SOURCE: First Aviation Services Inc.

First Aviation Services Inc.

March 30, 2011 07:30 ET

First Aviation Releases December 31, 2010 Financials

WESTPORT, CT--(Marketwire - March 30, 2011) - First Aviation Services Inc. (PINKSHEETS: FAVS) today released audited financial statements for the year ended December 31, 2010. In a letter to shareholders, Aaron Hollander, Chairman and CEO, said:

The year 2010 concluded with a number of important successes at First Aviation and unfortunately, one significant disappointment the details of which I need to share with you.

The Company completed two strategic acquisitions in December 2009 to expand our repair and overhaul capabilities. The first was of Kelly Aerospace's maintenance, repair and overhaul business located in Wichita, KS which was renamed Aerospace Turbine Rotables, Inc. ("AeTR"). The second was of Limco-Piedmont's propeller overhaul division located in Winston-Salem, NC, now operating under the name Piedmont Propulsion Systems, LLC ("PPS").

During 2010 we successfully integrated these two new businesses into the First Aviation family from an operational and marketing standpoint. Each of our companies has deep roots in their market segments with strong leadership teams committed to being part of the larger First Aviation team.

As a result of these acquisitions and organic growth annual sales increased 18% to $128.5 million from $108.9 million in 2009. (The fiscal year end was changed in 2009 from January 31st to December 31st, thus the audited financials for 2009 are on an eleven month basis.) Net income for the year to common shareholders was a loss of $1.4 million. The loss was the result in large part to issues surrounding PPS described below as well as economic weakness in Aerospace Products International Inc's ("API") core markets.

Operationally some of the more significant accomplishments during the year included the following:

--  Through a Teaming Agreement between API and L-3 Communications, API was
    selected by the United States Army to operate a Central Distribution
    Center serving all worldwide spares logistics for approximately 200
    Army C-12 and UC-35 aircraft.  This award is API's largest and most
    significant contract to date with the United States military.  API also
    signed numerous Teaming Agreements with other Prime Contractors serving
    the U.S. Department of Defense so that API, AeTR and PPS will be
    well-positioned to win further supply chain management and component
    MRO business on programs such as the U.S. Navy T-34/-44/-6, C-26, and
    UC-35 and USAF C-21A.

--  API Tech was awarded an initial Basic Ordering Agreement by Defense
    Support Services LLC (DS2, a Day-Zimmerman - Lockheed Martin Company)
    to provide aircraft brake overhaul services for the U.S. Customs &
    Border Protection fleet of over 250 aircraft.

--  Honeywell Aerospace signed an agreement naming API as the exclusive
    distributor of Honeywell's CTS800 spare parts as a further follow on to
    our successful LHTEC program.

--  CAE, Inc. awarded API China a 3rd Party Logistics program in which API
    will provide warehousing and logistics services to CAE via API
    facilities in Shanghai and Beijing, China.

--  API expanded its global footprint through an alliance with Transworld
    Aviation FZE, providing API with a state-of-the-art distribution center
    in the Jebel Ali Free Zone in Dubai, UAE.

--  API continued to expand its supply chain management service agreements
    with leading flight training organizations by signing a long-term
    contract with Purdue University and implementing our Company's
    proprietary Electronic Supply Program ("ESP") at the Royal Jordanian
    Air Academy, the MidEast Aviation Academy, and the National Flight
    Training Institute (India).

--  AeTR developed the capability to overhaul Pilatus PC-12 landing gear,
    diversifying the Company's product offerings and becoming the only
    non-OEM landing gear MRO source for the highly successful PC-12.

--  AeTR signed a long term exclusive agreement to provide all flexible
    hose assemblies for the Vertex division of L-3 Communications.  AeTR
    also expanded its product offerings including the repair and overhaul
    of hermetically sealed fire bottles as well as received approval for a
    number of new parts manufacturing authorizations.

--  Both AeTR and PPS have been upgrading their facilities, modernizing
    their IT systems and investing in capital equipment to expand

--  PPS was awarded the McCauley Service Center Authorization, had its
    T34/44 program with the Navy extended through the end of the year and
    undertook a major engineering effort to find ways to improve life cycle
    costs and safety that have been well received by its customers.

