AIR T INC

Air T, Inc. is a holding company with a diversified portfolio of operating businesses and financial assets, focused on prudently and strategically growing its earnings power and compounding free-cash-flow per share over time. The company operates in four core industry segments: Overnight Air Cargo, Ground Support Equipment, Commercial Aircraft, Engines and Parts, and Digital Solutions. Additionally, it maintains a central corporate function for capital allocation and resource management, which also includes insignificant businesses and business interests. The company's goal is to diversify its earnings power and compound free-cash-flow per share over time ¹.

The Overnight Air Cargo segment, comprising Mountain Air Cargo, Inc. (MAC), CSA Air, Inc. (CSA), and Worldwide Aircraft Services, Inc. (WASI), is significantly dependent on a contractual relationship with FedEx Corporation, which has spanned over 40 years. MAC and CSA are two of eight companies in the U.S. that operate North American feeder airlines under contract with FedEx, flying daily small-package cargo routes. Revenues from FedEx contracts accounted for approximately 39% ⁴ of the Company's consolidated revenue for the fiscal year ended March 31, 2025, and 92% ⁵ of the operating revenues for the overnight air cargo segment. MAC and CSA operate and maintain Cessna Caravan, SkyCourier, ATR-42, and ATR-72 aircraft, with an aggregate of 103 aircraft ⁶ under dry-lease agreements with FedEx as of March 31, 2025. The company believes MAC and CSA, combined, constitute the largest contract carrier of this type, though accurate industry data is not available for direct comparison to privately held competitors.

The Ground Support Equipment segment, operated by Global Ground Support, LLC (GGS), manufactures and services aircraft deicers and other specialized equipment for passenger and cargo airlines, airports, the military, and industrial customers. In the fiscal year ended March 31, 2025, sales of deicing equipment constituted approximately 72% ⁷ of GGS's revenues. GGS designs and engineers its products, sourcing components from a diverse supply chain, and offers five basic models of mobile deicing equipment with capacities ranging from 1,200 to 2,800 gallons ⁸, along with customization options. GGS also manufactures five models of scissor-lift equipment and has developed decontamination equipment, flight-line tow tractors, and glycol recovery vehicles.

The Commercial Aircraft, Engines and Parts segment includes Contrail Aviation Support, LLC (Contrail), Jet Yard, LLC, AirCo, LLC, Worthington Aviation, LLC, Jet Yard Solutions, LLC, Air'Zona Aircraft Services, Inc., and Landing Gear Support Services, Inc. (LGSS). Contrail focuses on trading, leasing, and providing parts solutions for CFM International CFM56-3/-5/-7 engines and International Aero Engines V2500A5 engines, which power Boeing 737 and Airbus A320 family aircraft. Jet Yard and Jet Yard Solutions offer commercial aircraft storage, maintenance, and disassembly services at Pinal Air Park in Marana, Arizona, leasing approximately 48.5 acres ⁹ of land. AirCo and Worthington provide commercial aircraft parts sales, exchanges, procurement, consignment programs, and overhaul and repair services, with Worthington operating in four strategic locations globally.

The Digital Solutions segment, comprising WorldACD Market Data B.V. (WACD) and Ambry Hills Technology, LLC (AHT), develops and provides digital aviation and other business services to customers within the aviation industry, generating recurring subscription revenues. WACD aggregates global air cargo shipping data, offering customers access to aggregated data through its cloud-native platform for strategic decision-making. AHT specializes in cloud-based software solutions, including Vista-Suite for ERP/MRO needs of aviation businesses and Vista-Quote for automating the request for quotation process for aftermarket products.

