What changed in AIR INDUSTRIES GROUP's 10-K — 2022 vs 2023

ITEM 1. BUSINESS Introduction We believe we are one of the leading manufacturers of precision components and assemblies for large aerospace and defense prime contractors. Our products include landing gears, flight controls, engine mounts and components for aircraft jet engines, ground turbines and other complex machines. The ultimate end-user for most of our products is the U.S.

Government, international governments, and commercial global airlines. Whether it is a small individual component for assembly by others or complete assemblies we manufacture ourselves, our high quality and extremely reliable products are used in mission critical operations that are essential for safety of military personnel and civilians.

We specialize in the aerospace and defense markets, operating within a hierarchical network of suppliers. At the top of the supply chain pyramid, is the prime contractor, also known as an Original Equipment Manufacturer (“OEM”). A prime contractor designs, develops and produces the final product for the end-user.

We play a critical role in this ecosystem, operating as a “Tier One” supplier, delivering our products directly to prime contractors, or as a “Tier Two” supplier, providing larger complex components to others. In some cases, we ship products directly to the U.S. Government.

Our strategic position has made us a key partner for many prominent defense prime contractors and global commercial aviation manufacturers, often leading us to become the exclusive or primary supplier for certain high precision parts and assemblies. We often receive Long-Term Agreements (“LTAs”) from our customers, demonstrating their commitment to us.

We are renowned for our unwavering commitment to genuine quality and exceptional reliability. Our rich history dates to 1941, producing parts for World War II fighter aircraft. Since then, we have maintained an impeccable record with no known incidents of part failure leading to a mission failure resulting in a fatality.

In an era plagued by foreign counterfeit parts, we strategically operate all our facilities within the United States. Our two state-of-the-art manufacturing centers located in Long Island, New York, and Barkhamsted, Connecticut, allow for rigorous oversight of production and adherence to stringent quality standards.

Spanning over 150,000 square feet, our manufacturing centers serve as the operational hubs for our three legal subsidiaries, Air Industries Machining, (“AIM”) Nassau Tool Works (“NTW”) and Sterling Engineering Company (“STE”).

For the past several years, despite facing significant financial and operational challenges, we have strategically invested substantial amounts in new capital equipment, tooling, and processes to bolster our competitive position. Additionally, we expanded our sales and marketing efforts, with a sharp focus on expanding relationships with customers and cultivating new ones.

Fiscal 2023 marked a year of progress and positioning for growth. We finished 2023 with $51.5 million of net sales. Our backlog, which represents the value of all funded orders received, stood at $98.3 million an increase of 14.7% as compared to our backlog on December 31, 2022.

Our marketing efforts bore fruit and we secured our first order with a new foreign-based defense and aerospace prime customer. Despite absorbing a sudden and unexpected increase of interest rates related to our outstanding indebtedness, we were able to make significant investments in capital equipment and related processes. On the bottom-line, we reported a net loss of $2.1 million.

As we enter fiscal 2024, we believe our future is looking brighter. Moving forward, our business strategy is geared towards competing and winning contracts that enable us to achieve sustainable and profitable business growth and delivering high quality reliable products to our customers.

At its core, lies a highly trained and close- knit team of over 180 individuals committed to driving excellence and precision in every aspect of our operations. We are firmly focused on securing new contract awards, improving operations and successful execution.

With total unfilled contract values amounting to $191.9 million (including our $98.3 million in backlog and all potential orders against LTA agreements previously awarded to us), as of December 31, 2023, we are confident in our ability to boost sales in 2024, attain profitability and improve our financial position. 1 Customer Profiles In 2023 and 2022, approximately 82.3% and 82.6% of our net sales were attributed to customers who use our products for end-use on military aircraft.

The rest of our net sales are attributable to commercial aviation uses and, to a much lesser extent, ground power electricity generation and other uses. We have cultivated long-standing relationships with many large and well-known customers including: ● RTX Corporation (“RTX” ) - a multinational aerospace and defense conglomerate and a major player in the aerospace and defense industry.

We sell to several business units and/or subsidiaries of RTX, including Collins Aerospace (which includes Collins Landing Systems and Collins Aerostructures) and Pratt Whitney.

RTX was formerly known as Raytheon Technologies Corporation and prior to that United Technologies Corporation. ● Lockheed Martin Corporation (“Lockheed Martin”) - Lockheed Martin is a leading global security and aerospace company with its principal customers being agencies of the U.S. Government.

