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Notice of 2020 annual meeting of stockholders

Items of business

You will be asked at our annual meeting to:

Items of business			Board recommendation			Page
1	Elect four directors included in our annual proxy statement			FOR each director nominee		11
2	Vote on an advisory proposal to approve our Fiscal 2020 executive compensation			FOR		35
3	Approve amendments to the AAR CORP. 2013 Stock Plan			FOR		70
4	Ratify the appointment of KPMG LLP as our independent registered public accounting firm for Fiscal 2021			FOR		76

Stockholders will transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting.

Voting

Your vote is important. We encourage you to vote your shares as soon as possible. You may vote by proxy over the Internet, by telephone, or by completing and returning the enclosed proxy card in the postage-paid envelope provided. We also welcome you to attend the meeting and vote virtually.
		www.proxyvote.com		1-800-690-6903		Complete and return the proxy card or voting information card

Please see Appendix A for important information about voting your shares at our 2020 annual meeting.

By Order of the Board of Directors,

Jessica A. Garascia
Vice President, General Counsel and Secretary

August 28, 2020

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2020 Proxy statement summary

This summary highlights selected information contained in this proxy statement. Please read the entire proxy statement carefully before voting your shares.

Proposals to be voted on at the annual meeting

Proposal 1  Election of four directors named in this proxy statement
FOR each director nominee			► See (pages 11-34)

	H. John Gilbertson, Jr. Independent Director Appointed March 2020			Robert F. Leduc Independent Director Appointed July 2020
Retired Managing Director (1997 to 2012) at Goldman Sachs, a global investment banking, securities and investment management firm; also served as Advisory Director (2013 to 2015), and Partner-in-Charge, Midwest Region Investment Banking Services (2001 to 2010); prior thereto, various positions within Goldman Sachs.			President of Pratt & Whitney, a subsidiary of United Technologies Corporation, from 2016 until retirement in early 2020. President of helicopter manufacturer Sikorsky Aircraft from 2015-2016, when UTC sold Sikorsky to defense contractor Lockheed Martin Corp. Previously, served in leadership positions at Hamilton Sundstrand and UTC Aerospace Systems.
	Duncan J. McNabb Independent Director Incumbent			Peter Pace Independent Director Incumbent
Since 2011, Co-Founder and Managing Partner of Ares Mobility Solutions Inc. (a privately-held logistics business). General, U.S. Air Force (Retired) after 37 years of active commissioned service. Former Commander, U.S. Air Mobility Command, 33rd Vice Chief of Staff of the U.S. Air Force and Former Commander of US TRANSCOM.			General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff (the most senior position in the United States Armed Forces).

Proposal 2  Advisory proposal to approve our Fiscal 2020 executive compensation
FOR			► See (pages 35-69)

Proposal 3  Approve amendments to the AAR CORP. 2013 stock plan
FOR			► See (pages 70-75)

FOR	► See (pages 76-77)

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2020 Proxy statement summary

AAR – Who we are and what we do

AAR is a global aerospace and defense aftermarket solutions company that operates in over 20 countries. Headquartered in the Chicago area, AAR supports commercial and government customers in over 100 countries through two operating segments: Aviation Services and Expeditionary Services.

Aviation Services						Expeditionary Services
Parts Supply		Repair & Engineering		Integrated Solutions		Manufacturing
●Serviceable and OEM factory-new parts ●Engine solutions, management, leasing and exchange ●Aircraft sales and leasing ●Online PAARTSSM Store		●Airframe MRO ●Component Repair ●Landing Gear ●Wheels and Brakes ●Engineering Services		●Flight hour-based component support ●Contractor logistics support ●Performance-based logistics		●Mobility Systems: shelters, containers, pallets

Aviation Services – connected businesses model

Integrated businesses leveraged to reinforce and grow the whole

Customers (percentage of Fiscal 2020 sales)

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2020 Proxy statement summary

Key business achievements in Fiscal 2020

		Continued execution of Aviation Services “connected businesses” strategy
		●Leveraged best-in-class services within Parts Supply, Repair & Engineering and Integrated Solutions (Government and Commercial Programs) to reinforce and grow each business and Aviation Services as a whole. ●Integrated Solutions – AAR was awarded a $118M C-40 aircraft procurement and modification contract with Naval Air Systems Command in support of U.S. Marine Corps. ●Expeditionary Services – AAR Mobility Systems was awarded a $125 million sole source firm-fixed-price (FFP) contract from the U.S. Air Force to produce and repair 463L Cargo Pallets. ●Parts Supply announced several new and expanded distribution agreements with Leach International, Woodward, Inc. and AeroControlex. ●Repair and Engineering entered into a letter of intent with Air Canada to add new aircraft types and establish airframe maintenance Center of Excellence at Trois-Rivières MRO location and was awarded long-term contracts with new customers, including the Royal Netherlands Air Force to service the CH-47 Chinook APU.

		Implemented cost reductions
		●Closing the Duluth, Minnesota maintenance, repair and overhaul facility and transferring the equipment to other AAR operations ●Furloughing approximately 1,200 full-time employees ●Consolidating its Goldsboro, North Carolina facility into its Cadillac, Michigan facility ●Eliminating non-essential spending

Financial highlights

AAR had strong financial performance for Fiscal 2020 in light of the impact of the COVID-19 pandemic. Consolidated sales exceeded $2 billion, (an increase of 1% over Fiscal 2019), diluted earnings per share from continuing operations was $0.71 (a decrease of 70% over Fiscal 2019) and adjusted diluted earnings per share from continuing operations, a non-GAAP financial measure, was $2.15 (a decrease of 11.8% over Fiscal 2019). AAR maintained its strong balance sheet in Fiscal 2020 and implemented several cost cutting initiatives to help it navigate uncertain market conditions presented by COVID-19.

For a definition of adjusted diluted earnings per share from continuing operations and a reconciliation of this measure to the closest comparable GAAP financial measure, see Appendix B.

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2020 Proxy statement summary

Key financial achievements

Revenue and growth		Adjusted diluted EPS from continuing operations*

Executive compensation highlights

Pay–for–performance alignment

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2020 Proxy statement summary

Fiscal 2020 compensation of our chief executive officer John M. Holmes

Fiscal 2020 compensation of our other named executive officers

Fiscal 2020 executive compensation program

In light of the ongoing global COVID-19 crisis, and in order to aggressively manage our business in light of a changing market environment, we introduced a number of cost reduction measures during the last quarter of Fiscal 2020, including:

In addition, we continue to be committed to ensuring pay for performance in response to stockholder feedback from our 2017 and 2018 say-on-pay votes and investor feedback. We believe the outcome of our 2019 say-on-pay vote (97%) demonstrated strong stockholder support for our executive compensation program. We will continue to consider investor feedback relating to our executive compensation program.

Say-on-pay vote

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2020 Proxy statement summary

Executive compensation practices

What We Do			What We Don’t Do
Annual say-on-pay stockholder vote   Challenging performance targets under our incentive compensation plans   Emphasis on performance-based compensation   Multi-year vesting periods for stock awards   Limited perquisites   “Double trigger” change-in-control provisions in executive agreements   Meaningful stock ownership and retention guidelines for directors and executive officers   Prohibition on short sales, pledging and hedging transactions   Claw-backs of incentive compensation in the event of certain financial restatements   Annual assessment of incentive compensation plans			No tax gross-ups   No repricing of stock options   No dividends on performance based restricted stock unless performance goals are met

Corporate governance highlights

Our goal is to ensure that our corporate governance practices reflect best practices tailored, as necessary, to the Company’s culture, strategy and performance.

Corporate governance practices

Independent Lead Director   Majority voting in uncontested director elections   Stock ownership and retention guidelines   Annual stock grant to non-employee directors   Executive sessions of Independent directors   Independent compensation consultant   Annual Board and Board Committee self-evaluations   Director orientation and continuing education programs   All directors on the audit committee are “audit committee financial experts”

Code of business ethics and conduct   Ethics hotline policy   Related person transaction policy   Disclosure committee for financial reporting   Annual stockholder approval of executive compensation   Stockholder engagement program   Separation of Chairman and CEO Roles   Independent Board Committees   Enterprise Risk Management Program

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2020 Proxy statement summary

ESG focus

AAR embraces the importance of “giving back” as a critical part of its corporate culture. AAR’s corporate social responsibility efforts include a focus on environmental, social and governance activities. In particular, AAR seeks to expand its impact and make a difference with charitable giving, employee actions, and corporate initiatives, including but not limited to the following:

Support for veterans

Aviation-focused education

Health and wellness

Environmental

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Proposal 1 Election of directors

Proposal 1 Election of four directors named in this proxy statement
Board recommendation
	Our Board of Directors unanimously recommends that you vote FOR each director nominee.

Proposal summary

We are asking you to elect four directors named in this proxy statement at this annual meeting. The director nominees are: H. John Gilbertson, Jr., Robert F. Leduc, Duncan J. McNabb and Peter Pace.

Each director nominee is currently serving as a director of the Company. Each director nominee has been determined by the Board to be “independent” within the meaning of the rules of the New York Stock Exchange (“NYSE”) and the SEC.

Ronald Woodard, a director of the Company since 2004, and Patrick J. Kelly, a director of the Company since 2006, are retiring at this annual meeting. We are grateful to Mr. Kelly and Mr. Woodard for their superb leadership and contributions to the Company during their tenure as directors. With these retirements, the Board will act to reduce the number of directors to 11.

