What changed in this filing

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Item 1. Business

2021-06-25 compared with 2020-06-26 · 43 added, 67 removed, 143 unchanged (43% of the section changed)

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Our 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.

We currently operate in five industry segments:

We currently operate in four industry segments:

• Overnight air cargo, which operates in the air express delivery services industry;

• Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;

• Commercial jet engines and parts, which manages and leases aviation assets;

supplies surplus and aftermarket commercial jet engines and jet engine components;

• Commercial aircraft, engines and parts, which manages and leases aviation assets;

supplies surplus and aftermarket commercial jet engine components;

provides commercial aircraft disassembly/part-out services;

commercial aircraft parts sales;

procurement services and overhaul and repair services to airlines and commercial aircraft companies;

• Printing equipment and maintenance, which designs, manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers;

• Corporate and other, which acts as the capital allocator and resource for other segments.

procurement services and overhaul and repair services to airlines and;

• Corporate and other, which acts as the capital allocator and resource for other consolidated businesses.

Further, Corporate and other is also comprised of insignificant businesses that do not pertain to other reportable segments.

The Company also has ownership interests in Insignia Systems, Inc.

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The operations of these companies are not consolidated into the operations of the Company.

See N ote 11 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

See Note 10 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

On September 30, 2019, we completed the sale of 100% of the equity ownership in the Company's wholly-owned subsidiary, Global Aviation Services, LLC ("GAS"), which previously constituted the ground support services segment.

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Each business segment has separate management teams and infrastructures that offer different products and services.

We evaluate the performance of our business segments based on operating income.

We evaluate the performance of our business segments based on operating income and Adjusted EBITDA.

Certain financial data with respect to the Company’s geographic areas and segments is set forth in Notes 20 and 21 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

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The principal place of business of Air T and Mountain Air Cargo, Inc.

(“MAC”) is 5930 Balsom Ridge Road, Denver, North Carolina, the principal place of business of CSA Air, Inc.

(“CSA”) is Iron Mountain, Michigan, the principal place of business for Global Ground Support, LLC (“GGS”) is Olathe, Kansas, the principal place of business of Delphax Technologies, Inc (“Delphax”) is Minneapolis, Minnesota, the principal place of business for Delphax Solutions, Inc.

(“DSI”) is Mississauga, Canada, the principal place of business of Contrail Aviation Support, LLC (“Contrail”) is Verona, Wisconsin, the principal place of business of AirCo, LLC, AirCo 1, LLC, AirCo 2, LLC and AirCo Services, LLC (Collectively, "AirCo”) is Wichita, Kansas, the principal place of business of Jet Yard, LLC (“Jet Yard”) is Marana, Arizona, and the principal place of business of Worthington Aviation Parts, Inc.

(“Worthington”) is Eagan, Minnesota.

(“MAC”) is 5930 Balsom Ridge Road, Denver, North Carolina.

The principal place of business of CSA Air, Inc.

(“CSA”) is Iron Mountain, Michigan.

The principal place of business for Global Ground Support, LLC (“GGS”) is Olathe, Kansas.

The principal place of business of Delphax Technologies, Inc (“Delphax”) is Minneapolis, Minnesota.

The principal place of business for Delphax Solutions, Inc.

(“DSI”) is Mississauga, Canada.

The principal place of business of Contrail Aviation Support, LLC (“Contrail”) is Verona, Wisconsin.

The principal place of business of AirCo, LLC, AirCo 1, LLC, AirCo 2, LLC and AirCo Services, LLC (Collectively, "AirCo”) and Worthington Aviation, LLC (“Worthington”) is Eagan, Minnesota.

The principal place of business of Jet Yard, LLC (“Jet Yard”) and Jet Yard Solutions, LLC ("Jet Yard Solutions") is Marana, Arizona.

We maintain an Internet website at http://www.airt.net and our SEC filings may be accessed through links on our website.

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Acquisitions .

Worthington Aviation Parts, Inc.

On May 4, 2018, Air T, Inc.

completed the acquisition of substantially all of the assets and assumed certain liabilities of Worthington, pursuant to the Asset Purchase Agreement dated as of April 6, 2018, by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Asset Purchase Agreement.

Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services.

The Company agreed to acquire the assets and liabilities in exchange for payment to Worthington of $50,000 as earnest money upon execution of the Agreement and a cash payment of $3,300,000 upon closing.

Cadillac Casting, Inc.

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Accordingly, the Company does not consolidate CCI and has determined to account for this investment using equity method accounting.

See Note 11 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

See Notes 10 and 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

Overnight Air Cargo.

The Company’s Overnight Air Cargo segment is operated through MAC and CSA.

MAC and CSA have a relationship with FedEx spanning over 40 years and represent two of seven companies in the U.S.

that have North American feeder airlines under contract with FedEx.

MAC and CSA operate and maintain Cessna Caravan, ATR-42 and ATR-72 aircraft that fly daily small-package cargo routes throughout the eastern United States and upper Midwest.

MAC and CSA operate and maintain Cessna Caravan, ATR-42 and ATR-72 aircraft that fly daily small-package cargo routes throughout the eastern United States and upper Midwest, and in the Caribbean.

