United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark One)

    [X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended OCTOBER 31, 2006
                                                 ----------------
                                       OR
     [_]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

            For the transition period from___________ to ____________

                         Commission File Number 0-21995

                          FIRST AVIATION SERVICES INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                       06-1419064
  (State or other jurisdiction                          (I.R.S. Employer
 of incorporation or organization)                      Identification No.)

             15 RIVERSIDE AVENUE, WESTPORT, CONNECTICUT, 06880-4214
             ------------------------------------------------------
                    (Address of principal executive offices)

                                 (203) 291-3300
                         (Registrant's telephone number)

                                       N/A
        -----------------------------------------------------------------
                     (Former name, former address and formal
                   fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No__

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer.  See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Check One:


   Large Accelerated Filer [_] Accelerated Filer [_] Non-Accelerated Filer [X]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]


The number of shares outstanding of the registrant's common stock as of December
1, 2006 is 7,370,176

<PAGE>
                          FIRST AVIATION SERVICES INC.

                                      INDEX

                         PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
<S>                                                                                                             <C>
Item 1.    Financial Statements (Unaudited):

           Consolidated Condensed Balance Sheets..................................................................3
           Consolidated Condensed Statements of Operations......................................................4-5
           Consolidated Condensed Statements of Cash Flows........................................................6
           Notes to Consolidated Condensed Financial Statements................................................7-13

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations .............14-18

Item 3.    Quantitative and Qualitative Disclosures about Market Risks...........................................19

Item 4.    Controls and Procedures...............................................................................19



                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.....................................................................................20

Item 1A.   Risk Factors..........................................................................................20

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds...........................................20

Item 3.    Defaults Upon Senior Securities.......................................................................20

Item 4.    Submission of Matters to a Vote of Security Holders...................................................20

Item 5.    Other Information ....................................................................................20

Item 6.    Exhibits .............................................................................................20
</TABLE>

                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                          FIRST AVIATION SERVICES INC.

                      Consolidated Condensed Balance Sheets
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                               October 31,     January 31,
                                                                                  2006            2006
                                                                            --------------    --------------
                                                                              (Unaudited)            *
<S>                                                                         <C>               <C>
Assets
Current assets:
      Cash and cash equivalents                                             $       1,146     $       9,488
      Trade receivables, net of allowance for doubtful                             23,047            18,737
         accounts of $1,394 and $596, respectively
      Inventory, net of allowance for obsolete and slow moving                     34,047            38,809
         inventory of $5,867 and $1,709, respectively
      Prepaid expenses and other                                                    1,242             1,351
                                                                            --------------    --------------

Total current assets                                                               59,482            68,385

Plant and equipment, net                                                            5,154             4,963
                                                                            --------------    --------------

Total Assets                                                                $      64,636     $      73,348
                                                                            ==============    ==============

Liabilities and Stockholders' Equity
Current liabilities:
      Accounts payable                                                      $      15,289     $      15,441
      Accrued compensation and related expenses                                     1,295             1,823
      Other accrued liabilities                                                     1,511             1,750
      Revolving line of credit                                                     14,800                 -
      Notes payable                                                                   636             1,125
      Income taxes payable                                                            229             1,012
                                                                            --------------    --------------

Total current liabilities                                                          33,760            21,151


      Long-term debt                                                                    -            14,500
      Notes payable, less current portion                                             694             1,245
                                                                            --------------    --------------

Total liabilities                                                                  34,454            36,896

Stockholders' equity:

      Common stock, $0.01 par value, 25,000,000 shares authorized,                     91                91
          9,135,699 shares issued
      Additional paid-in capital                                                   38,806            38,799
      (Accumulated deficit) retained earnings                                         (65)            6,349
      Accumulated other comprehensive income                                          538               500
                                                                            --------------    --------------

                                                                                   39,370            45,739
      Less:  Treasury stock, at cost, 1,765,523 and 1,782,449                      (9,188)           (9,287)
          shares, respectively
                                                                            --------------    --------------

Total stockholders' equity                                                         30,182            36,452
                                                                            --------------    --------------

Total liabilities and stockholders' equity                                  $      64,636     $      73,348
                                                                            ==============    ==============

See accompanying notes.
</TABLE>

 * Balances were derived from the audited balance sheet as of January 31, 2006.

                                       3
<PAGE>
                          FIRST AVIATION SERVICES INC.

           Consolidated Condensed Statements of Operations (Unaudited)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                   Three Months Ended
                                                                                       October 31,
                                                                                 2006              2005
                                                                             --------------    --------------

<S>                                                                          <C>               <C>
Net sales                                                                    $      32,358     $      33,611
Cost of sales                                                                       31,117            27,969
                                                                             --------------    --------------

Gross profit                                                                         1,241             5,642
Selling, general and administrative expenses                                         5,352             4,971
Corporate expenses                                                                     670               557
                                                                             --------------    --------------

Income (loss) from operations                                                       (4,781)              114
Net interest income (expense) and other                                               (232)                5
                                                                             --------------    --------------

Income (loss) before income taxes                                                   (5,013)              119
(Provision) benefit for income taxes                                                   772               (29)
                                                                             --------------    --------------

Net income (loss)                                                            $      (4,241)    $          90
                                                                             ==============    ==============


Basic net income (loss) per share, and net income (loss) per share - assuming
     dilution:

Basic net income (loss) per share, and net income (loss)
     per share - assuming dilution                                           $       (0.58)    $        0.01
                                                                             ==============    ==============

Weighted average shares outstanding - basic                                      7,365,037         7,341,451
                                                                             ==============    ==============

Weighted average shares outstanding - assuming dilution                          7,365,037         7,343,852
                                                                             ==============    ==============

See accompanying notes.
</TABLE>

                                       4
<PAGE>
                          FIRST AVIATION SERVICES INC.

           Consolidated Condensed Statements of Operations (Unaudited)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                    Nine Months Ended
                                                                                       October 31,
                                                                                 2006              2005
                                                                             --------------    --------------

<S>                                                                          <C>               <C>
Net sales                                                                    $      91,265     $      98,297
Cost of sales                                                                       79,318            81,459
                                                                             --------------    --------------

Gross profit                                                                        11,947            16,838
Selling, general and administrative expenses                                        16,296            14,760
Corporate expenses                                                                   1,896             1,744
                                                                             --------------    --------------

Income (loss) from operations                                                       (6,245)              334
Net interest income (expense) and other                                               (837)                4
Minority interest in subsidiary                                                          -               (10)
Other income                                                                             -               417
                                                                             --------------    --------------

Income (loss) before income taxes                                                   (7,082)              745
(Provision) benefit for income taxes                                                   669               (71)
                                                                             --------------    --------------

Net income (loss)                                                            $      (6,413)    $         674
                                                                             ==============    ==============


Basic net income (loss) per share, and net income (loss) per share - assuming
     dilution:

Basic net income (loss) per share, and net income (loss)
     per share - assuming dilution                                           $       (0.87)    $        0.09
                                                                             ==============    ==============

Weighted average shares outstanding - basic                                      7,357,881         7,333,249
                                                                             ==============    ==============

Weighted average shares outstanding - assuming dilution                          7,357,881         7,337,331
                                                                             ==============    ==============

See accompanying notes.
</TABLE>

                                       5
<PAGE>
                          FIRST AVIATION SERVICES INC.

