Document:

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                         AAR CORP. AMENDED AND RESTATED
                    SUPPLEMENTAL KEY EMPLOYEE RETIREMENT PLAN

         WHEREAS, the AAR CORP. Supplemental Key Employee Retirement Plan
("SKERP") was adopted effective June 1, 1994, for the Executive Officers, and
other designated officers and key employees, of AAR CORP. and its Affiliated
Companies who participate in the qualified retirement plans from time to time
established and maintained by AAR CORP. The purpose of the Plan is to ensure
that the retirement benefits provided to Executive Officers and certain other
officers and key employees enhance the overall effectiveness of the AAR CORP.
executive compensation program and attract, retain and motivate such
individuals.

         WHEREAS, the Company amended the Plan on June 1, 1995, January 1, 1996
and June 1, 1996; and

         WHEREAS, the Company now desires to further amend the Plan in certain
respects and to restate the Plan in its entirety for administrative convenience;

         NOW, THEREFORE, the AAR CORP. Supplemental Key Employee Retirement Plan
is hereby amended and restated, effective April 11, 2000, as set forth below:

                                    ARTICLE I
                                   DEFINITIONS

         Wherever used herein the following terms shall have the meanings
hereinafter set forth:

         1.1.     "Affiliated Company" means a business entity, or predecessor
of such entity, if any, which controls, or is under common control with, the
Company.

         1.2.     "Board" means the Board of Directors of the Company.

         1.3.     "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any regulations relating thereto.

         1.4.     "Committee" means the Retirement Committee responsible for the
administration of the Qualified Retirement Plan.

         1.5.     "Company" means AAR CORP., a Delaware corporation, or, to the
extent provided in Section 8.10 below, any successor corporation or other entity
resulting from a merger or consolidation into or with the Company or a transfer
or sale of substantially all of the assets of the Company.

         1.5.1.   "Change in Control" means the earliest of:

                  (a)      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

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         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;

                  (b)      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

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

         1.6.     "Executive Officer" means each of (a) the President and Chief
Executive Officer and (b) the Vice President, General Counsel and Secretary of
the Company holding office at the Plan effective date. The Compensation
Committee of the Board, upon recommendation of management, shall have the
discretion from time to time to designate individuals occupying other executive
positions with the Company or an Affiliated Company as Executive Officers for
purposes of the Plan.

         1.7.     "Key Employee" means each employee of the company who may from
time to time be designated as such for purposes of the Plan by and in the
discretion of the Compensation Committee of the Board, upon recommendation of
management.

         1.8.     "Normal Retirement Date" means the first day of the calendar
month coincident with or next following the date a Participant attains age 65.

         1.9.     "Participant" means any individual who has been designated an
Executive Officer, or Key Employee of the Company or an Affiliated Company for
purposes of the Plan.

         1.10.    "Plan" means the AAR CORP. Supplemental Key Employee
Retirement Plan.

         1.11.    "Plan Year" means the calendar year or any other 12
consecutive month period that constitutes the fiscal year of the Qualified
Profit Sharing Plan.

         1.12.    "Qualified Company Account" means the account maintained for a
Participant under the Qualified Profit Sharing Account that is credited with
Qualified Company Contributions.

         1.13.    "Qualified Company Contribution" means the Company
Contribution made by the Company or an Affiliated Company for the benefit of a
Participant under and in accordance with the terms of the Qualified Profit
Sharing Plan in any Plan Year.

         1.14.    "Qualified Profit Sharing Account" means the account
maintained for a

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Participant under the Qualified Profit Sharing Plan that is credited with
Qualified Profit Sharing Contributions.

         1.15.    "Qualified Profit Sharing Contribution" means the Profit
Sharing Contribution made by the Company or an Affiliated Company for the
benefit of a Participant under and in accordance with the terms of the Qualified
Profit Sharing Plan.

         1.16.    "Qualified Profit Sharing Plan" means the AAR CORP. Employees'
Profit Sharing Plan established effective June 1, 1965, as amended from time to
time, and each successor or replacement plan.

         1.17.    "Qualified Retirement Benefit" means the aggregate benefit
payable to a Participant pursuant to the Qualified Retirement Plan, and all
annuities provided with respect to the Participant under the Qualified
Retirement Plan, by reason of his termination of employment with the Company and
all Affiliated Companies for any reason other than death.

         1.18.    "Qualified Retirement Plan" means the AAR CORP. Retirement
Plan established effective August 1, 1988, as amended from time to time, and
each successor or replacement plan.

         1.19.    "Qualified Salary Deferral Account" means the account
maintained for a Participant under the Qualified Profit Sharing Plan that is
credited with Qualified Salary Deferral Contributions.

         1.20.    "Qualified Salary Deferral Contribution" means the Salary
Deferral Contribution made by the Company or an Affiliated Company for the
benefit of a Participant under and in accordance with the terms of the Qualified
Profit Sharing Plan in any Plan Year.

         1.21.    "Qualified Surviving Spouse Benefit" means the aggregate
benefit payable to the Surviving Spouse of a Participant pursuant to the
Qualified Retirement Plan, and all annuities provided with respect to the
Participant under the Qualified Retirement Plan, in the event of the death of
the Participant at any time prior to the commencement of payment of his
Qualified Retirement Benefit.

         1.22.    "Supplemental Company Account" means the account maintained by
the Company for a Participant under the Plan that is credited with Supplemental
Company Contributions.

         1.23.    "Supplemental Company Contribution" means the contribution
made by the Company for the benefit of a Participant pursuant to Section 4.3 of
the Plan in any Plan Year.

         1.24.    "Supplemental Profit Sharing Account" means the account
maintained by the Company for a Participant under the Plan that is credited with
Supplemental Profit Sharing Contributions.

         1.25.    "Supplemental Profit Sharing Contribution" means the
contribution made

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by the Company for the benefit of a Participant pursuant to Section 4.4 of the
Plan in any Plan Year.

         1.26.    "Supplemental Retirement Benefit" means the benefit payable to
a Participant pursuant to Section 3.1 or 3.2 of the Plan by reason of his
termination of employment with the Company and all Affiliated Companies for any
reason other than death.

         1.27.    "Supplemental Salary Deferral Agreement" means a written
agreement entered into by a Participant pursuant to the provisions of Section
4.2.

         1.28.    "Supplemental Salary Deferral Account" means the account
maintained by the Company for a Participant under the Plan that is credited with
Supplemental Salary Deferral Contributions.

         1.29.    "Supplemental Salary Deferral Contribution" means the
contribution made by the Company for the benefit of a Participant pursuant to
Section 4.1 of the Plan in any Plan Year.

         1.30.    "Supplemental Surviving Spouse Benefit" means the benefit
payable to a Surviving Spouse pursuant to Section 3.3 of the Plan.

         1.31.    "Surviving Spouse" means a person who is married to a
Participant throughout the one year period ending on the date of his death.

         1.32.    Except as otherwise provided in this Article I, all defined
terms used in the Plan that are defined in the Qualified Retirement Plan or in
the Qualified Profit Sharing Plan, as applicable, shall have the same meaning in
the Plan as is set forth in the definition in the Qualified Retirement Plan or
the Qualified Profit Sharing Plan.

         1.33.    Words in the masculine gender shall include the feminine and
the singular shall include the plural, and vice versa, unless qualified by the
context. Any headings used herein are included for ease of reference only and
are not to be construed so as to alter the terms hereof.

