Business Overview and History
Air Industries Group (AIRI) is a leading manufacturer of precision components and assemblies for large aerospace and defense prime contractors. With a rich history dating back to 1941, the company has firmly established itself as a trusted supplier of mission-critical parts and assemblies for some of the most prominent military and commercial aviation platforms.
Air Industries’ roots can be traced back to the World War II era, when the company produced parts for fighter aircraft. Since then, it has maintained an impeccable track record, with no known incidents of part failure leading to a fatal mission. The company became a public entity in 2005, marking a significant milestone in its growth trajectory. Today, the company’s product portfolio includes landing gear, flight controls, engine mounts, and components for aircraft jet engines, ground turbines, and other complex machines.
The majority of Air Industries’ net sales are generated from contracts with large defense and aerospace prime contractors, with a diverse customer base that includes subsidiaries and business units of these prime contractors. The ultimate end-users for most of their products are the U.S. government, foreign governments, and commercial global airlines. The company’s products are used in high-profile platforms such as the F-18 Hornet, E-2 Hawkeye, UH-60 Black Hawk Helicopters, Geared Turbo Engines, CH-53 Helicopter, F-35 Lightning II, and F-15 Eagle Tactical Fighter, among others. In many cases, Air Industries is the sole or single supplier of certain parts and components, further highlighting its strategic importance to its customers.
Air Industries has maintained long-standing relationships with major aerospace and defense prime contractors, such as RTX (which includes Collins Landing Systems and Collins Aerostructures), Lockheed, and Northrop Grumman. The company operates two state-of-the-art manufacturing centers in the U.S., allowing for rigorous oversight of production and adherence to stringent quality standards.
In recent years, Air Industries faced significant financial and operational challenges. However, the company strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster its competitive position. These investments have improved the productive capacity of its employees, increased efficiency and speed, and expanded the size of products the company can manufacture. Additionally, Air Industries expanded its sales and marketing efforts, with a focus on expanding relationships with existing customers and cultivating new ones.
Fiscal 2023 marked a year of overall progress and positioning for growth for Air Industries. The company achieved several milestones, including securing new contract awards, improving operations, and successfully executing on existing programs. Despite these accomplishments, Air Industries faced setbacks such as a material weakness in its internal controls over financial reporting related to its IT systems, which had yet to be remediated as of the end of 2023.
Financial Performance and Liquidity
In the latest reported nine-month period ended September 30, 2024, Air Industries generated net sales of $40.19 million, a 5.6% increase compared to the same period in the prior year. This growth was driven by changes in the mix of products requested by customers. Gross profit during this period improved significantly, rising by 23% to $6.49 million, with the gross profit margin expanding from 13.9% to 16.2%, due to improved operational efficiencies and shifts in product mix.
For the most recent quarter (Q3 2024), Air Industries reported revenue of $12.55 million, representing a 2.1% year-over-year growth. The company’s net loss for Q3 2024 was $404,000, showing a substantial improvement from the prior year. The improvement in net income and cash flow was due to increased gross profit of $713,000, a 58% increase compared to Q3 2023, driven by changes in product mix and improved operating efficiencies.
Operating expenses in Q3 2024 decreased by 7.4% compared to Q3 2023, contributing to a substantial improvement in operating income, from a loss of $796,000 in Q3 2023 to a profit of $67,000 in Q3 2024. Adjusted EBITDA also saw significant improvement, up $898,000 in Q3 2024 and $1,134,000 in the first 9 months of 2024 compared to the prior year periods.
For the full fiscal year 2023, Air Industries reported revenue of $51.52 million, with a net loss of $2.131 million. The company generated operating cash flow (OCF) of $4.86 million and free cash flow (FCF) of $2.74 million in 2023.
The company’s liquidity position remains a concern, with total debt outstanding as of September 30, 2024, standing at $24.98 million, up from $23.31 million at the end of 2023. This debt includes $16.84 million under its current credit facility and $6.16 million in related party subordinated notes. Air Industries’ cash balance as of September 30, 2024, was $186,000, with an available credit line of $8.56 million under its $20 million revolving credit facility.
Air Industries is currently in compliance with the covenants under its primary credit facility, which was recently amended to provide more favorable terms. However, the company has classified a portion of its long-term debt as current due to the possibility of failing to meet certain covenants in the future, which raises substantial doubt about its ability to continue as a going concern.
The company’s debt-to-equity ratio stands at 1.70, while its current ratio is 1,440.36, and its quick ratio is 302.48. These ratios indicate a high level of leverage and potential liquidity challenges, although the current and quick ratios suggest the company has sufficient short-term assets to cover its immediate liabilities.
Operational Highlights and Strategic Initiatives
Air Industries has strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster its competitive position. These investments have improved the productive capacity of its employees, increased efficiency and speed, and expanded the size of products the company can manufacture.
One of the key highlights for Air Industries during the period was the receipt of a $110 million, 7-year contract to produce Thrust Struts for the Geared Turbo-Fan (GTF) aircraft jet engine. This contract, which commenced in January 2025, replaced and expanded an existing contract set to expire in December 2024. The company has been the sole supplier of this critical component since 2015, and the new contract is expected to significantly benefit annual sales once production and deliveries begin.
Outlook and Risks
For fiscal 2024, Air Industries has reaffirmed its target of achieving at least $50 million in net sales, with Adjusted EBITDA expected to significantly surpass 2023 levels. For fiscal year 2025, the company believes revenues will be “essentially consistent” with 2024, but with improvements in gross margins and operating income.
The company’s backlog of undelivered, fully-funded customer orders surpassed $105 million as of September 30, 2024, marking a 4% increase since June 30, 2024, and a 22% rise since January 1, 2023. The company’s book-to-bill ratio, which measures new bookings relative to net sales, increased to nearly 1.40x for the trailing twelve months ended September 30, 2024, well above the industry standard of 1.2x.
The aerospace and defense industry is expected to see increased demand in the coming years as the U.S. military modernizes its fleet and addresses deferred maintenance. Air Industries is well-positioned to benefit from these trends given its long-standing relationships with key customers and its focus on continuous improvement.
However, Air Industries faces several risks that could impact its future performance. The company’s operations are heavily dependent on a limited number of large customers, primarily in the defense and aerospace sectors. Any disruptions or changes in the spending patterns of these customers could have a significant effect on the company’s financial results. Additionally, the company’s reliance on sole-source suppliers for critical raw materials and the potential for supply chain disruptions pose risks to its operations.
Furthermore, Air Industries’ ability to comply with the financial covenants under its credit facility remains a concern, as the company has classified a portion of its long-term debt as current due to the possibility of failing to meet these covenants in the future. This raises substantial doubt about the company’s ability to continue as a going concern, which could have far-reaching implications for its business and financial position.
Conclusion
Air Industries Group has a rich history and a well-established position as a trusted supplier of mission-critical components and assemblies to the aerospace and defense industries. The company’s recent operational and financial improvements, coupled with its sizable backlog and strong book-to-bill ratio, suggest a positive outlook for fiscal 2024 and 2025. However, the risks associated with its customer concentration, supply chain dependencies, and potential covenant compliance issues underscore the need for ongoing vigilance and prudent management. As Air Industries navigates these challenges, its ability to execute its strategic initiatives and maintain its competitive edge will be crucial to its long-term success.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.