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Item 2. Management’s Discussion and Analysis

2025-08-13 compared with 2025-02-12 · 143 added, 192 removed, 121 unchanged (73% of the section changed)

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This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.

The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2024, to and including December 31, 2024 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2025, to and including June 30, 2025 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

This Quarterly Report on Form 10-Q, including the MD&A, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

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Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements, because of, among other things, potential risks and uncertainties, such as:

• An inability to finance our operations through bank or other financing or through the sale of issuance of debt or equity securities;

• An inability to finance our operations through bank or other financing or through the sale or issuance of debt or equity securities;

• Economic and industry conditions in the Company’s markets;

• The risk that contracts with FedEx could be terminated or adversely modified;

• The risk that contracts with FedEx Corporation (“FedEx”) could be terminated or adversely modified;

• The risk that the number of aircraft operated for FedEx will be reduced;

• The risk that GGS customers will defer or reduce significant orders for deicing equipment;

• The impact of any terrorist activities on United States soil or abroad;

• The impact of any terrorist activities or armed conflict on United States soil or abroad;

• Changes in U.S.

and foreign trade regulations and tariffs;

• The Company’s ability to manage its cost structure for operating expenses, or unanticipated capital requirements, and match them to shifting customer service requirements and production volume levels;

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• Mild winter weather conditions reducing the demand for deicing equipment;

• Market acceptance and operational success of the Company’s commercial jet engines and parts segment or its aircraft asset management business and related aircraft capital joint venture;

• Market acceptance and operational success of the Company’s aircraft asset management business and related aircraft capital joint venture;

• Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.

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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 four industry segments:

We currently operate in four core 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 aircraft, engines and parts, which manages and leases aviation assets;

• Ground support equipment (formerly known as 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 aircraft, engines and parts (formerly known as Commercial jet engines and parts), which manages and leases aviation assets;

supplies surplus and aftermarket commercial jet engine components;

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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.

• Digital solutions, which develops and provides digital aviation and other business services to customers within the aviation industry to generate recurring subscription revenues.

The Company additionally has a central corporate function that acts as the capital allocator and resource for other consolidated businesses, referred to as Corporate and other.

Further, Corporate and other also comprises insignificant businesses and business interests.

Effective as of the fourth quarter of fiscal year 2025, we renamed our ground equipment sales segment to ground support equipment and renamed our commercial jet engines and parts segment to commercial aircraft, engines and parts to better align the descriptions of the segments with their activities.

Additionally, we elected to separately disclose the digital solutions segment to better align our financial statement presentation with a key anticipated long-term growth area for the Company.

Digital solutions was previously classified as part of insignificant business activities.

As a result of this change, prior period segment information has been recast to conform to our current presentation in our financial statements and related notes.

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

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Results of Operations

Third Quarter Fiscal 2025 Compared to Third Quarter Fiscal 2024

Consolidated revenue for the three-month period ended December 31, 2024 increased by $14.1 million (22.2%) compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended December 31, 2024 compared to the same quarter in the prior fiscal year (in thousands):

First Quarter Fiscal 2026 Compared to First Quarter Fiscal 2025

Operating Revenue

Consolidated segment revenue for the three-month period ended June 30, 2025 increased by $4.1 million (6.2%) compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended June 30, 2025 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

December 31, Change

June 30, Change

Overnight Air Cargo $ 30,589 $ 30,383 $ 206 1 %

Ground Equipment Sales 11,846 8,441 3,405 40.3 %

Commercial Jet Engines and Parts 32,688 24,139 8,549 35.4 %

Corporate and Other 2,754 2,158 596 27.6 %

$ 77,880 $ 63,756 $ 14,124 22.2 %

Revenues from the overnight air cargo segment for the three-month period ended December 31, 2024 increased by $1.6 million (5.4%) compared to the third quarter of the prior fiscal year.

The increase was principally attributable to higher administrative fees and pass through revenue due to a larger fleet consisting of 105 aircraft as of December 31, 2024 compared to 85 aircraft as of December 31, 2023.

The ground equipment sales segment contributed approximately $11.8 million and $8.4 million to the Company’s revenues for the three-month period ended December 31, 2024 and 2023 respectively, representing a $3.4 million (40.3%) increase in the current quarter.

The increase was primarily driven by the higher number of deicing trucks sold and higher parts and service revenue in the current year's quarter compared to the prior year's comparable quarter.

We believe the increase in parts and service revenue was driven by heightened demand for maintenance and overhaul services, as customers prioritized ensuring the reliability of their equipment ahead of the winter season.

At December 31, 2024, the ground equipment sales segment’s order backlog was $12.9 million compared to $6.2 million at December 31, 2023.

