UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 28, 2006

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-6263

AAR CORP.

(Exact name of registrant as specified in its charter)

Delaware		36-2334820
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One AAR Place, 1100 N. Wood Dale Road Wood Dale, Illinois		60191
(Address of principal executive offices)		(Zip Code)

(630) 227-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

As of March 31, 2006, there were 36,461,146 shares of the registrant’s Common Stock, $1.00 par value per share, outstanding.

AAR CORP. and Subsidiaries

Quarterly Report on Form 10-Q

For the Quarter Ended February 28, 2006

Table of Contents

Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Condensed Consolidated Statements of Comprehensive Income
		Notes to Condensed Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
	Item 4.	Controls and Procedures

Part II – OTHER INFORMATION
	Item 6.	Exhibits

	Signature Page
	Exhibit Index

PART I, ITEM 1 – FINANCIAL STATEMENTS

AAR CORP. and Subsidiaries

Condensed Consolidated Balance Sheets

As of February 28, 2006 and May 31, 2005

(In thousands)

	February 28,		May 31,
	2006		2005
	(Unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	104,813	$	40,508
Restricted cash	—		9,830
Accounts receivable, less allowances of $7,904 and $5,863, respectively	153,035		127,121
Inventories	238,819		204,990
Equipment on or available for short-term lease	53,191		50,487
Deposits, prepaids and other	15,345		13,934
Deferred tax assets	27,672		27,672
Total current assets	592,875		474,542

Property, plant and equipment, net	71,567		71,474

Other assets:
Goodwill, net	44,397		44,416
Equipment on long-term lease	140,420		67,663
Investment in joint ventures	27,781		11,234
Other	61,111		62,901
	273,709		186,214
	$	938,151	$	732,230

The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.

	February 28,				May 31,
	2006				2005
	(Unaudited)
Liabilities and stockholders’ equity:
Current liabilities:
Short-term debt	$	—			$	1,410
Current maturities of long-term debt	200				713
Current maturities of non-recourse long-term debt	1,899				1,622
Accounts payable	91,960				77,015
Accrued liabilities	83,042				79,265
Total current liabilities	177,101				160,025

Long-term debt, less current maturities	296,534				199,919
Non-recourse debt	25,805				27,240
Deferred tax liabilities	20,718				18,089
Other liabilities and deferred income	24,140				11,560
Retirement benefit obligation	654				653
	367,851				257,461

Stockholders’ equity:
Preferred stock, $1.00 par value, authorized 250 shares; none issued	—				—
Common stock, $1.00 par value, authorized 100,000 shares; issued 40,426 and 35,853 shares, respectively	40,426				35,853
Capital surplus	265,034				189,617
Retained earnings	184,493				162,229
Treasury stock, 4,078 and 3,267 shares at cost, respectively	(68,100			)	(50,497			)
Unearned restricted stock awards	(7,727			)	(2,679			)
Accumulated other comprehensive loss
Cumulative translation adjustments	(2,945			)	(1,797			)
Minimum pension liability	(17,982			)	(17,982			)
	393,199				314,744
	$		938,151		$		732,230

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended February 28, 2006 and 2005

(Unaudited)

(In thousands, except per share data)

	Three Months Ended								Nine Months Ended
	February 28,								February 28,
	2006				2005				2006			2005
Sales:
Sales from products	$	185,473			$	168,474			$	530,852		$	455,944
Sales from services	33,372				23,747				95,483			64,823
Sales from leasing	7,141				5,480				17,469			17,155
	225,986				197,701				643,804			537,922
Costs and operating expenses:
Cost of products	149,869				143,734				437,977			386,504
Cost of services	28,354				18,019				77,674			50,085
Cost of leasing	4,304				5,213				12,022			15,601
Selling, general and administrative and other	25,795				21,182				73,317			61,460
	208,322				188,148				600,990			513,650
Equity in earnings of joint ventures	262				198				1,060			206
Operating income	17,926				9,751				43,874			24,478
Gain (loss) on extinguishment of debt	(3,893			)	—				(3,893		)	995
Interest expense	(4,804			)	(4,163			)	(13,433		)	(12,855		)
Interest income	849				438				1,811			1,103
Income before provision for income taxes	10,078				6,026				28,359			13,721
Provision for income taxes	948				841				6,095			977
Income from continuing operations	9,130				5,185				22,264			12,744
Discontinued operations:
Operating loss, net of tax	—				(364			)	—			(798		)
Loss on disposal, net of tax	—				(2,226			)	—			(2,226		)
Loss from discontinued operations	—				(2,590			)	—			(3,024		)
Net income	$	9,130			$		2,595		$	22,264		$	9,720
Earnings per share-basic:
Earnings from continuing operations	$	0.27			$		0.16		$	0.68		$	0.39
Loss from discontinued operations	—				(0.08			)	—			(0.09		)
Earnings per share - basic	$	0.27			$		0.08		$	0.68		$	0.30
Earnings per share-diluted:
Earnings from continuing operations	$	0.24			$		0.15		$	0.62		$	0.37
Loss from discontinued operations	—				(0.07			)	—			(0.08		)
Earnings per share - diluted	$		0.24		$		0.08		$	0.62		$	0.29
Weighted average common shares outstanding - basic	33,709				32,258				32,723			32,249
Weighted average common shares outstanding - diluted	39,150				36,417				37,397			36,334

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended February 28, 2006 and 2005

(Unaudited)

(In thousands, except per share data)

	Nine Months Ended
	February 28,
	2006			2005
Cash flows from operating activities:
Net income	$	22,264		$	9,720
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	21,556			22,033
Deferred tax provision (benefit) - continuing operations	6,578			(596		)
Loss on disposal of business, net of tax	—			2,226
Changes in certain assets and liabilities:
Accounts receivable	(26,980		)	(10,229		)
Inventories	(37,618		)	(5,479		)
Equipment on or available for short-term lease	(1,851		)	1,489
Equipment on long-term lease	(72,990		)	17,510
Accounts payable	15,183			7,009
Accrued liabilities and taxes on income	697			(5,135		)
Long-term liabilities	10,383			—
Other, primarily deposits and pension contributions	703			(10,519		)
Net cash provided from (used in) operating activities	(62,075		)	28,029

Cash flows from investing activities:
Property, plant and equipment expenditures	(11,812		)	(9,463		)
Proceeds from disposal of assets	24			7
Proceeds from sale of business	—			7,700
Investment in leveraged leases	275			205
Other, primarily investment in aircraft joint ventures	(16,076		)	(11,657		)
Net cash used in investing activities	(27,589		)	(13,208		)

Cash flows from financing activities:
Proceeds from borrowings	161,000			—
Reduction in borrowings	(16,782		)	(23,706		)
Financing costs	(5,166		)	(34		)
Other, primarily stock option exercises	5,124			2
Net cash provided from (used in) financing activities	144,176			(23,738		)

Effect of exchange rate changes on cash	(37		)	(2		)

Increase (decrease) in cash and cash equivalents	54,475			(8,919		)
Cash and cash equivalents, beginning of period	50,338			41,010
Cash and cash equivalents, end of period	$	104,813		$	32,091

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

AAR CORP. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended February 28, 2006 and 2005

(Unaudited)

(In thousands)

	Three Months Ended					Nine Months Ended
	February 28,					February 28,
	2006		2005			2006			2005
Net income	$	9,130	$	2,595		$	22,264		$	9,720

Other comprehensive income (loss) - Foreign currency translation	371		(58		)	(1,148		)	2,134

Total comprehensive income	$	9,501	$	2,537		$	21,116		$	11,854

The accompanying Notes to Condensed Consolidated Financial

Statements are an integral part of these statements.

AAR CORP. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

February 28, 2006

(Unaudited)

(In thousands, except per share amounts)

Note A – Basis of Presentation

AAR CORP. and its subsidiaries are referred to herein collectively as “AAR,” “Company,” “we,” “us,” and “our” unless the context indicates otherwise. The accompanying condensed consolidated financial statements include the accounts of AAR and its subsidiaries after elimination of intercompany accounts and transactions.

We have prepared these statements without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of May 31, 2005 has been derived from audited financial statements. To prepare the financial statements in conformity with accounting principles generally accepted in the United States of America, management has made a number of estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Certain information and note disclosures, normally included in comprehensive financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our latest annual report on Form 10-K. Certain amounts in the prior years’ condensed consolidated financial statements have been reclassified to conform to the current year’s presentation.