MAC and CSA’s revenues are derived principally pursuant to “dry-lease” service contracts with FedEx.

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These dry-lease agreements provide that FedEx determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by MAC and CSA, respectively.

The current dry-lease agreements provide for the reimbursement by FedEx of MAC and CSA’s costs, without mark up, incurred in connection with the operation of the leased aircraft for the following:

The current dry-lease agreements provide for the reimbursement of MAC and CSA’s costs by FedEx, without mark up, incurred in connection with the operation of the leased aircraft for the following:

fuel, landing fees, third-party maintenance, parts and certain other direct operating costs.

The current dry-lease agreement is set to expire on May 31, 2021.

The current dry-lease agreement was most recently renewed on June 1, 2021 and is set to expire on August 31, 2026.

The dry-lease agreements may be terminated by FedEx or MAC and CSA, respectively, at any time upon 90 days’ written notice and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days’ written notice.

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MAC and CSA are benchmarked against the other five FedEx feeders based on safety, reliability, compliance with federal, state and applicable foreign regulations, price and other service-related measurements.

The Company believes accurate industry data is not available to indicate the Company’s position within its marketplace (in large measure because all of the Company’s direct competitors are privately held), but management believes that MAC and CSA, combined, constitute the largest contract carrier of the type described immediately above.

FedEx conducts periodic audits of MAC and CSA, and these audits are an integral part of the relationship between the carrier and FedEx.

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Certain of GGS' competitors may have substantially greater financial resources than we do.

These entities or investors may be able to accept more risk than our Board believes is in our best interest.

In addition, the market for aviation ground services in the past has been directly related to the financial health of the aviation industry, weather patterns and changes in technology.

These entities or investors may be able to accept more risk than the Company believes is in our best interest.

In addition, the market for aviation ground services in the past has typically been directly related to the financial health of the aviation industry, weather patterns and changes in technology.

GGS’s mobile deicing equipment business has historically been seasonal, with revenues typically being lower in the fourth and first fiscal quarters as commercial deicers are typically delivered prior to the winter season.

The Company has continued its efforts to reduce GGS’s seasonal fluctuation in revenues and earnings by broadening its international and domestic customer base and its product line.

In July 2009, GGS was awarded a new contract to supply deicing trucks to the USAF, which initially expired in July 2014.

This contract has since then been annually extended by the USAF and the current expiration date is July 13, 2020.

In July 2009, GGS was awarded a new contract to supply deicing trucks to the USAF.

Per the contract, GGS has to provide pricing that will be contractual for each one-year period within the years that the contract is awarded.

Further, based upon volume of commercial items purchased during that year, there may be discounts calculated into the pricing and are reflective of the submitted estimated pricing.

GGS sold a total of 26 and 31 deicers under this contract including both GL 1800 and ER 2875 models during fiscal years ended March 31, 2020 and March 31, 2019, respectively and all of the units were accepted by the USAF.

GGS also completed and delivered additional delivery orders from the USAF for both GL 1800 and ER 2875 models during the first quarter of fiscal year 2021.

Further, based upon volume of commercial items purchased during that year, there may be discounts calculated into the pricing and are reflective of the submitted pricing.

This contract expired on July 13, 2020, and GGS has submitted its bid for contract renewal.

As of March 31, 2021, the USAF has not yet responded to the bid.

GGS sold a total of 47 and 26 deicers under this contract with the USAF including both GL 1800 and ER 2875 models during fiscal years ended March 31, 2021 and March 31, 2020, respectively and all of the units were accepted by the USAF.

GGS also completed and delivered an additional USAF delivery order for both GL 1800 and ER 2875 models during the first quarter of fiscal year 2022.

Commercial Jet Engines and Parts.

Contrail Aviation Support and Jet Yard (acquired during fiscal year 2017), AirCo (formed in May 2017), and Worthington (acquired in May 2018), comprise the commercial jet engines and parts segment of the Company’s operations.

Contrail Aviation Support and Jet Yard (acquired during fiscal year 2017), AirCo (formed in May 2017), Worthington (acquired in May 2018), and Jet Yard Solutions (formed in January 2021) comprise the commercial jet engines and parts segment of the Company’s operations.

Contrail Aviation Support is a commercial aircraft trading, leasing and parts solutions provider.

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As of March 31, 2021 and March 31, 2020, Contrail contributed approximately 18% and 31% of the Company's total consolidated revenue for the years then ended, respectively.

Jet Yard offers commercial aircraft storage, storage maintenance and aircraft disassembly/part-out services at facilities leased at the Pinal Air Park in Marana, Arizona.

Jet Yard and Jet Yard Solutions offer commercial aircraft storage, storage maintenance and aircraft disassembly/part-out services at facilities leased at the Pinal Air Park in Marana, Arizona.

The prevailing climate in this area of Arizona provides conditions conducive to long-term storage of aircraft.

Jet Yard is registered to operate a repair station under Part 145 of the regulations of the FAA and it leases approximately 48.5 acres of land under a lease agreement with Pinal County, Arizona.

Jet Yard Solutions is registered to operate a repair station under Part 145 of the regulations of the FAA.

