AIR T INC Management report and analysis of the financial situation and operating results. (Form 10-Q)

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, 2022, to and including June 30, 2022 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.

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 publicly update 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, 2022 (including the information presented therein under Risk Factors),
as well other publicly available information.

Insight

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:

• Night air freight, which operates in the air express delivery services sector;

•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 that do not pertain to other
reportable segments.

Each line of business has distinct management teams and infrastructures that offer different products and services. We assess the performance of our business segments based on operating profit and adjusted EBITDA.

Operating results

Outlook

COVID-19 and its impact on the current financial, economic and financial market environment, as well as future developments in these and other areas, present uncertainty and risk to our financial condition and results. operating. Each of our companies

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implemented measures to attempt to limit the impact of COVID-19 but we still
experienced a substantial number of disruptions, and we experienced and continue
to experience a reduction in demand for commercial aircraft, jet engines and
parts compared to historical periods. Many of our businesses may continue to
generate reduced operating cash flow and may operate at a loss during fiscal
2023. We expect that the impact of COVID-19 will continue to some extent. The
fluidity of this situation precludes any prediction as to the ultimate adverse
impact of COVID-19 on economic and market conditions and our business in
particular, and, as a result, present material uncertainty and risk with respect
to us and our results of operations.

First Quarter of Fiscal 2023 vs. First Quarter of Fiscal 2022

Consolidated revenue for the three-month period ended June 30, 2022 increased by
$13.9 million (38%) compared to the same quarter of the previous year.

Following is a table detailing revenue by segment, net of intercompany during
the three months ended June 30, 2022 compared to the same quarter in the prior
fiscal year (in thousands):

                                                Three Months Ended
                                                     June 30,                   Change
                                                2022           2021
       Overnight Air Cargo                  $   20,564      $ 18,851      $

1,713 9%

       Ground Equipment Sales                    5,815         8,182        

(2,367) (29)%

Commercial aircraft engines and spare parts 22,855 9,594 13,261 138%

       Corporate and Other                       1,628           341         1,287    377  %
                                            $   50,862      $ 36,968      $ 13,894     38  %


Revenues from the air cargo segment for the three-month period ended June 30,
2022 increased by $1,713 (9%) compared to the first quarter of the prior fiscal
year. The increase was principally attributable to higher administrative fees
and maintenance labor revenue from FedEx.

The ground equipment sales segment contributed approximately $5.8 million and
$8.2 million to the Company's revenues for the three-month periods ended
June 30, 2022 and 2021 respectively, representing a $2.4 million (29%) decrease
in the current quarter. The decrease was primarily driven by lower sales volume
of military deicing trucks this quarter compared to prior year comparable
quarter. At June 30, 2022, the ground equipment sales segment's order backlog
was $17.2 million compared to $7.1 million at June 30, 2021. Finished Goods
inventory increased to $9.1 million as of June 30, 2022 from $7.3 million as of
June 30, 2021, as we added additional trucks ready for sale to capitalize on
opportunistic sales that may arise as customers continue to recover from the
impacts of the pandemic.

The commercial jet engines and parts segment contributed $22.9 million of
revenues in the quarter ended June 30, 2022 compared to $9.6 million in the
comparable prior year quarter, which is an increase of $13.3 million (138%). The
increase was primarily driven by higher component part sales across all
companies within the segment and engine sales at AirCo1 that did not occur in
the same quarter in the prior fiscal year.

Revenues from the corporate and other segment for the three-month period ended
June 30, 2022 increased by $1.3 million (377%) compared to the first quarter of
the prior fiscal year. The increase was primarily attributable to the
acquisitions mentioned in   Note 2   of the Notes to Condensed Consolidated
Financial Statements of this report.

Below is a table detailing operating profit (loss) by segment for the three months ended June 30, 2022 compared to the same quarter of the previous year (in thousands):

                                                   Three Months Ended
                                                        June 30,                 Change
                                                           2022         2021
       Overnight Air Cargo                  $     1,077            $   732      $   345
       Ground Equipment Sales                       142              1,423       (1,281)
       Commercial Jet Engines and Parts           3,074               (238)       3,312
       Corporate and Other                       (3,459)            (1,921)      (1,538)
                                            $       834            $    (4)     $   838


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Consolidated operating profit for the quarter ended June 30, 2022 has been $0.8 millionagainst an operating loss of $4,000 in the comparable quarter of the previous year.

The air cargo segment's operating income for the three-month period ended
June 30, 2022 was $1.1 million compared to operating income of $0.7 million the
first quarter of the prior fiscal year due primarily to having higher segment
revenues as described above, offset by higher pilot and staff salaries.

The ground equipment sales segment's operating income for the quarter ended
June 30, 2022 decreased by $1.3 million from the prior year comparable quarter
to $0.1 million. This decrease was primarily attributable to the decreased sales
noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated operating income of $3.1
million in the current-year quarter compared to an operating loss of $0.2
million in the prior-year quarter. The change was primarily attributable to the
increased component sales at the companies within this segment.

The corporate and other segment's operating loss increased by $1.5 million to
$3.5 million from the prior-year quarter loss of $1.9 million primarily driven
by higher benefits cost in the current-year quarter.