The commercial jet engines and parts segment contributed $32.7 million of revenues in the quarter ended December 31, 2024 compared to $24.1 million in the comparable prior year quarter, which is an increase of $8.5 million (35.4%).

This increase was largely attributed to higher component sales at Contrail during the current quarter.

We believe this growth is due to airlines prioritizing the maintenance of their existing 737NG and A320CEO fleets, due in part by cancellations or delays in new aircraft deliveries from original equipment manufacturers ("OEM").

Contrail has been able to meet this rising demand by leveraging its inventory and expertise in providing serviceable aftermarket materials.

Revenues from the corporate and other segment for the three-month period ended December 31, 2024 increased by $0.6 million (27.6%) compared to the third quarter of the prior fiscal year.

The increase was primarily attributable to increased software subscriptions at Shanwick driven by its growing customer base.

Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Ground Support Equipment 15,070 7,354 7,716 105 %

Commercial Aircraft, Engines and Parts 21,960 26,250 (4,290) (16) %

Digital Solutions 2,096 1,678 418 25 %

Segments total 69,715 65,665 4,050 6 %

Revenues from the overnight air cargo segment for the three-month period ended June 30, 2025 was relatively flat compared to the first quarter of the prior fiscal year.

The ground support equipment segment contributed approximately $15.1 million and $7.4 million to the Company’s revenues for the three-month period ended June 30, 2025 and 2024 respectively, representing a $7.7 million (104.9%) increase in the current quarter.

The increase was primarily driven by the higher number of deicing trucks sold in the current year's quarter compared to the prior year's comparable quarter.

At June 30, 2025, the ground support equipment segment’s order backlog was $7.2 million compared to $9.9 million at June 30, 2024.

The commercial aircraft, engines and parts segment contributed $22.0 million of revenues in the quarter ended June 30, 2025 compared to $26.3 million in the comparable prior year quarter, which is a decrease of $4.3 million (16.3%).

The decrease was primarily driven by lower component sales in the current quarter, partially offset by an increase in lease income resulting from two assets being on lease this quarter, compared to none in the same fiscal quarter of the prior year.

The digital solutions segment contributed $2.1 million of revenues in the quarter ended June 30, 2025 compared to $1.7 million in the prior year quarter, an increase of $0.4 million (25%).

The increase is primarily due to increased software subscriptions driven by continued acquisition of new customers.

Operating expenses

Consolidated segment operating expenses for the three-month period ended June 30, 2025 increased by $2.4 million (4.6%) compared to the same quarter in the prior fiscal year.

Following is a table detailing operating expenses by segment during the three months ended June 30, 2025 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

December 31, Change

June 30, Change

Overnight Air Cargo:

Ground Equipment Sales 184 (522) 706

Commercial Jet Engines and Parts 2,646 (627) 3,273

Corporate and Other (2,878) (2,053) (825)

Operating expense

$ 25,899 $ 25,709 $ 190

Consolidated operating income for the quarter ended December 31, 2024 was $1.8 million, compared to operating loss of $1.6 million in the comparable quarter of the prior year.

The overnight air cargo segment's operating income for the three-month period ended December 31, 2024 was $1.9 million compared to operating income of $1.6 million in the same quarter in the prior fiscal year.

The increase was mainly driven by higher revenue, as outlined in the segment revenue discussion above, though partially offset by lower margins on maintenance revenue resulting from increased operating costs.

The ground equipment sales segment's operating income for the quarter ended December 31, 2024 was $0.2 million compared to the prior year comparable quarter's operating loss of $0.5 million.

This increase was primarily attributable to the higher sales and revenue noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated operating income of $2.6 million in the current year quarter compared to an operating loss of $0.6 million in the prior year quarter.

This increase was primarily attributable to the higher sales noted in the segment revenue discussion above.

The corporate and other segment's operating loss for the three-month period ended December 31, 2024 was $2.9 million compared to the prior year comparable quarter's operating loss of $2.1 million.

The higher operating loss was primarily driven by increased health insurance claims expenses.

Following is a table detailing non-operating income (expense) during the three months ended December 31, 2024 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

December 31, Change

Interest expense $ (2,561) $ (1,528) $ (1,033)

Income from equity method investments 661 1,038 (377)

Other (812) 142 (954)

Percentage of segment net sales

Ground Support Equipment:

Operating expense

12,303 6,533 5,770

The Company had net non-operating loss of $2.7 million during the quarter ended December 31, 2024, compared to net non-operating loss of $0.3 million in the prior year quarter.

The increase in non-operating loss was driven by a $1.0 million increase in interest expense and a $0.7 million loss in foreign currency exchange fluctuations.

