Q&A with Management

Below are questions submitted by shareholders and answered by Air T, Inc. management. To submit your own question, click here. Please note that questions received, and answers transcribed from public forums, may be edited for spelling and/or clarity.
Why is your stock down?

Answered in December 31, 2023 Investor Presentation. We do not comment on our stock price.

Why do you think issuing Trust Preferreds ("TruPs") addresses your liquidity issues?

Answered in December 31, 2023 Investor Presentation.  TruPs are long-term capital with a periodic fixed obligation. This type of capital is well matched with the long-term businesses and assets that Air T owns. Because they are traded on the open market, we can buy and sell TruPs to manage our liquidity needs.

Why is this private company rife with conflicts of interest allowed to be publicly traded?

Answered in December 31, 2023 Investor Presentation. We follow the law. We care about our brand. Our board, auditors and SEC lawyers take very seriously all legal and regulatory conflicts of interest rules and concerns. Our CEO’s annual salary has never been more than $50,000. All of our AIRT employee equity incentive vesting requirements are tied to the performance of the stock; and, to date, none of the stock return vesting tests have been met. 

Why doesn’t this company just part itself out? Surely the two owners of 66% realize that a sale and debt paydown is better than an equity wipeout.

Answered in December 31, 2023 Investor Presentation. Thank you for your assertive question. We believe in the power of building businesses for the long term, and holding them in a public company structure allows us to do that. We believe in the Allocator/Operator Partnership – redeploying cash flows from businesses into high potentialities. We believe that over time our businesses are likely to generate cash flows for investment or principal repayment. We consider the combined value of these businesses to be greater than the individual parts. In addition, if we listen carefully and do our job correctly, Air T’s independent yet interrelated business enterprises may have emergent properties that isolated individuals do not possess. 

How is Air T, Inc preparing itself for a future with EVTOLs?

Answered in December 31, 2023 Investor Presentation. We work closely with our partners in the aviation industry to be on the cutting edge of pragmatic innovation. Therefore, we feel like we will be able to implement new flight technologies as they are adopted by the market. We do not have any EVTOL projects underway at this time.

Can I receive proxy statements online instead of via hard copy sent via snail mail?
Answered at 2023 Annual Shareholder Meeting (August 16, 2023). Yes, that is our standard practice and something we have done in the most recent past with the exception of this year. This year (fiscal year end 2022), we had an additional item up for vote on our proxy card, which was the amendment of our certificate of incorporation, and that requires an additional period of time for the SEC to review before it can become effective and thereafter mailed out. As a result, there was not enough time for the electronic (“Notice and Access”) delivery of our proxy materials. Any year in which we do not have an additional item up for vote on our proxy statement, we fully intend to send electronically.
Do you pay ordinary dividends or make partner distributions?
Answered on July 27, 2023. No. Our value proposition to shareholders of AIR T, INC. is to be good stewards of shareholder capital. We plan to reinvest in our high-performing businesses, acquire new cash-flow generating businesses and identify other great investment opportunities. Through our acquisitions and investments, along with our ongoing support of the dynamic individuals and teams at our networked portfolio of powerful companies, we seek to deliver meaningful value for all our stakeholders.

Never say never, however, we have made one special dividend to shareholders in the past. The distribution consisted of Trust Preferred securities and warrants to purchase additional trust preferred securities. The total face value of the Trust Preferred securities distributed was $4 million or approximately $1.30 per share.

Investors who are interested in owning an income generating security should consider owning our Trust Preferred securities which have a $2.00 annual dividend per share.