Director skills & qualifications

While the Nominating and Governance Committee believes that the Board is currently well-balanced and able to address our Company’s needs, the recent additions of Messrs. Leduc and Gilbertson increase the Board’s diversity of thought and prepares us for future growth and innovation. As evidenced by the biographical information provided below, our directors have significant experience in chief executive or other senior level operating, financial and international management positions.

A majority of our existing directors currently serve as a director of other public companies, which provides them with diverse experiences that can enhance their contribution to our Board.

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Proposal 1 Election of directors

Set forth below is information regarding the nominees for election as directors and information regarding the directors in each class continuing in office after the annual meeting. Also discussed below are specific experience, qualifications, attributes and skills of our directors considered by the Nominating and Governance Committee as part of its review of our Board’s membership and in connection with its nomination of the candidates for election to the Board at the annual meeting.

Anthony Anderson

Michael Boyce

H. John Gilbertson

James Goodwin

John M. Holmes

Robert F. Leduc

Duncan McNabb

Peter Pace

David Storch

Jennifer Vogel

Marc Walfish

CEO experience

Finance

Accounting

Commercial aerospace

Military aerospace

Services

International business

Sales & marketing

Supply chain & logistics

Operating

M&A

Manufacturing

Government contracting

Information technology

Human resources

Risk management

Corporate governance

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Information about our director nominees and our continuing directors

Information about our director nominees and our continuing directors whose terms expire in future years is set forth below.

Our director nominees

Class III Directors whose terms expire at the 2020 annual meeting

H. John Gilbertson, Jr.     Independent Director Skills and qualifications Finance, Accounting, Services, International business, Sales & marketing, M&A, Manufacturing, Risk management, Corporate governance Career highlights Retired Managing Director (1997 to 2012) at Goldman Sachs, a global investment banking, securities and investment management firm; also served as Advisory Director (2013 to 2015), and Partner-in-Charge, Midwest Region Investment Banking Services (2001 to 2010); prior thereto, various positions within Goldman Sachs. Director qualifications The Board of Directors concluded that Mr. Gilbertson should serve as a director of the Company based on his almost four decades of experience in the professional and financial services industry, his service as a director of other public companies, and his knowledge and experience in corporate finance, capital markets, mergers and acquisitions, financial risk oversight and capital allocation, senior leadership development, succession planning, and organizational culture development.

Age: 63 Director since: March 2020 Other public company directorships: ●Dover Corporation

Robert F. Leduc     Independent Director Skills and qualifications CEO experience, Finance, Commercial aerospace, Military aerospace, Services, International business, Sales & marketing, Supply Chain & Logistics, Operating, M&A, Manufacturing, Human resources, Risk management, Corporate governance, Government Contracting Career highlights President of Pratt & Whitney, a subsidiary of United Technologies Corporation, from 2016 until his retirement early 2020. President of helicopter manufacturer Sikorsky Aircraft from 2015-2016. Previously, served in leadership positions at Hamilton Sundstrand and UTC Aerospace Systems. Director qualifications The Board of Directors concluded that Mr. Leduc should serve as a director of the Company based on his extensive experience in the aviation sector, his operational expertise managing through various down cycles, and his significant experience in enhancing brands and managing talent, in addition to his experience serving on other public company boards.

Age: 64 Director since: July 2020 Other public company directorships: ●JetBlue Airways Corporation ●Howmet Aerospace, Inc.

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Duncan J. McNabb     Independent Director Skills and qualifications Commercial aerospace, Military aerospace, Services, Supply Chain & Logistics, Operating, Government Contracting, Risk management, Corporate governance Career highlights Since 2011, Co-Founder and Managing Partner of Ares Mobility Solutions Inc. (a privately-held logistics business); General, U.S. Air Force (Retired) after 37 years of active commissioned service. Former Commander, U.S. Air Mobility Command, 33rd Vice Chief of Staff of the U.S. Air Force and Former Commander of US TRANSCOM. Director qualifications The Board of Directors concluded that General McNabb should serve as a director of the Company based on his government resourcing and government affairs expertise, his strategic planning, operations and leadership skills and his 37-year record of service with the United States Air Force, including his service as Commander of the United States Transportation Command (the single manager for global air, land and sea transportation for the Department of Defense).

Age: 68 Director since: 2017 Other public company directorship: ●Atlas Air Worldwide, Inc.

Peter Pace     Independent Director Skills and qualifications Commercial aerospace, Military aerospace, Services, Supply Chain & Logistics, Operating, Government Contracting, Information technology, Human resources, Risk management, Corporate governance Career highlights General, U.S. Marine Corps (Retired). From 2005 to 2007, Chairman of the Joint Chiefs of Staff (the most senior position in the United States Armed Forces). Director qualifications The Board of Directors concluded that General Pace should serve as a director of the Company based on his leadership and management skills and experience from over 40 years of service with the United States Marine Corps, culminating in his appointment as the 16th Chairman of the Joint Chiefs of Staff (where he served from 2005 to 2007 as the principal military adviser to the President, the Secretary of Defense, the National Security Council and the Homeland Security Council), his understanding of the government and defense markets, his cybersecurity expertise and his current and prior service as a director of other public companies.

Age: 74 Director since: 2011 Other public company directorship: ●Qualys, Inc. Other public company directorships held in the past five years: ●Laserlock Technologies, Inc. ●Pike Electric Corp. ●Textura Corporation

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Our continuing directors

Class I Directors whose terms expire at the 2021 annual meeting

Anthony K. Anderson     Independent Director Skills and qualifications CEO experience, Finance, Accounting, Services, Sales & marketing, Operating, M&A, Risk management, Corporate governance, Career highlights Since 2012, an independent business consultant. From 2006 to April 2012, Vice Chair and Managing Partner of Midwest Area at Ernst & Young LLP (a global accounting and consulting firm). Prior thereto, Mr. Anderson served in various management positions during a 35-year career with Ernst & Young LLP. Director qualifications The Board of Directors concluded that Mr. Anderson should serve as a director of the Company based on his 35 years working with a global accounting and consulting firm, his accounting and financial knowledge, his leadership in developing talent management programs, his service as a director of other public companies, and his professional, civic and charitable service, including as a director of private companies and numerous not-for-profit organizations.

Age: 64 Director since: 2012 Other public company directorships: ●Avery Dennison Corp. ●Exelon Corp. ●Marsh & McLennan Companies Other public company directorships held in the past five years: ●First American Financial Corporation

Michael R. Boyce     Independent Director Skills and qualifications CEO experience, Finance, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Manufacturing, Risk management, Corporate governance Career highlights Since 2018, Chairman, Chief Executive Officer and Managing Director of The Peak Group (an operating and acquisition company) and retired Chairman of the Board of PQ Corporation (a specialty chemicals and catalyst company). From 2015 to 2018, Chairman of the Board of PQ Corporation. From 2005 to 2015, Chairman and Chief Executive Officer of PQ Corporation. Director qualifications The Board of Directors concluded that Mr. Boyce should serve as a director of the Company based on his experience in leading two global organizations, his insight into global manufacturing, supply and distribution practices and his international business development skills.

Age: 72 Director since: 2005 Other public company directorships: ●Stepan Company

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Age: 67 Director since: 1989 Other public company directorships: ●Kemper Corporation Other public company directorships held in the past five years: ●KapStone Paper and Packaging Corp.

David P. Storch     Chairman of the Board Skills and qualifications CEO experience, Commercial aerospace, Military aerospace, Services, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Manufacturing, Government contracting, Human resources, Risk management, Corporate governance Career highlights Chairman of the Board of AAR CORP. since 2005. Chief Executive Officer from 1996 to May 31, 2018 and President from 1989 to 2007 and 2015 to June 2017. Director qualifications The Board of Directors concluded that Mr. Storch should serve as a director of the Company based on his previous position as Chief Executive Officer of the Company, his leadership and management skills, his understanding of the Company’s businesses gained during his 40-year career with the Company and his knowledge of the commercial aviation and government/defense markets.

Age: 58 Director since: 2016 Other public company directorships: ●None Other public company directorships held in the past five years: ●American Science and Engineering, Inc. ●Clearwire Corporation ●Virgin America, Inc.

Jennifer L. Vogel     Independent Director Skills and qualifications Commercial aerospace, Services, International business, M&A, Government contracting, Human resources, Risk management, Corporate governance Career highlights 2012 to 2020, co-founder and owner of InVista Advisors, an advisory firm focused on legal department effectiveness, leadership, compliance, crisis readiness and risk management. From 2003 to 2010, Senior Vice President, General Counsel, Secretary and Chief Compliance Officer of Continental Airlines, Inc. Director qualifications The Board of Directors concluded that Ms. Vogel should serve as a director of the Company based on her experience as a highly successful corporate executive with over 25 years of leadership experience in the airline and energy industries, including her leadership positions with Continental Airlines, her legal and corporate governance expertise, her experience in regulatory issues, mergers and acquisitions, ethics and compliance matters and her past experience as a director of other public companies, including Virgin America, Inc.