Additionally, a $0.4 million reduction in net income allocated to the Company from equity method investments, as detailed in Note 8 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report on Form 10-Q, also contributed to the increase in non-operating loss.

During the three-month period ended December 31, 2024, the Company recorded $0.3 million in income tax expense at an ETR of (38.7)%.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, for interim reporting.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2024 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI, and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

During the three-month period ended December 31, 2023, the Company recorded income tax expense of $0.2 million at an ETR of (7.8)%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2023 were the change in valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI, BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

First Nine Months of Fiscal 2025 Compared to First Nine Months of Fiscal 2024

Following is a table detailing revenue by segment, net of intercompany during the nine months ended December 31, 2024 compared to the same period in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 92,162 $ 84,944 $ 7,218 8.5 %

Ground Equipment Sales 33,655 32,474 1,181 3.6 %

Commercial Jet Engines and Parts 91,865 90,463 1,402 1.5 %

Corporate and Other 7,853 6,273 1,580 25.2 %

Percentage of segment net sales 82 % 89 %

Commercial Aircraft, Engines and Parts:

Operating expense

14,656 18,533 (3,877)

Revenues from the overnight air cargo segment for the nine months ended December 31, 2024 increased by $7.2 million (8.5%) compared to the nine months ended December 31, 2023.

The increase was principally attributable to higher administrative fees and pass-through revenues due to a larger fleet consisting of 105 aircraft as of December 31, 2024 compared to 85 aircraft as of December 31, 2023.

The ground equipment sales segment's revenue for the nine-month period ended December 31, 2024 was $33.7 million compared to $32.5 million in the same period in the prior fiscal year.

The increase was primarily driven by an increase in parts and service revenue bolstered by overhaul work in the third quarter of the current fiscal year.

This trend was likely influenced by a growing emphasis on maintaining existing fleets to address operational needs in key markets.

The commercial jet engines and parts segment contributed $91.9 million of revenues in the nine months ended December 31, 2024 compared to $90.5 million in the comparable prior year nine months period.

The increase was primarily driven by higher component part sales at Contrail in the current year compared to the prior year.

This is partially offset by a total of five whole engine sales at Contrail and Worthington combined in the prior year compared to none in the current year.

We believe Contrail's increased component part sales is driven by airlines focusing on their existing fleets of 14,000 aircraft due to the cancellation or delay of new orders from the OEMs, allowing the company to leverage its expertise and serviceable engine portfolio to meet immediate demands.

Revenues from the corporate and other segment in the nine months ended December 31, 2024 increased by $1.6 million (25.2%) compared to the nine months ended December 31, 2023.

The increase was primarily attributable to increased software subscriptions at Shanwick due to growing customer base.

Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2024 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 5,510 $ 5,568 $ (58)

Ground Equipment Sales (173) (619) 446

Commercial Jet Engines and Parts 7,389 2,002 5,387

Corporate and Other (7,589) (7,140) (449)

Percentage of segment net sales 67 % 71 %

Digital Solutions:

Operating expense

Percentage of segment net sales 40 % 33 %

Segments total 53,694 51,331 2,363

Operating expenses from the overnight air cargo segment for the three-month period ended June 30, 2025 was relatively flat compared to the first quarter of the prior fiscal year.

The ground support equipment segment contributed approximately $12.3 million and $6.5 million to the Company's operating expenses for the three-month period ended June 30, 2025 and 2024, respectively, representing a $5.8 million (88.3%) increase in the current quarter.

The increase was primarily attributable to increased costs incurred in connection with the higher sales noted in the segment revenue discussion above.

The percentage increase in segment operating expenses was less than the percentage increase in segment revenue due to higher margins on the deicing trucks sold in the current quarter.

The commercial aircraft, engines and parts segment contributed $14.7 million and $18.5 million to the Company's operating expenses for the three-month period ended June 30, 2025 and 2024, respectively, representing a $3.9 million (20.9%) decrease in the current quarter.

Lower component sales, coupled with lower profit margin on parts sold in the current quarter resulted in the decrease in operating expenses and percentage of segment net sales.

The digital solutions segment contributed $0.8 million of operating expenses in the quarter ended June 30, 2025 compared to $0.6 million in the prior year quarter, an increase of $0.3 million (50.4%).

The increase was primarily due to an increase in headcount-related expenses to support the increased revenue from the continued acquisition of new customers.

General and administrative

Three Months Ended

June 30, Change

General and administrative

$ 15,031 $ 14,612 $ 419

Consolidated operating income for the nine months ended December 31, 2024 was $5.1 million compared to an operating loss of $0.2 million for the comparable nine months of the prior year.

