Air T, Inc. Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2022, compared with fiscal 2021. The supplied request metadata references “2020 Q4,” but the filing is the fiscal 2022 annual report filed June 28, 2022.
Business Context
Air T is a diversified holding company operating through four segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other. The company’s air cargo operations are heavily dependent on FedEx, while its aviation asset businesses are exposed to aircraft utilization, engine values, lease rates, and industry cyclicality.
- Overnight air cargo operates 72 FedEx dry-leased aircraft as of March 31, 2022.
- Ground equipment sales primarily manufactures aircraft deicing and specialized equipment.
- Commercial jet engines and parts manages and leases aviation assets and sells aircraft and engine components.
- Corporate and other includes capital allocation activities, investments, and newly acquired businesses.
Financial Performance and Metrics
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Revenue | $177.1 million | $175.1 million | Up 1% |
| Operating income (loss) | $8.8 million | $(9.2) million | Improved $17.9 million |
| Net income (loss) attributable to Air T stockholders | $10.9 million | $(7.3) million | Improved $18.2 million |
| Diluted EPS | $3.78 | $(2.53) | Improved $6.31 |
| Adjusted EBITDA | $11.4 million | $(1.3) million | Improved $12.7 million |
| Operating margin | 4.9% | (5.2%) | Improved approximately 10.1 points |
| Net cash used in operating activities | $(33.1) million | $(1.8) million | Outflow increased $31.3 million |
Segment revenue was $74.4 million for overnight air cargo, $42.2 million for ground equipment sales, $57.7 million for commercial jet engines and parts, and $2.7 million for corporate and other. Segment operating income was $2.8 million, $3.2 million, $3.6 million, and $(0.9) million, respectively.
The commercial jet engines and parts segment returned to profitability, helped by higher component sales and a reduction in inventory write-downs from $6.4 million to $0.8 million. Corporate and other benefited from a $9.1 million Employee Retention Credit recognized as an offset to general and administrative expense.
Balance Sheet, Debt and Liquidity
- Total assets were $207.6 million, compared with $140.8 million at March 31, 2021.
- Total debt was $136.9 million gross, or $135.8 million net of issuance costs, versus $88.6 million gross and $87.5 million net in the prior year.
- Cash, cash equivalents and restricted cash totaled $8.4 million, including $2.3 million of cash collateral. Marketable securities were $0.9 million and restricted investments were $1.7 million.
- Working capital was $97.3 million, up $19.7 million, primarily due to the $9.1 million ERC receivable and higher accounts receivable.
- Debt service obligations totaled $136.9 million, including $6.5 million due in fiscal 2023 and $43.5 million due thereafter.
- The company was in compliance with applicable financial covenants at March 31, 2022. The Contrail debt carried a minimum debt-service-coverage ratio of 1.25 to 1.0 and a minimum tangible net worth requirement of $8 million.
Financing cash inflows of $59.3 million substantially offset operating and investing cash outflows. The company received $11.3 million from TruPs issuance and increased borrowings, while repaying other credit facilities. The PPP loan was fully forgiven, producing an $8.3 million gain.
Material Changes Versus Prior Period
- Revenue was broadly stable, but the mix shifted materially: air cargo rose 12%, commercial jet engines and parts rose 23%, and ground equipment sales declined 30%.
- Ground equipment revenue declined primarily because of lower USAF truck sales; however, backlog increased to $14.0 million from $10.3 million, all expected to be delivered in fiscal 2023.
- Operating results improved significantly from a loss to profit, led by the commercial jet engines and parts segment and lower inventory write-downs.
- Operating cash flow deteriorated substantially because of increased engine and component purchases, a $13.2 million increase in accounts receivable, higher inventories, and recognition of the ERC receivable.
- The company acquired Wolfe Lake HQ real estate for approximately $13.4 million and acquired GdW Beheer B.V. for approximately $15.3 million of consideration, generating $5.9 million of goodwill.
- Air T formed Contrail Asset Management and Contrail JV II. Its initial commitment to CJVII was approximately $8.0 million; remaining company capital commitments were approximately $2.0 million at March 31, 2022.
Outlook, Risks and Unusual Items
- Management expects COVID-19 effects, reduced commercial aviation demand, supply-chain disruption, inflation, and workforce pressure to continue affecting operations. Some businesses may continue to generate reduced cash flow or operate at a loss beyond fiscal 2022.
- FedEx represented approximately 41% of consolidated revenue and 97% of overnight air cargo revenue. The agreements may generally be terminated on 90 days’ notice, and aircraft leases may be terminated on 10 days’ notice, creating significant customer concentration risk.
- FedEx agreements permit termination under specified concentration and staffing conditions that management stated were technically applicable as of the filing date.
- The company has substantial leverage, floating-rate borrowings, refinancing requirements, and financial covenants. Interest-rate swaps partially mitigate floating-rate exposure.
- Redeemable non-controlling interests totaled $10.8 million, including $7.2 million related to Contrail and $3.6 million related to Shanwick. Put and call options could require future cash funding.
- In May 2022, the company experienced a ransomware attack that disrupted its network and affected certain systems. Management reported that systems were restored and did not believe the event would have a material adverse effect, but the assessment remained ongoing.
- In June 2022, the MBT revolving facility was increased from $17.0 million to $22.0 million. An associated $5.0 million overline loan matures earlier upon receipt of the ERC and expected tax-refund proceeds, but the filing states that receipt timing and availability cannot be assured.
- On May 3, 2022, AirCo 1 sold two leased CF34-3B engines for $3.9 million.
- No cash dividends have been paid since 2014. The company repurchased 15,435 common shares for approximately $0.4 million during fiscal 2022.
Important Facts for Investors to Verify
- Whether FedEx renews, maintains, or reduces the aircraft and route commitments under the current agreements.
- The collectability and timing of the $9.1 million ERC receivable and approximately $2.6 million expected tax refund.
- Available borrowing capacity, borrowing-base compliance, interest-rate exposure, and debt maturities.
- Whether operating cash flow recovers after the fiscal 2022 inventory build and accounts-receivable increase.
- The realizable value and future demand for commercial jet engine and parts inventory, including potential additional write-downs.
- The performance and remaining funding requirements of CAM, CJVII, GdW, and other recent acquisitions and investments.
- The valuation and potential exercise of Contrail and Shanwick non-controlling-interest put and call options.
- The financial and operational consequences of the May 2022 ransomware incident and the adequacy of related insurance coverage.
- Progress against the $14.0 million ground equipment backlog and the timing of USAF deliveries.