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Class II Directors whose terms expire at the 2022 annual meeting

President and Chief Executive Officer of AAR CORP. Age: 43 Director since: 2017 Other public company directorships: ●None

John M. Holmes     Director Skills and qualifications CEO experience, Finance, Commercial aerospace, Services, International business, Sales & marketing, Supply chain & logistics, Operating, M&A, Human resources, Risk management, Corporate governance Career highlights President and Chief Executive Officer of AAR CORP. since June 1, 2018. President and Chief Operating Officer from June 1, 2017 to June 1, 2018. From 2015 to June 1, 2017, Chief Operating Officer of the Aviation Services business group of AAR CORP. From 2012 to 2015, Group Vice President, Aviation Services – Inventory Management and Distribution; and prior thereto, General Manager and Division President of AAR Allen Asset Management. Director qualifications The Board of Directors concluded that Mr. Holmes should serve as a director of the Company based on his position as President and Chief Executive Officer, his demonstrated leadership and management abilities, and his knowledge of the Company’s businesses, its portfolio of services and the markets in which it competes, and the customer and supplier relationships that Mr. Holmes has developed during his 18-year tenure with the Company.

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Age: 68 Director since: 2003 Other public company directorships: ●None

Marc J. Walfish     Independent Director Skills and qualifications Finance, Accounting, Sales & marketing, M&A, Risk management Career highlights Since 2003, Founding Partner of Merit Capital Partners (a mezzanine investor company). From 1991 to 2003, partner at William Blair Mezzanine Capital Partners. From 1978 to 1991, various positions at Prudential Capital Corporation, most recently as Senior Vice President. Director qualifications The Board of Directors concluded that Mr. Walfish should serve as a director of the Company based on his experience in the finance industry, including as a founding partner of Merit Capital Partners, his knowledge of the capital markets and his expertise in corporate finance, strategic planning and risk management.

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Our culture Our purpose—doing it right to better connect the world At AAR, we constantly search for the right thing to do for our customers, for our employees, for partners and for society. We wake up in the morning knowing we have to deliver and we leave at the end of the day having done our best and determined to return the next day to do even better. We do not rest on our earlier accomplishments. In 1955, American aviation was the new tech industry. AAR—a startup—was already supplying parts to the aviation industry—efficiently moving inventory, setting in motion our participation in America’s great boom. Today, from Chicago to London to Singapore to Dubai, our customers, employees and partners are helping us do what is right worldwide—and that includes being a vital link in commercial airline safety and supporting the U.S. military and its allies. Our commitment to our government customers also reached new heights in Fiscal 2020 as demonstrated, in particular, by the logistics and supply chain programs we provide in support of the U.S. Navy, U.S. Air Force, U.S. Marshals Service, and U.S. Department of State. Through our AAR Aviation Services and Expeditionary Services businesses, we design technical, operational, logistic and financial solutions—doing it right and quickly delivering our customers safety, efficiencies and competitiveness. This lets them do what they do best—fly and connect the world. Our mission To be the best at designing and delivering technical, operational and financial solutions to enhance the efficiency and competitiveness of our commercial aviation and government customers. Our strategy Our strategy is to become the leading independent provider of innovative solutions to the aviation aftermarket. We will achieve this strategy through our ability to: ●Execute through focus on customer satisfaction and cost leadership; ●Pursue connected businesses that reinforce collective growth prospects; ●Leverage data and digital to deliver better customer-focused solutions; ●Expand margins through intellectual property; ●Increase our global footprint into emerging markets; ●Leverage our independence to provide feasible solutions; and ●Attract, empower and deploy exceptional, entrepreneurial talent.		Our values

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Proposal 1 Election of directors

Aviation Services – connected businesses model

Integrated businesses leveraged to reinforce and grow the whole

Integrated Solutions ●Strategic relationships with airlines, MROs, OEMs and repair vendors ●Fuel Parts Supply business ●Fund Component Repair capability development ●Long-term contracts / predictable revenue

Parts Supply ●Transactional data collection ●Exclusive relationships with OEMs and customers ●Inventory pooling with programs Repair & Engineering ●Strategic relationships with airlines ●Technical repair knowledge and data collection ●Develop parts for internal and external consumption

Together, our Aviation Services “Connected Businesses” – Parts Supply (Trading and OEM aftermarket solutions), Repair & Engineering and Integrated Solutions (Government and Commercial Programs) – aim to drive growth through best–in–class services within each discipline and leverage each to reinforce and grow the whole.

We also remain focused on enhancing our manufacturing capabilities at our Mobility business.

Corporate governance

Good corporate governance is an essential part of our corporate culture. We review our corporate governance policies and procedures on an annual basis. We strive to emulate “best practices,” tailoring them, as appropriate, to fit our culture, strategy and performance. We believe that we comply with all applicable SEC and NYSE corporate governance rules and regulations. We also have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.

Copies of the following corporate governance documents are available on the Company’s website at www.aarcorp.com under “Investors / Corporate Governance”:

These corporate governance documents are also available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.

In Fiscal 2019, the Company hired a Chief Compliance Officer to oversee and implement enhancements to the Company’s compliance program. These enhancements focus on anti-bribery and anti-corruption policies and procedures, third-party due diligence, risk assessments and similar measures designed to promote the Company’s “Doing It Right” corporate purpose.

Recent adoption of limited duration stockholder rights agreement

On March 30, 2020, the Company announced that our Board had approved the adoption of a stockholder rights agreement (the “Rights Agreement”). We are providing this information to describe the Board’s reasons for adopting the Rights Agreement and the key features of the Rights Agreement. The Board unanimously determined, with advice from its outside legal counsel and financial advisor, that the adoption of the Rights Agreement was appropriate in light of the extreme market dislocation that resulted in the Company’s stock being fundamentally undervalued.

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The conditions stemming from the impact of COVID-19 on the economy and, in particular, on the airline industry, resulted in significant declines in the Company’s stock price. The Rights Agreement is intended to enable all of the Company’s stockholders to realize the full value of their equity investment and to protect the stockholders from bidders seeking to acquire control of the Company by buying its stock at prices that do not reflect the Company’s long-term value.

The key terms of the Rights Agreement include:

Limited duration. The Rights Agreement will expire without any further action by the Board on February 28, 2021.

10% trigger threshold for exercising the right. The rights will become exercisable only if a person or group acquires, without prior Board approval, 10% (or 20% in the case of passive investors who are eligible to, and do, report their holdings on Schedule 13G) or more of the outstanding common stock of the Company. The failure of a person or group to obtain Board approval before exceeding the applicable threshold would result in extreme dilution of its equity holdings, as all other stockholders would then be able to buy the Company’s stock at reduced prices.

Grandfathering of certain investors. The Rights Agreement also provides that if a stockholder’s beneficial ownership of the Company’s common stock as of the time of the first public announcement of the declaration of the rights dividend is at or above the applicable threshold (including through entry into certain derivative positions), the stockholder’s then-existing ownership percentage would be grandfathered, but the rights would become exercisable if at any time after such date, the stockholder increases its ownership percentage by 0.001% or more.

As of the date of this Proxy Statement, the stockholders with whom we have engaged since adoption of the Rights Agreement have not expressed any disagreement with our rationale for adopting the Rights Agreement, including the need to protect the interests of the Company and its long-term stockholders.

Stockholder engagement

We recognize and value the importance of engaging with our stockholders and other key constituents in an open and constructive manner.

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Proposal 1 Election of directors

Director nominations and qualifications

The Board of Directors, acting through its Nominating and Governance Committee, is responsible for identifying, evaluating and recommending candidates for director.

Solicitation of director candidate recommendations The Nominating and Governance Committee solicits director candidate recommendations from management, other directors, business and community leaders and stockholders. The Nominating and Governance Committee also may retain the services of a search firm to assist in identifying director candidates.
Candidate considerations The Nominating and Governance Committee considers all director candidates in the same manner, regardless of whether recommendations come from the Board, stockholders or other sources. In its evaluation of director candidates, the Nominating and Governance Committee considers the factors specified in the Company’s Corporate Governance Guidelines, including: ●A high level of integrity and professional and personal ethics and values consistent with those of the Company; ●Professional background and relevant business and industry experience; ●Current employment, leadership experience and other board service; ●Demonstrated business acumen or special technical skills or expertise (e.g., auditing, financial, law and aviation/aerospace); ●A commitment to enhancing stockholder value and serving the interests of all stockholders; ●Independence (including within the meaning of the applicable SEC rules and applied to all NYSE rules) and freedom from any conflicts of interest that may interfere with a director’s ability to discharge his/her fiduciary duties; ●Willingness and ability to make the commitment of time and attention necessary for effective Board service; ●A balance of business, financial and other experience, expertise, capabilities and perspectives among sitting directors in the context of the current composition of the Board, operating requirements of the Company and long-term interests of stockholders; and ●Other factors the Nominating and Governance Committee deems appropriate.
Consideration of inclusive diversity and expertise The Nominating and Governance Committee considers the racial, ethnic and gender diversity of the Board and director candidates, as well as the diversity of their knowledge, skills, experience, background and perspective, to assure that the Company maintains the benefit of a diverse, balanced and effective Board. In order to help facilitate the evaluation of diverse candidates, the Board adopted amended Corporate Governance Guidelines in December 2019 that mandate that a diverse candidate must be included in any director search. The Nominating and Governance Committee and the full Board maintain a current matrix of skills, competencies and experiences of each director. This matrix enables the Committee and the Board to ensure that the Board as a whole has the diversity of expertise and experience necessary for the effective oversight of the Company.
Recommendation
Following its evaluation of director candidates, the Nominating and Governance Committee recommends its director nominees to the full Board of Directors. Based on its review and consideration of the Committee’s recommendation, the Board makes the final determination of the director nominees to be presented for election by the Company’s stockholders.