In the opinion of management, the condensed consolidated financial statements reflect all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the condensed consolidated financial position of AAR CORP. and its subsidiaries as of February 28, 2006, and the condensed consolidated results of operations and comprehensive income for the three- and nine-month periods ended February 28, 2006 and 2005, and the condensed consolidated cash flows for the nine-month periods ended February 28, 2006 and 2005. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

Note B – Income Taxes

During the third quarter of fiscal 2006, upon completion of our fiscal 2005 Federal income tax return, we determined that the Company qualified for additional tax benefits of $1,606 related to higher than estimated margin on fiscal 2005 export activities. Similarly, we recorded a $496 benefit during the third quarter of last year which primarily related to additional tax benefits from fiscal 2004 export activities.

Note C – Stock-Based Employee Compensation Plans

We have an employee stock option plan which we account for under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation cost related to our stock option plan is reflected in net income, as each option granted under this plan had an exercise price equal to the market value of the underlying common stock on the date of grant. No stock options were granted during the three- and nine-month periods ended February 28, 2006 other than reload options, which resulted from the exercise of original stock options granted in prior years. Effective May 1, 2006, the reload provision will be eliminated from substantially all outstanding stock option arrangements.

Restricted stock awards are measured at grant date fair value and amortized to compensation cost over the vesting period.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 to the Company’s stock option plans.

		Three Months Ended						Nine Months Ended
		February 28,						February 28,
		2006			2005			2006			2005
Net income as reported		$	9,130		$	2,595		$	22,264		$	9,720
Add: Stock-based compensation expense included in net income as reported, net of tax		677			82			1,517			226
Deduct: Total stock-based compensation expense determined under fair value method for all awards, net of tax		(2,151		)	(704		)	(4,842		)	(2,091		)
Pro forma net income		$	7,656		$	1,973		$	18,939		$	7,855
Earnings per share – basic:	As reported	$	0.27		$	0.08		$	0.68		$	0.30
	Pro forma	$	0.23		$	0.06		$	0.58		$	0.24
Earnings per share – diluted:	As reported	$	0.24		$	0.08		$	0.62		$	0.29
	Pro forma	$	0.20		$	0.06		$	0.53		$	0.24

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in the nine months ended February 28, 2006 and 2005:

	Nine Months Ended
	February 28,
	2006		2005
Risk-free interest rate	4.2	%	3.7	%
Expected volatility of common stock	37.8	%	66.0	%
Dividend yield	0.0	%	0.0	%
Expected option term in years	1.0		4.0

Note D – Revenue Recognition

Sales and related cost of sales for product sales are recognized upon shipment of the product to the customer. Our standard terms and conditions provide that title passes to the customer when the product is shipped to the customer. Sales of certain defense products are recognized upon customer acceptance, which includes transfer of title and transfer of risk of loss. Sales from services and the related cost of services are generally recognized when customer-owned material is shipped back to the customer. We have adopted this accounting policy because at the time the customer-owned material is shipped back to the customer, all services related to that material are complete as our service agreements generally do not require us to provide services at customer sites. Furthermore, the serviced units are typically shipped to the customer immediately upon completion of the related services. Sales and related cost of sales for certain long-term manufacturing contracts and for certain large airframe maintenance contracts are recognized by the percentage of completion method, based on the relationship of costs incurred to date to estimated total costs under the respective contracts.

Certain supply chain management programs we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution and maintenance and repair services. We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services. Lease revenues are recognized as earned. Income from monthly or quarterly lease payments is recorded in the pertinent period according to the lease agreement. However, for leases that provide variable rents, we recognize lease income on a straight-line basis. In addition to a monthly lease rate, some engine leases require an additional rental amount based on the number of hours the engine is used in a particular month. Lease income associated with these contingent rentals is recorded in the period in which actual usage is reported to us by the lessee, which is normally the month following the actual usage.

Note E – Inventory

The summary of inventories is as follows:

	February 28,		May 31,
	2006		2005
Raw materials and parts	$	57,461	$	43,576
Work-in-process	29,817		30,528
Purchased aircraft, parts, engines and components held for sale	151,541		130,886
	$	238,819	$	204,990

Note F – Equipment on Long-Term Lease

In August 2005, we entered into a ten-year agreement with a customer to provide supply chain services for their fleet of CRJ 700/900 and ERJ 145 regional jets. As part of the agreement, we purchased from the customer approximately $36,500 of equipment to support the program. The equipment was purchased with an initial cash payment of $22,750, with the remaining balance of approximately $13,750 due in installments in August 2006, 2007 and 2008. The equipment is included in equipment on long-term lease on the condensed consolidated balance sheet and is being depreciated on a straight-line basis over 10 years to a 30% residual value. The current portion of the deferred payments is included in accounts payable and the long-term portion is included in other liabilities and deferred income on the condensed consolidated balance sheet.

In November 2005, we signed a similar supply chain services agreement with this same customer to support their fleet of CRJ 200 regional jets. Under the terms of the agreement, we purchased from the customer approximately $21,900 of equipment to support the program. The equipment was purchased with an initial cash payment of $16,750, with the remaining balance of approximately $5,150 due in installments in November 2006 and 2009. As the customer’s fleet of CRJ 200/700/900 and ERJ 145 increases, we expect to invest an additional $6,000 in equipment to support these programs.

Note G – Supplemental Cash Flows Information

	Nine Months Ended
	February 28,
	2006		2005
Interest paid	$	13,231	$	13,323
Income taxes paid	556		440
Income tax refunds received	1,137		1,071

During the three-month period ended February 28, 2006, we acquired $50,645 aggregate principal amount of our 2.875% Convertible Senior Notes due 2024, or approximately 76% of the previously outstanding principal amount, in exchange for an aggregate 2,724 newly issued shares of common stock, in privately negotiated transactions exempt from the registration requirements under the Securities Act of 1933, as amended. The number of shares issued was equivalent to the number into which the notes were convertible under the original terms of the notes. We recorded a $3,893 pre-tax expense on the exchange of the notes into stock in advance of the call date of the notes; this expense was comprised of interest that the note holders would otherwise have been entitled to as well as an incentive payment for the exchange. As a result of these transactions, our long-term debt decreased by $50,645 and stockholders’ equity increased by $46,600. The 2,724 newly issued shares did not impact diluted earnings per share because the equivalent shares are already included in the diluted earnings per share calculation.

As of February 28, 2006, the outstanding balance of the 2.875% Convertible Senior Notes due 2024 was $16,355 and as of March 15, 2006, these notes can be converted into shares of common stock at the option of the note holder.

Note H – Financing Arrangements

On February 1, 2006, we completed the sale of $150,000 principal amount of convertible senior notes. The notes are due on February 1, 2026 unless earlier redeemed, repurchased or converted, and bear interest at 1.75% payable semiannually on February 1 and August 1, beginning August 1, 2006.

A holder may convert the notes into shares of common stock based on a conversion rate of 33.9789 shares per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $29.43 per share, under the following circumstances: (i) during any calendar quarter beginning after March 31, 2006 (and only during such calendar quarter), if, as of the last day of the preceding calendar quarter, the closing price of our common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such preceding calendar quarter is more than 120% of the applicable conversion price per share of common stock on the last day of such preceding calendar quarter; (ii) during the five business day period after any five consecutive trading day period in which the “trading price” per $1,000 principal amount of notes for each day of that period was less than 98% of the product of the closing price of our common stock and the then applicable conversion rate; (iii) upon a redemption notice; (iv) if a designated event or similar change of control transaction occurs; (v) upon specified corporate transactions; or (vi) during the ten trading day period ending at the close of business on the business day immediately preceding the stated maturity date on the notes. Upon conversion, we will have the right to deliver, in lieu of shares of our common stock, cash or a combination of cash and shares of common stock, at our option, in an amount per note equal to the applicable conversion note multiplied by the applicable stock price.

We may redeem for cash all or a portion of the notes at any time on or after February 6, 2013 at specified redemption prices. Holders of the notes have the right to purchase for cash all or any portion of the notes on February 1, 2013, 2016 and 2021 at a price equal to 100% of the principal amount of the notes plus accrued interest and unpaid interest, if any, to the purchase date.

The notes are senior, unsecured obligations and rank equal in right of payment with all other unsecured and unsubordinated indebtedness. Costs associated with this transaction of approximately $4,875 are being amortized over a seven-year period.

Net proceeds from this transaction were $145,125 and were used in part to repurchase $25,000 of accounts receivable which had been sold under our accounts receivable securitization facility, to repay $25,000 outstanding under our secured revolving credit facility and to purchase for $11,232 aviation equipment which was subject to an operating lease.

