Air T, Inc. (NASDAQ:AIRT) is a diversified holding company with a portfolio of operating businesses and financial assets. The company operates in four key segments: overnight air cargo, ground equipment sales, commercial jet engines and parts, and corporate and other. Despite facing headwinds, Air T has demonstrated resilience and a commitment to prudent strategic diversification to compound its growth in free cash flow per share over time.

Business Overview

Air T's overnight air cargo segment operates in the air express delivery services industry, providing transportation and related services to FedEx. The ground equipment sales segment manufactures and provides mobile deicers and other specialized equipment products to airlines, airports, the military, and industrial customers. The commercial jet engines and parts segment manages and leases aviation assets, supplies surplus and aftermarket commercial jet engine components, and provides commercial aircraft disassembly/part-out services, procurement services, and overhaul and repair services. The corporate and other segment acts as the capital allocator and resource for the company's other consolidated businesses.

Financial Performance

For the fiscal year ended March 31, 2023, Air T reported annual revenue of $286,834,000, a net loss of $6,819,000, annual operating cash flow of $17,178,000, and annual free cash flow of $16,102,000. The company's quarterly performance has been mixed, with the third quarter of fiscal 2024 (the quarter ended December 31, 2023) seeing a 3.8% increase in revenue to $63,756,000 compared to the prior-year quarter, but a consolidated operating loss of $1,608,000 compared to operating income of $135,000 in the prior-year quarter.

Segmental Performance

The overnight air cargo segment saw a 32.9% increase in revenue in the third quarter of fiscal 2024 compared to the prior-year quarter, driven by higher administrative fees, increased pass-through revenues from FedEx, and higher maintenance and outside customer revenue. The ground equipment sales segment, however, experienced a 47.7% decrease in revenue due to a lower number of deicing trucks sold. The commercial jet engines and parts segment contributed $24,139,000 in revenue, an 11.1% increase compared to the prior-year quarter, primarily due to higher pass-through revenue at the company's Worthington Aviation subsidiary.

Liquidity

As of December 31, 2023, Air T held approximately $5.2 million in cash and cash equivalents and restricted cash, and had an aggregate of $35.5 million in available funds under its lines of credit. The company's working capital amounted to $44.5 million, a decrease of $7.7 million compared to March 31, 2023. Air T has been actively managing its liquidity, including raising $7.3 million in additional funds through the sale of trust preferred securities and implementing cost reduction measures.

Risks and Challenges

Air T faces several risks and challenges, including the potential termination or adverse modification of its contracts with FedEx, a reduction in the number of aircraft operated for FedEx, and the deferral or reduction of significant orders for deicing equipment by its customers. The company is also exposed to the impact of inflation, rising interest rates, and supply chain disruptions, which have directly affected the performance of its ground equipment sales segment.

Outlook

The company has not provided specific financial guidance for the upcoming fiscal year. However, management has expressed cautious optimism about the company's ability to navigate the current economic and business environment, citing the successful execution of its liquidity management plans and the ongoing diversification of its business portfolio.

Conclusion

Air T, Inc. is a diversified holding company that has demonstrated resilience in the face of various challenges. While the company's recent financial performance has been mixed, with the overnight air cargo segment showing strength and the ground equipment sales segment facing headwinds, Air T's management team remains focused on prudent strategic diversification and compounding growth in free cash flow per share over time. Investors should closely monitor the company's ability to navigate the evolving market conditions and execute on its long-term growth strategy.