Executive Summary / Key Takeaways

• Air T, Inc. is evolving from its core air cargo and ground equipment roots into a diversified holding company with significant investments in commercial aircraft asset management and digital solutions, aiming to compound free cash flow per share.
• Fiscal year 2025 results showed modest consolidated revenue growth (1.7%) to $291.9 million, driven by strength in Overnight Air Cargo and Digital Solutions, while operating income and Adjusted EBITDA saw stronger increases (50.9% and 18.9%, respectively), primarily due to improved margins in the Commercial Aircraft, Engines and Parts segment despite a revenue decline.
• Strategic initiatives, including significant new financing ($100 million potential facility) and acquisitions (Royal Aircraft Services), are aimed at funding growth, particularly in the capital-intensive aircraft asset management business and expanding MRO capabilities.
• Key risks include significant dependence on FedEx (FDX) (which has termination rights under certain conditions), volatility in the aircraft parts market (impacted by airlines keeping older planes longer), and the challenges inherent in integrating acquisitions and managing a diversified, leveraged structure.
• The company's competitive positioning leverages its niche market presence and diversification, but it faces rivals with greater scale, technological specialization, and financial resources, necessitating continued focus on operational efficiency, strategic capital allocation, and targeted technological development.

A Portfolio Approach to Aviation and Beyond

Air T, Inc. operates as a holding company, strategically assembling a portfolio of operating businesses and financial assets with the stated goal of prudently growing its earnings power and compounding free cash flow per share over time. Founded in 1980, the company's history is deeply intertwined with the air express delivery industry, anchored by a decades-long relationship with FedEx Corporation that forms the core of its Overnight Air Cargo segment. This foundational business, where Air T subsidiaries operate as crucial feeder airlines, provided the initial platform for growth and diversification.

Over the years, Air T expanded its footprint, notably entering the ground support equipment market with Global Ground Support (GGS), a manufacturer of specialized equipment like aircraft deicers. This segment added manufacturing capabilities and exposed the company to different customer bases, including passenger airlines, airports, and the military. More recently, Air T has significantly broadened its horizons, venturing into the commercial aircraft, engines, and parts market through acquisitions and formations like Contrail Aviation Support and Jet Yard, focusing on asset management, parts, and MRO services. The company has also established a foothold in the digital solutions space, recognizing the increasing importance of data and software in the aviation industry. This evolution reflects a deliberate strategy to diversify revenue streams and capitalize on opportunities across different but often interconnected parts of the aviation ecosystem.

Within the competitive landscape, Air T operates across several distinct but often overlapping markets, facing a diverse set of rivals. In the commercial aircraft parts and MRO space, it competes with larger, more specialized players like AAR Corp. (AIR) and HEICO Corporation (HEI), which often boast greater scale, more extensive supply chains, and advanced proprietary technologies. These competitors can offer faster processing speeds or more durable parts, potentially giving them an edge in efficiency and profitability. In the air cargo and leasing market, while Air T's feeder operations are niche, it indirectly competes with global giants like Atlas Air Worldwide (AAWW), which operates a significantly larger fleet and benefits from greater economies of scale on major routes. Air T's competitive positioning relies on its ability to leverage its relationships, particularly the long-standing one with FedEx, and its increasing diversification to offer integrated services or capitalize on niche opportunities that larger competitors may overlook or find less attractive.

Air T's technological differentiators are primarily embedded within its operating segments, contributing to its competitive stance. In the Ground Support Equipment segment, GGS designs and engineers its products, incorporating technological improvements like single-operator deicing units, a patented premium deicing blend system, and a more efficient forced-air deicing system. These innovations aim to enhance product efficiency and respond to customer needs and regulatory changes. While specific quantifiable benefits relative to competitor products are not detailed, these developments are intended to improve operational effectiveness and potentially reduce customer costs (e.g., reduced glycol usage).

In the Digital Solutions segment, WorldACD (WACD) provides a cloud-native platform for aggregating global air cargo shipping data, enabling customers to make strategic decisions in real-time. Ambry Hill Technology (AHT) offers cloud-based software solutions like Vista-Suite (ERPMRO) and Vista-Quote (RFQ automation) specifically designed for aviation aftermarket businesses. Vista-Quote, for example, aims to automate the request for quotation process, which can be a significant operational bottleneck. While specific metrics on efficiency gains or cost reductions from these digital tools are not provided, the strategic intent is to offer specialized software that addresses the particular needs of aviation businesses, potentially creating a competitive advantage through improved operational workflows and data utilization for customers. The company views Digital Solutions as a key long-term growth area, suggesting ongoing investment and development in this space.

