Aircraft Maintenance Center Leased to AAR Aircraft Services, Inc.

INDIANAPOLIS -- Indiana Governor Joe Kernan and Indianapolis Mayor Bart Peterson today joined the Indianapolis Airport Authority board and executives of AAR CORP. to announce that a portion of the Indianapolis Maintenance Center (IMC) will be leased by the Indianapolis Airport Authority to AAR Aircraft Services, Inc. a subsidiary of AAR CORP., a leading supplier of products and services to the worldwide aviation/aerospace industry.

The 10-year lease, with an option for an additional 10 years, was approved early today at a meeting of the Airport Authority Board. Employment could reach as much as 800 employees by the end of 2009, when 10 hangar bays could be occupied per the lease agreement. AAR CORP. and its subsidiaries employ approximately 2,265 employees in 31 facilities located in 13 countries.

"This is exciting news for all of Indiana," Governor Kernan said. "We are thrilled that AAR has the vision to see the value of establishing a presence here at the Indianapolis International Airport. This world-class maintenance facility and a well-trained workforce right here in Central Indiana are assets to AAR's long-term business goals."

Mayor Peterson said that a key to success in leasing the IMC, which was vacated by United Airlines in May 2003, was the Airport Authority's willingness to consider multiple tenants. "Today we celebrate the success of those efforts and welcome a great new business partner to the airport," he said. "We are bringing many substantial jobs to Indianapolis for Hoosier working men and women and creating the opportunity for many, many more."

The Indianapolis Private Industry Council, the workforce broker for Indianapolis, will be hosting a job fair July 8, 2004 from 9:00 a.m. - 2:00 p.m. at the IMC facility where AAR representatives will be on hand to accept applications. Additional details concerning the application process will be available to the media at a later date.

Later this month, AAR will be onsite preparing the facility for official certification for aircraft maintenance. Operation as a service center is expected this fall. AAR's use of the facility for heavy maintenance of commercial aircraft will add a new dimension to the array of aviation services available at Indianapolis International Airport. At present, some individual airlines operate their own maintenance facilities at the airport.

The lease provides for a 10-year extension option at the conclusion of the initial term and enables expansion from two bays to ten bays as the business grows. The agreement also permits the Airport Authority to lease the remaining parts of the IMC to other tenants. The available space includes the remaining hangar bays, back shops, office space and a supply building. Either party may terminate the lease under certain circumstances outlined in the lease, including if minimum employment targets are not reached.

The lease requires AAR Aircraft Services, Inc. to pay a base rent of $2 per square foot of occupied space plus $6.20 per square foot of occupied space to cover operating expenses, such as utilities and maintenance for that space and also pay a third of its profit from IMC operations above a certain threshold level. To help offset the costs of mobilization and equipment acquisition, the Authority will provide a $1 million grant. Additional grants up to a total of $7.5 million and rent credits of up to $4 million may be earned by AAR Aircraft Services, Inc. from both the state and city as its use of space in the IMC expands.

The Indianapolis Maintenance Center was occupied by United Airlines when it opened in 1994. The 300-acre site includes a 248-acre structure that houses 12 hangars as well as office, storage and workshop space. The Indianapolis Airport Authority took possession of the IMC in 2003 after United declared bankruptcy and rejected its maintenance center lease with the Airport Authority.

Mayor Peterson said the city, state and the Airport Authority initiated an intensive research and marketing effort when United left. "We learned very quickly that the market for aviation maintenance facilities was very difficult, based on the general financial condition of the airline industry and a world-wide abundance of maintenance facilities," Peterson said. "It was highly unlikely that there would be a single occupant of the entire complex. We knew, though, the IMC was a state-of-the-art facility in a great location and aggressively contacted more than 80 airlines, cargo carriers, manufacturers and maintenance companies. Our goal was always to find the right company that would bring good jobs back to the IMC. We welcome David Storch, AAR's President and CEO and his team as new corporate citizens of Indianapolis."

Speaking for AAR, David Storch commented, "We are committed to being a great addition to your community and to the economic well being of the area. We are a strong, financially sound company that looks to achieve even greater success through best-in-class customer service and a tireless commitment to our employees."

In approving the lease, the Authority board found that the Authority used reasonable efforts to negotiate the best available lease for generating projected total rentals in light of prevailing market conditions. The lease will be filed with The Bank of New York Trust Company, N.A., as Trustee with respect to the Indianapolis Airport Authority Special Facility Revenue Bonds, Series 1995A, (United Air Lines, Inc. Indianapolis Maintenance Center Project). The summary of the lease is subject to the terms of the definitive lease with the Trustee.

AAR is the leading provider of aftermarket support to the worldwide aviation/aerospace industry. Products and services include the maintenance, repair and overhaul of aircraft and aircraft parts, customized inventory management and logistics programs, aircraft and engine sales and leasing and the manufacture of spare parts and systems. Headquartered in Wood Dale, Illinois, AAR serves commercial and government aircraft fleet operators and independent service customers throughout the world. Further information can be found at www.aarcorp.com.