For the fiscal year ended March 31, 2025, total consolidated revenue increased by $5.0 million ¹⁰ (2%) ¹¹ to $291.9 million ¹² compared to the prior fiscal year. Gross profit is not explicitly stated as a consolidated line item, but operating income was $1.9 million ¹³, up from $1.3 million ¹⁴ in the prior fiscal year. Net loss attributable to Air T, Inc. Stockholders was $(6.140) million ¹⁵, compared to $(6.819) million ¹⁶ in the prior year. Basic and diluted EPS were both $(2.23) ¹⁷ for fiscal year 2025, compared to $(2.42) ¹⁸ for fiscal year 2024. Net cash provided by operating activities was $23.5 million ¹⁹. As of March 31, 2025, the Company held approximately $6.5 million ²⁰ in total cash, cash equivalents, and restricted cash. Total long-term debt was $101.226 million ²¹, and long-term debt - related party was $3.288 million ²².

Revenue from the Overnight Air Cargo segment increased by $8.5 million ²³ (7%) ²⁴ to $124.031 million ²⁵, driven by higher labor revenues, increased administrative fees, and higher FedEx pass-through revenues due to increased billable hours for maintenance. The Ground Support Equipment segment's revenue increased by $1.7 million ²⁶ (5%) ²⁷ to $38.940 million ²⁸, primarily due to increased spare part sales and support services, with a slight increase in deicer sales. The Commercial Aircraft, Engines and Parts segment experienced a revenue decrease of $7.3 million ²⁹ (6%) ³⁰ to $118.215 million ³¹, mainly due to a lower supply of whole assets for tear-down or resale and aircraft operators keeping older aircraft in service longer. The Digital Solutions segment's revenue increased by $1.5 million ³² (26%) ³³ to $7.268 million ³⁴, attributed to increased software subscriptions from new and recurring customers. Operating income for the Overnight Air Cargo segment decreased by $0.5 million ³⁵, while the Ground Support Equipment segment's operating loss decreased by $0.343 million ³⁶. The Commercial Aircraft, Engines and Parts segment's operating income increased by $2.947 million ³⁷, and the Digital Solutions segment's operating loss increased by $0.4 million ³⁸.

During the fiscal year, the Company acquired WASI on January 31, 2023, an aircraft repair station, which is now part of the Overnight Air Cargo segment. GGS was awarded a new contract to supply deicing trucks to the USAF in October 2021, with 15 deicers ³⁹ sold under this contract in fiscal 2025. On May 30, 2024, Contrail redeemed 16% ⁴⁰ of its 21% ⁴¹ interest from a minority owner for $4.6 million ⁴² plus an earnout. On August 29, 2024, the Company's subsidiaries entered into a New Credit Agreement with Alerus Financial, providing a secured revolving credit facility of up to $14.0 million ⁴³ and two secured term loans totaling $13.0 million ⁴⁴. On October 16, 2024, the Company and AAM 24-1, LLC entered into a Second Note Purchase Agreement, increasing senior secured notes issued to institutional investors to $30.0 million ⁴⁵. On February 21, 2025, MAC entered into a $2.3 million ⁴⁶ term loan with Bank of America, N.A. On May 15, 2025, MAC acquired Royal Aircraft Services, LLC for approximately $1.1 million ⁴⁷, financed by a new $1.1 million ⁴⁸ term loan with Alerus. On May 30, 2025, the Company and AAM 24-1 entered into a Third Note Purchase Agreement, increasing the aggregate principal amount of a Multiple Advance Senior Secured Note to up to $100.0 million ⁴⁹, with an additional $10.0 million ⁵⁰ advanced at closing.

The Company anticipates that future economic developments, including inflation, evolving trade policies, and potential new or increased tariffs, will continue to present uncertainty and risk to its financial condition and results of operations. Despite these challenges, the Company observed improved demand for commercial aircraft, jet engines, and parts in the fiscal year ended March 31, 2025. The fluidity of the current economic situation prevents any precise prediction of the ultimate adverse impact on economic and market conditions or the Company's businesses, thus presenting material uncertainty and risk to its operations ⁵¹.