           Consolidated Condensed Statements of Cash Flows (Unaudited)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                            October 31,
                                                                                        2006            2005
                                                                                     -----------     -----------
<S>                                                                                  <C>             <C>
Cash flows from operating activities
Net income (loss)                                                                    $   (6,413)     $      674
Adjustments to reconcile net income (loss) to net
     cash used in operating activities - non-cash charges:
      Depreciation and amortization                                                       1,180             860
      Compensation paid through issuance of stock                                           107              99
      Effect of reserve adjustment on inventory                                           3,968             530
(Increase) decrease in current assets:
      Trade receivables                                                                  (4,425)         (3,651)
      Inventory                                                                             802          (9,971)
      Prepaid expenses and other                                                            137            (107)
Increase (expenses) in current liabilities:
      Accounts payable                                                                      (25)          4,920
      Accrued compensation and related expenses, and other accrued liabilities             (785)           (404)
      Income taxes payable                                                                 (783)            132
                                                                                     -----------     -----------

Net cash used in operating activities                                                    (6,237)         (6,918)

Cash flows from investing activities
Purchases of plant and equipment                                                         (1,369)         (2,247)
                                                                                     -----------     -----------

Net cash used in investing activities                                                    (1,369)         (2,247)

Cash flows from financing activities
Borrowings on revolving line of credit                                                      800          41,500
Repayments on revolving line of credit                                                     (500)        (41,500)
Repayments on notes payable                                                              (1,040)              -
Repurchase of preferred stock of subsidiary                                                   -            (500)
                                                                                     -----------     -----------

Net cash used in financing activities                                                      (740)           (500)
                                                                                     -----------     -----------

Net decrease in cash and cash equivalents                                                (8,346)         (9,665)

Effect of exchange rates on cash                                                              4              18

Cash and cash equivalents at beginning of period                                          9,488          22,584
                                                                                     -----------     -----------

Cash and cash equivalents at end of period                                           $    1,146      $   12,937
                                                                                     ===========     ===========

See accompanying notes.
</TABLE>

                                       6
<PAGE>
                          FIRST AVIATION SERVICES INC.

        Notes to Consolidated Condensed Financial Statements (Unaudited)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                October 31, 2006

1.  BASIS OF PRESENTATION

First Aviation Services Inc. ("First Aviation"),  together with its wholly owned
subsidiaries Aerospace Products International,  Inc. ("API"), Aerospace Products
International,  Ltd. ("API Ltd."),  API Asia Pacific Inc. ("API Asia  Pacific"),
API China, Inc. ("API China"), and API Europe Ltd ("API Europe")  (collectively,
the  "Company"),  is one of the leading  suppliers  of services to the  aviation
industry  worldwide.  The  services the Company  provides the aviation  industry
include the sale of aircraft parts and components, the provision of supply chain
management   services,   overhaul   and   repair   services   for   brakes   and
starter/generators,  and the assembly of custom hoses.  The Company's  principal
executive  offices are located at 15  Riverside  Avenue,  Westport,  Connecticut
06880.  Customers  of the  Company  include  original  equipment  manufacturers,
aircraft manufacturers, passenger and cargo airlines, fleet operators, corporate
aircraft  operators,  flight training schools,  fixed base operators,  certified
repair facilities, governments and military services. The accompanying unaudited
consolidated condensed financial statements of the Company have been prepared in
accordance  with U.S.  generally  accepted  accounting  principles  for  interim
financial information,  and with the instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required  for  complete  financial  statements.  In  the  opinion  of
management, all material adjustments,  including the elimination of intercompany
balances and transactions,  and normal recurring accruals  considered  necessary
for a fair  presentation,  have  been  included  in the  accompanying  unaudited
consolidated condensed financial statements. Operating results for the three and
nine months ended October 31, 2006 are not necessarily indicative of the results
that may be  expected  for the full fiscal year  ending  January 31,  2007.  For
further  information,   refer  to  the  consolidated  financial  statements  and
footnotes thereto included in the Company's Form 10-K for the year ended January
31, 2006.



2.  WEIGHTED AVERAGE SHARES OUTSTANDING - ASSUMING DILUTION

The following sets forth the  denominator  used in the computation of net income
(loss) per share - for basic and assuming dilution:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                               OCTOBER 31,                       OCTOBER 31,
                                                          2006             2005             2006              2005
                                                      -------------     ------------    -------------     -------------
<S>                                                     <C>               <C>             <C>               <C>

  Denominator:
     Denominator for basic net income (loss)
        per share - weighted average shares             7,365,037         7,341,451       7,357,881         7,333,249
     Effect of dilutive employee stock options                  -                                 -
                                                                              2,401                             4,082
                                                      -------------     ------------    -------------     -------------
     Denominator for net income (loss) per
        share - assuming dilution, adjusted
           weighted average shares and assumed
           dilutions                                    7,365,037         7,343,852       7,357,881         7,337,331
                                                      =============     ============    =============     =============
</TABLE>

For the three and nine months ended October 31, 2006,  the  denominator  used in
the  calculation  of loss per  share -  assuming  dilution,  was the same as the
denominator  used for basic loss per share  because the effect of options  would
have been antidilutive. There were no potential shares of common stock that were
excluded from the computation of diluted earnings per share because their effect
was  antidilutive for the three and nine months ended October 31, 2006.

                                       7
<PAGE>
3.  SHARE BASED PAYMENTS

The  Company's   non-employee  directors  receive  a  portion  of  their  annual
compensation in the Company's  stock. The value of stock issued is equivalent to
the compensation expense, and the number of shares issued is based upon the fair
market value per share at the date issued. The Company's  non-employee directors
receive  compensation in cash for committee meetings and special board meetings,
excluding  the  four   regularly   scheduled   board  meetings  and  the  annual
shareholders'   meeting   that  is  paid  in  stock  as  part  of  their  annual
compensation.  For the three months ended October 31, 2006 and October 31, 2005,
the Company issued 5,139 and 4,617 shares respectively,  to directors in lieu of
board fees. For the nine months ended October 31, 2006 and October 31, 2005, the
Company  issued 14,403 and 21,828 shares  respectively,  to directors in lieu of
board fees.

The Company also has a Stock Incentive Plan (the "Plan").  The Plan provides for
the  grant  of  incentive  stock  options,  nonqualified  stock  options,  stock
appreciation  rights,  stock  grants  and  stock  purchase  rights.  A total  of
1,200,000 shares of common stock have been reserved for issuance under the Plan.
Only  employee  stock  options and shares  issued to directors  have been issued
under the Plan. At October 31, 2006,  639,817 shares were available to be issued
under the Plan.