During the third quarter of fiscal 2005, we sold an interest in certain aircraft to a customer (“purchaser”) for $15,000 cash proceeds. The cash proceeds approximated the net book value of the aircraft. The purchaser borrowed $12,000 from a third party lender to finance the purchase. We agreed to unconditionally guarantee to the lender the purchaser’s payment of principal and interest when due under the loan up to an amount not to exceed $11,250. On March 7, 2006, we were unconditionally released from our obligations under the guaranty.

On July 15, 2005, we refinanced a mortgage loan with Principal Commercial Funding, LLC. Proceeds from the new loan were $11,000 and the term of the financing is 10 years with a fixed rate of 5.01%. Under the terms of the new loan, interest payments are due monthly with a balloon payment of $11,000 due August 1, 2015. The new loan payable is secured by our Wood Dale, Illinois facility. At February 28, 2006, the net book value of our Wood Dale, Illinois facility is $14,972.

Note I – Earnings per Share

The computation of basic earnings per share is based on the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share is based on the weighted average number of common shares outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, shares issuable upon vesting of restricted stock awards and shares issued upon conversion of convertible debt.

In the third quarter of fiscal 2005, we adopted the provisions of Emerging Issues Task Force Issue No. 04-08, “The Effect of Contingently Convertible Instruments on Diluted Earnings per Share” (“EITF No. 04-08”), which requires companies to account for contingently convertible debt using the “if converted” method set forth in SFAS No. 128, “Earnings Per Share,” for calculating diluted earnings per share. Under the “if converted” method, the after-tax effect of interest expense related to the convertible securities is added back to net income, and the convertible debt is assumed to have been converted into common shares at the beginning of the period. For comparative purposes, diluted earnings per share information for all periods since the convertible debt securities were issued in February 2004 have been restated as required by EITF No. 04-08.

The following table provides a reconciliation of the computations of basic and diluted earnings per share information for the three- and nine-month periods ended February 28, 2006 and 2005.

	Three Months Ended					Nine Months Ended
	February 28,					February 28,
	2006		2005			2006		2005
Income from continuing operations	$	9,130	$	5,185		$	22,264	$	12,744
Loss from discontinued operations, net of tax	—		(2,590		)	—		(3,024		)
Net income	$	9,130	$	2,595		$	22,264	$	9,720

Basic shares:
Weighted average common shares outstanding	33,709		32,258			32,723		32,249

Earnings per share – basic:
Earnings from continuing operations	$	0.27	$	0.16		$	0.68	$	0.39
Loss from discontinued operations	—		(0.08		)	—		(0.09		)
Earnings per share - basic	$	0.27	$	0.08		$	0.68	$	0.30

Net income	$	9,130	$	2,595		$	22,264	$	9,720
Add: After-tax interest on convertible debt	358		306			969		924
Net income for diluted EPS calculation	$	9,488	$	2,901		$	23,233	$	10,644

Diluted shares:
Weighted average common shares outstanding	33,709		32,258			32,723		32,249
Additional shares from the assumed exercise of stock options	696		555			468		481
Additional shares from the assumed vesting of restricted stock	458		—			374		—
Additional shares from the assumed conversion of convertible debt	4,287		3,604			3,832		3,604
Weighted average common shares outstanding – diluted	39,150		36,417			37,397		36,334

Earnings per share – diluted:
Earnings from continuing operations	$	0.24	$	0.15		$	0.62	$	0.37
Loss from discontinued operations	—		(0.07		)	—		(0.08		)
Earnings per share - diluted	$	0.24	$	0.08		$	0.62	$	0.29

At February 28, 2006 and 2005, respectively, stock options to purchase 1.3 million and 3.1 million shares of common stock were outstanding, but were not included in the computation of diluted earnings per share, because the exercise price of these options was greater than the average market price of the common shares during the interim periods then ended.

Note J –Aircraft Joint Ventures

We have invested in limited liability companies which are accounted for under the equity method of accounting. Our membership interest in these limited liability companies is 50% and the primary business of these companies is the acquisition, ownership, lease and disposition of certain narrow-body commercial aircraft. Aircraft that are acquired by the companies are purchased with cash contributions by the members of the companies, and the proceeds of debt financing which is non-recourse to the members of the companies. The income tax benefit or expense related to the operations of the ventures is recorded by the member companies.

Summarized financial information for these limited liability companies is as follows:

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Statement of operations information:
Sales	$	3,146	$	895	$	23,572	$	1,280
Income before provision for income taxes	633		152		2,503		709

	February 28,		May 31,
	2006		2005
Balance sheet information:
Assets	$	118,312	$	47,309
Debt	61,371		23,431
Members’ capital	54,156		21,885

We also have an investment in a joint venture company which we consolidate. The joint venture company owns an aircraft on lease to a foreign carrier. This aircraft was subject to a note payable to a major financial institution that was guaranteed by AAR. During the third quarter of fiscal 2005, we paid the debt of $6,022 in full. We consolidate the financial position and results of operations of this joint venture because we are the primary beneficiary of the joint venture. The equity interest of the other partner in the joint venture is recorded as a minority interest, which was included in other non-current liabilities at February 28, 2006.

Note K – Impairment Charges

Prior to September 11, 2001 we were executing our plan to reduce our investment in support of older generation aircraft in line with the commercial airlines’ scheduled retirement plans for these aircraft. The events of September 11 caused a severe and sudden disruption in the commercial airline industry, which brought about a rapid acceleration of those retirement plans. System-wide capacity was reduced by approximately 20%, and many airlines cancelled or deferred new aircraft deliveries. Based on management’s assessment of these and other conditions, in the second quarter ended November 30, 2001, we reduced the value and provided loss accruals for certain of our inventories and engine leases which support older generation aircraft by $75,900.

The write-down for engine and airframe parts was determined by comparing the carrying value for inventory parts that support older generation aircraft to their net realizable value. In determining net realizable value, we estimated sales prices taking into consideration historical selling prices and demand, as well as anticipated demand. The write-down for whole engines related to assets that are reported in the

caption “Equipment on or available for short-term lease” was determined by comparing the carrying value for each engine to an estimate of its undiscounted future cash flows. In those instances where there was a shortfall, the impairment was measured by comparing the carrying value to an estimate of the asset’s fair market value. The loss accruals for engine operating leases were determined by comparing the scheduled purchase option prices to the estimated fair value of such equipment. In those instances where the scheduled purchase option price exceeded the estimated fair value, an accrual for the estimated loss was recorded.

During the fourth quarter of fiscal 2003, we recorded additional impairment charges related to certain engine and airframe parts and whole engines in the amount of $5,360. The fiscal 2003 impairment charge was based upon an updated assessment of the net realizable values for certain engine and airframe parts and future undiscounted cash flows for whole engines.

Reductions in demand for certain of our inventories or declining market values, as well as differences between actual results and the assumptions utilized by us when determining the market value of our inventories, could result in additional impairment charges in future periods.

A summary of the carrying value of impaired inventory and engines, after giving effect to the impairment charges recorded by us during fiscal 2003 and fiscal 2002 are as follows:

	February 28,		May 31,		November 30,
	2006		2005		2001
Net impaired inventory and engines	$	37,700	$	43,200	$	89,600

Proceeds from sales of impaired inventory and engines for the nine-month period ended February 28, 2006 and the twelve-month period ended May 31, 2005 were $5,500 and $7,900, respectively.

Note L – Business Segment Information

We are a diversified provider of products and services to the global aviation/aerospace industry. We report our activities in four business segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems; and Aircraft Sales and Leasing.

Sales in the Aviation Supply Chain 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 defense markets, as well as the repair and overhaul of a wide range of commercial and military aircraft airframe parts. We also provide customized inventory supply and management programs for engine and airframe parts and components. Sales also include the sale and lease of commercial jet engines. Cost of sales consists principally of the cost of product (primarily aircraft and engine parts), direct labor and overhead (primarily indirect labor, facility cost and insurance).

Sales in the Maintenance, Repair and Overhaul segment are principally derived from aircraft maintenance and storage and the repair and overhaul of most commercial landing gear types. Cost of sales consists principally of the cost of product (primarily replacement aircraft parts), direct labor and overhead.

products for aerospace and industrial use. Sales in this segment are also derived from the repair, overhaul and sale of parts for industrial gas and steam turbine operators and certain military engines. Cost of sales consists principally of the cost of product, direct labor and overhead.