A key growth area for the Company is its Digital Solutions segment, which was separately disclosed in the fourth quarter of fiscal year 2025 to align with its long-term growth strategy ⁵². This segment, comprising WACD and AHT, focuses on developing and providing digital aviation and other business services to customers within the aviation industry, aiming to generate recurring subscription revenues. The segment saw a 26% ⁵³ increase in revenues to $7.268 million ⁵⁴ in fiscal year 2025, primarily due to increased software subscriptions driven by the continued acquisition of new and recurring customers. This indicates a strategic focus on expanding its digital offerings and customer base within the aviation sector.

Another significant growth vector involves the Commercial Aircraft, Engines and Parts segment, particularly through its aircraft asset management business, Crestone Asset Management, LLC (CAM), and the aircraft capital joint venture, Crestone JV II LLC (CJVII). This venture focuses on acquiring current generation narrow-body aircraft and engines for leasing, trading, and disassembly, leveraging Contrail's origination and asset management expertise ⁵⁵. CAM receives origination fees, management fees, consignment fees, and a carried interest from direct investors into each CJVII Series ⁵⁶. As of March 31, 2025, the Company has contributed $17.6 million ⁵⁷ to CAM's Offshore Series and $1.0 million ⁵⁸ to CAM's Onshore Series, having fulfilled its initial commitment in fiscal year 2023. This strategic investment in aviation assets and asset management is expected to drive future growth.

The Company's Ground Support Equipment segment also has a positive outlook, with a backlog of orders totaling $14.3 million ⁵⁹ as of March 31, 2025, all of which is expected to be filled in the fiscal year ending March 31, 2026 ⁶⁰. This represents an increase from the $12.6 million ⁶¹ backlog at March 31, 2024. Furthermore, GGS has already received confirmed orders for 16 deicers ⁶² for fiscal 2026 delivery, with both GL 1800 and ER 2875 models expected to be delivered in the first quarter of fiscal year 2026 ⁶³. This indicates anticipated continued demand and revenue generation from its specialized equipment products.

Regarding operational outlook, the operating loss for the ground support equipment segment decreased by $0.343 million ⁶⁴ in fiscal year 2025, primarily due to reduced headcount, partially offset by increased warranty expense ⁶⁵. Conversely, the operating loss for the digital solutions segment increased by $0.4 million ⁶⁶ year over year, attributed to increased personnel needed to continue to scale operations ⁶⁷. This suggests a continued investment in human capital to support the growth of the digital segment, while other segments focus on efficiency.

In terms of capital allocation, the Company's planned capital expenditures related to assets on lease or held for lease were $14.598 million ⁶⁸ in fiscal year 2025, a significant increase from no material depreciation expense in the prior fiscal year ⁶⁹. This indicates a substantial investment in expanding its leasing portfolio. The Company repurchased 70,756 shares ⁷⁰ of its common stock at an aggregate cost of $1.4 million ⁷¹ during the fiscal year ended March 31, 2025, with 752,228 shares ⁷² remaining available for repurchase under its publicly announced plan as of March 31, 2025. The Company also issued $0.910 million ⁷³ in Trust Preferred Securities (TruPs) during fiscal year 2025.

The Company has identified several structural headwinds and execution risks. Its Overnight Air Cargo segment is highly dependent on FedEx, with 39% ⁷⁴ of consolidated operating revenues and 92% ⁷⁵ of segment operating revenues derived from FedEx in fiscal year 2025. FedEx can terminate agreements with 90 days' written notice ⁷⁶ or 10 days' written notice for specific aircraft ⁷⁷, and can also terminate if 60% ⁷⁸ or more of MAC or CSA's revenue (excluding reimbursements) is from FedEx, if FedEx becomes their only customer, or if MAC or CSA employs fewer than six employees ⁷⁹. The Company acknowledges that FedEx would be permitted to terminate dry-lease agreements under this provision as of the report date ⁸⁰. This significant customer concentration poses a material adverse risk.

Geographic, regulatory, and macro factors also present constraints. The Company faces sourcing challenges impacting raw material and commodity procurement, leading to delays and increased costs due to supply chain market constraints and macroeconomic conditions, including inflation and labor market shortages ⁸¹. Geopolitical conditions, conflicts, sanctions, and trade restrictive activities further contribute to these supply chain issues ⁸². The Company is also subject to various governmental regulations, including those from the DOT, TSA, and FAA, and changes in these regulations could impose material costs ⁸³.