Following is a table detailing non-operating income (expense) during the three
months ended June 30, 2022 compared to the same quarter in the prior fiscal year
(in thousands):

                                                     Three Months Ended
                                                          June 30,                 Change
                                                      2022             2021
      Interest expense                          $    (1,822)         $ (939)     $   (883)
      Income from equity method investments             532              83           449

      Other                                            (154)          1,182        (1,336)
                                                $    (1,444)         $  326      $ (1,770)


The Company had a net non-operating loss of $1.4 million during the quarter
ended June 30, 2022, compared to net non-operating income of $0.3 million in the
prior-year quarter. In current year quarter, the Company had increased interest
expense due to the increased issuance of the Company's Trust Preferred
securities as well as an increased debt level at Contrail. In the first quarter
2021, the Company recorded a gain of $0.5 million on the liquidation of Delphax
France, a subsidiary of Delphax Technologies, Inc. Also in the current-year
quarter, the Company recorded $0.1 million of investment loss driven by
decreases in the fair value of our investments compared to prior-year quarter
investment gain of $0.3 million.

During the three-month period ended June 30, 2022, the Company recorded $0.2
million in income tax expense at an effective tax rate ("ETR") of (31.5)%. 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 21.0% and the Company's effective tax rate for the
three-month period ended June 30, 2022 were the change in valuation allowance
related to the Company's subsidiaries in the corporate and other segment,
Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as
"Delphax"), other capital losses, the estimated benefit for the exclusion of
income for SAIC under Section 831(b), and the exclusion from the tax provision
of the minority owned portion of the pretax income of Contrail Aviation Support,
LLC.

During the three-month period ended June 30, 2021, the Company recorded $5.0
thousand in income tax benefit at an effective tax rate ("ETR") of (1.6)%. 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 21.0% and the Company's effective tax rate for the
three-month period ended June 30, 2021 were the change in valuation allowance
related to Delphax and other capital losses, the estimated benefit for the
exclusion of income for SAIC under Section 831(b) and the exclusion from the tax
provision of the minority owned portion of the pretax income of Contrail.




Significant 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, 2022. 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,
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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
June 30, 2022.

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.

Supply Chain and Inflation

The Company continues to monitor a wide range of health, safety, and regulatory
matters related to the COVID-19 pandemic including its impact on our business
operations. In particular, ongoing supply chain disruptions have impacted
product availability and costs across all markets including the aviation
industry in which our company operates. Additionally, the United States is
experiencing an acute workforce shortage and increasing inflation which has
created a hyper-competitive wage environment. Thus far, the direct impact of
these items on our businesses has not been material. However, ongoing or future
disruptions to consumer demand, our supply chain, product pricing inflation, our
ability to attract and retain employees, or our ability to procure products and
fulfill orders, could negatively impact the Company's operations and financial
results in a material manner. We continue to look for proactive ways to mitigate
potential impacts of supply chain disruptions at our businesses.

Cash and capital resources

As of June 30, 2022, the Company held approximately $9.5 million in cash and
cash equivalents and restricted cash, $2.0 million of which related to
restricted cash collateralized held for three opportunity zone investments made
by the Company - Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the
"Opportunity Zone Funds"), each a Minnesota limited liability company and a
subsidiary of the Company. The Company also held $1.7 million in restricted
investments held as statutory reserve of SAIC. The Company has approximately
$0.9 million of marketable securities and an aggregate of $32.9 million in
available funds under its lines of credit as of June 30, 2022.

From June 30, 2022the Company’s working capital amounted to $107.7 millionan augmentation of $10.4 million compared to March 31, 2022.

As mentioned in   Note 2   and   Note 12   of Notes to Condensed Consolidated
Financial Statements of this report, on December 2, 2021, the Company, through
its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the
real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant
to a real estate purchase agreement with WLPC East, LLC, a Minnesota limited
liability company (an unrelated third-party) dated October 11, 2021. The real
estate purchased consists of a 2-story office building, asphalt-paved driveways
and parking areas, and landscaping. The building was constructed in 2004 and
contains an estimated 54,742 total square feet of space. The real estate
purchased is where the Air T's Minnesota executive office is currently located.
With this purchase, the Company assumed 11 leases from existing tenants
occupying the building. The purchase price was $13.2 million, which was paid for
with approximately $3.3 million in cash and a new secured loan from Bridgewater
with an aggregate principal amount of $9.9 million and a fixed interest rate of
3.65% which matures on December 2, 2031.

As mentioned in   Note 12   of Notes to condensed Consolidated Financial
Statements included under Part I, Item 1 of this report, on June 9, 2022, the
Company, Jet Yard and MBT entered into Amendment No. 1 to Third Amended and
Restated Credit Agreement ("Amendment") and a related Overline Note ("Overline
Note") in the original principal amount of $5.0 million. The Amendment and Note
memorialize an increase to the amount that may be drawn by the Company on the
MBT revolving credit agreement from $17.0 million to $22.0 million. As of
June 30, 2022, the unused commitment of the MBT revolver and the Overline Note
was $2.9 million and $5.0 million, respectively. The total amount of borrowings
under the facility as revised is now the Company's calculated borrowing base or
$22.0 million. The borrowing base calculation methodology remains unchanged.