The overnight air cargo segment's operating income for the nine months ended December 31, 2024 remained relatively flat compared to the same period in the prior year, despite a $7.2 million increase in revenue.

This was primarily due to higher margins in flight operations being offset by lower margins in maintenance revenue, driven by increased operating expenses.

The ground equipment sales segment's operating loss for the nine months ended December 31, 2024 was $0.2 million compared to operating loss of $0.6 million in the prior year comparable period.

The modest improvement in operating loss despite the $1.2 million revenue increase was primarily due to changes in volume and customer mix.

The higher revenue was driven by sales to lower-margin customers or higher-volume orders with reduced profitability, which impacted the overall improvement in operating loss.

The commercial jet engines and parts segment generated operating income of $7.4 million in the current year nine-month period compared to operating income of $2.0 million in the prior year nine-month period.

The increase was primarily attributable to Contrail's higher profit margin on component part sales in the current year compared to the prior year.

The corporate and other segment's operating loss for the nine-month period ended December 31, 2024 was $7.6 million compared to an operating loss of $7.1 million in the prior year comparable period.

The increase in operating loss was primarily driven by higher health insurance claims the current year period.

Following is a table detailing non-operating income (expense) during the nine months ended December 31, 2024 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Percentage of total net sales

General and administrative expenses for the three-month period ended June 30, 2025 were relatively flat compared to the first quarter of the prior fiscal year.

Non-operating income (expense)

Following is a table detailing non-operating income (expense) during the three months ended June 30, 2025 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

June 30, Change

Interest expense $ (2,314) $ (1,946) $ (368)

Income from equity method investments 4,930 2,477 2,453

(Loss) Income from equity method investments (19) 1,923 (1,942)

Earnout remeasurement income 402 20 382

Other 678 683 (5)

$ (1,253) $ 680 $ (1,933)

The Company had a net non-operating loss of $2.6 million for the nine months ended December 31, 2024 compared to a net non-operating loss of $2.7 million in the prior year nine-month period.

The decrease in non-operating loss was primarily driven by a $2.5 million increase in net income allocated to the Company from equity method investments as mentioned in Note 8 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q.

This is partially offset by a $1.5 million increase in interest expense and a $0.6 million loss in foreign currency exchange fluctuations.

During the nine-month period ended December 31, 2024, the Company recorded income tax expense of $0.8 million at an ETR of 30.10%.

The Company had net non-operating loss of $1.3 million during the quarter ended June 30, 2025, compared to net non-operating income of $0.7 million in the prior year quarter.

The non-operating loss in the current year was driven by a $0.4 million increase in interest expense and a net loss of $0.3 million in the current year compared to a net income of $1.9 million in the prior year allocated to the Company from equity method investments, as detailed in Note 9 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report on Form 10-Q.

Provision for Income Taxes

During the three-month period ended June 30, 2025, the Company recorded $0.1 million in income tax benefit at an ETR of 16.9%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the nine-month period ended December 31, 2024 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

During the nine-month period ended December 31, 2023, the Company recorded income tax expense of $0.9 million at an ETR of (29.4)%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2025 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, DSI, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico, and the benefit from the FDII deduction.

On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S., which includes a broad range of tax reform provisions affecting businesses.

The Company is evaluating the full effects of the legislation on its estimated annual effective tax rate and cash tax position, but does not expect the legislation to have a material impact on its financial statements.

Because the law was enacted after the end of the first fiscal quarter, its effects are not reflected in the operating results for the three months ended June 30, 2025.

During the three-month period ended June 30, 2024, the Company recorded income tax expense of $0.1 million at an ETR of 68.9%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the nine-month period ended December 31, 2023 were the valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2024 were the change in valuation allowance related to the Company's U.S.

consolidated group, DTI, LGSS, DSI, BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

Critical Accounting Policies and Estimates

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Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions.

The Company’s estimates and assumptions could change materially as conditions within and beyond our control change.

The Company’s estimates and assumptions could change materially as conditions within and beyond our

control change.

Accordingly, actual results could differ materially from estimates.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended December 31, 2024.

The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended June 30, 2025.

The ground support equipment segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season.

Other segments have typically not experienced material seasonal trends.

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We expect that issues caused by economic and business issues will continue beyond the current fiscal year.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact these issues on economic and market conditions and our businesses in particular, and, as a result, presents material uncertainty and risk with respect to us and our results of operations.

The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2024.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact of these issues on economic and market conditions and our businesses in particular, and, as a result, presents material uncertainty and risk with respect to us and our results of operations.

The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2025.

