Overview

The Company operates in three business segments. The overnight air cargo segment, comprised of its Mountain Air Cargo, Inc. ("MAC") and CSA Air, Inc. ("CSA") subsidiaries, operates in the air express delivery services industry. The ground equipment sales segment, comprised of its Global Ground Support, LLC ("GGS") subsidiary, manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the U. S. military and industrial customers. The ground support services segment, comprised of its Global Aviation Services, LLC ("GAS") subsidiary, provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers. Each business segment has separate management teams and infrastructures that offer different products and services. The Company evaluates the performance of its operating segments based on operating income. Prior to the quarter ended September 30, 2008, the Company had reported two operating segments, previously combining GGS and GAS into a single segment. The Company has modified the prior period's segment information to conform to the current period presentation.

Following is a table detailing revenues by segment and by major customer category:

(In thousands)
                                              Year Ended March 31,
                                         2009                   2008

Overnight Air Cargo Segment:
  FedEx                           $ 43,004        47 %   $ 38,918        50 %
  Other Maintenance                      -         -          358         -
                                    43,004        47 %     39,276        50 %
Ground Equipment Sales Segment:
  Military                          20,726        23 %     15,523        20 %
  Commercial - Domestic             12,246        13 %     18,079        23 %
  Commercial - International         6,995         8 %      2,711         3 %
                                    39,967        44 %     36,313        46 %

Ground Support Services Segment      7,697         9 %      2,810         4 %
                                  $ 90,668       100 %   $ 78,399       100 %

MAC and CSA are short-haul express airfreight carriers and provide air cargo services to one primary customer, FedEx Corporation ("FedEx"). MAC also on occasion provides maintenance services to other airline customers and the U. S. military. Under the terms of dry-lease service agreements, which currently cover all of the 82 revenue aircraft, the Company receives a monthly administrative fee based on the number of aircraft operated and passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue, at cost. Pursuant to such agreements, FedEx determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by the Company. These agreements are renewable on two to five-year terms and may be terminated by FedEx at any time upon 30 days' notice. The Company believes that the short term and other provisions of its agreements with FedEx are standard within the airfreight contract delivery service industry. FedEx has been a customer of the Company since 1980. Loss of its contracts with FedEx would have a material adverse effect on the Company.

MAC and CSA combined revenues increased by $3,728,000 (9%) in fiscal 2009. The increase in revenues was primarily related to flight and maintenance department costs passed through to its customer at cost as well as increased maintenance labor revenue as a result of increased maintenance hours and rates.

GGS manufactures and supports aircraft deicers and other specialized industrial equipment on a worldwide basis. GGS manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons. GGS also provides fixed-pedestal-mounted deicers. Each model can be customized as requested by the customer, including single operator configuration, fire suppressant equipment, open basket or enclosed cab, a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage, color and style of the exterior finish. GGS also manufactures four models of scissor-lift equipment, for catering, cabin service and maintenance service of aircraft, and has developed a line of decontamination equipment and other special purpose mobile equipment. GGS competes primarily on the basis of the quality, performance and reliability of its products, prompt delivery, customer service and price. In June 1999, GGS was awarded a four-year contract to supply deicing equipment to the United States Air Force. In June 2003, GGS was awarded a three-year extension of that contract and a further three-year extension was awarded in June 2006. This contract expires in June 2009.

GAS was formed in September 2007 to operate the aircraft ground support equipment and airport facility maintenance services business of the Company. GAS is providing aircraft ground support equipment and airport facility maintenance services to a wide variety of customers at a number of locations throughout the country.

GAS contributed approximately $7,697,000 and $2,810,000 to the Company's revenues for the years ended March 31, 2009 and 2008, respectively. The $4,887,000 increase in revenues was due to the growth and expansion of GAS as it continued to add new customers and service locations in its first full year of operations. GAS has grown to 9% of consolidated revenues for the year ended March 31, 2009.

Fiscal 2009 Highlights

The Company has produced record revenues and profit for the fiscal year ended March 31, 2009 with outstanding results for the first two quarters and solid results for the last two quarters of the year. Overall, we are pleased with the results, but the general economic and industry conditions continue to be a major concern and as a result we remain cautious going forward. In these difficult times, we remain dedicated to conserving cash, watching and controlling costs, tightening our credit policies and maintaining our customer and vendor relationships.

