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What changed in AAR CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of AAR CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+391 added−287 removedSource: 10-K (2024-07-19) vs 10-K (2023-07-18)

Top changes in AAR CORP's 2024 10-K

391 paragraphs added · 287 removed · 187 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

61 edited+43 added−29 removed16 unchanged
Biggest changeWe sell and lease a wide variety of new, overhauled and repaired engine and airframe parts and components and aircraft to our commercial aviation and government/defense customers. We provide customized flight hour component inventory and repair programs, warranty claim management, and outsourcing programs for engine and airframe parts and components in support of our airline and government customers’ maintenance activities.
Biggest changeFlight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components including warranty claim management in support of our airline customers’ maintenance activities. Our integrated software solutions are primarily comprised of our Trax software which we recently acquired in fiscal 2023.
Available Information For additional information concerning our business segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business Segment Information” in Note 16 of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Our internet address is www.aarcorp.com.
Available Information For additional information concerning our business segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business Segment Information” in Note 17 of Notes to Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.” Our internet address is www.aarcorp.com.
Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs. The Trax acquisition adds established, higher-margin aviation aftermarket software offerings with recurring revenue to our portfolio and provides opportunities to cross-sell products and services.
Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs. The Trax acquisition added established, higher-margin aviation aftermarket software offerings with recurring revenue to our portfolio and provides opportunities to cross-sell products and services.
Sales to government and defense customers are reported in each of our operating segments (See Note 16 of Notes to Consolidated Financial Statements). Since such sales are subject to competitive bidding and government funding, no assurance can be given that such sales will continue at levels previously experienced.
Sales to government and defense customers are reported in each of our operating segments (See Note 17 of Notes to Consolidated Financial Statements). Since such sales are subject to competitive bidding and government funding, no assurance can be given that such sales will continue at levels previously experienced.
Backlog includes our remaining performance obligations based on the transaction price of firm orders for which work has not yet been performed as of May 31, 2023 and excludes unexercised contract options and potential orders under contracts such as ID/IQ contracts.
Backlog includes our remaining performance obligations based on the transaction price of firm orders for which work has not yet been performed as of May 31, 2024 and excludes unexercised contract options and potential orders under contracts such as ID/IQ contracts.
Prior to USG, Ms. Garascia was an attorney for the Museum of Science and Industry and the law firm of Jenner & Block. Mr. Jessup is Senior Vice President, Chief Commercial Officer Vice President, Chief Commercial Officer, having served in that capacity since June 2017. Mr.
Prior to USG Corporation, Ms. Garascia was an attorney for the Museum of Science and Industry and the law firm of Jenner & Block LLP. Mr. Jessup is Senior Vice President, Chief Commercial Officer, having served in that capacity since June 2017. Mr.
We make available free of charge through our web site our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.
We make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.
The FAA requires that various maintenance routines be performed on aircraft engines, certain engine parts, and airframes at regular intervals based on take off and landing cycles or flight time. Our businesses, which sell defense products and services directly to the U.S. government or through its contractors, can be subject to various laws and regulations governing pricing and other factors.
The FAA requires that various maintenance routines be performed on aircraft engines, certain engine parts, and airframes at regular intervals based on takeoff and landing cycles or flight time. Our businesses, which sell defense products and services directly to the U.S. government or through its contractors, can be subject to various laws and regulations governing pricing and other factors.
Patterson is Senior Vice President, Chief Human Resources Officer, having served in that capacity since February 2023. Prior to joining the Company, from June 2006 through February 2023, Ms. Patterson served in positions of increasing responsibility for Accenture, most recently as Managing Director in their Operations business leading Global HR Operations for Accenture. Prior to Accenture, Ms.
Patterson is Senior Vice President, Chief Human Resources Officer, having served in that capacity since February 2023. Prior to joining the Company, from June 2006 through February 2023, Ms. Patterson served in positions of increasing responsibility for Accenture, a professional services company, most recently as Managing Director in their Operations business leading Global HR Operations for Accenture.
Patterson spent ten years in client service delivery with Aon and Arthur Andersen. Each executive officer is elected annually by the Board of Directors. Executive officers continue to hold office until their successors are duly elected or until their death, resignation, termination or reassignment. ​
Prior to Accenture, Ms. Patterson spent ten years in client service delivery with Aon and Arthur Andersen. Each executive officer is elected annually by the Board of Directors. Executive officers continue to hold office until their successors are duly elected or until their death, resignation, termination or reassignment. ​
Such certificates, which are ongoing in duration, are required for us to perform authorized maintenance, repair, and overhaul services for our customers and are subject to revocation by the government for non-compliance with applicable regulations. All of the certificated repair stations are in the Aviation Services segment.
Such certificates, which are ongoing in duration, are required for us to perform authorized maintenance, repair, and overhaul services for our customers and are subject to revocation by the government for non-compliance with applicable regulations. All of the certificated repair stations are within the Repair & Engineering segment.
We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance. We maintain comprehensive safety programs focused on identifying hazards and eliminating risks that can lead to severe injuries.
We are also committed to engaging our employees to continually improve health and safety by acting upon opportunities to reduce risk and improve our safety and health performance. We maintain comprehensive safety programs focused on identifying hazards, reducing quality escapes and eliminating risks that can lead to severe injuries.
We purchase raw materials for our manufacturing operations, including steel, aluminum, extrusions, balsa, and other necessary supplies from several vendors. Where necessary, we have been able to obtain raw materials and other inventory items from numerous sources for each segment at competitive prices, terms, and conditions, and we expect to be able to continue to do so.
We purchase raw materials for our Expeditionary Services manufacturing operations, including steel, aluminum, extrusions, balsa, and other necessary supplies from several vendors. Where necessary, we have been able to obtain raw materials and other inventory items from numerous sources at competitive prices, terms, and conditions, and we expect to be able to continue to do so.
We are proud to lead the way. Our custom-built Eagle Career Pathway program is helping us build the next generation labor force, hire from untapped talent pools and enable easy transition from military service. We are also proud to partner with Choose Aerospace, a 501(c)(3) nonprofit, to create a general aviation curriculum based on FAA standards.
Our custom-built EAGLE Career Pathway program is helping AAR build the next generation labor force, hire from untapped talent pools, and enable smooth transition from military service. We are also proud to partner with Choose Aerospace, a 501(c)(3) nonprofit, to create a general aviation curriculum based on FAA standards.
We also retained approximately 500 contract workers as of May 31, 2023, the majority of whom are located at 6 Table of Contents our airframe maintenance facilities. We retain these contract workers as they provide unique skill sets which are necessary at certain facilities as well as mitigate the impact of demand variability with our customers.
We also retained approximately 500 contract workers as of May 31, 2024, the majority of whom are located at our airframe maintenance facilities. We retain these contract workers as they provide unique skill sets which are necessary at certain facilities as well as mitigate the impact of demand variability with our customers.
We are also an authorized distributor for more than 30 product lines, which include parts from over 300 Federal Supply Class codes sourced from over 20 leading aviation original equipment manufacturers (“OEM”s). We also have an interest in a joint venture supporting the distribution of OEM parts to customers in Asia.
We are an authorized distributor for more than 30 product lines, which include parts from over 300 Federal Supply Class codes sourced from over 20 leading OEMs. We also have an interest in a joint venture supporting the distribution of OEM parts to customers in Asia.
The majority of our U.S. government sales are for products and services supporting DoS flight operations and DoD logistics and mobility strategy. Thus, our government contracts have changed, and may continue to change, with fluctuations in defense and other governmental agency spending and requirements. 5 Table of Contents For example, the U.S. Government decided to withdraw its U.S.
The majority of our U.S. government sales are for products and services supporting DoS flight operations and DoD logistics and mobility strategy. Thus, our government contracts have changed, and may continue to change, with fluctuations in defense and other governmental agency spending and requirements.
Government Regulation and Certificates The Federal Aviation Administration (“FAA”) regulates the manufacture, repair, and operation of all aircraft and aircraft parts operated in the United States. Similar rules and regulatory authorities exist in other countries.
Government Regulation and Certificates The FAA regulates the manufacture, repair, and operation of all aircraft and aircraft parts operated in the United States. Similar rules and regulatory authorities exist in other countries.
Sales to branches, agencies, and departments of the U.S. government and their contractors were $577.0 million (29.0% of consolidated sales), $620.0 million (34.1% of consolidated sales) and $738.8 million (44.7% of consolidated sales) in fiscal 2023, 2022, and 2021, respectively.
Sales to branches, agencies, and departments of the U.S. government and their contractors were $576.1 million (24.8% of consolidated sales), $577.0 million (29.0% of consolidated sales), and $620.0 million (34.1% of consolidated sales) in fiscal 2024, 2023, and 2022, respectively.
Pachapa ​ 50 ​ Vice President, Controller and Chief Accounting Officer Tracey Patterson ​ 48 ​ Senior Vice President, Chief Human Resources Officer ​ 8 Table of Contents Mr. Holmes is Chairman, President and Chief Executive Officer, having served in that capacity since January 2023. Prior to that he served as President and Chief Executive Officer since June 2018.
Pachapa ​ 51 ​ Vice President, Controller and Chief Accounting Officer Tracey Patterson ​ 49 ​ Senior Vice President, Chief Human Resources Officer ​ Mr. Holmes is Chairman, President and Chief Executive Officer, having served in that capacity since January 2023. Prior to that he served as President and Chief Executive Officer since June 2018.
Sales to Government and Defense Customers Sales to global government and defense customers (including sales to branches, agencies, and departments of the U.S. government) were $661.7 million (33.2% of consolidated sales), $736.2 million (40.5% of consolidated sales) and $845.9 million (51.2% of consolidated sales) in fiscal 2023, 2022 and 2021, respectively.
Sales to Government and Defense Customers Sales to global government and defense customers (including sales to branches, agencies, and departments of the U.S. government) were $681.0 million (29.4% of consolidated sales), $661.7 million (33.2% of consolidated sales), and $736.2 million (40.5% of consolidated sales) in fiscal 2024, 2023 and 2022, respectively.
Some of our facilities have fitness centers on site for employees to use. Diversity, Inclusion and Engagement We are an equal opportunity employer and recognize the value of an inclusive workforce. We believe that diversity and inclusivity empowers us to live our core values, and to be more innovative and focused on embracing new ideas for an ever-changing world.
Diversity, Inclusion and Engagement We are an equal opportunity employer and recognize the value of an inclusive workforce. We believe that diversity and inclusivity empower us to live our core values, to be more innovative, and to focus on embracing new ideas for an ever-changing world.
We launched a corporatewide Safety and Management System (“SMS”), making us the first independent third-party MRO organization to implement this FAA recognized program. Our corporate SMS provides a single platform for all employees to proactively identify and report hazards, perform risk analysis, mitigate risks and share best practices. Competitive Pay and Benefits We focus on paying our employees competitively.
We are the first independent third-party MRO organization to implement a corporatewide Safety and Management System (“SMS”) program that is recognized by the FAA. Our corporate SMS provides a single platform for all employees to proactively identify and report hazards, perform risk analysis, mitigate risks, and share best practices.
We have nine FAA certificated repair stations in the United States, Canada, and Europe. Of the nine certificated FAA repair stations, seven are also European Aviation Safety Agency (“EASA”) and three are also Transport Canada Civil Aviation (“TCCA”) certificated repair stations.
We have thirteen FAA certificated repair stations across the United States, Canada, Asia, and Europe. Of the thirteen FAA certificated repair stations, twelve are also European Aviation Safety Agency (“EASA”) and four are also Transport Canada Civil Aviation (“TCCA”) certificated repair stations.
Our people are at the center of our business. We care about the experience they have with us and the impact we collectively have in our community. Our human capital management strategy is centered on a purposeful culture, proactive career development and an inspiring employee experience.
To achieve this objective, our goal is to be the place of choice for people to build an inspiring career. We care about the experience our employees have with us and the impact we collectively have in our community. Our human capital management strategy is centered on a purposeful culture, proactive career development, and an inspiring employee experience.
Gillen ​ 37 ​ Senior Vice President and Chief Financial Officer Jessica A. Garascia ​ 44 ​ Senior Vice President, General Counsel, Chief Administrative Officer and Secretary Chris Jessup ​ 45 ​ Senior Vice President, Chief Commercial Officer Eric S.
Holmes ​ 47 ​ Chairman, President, and Chief Executive Officer, Director Sean M. Gillen ​ 38 ​ Senior Vice President and Chief Financial Officer Jessica A. Garascia ​ 45 ​ Senior Vice President, General Counsel, Chief Administrative Officer and Secretary Chris Jessup ​ 46 ​ Senior Vice President, Chief Commercial Officer Eric S.
Although certain of our competitors have substantially greater financial and other resources than we do, we believe that we have maintained a satisfactory competitive position through our responsiveness to customer needs, our attention to quality, and our unique combination of market expertise and technical and financial capabilities.
Although certain of our competitors have substantially greater financial and other resources than we do, we believe that we have maintained a satisfactory competitive position through our responsiveness to customer needs, our attention to safety and quality, our unique portfolio of high-quality solutions with lower cost to the customer, combination of market expertise and deep technical knowledge, our long-standing customer relationships, and our integrated, connected business model.
Customers The principal customers for our products and services in the Aviation Services segment are domestic and foreign passenger airlines, domestic and foreign cargo airlines, regional and commuter airlines, business and general aviation operators, OEMs, aircraft leasing companies, aftermarket aviation support companies, the DoD and its contractors, the DoS, and foreign military organizations or governments.