Liquidity and Capital Resources

As of December 31, 2024, the Company held approximately $18.8 million in cash and cash equivalents and restricted cash.

As of June 30, 2025, the Company held approximately $15.0 million in cash and cash equivalents and restricted cash, of which, $0.4 million related to cash reserved for insurance claims payments of Space Age Insurance Company's ("SAIC"), a wholly-owned subsidiary of the Company.

The Company also held $0.8 million in restricted investments held as statutory reserve of SAIC.

The Company has an aggregate of approximately $22.8 million in available funds under its lines of credit as of December 31, 2024.

As of December 31, 2024, the Company’s working capital amounted to $42.8 million, a decrease of $13.3 million compared to March 31, 2024 primarily driven by a $22.2 million decrease in inventory along with a $3.2 million increase in short-term debt, partially offset by an increase in cash and cash equivalents of $11.4 million.

As mentioned in Note 1 2 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on May 30, 2024, Contrail, a majority-owned subsidiary of the Company, entered in the Redemption Agreement with Seller.

Pursuant to the Redemption Agreement, Contrail agreed to purchase and redeem from the Seller, 16% of its 21% interest in Contrail, effective as of April 1, 2024.

The purchase price for the redeemed interest is $4.6 million, plus an earnout amount.

The cash purchase price is payable through the OCAS Loan, payable beginning on May 1, 2024 and monthly thereafter for a 12-month period of interest payments only with the outstanding balance amortized and paid over the following three years.

Interest accrues on the principal amount at an annual rate equal to the 10-year Treasury bond yield plus 375 basis points, compounded monthly.

The rate adjusts on each anniversary date of the note.

The payment obligation under the note may be deferred if Contrail’s forecast indicates that any payment following the first 12-month period would cause a loan default or a loan default exists.

Initially, the payment obligation would revert back to interest only, unless a default exists, in which case no payment would be required.

If Contrail is unable to make a payment for 12 months, then interest shall cease to accrue.

The note is expressly subordinated to the payment in full of all

indebtedness of Contrail on or prior to the date of the note or thereafter created.

See additional details on the OCAS Loan in Note 1 2 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report.

As mentioned in Note 1 2 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on August 29, 2024, the Company and twelve of the Company’s subsidiaries entered into a New Credit Agreement with Alerus Financial, National Association.

The New Credit Agreement provides the Revolver - Alerus in an initial maximum principal amount of up to $14.0 million.

Availability under the Revolver - Alerus is subject to a borrowing base and provides for a sub-facility for the issuance of letters of credit in an aggregate amount not to exceed $3.0 million, with the outstanding amount of any such letters of credit reducing availability for borrowings under the revolving credit facility.

Revolver - Alerus matures on February 28, 2026 and balance outstanding will bear interest at a rate per annum equal to the greater of 5.00% or one-month SOFR plus 2.00%.

As mentioned in Note 18 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on January 21, 2025, the Company and the Alerus Loan Parties entered into Amendment No.

1 to Credit Agreement and Other Loan Documents (“Amendment No.

1”) with Alerus.

Amendment No.

1 extends the term of the revolving credit agreement from February 28, 2026 to August 28, 2026.

All other terms of the Credit Agreement and other Loan Documents remain the same.

In addition to the Revolver - Alerus, the New Credit Agreement provides for two secured term loans – Term Note A - Alerus and Term Note B - Alerus.

Term Note A - Alerus is a loan in the principal amount of $10.7 million that matures on August 15, 2029 that bears interest at a rate per annum equal to the greater of 5.00% or one-month SOFR plus 2.00%.

Term Note A - Alerus requires monthly payments of principal commencing September 15, 2024 with such payments set at a seven year level principal amortization and a payment of $3.2 million due at maturity.

A prepayment premium based on the amount prepaid is due in certain circumstances.

Term Note B - Alerus is a loan in the principal amount of $2.3 million that matures on August 15, 2029 and bears interest at a rate per annum equal to the greater of 5.00% or one-month SOFR plus 2.00%.

Term Note B - Alerus requires monthly payments of principal commencing September 15, 2024 with such payments set at a 25 year level principal amortization and a payment of $1.8 million due at maturity.

A prepayment premium based on the amount prepaid is due in certain circumstances.

The Borrowers are co-borrowers under the New Credit Agreement and each of the notes.

The obligations of the Borrowers under the New Credit Agreement and the notes are secured by a first priority security interest in substantially all of the Borrowers' current assets, including accounts receivable and inventory.

The Company is not a borrower under the New Credit Agreement but has guaranteed the obligations of the Borrowers owed to the Lender.