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Proposal 1 Election of directors

A full list of the qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Company’s website at www.aarcorp.com under “Investors/Corporate Governance” and is available in print to any stockholder upon written request to the Secretary of the Company at the address listed on the first page of this proxy statement. The Nominating and Governance Committee regularly reviews these qualifications and the performance of individual directors and the Board as a whole.

Stockholders may submit a proposed director nomination to the Nominating and Governance Committee for consideration at the 2021 annual meeting of stockholders by writing to the Secretary, AAR CORP., One AAR Place, 1100 North Wood Dale Road, Wood Dale, Illinois 60191. To be eligible for consideration under the Company’s By-Laws, a proposed nomination must be received by the Secretary of the Company no later than April 10, 2021, must state the reasons for the proposed nomination and must contain the information required under the Company’s By-Laws, including the full name and address of the proposed nominee, a brief biographical background setting forth the nominee’s past and present directorships, employment and occupations and information as to stock ownership and certain arrangements regarding the Company’s common stock. A proposed nomination must also include a statement indicating that the proposed nominee has consented to being named in the proxy statement and to serve if elected.

Director independence

A majority of the members of the Board of Directors must be independent directors under the Company’s Corporate Governance Guidelines and applicable SEC and NYSE rules. The Nominating and Governance Committee and the Board of Directors review each director annually and make a determination concerning independence after consideration of all known facts and circumstances. The Board has established categorical standards to assist it in determining director independence. The Company’s “Categorical Standards for Determining Director Independence” include all of the elements of the applicable SEC and NYSE rules with respect to director independence.

Based on these categorical standards, its review of all relevant facts and information available, and the recommendations of the Nominating and Governance Committee, the Board, at its meeting in July 2020, affirmatively determined that no director has a material relationship with the Company that would impair the director’s ability to exercise independent judgment and, accordingly, that each director is an independent director, except for Mr. Storch and Mr. Holmes due to their recent and current employment with the Company, respectively.

The Board’s independence determinations consider the impact of Board service tenure on a director’s independence, particularly with respect to directors with 10 or more years of Board service. The Board concluded that all longer-tenured directors, based on their communications and interactions with management, their decisions and their adherence to their fiduciary duties to stockholders, have demonstrated their independence from management.

Director independence

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directors are independent

Board composition and refreshment

The Company has added five new directors — H. John Gilbertson, Jr., John M. Holmes, Robert F. Leduc, Duncan J. McNabb and Jennifer L. Vogel — in the last five years as a part of its ongoing Board refreshment process. Two directors will retire at the 2020 annual meeting of stockholders, and there are three director retirements upcoming in the next four years. The Board, therefore, will have the opportunity to continue to adjust its composition by seating a new generation of directors to lead the Company as it seeks to solidify and enhance its status in the aviation services markets.

In considering director candidates, the Board takes into account the skills, tenure and diversity of current directors to ensure that there is a proper balance between director stability and fresh perspectives in the boardroom.

As a part of this effort, the Board maintains a director matrix to ensure that the Board, as a whole, has the expertise, experience, diversity and skillset critical to the Company’s continued success.

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The Board’s role and responsibilities

Role and responsibilities of the Board

The Board of Directors is elected by the Company’s stockholders and represents their interests in overseeing the Company’s management, strategic direction and financial success. The Board exercises its oversight responsibilities directly and through its Committees.

The Board identified and gives particular attention to four “Critical Areas of Board Focus”.

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Proposal 1 Election of directors

Role and responsibilities of the Board committees

The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee and an Executive Committee. The following table outlines the risk oversight and general responsibilities of the Board committees as well the composition of such committees immediately prior to our annual meeting:

Nominating and governance committee

James E. Goodwin Chair Members Michael R. Boyce Patrick J. Kelly Duncan J. McNabb Jennifer L. Vogel Marc J. Walfish

Role and responsibilities The Nominating and Governance Committee is comprised entirely of independent directors qualified to serve on the Committee under applicable SEC and NYSE rules and the Company’s Categorical Standards for Determining Director Independence. The Nominating and Governance Committee acts under a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Nominating and Governance Committee and the Board of Directors at their July 2020 meetings. The full text of the Nominating and Governance Committee charter appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement. The Nominating and Governance Committee is responsible for both nominating and governance matters as described in its charter. The Nominating and Governance Committee performs the specific functions described in its charter, including: ●Oversees the composition, structure and evaluation of the Board and its committees; ●Conducts, together with the Compensation Committee, an annual performance evaluation of the Chief Executive Officer; ●Reviews, considers, and acts upon related person transactions; ●Reviews succession plans for the Chief Executive Officer and Chief Financial Officer and recommends individuals to fill these positions ●Develops and recommends Corporate Governance Guidelines for Board approval; and ●Monitors and screens directors for independence and recommends to the Board qualified candidates for election as directors and to serve on Board committees. The Nominating and Governance Committee held four meetings during Fiscal 2020. Key risk oversight responsibilities ●Corporate governance ●Board and committee membership ●Succession planning ●Diversity ●Board, Committee and CEO effectiveness ●Related party transactions The Nominating and Governance Committee oversees and reports to the Board on corporate governance risks, including Board and committee membership, director independence and related party transactions. It makes recommendations to the full Board on succession planning at the Chief Executive Officer and senior executive level and the annual evaluation of the performance of the Board of Directors.

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Proposal 1 Election of directors

Compensation committee

Ronald B. Woodard Chair Members Anthony K. Anderson Michael R. Boyce Peter Pace Jennifer L. Vogel

Role and responsibilities The Compensation Committee is comprised entirely of independent directors qualified to serve on the Compensation Committee under applicable SEC and NYSE rules and the Company’s Categorical Standards for Determining Director Independence. The Compensation Committee acts under a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Compensation Committee and the Board of Directors at their July 2020 meetings. The full text of the Compensation Committee charter appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement. The Compensation Committee is primarily concerned with establishing, reviewing and approving Chief Executive Officer compensation, reviewing and approving other senior executive compensation and overseeing the Company’s stock plans and other executive compensation and employee benefit plans. The Compensation Committee performs the specific functions described in its charter, including: ●Sets the compensation of the Chief Executive Officer and, together with the Nominating and Governance Committee, conducts an annual performance review of the Chief Executive Officer; ●Reviews and approves compensation policies and practices for all elected corporate officers, including named executive officers; ●Administers the Company’s annual cash bonus plan and the long-term incentive stock plan; ●Recommends director compensation and benefits to the Board for approval; and ●Oversees administration of certain other employee benefit, director deferred compensation, savings and retirement plans. The Compensation Committee held four meetings during Fiscal 2020. Information about the roles of the Committee’s independent compensation consultant and management in the executive compensation process is set forth under “Executive Compensation — Compensation Discussion and Analysis.” Key risk oversight responsibilities ●Target-setting under annual cash bonus programs ●Target-setting under performance share programs ●Compensation policies and practices ●Impact of performance-based compensation on risk-taking by management ●Compensation consultant independence ●Executive employment agreements The Compensation Committee oversees and reports to the Board on the Company’s cash bonus programs and stock-based compensation to be sure that they are appropriately structured to incentivize officers and key employees while avoiding unnecessary or excessive risk-taking.

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Audit committee

Marc J. Walfish Chair Members James E. Goodwin Patrick J. Kelly Duncan J. McNabb Peter Pace Ronald B. Woodard

Role and responsibilities The Audit Committee is comprised entirely of independent directors qualified to serve on the Audit Committee under applicable SEC and NYSE rules and the Company’s Categorical Standards for Determining Director Independence. The Board of Directors has determined that each Audit Committee member is an “audit committee financial expert” within the meaning of applicable SEC rules. The Audit Committee acts under a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Audit Committee and the Board of Directors at their July 2020 meetings. The full text of the Audit Committee charter appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement. The Audit Committee’s primary responsibility is to assist the Board of Directors in fulfilling its duty to stockholders to oversee and review: the quality and integrity of the Company’s financial statements and internal controls over financial reporting; the qualifications, independence and performance of the Company’s independent registered public accounting firm; and the performance of the Company’s Internal Audit function. The Audit Committee performs the specific functions described in its charter, including: ●Approves and engages the independent registered public accounting firm that audits the Company’s consolidated financial statements; ●Pre-approves all non-audit and audit-related services furnished by the independent registered public accounting firm; ●Maintains communication between the Board and the independent registered public accounting firm; ●Monitors the qualifications, independence and performance of the independent registered public accounting firm; ●Oversees and reviews the Company’s financial reporting processes and practices; ●Oversees and reviews the quality and adequacy of internal controls over financial reporting, disclosure controls and the organization and performance of the Company’s internal audit department; ●Reviews the scope and results of audits; ●Oversees the Company’s enterprise risk management committee; and ●Meets with the independent registered public accounting firm representatives and internal audit department representatives without members of management present. The Audit Committee held four meetings during Fiscal 2020. Key risk oversight responsibilities ●Risk assessment and risk management practices ●Financial reporting and investor disclosure ●Accounting and auditing ●Quality and adequacy of processes and internal controls ●Cybersecurity risk ●Ethics Hotline ●Oversight of enterprise risk management program The Audit Committee reviews and assesses management’s processes for managing risks relating to accounting, financial reporting, investment, tax and legal compliance, risks identified by the Company’s internal and external auditors, and matters raised through the Company’s Ethics Hotline. The Audit Committee oversees the enterprise risk management committee, which is composed of Company employees and is responsible for identifying the principal risks to the Company, developing and implementing risk mitigation strategies, auditing the effectiveness of the risk mitigation strategies and reporting to the Audit Committee. The enterprise risk management committee meets regularly with the Audit Committee to review and discuss the Company’s principal risks and outline its risk mitigation approach for addressing these risks.