The Company  generally  grants stock options to its employees for a fixed number
of shares with an exercise  price equal to the fair market value of the stock on
the date of grant. In December 2004, the FASB issued  Statement No. 123 (Revised
2004),  or  Statement  123(R),  Share-Based  Payment,  which  is a  revision  of
Statement No. 123,  Accounting for Stock-Based  Compensation.  Statement  123(R)
supersedes  APB Opinion No. 25,  Accounting  for Stock Issued to Employees,  and
amends  Statement  No. 95,  Statement  of Cash Flows.  The approach in Statement
123(R) is similar to the approach described in Statement 123; however, Statement
123(R)  requires all  share-based  payments to  employees,  including  grants of
employee stock options, to be recognized in the statement of operations based on
their fair values. Pro forma disclosure,  as allowed under Statement No. 123, is
no longer an alternative.

The  Company  adopted FAS 123(R) on  February  1, 2006.  As  required  under FAS
123(R),  the Company  recognized a $13 expense in corporate expenses for options
vested for the three month  period ended  October 31,  2006,  and $40 expense in
corporate  expenses for options  vested for the nine month period ended  October
31,  2006.  The fair value of each option  issued was  estimated  at the date of
grant.  There were no options issued for the three and nine months ended October
31,  2006  and  2005.  Prior to  adoption  of FAS 123 (R),  as  permitted  under
Statement of Financial  Accounting  Standard No.  ("FAS") 123,  "Accounting  for
Stock-Based  Compensation",  the Company elected to follow Accounting Principles
Board Opinion No. 25,  "Accounting  for Stock Issued to Employees",  and related
interpretations  in accounting  for stock awards to employees.  No  compensation
expense was recognized  during the three and nine months ending October 31, 2005
because all grants were issued at the fair market value of the Company's  common
stock at the date of grant.

The Company has elected the modified-prospective  transition method as permitted
by FAS 123(R) and,  therefore,  prior  periods have not been restated to reflect
the impact of stock option  expense.  Stock option  expense will be recorded for
all new and  unvested  stock  options that are expected to vest over the service
period  beginning on February 1, 2006.  Under FAS 123(R) stock option expense is
generally recognized on a straight line basis over the stated vesting period.

The impact of adopting FAS 123(R)  increased  the  Company's  basic net loss per
share by $0.01 for the nine months ended  October 31, 2006.  There was no impact
on the Company's net loss per share for the three months ended October 31, 2006.

The  Company is required to  disclose  the fair  value,  as defined,  of options
granted to employees and the related compensation expense. The fair value of the
stock options  granted was estimated at the date of grant using a  Black-Scholes
option-pricing  model. The Black-Scholes  option-pricing model was developed for
use in  estimating  the fair  value  of  traded  options  that  have no  vesting
restrictions  and are fully  transferable.  Upon the  adoption of FAS 123(R) the
Company changed the accounting for forfeitures  and estimates  forfeitures  when
calculating the  compensation  expense.  The forfeitures did not have a material
impact on the estimated fair value of the stock  options.  Prior to the adoption
of FAS 123(R), for purposes of pro-forma  disclosures under FAS 123, the Company
did not make an  estimate of  forfeitures,  but  instead  subsequently  reversed
pro-forma  compensation costs for forfeited awards when the awards were actually
forfeited.

                                       8
<PAGE>
Using the assumptions  under the  Black-Scholes  option-pricing  model,  and the
weighted-average  fair value of each option granted, the net income and earnings
per share that would have been recorded if the  estimated  fair value of options
granted had been  recorded  as an expense  for the three and nine  months  ended
October 31, 2005, prior to adoption of FAS 123(R) on February 1, 2006, was:

<TABLE>
<CAPTION>
                                                            Three Months Ended           Nine Months Ended
                                                             October 31, 2005             October 31, 2005
                                                            ------------------           -----------------
<S>                                                                <C>                         <C>
Net income, as reported                                            $ 90                        $ 674

Pro forma compensation expense for issuance of
  stock options, net of tax effect                                  (13)                         (39)
                                                                 -------                      --------
Pro forma net income                                               $ 77                        $ 635

BASIC NET INCOME PER SHARE, AND NET INCOME PER
SHARE - ASSUMING DILUTION AS REPORTED                              $0.01                       $0.09


PRO FORMA BASIC NET INCOME  PER SHARE, AND NET
INCOME  PER SHARE - ASSUMING DILUTION                              $0.01                       $0.09
</TABLE>

All of the stock options vest ratably over two to five-year  periods,  beginning
one year after the date of the grant,  and expire ten years after  issuance.  At
October 31, 2006, options for 102,150 shares (after forfeitures) had been issued
under the Plan.  The following  table is a summary of activity  related to stock
options for the nine month period ended October 31, 2006:

<TABLE>
<CAPTION>
                                                      WEIGHTED-
                                        NUMBER         AVERAGE      AVERAGE
                                          OF          EXERCISE     REMAINING
                                        OPTIONS         PRICE        LIFE
                                      -----------    ------------ ------------
<S>                                   <C>         <C>            <C>
Outstanding at February 1, 2006          206,350     $    4.37      7.2  YEARS

Granted                                       -            -            -

Exercised                                     -            -            -

Forfeited                                104,200          4.28      6.7
                                      -----------    ------------ ------------
Outstanding at October 31, 2006          102,150     $    4.47      6.9  YEARS
                                      ===========    ============
Exercisable at October 31, 2006           75,936     $    4.51
                                      ===========    ============
</TABLE>

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                        NUMBER        WEIGHTED-
                                          OF          AVERAGE
                                       OPTIONS        EXERCISE
                                                        PRICE
                                      -----------    ----------
<S>                                       <C>        <C>
Nonvested at February 1, 2006             73,098     $   4.42

Granted                                       -             -

Vested                                   (27,553)        4.42

Forfeited                                (19,331)        3.93
                                      -----------    ----------
Nonvested at October 31, 2006             26,214     $   4.35
                                      ===========    ==========
</TABLE>

The total fair value of options  which  vested  during the three and nine months
ended  October 31, 2006,  was  approximately  $4 (8,333  shares) and $78 (27,553
shares),  respectively.  As of October 31, 2006 $25 of unrecognized compensation
cost related to non-vested  stock  options is expected to be  recognized  over a
weighted average period of approximately 1.00 year.

The fair value of options  which vested during the nine months ended October 31,
2006,  was  estimated  assuming  that no  dividends  will be declared  and using
risk-free rates ranging from 1.75% to 4.25%.  Additionally,  the Company assumed
that the  expected  term of share  options  would be 5.0 years  with  volatility
ranging from 0.31% to 0.37% based on historical  prices of the Company's  stock.
The weighted average volatility was 0.33%.

In November  2005,  the FASB issued FSP No. FAS 123(R)-3,  "Transition  Election
Related to Accounting for the Tax Effects of Share-Based  Payment Awards".  This
FSP provides an elective alternative  simplified method for calculating the pool
of  excess  tax  benefits  available  to  absorb  tax  deficiencies   recognized
subsequent  to the  adoption  of FAS 123(R)  and  reported  in the  consolidated
statements  of cash flows.  Companies can take up to one year from the effective
date of the FSP to evaluate the  available  transition  alternatives  and make a
one-time  election as to which method to adopt.  The Company  will  complete the
process of  evaluating  the  alternative  methods  during the fourth  quarter of
fiscal year 2007.