With the increased cash, any plans to reduce debt as in buying back some of the high rate AIRTP trust securities?
Answered at 2022 Annual Shareholder Meeting (August 17, 2022). We expect to see increased cash levels. We have not received our ERC from the U.S. Treasury or the recent tax refund. Those two items add up to a significant cash infusion to the company, and we expect them in the future. We have decided to use Air T 8% Preferred securities as a long-term source of capital. They serve as a terrific way for retail investors to get income, at the same time they allow us to capitalize Air T and do the things we want to do with our investments on the balance sheet.
Can you please update us on the status of the aviation ground support equipment segment and its outlook. Does the recent slump in sales suggest future demand?
Answered at 2022 Annual Shareholder Meeting (August 17, 2022). We had a very significant and positive result in fiscal 2021 which was not repeated in fiscal 2022. We have a terrific management team at Global Ground Support (GGS) and a consistent long-term track record of generating high returns on capital. We would point you to the historical results so you can make your own conclusions about the future.
The Trust Preferred Securities cost Air T 8% annually. Are you confident you will be able to earn in excess of an 8% return when investing this capital?

Answered on August 17, 2021. We believe the past year has proven that the future is much like a foreign country: sometimes strange and always impossible to forecast. Yet we believe on balance that the cash flow dynamics of our Trust Preferred (30 year bullet maturity) are similar to low-cost, 10-year amortizing bank facilities. Moreover, note that the interest on AIRTP 8% is tax deductible to Air T, Inc. so our after-tax hurdle is lower than 8%.

Adjusted EBITDA at GGS went from $9.13 MM in FY21 to $3.45 MM in FY22 due, in part, to fewer truck sales to the US Air Force. Any possibility of diversifying sales to other customers in the ground support equipment sector?
Answered at 2022 Annual Shareholder Meeting (August 17, 2022). We see an up-and-down and back-and-forth of sales to our customers including the military, airlines, and commercial deicing companies. Those are year-in and year-out fluctuations, and we expect those to continue. We’re constantly working on and have a dedicated sales team focused on growing our reach at the airlines and in the commercial aviation space. We expect both those customer bases to be very much a part of GGS’s future. Note that we announced our recent product development project at GGS, the Remote Aircraft Deicing Unit, which will be on display at this fall’s ground support show. It allows an operator to remotely control a deicer from anywhere in the world over the internet, which allows companies to manage their staffing and the training of their staff much more easily.
It would be helpful if you could disclose some of the major customers within the Ground Equipment Sales segment besides the USAF?
Answered on August 17, 2021.

Most major domestic airlines
Several domestic regional airlines
Most major cargo operators
Foreign Militaries such as the Royal Canadian Airforce
Various Foreign Customers

How do you plan to allocate capital going forward?

Answered on August 17, 2021. We believe, theoretically, that the Kelly Criterion is the best framework we know by which to judge an investment’s merit. Simply speaking, how much edge (or insight) do we have into the future state of an outcome, as compared to the payoff odds of that outcome?

In some sense, AIRT is set up as an idea factory that generates “looks” at various investments. Possibilities occur when real companies generate real investment projects, when our research and trading platform generates theses about compelling securities, and when our network generates private or special situations. We ‘get the call’ in each of these cases.

The more unique and insightful ‘looks,’ the greater possibility we will have a favorable edge given the payoff odds.

We don’t foresee a major change in our capital deployment strategy in the next 12 months.

Can you outline what you believe returns will likely be on the capital you've invested into Air T's various businesses?

Answered on August 17, 2021. We cannot predict or guarantee the returns we will earn going forward, but below are our aspirational goals for each segment:

Air Cargo: 20%+ unlevered
Ground Support Equipment: 20%+ unlevered
Commercial Jet Engines and Parts: 10%+ unlevered
Public and Private Securities: 15%+ unlevered

Could you outline what the future looks like over the next 3 - 5 years for Air T overall and also specifically for each of the businesses you own?

Answered on August 17, 2021. We strive to direct AIRT’s capital to businesses and projects that generate attractive returns. We firmly believe a 20% hurdle rate is a healthy challenge given our size and opportunity set. Of course, we will at times fail to reach our goals. We think very hard about generating sustainable value that sets us up for future growth. To do that, we set out to identify and develop strong investor-operator partnerships with the people and teams who are running our businesses. We want to secure and empower these management teams. We believe that if we do this well, we will build lasting value for our shareholders and we will build an investor base whose goals and philosophies are consistent with our own. These are simple, but powerful ideas that we will strive to execute well.