Sales in the Aircraft Sales and Leasing segment are derived from the sale and lease of commercial aircraft and technical and advisory services. Cost of sales consists principally of the cost of product (aircraft), labor and the cost of lease revenue (primarily depreciation, lease expense and insurance).

The accounting policies for the segments are the same as those described in Note 1 of the notes to the consolidated financial statements included in our annual report on Form 10-K for the year ended May 31, 2005. Our chief operating decision making officer (Chief Executive Officer) evaluates performance based on the reportable segments and utilizes gross profit as a primary profitability measure. The expenses and assets related to corporate activities are not allocated to the segments. Our reportable segments are aligned principally around differences in products and services. All prior period segment information has been restated to conform with the current composition of the Company’s reportable segments, which was adopted effective May 31, 2005.

Gross profit is calculated by subtracting cost of sales from sales. Selected financial information for each reportable segment has been reclassified to conform with the current period presentation and is as follows:

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Sales:
Aviation Supply Chain	$	117,170	$	96,472	$	332,274	$	274,641
Maintenance, Repair and Overhaul	43,591		28,949		124,820		75,252
Structures and Systems	61,864		53,272		177,041		147,414
Aircraft Sales and Leasing	3,361		19,008		9,669		40,615
	$	225,986	$	197,701	$	643,804	$	537,922

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Gross profit:
Aviation Supply Chain	$	27,776	$	16,993	$	70,062	$	46,169
Maintenance, Repair and Overhaul	6,008		4,139		16,713		9,250
Structures and Systems	8,604		9,513		26,769		26,890
Aircraft Sales and Leasing	1,071		90		2,587		3,423
	$	43,459	$	30,735	$	116,131	$	85,732

PART I, ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AAR CORP. and Subsidiaries

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

February 28, 2006

(In thousands)

General Overview

We report our activities in four business segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; Structures and Systems; and Aircraft Sales and Leasing.

Sales in the Structures and Systems segment are derived from the manufacture and sale of containers, pallets and shelters used to support the U.S. military’s tactical deployment requirements, in-plane cargo loading and handling systems for commercial and military applications and composite products for aerospace and industrial use. Sales in this segment are also derived from the repair, overhaul and sale of parts for industrial gas and steam turbine operators and certain military engines. Cost of sales consists principally of the cost of product, direct labor and overhead.

The table below sets forth consolidated sales and gross profit for our four business segments for the three- and nine-month periods ended February 28, 2006 and 2005.

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Sales:
Aviation Supply Chain	$	117,170	$	96,472	$	332,274	$	274,641
Maintenance, Repair and Overhaul	43,591		28,949		124,820		75,252
Structures and Systems	61,864		53,272		177,041		147,414
Aircraft Sales and Leasing	3,361		19,008		9,669		40,615
	$	225,986	$	197,701	$	643,804	$	537,922

	Three Months Ended				Nine Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
Gross profit:
Aviation Supply Chain	$	27,776	$	16,993	$	70,062	$	46,169
Maintenance, Repair and Overhaul	6,008		4,139		16,713		9,250
Structures and Systems	8,604		9,513		26,769		26,890
Aircraft Sales and Leasing	1,071		90		2,587		3,423
	$	43,459	$	30,735	$	116,131	$	85,732

Published reports by both Boeing and Airbus project an increase in the world’s fleet of commercial aircraft. As more aircraft enter the system, demand for maintenance support is expected to increase. Many major carriers in the U.S. are outsourcing more of their maintenance requirements to third parties as a way to reduce costs and improve their competitive position. In addition, low-cost carriers continue to expand their presence around the world. Certain of these low-cost carriers are flying newer aircraft which will also result in increasing demand for maintenance in future years. We believe we are well positioned with our broad range of products and services if these trends continue to develop.

The airline environment continues to be negatively impacted by historically high fuel costs. If fuel prices remain at these historically high levels, the industry may experience a reduction in capacity. Delta Air Lines and Northwest Airlines filed for bankruptcy protection and announced a reduction in aircraft servicing North America. At this time, we are unable to predict what impact, if any, fleet reductions would have on aircraft values, lease rates and demand for parts support and maintenance, repair and overhaul services.

Results of Operations

Three-Month Period Ended February 28, 2006

(as compared with the same period of the prior year)

Consolidated sales for the third quarter ended February 28, 2006 increased $28,285 or 14.3% over the third quarter of last year. Sales increased in the Aviation Supply Chain; Maintenance, Repair and Overhaul and Structures and Systems segments with sales to commercial customers increasing 11.0%

and sales to defense customers up 22.3% compared to the prior year. The sales increase to commercial airline customers reflects new supply chain management programs, higher engine parts sales from existing program customers and increased airframe maintenance sales, primarily attributable to the commencement of operations at our Indianapolis-based maintenance facility. Sales to defense customers increased as we continue to experience strong demand for performance-based logistics programs and specialized mobility products. Consolidated gross profit increased $12,724 or 41.4% over the prior year. The increase in gross profit was attributable to the consolidated sales increase, as well as an improvement in the consolidated gross margin percentage to 19.2% from 15.5% in the prior year’s quarter.

Sales in the Aviation Supply Chain segment increased $20,698 or 21.5% over the prior year’s quarter. The sales increase reflects strong demand for engine and airframe parts from commercial customers due to improved sourcing and program execution as well as the implementation of new supply chain programs. The increase in sales to defense customers was driven by continued strong demand for parts support from existing and new performance-based logistics programs. Gross profit in the Aviation Supply Chain segment increased $10,783 or 63.5% over the prior year primarily due to increased sales volume as well as an improvement in the gross profit margin percentage to 23.7% from 17.6% in the prior year. The improvement in the gross profit margin percentage was attributable to increased volume, effective purchasing and favorable mix of inventories sold.

In the Maintenance, Repair and Overhaul segment, sales increased $14,642 or 50.6% from the same quarter last year. The increase is primarily attributable to increased sales at our Indianapolis-based maintenance facility, which commenced operations in January 2005, as well as increased sales at our landing gear maintenance facility in Miami, Florida. Gross profit in the Maintenance, Repair and Overhaul segment increased $1,869 or 45.2% over the prior year, but the gross profit margin percentage declined slightly to 13.8% from 14.3% due primarily to start-up activities at our Indianapolis-based maintenance facility.

In the Structures and Systems segment, sales increased $8,592 or 16.1% over the prior year. The increase in sales was primarily due to increased sales of products supporting our defense customers’ deployment activities due to continued strong demand and new product development, as well as increased demand for cargo systems and composite structures. Gross profit in the Structures and Systems segment declined $909 or 9.6% compared to the prior year as the gross profit margin percentage decreased from 17.9% to 13.9% due to the unfavorable mix of inventories sold.

In the Aircraft Sales and Leasing segment, sales decreased $15,647 or 82.3% compared with the prior year. The decrease in sales is principally due to the fact that the majority of current period aircraft activity is conducted through unconsolidated joint ventures, whose revenues are not included in our consolidated net sales. Sales in the third quarter last year included the sale of the Company’s interest in certain aircraft for approximately $15 million at approximately book value. Our aircraft strategy post September 11, 2001 has been to participate in aircraft sales and leasing transactions principally through joint ventures. During the third quarter, our joint ventures purchased five aircraft bringing the total number of aircraft held in joint ventures to 15 (see Note J of Notes to Condensed Consolidated Financial Statements). We also own seven aircraft outside of the joint ventures. Of the seven aircraft owned by us outside the aircraft joint ventures, six were acquired prior to September 11, 2001. Current lease rates for aircraft are generally less than pre-September 11 levels. We may consider disposing of these aircraft if the aircraft sales environment improves. Gross profit in the Aircraft Sales and Leasing segment increased $981 over the prior year principally due to higher margins on aircraft leases.

Operating income increased $8,175 or 83.8% compared with the prior year’s quarter due to increased gross profit, partially offset by an increase in selling, general and administrative expenses. During the third quarter, our selling, general and administrative expenses increased $4,613 or 21.8% over

the prior year primarily due to increased resources to support our growth. Net interest expense increased $230 or 6.2% primarily due to an increase in average borrowings outstanding during the period.

Income from continuing operations was $9,130 for the third quarter of fiscal 2006 compared to $5,185 in the prior year due to the factors discussed above.

During the third quarter of fiscal 2005, we sold our engine component repair business which is classified as discontinued operations in the condensed consolidated Statement of Operations. During the third quarter of fiscal 2005, the loss from discontinued operations was $2,590 or $0.07 per diluted share and is comprised of the operating loss, net of tax, of $364 and the loss on disposal, net of tax, of $2,226.

