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            EMPLOYMENT AND SEVERANCE AND CHANGE IN CONTROL AGREEMENT


               This Employment and Severance and Change in Control Agreement
               ("Agreement") made and entered into as of the 1st day of June,
               2001, by and between AAR CORP., a Delaware corporation
               ("Company"), and JOSEPH M. GULLION ("Employee").


WHEREAS, the Employee has been employed with the Company as its Vice
President-Strategic Planning & Acquisitions since March 1, 2001, on an
employment-at-will basis; and

WHEREAS, the Company has offered Employee continued employment for a specified
term, as provided for below, and Employee has accepted such offer of continued
employment pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements herein set forth and
other good and valuable consideration, the parties hereto agree as follows:

1.   EMPLOYMENT.

     (a)  Employee agrees to continue his employment with the Company through
          May 31, 2005 subject to the terms and conditions set forth herein.
          After May 31, 2005 Employee's employment shall continue on an
          employment-at-will basis terminable by either party at any time for
          any reason or no reason, and subject to the terms and conditions set
          forth herein. The Company may change Employee's title, duties and
          location of employment from time to time as the Company determines, in
          its sole discretion, to be in the bests interest of the Company.

     b.   Compensation and benefits shall be as set forth in Attachment A
          hereto.

2.   DUTIES. During his employment, Employee shall:

     (a)  well and faithfully serve the Company and do and perform assigned
          duties and responsibilities in the ordinary course of his employment
          and the business of the Company (within such limits as the Company may
          from time to time prescribe), professionally, faithfully and
          diligently.

     (b)  devote his full time, energy and skill to the business of the Company
          and his assigned duties and responsibilities, and to the promotion of
          the best interests of the Company; provided that Employee shall not
          (to the extent not inconsistent with Section 4 below) be prevented
          from (a) serving as a director of any corporation consented to in
          advance in writing by the Company, (b) engaging in charitable,
          religious, civic or other non-profit community activities, or (c)
          investing his personal assets in such form or manner as will not
          require any substantial services on his part in the operation or
          affairs of the business in which such investments are

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          made or which would detract from or interfere or cause a conflict of
          interest with performance of his duties hereunder.

     (c)  observe all policies and procedures of the Company in effect from time
          to time applicable to employees of the Company including, without
          limitation, policies with respect to employee loyalty and prohibited
          conflicts of interest.

3.   CONFIDENTIAL INFORMATION, ASSIGNMENT OF INVENTIONS.

     (a)  Employee acknowledges that the trade secrets, confidential
          information, secret processes and know-how developed and acquired by
          AAR CORP. and its affiliates or subsidiaries (together the "Affiliated
          Companies") are among their most valuable assets and that the value of
          such information may be destroyed by unauthorized disclosure. All such
          trade secrets, confidential information, secret processes and know-how
          imparted to or learned by Employee in the course of his employment
          with respect to the business of the Affiliated Companies (whether
          acquired before or after the date hereof) will be deemed to be
          confidential and will not be used or disclosed by Employee, except to
          the extent necessary to perform Employee's duties and, in no event,
          disclosed to anyone outside the employ of the Affiliated Companies and
          their authorized consultants and advisors, unless (i) such information
          is or has been made generally available to the public, (ii) disclosure
          of such information is required by law in the opinion of Employee's
          counsel (provided that written notice thereof is given to Company as
          soon as possible but not less than 24 hours prior to such disclosure),
          or (iii) express written authorization to use or disclose such
          information has been given by the Company. If Employee ceases to be
          employed by the Company for any reason, Employee shall not take any
          electronically stored data, documents or other papers containing or
          reflecting trade secrets, confidential information, secret processes,
          know-how, or computer software programs from the Company. Employee
          acknowledges that Employee's employment hereunder will place Employee
          in a position of utmost confidence and that Employee will have access
          to confidential information concerning the operation of the business
          of the Affiliated Companies, including, but not limited to,
          manufacturing methods, developments, secret processes, know-how,
          computer software programs, costs, prices and pricing methods, sources
          of supply and customer names and relations. All such information is in
          the nature of a trade secret and is the sole and exclusive property of
          the Affiliated Companies and shall be deemed confidential information
          for the purposes of this paragraph.