                                   ARTICLE II
                                   ELIGIBILITY

         2.1.     EXECUTIVE OFFICERS. Each Executive Officer shall be a
Participant in the Plan with respect to the Supplemental Retirement Benefit and
Supplemental Surviving Spouse Benefit set forth in Sections 3.1 and 3.3, and the
Supplemental Salary Deferral Contributions, the Supplemental Company
Contributions and the Supplemental Profit Sharing Contributions set forth in
Article IV.

         2.2.     KEY EMPLOYEES. Each Key Employee shall be a Participant in the
Plan with respect to the Supplemental Retirement Benefit and the Supplemental
Surviving Spouse Benefit set forth in Sections 3.2 and 3.3, and the Supplemental
Salary Deferral Contributions, the Supplemental Company Contributions and the
Supplemental Profit

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Sharing Contributions set forth in Article IV.

                                   ARTICLE III
                       SUPPLEMENTAL RETIREMENT BENEFIT AND
                      SUPPLEMENTAL SURVIVING SPOUSE BENEFIT

         3.1.     EXECUTIVE OFFICERS. Effective as of June 1, 1994, the
Supplemental Retirement Benefit of an Executive Officer who is a Participant as
described in Section 2.1, payable in the form of an annuity over the lifetime of
the Participant or actuarial equivalent lump sum, commencing on his Normal
Retirement Date, shall be a monthly amount equal to the difference between (a)
and (b) below:

                  (a)      The monthly amount of the Qualified Retirement
         Benefit to which the Participant would have been entitled under the
         Qualified Retirement Plan if (1) his Accrued Benefit earned under the
         Qualified Retirement Plan was based on 60% for the President and Chief
         Executive Officer and on 50% for all other Executive Officers (unless
         otherwise specified by the Compensation Committee at the time an
         individual is designated an Executive Officer participant), of Final
         Average Earnings, and (2) such Qualified Retirement Benefit was
         computed without giving effect to any limitations on benefits at any
         time imposed by any provision of the Code;

                                      LESS

                  (b)      The monthly amount of the Qualified Retirement
         Benefit actually payable to the Participant under the Qualified
         Retirement Plan.

         The amounts described in (a) and (b) shall be computed as of the date
of termination of employment of the Participant with the Company and all
Affiliated Companies in the form of an annuity payable over the lifetime of the
Participant only, commencing on his Normal Retirement Date.

         3.2.     KEY EMPLOYEES. Effective as of June 1, 1994, the Supplemental
Retirement Benefit of a Participant who is a Key Employee of the Company,
payable in the form of an annuity over the lifetime of the Participant only,
commencing on his Normal Retirement Date, shall be a monthly amount equal to the
difference between (a) and (b) below:

                  (a)      The monthly amount of the Qualified Retirement
         Benefit to which the Participant would have been entitled under the
         Qualified Retirement Plan if such Qualified Retirement Benefit was
         computed without giving effect to any limitations on benefits imposed
         by any provision of the Code;

                                      LESS

                  (b)      The monthly amount of the Qualified Retirement
         Benefit actually payable to the Participant under the Qualified
         Retirement Plan.

         The amounts described in (a) and (b) shall be computed on the date of
termination of employment of a Participant with the Company and all Affiliated
Companies in the form of an annuity payable over the lifetime of the Participant
only,

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commencing on his Normal Retirement Date. For purposes of calculating the
Qualified Retirement Benefit under this subsection 3.2 only, any Key Employee
Participant who was over the age of 55 on January 1, 2000 shall be deemed a
"Grandfathered Participant as defined under the Qualified Plan."

         3.3.     SUPPLEMENTAL SURVIVING SPOUSE BENEFITS. Effective as of June
1, 1994, if a Participant described in Section 2.2 or 2.3 dies prior to
commencement of payment of his Qualified Retirement Benefit under circumstances
in which a Qualified Surviving Spouse Benefit is payable to his Surviving
Spouse, then a Supplemental Surviving Spouse Benefit is payable to his Surviving
Spouse in a lump sum amount equal to the lump sum amount that would have been
payable to the Participant at Normal Retirement Age, present dollar valued to
the date of Participant's death, using the interest rate assumption then in
effect under the AAR CORP. Retirement Plan. The Supplemental Surviving Spouse
Benefit shall be paid to the Surviving Spouse within 45 days of the death of the
Participant.

         3.4.     FORM OF SUPPLEMENTAL RETIREMENT BENEFIT. The Supplemental
Retirement Benefit payable to a Participant shall be paid in the same form under
which the Qualified Retirement Benefit is payable to the Participant. The
Participant's election under the Qualified Retirement Plan of any optional form
of payment of his Qualified Retirement Benefit (with the valid consent of his
Surviving Spouse where required under the Qualified Retirement Plan) shall also
be applicable to the payment of his Supplemental Retirement Benefit. If paid in
a lump sum, the lump sum amount shall be the actuarial value of the annuity
benefit over the lifetime of the Participant based on the mortality and interest
rate assumptions then in effect for the AAR CORP. Retirement Plan, present
dollar valued to the date of payment.

         3.5.     COMMENCEMENT OF SUPPLEMENTAL RETIREMENT BENEFIT. Payment of
the Supplemental Retirement Benefit to a Participant shall commence on the same
date as payment of the Qualified Retirement Benefit to the Participant
commences. Any election under the Qualified Retirement Plan made by the
Participant with respect to the commencement of payment of his Qualified
Retirement Benefit shall also be applicable with respect to the commencement of
payment of his Supplemental Retirement Benefit.

         3.6.     APPROVAL OF COMPANY. Notwithstanding the provisions of
Sections 3.4 and 3.5 above, an election made by the Participant under the
Qualified Retirement Plan with respect to the form of payment of his Qualified
Retirement Benefit (with the valid consent of his Surviving Spouse where
required under the Qualified Retirement Plan), or the date for commencement of
payment thereof, shall not be effective with respect to the form of payment or
date for commencement of payment of his Supplemental Retirement Benefit
hereunder unless such election is expressly approved in writing by the Company
with respect to his Supplemental Retirement Benefit. If the Company shall not
approve such election in writing, then the form of payment or date for
commencement of payment of the Participant's Supplemental Retirement Benefit
shall be selected by the Company in its sole discretion.

         3.7.     EQUIVALENCIES. A Supplemental Retirement Benefit that is
payable in any form other than an annuity over the lifetime of the Participant
only, or that commences at any time prior to the Participant's Normal Retirement
Date, shall be the equivalent of the Supplemental Retirement Benefit determined
pursuant to Section 3.1 or 3.2 above,

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as applicable, based upon the same adjustments and assumptions as those
specified in the Qualified Retirement Plan with respect to determination of the
amount of the Qualified Retirement Benefit or the date for commencement of
payment thereunder.

                                   ARTICLE IV
                           SUPPLEMENTAL CONTRIBUTIONS

         4.1.     SUPPLEMENTAL SALARY DEFERRAL CONTRIBUTIONS. The Supplemental
Salary Deferral Contribution to be made by the Company for the benefit of a
Participant for any Plan Year shall be an amount equal to the difference between
(a) and (b) below:

                  (a)      The Qualified Salary Deferral Contribution that would
         have been withheld and deposited to the Qualified Salary Deferral
         Account of the Participant for the Plan Year, as determined by the
         Salary Deferral Agreement between the Participant and the Company or an
         Affiliated Company in effect for such Year pursuant to the terms of the
         Qualified Profit Sharing Plan, without giving effect to any limitations
         imposed by the Code on the Qualified Profit Sharing Plan;

                                      LESS

                  (b)      The amount of the Qualified Salary Deferral
         Contribution actually allocated to the Qualified Salary Deferral
         Account of the Participant for the Plan Year.