The Company faces material risks across macroeconomic, competitive, regulatory, geopolitical, and operational fronts. Macroeconomic risks include market fluctuations affecting funding availability and terms, rising inflation increasing operating costs and negatively impacting credit and securities markets, and the potential for a pandemic or public health crisis to cause shutdowns or staffing shortages. Geopolitical risks are evident in evolving U.S. tariff and import/export regulations, which may negatively affect suppliers and service providers, increasing costs. Operationally, the Company is exposed to significant increases in operating costs due to competition for skilled management and staff, the scarcity of unique technical skillsets required for legacy technology systems, and sophisticated cybersecurity threats that could harm information systems and financial results. A cybersecurity attack in May 2022 caused a network disruption, and while the Company believes it did not have a material adverse effect, similar incidents could. The Company may not be able to adequately or economically insure certain risks, and legal liabilities, including those from employee actions or business expansion, could result in substantial financial or reputational harm. The Overnight Air Cargo segment is highly dependent on FedEx, which accounted for 39% ⁴ of consolidated revenue and 92% ⁵ of segment revenue in fiscal year 2025, and FedEx can terminate contracts with 90 days' written notice ⁷⁶ or 10 days' written notice for specific aircraft ⁷⁷, or if certain revenue concentration or employee count thresholds are met ⁷⁹. This customer concentration poses a material adverse risk. The Ground Support Equipment segment's deicing equipment sales are affected by weather conditions, as mild winters reduce demand. The Commercial Aircraft, Engines and Parts segment is susceptible to the economically sensitive and cyclical nature of the aviation industry, with risks including declining engine values and lease rates, inability to re-lease or sell assets on acceptable terms after lease termination, failures by lessees to meet maintenance obligations, and losses/delays in repossession. Regulatory changes, such as those from the FAA or EASA, export/import regulations, restriction lists, and anti-corruption laws, could adversely affect the ability to lease or sell aircraft or engines. The Company's holding company structure means its financial condition depends on individual businesses, and a material adverse change in one business or industry could have a material adverse effect. Its substantial indebtedness and reliance on debt financing create risks related to cash flow sufficiency, refinancing, and compliance with financial covenants, such as a debt service coverage ratio of 1.25 ⁸⁴ and a leverage ratio greater than 3.00 ⁸⁵ for the Alerus Credit Agreement, and a minimum tangible net worth of $15.0 million ⁸⁶ and a quarterly cash flow coverage of not less than 1.25 to 1.0 ⁸⁷ for the Contrail Credit Agreement. Future acquisitions and strategic ventures also entail risks of management diversion, increased costs, and potential losses.

Management's message to shareholders emphasizes the Company's goal as a holding company to prudently and strategically grow Air T's earnings power, compounding its free-cash-flow per share over time ¹. They acknowledge the current economic environment, including inflation and evolving trade policies, presents uncertainty and risk, despite experiencing improved demand for commercial aircraft, jet engines, and parts in fiscal year 2025 ⁵¹. Management believes that the cash on hand and current financings, net cash provided by operations from its remaining operating segments, together with amounts available under current revolving lines of credit, as amended, will be sufficient to meet obligations as they become due in the ordinary course of business for at least 12 months ⁸⁸ following the date these financial statements are issued. Strategic priorities include the continued expansion of the Digital Solutions segment, which is considered a key long-term growth area, as evidenced by its separate disclosure and a 26% ³³ revenue increase in fiscal year 2025. Another priority is the strategic investment in the Commercial Aircraft, Engines and Parts segment through its asset management business and aircraft capital joint venture, focusing on acquiring and managing narrow-body aircraft and engines. Furthermore, management is focused on fulfilling the Ground Support Equipment segment's order backlog of $14.3 million ⁵⁹ for fiscal year 2026 ⁶⁰, indicating a commitment to existing revenue streams and operational execution.