Amendment No. 2 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 reserved the right to amend or terminate the Plan
at any time and from time to time, provided, however, that no such amendment or
termination shall reduce accrued retirement benefits for participants under the
Plan; and

         WHEREAS, the Company desires to amend the Plan in certain respects and
to terminate the Plan prospectively effective April 10, 2001, except as
otherwise provided for below;

         NOW, THEREFORE, the Company hereby amends and terminates the Plan as
set forth below, effective as of April 10, 2001:

     1.   Any individual who was a Director on April 9, 2001, and who was not
          then an employee of the Company, shall be deemed to be a grandfathered
          Participant under the Plan. The rights of a grandfathered Participant
          to receive benefits under the Plan in accordance with Plan provisions
          shall survive termination of the Plan and such benefits shall be
          determined without regard to whether the grandfathered Participant's
          Years of Service are completed before or after termination of the
          Plan.

     2.   The Plan is hereby terminated effective April 10, 2001, subject to the
          rights of (i) all vested Participants and (ii) all Participants who
          are grandfathered pursuant to paragraph 1 above, to receive or
          continue to receive benefits pursuant to the terms of the Plan as the
          Plan was in effect from time to time prior to such termination and
          applicable to such Participant.

         IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name by its duly authorized officer as of the 10th day of April,
2001.

                                      AAR CORP.



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