                  A Supplemental Salary Deferral Contribution made for the
         benefit of a Participant for any Plan Year shall be credited to a
         Supplemental Salary Deferral Account maintained under the Plan in the
         name of such Participant at the same time as Qualified Salary Deferral
         Contributions are made for such Plan Year.

         4.2.     SUPPLEMENTAL SALARY DEFERRAL AGREEMENT. As a condition to the
Company's obligation to make a Supplemental Salary Deferral Contribution for the
benefit of a Participant pursuant to Section 4.1, the Participant must execute a
Supplemental Salary Deferral Agreement in the form attached hereto. A
Supplemental Salary Deferral Agreement shall be made at least thirty days prior
to the effective date thereof and shall remain in full force and effect
subsequently until revised or revoked by a Participant by written instrument
delivered to the Committee at least 30 days prior to the date the revision or
revocation is to become effective.

         4.3.     SUPPLEMENTAL COMPANY CONTRIBUTIONS. The Supplemental Company
Contribution to be made by the Company for the benefit of a Participant for any
Plan Year shall be an amount equal to the difference between (a) and (b) below:

                  (a)      The Qualified Company Contribution that would have
         been allocated to the Qualified Company Account of the Participant for
         the Plan Year without giving effect to any limitations imposed by the
         Code on the Qualified Profit Sharing Plan;

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                                      LESS

                  (b)      The amount of the Qualified Company Contribution
         actually allocated to the Qualified Company Account of the Participant
         for the Plan Year.

                  A Supplemental Company Contribution made for the benefit of a
         Participant for any Plan Year shall be credited to a Supplemental
         Company Account maintained under the Plan in the name of such
         Participant at the same time as Qualified Company Contributions are
         made for such Plan Year.

         4.4.     SUPPLEMENTAL PROFIT SHARING CONTRIBUTIONS. The Supplemental
Profit Sharing Contribution to be made by the Company for the benefit of a
Participant for any Plan Year shall be an amount equal to the difference between
(a) and (b) below:

                  (a)      The Qualified Profit Sharing Contribution that would
         have been allocated to the Qualified Profit Sharing Account of the
         Participant for the Plan Year without giving effect to any limitations
         imposed by the Code on the Qualified Profit Sharing Plan;

                                      LESS

                  (b)      The amount of the Qualified Profit Sharing
         Contribution actually allocated to the Qualified Profit Sharing Account
         of the Participant for the Plan Year.

                  A Supplemental Profit Sharing Contribution made for the
         benefit of a Participant for any Plan Year shall be credited to a
         Supplemental Profit Sharing Account maintained under the Plan in the
         name of such Participant at the same time as Qualified Profit Sharing
         Contributions are made for such Plan Year.

         4.5.     INVESTMENT OF SUPPLEMENTAL CONTRIBUTIONS.

                  (a)      INVESTMENTS. Amounts credited hereunder to the
         Supplemental Salary Deferral Account, Supplemental Company Account, and
         Supplemental Profit Sharing Account of a Participant shall be treated
         as if they were actually invested in various investment funds that are
         made available by the Committee from time to time and as are designated
         by each Participant pursuant to investment directions given to the
         Committee. Such Accounts shall be credited with earnings, gains and
         losses of the applicable investment funds on the last day of each
         calendar quarter or on such other date selected by the Committee.
         Investment directions shall be made by a Participant in specified
         multiples of 10%.

                  (b)      INVESTMENT CHANGES. Each Participant shall have the
         right to direct the Committee to modify his investment directions made
         pursuant to paragraph (a) above with respect to amounts credited to his
         Supplemental Salary Deferral Account, Supplemental Company Account and
         Supplemental Profit Sharing Account after the date such modification
         direction becomes effective, in specified multiples of 10%. Each
         Participant shall also have the right to direct the Committee to change
         the investment directions made pursuant to paragraph (a)

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         above with respect to amounts credited to his Accounts on the date such
         direction to change becomes effective, in specified multiples of 10%.

                  (c)      EFFECTIVE DATE OF INVESTMENT DIRECTION. Any
         investment direction, or modification or change of an investment
         direction, made pursuant to paragraph (a) or (b) above, shall be
         effective as soon as practicable (and in any event not later than the
         first day of the month that occurs at least 30 days) after the date the
         applicable direction is given to the Committee. A modification or
         change of an investment direction made pursuant to paragraph (b) may,
         if required by an administrative rule promulgated by the Committee, be
         made only once in each calendar quarter.

                  In the event that the sponsor of the investment funds permits
         more frequent fund transfers than permitted above, or does not require
         written direction to authorize fund transactions, the Committee may
         waive or modify the requirements set forth in the preceding provisions
         of this Section as it deems appropriate.

                  (d)      INVESTMENT FUNDS. Any investments made by the Company
         or by the Trustee of Trust Agreement No. 2 referred to in paragraph (f)
         below to conform to directions made by a Participant pursuant to this
         Section shall be in investment funds maintained in the name of the
         Company, or in the name of such Trustee, and no Participant shall at
         any time have any interest in the assets of any such investment fund.

                  (e)      STATEMENT OF ACCOUNTS. A statement of accounts for
         each Participant, showing contributions, earnings, gains and losses and
         current balances of the Accounts provided for under this Article IV
         shall be provided to each Participant on not less than a quarterly
         basis.

                  (f)      TRUST AGREEMENT NO. 2. Notwithstanding the preceding
         provisions of this Section, during the existence of Trust Agreement No.
         2 referred to in the second paragraph of Section 8.2, the Company shall
         direct the Trustee of Trust Agreement No. 2 to invest and reinvest
         amounts to conform to directions made by a Participant pursuant to the
         preceding provisions of this Section 4.5. Directions shall be given by
         the Company to the Trustee of Trust Agreement No. 2 as soon as
         practicable after such directions are given to the Company by the
         Participant.

         4.6.     DISTRIBUTIONS.

                  (a)      TERMINATION OF EMPLOYMENT PRIOR TO DEATH. Following
         termination of a Participant's employment with the Company and all
         Affiliated Companies for any reason other than death, a Participant
         shall receive a distribution of all amounts credited to his
         Supplemental Salary Deferral Account, his Supplemental Company Account,
         and his Supplemental Profit Sharing Account, including gains and losses
         credited in accordance with Section 4.5.

                  (b)      DISTRIBUTION DUE TO DEATH. If a Participant dies
         before distribution to him of the full amount of his Supplemental
         Salary Deferral Account, his

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         Supplemental Company Account and his Supplemental Profit Sharing
         Account, any remaining amount shall be distributed to his beneficiary
         designated under the Qualified Profit Sharing Plan. If a Participant
         has not designated a beneficiary under the Qualified Profit Sharing
         Plan, or if no designated beneficiary is living on the date of
         distribution hereunder, amounts distributable pursuant to this
         paragraph shall be distributed to those persons or entities entitled to
         receive distributions of the Participant's accounts under the Qualified
         Profit Sharing Plan.

                  (c)      HARDSHIP DISTRIBUTION. A Participant shall be
         entitled to request a distribution from his Supplemental Salary
         Deferral Account, prior to his termination of employment with the
         Company and all Affiliated Companies, in order to satisfy a hardship as
         defined under the Qualified Profit Sharing Plan. The amount of a
         hardship distribution, and the procedures for requesting and receiving
         such a distribution, shall satisfy the requirements set forth in the
         Qualified Profit Sharing Plan with respect to a hardship distribution
         from his Qualified Salary Deferral Account. A request for a hardship
         distribution pursuant to this paragraph shall be made separate and
         apart from a request for a hardship distribution under the Qualified
         Profit Sharing Plan, and a request for a hardship distribution under
         the Qualified Profit Sharing Plan shall not automatically be deemed a
         request for a hardship distribution hereunder.