The  Company has an  Employee  Stock  Purchase  Plan  ("ESPP").  Under the ESPP,
250,000  shares of common stock have been  reserved for  issuance.  With certain
limitations,  the plan allows for eligible  employees to purchase  stock through
payroll deductions at 85% of the lower of the fair market value of the Company's
common stock as of the first day of each semi-annual offering period or the fair
market value of the stock at the end of the offering  period.  Under FAS 123(R),
compensation  charges are recorded for the ESPP. The Company issued 2,523 shares
of stock under the ESPP plan during the nine months ended October 31, 2006.  The
compensation  recorded for the nine months  ended  October 31, 2006 for the ESPP
Shares was not significant.

4.  COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive  income results from the translation of accounts
into U.S.  dollars where the  functional  currency is the Canadian  dollar.  The
increase to net (loss) to arrive at comprehensive income (loss) during the three
months  ended  October  31, 2006 was due to an increase in the value of the U.S.
dollar relative to the Canadian dollar.  The decrease to net (loss) to arrive at
comprehensive  income  (loss)  during the nine months ended October 31, 2006 was
due to a  decrease  in the value of the U.S.  dollar  relative  to the  Canadian
dollar. Comprehensive income (loss) for the periods shown was as follows:

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED               NINE MONTHS ENDED
                                                             OCTOBER 31,                     OCTOBER 31,
                                                        2006             2005            2006             2005
                                                   -------------    ------------    --------------    ----------
<S>                                                <C>              <C>             <C>               <C>
Net income (loss) as reported                      $  (4,241)       $       90      $   (6,413)       $    674

Net impact of foreign currency translation
  adjustments - gain (loss)                              (53)               63              38              83
                                                   -------------    ------------    --------------    ----------
Comprehensive income (loss)                        $  (4,294)       $      153      $   (6,375)       $    757
                                                   =============    ============    ==============    ==========
</TABLE>

5.  INCOME TAXES

The Company  recorded a (provision)  benefit for income taxes related to foreign
income tax expense  estimates for operations in Canada and the  Philippines.  No
provision  is made for U.S.  taxation  because the Company  has  sufficient  net
operating loss  carryforwards that would be utilized to offset any provision for
pre-tax income. No deferred tax provision is recorded because it would be offset
by a change in the deferred tax valuation allowance. The Company does not record
a tax benefit for U.S. tax purposes due to the deferred tax valuation  allowance
recorded, as it is more likely than not that some portion or all of the deferred
tax asset will not be realized.

In the three months ended  October 31, 2006,  the Company  recorded  federal and
state tax benefits in the amount of $810,000. The benefits arose due to a change
in  facts  and  circumstances  and  released   assumptions  that  generated  the
establishment  of federal and state tax  liabilities in prior periods leading to
the reversal of the liabilities in the current periods.

6.  RELATED PARTIES

The Company and First Equity Development Inc. ("First Equity"), the wholly-owned
subsidiary  of First Equity Group,  Inc.,  and the majority  stockholder  of the
Company,  have an agreement  relating to the allocation of potential  investment
and acquisition  opportunities in the aerospace parts distribution and logistics
businesses.  The agreement was approved by the independent  members of the Board
of Directors on a month-to-month  basis effective February 1, 2004. First Equity
Group,  Inc. is beneficially  owned by Mr. Aaron P. Hollander and Mr. Michael C.
Culver,  respectively  Chief Executive Officer and Vice Chairman of the Board of
the  Company.  Pursuant to the  agreement,  neither  First Equity nor any of its
majority-owned  subsidiaries  will  consummate  any  acquisition  of a  majority
interest in any aerospace parts  distribution and logistics business anywhere in
the world (a "Covered  Acquisition"),  without  first  notifying the Company and
providing the Company with the opportunity to effect the Covered Acquisition for
its own  account.  The  Company's  decision  as to whether to effect the Covered
Acquisition will be made by the independent members of the Board of Directors of
the  Company.  The  agreement  can be  terminated  by either  party upon 30 days
written notice to the other party.  The agreement does not apply to any proposed
acquisition  by First Equity of any business that generates less than 15% of its
aggregate net sales from aerospace parts  distribution  or logistics,  or to any
advisory services performed by First Equity on behalf of third parties.

The Company  subleases  from First  Equity  approximately  3,000  square feet of
office  space in  Westport,  Connecticut.  The leased  space is  utilized by the
Company as its corporate  headquarters.  First Equity also utilizes space in the
same premises. The sublease,  which became effective on April 21, 1997, is for a
period of ten years,  and is cancelable by either party with six months  notice.
The Company has the option to renew the  sublease for two  additional  five-year
periods.  Lease payments under this sublease totaled  approximately $36 and $22,
for the three months ended October 31, 2006,  and 2005, and $92 and $67, for the
nine months ended October 31, 2006,  and 2005. The Company and First Equity also
share certain common  expenses that arise from sharing office space in Westport,
CT. The Company reimburses First Equity and vice versa, for expenses each entity
incurs related to the common usage of the office space. The amounts are included
in the Company's  corporate  expenses,  and include  expenses such as telephone,
computer  consulting,  office  cleaning,  office  supplies  and  utilities.  The
expenses  are  allocated  based on base  salaries  of the  Company's  and  First
Equity's personnel working in the shared space.  Common expenses are approved by
the  Company and First  Equity,  prior to  expenditure,  when not of a recurring
nature.  The allocations are reviewed by the Company and the Controller of First
Equity  each month.  In  addition,  a member of the  Company's  audit  committee
reviews  the  allocation  of  expenses  quarterly.   Some  business  development
expenses,  such as joint marketing expense and business organizational dues, are
shared on an equal  basis.  Management  believes  this method of  allocation  is
reasonable.  In addition,  the amounts  reimbursed by the Company are the actual
costs incurred for the expense.  The Company  reimbursed  First Equity,  $10 and
$12, for the three months ended October 31, 2006,  and 2005,  respectively,  and
$35 and $32 for the nine months ended October 31, 2006, and 2005, respectively.

                                       11
<PAGE>
In order to simplify the  administration  of payroll,  certain  employees of the
Company who are  authorized  to perform  services for both the Company and First
Equity are paid  through the payroll of First  Equity.  Employees of the Company
who work  exclusively  for the Company are paid  through the payroll of API, the
Company's principal subsidiary.

7.  INTEREST INCOME (EXPENSE) AND OTHER

The components  relate to interest  income on investments,  interest  expense on
external  debt,  realized  and  unrealized  foreign  exchange  loss  on  foreign
denominated transactions by our Canadian subsidiary.

<TABLE>
<CAPTION>
                                                             Three months ended                   Nine Months ended
                                                                October 31,                          October 31,
                                                            2006             2005                 2006         2005
                                                          --------          ------              --------     --------
<S>                                                       <C>                <C>                  <C>           <C>
Interest income                                           $    -             $   4                $   1         $  45
Interest expense                                            (293)              (53)                (847)         (116)
Other gains (losses)                                          61                54                    9            75
                                                          --------          ------              --------     --------
                                                          $ (232)            $   5                $(837)        $   4
                                                          ========          ======              ========     ========
</TABLE>

 8.  REVOLVING LINE OF CREDIT

Aerospace Products  International  Inc., (the "Borrower") a direct  wholly-owned
subsidiary of First Aviation  Services,  Inc. (the  "Guarantor") has a revolving
line of credit under a Commercial  Revolving Loan and Security  Agreement (the "
Agreement") and Guaranty  Agreement (the  "Guaranty") by and among the Borrower,
Guarantor and TD Banknorth,  the successor to Hudson United Bank (the  "Lender")
dated July 29, 2005.