In addition, Air T, Inc.

has pledged a brokerage account of marketable securities held at a securities intermediary to secure the obligations.

Furthermore, the obligations are further secured by a deed of trust on approximately 4.626 acres of real estate that includes a 13,000 square foot office building in Denver, North Carolina.

In connection with the closing of the New Credit Agreement, the Company and its subsidiaries used proceeds from the new financing to satisfy and discharge all obligations, and terminated all commitments, under the Company’s existing secured credit facility with Minnesota Bank & Trust.

The Company incurred no termination penalties in connection with such termination.

As mentioned in Note 1 2 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on September 12, 2024, Contrail entered into the Fifth Amendment to the Master Loan Agreement dated June 24, 2019 and Supplement #11 to the Master Loan Agreement, and Term Note J with ONB.

Term Note J is a term loan in the principal amount of $10.0 million.

The loan bears a variable monthly interest rate at the 1-month SOFR Rate plus 3.86% and requires equal monthly payments of principal and interest until the loan maturity date of September 12, 2028.

The loan requires compliance with covenants that require minimum Tangible Net Worth of $15.0 million and a Quarterly Cash Flow Coverage of not less than 1.25 to 1.0.

In order to induce ONB to enter into these agreements, Contrail and OCAS, Inc.

entered into a subordination agreement dated September 12, 2024 to address certain loan matters and to establish the priority of repayment of Contrail’s debt to ONB over the OCAS Loan in the original principal amount of $4.6 million.

As mentioned in Note 12 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on October 16, 2024, the Company and AAM 24-1 entered into the Second NPA with Honeywell.

The Second NPA amended and restated the terms of the Company’s previously disclosed Original NPA, which was filed in a Current Report on Form 8-K on February 26, 2024.

Under the Original NPA, AAM 24-1 had issued and sold $15.0 million of 8.5% senior secured notes.

The Second NPA amended and restated the amount issued and sold to $30.0 million of 8.5% Notes to Honeywell, which includes the $15.0 million from the Original NPA bringing the total indebtedness to $30.0 million.

The Notes mature on March 1, 2031 and bear an annual interest at a rate of 8.5%.

In addition to the 160,000 previously pledged TruPs, 160,000 newly-issued shares of TruPs held by AAM 24-1 are now pledged to Honeywell, in connection with the closing of the Second NPA.

The Company has an aggregate of approximately $29.1 million in available funds under its lines of credit as of June 30, 2025.

As of June 30, 2025, the Company’s working capital amounted to $43.9 million, a increase of $13.0 million compared to March 31, 2025 primarily driven by an increase in cash and cash equivalents of $8.5 million, a $1.4 million increase in inventory along with a $3.0 million decrease in short-term debt.

As mentioned in Note 13 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, in connection with the acquisition of Royal on May 15, 2025, the Alerus Loan Parties under the Revolving Credit Agreement with Alerus entered into Amendment No.

4 to Credit Agreement and Consent and Term Loan C with Alerus in the amount of $1.1 million.

The purpose of the Amendment and Term Note was to provide a term loan to finance the full purchase price of the acquisition, to add Royal as a part of the Alerus Loan Parties to the Alerus credit agreement, as amended and to memorialize Alerus’ consent to the Royal acquisition.

The new term loan matures May 15, 2030 and bears interest at the greater of five (5%) percent or the CME one-month term SOFR rate plus 2.25%.

Monthly payments on Term Note C commence June 15, 2025 and are equal to $12.5 thousand plus accrued interest.

The term loan is secured by the terms of the Security Agreement dated as of August 29, 2024.

As mentioned in Note 13 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on May 30, 2025, the Company, along with AAM 24-1 (the "Issuer"), entered into new transaction documents with the Institutional Investors that replaced the Second NPA transaction documents.

Pursuant to the Third NPA with the Institutional Investors, the Issuer agreed to issue and sell a Multiple Advance Senior Secured Note in an aggregate principal amount of up to $100.0 million (the “Multiple Advance Note”).

For purposes of clarity and the avoidance of doubt, as of the closing date, the Institutional Investors advanced an additional $10.0 million to the Issuer and have collectively advanced under the Multiple Advance Note to the Issuer the aggregate amount of $40.0 million.

Provided no default or event of default of the Issuer exists, and subject to satisfaction of all requirements for any closing as set forth in the Third Note Purchase Agreement, the Investors are obligated to advance to the Issuer an additional aggregate $60.0 million in $10.0 million increments, each on or within fifteen days of the following dates (in thousands):

September 30, 2025 $10.0 million

January 30, 2026 $10.0 million

May 30, 2026 $10.0 million

September 30, 2026 $10.0 million

January 30, 2027 $10.0 million

May 30, 2027 $10.0 million

The Multiple Advance Note bears annual interest at a rate of 8.5% which is computed on the basis of a 30/360-day year and actual days elapsed and is payable semi-annually in arrears, pursuant to the terms of the Multiple Advance Note.