Jet Yard leases approximately 48.5 acres of land under a lease agreement with Pinal County, Arizona.

Jet Yard was organized in 2014, entered into the lease in June 2016 and had maintained de minimus operations from formation through the date it was acquired by the Company.

Effective January 1, 2021, Jet Yard subleased the aforementioned lease with Pinal County to Jet Yard Solutions.

AirCo operates an established business offering commercial aircraft parts sales, exchanges, procurement services, consignment programs and overhaul and repair services.

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In addition, Worthington operates two FAA and EASA Certificated Repair Stations.

The Tulsa MRO provides composite aircraft structures, repair and support services.

The Tulsa maintenance, repair and overhaul ("MRO") facility provides composite aircraft structures, repair and support services.

As a strategic resource for flight control, exhaust system and line replacement components, Worthington offers a wide array of services for complex operations.

The Eagan based Repair Station, Worthington Repair Services offers a wide range of capabilities for repair and overhaul of airframe, accessories and power plant components in support of external as well as internal sales.

Printing Equipment and Maintenance.

Delphax’s business has included the design, manufacture and sale of advanced digital print production equipment (including high-speed, high-volume cut-sheet and continuous roll-fed printers), maintenance contracts, spare parts, supplies and consumable items for these systems.

The equipment, spare parts, supplies and consumable items historically were

manufactured, and maintenance and services were provided by Delphax Canada Technologies Limited (“Delphax Canada”) and such products and services were sold through Delphax, Delphax Canada and Delphax subsidiaries located in Canada, the United Kingdom and France.

Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt.

As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors.

As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities.

The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada.

In addition, on June 11, 2019, the Company has also fully dissolved Delphax UK.

As such, the only Delphax entity that remains in existence as of March 31, 2020 is Delphax France.

The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK in June 2019 and recognized a gain on dissolution of entities of $4.5 million.

Delphax’s components of net income (loss) are included in our consolidated statements of income and comprehensive income herein.

Revenues and expenses prior to the date of initial consolidation were excluded.

We concluded that this was a substantive distribution right which should be considered in the attribution of Delphax's net income or loss to non-controlling interests.

We furthermore concluded that our investment in the debt of Delphax should be considered in attribution.

Specifically, Delphax’s net losses are attributed first to our Series B Preferred Stock and Warrant investments and to the non-controlling interest (67%/33%) until such amounts are reduced to zero.

Additional losses are then fully attributed to our debt investments until they too are reduced to zero.

This sequencing reflects the relative priority of debt to equity.

Any further losses are then attributed to the Company and the non controlling interests based on the initial 67%/33% share.

Delphax net income is attributed using a backwards-tracing approach with respect to previous losses.

All of Delphax operations are now run out of the Delphax Solutions, Inc.

subsidiary, located in Mississauga, Canada.

We do not expect this business to generate significant revenues in the coming fiscal year.

At the Eagan, Minnesota-based Repair Station, Worthington Repair Services offers a wide range of capabilities for repair and overhaul of airframe, accessories and power plant components in support of external as well as internal sales.

The Company’s commercial jet engines and parts operations are not materially seasonal.

GGS’s backlog consists of “firm” orders supported by customer purchase orders for the equipment sold by GGS.

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The FAA periodically conducts routine reviews of MAC and CSA’s operating procedures and flight and maintenance records.

In September 2010, the FAA proposed rules that would significantly reduce the maximum number of hours on duty and increase the minimum amount of rest time for our pilots, and thus require us to hire additional pilots and modify certain of our aircraft.

When the FAA issued final regulations in December 2011, all-cargo carriers, including MAC and CSA, were exempt from these new pilot fatigue requirements, and instead were required to continue complying with previously enacted flight and duty time rules.

In December 2012, the FAA reaffirmed the exclusion of all cargo carriers from the new rule.

However, legislation has recently been introduced in the U.S.

Senate and U.S.

House of Representatives that, if adopted, would require all-cargo carriers to comply with the 2011 regulations.

Required compliance with the 2011 regulations would make it more difficult to avoid pilot fatigue and could impose substantial costs on us in order to maintain operational reliability.

The FAA has authority under the Noise Control Act of 1972, as amended, to monitor and regulate aircraft engine noise.

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Environmental Protection Agency (“EPA”) pursuant to the Clean Air Act of 1970, as amended.

Jet Yard and AirCo operate repair stations licensed under Part 145 of the regulations of the FAA.

Jet Yard, Jet Yard Solutions and AirCo, like Worthington, operate repair stations licensed under Part 145 of the regulations of the FAA.

These certifications must be renewed annually, or in certain circumstances within 24 months.

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and may from time to time underwrite third-party risk through certain reinsurance arrangements.

SAIC is included in the Company’s consolidated financial statements.

At March 31, 2020, the Company and its subsidiaries had 478 full-time and full-time-equivalent employees.

SAIC is included within the Company's Corporate and other segment.

As of March 31, 2021, the Company and its subsidiaries had 452 full-time and full-time-equivalent employees.

None of the employees of the Company or any of its consolidated subsidiaries are represented by labor unions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business