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Item 2. Management’s Discussion and Analysis

2025-11-12 compared with 2025-08-13 · 165 added, 86 removed, 178 unchanged (59% 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, 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.

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 September 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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• 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 the number of aircraft operated for FedEx is reduced;

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

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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 core industry segments:

We currently operate in four industry segments:

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

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• 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;

supplies surplus and after market commercial jet engine components;

provides commercial aircraft disassembly/part-out services;

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Results of Operations

First Quarter Fiscal 2026 Compared to First Quarter Fiscal 2025

Second Quarter Fiscal 2026 Compared to Second 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):

Consolidated revenue for the three-month period ended September 30, 2025 decreased by $17.1 million (21.0%) 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 September 30, 2025 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Overnight Air Cargo $ 29,924 $ 31,187 $ (1,263) (4) %

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Segments total 62,650 80,403 (17,753) (22) %

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.

Revenues from the overnight air cargo segment for the three-month period ended September 30, 2025 decreased by $1.3 million (4%) compared to the second quarter of the prior fiscal year.

The decrease was principally attributable to lower flight admin fees driven by increased soft and hard parked aircraft when compared to the prior year comparable quarter.

The ground support equipment segment contributed approximately $9.6 million and $14.5 million to the Company’s revenues for the three-month period ended September 30, 2025 and 2024 respectively, representing a $4.8 million (33%) decrease in the current fiscal year quarter.

The decrease was primarily driven by a lower number of deicing trucks sold in the current quarter compared to the

comparable quarter from the prior fiscal year as a result of timing on fulfilling annual orders for certain customers.

At September 30, 2025, the ground support equipment segment’s order backlog was $12.9 million compared to $6.2 million at September 30, 2024.

The commercial aircraft, engines and parts segment contributed $20.9 million of revenues in the quarter ended September 30, 2025 compared to $32.9 million in the comparable prior year quarter, which is a decrease of $12.0 million (37%).

The decrease was largely attributable to a decline in component sales at Contrail, driven by a lower level of component inventory purchases during the preceding twelve-month period.

Digital solutions segment contributed $2.2 million of revenues in the quarter ended September 30, 2025 compared to $1.8 million in the prior year quarter, an increase of $0.4 million (20%).

The increase is primarily due to increased software subscriptions represented by monthly recurring revenues of $0.7 million as of September 30, 2025 versus $0.6 million as of September 30, 2024.

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):

Consolidated segment operating expenses for the three-month period ended September 30, 2025 decreased by $15.2 million (24%) compared to the same quarter in the prior fiscal year.

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

Three Months Ended

June 30, Change

September 30, Change

Overnight Air Cargo:

Operating expense $ 24,922 $ 26,326 $ (1,404)

$ 25,899 $ 25,709 $ 190

Percentage of segment net sales 83 % 84 %

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Operating expense 6,539 12,395 (5,856)

12,303 6,533 5,770

Percentage of segment net sales 68 % 86 %

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Operating expense 14,427 22,582 (8,155)

14,656 18,533 (3,877)

Percentage of segment net sales 69 % 69 %

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Segments total 46,650 61,985 (15,335)

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.

The overnight air cargo segment contributed $24.9 million and $26.3 million to the Company's operating expenses for the three-month period ended September 30, 2025 and 2024, respectively, representing a $1.4 million (5%) decrease in the current quarter.

The decrease was primarily attributable to the decrease in revenues noted above.

The ground support equipment segment contributed approximately $6.5 million and $12.4 million to the Company's operating expenses for the three-month period ended September 30, 2025 and 2024, respectively, representing a $5.9 million (47%) decrease in the current quarter.

The decrease was primarily driven by lower costs associated with the reduced sales volume discussed in the segment revenue section above.

However, the decline in operating expenses as a percentage of net sales was less pronounced than in the prior-year quarter, reflecting higher margins realized on deicing truck sales during the current period.

The commercial aircraft, engines and parts segment contributed $14.4 million and $22.6 million to the Company's operating expenses for the three-month period ended September 30, 2025 and 2024, respectively, representing a $8.2 million (36%) decrease in the current quarter.

Lower component sales in the current quarter resulted in the decrease in operating expenses.

The digital solutions segment contributed $0.8 million of operating expenses in the quarter ended September 30, 2025 compared to $0.7 million in the prior year quarter, reflecting a relatively flat year-over-year trend.

General and administrative

Three Months Ended

June 30, Change

September 30, Change

General and administrative $ 18,099 $ 14,202 $ 3,897

$ 15,031 $ 14,612 $ 419

Percentage of total net sales 28 % 17 %

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.