Certain inventory supply and management and performance-based logistics program agreements reflect negotiated terms and conditions. 5 Table of Contents Customers The principal customers for our products and services are domestic and foreign passenger airlines, domestic and foreign cargo airlines, regional and commuter airlines, business and general aviation operators, OEMs, aircraft leasing companies, aftermarket aviation support companies, the DoD and its contractors, the DoS, and foreign military organizations or governments.
The Code describes what is appropriate behavior and guides ethical business decisions that maintain a commitment to integrity. Failure to comply with the Code and applicable laws can have severe consequences for both us and individuals involved, including disciplinary action, civil penalties or criminal prosecution under certain circumstances.
Failure to comply with the Code and applicable laws can have severe consequences for both the Company and individuals involved, including disciplinary action, civil penalties, or criminal prosecution under certain circumstances.
ITEM 1. BUSINESS General AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our” unless the context indicates otherwise. AAR was founded in 1951, organized in 1955 and reincorporated in Delaware in 1966. We are a diversified provider of products and services to the worldwide aviation and government and defense markets.
ITEM 1. BUSINESS General AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our” unless the context indicates otherwise. AAR was incorporated in 1955 and we are a leading independent provider of solutions to the global aviation aftermarket. We offer a broad line of products and services to commercial and government aerospace customers.
We provide major airframe inspection, maintenance, repair and overhaul, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment, and engineering services and support for many types of commercial and military aircraft. We also repair and overhaul various components, landing gears, wheels, and brakes for commercial and military aircraft.
Our airframe maintenance services are primarily comprised of major airframe inspection, MRO, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment and engineering services and support for many types of commercial and military aircraft. Component repair services are primarily comprised of MRO services for structural components, engine and airframe accessories, and interior refurbishment.
Borrowings outstanding under the Revolving Credit Facility were $272.0 million at May 31, 2023 with an availability on the facility of $336.9 million. Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
These changes will be initially reflected in our condensed consolidated financial statements for the quarterly period ended August 31, 2023 and are not reflected herein. 4 Table of Contents Raw Materials and Procurement of Repair and Other Services Although we generated approximately 60% of our fiscal 2023 sales from the sale of products, we are generally engaged in only limited manufacturing activities and have minimal exposure to fluctuations in both the availability and pricing of raw materials.
Raw Materials and Procurement of Repair and Other Services Although we generated approximately 60% of our fiscal 2024 sales from the sale of products, we are generally engaged in only limited manufacturing activities and have minimal exposure to fluctuations in both the availability and pricing of raw materials.
We provide fleet management and operations of customer-owned aircraft for the U.S. Department of State (“DoS”) under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018. Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft.
The Integrated Solutions segment accounted for approximately 28% of our sales in fiscal 2024. Fleet management and operations of customer-owned aircraft is performed for the DoS under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018.
Our government contracts may extend several years and include one or more base years and one or more option years. The government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, or modify some contracts at its convenience.
The government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, or modify some contracts at its convenience. The majority of our product sales are made pursuant to standard commercial purchase orders.
Our employees provide the foundation for our ability to achieve our strategic objectives. They are instrumental in driving operational execution and strong financial performance and maintaining a strong quality and compliance program.
Our employees provide the foundation for our ability to achieve our strategic objectives. They are instrumental in driving operational excellence and strong financial performance and maintaining a robust safety, quality and compliance program. The success and growth of our business depends on our ability to attract, retain, and develop talented and high-performing employees at all levels of our organization.
We believe a safe and secure workplace is fundamental and important to our success and we are committed to providing a safe and healthy workplace, and complying with applicable safety and health laws, regulations and internal requirements.
Our Board of Directors includes an Aviation Safety and Training Committee that oversees safety and training matters as well as our culture of safety compliance. We believe a safe and healthy workplace is fundamental to our success, and we are committed to complying with applicable safety and health laws, regulations, and internal requirements.
Business Ethics Our Code of Conduct (“Code”) is a statement of the principles and standards that we expect our employees to follow. Each officer, director and employee is required to use good ethical judgement when conducting business and comply with applicable laws, rules and regulations.
Each officer, director and employee is required to use good ethical judgement when conducting business and comply with applicable laws, rules, and regulations. The Code describes appropriate behavior and guides ethical business decisions that maintain a commitment to integrity.
Some of our contracts call for the performance of specified services or the delivery of specified products under ID/IQ arrangements, however, the majority of our products and services are procured via definite contracts.
Some of our contracts call for the performance of specified services or the delivery of specified products under indefinite delivery/indefinite quantity (“ID/IQ”) arrangements.
The retirement, investment, and tax savings/deferral opportunities offered to employees include competitive 401k benefits and an Employee Stock Purchase Plan. Employees are eligible for paid and unpaid leaves and, in addition, we offer a variety of other benefits to meet the needs of employees including an employee assistance program which provides some free counseling sessions, educational assistance and adoption assistance.
Employees are eligible for paid and unpaid leaves, and we offer a variety of other benefits to meet the needs of employees, including an employee assistance program that provides a series of free counseling sessions, educational assistance and adoption assistance. Some AAR facilities also have fitness centers on site for employee use.
Competition Competition in each of our markets is based on quality, ability to provide a broad range of products and services, speed of delivery, and price. Competitors in our Aviation Services segment include OEMs, the service divisions of large commercial airlines, and other independent suppliers of parts, repair, and overhaul services to the commercial and defense markets.
Aviation competitors include OEMs, the service divisions of large commercial airlines, and other independent suppliers of parts, repair, and overhaul services to the commercial and defense markets. Our Expeditionary Services segment competes with a number of divisions of large corporations and other large and small companies.
Human Capital Resources As of May 31, 2023, we employed approximately 5,000 employees worldwide, with approximately 3,850 employees in the U.S. and approximately 1,150 employees outside of the U.S. The numbers are inclusive of approximately 100 U.S. employees from our recent Trax acquisition.
Human Capital Resources As of May 31, 2024, we employed approximately 5,700 employees worldwide, with 4,125 employees in the United States and 1,575 employees outside of the United States. The numbers are inclusive of our employees from Trax acquired on March 20, 2023, and the Product Support business acquired on March 1, 2024.
Due to the success of this program, we have expanded our Fellowship program in calendar 2023 to include two Indianapolis, Indiana colleges. Talent Development Our continued success depends on a workforce of skilled talent. Attracting people to join us and retaining that workforce requires collaboration across industry, education, and government to develop pathways for future talent.
After graduation, Fellows in good standing are guaranteed employment with AAR. ​ 8 Table of Contents Talent Development Our continued success depends on a workforce of skilled talent. Attracting people to join us and retaining that workforce requires collaboration across industry, education, and government to develop pathways for future talent. We are proud to lead the way.
As we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets. 2 Table of Contents Business Segments Aviation Services The Aviation Services segment provides aftermarket support and services for the commercial aviation and government and defense markets and accounted for approximately 95% of our sales in fiscal 2023, 2022, and 2021.
As we continue to invest in the pipeline of opportunities in the government market, our long-term strategy continues to emphasize investing in the business and capitalizing on opportunities in both the commercial and government markets. 2 Table of Contents Business Segments During the first quarter of fiscal 2024, we re-aligned our operating segments resulting in the separation of our former Aviation Services segment into three new operating segments: Parts Supply, Repair & Engineering, and Integrated Solutions.
Sales in this segment are generally made to customers pursuant to standard commercial purchase orders and contracts. Government sales are generally made under standard types of government contracts, which can include firm fixed-price contracts, cost plus fixed fee contracts, and time-and-materials contracts.
Government sales are generally made under standard types of government contracts, which can include firm fixed-price contracts, cost plus fixed fee contracts, and time-and-materials contracts. For cost plus fixed fee contracts, we typically receive reimbursement of our costs, to the extent the costs are allowable under contractual and regulatory provisions, in addition to receiving a fixed fee.
Business activities in this segment are primarily conducted through AAR Supply Chain, Inc.; AAR Government Services, Inc.; AAR Aircraft & Engine Sales & Leasing, Inc.; AAR Aircraft Services, Inc.; AAR Allen Services, Inc.; AAR Landing Gear LLC; AAR International, Inc.; Trax USA CORP.; and AAR Airlift Group, Inc.
Our business activities in this segment are primarily conducted through AAR Supply Chain, Inc.; AAR Government Services, Inc.; AAR Aircraft Services, Inc.; AAR Landing Gear LLC; AAR International, Inc.; Trax USA CORP.; and AAR Airlift Group, Inc. 4 Table of Contents Expeditionary Services The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations.
AAR’s Fellowship Program provides recipients tuition assistance and the opportunity to work at one of our MRO facilities while completing their Airframe and Powerplant program at a partner college. After graduation, fellows in good standing are guaranteed employment with us.
We are continually seeking out new ways to broaden our exposure to underrepresented groups in the aviation industry and to do our part to develop talent globally. AAR’s Fellowship Program provides recipients tuition assistance and the opportunity to work at one of our airframe maintenance facilities while completing their Airframe and Powerplant program at a partner college.
Business activities in this segment are primarily conducted through AAR Manufacturing, Inc. and Brown International Corporation. We design, manufacture, and repair transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities.
The Expeditionary Services segment accounted for approximately 3% of our sales in fiscal 2024. We design, manufacture, and repair transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities.
At May 31, 2023, our firm backlog was approximately $740 million, and we expect that approximately 45% of this backlog will be recognized as revenue over the next 12 months and approximately 75% will be recognized as revenue over the next three years.
At May 31, 2024, our firm backlog was approximately $668 million, and we expect that approximately 50% of this backlog will be recognized as revenue in fiscal 2025, an additional 28% of the firm backlog in fiscal 2026, and the balance thereafter.
Information contained on our web site is not a part of this report. Information about our Executive Officers Information concerning each of our executive officers is set forth below: ​ ​ ​ ​ ​ Name Age Present Position with the Company John M. Holmes ​ 46 ​ Chairman, President, and Chief Executive Officer, Director Sean M.
Information contained on our website is not, and will not be deemed to be, a part of this Annual Report on Form 10-K or incorporated by reference into our other filings with the Securities and Exchange Commission. 9 Table of Contents Information about our Executive Officers Information concerning each of our executive officers is set forth below: ​ ​ ​ ​ ​ Name Age Present Position with the Company John M.
Department of Defense (“DoD”) and foreign governments, flight hour component inventory and repair programs for commercial airlines, and integrated software solutions including Trax; and ● Expeditionary Services, primarily consisting of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations.
Integrated Solutions Our Integrated Solutions segment primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (“DoD”) and foreign governments, flight hour component inventory and repair programs for commercial airlines and integrated software solutions including Trax.
We offer health benefits which include various medical/pharmacy/dental plan options as well as a cost comparison tool to assist employees with their decisions. Health savings accounts for those in a high deductible health plan and flexible spending accounts for both health care and dependent care are also available to employees.
Providing comprehensive, competitive, and affordable benefits is important to our talent attraction and retention strategy. We offer health benefits that include various medical/pharmacy/dental plan options as well as a cost comparison tool to assist employees with their decisions.
From time to time, we purchase airframes and engines for resale or disassembly into individual parts and components. Airframes and engines may also be leased to airlines by us or through joint ventures on a short-term basis prior to disassembly or sale.
Airframes and engines may also be leased to airlines by us or through joint ventures on a short-term basis prior to disassembly or sale. Terms of Sale We generally sell our products and services under standard 30-day payment terms. On occasion, certain customers will negotiate extended payment terms of 60-90 days.
We have established company-wide Employee Resource Groups (“ERGs”) where employees can foster connections and develop in a supportive environment.
We have established companywide Employee Resource Groups (“ERGs”) for employees to foster connections and develop in a supportive environment. Our ERGs also create pipelines for the recruitment and development of diverse talent throughout the organization.
We have ongoing arrangements with OEMs that provide us access to parts, repair manuals, and service bulletins in support of parts manufactured by them. Although the terms of each arrangement vary, they typically are made on standard OEM terms as to duration, price, and delivery.
To support our aviation activities, we acquire parts and components from domestic and foreign airlines, independent aviation service companies, aircraft leasing companies, and OEMs. We have ongoing arrangements with OEMs that provide us access to parts, repair manuals, and service bulletins in support of parts manufactured by them.
The types of services provided under these programs include some or all of the following functions: material planning, sourcing, logistics, information and program management, and parts and component repair and overhaul.
Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft. Supply chain logistics programs are primarily comprised of material planning, sourcing, logistics, information and program management and parts and component repair and overhaul.
We were also awarded a contract from the Norwegian Defence Logistics Organisation to provide commercial common parts for the Royal Norwegian Air Force P-8A fleet. During the fourth quarter of fiscal 2023, we acquired Trax USA Corp. (“Trax”), a leading independent provider of aircraft MRO and fleet management software which was founded in 1999.
During the fourth quarter of fiscal 2023, we acquired Trax USA Corp. (“Trax”), a leading independent provider of aircraft MRO and fleet management software. Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft.
Terms of Sale We generally sell our products and services under standard 30-day payment terms. On occasion, certain customers will negotiate extended payment terms of 60-90 days. Except for customary warranty provisions, customers neither have the right to return products nor do they have the right to extended financing.
Except for customary warranty provisions, customers neither have the right to return products nor do they have the right to extended financing. Our government contracts may extend several years and include one or more base years and one or more option years.
Our U.S. airframe maintenance facilities are in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; and Rockford, Illinois and our Canadian airframe maintenance facilities are in Trois Rivieres, Quebec and Windsor, Ontario. In addition to our North American facilities, we also have an interest in a joint venture which operates an airframe maintenance facility in India.