Perhaps you are thinking: “Seems like this is what every private equity firm and investor is trying to do, what’s your edge?” Imagine that our Holdco Investing team is focused on empowering skilled management teams, and those managers focus on building their businesses without regard to an expiration date (like a P.E. firm) and with appropriate autonomy not found in most public companies (love you Jack Welch). Now imagine that occasionally, and unpredictably, these businesses generate real options that we identify and capitalize intelligently. Then this might, in some scenarios, represent a sustainable edge for Air T’s business model.

At your deicing business, do you see this as just a stable business or does this business have the ability to grow over time?

Answered on August 17, 2021. While the business can be highly cyclical, the Global Ground Support team has proven their ability to grow this business over the last several years and we expect them to continue searching for new ways to grow; they are not standing still.

Could you outline what you think the future looks like for the deicing segment?

Answered on August 17, 2021. We are focused on continuing to take market share and leading innovation in aircraft deicing. We will always be on the lookout for adjacent market or acquisition opportunities. The leadership at Global Ground Support is very strong, and we would welcome the opportunity to deploy additional capital under this team if the right opportunity presents itself.

Could you also disclose the customers and counterparties at the Commercial jet engines and parts segment?

Answered on August 17, 2021. Typically, aftermarket parts are sold to a range of airlines, cargo operators, and MRO shops worldwide. Customers and Counterparties that have been disclosed in our SEC filings include: Air Macau, DAE, Interjet, and Sun Country Airlines. Our Commercial Jet Engines and Parts segment does not have major customer or counter-party concentration at this time.

It would be helpful if you could describe how you view the competitive advantages of Air T's various businesses?

Answered on August 17, 2021.

Air Cargo: 40-year relationship as a trusted provider for FedEx.

Ground Support Equipment: Largest provider of deicing equipment in the country. Longstanding relationships with all major deicing customers worldwide and a strong management team.

Commercial Jet Engines: Longstanding industry relationships and a strong management team combined with a specialization on end -of -life aircraft management we feel provides a strong foundation to earn above -average returns in the industry.

What are your key initiatives over the next year?

Answered on August 17, 2021. We are in a pandemic that has put tremendous strain on aviation, the sector in which many of our businesses operate. These challenges will continue to be a major area of focus over the next year. One of the growth initiatives we have mentioned in our past investor presentations is creating unique investment products with outside capital partners. We have products in advanced stages of development which will continue to be a major area of focus for us over the next year. Of course, intelligently investing the capital recently raised in Contrail JV II, LLC is one of our highest priorities.

The Commercial Jet Engine segment really took off after you acquired Contrail. Why did it do so well? What drove this performance pre-COVID?

Answered on August 17, 2021. After acquon by Air T, Contrail expanded its aircraft trading and leasing operation with the opening of the Denver, Colorado office. This, combined with a strong banking relationship with Old National Bank, allowed the team to significantly expand trading operations that leveraged core competencies.

Could you outline the vision with the Commercial Jet Engines and Parts segment? What could this business look like in 3, 5, and 10 years?

Answered on August 17, 2021. If we execute well, then it’s possible to imagine that this segment will become a much larger player in the industry over the next 5 – 10 years. We believe the total addressable market is large, and they have an ambitious leadership team.

We believe the COVID-19 pandemic and subsequent turmoil in the aviation industry will present a major opportunity for Contrail to play offense over the next 5-10 years. We believe the combination of Contrail, Worthington, AirCo, and Jet Yard provide a strong end-of-life aircraft management platform that can be used to maximize the value of these assets. We believe we can use this platform to manage our own assets as well as assets on behalf of outside capital partners.

At the Commercial Jet Engines and Parts segment, do the various subsidiaries work together or are they pretty independent of one another?