Fiscal 2025 Performance: A Mixed Picture with Profitability Gains

Air T's consolidated revenue for the fiscal year ended March 31, 2025, increased modestly by 1.7% to $291.9 million, up from $286.8 million in the prior fiscal year. This growth was not uniform across segments, reflecting varying market conditions and operational dynamics. Despite the revenue headwind, consolidated operating income saw a significant 50.9% increase, rising from $1.3 million in fiscal 2024 to $1.9 million in fiscal 2025. This improvement was largely driven by a substantial increase in operating income within the Commercial Aircraft, Engines and Parts segment, which grew from $4.2 million to $7.1 million. This profitability gain in the segment was primarily attributable to increased sales of component packages with higher gross profit margins, effectively offsetting the impact of lower overall revenue.

The Overnight Air Cargo segment saw a 7% revenue increase to $124.0 million, primarily driven by higher labor revenues, increased administrative fees, and higher FedEx pass-through revenues resulting from increased billable hours for maintenance. The Ground Support Equipment segment's revenue rose 5% to $38.9 million, largely due to increased spare part sales and support services, although deicer sales growth was slight. The Digital Solutions segment demonstrated strong top-line growth, with revenue increasing 26% to $7.3 million, fueled by the continued acquisition of new and recurring software subscription customers.

Conversely, the Commercial Aircraft, Engines and Parts segment experienced a 6% revenue decrease to $118.2 million. This decline was attributed primarily to a lower supply of whole assets available for purchase for tear-down or resale in an increasingly competitive market, exacerbated by airlines keeping older aircraft in operation longer than in the past.

Consolidated Adjusted EBITDA also improved, increasing 18.9% from $6.2 million in fiscal 2024 to $7.4 million in fiscal 2025. Segment-level Adjusted EBITDA largely mirrored the operating income trends, with the Commercial Aircraft, Engines and Parts segment showing a strong $3.7 million increase to $9.8 million due to higher margins on sales. The Overnight Air Cargo segment's Adjusted EBITDA decreased slightly by $0.3 million, primarily due to lower operating income driven by increased bad debt provisioning and Puerto Rico taxes. The Ground Support Equipment segment's Adjusted EBITDA loss decreased by $0.2 million, reflecting the impact of higher sales. The Digital Solutions segment's Adjusted EBITDA loss increased by $0.4 million, attributable to increased personnel costs incurred to scale operations. The company's net non-operating loss increased by $1.7 million, primarily due to a $1.5 million increase in interest expense and $1.2 million in fair value changes on interest rate swap contracts not designated as effective hedges.

From a liquidity perspective, working capital decreased by $25.2 million compared to the prior year, driven mainly by a $22.2 million decrease in inventory. This inventory change was influenced by the timing of sales and purchases, as well as increased competition for acquiring aircraft and engines for tear-down. Net cash provided by operating activities increased by $6.3 million to $23.5 million in fiscal 2025, largely due to the favorable change in inventory, partially offset by a net change in accounts receivable. Net cash used in investing activities increased significantly by $17.7 million to $20.2 million, primarily due to $14.6 million in capital expenditures related to assets on lease in the Commercial Aircraft, Engines and Parts segment and $3.8 million in disbursements for notes receivable from Lendway (LDWY). Net cash used in financing activities decreased by $9.1 million to $4.8 million, reflecting increased proceeds and reduced payments on revolving lines of credit, partially offset by higher payments on term loans and lower proceeds from the issuance of Trust Preferred Securities (TruPs).

Strategic Maneuvers and Future Ambitions

Air T has been actively engaged in strategic initiatives aimed at strengthening its financial position, expanding its capabilities, and funding future growth. A significant development occurred subsequent to the fiscal year-end, on May 30, 2025, when the company entered into a Third Note Purchase Agreement with institutional investors. This agreement replaced a previous facility and provides for a potential aggregate principal amount of up to $100 million under a Multiple Advance Senior Secured Note. As of the closing date, $40 million had been advanced, with the investors committed to advancing an additional $60 million in $10 million increments periodically through May 30, 2027, subject to certain conditions. This substantial financing provides capital to support the company's growth ambitions, particularly in the capital-intensive commercial aircraft leasing and trading activities.

Further strategic moves include the acquisition of Royal Aircraft Services, LLC by the Mountain Air Cargo subsidiary on May 15, 2025, for approximately $1.1 million. This acquisition expands MAC's aircraft painting, maintenance, repair, and overhaul (MRO) services, enhancing its capabilities within the Overnight Air Cargo segment. In the Commercial Aircraft, Engines and Parts segment, a subsidiary entered into agreements on June 19, 2025, to sell two Airbus aircraft for an aggregate value exceeding $25 million, demonstrating activity in the asset trading aspect of the business. The company also launched Runway Aero Advisors LLC in January 2025, a new subsidiary focused on capital raising advisory services, intended to support both Air T's existing businesses and its joint ventures.

