Air T, Inc. Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021, compared with fiscal 2020. The request metadata refers to “2019 Q4,” but the supplied filing is the fiscal 2021 Form 10-K, filed June 25, 2021.
Business Context
Air T is a diversified holding company operating four reportable segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other. The company also holds equity-method investments in Insignia Systems and Cadillac Casting. Global Aviation Services was sold on September 30, 2019 and is reported as discontinued operations.
Operations were materially affected by COVID-19, particularly commercial aircraft, engine and parts demand. Air T had 452 full-time and full-time-equivalent employees at March 31, 2021.
Financial Performance and Key Metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $175.1 million | $236.8 million | Down 26% |
| Operating income (loss) | $(9.2) million | $7.3 million | Down $16.5 million |
| Net income (loss) attributable to Air T stockholders | $(7.3) million | $7.7 million | Down $14.9 million |
| Basic earnings per share | $(2.53) | $2.74 | Declined |
| Adjusted EBITDA | $(1.3) million | $9.0 million | Down $10.3 million |
| Net cash used in operating activities from continuing operations | $(1.8) million | $(26.2) million | Improved $24.4 million |
Revenue declined primarily because commercial jet engines and parts revenue fell 54% to $46.8 million. Overnight air cargo revenue decreased 12% to $66.3 million, while ground equipment sales increased 3% to $60.7 million.
Segment operating results were $2.2 million for overnight air cargo, $8.9 million for ground equipment sales, $(10.9) million for commercial jet engines and parts, and $(9.4) million for corporate and other. The commercial jet engines and parts segment recorded a $6.4 million inventory write-down, contributing to its operating loss.
Gross margin information is not presented as a single consolidated measure in the filing. The company reported a continuing-operations net loss of $8.4 million, partly offset by a $3.4 million income tax benefit. Fiscal 2021 results included no gain from the prior-year bankruptcy settlement and no investment impairment comparable to the $2.3 million recorded in fiscal 2020.
Balance Sheet, Debt and Liquidity
- Cash, cash equivalents and restricted cash totaled $15.9 million, including $4.7 million of restricted cash.
- Marketable securities were $1.4 million; restricted investments were $1.5 million.
- Working capital was $77.6 million, up $46.9 million, primarily because short-term borrowings declined by $37.0 million.
- Total debt was $88.6 million gross, or $87.5 million net of unamortized issuance costs, compared with $85.8 million net at March 31, 2020.
- Long-term debt was $81.9 million and current debt was $5.6 million at year-end.
- The company reported compliance with Air T and AirCo 1 financial covenants. Contrail was below its $15 million minimum tangible net worth covenant at year-end, but $1.4 million of subsequent capital contributions cured the breach.
- Air T’s MBT revolving credit facility was scheduled to expire August 31, 2021, and management was seeking refinancing. The filing states there was no assurance that refinancing would be completed on acceptable terms.
Cash Flow and Capital Allocation
Operating cash usage improved substantially to $1.8 million from $26.2 million. Investing activities provided $2.5 million, compared with $11.6 million used in the prior year, reflecting lower capital expenditures and proceeds from asset sales. Financing activities provided $0.1 million from continuing operations, including $8.2 million of PPP proceeds and new Main Street loans of $43.6 million for Contrail and $6.2 million for AirCo 1.
Total capital expenditures were $6.0 million, down from $37.1 million. The company did not repurchase common shares during fiscal 2021 and has not paid cash dividends since 2014.
Material Changes Versus Prior Period
- Consolidated revenue fell $61.7 million, driven mainly by the COVID-19-related contraction in commercial aviation.
- Commercial jet engines and parts shifted from $8.3 million of operating income to a $10.9 million operating loss.
- Overnight air cargo operating income increased to $2.2 million from $0.7 million because of lower pilot, staff and contract labor costs, despite lower revenue.
- Ground equipment operating income increased to $8.9 million from $7.3 million, supported by higher USAF truck sales and a more profitable product mix.
- GGS backlog fell to $10.3 million from $51.5 million. All fiscal 2021 backlog was expected to be fulfilled in fiscal 2022.
- FedEx-related revenue represented approximately 37% of consolidated revenue, up from 30%, while the number of aircraft operated for FedEx declined to 66 from 69.
- Net assets on lease or held for lease declined to $2.1 million from $27.9 million, and inventory increased to $72.0 million from $60.6 million.
Outlook, Risks and Unusual Items
Management expected many businesses to generate reduced operating cash flow or operate at a loss during at least the first half of fiscal 2022, with continued uncertainty from COVID-19. The company stated that available cash, operating cash flow, and current or replacement credit facilities were expected to cover obligations for at least 12 months after issuance of the financial statements.
- FedEx accounted for 37% of consolidated revenue and 99% of overnight air cargo revenue. Contracts may be terminated on relatively short notice, and FedEx may reduce aircraft or routes.
- The USAF deicing-equipment contract expired July 13, 2020; GGS had submitted a renewal bid, but no response had been received as of March 31, 2021.
- COVID-19 reduced demand and asset values in the commercial aviation market, creating inventory valuation and lease-asset impairment risks.
- Debt includes floating-rate obligations and LIBOR-based facilities, exposing the company to refinancing, interest-rate and reference-rate transition risk.
- The $8.2 million PPP loan was subject to forgiveness approval; any unforgiven amount would require repayment with interest.
- Contrail debt was guaranteed by Air T up to $1.6 million plus collection costs. Contrail also had a put/call arrangement concerning its 21% non-controlling interest, with exercise available beginning July 18, 2021.
- Subsequent events included formation of an aircraft asset-management platform and joint venture with potential equity commitments of up to $408 million, including an initial Air T commitment of approximately $8 million.
- On May 14, 2021, Air T Funding entered into an at-the-market offering allowing issuance of up to $8 million of preferred securities.
Important Facts to Verify
- Whether Air T successfully refinanced or amended the MBT revolving facility before its August 31, 2021 maturity.
- Whether the PPP loan was forgiven and the final amount, if any, requiring repayment.
- Whether Contrail maintained required tangible net worth and debt-service coverage ratios after the reporting date and whether its credit facility was renewed or amended.
- The recovery in commercial aviation demand, including inventory realizability, engine values, lease rates and potential future write-downs.
- The status and economics of the FedEx agreements, including aircraft counts, termination rights and customer concentration.
- The results, funding requirements and commitments associated with Contrail Asset Management and Contrail JV II.
- The final exercise or non-exercise of the Contrail 21% non-controlling interest put/call rights.