                  (d)      TIME AND METHOD OF DISTRIBUTION. All amounts
         distributable under this Article IV to a Participant, or to his
         beneficiary in the event of his death, shall be distributed in the same
         manner and at the same time as is applicable to the distribution of the
         Participant's accounts under the Qualified Profit Sharing Plan
         following his termination of employment with the Company and all
         Affiliated Companies for any reason including death. Notwithstanding
         the preceding sentence, an election made by a Participant under the
         Qualified Profit Sharing Plan with respect to the form of distribution
         of his accounts thereunder following termination of employment, or the
         date for commencement of payment thereof, shall not be effective with
         respect to the form of payment or date for commencement of payment of
         his accounts pursuant to this Article IV, unless such election is
         expressly approved in writing by the Company. If the Company shall not
         approve such election in writing, the form of payment or date for
         commencement of payment under this Article shall be selected by the
         Company in its sole discretion. If a Participant does not elect a time
         or form of distribution under this Article, such distribution shall be
         made at the same time and in the same method as is applicable to
         distributions made with respect to his accounts under the Qualified
         Profit Sharing Plan. In no event may a Participant borrow amounts
         credited to the accounts maintained for him pursuant to this Article
         IV.

                                    ARTICLE V
                                   FORFEITURES

         5.1      FORFEITURE OF SUPPLEMENTAL RETIREMENT BENEFIT AND SUPPLEMENTAL
SURVIVING SPOUSE BENEFIT. Notwithstanding any other provisions of the Plan, (i)
if the employment of a Participant with the Company and all Affiliated Companies
terminates due to Cause, or (ii) if a Participant during his employment with the
Company and all

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Affiliated Companies or at any time during the one year period after the
termination of such employment, violates the covenant not to compete with the
Company and its Affiliated Companies set forth in Section 5.3, all rights of the
Participant and his Surviving Spouse to a Supplemental Retirement Benefit or a
Supplemental Surviving Spouse Benefit, shall be forfeited and shall be retained
by the Company free of any and all claims of the Participant, his Surviving
Spouse or any other person claiming with respect to the Participant or his
Surviving Spouse.

         5.2      TERMINATION FOR CAUSE. For purposes of this Section, a
termination for Cause shall mean termination of a Participant's employment by
the Company or any Affiliated Company because of (i) the Participant's conduct,
involving theft, embezzlement or fraud, or (ii) the Participant's willful
misconduct in the performance of his duties that materially injures the Company
or any Affiliated Company, as determined by the Board.

         5.3      COVENANT NOT TO COMPETE. A Participant shall not, during the
term of the Participant's employment with the Company and all Affiliated
Companies, and for a period of one year thereafter, without the Company's
express written consent, directly or indirectly, alone or as a member of a
partnership, group, or joint stock venture, or as an employee, officer, director
or stockholder of any corporation, or in any capacity (a) engage in any activity
which is competitive with any of the businesses conducted by the Company or its
Affiliated Companies from time to time or at any time during the Participant's
term of employment, provided that the foregoing provision shall not be deemed to
prohibit the Participant from purchasing for investment any securities or
interest in any publicly-owned organization which is competitive with the
business of the Company and its Affiliated Companies, so long as the
Participant's investment in such organization does not exceed the lesser of one
percent of its total outstanding equity securities or Two Hundred Fifty Thousand
Dollars ($250,000); (b) solicit in connection with any activity which is
competitive with any of the businesses of the Company and its Affiliated
Companies, any customers or suppliers of the Company and its Affiliated
Companies; (c) use the name "AAR" or any variant thereof; or (d) actively
solicit, directly or indirectly, any employee or induce any customer or supplier
of the Company or any of its Affiliated Companies to terminate or materially
change such relationship.

         5.4      In the event of a termination of Participant's employment with
the Company under circumstances which trigger Change in Control employment
termination benefits under the change in control provisions of an employment
agreement or severance and change in control agreement between the Participant
and the Company, the provisions of subsections 5.1, 5.2 and 5.3 above shall be
deemed waived by the Company and null and void.

                                   ARTICLE VI
                           ADMINISTRATION OF THE PLAN

         6.1.     ADMINISTRATION BY THE COMMITTEE. The Committee shall be
responsible for the general operation and administration of the Plan and for
carrying out the provisions thereof.

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<PAGE>

         6.2.     GENERAL POWERS OF ADMINISTRATION. All provisions set forth in
the Qualified Retirement Plan with respect to the administrative powers and
duties of the Committee, expenses of administration, and procedures for filing
claims, shall also be applicable with respect to the Plan. The Committee shall
be entitled to rely conclusively upon all tables, valuations, certificates,
opinions and reports furnished by any actuary, accountant, controller, counsel
or other person employed or engaged by the Committee with respect to the Plan.

                                   ARTICLE VII
                            AMENDMENT OR TERMINATION

         7.1.     AMENDMENT OR TERMINATION. The Company intends the Plan to be
permanent but reserves the right to amend or terminate the Plan when, in the
sole opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of the
Board and shall be effective as of the date of such resolution or such later
date as the resolution may expressly state.

         7.2      EFFECT OF AMENDMENT OR TERMINATION. No amendment or
termination of the Plan shall (i) directly or indirectly deprive any current or
former Participant or Surviving Spouse of all or any portion of any Supplemental
Retirement Benefit or Supplemental Surviving Spouse Benefit, the right to which
has accrued prior to the effective date of such amendment or termination, or
which would be payable if the Participant terminated employment for any reason,
including death, on such effective date, or (ii) directly or indirectly reduce
the balance of any Supplemental Salary Deferral Account, Supplemental Company
Account or Supplemental Profit Sharing Account held hereunder as of the
effective date of such amendment or termination. Upon termination of the Plan,
distribution of Supplemental Retirement Benefits and Supplemental Surviving
Spouse Benefits, and of amounts in Supplemental Salary Deferral Accounts,
Supplemental Company Accounts and Supplemental Profit Sharing Accounts shall be
made to Participants, their Surviving Spouses or beneficiaries in the manner and
at the time described in Sections 3.4 through 3.8 and 4.6(d) of the Plan. No
additional Supplemental Retirement Benefits or Supplemental Surviving Spouse
Benefits shall be earned after termination of the Plan, and no additional
credits of Supplemental Salary Reduction Contributions, Supplemental Company
Contributions or Supplemental Profit Sharing Contributions shall be made to the
accounts of Participants after termination of the Plan, but the Company shall
continue to credit gains and losses to accounts pursuant to Section 4.5 until
the balances of such accounts have been fully distributed to Participants or
their beneficiaries.

         7.3      EFFECT OF A CHANGE IN CONTROL. Notwithstanding subsections 7.1
and 7.2 above, in the event of a Change in Control, (i) the SKERP shall continue
in effect as to any Participant's or Participant's Surviving Spouse who is a
Participant or Participant's Surviving Spouse immediately prior to a Change in
Control, and (ii) no amendment to or termination of the Plan shall be effective
as to any such Participant or Surviving Spouse to the extent the effect of such
amendment or termination would be to reduce such Participant's or Participant's
Surviving Spouse benefits or rights under the Plan from those available to
Participant under the Plan immediately prior to any such amendment

                                       12
<PAGE>

or termination.

