Exhibit 10.25

FY 200__ MANAGEMENT INCENTIVE PLAN

OBJECTIVE

This FY 200__ Management Incentive Plan (MIP) of AAR Corp. (the “Company”) is in
effect over the period June 1, 200__ to May 31, 200__ (the “Plan Year”). It is
intended to provide bonus awards for the achievement of pre-tax income, return
on invested capital and cash flow goals as well as the personal performance of
individual plan participants.

ELIGIBLE PERSONS

Eligible persons will only include those whose job duties and responsibilities
support classification as an “exempt” employee under the Fair Labor Standards
Act. In addition, persons whose primary responsibility is selling directly to
individual customers and prospects and as a result, are provided with separate
revenue or profit based incentive earnings plans, are also not eligible for
participation in the MIP. Otherwise,

·                  Regular full-time persons in positions assigned salary grade
25 or greater will automatically be eligible for participation, and

·                  Regular full-time persons in positions assigned salary grades
22 to 24, inclusive, may selectively be granted eligibility subsequent to the
recommendation of a Vice President or other senior executive directing the
activities of the prospective participant’s business unit or functional
organization.

Persons hired after March 1, 200__ are not eligible for participation in the FY
200__ MIP. Other new employees hired prior to the March 1 date may be granted
eligibility for participation on a pro-rata basis.

Eligibility for participation is subject to the final approval of the President
and CEO, AAR Corp., and the Corporate Vice President — Human Resources.

DEFINITIONS

For MIP purposes, the following terms will have the following meanings:

a)                                                       Base Salary will mean
the annualized base salary of a participant on the last day of the Plan year —
that is, exclusive of any form of incentive or lump sum payments and before any
reduction for any voluntary contribution

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authorized under any qualified retirement plan sponsored by the Company or
before any amount which a participant may elect to defer under any other
deferred compensation plan of the Company.

b)                                                      Pre-Tax Income (PTI)
will mean those pre-tax net income goals established annually for the Company
and its operating units, by the President and CEO in conjunction with the
Compensation Committee of the AAR Corp. Board of Directors.

c)                                                       Return on Invested
Capital (ROIC) will mean the percentage which results from dividing operating
profit over the FY by the average invested capital over the FY.

d)                                                      Cash Flow (Cash) will
mean the target amount of Fiscal Year End (FYE) cash and cash equivalents,
established annually for the Company and its operating units by the President
and CEO, and reported in the Consolidated Statements of Cash Flows of AAR CORP.
and Subsidiaries.

e)                                                       Target Bonus (TB) will
mean the percentage of base salary which may be earned by a participant upon
full achievement of all assigned quantitative and personal performance goals. A
participant’s TB percentage is directly related to his or her salary grade and
potential impact on the overall performance of the Company.

f)                                                         Nominal Bonus (NB)
will mean the amount of incentive award derived from the percentage of the TB
which can be earned by a participant as a result of the level of achievement
measured against the participant’s quantitative goals (i.e., PTI and ROIC) and
measured against the Company’s FYE Cash Flow target.

QUANTITATIVE MEASURES

Each participant will have three quantitative goals related to either the
expectations for their operating unit or to the expectations for the Company as
a whole. In either case the goals will be specific PTI and ROIC and Cash
quantities.

As indicated in the table below, full (100.00% or more) achievement of the PTI
goal can provide up to 75.00% of a participant’s TB. Similarly, full achievement
of the ROIC goal can provide up to 25.00% of a participant’s TB.

Conversely, anything less than 70.00% achievement of a goal will eliminate the
possibility of earning any portion of the participant’s TB which may be
available for achievement measured against that goal.

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In between 70.00% and 100.00% (or more) the sequence of ranges of performance
achievement shown in the table will determine the portion (%) of the
participant’s TB which can be credited for performance against each goal. For
example,

·                  between 70.00% and 74.99% performance achievement of the PTI
goal, the TB credit would be 37.50%.

