AIRT

Air T, Inc. (AIRT) - Q3 Fiscal 2021 Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended December 31, 2020 (Third Quarter of Fiscal 2021) and the nine months ended December 31, 2020. Air T, Inc. is a holding company operating in four segments: Overnight Air Cargo, Ground Equipment Sales, Commercial Jet Engines and Parts, and Corporate and Other. The company is classified as a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Note: Q3 2020 Net Income includes a $0.3M tax benefit. 9M 2020 Net Loss excludes discontinued operations which generated a gain of $8.1M in the prior year.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated revenue decreased 24% ($17.5M) in Q3 and 25% ($42.8M) for the nine months compared to the prior year, primarily driven by the Commercial Jet Engines and Parts segment (down 53% in Q3) due to reduced demand from the COVID-19 pandemic.
• Segment Performance:
  • Ground Equipment Sales: Revenue increased 30% in Q3 and 19% for the nine months, driven by higher volume of truck sales to the U.S. Air Force. Operating income improved significantly to $4.2M in Q3.
  • Commercial Jet Engines: Generated an operating loss of $1.6M in Q3 compared to $3.4M income in the prior year, attributed to lower engine sales and lease income.
  • Overnight Air Cargo: Revenue decreased 13% due to fewer operating aircraft and lower maintenance revenue.
• Non-Operating Items: Q3 2020 non-operating income improved to $0.4M from a $2.5M loss in Q3 2019, largely due to the absence of a $1.1M impairment loss on Insignia Systems investment that occurred in the prior year.
• Discontinued Operations: The prior year nine-month period included an $8.1M gain on the sale of Global Aviation Services (GAS), which did not recur in the current period.

Guidance, Outlook, and Risks

• Liquidity and Financing: The company secured significant liquidity through the Main Street Priority Loan Facility, including a $43.6M loan to Contrail Aviation and a $6.2M loan to AirCo 1. Additionally, the company obtained an $8.2M PPP loan, though forgiveness is not assured.
• Covenant Compliance: Contrail Aviation amended its credit agreement to extend compliance dates for debt service coverage ratios and revolver paydowns, with compliance commencing March 31, 2022.
• Refinancing Risk: The revolving line of credit with MBT expires August 31, 2021. Management is seeking to refinance but noted no assurance of execution or favorable terms.
• COVID-19 Impact: Management expects reduced operating cash flows to continue as the pandemic persists, creating material uncertainty regarding future economic conditions.
• Warrant Extension: Warrants to purchase Trust Preferred Securities (TruPs), originally expiring January 15, 2021, were extended to August 30, 2021.

Investor Verification Checklist

• Debt Maturity Wall: Verify the status of refinancing for the MBT revolver expiring August 31, 2021, and the ability to meet covenants on the new Main Street loans.
• PPP Loan Forgiveness: Monitor the application status and likelihood of forgiveness for the $8.2M PPP loan.
• Segment Recovery: Assess the trajectory of the Commercial Jet Engines and Parts segment, which remains heavily impacted by reduced air travel demand.
• Inventory Valuation: Review the $0.5M inventory write-down in the jet engine segment and potential for further impairments if asset monetization proceeds are lower than expected.
• Non-Controlling Interest: Note the $5.6M redeemable non-controlling interest in Contrail Aviation, which includes a put option exercisable by the seller starting July 18, 2021.