Item 1. Business
ITEM 1. BUSINESS
Introduction
We believe we are one of the leading manufacturers
of precision components and assemblies for large aerospace and defense prime contractors. Our products include landing gears, flight controls,
engine mounts and components for aircraft jet engines, ground turbines and other complex machines. The ultimate end-user for most of our
products is the U.S. Government, international governments, and commercial global airlines. Whether it is a small individual component
for assembly by others or complete assemblies we manufacture ourselves, our high quality and extremely reliable products are used in mission
critical operations that are essential for safety of military personnel and civilians.
We specialize in the aerospace and defense markets,
operating within a hierarchical network of suppliers. At the top of the supply chain pyramid is the prime contractor, also known as an
Original Equipment Manufacturer (“OEM”). A prime contractor designs, develops and produces the final product for the end-user.
We play a critical role in this ecosystem, operating as a “Tier One” supplier, delivering our products directly to prime contractors,
or as a “Tier Two” supplier, providing larger complex components to others. In some cases, we ship products directly to the
U.S. Government. Our strategic position has made us a key partner for many prominent defense prime contractors and global commercial aviation
manufacturers, often leading us to become the exclusive or primary supplier for certain high precision parts and assemblies. We often
receive Long-Term Agreements (“LTAs”) from our customers, demonstrating their commitment to us.
We are renowned for our unwavering commitment
to genuine quality and exceptional reliability. Our rich history dates to 1941, producing parts for World War II fighter aircraft. Since
then, we have maintained an impeccable record with no known incidents of part failure leading to a mission failure resulting in a fatality.
In an era plagued by foreign counterfeit parts, we strategically operate all our facilities within the United States. Our two state-of-the-art
manufacturing centers located in Long Island, New York, and Barkhamsted, Connecticut, allow for rigorous oversight of production and adherence
to stringent quality standards. Spanning over 150,000 square feet, our manufacturing centers serve as the operational hubs for our three
legal subsidiaries, Air Industries Machining, (“AIM”) Nassau Tool Works (“NTW”) and Sterling Engineering Company
(“STE”).
For the past several years we have strategically
invested substantial amounts in new capital equipment, tooling, and processes to bolster our competitive position. Additionally, we expanded
our sales and marketing efforts, with a sharp focus on expanding relationships with customers and cultivating new ones.
We finished 2025 with $47.9 million of net sales.
Our backlog, which represents the value of all funded orders received, stood at $136.8 million an increase of 16.0% as compared to our
backlog on December 31, 2024. On the bottom-line, we reported a net loss of $1.3 million. As we enter fiscal 2026, we believe our future
is looking brighter.
Our business strategy is geared towards competing
and winning contracts that enable us to achieve sustainable and profitable business growth and delivering high quality reliable products
to our customers. At its core, lies a highly trained and close-knit team of 160 individuals committed to driving excellence and precision
in every aspect of our operations. We are firmly focused on securing new contract awards, improving operations and successful execution.
As of December 31, 2025, we have total unfilled contract values amounting to $270.1 million (including our $136.8 million in funded backlog
and all potential orders against LTA agreements previously awarded to us).
As discussed below under “Recent Developments” our go-forward
business may materially change.
Recent Developments
On February 17,
2026, we filed a Current Report on Form 8-K (the “Merger 8-K”) with respect to the Agreement and Plan of Merger (the
“ Merger Agreement ”) we and Transitory Air Sub LLC , our wholly
owned subsidiary (“ Merger Sub ”), entered into on February 16, 2026, with Tenax Aerospace Acquisition, LLC, a
Delaware limited liability company (“ Tenax ”). Upon consummation of the Merger Agreement, Tenax will become a
wholly owned Subsidiary of AIR. Tenax is a leading provider of special mission aviation solutions that combine aircraft sourcing,
financing and modification with aviation services including pilots, maintenance and other types of program support. Additionally,
they have long standing relationships with key government customers.