As mentioned in   Note 15   of Notes to Condensed Consolidated Financial
Statements included under Part I, Item 1 of this Report on Form 10-Q, in 2016,
Contrail entered into an Operating Agreement with the Seller providing for the
put and call options with regard to the 21% non-controlling interest retained by
the Seller. The Seller is the founder of Contrail and its current Chief
Executive Officer. The Put/Call Option permits the Seller or the Company to
require Contrail Aviation to purchase all of the Seller's equity membership
interests in Contrail Aviation commencing on July 18, 2021. As of the date of
this filing, neither the Seller nor the Company has indicated an intent to
exercise the put and call options. If either side were to exercise the option,
the Company anticipates that the price would approximate the fair value of the
Contrail RNCI, as determined on the transaction date. The Company currently
expects that it would fund any required payment from cash provided by
operations.

As mentioned in   Note 15   of Notes to condensed Consolidated Financial
Statements included under Part I, Item 1 of this report, on May 5, 2021, the
Company formed an aircraft asset management business called CAM and an aircraft
capital joint venture called
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CJVII. The venture focuses on acquiring commercial aircraft and jet engines for
leasing, trading and disassembly. CJVII targets investments in current
generation narrow-body aircraft and engines, building on Contrail Aviation's
origination and asset management expertise. CAM serves two separate and distinct
functions: 1) to direct the sourcing, acquisition and management of aircraft
assets owned by CJVII, and 2) to directly invest into CJVII alongside other
institutional investment partners. CAM has an initial commitment to CJVII of
approximately $53.0 million, which is comprised of an $8.0 million initial
commitment from the Company and an approximately $45.0 million initial
commitment from MRC. As of June 30, 2022, CAM's remaining capital commitments
are approximately $1.1 million from the Company and $19.7 million from MRC.
CJVII was initially capitalized with up to $408.0 million of equity from the
Company and three institutional investor partners, consisting of $108.0 million
in initial commitments and $300.0 million in upsize capacity, contingent on
underwriting and transaction appeal. As of the date of this filing, $91.6
million of capital has been deployed to CJVII. The timing of the remaining
capital commitment is not yet known at this time.

The Company believes it is probable that the cash on hand and current
financings, net cash provided by operations from its remaining operating
segments, together with amounts available under our current revolving lines of
credit, as amended, will be sufficient 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 flow

The following is a table of changes in cash flow from continuing operations for the three months ended June 30, 2022 and 2021 (in thousands):

Three months completed June 30th,

                                                                     2022                            2021
Net Cash Used in Operating Activities                                 (2,531)                         (8,821)
Net Cash Used in Investing Activities                                 (1,060)                         (1,449)
Net Cash Provided by Financing Activities                              4,573                           5,819

Effect of exchange rates on cash and cash equivalents

                                                              173                             (49)

Net increase (decrease) in cash and cash equivalents and restricted cash

                                                        1,155                          (4,500)


Net cash used in operating activities was $2.5 million for the three-month
period ended June 30, 2022 compared to net cash used in operating activities of
$8.8 million in the prior year three-month period, equating to an overall
decrease of $6.3 million period over period. The overall decrease in net cash
used in operating activities was primarily driven by a net increase in cash
provided by receivables of $8.5 million due to timely payments in the current
period as well as lower accrued expenses payments of $3.9 million, mostly
attributable to timing of payroll, bonus, and health insurance payments. Those
impacts are partially offset by a $4.6 million net increase in cash used for
inventories to support increased sales levels as well as a $1.1 million increase
in net loss.

Net cash used in investing activities for the three-month period ended June 30,
2022 was $1.1 million compared to net cash used in investing activities of $1.4
million in the prior-year period.

Net cash provided by financing activities for the three-month period ended
June 30, 2022 has been $4.6 million compared to the net cash provided by the financing activities of $5.8 million in the period of the previous year. The decrease is primarily attributable to higher net cash proceeds from the Company’s term loans, offset by the issuance of TruPs in the prior quarter which did not reoccur in the current quarter.


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. Depreciation expense for leased engines totaled $0.3 million and $0.1
million for the three months ended June 30, 2022 and 2021, respectively.

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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. 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 profit (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA by segment for the three months ended June 30, 2022 and 2021 (in thousands):

Three months completed

                                                                          6/30/2022              6/30/2021
Operating income (loss) from continuing operations            $         834               $          (4)

Depreciation allowances (excluding leased engine depreciation)

                                                           605                         279

(Gain) Loss on disposition of assets                                     (2)                          3
Security issuance expenses                                               15                           5
Adjusted EBITDA                                               $       1,452               $         283




                                                      Three months ended
                                                        6/30/2022       6/30/2021
         Overnight Air Cargo                  $     1,096            $      747
         Ground Equipment Sales                       191                 1,456
         Commercial Jet Engines and Parts           3,251                   (74)
         Corporate and Other                       (3,086)               (1,846)
         Adjusted EBITDA                      $     1,452            $      283

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