Air T Inc 8-K, filed Aug 17, 2021
Air T Inc (AIRT)
8-K
2021-08-17
For: 2021-08-17
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April 09, 2026
About this 8-K
Air T Inc filed this 8-K on August 17, 2021.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 17, 2021
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). | |||||||||||
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Item 7.01 Regulation FD Disclosure
Updated Investor Presentation and Shareholder Q&A. The Company updated its investor presentation to potential investor groups for the purposes of use at its Annual Meeting and thereafter. A copy of the PowerPoint Presentation to be used by the Company for such presentations is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Company also prepared a written Shareholder Q&A document covering investor questions received in advance of the Company’s Annual Meeting. A copy of the Shareholder Q&A is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
The information contained in Item 7.01 to this Current Report on Form 8-K (including Exhibits 99.1 – 99.2) is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise be subject to the liabilities of that section. The information in this Item 7.01 (including Exhibits 99.1 – 99.2) shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, except as otherwise expressly stated in such filing.
Item 9.01 Financial Statements and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 17, 2021
AIR T, INC.
By: /s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer
NASDAQ: AIRT Q4 FY21 Update AUG 2021 A PORTFOLIO OF POWERFUL COMPANIES
Statements in this document, which contain more than historical information, may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important potential risks and uncertainties, including, but not limited to, the risk that contracts with major customers will be terminated or not extended, future economic conditions and their impact on the Company's customers, the Company's ability to recover on its investments, including recently acquired companies, the timing and amounts of future orders under the Company's Global Ground Support subsidiary’s contracts, and risks and uncertainties related to business acquisitions, including the ability to successfully achieve the anticipated benefits of the acquisitions, inflation rates, competition, changes in technology or government regulation, information technology disruptions, and the impact of any future terrorist activities in the United States and abroad. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. The Company is under no obligation, and it expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. Potential investors should review the Company’s risk factors contained in its reports filed with the Securities and Exchange Commission prior to investing. 2 SAFE HARBOR
3 ■ AIR T, INC. (NASDAQ: AIRT) is an industrious American company focused on generating after tax cash flow per share. ■ Founded in 1980, our businesses have a history of growth and cash flow generation. ■ Current management has been in place since 2013. The two largest shareholders have seats on the Board of Directors. WHO WE ARE OPERATING HIGHLIGHTS EXECUTIVE SUMMARY ■ AIR T, INC. operates 10 companies with 400+ employees. ■ For fiscal year end 2021, Revenues were $175.1 million and GAAP Operating Income was ($9.2) million. ■ Since 9/30/13, shares outstanding have declined from 3.7m* to 2.9m or 22.7%. *Adjusted for 3/2 stock split
1. About AIR T, INC. 2. FY21 Performance 3. Our Growth Factors 4. Appendix - Risk Factors 4 CONTENTS
5 ABOUT AIR T, INC.
We are an industrious American company established 40+ years and growing. 6 ■ Our businesses have a history of growth and cash flow generation. ■ We seek to identify and empower individuals and teams who will operate businesses well, increasing value over time. ■ We work to activate growth and overcome challenges, ultimately building businesses that flourish over the long-term. ■ Management has purchased a significant % of AIRT common stock in the open market, demonstrating real alignment with all common shareholders. ■ AIRT’s management team has a track record of successfully allocating capital.
“Investor-Operator Partnership” is designed to drive short and long-term value creation. 7 “We want our businesses to be managed by dynamic individuals within high-performance teams. We are set up to make space for dynamos and support their enterprises. The holding company team seeks to focus resources, activate growth and deliver long-term value for everyone associated with AIR T, INC.” - Nick NICK SWENSON CHAIRMAN & CEO
$175M 8 FY21 Revenue ($1.3M) FY21 Adj. EBITDA* 3 CORE SEGMENTS 10 COMPANIES 400+ EMPLOYEES OVERNIGHT AIR CARGO COMMERCIAL AIRCRAFT & ENGINES AVIATION GROUND SUPPORT EQUIPMENT *See Adjusted EBITDA reconciliation on slide 26
AIR T, INC. FY21 Highlights (For the Twelve-Month Period Ended 3/31/21) 9 FY Results ■ FY21 saw revenue declines across both our Air Cargo segment (down $9.0M) and Commercial Jet Engines and Parts segment (down $54.5M). Air Cargo segment revenues declined primarily due to lower third-party maintenance revenue, caused by the COVID-19 pandemic. Commercial Jet Engines and Parts segment revenue was down year over year consistent with significant declines in commercial aviation activity as a result of COVID- 19. ■ FY21 operating income was down $16.5M vs. FY20 driven primarily by lower profitability in our Commercial Jet Engines and Parts segment, offset by improved profitability in our Air Cargo Segment due to improved labor and overhead management and strong results at Global Ground Support. FY21 operating income was negatively impacted by $6.6M of non-cash impairments and inventory write-downs primarily related to our Commercial Jet Engines and Parts business units. FY21 FY20 Change Revenue $175.1M $236.8M ($61.7M) Operating Income ($9.2M) $7.3M ($16.5M) Adjusted EBITDA* ($1.3M) $9.0M ($10.3M) *See Adjusted EBITDA reconciliation on slide 26
Commercial Aircraft & Engines 10 SEGMENT 1 ■ We buy aircraft and engines, then either lease, trade, or send them to part out. ■ We supply parts to maintenance, repair and overhaul facilities (MRO). ■ Companies in this segment include Contrail Aviation Support, JetYard, AirCo, and Worthington Aviation. ■ This segment has been the most heavily- impacted segment by COVID-19. A niche between aircraft owners and MRO shops, this segment will seek to grow by coordinating activities and raising investment capital. Revenue, FY21 $46.8M Revenue, FY20 $101.3M Operating Income, FY21 ($10.9M) Operating Income, FY20 $8.3M
Overnight Air Cargo 11 SEGMENT 2 ■ We operate two of the seven FedEx feeder airlines. ■ Business units Mountain Air Cargo and CSA Air have a 40 year history with FedEx. ■ Revenue decline primarily due to lower third-party maintenance offset by significantly improved operational metrics An asset-light, predictable business. Revenue, FY21 $66.3M Revenue, FY20 $75.3M Operating Income*, FY21 $2.2M Operating Income*, FY20 $0.7M Air T Companies Since 1982, 1983
Aviation Ground Support Equipment 12 SEGMENT 3 ■ We manufacture deicing equipment, scissor lift trucks and other ground support equipment. ■ Sole-source deicer supplier to the US Air Force for 18 years. ■ Highly efficient light manufacturing facility. ■ The segment is comprised of Global Ground Support LLC. Segment’s order backlog was $10.3 million as of 12/31/21 compared to $51.5 million 3/31/20 Revenue, FY21 $60.7M Revenue, FY20 $59.2M Operating Income*, FY21 $8.9M Operating Income*, FY20 $7.3M Air T Company Since 1998
■ On May 6th 2021, we launched our previously announced Aviation Asset Management fund. Through this fund we will launch with $108m of initial capitalization with upsize commitments of $300m. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly targeting current generation narrow-body aircraft and engines. This platform will seek to build on the comprehensive origination and asset management expertise at our 79%-owned subsidiary, Contrail Aviation. 13 Aircraft Capital Fund NEWS ■ On June 23, 2021 we announced that Air T will not extend the expiration date of the remaining outstanding warrants (AIRTW) on our 8% Trust Preferred Stock (AIRTP) beyond the current August 30th 2021 expiration date. Trust Preferred Warrants
■ Two of our core business segments saw significant impacts due to COVID-19. Our Commercial Jet Engines and Parts segment is directly tied to activity levels in the commercial aviation industry. A portion of our Air Cargo Segment revenue has historically been derived from aircraft maintenance revenue for parties other than FedEx. This area of the business saw a large decline due to COVID-19 in Fiscal 2021. and we would expect to rebound along with increased levels of commercial aviation activity that has been seen in recent months. ■ In April 2020 we secured a Paycheck Protection Program $8.2m loan under the CARES Act. The purpose of this loan is to maintain employee salaries through the economic disruption caused by COVID-19. This loan has a 1% interest rate, up to a 5-year maturity, and has the possibility of being forgiven upon application with the Treasury Department. We believe we have utilized these funds in ways that would make them eligible for forgiveness and as of June 2021, we have submitted our application for forgiveness. 14 COVID-19 Update NEWS
FY14 FY21 Commercial Aircraft & Engines Overnight Air Cargo Ground Support Equipment FINANCIAL HIGHLIGHTS Over the last seven years, revenue has increased 107% and is more diversified. 15 +107% $174M* $84M SEGMENTS REVENUE 62% 38% 38% 35% 27% *Excludes revenue in FY21 earned outside of our core segments.
Non-Operating Assets 16 AIR T, Inc’s balance sheet includes $12.5 million of public and private securities, as of 3/31/21. OTHER AIR T, INC. Non-Operating Assets (In Millions) 3/31/21 Insignia Systems (ISIG) Stock – 0.5M Shares* $4.3 CCI Investment $3.8 Investments in BCCM Funds $0.9 TFS Partners LLC Investment $0.6 Other Investments $2.9 Total $12.5 *Based on closing price at 7/9/21 8.87
17 CAPITALIZATION TABLE AIR T, INC.’s capital structure is designed to appropriately shape our bet sizes; in part by utilizing non-recourse leverage For example, AIR T guarantees Contrail’s bank loans to a maximum limit of $1.6 million. AIR T, INC. DIRECT & GUARANTEED Interest Rate Maturity Date 3/31/2021 Revolver ($17m Capacity) Greater of 2.5% or Prime - 1% 8/31/2021 -$ Term Loans 1mo LIBOR + 2%, 4.50% 1/1/2028 10.1 Corporate Headquarters Real Estate 1mo LIBOR + 2% 1/1/2028 1.5 Trust Preferred 8% 6/7/2049 14.3 Term Note E* Greater of 1mo LIBOR +1.5% and 2.5% 6/25/2025 4.7 PPP Loan 1% 12/24/2022 8.2 Contrail Guarantee 1.6 Total Direct & Guaranteed 40.4$ NON- AIR T, INC. GUARANTEED Contrail Revolver ($40m Capacity) 1mo LIBOR + 3.45% 9/5/2021 - Term 1mo LIBOR + 3.75% varies, 2021-2025 - Term Loan G (Main Street Loan) 1mo LIBOR + 3% 11/24/2025 43.6 Less Air T, Inc. Guarantee (1.6) Total Contrail 42.0 AirCo I (Main Street Loan) 1mo LIBOR + 3% 12/11/2025 6.2 Total Non-Air T, Inc. Guaranteed 48.2$ Less: Unamortized Debt Issuance Costs (1.1) Total Debt & Preferreds 87.5 Cash & Restricted Cash (15.9) Net Debt 71.5$ *cash secured loan
FINANCIAL HIGHLIGHTS 18 Since 9/30/2013, the share price of AIRT has increased at 21.7% per annum*. *Reporting period 9/30/13 to 8/13/21, includes $4M Trust Preferred dividend to common shareholders
FINANCIAL HIGHLIGHTS Since 1994, our company has had a history of long-term and sustained financial health. 19 Note: FY2017 contained large non-cash impairments and inventory write-downs tied to our investment in Delphax Technologies. FY21 results contained $6.6m of non-cash impairments and inventory write downs primarily related to our aircraft parts companies as a result of COVID-19. - 50 100 150 200 250 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21 Revenue ($ in Millions) (15) (10) (5) - 5 10 15 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21 Operating Income ($ in Millions)
20 GROWTH STRATEGIES
GROWTH STRATEGIES Our four growth strategies are... 21 ■ Invest to build our current high-performing businesses. ■ Seek to acquire new cash-flow generating businesses. ■ Identify great marketable securities or alternative assets. ■ Create unique investment products and fund alongside third- party capital partnerships.
GROWTH STRATEGY 1 We plan to reinvest in projects at our high-performing businesses by... 22 ■ Purchasing commercial aircraft for trading, leasing and part-out. ■ Purchasing engine parts inventory. ■ Funding deicer builds for Global Ground Support.
GROWTH STRATEGY 2 We seek to acquire new cash-flow generating businesses by... 23 ■ Identifying and acquiring high- performing businesses with edge in the marketplace, which either complement our current portfolio or diversify into industries beyond aviation.
GROWTH STRATEGY 3 We plan to identify great marketable securities or alternative assets by... 24 ■ Searching for another committed activist opportunity. ■ Investing in distressed and high yield securities. ■ Investing in small cap securities. ■ Further investing in our current securities portfolio.
GROWTH STRATEGY 4 We plan to create unique investment products with outside capital partners by... 25 ■ Offering thoughtful and sustainable products with attractive return profiles ■ Attracting and retaining sophisticated investment professionals and creating space for talented asset managers.
Adjusted EBITDA Reconciliation 26 FY Results FY21 FY20 Operating Income (GAAP) ($9.2M) 7.3M Depreciation (excluding leased engine depreciation) $1.2M $1.3M Asset Impairment, write-downs, restructuring $6.6M $0.0M Gain on sale of PP&E ($0.0M) ($0.0M) Security Issuance Expense $0.0M $0.4M Adjusted EBITDA ($1.3M) $9.0M
APPENDIX Risk Factors 27
The purchase of securities of Air T, Inc., the “Company,” is highly speculative and involves a very high degree of risk. An investment in the Company is suitable only for persons who can afford the loss of their entire investment. Accordingly, in making an investment decision with respect to the Company’s securities, investors should carefully consider all material risk factors, including the risks, uncertainties and additional information set forth below as well as set forth in (i) our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Currents Reports on Form 8-K, and our definitive proxy statements, all which are filed with the SEC, and (ii) our prospectus, filed as a part of our Registration Statement on Form S-3, which is filed with the SEC, and any supplement to the prospectus, including information in any documents subsequently incorporated by reference into the prospectus. Additional risks not presently known or are currently deemed immaterial could also materially and adversely affect our financial condition, results of operations, business and prospects. General Business Risks ● The novel coronavirus (COVID-19) and other possible pandemics and similar outbreaks could result in material adverse effects on our business, financial position, results of operations and cash flows. ● Market fluctuations may affect our operations. ● Labor inflation could impact our profitability. ● We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses. ● Legacy technology systems require a unique technical skillset which is becoming scarcer. ● Our business may be adversely affected by information technology disruptions. ● The failure of our information technology systems could adversely impact our reputation and financial performance. ● We may not be able to insure certain risks adequately or economically. ● Legal liability may harm our business. ● Our business might suffer if we were to lose the services of certain key employees. SUMMARY RISK FACTORS 28 For more detail and explanation, please see the Company’s S-3 filed with the SEC.
Risks Related to Our Segment Operations ● The operating results of our four segments may fluctuate, particularly our commercial jet engine and parts segment. ● Our Air Cargo Segment is dependent on a significant customer. ● Our dry-lease agreements with FedEx subject us to operating risks. ● Because of our dependence on FedEx, we are subject to the risks that may affect FedEx’s operations. ● A material reduction in the aircraft we fly for FedEx could materially adversely affect our business and results of operations. ● Sales of deicing equipment can be affected by weather conditions. ● We are affected by the risks faced by commercial aircraft operators and MRO companies because they are our customers. ● Our engine values and lease rates, which are dependent on the status of the types of aircraft on which engines are installed, and other factors, could decline. ● Upon termination of a lease, we may be unable to enter into new leases or sell the airframe, engine or its parts on acceptable terms. ● Failures by lessees to meet their maintenance and recordkeeping obligations under our leases could adversely affect the value of our leased engines and aircraft which could affect our ability to re-lease the engines and aircraft in a timely manner following termination of the leases. ● We may experience losses and delays in connection with repossession of engines or aircraft when a lessee defaults. ● Our commercial jet engine and parts segment and its customers operate in a highly regulated industry and changes in laws or regulations may adversely affect our ability to lease or sell our engines or aircraft. ● Our aircraft, engines and parts could cause damage resulting in liability claims. ● We have risks in managing our portfolio of aircraft and engines to meet customer needs. ● Liens on our engines or aircraft could exceed the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft. ● In certain countries, an engine affixed to an aircraft may become an addition to the aircraft and we may not be able to exercise our ownership rights over the engine. SUMMARY RISK FACTORS 29 For more detail and explanation, please see the Company’s S-3 filed with the SEC.
Risks Related to Our Segment Operations (continued) ● Higher or volatile fuel prices could affect the profitability of the aviation industry and our lessees’ ability to meet their lease payment obligations to us. ● Interruptions in the capital markets could impair our lessees’ ability to finance their operations, which could prevent the lessees from complying with payment obligations to us. ● Our lessees may fail to adequately insure our aircraft or engines which could subject us to additional costs. ● If our lessees fail to cooperate in returning our aircraft or engines following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions. ● If our lessees fail to discharge aircraft liens for which they are responsible, we may be obligated to pay to discharge the liens. ● If our lessees encounter financial difficulties and we restructure or terminate our leases, we are likely to obtain less favorable lease terms. ● Withdrawal, suspension or revocation of governmental authorizations or approvals could negatively affect our business. Risks Related to Our Structure and Financing/Liquidity Risks ● Our holding company structure may increase risks related to our operations. ● A small number of stockholders has the ability to control the Company. ● An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our cash flow and negatively affect the results of our business operations. ● Our inability to maintain sufficient liquidity could limit our operational flexibility and also impact our ability to make payments on our obligations as they come due. ● Future cash flows from operations or through financings may not be sufficient to enable the Company to meet its obligations. ● A large proportion of our capital is invested in physical assets and securities that can be hard to sell, especially if market conditions are poor. ● To service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available. ● If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to seek alternatives. SUMMARY RISK FACTORS 30 For more detail and explanation, please see the Company’s S-3 filed with the SEC.
Risks Related to Our Structure and Financing/Liquidity Risks (continued) ● The transition away from LIBOR may adversely affect our cost to obtain financing and may potentially negatively impact our interest rate swap agreements. ● Despite our substantial indebtedness, we might incur significantly more debt, and cash may not be available to meet our financial obligations when due or enable us to capitalize on investment opportunities when they arise. ● Future acquisitions and dispositions of businesses and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce the value of the Company and its securities. ● We face numerous risks and uncertainties as we expand our business. ● Our business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively affect the Company’s ability to operate profitably. ● Strategic ventures may increase risks applicable to our operations. ● Rapid business expansions or new business initiatives may increase risk. ● Our policies and procedures may not be effective in ensuring compliance with applicable law. ● Compliance with the regulatory requirements imposed on us as a public company results in significant costs that may have an adverse effect on our results. ● Deficiencies in our public company financial reporting and disclosures could adversely impact our reputation. Risks Related to Our Investment in Securities ● Our results of operations may be affected by the value of securities we hold for investment and we may be unable to liquidate our investments in a timely manner or at full value. SUMMARY RISK FACTORS 31 For more detail and explanation, please see the Company’s S-3 filed with the SEC.
SELECTED INVESTOR QUESTIONS RECEIVED THROUGH AUGUST 17, 2021
1.Could you outline what the future looks like over the next 3 - 5 years for Air T overall and also specifically for each of the businesses you own?
We strive to direct AIRT’s capital to businesses and projects that generate attractive returns. We firmly believe a 20% hurdle rate is a healthy challenge given our size and opportunity set. Of course, we will at times fail to reach our goals. We think very hard about generating sustainable value that sets us up for future growth. To do that, we set out to identify and develop strong investor-operator partnerships with the people and teams who are running our businesses. We want to secure and empower these management teams. We believe that if we do this well, we will build lasting value for our shareholders and we will build an investor base whose goals and philosophies are consistent with our own. These are simple, but powerful ideas that we will strive to execute well.
Perhaps you are thinking: “Seems like this is what every private equity firm and investor is trying to do, what’s your edge?” Imagine that our Holdco Investing team is focused on empowering skilled management teams, and those managers focus on building their businesses without regard to an expiration date (like a P.E. firm) and with appropriate autonomy not found in most public companies (love you Jack Welch). Now imagine that occasionally, and unpredictably, these businesses generate real options that we identify and capitalize intelligently. Then this might, in some scenarios, represent a sustainable edge for Air T’s business model.
2.What are your key initiatives over the next year?
We are in a pandemic that has put tremendous strain on aviation, the sector in which many of our businesses operate. These challenges will continue to be a major area of focus over the next year. One of the growth initiatives we have mentioned in our past investor presentations is creating unique investment products with outside capital partners. We have products in advanced stages of development which will continue to be a major area of focus for us over the next year. Of course, intelligently investing the capital recently raised in Contrail JV II, LLC is one of our highest priorities.
3.The Trust Preferred Securities cost Air T 8% annually. Are you confident you will be able to earn in excess of an 8% return when investing this capital?
We believe the past year has proven that the future is much like a foreign country: sometimes strange and always impossible to forecast. Yet we believe on balance that the cash flow dynamics of our Trust Preferred (30 year bullet maturity) are similar to low-cost, 10-year amortizing bank facilities. Moreover, note that the interest on AIRTP 8% is tax deductible to Air T, Inc. so our after-tax hurdle is lower than 8%.
4.How do you plan to allocate capital going forward?
We believe, theoretically, that the Kelly Criterion is the best framework we know by which to judge an investment’s merit. Simply speaking, how much edge (or insight) do we have into the future state of an outcome, as compared to the payoff odds of that outcome?
In some sense, AIRT is set up as an idea factory that generates “looks” at various investments. Possibilities occur when real companies generate real investment projects, when our research and trading platform generates theses about compelling securities, and when our network generates private or special situations. We ‘get the call’ in each of these cases.
The more unique and insightful ‘looks,’ the greater possibility we will have a favorable edge given the payoff odds.
We don’t foresee a major change in our capital deployment strategy in the next 12 months.
5.Can you outline what you believe returns will likely be on the capital you've invested into Air T's various businesses?
We cannot predict or guarantee the returns we will earn going forward, but below are our aspirational goals for each segment:
Air Cargo: 20%+ unlevered
Ground Support Equipment: 20%+ unlevered
Commercial Jet Engines and Parts: 10%+ unlevered
Public and Private Securities: 15%+ unlevered
6.It would be helpful if you could disclose some of the major customers within the Ground Equipment Sales segment besides the USAF?
Most major domestic airlines
Several domestic regional airlines
Most major cargo operators
Foreign Militaries such as the Royal Canadian Airforce
Various Foreign Customers
7.Could you also disclose the customers and counterparties at the Commercial jet engines and parts segment?
Typically, aftermarket parts are sold to a range of airlines, cargo operators, and MRO shops worldwide. Customers and Counterparties that have been disclosed in our SEC filings include: Air Macau, DAE, Interjet, and Sun Country Airlines. Our Commercial Jet Engines and Parts segment does not have major customer or counter-party concentration at this time.
8.At your deicing business, do you see this as just a stable business or does this business have the ability to grow over time?
While the business can be highly cyclical, the Global Ground Support team has proven their ability to grow this business over the last several years and we expect them to continue searching for new ways to grow; they are not standing still.
9.Could you outline what you think the future looks like for the deicing segment?
We are focused on continuing to take market share and leading innovation in aircraft deicing. We will always be on the lookout for adjacent market or acquisition opportunities. The leadership at Global Ground Support is very strong, and we would welcome the opportunity to deploy additional capital under this team if the right opportunity presents itself.
10.It would be helpful if you could describe how you view the competitive advantages of Air T's various businesses?
Air Cargo: 40-year relationship as a trusted provider for FedEx.
Ground Support Equipment: Largest provider of deicing equipment in the country. Longstanding relationships with all major deicing customers worldwide and a strong management team.
Commercial Jet Engines: Longstanding industry relationships and a strong management team combined with a specialization on end -of -life aircraft management we feel provides a strong foundation to earn above -average returns in the industry.
11.The Commercial Jet Engine segment really took off after you acquired Contrail. Why did it do so well? What drove this performance pre-COVID?
After acquisition by Air T, Contrail expanded its aircraft trading and leasing operation with the opening of the Denver, Colorado office. This, combined with a strong banking relationship with Old National Bank, allowed the team to significantly expand trading operations that leveraged core competencies.
12.Could you outline the vision with the Commercial Jet Engines and Parts segment? What could this business look like in 3, 5, and 10 years?
If we execute well, then it’s possible to imagine that this segment will become a much larger player in the industry over the next 5 – 10 years. We believe the total addressable market is large, and they have an ambitious leadership team.
We believe the COVID-19 pandemic and subsequent turmoil in the aviation industry will present a major opportunity for Contrail to play offense over the next 5-10 years. We believe the combination of Contrail, Worthington, AirCo, and Jet Yard provide a strong end-of-life aircraft management platform that can be used to maximize the value of these assets. We believe we can use this platform to manage our own assets as well as assets on behalf of outside capital partners.
13.At the Commercial Jet Engines and Parts segment, do the various subsidiaries work together or are they pretty independent of one another?
Contrail has separate management and historically has not worked closely with the other Commercial Jet Engines and Parts companies. This may change over time as various opportunities present themselves that would benefit both Contrail and the other Air T entities.
Worthington/AirCo/Jet Yard are more closely integrated with Mark Harris as the CEO.
14.At your Commercial Jet Engines and Parts segment does Jet Yard tear apart planes and the other companies sell those parts?
There is some cooperation of that nature between Jet Yard and AirCo. However, most of Jet Yard’s teardown business has been for outside customers.
15.The Commercial Jet Engines & Parts segment has been allocated the most capital, therefore, can you provide more information on the segment & outline the vision?
The goal of the commercial aircraft segment is to be a premier provider of third-party aircraft/airframes/engines/parts. We seek to maximize the value of aircraft in the later stage of their lifecycle (15+ years old).
16.Can you help us better understand what drove the loss at the Commercial Aircraft Engines and Parts segment?
The loss is driven by Covid-19, causing overall lower activity levels in commercial aviation. Fewer planes are being bought, sold, and leased, fewer engines are being bought, sold and leased, fewer replacement parts are being bought, all in line with overall declines in aviation activity that have failed to produce volumes at or above our fixed cost.
17.How integrated are the subsidiaries in the Commercial Jet Engines and Parts segment?
Contrail has separate management and historically has not worked closely with the other Commercial Jet Engines and Parts companies. This may change over time as various opportunities present themselves that would benefit both Contrail and the other Air T entities.
Worthington/AirCo/Jet Yard are more closely integrated with Mark Harris as CEO.
18.How do you think about the returns you will earn on the capital invested in the Commercial Jet Engines and Parts segment?
Our aspirational goal is to earn a minimum 10% unlevered Return on Invested Capital (ROIC).
19.Was the loss at the Commercial Aircraft Engines and Parts segment caused by asset impairments, customers defaulting on leases, or something else?
The loss is driven by overall lower activity levels in commercial aviation. Fewer planes are being bought, sold, and leased, few engines are being bought, sold and leased, fewer replacement parts are being bought, all in line with overall declines in aviation activity. We have taken a write-down in inventory to account for current market conditions. The cash and non-cash P&L impacts can be discerned from our 10K.
20.Any help in terms of understanding the loss at the Commercial Aircraft Engines and Parts segment on a more granular level would be helpful?
Contrail: Buys, Sells, and Leases entire aircraft and aircraft engines. Also tears downs engines to be sold for parts. Primarily focused on 737 and A319/A320 aircraft. Primary operations in Madison Wisconsin and Denver Colorado.
Worthington: After-market parts and repairs for regional aircraft (under 150 seats). Primary operations in Eagan Minnesota.
AirCo: commercial airframe liquidator primarily focused on 737 and A320 aircraft. Primary operations in Eagan Minnesota.
Jet Yard: End-of-Life aircraft services company based at Pinal Airpark in Marana Arizona. Primarily focused on aircraft teardowns, part outs, and storage.
21.What is the rationale for the investment in Cadillac Castings?
Cadillac Casting is a Ductile Iron Foundry located in Cadillac, Michigan with a capacity to produce approximately 1.4 million molds per year. An elderly shareholder of Cadillac Casting wanted to sell in 2019 and Air T was among several parties who purchase the shares as part of the elderly-shareholder’s exit. An independent committee within Air T conducted due diligence and approved the purchase of this stake. This investment is completely independent from Air T’s other operations and investments.