AAR Corp. Outlook Cut to Negative by Moody's on MRO Deal Risks

Moody's Ratings has revised its outlook on AAR Corp. (NYSE: AIR) to negative from stable, citing significant execution risks and higher debt levels associated with its planned acquisition of a majority stake in MRO Holdings. The credit rating agency affirmed AAR's Ba2 Corporate Family Rating, reflecting the company's strong underlying market position in aerospace aftermarket services.

Acquisition Drives Leverage Spike

The outlook change is a direct result of AAR's agreement to acquire a 65% controlling interest in maintenance, repair, and overhaul (MRO) provider MRO Holdings. According to the Moody's report, the transaction will be funded with debt, causing AAR's Moody’s-adjusted leverage to more than double.

Key financial impacts highlighted by the agency include:

• Leverage is projected to jump to 4.9x from 2.4x at the end of fiscal year 2026.
• The deal is expected to close in AAR's third fiscal quarter.

The negative outlook specifically points to the integration challenges of a major cross-border expansion and the financial burden of the increased debt load in the near term.

Strategic Rationale and Market Tailwinds

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Despite the near-term credit risks, Moody's affirmed the Ba2 rating based on the strategic benefits of the deal and strong industry fundamentals. The acquisition will establish AAR as one of the world's largest providers of commercial heavy maintenance.

Demand for AAR's services remains robust, supported by global air travel growth and persistent delays in new aircraft deliveries from manufacturers. These factors compel airlines to extend the operational lives of their existing fleets, creating durable demand for MRO services. Moody's also noted that MRO Holdings’ network in lower-cost labor regions, such as El Salvador, is expected to improve AAR's profit margins and cash flow over the long term.

Path to Deleveraging

Moody's anticipates that AAR will prioritize debt reduction following the transaction, projecting that leverage could decline toward 4.2x by fiscal 2028. This forecast assumes the company successfully integrates the new business and defers exercising its option to purchase the remaining 35% of MRO Holdings, which becomes available over a four-year period.

The agency stated that credit metrics could face downward pressure if integration issues arise or if leverage remains above 4.0x. Conversely, a stable outlook or an upgrade could be considered if the integration is successful and leverage is sustained below 3.0x. AAR's liquidity is considered solid, supported by an SGL-2 Speculative Grade Liquidity rating.