Answered on August 17, 2021. Contrail has separate management and historically has not worked closely with the other Commercial Jet Engines and Parts companies. This may change over time as various opportunities present themselves that would benefit both Contrail and the other Air T entities. Worthington/AirCo/Jet Yard are more closely integrated with Mark Harris as the CEO.

At your Commercial Jet Engines and Parts segment does Jet Yard tear apart planes and the other companies sell those parts?

Answered on August 17, 2021. There is some cooperation of that nature between Jet Yard and AirCo. However, most of Jet Yard’s teardown business has been for outside customers.

Can you help us better understand what drove the loss at the Commercial Aircraft Engines and Parts segment?

Answered on August 17, 2021. The loss is driven by Covid-19, causing overall lower activity levels in commercial aviation. Fewer planes are being bought, sold, and leased, fewer engines are being bought, sold and leased, fewer replacement parts are being bought, all in line with overall declines in aviation activity that have failed to produce volumes at or above our fixed cost.

How do you think about the returns you will earn on the capital invested in the Commercial Jet Engines and Parts segment?

Answered on August 17, 2021. Our aspirational goal is to earn a minimum 10% unlevered Return on Invested Capital (ROIC).

The Commercial Jet Engines & Parts segment has been allocated the most capital, therefore, can you provide more information on the segment & outline the vision?

Answered on August 17, 2021. The goal of the commercial aircraft segment is to be a premier provider of third-party aircraft/airframes/engines/parts. We seek to maximize the value of aircraft in the later stage of their lifecycle (15+ years old).

How integrated are the subsidiaries in the Commercial Jet Engines and Parts segment?

Answered on August 17, 2021. Contrail has separate management and historically has not worked closely with the other Commercial Jet Engines and Parts companies. This may change over time as various opportunities present themselves that would benefit both Contrail and the other Air T entities. Worthington/AirCo/Jet Yard are more closely integrated with Mark Harris as CEO.

Any help in terms of understanding the loss at the Commercial Aircraft Engines and Parts segment on a more granular level would be helpful?

Answered on August 17, 2021.
Contrail: Buys, Sells, and Leases entire aircraft and aircraft engines. Also tears downs engines to be sold for parts. Primarily focused on 737 and A319/A320 aircraft. Primary operations in Madison Wisconsin and Denver Colorado.

Worthington: After-market parts and repairs for regional aircraft (under 150 seats). Primary operations in Eagan Minnesota.
AirCo: commercial airframe liquidator primarily focused on 737 and A320 aircraft. Primary operations in Eagan Minnesota.

Jet Yard: End-of-Life aircraft services company based at Pinal Airpark in Marana Arizona. Primarily focused on aircraft teardowns, part outs, and storage.

Was the loss at the Commercial Aircraft Engines and Parts segment caused by asset impairments, customers defaulting on leases, or something else?

Answered on August 17, 2021. The loss is driven by overall lower activity levels in commercial aviation. Fewer planes are being bought, sold, and leased, few engines are being bought, sold and leased, fewer replacement parts are being bought, all in line with overall declines in aviation activity. We have taken a write-down in inventory to account for current market conditions. The cash and non-cash P&L impacts can be discerned from our 10K.

What is the rationale for the investment in Cadillac Castings?

Answered on August 17, 2021. Cadillac Casting is a Ductile Iron Foundry located in Cadillac, Michigan with a capacity to produce approximately 1.4 million molds per year. An elderly shareholder of Cadillac Casting wanted to sell in 2019 and Air T was among several parties who purchase the shares as part of the elderly-shareholder’s exit. An independent committee within Air T conducted due diligence and approved the purchase of this stake. This investment is completely independent from Air T’s other operations and investments.

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When does the Company’s fiscal year end?

Our fiscal year ends on the last day of March.

When is your annual shareholders meeting?

Air T’s annual shareholders’ meeting is usually held in August. We provide the specific date, time and place for each year’s shareholder meeting in our annual proxy statement and through this website.

Who is your transfer agent?

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Ticker Symbol: AIRT