1
Pursuant to the Merger
Agreement, we will issue shares of our common stock (the “ Merger Consideration ”) to the holders of the membership interests
of Tenax at the Closing (the “ Tenax Members ”). A portion of the Merger Consideration allocated in respect of membership
interests of Tenax underlying certain Tenax warrants that remain unexercised as of the Closing, if any, will be reserved by us for future
issuance upon the exercise of such warrants. The number of shares of our common stock to be issued to the Tenax Members will be adjusted
based on a calculation of AIR Net Indebtedness (as defined in the Merger Agreement). Based on the amount of Air Net Indebtedness as of
December 31, 2025, the calculation would result in the issuance of approximately 112.5 million shares of AIR Common Stock. Consequently,
based upon the calculation of the Merger Consideration as of December 31, 2025, following the closing of the Merger, the Tenax Members
will collectively own approximately 95% of the outstanding shares of our Common stock.
For a more complete description
of the Merger Agreement, transactions to be consummated, actions to be taken and agreements entered into or to be entered in connection
therewith, reference is made to the Merger 8-K and the full text of the Merger Agreement and the documents that are exhibits thereto which
are incorporated herein by reference.
The closing of the
merger contemplated by the Merger Agreement (the “Merger”) is subject to risks and uncertainties and certain specified
conditions, including, among other things: (a) the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act, (b) the listing of the Merger Consideration on the NYSE American, and (c) other customary conditions for
a transaction such as the Merger, such as the absence of any legal restraint prohibiting the consummation of the Merger and there
not having occurred with respect to AIR or Tenax’s business a material adverse event, subject to certain customary
exceptions.
Except where specifically noted, the discussion of our business, operations, management team and financial results contained
herein, gives no effect to changes that would occur as a result of or subsequent to the consummation of the Merger.
Customer Profiles
In 2025 and 2024, approximately 58.3% and 69.9%
of our net sales were attributed to customers who use our products for end-use on military aircraft. The rest of our net sales are attributable
to commercial aviation uses and, to a much lesser extent, ground power electricity generation and other uses.
We have cultivated long-standing relationships
with many large and well-known customers including:
●
RTX Corporation (“RTX” ) – a multinational aerospace and defense conglomerate and a major player in the aerospace and defense industry. We sell to several business units and/or subsidiaries of RTX, including Collins Aerospace (which includes Collins Landing Systems and Collins Aerostructures) and Pratt Whitney. RTX was formerly known as Raytheon Technologies Corporation and prior to that United Technologies Corporation.
●
Lockheed Martin Corporation (“Lockheed Martin”) – Lockheed Martin is a leading global security and aerospace company with its principal customers being agencies of the U.S. Government. We sell directly to one of its subsidiaries, Sikorsky Aircraft Corporation (“Sikorsky”).
●
Northrop Grumman (“Northrop”) – We supply product used on the E2-D Hawkeye, airborne warning and control aircraft.
●
General Electric Aerospace (“GE”) – We supply GE Aerospace with high precision components that are used in jet turbine aircraft engines that are used on several commercial aircraft platforms.
●
GE Verona – We supply GE Verona with precision components that are used in ground-based turbines for electrical power generation.
●
The U.S. Government – We supply certain components and assemblies directly to the Defense Logistics Agency (“DLA”), a combat support agency within the U.S. Department of Defense (“DoD”). The DLA’s mission is to manage the end-to-end global defense supply chain and deliver readiness to the warfighter. It supports all five U.S. military services, federal, state, and local agencies, as well as partner and allied nations. The DLA procures items from us and provides them, as it deems fit, to other suppliers who assemble them into finished products.
