AAR Pays Out $55M To Resolve Airline Bribery Case

MRO provider AAR is to pay more than $55 million to resolve investigations by the U.S. Justice Department (DOJ) and Securities and Exchange Commission (SEC) into violations of the Foreign Corrupt Practices Act (FCPA), the DOJ said Dec. 19.

The penalties were levied following AAR’s participation in corrupt schemes to pay bribes to government officials in Nepal and South Africa involved with state-owned airlines, according to DOJ. A former AAR subsidiary executive previously pleaded guilty for his role in the Nepal scheme, and a third-party agent of AAR previously pleaded guilty for his role in the South Africa scheme, the DOJ said.

Wood Dale, Illinois-based AAR has entered into an 18-month non-prosecution agreement (NPA) with the DOJ. According to the company’s admissions in connection with the resolution, between 2015 and 2020 AAR executives conspired to pay bribes to government officials to obtain and retain business with state-owned airlines in Nepal and South Africa. AAR obtained profits of nearly $24 million as a result of the scheme.

“AAR bribed high-level government officials to obtain business with state-owned airlines in Nepal and South Africa and reaped nearly $24 million in illicit profits as a result,” DOJ criminal division’s chief counselor Brent Wible said. “The Justice Department continues to hold companies and individuals accountable for engaging in international corruption.”

“Companies competing on a fair and level playing field is a core value that we expect any U.S. company or anyone doing business in the United States to embrace,” said Matthew Graves, U.S. attorney for the District of Columbia.

The DOJ said that in Nepal, AAR corruptly obtained business with state-owned Nepal Airlines Corporation related to the sale of two Airbus A330-200s by offering and paying bribes to Nepali officials through various intermediary companies.

In South Africa, AAR obtained the award of an aircraft component support contract with South African Airways Technical, a wholly owned subsidiary of South African Airways, by corruptly offering and paying bribes to South African officials through a third-party agent.

As part of the NPA, AAR has agreed to pay a $26.3 million penalty and $18.5 million in administrative forfeiture. In addition, AAR will pay $29.2 million in disgorgement and prejudgment interest as part of the resolution of the SEC’s parallel investigation. The DOJ has agreed to credit the forfeiture to be paid to the department against disgorgement AAR has agreed to pay to the SEC.

AAR said that the penalties will be reflected as a one-time charge in the company’s consolidated financial statements for the second quarter of its fiscal 2025, which ended Nov. 30, 2024. AAR expects to fund these payments using a combination of cash on hand and borrowings under its revolving credit facility.

“We are pleased to resolve these matters with the DOJ and SEC,” AAR Chairman, President and CEO John Holmes said. “We thank the DOJ and SEC for their collaboration and their recognition of the company’s substantial cooperation. AAR remains committed to transparency and accountability and operating in an ethical and compliant manner as we deliver innovative, value-driven solutions to…our customers worldwide.”

As part of the NPA, AAR has agreed to continue to cooperate with the criminal division’s fraud section and the District of Columbia U.S. Attorney’s Office in any ongoing or future criminal investigations arising during the term of the NPA. In addition, the DOJ said, AAR has agreed to continue to enhance its compliance program and report to the DOJ regarding remediation and the implementation of compliance measures during the 18-month term of the NPA.

In light of several considerations, including AAR’s self-reporting of the corruption, cooperation with the DOJ and taking internal measures to prevent similar events in future, the criminal penalty calculated under the U.S. sentencing guidelines reflects a 45% reduction off the applicable guidelines sentence.

Though AAR self-reported its conduct to DOJ, which resulted in the financial resolution, DOJ made note that the “self-report was not a ‘voluntary self-disclosure’ as defined in the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP).” DOJ said that prior to AAR’s self-reporting, “several English-language articles had been published in media outlets in Nepal and South Africa that described potential irregularities in the relevant contracts in both countries, including that an AAR subsidiary had been summoned by a Nepalese agency investigating irregularities and corruption in connection with the procurement of aircraft. In addition, 12 days before AAR’s self-report, an independent source reported the allegations regarding the Nepal conduct to the department.”