AAR surges on $450M Air Force contracts ahead of earnings
Cargo pallet deal extends company's 63-year relationship with military through 2032
AAR Corp shares advanced nearly 3% on Tuesday after the aerospace and defense supplier secured two contracts worth a combined $450 million from the U.S. Air Force, extending a partnership that dates back more than six decades.
The Wood Dale, Illinois-based company's stock gained 2.7% to $106.25 in afternoon trading, building on momentum that has carried shares up 128% over the past year. The contract announcement comes just hours before AAR is scheduled to report fiscal third-quarter results after the market closes.
The agreements include a $160 million firm-fixed-price contract for repair services on the 463L Legacy Cargo Pallet, extending through March 2031, and a separate $290 million requirements contract for manufacturing and production of the pallets through March 2032. The 463L system serves as the standard cargo platform for U.S. military transport aircraft.
"Government contracts are core to AAR's diversified business model," said Tom Hoferer, an executive at the company, noting the awards extend AAR's services into 2032 and provide worldwide support and stability.
The contracts represent approximately 11% of AAR's $4 billion market capitalization and reinforce the company's position as the primary supplier of these critical logistics systems to the Air Force—a relationship AAR has maintained since 1963. The long-term nature of the agreements, spanning six years, provides revenue visibility as commercial aerospace markets face headwinds from higher oil prices and slower travel demand growth.
Analysts remain broadly bullish on the stock, with six of seven covering analysts rating it a "buy" and an average price target of $119.80, suggesting roughly 13% upside from current levels. More optimistic targets from firms including Jefferies at $135 and Truist Securities at $128 reflect confidence in AAR's position within a defense sector experiencing robust growth.
Global defense spending has surpassed $2 trillion and continues rising in 2026, with the U.S. defense budget exceeding $1 trillion for the fiscal year. Escalating geopolitical tensions and military modernization efforts are driving increased investment in logistics and sustainment services—areas where AAR has built competitive advantages.
For the quarter ending February 28, analysts expect earnings of $1.16-$1.21 per share, up from $0.99 in the same period last year. Revenue is projected to reach approximately $812.6 million, representing nearly 20% year-over-year growth from $678.2 million. The company has not missed earnings estimates in any of the past 12 quarters, according to analyst data.
Revenue estimates have been revised upward by 7% over the past six months, reflecting growing confidence in AAR's execution and the defense market's resilience. The company's recent financial performance has been strong, with trailing twelve-month earnings growth of 92% and revenue expansion of 15.9%. Despite the gains, the stock trades at a forward price-to-earnings ratio of 18.4 times, below some aerospace peers.
Investors will be watching Tuesday's earnings report closely for management's commentary on the defense backlog, commercial aerospace trends, and potential margin impacts from inflation and labor costs. The $450 million in new contracts should provide a tailwind, though execution on commercial aircraft maintenance and repair services remains a key focus for diversified growth.
The dual-class structure that gave co-founders outsized voting control was eliminated in 2021, improving corporate governance and making the stock more attractive to institutional investors. With 99.2% of shares held by institutions, AAR's shareholder base aligns with its defense-heavy business model, which prioritizes steady, government-backed revenue over the cyclical nature of commercial aviation.
As defense budgets continue expanding and militaries worldwide prioritize supply chain resilience, AAR's integrated capabilities in parts distribution, maintenance, and logistics position it to capture growth. The Air Force contracts announced Tuesday provide concrete evidence of that positioning, extending a revenue stream that has proven reliable across multiple defense spending cycles.