2
Platform and Program Profiles
Most of our machined components and assemblies
are integral to high-profile platforms and named programs. Platforms generally refer to equipment that is utilized in missions or operations
whereas programs are broader initiatives and can encompass the development and production of new platforms, upgrades to existing systems
and other initiatives. The following platforms and programs (ranked in descending order by their 2025 net sales), accounted for 79.7%
and 79.3% of our net sales in 2025 and 2024, respectfully:
●
Pratt & Whitney Geared Turbo-Fan Engine (“GTF”): Used in commercial aviation, the GTF represents a new generation of jet engines that offer improved fuel efficiency, reduced emissions, and lower noise levels compared to traditional turbofan engines. We manufacture Thrust Struts, a critical component that essentially absorbs and distributes the forward thrust produced by the jet engine, ensuring that the force is evenly applied across the structure of the aircraft to maintain stability and integrity during takeoff, cruising and landing. We supply our Thrust Struts to Collins Aerostructures for integration into Geared Turbofan engines, utilized by smaller airlines such as those operating the Airbus A220 and Embraer E2 aircraft. Demand for these engines increased in 2025, thus reducing the concentration in the net sales attributable to military end users. Demand for these engines is anticipated to increase over the next few years.
●
UH-60 Black Hawk Helicopter : We supply flight critical components, such as the primary flight control assembly and the tail-rotor gearbox, for the UH-60 Black Hawk Helicopter. Serving as the primary helicopter for the U.S. Army, it fulfills essential roles in transport, troop movement, medical evacuation and cargo lift operations. Manufactured by Sikorsky, it includes many variants and is also utilized by other branches of the U.S military and U.S. allied countries. Since entering service in 1979, over 4,000 helicopters have been produced. Deployment of new helicopters is projected to continue through at least 2027, with ongoing sustainment activities anticipated for many years thereafter.
●
The CH-53 Helicopter (including the CH53K variant): Developed in the 1960s and manufactured by Sikorsky, the CH-53 is recognized as the largest and most powerful helicopter in the U.S. military. It has evolved through several variants, with hundreds delivered and used by the U.S. Marine Corps. In 2021, we secured a LTA to supply Chaff Pods for the CH-53K, the latest iteration in the CH-53 series. These pods deploy metallized strips to generate false radar targets, safeguarding the helicopters from missile threats. The CH-53K plays a crucial role in the U.S. Marine Corps’ plans to support a wide range of current and future operations. In 2024 we received a purchase order to manufacture Swashplates and Hubs to be used on the CH-53K.
●
The E-2D Hawkeye: We provide the main and nose landing gear, as well as the arresting gear for the E-2D Hawkeye, a twin-engine, tactical aircraft utilized for providing advanced airborne warning and control for carrier-based operations. Often referred to as the “digital quarterback,” it conducts battlefield management and command and control operations for aircraft carrier strike groups. While primarily used by the U.S. Navy, a small number have been sold to U.S. allies, notably Japan.
●
The F-35 Lightning II (also known as the Joint Strike Fighter): Manufactured by Lockheed Martin, the Joint Strike Fighter is a stealth fighter aircraft designed to replace the U.S. Air Force F-15 and the U.S. Navy and Marine Corps F-18 fighters. It includes three variants: the conventional take-off and landing F-35A, the short take-off and vertical landing F-35B, and the carrier based variant F-35C. We have produced landing gear components for all three variants and currently manufacture landing gear components for the US Navy version. The production of this aircraft is expected to continue for many years, with the DoD aiming for an inventory objective of 2,456 aircrafts, in addition to expected demand from other countries.
3
●
F-18 Hornet: The F-18 Hornet, the U.S. Navy’s primary fighter aircraft, principally operates from aircraft carriers and enjoys international use, notably in Finland and Australia. Originating in the late 1960s, it has seen numerous upgrades and enhancements over the years. We manufacture complete landing gear components for several variants, supplying these to the U.S. government or Tier 1 or other suppliers for spares that go on the aircraft that were originally produced by Boeing.