Our U.S. airframe maintenance facilities are in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; and Rockford, Illinois; and our Canadian airframe maintenance facilities are in Trois Rivières, Quebec and Windsor, Ontario. Our component repair facilities are in Hot Springs, Arkansas; Grand Prairie, Texas; Wellington, Kansas: Chonburi, Thailand; Garden City, New York; and Amsterdam, Netherlands.
The development of our talent is ongoing through Individual Development Plans, assessments, learning and development classes, mentorship programs, and cohort style leadership development programs. We seek to foster a spirit of continuous learning and our workforce has responded with a total of 19,000 hours of professional development since 2019 including 5,000 hours in fiscal 2023.
We strive to foster a spirit of continuous learning, and our workforce has responded with a total of 22,300 hours of professional development since 2019, including 3,300 hours in fiscal 2024. In fiscal 2024, we launched AAR Career Pathways which provides employees with visibility on how to continue growing their career at AAR.
We believe this strategy is important because it helps us ensure workforce engagement, retention and productivity, which sets a foundation for strong business growth. Our human capital strategy includes the components noted below. We are excited that Tracey Patterson has joined AAR as our Chief HR Officer leading our people strategy globally.
We believe this strategy is important because it helps us ensure workforce engagement, retention, and productivity, which enables strong business growth globally. We are proud to be recognized as one of America’s Greatest Workplaces and America’s Greatest Workplaces for Diversity for 2024 by Newsweek. This year we embarked on an ambitious journey to crystallize our Company’s purpose and mission.
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In fiscal 2023, we established new partnerships, expanded our service offerings, and enhanced our approach to safety to best serve our customers across the world. The global recovery in commercial air travel drove an increased demand for our services, enabling us to achieve strong results across our portfolio, particularly in used serviceable material and new parts distribution.
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We operate globally in over 20 countries through four business segments: Parts Supply, Repair & Engineering, Integrated Solutions and Expeditionary Services. In fiscal 2024, we established new partnerships, expanded our service offerings, and drove greater differentiation in our business including pursuing multiple growth prongs.
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Our actions to reduce costs and improve operating efficiency were reflected in our improved profitability during fiscal 2023.
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Throughout the year, the industry saw an increase in the utilization of existing aircraft, which drove greater demand for aircraft maintenance with maintenance, repair and overhaul (“MRO”) spend reaching record levels, and engine reliability issues prompted greater adoption of used serviceable material (“USM”).
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Our sales to commercial customers in fiscal 2023 increased by $245.0 million, or 22.6%, over the prior year reflecting the recovery in commercial air travel following the height of the impact of COVID-19 as well as growth from recently awarded new parts distribution contracts.
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Our services, capabilities, and partnerships were well matched to the landscape of the industry, which enabled us to reach higher sales than ever before. Consolidated sales in fiscal 2024 increased $328.4 million, or 16.5%, over the prior year primarily due to an increase in sales to commercial customers.
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Our sales to government customers in fiscal 2023 decreased by $74.5 million, or 10.1%, from the prior year as we completed certain government programs, including our Afghanistan contracts. We were also successful in winning new long-term agreements in both our commercial and government markets.
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Consolidated sales to commercial customers increased $309.1 million, or 23.3%, over the prior year primarily due to strong demand and volume growth in our Parts Supply segment across both new parts distribution and USM. Our consolidated sales to government customers increased $19.3 million, or 2.9%, primarily due to higher activity on the INL/A WASS contract with the U.S.
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We were awarded a significant expansion of our exclusive agreement with Unison Industries which broadens our distribution of select Unison ignitor plugs, ignition leads, harnesses, and related spare parts. We also extended our distribution relationship with Leach International Corp to supply electromechanical and solid-state switch gears to the electronics end-market.
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Department of State (“DoS”) included in our Integrated Solutions segment. Our growth strategy has long included both inorganic and organic growth. Building on our long-term relationships with valued customers as well as strong local partnerships, we recently broke ground on additional hangars in Miami, Florida and Oklahoma City, Oklahoma.
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In our commercial programs activities, we were awarded a multi-year, flight-hour component support contract with flydubai for their growing Boeing 737 MAX fleet. In our government market, we were awarded a firm-fixed price contract from the U.S. Air Force to produce Next Generation All Aluminum Cargo Pallets with a total contract value, including option periods, of $173.5 million.
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We plan to take advantage of the fixed cost base and strong labor availability in these locations with a target to increase our MRO network capacity by approximately 15% upon completion in fiscal 2026. We were also successful in winning new long-term agreements in our commercial market.
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The acquisition price was $120 million in cash, plus up to a $20 million earn-out payment based on adjusted revenue in calendar year 2023 and 2024. Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft.
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In our Parts Supply segment, we were awarded distribution and supply agreements for both new parts and USM across multiple original equipment manufacturers (“OEMs”) including Woodward, MTU Maintenance, Ontic, and Cebu Pacific. In our commercial programs activities, we were awarded a multi-year, flight-hour component support contract with ASL Airlines.
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During fiscal 2023, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $23.8 million which included significant investments in inventory, rotable assets, and licensing arrangements to support further growth.
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During the fourth quarter of fiscal 2024, we acquired Triumph Group, Inc.’s Product Support business (“Product Support”) for a purchase price of $725.0 million subject to customary post-closing adjustments for cash, working capital and indebtedness.
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In this segment, we also provide inventory management and distribution services, maintenance, repair, and overhaul (“MRO”) services, and engineering services.
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Product Support is a leading global provider of specialized MRO capabilities for critical aircraft components in the commercial and defense markets, providing MRO services for structural components, engine and airframe accessories, interior refurbishment and wheels and brakes. Product Support also designs proprietary designated engineering representative repairs and parts manufacturer approval parts.
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We also provide customized performance-based supply chain logistics programs in support of the U.S. Department of Defense (“DoD”) and foreign governments. The types of services provided under these programs include some or all of the following functions: material planning, sourcing, logistics, information and program management, airframe maintenance and maintenance planning, and component repair and overhaul.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+99 added−25 removed39 unchanged
Biggest changeForeign Corrupt Practices Act, United Kingdom (“UK”) Bribery Act 2010, and other anti-bribery and anti-corruption laws; see Note 17 of Notes to Consolidated Financial Statements for information about certain pending proceedings; ● the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations; ● contract award and funding delays; ● potential restrictions on transfers of funds; ● import and export duties and value added taxes; ● foreign exchange risk; ● transportation delays and interruptions; ● uncertainties arising from foreign local business practices and cultural considerations; and ● changes in U.S. policies on trade relations and trade policy, including implementation of or changes in trade sanctions, tariffs, and embargoes.
Biggest changeForeign Corrupt Practices Act of 1977, as amended (“FCPA”), the United Kingdom Bribery Act 2010, and other anti-bribery and anti-corruption laws (see Note 18 of Notes to Consolidated Financial Statements for information about certain pending proceedings); ● the burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations; ● failure by our employees or agents to comply with U.S. laws affecting the activities of U.S. companies abroad; ● difficulty staffing and managing widespread operations; ● uncertainty of the ability of foreign customers to finance purchases; ● uncertainties and restrictions concerning the availability of funding credit or guarantees; ● contract award and funding delays; ● potential restrictions on transfers of funds; ● imposition of import and export duties, value added taxes, withholding taxes or other taxes on our foreign income; ● fluctuations in currency exchange rates, which may affect demand for our products and services and may adversely affect our profitability in U.S. dollars; ● transportation delays and interruptions; ● uncertainties arising from foreign local business practices and cultural considerations; 16 Table of Contents ● changes in U.S. policies on trade relations and trade policy, including implementation of or changes in trade sanctions (such as those imposed on Russia), tariffs, and embargoes; ● difficulty enforcing agreements and managing litigation risk in certain legal systems outside the U.S.; and ● inability to obtain, maintain or enforce intellectual property rights.
These assumptions include historical sales trends, current and expected usage trends, replacement values, current and expected lease rates, residual values, future demand, and future cash flows.
These assumptions include historical sales trends, current and expected usage trends, replacement values, current and expected sales and lease rates, residual values, future demand, and future cash flows.
A failure of or cyber‐attack on our information systems technology or those of our partners, customers, vendors, or suppliers could adversely affect our ability to process orders, maintain proper levels of inventory, collect accounts receivable and pay expenses; all of which could have an adverse effect on our results of operations, financial condition and cash flows.
A systems or network failure or cyber‐attack on our information systems technology or those of our partners, customers, vendors, or suppliers could adversely affect our ability to process orders, maintain proper levels of inventory, collect accounts receivable and pay expenses; all of which could have an adverse effect on our results of operations, financial condition and cash flows.
In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues and related legislation, including the statutory limit on the amount of permissible federal debt. These issues could negatively affect the timely collection of our U.S. government invoices.
In recent years, U.S. government appropriations have been affected by larger U.S. government budgetary issues, sequestration, and related legislation, including the statutory limit on the amount of permissible federal debt. These issues could negatively affect the timely collection of our U.S. government invoices.
New and more stringent governmental regulations may be adopted in the future that, if enacted, may have an adverse impact on us. If any of our material licenses, certificates, authorizations, or approvals were revoked or suspended by the FAA or equivalent regulatory agencies in other countries, our results of operations and financial condition may be adversely affected.
New and more stringent governmental regulations may be adopted in the future that, if enacted, may have an adverse impact on us. If any of our material licenses, certificates, authorizations, or approvals were revoked or suspended by the FAA or equivalent regulatory agencies in other countries, our results of operations and financial condition may be adversely affected. The U.S.
Claims may arise in the future, and our insurance coverage may not be adequate to protect us in all circumstances. Additionally, we might not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liability claim not covered by adequate insurance could adversely affect our results of operations and financial condition.
Claims may arise in the future, and our insurance coverage may not be adequate to protect us in all circumstances. Additionally, we might not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liability claim not covered by adequate insurance could adversely affect our results of operations and financial condition. ​ ITEM 1B.
We may be impacted by higher labor costs and/or labor shortages due to wage and salary inflationary pressures in the economy, a tightening labor market and increased rates of employee resignations generally throughout the U.S. economy. Employees in certain locations have shown increased interest in unionization.
We are impacted, and may continue to be impacted, by higher labor costs and/or labor shortages due to wage and salary inflationary pressures in the economy, a tightening labor market and increased rates of employee resignations generally throughout the U.S. economy. Employees in certain locations have shown increased interest in unionization.
In addition, certain airlines operate certain new fleet types and/or newer generation aircraft and we may not have contractual arrangements to service these aircraft nor technicians trained and certified to perform the required airframe maintenance, repair, and overhaul activities.
In addition, certain airlines operate certain new fleet types and/or newer generation aircraft and we may not have contractual arrangements to service these aircraft nor technicians trained and certified to perform the required airframe maintenance, repair, and overhaul activities on such aircraft.
The majority of our U.S. government sales is for products and services supporting DoD aircraft sustainment and mobility strategy and DoS flight operations and are, therefore, subject to changes in defense and other governmental agency funding and spending.
The majority of our U.S. government sales is for products and services supporting DoD aircraft sustainment, mobility systems, and DoS flight operations and are, therefore, subject to changes in defense and other governmental agency funding and spending.
Sales to agencies of the U.S. government and their contractors are subject to a number of factors, including the level of troop and personnel deployment worldwide, competitive bidding, U.S. government funding, requirements generated by world events, and budgetary constraints.
Sales to agencies of the U.S. government and their contractors are subject to a number of factors, including the level of troop and personnel deployment worldwide, competitive bidding, U.S. government funding, diplomatic priorities, requirements generated by world events, and budgetary constraints.
Such serious harm can involve, among other things, misuse of our assets, business disruptions, loss of data, unauthorized access to trade secrets and confidential business information, unauthorized access to personal information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, reputational harm, loss of sales, remediation and increased insurance costs, and interference with regulatory compliance.
Such serious harm can involve, among other things, misuse of our assets, business disruptions, loss of data, unauthorized access to trade secrets and confidential business information, unauthorized access to personal information, damage to customer relationships, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, reputational harm, loss of sales, remediation and increased insurance costs, and interference with regulatory compliance.
Even where a bid protest does not result in the loss of an award, the resolution can extend the time until the contract activity can begin, and delay earnings. These competitive pressures, with potential impacts on both our commercial and government business, could adversely affect our results of operations and financial condition.
Even where a bid protest does not result in the loss of an award, the resolution can extend the time until the contract activity can begin, and delay earnings. 15 Table of Contents These competitive pressures, with potential impacts on both our commercial and government business, could adversely affect our results of operations and financial condition.
Security breaches can create system disruptions and shutdowns that could result in disruptions to our operations. We cannot be certain that advances in criminal capabilities, new vulnerabilities or other developments will not compromise or breach the security solutions protecting our information technology, networks and systems.
Security incidents that may lead to breaches can create system disruptions and shutdowns that could result in disruptions to our operations. We cannot be certain that advances in criminal capabilities, new vulnerabilities or other developments will not compromise or breach the security solutions protecting our information technology, networks and systems.
The cost of providing products or services may be adversely affected by increases in the cost of labor, materials, fuel, overhead, and other unknown variants, including manufacturing and other operational 11 Table of Contents inefficiencies and differences between assumptions used by us to price a contract and actual results.
The cost of providing products or services may be adversely affected by increases in the cost of labor, materials, fuel, overhead, and other unknown variants, including manufacturing and other operational inefficiencies and differences between assumptions used by us to price a contract and actual results.