     (b)  Employee hereby assigns to the Company all rights that Employee may
          have as author, designer, inventor or otherwise as creator of any
          written or graphic material, design, invention, improvement, or any
          other idea or thing whatever that Employee may write, draw, design,
          conceive, perfect, or reduce to practice during employment with the
          Company or within 120 days after termination of such employment,
          whether done during or outside of normal work hours, and whether done
          alone or in conjunction with others ("Intellectual Property"),
          provided, however, that Employee reserves all rights in anything done
          or developed entirely by Employee on Employee's own personal time and
          without the use of any Company equipment,


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          supplies, facilities or information, or the participation of any other
          Company employee, unless it relates to the Company's business or
          reasonably anticipated business, or grows out of any work performed by
          Employee for the Company. Employee will promptly disclose all such
          Intellectual Property developed by Employee to the Company, and fully
          cooperate at the Company's request and expense in any efforts by the
          Company or its assignees to secure protection for such Intellectual
          Property by way of domestic or foreign patent, copyright, trademark or
          service mark registration or otherwise, including executing specific
          assignments or such other documents or taking such further action as
          may be considered necessary to vest title in Company or its assignees
          and obtain patents or copyrights in any and all countries.

4.   NON-COMPETE; SEVERANCE.

     (a)  Employee agrees that through May 31, 2005, or thereafter during
          Employee's continuation of employment with the Company and for one
          year thereafter, provided that the Company makes severance payments to
          Employee pursuant to subsections 4(b) and 4(c) below, Employee shall
          not, without the express written consent of the Company, either alone
          or as a consultant to, or partner, employee, officer, director, or
          stockholder of any organization, entity or business, (i) take or
          convert for Employee's personal gain or benefit or for the benefit of
          any third party, any business opportunities which may be of interest
          to the Company or any Affiliated Company which Employee becomes aware
          of during the term of his employment; (ii) engage in direct or
          indirect competition with the Company or any Affiliated Company within
          100 miles of any location within the United States of America or any
          other country where the Company or any Affiliated Company does
          business from time to time during the term hereof; (iii) solicit in
          connection with any activity which is competitive with any of the
          businesses of the Company or any Affiliated Company, any customers of
          the Company or any Affiliated Company; (iv) solicit for employment any
          sales, marketing or management employee of Company or any Affiliated
          Company or induce or attempt to induce any customer or supplier of the
          Company or any Affiliated Company to terminate or materially change
          such relationship. Company and Employee acknowledge the reasonableness
          of the foregoing covenants not to compete and non-solicitation,
          including but not limited to the geographic area and duration of time
          which are a part hereof, and further, that the restrictions stated in
          this Section 4 are reasonably necessary for the protection of
          Employer's legitimate proprietary interests. This covenant not to
          compete may be enforced with respect to any geographic area in which
          the Company or any Affiliated Company does business during the term
          hereof. Nothing herein shall prohibit Employee from being the legal or
          equitable holder, solely for investment purposes, of less than 5% of
          the capital stock of any publicly held corporation which may be in
          direct or indirect competition with the Company or any Affiliated
          Company.