                                  ARTICLE VIII
                               GENERAL PROVISIONS

         8.1.     PARTICIPANTS' RIGHTS UNSECURED. Except as set forth in Section
8.2, the Plan at all times shall be entirely unfunded and no provision shall at
any time be made with respect to segregating any assets of the Company or an
Affiliated Company for payment of any benefits hereunder. The right of a
Participant or his Surviving Spouse or beneficiary to receive a benefit
hereunder shall be an unsecured claim against the general assets of the Company,
and neither the Participant nor a Surviving Spouse or beneficiary shall have any
rights in or against any specific assets of the Company or any Affiliated
Company. All amounts credited to Supplemental Salary Deferral Accounts,
Supplemental Company Accounts and Supplemental Profit Sharing Accounts of
Participants shall constitute general assets of the Company.

         8.2.     TRUST AGREEMENT. Notwithstanding the provisions of Section
8.1, the Company, promptly after the Plan effective date, shall enter into a
trust agreement ("Trust Agreement") with a bank or trust company (with a
combined capital and surplus in excess of $100 million dollars), located in the
Continental United States, as trustee, whereby the Company shall agree to
contribute to a trust ("Trust") initially and annually thereafter, for the
purpose of accumulating assets actuarially sufficient to satisfy accrued
obligations to Participants and Surviving Spouses under Article III hereof, in
the event of a Change in Control of the Company. The Trust Agreement shall
obligate the Company to make contributions sufficient to satisfy the obligations
to Participants, and Surviving Spouses under Article III hereof; provided,
however, that such initial contribution shall be made within 10 days after the
date the Board, in its discretion, deems a change in control of the Company
likely to occur. The discretion of the Board shall be binding and conclusive
with respect to the likelihood of a Change in Control of the Company to occur.
Such Trust Agreement shall be substantially in the form of the model trust
agreement set forth in Internal Revenue Service Revenue Procedure 92-64, or any
subsequent Internal Revenue Service Revenue Procedure, and shall include
provisions required in such model trust agreement that all assets of the Trust
shall be subject to the creditors of the Company in the event of insolvency.
Notwithstanding the provisions of Section 8.1, the Company on or as soon as
practicable after January 1, 1996, shall enter into a Trust Agreement ("Trust
Agreement No. 2") with a bank or trust company (with a combined capital and
surplus in excess of $100,000,000) located in the continental United States as
Trustee, whereby the Company shall agree to contribute to a trust ("Trust No.
2") initially and annually thereafter for the purpose of accumulating assets
sufficient to provide for Supplemental Salary Deferral Contributions,
Supplemental Company Contributions and Supplemental Profit Sharing Contributions
with respect to Participants under Article IV hereof. Trust Agreement No. 2
shall be substantially in the form of the model trust agreement set forth in
Internal Revenue Service Procedure 92-64, or any subsequent Internal Revenue
Service Procedure, and shall include provisions required in such model trust
agreement that all assets of Trust No. 2 shall be subject to the creditors of
the Company in the event of insolvency. Trust Agreement No. 2 shall include such
provisions as are applicable with respect to the investment and reinvestment of
such Contributions pursuant to directions

                                       13
<PAGE>

given by Participants to the Company and transmitted by the Company to the
Trustee of Trust Agreement No. 2 pursuant to paragraph (f) of Section 4.5.

         8.3.     GENERAL CONDITIONS. Except as otherwise expressly provided
herein, all terms and conditions of the Qualified Retirement Plan applicable to
a Qualified Retirement Benefit, or a Qualified Surviving Spouse Benefit, shall
also be applicable to a Supplemental Retirement Benefit or a Supplemental
Surviving Spouse Benefit payable hereunder, and all terms and conditions of the
Qualified Profit Sharing Plan applicable to a Qualified Salary Deferral
Contribution, a Qualified Company Contribution or a Qualified Profit Sharing
Contribution shall also be applicable to a Supplemental Salary Deferral
Contribution, Supplemental Company Contribution or Supplemental Profit Sharing
Contribution to be made hereunder. Any Qualified Retirement Benefit or Qualified
Surviving Spouse Benefit or any other benefit payable under the Qualified
Retirement Plan shall be paid solely in accordance with the terms and conditions
of the Qualified Retirement Plan, any Qualified Salary Deferral Contribution,
Qualified Company Contribution or Qualified Profit Sharing Contribution, or any
other contribution to be made under the Qualified Profit Sharing Plan shall be
made solely in accordance with the terms and conditions of the Qualified Profit
Sharing Plan, and nothing in this Plan shall operate or be construed in any way
to modify, amend or affect the terms and provisions of the Qualified Retirement
Plan or the Qualified Profit Sharing Plan.

         8.4.     NO GUARANTY OF BENEFITS. Nothing contained in the Plan shall
constitute a guaranty by the Company, any Affiliated Company, or any other
person or entity that the assets of the Company or any Affiliated Company will
be sufficient to pay any benefit hereunder. No Participant, Surviving Spouse or
beneficiary shall have any right to receive a benefit or a distribution of
contributions under the Plan except in accordance with the terms of the Plan.

         8.5      NO ENLARGEMENT OF EMPLOYEE RIGHTS. Establishment of the Plan
shall not be construed to give any Participant the right to be retained in the
service of the Company or any Affiliated Company.

         8.6.     SPENDTHRIFT PROVISION. No interest of any person or entity in,
or right to receive a distribution under, the Plan shall be subject in any
manner to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to receive
a distribution be taken, either voluntarily or involuntarily for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings.

         8.7      APPLICABLE LAW. The Plan shall be construed and administered
under the laws of the State of Illinois except to the extent preempted by
federal law.

         8.8.     SMALL BENEFITS. If the actuarial value of any Supplemental
Retirement Benefit or Supplemental Surviving Spouse Benefit is less than $5,000,
the Company may pay the actuarial value of such Benefit to the Participant or
Surviving Spouse in a single lump sum in lieu of any further Benefit payments
hereunder.

                                       14
<PAGE>

         8.9.     INCAPACITY OF RECIPIENT. If any person entitled to a payment
under the Plan is deemed by the Company to be incapable of personally receiving
and giving a valid receipt for such payment, then, unless and until claim
therefor shall have been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such payment or any
part thereof to be made to any other person or institution then contributing
toward or providing for the care and maintenance of such person. Any such
payment shall be a payment for the account of such person and a complete
discharge of any liability of the Company and the Plan therefor.

         8.10.    CORPORATE SUCCESSORS. The Plan shall be continued, following a
transfer or sale of assets of the Company, or following the merger or
consolidation of the Company into or with any other corporation or entity, by
the transferee, purchaser or successor entity, unless the Plan has been
terminated by the Company pursuant to the provisions of Article VII, prior to
the effective date of such transaction.

         8.11.    UNCLAIMED BENEFIT. Each Participant, Surviving Spouse or
beneficiary shall keep the Company informed of his current address. The Company
shall not be obligated to search for the whereabouts of any person. If the
location of a Participant is not made known to the Company within three years
after the date on which payment of the Participant's benefits under the Plan may
first be made, payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after such three-year
period has elapsed, or, within three years after the actual death of a
Participant, the Company is unable to locate any Surviving Spouse or beneficiary
of the Participant, then the Company shall have no further obligation to pay any
benefit hereunder to such Participant, Surviving Spouse or beneficiary or any
other person and such benefit shall be irrevocably forfeited.

         8.12.    LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding
provisions of the Plan, none of the Company, any Affiliated Company, any member
of the Committee, nor any individual acting as an employee or agent of the
Company, any Affiliated Company or the Committee, shall be liable to any
Participant, former Participant, Surviving Spouse or any other beneficiary or
other person for any claim, loss, liability or expense incurred by such
Participant, Surviving Spouse or other beneficiary or other person in connection
with the Plan.

         IN WITNESS WHEREOF, this Plan has been executed this 4th day of May,
2000.

                                              AAR CORP.