The maturity date of the Multiple Advance Note is May 31, 2035.

The Multiple Advance Note contains standard and customary events of default including, but not limited to, failure to make payments when due under the Multiple Advance Note, failure to comply with certain covenants contained in the Multiple Advance Note, or bankruptcy or insolvency of, or certain monetary judgments against the Issuer or the Company.

The prior notes were cancelled and replaced by the Multiple Advance Note.

Funds advanced under the Multiple Advance Note may be reinvested for a period of six years from the date of closing.

The Issuer may prepay all or a portion of the outstanding principal and accrued but unpaid interest at any time, provided that (i) if the Issuer prepays all or any portion of the Multiple Advance Note within one year from the Issue Date, the Issuer is required to pay the Investors a prepayment premium equal to two percent (2.0%) of the amount being prepaid, and (ii) if the Issuer prepays all or any portion of the Multiple Advance Note after the first anniversary of the Issue Date but on or prior to the second anniversary of the Issue Date, the Issuer is required to pay the Investors a prepayment premium equal to one percent (1.0%) of the amount being prepaid.

If the Issuer elects to prepay a portion of the outstanding principal and accrued but unpaid interest, then in no event can such prepayment be for an amount less than $1.0 million.

The various equity interests that were assigned by the Company to the Issuer on or about the closing date of the original financings continue to serve as collateral for the repayment of the Multiple Advance Note as does all of the issued and outstanding capital stock of the Issuer owned by the Company, and the 320,000 Trust Preferred Securities, held by the Issuer.

The Company believes that it has sufficient cash on hand and available liquidity, to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

Following is a table of changes in cash flow for the nine months ended December 31, 2024 and 2023 (in thousands):

Nine Months Ended December 31,

Net cash provided by operating activities $ 19,377 $ 23,145

Following is a table of changes in cash flow for the three months ended June 30, 2025 and 2024 (in thousands):

Three Months Ended June 30,

Net cash (used in) provided by operating activities $ (1,095) $ 113

Net cash (used in) provided by investing activities (2,724) 2,008

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Effect of foreign currency exchange rates on cash and cash equivalents (292) 32

Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash $ 10,924 $ (1,903)

Net cash provided by operating activities was $19.4 million for the nine-month period ended December 31, 2024 compared to net cash provided in operating activities of $23.1 million in the prior year nine-month period, representing a decrease of $3.8 million.

The decrease was primarily attributable to an increase in accounts receivable of $11.0 million due to increased component sales and a net decrease in accounts payable of $7.9 million due to timing of payments to our vendors.

These changes were partially offset by a $5.8 million increase in net income after adjustments in the current year period compared to the prior year period, a higher decrease in inventory of $4.2 million, and $5.2 million favorable change in other operating assets and liabilities.

Net cash used in investing activities for the nine-month period ended December 31, 2024 was $16.8 million compared to net cash provided by investing activities of $0.2 million in the prior year period.

The cash used in investing activities was primarily driven by capital expenditures related to assets on lease in the current year at Contrail.

Net cash provided by financing activities for the nine-month period ended December 31, 2024 was $8.0 million compared to net cash used in financing activities of $25.2 million in the prior year period.

The cash provided by financing activities in the current year nine-month period was primarily driven by $45.5 million more proceeds on the Company's term loans and revolving lines of credit.

These changes were partially offset by $5.3 million more payments made on the Company's term loans and revolving lines of credit and $6.7 million less proceeds received from the issuance of TruPs in the current year period compared to the prior year period.

Net Increase in Cash and Cash Equivalents and Restricted Cash $ 8,466 $ 862

Net cash used in operating activities was $1.1 million for the three-month period ended June 30, 2025 compared to net cash provided by operating activities of $0.1 million in the prior year three-month period, representing a decrease of $1.2 million.

The decrease was primarily attributable to an unfavorable change in inventory of $3.8 million driven by higher sales within the commercial aircraft, engines and parts segment in the prior period.

This is partially offset by a $1.6 million increase in net income after adjustments in the current year period compared to the prior year period, and $1.3 million higher customer deposits received in the current year period compared to prior year period.

Net cash used in investing activities for the three-month period ended June 30, 2025 was $2.7 million compared to net cash provided by investing activities of $2.0 million in the prior year period.