     (b)  The Company will pay Employee, upon termination of Employee's
          employment by the Company prior to a Change in Control (as defined in
          6(c)(i) below) for any reason other than Cause (as defined in 6(c)(iv)
          below), severance each month for


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          twelve months in an amount (subject to applicable withholding) equal
          to 1/12 of Employee's annual base salary; and, further, if the Company
          pays discretionary bonuses to its officers for the fiscal year in
          which Employee's employment is terminated, Employee will be paid a
          bonus in a lump sum at the time any such bonuses are paid to other
          officers or at such time as the Severance Period is complete,
          whichever is later (with interest at prime rate plus one percentage
          point from the earlier of such dates), (1) for the completed fiscal
          year preceding termination if such bonus has not been paid prior to
          termination, and (2) for the fiscal year in which employment is
          terminated, prorata for the period prior to termination of employment
          based on Employee's performance during such period; provided, however
          that (i) all such monthly payment obligations shall terminate
          immediately upon Employee obtaining full time employment in a
          comparable position in terms of salary level, and (ii) all such
          payment obligations shall terminate or lapse immediately upon any
          breach by Employee of Section 4 or 5(a) of this Agreement or if
          Employee shall commence any action or proceeding in any court or
          before any regulatory agency arising out of or in connection with
          termination of Employee's employment.

     (c)  If Employee terminates Employee's employment prior to May 31, 2005,
          Employee shall be subject to the provisions of subsection 4(a) until
          May 31, 2005. If Employee's employment is terminated by the Company
          for Cause (as defined below) or Employee terminates his employment
          after May 31, 2005, and prior to a Change in Control, the Company may
          elect (but is not required to), by written notice thereof to Employee,
          within five (5) days of any such termination of Employee's employment
          with the Company prior to a Change in Control (as defined below), to
          pay Employee severance as provided in and subject to the provisions of
          subsection 4(b) above.

     (d)  If at any time, any clause or portion of this Section 4 shall be
          deemed invalid or unenforceable by the laws of the jurisdiction in
          which it is to be enforced by reason of being vague or unreasonable as
          to duration, geographic scope, nature of activities restricted, or for
          any other reason, this provision shall be considered divisible as to
          such portions and the foregoing restrictions set forth in 4(a) shall
          become and be immediately amended to include only such duration, scope
          or restriction and such event as shall be deemed reasonable and
          enforceable by the court or other body having jurisdiction to enforce
          this Agreement; and the parties hereto agree that the restrictions, as
          so amended, shall be valid and binding as though the invalid or
          unenforceable portion had not been involved herein.

     (e)  The Employee acknowledges and agrees that the Company would be
          irreparably harmed by violations of Section 3 or Section 4(a) above,
          and in recognition thereof, the Company shall be entitled to an
          injunction or other decree of specific performance with respect to any
          violation thereof (without any bond or other security being required)
          in addition to other available legal and equitable remedies.

     (f)  Except as otherwise provided in this Agreement, Section 3 and 4 of
          this Agreement shall survive any termination of Employee's employment
          with the Company.


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5.   TERMINATION OF EMPLOYMENT.

     (a)  Upon and after termination of employment howsoever arising, Employee
          shall, upon request by Company:

          (1)  immediately return to the Company all correspondence, documents,
               business calendars/diaries, or other property belonging to the
               Company which is in Employee's possession,

          (2)  immediately resign from any office Employee holds with the
               Company or any Affiliated Company; and

          (3)  cooperate fully and in good faith with the Company in the
               resolution of all matters Employee worked on or was involved in
               during Employee's employment with the Company. Employee's
               cooperation will include reasonable consultation by telephone.
               Further, in connection therewith, Employee will, at Company's
               request upon reasonable advance notice and subject to Employee's
               availability, make Employee available to Company in person at
               Company's premises, for testimony in court, or elsewhere;
               provided, however, that in such event, Company shall reimburse
               all Employee's reasonable expenses and pay Employee a reasonable
               per diem or hourly stipend.