2020 Proxy Statement

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Executive committee

David P. Storch Chair Members James E. Goodwin John M. Holmes Jennifer L. Vogel Marc J. Walfish

Role and responsibilities The Executive Committee acts under a written charter adopted by the Board of Directors. The charter was last reviewed and approved by the Board of Directors at its July 2020 meeting. The full text of the Executive Committee charter appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement. The Executive Committee is authorized to meet between meetings of the Board of Directors and exercise certain powers of the Board with respect to urgent matters or other matters referred to it by the Board for deliberation or action, subject to limitations imposed by the Committee’s charter, the Board, applicable law and the Company’s By-Laws. The Executive Committee did not meet during Fiscal 2020.

Board, management and employee interaction

The Board and its committees receive information from, and have regular access to, individual members of management responsible for managing risk, including the Company’s President and Chief Executive Officer, the Chief Financial Officer, the Controller and Chief Accounting Officer, the General Counsel, the Internal Auditor, the Chief Compliance Officer and the business group leaders.

The directors, when possible, also meet each quarter with a broader group of the Company’s employees at regularly scheduled Board dinners and in other informal settings to learn more about the Company’s businesses, employees and culture. The Board also periodically holds meetings at a Company facility other than the corporate headquarters to promote interaction with local management and employees and allow directors a first-hand opportunity to inspect and better understand the Company’s business operations.

Executive sessions

The independent directors of the Board meet in executive session without management as part of each regular Board meeting and otherwise when circumstances make it advisable or necessary. The independent directors also hold meetings with and without the Chairman of the Board. The Lead Director presides at all executive sessions of the independent directors. The independent directors met separately as a group on five occasions in Fiscal 2020.

Board structure

Board leadership

The Board of Directors determines the appropriate leadership structure for the Board and the Company consistent with the best interests of stockholders. The leadership structure is intended to promote strong oversight, encourage open and independent viewpoints and contribute to the long-term success of the Company and the effective performance of the Board. The Board regularly reviews the Company’s leadership structure.

Effective June 1, 2018, the Board approved the separation of the Chairman of the Board and Chief Executive Officer roles, appointing Mr. Storch as Chairman of the Board and electing John M. Holmes as Chief Executive Officer of the Company. The Board believes that this is the most effective leadership structure for the Company at this time, but reserves the right to make future changes in the best interests of stockholders.

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In addition to separate Chairman of the Board and Chief Executive Officer roles, the Company has a Lead Director of the Board of the Directors, a position established under the Corporate Governance Guidelines and elected annually by the independent directors.

The following provides a brief description of the key responsibilities of the Company’s Chairman of the Board, President and Chief Executive Officer and Lead Director:

	David P. Storch Chairman of the Board			John M. Holmes President and Chief Executive Officer			James E. Goodwin Lead Independent Director
Key responsibilities ●Chairs Board meetings and annual meetings of stockholders ●Has the authority to call Board meetings ●Collaborates on Board meeting agendas, meeting schedules and information sent to the Board ●Serves as a liaison between the Chief Executive Officer and the independent directors ●Works with the Chief Executive Officer on key strategic, operational and financial matters			Key responsibilities ●Manages the Company’s day-to-day operations ●Has the authority to call Board meetings ●Collaborates on Board meeting agendas, meeting schedules and information sent to the Board ●Develops and implements the Company’s business strategy and capital allocation strategy ●Serves as the Company’s principal spokesperson ●Represents the Company to customers, suppliers and industry partners			Key responsibilities ●Presides at all Board meetings when the Chairman of the Board is not present ●Has the authority to call Board meetings and meetings of the independent directors ●Chairs executive sessions of the independent directors ●Consults with and serves as a liaison among the Chairman of the Board, the Chief Executive Officer and the independent directors ●Facilitates the Board and Board Committee self-evaluation process

Board practices and policies

Board meetings and attendance

During Fiscal 2020, the Board held five meetings. All directors attended at least 75% of the Board meetings and meetings of Board committees on which they served in Fiscal 2020.

The Company’s Corporate Governance Guidelines provide that directors are expected to attend all stockholder meetings. All directors serving at the time attended the Company’s 2019 annual meeting of stockholders.

Board and committee evaluations

Our Nominating and Governance Committee conducts an annual evaluation of the performance of the Board. The Board’s Lead Director reports the evaluation results — which include an assessment of the Board’s performance as well as the identification of specific areas for improvement — to the full Board. Each Board committee also conducts an annual evaluation of its performance and reports the results to the full Board.

Board retirement policy

Our Corporate Governance Guidelines fix the director retirement age at 75 (a director who turns 75 when his or her Class is not up for election may serve out the remaining term of the Class). The Board may make an exception to this requirement if it affirmatively determines that a director’s skills, experience or other relevant factors merit extended service as a director. The Board has used this exception only one time since the adoption of the retirement policy.

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Corporate governance guidelines

The Board of Directors adopted Corporate Governance Guidelines to codify its policies and procedures and to demonstrate its commitment to corporate governance best practices. These Guidelines address director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, management evaluation and succession, and the annual performance evaluation of the Board of Directors. These Guidelines are reviewed and approved annually, most recently in July 2020, by the Nominating and Governance Committee and the Board of Directors. The full text of these Guidelines appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.

Code of business ethics and conduct

“AAR’s culture of ethics and compliance depends upon leadership by example, a commitment to shared values, an environment where employees are encouraged to speak up, and a respect for cultural diversity and inclusion.”

– John M. Holmes, President & CEO

The Company’s Code of Business Ethics and Conduct adopted by the Board of Directors applies to all directors, officers, and employees, including the President and Chief Executive Officer, the Chief Financial Officer, the Controller and Chief Accounting Officer, the General Counsel, the Internal Auditor and the business group leaders.

The purpose of the Code of Business Ethics and Conduct is to promote the highest ethical standards in the Company’s business practices and procedures, including: the ethical handling of actual or apparent conflicts of interest; full, fair and timely disclosure; and compliance with applicable laws and governmental rules and regulations.

Employees are encouraged to report to the Company any conduct that they believe in good faith to be in violation of the Code of Business Ethics and Conduct. The Company has a strict non-retaliation policy for employees who report good-faith violations of the Code of Business Ethics and Conduct. We post any amendments to the Code of Business Ethics and Conduct and any waivers from the Code granted by the Board to directors or executive officers on the Company’s website, as required under SEC rules. The full text of the Code of Business Ethics and Conduct appears on the Company’s website at www.aarcorp.com/investor-relations/corporate-governance and is available in print to any stockholder upon written request to the Secretary of the Company at the Company’s address listed on the first page of this proxy statement.

Director orientation and continuing education

We hold director orientation sessions with new directors to familiarize them with our businesses, business strategies and corporate policies and practices. Our goal is to assist our new directors in understanding the Company and developing the skills and knowledge that they need to serve the interests of our stockholders. We regularly provide education materials to our directors on leadership, governance, compensation, risk and other topics of interest to public company directors. We also make external continuing education programs available to our directors to help them maintain and enhance their skills and knowledge in carrying out their ongoing responsibilities as directors of a public company.

Ethics hotline

The Company maintains an Ethics Hotline through an independent third-party provider to receive confidential complaints, information, suggestions or recommendations concerning the Company, its officers, directors, employees, policies, procedures, employment and business practices, accounting or audit matters, financial reporting or compliance with other Company policies or applicable regulatory or legal requirements. The Ethics Hotline, which is toll-free and also accessible through the Company’s website, permits individuals to identify themselves or remain anonymous at their election.

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Related person transaction policy

The purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification, review, and consideration of transactions between the Company or its subsidiaries and any related persons. “Related persons” means: the Company’s directors; director nominees; executive officers; greater than five percent beneficial owners of the Company’s voting securities; members of their immediate families; and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, a principal, or in a similar position, or in which such person has a 10% or greater beneficial ownership interest.

Under the Policy, any related person transaction involving amounts in excess of $120,000 must be reviewed, considered, and approved by the Board of Directors directly or through the Nominating and Governance Committee. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction and the impact of the related person transaction on a director’s independence in the event that the related person is a director or an immediate family member of a director. No member of the Board or the Nominating and Governance Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.

The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related person’s interest derives solely from his or her service as a director of another corporation or entity that is a party to the transaction) without further specific review, consideration and approval.

In Fiscal 2020, the Board reviewed and approved the following related person transactions involving directors of the Company, concluding in each case that the transaction was fair and in the best interests of the Company and, in the case of Mr. Kelly, did not compromise their independence as directors of the Company:

In addition, the Company is evaluating a related party transaction involving a series of split dollar life insurance agreements entered into in 1996 with Ira Eichner, the Company’s founder, as a benefit to him. To keep the premium costs down, the insurance policies were second to die policies on Mr. and Mrs. Eichner’s joint lives. Mr. Eichner passed away in 2018 and Mrs. Eichner is still living. The parties to the agreements included Mr. Eichner, Mrs. Eichner, and their three daughters as trustees of trusts created by Mr. Eichner for their respective benefit. Those trusts are the beneficiaries of the policies. One of the daughters is the wife of David Storch, the current Chairman of the Board.

