SEVERANCE AND CHANGE IN CONTROL AGREEMENT

This Severance and Change in Control Agreement (Agreement) made and entered into as of the 1st day of April, 2003, by and between AAR Manufacturing, Inc., an Illinois corporation  (Company), a wholly-owned subsidiary of AAR CORP., a Delaware corporation, and Mark McDonald (Employee).

WHEREAS, the Company currently employs Employee as an employee at will in the capacity of Vice President; and

WHEREAS, Employee desires the Company to pay Employee certain severance payments upon a Change in Control of AAR CORP. and upon termination of employment prior to a Change in Control; and

WHEREAS, the Company is willing to pay Employee severance payments under certain circumstances if Employee agrees to confidentiality, non-compete and certain other covenants.

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

1.                                       Employment.  Employee will continue employment with the Company as an at will employee subject to the terms and conditions hereinafter set forth.

2.                                       Duties.  During the continuation of Employees employment, Employee shall:

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

(b)                                 devote Employees full time, energy and skill to the business of the Company and Employees assigned duties and responsibilities, and to the promotion of the best interests of the Company; provided that Employee shall not (to the extent not inconsistent with Section 5 below) be prevented from (a) serving as a director of any corporation consented to in advance in writing by the Company, (b) engaging in charitable, religious, civic or other non-profit community activities, or (c) investing his personal assets in such form or manner as will not require any substantial services on Employees part in the operation or affairs of the business in which such investments are made or which would detract from or interfere or cause a conflict of interest with performance of Employees duties hereunder.

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

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

4.                                       Confidential Information, Assignment of Inventions.

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

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