                                              By /s/ David P. Storch
                                                --------------------------------

ATTEST:

/s/ Howard A. Pulsifer
---------------------------------

                                       15<PAGE>

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT*

                  This Amended and Restated Employment Agreement ("Agreement")
                  made and entered into as of the 14th day of July, 1998, by and
                  between AAR CORP., a Delaware corporation ("Company"), and
                  David P. Storch ("Employee").

WHEREAS, Employee is currently an elected director of the Company; and

WHEREAS, the Company currently employs Employee pursuant to a certain Employment
Agreement dated June 1, 1994, as amended by amendments dated October 9, 1996,
May 29, 1997, July 14, 1997 and July 14, 1998 ("Original Agreement"); and

WHEREAS, the Company and Employee desire to further amend the Original Agreement
as herein set forth to reflect certain mutually agreed changes to the terms and
conditions thereof; and

WHEREAS, for their mutual convenience, the Company and Employee desire to
restate the Original Agreement, as so amended, in its entirety.

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

         1.       EMPLOYMENT. The Company hereby employs Employee and Employee
hereby accepts employment by the Company, upon the terms and subject to the
conditions hereinafter set forth.

         2.       TERM. The term of this Agreement shall commence as of the date
hereof and, unless earlier terminated as hereinafter provided, shall end on May
31, 1997, subject to extension as follows:

         On each day after May 31, 1994, while the Employee continues in
employment hereunder, the term of employment shall automatically be extended for
an additional one-day period so that on any day from and after June 1, 1994,
while the Employee continues in employment hereunder, the term of employment
shall expire three years thereafter until terminated pursuant to the terms
hereof.

         3.       DUTIES.

                  (a)      Employee shall have the title, duties and
responsibilities of President and Chief Executive Officer and such other duties
and responsibilities as may from time to time be assigned that are consistent
with such duties and responsibilities and shall report to the Chairman of the
Board of the Company.

* including Amendment 4 (Amended and Restated Employment Agreement)

<PAGE>

                  (b)      Employee agrees to do and perform all such acts and
duties faithfully and diligently and to furnish such services as the Chairman of
the Board may from time to time direct, and do and perform all acts in the
ordinary course of business of the Company (within such limits as the Company
may prescribe) necessary and conducive to the best interest of the Company.

                  (c)      Employee agrees to devote his full time, energy and
skill to the business of the Company and to the promotion of the best interests
of the Company and the performance of his duties as President and Chief
Executive Officer of the Company; provided that the Employee shall not (to the
extent not inconsistent with paragraphs 3(d) and 10(b) below) be prevented from
(a) serving as a director of any corporation consented to in advance by
resolution of the Board of Directors of 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 made which would detract from or interfere or cause a conflict
of interest with performance of his duties hereunder.

                  (d)      Employee agrees to observe 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.

         4.       COMPENSATION. The Company shall pay to Employee, for all
services to be performed by Employee an annual base salary ("Base Salary") at
the rate of Six Hundred Fifty Thousand Dollars ($650,000.00) per fiscal year,
or such greater amount as may be authorized by the Board of Directors of the
Company, in its sole discretion upon annual review during the term of
employment, payable in periodic installments in accordance with the Company's
payroll practice in effect from time to time and prorated for any portion of
a fiscal year (Company's fiscal year currently being the period from June 1
of each year through May 31 of the following year).

         5.       INCENTIVE BONUS PAYMENTS. In addition to the Base Salary
described above, Employee will continue to participate in and receive payments
under such incentive bonus programs as the Company, in its sole discretion, may
authorize from time to time for Employee and other executive officers of the
Company; provided, however, Employee will be entitled to the following during
the term of this Employment Agreement:

                  (a)      ANNUAL DISCRETIONARY INCENTIVE BONUS OPPORTUNITY.
Employee will have a graduated annual incentive bonus opportunity of up to 100%
of base salary for performance at or below target and up to an additional 50% of
base salary for performance in excess of target. Performance will be measured
against annual financial targets approved by the Compensation Committee of the
Board of Directors. Eighty percent (80%) of any bonus granted under this
subsection will be paid in cash

                                       2
<PAGE>

and the balance will be paid in restricted stock awards subject to the Company's
qualified Stock Benefit Plan (valued at NYSE closing price on date of grant).
Thirty-three and one third percent (33 1/3%) of each such restricted stock award
shall vest on the successive anniversary dates of the respective award over a
three year period based solely on the passage of time unless employment is
terminated voluntarily by the Employee in violation of this Agreement or by the
Company for Cause.

         The cash portion of the incentive bonus payable under this subsection
will be paid within 45 days of the end of each fiscal year; the restricted stock
shall have a grant date of May 31 of the year granted.

                  (b)      LONG TERM INCENTIVE BONUS AWARDS. Employee will
receive restricted stock awards, stock option grants and performance shares of
stock in the Company in accordance with appendix (i) hereto, which is
incorporated herein by reference.

         6.       VACATION AND FRINGE BENEFITS. Employee will accrue vacation in
accordance with the Company's policy in effect from time to time for other
executive officers; provided that no decrease in vacation benefits from those
available on the date hereof shall be applicable to Employee during the term
hereof. Employee shall be entitled to participate, according to eligibility
provisions of each, in such medical, life and disability insurance programs,
profit sharing plans, retirement plans and in other fringe benefit plans as may
be in effect from time to time during the term hereof and available to other
executive officers of the Company.

         7.       CLUB DUES AND BUSINESS EXPENSES. During the term hereof,
Employee will be entitled to reimbursement for normal travel and business
expenses in accordance with applicable Company policy, and will be reimbursed
membership dues in the Green Acres Country Club, the Standard Club and such
professional clubs/organizations that are appropriate and conducive to the
performance of his duties.

         8.       PROFESSIONAL FEES. The Company will reimburse Employee for
professional financial planning and income tax preparation assistance expenses
actually incurred in an amount not to exceed $5,000/year during the term hereof.

         9.       TERMINATION.

                  (a)      The Company may terminate this Agreement at any time
for Cause. Any such termination will be by majority action of the Board of
Directors (with Employee's vote disregarded) taken at a regular or specially
called meeting of the Board, after a minimum 10 day notice thereof to Employee,
with termination of this Agreement listed as an agenda item. Employee will be
given a reasonable opportunity to be heard at such meeting with his attorney
present if Employee desires.

                                       3
<PAGE>

         The term "Cause" means:

                           (i)      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; or

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

                           (iii)    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 (iii), a material breach of the
Agreement that involves inattention by Employee to his duties under the
Agreement shall be deemed a breach capable of cure.

                  (b)      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:

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

                           (ii)     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 he had no reasonable cause to
believe his conduct was unlawful; or

                           (iii)    termination of employment of Employee for
unsatisfactory performance (including failure to meet financial goals).

         Termination for Cause shall be limited to a good faith finding by
resolution of the Board, setting forth the particulars thereof. Any such
resolution shall be final and binding upon Employee.

                  (c)      The Company may terminate this Agreement at any time
prior to a Change in Control of the Company as defined in Section 12(d)(i) for
unsatisfactory performance by Employee of his duties and responsibilities
hereunder (including but not limited to failure to meet financial goals as may
be approved by the Compensation Committee), provided that the Company has given
Employee (i) written notice setting forth the particulars of his performance
deficiencies and (ii) six months opportunity to correct them to the satisfaction
of the Company. Any termination under this section 9(c) shall be by resolution
of the Board of Directors of the Company, which shall be final and binding upon
Employee. In the event of termination pursuant to this section 9(c), the

                                       4
<PAGE>

Company will pay to Employee, monthly for 24 months, an amount (subject to
applicable withholding) equal to Employee's regular monthly base salary at time
of termination; provided, however, all such payment obligations shall terminate
immediately upon any breach by Employee of section 10 of this Agreement. Upon
termination pursuant to this section 9(c), no further compensation or benefits
shall accrue or be payable to Employee under this Agreement except for (i) the
salary continuation payments provided for above, and (ii) any compensation bonus
or other benefits which have accrued to Employee prior to the date of any such
termination.