●
The F-15 Eagle Tactical Fighter: We provide landing gear components for the F-15 Eagle Tactical Fighter. Originally designed for the U.S. Air Force, it is known as a dedicated air superiority fighter. Currently manufactured by Boeing, it was designed in the late 1960s with over 600 aircraft estimated to be in service. The F-15 has been exported to various countries including Israel, Saudi Arabia and Japan. Although it is anticipated that this plane will be ultimately replaced by the Joint Strike Fighter, we believe it will be flying for years to come. It boasts an impeccable combat record. We ship most of our components directly to the U.S. DoD.
Our Market
The aerospace and defense industry is dominated
by a select few large prime contractors including Airbus, Boeing, General Electric, Lockheed Martin, Northrop Grumman, and RTX. These
prime contractors oversee large platforms and programs for ultimate end-user, the U.S. government, foreign governments or global aviation
companies.
Once a supplier is chosen and integrated into
a platform or selected for a specific program, replacing them becomes a complex challenge. In many cases, suppliers often become the sole
or single source. Being a sole source means being chosen as the exclusive supplier by the customer, whereas being a single source indicates
that, despite the availability of other potential manufacturers, only one supplier is currently used. This scenario of single or sole
sourcing is especially prevalent with legacy aircraft. While prime contractors generally prefer multiple sources for new aircraft production
lines to mitigate single points of failure, utilizing a single vendor can lead to higher production volumes, lower average unit costs,
and opportunities for quality improvements.
Demand for both defense and commercial aviation
components is based on new production and subsequent maintenance, repair and overhaul (“MRO”). Flight critical components
are frequently replaced on aircraft on a flight time, or flight cycle basis. The demand for MRO and after-market products can continue
for many years, even decades, after the production line for new aircraft is shut down.
At a high level, we are able to monitor the DoD
budget for both new production and operations and maintenance components as well as industry reports to gauge overall industry spending.
While large U.S. Government programs are managed through specific budget lines and oversight structures, most, if not all, of our machine
parts and assemblies are not explicitly identified in the U.S. Government budget. Therefore, predicting period-to-period demand with precision
is challenging. While we primarily rely on our customers to help us project short-term and long-term demand, the timing of receipt of
contract awards and related orders is difficult to predict. Consequently, comparative period-to-period net sales for any customer or program
may not be meaningful.
Sales and Marketing
Sales and marketing activities during 2025 were
robust, resulting in a book-to-bill ratio of 1.36x, growth in our funded backlog to $136.8 million and total unfilled contract values
amounting to $270.1 million (including our $136.8 million funded backlog and all potential orders against LTA agreements).
We primarily rely upon a small team of highly
skilled sales and business development professionals with extensive industry experience with hands-on support from management. Our goal
is to cultivate customer relationships akin to partnerships and the concept of customer alignment. For example, our customers heavily
rely on suppliers to deliver high-quality parts that meet specifications in a timely and cost-effective manner. They regularly assess
suppliers based on various quantitative criteria such as on-time delivery performance, defect rates, adherence to specifications, cost
performance, lead times, order processing time, stockout rates, and similar metrics. Therefore, one of our primary objectives is to maintain
high ratings and leverage these metrics in our sales and marketing activities.
4
Our sales cycle varies significantly, ranging
from a few weeks to over a year, depending on the complexity of the product and manufacturing steps involved. While customers may occasionally
engage in spot buys, most of our orders (also known as bookings) stem from LTAs. LTAs outline the quantity and price of products the customer
may order within a specified time frame. When actual products are needed, the customer places a funded order against the LTA. The value
of this funded order is included in our funded backlog until we ship it. Although cancellations of funded orders are possible, customers
are usually subject to termination liability, necessitating payment to us for costs incurred up to the termination date. In certain termination
cases, the customer is also required to pay us a reasonable profit.