6.   CHANGE IN CONTROL.

     (a)  In the event (i) a Change in Control of AAR CORP. occurs, and (ii) (A)
          at any time during the 18 month period commencing on the date of the
          Change in Control the Company terminates Employee's employment for
          other than Cause or Disability, or Employee terminates Employee's
          employment for Good Reason, in either case by written notice to the
          other party (including the particulars thereof), and having given the
          other party opportunity to be heard with respect thereto, or (B)
          Employee's employment with the Company terminates for any reason other
          than Disability or death during the 30 day period commencing on the
          expiration of the aforementioned 18 month period, then:

          (1)  The Company shall promptly pay to Employee, in a lump sum, a cash
               payment in an amount equal to the sum of (A) all base salary
               earned through the date of termination, (B) any annual cash bonus
               earned by Employee for the fiscal year of the Company most
               recently ended prior to the date of termination to the extent
               unpaid on the date of termination, (C) a prorata portion of the
               annual cash bonus, including the value of any restricted stock
               grant in lieu of annual cash bonus, Employee would have earned
               had Employee been employed by the Company on the last day of the
               fiscal year in which the date of termination occurs (as if all
               performance targets have been met or, in the event the bonus is
               of the "discretionary" type, the bonus shall be based on a
               percentage of base salary which is not less than


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               percentage of base salary received as bonus for the preceding
               fiscal year) that is applicable to the period commencing on the
               first day of such fiscal year and ending on the date of
               termination, and (D) any and all other benefits and amounts
               earned by Employee prior to the date of termination to the extent
               unpaid, all subject to applicable withholding.

          (2)  The Company shall promptly pay to Employee in a lump sum, a
               cash payment in an amount equal to three times Employee's
               total compensation (base salary plus annual cash bonus) for
               either the fiscal year of the Company most recently ended
               prior to the date of termination, or the preceding fiscal
               year, whichever is the highest total compensation, subject to
               applicable withholding. Employee may elect to take payment of
               any amounts on a schedule of Employee's own choosing; provided
               that such schedule shall be completed no later than three
               years from the date of Employee's termination of employment.

          (3)  Employee and his dependents shall continue to be covered by,
               and receive employee welfare and executive fringe benefits
               (including but not limited to medical, dental, life, accident
               and disability insurance available to officers of the Company
               and additional executive retirement and other fringe benefits
               approved by the President and CEO of the Company) in
               accordance with the terms of the Company's benefit plans and
               executive fringe benefit programs, for three years following
               the date of termination, and at no less than the levels
               Employee and Employee's dependents were receiving immediately
               prior to the Change in Control. Employee's dependents shall be
               entitled to continued benefits coverage pursuant to the
               preceding sentence for the balance of such three year period
               in the event of Employee's death during such period. The
               period during which Employee and Employee's dependents are
               entitled to continuation of group health plan coverage
               pursuant to Section 4980B of the Internal Revenue Code of
               1986, as amended, and Part 6 of Title I of the Employee
               Retirement Income Security Act of 1974, as amended, shall
               commence on the date next following the expiration of the
               aforementioned three year period.

          (4)  Employee shall receive an additional retirement benefit, over
               and above that which Employee would normally be entitled to
               under the Company's retirement plans or programs applicable to
               Employee, equal to the additional amount that Employee would
               have earned under such retirement plans or programs had
               Employee accumulated three additional continuous years of
               service. Such amount shall be paid to Employee in a cash lump
               sum payment on the earlier to occur of Employee's termination
               of employment following a Change in Control or Employee's
               Retirement Date, together with a gross-up bonus in an amount
               equal to any federal, state and local income taxes and excise
               taxes (including FICA and any similar taxes) payable by
               Employee on such lump sum payment and such gross-up bonus.

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          (5)  The Company, at its expense, shall provide Employee with
               outplacement services of a nationally recognized outplacement
               firm of the Employee's choosing until the earlier of (a) the
               Employee's attainment of employment, or (b) the date eighteen
               (18) months from the date of Employee's termination of
               employment; provided, however, that the cost of such
               outplacement services shall not exceed 3.5% of the cash
               payment due to Employee pursuant to subsection 6(a)(2) above.