Nine-Month Period Ended February 28, 2006

(as compared with the same period of the prior year)

Consolidated sales for the nine-month period ended February 28, 2006 increased $105,882 or 19.7% over the prior year. The increase in sales over the prior year was attributable to sales increases in the Aviation Supply Chain; Maintenance, Repair and Overhaul and Structures and Systems segments due to a 18.1% increase in sales to commercial airline customers and a 23.7% increase in sales to defense customers. The increase in sales to commercial airline customers principally reflects improved demand for engine and airframe parts support due to increased passenger traffic, improved sourcing and program execution and the commencement of operations of the Indianapolis maintenance facility. The increase in sales to defense customers was driven by continued strong demand for specialized mobility products and new performance-based logistics programs. Consolidated gross profit increased $30,399 or 35.5% over the prior year. The increase in gross profit was attributable to the consolidated sales increase, as well as an improvement in the consolidated gross margin percentage to 18.0% from 15.9% in the prior year.

Sales in the Aviation Supply Chain segment increased $57,633 or 21.0% compared to the prior year. The sales increase reflects increased sales of engine and airframe parts to commercial customers as well as an increase in sales to program customers using our supply chain management programs. The increase in sales to defense customers was driven by continued strong demand for parts support from existing and new performance-based logistics programs. Gross profit in the Aviation Supply Chain segment increased $23,893 or 51.8% over the prior year primarily due to increased sales volume as well as an improvement in the gross profit margin percentage to 21.1% from 16.8% in the prior year. The

improvement in the gross profit margin percentage was attributable to effective purchasing and favorable mix of inventories sold.

In the Maintenance, Repair and Overhaul segment, sales increased $49,568 or 65.9% over the prior year. The sales increase is attributable to the opening of our Indianapolis airframe maintenance facility which commenced operations in January 2005, as well as increased sales at our Oklahoma City airframe maintenance facility. Gross profit in the Maintenance, Repair and Overhaul segment increased $7,463 or 80.7% over the prior year and the gross profit margin percentage improved from 12.3% to 13.4% primarily due to improvements at our Oklahoma City-based airframe maintenance facility.

In the Structures and Systems segment, sales increased $29,627 or 20.1% over the prior year as we experienced increased sales at all of our business units within the segment. The increase was primarily attributable to increased sales of products supporting our defense customers’ deployment activities due to continued strong demand and new product development, and increased demand for cargo systems and composite structure products primarily due to successful sales and marketing efforts. Gross profit in the Structures and Systems segment declined $121 or 0.4% compared to the prior year as the gross profit margin percentage decreased from 18.2% to 15.1% primarily due to the unfavorable mix of inventories sold.

In the Aircraft Sales and Leasing segment, sales decreased $30,946 or 76.2% compared with the prior year. The decrease in sales is principally due to the fact that the majority of current period aircraft activity is conducted through unconsolidated joint ventures, which excludes revenues from our consolidated net sales. Our aircraft strategy post September 11 has been to participate in aircraft transactions principally through joint ventures. During the third quarter, our joint ventures purchased five aircraft bringing the total number of aircraft held in joint ventures to 15 (see Note J of Notes to Condensed Consolidated Financial Statements). We also own seven aircraft outside of the joint ventures. Of the seven aircraft owned by us outside the aircraft joint ventures, six were acquired prior to September 11, 2001. Current lease rates for aircraft are generally less than pre-September 11 levels. We may consider disposing of these aircraft if the aircraft sales environment improves. Gross profit in the Aircraft Sales and Leasing segment decreased $836 or 24.4% compared to the prior year.

Operating income increased $19,396 or 79.2% compared with the prior year due to increased gross profit, partially offset by an increase in selling, general and administrative expenses. During the nine-month period ended February 28, 2006, our selling, general and administrative expenses increased $11,857 or 19.3% primarily due to increased resources to support our growth. Net interest expense declined $130 compared to the prior year.

During the third quarter of fiscal 2006, we acquired $50,645 aggregate principal amount of our 2.875% Convertible Senior Notes due 2024, or approximately 76% of the previously outstanding principal amount, in exchange for an aggregate 2,724 newly issued shares of common stock, in privately negotiated transactions exempt from the registration requirements under the Securities Act of 1933, as amended. The number of shares issued was equivalent to the number into which the notes were convertible under the original terms of the notes. We recorded a $3,893 pre-tax expense on the exchange of the notes into stock in advance of the call date which was comprised of interest that the note holders would otherwise have been entitled to as well as an incentive. During the first quarter of fiscal 2005, we recorded a $995 net gain on the early retirement of debt.

Our effective income tax rate for the nine-months ended February 28, 2006 was 21.5% compared to 7.1% in the prior year.

Income from continuing operations was $22,264 compared to $12,744 in the prior year due to the factors discussed above.

During the third quarter of fiscal 2005, we sold our engine component repair business which is classified as discontinued operations in the condensed consolidated Statement of Operations. During the nine-months ended February 28, 2005, the loss from discontinued operations was $3,024 or $0.08 per diluted share and is comprised of the operating loss, net of tax, of $798 and the loss on disposal, net of tax, of $2,226.

Factors Which May Affect Future Results

Our operating results and financial position may be adversely affected or fluctuate on a quarterly basis as a result of general economic conditions, geo-political events, the commercial airline environment and other factors, including: (1) declining demand for our products and services and the ability of certain of our airline customers to meet their financial obligations due to their precarious financial position; (2) relatively high fuel prices and its impact on our commercial customers’ financial position; (3) declining market values for aviation products and equipment; (4) difficulties in re-leasing or selling aircraft and engines that are currently being leased; (5) inability of our Indianapolis airframe maintenance business to capture market share in the highly competitive airframe maintenance market; (6) lack of assurance that sales to the U.S. defense department, its agencies and its contractors (which were 33.7% of total sales in fiscal 2005), will continue at levels previously experienced, including the mix of products sold; (7) access to the debt and equity capital markets and the ability to draw down funds under financing agreements; (8) non-compliance with restrictive and financial covenants contained in certain of our loan agreements; (9) changes in or non-compliance with laws and regulations that may affect certain of our aviation related activities that are subject to licensing, certification and other regulatory requirements imposed by the FAA and other regulatory agencies, both domestic and foreign; (10) competition from other companies, including original equipment manufacturers, some of which have greater financial resources than we do; (11) exposure to product liability and property claims that may be in excess of our substantial liability insurance coverage; (12) the outcome of any pending or future material litigation or environmental proceedings; (13) inability to effectively integrate acquisitions; (14) expansion into international markets which may increase credit and other risks; (15) skilled labor shortage; and (16) cost overruns and losses on fixed-price contracts.

Liquidity and Capital Resources

Historically, we have funded our operating activities and met our commitments through the generation of cash from operations, augmented by the periodic issuance of common stock and debt in the public and private markets. In addition to these cash sources, our capital resources include secured credit arrangements, which include an accounts receivable securitization program and a secured revolving credit facility. 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 general economic conditions, airline and aviation industry conditions, geo-political events, including the war on terrorism, and our operating performance. Our ability to use our accounts receivable securitization program and revolving credit facility also may be negatively affected by these factors. Our ability to generate cash from operations is influenced primarily by our operating performance and changes in working capital. We have a universal shelf registration on file with the Securities and Exchange

Commission under which, subject to market conditions, up to $163,675 of common stock, preferred stock or medium- or long-term debt securities may be issued or sold.

At February 28, 2006, our liquidity and capital resources included cash of $104,813 and working capital of $415,774. At February 28, 2006 we had $50,000 available under our accounts receivable securitization program; no accounts receivable were sold under this program as of that date. The amount available under this agreement is based on a formula of qualifying accounts receivable. At February 28, 2006, we had $28,786 available under our secured revolving credit facility; no amounts were outstanding as of this date. The amount available under the revolving credit facility is also based on a formula of qualifying assets as well as outstanding letters of credit. In addition to our domestic facilities, we also have $2,679 available under a foreign line of credit. As of February 28, 2006, our cash and amounts available to us under our secured credit arrangement and accounts receivable securitization program totaled $186,278.

We continually evaluate various financing arrangements, including the issuance of common stock or debt, that would allow us to improve our liquidity position and finance future growth on commercially reasonable terms. Our ability to obtain additional financing is dependent upon a number of factors, including the geo-political environment, general economic conditions, airline industry conditions, our operating performance and market conditions in the public and private debt and equity markets.