General and administrative expenses for the three-month period ended September 30, 2025 increased by $3.9 million (27%) compared to the first quarter of the prior fiscal year.

The increase was primarily driven by acquisition-related costs incurred during the current year, as well as higher payroll and employee-related expenses.

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):

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

Three Months Ended

June 30, Change

September 30, Change

Interest expense $ (2,252) $ (2,162) $ (90)

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

Earnout remeasurement income 402 20 382

Income from equity method investments 4,179 2,346 1,833

Other (201) (505) 304

$ 1,726 $ (321) $ 2,047

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.

The Company had net non-operating income of $1.7 million during the quarter ended September 30, 2025, compared to net non-operating loss of $0.3 million in the prior year quarter.

The non-operating income was driven by a $1.8 million increase in net income 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%.

During the three-month period ended September 30, 2025, the Company recorded $2.2 million in income tax expense at an effective tax rate (“ETR”) of 30.4%.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate 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 September 30, 2025 were the valuation allowance related to the Company’s U.S.

consolidated group, DTI and DSI, the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico, non-deductible acquisition-related costs, and the benefit from the Foreign-Derived Intangible Income (“FDII”) deduction.

During the three-month period ended September 30, 2024, the Company recorded $0.3 million in income tax expense at an ETR of 10.2%.

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 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 21.0% and the Company's effective tax rate for the three-month period ended September 30, 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.

First Six Months of Fiscal 2026 Compared to First Six Months of Fiscal 2025

Operating Revenue

Consolidated segment revenue for the six-month period ended September 30, 2025 decreased by $12.6 million (9%) compared to the same period in the prior fiscal year.

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

Six Months Ended

September 30, Change

Overnight Air Cargo $ 60,513 $ 61,570 $ (1,057) (2) %

Ground Support Equipment 24,707 21,809 2,898 13 %

Commercial Aircraft, Engines, and Parts 42,840 59,176 (16,336) (28) %

Digital Solutions 4,305 3,515 790 22 %

Segments total 132,365 146,070 (13,705) (9) %

Revenues from the overnight air cargo segment for the six months ended September 30, 2025 decreased by $1.1 million (2%) compared to the six months ended September 30, 2024.

The decrease was principally attributable to lower flight admin fees driven by increased soft and hard parked aircraft when compared to the prior year comparable period.

The ground support equipment segment's revenue for the six-month period ended September 30, 2025 was $24.7 million compared to $21.8 million in the same period in the prior fiscal year, an increase of $2.9 million (13%).

The increase is a result of increased deicer shipments and increase in spare parts sales in the current period.

We believe the increase in parts revenue is driven by heightened demand for maintenance and overhaul services preparation for the coming winter season.

The commercial aircraft, engines and parts segment contributed $42.8 million of revenues in the six months ended September 30, 2025 compared to $59.2 million in the comparable prior year six months period.

The decrease was largely attributable to a decline in component sales at Contrail, driven by a lower level of component inventory purchases during the preceding twelve-month period.

The digital solutions segment contributed $4.3 million of revenues in the six months ended September 30, 2025 compared to $3.5 million in the prior year six month period, an increase of $0.8 million (22%).

The increase was primarily due to increased software subscriptions represented by monthly recurring revenues of $0.7 million as of September 30, 2025 versus $0.6 million as of September 30, 2024.

Operating Expenses

Consolidated segment operating expenses for the six-month period ended September 30, 2025 decreased by $13.1 million (11%) compared to the same period in the prior fiscal year.

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

Six Months Ended

September 30, Change

Overnight Air Cargo:

Operating expense $ 50,821 $ 52,036 $ (1,215)

Percentage of segment net sales 84 % 85 %

Ground Support Equipment:

Operating expense 18,842 18,929 (87)

Percentage of segment net sales 76 % 87 %

Commercial Aircraft, Engines and Parts:

Operating expense 29,084 41,493 (12,409)

Percentage of segment net sales 68 % 70 %

Digital Solutions:

Operating expense 1,598 1,238 360

Percentage of segment net sales 37 % 35 %

Segments total 100,345 113,696 (13,351)

The overnight air cargo segment contributed $50.8 million and $52.0 million to the Company's operating expenses for the six-month period ended September 30, 2025 and 2024, respectively, representing a $1.2 million (2%) decrease in the current period.

The decrease was primarily attributable to lower costs associated with the decrease in revenues noted above.

Operating expenses from the ground support equipment segment for the six months ended September 30, 2025 was relatively flat compared to the six months ended September 30, 2024 but showed improvements when viewed as a percentage of net sales due to higher margins realized on deicer and part sales in the current year.