During the year ended March 31, 2009, revenues from our GAS subsidiary totaled $7,697,000. This new line of business continues to expand its customer base. GAS's main challenges continue to be its ability to add additional customers and develop existing ones to optimally utilize our staffing capacity at existing locations. We also continue to monitor the Northwest Airlines and Delta Airlines merger as the former Northwest Airlines comprised a majority of GAS's business in the fiscal year ended March 31, 2009.

Our overnight air cargo segment increased its operating income by $824,000 or 32% in fiscal 2009 as a result of reduced operating costs and increased maintenance revenues. One key factor is that our fleet of ATR aircraft has now reached its first cycle of heavy maintenance since they were acquired and converted to freighter configuration. As a result, maintenance hours have increased this fiscal year leading to increased revenues and profitability in our air cargo segment. Offsetting this is the fact that the number of aircraft that we operate for FedEx has decreased from 89 at March 31, 2008 to 82 as of March 31, 2009. Two ATR aircraft were damaged beyond repair by a tornado in Greensboro, NC in May 2008. In addition, the last Fokker F-27 operated by MAC was retired in January 2009. Finally, FedEx made the decision to take four Cessna Caravan 208B aircraft out of service in February 2009. As a result, the Company experienced a decrease in its administrative fee revenue of $139,000 in fiscal 2009. The aggregate administrative fee revenue associated with these aircraft if they are out of service for a full year approximates $540,000.

Revenues for GGS for the year ended March 31, 2009 were up 10% over the prior year, while operating income was up $694,000 or 14%. GGS operated at unusually high production levels for the first two quarters of fiscal 2009 as a result of the significant backlog at March 31, 2008. GGS produced and delivered a high volume of deicers to the military in fiscal 2009 as well as a high volume of commercial catering trucks. In addition, GGS delivered an increased number of commercial units to various international customers during the year. GGS's gross margin percentage for the year was up one half percent as a result of changes in product and customer mix

Two additional lawsuits in connection with the 2005 Philadelphia boom incident were settled during the year as disclosed during the third quarter. A settlement of the U. S. Airways suit was reached with all parties, with no additional financial impact to the Company. In addition, the suit in which the Company was seeking to recover approximately $905,000 in costs incurred by the Company was settled for $550,000, which the Company will receive over two and a half years. The $550,000 settlement has been recognized in other income and as a receivable in the year ended March 31, 2009. For a discussion of these settlements and the ongoing status of the related matters, refer to Note 17 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report.

Fiscal 2009 vs. 2008

Consolidated revenue increased $12,269,000 (16%) to $90,668,000 for the fiscal year ended March 31, 2009 compared to the prior fiscal year. The increase in 2009 revenue resulted from an increase in air cargo revenue of $3,728,000 (9%) to $43,004,000, combined with an increase in ground equipment sales revenue of $3,654,000 (10%) to $39,967,000 and an increase in ground support services revenue of $4,887,000 (174%) to $7,697,000. The increase in air cargo revenue was primarily the result of an increase in flight and maintenance department costs passed through to its customer at cost as well as increased maintenance labor revenue. Maintenance labor revenue was up as a result of increased maintenance hours due to an increase in scheduled maintenance events in fiscal 2009. In addition, the Company received approval from its customer for an 8.5% increase in its maintenance billable labor rate in June 2007 and an additional 4% increase in January 2008. These rate increases are provided periodically, as a means to offset increases in maintenance operating costs. The increase in ground equipment revenue was the result of a significant increase in the number of military and international deicers as well as commercial catering trucks sold in fiscal 2009 compared to 2008, which offset a decrease in the number of commercial deicers sold in fiscal 2009. In addition, GAS contributed revenue of $7,697,000 in fiscal 2009 reflecting its continuing growth in customers and locations in the past year.

Operating expenses on a consolidated basis increased $10,657,000 (15%) to $84,002,000 for fiscal 2009 compared to fiscal 2008. The increase was due to a number of factors. Operating expenses in the air cargo segment were up $3,246,000 (10%) primarily as a result of increased flight and maintenance costs passed through to its customer at cost and increased in-house and contracted maintenance labor costs. Ground equipment sales operating costs increased $2,514,000 (9%), driven primarily by the current year's increase in units sold. The ground support services segment reported a $3,860,000 increase in operating expenses directly related to the increased revenue and level of operations provided by GAS over the past year as it continues to grow.

General and administrative expense increased $1,071,000 (11%) to $11,242,000 in fiscal 2009. The most significant component of this increase was a $629,000 increase in general and administrative expense associated with the continuing growth and expansion of the GAS operations, which began operating in September 2007. Profit sharing expense increased by $228,000 directly related to the increased profit generated by the Company in fiscal 2009.