·                  between 95.00% and 99.99% performance achievement of the ROIC
goal, the TB credit would be 21.75.%.

 

RANGES OF
PERFORMANCE
ACHIEVEMENT
LEVEL

 

PERFORMANCE ACHIEVEMENT LEVEL

 

 

PTI

 

ROIC

Less than 70.00%

 

0.00% of TB

 

0.00% of TB

70.00% to 74.99%

 

37.50% of TB

 

12.50% of TB

75.00% to 79.99%

 

41.25% of TB

 

13.75% of TB

80.00% to 84.99%

 

45.00% of TB

 

15.00% of TB

85.00% to 89.99%

 

48.75% of TB

 

16.25% of TB

90.00% to 94.99%

 

56.25% of TB

 

18.75% of TB

95.00% to 99.99%

 

65.25% of TB

 

21.75% of TB

100.00% or More

 

75.00% of TB

 

25.00% of TB

 

THE ACHIEVEMENT CREDIT (%) EARNED AGAINST EACH OF THE PTI AND ROIC MEASURES IS
FURTHER MODIFIED BY A FACTOR DEPENDENT UPON THE DEGREE TO WHICH THE COMPANY
ACHIEVES ITS ANNUAL CASH FLOW TARGET AS FOLLOWS:

Cash Flow Results

 

 

 

 

PTI & ROIC Credit (%) Modifier Factor

 

100.0% or More of Target Amount

 

1.0

 90.0% to 99.9% of Target Amount

 

0.9

 80.0% to 89.9% of Target Amount

 

0.7

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70.0% to 79.9% of Target Amount

 

0.5

Less than 70.0% of Target Amount

 

0.0

 

NOMINAL BONUS AMOUNT

The credit (%) earned against each of the PTI and ROIC measures is first
multiplied by the Modifier Factor and is then multiplied by a participant’s base
salary to determine a preliminary bonus award amount derived from each measure.
The amounts from each measure are then added to establish a participant’s
nominal bonus (NB) amount.

PERSONAL PERFORMANCE

At FYE an overall rating of each participant’s Personal Performance (PP) will be
determined by the appropriate manager/executive. The rating shall be in the form
of a number ranging between 0.00 and 2.00.

CEO EVALUATION / RATING

Shortly after FYE, the CEO in conjunction with the Compensation Committee of the
Board of Directors will develop an evaluation of the consolidated results of
overall company performance. This evaluation will be in the form of a rating in
the range of 0.00 to 1.50 and will typically recognize common stock price
performance, diluted earnings per share results as well as consolidated net
income improvement and the attainment of AAR’s strategic objectives.

THE ACTUAL BONUS AWARD AMOUNT

The actual bonus amount to be awarded a participant shall be determined in
accord with the following formula.

Nominal

 

Individual

 

 

 

 

Bonus

x

Participant

x

CEO

=

Actual Bonus Award

Award

 

Performance

 

Overall

 

 

Amount

 

Evaluation

 

Evaluation

 

 

 

(NB $)   x   (PP Rating)   x   (CEO Rating)  =  $ Bonus

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A hypothetical example of a bonus award calculation is presented in the attached
Exhibit I.

DISCRETIONARY AWARDS

The Compensation Committee of the Board of Directors may, upon the
recommendation of senior executive management, increase or decrease a
participant’s actual bonus award amount by up to 100% in certain circumstances,
taking into account a multitude of discretionary factors affecting a particular
time period or individual participant. Such circumstances could include the
effects of acquisitions, divestitures, corporate stock buybacks or financing
activities, foreign currency, significant unplanned special projects or
activities intended to enhance current year bonus payments perhaps to the
detriment of future periods (e.g., inadequate expenditures that artificially
increase short-term profits or unnecessary year-end shipments that build sales
only short-term, etc.), or an individual’s contribution or performance for such
year. For certain participants, a discretionary change to the actual bonus award
may also recognize how well his or her management team has been built and
developed.