The commercial aircraft, engines and parts segment contributed $29.1 million and $41.5 million to the Company's operating expenses for the six months ended September 30, 2025 and 2024, respectively, representing a $12.4 million (30%) decrease in the current period.

Lower component sales in the current year resulted in the decrease in operating expenses.

The digital solutions segment contributed $1.6 million of operating expenses in the six months ended September 30, 2025 compared to $1.2 million in the prior year comparable period, reflecting a relatively flat year-over-year trend.

General and Administrative

Six Months Ended

September 30, Change

General and administrative $ 33,130 $ 28,437 $ 4,693

Percentage of total net sales 25 % 19 %

General and administrative expenses for the six month period ended September 30, 2025 increased by $4.7 million (17%) compared to the prior year comparable period.

The increase was primarily driven by acquisition-related costs incurred during the current year, as well as higher payroll and employee-related expenses.

Non-Operating Income (Expense)

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

Six Months Ended

September 30, Change

Interest expense $ (4,565) $ (4,108) $ (457)

Income from equity method investments 4,160 4,269 (109)

Other 478 179 299

$ 73 $ 340 $ (267)

The Company had a net non-operating income of $0.1 million for the six months ended September 30, 2025 compared to a net non-operating income of $0.3 million in the prior year six-month period.

Overall, non-operating results were relatively consistent with the prior-year period.

Provision for Income Taxes

During the six-month period ended September 30, 2025, the Company recorded $2.1 million in income tax expense at an ETR of 32.1%.

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.

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

consolidated group, DTI and DSI, the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico, non-deductible transaction costs, and the benefit from the FDII deduction.

During the six-month period ended September 30, 2024, the Company recorded $0.4 million in income tax expense at an ETR of 12.0%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 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.

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 June 30, 2025.

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

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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 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.

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 September 30, 2025.

Liquidity and Capital Resources

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 $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 of September 30, 2025, the Company held approximately $17.5 million in cash and cash equivalents and restricted cash.

The Company has an aggregate of approximately $28.4 million in available funds under its lines of credit as of September 30, 2025.

As of September 30, 2025, the Company’s working capital amounted to $49.4 million, an increase of $18.5 million compared to March 31, 2025, primarily driven by a $8.1 million increase in inventory and a $11.5 million increase in cash and cash equivalents.

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.

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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.

Monthly payments on Term Note C commenced 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.

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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):

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 NPA, 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

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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.

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 September 3, 2025, the Alerus Loan Parties under the Revolving Credit Agreement with Alerus entered into Amendment No.

5 to Credit Agreement, the Amended and Restated Revolving Credit Note, and the Amended and Restated Term Note A.

Pursuant to Amendment No.

5 to Credit Agreement, the Overline Note provisions and note were eliminated.

Pursuant to the Amended and Restated Revolving Credit Note, the revolving credit commitment to make revolving credit loans and to issue letters of credit was increased to an aggregate principal amount not to exceed $20.0 million.

The interest rate on the Revolving Credit Note was decreased to the greater of 5.00% or 1-month SOFR plus 1.90%.

The maturity date was extended to August 28, 2027.

The financial covenants are to be measured semi-annually at December and March of each year and the Alerus Loan Parties are to deliver quarterly financial statements to Alerus.

Pursuant to the Amended and Restated Term Note A, Term Note A was amended and restated by the Alerus Loan Parties in the principal amount of $9.2 million.

The maturity date remains August 15, 2029.

The Term Note A interest rate was revised to 1-month SOFR plus 2.00%.

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 three months ended June 30, 2025 and 2024 (in thousands):

Three Months Ended June 30,

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

Six Months Ended September 30,

Net cash (used in) provided by operating activities $ (6,504) $ 3,044

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

Net cash provided by (used in) financing activities 12,577 (1,291)

Net cash provided by (used in) investing activities 13,936 (14,195)

Net cash provided by financing activities 3,746 12,494

Effect of foreign currency exchange rates on cash and cash equivalents (147) (2)

Net Increase in Cash and Cash Equivalents and Restricted Cash $ 11,031 $ 1,341

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.

Net cash used in operating activities was $6.5 million for the six-month period ended September 30, 2025 compared to net cash provided by operating activities of $3.0 million in the prior year six-month period, representing a decrease of $9.5 million.

The decrease was primarily attributable to a $16.9 million change in cash flow from inventory and a $7.0 million current year period gain on sale of the two Airbus Model A321-111 aircraft.