We secure new or follow-on LTAs through competitive
bidding in response to a customer’s Request for Quotation (“RFQ”). These proposals detail prices based on quantities,
which may vary annually, for shipments over multiple years. The bidding process typically entails several rounds of submissions and negotiations
before an award is granted. For defense products, in certain cases, LTAs may be awarded or extended without an RFQ or competitive bidding.
In such cases, pricing may be determined through cost analysis or audit with ultimate approval by the customer or the U.S. government.
Bookings and Backlog
Bookings represent funded orders secured during
a given financial period. In fiscal 2025, bookings were $65,000,000, a 8.5% decrease compared to $71,000,000 in 2024. Our “book-to-bill”
ratio, which is our bookings divided by net sales, was 1.36x for 2025, an improvement over the 1.29x ratio of 2024. Although bookings
are subject to wide variations in timing, resulting in period-to-period comparisons not necessarily being meaningful, we do use bookings
and our book-to-bill as a gauge of future net sales.
Our backlog, which can be considered our “funded
backlog,” stood at $136.8 million as of December 31, 2025, marking a 16.0% increase from $117.9 million on December 31, 2024. This
represents the net sales we expect to realize from funded orders received and is equivalent to our remaining performance obligations pursuant
to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. These funded orders, approved by
customers, come from LTAs, spot-buys, or other contracts and are for essential machined components and assemblies used in the key platforms
and programs we serve. Our definition provides visibility into the value of all firm orders. The bulk of our $136.8 million backlog is
expected to ship over the next 24 months. but does not include possible or probable future orders pursuant to existing LTAs or probable
contract renewals that would also contribute sales during such period. The total potential net sales under contracts actually awarded
to us as of December 31, 2025, was $270.1 million, including the value of our existing funded backlog of $136.8 million.
Competition
Winning a new contract award is highly competitive.
Not only must we have the capabilities to manufacture to customer design specifications, but we compete against companies that have greater
financial, physical and technical resources. Our ability to win new contracts generally requires us to become a trusted partner to the
customer by having the capabilities to deliver superior quality product, more quickly and with lower pricing than our competitors. Accordingly,
we must continually invest in process improvements and capital equipment.
In recent years, we have strategically made significant
investments to enhance our competitiveness and market position. For example, in fiscal 2025 and 2024, we invested $3,322,000 and $2,301,000
in new property and equipment to support our goals. These investments have enabled us to increase production efficiency and speed, while
maintaining closer tolerances, have expanded the size of products we can manufacture and have been appreciated by our customers. Any investment
in 2026 will be at a much lower level.
Our competitors include: Monitor Aerospace, a
division of GKN Aerospace; Hydromil, a division of Triumph Aerospace Group; Heroux Devetek and Ellanef Manufacturing, a division of Magellan
Corporation.
Manufacturing, Raw Materials and Replacement
Parts
Our production cycle spanning from ordering raw
materials to delivering finished products, can vary from several weeks to over a year. Consequently, for certain products, especially
those involving finished assemblies, we must procure significant amounts of raw materials and begin processing well ahead of actual ship
dates. This underscores the importance of efficient subcontract management in meeting customer delivery deadlines. In some cases, customers
may provide us with raw materials as they may be able to obtain better processing or delivery schedules from other suppliers and in other
cases the customer chooses to rely on us to manage suppliers.
5
The price and availability of many raw materials
in the aerospace industry are susceptible to fluctuations in global markets and political conditions. Most raw material suppliers are
hesitant to commit to long-term contracts at fixed prices, posing a substantial risk given our strategy often entails entering into LTA
agreements which require us to commit to long-term price commitments. However, many of our LTAs provide pricing protection when there
is a large increase in the cost of raw materials.
Employees
As of March 7, 2026, we employed 160 people. Of
these, 89 were involved in manufacturing and production activities, 20 were in quality control, 45 were in administration, and the remaining
6 were in sales and procurement. All of our employees are covered under a co-employment agreement with Insperity Services, LLC, a professional
employer organization. This arrangement allows us to provide employees with comprehensive benefits at a lower cost than we could provide.