During the nine-month period ended February 28, 2006, we used $62,075 of cash from operations primarily due to an increase in investment in equipment on long-term lease of $72,990 to support a new supply chain management program (see Note F of Notes to Condensed Consolidated Financial Statements) and the $11,232 purchase of aviation equipment previously on operating lease. During the nine-month period ended February 28, 2006, there was a use of cash from inventories of $37,618 reflecting investments made to support other supply chain management programs and the growth of our operations, and there was a use of cash from accounts receivable of $26,980 primarily due to the 20% increase in fiscal 2006 sales. During fiscal 2006, cash flow from operations benefited from an increase in accounts payable and long-term liabilities of $25,566 primarily as a result of increased inventory levels and long-term payables associated with supply chain management programs, as well as net income and depreciation and amortization of $43,820.

During the nine-month period ended February 28, 2006, our investing activities used $27,589 of cash principally reflecting capital expenditures of $11,812 and investments made in aircraft joint ventures of $15,841.

During the nine-month period ended February 28, 2006, our financing activities provided $144,176 of cash as a result of proceeds from the issuance of the $150,000 1.75% convertible notes and $11,000 of proceeds on the new note payable secured by a mortgage on our Wood Dale, Illinois building (see Note H of Notes to Condensed Consolidated Financial Statements), offset by a reduction in borrowings of $16,782 which includes the $10,143 payoff of the note payable secured by a mortgage, the early retirement of 6.875% Notes due December 15, 2007 for $3,960, as well as other scheduled principal reductions.

Contractual Obligations and Off-Balance Sheet Arrangements

A summary of contractual obligations and off-balance sheet arrangements as of February 28, 2006 is as follows:

	Payments Due by Period
													After
	Total		2/28/07		2/28/08		2/28/09		2/28/10		2/28/11		2/28/11
On Balance Sheet:
Debt	$	296,734	$	200	$	43,620	$	20,200	$	200	$	158	$	232,356

Non-recourse Debt	27,704		1,899		2,016		2,141		21,648		—		—

Interest	108,071		14,951		14,781		10,607		9,215		8,261		50,256

Off Balance Sheet:
Garden City Operating Lease	30,745		1,414		1,449		1,486		1,523		1,561		23,312

Critical Accounting Policies and Significant Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. Management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities to prepare the consolidated financial statements. The most significant estimates made by management include adjustments to reduce the value of inventories and equipment on or available for lease, allowance for doubtful accounts and revenue recognition. Accordingly, actual results could differ materially from those estimates. The following is a summary of the accounting policies considered critical by management.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts is intended to reduce the value of customer accounts receivable to amounts expected to be collected. In determining the required allowance, we consider factors such as general and industry-specific economic conditions, customer credit history, and the customer’s current and expected future financial performance.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by the specific identification, average cost or first-in, first-out methods. Provisions are made for excess and obsolete inventories and inventories that have been impaired as a result of industry conditions. We have utilized certain assumptions when determining the market value of inventories, such as historical sales of inventory, current and expected future aviation usage trends, replacement values and expected future demand. Principally as a result of the terrorist attacks of September 11, 2001 and its anticipated impact on the global airline industry’s financial condition, fleet size and aircraft utilization, we recorded a significant charge for impaired inventories during the second quarter of fiscal 2002 utilizing those assumptions. During the fourth quarter of fiscal 2003, we recorded an additional charge as a result of a further decline in market value for these inventories. Reductions in demand for certain of our inventories or declining market values, as well as differences between actual results and the assumptions utilized by us when determining the market value of our inventories, could result in additional impairment charges in future periods.

Revenue Recognition

Certain supply chain management programs that we provide to our customers contain multiple elements or deliverables, such as program and warehouse management, parts distribution and maintenance and repair services. We recognize revenue for each element or deliverable that can be identified as a separate unit of accounting at the time of delivery based upon the relative fair value of the products and services. In connection with these programs, we are required to make certain judgments and estimates concerning the overall profitability of the program, and the relative fair value of each element of the arrangement. Differences may occur between the judgments and estimates made by management and actual program results.

Equipment on or Available for Lease

The cost of assets under lease is original purchase price plus overhaul costs. Depreciation is computed using the straight-line method over the estimated service life of the equipment, and maintenance costs are expensed as incurred.

In accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting for the Impairment or Disposal 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. When applying the provisions of SFAS No. 144 to equipment on or available for lease, we have utilized certain assumptions when estimating future undiscounted cash flows, including current and future lease rates, lease terms, residual values and market conditions and trends impacting future demand. Differences between actual results and the assumptions utilized by us when determining undiscounted cash flows could result in future impairments of equipment on or available for lease.

New Accounting Standards

SFAS No. 123 (revised 2004) (“SFAS No. 123(R)”) “Share-Based Payment” was issued in December 2004. SFAS No. 123(R) addresses the accounting for transactions in which an enterprise exchanges its equity instruments for employee services. It also addresses transactions in which an enterprise incurs liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of those equity instruments in exchange for employee services. For public entities, the cost of employee services received in exchange for equity instruments, including employee stock options, is to be measured based on the grant-date fair value of those instruments. That cost will be recognized as compensation expense over the service period, which would normally be the vesting period. On April 15, 2005, the Securities and Exchange Commission (“SEC”) adopted a rule that delays the effective date of SFAS No. 123(R). Under the SEC’s rule, public companies will be required to implement SFAS No. 123(R) at the beginning of their first fiscal year that begins after June 15, 2005. We will adopt the provisions of SFAS No. 123(R) in the first quarter of fiscal 2007, and anticipate that adoption of the standard will result in approximately $850 of pre-tax compensation expense in fiscal 2007 for current unvested stock options.

Forward-Looking Statements

This report contains certain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information available to the Company as of the dates such assumptions and estimates are made, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors, including those factors discussed under this Item 2 under the heading “Factors Which May Affect Future Results”. Should one or more of those risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described. Those events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company’s control. The Company assumes no obligation to publicly release the result of any revisions that may be made to 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.

PART I, ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk includes fluctuating interest rates under our credit agreements, changes in foreign exchange rates and credit risk on accounts receivable. During the three- and nine-month periods ended February 28, 2006 and 2005, we did not utilize derivative financial instruments to offset these risks.

At February 28, 2006, $28,786 was available under our secured revolving credit facility with Merrill Lynch Capital. Interest on amounts borrowed under this credit facility is LIBOR based. As of February 28, 2006, no amounts were outstanding under this agreement. A hypothetical 10 percent increase to the average interest rate under the credit facilities applied to the average outstanding balance during the three-month period ended February 28, 2006 would not have had a material impact on our financial position or results of operations.

Revenues and expenses of our foreign operations are translated at average exchange rates during the period, and balance sheet accounts are translated at period-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 income (loss). A hypothetical 10 percent devaluation of foreign currencies against the U.S. dollar would not have a material impact on our financial position or results of operations.

PART I, ITEM 4 – CONTROLS AND PROCEDURES

As required by Rules 13a-15(e) and 15d-15(e) of the Exchange Act, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2006. This evaluation was carried out under the supervision and with participation of our Chief Executive Officer and Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Therefore, effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of February 28, 2006, ensuring that information required to be disclosed in the reports that are filed under the Exchange Act is recorded, processed, summarized and reported in a timely manner.

There were no changes in our internal control over financial reporting during the third quarter ended February 28, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II, ITEM 6 – EXHIBITS

The exhibits to this report are listed on the Exhibit Index included elsewhere herein.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AAR CORP.
		(Registrant)


Date:	April 6, 2006	/s/ TIMOTHY J. ROMENESKO
		Timothy J. Romenesko
		Vice President and Chief Financial Officer
		(Principal Financial Officer and officer duly
		authorized to sign on behalf of registrant)


		/s/ MICHAEL J. SHARP
		Michael J. Sharp
		Vice President – Controller
		(Principal Accounting Officer)

EXHIBIT INDEX

Exhibit No.	Description		Exhibits

4.	Instruments defining the rights of security holders	4.6	Amendment No. 10 dated February 27, 2006 to the Revolving Loan Agreement dated April 11, 2001 between Registrant and LaSalle Bank National Association (1) .

		4.14	Form of 1.75% Convertible Senior Note due 2026 (2) .

		4.15	Indenture between AAR CORP. and U.S. Bank, National Association, as trustee, dated February 1, 2006 (2).

		4.16	Registration Rights Agreement between AAR CORP. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers, dated February 1, 2006 (2) .

10.	Material contracts	10.1	Amendment No. 3 dated July 12, 2005 to the Amended and Restated AAR CORP. Stock Benefit Plan (filed herewith).

		10.14	Amendment No. 5 dated January 27, 2006 to the Receivables Purchase Agreement dated March 21, 2003 between AAR Receivables Corporation II, the Registrant individually and as Initial Servicer, the Financial Institutions from time to time Parties thereto and LaSalle Business Credit, LLC (3) .

		10.23	Form of Director Restricted Stock Agreement (filed herewith).

31.	Rule 13a-14(a)/15(d)-14(a) Certifications	31.1	Section 302 Certification dated April 6, 2006 of David P. Storch, Chairman, President and Chief Executive Officer of Registrant (filed herewith).

		31.2	Section 302 Certification dated April 6, 2006 of Timothy J. Romenesko, Vice President and Chief Financial Officer of Registrant (filed herewith).

32.	Section 1350 Certifications	32.1	Section 906 Certification dated April 6, 2006 of David P. Storch, Chairman, President and Chief Executive Officer of Registrant (filed herewith).

		32.2	Section 906 Certification dated April 6, 2006 of Timothy J. Romenesko, Vice President and Chief Financial Officer of Registrant (filed herewith).

Notes:

(1) Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated February 27, 2006.

(2) Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated February 1, 2006.

(3) Incorporated by reference to Exhibits to the Registrant’s Current Report on Form 8-K dated January 27, 2006.

Exhibit 10.1

THIRD AMENDMENT

AAR CORP. STOCK BENEFIT PLAN

WHEREAS, the Company maintains the AAR CORP. Stock Benefit Plan, amended and restated effective October 1, 2001 and further amended effective June 26, 2003 and April 11, 2005 (the “Plan”); and

WHEREAS, the Company now desires to further amend the Plan to (i) eliminate the grant of reload options, and (ii) permit the Committee, in its discretion, to grant Restricted Stock Awards from time to time to Non-Employee Directors;

NOW THEREFORE, the Company hereby amends the Plan as follows, effective as of July 12, 2005:

1. Section 8 of the Plan is deleted and intentionally left blank.

2. The second paragraph of Section 1 is amended to read as follows:

“Non-Employee Directors shall participate in the Plan through discretionary grants of NSOs pursuant to Section 5 hereof and Restricted Stock Awards pursuant to Section 9 hereof. Key Employees and Non-Employee Directors who have been selected by the Committee to receive an Award shall participate in the Plan. The Committee shall determine, within the limits of the express provisions of the Plan, those Key Employees and Non-Employee Directors to whom, and the time or times at which, Awards shall be granted. In making a determination concerning the granting of Awards, the Committee may take into account the nature of services the Key Employee or Non-Employee Director has rendered, or that the Committee expects he will render, his present and potential contributions to the success of the business, the number of years of effective service he is expected to have, and such other factors as the Committee in its sole discretion shall deem relevant. The Committee shall also determine, with respect to Awards to Key Employees and Non-Employee Directors, the number of Shares to be subject to each Award, with respect to Key Employees the type of Awards (Restricted Stock, Options or Stock Appreciation Rights (SARs)); with respect to Non-Employee Directors the type of Awards (Restricted Stock or Options); the type of Options for Key Employees (ISO or NSO); the duration of each Option; the exercise price under each Option, the time or times within which (during the Term of the Option) all or portions of each Option may be exercised, whether cash, Shares, Options or other property may be accepted in full or partial payment upon exercise of an Option; the restrictions to be imposed on Shares of Restricted Stock and any other terms and conditions of such Awards.”

3. The title to Section 9 is amended to be “Restricted Stock Awards to Key Employees and Non-Employee Directors.”

4. Section 9.1 is amended to read as follows:

9.1 Subject to the terms of the Plan, the Committee may also grant to Key Employees and Non-Employee Directors Restricted Stock Awards from time to time. Restricted Stock may be granted to a Key Employee or a Non-Employee Director either separately from, or in tandem with, the grant of an Option to the Key Employee or Non-Employee Director. In the case of Restricted Stock granted in tandem with the grant of an Option (a) the exercise of the Option shall cause the forfeiture to the Company of the Restricted Stock related to the Option or portion thereof that is exercised; and (b) the lapse of restrictions applicable to such Restricted Stock shall cause the expiration of the unexercised Option, or portion thereof, related to such Restricted Stock. Restricted Stock not granted in tandem with the grant of an Option shall have no effect on, and shall not be affected by, the exercise of any Option by the holder of such Restricted Stock.

5. Sections 9.5 through 9.7 are amended to read as follows:

9.5 At the Committee’s option, the Restricted Stock Agreement may provide that any Shares of Restricted Stock granted to a Key Employee or a Non-Employee Director pursuant to the Plan shall be forfeited to the Company if, among other reasons, (a) the Key Employee or Non-Employee Director violates a noncompetition, confidentiality or employment agreement, any Company policy, or any other conditions set forth in the Restricted Stock Agreement or in a separate document, (b) the Key Employee’s employment with the Company, or the Non-Employee Director’s service on the Board, terminates prior to the date or dates for expiration of the forfeiture provisions set forth in the applicable Restricted Stock Agreement, which date shall not be earlier than the first anniversary of such grant, (c) the Key Employee’s employment with the Company terminates for Cause, or (d) there occurs a violation of any provisions of the applicable Restricted Stock Agreement. A forfeiture of Restricted Stock pursuant to this Section 9.5 shall occur immediately following the mailing of a written notice to the Key Employee or Non-Employee Director. Thereafter, the Secretary of the Company shall promptly cancel shares of Restricted Stock that are forfeited to the Company.

9.6 Notwithstanding the foregoing, (a) if the Key Employee’s employment terminates or the Non-Employee Director’s service on the Board terminates, or (b) upon a Change in Control, any restrictions of this Section 9 or in any Restricted Stock Agreement shall lapse as provided in Sections 12 and 13.

9.7 The Committee may proscribe such other restrictions and conditions and other terms applicable to the Shares of Restricted Stock issued to a Key Employee or Non-Employee Director under the Plan that are neither inconsistent with nor prohibited by the Plan or any Restricted Stock Agreement, including, without limitation, terms providing for a lapse of the restrictions of this Section 9, provided they are set forth in the applicable Restricted Stock Agreement, in installments. Further the Committee in its discretion shall have the power at any time to accelerate the dates the restrictions lapse on any or all of the Restricted Stock granted to a Key Employee or Non-Employee Director.

6. Section 12.7 is amended to read as follows:

12.7 Pursuant to subsections 9.5 and 9.6, a Restricted Stock Award shall be subject to such restrictions in the event of the death, Disability, Retirement or other

termination of employment, or termination of service on the Board, of the Grantee as are set forth in the applicable Restricted Stock Agreement.

7. Section 13.2 is amended to read as follows:

13.2 In the event that a Non-Employee Director’s membership on the Board terminates within one year following a Change in Control which does not have the prior written approval of a majority of the Continuing Directors, any unexercised NSOs granted to a Non-Employee Director shall become fully exercisable and all restrictions applicable to a Restricted Stock Award granted to a Non-Employee Director shall lapse.

Sections 2 through 7 of this Third Amendment are subject to approval at the annual meeting of the Company’s stockholders to be held on October 19, 2005, by the affirmative votes of the holders of a majority of the Company’s voting securities present or represented and entitled to vote at such meeting. If such approval is not obtained, such Sections of this Third Amendment shall be null and void and of no effect.

IN WITNESS WHEREOF, this Third Amendment has been executed as of the 12th day of July, 2005.

	AAR CORP.


	By:	/s/ HOWARD A. PULSIFER
		Howard A. Pulsifer, Vice President

Exhibit 10.23

AAR CORP.

Director Restricted Stock Agreement

(“Agreement”)

Subject to the provisions of the AAR CORP. Stock Benefit Plan (“Plan”), the terms of which are hereby incorporated by reference herein, and in consideration of the agreements of the Grantee herein provided, AAR CORP. a Delaware corporation (“Company”), hereby grants to «Name» (“Grantee”), a restricted stock award (“Award”), effective «EffectiveDate» (“Date of Award”), of «Shares» shares of common stock (“Common Stock”) of the Company, $1.00 par value (“Award Shares”), subject to the forfeiture and nontransferability provisions hereof and the other terms and conditions set forth herein:

1. Restrictions . The Grantee represents that he is accepting the Award Shares without a view toward distribution of said Shares and that he will not sell, assign, transfer, pledge or otherwise encumber the Award Shares during the period commencing on the Date of Award and ending with respect to any specific shares of stock on the date restrictions applicable to such shares are released pursuant to this Agreement (“Restrictive Period”).

