Moody's Revises AAR Corp. Outlook to Negative on MRO Holdings Deal, Affirms Ba2 Rating

Moody's Ratings has affirmed AAR Corp.'s (NYSE: AIR) Ba2 corporate family rating but revised the company's outlook to negative from stable. The ratings agency attributed the change to execution risks and a significant increase in debt associated with AAR's planned acquisition of a controlling stake in MRO Holdings.

Acquisition Drives Leverage Higher

The negative outlook reflects the integration challenges and higher financial risk following AAR's deal to acquire a 65% interest in MRO Holdings, a transaction expected to close in AAR's third fiscal quarter. While the strategic move will position AAR as one of the world's largest commercial heavy maintenance providers, it will be financed with debt.

According to Moody's, the deal will cause AAR's adjusted financial leverage to spike to approximately 4.9x from 2.4x at the end of fiscal 2026. This substantial increase in leverage is the primary driver behind the outlook revision.

Underlying Market Strength Supports Rating

Despite the near-term financial pressure, Moody's affirmed the Ba2 rating based on AAR's strong competitive position in the commercial and defense aerospace aftermarket. The agency noted that sustained growth in global air travel and persistent delays in new aircraft deliveries are forcing airlines to extend the service life of existing fleets.

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This industry dynamic provides a durable source of demand for AAR's maintenance, repair, and overhaul (MRO) services. Furthermore, MRO Holdings' network of facilities in lower-cost labor regions, such as El Salvador, is expected to enhance AAR's profit margins and free cash flow generation over time.

Path to Deleveraging Key for Future Outlook

Moody's projects that AAR's leverage will gradually decrease to approximately 4.2x by fiscal 2028, assuming the company prioritizes debt reduction. Under the deal terms, AAR has an option to acquire the remaining 35% of MRO Holdings four years after the initial closing, a move that could delay deleveraging if exercised early.

The company's SGL-2 speculative-grade liquidity rating reflects a solid liquidity position. However, Moody's warned that a future downgrade could occur if integration proves difficult or if leverage remains persistently above 4.0x. Conversely, a successful integration and sustained leverage below 3.0x could lead to a stable outlook or a potential upgrade.