Operating income for the year ended March 31, 2009 was $6,666,000, a $1,613,000 (32%) improvement over fiscal 2008. The improvement came from all three segments of our business as increased maintenance hours and rates increased our operating income in the air cargo segment, additional sales revenues increased our operating income in the ground equipment sales segment and the growth and maturing of our relatively new ground support services segment resulted in its increased operating income.

Non-operating income, net for the year ended March 31, 2009 was $325,000, a $203,000 (164%) increase over fiscal 2008. The $550,000 lawsuit settlement in December 2008 was a principal component of this increase. This income was partially offset by the $195,000 retirement plan settlement expense recorded in December 2008, relating to the amendment to Mr. Simpson's employment agreement described above. Interest expense decreased by $66,000 as the Company elected to utilize its available cash to minimize line of credit usage and also to reduce the chassis flooring during the year. Investment income also declined by $119,000 as a result of the continuing decrease in rates of return on cash investments during the current year. Fiscal 2008 also included an $110,000 gain on the sale of investments as the Company divested treasury investments in mutual funds in connection with structuring a more conservative treasury portfolio.

Net earnings were $4,379,000 or $1.81 per diluted share for the year ended March 31, 2009, a 29% improvement over earnings of $3,402,000 or $1.40 per diluted share in fiscal 2008.

Liquidity and Capital Resources

As of March 31, 2009, the Company held approximately $7.9 million in cash and cash equivalents and short-term investments. Of this amount, $4.5 million was invested in liquid money market accounts and certificates of deposit placed through an account registry service ("CDARS") with original maturities ranging from 90 days to 26 weeks. All invested amounts are fully insured by the Federal Deposit Insurance Corporation ("FDIC")

As of March 31, 2009, the Company's working capital amounted to $17,695,000, an increase of $2,596,000 compared to March 31, 2008. The increase resulted principally from the increased earnings in fiscal 2009 and a significant decrease in accounts receivable, offset by an increase in inventories. Accounts receivable are down primarily due to the significant decrease in GGS sales in the fourth quarter of 2009 compared to 2008. Inventories have increased due to chassis and other large deicer components that were purchased in the past year in anticipation of expected contract awards and delivery timeframes that have not yet materialized. The inventory is all considered useable on future commercial deicer orders.

The Company had no outstanding obligations under its line of credit at March 31, 2009 and 2008. In August 2008, the Company amended its $7,000,000 secured long-term revolving credit line to extend its expiration date to August 31, 2010. The revolving credit line contains customary events of default, a subjective acceleration clause and restrictive covenants that, among other matters, require the Company to maintain certain financial ratios. There is no requirement for the Company to maintain a lock-box arrangement under this agreement. As of March 31, 2009, the Company was in compliance with all of the restrictive covenants. The amount of credit available to the Company under the agreement at any given time is determined by an availability calculation, based on the eligible borrowing base, as defined in the credit agreement, which includes the Company's outstanding receivables, inventories and equipment, with certain exclusions. At March 31, 2009, $7,000,000 was available for borrowing under the credit line.

The Company is exposed to changes in interest rates on its line of credit. Although the line had no outstanding balance at March 31, 2009 and 2008, the line of credit did have a weighted average balance outstanding of approximately $214,000 during the year ended March 31, 2009. If the LIBOR interest rate had been increased by one percentage point, based on the weighted average balance outstanding for the year, annual interest expense would have increased by approximately $2,000.

In March 2004, the Company utilized its revolving credit line to acquire a corporate aircraft for $975,000. In April 2004, the Company refinanced the aircraft under a secured 4.35% fixed rate five-year term loan, based on a ten-year amortization with a balloon payment at the end of the fifth year. The balloon payment of approximately $450,000 was paid in full in April 2009 with cash from operations.

Following is a table of changes in cash flow for the respective years ended March 31, 2009 and 2008:

                                                          Year Ended March 31,
                                                         2009             2008

Net Cash Provided by Operating Activities             $ 6,852,000     $    277,000
Net Cash Provided by (Used in) Investing Activities       805,000       (1,642,000 )
Net Cash Used in Financing Activities                    (856,000 )     (1,479,000 )

Net Increase (Decrease) in Cash                       $ 6,801,000     $ (2,844,000 )

Cash provided by operating activities was $6,575,000 more for fiscal 2009 compared to fiscal 2008. The most significant components of the increase were increased earnings of $976,000, a significant decrease in accounts receivable in fiscal 2009, an increase in inventories and a decrease in accounts payable. Accounts receivable have decreased at March 31, 2009 as a result of decreased sales in the fourth quarter as well as an expanded effort to collect and manage receivables.

Cash provided by investing activities for fiscal 2009 was $2,447,000 more than fiscal 2008, largely due to a change in investment strategy, with the resulting sale of short-term investments in exchange for cash and equivalents. In fiscal 2009, capital expenditures decreased by $263,000.

Cash used in financing activities was $623,000 less in fiscal 2009 compared to fiscal 2008 principally due to less cash outlay under the stock repurchase plan. During the fiscal year ended March 31, 2008 the Company repurchased shares of its common stock for $713,000.

There are currently no commitments for significant capital expenditures. The Company's Board of Directors, on August 7, 1997, adopted the policy to pay an annual cash dividend in the first quarter of each fiscal year, in an amount to be determined by the board. On May 19, 2009 the Company declared a $.33 per share cash dividend, to be paid on June 26, 2009 to shareholders of record June 5, 2009. On May 20, 2008 the Company declared a $.30 per share cash dividend, to be paid on June 27, 2008 to shareholders of record June 6, 2008.

During the year ended March 31, 2009, the Company amended the employment agreement of William H. Simpson, the Company's Executive Vice President. The amendment deleted all provisions providing for certain payments to be made to Mr. Simpson upon his retirement and replaces them with an obligation for the Company to pay Mr. Simpson in July 2009, an amount designed to equal the amount that he would have been entitled to receive had he retired at that time and elected to receive a lump sum. The actual amount of that liability will be dependent upon existing interest rates at the time, but has been estimated at $950,000, based upon current information and rates. This liability is recorded as a current liability at March 31, 2009 and is intended to be paid with cash from operations in July 2009.

Off-Balance Sheet Arrangements

The Company defines an off-balance sheet arrangement as any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a Company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging, or research and development arrangements with the Company. The Company is not currently engaged in the use of any of these arrangements.

Impact of Inflation

The Company believes that inflation has not had a material effect on its manufacturing operations, because increased costs to date have been passed on to its customers. Under the terms of its air cargo business contracts the major cost components of its operations, consisting principally of fuel, crew and other direct operating costs, and certain maintenance costs are reimbursed, without markup by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.

Seasonality

GGS's business has historically been seasonal. The Company has continued its efforts to reduce GGS's seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year. In June 1999, GGS was awarded a four-year contract to supply deicing equipment to the United States Air Force, and GGS has been awarded two three-year extensions on the contract, with the final extension expiring in June 2009. Although sales remain somewhat seasonal, this diversification has lessened the seasonal impacts and allowed the Company to be more efficient in its planning and production. With the expiration of GGS's contract with the United States Air Force, more pronounced seasonal trends could resume. The air cargo and ground support services segments of business are not susceptible to seasonal trends.

Critical Accounting Policies and Estimates

The Company's significant accounting policies are more fully described in Note 1 of Notes to the Consolidated Financial Statements in Item 8. The preparation of the Company's 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. The Company believes that the following are its most significant accounting policies:

Allowance for Doubtful Accounts. An allowance for doubtful accounts receivable is established based on management's estimates of the collectability of accounts receivable. The required allowance is determined using information such as customer credit history, industry information, credit reports, customer financial condition and the collectability of outstanding accounts receivables. The estimates can be affected by changes in the financial strength of the aviation industry, customer credit issues or general economic conditions.

Inventories. The Company's parts inventories are valued at the lower of cost or market. Provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories. Historical parts usage, current period sales, estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates. Estimates are subject to volatility and can be affected by reduced equipment utilization, existing supplies of used inventory available for sale, the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry.

Warranty reserves. The Company warranties its ground equipment products for up to a three-year period from date of sale. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known.

Income Taxes. Income taxes have been provided using the liability method in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Deferred income taxes reflect the net affects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes using enacted rates expected to be in effect during the year in which the basis differences reverse.

Stock Based Compensation. The Company recognizes compensation pursuant to Statement of Financial Accounting Standards No. 123(R), Accounting for Stock-Based Compensation ("SFAS 123(R)") using the modified prospective method of adoption, which requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values over the requisite service period. The compensation cost we record for these awards is based on their fair value on the date of grant. The Company has used the Black Scholes option-pricing model as its method for valuing stock options. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate and dividend yield.

Recent Accounting Pronouncements . . .