The change in inventory was primarily driven by Contrail purchasing an engine for tear-down in the current year period while the prior year period saw high sales of component inventory that was not replenished.

The changes in inventory and gain on sale of aircraft were partially offset by a $13.4 million change in cash flow from accounts receivable.

The change in cash flows from accounts receivable in the current year period was due to the decrease in component sales at Contrail.

Net cash provided by investing activities for the six-month period ended September 30, 2025 was $13.9 million compared to net cash used in investing activities of $14.2 million in the prior year period.

The cash provided by investing activities in the current six-month period was primarily driven by proceeds of $19.9 million from the sale of the two Airbus Model A321-111 aircraft, partially offset by investments in unconsolidated entities of $6.8 million.

Cash used in investing activities in the prior year period was primarily driven by capital expenditures of $14.6 million related to the purchase of the two aircraft that were sold in the current year period.

Net cash provided by financing activities for the six-month period ended September 30, 2025 was $3.7 million compared to net cash provided by financing activities of $12.5 million in the prior year period.

The year-over-year decrease in net cash provided by financing activities was primarily due to a $13.4 million and $4.2 million increase on payments made on the Company's revolving lines of credit and term loans, respectively, partially offset by a $11.1 million increase in proceeds from the Company's revolving lines of credit.

Non-GAAP Financial Measures

3 unchanged sentences

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 certain assets that are on lease, as the Company believes this expense matches with the corresponding revenue earned on these leased assets.

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.

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.

1 unchanged sentence

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 months ended June 30, 2025 and 2024 (in thousands):

Three months ended

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

Three months ended Six months ended

9/30/2025 9/30/2024 9/30/2025 9/30/2024

Operating income (loss) $ 446 $ (577)

Operating income $ 5,508 $ 3,620 $ 6,354 $ 3,062

Depreciation and amortization (excluding certain leased assets depreciation) 1

730 949 1,432 1,709

Asset impairment, restructuring or impairment charges 198 124 239 503

Gain on sale of property and equipment (1) —

Loss (gain) on sale of property and equipment 21 (8) 20 (8)

Securities issuance expenses 20 28 49 129

1 unchanged sentence

Severance expenses — 39 — 218

Deal-sourcing expenses 210 —

Earnout remeasurement (264) 279 (666) 259

Deal-sourcing and acquisition related expenses 1,628 — 1,837 —

Adjusted EBITDA $ 7,882 $ 5,033 $ 9,346 $ 5,890

(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

(1) Leased assets depreciation expense excluded was $0.1 million and $0.7 million during the three and six months ended September 30, 2025, respectively.

There were no leased assets depreciation expense excluded for both the three and six months ended September 30, 2024.

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

Three months ended Six months ended

9/30/2025 9/30/2024 9/30/2025 9/30/2024

8 unchanged sentences

Air T Funding is a statutory business trust formed under Delaware law in September 2018.

Air T Funding exists for the exclusive purposes of (i) issuing and selling its Alpha Income Trust Preferred Securities (also referred to as the 8.0% Cumulative Securities, Capital Securities or “Trust Preferred Securities”), par value $25.00 per share, (ii) using the proceeds from the sale of the Trust Preferred Securities to acquire Junior Subordinated Debentures issued by the Company, and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Preferred Securities).

Air T Funding exists for the exclusive purposes of (i) issuing and selling its Alpha Income Trust Preferred Securities (also referred to as the 8.0% Cumulative Securities, Capital Securities or “Trust Preferred Securities” or "TruPs"), par value $25.00 per share, (ii) using the proceeds from the sale of the Trust Preferred Securities to acquire Junior Subordinated Debentures issued by the Company, and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Preferred Securities).

Accordingly, the Junior Subordinated Debentures are the sole assets of Air T Funding, and payments by the Company under the Junior Subordinated Debentures and a related expense agreement are the sole revenues of Air T Funding.

5 unchanged sentences

All of the Common Securities of Air T Funding are owned by Air T.

The Common Securities rank pari passu, and payments will be made thereon pro rata, with the Trust Preferred Securities, except that upon the occurrence and during the continuance of an event of default under the Trust Agreement, as amended resulting from an event of default under the indenture, the rights of the Company as holder of the common securities to payment in respect of distributions and payments upon liquidation, redemption or otherwise would be subordinated to the rights of the holders of the Trust Preferred Securities.

holder of the common securities to payment in respect of distributions and payments upon liquidation, redemption or otherwise would be subordinated to the rights of the holders of the Trust Preferred Securities.

The Trust Preferred Securities are subject to mandatory redemption at any time on or after June 7, 2024.

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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 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.

As of September 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 the 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