Under the agreements, the Company’s obligation includes paying all policy premiums and paying tax gross ups to the insureds on the economic benefit of the insurance. The agreement calls for the Company to be reimbursed for its cash payments before the beneficiaries share in the proceeds from the insurance policies upon the death of the second to die, to the extent that policy proceeds are sufficient to cover the Company’s payments at that time. Due to the passage of time and Mrs. Eichner’s current life expectancy, the costs to the Company may exceed the amount payable under the life insurance policies upon her death.

Based on the above, the Company and family are evaluating the best path forward, which includes the possibility that the family would surrender the policies. In the event of a voluntary surrender, the agreements provide that the Company would be entitled to be reimbursed for the premiums paid plus the tax gross up amounts. Such reimbursement would be paid from the surrender value of the policies and, to the extent that amount is insufficient, from the family. AAR’s total payments to date exceed the current cumulative cash value of the policies. Since the surrender is believed to be in the best interests of all parties, the Company and the family currently contemplate that each side will bear one-half of the economic burden of that shortfall, and the Company and the family would terminate the agreements. It is expected that the Company’s half of that shortfall will exceed $120,000. Any final transaction will be approved in accordance with the Company’s Related Person Transaction Policy.

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Communications with the board of directors

Stockholders and other interested parties may communicate with the Board, the Chairman of the Board, the Lead Director, the independent directors as a group, or any individual director or Committee Chair by mail addressed to:

AAR CORP.
Attention: Independent Directors, Lead Director or the name of the individual director
c/o Corporate Secretary
One AAR Place
1100 North Wood Dale Road
Wood Dale, Illinois 60191

The independent members of the Board of Directors have approved procedures for the processing, review and disposition of all communications sent by stockholders or other interested parties to the Board of Directors.

Director compensation

The Board of Directors reviews director compensation annually to ensure that it is fair, appropriate and in line with its peer group companies. The Board works with the Compensation Committee’s independent compensation consultant to undertake an annual review of the type and amount of each element of director compensation.

The Fiscal 2020 director compensation program, as approved by the Board, consisted of the following compensation elements:

All retainers are paid quarterly, and meeting fees are paid promptly following each meeting attended. The annual stock award for Fiscal 2020 was approved at the Board’s April 2019 meeting with an effective date of June 3, 2019 and a vesting date of June 3, 2020.

Each non-employee director, upon being elected a director, receives term life insurance coverage of $200,000 and is eligible (with spouse) to participate in a Company-paid annual physical program. The Company also reimburses its non-employee directors for travel, lodging and related expenses that they incur in attending Board and committee meetings and for other Company business expenses.

Cap on director compensation

The AAR CORP. 2013 Stock Plan, as approved by the Company’s stockholders, caps the annual compensation of non-employee directors at $500,000 per director. This cap takes into account all cash and non-cash compensation (including the dollar value of all stock awards) paid in a single fiscal year. It does not apply to Mr. Storch’s consulting fees, which are discussed below under “Agreement with Mr. Storch.”

The reasons for this cap on director compensation are to protect against conflicts of interest given that the directors approve their own compensation and to ensure that directors receive fair and reasonable, but not excessive, compensation for their services.

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Ability to defer director compensation

Non-employee directors may elect to defer receipt of their compensation under the Company’s Non-Employee Directors’ Deferred Compensation Plan (the “Director Plan”). Under the Director Plan, non-employee directors may defer retainers, meeting fees and stock awards into (a) a stock account, with the deferred compensation converted into stock units equivalent to shares of common stock based on the then current stock price, or (b) a cash account, with the deferred compensation credited with interest quarterly based on the 10-year United States Treasury Bond rate. Distributions of deferred compensation are made, at the participant’s election, in cash or in shares of common stock. Distribution occurs upon termination of service on the Board or on other dates as specified by the participant.

Director compensation table

Fiscal 2020 director compensation

The table below sets forth all compensation paid to each non-employee director for Fiscal 2020.

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Fiscal 2021 director compensation

At its May 2020 meeting, the Board of Directors, upon the recommendation of the Compensation Committee, approved the Fiscal 2021 non-employee director compensation plan, which is identical in all respects to the Fiscal 2020 non-employee director compensation plan.

However, the Board temporarily reduced the cash component of its compensation by 15% effective April 1, 2020, and then further adjusted down by an additional 5% (to 20%) effective May 2, 2020, in an effort to support the Company’s cost reduction efforts related to COVID-19. In addition, as described below, Mr. Storch voluntarily reduced his annual retainer by 20% for the duration of the Board’s temporary reduction. These temporary reductions will remain in place throughout Fiscal 2021 until further action by the Board of Directors.

Agreement with Mr. Storch

The Company has an agreement with Mr. Storch relating to his duties as Chairman of the Board and as a consultant to the Company.

Under this agreement, Mr. Storch receives standard director compensation under the Company’s non-employee director compensation plan and a separate Chairman of the Board annual retainer of $180,000 and reimbursement in an annual amount not to exceed $30,000 per year for an outside office and/or secretarial support for his service as Chairman of the Board until the end of his term as a director in 2021. In connection with cost cutting efforts by the Company, Mr. Storch voluntarily agreed to reduce his annual cash retainer by 20% for the duration of the Board’s temporary reduction to their cash fees. In addition, Mr. Storch received an annual retainer of $150,000 for services as a consultant to the Company in Fiscal 2020. Mr. Storch’s consulting services include advising the Chief Executive Officer; assisting with the development and implementation of the Company’s business strategy and capital allocation plans; representing the Company to customers, suppliers and industry partners; and providing other services as reasonably requested by the Board. Mr. Storch’s consulting agreement terminated May 31, 2020 in accordance with its terms.

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Proposal 2 Executive compensation

Proposal 2 Advisory proposal to approve our Fiscal 2020 executive compensation
	Our Board of Directors unanimously recommends that you vote FOR this resolution approving the Fiscal 2020 compensation paid to our named executive officers.

Proposal summary

We are asking you to approve the following advisory proposal — commonly known as a “say-on-pay” proposal — on the compensation awarded to our named executive officers for Fiscal 2020 as disclosed in this proxy statement:

“RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the named executive officers for Fiscal 2020 as reported in this proxy statement pursuant to Item 402 of Regulation S-K under the Securities Exchange Act of 1934, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.”

We hold an annual vote on say-on-pay because we believe it is important to obtain the input of our stockholders on our executive compensation program. Each year our Compensation Committee takes a careful look at the Company’s executive compensation program to determine whether to make any design or implementation changes. Reasons to make changes may include the results of prior say-on-pay stockholder votes, stockholder feedback, the financial and operating performance of the Company, the performance of individual senior management members, peer group changes or market trends.

As in prior years, the Compensation Committee designed the Fiscal 2020 executive compensation program to align executive pay with Company performance in order to create an identity of interest between management and stockholders. This goal is accomplished principally through the payment of performance-based cash and non-cash incentives.

The Board encourages you to read the “Compensation Discussion and Analysis” and the accompanying executive compensation tables in this proxy statement for a comprehensive description of the Fiscal 2020 executive compensation program.

All Fiscal 2020 executive compensation paid to the named executive officers was performance-based compensation, other than base salaries (and a signing bonus to our new General Counsel), as shown below:

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Proposal 2 Executive compensation

The charts below show the breakdown of performance-based compensation and fixed compensation paid to the Company’s named executive officers in Fiscal 2020.

Our Compensation Committee believes that the executive compensation paid to our named executive officers in Fiscal 2020, in form and amount, was appropriate and in the best interests of the Company and its stockholders.

This say-on-pay advisory vote is not binding on the Board of Directors. The Board, however, will review and consider the voting results and other relevant factors in responding to this advisory vote.

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Compensation committee Fiscal 2020 report

The Compensation Committee of the Board of Directors of the Company furnishes the following report to the stockholders of the Company in accordance with applicable SEC rules.

The Compensation Committee reviewed and discussed the “Compensation Discussion and Analysis” section of this proxy statement with the Company’s management. Based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted,

The Compensation Committee of the Board of Directors of AAR CORP.

Ronald B. Woodard, Chair
Anthony K. Anderson
Michael R. Boyce
Peter Pace
Jennifer L. Vogel

Compensation committee interlocks and insider participation

Messrs. Anderson, Boyce, Woodard, General Pace and Ms. Vogel, all of whom are independent non-employee directors, are the current members of the Compensation Committee of the Board of Directors of the Company. None of the members of the Compensation Committee is or ever was an officer or employee of the Company or any of its subsidiaries, and none of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Board of Directors of the Company or on the Compensation Committee of the Board of Directors of the Company.

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Compensation discussion and analysis

Executive summary

Named executive officers

This Compensation Discussion and Analysis (“CD&A”) describes and explains our Fiscal 2020 executive compensation program for the following executive officers of the Company (the “named executive officers”):

John M. Holmes, President and Chief Executive Officer
Sean M. Gillen, Vice President and Chief Financial Officer
Jessica A. Garascia, Vice President, General Counsel and Secretary (Since February 3, 2020)
Christopher A. Jessup, Vice President, Chief Commercial Officer
Eric S. Pachapa, Vice President, Controller and Chief Accounting Officer
Robert J. Regan, Retired Vice President, General Counsel and Secretary (Retired December 31, 2019)

Financial highlights

AAR had strong financial performance for Fiscal 2020 in light of the impact of the COVID-19 pandemic. Consolidated sales exceeded $2 billion, (an increase of 1% over Fiscal 2019), diluted earnings per share from continuing operations was $0.71 (a decrease of 70% over Fiscal 2019) and adjusted diluted earnings per share from continuing operations, a non-GAAP financial measure, was $2.15 (a decrease of 11.8% over Fiscal 2019). AAR maintained its strong balance sheet in Fiscal 2020 and implemented several cost cutting initiatives to help it navigate uncertain market conditions presented by COVID-19.