          (6)  The amounts paid to Employee under this Change in Control
               provision applicable to Employee shall be considered severance
               pay in consideration of past service Employee has rendered to
               the Company and in consideration of Employee's continued
               service from the date hereof to entitlement of those payments.

     (b)  In the event that a Change in Control occurs, whether or not such
          Change in Control has the prior written approval of a majority of
          the Continuing Directors (as defined in the AAR CORP. Stock Benefit
          Plan), and notwithstanding any conditions or restrictions related
          to any Award granted to Employee under the Plan, all Options or
          Limited Rights, or both, granted to Employee under the Plan will
          become immediately exercisable and remain exercisable for the full
          remaining life of the option whether or not Employee's employment
          continues, and all restrictions on Restricted Stock granted to
          Employee under the Plan will immediately lapse.

     (c)  For purposes of this Agreement

          (i)  "Change in Control" means the earliest of:

               (1)  any person (as such term is used in Section 13(d) of the
                    Securities Exchange Act of 1934, as amended ("Exchange
                    Act")), has acquired (other than directly from the
                    Company) beneficial ownership (as that term is defined in
                    Rule 13d-3 under the Exchange Act), of more than 20% of
                    the outstanding capital stock of the Company entitled to
                    vote for the election of directors; or

               (2)  the effective time of (i) a merger or consolidation or
                    other business combination of the Company with one or
                    more other corporations as a result of which the holders
                    of the outstanding voting stock of the Company
                    immediately prior to such business combination hold less
                    than 60% of the voting stock of the surviving or
                    resulting corporation, or (ii) a transfer of
                    substantially all of the assets of the Company other than
                    to an entity of which the Company owns at least 80% of
                    the voting stock; or

               (3)  the election over any period of time to the Board of
                    Directors of the Company without the recommendation or
                    approval of the incumbent Board of Directors of the
                    Company, of the lesser of (i) three


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                    directors, or (ii) directors constituting a majority of the
                    number of directors of the Company then in office.

          (ii) "Good Reason" means:

               (1)  a material reduction in the nature or scope of Employee's
                    duties, responsibilities, authority, power or functions
                    from those enjoyed by Employee immediately prior to the
                    Change in Control, or a material reduction in Employee's
                    compensation (including benefits), occurring at any time
                    during the two-year period immediately after the Change
                    in Control; or

               (2)  if the incumbent in the position of President and CEO of
                    the Company on the effective date hereof is not the
                    President and CEO of the Company at the time of
                    termination, a good faith determination by Employee that
                    as the result of a Change in Control and a material
                    change in employment circumstances at any time during the
                    two year period immediately after the Change in Control,
                    Employee is unable to carry out Employee's assigned
                    duties and responsibilities in a manner consistent with
                    the practices, standards, values or philosophy of the
                    Company immediately prior to the Change in Control; or

               (3)  a relocation of the primary place of employment of at
                    least 100 miles.

          (iii) "Disability" means:

               (1)  a physical or mental condition which has prevented
                    Employee from substantially performing Employee's
                    assigned duties for a period of 180 consecutive days and
                    which is expected to continue to render Employee unable
                    to substantially perform Employee's duties on a full-time
                    basis and otherwise meets the benefit eligibility
                    requirements of the Company's Long Term Disability
                    Welfare Benefit Plan or any executive program in which
                    Employee was a participant at the time of a Change in
                    Control. The Company will make reasonable accommodation
                    for any handicap of Employee as may be required by
                    applicable law.

               In the event of termination by the Company for Disability
               after a Change in Control, a good faith determination of the
               existence of a Disability shall be made by resolution of the
               Compensation Committee of the Board of Directors of the
               Company, in its sole discretion, setting forth the particulars
               of the Disability which shall be final and binding upon the
               Employee. The Company may require the submission of such
               medical evidence as to the condition of the Employee as it may
               deem necessary in order to arrive at its determination of the
               occurrence of a Disability, and Employee will

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               cooperate in providing any such information. Employee will be
               provided with reasonable opportunity to present additional
               medical evidence as to the medical condition of Employee for
               consideration prior to the Board making its determination of
               the occurrence of a Disability.