We sell directly to one of its legal subsidiaries, Sikorsky Aircraft Corporation (“Sikorsky”). ● General Electric Aerospace (“GE”) – We supply GE Aerospace with high precision components that are used in jet turbine aircraft engines that are used on several commercial aircraft platforms. ● GE Verona – We supply GE Verona with precision components that are used in ground-based turbines for electrical power generation. ● The U.S.

Government – We supply certain components and assemblies directly to the Defense Logistics Agency (“DLA”), a combat support agency within the U.S. Department of Defense (“DoD”). The DLA’s mission is to manage the end-to-end global defense supply chain and deliver readiness to the warfighter.

It supports all five U.S. military services, federal, state, and local agencies, as well as partner and allied nations. The DLA procures items from us and provides them, as it deems fit, to other suppliers who assemble them into finished products.

In 2023, our sales and marketing strategy to expand our customer base yielded significant results, as we secured an initial $700,000 order from a foreign-based defense and aerospace prime ranked among the world’s leading suppliers of finished landing gears. Our initial order from them was for specialized components with initial deliveries slated to commence in the fourth quarter of 2024.

As we continue to develop and strengthen this relationship, we are optimistic about securing additional orders over time. Platform and Program Profiles Most of our machined components and assemblies are integral to high-profile platforms and named programs.

Platforms generally refer to equipment that is utilized in missions or operations whereas programs are broader initiatives and can encompass the development and production of new platforms, upgrades to existing systems and other initiatives.

The following platforms and programs (ranked in descending order by their 2023 net sales), accounted for 85.2% and 81.0% of our net sales in 2023 and 2022, respectfully: ● F-18 Hornet: The F-18 Hornet, the U.S. Navy’s primary fighter aircraft, primarily operates from aircraft carriers and enjoys international use, notably in Finland and Australia.

Originating in the late 1960s, it has seen numerous upgrades and enhancements over the years.

We manufacture complete landing gear components for several variants, supplying these to the U.S. government or Tier 1 or other suppliers for spares that go on the aircraft that where originally produced by Boeing. ● The E-2D Hawkeye: We provide the main and nose landing gear, as well as the arresting gear for the E-2D Hawkeye, a twin-engine, tactical aircraft utilized for providing advanced airborne warning and control for carrier-based operations.

Often referred to as the “digital quarterback,” it conducts battlefield management and command and control operations for aircraft carrier strike groups. While primarily used by the U.S.

Navy, a small number have been sold to U.S. allies, notably Japan. 2 ● UH-60 Black Hawk Helicopter : We supply flight critical components, such as the primary flight control assembly and the tail-rotor gearbox, for the UH-60 Black Hawk Helicopter. Serving as the primary helicopter for the U.S.

Army, it fulfills essential roles in transport, troop movement, medical evacuation and cargo lift operations. Manufactured by Sikorsky, it includes many variants and is also utilized by other branches of the U.S military and U.S. allied countries. Since entering service in 1979, over 4,000 helicopters have been produced.

Deployment of new helicopters is projected to continue through at least 2027, with ongoing sustainment activities anticipated for many years thereafter. ● Pratt & Whitney Geared Turbo-Fan Engine (“GTF”): Used in commercial aviation, the GTF represents a new generation of jet engines that offer improved fuel efficiency, reduced emissions, and lower noise levels compared to traditional turbofan engines.

We manufacture Thrust Struts, a critical component that essentially absorbs and distributes the forward thrust produced by the jet engine, ensuring that the force is evenly applied across the structure of the aircraft to maintain stability and integrity during takeoff, cruising and landing.

We supply our Thrust Struts to Collins Aerostructures for integration into Geared Turbofan engines, utilized by smaller airlines such as those operating the Airbus A220 and Embraer E2 aircraft.

Demand for these engines is anticipated to increase over the next few years. ● The CH-53 Helicopter (including the CH53K variant): Developed in the 1960s and manufactured by Sikorsky, the CH-53 is recognized as the largest and most powerful helicopter in the U.S. military. It has evolved through several variants, with hundreds delivered and used by the U.S. Marine Corps.

In 2021, we secured a LTA to supply Chaff Pods for the CH-53K, the latest iteration in the CH-53 series. These pods deploy metallized strips to generate false radar targets, safeguarding the helicopters from missile threats. The CH-53K plays a crucial role in the U.S. Marine Corps’ plans to support a wide range of current and future operations.

In 2023 we received a purchase order to manufacture Swashplates and Hubs to be used on the CH-53K. Initial deliveries of these parts has commenced. ● The F-35 Lightning II (also known as the Joint Strike Fighter): Manufactured by Lockheed Martin, the Joint Strike Fighter is a stealth fighter aircraft designed to replace the U.S.