In addition, should there be unusual circumstances occurring during the FY such
that the above measures and/or bonus award amounts do not adequately reflect
extraordinary effort, the CEO may consider providing a participant with a
one-time, solely discretionary bonus award.

MIP ADMINISTRATION

MIP administration shall be the responsibility of the Corporate Vice President —
Human Resources.

A.    New Participants

New employees who join the Company during the Plan year may be authorized to
participate in the MIP on a pro-rata basis with the approval of the Chief
Executive Officer and the Vice President — Human Resources.

B.    Transfers and Promotions

If a participant is transferred or promoted during the Plan year causing an
adjustment in the assigned Target Bonus, such a participant’s bonus will be
calculated on a pro-rata basis.

C.    Retirement, Death or Disability

A participant who retires, dies, or becomes totally and permanently disabled (as
that term is defined in the AAR Retirement Plan) during the Plan year will be
entitled to a pro-rated bonus in accordance with Paragraph D.

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D.    Payment of Bonus

Bonuses will be paid as soon as possible after the completion of the company’s
year-end audit. A participant does not have a contractual right to receive a
bonus. Rather, a participant becomes entitled to receive a bonus award payment
only after such individual payments, if any, have been approved and authorized
by the Compensation Committee of the Board.

E.     Employment as a Condition Precedent

No bonus will be paid, except pursuant to the provisions of Paragraph C above,
unless a participant is an employee of the Company on the bonus payout date.

F.     No Employment Contract

Neither the establishment of the MIP nor the authorization to be a participant
in the Plan will be construed as giving any participant the right to be retained
in the service of the Company.

G.    Modification of Goals

The Compensation Committee of the Board from time to time during the Plan year,
may modify the MIP at the discretion of the Chief Executive Officer and the
Committee, should any part of the MIP cease to be a reasonable measure of
desired performance. These modifications shall be timely communicated to
participants in writing.

SPECIFIC PARTICIPANT GOALS

The goals and target bonus percentages for each eligible participant shall be
communicated to each participant in a form, approximating that shown in
Exhibit II, attached.

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EXHIBIT I

FY 2006 MANAGEMENT INCENTIVE PLAN

Operations Executive

 

 

 

 

Base Salary Earnings

 

$90,000

 

 

Target Bonus Percentage (TB)

 

15.0%

 

 

Achievement against PTI

 

98.00%

 

(credit = 65.25% x TB)

Achievement against ROIC

 

104.0%

 

(credit = 25.00% x TB)

Cash Flow Results

 

94.3%

 

(Credit Modifier = 0.9)

Individual Performance Evaluation (PP)

 

1.10

 

 

CEO Rating

 

0.95

 

 

 

 

 

 

 

Target Bonus Credit due to PTI

=

(65.25%) (15.0%) (0.9) ($90,000)

 

 

 

=

$7,927.88

 

 

 

 

 

 

 

Target Bonus Credit due to ROIC

=

(25.0%) (15.0%) (0.9) ($90,000)

 

 

 

=

$3,037.50

 

 

 

 

 

 

 

Nominal Bonus Amount (NB)

=

$7,927.88 + $3,037.50

 

 

 

=

$10,965.38

 

 

 

 

 

 

 

Actual Bonus Award after

 

 

 

 

Application of PP and CEO Ratings

=

($10,965.38) (1.10) (0.95)

 

 

 

=

$11,458.82

 

 

 

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EXHIBIT II

AAR Corp.
FY 2006 Management Incentive Plan

PARTICIPANT NAME:

 

 

 

CURRENT TITLE OF RECORD:

 

 

 

CURRENT SALARY GRADE:

 

 

 

 

 

 

 

TARGET BONUS AS A% OF BASE SALARY: %

 

 

 

 

 

 

 

ORGANIZATION UNIT:   Corp.

 

 

 

PTI GOAL ($           ):

 

 

 

ROIC GOAL:       %

 

 

 

AAR CORP. CASH FLOW TARGET (‘000): $

 

 

 

 

 

 

 

DATE:                        

 

 

 

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