               Upon termination of Employment by Company for Disability after
               a Change in Control, Employee will receive Disability payments
               pursuant to the Company's short and long term Disability
               welfare benefit plans then in effect according to the terms of
               such plans and continue to be eligible to participate in the
               Company's medical, dental and life insurance programs then in
               effect and available to officers of the Company in accordance
               with their terms for a period of 3 years from the date of such
               termination of this Agreement.

          (iv) "Cause" means:

               (1)  Employee engages, during the performance of his duties
                    hereunder, in acts or omissions constituting dishonesty,
                    intentional breach of fiduciary obligation or intentional
                    wrongdoing or malfeasance;

               (2)  Employee intentionally disobeys or disregards a lawful and
                    proper direction of the Board or the Company; or

               (3)  Employee materially breaches the Agreement and such breach
                    by its nature, is incapable of being cured, or such breach
                    remains uncured for more than 10 days following receipt by
                    Employee of written notice from the Company specifying the
                    nature of the breach and demanding the cure thereof. For
                    purposes of this clause (3), a material breach of the
                    Agreement that involves inattention by Employee to
                    Employee's duties under the Agreement shall be deemed a
                    breach capable of cure.

               Without limiting the generality of the foregoing, the following
               shall not constitute Cause for the termination of the employment
               of Employee or the modification or diminution of any of his
               authority hereunder:

               (1)  any personal or policy disagreement between Employee and the
                    Company or any member of the Board, or

               (2)  any action taken by Employee in connection with his duties
                    hereunder, or any failure to act, if Employee acted or
                    failed to act in good faith and in a manner he reasonably
                    believed to be in and not opposed to the best interest of
                    the Company and Employee had no reasonable cause to believe
                    Employee's conduct was unlawful, or

               (3)  termination of Employee's employment for overall
                    unsatisfactory performance (including, but not limited to,
                    failure to meet financial goals).


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                    Termination for Cause shall be limited to a good faith
                    finding by resolution of the Compensation Committee of the
                    Board, setting forth the particulars thereof. Any such
                    action shall be taken at a regular or specially called
                    meeting of the Compensation Committee of the Board, after a
                    minimum 10 days notice thereof to Employee, with termination
                    of Employee's employment with the Company for Cause listed
                    as an agenda item. Employee will be given a reasonable
                    opportunity to be heard at such meeting with counsel present
                    if Employee desires. Any such resolution shall be final and
                    binding.

                    Upon termination of employment by Company for Cause, no
                    further compensation or benefits shall accrue or be payable
                    to Employee by the Company, except for any compensation,
                    bonus or other benefits which have accrued to Employee prior
                    to the date of any such termination.

                    Nothing herein shall be construed to prevent the Company
                    from terminating Employee's employment at any time for any
                    reason or for no reason.

     (d)  The Company will pay reasonable legal/attorney's fees (including
          court costs and other costs of litigation) incurred by Employee in
          connection with enforcement of any right or benefit under this
          Agreement.

     (e)  The Company shall promptly pay Employee a gross-up bonus in an
          amount equal to (i) all excise taxes payable under Section 280G of
          the Internal Revenue Code on any amounts constituting "golden
          parachute" payments, plus (ii) any federal, state, and local income
          taxes and excise taxes (including FICA) payable by Employee on such
          gross-up bonus in order to put Employee in the same position he
          would have been in if the excise tax provision (Section 280G) did
          not apply.

     (f)  The Company will continue to provide SKERP retirement benefits to
          Employee and Employee's spouse at no less than the level they are
          receiving or entitled to receive under the SKERP as it was in
          effect immediately prior to the Change in Control.