The Agreement has a commitment expiration date of September 1, 2007. The Company
is  in  the  process  of  negotiating  an  amendment  to  the  Agreement,  under
substantially  the same terms, with TD Banknorth the successor to the Lender, to
extend the expiration date of the facility to September 1, 2008.

The  Agreement  provides  a 25  month  senior  revolving  credit  facility  (the
"Facility I") to the Borrower in the amount of $20 million, subject to terms and
conditions  set forth in the  Agreement.  The  facility  may be  increased by $5
million to $25  million  should the  Company  make an  acquisition  of assets of
another company,  subject to the Lender's approval.  In October 2005, the lender
approved the  increase in the  facility to $25 million  after the Company made a
large initial inventory  purchase in September 2005 from a leading aircraft OEM.
The  proceeds  of any loans made under the  Agreement  will be used for  working
capital purposes in the ordinary course of business of the Borrower.

                                       12
<PAGE>
The Agreement  also provides for a one-time  advance (the  "Facility  II") in an
amount up to $3 million,  subject to  borrowing  availability.  The  Facility II
advance is repaid over 60 months at a fixed rate  determined  at the time of the
drawdown of the advance, with the portion of the advance to be repaid within one
year  reported  in  current  liabilities  on the  balance  sheet.  There  are no
outstanding amounts under Facility II at October 31, 2006 or January 31, 2006.

Borrowings  under  Facility  I bear  interest  equal to LIBOR  plus 1.5% and are
limited to specified  percentages of eligible trade  receivables and inventories
of API. The Agreement contains a number of covenants,  including restrictions on
mergers,  consolidations  and  acquisitions,  the  incurrence  of  indebtedness,
transactions with affiliates,  the creation of liens, and limitations on capital
expenditures. Pursuant to the terms and conditions of the Agreement, the payment
of  dividends  on API's  common  stock is  prohibited,  except with the lender's
consent,  and API is  required  to  maintain  minimum  levels  of net  worth and
specified  interest expense coverage ratios.  For the three months ended October
31, 2006,  API failed to maintain the  specified  trailing 12 month debt service
coverage  ratio for the quarter.  The Company  obtained a waiver from the Lender
for the violation of the covenant.  Substantially  all of API's domestic  assets
are pledged as collateral under the Agreement, and First Aviation guarantees all
borrowings under the Agreement.  Based upon the terms in the proposed  amendment
at October 31, 2006,  borrowings  under the facility totaled $14.8 million at an
interest rate of approximately  7.1%.  Approximately  $9.1 million was available
under the facility at October 31, 2006.

9.  NOTES PAYABLE
<TABLE>
<CAPTION>
                                                                               OCTOBER 31,            January 31,
                                                                                  2006                    2006
                                                                              --------------       ---------------
<S>                                                                           <C>                  <C>
Notes Payable                                                                 $        1,330       $         2,370
Less : Current Portion                                                                  (636)               (1,125)
                                                                             ---------------       ----------------
Long-term portion of notes payable                                            $          694       $         1,245
                                                                             ===============       ===============
</TABLE>

API entered into an initial parts purchase  agreement on September 20, 2005 with
a leading  aircraft  original  equipment  manufacturer  ("OEM") to purchase $8.3
million of  inventory,  including a  long-term  agreement  to sell parts.  As of
October 31, 2006, API had received approximately $7.1 million of this inventory.
The OEM  vendor  agreed to  partially  finance  the  purchase  with two  amended
promissory  notes from API of $1.6  million and $1.4  million,  with the Company
entering  into a  guarantee  agreement  to ensure  payment by API.  The  amended
promissory  note for $1.6 million is for a term of 4 years, at 5.0% interest per
annum.  The amended  promissory note for $1.4 million is a non-interest  bearing
short-term note due within one year. The vendor  financing  promissory notes are
subordinated to the Company's revolving line of credit

10. RESERVE FOR EXCESS AND OBSOLETE INVENTORY

The Company  increased the  allowance for excess and obsolete  inventory by $4.0
million during the three months ended October 31, 2006 for an inventory purchase
in October 2005 from an aircraft  OEM. The  additional  reserve was derived from
the data that became  available  during the quarter ended October 2006,  and was
used to calculate the estimate of the effect of excess and obsolete inventories.

As the result of normal review procedures, during the three months ended October
31, 2006, the Company started using an adjusted  methodology for calculating the
effect of slow moving and obsolete inventory. The adjusted methodology estimates
the provision for excess and obsolete  inventory  based upon financial  formulas
that take into  account  quantities,  costs,  the age of the  inventory on hand,
historical and projected  sales,  and other  inventory  movements,  adjusted for
known  or  estimated  factors  such as new  product  lines  and  product  return
allowances.  This method  differs  from the  previous  method which was based on
historical  aging.  The impact of the change in methodology  was not material to
the Company's Operating results.

As a result of this review,  the Company will continue to monitor the results of
this method of estimating inventory reserves, however actual excess and obsolete
inventories  could  differ   significantly   from  such  estimates  and  have  a
significant  negative  impact  on the  estimated  allowance  and  the  Company's
financial performance.

11. RECENT ACCOUNTING ANNOUNCEMENTS

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes -- an  Interpretation of FASB Statement No. 109" ("FIN 48"). FIN
48 clarifies the  accounting  for  uncertainty  in income taxes  recognized in a
company's  financial  statements  in  accordance  with FASB  Statement  No. 109,
"Accounting  for Income  Taxes." FIN 48 prescribes a  recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a tax  position  taken  or  expected  to be  taken  in a tax  return.  FIN 48 is
effective  for the  Company  beginning  on  February  1,  2007.  The  Company is
currently  reviewing this new standard to determine its effects,  if any, on the
Company's financial position or results of operations.



                                       13
<PAGE>
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SAFE HARBOR  STATEMENT  UNDER THE PRIVATE  SECURITIES  LITIGATION  REFORM OF ACT
1995.

