract, together valued in excess of $125 million; a $45 million Airbus narrow-body landing gear program over five years; and a new Airbus inventory management program for Gulf Air valued at $20 million over three years."

Storch continued, "During fiscal year 2010, we generated $153 million of cash from operations. Our balance sheet remains strong and we have substantial liquidity to seize additional opportunities in our markets."

Storch continued, "We are in the integration phase of the AWS acquisition and I am very pleased with our progress to date. Management has been focused on execution and improving the operational and financial performance of the business. We have owned AWS since April 7, 2010, and since closing have successfully won new business and see additional opportunity to provide vital supplemental airlift support to a broader customer base."

Storch concluded, "The focus of the Company remains squarely on capturing new business, solid execution, cost control, and maintaining a strong balance sheet. For fiscal 2011, we expect to benefit from the investments we have made in support of our defense and government customers and from the recovery in the commercial markets."

AAR is a leading provider of products and value-added services to the worldwide aerospace and government/defense industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve aviation and government/defense customers through four operating segments: Aviation Supply Chain; Government and Defense Services; Maintenance, Repair and Overhaul; and Structures and Systems. More information can be found at www.aarcorp.com.

AAR will hold its quarterly conference call at 7:30 a.m. CDT on July 14, 2010. The conference call can be accessed by calling 866-219-5269 from inside the U.S. or 703-639-1121 from outside the U.S. A replay of the call will be available by calling 888-266-2081 from inside the U.S. or 703-925-2533 from outside the U.S. (access code 1465420) from 10:30 a.m. CDT on July 14, 2010 until 11:59 p.m. CDT on July 21, 2010.

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 1A, entitled "Risk Factors", included in the Company's May 31, 2009 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 update 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

    Consolidated Statements of
     Operations                                 Three Months Ended
    --------------------------                       May 31,
    (In thousands except per share
     data)
                                                 2010  2009
                                                 ----  ----

    Sales                                    $372,337        $371,708
    Cost and expenses:
         Cost of sales                        305,626         300,565
         Cost of sales - impairment
          charges                                 ---          10,100
         Selling, general and
          administrative                       42,844          35,637

    Earnings (loss) from aircraft
     joint ventures                               (38)          1,283
                                                  ---           -----

    Operating income                           23,829          26,689

    Gain (loss) on extinguishment of
     debt                                         (20)          3,309

    Interest expense                            7,288           7,306
    Interest income                               193             295
    Gain (loss) on sale of
     investments                                  726          (1,393)
                                                  ---          ------

    Income from continuing operations
     before income taxes                       17,440          21,594
    Income tax expense                          6,374           7,418
                                                -----           -----
    Income from continuing operations          11,066          14,176

    Discontinued operations, net of
     tax                                          ---             ---
                                                  ---             ---
    Net income attributable to AAR
     and noncontrolling interest
                                               11,066          14,176
    Loss attributable to
     noncontrolling interest                      134             ---
                                                  ---             ---
    Net income attributable to AAR            $11,200         $14,176
                                              =======         =======
    Earnings per share - Basic:
         Earnings from continuing
          operations                            $0.29           $0.37
         Loss from discontinued operations        ---             ---
                                                  ---             ---
         Earnings per share - Basic             $0.29           $0.37
                                                =====           =====

    Earnings per share - Diluted:
         Earnings from continuing
          operations                            $0.29           $0.36
         Loss from discontinued operations        ---             ---
                                                  ---             ---
         Earnings per share - Diluted           $0.29           $0.36
                                                =====           =====

    Share Data:

    Average shares outstanding -
     Basic                                     38,268          38,030
    Average shares outstanding -
     Diluted                                   43,278          42,516
    ============================               ======          ======


    Consolidated Statements of
     Operations                                           Twelve Months Ended
    --------------------------                                  May 31,
    (In thousands except per share
     data)
                                                             2010        2009
                                                             ----        ----

    Sales                                   $1,352,151             $1,423,976
    Cost and expenses:
         Cost of sales                       1,108,632              1,151,228
         Cost of sales - impairment
          charges                                  ---                 31,133
         Selling, general and
          administrative                       153,299                147,219

    Earnings (loss) from aircraft
     joint ventures                                112                  8,496
                                                   ---                  -----

    Operating income                            90,332                102,892

    Gain (loss) on extinguishment of
     debt                                          893                 14,701

    Interest expense                            26,832                 31,416
    Interest income                                945                  1,465
    Gain (loss) on sale of
     investments                                (1,150)                (1,393)
                                                ------                 ------

    Income from continuing operations
     before income taxes                        64,188                 86,249
    Income tax expense                          20,986                 27,528
                                                ------                 ------
    Income from continuing operations           43,202                 58,721

    Discontinued operations, net of
     tax                                           ---                 (1,949)
                                                   ---                 ------
    Net income attributable to AAR
     and noncontrolling interest
                                                43,202                 56,772
    Loss attributable to
     noncontrolling interest                     1,426                    ---
                                                 -----                    ---
    Net income attributable to AAR             $44,628                $56,772
                                               =======                =======
    Earnings per share - Basic:
         Earnings from continuing
          operations                             $1.17                  $1.54
         Loss from discontinued operations         ---                  (0.05)
                                                   ---                  -----
         Earnings per share - Basic              $1.17                  $1.49
                                                 =====                  =====

    Earnings per share - Diluted:
         Earnings from continuing
          operations                             $1.16                  $1.50
         Loss from discontinued operations         ---                  (0.05)
                                                   ---                  -----
         Earnings per share - Diluted            $1.16                  $1.45
                                                 =====                  =====

    Share Data:

    Average shares outstanding -
     Basic                                      38,182                 38,059
    Average shares outstanding -
     Diluted                                    43,091                 42,809
    ============================                ======                 ======


    Consolidated Balance Sheet
     Highlights                          May 31,          May 31,
    --------------------------           -------          -------
    (In thousands except per share
     data)                                    2010             2009
                                              ----             ----

    Cash and cash equivalents              $79,370         $112,505
    Current assets                         863,429          851,312
    Current liabilities (excluding
     debt accounts)                        224,717          190,818
    Net property, plant and
     equipment                             224,866          125,048
    Total assets                         1,501,042        1,375,905
    Total recourse debt                    419,733          353,028
    Total non-recourse obligations          17,292           38,781
    Stockholders' equity                   746,350          696,734
    Book value per share                    $18.90           $17.92
    Shares outstanding                      39,484           38,884



    Sales By Business
     Segment                Three Months Ended        Twelve Months Ended
    -----------------             May 31,                   May 31,
    (In thousands)                -------                   -------
                               2010         2009       2010          2009
                                  -         ----          -          ----
    Aviation Supply Chain  $103,268     $114,053   $405,955      $468,085
    Government and Defense
     Services                80,510       44,190    194,944       174,391
    Maintenance, Repair &
     Overhaul                79,669       96,615    301,348       348,810
    Structures and Systems  108,890      116,850    449,904       432,690
                            -------      -------    -------       -------
                           $372,337     $371,708 $1,352,151    $1,423,976
                           ========     ======== ==========    ==========



    Gross Profit by Business
     Segment                 Three Months Ended      Twelve Months Ended
    ------------------------       May 31,                 May 31,
    (In thousands)                 -------                 -------
                                2010         2009     2010          2009
                                   -         ----        -          ----
    Aviation Supply Chain    $17,100      $18,246  $70,490       $84,243
    Government and Defense
     Services                 16,944        9,267   42,304        39,507
    Maintenance, Repair &
     Overhaul                 10,607       14,373   38,206        51,281
    Structures and Systems    22,060       19,157   92,519        66,584
                              ------       ------   ------        ------
                             $66,711      $61,043 $243,519      $241,615
                             =======      ======= ========      ========



    Diluted Earnings Per Share
     Calculation                 Three Months Ended    Twelve Months Ended
    --------------------------   ------------------    -------------------
    (In thousands except per
     share data)                      May 31,                May 31,
                                      -------                -------
                                      2010      2009    2010  2009
                                      ----      ----    ----  ----

    Net income as reported     $11,200       $14,176 $44,628         $56,772
    Add: After-tax interest on
     convertible debt            1,349         1,321   5,274           5,428
    Net income for diluted EPS
     calculation               $12,549       $15,497 $49,902         $62,200
                               =======       ======= =======         =======

    Diluted shares outstanding  43,278        42,516  43,091          42,809

    Diluted earnings per share   $0.29         $0.36   $1.16           $1.45
                                 =====         =====   =====           =====



The following information includes sales and gross profit by segment under the new reporting structure for each quarter in fiscal year 2010 and 2009.

    Fiscal Year 2010
    Sales by Business
     Segment                    Q1       Q2       Q3       Q4    Full Year
                                ---      ---      ---     ---    ---------

    Aviation Supply Chain    $110,637 $102,159  $89,891 $103,268   $405,955
    Government & Defense
     Services                  36,743   39,329   38,362   80,510    194,944
    Maintenance, Repair &
     Overhaul                  79,217   71,805   70,657   79,669    301,348
    Structures & Systems      114,926  115,391  110,697  108,890    449,904
                              -------  -------  -------  -------    -------
                             $341,523 $328,684 $309,607 $372,337 $1,352,151
                             ======== ======== ======== ======== ==========


    Gross Profit by Business
     Segment                    Q1       Q2       Q3       Q4    Full Year
                                ---      ---      ---     ---    ---------

    Aviation Supply Chain     $15,965  $21,850  $15,575  $17,100    $70,490
    Government & Defense
     Services                   7,705    8,450    9,205   16,944     42,304
    Maintenance, Repair &
     Overhaul                  10,539    8,577    8,483   10,607     38,206
    Structures & Systems       19,814   24,983   25,662   22,060     92,519
                               ------   ------   ------   ------     ------
                              $54,023  $63,860  $58,925  $66,711   $243,519
                              =======  =======  =======  =======   ========


    Fiscal Year 2009
    Sales by Business
     Segment                    Q1       Q2       Q3       Q4    Full Year
                                ---      ---      ---     ---    ---------

    Aviation Supply Chain    $126,296 $117,739 $109,997 $114,053   $468,085
    Government & Defense
     Services                  43,856   46,822   39,523   44,190    174,391
    Maintenance, Repair &
     Overhaul                  86,757   88,101   77,337   96,615    348,810
    Structures & Systems      102,995  100,910  111,935  116,850    432,690
                              -------  -------  -------  -------    -------
                             $359,904 $353,572 $338,792 $371,708 $1,423,976
                             ======== ======== ======== ======== ==========


    Gross Profit by Business
     Segment                    Q1       Q2       Q3       Q4    Full Year
                                ---      ---      ---     ---    ---------

    Aviation Supply Chain     $29,582   $8,362  $28,053  $18,246    $84,243
    Government & Defense
     Services                   9,612   11,129    9,499    9,267     39,507
    Maintenance, Repair &
     Overhaul                  12,574   13,486   10,848   14,373     51,281
    Structures & Systems       15,370   15,832   16,225   19,157     66,584
                               ------   ------   ------   ------     ------
                              $67,138  $48,809  $64,625  $61,043   $241,615
                              =======  =======  =======  =======   ========

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