                  (d)      The Company or the Employee may terminate this
Agreement at any time because of the Disability of Employee. "Disability" shall
mean a physical or mental condition which has prevented Employee from
substantially performing his duties under this Agreement for a period of 180
days and which is expected to continue to render Employee unable to
substantially perform his duties for the remaining term of this Agreement on a
full-time basis. 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, a good faith
determination of the existence of a Disability shall be made by resolution 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. 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 this Agreement for Disability, Employee will
continue to be eligible to participate in the Company's medical, dental and life
insurance programs available to executive officers in accordance with their
terms applicable to employees for a period of 3 years from the date of such
termination of this Agreement.

                  (e)      This Agreement shall automatically terminate upon the
death of Employee during the term. In such event, death benefits payable under
any of the Company's benefit plans in which Employee was a participant at the
time of his death shall be payable in accordance with the terms of such plans.

                  (f)      Employee may terminate this Agreement upon 30 days
written notice if any person other than Employee is selected by the Board of
Directors to succeed the present Chairman of the Board upon his retirement,
resignation or other departure from that office. In the event of termination by
Employee for such reason, the Company will pay to Employee, monthly for 24
months, an amount (subject to applicable withholding) equal to Employee's
regular monthly base salary at time of termination plus an amount equal to
1/12th of the most recent fiscal year cash bonus paid to Employee; provided all
such payment obligations shall terminate immediately

                                       5
<PAGE>

upon any breach by Employee of paragraph 10 of this Agreement. Upon termination
of this Agreement by Employee pursuant to this paragraph, no further
compensation or benefits shall accrue or be payable to Employee under this
Agreement except for (i) the salary continuation payments provided for above,
and (ii) any compensation, bonus or other benefits which have accrued to
Employee prior to the date of any such termination.

         10.      CONFIDENTIAL INFORMATION AND RESTRICTION OF COMPETITION.

                  (a)      Employee acknowledges that the trade secrets,
confidential information, secret processes and know-how developed and acquired
by the Company and other subsidiaries of the Company (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 his duties and, in no event, disclosed to
anyone outside the employ of the Affiliated Companies and their authorized
consultants and advisors, unless either such information is or has been made
generally available to the public or 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, he shall not take with him any
documents or other papers containing or reflecting trade secrets, confidential
information, secret processes or know-how. Employee acknowledges that his
employment hereunder will place him in a position of utmost confidence and that
he 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, 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 exclusive
property of the Affiliated Companies and shall be deemed confidential
information for the purposes of this paragraph.

                  (b)      Employee agrees that during the term hereof and for a
period of two (2) years after voluntary termination of employment hereunder by
Employee or termination of employment hereunder by Company pursuant to section 9
above, he 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) 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; (ii) solicit in connection with any activity which is competitive
with any of the businesses of the Company or any Affiliated Company, any
customers or suppliers of the Company or any Affiliated Company; (iii) solicit
for employment any sales, marketing or management employee of Company or any

                                       6
<PAGE>

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 this
covenant not to compete and non-solicitation and the reasonableness thereof,
including but not limited to the geographic area and duration of time which are
a part hereof. 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 of not more than 5% of the outstanding capital stock
of any publicly held corporation which may be in direct or indirect competition
with the Company or any Affiliated Company.

                  (c)      If at any time, any clause or portion of this Section
10 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 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.

                  (d)      The Employee acknowledges and agrees that the Company
would be irreparably harmed by violations of this Section 10 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.

                  (e)      This Section 10 shall survive any termination of this
Agreement and any termination of Employee's employment.

         11.      CHANGES IN BUSINESS. The Company, acting through its Board of
Directors, will at all times have complete control over the Company's business.
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, 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 by
reason of such action. Provided, however, no such action shall result in the
reduction of Employee's Base Salary hereunder; provided, further that if the
Company discontinues operations, a discretionary bonus may or may not be
granted, however, Employee will be entitled to a pro-rata share of any
non-discretionary incentive bonus through the date of discontinuance. Said
pro-rata bonus will be

                                       7
<PAGE>

calculated by the Chief Financial Officer of the Company whose determination
will be final.

         12.      CHANGE IN CONTROL.

                  (a)      In the event:

                           (i)      a Change in Control of the Company occurs,
and

                           (ii)     (A) at any time during the 24 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
his employment for Good Reason, in either case by written notice to the other
party (including the particulars thereof), and having given the other party the
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 a lump sum 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 value of any restricted
stock grant in lieu of annual cash bonus, Employee would have earned had he 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 had been met) 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 cash compensation (base salary plus annual cash bonus,
including value of any restricted stock grant in lieu of 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 his 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 in accordance with the terms of, all 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 he and his dependents
were receiving

                                       8
<PAGE>

immediately prior to the Change in Control. Employee's dependents shall be
entitled to continued 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 his 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 actuarial equivalent of the additional
amount that Employee would have earned under such retirement plans or
programs had he accumulated three additional continuous years of service.
Such amount shall be paid to Employee in a cash lump sum payment on the
Employee's Retirement Date, as defined in the AAR CORP. Retirement Plan or
any successor plan or promptly upon a termination of employment which
triggers Change in Control termination of employment benefits hereunder. In
such event, the Company shall concurrently pay Employee a gross-up bonus in
an amount equal to any federal, state and local income taxes and excise taxes
(including FICA or any similar taxes) payable by Employee on such lump sum
payment and such gross-up bonus.

                                    (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 the
Employee's attainment of employment or the date eighteen 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 12(a)(ii)(2) above.

                  (b)      The amounts paid to the Employee under this Change in
Control provision applicable to Employee shall be considered severance pay in
consideration of 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.

                  (c)      In the event that a Change in Control has
occurred, both for purposes of this Agreement and for purposes of the AAR
CORP. Stock Benefit Plan, as amended ("Plan"), whether or not such Change in
Control has the prior written approval of a majority of the Continuing
Directors (as defined in the Plan), and notwithstanding any conditions or
restrictions, related to any Award granted to Employee under the Plan, all
options grants and restricted stock awards provided for hereunder which have
not then become vested (including released restrictions) or exercisable,
shall immediately become exercisable or vested, as the case may be, all
performance shares to be awarded hereunder shall be immediately awarded
according to Appendix (i) of this Agreement, and all Options or Limited
Rights, or both, granted to Employee under the Plan will become immediately

                                       9
<PAGE>

exercisable and remain exercisable for the full remaining life of the
option(s) whether or not Employee's employment continues, and all
restrictions on Restricted Stock granted to Employee under the Plan,
including any performance share awards, will immediately lapse.

                  (d)      For purposes of this provision

                           (i)      Change in Control means the earliest of:

                                    (A)      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

                                    (B)      the effective time of (1) 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 (2) 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

                                    (C)      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
(1) three directors, or (2) directors constituting a majority of the number of
directors of the Company then in office.

                           (ii)     "Good Reason" means:

                                    (A)      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

                                    (B)      a good faith determination by
Employee that as the result of a Change in Control and a material change in
employment circumstances thereafter, he is unable to carry out his duties and
responsibilities contemplated by this Agreement in a manner consistent with the
practices, standards, values or philosophy of the Company immediately prior to
the Change in Control; or

                                    (C)      a material breach of this Agreement
by the Company; or

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

                                       10
<PAGE>

                  (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 benefits
to Employee at no less than the level Employee and Employee's dependents were
receiving or entitled to receive immediately prior to the Change in Control,
under the SKERP as it was then in effect.