As a result of these and other events, from time to time certain of our customers have filed for bankruptcy protection or ceased operation. The impact of instability in the global financial markets may lead airlines to reduce domestic or international capacity.
As a result of these and other events, from time to time, certain of our customers have filed for bankruptcy protection or ceased operation. The impact of instability in the global financial markets has led, and may in the future lead, airlines to reduce domestic or international capacity.
Whether 15 Table of Contents we make any further repurchases will depend on many factors, including but not limited to our business and financial performance, the business and market conditions at the time, including the price of our shares, and other factors that management considers relevant.
Whether we make any further repurchases will depend on many factors, including but not limited to our business and financial performance, the business and market conditions at the time, including the price of our shares, and other factors that management considers relevant.
If a contracting officer were to impose such a withholding on us or even on a prime contractor where we are the subcontractor, it would 16 Table of Contents increase the risk that we would not be paid in full or paid timely. If future audit adjustments exceed our estimates, our profitability could be adversely affected.
If a contracting officer were to impose such a withholding on us or even on a prime contractor where we are the subcontractor, it would increase the risk that we would not be paid in full or paid timely. If future audit adjustments exceed our estimates, our profitability could be adversely affected.
Revenues at these facilities fluctuate based on demand for maintenance which, in turn, is driven by the number of aircraft operating and the extent of outsourcing of maintenance activities by airlines.
Revenues at our airframe maintenance facilities fluctuate based on demand for maintenance which, in turn, is driven by the number of aircraft operating and the extent of outsourcing of maintenance activities by airlines.
Our systems and technologies, or those of third parties on which we rely, could fail or become unreliable due to equipment failures, software viruses, cyber threats, ransomware attacks, terrorist acts, natural disasters, power failures, political or social unrest, pandemics or other public health issues or other causes.
Our systems and technologies, or those of third parties on which we rely, could fail or become unreliable due to equipment failures, software viruses, cyber threats or cyber incidents, ransomware attacks, employee error or malfeasance, terrorist acts, natural disasters, power or telecommunications failures, political or social unrest, pandemics or other public health issues, or other causes.
Market values for our aviation products fluctuate and we may be unable to recover our costs incurred on engines, rotable components and other aircraft parts. We make a number of assumptions when determining the recoverability of rotable components, engines, and other assets which are on lease, available for lease, or supporting our long-term programs.
Market values for our aviation products fluctuate and we may be unable to recover our costs incurred on engines, rotable components and other aircraft parts. We make a number of assumptions when determining the recoverability of rotable components, engines, and other assets that we sell, lease, make available for lease, or keep to support our long-term programs.
If either the number of aircraft operating or the level of outsourcing of maintenance activities declines, we may not be able to execute our operational and financial plans at our maintenance, repair, and overhaul facilities, which could adversely affect our results of operations and financial condition.
If either the number of aircraft operating or the level of outsourcing of maintenance activities for the aircraft models for which we are authorized to service declines, we may not be able to execute our operational and financial plans at our airframe maintenance facilities, which could adversely affect our results of operations and financial condition.
We recognize revenue on our long-term contracts primarily over time as there is continuous transfer of control to the customer over the duration of the contract as the services are delivered, which generally requires estimates of total costs at completion, fees earned on the contract, or both.
This risk is greater in periods of high inflation. 13 Table of Contents We recognize revenue on our long-term contracts primarily over time as there is continuous transfer of control to the customer over the duration of the contract as the services are delivered, which generally requires estimates of total costs at completion, fees earned on the contract, or both.
Our contracts with the U.S. government and their contractors are typically agreements to provide products and services at a fixed price and have a term of one year or less, frequently subject to extension for one or more additional periods of one year at the option of the government customer.
Our contracts with the U.S. government and their contractors are typically agreements to provide products and services at a fixed price or in some cases, under cost reimbursable terms. These contracts typically have a base term of one year, and frequently subject to extension for one or more additional periods of one year at the option of the government customer.
While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition, or results of operations in the future.
While we believe we have identified and discussed below the material risks affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be material that may adversely affect our business, financial condition, or results of operations in the future. 10 Table of Contents Risks Related to Our Business and Industry We are affected by factors that adversely impact the commercial aviation industry.
The commercial aviation industry is historically cyclical and has been negatively affected in the past by geopolitical events, conflicts and wars, weather related events, natural disasters, pandemics, disruption to fuel and oil production and supply shortages, high fuel and oil prices, environmental concerns (including climate change), lack of capital, cost inflation, and weak economic conditions.
The commercial aviation industry is historically cyclical and has been negatively affected in the past, and could be negatively affected in future periods, by geopolitical events, ongoing conflicts and wars (including between Russia and Ukraine and between Israel and Hamas), terrorism, weather-related events, natural disasters, pandemics, disruption to fuel and oil production and supply shortages, high fuel and oil prices, other supply chain disruptions, labor issues, environmental concerns (including climate change), lack of capital, cost inflation, and weak economic conditions.
Consequently, we are subject to a variety of risks that are specific to international operations, including the following: ● military conflicts, civil strife, and political risks; ● export regulations that could erode profit margins or restrict exports; ● export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others; ● compliance with the U.S.
Consequently, we are subject to a variety of risks that are specific to international operations and investments, including the following: ● military conflicts, civil strife, and political risks; ● geopolitical unrest, war, terrorism and other acts of violence; ● volatility in foreign political, regulatory and economic environments; ● ability to obtain required export licenses or approvals; ● export regulations that could erode profit margins or restrict exports; ● export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the United Kingdom, the European Union and others; ● compliance with the U.S.
Any measures adopted to reduce the potential impact of losses resulting from the risks of doing business internationally, may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all. 13 Table of Contents Acquisitions expose us to risks, including the risk that we may be unable to effectively integrate acquired businesses.
Any measures that we have adopted or may adopt in the future to reduce the potential impact of losses resulting from the risks of doing business internationally may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all.
Our sales to branches, agencies and departments of the U.S. government and their contractors were $577.0 million (29.0% of consolidated sales) in fiscal 2023 (See Note 16 of Notes to Consolidated Financial Statements).
Our sales to branches, agencies and departments of the U.S. government and their contractors were $576.1 million (24.8% of consolidated sales) in fiscal 2024, compared to $577.0 in fiscal 2023, and $620.0 in fiscal 2022 (See Note 17 of Notes to Consolidated Financial Statements).
Our credit agreement prohibits payment of a dividend or repurchase of our stock if a default exists under the agreement. In addition, we have not declared a dividend on our common stock since 2020, and there can be no assurance that we will do so in the foreseeable future.
In addition, we have not declared a dividend on our common stock since 2020, and there can be no assurance that we will do so in the foreseeable future.
In addition, U.S. government programs budgets could be negatively impacted by possible policy changes on defense spending, spending priorities outside defense, reduction in military presence overseas and in general pressure to reduce U.S. defense spending. A significant reduction in defense spending could result in a reduction in the amount of our products and services furnished to the U.S. government.
In addition, U.S. government programs budgets could be negatively impacted by possible policy changes on defense spending, spending priorities outside defense, reduction in military presence overseas and general pressure to reduce DoD and DoS spending.
In addition, acquisitions often require substantial management resources and have the potential to divert our attention from our existing business. For any businesses we may acquire in the future, we may not be able to execute our operational, financial, or integration plans for the acquired businesses, which could adversely affect our results of operations and financial condition.
For any businesses we may acquire in the future, we may not be able to execute our operational, financial, or integration plans for the acquired businesses, which could adversely affect our results of operations and financial condition.
Our business, financial condition, results of operations, and growth rates have been and may continue to be adversely affected by these and other events that impact the aviation industry, including the following: ● deterioration in the financial condition of our existing and potential customers; ● reductions in the need for, or the deferral of, aircraft maintenance and repair services and spare parts support; ● retirement of older generation aircraft, resulting in lower prices for spare parts and services for those aircraft; ● reductions in demand for used aircraft and engines; ● increased in-house maintenance by airlines; ● lack of parts in the marketplace; ● acts of terrorism; ● economic sanctions; ● inflationary pressures and conditions; ● political, social and economic instability and disruptions; ● cost of labor shortages and other changes in labor conditions; ● future outbreaks of infectious diseases; and ● acts of God.
Our business, financial condition, results of operations, and growth rates have been and may continue to be adversely affected by these and other events that impact the aviation industry, including those mentioned elsewhere in this report and the following: ● deterioration in the financial condition of our existing and potential customers; ● reductions in the need for, or the deferral of, aircraft maintenance and repair services and spare parts support; ● retirement of older generation aircraft, resulting in lower prices for spare parts and services for those aircraft; 11 Table of Contents ● reductions in demand for used aircraft and engines; ● increased in-house maintenance by airlines; ● lack of parts in the marketplace; ● world trade policies; ● government-to-government relations; ● acts of terrorism; ● economic sanctions; ● inflationary pressures and conditions; ● political, social and economic instability and disruptions; ● climate change, environmental catastrophes and government regulations implemented to address them; ● environmental and safety-related constraints imposed upon aircraft operations, including airline operators choosing not to outsource MRO services to third-party providers due to safety oversight concerns; ● technological changes; ● cost of labor shortages and other changes in labor conditions; ● future outbreaks of infectious diseases; and ● acts of God.
We use estimates when accounting for long-term contracts and face risks of cost overruns and losses on these contracts. We sell certain of our products and services to our commercial, government, and defense customers under firm contracts providing for fixed unit prices, regardless of costs incurred by us.
We sell certain of our products and services to our commercial, government, and defense customers under firm contracts providing for fixed unit prices, regardless of costs incurred by us.
In the U.S., these laws and regulations include the Federal Acquisition Regulations, Defense Federal Acquisition Regulations, the Truth in Negotiations Act, Cost Accounting Standards, and laws, regulations, and orders restricting the use and dissemination of classified information under the U.S. export control laws and the export of certain products and technical information and safeguarding of contractor information systems.
In the U.S., these laws and regulations include the Federal Acquisition Regulations, Defense Federal Acquisition Regulations, the Truth in Negotiations Act, Cost Accounting Standards, and laws, regulations, and orders restricting the use and dissemination of classified information under the U.S. export control laws and the export of certain products and technical information and safeguarding of contractor information systems. 22 Table of Contents In addition, we are subject to U.S. government inquiries and investigations, including periodic audits of costs that we determine are reimbursable under government contracts.
The market for jet fuel is inherently volatile and is subject to, among other things, changes in government policy on jet fuel production, fluctuations in the global supply of crude oil and disruptions in oil production or delivery caused by hostility in oil-producing areas.
The market for jet fuel is inherently volatile and is subject to, among other things, changes in government policy on jet fuel production, fluctuations in the global supply of crude oil, disruptions in oil production or delivery caused by hostility in oil-producing areas, or potential legislation or strategic initiatives to address climate change by reducing greenhouse gas emissions, creating carbon taxes, or implementing or otherwise participating in cap and trade programs.
We may not be able to fully execute our stock repurchase program and may not otherwise return capital to our stockholders in the foreseeable future. In 2021, we announced a stock repurchase program with authorization to repurchase up to $150 million of our common stock, of which $92.4 million has been repurchased under the program as of May 31, 2023.
In 2021, we announced a stock repurchase program with authorization to repurchase up to $150 million of our common stock, of which $97.5 million has been repurchased under the program as of May 31, 2024.
Additionally, our responses to any union organizing efforts could negatively impact how we are perceived and have adverse effects on our business, including on our financial results.
Additionally, our responses to any union organizing efforts could negatively impact how we are perceived and have adverse effects on our business, including on our financial results. These responses could also expose us to legal risk, causing us to incur costs to defend legal and regulatory actions, potential penalties and restrictions or reputational harm.
Cyber security threats are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to our sensitive information, business e-mail compromises, ransomware attacks, and other electronic security breaches, including at our customers, suppliers, subcontractors, and joint venture partners, that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. 14 Table of Contents A theft, loss, fraudulent use or misuse of customer, stockholder, employee or our proprietary data by cybercrime or otherwise, noncompliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in costs, fines, litigation or regulatory action against us.
Such threats are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to our sensitive information (including that of our customers, suppliers, subcontractors and joint venture partners), business e-mail compromises, ransomware attacks, and other electronic security incidents, including at our customers, suppliers, subcontractors, and joint venture partners, that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data.
If we were required to pay the expenses related to any future environmental claims for which neither indemnification nor insurance coverage were available, these expenses could have an adverse impact on our results of operations and financial condition. 17 Table of Contents Future environmental regulatory developments in the United States and abroad concerning environmental issues, such as climate change, could adversely affect our operations and increase operating costs and, through their impact on our customers, reduce demand for our products and services.
If we were required to pay the expenses related to any future environmental claims for which neither indemnification nor insurance coverage were available, these expenses could have an adverse impact on our results of operations and financial condition.
A failure by one or more of our subcontractors or suppliers to satisfactorily provide on a timely basis the agreed-upon services or supplies may affect our ability to perform our contractual obligations. Deficiencies in the performance of our subcontractors and/or suppliers could result in liquidated damages or our customer terminating our contract for default.
We rely on subcontractors to perform a portion of the services we agree to provide our customers, and our suppliers provide necessary labor, inventory and component parts. A failure by one or more of our subcontractors or suppliers to satisfactorily provide on a timely basis the agreed-upon services or supplies may affect our ability to perform our contractual obligations.
Our operations may be adversely affected by a shortage of skilled personnel or work stoppages. Our business has historically been dependent on educated and skilled aviation mechanics because of the complex nature of many of our products and services. We face competition for management and qualified technical personnel from other companies and organizations.