The year was unfortunately marked by a significant disappointment. During 2010 the Company discovered that the previous owner of PPS misrepresented significant cost issues related to a specific power-by-the-hour client contract as well as misrepresented certain inventory. The Company determined that the financial statements for PPS were not in accordance with accounting principles generally accepted in the United States of America (GAAP), as specified in the Stock Purchase Agreement. More specifically there was a material departure as relates to Accounting Standards Codification 605-20-25-6 which requires that a loss be recognized on extended warranty or product maintenance contracts if the sum of expected costs of providing services under the contracts and unamortized acquisition costs exceeds related unearned revenue.

The Company has restated its acquisition accounting to correct for the effects of the accounting improprieties (please refer to the 2010 audited financial statements for a more detailed description). This has resulted in recognition of a $2,780 thousand accrued loss on the power-by-the-hour contract. Also, the restated acquisition accounting includes management's correction of errors for data inputs that were used in the original independent appraisal of the Company's stock value (purchase price) for PPS which has decreased previously reported goodwill by $3,715 thousand.

The above losses do not fully reflect the impact to First Aviation. Since PPS was represented as a very profitable business and not one subject to future losses, the financial impact unfortunately extended to our other subsidiaries. We believe that we will soon have negotiated a new profitable contract with the customer.

We are highly disappointed that a definitive resolution with the seller of PPS has not been reached at this date. While we can make no prediction on the outcome of ongoing discussions or the likelihood of litigation please be assured that your management and the Board are all committed to resolving the situation in the best interest of First Aviation shareholders. I am confident that the significant investment we have made in improving the facilities, equipment and engineering capability of PPS as well as the dedication of the PPS team will ensure its successful future.

Despite this serious and unforeseen setback, the Company is well positioned for the future. We have built a Company with global reach, the best supply chain technology in the industry and strong complementary MRO capabilities. We believe the Company is returning to profitability due to the hard work and dedication of the entire First Aviation team.

                       FIRST AVIATION SERVICES INC.
              Audited Consolidated Statements of Operations
            (In thousands, except share and per share amounts)

                                                     12 mos.      11 mos.
                                                     Ended        Ended
                                                     Dec 31,      Dec 31,
                                                      2010         2009
                                                   ----------   ----------

Net Sales                                          $  128,463   $  100,332
Cost of Sales                                        (103,392)     (83,068)
                                                   ----------   ----------

     Gross Profit                                      25,071       17,264

Selling, general & administrative expenses             22,419       13,955
Corporate expenses                                      1,577        2,037
Acquisition expenses                                        -          683
                                                   ----------   ----------
                                                       23,996       16,675

     Income from operations                             1,075          589

Non-operating income (expense)
     Interest income                                        2            2
     Interest expense and other, net                   (2,252)      (1,126)
                                                   ----------   ----------

Loss before income taxes                               (1,175)        (535)
Income tax provision                                      (16)           -
                                                   ----------   ----------

Net loss                                               (1,191)        (535)

Dividends on preferred stock                             (219)         (15)
                                                   ----------   ----------

Loss attributable to common stockholders           $   (1,410)  $     (550)
                                                   ==========   ==========

Basic net loss per share                           $    (0.09)  $    (0.07)
                                                   ----------   ----------

Net loss per share - assuming dilution             $    (0.09)  $    (0.07)
                                                   ----------   ----------

Weighted average shares outstanding - basic        15,674,202    8,250,906
                                                   ==========   ==========

Weighted average shares outstanding - assuming
 dilution                                          15,674,202    8,250,906
                                                   ==========   ==========

Please see our forward looking statements at

                       FIRST AVIATION SERVICES INC.
                   Audited Consolidated  Balance Sheets
                   (In thousands, except share amounts)

                                                         December 31,
                                                      2010         2009
                                                   ----------   ----------
Current assets:
     Cash                                          $    1,302   $    1,033
     Trade receivables, net                            20,051       17,878
     Miscellaneous receivables                            159          691
     Inventories, net                                  34,778       37,117
     Prepaid expenses and other                         2,258        2,251
                                                   ----------   ----------
Total current assets                                   58,548       58,970

Plant and equipment, net                                2,467        2,663
Deferred financing costs and other                        538          350
Goodwill                                                7,773        7,773

                                                   ----------   ----------
Total Assets                                       $   69,326   $   69,756
                                                   ==========   ==========

Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                              $   19,838   $   17,091
     Accrued compensation & related expenses              555          407
     Other accrued liabilities                          3,387        5,697
     Revolving line of credit                          22,257       21,326
     Term loan payable                                  6,400        7,000
     Other                                                282          432
                                                   ----------   ----------
Total current liabilities                              52,719       51,953

Long term liabilities                                     402          649

                                                   ----------   ----------
Total Liabilities                                      53,121       52,602
Stockholders' Equity
Common Stock
     Class A Common Stock                                  91           91
     $0.01 par value, 20,000,000 shares
     authorized, 11,320,628 and 11,320,628 shares
     issued, respectively, 9,956,858 and 9,838,234
     shares outstanding, respectively

     Class B Common Stock                                  58           58
     $0.01 par value, 6,000,000 shares
     authorized, 5,766,667 shares issued and

     Preferred Stock                                    1,584        1,350
     $0.01 par value, $100 redemption value,
     30,000 shares authorized, 15,841 and 13,500
     shares issued and outstanding

Additional paid in capital                             39,669       40,233
Deficit                                               (18,721)     (17,296)
Accumulated other comprehensive income                    500          390
                                                   ----------   ----------
                                                       23,181       24,826
Less: Treasury Stock, at cost, 1,363,770 and
 1,482,394 shares, respectively                        (6,976)      (7,672)
                                                   ----------   ----------
Total Stockholders' Equity                             16,205       17,154
                                                   ----------   ----------

                                                   ----------   ----------
Total Liabilities & Stockholders' Equity           $   69,326   $   69,756
                                                   ==========   ==========

Please see our forward looking statements at

                       FIRST AVIATION SERVICES INC.
              Audited Consolidated Statements of Cash Flows
                              (In thousands)

                                                     12 mos.      11 mos.
                                                     Ended        Ended
                                                     Dec 31,      Dec 31,
                                                      2010         2009
                                                   ----------   ----------

Cash flows from operating activities:
     Net loss                                      $   (1,191)  $     (535)

     Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
             Depreciation and amortization              1,146          945
             Equity based compensation                    132          106
             Provision for bad debts                      328          (75)
             Provision for excess & obsolete
              inventories                                 270           26

     (Increase) decrease in working capital
             Receivables                               (1,930)      (2,256)
             Inventories                                2,109       (4,445)
             Prepaid expenses and other assets             (7)      (1,051)

     Increase (decrease) in working capital
             Accounts payable                           2,787        3,937
             Accrued expenses and other                (2,162)       2,633
                                                   ----------   ----------

     Net cash provided by (used in) provided by
      operating activities                              1,482         (715)

Cash flows from investing activities:
     Purchases of plant and equipment and other
      assets                                             (791)         (79)
                                                   ----------   ----------

     Net cash used in investing activities               (791)         (79)

Cash flows from financing activities:
     Borrowings (repayments), on revolving line of
      credit, net                                         931          696
     Loan costs                                          (347)           -
     Repayments on term loan                             (600)           -
     Borrowings (repayments), on notes payable and
      other                                              (397)        (105)
                                                   ----------   ----------

     Net cash (used in) provided by  financing
      activities                                         (413)         591

Effect of exchange rate changes on cash                    (9)         (68)

                                                   ----------   ----------
Net change in cash                                        269         (271)

Cash at beginning of the period                         1,033        1,304
                                                   ----------   ----------

Cash at end of the period                          $    1,302   $    1,033
                                                   ==========   ==========

Supplemental Cash Flow Disclosures

Cash paid for interest                             $    1,828   $      998
                                                   ==========   ==========

Income taxes paid, net                             $       28            -
                                                   ==========   ==========

Please see our forward looking statements at

First Aviation Services Inc., ("FAvS") located in Westport, Connecticut, through its principal operating subsidiaries Aerospace Products International, Inc., ("API"), based in Memphis, TN, Aerospace Turbine Rotables, Inc. ("AeTR") in Wichita, KS and Piedmont Propulsion Systems, LLC ("PPS") in Winston-Salem, NC is a leading provider of services to the aviation industry worldwide. With locations in the U.S., Canada, Asia Pacific and China plus partners throughout the world, FAvS is a leading provider of aviation products, supply chain management services, repair and overhaul and technology solutions in the industry.

More information about FAvS and its subsidiaries may be found on the company's website, Please see our forward looking statements at

Contact Information

  • Contact:
    James G. Howell II
    Chief Financial Officer
    First Aviation Services Inc.
    (901) 259-4502