Amendment No. 1 to
                      AAR CORP. Directors' Retirement Plan

         WHEREAS, AAR CORP. ("Company") adopted the AAR CORP. Directors'
Retirement Plan ("Plan") effective April 14, 1992; and

         WHEREAS, the Company now desires to amend the Plan in certain respects;

         NOW, THEREFORE, the Company hereby amends the Plan as follows:

         1.       A new subsection 1.03.5 is added as follows:

                           "1.03.05   "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;

                           (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."

         2.       A new subsection 3.01(b) is added as follows:

                           "3.01(b) Notwithstanding the provisions of Section
                  3.01(a) above, the Company 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 under Article II
                  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, under
                  Article II hereof; provided, however, that such initial
                  contribution shall be made on the earlier to occur of (i)
                  within 10 days after the date the Board, in its discretion,
                  deems a Change in Control of the Company likely to occur and
                  (ii) the date a Change in Control actually occurs. 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. The Trust provided for
                  herein may be the same trust as the Company establishes for
                  funding of benefits under the Company's AAR CORP. Supplemental
                  Key Employee Retirement Plan ("SKERP").

                                            AAR CORP.

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


Dated: May 26, 2000


                                       2