7.   CHANGES IN BUSINESS. The Company, acting through its Board of Directors,
     will at all times have complete control over the Company's business and
     retirement and other employee health and welfare benefit plans ("Plans").
     Without limiting the generality of the foregoing, the Company may at any
     time or times change or discontinue any or all of its present or future
     operations or Plans (subject to their terms), may close or move any one or
     more of its divisions or offices, may undertake any new servicing or sales
     operation, may sell any one or more of its divisions or offices to any
     company not controlled, directly or indirectly, by the Company or may take
     any and all other steps which its Board of Directors, in its exclusive
     judgment, shall deem desirable, and Employee shall have no claim or
     recourse against the Company, its officers, directors or employees by
     reason of such action except for enforcement of the provisions of Sections
     4 and 6 of this Agreement.


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8.   SEVERANCE PAYMENT AS SOLE OBLIGATION. Except as expressly provided in
     Sections 4 and 6 above, no further compensation, payments, liabilities or
     benefits shall accrue or be payable to Employee upon or as a result of
     termination of Employee's employment for any reason whatsoever except for
     any compensation, bonus or other benefits which accrued to Employee prior
     to the date of employment termination.

     The amounts paid to the Employee under Section 4 and 6 of this Agreement
     shall be considered severance pay in consideration of Employee's past
     services Employee has rendered to the Company and in consideration of
     Employee's continued service from the date hereof to entitlement to those
     payments.

9.   NOTICES. Any notice or other instrument or thing required or permitted to
     be given, served or delivered to any of the parties hereto shall be
     delivered personally or deposited in the United States mail, with proper
     postage prepaid, telegram, teletype, cable or facsimile transmission to the
     addresses listed below:

     (a)  If to the Company, to:

                AAR CORP.
                One AAR Place
                1100 N. Wood Dale Road
                Wood Dale, Illinois   60191
                Attention:  Chairman

          With a copy to:

                AAR CORP.
                One AAR Place
                1100 N. Wood Dale Road
                Wood Dale, Illinois   60191
                Attention:  General Counsel

     (b)  If to Employee, to:

                Joseph M. Gullion
                551 E. Windgate Court
                Arlington Heights, IL   60005

     or to such other address as either party may from time to time designate by
     notice to the other. Each notice shall be effective when such notice and
     any required copy are delivered to the applicable address.


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10.  NON-ASSIGNMENT.

     (a)  The Company shall not assign this Agreement or any rights or
          obligations hereunder without the prior written consent of Employee,
          and any attempted unpermitted assignment shall be null and void and
          without further effect; provided, however, that, upon the sale or
          transfer of all or substantially all of the assets of the Company, or
          upon the merger by the Company into or the combination with another
          corporation or other business entity, or upon the liquidation or
          dissolution of the Company, this Agreement will inure to the benefit
          of and be binding upon the person, firm or corporation purchasing such
          assets, or the corporation surviving such merger or consolidation, or
          the shareholder effecting such liquidation or dissolution, as the case
          may be. After any such transaction, the term Company in this Agreement
          shall refer to the entity which conducts the business now conducted by
          the Company. The provisions of this Agreement shall be binding upon
          and inure to the benefit of the estate and beneficiaries of Employee
          and upon and to the benefit of the permitted successors and assigns of
          the parties hereto.

     (b)  The Employee agrees on behalf of Employee, Employee's heirs, executors
          and administrators, and any other person or person claiming any
          benefit under Employee by virtue of this Agreement, that this
          Agreement and all rights, interests and benefits hereunder shall not
          be assigned, transferred, pledged or hypothecated in any way by the
          Employee or by any beneficiary, heir, executor, administrator or other
          person claiming under the Employee by virtue of this Agreement and
          shall not be subject to execution, attachment or similar process. Any
          attempted assignment, transfer, pledge or hypothecation or any other
          disposition of this Agreement or of such rights, interests and
          benefits contrary to the foregoing provisions or the levy or any
          execution, attachment or similar process thereon shall be null and
          void and without further effect.