For a definition of adjusted diluted earnings per share from continuing operations and a reconciliation of this measure to the closest comparable GAAP financial measure, see Appendix B.

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Key financial achievements

Revenue and growth	Adjusted diluted EPS from continuing operations*

For more information about our Fiscal 2020 performance, please see “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on July 21, 2020. For more information about our stock price performance, please see “Comparison of Cumulative Five-Year Total Return” in our Form 10-K.

Executive compensation highlights

Fiscal 2020 changes to our executive compensation program

When setting compensation for Fiscal 2020, the Board continued to focus on pay for performance, including by using relative total stockholder return for performance share awards.

Additionally, in light of the ongoing global COVID-19 crisis, and in order to aggressively manage our business in light of a changing market environment, we introduced a number of cost reduction measures during Fiscal 2020 including:

We made these changes to our executive compensation program in Fiscal 2020 to continue to align our executive compensation outcomes with Company performance and the interests of stockholders and to reflect best market practices.

We believe the outcome of our 2019 say-on-pay vote (97%) demonstrated strong stockholder support for our executive compensation program. We believe that our Fiscal 2020 program continues to align our executive compensation program by linking key Company objectives with the preferences of our stockholders.

Say-on-pay vote

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Pay–for–performance alignment

Our executive compensation goals and philosophy

Our executive compensation program has three principal goals:

We also seek to provide our named executive officers with opportunity to reach or exceed the market 75th percentile with exceptional performance.

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The compensation opportunities for individual executives may vary depending on experience, effectiveness, performance and other relevant factors. By incentivizing and rewarding outstanding performance, our executive compensation program seeks to link the achievement of the Company’s key business performance goals directly with the pay outcomes for our named executive officers.

Cash bonuses under the Fiscal 2020 short-term incentive plan

Performance shares under the Fiscal 2020 long-term incentive plan

Strategic goal		Compensation measure
Increase profitability and deliver value to stockholders		70%	Income from continuing operations
Enhance efficiency in allocating capital to generate higher returns		20%	Average return on invested capital
Outperform peer group companies in generating stockholder value		10%	Relative total stockholder return

Executive compensation practices

What We Do			What We Don’t Do
Annual say-on-pay stockholder vote Challenging performance targets under our incentive compensation plans Emphasis on performance-based compensation Multi-year vesting periods for stock awards Limited perquisites “Double trigger” change-in-control provisions in executive agreements Meaningful stock ownership and retention guidelines for directors and executive officers Prohibition on short sales, pledging and hedging transactions Claw-backs of incentive compensation in the event of certain financial restatements Annual assessment of incentive compensation plans			No tax gross-ups No repricing of stock options No dividends on performance based restricted stock unless performance goals are met

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Proposal 2 Executive compensation

The Company generally targets its annual pay mix for executive officers (particularly for its Chief Executive Officer) to place significant weight on performance-based compensation over fixed compensation. This pay mix is reflected in the following breakdown of Fiscal 2020 target total direct compensation:

Chief executive officer

Other NEOs

Principal elements of our Fiscal 2020 executive compensation program

The table below describes and explains the purpose of the principal elements of the Fiscal 2020 executive compensation program for our named executive officers:

Compensation element

Form of compensation

Performance period

Performance measures

Purposes of the compensation element

Base salary

Cash

1 year

Individual performance and contributions Qualifications and responsibilities Experience and tenure with the Company Competitive salary considerations

Rewards individual performance and contributions consistent with an individual’s position and responsibilities Provides competitive compensation Balances risk-taking concerns associated with performance-based compensation

Annual cash bonus

Cash

1 year

80%

Earnings per share from continuing operations

Promotes retention of executive talent Provides short-term, cash-based incentive Measures performance against key corporate goals

20%

Working capital turns

Stock options

Stock

Up to 10 years (stock option term)

Stock price

Promotes retention of executive talent Aligns payout directly with stockholder value creation

Performance-based restricted stock

Stock

3 years

70%

Income from continuing operations

Promotes retention of executive talent Ties payout to achievement of key corporate goals Aligns payout directly with stockholder value creation

20%

Average return on invested capital

10%

Relative total stockholder return

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Proposal 2 Executive compensation

Our compensation committee’s decision-making process

Each year the Compensation Committee reviews the Company’s executive compensation program and the programs of other companies, including its peer group companies. The Compensation Committee seeks to confirm that each compensation element of the Company’s program, as well as the compensation structure, is not only competitive within the Company’s marketplace, but also is appropriate for the Company in light of its history, culture, performance and strategy. Particular attention is given to the Company’s stock price and total stockholder return to ensure proper alignment between executive compensation and stock price performance.

The Compensation Committee took the following actions in setting and approving executive compensation for Fiscal 2020.

April 2019

Reviewed and approved the Company’s Fiscal 2020 peer group.

July 2019

	Assessed the Company’s prior year’s target executive compensation against the target executive compensation of the Company’s peer group companies.
	Assessed the Company’s prior year performance against the performance of peer group companies.
	Considered other information relevant to the Fiscal 2020 executive compensation program (e.g., the prior year’s say-on-pay result and the CEO’s recommendations).
	Set target Fiscal 2020 compensation — base salaries, annual cash bonuses and stock awards — for the Company’s executive officers.

April-May 2020

	Took action to reduce aspects of executive compensation in light of the impact of COVID-19.
	Made temporary reductions in base salary of 20% for our CEO and 15% for the other executive officers, and reductions in base salary ranging from 5% to 10% for other salaried employees.
	Temporarily suspended the Company’s 401(k) and SKERP match for Fiscal 2021.

July 2020

	Approved Fiscal 2020 annual cash bonuses based on the Company’s performance in Fiscal 2020.
	Approved performance-based restricted stock outcomes for the three-year performance period ended May 31, 2020.

Fiscal 2020 executive compensation

CEO pay in Fiscal 2020

In determining Mr. Holmes’s Fiscal 2020 compensation, the Compensation Committee took into consideration the following principal factors:

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Proposal 2 Executive compensation

Based on these factors, the Compensation Committee set Mr. Holmes’s Fiscal 2020 target pay at $4,250,000, consisting of base salary of $825,000, target cash bonus opportunity of $825,000 (100% of his base salary), and stock-based compensation of $2,600,000 ($1,300,000 in stock options and $1,300,000 in performance-based restricted stock).

The Compensation Committee determined that Mr. Holmes’s Fiscal 2020 total pay opportunity of $4,250,000 was appropriate for a second-year Chief Executive Officer because it positioned Mr. Holmes at approximately the 45th percentile among CEOs of companies in the Company’s peer group, while leaving room for future compensation increases with time and performance in the CEO role.

Mr. Holmes’s base salary was temporarily reduced by 15% effective April 1, 2020, and then further adjusted down by an additional 5% (to 20%) effective May 2, 2020, as a component of the Company’s cost reduction efforts related to COVID-19.

Fiscal 2020 base salaries

The Compensation Committee believes that base salaries — representing fixed compensation — should be sufficiently competitive for AAR to attract and retain talented executives, but should be a less significant percentage of total compensation than performance-based compensation for AAR’s executive officers.

The Compensation Committee increased the base salary of Mr. Holmes, the Company’s President and Chief Executive Officer, to $825,000, which was then reduced as described above.

For Fiscal 2020, the Compensation Committee approved a 3% increase in the base salaries of Mr. Gillen and Mr. Pachapa in line with the base salary increase for all employees of the Company and a 7% increase in the salary of Mr. Jessup in recognition of his contributions to the Company and to more closely align with midrange competitive pay levels for comparable roles. Mr. Regan did not receive an increase in salary due to his scheduled retirement at December 31, 2019.

The following table shows Fiscal 2019 and Fiscal 2020 annual base salaries for the named executive officers, as set by the Compensation Committee. In an effort to support the Company’s cost reduction efforts related to COVID-19, Mr. Holmes’s base salary was reduced by 15% effective April 1, 2020, and then further adjusted down by an additional 5% (to 20%) effective May 2, 2020. The other named executive officers’ compensation was reduced by 10%, and then further adjusted down by an additional 5% (to 15%) effective May 2, 2020.

Fiscal 2020 cash bonuses

Fiscal 2020 short-term incentive plan – setting targets

At its July 2019 meeting, the Compensation Committee approved the Fiscal 2020 short-term incentive plan for the executive officers of the Company at that time – Messrs. Holmes, Gillen, Jessup, Pachapa and Regan. The Compensation Committee added Ms. Garascia as a participant in this plan after she joined the Company as Vice President, General Counsel and Secretary on February 3, 2020.

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Proposal 2 Executive compensation

The Fiscal 2020 short-term incentive plan used two performance goals to determine annual cash bonuses: the Company’s earnings per share from continuing operations as adjusted (weighted 80%) and the Company’s working capital turns (weighted 20%).

The following table shows the earnings per share from continuing operations and working capital turns performance goals at the threshold, target and maximum levels:

Target earnings per share from continuing operations of $2.55 represented an 8% increase over the prior year’s actual earnings per share from continuing operations. Target working capital turns of 3.5 represented a 2% increase from the prior year’s actual working capital turns of 3.45.