CERTAIN STATEMENTS DISCUSSED IN ITEM 2, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION  AND  RESULTS OF  OPERATIONS",  ITEM 3,  "QUANTITATIVE  AND
QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISKS",  ITEM  1  OF  PART  II,  "LEGAL
PROCEEDINGS"  AND  ELSEWHERE IN THIS  QUARTERLY  REPORT ON FORM 10-Q  CONSTITUTE
FORWARD-LOOKING   STATEMENTS  WITHIN  THE  MEANING  OF  THE  PRIVATE  SECURITIES
LITIGATION REFORM ACT OF 1995.  FORWARD-LOOKING STATEMENTS ARE NOT STATEMENTS OF
HISTORICAL  FACTS,  BUT  RATHER  REFLECT  THE  COMPANY'S  CURRENT   EXPECTATIONS
CONCERNING FUTURE EVENTS AND RESULTS. SUCH FORWARD-LOOKING STATEMENTS, INCLUDING
THOSE  CONCERNING THE COMPANY'S  EXPECTATIONS,  INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS, SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL,
THAT MAY CAUSE THE COMPANY'S  ACTUAL RESULTS,  PERFORMANCE OR  ACHIEVEMENTS,  OR
INDUSTRY  RESULTS,   TO  BE  MATERIALLY   DIFFERENT  FROM  ANY  FUTURE  RESULTS,
PERFORMANCE  OR  ACHIEVEMENTS  EXPRESSED  OR  IMPLIED  BY  SUCH  FORWARD-LOOKING
STATEMENTS.  SUCH RISKS,  UNCERTAINTIES AND OTHER IMPORTANT FACTORS INCLUDE, THE
COMPANY'S ABILITY TO OBTAIN PARTS AND COMPONENTS FROM ITS PRINCIPAL SUPPLIERS ON
A TIMELY  BASIS,  DEPRESSED  DOMESTIC  AND  INTERNATIONAL  MARKET  AND  ECONOMIC
CONDITIONS,  ESPECIALLY THOSE CURRENTLY FACING THE AVIATION INDUSTRY AS A WHOLE,
THE  IMPACT OF CHANGES IN FUEL AND OTHER  FREIGHT-RELATED  COSTS,  RELATIONSHIPS
WITH ITS  CUSTOMERS,  THE  ABILITY  OF THE  COMPANY'S  CUSTOMERS  TO MEET  THEIR
FINANCIAL  OBLIGATIONS TO THE COMPANY,  THE ABILITY TO OBTAIN AND SERVICE SUPPLY
CHAIN MANAGEMENT CONTRACTS,  CHANGES IN REGULATIONS OR ACCOUNTING STANDARDS, THE
ABILITY TO CONSUMMATE  SUITABLE  ACQUISITIONS AND EXPAND, THE LOSS OF THE USE OF
FACILITIES AND DISTRIBUTION HUB IN MEMPHIS,  SIGNIFICANT FAILURE OF OUR COMPUTER
SYSTEMS OR NETWORKS,  EFFORTS TO COMPLY WITH  SECTION 404 OF THE  SARBANES-OXLEY
ACT OF 2002, AND OTHER ITEMS THAT ARE BEYOND THE COMPANY'S CONTROL AND MAY CAUSE
ACTUAL RESULTS TO DIFFER FROM MANAGEMENT'S EXPECTATIONS.  IN ADDITION,  SPECIFIC
CONSIDERATION  SHOULD  BE  GIVEN TO THE  VARIOUS  FACTORS  DESCRIBED  IN ITEM 7,
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS",  IN THE  COMPANY'S  ANNUAL  REPORT ON FORM 10-K FOR THE YEAR  ENDED
JANUARY 31, 2006, AND ITEM 3,  "QUANTITATIVE  AND QUALITATIVE  DISCLOSURES ABOUT
MARKET  RISKS",  IN THIS REPORT FOR THE THREE AND NINE MONTHS ENDED  OCTOBER 31,
2006.  THE  COMPANY  UNDERTAKES  NO  OBLIGATION  TO UPDATE  ANY  FORWARD-LOOKING
STATEMENTS OR CAUTIONARY FACTORS, EXCEPT AS REQUIRED BY LAW.

GENERAL

First Aviation Services Inc. ("First Aviation"),  together with its wholly owned
subsidiaries,  Aerospace Products  International,  Inc. ("API"),  Aircraft Parts
International,  Ltd. ("API Ltd."),  API Asia Pacific Inc. ("API Asia  Pacific"),
API China, Inc. ("API China") and API Europe Ltd. ("API Europe")  (collectively,
the  "Company"),  is one of the leading  suppliers  of services to the  aviation
industry  worldwide.  The  services the Company  provides the aviation  industry
include the sale of aircraft parts and components, the provision of supply chain
management   services,   overhaul   and   repair   services   for   brakes   and
starter/generators, and the assembly of custom hoses.

The Company's  principal executive offices are located at 15 Riverside Avenue in
Westport,  Connecticut 06880. Certain filings that First Aviation makes with the
U.S.  Securities  and Exchange  Commission  are  available  on First  Aviation's
corporate website at WWW.FAVS.COM.  These public filings also can be obtained by
calling our investor relations department, by e-mail at first@firstaviation.com,
or on the SEC website at WWW.SEC.GOV.

CRITICAL ACCOUNTING POLICIES

There have been no significant  changes in those accounting policies the Company
considers  critical from those described under the caption "Critical  Accounting
Policies",  included  in  Item  7,  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations",  in the Company's Annual Report
on Form 10-K for the year ended  January 31, 2006,  except for the  expensing of
stock options as required by FAS 123(R) and the adjusted methodology the company
uses for  estimating the provision for excess and obsolete  inventory  described
below.  Prior to adoption of FAS 123(R) on February 1, 2006, the Company elected
to follow  Accounting  Principles  Board Opinion No. 25,  "Accounting  for Stock
Issued to Employees", and related interpretations in accounting for stock awards
to employees.  As a result, no compensation  expense was recognized  because all
grants were issued at the fair market value of the Company's common stock at the
date of the grant. As the result of normal review  procedures,  during the three
months ended October 31, 2006, the Company started using an adjusted methodology
for calculating the effect of slow moving and obsolete  inventory.  The adjusted
methodology estimates the provision for excess and obsolete inventory based upon
financial  formulas  that take into account  quantities,  costs,  the age of the
inventory  on  hand,   historical  and  projected  sales,  and  other  inventory
movements, adjusted for known or estimated factors such as new product lines and
product return  allowances.  This method differs from the previous  method which
was based on historical  aging.  The impact of the change in methodology was not
material to the Company's operating results.

                                       14
<PAGE>
RESULTS OF OPERATIONS

NET SALES

The Company's  net sales consist of sales of services to the aviation  industry,
including  parts  and  components  supply  services,   supply  chain  management
services,  and component  overhaul and repair  services.  Net sales are recorded
when parts and components are shipped and title transfers to the customer,  when
supply chain  management  services have been  provided to the customer,  or when
overhauled  and repaired  items are  completed and shipped back to the customer.
Shipping and handling  billed to customers are included in net sales.  The terms
and nature of supply chain  management  services are  stipulated  in a long-term
contract  between  the  Company  and the  customer.  The  Company  provides  its
facilities,  personnel  and systems to provide the  services at less cost to the
customer.  In  providing  services  where the Company  distributes  inventory on
behalf  of its  customer,  the  Company  may use its own  inventory  or hold its
customers' inventory without taking ownership of such inventory.  In cases where
the Company  does not take  ownership  of its  customers'  inventory,  net sales
generally  are  recognized  as a fee  based on the  sales  value of the  product
shipped through the Company's facilities, and not the sales value of the product
itself. Alternatively, the Company, when providing services to handle customer's
inventory  without  taking  ownership,  can  take a fee  based  on the  cost  of
providing services, and not on the sales value of the product.

Net sales for the three months ended October 31, 2006 decreased $1.3 million, or
3.7%, to $32.4 million from $33.6 million for the three months ended October 31,
2005. The decrease was largely due to weakening markets in certain sectors.  The
decrease  mainly  reflected  lower  revenues to general  aviation,  retail,  and
aviation maintenance providers,  offset by increased revenues in the airline and
corporate sectors.

Net sales for the nine  months  ended  October  31,  2006  versus the nine month
period ended October 31, 2005 decreased $7.0 million or 7.2% to $91.3 million in
2006 versus $98.3  million in the  comparable  2005 period.  The reasons for the
decrease in net sales for the nine months ended October 31, 2006 versus the nine
months  ended  October 31, 2005,  were due to  weakening  markets in the general
aviation and aviation  maintenance sectors and customer credits processed in the
second quarter of the current fiscal year due to customer service issues.

In the four foreign geographic regions the Company serves, revenues decreased in
the three months ended October 31, 2006 versus the comparable  prior year period
due to the reasons  described above.  The Company  continues to be cautious with
respect to providing credit to customers in the Latin American region,  and this
has had a negative impact on sales.

Freight  revenue is a component of net sales and  represents  freight  billed to
customers. Freight revenue for the three months ended October 31, 2006 decreased
17.1%,  to $397,000  from  $479,000  for the prior year three month period ended
October 31,  2005.  For the nine month period  ended  October 31, 2006,  freight
revenue  decreased  2.0% to  $1,411,000  from  $1,440,000 in the prior year nine
month period. The decrease in the three and nine month periods ended October 31,
2006 was primarily due to reduced freight charges on large orders that qualified
for freight  incentives in the current  three month period.  The decrease in the
three and nine month  periods had a negative  effect on gross  profit  margin as
explained below under the caption "Gross Profit".

COST OF SALES

Cost of sales consists of costs of inventory sold,  direct costs to overhaul and
repair parts and  components,  and direct costs of providing  services.  Freight
costs for parts and components sold are also included in cost of sales.

Cost of sales for the  three  months  ended  October  31,  2006  increased  $3.1
million,  or 11.3%,  to $31.1  million  from $28.0  million for the three months
ended  October 31, 2005.  Cost of sales for the nine month period ended  October
31, 2006  decreased  $2.1 million,  or 2.6%, to $79.3 million from $81.5 million
for the nine months ended  October 31, 2005.  Cost of sales for the three months
ended  October  31,  2006  increased  due to a $4.0  million  charge  increasing
inventory  reserves in the quarter resulting due to an increase in the allowance
for excess and obsolete  inventory of $4.0 million during the three months ended
October 31, 2006 for an inventory purchase in October 2005 from an aircraft OEM.
The additional  reserve was derived from the data that became  available  during
the quarter ended  October  2006,  and was used to calculate the estimate of the
effect of excess and  obsolete  inventories,  as  described  in the notes to the
financial  statements.  Cost of sales for the nine months ended October 31, 2006
decreased  $2.1 million as the result of the  decrease in revenues  described in
net sales offset by the impact of the increase in inventory reserves.

                                       15
<PAGE>
As a percentage of net sales,  cost of sales increased to 96.2% versus 83.2% for
the three month period ended  October 31, 2006 versus 2005.  The increase in the
percentage  of cost of sales  compared to net sales for the three  months  ended
October 31, 2006  compared  to the three  months  ended  October 31,  2005,  was
primarily  due to the  impact  of the $4.0  million  charge to  reserves  in the
current year quarter.

Cost of sales as a  percentage  of net  sales in the  nine  month  period  ended
October 31, 2006  increased to 86.9% versus 82.9% in the nine month period ended
October 31, 2005.  The increase in the  percentage of cost of sales  compared to
net sales for the nine months ended October 31, 2006 compared to the nine months
ended October 31, 2005, was due to the $4.0 million  inventory reserve charge in
the current year three month period.

GROSS PROFIT

Gross  profit for the three  months  ended  October  31,  2006 of $1.2  million,
decreased  $4.4 million or 78.0% over the prior year gross profit.  Gross profit
as a  percentage  of net sales  decreased to 3.8% due to the  inventory  reserve
described  above.  For the nine month period ended October 31, 2006,
gross profit  decreased $4.9 million or 29.1% versus the nine month period ended
October 31, 2005.  Gross profit as a percentage of net sales  decreased to 13.1%
versus 17.1% for the comparable  period ended October 31, 2005, due primarily to
the $4.0 million  inventory  reserve charge  described above in the current year
quarter.

Gross profit is also impacted by net freight expense,  which represents  freight
expense  recorded in cost of sales,  less  freight  billed to  customers  in net
sales.  Net freight  expense  decreased  gross  profit by 12.2% and 9.2% for the
three and nine month  period ended  October 31, 2006,  compared to a decrease of
6.6% and 6.5%,  respectively,  in the comparable 2005 periods,  due primarily to
the amount of net freight expense in relation to total net sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and administrative expenses for the three months ended October
31, 2006  increased  by  $381,000,  or 7.7% to $5.4  million as compared to $5.0
million for the three months ended October 31, 2005.  The increase for the three
months ended  October 31,  2006,  over the  comparable  prior year period is due
primarily  to a $422,000  increase in bad debt expense due to an increase in the
age of outstanding receivables and specific accounts placed in collections,  and
an increase in depreciation  costs of $151,000 resulting from technology related
expenditures  reduced  by a  $136,000  gain on the  sale of an  airplane  in the
current quarter.  Selling general and administrative  expense as a percentage of
revenues  increased to 16.5% for the three months ended  October 31, 2006 versus
14.8% for the three months ended October 31, 2005.

Selling,  general and administrative  expenses for the nine months ended October
31, 2006  increased by $1.5  million, or 10.4% to $16.3  million  as compared to
$14.8 million for the three months ended October 31, 2005.  The increase for the
nine months ended October 31, 2006, over the comparable prior year period is due
primarily  to an  increase  in salaries  and  related  expense  for  operational
personnel and IT, higher  depreciation  charges, an increase in bad debt expense
due to the reasons  cited in the three  months  above,  and a one-time  $250,000
lease  termination  penalty.  Selling  general and  administrative  expense as a
percentage of revenues  increased to 16.3% for the nine months ended October 31,
2006 versus 15.0% for the nine months ended October 31, 2005.

CORPORATE EXPENSES

Corporate  expenses  increased  by $113,000  or 20.3% to $670,000  for the three
months ended  October 31, 2006 from  $557,000  incurred  during the three months
ended October 31, 2005. The increase in corporate  expenses in the quarter ended
October 31, 2006  resulted  primarily  from a $62,000  increase in franchise tax
expense due to refunds and  adjustments in the prior year three month period,  a
$22,000  increase in outside  service costs related to the bank financings and a
$24,000 increase in travel related costs due to the China and Europe facilities.

Corporate  expenses in the nine month period ended October 31, 2006 increased by
$152,000 or 8.7% to  $1,896,000  from the  $1,744,000  incurred  during the nine
months ended  October 31, 2005.  The increase in corporate  expenses in the nine
months ended October 31, 2006  resulted  primarily  from a $102,000  increase in
franchise tax expense  referred to above,  a $79,000  increase in travel related
costs partially  offset by a $52,000  reduction in costs related to the Board of
Directors and corporate governance charges.