Our business has historically been dependent on educated and skilled aviation mechanics because of the complex nature of many of our products and services. We face competition for management and qualified technical personnel from other companies and organizations. Furthermore, we have a collective bargaining agreement covering approximately 140 employees in our Expeditionary Services segment (approximately 2.5% of our total workforce).
Although the risks are organized by heading, and each risk is described separately, many of the risks are interrelated.
You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Although the risks are organized by heading, and each risk is described separately, many of the risks are interrelated.
Additionally, we expect to fund repurchases under our stock repurchase program through cash on hand, which may impact our ability to pursue potential strategic opportunities. Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness and there can be no assurance that any stock repurchases will enhance stockholder value.
Although our stock repurchase program is intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s effectiveness and there can be no assurance that any stock repurchases will enhance stockholder value. Our credit agreement prohibits payment of a dividend or repurchase of our stock if a default exists under the agreement.
The markets for our products and services to our commercial, government, and defense customers are highly competitive, and we face competition from a number of sources, both domestic and international. Our competitors include aircraft manufacturers, aircraft component and parts manufacturers, airline and aircraft service companies, other companies providing maintenance, repair and overhaul services, other aircraft spare parts distributors and redistributors.
We operate in highly competitive markets, and competitive pressures may adversely affect us. The markets for our products and services to our commercial, government, and defense customers are highly competitive, and we face competition from a number of sources, both domestic and international.
If our maintenance facilities become unavailable either temporarily or permanently due to our inability to extend our leases on commercial reasonable terms, labor disruptions or circumstances beyond our control, such as geopolitical developments or logistical complications arising from acts of war, cyber-attacks, weather, global climate change, earthquakes or other natural disasters including public health crises, we may be unable to shift such work to other facilities or to make up for lost work.
Our maintenance facilities could become unavailable either temporarily or permanently due to our inability to extend our leases on commercially reasonable terms, labor disruptions at any of our facilities, or other circumstances that may be beyond our control, such as geopolitical developments or logistical complications arising from catastrophic and weather-related events.
In addition, certain of our airline customers have in the past been impacted by tight credit markets, which limited their ability to buy parts, services, engines, and aircraft. 9 Table of Contents A reduction in the operating fleet of aircraft both in the U.S. and abroad will result in reduced demand for parts support and maintenance activities for the type of aircraft affected.
In addition, certain of our airline customers have in the past been impacted by tight credit markets, which limited their ability to buy parts, services, engines, and aircraft. Economic and other factors that adversely affect the aviation industry lead to reduced overall customer demand for our products and services, which decreases our operating income.
The industries in which we participate are constantly undergoing development and change, and it is likely that new products, equipment, and methods of repair and overhaul services will be introduced in the future. We may need to make significant expenditures to purchase new equipment and to train our employees to keep pace with any new technological developments.
The aviation industry is constantly undergoing development and change, and it is likely that new products, equipment, and methods of repair and overhaul services will be introduced in the future.
The precise nature of any such requirements and their applicability to us and our customers are difficult to predict, but the impact to us and the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits. ​ ITEM 1B.
The precise nature of any such requirements and their applicability to us and our customers are difficult to predict, but the impact to us and the aviation industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits. 24 Table of Contents Violations of these laws or regulations by us or by those with whom or through whom we do business could subject us to administrative, civil or criminal investigations and monetary and non-monetary penalties, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.
We have experienced and expect to continue to experience some of these types of cybersecurity threats and incidents, which could be material in the future. The procedures and controls we utilize to monitor and mitigate these threats may not be sufficient to prevent security threats from materializing.
We expect to continue to experience some of these types of cybersecurity threats and incidents, which could be material in the future. We maintain a cybersecurity risk management program to monitor and mitigate cybersecurity threats and an incident response plan for realized threats.
We are subject to significant government regulation and may need to incur significant expenses to comply with new or more stringent governmental regulation. The aviation industry is highly regulated by the FAA in the U.S. and equivalent regulatory agencies in other countries.
The aviation industry is highly regulated by the FAA in the U.S. and equivalent regulatory agencies in other countries.
Our inability to obtain financing on favorable terms could adversely affect our results of operations and financial condition. Our existing debt includes restrictive and/or financial covenants.
Our inability to obtain financing on favorable terms could adversely affect our results of operations and financial condition. Our debt exposes us to certain risks. As of May 31, 2024, we had $997.0 million of total debt outstanding.
Risks Related to Our Business and Industry We are affected by factors that adversely impact the commercial aviation industry. As a provider of products and services to the commercial aviation industry, we are greatly affected by overall economic conditions of that industry.
As a provider of products and services to the commercial aviation industry, we are greatly affected by the overall economic conditions and other trends that affect our customers in that industry, including any decrease in outsourcing by aircraft operators or projected market growth that may not materialize or be sustainable.
The degree to which any future disease outbreaks or public health threats may impact our business, results of operations, financial condition, and liquidity is uncertain and will depend on future developments. Our U.S. government contracts may not continue at present sales levels, which may have a material adverse effect on our financial condition and results of operations.
If we fail to maintain such standards, our reputation, business, financial results, financial condition and stock price may be adversely affected. 12 Table of Contents Our U.S. government contracts may not continue at present sales levels, which may have a material adverse effect on our financial condition and results of operations.
Our failure to comply with these covenants could adversely affect our results of operations and financial condition. Risks Related to Legal and Regulatory Matters If we fail to comply with government procurement laws and regulations, we could lose business and be liable for various penalties or sanctions.
Such transactions could result in us incurring additional debt or issuing additional equity, which could increase the risks described above. Risks Related to Legal and Regulatory Matters If we fail to comply with laws and regulations governing federal contractors, we could lose business and be liable for various penalties or sanctions.
Some of our competitors have substantially greater financial and other resources than we have and others may price their products and services below our selling prices. These competitive markets also create pressure on our ability to hire and retain qualified technicians and other skilled labor needs.
Our competitors include aircraft manufacturers, aircraft component and parts manufacturers, airline and aircraft service companies, other companies providing maintenance, repair and overhaul services, and other aircraft spare parts distributors and redistributors. Some of our competitors have substantially greater financial and other resources than we have, and others may price their products and services below our selling prices.
If our subcontractors or suppliers fail to perform their contractual obligations, our contract profitability and our ability to win new contracts may be adversely affected. We rely on subcontractors to perform a portion of the services we agree to provide our customers, and our suppliers provide necessary inventory and component parts.
Our failure to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance on long-term contracts may reduce our profitability or cause significant losses on programs. If our subcontractors or suppliers fail to perform their contractual obligations, our contract profitability and our ability to win new contracts may be adversely affected.
Pandemics and other disease outbreaks, such as COVID-19, and similar public health threats that may arise in the future, may have a material adverse impact on our business, results of operations, financial condition, and liquidity.
A slowdown in the global economy, or a recession, would negatively impact the commercial aviation industry, and may have a material adverse effect on our business, results of operations, financial condition and liquidity.
Moreover, expenditures incurred in implementing and maintaining cyber security and other procedures and controls could adversely affect our results of operations and financial condition. We may need to make significant capital expenditures to keep pace with technological developments in our industry.
Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition. We may need to make significant capital expenditures to keep pace with technological developments in our industry and we may not be successful in doing so.
A termination for default could expose us to liability and adversely affect our financial performance and our ability to win new contract awards. Success at our airframe maintenance facilities is dependent upon continued outsourcing by the airlines and our ability to maintain our operational footprint. We currently perform airframe maintenance, repair, and overhaul activities at six leased locations.
The success of our Repair & Engineering business segment is dependent upon our ability to manage our operational footprint. We currently perform airframe repair and engineering activities at several of our leased and owned airframe maintenance facilities.
Further, we may not be able to execute our integration plans for Trax and may face diversion of management attention from our existing business, unanticipated costs and risks associated with expanding further into the digital solutions market. Failing to realize the anticipated benefits and difficulties integrating Trax could have a material adverse effect on business, operating results and financial condition.
In addition, we may not be able to manage our growth successfully, which could have a material adverse effect on our overall business, financial condition and results of operations. We may not realize the anticipated benefits from our acquisition of the Product Support business from Triumph Group.
If any of these events were to materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified and could have a material adverse effect on our reputation, operating results, and financial condition.
While the impact of these factors is difficult to predict, any one or more of these factors may have a material adverse effect on our business, financial condition and results of operations.
We have completed acquisitions in the past and we have discussions with third parties regarding acquisitions on a regular basis. Acquisitions involve risks, including difficulties in integrating the operations and personnel, the effects of amortization of any acquired intangible assets and the potential impairment of goodwill, and the potential loss of key employees of the acquired business.
Our acquisition strategy is affected by, and poses a number of challenges and risks as a result of certain factors, including the availability of suitable acquisition candidates, incurrence of expenses, availability of capital, the cost of capital, compliance with debt covenants, consummation of acquisitions on satisfactory terms, obtaining applicable domestic and/or foreign governmental approvals such as antitrust and foreign investment related authorizations, difficulties in integrating the operations and personnel, the effects of amortization of and potential impairments of any acquired intangible assets and the potential impairment of goodwill, and the potential loss of key employees of the acquired business.
Removed
While commercial airline traffic recovered significantly from COVID-19 over the last two years, pandemics, disease outbreaks or similar public health threats, continues to pose a range of risks to our business.
Added
Our sales to commercial customers were $1,637.9 million (71% of consolidated sales) in fiscal 2024.
Removed
The emergence of new variants or diseases, developments in the public health situation, the reimposition of regional or global travel restrictions, and other pandemic-related complications could have a negative impact on our business. 10 Table of Contents Reduced numbers of aircraft flying or flight hours negatively impacts the demand for our aftermarket parts support and maintenance services, and any prolonged reduction in the future could materially and adversely affect our business, operating results, financial condition, and liquidity.
Added
A reduction in the operating fleet or flight activity of aircraft both in the U.S. and abroad in the past has resulted in, and may again result in, reduced demand for parts support and maintenance activities for the type of aircraft affected, which decreases our operating income.
Removed
From the COVID-19 pandemic, some businesses have expanded remote working opportunities and continued to restrict non-essential travel for their employees, which has kept demand for business air travel below pre-pandemic levels.
Added
If any of the customers with whom we do business become insolvent or experience substantial financial difficulties, we may be unable to timely collect amounts owed to us by such customers, and we may not be able to sell the inventory we have purchased for such customers, which may adversely affect our results of operations and financial condition.
Removed
Consumer behavior related to traveling may continue to be negatively impacted by adverse changes in business travel patterns or adverse changes in the perceived or actual economic climate, including declines in income levels and/or loss of wealth resulting from the impact from economic conditions.
Added
The supply chains for our business could also be disrupted by natural disasters, extreme weather events, pandemics, or other public health threats, governmental actions, and legislative or regulatory changes. For example, during the COVID-19 pandemic, our results of operation were materially and adversely impacted due to a steep decline in the numbers of aircraft flying.
Removed
We are unable to predict the extent to which disease outbreaks or other public health threats that may arise in the future may change air travel, which could have a material impact on our business.
Added
Adverse events that occur in the aviation industry generally may adversely affect our reputation, which may adversely affect our business, financial results, financial condition and stock price.
Removed
Future congressional appropriation and authorization of defense spending and the application of sequestration remain marked by significant debate and an uncertain schedule. The federal debt limit continues to be actively debated as plans for long-term national fiscal policy are discussed. The outcome of these debates could have a significant impact on defense spending broadly and programs we support in particular.
Added
As a leading aerospace maintenance company serving most U.S. registered air carriers and operating on a global scale, we face substantial business risks tied directly to the aviation industry’s overall health and stability as outlined above.
Removed
Furthermore, we have a collective bargaining agreement covering approximately 200 employees in our Expeditionary Services segment (approximately 5% of our total workforce).
Added
Any significant adverse events affecting an individual aviation company can create a negative ripple effect across the entire industry, negatively impacting our business, financial results, financial condition and stock price. We operate under the stringent oversight of both domestic and foreign regulatory authorities.
Removed
These responses could also expose us to legal risk, causing us to incur costs to defend legal and regulatory actions, potential penalties and restrictions or reputational harm. 12 Table of Contents We operate in highly competitive markets, and competitive pressures may adversely affect us.
Added
Non-compliance or unsafe practices can result in severe repercussions ranging from minor civil penalties to the revocation of operational certificates. Such outcomes can severely damage our reputation and diminish our ability to secure new contracts, directly affecting our revenue and growth prospects.
Removed
We are exposed to risks associated with operating internationally. We conduct our business in a number of foreign countries, some of which are politically unstable or subject to military or civil conflicts.
Added
In today’s climate of heightened media scrutiny, any regulatory penalties or safety incidents can escalate quickly, causing irreparable harm not just to the Company, but potentially affecting individuals within the organization as well. Maintaining rigorous compliance and safety standards is paramount to mitigate these risks and maintaining the continued trust and confidence of our stakeholders, clients, and regulatory bodies.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease facilities in Garden City, New York; Jacksonville, Florida; Rockledge, Florida; Ogden, Utah; Windsor, Connecticut; Brussels, Belgium; London, England; and Crawley, England, and own a building near Schiphol International Airport in the Netherlands to support activities in the Aviation Services segment.
Biggest changeIn our Integrated Solutions segment, our services to the government market are primarily conducted from leased facilities in Rockledge, Florida; Ogden, Utah; Jacksonville, Florida; and Windsor, Connecticut. Our services to the commercial market are primarily conducted from leased facilities Brussels, Belgium and Crawley, England.