The COVID-19 pandemic had a dramatic impact on the Company’s fourth quarter financial results, which was unforeseeable when the annual performance targets were set and which overshadowed the Company’s strong performance through the first three quarters of Fiscal 2020. Accordingly, the Compensation Committee, in order to reflect the unanticipated impact of COVID-19 on fourth quarter earnings, bifurcated Fiscal 2020 into two separate performance periods with one comprised of the first three quarters of Fiscal 2020 ( the “Pre-COVID-19 Period”) and one comprised of the fourth quarter of Fiscal 2020 (the “COVID-19 Period”). The Fiscal 2020 full year target for earnings per share from continuing operations of $2.55 per share was allocated across the two periods based on Company’s planned earnings, resulting in targets of $1.72 per share for the Pre-COVID-19 Period and $0.83 per share for the COVID-19 Period. The working capital turns target for Fiscal 2020 of 3.5 turns remained consistent across the two periods.

The Compensation Committee believes earnings per share and working capital turns are critical performance measures of the Company’s financial success. Earnings per share from continuing operations measures the Company’s performance in delivering earnings to stockholders, and working capital turns measures the Company’s effectiveness in using its working capital and, in particular, in using its cash.

In calculating earnings per share from continuing operations and working capital turns, the Compensation Committee has the discretion to exclude special charges or unusual or infrequent items incurred during the performance period and to adjust for changes in GAAP if it determines that such exclusions or adjustments are appropriate. The Compensation Committee exercises this discretion with respect to special charges infrequently, typically limiting it to situations where the special charge was non-recurring or unforeseen and not within the control of management. In addition, the Compensation Committee maintains the discretion to adjust amounts further downward, which discretion was used in Fiscal 2020 in light of the economic impact of COVID-19.

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Proposal 2 Executive compensation

The Fiscal 2020 annual cash bonus opportunities (in dollar amounts and as a percentage of base salary), at the threshold, target and maximum levels for the named executive officers are set forth in the table below, with performance between threshold and target levels and between target and maximum levels resulting in proportionate straight-line payouts:

Fiscal 2020 short-term incentive plan – approving payouts

For Fiscal 2020, the Company achieved working capital turns of 3.7. As noted above, the Fiscal 2020 EPS target was bifurcated between a Pre-COVID-19 Period and a COVID-19 Period. Actual EPS results for the COVID-19 Period were $0.26 per share, which resulted in no payout for such period. Actual adjusted EPS results for the Pre-COVID-19 Period were $1.88 per share, reflecting adjustments as permitted under the plan to exclude certain special charges including investigation, remediation and severance costs of $0.22 per share and customer contract restructuring and exit costs of $0.53 per share. This methodology, after weighing between the periods, would have resulted in a payout of 178%. However, after the payout was calculated, the Compensation Committee determined to further use its discretion to decrease the bonus payout to 135% in order to further reflect the negative impact of COVID-19 on the Company’s performance, cost-cutting measures implemented by the Company and overall economic environment.

The Compensation Committee used its discretion in the foregoing manner because it desired to reward management for producing EPS that were significantly ahead of plan and guidance through the first three quarters of Fiscal 2020, while at the same time recognizing that the Company’s performance had been negatively impacted by the effects of COVID-19. Accordingly, the following Fiscal 2020 cash bonuses were awarded based on the methodology described above:

Fiscal 2020 stock awards

In July 2019, the Compensation Committee approved awards of performance-based restricted stock and stock options to its named executive officers and stock options and time-based restricted stock to other employees of the Company under the Fiscal 2020 long-term incentive plan.

The Compensation Committee decided that the named executive officers should receive performance-based stock awards only – consisting of performance-based restricted stock and stock options. The Compensation Committee further decided that all stock recipients other than the named executive officers should receive both performance-based stock awards – in the form of stock options – and non-performance-based stock awards – in the form of time-based restricted stock.

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Proposal 2 Executive compensation

In Fiscal 2020, as in other years, the Compensation Committee determined the types and dollar amounts of stock awards to be granted, based on a number of factors, including:

The allocation for Fiscal 2020 was approximately 50% - 50% between performance-based restricted stock and stock options. For Fiscal 2020, we continued to grant only performance-based restricted stock and stock options to our senior executives, underscoring our strong orientation to performance-based compensation. Deeper into the organization, the Compensation Committee granted shares of time-based restricted stock as a more value-certain, retention-oriented incentive.

Stock awards for named executive officers

Stock awards for other employees

The Compensation Committee’s use of performance-based restricted stock is intended to motivate executives to drive corporate performance, specifically with respect to net income performance, return on invested capital performance and relative total stockholder return. The performance-based restricted stock is forfeited unless the Company achieves these performance goals at designated threshold levels over the three-year performance period. The Compensation Committee’s use of stock options is intended to focus executives on stock price appreciation. Stock options only have value to an executive if the Company’s stock price increases above its grant date value, thus providing a “win-win” for the executives and the Company’s stockholders. In these ways, the stock component of the Company’s executive compensation program fully reflects a pay-for-performance emphasis.

Performance-based restricted stock – setting fiscal 2020 targets

In July 2019, the Compensation Committee approved the following grants of performance-based restricted stock to the named executive officers for Fiscal 2020, with the grants subject to performance and vesting conditions over the three-year performance period beginning June 1, 2019 and ending May 31, 2022:

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Proposal 2 Executive compensation

The grant date fair value of the performance-based restricted stock in the table above was based on the $37.66 closing price of the Common Stock on the July 8, 2019 date of grant.

The Compensation Committee designated income from continuing operations (weighted 70%), return on invested capital (weighted 20%) and relative total stockholder return (10%) as the three performance goals for the performance-based restricted stock under the Fiscal 2020 long-term incentive plan. The Compensation Committee believes these three measures are appropriate because they capture critical elements of the Company’s performance over the three-year period.

The table below shows the threshold, target and maximum levels set by the Compensation Committee for each of these performance goals:

The Fiscal 2020 long-term incentive plan provides that: performance below the threshold level results in a 0% payout; performance at the threshold level results in a 50% payout of the shares of performance-based restricted stock; performance at the target level results in a 100% payout; and performance at or above the maximum level results in a 250% payout. Performance between the threshold and target levels and between the target and maximum levels results in proportionate straight-line payouts. The Compensation Committee believes that the performance-based nature of these restricted stock awards provides appropriate incentives to executives in line with the interests of the Company’s stockholders.

The Compensation Committee set the targets for these performance goals at challenging levels to provide appropriate incentives for the named executive officers. The Compensation Committee is aware that the target levels present a significant risk that the performance-based shares will be fully or partially forfeited. In fact, the performance-based shares granted for the three-year performance period ended May 31, 2017 paid out at only 21% and it is anticipated that the performance-based shares granted for the three-year performance period ending May 31, 2021 and May 31, 2022 will be forfeited.

If the performance goals for the three-year performance period through Fiscal 2022 are met, the shares will vest 100% on July 31, 2022. The Compensation Committee believes that the three-year performance and vesting periods provide the appropriate combination of incentive and risk management. Performance-based shares of restricted stock, once vested, remain subject to the retention requirements under the Company’s stock ownership guidelines.

Performance-based restricted stock – approving payouts

In July 2020, the Compensation Committee approved the payouts of shares of performance-based restricted stock under the Fiscal 2018 long-term incentive program (these grants were previously disclosed in the Company’s 2018 proxy statement). The payout was determined by the Company’s cumulative net income and return on invested capital performance for the three-year performance period that began on June 1, 2017 and ended on May 31, 2020.

The Compensation Committee, in order to reflect the unanticipated impact of COVID-19 on fourth quarter Fiscal 2020 earnings, and similar to the approach taken with the short-term incentive plan, bifurcated the original performance period into two separate performance periods with one comprised of the period from June 1, 2017 through February 29, 2020 (the “Pre-COVID-19 Period”) and one comprised of the fourth quarter of Fiscal 2020 (the “COVID-19 Period”). The target for the three-year performance period for cumulative net income of $174.2 million was allocated across the two periods based on the Company’s target growth, resulting in targets of $153.8 million for the Pre-COVID-19 Period and $20.4 million for the COVID-19 Period. The actual cumulative net income results for the COVID-19 Period were ($7.2) million, resulting in no payout for such period. The actual cumulative net income results in the Pre-COVID-19 Period were $191.4 million, reflecting adjustments as permitted under the plan to exclude certain special charges including Airlift impairment and legal charges of $116.0 million, Commercial Programs customer contract related charges of $23.6 million, and other items of $7.9 million.

The return on invested capital target for Fiscal 2020 of 5.85% remained consistent across the periods with the COVID-19 Period resulting in 0% return on invested capital and no payout, and the Pre-COVID-19 Period resulting in return on invested capital of 5.2%.

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These results, after weighing the periods, resulted in a payout of 189%. However, and similar to its approach to the Fiscal 2020 short term incentive, the Compensation Committee determined to decrease the payout to 175% in light of the negative impacts of COVID-19 to the Company’s performance, cost-cutting measures implemented by the Company, and the overall economic environment.

Based on the Company’s cumulative net income and return on invested capital results for the performance period, as adjusted as outlined above, the Fiscal 2018 performance shares paid out as follows:

Stock options

The Compensation Committee approved the following grants of stock option awards for Fiscal 2020, subject to time-based vesting: