Pemco Aviation Group Reports Profit for 2006 and the Fourth Quarter

Business Wire, April 17, 2007

BIRMINGHAM, Ala. -- Pemco Aviation Group, Inc. (NASDAQ: PAGI), a leading provider of aircraft maintenance and modification services, today reported the operating results for its year ended and three months ended December 31, 2006. The Company reported that revenue increased to $160.7 million in 2006 compared to $134.8 million in 2005, an increase of 19.2%, and income from continuing operations of $0.1 million for the year ended December 31, 2006, compared to a loss from continuing operations of $6.1 million for the year ended December 31, 2005. The income from continuing operations in 2006 was positively impacted by the settlement of the H-3 Request for Equitable Adjustment with the U.S. Government, the sale of receivables related to the Northwest Airlines bankruptcy, amendments to the settlement agreement on the Falcon Air claim, and the settlement of claims by the EEOC and was negatively impacted by losses incurred on the U.S. Navy P-3 contract. The loss from continuing operations for 2005 was negatively affected by several unusual events, including the Northwest Airlines bankruptcy, the two-month lockout of the union employees at the Company's Dothan, Alabama facility, the initial settlement of the Falcon Air claim, the temporary suspension of KC-135 inputs earlier in 2005, and losses incurred completing the U.S. Coast Guard contract.

Ronald Aramini, Pemco's President and CEO, stated "We are very pleased to return to profitable operations and report net income for 2006. In addition, we are progressing with several strategic initiatives to increase shareholder value. In the fourth quarter of 2006 we sold our Pemco Engineers subsidiary. Several companies have now approached us with an interest in purchasing our Space Vector subsidiary in California. One of those parties has signed a letter of intent, and we expect to sell Space Vector in the second quarter of 2007. In the first quarter of 2007 we engaged investment bankers to assist Pemco with either taking our Commercial Services business public or selling that business. We are presently in discussions with several interested parties. Consummation of these strategic transactions should enable to the Company to meet its goal of eliminating its debt and providing the necessary working capital to support the Government Services business. We remain very optimistic about winning the KC-135 contract. We believe we have submitted the best proposal based on our track record on highest quality, significantly lower flow days and reduced cost to our customer. We expect the U.S. Government to award the contract in May 2007."

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Revenue at GSS increased $3.5 million primarily due to an increase in C-130 and P-3 deliveries. The KC-135 PDM program, which accounted for 84% of GSS revenue in 2006, allows for the Company to provide services on PDM aircraft, drop-in aircraft, and other aircraft related areas. Revenue from the KC-135 program increased $1.1 million during 2006. During 2006, the Company delivered 19 PDM KC-135 aircraft and two drop-ins, compared to 20 PDM aircraft and three drop-ins during 2005. The amount of non-routine work performed per aircraft varies as a result of differences in aircraft condition and model mix. Year-over-year the Company realized an increase in revenue per PDM aircraft delivered in 2006 due to an increase in the amount of work performed on each aircraft delivered. The Company delivered two USCG C-130 aircraft during 2006 compared to one USCG C-130 during 2005 for depot level maintenance. Revenue from the USCG program decreased $3.6 million due to a decrease in revenue from non-routine services which is recorded as the work is performed versus when the aircraft is redelivered for routine services revenue. GSS delivered three P-3 aircraft in 2006 compared with zero in 2005. Revenue for the P-3 program increased $4.6 million from 2005 during which no revenue was recorded. GSS revenue increased $1.4 million under contracts to perform non-routine maintenance work on other aircraft, primarily C-130 aircraft. Revenue increased as a result of more C-130 aircraft in process during 2006 which increased the amount of non-routine services provided to the program.

CSS revenue increased $22.3 million, primarily due to increases in cargo conversion revenues of $11.9 million, increases in maintenance, repair and overhaul ("MRO") revenue from Southwest Airlines of $15.5 million and increases in revenue from Northwest Airlines of $6.1 million. It was offset by decreases in revenue from various miscellaneous customers of $9.8 million. CSS delivered six cargo conversions during 2006 compared to one during 2005. Three of the six cargo conversions were performed in mainland China. Both Southwest Airlines and Northwest Airlines have maintained consistent nose-to-tail lines that provide for more efficient use of hangar space. CSS has several customers that provide drop-in aircraft on an inconsistent basis. These drop-in aircraft from various customers accounted for a larger percentage of revenue in 2005. MRO revenues were adversely impacted in the third and fourth quarters of 2005 by the bankruptcy of CSS's largest customer and by a two-month lockout of all union employees at the Company's Dothan, Alabama facility.