Our principal maintenance, repair, overhaul, engineering and other service activities for this segment are conducted at U.S. facilities leased by us in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; Medley, Florida; and Rockford, Illinois and at Canadian facilities leased by us in Trois Rivieres, Quebec and Windsor, Ontario.
In our Repair & Engineering segment, our airframe maintenance repair services are conducted at U.S. facilities leased by us in Indianapolis, Indiana; Oklahoma City, Oklahoma; Miami, Florida; and Rockford, Illinois and at Canadian facilities leased by us in Trois Rivieres, Quebec and Windsor, Ontario.
ITEM 2. PROPERTIES In the Aviation Services segment, we conduct parts supply activities from our headquarters in Wood Dale, Illinois, which we own. In addition to warehouse space, this facility includes executive, sales and administrative offices.
ITEM 2. PROPERTIES In our Parts Supply segment, we primarily operate from our headquarters in Wood Dale, Illinois, which we own. In addition to warehouse space, this facility includes executive, sales and administrative offices which support all of our segments.
Added
Our component repair and landing gear repair services are conducted at leased facilities in Medley, Florida and Garden City, New York and owned facilities in Hot Springs, Arkansas; Grand Prairie, Texas; Wellington, Kansas; Chonburi, Thailand; and Amsterdam, Netherlands.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThere are no matters which constitute material pending legal proceedings to which we are a party other than those incorporated into this item by reference from Note 17 to our Consolidated Financial Statements for the year ended May 31, 2023 contained in this Annual Report on Form 10-K. ​ ITEM 4.
Biggest changeThere are no matters which constitute material pending legal proceedings to which we are a party other than those incorporated into this item by reference from Note 18 to our Consolidated Financial Statements for the year ended May 31, 2024 contained in this Annual Report on Form 10-K. ​ 26 Table of Contents ITEM 4. MINE SAFETY DISCLOSURES Not Applicable.
LEGAL PROCEEDINGS Note 17 of the Notes to our Consolidated Financial Statements for the year ended May 31, 2023 contained in Item 8 of this Annual Report on Form 10-K includes information on legal proceedings that constitute material contingencies for financial reporting purposes that could have a material adverse effect on our consolidated financial position or liquidity if they were resolved in a manner that is adverse to us.
LEGAL PROCEEDINGS Note 18 of the Notes to our Consolidated Financial Statements for the year ended May 31, 2024 contained in Item 8 of this Annual Report on Form 10-K includes information on legal proceedings that constitute material contingencies for financial reporting purposes that could have a material adverse effect on our consolidated financial position or liquidity if they were resolved in a manner that is adverse to us.
The information in Note 17 is incorporated by reference in this Item 3.
The information in Note 18 is incorporated by reference in this Item 3.
Removed
MINE SAFETY DISCLOSURES Not Applicable. ​ 18 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHexcel Corporation ​ Woodward, Inc. * New peer group companies added for fiscal 2023 due to their business and financial comparability to the Company. ​ 19 Table of Contents Three companies were removed from the prior year’s peer group: Cubic Corporation was acquired, and Teledyne Technologies Incorporated and CACI International Inc were judged to no longer be suitable comparator companies due to their size. ​ The Company annually revisits the composition of the peer group to ensure that the Company’s performance is measured against those of comparably sized and situated companies.
Biggest changeHexcel Corporation ​ Woodward, Inc. ​ The Company annually revisits the composition of the peer group to ensure that the Company’s performance is measured against those of comparably sized and situated companies.
The Company’s Fiscal 2023 Proxy Peer Group companies are listed as follows: Aerojet Rocketdyne Holdings, Inc. Kaman Corporation Applied Industrial Technologies, Inc. ​ Moog Inc. Barnes Group Inc. ​ MSC Industrial Direct Co., Inc. Crane Co. ​ Spirit Aerosystems Holdings, Inc. * Curtiss-Wright Corporation ​ The Timken Company Ducommun Incorporated * ​ TriMas Corporation Heico Corporation ​ Triumph Group, Inc.
The Company’s Fiscal 2024 Proxy Peer Group companies are listed as follows: Aerojet Rocketdyne Holdings, Inc. Kaman Corporation Applied Industrial Technologies, Inc. ​ Moog Inc. Barnes Group Inc. ​ MSC Industrial Direct Co., Inc. Crane Co. ​ Spirit Aerosystems Holdings, Inc. Curtiss-Wright Corporation ​ The Timken Company Ducommun Incorporated ​ TriMas Corporation Heico Corporation ​ Triumph Group, Inc.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol “AIR.” On June 30, 2023, there were approximately 775 holders of common stock, including participants in security position listings.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol “AIR.” On June 30, 2024, there were approximately 630 holders of common stock, including participants in security position listings.
We did not declare any dividends in fiscal 2022 or 2023. The declaration and payment of cash dividends is at the discretion of our Board of Directors and will be dependent upon our future earnings, cash flows, financial condition, capital requirements and strategy and any future government restrictions. ​ ITEM 6. (Reserved) ​
The declaration and payment of cash dividends is at the discretion of our Board of Directors and will be dependent upon our future earnings, cash flows, financial condition, capital requirements and strategy and any future government restrictions. ​ ITEM 6. (Reserved) ​
Stockholder Return Performance Graph The following graph compares the total return on a cumulative basis of $100 invested, and reinvestment of dividends in our common stock on May 31, 2018 to the Standard and Poor’s (“S&P”) 500 Index and the Proxy Peer Group: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Indexed Returns ​ ​ Base Period ​ Years Ending Company/Index/Peer Group ​ 5/31/18 ​ 5/31/19 ​ 5/31/20 ​ 5/31/21 ​ 5/31/22 ​ 5/31/23 AAR CORP. 100.00 67.84 45.89 94.99 109.71 114.01 S&P 500 Index 100.00 103.78 117.11 164.32 163.83 168.62 Peer Group 100.00 107.72 79.11 125.38 113.68 125.57 ​ The S&P 500 Index is comprised of domestic industry leaders in four major sectors: Industrial, Financial, Utility, and Transportation, and serves as a broad indicator of the performance of the U.S. equity market.
Stockholder Return Performance Graph The following graph compares the total return on a cumulative basis of $100 invested, and reinvestment of dividends in our common stock since May 31, 2019 to the Standard and Poor’s (“S&P”) 500 Index and the Proxy Peer Group: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Base ​ INDEXED RETURNS ​ ​ Period ​ Years Ending Company Name / Index ​ 5/31/19 ​ 5/31/20 ​ 5/31/21 ​ 5/31/22 ​ 5/31/23 ​ 5/31/24 AAR CORP. 100 67.65 140.02 161.72 168.06 238.08 S&P 500 Index 100 112.84 158.33 157.86 162.47 208.26 Peer Group 100 73.44 116.40 105.53 116.58 166.57 ​ 27 Table of Contents The S&P 500 Index is comprised of domestic industry leaders in four major sectors: Industrial, Financial, Utility, and Transportation, and serves as a broad indicator of the performance of the U.S. equity market.
The mix of the Company’s commercial and government/defense markets presents a challenge in constructing a peer group, given that many government/defense contractors have substantially greater resources than the Company. Dividends The prohibition on our payment of dividends under the Payroll Support Program of the CARES Act ended September 30, 2021.
The mix of the Company’s commercial and government/defense markets presents a challenge in constructing a peer group, given that many government/defense contractors have substantially greater resources than the Company. There were no changes in the composition of the peer group for fiscal 2024 from the prior year. Dividends We did not declare any dividends in fiscal 2022, 2023, or 2024.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. (Reserved) 20 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures about Market Risk 29 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 31 ​ ​ ​
Biggest changeItem 6. (Reserved) 28 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures about Market Risk 40 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 41 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations – Fiscal 2023 Compared with Fiscal 2022 Sales and gross profit for our two operating segments for the years ended May 31, 2023 and 2022 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended May 31, ​ 2023 2022 % Change Sales: ​ ​ ​ Aviation Services ​ ​ ​ Commercial ​ $ 1,320.5 ​ $ 1,081.6 22.1 % Government and defense ​ 578.2 ​ 664.2 ​ (12.9) % ​ ​ $ 1,898.7 ​ $ 1,745.8 8.8 % Expeditionary Services ​ ​ ​ ​ ​ ​ Commercial ​ $ 8.3 ​ $ 2.2 277.3 % Government and defense ​ 83.5 ​ 72.0 16.0 % ​ ​ $ 91.8 ​ $ 74.2 23.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended May 31, ​ 2023 2022 % Change Gross Profit: ​ ​ ​ Aviation Services ​ ​ ​ Commercial ​ $ 248.2 ​ $ 180.3 37.7 % Government and defense ​ 106.9 ​ 117.2 (8.8) % ​ ​ $ 355.1 ​ $ 297.5 19.4 % Expeditionary Services ​ ​ ​ ​ ​ ​ Commercial ​ $ 0.9 ​ $ — n/a ​ Government and defense ​ 14.1 ​ 15.7 (10.2) % ​ ​ $ 15.0 ​ $ 15.7 (4.5) % ​ 22 Table of Contents Aviation Services Segment Sales in the Aviation Services segment increased $152.9 million, or 8.8%, over the prior year due to a $238.9 million, or 22.1%, increase in sales to commercial customers.
Biggest changeDiscussion of Results of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended May 31, ​ 2024 2023 % Change Sales: ​ ​ ​ Commercial ​ $ 1,637.9 ​ $ 1,328.8 23.3 % Government and defense ​ 681.0 ​ 661.7 ​ 2.9 % ​ ​ $ 2,318.9 ​ $ 1,990.5 16.5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Profit: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 322.8 ​ $ 249.1 ​ 29.6 % Government and defense ​ ​ 119.5 ​ ​ 121.0 ​ (1.2) % ​ ​ $ 442.3 ​ $ 370.1 ​ 19.5 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Profit Margin: ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ ​ 19.7 % ​ 18.7 % ​ ​ Government and defense ​ ​ 17.5 % ​ 18.3 % ​ ​ Consolidated ​ ​ 19.1 % ​ 18.6 % ​ ​ ​ Consolidated sales in fiscal 2024 increased $328.4 million, or 16.5%, over the prior year primarily due to an increase in sales to commercial customers.
(“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell.
(“Purchaser”) for the sale, from time to time, of certain accounts receivable due from certain customers (the “Purchase Agreement”). Under the Purchase Agreement, the maximum amount of receivables sold is limited to $150.0 million and Purchaser may, but is not required to, purchase the eligible receivables we offer to sell.
Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including the overall health of the credit markets, general economic conditions, airline industry conditions, geo-political events, and our operating performance.
Our continuing ability to borrow from our lenders and issue debt and equity securities to the public and private markets in the future may be negatively affected by a number of factors, including the overall health of the credit markets, general economic conditions, airline industry conditions, geo-political events, our debt service obligations, and our operating performance.
We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers. 27 Table of Contents For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer.
We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers. For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer.
The most significant estimates made by management include those related to assumptions used in accounting for business combinations, assessing goodwill impairment, adjustments to reduce the value of inventories and certain rotable assets, revenue recognition, allowance for credit losses, and assumptions used in determining pension plan obligations. Accordingly, actual results could differ materially from those estimates.
The most significant estimates made by management include those related to assumptions used in accounting for business combinations, assessing goodwill impairment, adjustments to reduce the value of inventories and certain rotable assets, revenue recognition, and allowance for credit losses. Accordingly, actual results could differ materially from those estimates.
We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under ASC 860, Transfers and Servicing , and de-recognize the sold receivables from our Consolidated Balance Sheet.
We have no retained interests in the sold receivables, other than limited recourse obligations in certain circumstances, and only perform collection and administrative functions for the Purchaser. We account for these receivable transfers as sales under Accounting Standards Codification 860, Transfers and Servicing , and de-recognize the sold receivables from our Consolidated Balance Sheet.
Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known.
Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
For a discussion of the comparison of fiscal 2022 and 2021, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended May 31, 2022 (filed July 21, 2022).
For a discussion of the comparison of fiscal 2023 and 2022, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended May 31, 2023 (filed July 18, 2023).
The term of the Purchase Agreement runs through February 22, 2024, but, the Purchase Agreement may be terminated earlier under certain circumstances. The term of the Purchase Agreement is automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.
The term of the Purchase Agreement expires after February 22, 2025, but, the Purchase Agreement may be terminated earlier under certain circumstances. The term of the Purchase Agreement is automatically extended for annual terms unless either party provides advance notice that they do not intend to extend the term.
In fiscal 2023, we recognized net favorable cumulative catch-up adjustments of $8.3 million compared to net favorable cumulative catch-up adjustments of $10.0 million in fiscal 2022. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services to commercial customers as well as certain long-term government programs.
In fiscal 2024, we recognized net favorable cumulative catch-up adjustments of $3.0 million compared to net favorable cumulative catch-up adjustments of $8.3 million in the prior year. These adjustments primarily relate to our long-term, power-by-the-hour programs where we provide component inventory management and repair services as well as certain long-term government programs.
The total of these instruments outstanding at May 31, 2023 was $22.7 million. Critical Accounting Policies and Significant Estimates Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
The total of these instruments outstanding at May 31, 2024 was $22.5 million. 36 Table of Contents Critical Accounting Policies and Significant Estimates Our Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
On December 14, 2022, and in connection with our entry into the Credit Agreement, we terminated our revolving credit facility under the credit agreement dated April 12, 2011, as amended, (the “2011 Credit Agreement”) with the outstanding borrowings under the 2011 Credit Agreement at the date of its termination rolled over to the Credit Agreement.