Our AIM subsidiary has a collective bargaining
agreement with the United Service Workers, IUJAT, Local 355 (the “Union”). This agreement is effective until December 31,
2027 and covers the majority of AIM’s 125 personnel. The agreement requires us to make specified contributions to the Union’s
United Welfare Fund and Unted Service Worker’s Security Fund which provide pension benefits to our employees. We are not obligated
to provide any additional pension benefits to our employees. Additionally, the collective bargaining agreement contains a “no-strike”
clause, and a “no-lock-out” clause. We believe we maintain good relationships with the Union.
Regulations
We believe that we are in compliance with all
federal, state and local laws and regulations governing our operations and have obtained all material licenses and permits required for
the operation of our business. The key regulations impacting our business are further discussed below:
Environmental Regulation and Employee
Safety : We are subject to regulations administered by the United States Environmental Protection Agency, the Occupational
Safety and Health Administration, various state agencies and county and local authorities acting in cooperation with federal and state
authorities. Among other things, these regulatory bodies impose restrictions that require us to control air, soil and water pollution,
to protect against occupational exposure to chemicals, including health and safety risks, and require notification or reporting of the
storage, use and release of certain hazardous chemicals and substances. This regulatory framework imposes compliance burdens and financial
and operating risks on us. Governmental authorities have the power to enforce compliance with these regulations and to obtain injunctions
or impose civil and criminal fines in the case of violations.
The Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (“CERCLA”) imposes strict, joint and several liabilities on the present and former owners and operators
of facilities that release hazardous substances into the environment. The Resource Conservation and Recovery Act of 1976 (“RCRA”)
regulates the generation, transportation, treatment, storage and disposal of hazardous waste. New York and Connecticut, the states where
our production facilities are located, also have stringent laws and regulations governing the handling, storage and disposal of hazardous
substances, counterparts of CERCLA and RCRA. In addition, the Occupational Safety and Health Act, which requires employers to provide
a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to employees,
obligates employers to provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of
such substances.
6
Federal Aviation Administration:
We are subject to regulation by the Federal Aviation Administration (“FAA”) under the provisions of the Federal Aviation Act
of 1958, as amended. The FAA prescribes standards and licensing requirements for aircraft and aircraft components. We are subject to inspections
by the FAA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations.
Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts,
which could have a material adverse effect on our operations. We have never been subject to such fines or disqualifications.
Federal Acquisition Regulations:
All our U.S government contracts and those of many of our customers are subject to the procurement rules and regulations of the Federal
Acquisition Regulations. As such, many of our LTA agreements require us to adhere to these rules and regulations. During and after the
fulfillment of a government contract, we may be audited in respect of the direct and allocated indirect costs attributed to the project.
These audits may result in adjustments to our contract costs. Additionally, we may be subject to U.S. government inquiries and investigations
because of our participation in government procurement. Any inquiry or investigation can result in fines or limitations on our ability
to continue to bid for government contracts and fulfill existing contracts.
More Information About Our Business and
Where to Find It
Our Internet website is AirIndustriesGroup.com,
at which you can find our filings with the SEC, including press releases, annual reports, quarterly reports, current reports, and any
amendments to those filings. We also use our website to disseminate other material information to our investors. We also make announcements
regarding company developments and financial and operating performance through social media channels such as at LinkedIn.com/company/air-industries-group
to communicate with customers and the public about our Company, our products, services, and other issues. Among other things, we post
on our website and social media channels information about our public conference calls (including the scheduled dates, times and the methods
by which investors and others can listen to those calls), and we make available for replay webcasts of those calls and other presentations
for a limited time. Information and updates about our Annual Meetings will also be posted on our website including on the “Home
Page” and in the “Investor Relations” section. None of the information on our website, blog or any other website identified
herein is incorporated by reference in this annual report and such information should not be considered a part of this annual report.