Overview

Air T, Inc. is a holding company with a portfolio of operating businesses and financial assets. The company operates in four industry segments: overnight air cargo, ground equipment sales, commercial aircraft, engines and parts, and corporate and other. Each business segment has separate management teams and infrastructures that offer different products and services.

The company’s goal is to prudently and strategically diversify Air T’s earnings power and compound the growth in its free cash flow per share over time. Air T evaluates the performance of its business segments based on operating income and Adjusted EBITDA.

Financial Performance

In the third quarter of fiscal 2025, Air T’s consolidated revenue increased by 22.2% to $77.9 million compared to the same quarter in the prior fiscal year. This was driven by strong performance across all of the company’s business segments:

• Overnight air cargo revenue increased 5.4% to $30.6 million due to a larger fleet of aircraft.
• Ground equipment sales revenue grew 40.3% to $11.8 million, with higher deicing truck sales and increased parts and service revenue.
• Commercial jet engines and parts revenue rose 35.4% to $32.7 million, primarily from higher component sales at Contrail.
• Corporate and other revenue increased 27.6% to $2.8 million, mainly from growth in software subscriptions at Shanwick.

Consolidated operating income for the quarter was $1.8 million, compared to an operating loss of $1.6 million in the prior year quarter. This improvement was driven by the higher revenues as well as improved profitability in the ground equipment sales and commercial jet engines and parts segments.

However, the company’s net non-operating loss increased to $2.7 million, up from $0.3 million in the prior year quarter. This was due to higher interest expense and foreign currency exchange losses, as well as lower income from equity method investments.

For the first nine months of fiscal 2025, Air T’s consolidated revenue increased 5.3% to $225.5 million. Overnight air cargo revenue grew 8.5%, ground equipment sales was up 3.6%, and commercial jet engines and parts increased 1.5%. Consolidated operating income for the nine-month period was $5.1 million, compared to an operating loss of $0.2 million in the prior year period.

Segment Analysis

The overnight air cargo segment saw revenue increase in both the third quarter and first nine months of fiscal 2025, driven by a larger fleet of aircraft. However, operating income remained relatively flat as higher margins in flight operations were offset by lower margins in maintenance revenue due to increased costs.

The ground equipment sales segment returned to profitability in the third quarter, generating $0.2 million in operating income compared to a $0.5 million loss in the prior year quarter. This was despite only a modest 3.6% increase in revenue for the first nine months, as changes in customer and product mix impacted overall profitability. The segment’s order backlog grew to $12.9 million at the end of December 2024.

The commercial jet engines and parts segment was the standout performer, generating $2.6 million in operating income in the third quarter compared to a $0.6 million loss a year earlier. For the first nine months, operating income more than tripled to $7.4 million, driven by higher profit margins on component part sales at Contrail.

The corporate and other segment continued to report operating losses, which increased to $2.9 million in the third quarter and $7.6 million for the first nine months, primarily due to higher health insurance claims expenses.

Strengths and Weaknesses

Air T’s key strengths include the diversification of its business segments, which has helped offset weakness in certain areas. The strong performance of the commercial jet engines and parts segment, particularly Contrail, has been a major driver of the company’s improved profitability.

However, the corporate and other segment’s ongoing losses remain a drag on the company’s overall results. The overnight air cargo segment’s flat operating income, despite higher revenues, also points to challenges in managing costs and maintaining margins in that business.

Additionally, the company’s high debt levels and rising interest expense are a concern, with net non-operating losses increasing significantly in the third quarter. Air T will need to carefully manage its capital structure and liquidity to support its growth initiatives.

Outlook and Risks

Looking ahead, Air T faces a number of risks and uncertainties that could impact its future performance. These include the potential for further economic and industry disruptions, the risk of contract terminations or reductions with key customers like FedEx, and the possibility of reduced demand for deicing equipment due to mild winter weather.

Cybersecurity threats also pose a significant risk, as breaches could result in financial losses, reputational damage, and operational disruptions. The company will need to continue investing in robust security measures to mitigate these threats.

Inflation and rising interest rates also present challenges, as they could squeeze margins and increase the company’s borrowing costs. Air T will need to closely monitor these macroeconomic developments and adjust its strategies accordingly.

Despite these risks, the company appears well-positioned to continue growing its core businesses, particularly the commercial jet engines and parts segment. Maintaining a disciplined approach to capital allocation and cost management will be crucial to navigating the uncertain environment and delivering value to shareholders over the long term.

Conclusion

In summary, Air T delivered a solid financial performance in the third quarter and first nine months of fiscal 2025, with strong revenue growth and improved profitability across most of its business segments. The commercial jet engines and parts division, led by Contrail, has been a standout performer, offsetting ongoing challenges in the corporate and overnight air cargo segments.

However, the company’s high debt levels and rising interest expenses are a concern, and it faces a number of risks and uncertainties that could impact future results. Prudent management of costs, capital, and cybersecurity threats will be essential as Air T works to compound the growth in its free cash flow per share over time.