In conjunction with the Credit Agreement, we terminated our revolving credit facility under the credit agreement dated April 12, 2011, as amended, (the “2011 Credit Agreement”) with the outstanding borrowings under the 2011 Credit Agreement at the date of its termination rolled over to the Credit Agreement.
Borrowings outstanding under the Revolving Credit Facility under the Credit Agreement at May 31, 2023 were $272.0 million and there were approximately $11.1 million of outstanding letters of credit, which reduced the availability under this facility to $336.9 million as of May 31, 2023. There are no other terms or covenants limiting the availability of the Revolving Credit Facility.
At May 31, 2024, borrowings outstanding under the Amended Revolving Credit Facility were $447.0 million and there were approximately $10.9 million of outstanding letters of credit, which reduced the availability under this facility to $367.1 million. There are no other terms or covenants limiting the availability of the Amended Revolving Credit Facility.
As of May 31, 2023, we also had other financing arrangements that did not limit availability on our Revolving Credit Facility including outstanding letters of credit of $11.6 million and foreign lines of credit of $9.2 million. We maintain a Purchase Agreement with Citibank N.A.
As of May 31, 2024, we also had other financing arrangements that did not limit availability on our Amended Revolving Credit Facility, including outstanding letters of credit of $11.6 million and foreign lines of credit of $9.4 million.
We may have to recognize an impairment of our rotable parts and equipment if we discontinue using or servicing certain aircraft models or if an older aircraft model is phased-out in the industry.
Portions of that inventory are used parts that are often exchanged with parts removed from aircraft or components, and are reworked to a useable condition. We may have to recognize an impairment of our rotable parts and equipment if we discontinue using or servicing certain aircraft models or if an older aircraft model is phased-out in the industry. ​
In connection with certain sales of products, we also provide logistics services, which include inventory management, replenishment, and other related services. The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point the customer has obtained control of the product.
The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point the customer has obtained control of the product.
Impairment of Long-Lived Assets We are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows.
We also maintain trade credit insurance for certain customers to provide coverage, up to a certain limit, in the event of insolvency of some customers. 39 Table of Contents Impairment of Long-Lived Assets We are required to test for impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable from its undiscounted cash flows.
Borrowings outstanding under the Revolving Credit Facility were $272.0 million at May 31, 2023 with an availability on the facility of $336.9 million. Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
Over the long-term, we expect to see strength in our aviation products and services given our offerings of value-added solutions to both commercial and government and defense customers. We believe long-term commercial aftermarket growth trends are favorable.
We also considered the long-term forecasts for each reporting unit, which incorporated specific opportunities and risks, working capital requirements, and capital expenditure needs. The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other items.
The fair value of our reporting units is also impacted by our overall market capitalization and may be impacted by volatility in our stock price and assumed control premium, among other items.
For our Netherlands pension plan, our policy is to fund at least the minimum amount required by the local laws and regulations. We routinely issue letters of credit and performance bonds in the ordinary course of business. These instruments are typically issued in conjunction with insurance contracts or other business requirements.
We routinely issue letters of credit and performance bonds in the ordinary course of business. These instruments are typically issued in conjunction with insurance contracts or other business requirements.
Cash Flows from Investing Activities Net cash used in investing activities was $138.0 million in fiscal 2023 compared to $16.5 million in fiscal 2022. The increase in cash used from the prior period was primarily related to our acquisition of Trax in the fourth quarter of fiscal 2023.
Cash Flows from Investing Activities Net cash used in investing activities was $758.5 million in fiscal 2024 compared to $138.0 million in the prior year. The increase in cash used in investing activities over the prior year of $620.5 million was primarily related to the acquisition of the Product Support business in fiscal 2024.
Interest Expense Interest expense increased $9.8 million in fiscal 2023 reflecting the impact of both higher interest rates and higher average borrowings to fund investments in the business, including our acquisition of Trax in the fourth quarter of fiscal 2023. Our average borrowing rate was 5.11% in fiscal 2023 compared to 1.09% in the prior year.
In addition, interest expense in fiscal 2024 reflects the impact of both higher interest rates and higher average borrowings used to fund investments in the business, including our acquisitions of Trax and the Product Support business. Our average borrowing rate was 6.69% in fiscal 2024 compared to 5.11% in the prior year.
Contractual Obligations and Off-Balance Sheet Arrangements A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2023 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ Due in ​ Due in ​ Due in ​ Due in ​ Due in ​ After ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Total 2024 2025 2026 2027 2028 2028 On Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ Credit Agreement borrowings ​ $ 272.0 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 272.0 ​ $ — Facilities and equipment operating leases ​ 69.7 ​ 14.5 ​ 12.3 ​ 9.1 ​ 8.4 ​ 7.8 ​ 17.6 Credit Agreement interest 1 ​ ​ 80.5 ​ ​ 17.7 ​ ​ 17.7 ​ ​ 17.7 ​ ​ 17.7 ​ ​ 9.7 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Off Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase obligations 2 ​ 540.9 ​ 406.1 ​ 93.4 ​ 34.6 ​ 4.8 ​ — ​ 2.0 Pension contributions 3 ​ 0.4 ​ 0.4 ​ — ​ — ​ — ​ — ​ — Notes: 1 Interest was determined using the interest rate in effect on May 31, 2023. 2 Purchase obligations arise in the ordinary course of business and represent a binding commitment to acquire inventory, including raw materials, parts, and components, as well as equipment to support the operations of our business. 25 Table of Contents 3 Our contribution policy for the domestic plans is to contribute annually, at a minimum, an amount which is deductible for federal income tax purposes and that is sufficient to meet actuarially computed pension benefits.
Contractual Obligations and Off-Balance Sheet Arrangements A summary of contractual cash obligations and off-balance sheet arrangements as of May 31, 2024 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due by Period ​ ​ ​ ​ ​ Due in ​ Due in ​ Due in ​ Due in ​ Due in After ​ ​ ​ ​ ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal ​ Fiscal Fiscal ​ Total 2025 2026 2027 2028 2029 2029 On Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit Agreement borrowings ​ $ 447.0 ​ $ — ​ $ — ​ $ — ​ $ 447.0 ​ $ — ​ $ — Credit Agreement interest 1 ​ 108.0 ​ 30.5 ​ 30.5 ​ 30.5 ​ 16.5 ​ — ​ ​ — 6.75% Senior Notes ​ ​ 550.0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 550.0 ​ ​ — 6.75% Senior Notes interest ​ ​ 177.8 ​ ​ 37.1 ​ ​ 37.1 ​ ​ 37.1 ​ ​ 37.1 ​ ​ 29.4 ​ ​ — Facilities and equipment operating leases ​ ​ 146.4 ​ ​ 16.7 ​ ​ 12.8 ​ ​ 10.9 ​ ​ 9.8 ​ ​ 7.4 ​ ​ 88.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Off Balance Sheet: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchase obligations 2 ​ 656.0 ​ 527.5 ​ 98.3 ​ 27.0 ​ 2.4 ​ 0.8 ​ ​ — Notes: 1 Interest was determined using the interest rate in effect on May 31, 2024. 2 Purchase obligations arise in the ordinary course of business and represent a binding commitment to acquire inventory, including raw materials, parts, and components, as well as equipment to support the operations of our business.
The Trax acquisition adds established, higher-margin aviation aftermarket software offerings with recurring revenue to our portfolio and provides opportunities to cross-sell products and services.
Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs. The Trax acquisition added established, higher-margin aviation aftermarket software offerings with recurring revenue to our portfolio and provides opportunities to cross-sell products and services.
We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer.
Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations.
The increase in our effective tax rate is primarily due to higher non-deductible expenses in fiscal 2023 compared to the prior year. 23 Table of Contents Liquidity, Capital Resources and Financial Position Our operating activities are funded and commitments met through the generation of cash from operations.
Operating margin decreased to 5.0% from 8.4% in the prior year, primarily due to increased selling, general and administrative expenses over the prior year. 33 Table of Contents Liquidity, Capital Resources and Financial Position Our operating activities are funded and commitments met through the generation of cash from operations.
Beginning with the first quarter of fiscal 2024, we will report under this new structure using the following four operating segments: ● Parts Supply, primarily consisting of our sales of used serviceable engine and airframe parts and components and distribution of new parts; ● Repair & Engineering, primarily consisting of our maintenance, repair, and overhaul services across airframes and components, including landing gear; ● Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S.
We assume 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. 28 Table of Contents General Overview We report our activities in four business segments: ● Parts Supply, primarily consisting of our sales of used serviceable engine and airframe parts and components and distribution of new parts; ● Repair & Engineering, primarily consisting of our maintenance, repair, and overhaul (“MRO”) services across airframes and components, including landing gear; ● Integrated Solutions, primarily consisting of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the U.S.
At May 31, 2023, our liquidity and capital resources included working capital of $746.4 million inclusive of cash of $68.4 million. On December 14, 2022, we entered into a new credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A. as administrative agent for the lenders (the “Credit Agreement”).
Borrowings On December 14, 2022, we entered into a new credit agreement with various financial institutions as lenders and Wells Fargo Bank, N.A. as administrative agent for the lenders (the “Credit Agreement”) that included an unsecured revolving credit facility (the “Revolving Credit Facility”) that we can draw upon for working capital and general corporate purposes.
Income Taxes Our fiscal 2023 effective income tax rate for continuing operations was 25.9% compared to 25.3% in the prior year.
Income Taxes Our fiscal 2024 effective income tax rate for continuing operations was 20.6% compared to 25.9% in the prior year. The decrease in the effective tax rate was primarily attributable to the deferred tax benefit recognized in conjunction with the pension settlement in the first quarter of fiscal 2024.
Specifically, this new structure results in the separation of our Aviation Services segment into three new operating segments: Parts Supply, Repair & Engineering and Integrated Solutions.
Specifically, this new structure resulted in the separation of our former Aviation Services segment into three new operating segments: Parts Supply, Repair & Engineering, and Integrated Solutions. 37 Table of Contents As of May 31, 2023, we had three reporting units, which included two in our former Aviation Services segment (Aviation Supply Chain and MRO) and one comprised of our Expeditionary Services segment.
Our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. The majority of our sales from products are recognized at a point in time upon transfer of control to the customer, which generally occurs upon shipment.
The majority of our sales from products are recognized at a point in time upon transfer of control to the customer, which generally occurs upon shipment. In connection with certain sales of products, we also provide logistics services, which include inventory management, replenishment, and other related services.
If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, we would be required to recognize an impairment loss for the excess carrying value of the reporting unit’s assets. 26 Table of Contents As of May 31, 2023, we had three reporting units, which included two in our Aviation Services segment (Aviation Supply Chain and MRO) and one comprised of our Expeditionary Services segment.
If the estimated fair value of the reporting unit is less than the carrying value of the reporting unit, we would be required to recognize an impairment loss for the excess carrying value of the reporting unit’s assets.
In fiscal 2023, 2022, and 2021, we utilized the qualitative assessment approach for all reporting units. Under this approach, we considered the overall industry and market conditions related to the aerospace and government/defense markets as well as conditions in the global capital markets.
Under this approach, we considered the overall industry and market conditions related to the aerospace and government/defense markets as well as conditions in the global capital markets. We also considered the long-term forecasts for each reporting unit, which incorporated specific opportunities and risks, working capital requirements, and capital expenditure needs.
The Credit Agreement provides for a $620 million unsecured revolving credit facility (the “Revolving Credit Facility”) that we can draw upon for working capital and general corporate purposes. Under certain circumstances, we may request an increase to the lending commitments under the Credit Agreement by an aggregate amount of up to $300 million, not to exceed $920 million in total.
Under certain circumstances, we may request an increase to the lending commitments under the Credit Agreement by an aggregate amount of up to $300 million, not to exceed $1,125 million in total. The Credit Agreement expires on December 14, 2027.
Gross profit on sales to government and defense customers decreased $10.3 million, or 8.8%, from the prior year with the gross profit margin increasing to 18.5% from 17.6%.
Gross profit on sales to government customers decreased $1.5 million, or 1.2%, from the prior year with the gross profit margin on sales to government customers decreasing to 17.5% from 18.3%. These decreases are primarily due to the completion of certain government programs in our Integrated Solutions segment.
Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft. Trax’s comprehensive solutions support the entire spectrum of maintenance activities and create the system of record required by airlines and MROs.
During the fourth quarter of fiscal 2023, we acquired Trax, a leading independent provider of aircraft MRO and fleet management software. Trax offers critical software applications to a diverse global customer base of airlines and MROs supporting approximately 5,000 aircraft.
Cost of sales consists principally of the cost of material to manufacture products, direct labor and overhead. Our chief operating decision making officer (“CODM”) is our Chief Executive Officer and he evaluates performance on our operating segments using gross profit as the primary profitability measure. Gross profit is calculated by subtracting cost of sales from sales.
Our chief operating decision making officer (“CODM”) is our Chief Executive Officer and he evaluates performance on our operating segments using operating income as the primary profitability measure. Our operating segments are aligned principally around differences in products and services. The Company has not aggregated operating segments for purposes of identifying reportable segments.
The assets and certain expenses related to corporate activities are not allocated to the segments. Our operating segments are aligned principally around differences in products and services. Change in Operating Segments During the first quarter of fiscal 2024, our CODM implemented changes in how he evaluates the business, allocates resources, and assesses performance.
During the first quarter of fiscal 2024, our chief operating decision maker (“CODM”) implemented changes in how he organizes the business, allocates resources, and assesses performance.
Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result 28 Table of Contents in future impairments of long-lived assets. In our Expeditionary Services segment, we consolidated manufacturing facilities and recognized impairment and related charges of $2.6 million during fiscal 2021.
Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future impairments of long-lived assets. We maintain a significant inventory of rotable parts and equipment to service customer aircraft and components.
On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program, under which we may repurchase up to $150 million of our common stock with no expiration date. During fiscal 2023, we repurchased 1.2 million shares for an aggregate purchase price of $50.1 million.
Our Consolidated Balance Sheet as of May 31, 2024 included accounts receivable of $8.4 million, including $4.1 million past due, and contract assets of $10.1 million related to this customer. 35 Table of Contents Stock Repurchase Program On December 16, 2021, our Board of Directors authorized a renewal of our stock repurchase program, under which we may repurchase up to $150 million of our common stock with no expiration date.
These investments include $7.0 million of acquisition and amortization expenses for Trax which was acquired in the fourth quarter of fiscal 2023. As a percent of sales, selling, general and administrative expenses increased to 11.6% from 11.1% in the prior year largely due to our investments to support sales growth.
As a percent of sales, selling, general and administrative expenses increased to 13.5% from 11.6% in the prior year primarily due to these costs. Operating Income Operating income in fiscal 2024 decreased $4.7 million, or 3.5%, from the prior year primarily due to increased selling, general and administrative expenses discussed above.
Gross profit in the Expeditionary Services segment decreased $0.7 million, or 4.5%, from the prior year primarily due to changes in the mix of products sold. Gross profit margin decreased to 16.3% from 21.2% in the prior year primarily as a result of changes in the mix of products sold.
Operating income in the Expeditionary Services segment decreased $4.2 million, or 54.5%, from the prior year primarily due to lower sales volumes.
In conjunction with reclassifying rotable assets as inventory held for sale, we recognized rotable asset impairment charges of $1.0 million and $1.4 million in fiscal 2022 and 2021, respectively. Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties.
Revenue Recognition Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer.
Cost of sales in Aviation Services increased $95.3 million, or 6.6%, over the prior year which was largely in line with the sales increase of 8.8% discussed above. Gross profit in the Aviation Services segment increased $57.6 million, or 19.4%, over the prior year.
Our consolidated sales to government customers increased $19.3 million, or 2.9%, primarily due to higher activity on the INL/A WASS contract with the DoS included in our Integrated Solutions segment. Consolidated cost of sales increased $256.2 million, or 15.8%, over the prior year which was largely in line with the consolidated sales increase of 16.5% discussed above.
Cash Flows from Financing Activities Net cash provided by financing activities was $137.7 million in fiscal 2023 compared to a use of cash of $59.8 million in fiscal 2022.
Cash Flows from Financing Activities Net cash provided by financing activities was $729.2 million in fiscal 2024 compared to $137.7 million in the prior year. The increase in cash provided by financing activities over the prior year of $591.5 million was primarily related to debt financing to fund the acquisition of the Product Support business in fiscal 2024.
Gross profit in this segment on sales to commercial customers increased $67.9 million, or 37.7%, over the prior year primarily due to the COVID-19 recovery discussed above. Gross profit margin on sales to commercial customers increased to 18.8% from 16.7% in the prior year period primarily from our actions to reduce both our fixed and variable cost structure.
Gross profit margin on sales to commercial customers increased to 19.7% from 18.7% in the prior year primarily due to the acquisitions of Trax and the Product Support business as their margins are accretive to our historical margins.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $28.2 million, or 13.9%, over the prior year primarily due to investments to support the sales growth as our commercial activities continue the recovery from the impact of COVID-19.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $81.8 million, or 35.5%, over the prior year primarily due to increased amortization and acquisition-related expenses of $35.7 million related to the Trax and Product Support business acquisitions.
Forward-looking statements may also be identified because they contain words such as ‘‘anticipate,’’ ‘‘believe,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘likely,’’ ‘‘may,’’ ‘‘might,’’ ‘‘plan,’’ ‘‘potential,’’ ‘‘predict,’’ ‘‘project,’’ ‘‘seek,’’ ‘‘should,’’ ‘‘target,’’ ‘‘will,’’ ‘‘would,’’ or similar expressions and the negatives of those terms.
Forward-looking statements may also be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms.
Removed
We assume 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. General Overview We report our activities in two business segments: Aviation Services comprised of supply chain and maintenance, repair and overhaul (“MRO”) activities and Expeditionary Services comprised of manufacturing activities.
Added
Inter-segment sales are recorded at fair value which results in intercompany profit on inter-segment sales that is eliminated in consolidation. Corporate selling, general and administrative expenses include centralized functions such as legal, finance, treasury and human resources with a portion of the costs allocated to our operating segments.
Removed
The Aviation Services segment consists of aftermarket support and services offerings that provide spare parts and maintenance support for aircraft operated by our commercial and government/defense customers.
Added
Parts Supply Our Parts Supply segment primarily consists of sales and leasing of used serviceable aircraft engine and airframe material (“USM”), aircraft and engines and aftermarket distribution of new, original equipment manufacturer (“OEM”)-supplied replacement parts.
Removed
Sales in the Aviation Services segment are derived from the sale and lease of a wide variety of new, overhauled and repaired engine and airframe parts and components to the commercial aviation and government and defense markets. We provide customized inventory supply chain management, performance-based logistics programs, customer fleet management and operations, and aircraft component repair management services.
Added
USM is an important category of the aviation aftermarket in which parts removed from engines or airframes can be refurbished to be utilized as replacement parts in the aftermarket. We utilize a network of third-party repair facilities to perform this work. USM parts often represent a cost-effective and more timely solution for operators when compared to sourcing new parts.
Removed
The segment also includes repair, maintenance and overhaul of aircraft, landing gear and components.
Added
We also distribute new OEM-supplied replacement parts to aircraft operators, airlines, government customers and other MRO companies across the world. Our parts are supplied to narrow-body, wide-body and regional aircraft. In most cases, we enter exclusive relationships with OEM manufacturers for a given market where we are the only provider of that supplier’s product category.
Removed
Cost of sales consists principally of the cost of product, direct labor, and overhead. 20 Table of Contents The Expeditionary Services segment consists of primarily manufacturing operations with sales derived from the design and manufacture of pallets, shelters, and containers used to support the U.S. military’s requirements for a mobile and agile force including engineering, design, and system integration services for specialized command and control systems.
Added
We provide global scale, independence, and highly technical sales capabilities across both commercial and government end-markets. Repair & Engineering Our airframe maintenance services are primarily comprised of major airframe inspection, MRO, painting services, line maintenance, airframe modifications, structural repairs, avionics service and installation, exterior and interior refurbishment and engineering services and support for many types of commercial and military aircraft.
Removed
In conjunction with the re-alignment, our CODM will evaluate each segment’s performance based on operating income instead of gross profit as the CODM believes operating income is a more comprehensive profitability measure for each operating segment.
Added
Component repair services are primarily comprised of MRO services for structural components, engine and airframe accessories, and interior refurbishment. Our landing gear overhaul services also include repair services on wheels and brakes for commercial and military aircraft. Our Repair & Engineering segment also develops Parts Manufacturer Approval (“PMA”) parts for aftermarket applications.
Removed
These changes will be initially reflected in our condensed consolidated financial statements for the quarterly period ended August 31, 2023 and are not reflected herein. Business Trends and Outlook In fiscal 2023, we established new partnerships, expanded our service offerings, and enhanced our approach to safety to best serve our customers across the world.
Added
PMA is a designation under Federal Aviation Administration (“FAA”) regulations that permits the design of approved parts for specific aircraft components that can be provided by non-OEM sources at cost-efficient and sometimes improved availability. 29 Table of Contents Integrated Solutions Our Integrated Solutions segment primarily consists of our fleet management and operations of customer-owned aircraft, customized performance-based supply chain logistics programs in support of the DoD and foreign governments, flight hour component inventory and repair programs for commercial airlines and integrated software solutions including Trax.
Removed
The global recovery in air travel drove an increased demand for our services, enabling us to achieve strong results across our portfolio, particularly in used serviceable material and new parts distribution. Our actions to reduce costs and improve operating efficiency were reflected in our improved profitability during fiscal 2023.
Added
Fleet management and operations of customer-owned aircraft is performed for the U.S. Department of State (“DoS”) under the INL/A WASS contract. We are the prime contractor on this ten-year performance-based contract which began in fiscal 2018. Our services under the contract include operating and maintaining the global DoS fleet of fixed- and rotary-wing aircraft.
Removed
Our sales to commercial customers in fiscal 2023 increased by $245.0 million, or 22.6%, over the prior year reflecting the recovery in commercial air travel following the height of the impact of COVID-19 as well as growth from recently awarded new parts distribution contracts.
Added
Supply chain logistics programs are primarily comprised of material planning, sourcing, logistics, information and program management and parts and component repair and overhaul. Flight hour component inventory and repair programs for commercial airlines are primarily comprised of outsourcing programs for airframe parts and components including warranty claim management in support of our airline customers’ maintenance activities.
Removed
Our sales to government customers in fiscal 2023 decreased by $74.5 million, or 10.1%, from the prior year as we completed certain government programs, including our Afghanistan contracts. We were also successful in winning new long-term agreements in both our commercial and government markets.
Added
Our integrated software solutions are primarily comprised of our Trax software which we recently acquired in fiscal 2023. Trax has the first fully cloud-based electronic enterprise resource platform for the MRO industry and also offers a full suite of “paperless” mobility apps that are in process of automating MRO workflows with artificial intelligence.
Removed
We were awarded a significant expansion of our exclusive agreement with Unison Industries which broadens our distribution of select Unison ignitor plugs, ignition leads, harnesses, and related spare parts. We also extended our distribution relationship with Leach International Corp to supply electromechanical and solid-state switch gears to the electronics end-market.
Added
Expeditionary Services The Expeditionary Services segment primarily consists of products and services supporting the movement of equipment and personnel by the U.S. and foreign governments and non-governmental organizations. We design, manufacture, and repair transportation pallets and a wide variety of containers and shelters used in support of military and humanitarian tactical deployment activities.
Removed
In our commercial programs activities, we were awarded a multi-year, flight-hour component support contract with flydubai for their growing Boeing 737 MAX fleet. 21 Table of Contents In our government market, we were awarded a firm-fixed price contract from the U.S.
Added
The containers and shelters are used in numerous mission requirements, including armories, supply and parts storage, refrigeration systems, tactical operation centers, briefing rooms, laundry and kitchen facilities, water treatment, and sleeping quarters. Shelters include both stationary and vehicle-mounted applications. We also provide engineering, design, and system integration services for specialized command and control systems.
Removed
Air Force to produce Next Generation All Aluminum Cargo Pallets with a total contract value, including option periods, of $173.5 million. We were also awarded a contract from the Norwegian Defence Logistics Organisation to provide commercial common parts for the Royal Norwegian Air Force P-8A fleet. During the fourth quarter of fiscal 2023, we acquired Trax USA Corp.
Added
Business Trends and Outlook In fiscal 2024, we established new partnerships, expanded our service offerings, and drove greater differentiation in our business including pursuing multiple growth prongs.
Removed
(“Trax”), a leading independent provider of aircraft MRO and fleet management software which was founded in 1999. The acquisition price was $120 million in cash, plus up to a $20 million earn-out payment based on adjusted revenue in calendar year 2023 and 2024.
Added
Throughout the year, the industry saw an increase in the utilization of existing aircraft, which drove greater demand for aircraft maintenance with MRO spend reaching record levels, and engine reliability issues prompted greater adoption of USM. Our services, capabilities, and partnerships were well matched to the landscape of the industry, which enabled us to reach higher sales than ever before.
Removed
During fiscal 2023, we continued our strong focus on working capital management with cash flows from operating activities from continuing operations of $23.8 million which included significant investments in inventory, rotable assets, and licensing arrangements to support further growth.
Added
Our growth strategy has long included both inorganic and organic growth. Building on our long-term relationships with valued customers as well as strong local partnerships, we recently broke ground on additional hangars in Miami, Florida and Oklahoma City, Oklahoma.
Removed
The increase in sales to commercial customers was primarily attributable to increased sales of $91.1 million related to new parts distribution activities and $71.4 million in our MRO activities as commercial passenger air traffic continues to recover from the impact of COVID-19.
Added
We plan to take advantage of the fixed cost base and strong labor availability in these locations with a target to increase our MRO network capacity by approximately 15% upon completion in fiscal 2026. We were also successful in winning new long-term agreements in our commercial market.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed1 unchanged
Biggest changeA 10 percent increase in the average interest rate affecting our financial instruments, including the average outstanding balance of our debt obligations would not have had a significant impact on our pre-tax income during fiscal 2023. 29 Table of Contents Revenues and expenses of our foreign operations are translated at average exchange rates during the year, and balance sheet accounts are translated at year-end exchange rates.
Biggest changeA 10 percent increase to the average interest rate across our floating - rate debt obligations would have reduced our pre - tax income by approximately $2.6 million during fiscal 2024. Revenues and expenses of our foreign operations are translated at average exchange rates during the year, and balance sheet accounts are translated at year-end exchange rates.
Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations during fiscal 2023. ​ 30 Table of Contents
Balance sheet translation adjustments are excluded from the results of operations and are recorded in stockholders’ equity as a component of accumulated other comprehensive loss. A hypothetical 10 percent devaluation of the U.S. dollar against foreign currencies would not have had a material impact on our financial position or continuing operations during fiscal 2024. ​ 40 Table of Contents
We are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates.
We are exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. We manage interest costs by using a mix of fixed - and floating - rate debt.

Other AIR 10-K year-over-year comparisons