Business Context and Reporting Period
Air T, Inc. is a holding company operating in overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other activities. The filing is a Form 10-Q for the quarter and six months ended September 30, 2020, representing the second quarter of fiscal 2021; the request metadata identifies “2019 Q2,” which does not match the filing period. The financial statements are unaudited.
The company completed the sale of Global Aviation Services, LLC on September 30, 2019. Its results are therefore presented as discontinued operations in the prior-year comparison.
Key Financial Metrics
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue | $35.6 million, versus $50.7 million | $72.6 million, versus $97.9 million |
| Operating income (loss) | $(3.7) million, versus $0.5 million | $(3.9) million, versus $1.5 million |
| Net income (loss) attributable to Air T stockholders | $(2.9) million, versus $5.7 million | $(3.8) million, versus $7.5 million |
| Loss from continuing operations per diluted share | $(1.01), versus $(0.80) | $(1.31), versus $(0.30) |
| Adjusted EBITDA | $(2.7) million, versus $1.2 million | $(2.6) million, versus $2.8 million |
| Net cash provided by (used in) operating activities | $(5.6) million for the six months, versus $0.6 million |
Quarterly revenue declined 30%, primarily from lower commercial jet engine and parts activity. Six-month revenue declined 26%. The reported quarterly net loss excludes the prior-year $8.4 million after-tax gain on the sale of discontinued operations.
Revenue and Segment Performance
- Overnight air cargo: Second-quarter revenue decreased 12% to $17.3 million, while operating income increased to $0.6 million from $0.3 million. Six-month revenue declined 12% to $33.5 million, while operating income increased to $1.1 million.
- Ground equipment sales: Second-quarter revenue decreased 5% to $12.1 million and operating income decreased to $0.9 million from $1.2 million. Six-month revenue increased 12% to $27.9 million and operating income increased to $3.1 million. Order backlog was $36.8 million at September 30, 2020.
- Commercial jet engines and parts: Second-quarter revenue declined 66% to $6.1 million and the segment generated a $2.3 million operating loss, compared with $1.1 million of operating income. Six-month revenue declined 68% to $10.8 million and the segment generated a $3.2 million operating loss.
- Corporate and other: Second-quarter operating loss increased to $2.9 million from $2.1 million; six-month operating loss increased to $5.0 million from $4.3 million.
Liquidity, Capital Resources, and Debt
- Cash and cash equivalents were $4.3 million; restricted cash was $8.6 million; marketable securities were $2.2 million; and restricted investments were $1.0 million at September 30, 2020.
- Cash, cash equivalents, and restricted cash totaled $12.9 million, down from $15.6 million at March 31, 2020. Management reported approximately $34.3 million of available borrowing capacity and working capital of $36.2 million.
- Total debt was $90.9 million, or $90.6 million net of issuance costs, compared with $86.2 million at March 31, 2020. Current debt was $46.4 million and long-term debt was $44.3 million.
- The company received an $8.2 million Paycheck Protection Program loan at 1% interest. It intends to seek forgiveness, but forgiveness is not assured.
- Six-month capital expenditures were $1.8 million, compared with $17.8 million in the prior-year period, primarily because the prior year included significant aircraft and engine-related expenditures.
Material Changes, Outlook, Risks, and Unusual Items
- COVID-19: Management reported reduced demand, particularly for commercial aircraft, engines and parts, lower operating cash flows, and continued revenue pressure into October 2020. The duration and severity of the pandemic remain uncertain.
- Contrail financing: Contrail’s lender amendment extended the revolver paydown deadline to September 5, 2021 and deferred commencement of the debt-service-coverage covenant until March 31, 2022. The amendment added a default risk if an approximately $43.6 million Main Street Priority Loan transaction was not completed by December 31, 2020. At the filing date, the transaction was in escrow pending Federal Reserve approval.
- Refinancing risk: Air T and AirCo 1 revolving facilities mature or expire by August 31, 2021. Management was seeking refinancing, but stated that execution and favorable terms were not assured.
- Liquidity assessment: Management believed available cash, operating cash flow, revolving credit, and PPP proceeds would be sufficient for obligations for at least 12 months after issuance of the financial statements; this conclusion depends on refinancing and financing assumptions.
- Inventory write-down: The company recorded a $0.5 million write-down on two commercial jet engines. Their remaining carrying value was $9.5 million, equal to estimated sale proceeds.
- Equity-method losses: Losses from equity-method investments were $0.5 million for the quarter and $1.1 million for the six months, compared with $0.03 million and $0.4 million, respectively, in the prior-year periods.
- Debt and interest-rate exposure: The company uses interest-rate swaps related to variable-rate debt. The swaps had a $0.9 million liability at September 30, 2020.
- Redeemable non-controlling interest: The fair value of the Contrail redeemable non-controlling interest was $5.0 million. The related put option becomes exercisable beginning July 18, 2021.
- Warrants: Approximately 4.8 million warrants to purchase Trust Preferred Securities remained outstanding and exercisable at September 30, 2020. Their expiration date was extended to January 15, 2021, or earlier upon redemption or liquidation.
Important Facts for Investors to Verify
- Whether the approximately $43.6 million Contrail Main Street loan received final Federal Reserve approval and was funded.
- Whether the PPP loan was forgiven and the amount, if any, requiring repayment.
- Whether Air T and AirCo 1 successfully refinanced obligations due or expiring by August 31, 2021.
- The continuing effects of COVID-19 on aircraft utilization, cargo maintenance demand, engine and parts sales, lease income, and operating cash flow.
- The recoverability and monetization timing of the $9.5 million of engine inventory carried at estimated sale proceeds.
- The potential cash requirement associated with the Contrail redeemable non-controlling interest and related put option beginning July 18, 2021.
- The effect of warrant exercises, expiration, or redemption on capital structure and Trust Preferred Securities obligations.
- Management’s non-GAAP Adjusted EBITDA presentation and its reconciliation to GAAP operating results.