                  (g)      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.

         13.      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.
                           1100 N. Wood Dale Road
                           Wood Dale, Illinois 60191
                           Attention: Chairman and Chief Executive Officer

                           With a copy to:

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

                  (b)      If to Employee, to:

                           David P. Storch
                           908 Elm Place
                           Glencoe, IL 60022

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.

         14.      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,

                                       11
<PAGE>

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 himself, his heirs,
executors and administrators, and any other person or person claiming any
benefit under him by virtue of this Employment Agreement, that this Employment
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 Employment Agreement and shall not be subject to
execution, attachment or similar process. Any attempted assigned, 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.

         15.      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.

         16.      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.

         17.      ENTIRE AGREEMENT. This Agreement as amended and restated
herein 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, including, but not limited to, all prior compensation arrangements
between the Company and the Employee concerning compensation and benefits. This
Agreement shall not be modified or amended except by the mutual written
agreement of the Company and Employee.

         18.      WAIVER. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Employee and an authorized officer of the Company. No waiver
by either party

                                       12
<PAGE>

hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or 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.

         19.      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.

         20.      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.

Employer:

COMPENSATION COMMITTEE
AAR CORP. BOARD OF DIRECTORS

By: /s/ Erwin E. Schulze
   -----------------------------
     Erwin E. Schulze, Chairman

AAR CORP.

By: /s/ Timothy J. Romenesko
   -----------------------------
     Timothy J. Romenesko
     Vice President

Employee:

/s/ David P. Storch
--------------------------------
David P. Storch

                                       13
<PAGE>

                                                                    Appendix (i)
                                    to Amended and Restated Employment Agreement
                                                       dated as of July 14, 1998

                                    AAR CORP.
                                       CEO
                        LONG-TERM INCENTIVE COMPENSATION

RESPONSIBILITY AND AUTHORITY

The Compensation Committee of the Board of Directors will be responsible for the
administration of the CEO's long-term incentive compensation arrangements. Any
interpretation or adjustments will be by the Committee, whose decision is final.

OVERALL STRUCTURE OF THE PLAN

Long-term incentive compensation for the CEO will consist of:

-        200,000 options awarded at the beginning of the 4-year performance
         period from date of appointment as CEO (July 9, 1996), vesting at 25%
         of the award on each of the 4 anniversary dates of the award. This
         grant will be made at fair market value as of the grant date.

-        Up to 15,000 restricted shares in each of the 4 years of the
         performance period with the initial grant at the beginning of the
         4-year performance period and subsequent grant on the next three
         successive anniversary dates of the CEO's appointment as CEO. Award
         will be made at fair market value on the date of the grant with vesting
         of 33% of the award on each of the 3 anniversary dates following the
         award. The actual number of shares granted is at the discretion of the
         Committee.

-        Up to 360,000 performance units (payable in performance restricted
         stock in the manner described below) to be determined at the end of the
         four year performance period based on achievement of the following
         specified performance goals in four categories over the 4-year
         performance period:

         A.       The Company's cumulative percentage Total Return to
                  Shareholders as compared to that of the S&P 500 Composite
                  Index Total Return to Shareholders; and

         B.       The Company's cumulative percentage Total Return to
                  Shareholders as compared to that of its Peer Group Composite
                  Index Total Return to Shareholders; and

                                       14
<PAGE>

         C.       The Company's average Return on Capital as compared to that of
                  the S&P 500 Composite Index Average Return on Capital; and

         D.       The Company's average Return on Capital as compared to that of
                  the Company's Peer Group Composite Index Average Return on
                  Capital.

                  -        Restricted shares will be awarded out of treasury
                           shares according to the performance unit matrix below
                           upon completion of the four year performance period
                           ending July 9, 2000.

                  -        One share of restricted stock will be awarded for
                           each performance unit earned subject to a maximum
                           dollar value of $12,690,000 based on the NYSE closing
                           price for the Company's Common Stock on July 9, 2000;
                           provided, however, in the event Mr. Storch's
                           Employment Agreement is terminated following a Change
                           in Control of the Company (as defined in Mr. Storch's
                           Employment Agreement) occurring prior to July 9, 2000
                           pursuant to the Change in Control provisions of Mr.
                           Storch's Employment Agreement, the above stated
                           dollar value limit will be removed and one share of
                           restricted stock will be awarded for each performance
                           unit earned.

                  -        The performance restricted shares awarded at the end
                           of the four year performance period will be
                           restricted for three years: 50% of the shares will
                           vest on the first anniversary of the award; 50% of
                           the shares will vest on the third anniversary of the
                           award.

                  -        No shares will be awarded in any category of award in
                           which the result for AAR is negative.

                  -        Except as otherwise provided below with respect to
                           the 360,000 options, a Change of control (as
                           elsewhere defined in this agreement) will cause all
                           options under this plan to become vested/exercisable,
                           all restricted stock to vest and performance shares
                           to be awarded according to the performance unit
                           matrix below based on the higher of target or actual
                           performance through the effective date of a Change in
                           Control using the latest data then available to
                           determine goals applicable for the partial
                           performance period.

                  -        At the direction of the Compensation Committee,
                           transactions which significantly alter the capital
                           structure of AAR may be excluded from the measurement
                           period (in whole or in part) in a manner determined
                           by the Committee.

                                       15
<PAGE>

      PERFORMANCE UNIT AWARD MATRIX*

<TABLE>
<CAPTION>
        % OF TARGET ACHIEVED**     SHARES AWARD FOR EACH OF THE FOUR CRITERIA
        ----------------------     ------------------------------------------
        <S>                        <C>
                  0-80                                  0
                    81                             30,000
                   100                             60,000
                   120                             75,000
                   120+                            90,000
</TABLE>

         * Results between the amounts on the schedule will be calculated by
         linear interpolation.

         ** With respect to Total Return to Shareholders goals, 100% achievement
         will be the median of the S&P 500 and the 60th percentile of the Peer
         Group; with respect to the Return on Capital goals, 100% achievement
         will be 80% of the median of the S&P 500 and 60th percentile of the
         Peer Group.

         -        360,000 options awarded in accordance with the following
                  schedule:

<TABLE>
<CAPTION>
                           ISSUE DATE                         # OF OPTION SHARES
                           ----------                         ------------------
                           <S>                                <C>
                           July 14, 1997                               100,000
                           January 1, 1998                             130,000
                           January 1, 1999                             130,000
</TABLE>

                  -        All such options will vest at the end of the
                           performance period on July 9, 2000; provided,
                           however, in the event the dollar value limit on the
                           performance restricted stock award is removed due to
                           a Change in Control of the Company as described
                           above, options not yet granted under the above
                           schedule shall not be awarded and any such options
                           already awarded shall lapse. The exercise price of
                           all such options will be $35.25, the NYSE closing
                           price on July 14, 1997, the date of Compensation
                           Committee approval of this performance stock program.

DEFINITIONS:

-        Total Return to Shareholders -- Cumulative price appreciation plus
         dividends (reinvested).

-        Peer Group -- Selected companies used from time to time for performance
         comparison in AAR proxy. Any deletions or additions to the peer group
         during the performance period will cause measurement/calculation
         changes on a prospective

                                       16
<PAGE>

         basis from the date of the change in the peer group (beginning of the
         fiscal year in which the proxy is issued).

-        Return on Capital -- Earnings before interest and taxes (EBIT) divided
         by total capital (debt plus equity minus cash).

                                       17

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