While Air T did not provide specific numeric guidance for fiscal year 2026, management indicated plans to continue investing in engine parts inventory, fund deicer builds, and expand commercial aircraft leasing and trading activities. The Ground Support Equipment segment provides some forward visibility with a backlog of $14.3 million as of March 31, 2025, all expected to be filled in fiscal year 2026, including confirmed orders for 16 deicers for delivery in the first quarter of fiscal 2026. The strategic focus remains on improving efficiencies, maintaining strong customer partnerships, and leveraging the diversified portfolio to drive long-term value creation and free cash flow growth. The new financing facility is a key enabler for these plans, providing capital flexibility for investments and potential acquisitions.

Risks on the Horizon

Despite strategic progress and profitability gains in certain segments, Air T faces notable risks that could impact its future performance and the investment thesis. A primary concern is the significant dependence of the Overnight Air Cargo segment on FedEx. Revenues from FedEx accounted for 39% of consolidated revenue in fiscal 2025. The dry-lease agreements with FedEx are short-term in nature, terminable by either party upon 90 days' notice (or 10 days for a specific aircraft). Crucially, FedEx has the right to terminate if 60% or more of MAC or CSA's revenue (excluding reimbursements) is derived from FedEx services, if FedEx becomes their only customer, or if employee counts fall below six. As of the filing date, FedEx was permitted to terminate under the 60% revenue provision, highlighting a material customer concentration risk. A reduction in the number of aircraft flown for FedEx or a termination of these contracts would have a material adverse effect.

The Commercial Aircraft, Engines and Parts segment is subject to significant market fluctuations driven by the health of the aviation industry, aircraft retirement cycles, and competition for assets. The recent revenue decrease in this segment underscores the challenge of acquiring whole assets in a competitive market where airlines are keeping older planes longer. The value of engines and parts can decline rapidly as host aircraft are retired, and the company faces risks in re-leasing or selling assets timely or on favorable terms upon lease termination. Repossessing assets upon lessee default can be difficult, expensive, and time-consuming, leading to lost revenue and increased costs.

Air T's leveraged capital structure, including various term loans and revolving credit facilities, exposes it to interest rate risk (though partially mitigated by swaps) and refinancing risk. The requirement to comply with financial and other covenants in its debt agreements limits operational flexibility, and a failure to comply could result in defaults and acceleration of debt. While management believes current liquidity and financing are sufficient for the next 12 months, future cash flows can fluctuate, and access to credit markets could be volatile. The significant investment in physical assets and securities that can be hard to sell in poor market conditions also poses a liquidity risk.

Other notable risks include potential liability claims arising from aircraft operations or products sold, the challenges of integrating acquired businesses, and the inherent risks of strategic ventures where the company may have limited control. Cybersecurity threats remain a concern, as demonstrated by a past ransomware attack, requiring ongoing investment in security measures to protect information systems and operations. Supply chain constraints and inflationary pressures experienced in fiscal 2025 could persist, impacting costs and margins. The holding company structure means the consolidated results are dependent on the performance of individual businesses, and an adverse change in one could materially affect the overall financial condition.

Conclusion

Air T's fiscal year 2025 results reflect a company actively executing a strategy of diversification and growth within the aviation ecosystem. Despite a revenue dip in the Commercial Aircraft, Engines and Parts segment due to market supply dynamics, improved margins in that segment, coupled with growth in Overnight Air Cargo and Digital Solutions, contributed to stronger operating income and Adjusted EBITDA. The recent securing of a significant potential financing facility and strategic acquisitions underscore management's commitment to funding future expansion, particularly in the capital-intensive aircraft asset management and MRO areas, aligning with the overarching goal of compounding free cash flow per share.

The investment thesis hinges on Air T's ability to successfully integrate its diverse operations, leverage its niche market positions, and effectively deploy capital from its new financing to drive profitable growth. Key factors to watch include the continued performance and market conditions in the Commercial Aircraft, Engines and Parts segment, the stability of the critical FedEx relationship, the successful integration and contribution of recent acquisitions, and the execution of the digital solutions growth strategy. While risks such as customer concentration, market volatility, and leverage warrant careful consideration, Air T's strategic evolution and recent financial maneuvers position it to pursue its ambition of enhancing shareholder value through a multi-faceted approach to the aviation industry.