11.  SEVERABILITY. If any term, clause or provision contained herein is declared
     or held invalid by any court of competent jurisdiction, such declaration or
     holding shall not affect the validity of any other term, clause or
     provision herein contained.

12.  CONSTRUCTION. Careful scrutiny has been given to this Agreement by the
     Company, Employee, and their respective legal counsel. Accordingly, the
     rule of construction that the ambiguities of the contract shall be resolved
     against the party which caused the contract to be drafted shall have no
     application in the construction or interpretation of this Agreement or any
     clause or provision hereof.

13.  ENTIRE AGREEMENT. This Agreement, and the other agreements referred to
     herein, set forth the entire understanding of the parties and supersede all
     prior agreements, arrangements and communications, whether oral or written,
     pertaining to the subject matter hereof.

14.  WAIVER. No provision of this Agreement may be amended, modified, waived or
     discharged unless such amendment, modification, waiver or discharge is
     agreed to in writing signed by Employee and an authorized officer of the
     Company. No waiver by either party hereto at any time of any breach by the
     other party hereto of, or compliance with, any condition or


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     provision of this Agreement to be performed by such other party shall be
     deemed a waiver of similar or dissimilar provisions or conditions at the
     same or at any prior or subsequent time.

15.  GOVERNING LAW. The validity, interpretation, construction and performance
     of this Agreement shall be governed by and construed in accordance with the
     laws of the State of Illinois without regard to its conflicts of law
     principles.

16.  EXECUTION. This Agreement may be executed in multiple counterparts, each of
     which shall be deemed an original and which shall constitute but one and
     the same Agreement.

WITNESS the due execution of this Agreement by the parties hereto as of the day
and year first above written.

Company:

AAR CORP.



By: /s/ Roberta R. McQuade
   -----------------------------
Title:  Vice President

Employee:


/s/ Joseph M. Gullion
--------------------------------
Joseph M. Gullion


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                                                               Joseph M. Gullion
                                                                  Employment and
                                       Severance and Change in Control Agreement
                                                              Dated June 1, 2001

                                                                    ATTACHMENT 1


Compensation and Fringe Benefits

1.   Base Salary:          $420,000 subject to annual merit review (any
                           increases to be approved by the Compensation
                           Committee of the Board of Directors).

2.   Bonus:                Employee's performance incentive bonus opportunity
                           shall be as follows, measured against an annual plan
                           determined by the President and CEO and communicated
                           to Employee:

                           50% of Base Salary at threshold*
                           80% of Base Salary at target**
                           Up to 100% of Base Salary for exceptional
                              performance as determined in the discretion of
                              the President and CEO and approved by the
                              Compensation Committee

3.   Stock Benefit Plan participation:

     -    Eligible to receive stock options and restricted stock awards subject
          to terms of the AAR CORP. Stock Benefit Plan.

     -    CEO recommendation for FY02 of a stock option grant of not less than
          75,000 shares (subject to approval by the Compensation Committee in
          its sole discretion).

     -    Restricted stock awards (as may be determined annually by the
          Compensation Committee in its sole discretion).

4.   Other Benefits: Participation, according to eligibility provisions of each,
     in such welfare (including but not limited to medical, dental, life,
     accident, and disability insurance programs), vacation, retirement plans,
     and other fringe benefits as may be in effect from time to time and
     available to other officers of the Company during Employee's employment
     term. Employee shall also be entitled to participate in such additional
     executive fringe benefits as may be authorized from time to time by the
     President and Chief Executive Officer of the Company, including:

*Threshold equals 80% of Plan.
**Target equals 100% of Plan.


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     -    Executive disability program
     -    Executive financial counseling program
     -    Country Club membership dues
     -    Annual executive physical
     -    Executive Participant in SKERP (50% of eligible Compensation
          multiplied by a fraction, the numerator of which shall be Years of
          Credited Service not to exceed twenty, and the denominator of which
          shall be twenty)


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