2. Release of Restrictions . Subject to the provisions of paragraph 3 below, the restrictions described in 1 above shall be released with respect to 1/3 of the Award shares on each successive anniversary of the Date of Award, except as follows:

(a) If the Grantee’s membership on the Company’s Board of Directors terminates by reason of death or Disability occurring on or after the Date of Award and on or before the second anniversary date thereof, the Restrictive Period shall terminate as to the difference between half the total number of Award Shares and those Shares

previously released. The remaining shares shall be forfeited and returned to the Company.

(b) If the Grantee’s membership on the Company’s Board of Directors is terminated by reason of death or Disability after the second anniversary of the Date of Award, the Restrictive Period shall immediately terminate as to all of the Award Shares not previously released.

(c) If the Grantee’s membership on the Company’s Board of Directors is terminated by reason of Retirement prior to the last day of the Restrictive Period, the Restrictive Period shall terminate in accordance with the restriction release schedule set forth above as to the Award Shares not previously released. For purposes of this Agreement, Retirement means voluntary termination of membership on the Company’s Board of Directors at or after reaching the age of 65 with not less than five (5) consecutive years of service as a non-employee member of the Company’s Board of Directors.

(d) If the Grantee’s membership on the Company’s Board of Directors terminates prior to the last day of the Restrictive Period for any reason other than death, Disability or Retirement, the Grantee shall forfeit and return to the Company all Award Shares not previously released from the restrictions of Section 1 hereof.

(e) If at any time prior to release from restrictions hereunder, Grantee, without the Company’s express written consent, directly or indirectly, alone or as a member of a partnership, group, or joint venture or as an employee, officer, director, or greater than 1% stockholder of any corporation, or in any capacity engages in any activity which is competitive with any of the businesses conducted by the Company or

its Affiliated Companies from time to time or at any time during the Grantee’s membership on the Company’s Board of Directors, the Grantee shall forfeit and return all Award Shares not previously released from the restrictions of Section 1 hereof.

3. Change in Control . In the event the Grantee’s membership on the Company’s Board of Directors terminates within one year following a Change in Control of the Company, whether or not such change has the prior written approval of the Continuing Directors, the Restrictive Period shall terminate as to all Award Shares not previously released.

4. Change in Outstanding Shares . In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Award Shares shall be treated in the same manner in any such transaction as other shares of Common Stock. Any additional shares of stock received by Grantee with respect to the Award Shares in any such transaction shall be subject to the same restrictions as are then applicable to those Award Shares for which the additional shares have been issued.

5. Rights of Grantee . As the holder of the Award Shares, Grantee is entitled to all of the rights of a stockholder of AAR CORP. with respect to any of the Award Shares, when issued, including, but not limited to, the right to receive dividends declared and payable since the Date of Award.

6. Certificates . In aid of the restrictions set forth in paragraph 1, certificates for the Award Shares, together with a suitably executed stock power signed by the Grantee, shall be held by a nominee of the Company for the account of Grantee until such restrictions lapse pursuant to the terms hereof, or such Shares are forfeited to the nominee of the Company as provided by the Plan or this Agreement. The Grantee shall be entitled to possession of certificates representing the Award Shares as to which such restrictions have terminated, and the Company agrees to issue such separate certificates as are necessary to facilitate such possession.

7. Legend . The Company may, in its discretion, place a legend or legends on any certificate representing Award Shares issued to the Grantee that the Company believes is required to comply with any law or regulation.

8. Committee Powers . The Committee may subject the Award Shares to such conditions, limitations or restrictions as the Committee determines to be necessary or desirable to comply with any law or regulation or with the requirements of any securities exchange. At any time during the Restrictive Period, the Committee may reduce or terminate the Restrictive Period otherwise applicable to all or any portion of the Award Shares.

9. Withholding Taxes . Upon the Taxable Date of the Award, the Grantee shall remit to the Company an amount necessary to satisfy applicable withholding

requirements including those arising under state and federal income tax laws prior to the delivery by the Company of any certificate or certificates for shares. If the Grantee does not remit such amount, the Company may withhold all or a portion of any compensation then or in the future owed to the Grantee as necessary to satisfy such requirements.

The Grantee may satisfy such withholding requirements in connection with such Award in whole or in part by (i) directing the Company to withhold a portion of the shares otherwise distributable to the Grantee or (ii) transferring to the Company shares of Common Stock of the Company previously acquired by the Grantee having a Fair Market Value on the date such shares are transferred to the Company equal to the amount of such withholding or lesser portion thereof as may be desired by the Grantee. A Grantee’s election pursuant to the preceding sentence must be made on or prior to the date as of which income is realized by the Grantee in connection with such Award and must be irrevocable. In lieu of a separate election on each Taxable Date, the Grantee may file a blanket election with the Committee which shall govern all future Taxable Dates until revoked by the Grantee.

10. Postponement of Exercise or Distribution . Notwithstanding anything herein to the contrary, the distribution of any portion of the Award Shares shall be subject to action by the Board taken at any time in its sole discretion (i) to effect, amend or maintain any necessary registration of the Plan or the Award Shares distributable in satisfaction of this Award under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction, (ii) to permit any action to be taken in order

to (a) list such Award Shares on a stock exchange if the Common Stock is then listed on such exchange or (b) comply with restrictions or regulations incident to the maintenance of a public market for its Shares of Common Stock, including any rules or regulations of any stock exchange on which the Award Shares are listed, or (iii) to determine that such Award Shares and the Plan are exempt from such registration or that no action of the kind referred to in (ii)(b) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of this Award or any provision of this Agreement or the Plan to issue or release the Award Shares in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof. Any such postponement shall not shorten the term of any restriction attached to the Award Shares and neither the Company nor its directors or officers shall have any obligation or liability to the Grantee or to any other person as to which issuance under the Award Shares was delayed.

11. Miscellaneous .

(a) This Agreement shall be continued, administered and governed in all respects under and by the laws of the State of Illinois.

(b) Capitalized terms used herein and not defined herein will have the meaning set forth in the Plan.

(c) This Agreement has been examined by the parties hereto, and accordingly the rule of construction that ambiguities be construed against a party which causes a document to be drafted shall have no application in the construction or

interpretation hereof. If any part of this Agreement is held invalid for any reason, the remainder hereof shall nevertheless remain in full force and effect.

(d) This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and any prior understanding or representation of any kind antedating this Agreement concerning such subject matter shall not be binding upon either party except to the extent incorporated herein. No consent, waiver, modification or amendment hereof, or additional obligation assumed by either party in connection herewith, shall be binding unless evidenced by a writing signed by both parties and referring specifically hereto. No consent, waiver, modification or amendment with respect hereto shall be construed as applicable to any past or future events other than the one in respect of which it was specifically made.

(e) This Agreement shall be construed consistent with the provisions of the Plan and in the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control and any terms of this Agreement which conflict with Plan terms shall be void.

IN WITNESS WHEREOF, the Company has caused this Award to be granted as of the Date of Award.

	AAR CORP.

	By
		Howard A. Pulsifer, Vice President

The Grantee hereby accepts the foregoing Restricted Stock Award and agrees to the terms and conditions thereof on this day of , 2006.

Grantee

Exhibit 31.1

SECTION 302

CERTIFICATION

I, David P. Storch, Chairman, President and Chief Executive Officer of AAR CORP. (the “Registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of AAR CORP. for the quarterly period ending February 28, 2006;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

DATE: April 6, 2006

	/s/ DAVID P. STORCH
	David P. Storch
	Chairman, President and Chief Executive Officer

Exhibit 31.2

SECTION 302

CERTIFICATION

I, Timothy J. Romenesko, Vice President and Chief Financial Officer of AAR CORP. (the “Registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of AAR CORP. for the quarterly period ending February 28, 2006;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

DATE: April 6, 2006

	/s/ TIMOTHY J. ROMENESKO
	Timothy J. Romenesko
	Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the AAR CORP. (the “Company”) quarterly report on Form 10-Q for the period ending February 28, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David P. Storch, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 6, 2006

	/s/ DAVID P. STORCH
	David P. Storch
	Chairman, President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the AAR CORP. (the “Company”) quarterly report on Form 10-Q for the period ending February 28, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy J. Romenesko, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 6, 2006

	/s/ TIMOTHY J. ROMENESKO
	Timothy J. Romenesko
	Vice President and Chief Financial Officer