The cash used in investing activities was primarily driven by investments in unconsolidated entities of $2.0 million in the current year period that did not occur in the prior year period, acquisition Royal of $1.2 million in addition to $1.5 million lower distributions received from unconsolidated entities in the current year period compared to the prior year period.

Net cash provided by financing activities for the three-month period ended June 30, 2025 was $12.6 million compared to net cash used in financing activities of $1.3 million in the prior year period.

The cash provided by financing activities in the current year three-month period was primarily driven by $16.1 million more proceeds on the Company's term loans and revolving lines of credit.

These changes were partially offset by $3.1 million more payments made on the Company's revolving lines of credit.

Non-GAAP Financial Measures

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The Company calculates Adjusted EBITDA by removing the impact of specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes.

When calculating Adjusted EBITDA, the Company does not add back depreciation expense for assets that are on lease, as the Company believes this expense matches with the corresponding revenue earned on leased assets.

There was $0.8 million of depreciation expense for leased assets during both the three and nine months ended December 31, 2024, respectively while there was no depreciation expense for leased assets during the three or nine months ended December 31, 2023.

When calculating Adjusted EBITDA, the Company does not add back depreciation expense for certain assets that are on lease, as the Company believes this expense matches with the corresponding revenue earned on these leased assets.

Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability.

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Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP.

The tables below provide a reconciliation of operating income (loss) to Adjusted EBITDA for the three and nine months ended December 31, 2024 and 2023 (in thousands):

Three months ended Nine months ended

The tables below provide a reconciliation of operating income (loss) to Adjusted EBITDA for the three months ended June 30, 2025 and 2024 (in thousands):

Three months ended

6/30/2025 6/30/2024

Operating income (loss) $ 446 $ (577)

Depreciation and amortization (excluding leased assets depreciation) 552 699 2,262 2,088

Depreciation and amortization (excluding certain leased assets depreciation) 1

Asset impairment, restructuring or impairment charges 40 378

Gain on sale of property and equipment (1) —

TruPs issuance expenses 19 185 147 277

Securities issuance expenses 30 101

Share-based compensation 39 16

Severance expenses — 179

Deal-sourcing expenses 210 —

Adjusted EBITDA $ 1,466 $ 857

The table below provides Adjusted EBITDA by segment for the three and nine months ended December 31, 2024 and 2023 (in thousands):

Three months ended Nine months ended

(1) Leased assets depreciation expense excluded was $0.6 million and $0 during the three months ended June 30, 2025 and June 30, 2024, respectively.

The table below provides Adjusted EBITDA by segment for the three months ended June 30, 2025 and 2024 (in thousands):

Three months ended

6/30/2025 6/30/2024

Overnight Air Cargo $ 1,613 $ 1,947

Ground Equipment Sales 223 (485) 225 (512)

Commercial Jet Engines and Parts 2,948 (121) 8,753 2,888

Ground Support Equipment 1,374 (511)

Commercial Aircraft, Engines and Parts 754 1,665

Digital Solutions (86) (312)

Segments total $ 3,655 2,789

Corporate and Other $ (2,189) (1,932)

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As a consequence of any such election, quarterly distributions on the Trust Preferred Securities will be deferred by Air T Funding during any such Extension Period.

Distributions to which holders of Trust Preferred Securities are entitled will accumulate additional amounts thereon at the rate per annum of 8% thereof, compounded quarterly from the relevant Distribution Date, to the extent permitted under applicable law.

Distributions to which holders of Trust Preferred Securities are entitled will accumulate additional amounts thereon

at the rate per annum of 8% thereof, compounded quarterly from the relevant Distribution Date, to the extent permitted under applicable law.

During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock (which includes common and preferred stock) or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the guarantee and (d) purchases of common stock for issuance under any of the Company’s benefit plans for its directors, officers or employees).

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The Trust Agreement was most recently amended on March 3, 2021 and on January 28, 2022 and currently allows for the issuance of up to $100.0 million of Trust Preferred Securities.

As of December 31, 2024, there are $47.9 million in Trust Preferred Securities outstanding ($13.0 million held by the wholly-owned subsidiaries of the Company).

The Trust is a “finance subsidiary” of Air T within the meaning of Rule 3‑10 of Regulation S‑X under the Securities Act of 1933, as amended, and as a result the Air T Funding does not file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended.

As of June 30, 2025, there are $48.5 million in Trust Preferred Securities outstanding ($13.0 million held by the wholly-owned subsidiaries of the Company).

The Trust is a “finance subsidiary” of Air T within the meaning of Rule 3‑10 of Regulation S‑X under the Securities Act of 1933, as amended, and as a result Air T Funding does not file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended.

Quantitative and Qualitative Disclosures About Market Risk

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis