SEC Form 10-Q filed by Air T Inc. Air T Funding Alpha Income Trust

11/12/24 4:30:54 PM ET

$AIRTP

Air Freight/Delivery Services

Consumer Discretionary

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airt-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2024
☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to _____

Commission File Number 001-35476

Air T, Inc.

(Exact name of registrant as specified in its charter)


Delaware			52-1206400
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262

(Address of principal executive offices, including zip code)

(980) 595 – 2840

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AIRT	NASDAQ Capital Market
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) (“TruPs”)*	AIRTP	NASDAQ Global Market
*Issued by Air T Funding

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Common Stock			Common Shares, par value of $.25 per share
Outstanding Shares at October 31, 2024			2,760,047

AIR T, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
	PART I

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (Loss) (Unaudited) For The Three and Six Months Ended September 30, 2024 and 2023	3

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) For The Three and Six Months Ended September 30, 2024 and 2023	4

	Condensed Consolidated Balance Sheets as of September 30, 2024 and March 31, 2024 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows (Unaudited) For The Six Months Ended September 30, 2024 and 2023	6

	Condensed Consolidated Statements of Equity (Unaudited) For The Six Months Ended September 30, 2024 and 2023	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

	PART II

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 5.	Other Information	37

Item 6.	Exhibits	38
	Signatures	41
	Exhibit Index
	Certifications
	Interactive Data Files

Item 1. Financial Statements

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)


(In thousands, except per share data)	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Operating Revenues:
Overnight air cargo	$	31,187	$	28,197	$	61,570	$	55,925
Ground equipment sales	14,454		12,246		21,809		24,033
Commercial jet engines and parts	32,926		36,478		59,176		66,324
Corporate and other	2,675		2,045		5,099		4,115
	81,242		78,966		147,654		150,397


Operating Expenses:
Overnight air cargo	26,326		23,625		52,036		47,337
Ground equipment sales	12,395		10,553		18,929		20,891
Commercial jet engines and parts	22,582		29,962		41,493		53,240
Corporate and other	889		607		1,729		1,499
General and administrative	14,202		12,758		28,437		24,619
Depreciation and amortization	949		700		1,709		1,389


	77,343		78,205		144,333		148,975

Operating Income	3,899		761		3,321		1,422

Non-operating (Expense) Income:
Interest expense	(2,162)		(1,853)		(4,108)		(3,662)
Income from equity method investments	2,346		748		4,269		1,439
Other	(784)		(777)		(80)		(136)
	(600)		(1,882)		81		(2,359)

Income (Loss) before income taxes	3,299		(1,121)		3,402		(937)

Income Tax Expense	336		487		407		698

Net Income (Loss)	2,963		(1,608)		2,995		(1,635)

Net Income Attributable to Non-controlling Interests	(443)		(1)		(810)		(505)

Net Income (Loss) Attributable to Air T, Inc. Stockholders	$	2,520	$	(1,609)	$	2,185	$	(2,140)

Income (Loss) per share (Note 5)
Basic	$	0.91	$	(0.57)	$	0.79	$	(0.76)
Diluted	$	0.91	$	(0.57)	$	0.79	$	(0.76)

Weighted Average Shares Outstanding:
Basic	2,760		2,820		2,760		2,820
Diluted	2,760		2,820		2,760		2,820

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Six Months Ended September 30,
(In Thousands)	2024		2023		2024		2023
Net Income (Loss)	$	2,963	$	(1,608)	$	2,995	$	(1,635)
Foreign currency translation gain (loss)	719		(170)		669		(235)
Reclassification of interest rate swaps into earnings	(148)		(188)		(351)		(380)
Redemption of non-controlling interest	—		—		146		—
Other	(181)		16		(180)		40
Total Other Comprehensive Income (Loss)	390		(342)		284		(575)
Total Comprehensive Income (Loss)	3,353		(1,950)		3,279		(2,210)
Comprehensive Income Attributable to Non-controlling Interests	(443)		(1)		(810)		(505)
Comprehensive Income (Loss) Attributable to Air T, Inc. Stockholders	$	2,910	$	(1,951)	$	2,469	$	(2,715)

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(In thousands, except share amounts)	September 30, 2024		March 31, 2024
ASSETS
Current Assets:
Cash and cash equivalents	$	8,612	$	7,100

Restricted cash	572		743
Restricted investments	961		1,392
Accounts receivable, net of allowance for doubtful accounts of $1,747 and $1,420	30,766		22,911

Inventories, net	51,274		60,720
Prepaid expenses	2,199		2,351
Due from Crestone Asset Management, LLC ("CAM") for expense reimbursements	3,216		3,093
Other current assets (includes $450 and $531 measured at fair value)	5,010		4,567
Total Current Assets	102,610		102,877

Notes Receivable - Lendway, Inc. ("Lendway")	2,000		—
Equity method investments	17,592		16,653
Assets on lease or held for lease, net of accumulated depreciation of $309 and $8	15,856		252
Property and equipment, net of accumulated depreciation of $8,470 and $7,705	20,641		20,861
Intangible assets, net of accumulated amortization of $5,793 and $5,119	10,741		10,978
Right-of-use ("ROU") assets	14,224		11,376
Other assets (includes $835 and $1,909 measured at fair value)	2,777		3,630
Goodwill	10,675		10,540
Total Assets	197,116		177,167

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	15,533		15,072
Income tax payable	—		139
Accrued expenses and other (Note 3)	14,325		15,511
Current portion of long-term debt	12,390		14,358
Current portion of long-term debt - related party (Note 12)	570		—
Short-term lease liability	2,295		1,761
Total Current Liabilities	45,113		46,841

Long-term debt	114,409		98,568
Long-term debt - related party (Note 12)	4,000		—
Deferred income tax liabilities, net	2,447		2,447
Long-term lease liability	12,890		10,515
Other non-current liabilities	2,181		—
Total Liabilities	181,040		158,371

Redeemable non-controlling interests	7,267		12,976

Commitments and contingencies (Note 16)

Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized	—		—
Common stock, $0.25 par value; 4,000,000 shares authorized, 3,030,245 and 3,030,245 shares issued, 2,760,047 and 2,775,163 shares outstanding	758		758
Treasury stock, 270,198 shares at $19.47 and 256,850 shares at $19.31	(5,260)		(4,959)
Additional paid-in capital	878		859
Retained earnings	10,455		8,192
Accumulated other comprehensive income (loss)	204		(80)
Total Air T, Inc. Stockholders' Equity	7,035		4,770
Non-controlling Interests	1,774		1,050
Total Equity	8,809		5,820
Total Liabilities and Equity	$	197,116	$	177,167

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


(In Thousands)	Six Months Ended September 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	2,995	$	(1,635)
Adjustments to reconcile Net Income (Loss) to net cash provided by operating activities:
Depreciation and amortization	1,709		1,389
Income from equity method investments	(4,269)		(1,439)


Other	2,258		1,346
Change in operating assets and liabilities:
Accounts receivable	(8,182)		637
Inventories	8,832		16,699
Accounts payable	461		1,994
Accrued expenses	(1,306)		(1,059)
Employee retention credit receivable	—		940
Other	546		(2,975)
Net cash provided by operating activities	3,044		15,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated entities	—		(995)
Distribution from unconsolidated entities	3,000		1,817
Capital expenditures related to property & equipment	(581)		(557)
Capital expenditures related to assets on lease or held for lease	(14,598)		—
Disbursements for note receivable - Lendway	(2,000)		—
Other	(16)		(109)
Net cash (used in) provided by investing activities	(14,195)		156
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit	69,159		65,708
Payments on lines of credit	(59,451)		(67,274)
Proceeds from term loan	10,000		—
Payments on term loan	(6,865)		(15,438)

Other	(349)		(225)
Net cash provided by (used in) financing activities	12,494		(17,229)
Effect of foreign currency exchange rates on cash and cash equivalents	(2)		9
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	1,341		(1,167)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD	7,843		7,090
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	9,184		5,923

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Equipment in inventory transferred to assets on lease	112		—
Assumption of liabilities to acquire assets on lease	720		—
Non-cash contribution from non-controlling interest	475		—

Contingent earnout for Contrail Aviation Support, LLC ("Contrail") redeemed interest	1,104		—
Related-party note payable for Contrail redeemed interest	4,570		—

See notes to condensed consolidated financial statements.

AIR T, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


(In Thousands)	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balance, March 31, 2023	3,027	$	757	208	$	(4,083)	$	728	$	13,686	$	816	$	1,078	$	12,982

Net loss*	—	—		—	—		—		(531)		—		(9)		(540)

Repurchase of common stock	—	—		1	(15)		—		—		—		—		(15)

Stock compensation expense	—	—		—	—		79		—		—		—		79

Foreign currency translation loss	—	—		—	—		—		—		(65)		—		(65)

Adjustment to fair value of redeemable non-controlling interest	—	—		—	—		—		134		—		—		134

Unrealized gain on interest rate swaps, net of tax	—	—		—	—		—		—		24		—		24

Reclassification of interest rate swaps into earnings	—	—		—	—		—		—		(192)		—		(192)

Balance, June 30, 2023	3,027	$	757	209	$	(4,098)	$	807	$	13,289	$	583	$	1,069	$	12,407

Net loss*	—	—		—	—		—		(1,609)		—		(19)		(1,628)

Repurchase of common stock	—	—		—	—		—		—		—		—		—

Exercise of stock options	3	1		—	—		25		—		—		—		26

Stock compensation expense	—	—		—	—		79		—		—		—		79

Foreign currency translation loss	—	—		—	—		—		—		(170)		—		(170)

Adjustment to fair value of redeemable non-controlling interest	—	—		—	—		—		412		—		—		412

Unrealized gain on interest rate swaps, net of tax	—	—		—	—		—		—		16		—		16

Reclassification of interest rate swaps into earnings	—	—		—	—		—		—		(188)		—		(188)

Balance, September 30, 2023	3,030	$	758	209	$	(4,098)	$	911	$	12,092	$	241	$	1,050	$	10,954


(In Thousands)	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balance, March 31, 2024	3,030	$	758	257	$	(4,959)	$	859	$	8,192	$	(80)	$	1,050	$	5,820

Net loss*	—	—		—	—		—		(335)		—		(5)		(340)

Repurchase of common stock	—	—		13	(301)		—		—		—		—		(301)

Stock option forfeiture (Note 16)	—	—		—	—		(25)		—		—		—		(25)

Stock compensation expense	—	—		—	—		42		—		—		—		42

Foreign currency translation loss	—	—		—	—		—		—		(50)		—		(50)

Redemption of non-controlling interest	—	—		—	—		—		78		146		—		224

Unrealized gain on interest rate swaps	—	—		—	—		—		—		1		—		1

Reclassification of interest rate swaps into earnings	—	—		—	—		—		—		(203)		—		(203)

Balance, June 30, 2024	3,030	$	758	270	$	(5,260)	$	876	$	7,935	$	(186)	$	1,045	$	5,168

Net income (loss)	—	—		—	—		—		2,520		—		(1)		2,519

Repurchase of common stock	—	—		—	—		—		—		—		—		—

Stock option forfeiture (Note 16)	—	—		—	—		(28)		—		—		—		(28)

Stock compensation expense	—	—		—	—		30		—		—		—		30

Foreign currency translation gain	—	—		—	—		—		—		719		—		719

Reclassification of interest rate swaps into earnings	—	—		—	—		—		—		(148)		—		(148)

Initial consolidation of CASP, LLC	—	—		—	—		—		—		—		730		730

Allocation of comprehensive income from unconsolidated investments	—	—		—	—		—		—		2		—		2

Allocation of comprehensive income to redeemable non-controlling interests	—	—		—	—		—		—		(183)		—		(183)

Balance, September 30, 2024	3,030	$	758	270	$	(5,260)	$	878	$	10,455	$	204	$	1,774	$	8,809

*Excludes amount attributable to redeemable non-controlling interests in Contrail Aviation Support, LLC ("Contrail") and Shanwick B.V. ("Shanwick")

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Financial Statement Presentation

The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2024. The unaudited results of operations for the period ended September 30, 2024 are not necessarily indicative of the operating results for the full year.

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07- Segment Reporting (Topic 848): Improvements to Reportable Segment Disclosures. The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses utilized by the chief operating decision maker for a company along with details about who the chief operating decision maker is and their title. The Update additionally requires that all annual disclosures under Topic 280 be included in interim periods financial statements, clarifies when an entity can disclose multiple segment measures of profit or loss, and provides new segment disclosure requirements for entities with a single reportable segment. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 31, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09- Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this Update require the addition of specific categories to be disclosed in the rate reconciliation if they meet a quantitative threshold, disclosure of disaggregated income taxes paid to federal, state, and foreign jurisdictions, and disclosure of income or loss from continuing operations disaggregated by federal, state, and foreign jurisdictions. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

2. Revenue Recognition

Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.

The following is a description of the Company’s performance obligations:


Type of Revenue			Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product Sales			The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation. The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue. The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
Support Services			The Company provides a variety of support services such as aircraft maintenance and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis. For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service. Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.

In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.

The following table summarizes disaggregated revenues by type (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Product Sales
Overnight air cargo	$	10,070	$	9,207	$	19,769	$	18,378
Ground equipment sales	14,022		11,901		21,150		23,476
Commercial jet engines and parts	30,165		33,395		53,784		60,154
Corporate and other	219		286		467		621
Support Services
Overnight air cargo	21,037		18,899		41,695		37,449
Ground equipment sales	287		159		453		252
Commercial jet engines and parts	2,106		2,914		4,306		5,860
Corporate and other	1,661		1,233		3,202		2,489
Leasing Revenue

Ground equipment sales	15		10		30		34
Commercial jet engines and parts	475		12		514		23
Corporate and other	405		425		869		812
Other
Overnight air cargo	80		91		106		98
Ground equipment sales	130		176		176		271
Commercial jet engines and parts	180		157		572		287
Corporate and other	390		101		561		193

Total	$	81,242	$	78,966	$	147,654	$	150,397

See Note 1 4 for the Company's disaggregated revenues by geographic region and Note 1 5 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Contract Balances and Costs

Contract liabilities relate to deferred revenue, our unconditional right to receive consideration in advance of performance with respect to subscription revenue and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2024 and September 30, 2024 and the amount of contract liabilities as of April 1, 2024 that were recognized as revenue during the six-month period ended September 30, 2024 (in thousands):


	Outstanding contract liabilities		Outstanding contract liabilities as of April 1, 2024 Recognized as Revenue
As of September 30, 2024	$	4,134
As of April 1, 2024	$	4,359
For the six months ended September 30, 2024			$	(3,217)

3. Accrued Expenses and Other


(In thousands)	September 30, 2024		March 31, 2024

Salaries, wages and related items	$	5,581	$	5,296
Profit sharing and bonus	1,869		2,335
Other Deposits	477		1,403
Deferred Income	3,657		2,956
Other	2,741		3,521
Total	$	14,325	$	15,511

4. Income Taxes

During the three-month period ended September 30, 2024, the Company recorded $0.3 million in income tax expense at an effective rate ("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 September 30, 2024 were the valuation allowance related to the Company’s U.S. consolidated group, Delphax Technologies, Inc. (“DTI”), Landing Gear Support Services PTE LTD (“LGSS”), Delphax Solutions, Inc. ("DSI") and BCCM Advisors (Kenya) Limited ("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 September 30, 2023, the Company recorded income tax expense of $0.5 million at an ETR of (43.4)%. 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 September 30, 2023 were the valuation allowance related to the Company’s U.S. consolidated group, DSI, DTI, and LGSS, and the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico.

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 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 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.

During the six-month period ended September 30, 2023, the Company recorded income tax expense of $0.7 million at an ETR of (74.5)% 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 six-month period ended September 30, 2023 were the valuation allowance related to the Company’s U.S. consolidated group, DSI, DTI, and LGSS, and the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico.

5. Net Earnings (Loss) Per Share

Basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive.

As of September 30, 2023, all stock options under the Air T's 2012 Stock Option Plan have either been exercised or expired. Further, of the 202,400 options outstanding as of September 30, 2024 under the Air T's 2020 Omnibus Stock and Incentive Plan, none were exercisable.

The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Net income (loss)	$	2,963	$	(1,608)	$	2,995	$	(1,635)
Net income attributable to non-controlling interests	(443)		(1)		(810)		(505)
Net income (loss) attributable to Air T, Inc. Stockholders	$	2,520	$	(1,609)	$	2,185	$	(2,140)
Income (loss) per share:
Basic	$	0.91	$	(0.57)	$	0.79	$	(0.76)
Diluted	$	0.91	$	(0.57)	$	0.79	$	(0.76)
Antidilutive shares excluded from computation of income (loss) per share	—		—		—		—

Weighted Average Shares Outstanding:
Basic	2,760		2,820		2,760		2,820
Diluted	2,760		2,820		2,760		2,820

6. Intangible Assets and Goodwill

Intangible assets as of September 30, 2024 and March 31, 2024 consisted of the following (in thousands):


	September 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased software	$	573	$	(487)	$	86
Internally developed software	3,744		(974)		2,770
In-place lease and other intangibles	1,094		(405)		689
Customer relationships	8,254		(1,761)		6,493
Patents	1,112		(1,111)		1
Other	1,521		(1,055)		466
	16,298		(5,793)		10,505
In-process software	236		—		236
Intangible assets, total	$	16,534	$	(5,793)	$	10,741


	March 31, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Purchased software	$	582	$	(452)	$	130
Internally developed software	3,657		(790)		2,867
In-place lease and other intangibles	1,094		(348)		746
Customer relationships	8,009		(1,427)		6,582
Patents	1,112		(1,109)		3
Other	1,502		(993)		509
	15,956		(5,119)		10,837
In-process software	141		—		141
Intangible assets, total	$	16,097	$	(5,119)	$	10,978

Based on the intangible assets recorded at September 30, 2024 and assuming no subsequent additions to, or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:


(In thousands)
Year ending March 31,	Amortization
2025 (excluding the six months ended September 30, 2024)	$	594
2026	1,130
2027	1,056
2028	998
2029	990
2030	986
Thereafter	4,751
	$	10,505

The carrying amount of goodwill as of September 30, 2024 and March 31, 2024 was $10.7 million and $10.5 million, respectively. The increase from the prior fiscal year end balance is attributable to foreign currency translation adjustments related to the goodwill balance at Shanwick. There was no impairment on goodwill during the six months ended September 30, 2024.

7. Investments in Securities and Derivative Instruments

As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Term Note A - MBT and Term Note D - MBT). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt on Term Note A - MBT and Term Note D - MBT, which were designated as effective hedges. On August 31, 2021, Air T refinanced Term Note A and fixed its interest rate at 3.42%. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company amortized the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A at the time of de-designation into earnings over the remainder of its term. On July 10, 2024, the interest rate swap on Term Note A - MBT was terminated and the Company received proceeds in the amount $0.1 million with the net realized loss on swap termination included in other income (loss) on the condensed consolidated statement of income (loss). The swap termination has no impact on the Company's accounting for the fair value adjustments of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A - MBT. On July 10, 2024, the interest rate swap on Term Note D - MBT was also terminated and the Company received proceeds in the amount $41.0 thousand with the net realized loss on swap termination included in other income (loss) on the condensed consolidated statement of income (loss). As a result of this swap termination, the Company determined that the interest rate swap on Term Note D - MBT was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note D - MBT at the time of de-designation into earnings over the remaining term of the interest rate swap prior to termination.

On January 7, 2022, Contrail completed an interest rate swap transaction with Old National Bank ("ONB") with respect to the $43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail - Term Note G"). The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68%. As of February 24, 2022, this swap contract was designated as a cash flow hedging instrument and qualified as an effective hedge in accordance with ASC 815. On March 30, 2023, Contrail made a prepayment of $6.7 million on Contrail - Term Note G. As a result of this prepayment, the Company determined that the interest rate swap on Contrail - Term Note G was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Contrail - Term Note G at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Contrail - Term Note G's swap after March 30, 2023 are recognized directly into earnings.

When the interest rate swaps were designated as effective hedges, the effective portion of changes in the fair value on these instruments were recorded in other comprehensive income (loss) and reclassified into the consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affected earnings. The changes in the fair value of the instruments during the three and six months ended September 30, 2024 and 2023, inclusive of Term Note D - MBT due to its effective hedge designation at the time, were not material. The interest rate swaps are considered Level 2 fair value measurements. As of September 30, 2024 and March 31, 2024, the fair value of these interest-rate swap contracts was an asset of $0.8 million and $1.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets. We estimate that $0.8 million of net unrealized gains related to the interest rate swaps included in accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months.

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements.

The Company's gross unrealized gains and losses on equity securities for the three and six months ended September 30, 2024 and 2023 are as follows (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Unrealized Gains	$	216	$	389	$	441	$	925
Unrealized Losses	$	368	$	1,124	$	672	$	1,832

These unrealized gains and losses are included in other income (loss) on the condensed consolidated statement of income (loss). As of September 30, 2024 and March 31, 2024, the fair value of these marketable equity securities was an asset of $1.4 million and $1.9 million, respectively, which is included within restricted investments and other current assets in the condensed consolidated balance sheets.

8. Equity Method Investments

Lendway, Inc. investment

The Company’s investment in Lendway (NASDAQ: LDWY), formerly Insignia Systems, Inc., is accounted for under the equity method of accounting. The Company elected a three-month lag upon adoption of the equity method. On August 2, 2023, Insignia reincorporated in the state of Delaware as Lendway, Inc. Subsequent to reincorporation, Lendway sold its legacy business on August 4, 2023 and pivoted the business towards specialty agricultural finance. On February 26, 2024, Lendway acquired Bloomia B.V. ("Bloomia"), marking its first investment in specialty agriculture and underscoring its strategy of targeting high-quality agricultural assets and enterprises. As of September 30, 2024, the Company owned 487,000 Lendway shares, representing approximately 27.5% of Lendway's outstanding shares.

On August 15, 2024, the Company entered into a delayed draw term loan with Lendway for up to $2.5 million with an interest rate of 8.0%. On September 27, 2024 the borrowing limit was increased to $3.5 million and as of September 30, 2024, $2.0 million has been drawn. All outstanding principal and accrued interest will become due and payable to the Company on the maturity date, which is the earlier of August 15, 2029 or by written demand of the Company after February 15, 2026. Prior to the maturity, Lendway may prepay any accrued interest or principal outstanding without penalty.

Cadillac Casting, Inc. investment

The Company's 20.1% investment in Cadillac Casting, Inc. ("CCI") is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment, with a basis difference decrease of $0.3 million. The Company recorded a basis difference adjustment of $12.0 thousand and $25.0 thousand in each of the three and six months ended September 30, 2024.

CCI and Lendway's combined summarized unaudited financial information for the three and six months ended June 30, 2024 and 2023 is as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Revenue	$	52,662	$	47,905	$	98,419	$	99,062
Gross Profit	7,434		7,548		13,440		15,352
Operating income	1,823		3,984		3,029		9,245
Net income	755		3,295		2,081		8,410

Crestone Asset Management, LLC investment

On May 5, 2021, the Company formed an aircraft asset management business called Crestone Asset Management, LLC ("CAM"), formerly known as Contrail Asset Management LLC, and an aircraft capital joint venture called Crestone JV II LLC ("CJVII"), formerly known as Contrail JV II LLC. The venture focuses on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. The joint venture, CJVII, was formed as a series LLC ("CJVII Series"). It consists of several individual series that target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. CAM was formed to serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII Series as governed by the Management Agreement between CJVII and CAM (“Asset Management Function”), and 2) to directly invest into CJVII Series alongside other institutional investment partners (“Investment Function”).

CAM has two classes of equity interests: 1) common interests and 2) investor interests. Neither interest votes as the entity is operated by a Board of Directors. The common interests of CAM relate to its Asset Management Function. The investor interests of CAM relate to the Company’s and Mill Road Capital’s (“MRC”) investments through CAM into CJVII (the Investment Function) and ultimately into the individual CJVII Series. With regard to CAM’s common interests, the Company currently owns 90% of the economic common interests in CAM, and MRC owns the remaining 10%. MRC invested $1.0 million directly into CAM in exchange for 10% of the common interests. For the Asset Management Function, CAM receives origination fees, management fees, consignment fees (where applicable) and a carried interest from the direct investors into each CJVII Series. Such fee income and carried interest will be distributed to the Company and MRC in proportion to their respective common interests.

The Company determined that CAM is a variable interest entity and that the Company is not the primary beneficiary. This is primarily the result of the Company's conclusion that it does not control CAM’s Board of Directors, which has the power to direct the activities that most significantly impact the economic performance of CAM. Accordingly, the Company does not consolidate CAM and has determined to account for this investment using equity method accounting. The Company accounts for its investment in CAM using the hypothetical liquidation at book value ("HLBV") method without a reporting lag. The HLBV method uses a balance sheet approach to capture changes in the Company's claim on CAM's net assets from a period-end hypothetical liquidation at book value. This approach provides a more accurate reflection of the Company's investment in CAM, compared to recording its proportionate share of income or loss.

CAM's HLBV net assets, including common interests and investor interests, was $29.9 million and $22.5 million as of September 30, 2024 and 2023, respectively. Additionally, contributions from and distributions to both Air T and MRC for the three and six months ended September 30, 2024 and 2023 is as follows (in thousands):


	Three Months Ended				Six Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Contributions	$	—	$	—	$	—	$	457
Distributions	$	676	$	705	$	2,277	$	1,348

Investment balances for the Company's equity method investees as of September 30, 2024 and March 31, 2024 is as follows (in thousands):


Investment	September 30, 2024		March 31, 2024
Lendway	$	1,853	$	2,339
CCI	4,474		3,723
CAM	8,949		7,397
Other equity method investments	2,316		3,194
Total	$	17,592	$	16,653

Net income (loss) attributable to Air T, Inc. stockholders for the Company's equity method investees, included in non-operating (expense) income on the condensed consolidated statements of income (loss), including basis difference adjustments, during the three and six months ended September 30, 2024 and 2023 is as follows (in thousands):


	Three Months Ended				Six Months Ended
Investment	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Lendway	$	(206)	$	(10)	$	(496)	$	437
CCI	77		656		751		1,339
CAM	2,345		(67)		3,839		(562)
Other equity method investments	130		169		175		225
Total	$	2,346	$	748	$	4,269	$	1,439

The Company's equity method investees may, from time to time, make distributions and dividends to the Company in accordance with accumulated earnings at the investee. For the three and six months ended September 30, 2024 and 2023, the Company received distributions and dividends from equity method investees as follows (in thousands):


	Three Months Ended				Six Months Ended
Investment	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Lendway	$	—	$	—	$	—	$	—
CCI	—		151		—		452
CAM	676		580		2,277		1,196
Other equity method investments	118		35		1,051		169
Total	$	794	$	766	$	3,328	$	1,817

9. Inventories

Inventories consisted of the following (in thousands):


	September 30, 2024		March 31, 2024
Overnight air cargo:
Finished goods	$	1,122	$	893
Ground equipment manufacturing:
Raw materials	7,517		5,171
Work in process	2,537		5,244
Finished goods	4,894		2,770
Corporate and other:
Raw materials	1,166		1,003
Finished goods	723		724
Commercial jet engines and parts:

Parts	38,189		49,522
Total inventories	56,148		65,327
Reserves	(4,874)		(4,607)
Total inventories, net of reserves	$	51,274	$	60,720

10. Lessor Arrangements

Equipment Leases

The Company leases equipment to third-parties, primarily through Contrail. Leases for aircraft and engines to aviation customers typically have terms ranging from 1 and 4 years under operating lease agreements. On August 26, 2024, Contrail executed the operating agreement for CASP Leasing 1, LLC ("CASP"), a newly created and 95% owned subsidiary of Contrail. On August 29, 2024, CASP entered into two purchase agreements to acquire and subsequently lease two Airbus Model A321-111 aircraft. For the assets currently on lease, there are no options for the lessees to purchase the assets at the end of the lease term. The Company depreciates the aircrafts and engines on a straight-line basis over the assets' useful life from the acquisition date to an estimated residual value. During the three and six months ended September 30, 2024, the Company recognized depreciation expense relating to equipment leases of $0.2 million and $0.3 million, respectively. Depreciation expense relating to equipment leases for the three and six months ended September 30, 2023 was not material.

Future minimum rental payments to be received do not include contingent rentals that may be received under certain leases because amounts are based on usage. During the respective three and six months ended September 30, 2024, earned contingent rent on equipment leases totaled approximately $0.1 million. The Company had no contingent rent earned on equipment leases during the three and six months ended September 30, 2023. As of September 30, 2024, future minimum rental payments to be received under non-cancelable leases are as follows (in thousands):


Year ended March 31,
2025 (excluding the six months ended September 30, 2024)	$	968
2026	3,349
2027	3,316
2028	2,843


Thereafter	—
Total	$	10,476

Office leases

The Company, through its wholly owned subsidiary, Wolfe Lake, leases offices to third parties with lease terms between 5 and 29 years under operating lease agreements. For the offices currently on lease, there are no options for the lessees to purchase the spaces at the end of the leases. Our contractual obligations for offices currently on lease can include termination and renewal options. We utilize the reasonably certain threshold criteria in determining which options our customers will exercise. The Company depreciates the assets on a straight-line basis over the assets' useful life. During the respective three months ended September 30, 2024 and 2023, depreciation expense relating to office leases was $0.1 million. During the respective six months ended September 30, 2024 and 2023, depreciation expense relating to office leases was $0.2 million.

During the three and six months ended September 30, 2024, the Company recognized rental and other revenues related to operating lease payments of $0.4 million and $0.9 million, respectively, of which variable lease payments were $0.2 million and $0.4 million, respectively. During the three and six months ended September 30, 2023, the Company recognized rental and other revenues related to operating lease payments of $0.4 million and $0.8 million, respectively, of which variable lease payments were $0.2 million and $0.3 million, respectively. Future minimum rental payments to be received do not include variable lease payments that may be received under certain leases because amounts are based on usage. The following table sets forth the undiscounted cash flows for future minimum base rents to be received from customers for office leases in effect as of September 30, 2024:


Year ended March 31,
2025 (excluding the six months ended September 30, 2024)	$	483
2026	929
2027	901
2028	761
2029	684
2030	665
Thereafter	1,842
Total	$	6,265

11. Lessee Arrangements

The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.

The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.

Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.

The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.

The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The components of lease cost for the three and six months ended September 30, 2024 and 2023 are as follows (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Operating lease cost	$	749	$	742	$	1,418	$	1,424
Short-term lease cost	289		298		583		384
Variable lease cost	236		178		462		363
Total lease cost	$	1,274	$	1,218	$	2,463	$	2,171

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of September 30, 2024 and March 31, 2024 were as follows (in thousands):


	September 30, 2024			March 31, 2024
Operating leases
Operating lease ROU assets	$	14,224		$	11,376
Operating lease liabilities	$	15,185		$	12,276

Weighted-average remaining lease term
Operating leases	10 years, 5 months			12 years, 1 month

Weighted-average discount rate
Operating leases	5.63		%	5.09		%

During the six months ended September 30, 2024, the Company had ROU assets that were obtained in exchange for new operating lease liabilities in the amount of $3.8 million.

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of September 30, 2024 are as follows (in thousands):


	Operating Leases
2025 (excluding the six months ended September 30, 2024)	$	1,563
2026	3,051
2027	2,913
2028	2,291
2029	1,726
2030	977
Thereafter	7,669
Total undiscounted lease payments	20,190
Interest	(5,005)
Total lease liabilities	$	15,185

12. Financing Arrangements

Borrowings of the Company and its subsidiaries are summarized below at September 30, 2024 and March 31, 2024, respectively.

On May 30, 2024, Contrail, a majority-owned subsidiary of the Company, entered into a Membership Interest Redemption and Earnout Agreement (the “Redemption Agreement”) with OCAS, Inc., a corporation owned by the Chief Executive Officer of Contrail, Joe Kuhn (the “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 pursuant to a secured, subordinated promissory note ("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. The OCAS Loan is classified as related party debt on the Company's condensed consolidated balance sheet. As a result, it is excluded from the tables of current financing arrangements and contractual financing obligations below.

On August 29, 2024, the Company and twelve of the Company’s subsidiaries ("Alerus Loan Parties") entered into a credit agreement (the “New Credit Agreement”) with Alerus Financial, National Association (the “Lender”). The New Credit Agreement provides for a secured revolving credit facility ("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 the balance outstanding bears interest at a rate per annum equal to the greater of 5.00% or one-month SOFR plus 2.00%.

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

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.

Term Note A and Term Note B may be prepaid in whole or in part at any time, subject to accrued interest and a prepayment premium. The prepayment premium is: 3.00% of the prepaid amount in the first loan year, 2.00% in the second and third loan years, 1.00% in the fourth and fifth loan years, and no premium after the fifth loan year. No prepayment premium applies if it is refinanced by the Lender or prepaid with funds from the Alerus Loan Parties’ internally generated cash flows.

The Alerus Loan Parties are co-borrowers under the New Credit Agreement and each of the notes and include the following subsidiaries: AirCo, LLC, Airco 2, LLC, Air’Zona Aircraft Services, Inc., AirCo Services, LLC, CSA Air, Inc., Global Ground Support, LLC, Jet Yard, LLC, Jet Yard Solutions, LLC, Mountain Air Cargo, Inc., Stratus Aero Partners, LLC, Worldwide Aircraft Services, Inc., and Worthington Aviation, LLC. The obligations of the Alerus Loan Parties under the New Credit Agreement and the notes are secured by a first priority security interest in substantially all of the Alerus Loan Parties' 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.

The New Credit Agreement contains a financial covenant that the Borrowers will not permit the debt service coverage ratio to be less than 1.25 to 1.00 at any quarterly measurement date or permit the leverage ratio to be greater than 3.00 to 1.00 at any semi-annual measurement date. The New Credit Agreement also includes other customary representations and warranties, affirmative covenants, negative covenants and events of default. Upon the occurrence of events of default, the obligations to the Lender may be accelerated and the commitments may be terminated.

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 previous secured credit facility with Minnesota Bank & Trust ("MBT"). All debt issuance cost were expensed as debt extinguishment cost within other income (loss) on the condensed consolidated statement of income (loss). The Company incurred no termination penalties in connection with such termination.

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 Old National Bank ("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.

The following table provides certain information about the current financing arrangements of the Company and its subsidiaries (other than related party obligations) as of September 30, 2024:


(In Thousands)	September 30, 2024		March 31, 2024		Maturity Date	Interest Rate	Unused commitments at September 30, 2024		Type of Debt
Air T Debt
Revolver - MBT1	$	—	$	—	8/31/2024	SOFR + range of 2.25% - 3.25%			Recourse
Term Note A - MBT1	—		6,955		8/31/2031	3.42%			Recourse
Term Note B - MBT1	—		2,456		8/31/2031	3.42%			Recourse
Term Note D - MBT1	—		1,271		1/1/2028	1-month LIBOR + 2.00%			Recourse
Term Note F - MBT1	—		783		1/31/2028	Greater of 6.00% or Prime + 1.00%			Recourse
Debt - Trust Preferred Securities2	34,306		34,214		6/7/2049	8.00%			Recourse
Total	34,306		45,679

Jet Yard Debt
Term Loan - MBT1	—		1,749		8/31/2031	4.14%			Recourse
Total	—		1,749

Alerus Loan Parties Debt
Revolver - Alerus	12,930		—		2/28/2026	Greater of 5.00% or 1-month SOFR + 2.00%	1,070		Recourse
Term Note A - Alerus	10,592		—		8/15/2029	Greater of 5.00% or 1-month SOFR + 2.00%			Recourse
Term Note B - Alerus	2,272		—		8/15/2029	Greater of 5.00% or 1-month SOFR + 2.00%			Recourse
Total	25,794		—

Contrail Debt
Revolver - ONB	815		3,476		11/24/2025	1-month SOFR + 3.56%	$	24,185	Limited recourse3
Term Loan G - ONB	14,918		14,918		11/24/2025	1-month SOFR + 3.11%			Limited recourse3
Term Note I - ONB	4,580		10,000		9/28/2025	1-month SOFR + 3.11%			Limited recourse3
Term Note J - ONB	10,000		—		9/12/2028	1-month SOFR + 3.86%			Limited recourse3
Total	30,313		28,394

AirCo 1 Debt
Term Loan - PSB	5,434		5,434		12/11/2025	3-month SOFR + 3.26%			Non-recourse
Total	5,434		5,434

Wolfe Lake Debt
Term Loan - Bridgewater	9,197		9,327		12/2/2031	3.65%			Non-recourse
Total	9,197		9,327

Air T Acquisition 22.1
Term Loan - Bridgewater	4,000		4,000		2/8/2027	4.00%			Non-recourse
Term Loan A - ING	1,679		1,946		2/1/2027	3.50%			Non-recourse
Term Loan B - ING	1,120		1,081		5/1/2027	4.00%			Non-recourse
Total	6,799		7,027

WASI Debt
Promissory Note - Seller's Note	627		849		1/1/2026	6.00%			Non-recourse
Total	627		849

AAM 24-1 Debt
Promissory Notes - Honeywell	15,000		15,000		2/22/2031	8.50%			Non-recourse
Total	15,000		15,000

Total Debt	127,470		113,459

Unamortized Premiums and Debt Issuance Costs	(671)		(533)
Total Debt, net	$	126,799	$	112,926

At September 30, 2024, our contractual financing obligations, including payments due by period, are as follows (in thousands):


Due by	Amount
September 30, 2025	$	12,390
September 30, 2026	38,064
September 30, 2027	8,874
September 30, 2028	4,429
September 30, 2029	6,693
Thereafter	57,020
	127,470
Unamortized Premiums and Debt Issuance Costs	(671)
	$	126,799

1 The revolver and term notes with MBT were fully paid off with the proceeds from the new credit agreement with Alerus. The Company terminated all commitments under the credit facility with MBT as of August 29, 2024.

2 Does not include $9.0 million held by wholly-owned subsidiaries of the Company.

3 Includes Air T's guarantee of approximately $1.6 million.

13. Shares Repurchased

On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split on June 10, 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period. No shares were repurchased during the quarter ended September 30, 2024. The excise tax incurred in connection with the Company's stock repurchases during the six months ended September 30, 2024 was not material.

14. Geographical Information

Total tangible long-lived assets, which include property and equipment as well as assets on lease, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States, are summarized in the following table as of September 30, 2024 and March 31, 2024 (in thousands):


	September 30, 2024		March 31, 2024
United States	$	20,582	$	20,807
Foreign	15,915		306
Total tangible long-lived assets, net	$	36,497	$	21,113

The net book value of tangible long-lived assets located within each individual foreign country at September 30, 2024 and March 31, 2024 is listed below (in thousands):


	September 30, 2024		March 31, 2024
Bulgaria	$	15,617	$	—
Thailand	239		252
Other	59		54
Total tangible long-lived assets, net	$	15,915	$	306

Total revenue, in and outside the United States, is summarized in the following table for the six months ended September 30, 2024 and September 30, 2023 (in thousands):


	Six Months Ended September 30,
	2024		2023
United States	$	123,912	$	128,435
Foreign	23,742		21,962
Total revenue	$	147,654	$	150,397

15. Segment Information

The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts, and corporate and other. Segment data is summarized as follows (in thousands):


(In Thousands)	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
Operating Revenues by Segment:
Overnight Air Cargo
Domestic	$	31,137	$	28,099	$	60,680	$	55,236
International	50		98		890		689
Total Overnight Air Cargo	31,187		28,197		61,570		55,925
Ground Equipment Sales:
Domestic	13,872		8,833		19,671		20,532
International	582		3,413		2,138		3,501
Total Ground Equipment Sales	14,454		12,246		21,809		24,033
Commercial Jet Engines and Parts:
Domestic	22,695		28,763		41,155		50,730
International	10,231		7,715		18,021		15,594
Total Commercial Jet Engines and Parts	32,926		36,478		59,176		66,324
Corporate and Other:
Domestic	1,283		1,019		2,406		1,937
International	1,392		1,026		2,693		2,178
Total Corporate and Other	2,675		2,045		5,099		4,115
Total	81,242		78,966		147,654		150,397

Operating Income (Loss):
Overnight Air Cargo	1,807		2,039		3,645		3,974
Ground Equipment Sales	418		(12)		(358)		(97)
Commercial Jet Engines and Parts	3,648		1,152		4,743		2,629
Corporate and Other	(1,974)		(2,418)		(4,709)		(5,084)
Total	3,899		761		3,321		1,422

Capital Expenditures:
Overnight Air Cargo	70		46		261		204
Ground Equipment Sales	158		25		212		58
Commercial Jet Engines and Parts	14,612		21		14,674		141
Corporate and Other	—		61		32		154
Total	14,840		153		15,179		557

Depreciation and Amortization:
Overnight Air Cargo	112		90		210		175
Ground Equipment Sales	95		35		190		70
Commercial Jet Engines and Parts	369		189		560		380
Corporate and Other	373		386		749		764
Total	$	949	$	700	$	1,709	$	1,389

16. Commitments and Contingencies

Put/Call Options and Earnout

Contrail entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail and including put and call options with the Seller to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which occurred on July 18, 2021. On May 30, 2024, Contrail entered into a Membership Interest Redemption and Earnout Agreement (the "Redemption Agreement") with the Seller. Pursuant to the Redemption Agreement, Contrail agreed to purchase and redeem from the Seller, 16% of its 21% interest in Contrail, with the earnout period being retroactive to April 1, 2024. The purchase price for the redeemed interest is $4.6 million in the form of a secured, subordinated promissory note, plus an earnout amount valued at $1.1 million. Under the Redemption Agreement, the Seller is entitled to an annual earnout payment equal to 9.14% of Contrail's adjusted EBITDA over $7.0 million in each fiscal year beginning on March 31, 2025 and continuing through March 31, 2029. Pursuant to the Redemption Agreement, Contrail is required to calculate the earnout payments annually within 30 days following the completion of the annual audits of the Company and Contrail and payment of any amount due is required following satisfaction of a procedure to address any objections to the calculated amount. The earnout pursuant to the Redemption Agreement is a Level 3 fair value measurement that is valued at $1.4 million as of September 30, 2024 with an increase in value from the effective date of April 1, 2024 in the amount of $0.3 million included as part of other non-operating income in the condensed consolidated statements of income (loss).

In connection with the Redemption Agreement, the parties agreed to certain technical amendments to the First Amended and Restated Operating Agreement of Contrail and entered into a new Put and Call Agreement with respect to the remaining 5% interest in Contrail held by the Seller. Pursuant to the new Put and Call Agreement, commencing April 1, 2026 and at any time thereafter, either Contrail or the Seller has the option to elect by written notice to purchase or sell all of the remaining 5% interest in Contrail held by the Seller. The purchase price for the 5% interest is equal to 5% of the Contrail Equity Value, which is defined as an amount equal to nine times the average Adjusted EBITDA of Contrail's most recent three completed fiscal years at the time an option notice is delivered. The purchase price for the 5% interest is to be paid in equal quarterly installments over a three-year period, together with interest at the then current ten-year Treasury bond yield plus 2.5% adjusted annually. The Company has presented this redeemable non-controlling interest in Contrail ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the greater of fair value on the date of the agreement, adjusted for allocable income and loss, or the redemption value at the end of each reporting period.

In February 2022, in connection with the Company's acquisition of GdW, a consolidated subsidiary of Shanwick, the Company entered into a shareholder agreement with the 30.0% non-controlling interest owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick. The shareholder agreement includes the Shanwick Put/Call Option with regard to the 30.0% non-controlling interest. The non-controlling interest holders are the executive management of the underlying business. The Shanwick Put/Call Option grants the Company an option to purchase the 30.0% interest at the call option price that equals the average EBIT over the three Financial Years prior to the exercise of the Call Option multiplied by eight. In addition, the Shanwick Put/Call Option also grants the non-controlling interest owners an option to require the Company to purchase from them their respective ownership interests at the Put Option price, that is equal to the average EBIT over the three Financial Years prior to the exercise of the Put Option multiplied by seven and one-half. The Call Option and the Put Option may be exercised at any time from the fifth anniversary of the shareholder agreement and then only at the end of each fiscal year of Air T ("Shanwick RNCI").

The Company has presented the Shanwick RNCI between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the estimated redemption value at the end of each reporting period. As the Shanwick RNCI will be redeemed at established multiples of EBIT, it is considered redeemable at other than fair value. Changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling interests.

The Shanwick RNCI and Contrail RNCI are measured at the higher of their carrying value or their redemption value. As of September 30, 2024, the balances were comprised of the following (in thousands):


	Shanwick RNCI		Contrail RNCI		Total
Beginning Balance as of April 1, 2024	$	5,540	$	7,436	$	12,976
Contribution from non-controlling members	—		—		—
Distribution to non-controlling members	(323)		(120)		(443)
Net income attributable to non-controlling interests	25		325		350
Other comprehensive income attributable to the RNCI	(183)		—		(183)
Redemption value adjustments	466		—		466
Redemption of non-controlling interests	—		(5,899)		(5,899)
Ending Balance as of September 30, 2024	$	5,525	$	1,742	$	7,267

Crestone Asset Management, LLC and CJVII, LLC

For CAM's Investment Function, as described in Note 8, CAM's initial commitment to CJVII was approximately $51.0 million. The Company and MRC have commitments to CAM in the respective amounts of $7.0 million and $44.0 million. These represent the investor interests of CAM, separate and distinct from the common interests. Any investment returns on CAM’s investor interests are shared pro-rata between the Company and MRC for each individual investment at the CJVII Series. Per its Operating Agreement, CAM is comprised of only two Series: the Onshore and the Offshore Series. Participation in each is determined solely based on whether a potential investment at the CJVII Series is a domestic (Onshore) or international (Offshore) investment. As of September 30, 2024, for its Investment Function, the Company has contributed $10.6 million to CAM’s Offshore Series and $1.0 million to CAM’s Onshore Series. The Company fulfilled its Investment Function initial commitment to CAM in fiscal year 2023.

In connection with the formation of CAM, MRC has a fixed price put option of $1.0 million to sell its common equity in CAM to the Company at each of the first three (3) anniversary dates. At the later of (a) five (5) years after execution of the agreement and (b) distributions to MRC per the waterfall equal to their capital contributions, Air T has a call option and MRC has a put option on the MRC common interests in CAM ("secondary put and call option"). If either party exercises the option, the exercise price will be fair market value if Air T pays in cash at closing or 112.5% of fair market value if Air T opts to pay in three (3) equal annual installments after exercise. With respect to the secondary put and call option, as it is priced at fair value, the Company determined that there is no potential loss or gain upon exercise that would need to be recognized.

2020 Omnibus Stock and Incentive Plan

On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000. Through September 30, 2024, options to purchase up to 326,000 shares have been granted under the Plan. The options vest annually over a period of ten years based on a specified service condition ("vested awards") and expire ten years after vesting. However, the ability to exercise vested awards, occurring at the conclusion of each annual vesting period, is contingent upon the Company's stock price meeting predetermined milestones outlined in the options agreements (the "market condition"). If the market condition is not fulfilled at the annual vesting period on June 30 of every year, the vested awards may not be exercisable at any subsequent point. On the preceding two vesting dates, June 30, 2024 and June 30, 2023, a total of 33,000 shares satisfied the service condition; however, they did not meet the market condition to become exercisable. For the three and six months ended September 30, 2024, 18,000 and 26,000 unvested shares, respectively, were forfeited due to employee departures resulting in the reversal of previously recognized expense of $28.0 thousand and $53.0 thousand, respectively. For the three and six months ended September 30, 2024, total compensation cost recognized under the Plan was $30.0 thousand and $72.0 thousand. As of September 30, 2024, options to purchase up to 202,400 shares are outstanding under the Plan. No options were exercisable as of September 30, 2024.

17. Guarantees

Nonfinancial Guarantees

From time to time, we may issue guarantees or indemnifications to third parties assuring performance of lease agreements pertaining to aircraft assets owned by certain CJVII Series ("nonfinancial guarantees"). Air T's performance under these guarantees would be triggered by failure of the series to perform in accordance with the terms stated in the lease agreements.

Nonfinancial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable that we will be required to perform under a guarantee or indemnity, the amount of probable payment will be recorded.

The maximum potential payments for nonfinancial guarantees were $4.8 million and $10.1 million at September 30, 2024 and March 31, 2024, respectively. The reduction in the maximum potential payments required for nonfinancial guarantees this quarter, compared to March 31, 2024, stems from a strategic decision to sell the aircraft instead of maintaining it on lease, thereby mitigating future payment obligations for the underlying asset. The carrying value of recorded liabilities related to nonfinancial guarantees was $0 at both September 30, 2024 and March 31, 2024.

18. Subsequent Events

On October 16, 2024, the Company and AAM 24-1, LLC, a wholly-owned subsidiary of the Company ("AAM 24-1") entered into a Second Note Purchase Agreement (the “Second NPA”) with Honeywell Common Investment Fund and Honeywell International Inc. Master Retirement Trust ("Honeywell"). The Second NPA amended and restated the terms of the Company’s previously disclosed Note Purchase Agreement (the “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% senior secured notes (collectively the "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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

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 September 30, 2024 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. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any and all forecasts and projections in this document are “forward looking statements” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. 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;

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

•The risk that contracts with 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 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;

•The Company's ability to meet debt service covenants and to refinance existing debt obligations;

•The risk of injury or other damage arising from accidents involving the Company’s overnight air cargo operations, equipment or parts sold and/or services provided;

•Market acceptance of the Company’s commercial and military equipment and services;

•Competition from other providers of similar equipment and services;

•Changes in government regulation and technology;

•Changes in the value of marketable securities held as investments;

•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; and

•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.

We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time; it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (including the information presented therein under Risk Factors), as well other publicly available information.

Overview

Air T, Inc. (the “Company,” “Air T,” “we” or “us”) is a holding company with a portfolio of operating businesses and financial assets. 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:

•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; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and,

•Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other also comprises insignificant businesses and business interests.

Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income and Adjusted EBITDA.

Results of Operations

Second Quarter Fiscal 2025 Compared to Second Quarter Fiscal 2024

Consolidated revenue for the three-month period ended September 30, 2024 increased by $2.3 million (2.9%) 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, 2024 compared to the same quarter in the prior fiscal year (in thousands):


	Three Months Ended September 30,				Change
	2024		2023
Overnight Air Cargo	$	31,187	$	28,197	$	2,990	10.6	%
Ground Equipment Sales	14,454		12,246		2,208		18.0	%
Commercial Jet Engines and Parts	32,926		36,478		(3,552)		(9.7)	%
Corporate and Other	2,675		2,045		630		30.8	%
	$	81,242	$	78,966	$	2,276	2.9	%

Revenues from the overnight air cargo segment for the three-month period ended September 30, 2024 increased by $3.0 million (10.6%) compared to the second quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees due to increased fleet of 105 aircraft in the current year quarter compared to 85 aircraft in the prior year quarter and additional routes granted by FedEx.

The ground equipment sales segment contributed approximately $14.5 million and $12.2 million to the Company’s revenues for the three-month period ended September 30, 2024 and 2023 respectively, representing a $2.2 million (18.0%) increase in the current quarter. The increase was primarily driven by the higher number of deicing trucks sold in the current year quarter compared to prior year's comparable quarter. At September 30, 2024, the ground equipment sales segment’s order backlog was $9.1 million compared to $7.0 million at September 30, 2023.

The commercial jet engines and parts segment contributed $32.9 million of revenues in the quarter ended September 30, 2024 compared to $36.5 million in the comparable prior year quarter, which is a decrease of $3.6 million (9.7%). The decrease was

primarily driven by four whole engine sales at Contrail in the prior year’s quarter compared to none in the current year’s quarter. This was partially offset by the increase in component part sales in the current year’s quarter compared to prior year’s quarter. We believe Contrail's increased component part sales is driven by airlines’ focusing on maintaining existing fleets of 737NG and A320CEO aircraft, because new orders from the OEMs have been cancelled or delayed. The company is in a position to satisfy customer demand through available inventory and expertise in serviceable aftermarket material.

Revenues from the corporate and other segment for the three-month period ended September 30, 2024 increased by $0.6 million (30.8%) compared to the second quarter of the prior fiscal year. The increase was primarily attributable to increased software subscriptions at Shanwick.

Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2024 compared to the same quarter in the prior fiscal year (in thousands):


	Three Months Ended September 30,				Change
	2024		2023
Overnight Air Cargo	$	1,807	$	2,039	$	(232)
Ground Equipment Sales	418		(12)		430
Commercial Jet Engines and Parts	3,648		1,152		2,496
Corporate and Other	(1,974)		(2,418)		444
	$	3,899	$	761	$	3,138

Consolidated operating income for the quarter ended September 30, 2024 was $3.9 million, compared to operating income of $0.8 million in the comparable quarter of the prior year.

The overnight air cargo segment's operating income for the three-month period ended September 30, 2024 was $1.8 million compared to operating income of $2.0 million in the same quarter in the prior fiscal year. This decrease was primarily attributable to higher salaries expense.

The ground equipment sales segment's operating income for the quarter ended September 30, 2024 was $0.4 million compared to the prior year comparable quarter's operating loss of $12.0 thousand. This increase was primarily attributable to the higher sales noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated operating income of $3.6 million in the current year quarter compared to an operating income of $1.2 million in the prior year quarter. Even though the segment revenue was lower compared to the prior year quarter, the increase in operating income in the current quarter was primarily attributable to higher profit margins on Contrail's component sales compared to the prior year comparable quarter.

The corporate and other segment's operating loss for the three-month period ended September 30, 2024 was $2.0 million compared to the prior year comparable quarter's operating loss of $2.4 million. The decrease in operating loss was attributable to increased sales noted in the segment revenue discussion above.

Following is a table detailing non-operating income (expense) during the three months ended September 30, 2024 compared to the same quarter in the prior fiscal year (in thousands):


	Three Months Ended September 30,				Change
	2024		2023
Interest expense	$	(2,162)	$	(1,853)	$	(309)
Income from equity method investments	2,346		748		1,598
Other	(784)		(777)		(7)
	$	(600)	$	(1,882)	$	1,282

The Company had net non-operating loss of $0.6 million during the quarter ended September 30, 2024, compared to net non-operating loss of $1.9 million in the prior year quarter. The decrease in non-operating loss was primarily driven by a $1.6 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 $0.3 million increase in interest expense.

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 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.

During the three-month period ended September 30, 2023, the Company recorded income tax expense of $0.5 million at an ETR of (43.4)%. The Company records income taxes using an estimated tax rate 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, 2023 were the change in valuation allowance related to the Company's U.S. consolidated group, DSI, DTI, and LGSS, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

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

Following is a table detailing revenue by segment, net of intercompany during the six months ended September 30, 2024 compared to the same period in the prior fiscal year (in thousands):


	Six Months Ended September 30,				Change
	2024		2023
Overnight Air Cargo	$	61,570	$	55,925	$	5,645	10.1	%
Ground Equipment Sales	21,809		24,033		(2,224)		(9.3)	%
Commercial Jet Engines and Parts	59,176		66,324		(7,148)		(10.8)	%
Corporate and Other	5,099		4,115		984		23.9	%
	$	147,654	$	150,397	$	(2,743)	(1.8)	%

Revenues from the overnight air cargo segment for the six months ended September 30, 2024 increased by $5.6 million (10.1%) compared to the six months ended September 30, 2023. The increase was principally attributable to higher administrative fees due increased fleet of 105 aircraft in the current year compared to 85 aircraft in the prior year and additional routes granted by FedEx.

The ground equipment sales segment's revenue for the six-month period ended September 30, 2024 was $21.8 million compared to $24.0 million in the same period in the prior fiscal year. The decrease was primarily driven by the lower number of deicing trucks sold during the first three months of the current year compared to the prior year. We believe that the decline in sales for this segment is directly attributable to a decreased demand for deicing trucks across the entire industry, driven by the recent milder winters.

The commercial jet engines and parts segment contributed $59.2 million of revenues in the six months ended September 30, 2024 compared to $66.3 million in the comparable prior year six months period. The decrease was primarily driven by a total of five whole engine sales at Contrail and Worthington combined in the prior year compared to none in the current year. This is partially offset by Contrail's higher component part sales in the current year compared to prior 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 six months ended September 30, 2024 increased by $1.0 million (23.9%) compared to the six months ended September 30, 2023. The increase was primarily attributable to increased software subscriptions at Shanwick.

Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2024 compared to the same six months in the prior fiscal year (in thousands):


	Six Months Ended September 30,				Change
	2024		2023
Overnight Air Cargo	$	3,645	$	3,974	$	(329)
Ground Equipment Sales	(358)		(97)		(261)
Commercial Jet Engines and Parts	4,743		2,629		2,114
Corporate and Other	(4,709)		(5,084)		375
	$	3,321	$	1,422	$	1,899

Consolidated operating income for the six months ended September 30, 2024 was $3.3 million compared to an operating income of $1.4 million for the comparable six months of the prior year.

The overnight air cargo segment's operating income for the six months ended September 30, 2024 was $3.6 million compared to operating income of $4.0 million in the prior year comparable period. This decrease was primarily attributable to higher salaries expense.

The ground equipment sales segment's operating loss for the six months ended September 30, 2024 was $0.4 million compared to operating loss of $0.1 million in the prior year comparable period. The increased loss was primarily attributable to lower sales during the first three months noted above.

The commercial jet engines and parts segment generated operating income of $4.7 million in the current year six-month period compared to operating income of $2.6 million in the prior year six-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 six-month period ended September 30, 2024 was $4.7 million compared to an operating loss of $5.1 million in the prior year comparable period. The decrease in operating loss was primarily driven by the revenue increase noted above.

Following is a table detailing non-operating income (expense) during the six months ended September 30, 2024 compared to the same six months in the prior fiscal year (in thousands):


	Six Months Ended September 30,				Change
	2024		2023
Interest expense	$	(4,108)	$	(3,662)	$	(446)
Income from equity method investments	4,269		1,439		2,830
Other	(80)		(136)		56
	$	81	$	(2,359)	$	2,440

The Company had a net non-operating income of $0.1 million for the six months ended September 30, 2024 compared to a net non-operating loss of $2.4 million in the prior year six-month period. The decrease in non-operating loss was primarily driven by a $2.8 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 $0.4 million increase in interest expense.

During the six-month period ended September 30, 2024, the Company recorded income tax expense of $0.4 million at an ETR of 11.96%. 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% 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.

During the six-month period ended September 30, 2023, the Company recorded income tax expense of $0.7 million at an ETR of (74.5)%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2023 were the valuation allowance related to the Company's U.S. consolidated group, DSI, DTI, LGSS, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are fully described in Note 1 to the condensed consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024. The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. 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. 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 September 30, 2024.

Seasonality

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. Other segments have typically not experienced material seasonal trends.

Systems and Network Security

Although we have employed significant resources to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our systems, including hacking, viruses, malicious software, break-ins, phishing attacks, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our systems. Breaches of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of client information or other interruption to our business operations. As techniques used to obtain unauthorized access to sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures to protect against these attacks. If we are unable to avert these attacks and security breaches in the future, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us or other participants, or the communication infrastructure on which we depend. Actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue and net income.

Inflation

Future economic developments such as inflation and increased interest rates as well as further business issues present uncertainty and risk with respect to our financial condition and results of operations. 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 September 30, 2024.

Liquidity and Capital Resources

As of September 30, 2024, the Company held approximately $9.2 million in cash and cash equivalents and restricted cash. The Company also held $1.0 million in restricted investments held as statutory reserve of SAIC. The Company has an aggregate of approximately $25.3 million in available funds under its lines of credit as of September 30, 2024.

As of September 30, 2024, the Company’s working capital amounted to $57.5 million, an increase of $1.5 million compared to March 31, 2024.

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 12 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%.

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.

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.

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.

Cash Flows

Following is a table of changes in cash flow for the six months ended September 30, 2024 and 2023 (in thousands):


	Six Months Ended September 30,
	2024		2023
Net cash provided by operating activities	$	3,044	$	15,897
Net cash (used in) provided by investing activities	(14,195)		156
Net cash provided by (used in) financing activities	12,494		(17,229)
Effect of foreign currency exchange rates on cash and cash equivalents	(2)		9
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash	$	1,341	$	(1,167)

Net cash provided by operating activities was $3.0 million for the six-month period ended September 30, 2024 compared to net cash provided in operating activities of $15.9 million in the prior year six-month period. The decrease in operating cash flows was primarily driven by changes in inventory and accounts receivable, which had a net impact of $7.9 million and $8.8 million, respectively. Inventory decreased by $8.8 million in the current year period, compared to a larger decrease of $16.7 million in the prior year period, reflecting higher engine sales in the commercial jet engines and parts segment in the prior year period. Accounts receivable increased by $8.2 million in the current year due to the timing of component sales, whereas in the prior year, accounts receivable decreased by $0.6 million. These changes were partially offset by a $3.0 million net change in net income after adjustments in the current year period compared to the prior year period.

Net cash used in investing activities for the six-month period ended September 30, 2024 was $14.2 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 six-month period ended September 30, 2024 was $12.5 million compared to net cash used in financing activities of $17.2 million in the prior year period. The cash provided by financing activities in the current year six- period was primarily driven by $13.5 million more proceeds and $16.4 million less payments on the Company's term loans and revolving lines of credit compared to the prior year six-month period.

Non-GAAP Financial Measures

The Company uses adjusted earnings before taxes, interest, and depreciation and amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined by the SEC, to evaluate the Company's financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.

Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. 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 aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases. There was no depreciation expense for leased engines during the three or six months ended September 30, 2024 and 2023.

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. We may periodically review and update our non-GAAP financial measures based on our determination of their relevance to our business which could result in the addition or elimination of select non-GAAP financial measures in the future. 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 to Adjusted EBITDA for the three and six months ended September 30, 2024 and 2023 (in thousands):


	Three months ended				Six months ended
	9/30/2024		9/30/2023		9/30/2024		9/30/2023
Operating income	$	3,899	$	761	$	3,321	$	1,422
Depreciation and amortization (excluding leased engines depreciation)	949		700		1,709		1,389
Asset impairment, restructuring or impairment charges	124		3		503		5
Gain on sale of property and equipment	(8)		(2)		(8)		(8)
TruPs issuance expenses	28		47		129		93
Share-based compensation	2		79		18		157
Severance expenses	39		2		218		2
Adjusted EBITDA	$	5,033	$	1,590	$	5,890	$	3,060

The table below provides Adjusted EBITDA by segment for the three and six months ended September 30, 2024 and 2023 (in thousands):


	Three months ended				Six months ended
	9/30/2024		9/30/2023		9/30/2024		9/30/2023
Overnight Air Cargo	$	1,950	$	2,127	$	3,897	$	4,142
Ground Equipment Sales	513		23		1		(28)
Commercial Jet Engines and Parts	4,141		1,339		5,806		3,009
Corporate and Other	(1,571)		(1,899)		(3,814)		(4,063)
Adjusted EBITDA	$	5,033	$	1,590	$	5,890	$	3,060

Issuer and guarantor subsidiary summarized information

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). 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. Air T Funding’s business and affairs are conducted by a Property Trustee, a Delaware Trustee and two individual Administrative Trustees who are officers of Air T.

Distributions on the Trust Preferred Securities are payable to record holders at the annual rate of 8% of the stated $25.00 liquidation amount, payable quarterly in arrears on the 15th day of February, May, August, and November in each year. The Trust Preferred Securities issued by the Trust are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Air T. Air T guarantees the payment of distributions by Air T Funding and payments on liquidation of or redemption of the Trust Preferred Securities (subordinate to the right to payment of senior and subordinated debt of Air T, as defined in Note 1 2 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report). If Air T Funding has insufficient funds to pay distributions on the Trust Preferred Securities (i.e., if Air T has failed to make required payments under the Junior Subordinated Debentures), a holder of the Trust Preferred Securities would have the right to institute a legal proceeding directly against Air T to enforce payment of such distributions.

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.

The Trust Preferred Securities are subject to mandatory redemption at any time on or after June 7, 2024. Upon the repayment or redemption at any time, in whole or in part, of any Junior Subordinated Debentures, the proceeds from such repayment or redemption would be applied to redeem a like amount of the Trust Preferred Securities, at the liquidation amount plus any accumulated and unpaid distributions. If less than all of the Junior Subordinated Debentures are to be repaid or redeemed on a redemption date, then the proceeds from such repayment or redemption would be allocated to the redemption of the Trust Preferred Securities pro rata.

The Company also has an optional right to redeem the Junior Subordinated Debentures (i) on or after June 7, 2024, in whole at any time or in part from time to time at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof, or (ii) at any time, in whole (but not in part), upon the occurrence of a Tax Event, an Investment Company Event or a Capital Treatment Event (each as defined in the indenture) at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. In the event a Tax Event, an Investment Company Event or Capital Treatment Event has occurred and is continuing and the Company does not elect to redeem the Junior Subordinated Debentures and thereby cause a mandatory redemption of the Trust Preferred Securities or to liquidate Air T Funding and cause the Junior Subordinated Debentures to be distributed to holders of the Trust Securities in liquidation of Air T Funding, such Trust Preferred Securities will remain outstanding and additional sums may be payable on the Junior Subordinated Debentures.

So long as no Debenture event of default has occurred and is continuing, at any time on or after June 7, 2024, the Company has the right under the indenture to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each such period (each, an “Extension Period”), provided that no Extension Period may extend beyond the stated maturity of the Junior Subordinated Debentures on June 7, 2049. 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. 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). Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 20 consecutive quarters or extend beyond the stated maturity. Upon the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, the Company may elect to begin a new Extension Period. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extension Period. The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures.

Air T Funding has a term of 30 years, but may terminate earlier as provided in the Trust Agreement, as amended. 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 September 30, 2024, there are $43.3 million in Trust Preferred Securities outstanding ($9.0 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended March 31, 2024. Our exposures to market risk have not changed materially since March 31, 2024.

Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of September 30, 2024. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions, regardless of how remote.

There has not been any change in the Company’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split in June 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period. As of September 30, 2024, 809,636 shares may be repurchased pursuant to this program.

No shares were repurchased during the quarter ended September 30, 2024.

Item 5. Other information

During the quarter ended September 30, 2024, none of our directors or officers (as defined in Section 16 of the Exchange Act), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408 of Regulation S-K).

Item 6. Exhibits

(a) Exhibits


No.			Description

10.1			Credit Agreement by and among AirCo, LLC, a North Carolina limited liability company, Airco 2, LLC, a Kansas limited liability company, Air’Zona Aircraft Services, Inc., an Arizona corporation, AirCo Services, LLC, a North Carolina limited liability company, CSA Air, Inc., a North Carolina corporation, Global Ground Support, LLC, a North Carolina limited liability company, Jet Yard, LLC, an Arizona limited liability company, Jet Yard Solutions, LLC, an Arizona limited liability company, Mountain Air Cargo, Inc., a North Carolina corporation, Stratus Aero Partners LLC, a Delaware limited liability company, Worldwide Aircraft Services, Inc., a Kansas corporation, and Worthington Aviation, LLC, a North Carolina limited liability company, as Borrowers, Air T, Inc. as Loan Party Agent and Alerus Financial, National Association executed August 29, 2024, without schedules, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).

10.2			Form of Revolving Credit Note by the Borrowers executed August 29, 2024, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).

10.3			Form of Term Note A by the Borrowers executed August 29, 2024, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).

10.4			Form of Term Note B by the Borrowers executed August 29, 2024, incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).

10.5			Form of Security Agreement by the Borrowers in favor of Alerus Financial executed August 29, 2024, incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).

10.6			Form of Pledge Agreement by Air T, Inc. in favor of Alerus Financial executed August 29, 2024, incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).



10.7			Form of Guaranty of Air T, Inc. executed August 29, 2024, incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K filed August 30, 2024 (Commission File No. 001-35476).

10.8			Form of Aircraft Lease Agreement between CASP Leasing I, LLC and Electra Airways OOD – Aircraft #1, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 5, 2024 (Commission File No. 001-35476).*

10.9			Form of Aircraft Lease Agreement between CASP Leasing I, LLC and Electra Airways OOD – Aircraft #2, incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed September 5, 2024 (Commission No. 001-35476).*

10.10			Fifth Amendment to Master Loan Agreement by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank dated September 12, 2024, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed September 18, 2024 (Commission No. 001-35476).

10.11			Supplement #11 to Master Loan Agreement made and entered into by Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, CASP Leasing I, LLC and Old National Bank dated September 12, 2024, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed September 18, 2024 (Commission No. 001-35476).*

10.12			Term Note J by Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and CASP Leasing I, LLC dated September 12, 2024, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 18, 2024 (Commission No. 001-35476).

10.13			Subordination Agreement among Old National Bank, OCAS, Inc. and Contrail Aviation Support, LLC dated September 12, 2024, incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed September 18, 2024 (Commission No. 001-35476).


10.14			Note Purchase Agreement among Air T, Inc., AAM 24-1, LLC, Honeywell Common Investment Fund and Honeywell International Inc. Master Retirement Trust, dated October 16, 2024, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 22, 2024 (Commission No. 001-35476).

10.15			Form of Senior Secured Promissory Note, dated October 16, 2024, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed October 22, 2024 (Commission No. 001-35476).

22.1			List of Issuers and Guarantors

31.1			Section 302 Certification of Chief Executive Officer and President

31.2			Section 302 Certification of Chief Financial Officer

32.1			Section 1350 Certifications

101			The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.

* Portions of this exhibit have been omitted for confidential treatment.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			AIR T, INC.


Date: November 12, 2024

			/s/ Tracy Kennedy
			Tracy Kennedy, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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