                                       16
<PAGE>
NET INTEREST INCOME (EXPENSE) AND OTHER

During the three months ended October 31, 2006,  net interest  income  (expense)
and other  increased  as an expense of $232,000  versus  income of $5,000 in the
three months ended October 31, 2005,  principally due to a $240,000  increase in
interest  expense for the three months ended October 31, 2005. This increase was
the  result of  financings  outstanding  for  product  line  expansion,  capital
expenditures and working capital needs.

For the nine months ended October 31, 2006,  net interest  income  (expense) and
other  increased  as an  expense  of  $837,000,  principally  due to a  $731,000
increase  in  interest  expense and a foreign  exchange  loss of $14,000  versus
income of $76,000 in the nine months ended  October 31,  2005.  The increase was
primarily the result of the increase in interest costs for the reasons described
above and rising interest rates in the three month period.

BENEFIT (PROVISION) FOR INCOME TAXES

The Company  recorded a provision for income taxes related to foreign income tax
expense  estimates for operations in the  Philippines.  No provision is made for
U.S.   taxation   because  the  Company  has   sufficient   net  operating  loss
carryforwards that would be utilized to offset any provision for pre-tax income.
No deferred tax provision is recorded  because it would be offset by a change in
the deferred tax valuation allowance.  The Company does not record a tax benefit
for U.S. tax purposes on any operating  losses  incurred due to the deferred tax
valuation  allowance recorded as it is more likely than not that some portion or
all of the net deferred tax asset will not be realized.

In the three and nine months  ended  October  31,  2006,  the  Company  recorded
federal and state tax benefits in the amount of $810,000. The benefits arose due
to a change  in facts  and  circumstances  that  released  in  assumptions  that
generated  the  establishment  of  federal  and state tax  liabilities  in prior
periods leading to the reversal of the liabilities in the current periods.


NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE

The Company  incurred a net loss of  ($4,241,000),  or ($0.58) per share for the
three months ended October 31, 2006, compared to net income of $90,000, or $0.01
per  share  for the three  months  ended  October  31,  2005,  and a net loss of
($6,413,000)  or ($0.87)  per share for the nine months  ended  October 31, 2006
versus  net  income of  $674,000  or $0.09 per share for the nine  months  ended
October 31, 2005.  The loss in the current year periods versus the income in the
prior year periods was due to the reasons described in the preceding sections.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity  requirements arise principally from its working capital
needs.  In  addition,  the Company has  liquidity  requirements  to fund capital
expenditures  to support  its  current  operations,  and  facilitate  growth and
expansion.  The Company funds its liquidity  requirements  with a combination of
cash on hand and from  borrowings.  Cash  and cash  equivalents  at any time may
consist  of a  combination  of demand  deposits,  money  market  or  short-term,
high-grade bond funds, and short-term certificates of deposit.

For the nine months ended October 31, 2006 the Company  utilized $6.2 million in
cash for operating  activities,  compared to $6.9 million cash used in operating
activities  for the nine months ended  October 31, 2005.  The use of cash in the
nine months ended October 31, 2006 was principally due to the loss incurred, and
an increase in trade receivables.  Cash used in investing activities for the six
months ended  October 31, 2006,  and 2005 was $1.4  million,  and $2.2  million,
respectively.  Cash used in investing  activities  for the periods ended October
31, 2006 and 2005,  respectively,  was related to  purchases of fixed assets and
information  technology  costs.  Cash used in financing  activities for the nine
months  ended  October  31,  2006,   and  2005  was   $740,000,   and  $500,000,
respectively. Cash used in financing activities for the period ended October 31,
2006,  is due to payments on notes  payable  issued during the fiscal year ended
January 31,  2006,  versus  cash used to  repurchase  preferred  stock of API of
$500,000 during the quarter ended October 31, 2005.

First  Aviation's  aggregate  cash used for  capital  expenditures  for the nine
months  October  31,  2006,  and  2005  was  $1.4  million,  and  $2.2  million,
respectively.  The use of cash for capital requirements in the first nine months
of  fiscal  2007 is the  result of  expenditures  for the  Company's  enterprise
technology systems and equipment to handle current  requirements and support the
Company's  growth and  expansion.  For fiscal year 2007 the amount  required for
capital  expenditures  currently  is expected to range  between $1.5 million and
$2.0 million.  Management  expects to fund these requirements from cash on hand,
cash flows from operations, and from borrowings.

                                       17
<PAGE>
API  has a a new $20  million  revolving  line  of  credit  facility  which  was
increased to $25 million due to satisfying  certain  conditions  regarding asset
purchases,   through  a  Commercial   Revolving  Loan  and  Security   Agreement
("Agreement").  This  Agreement  expires on September 1, 2007. The Company is in
the process of negotiating an amendment to the Agreement under substantially the
same terms with the sucessor to the original  lender,  to extend the  expiration
date of the facility to September 1, 2008.  Borrowings  under this facility bear
interest  equal to LIBOR plus 1.5% and are limited to specified  percentages  of
eligible trade  receivables  and  inventories  of API. The Agreement  contains a
number of  covenants,  including  restrictions  on mergers,  consolidations  and
acquisitions, the incurrence of indebtedness,  transactions with affiliates, the
creation of liens,  and  limitations  on capital  expenditures.  Pursuant to the
terms and conditions of the Agreement,  the payment of dividends on API's common
stock is prohibited,  except with the lender's  consent,  and API is required to
maintain  minimum levels of net worth and specified  interest  expense  coverage
ratios.  API failed to maintain  the  specified  trailing 12 month debt  service
ratio for the  quarter.  The  Company  obtained a waiver from the lender for the
violation  of the  covenant.  Substantially  all of API's  domestic  assets  are
pledged as collateral  under the facility,  and First  Aviation  guarantees  all
borrowings  under the Agreement.  In October 2005, the line was increased to $25
million under  provisions  of the  agreement as the result of a large  inventory
purchase made by the Company in September 2005. At October 31, 2006,  borrowings
under the facility  totaled $14.8 million,  at an interest rate of approximately
7.1%. Of the $14.8 million, $0.3 million represented a draw on the facility just
prior to October 31, 2006. The Company would regularly draw down on the facility
just  prior to quarter  end,  hold the cash,  and then  repay the  amount  drawn
shortly  thereafter.  The purpose was to show cash  availability  for  potential
acquisitions or other investment  opportunities.  The Company is currently using
the facility more for inventory  investment  and working  capital  requirements.
This  represents a more frequent use of the line that have  increased  borrowing
costs.  Approximately  $9.1 million was available  under the facility at October
31,  2006.  At  October  31,  2006,  borrowings  under  the  facility  have been
reclassified  as current.  Management  believes that the carrying  amount of the
Company's borrowings approximates fair market value because the interest rate is
variable and resets frequently.

Based upon current and anticipated  levels of operations,  the Company  believes
that cash flow from operations, combined with cash on hand, and the availability
under the  facility,  will be  sufficient  to meet its current  and  anticipated
operating cash  requirements  for the foreseeable  future,  including  scheduled
interest  and  principal   payments,   working   capital   needs,   and  capital
expenditures.

At this time, the Company  anticipates that all future earnings will be retained
for use in the Company's  business.  Any payment of cash dividends in the future
on the Company's  common stock will be dependent  upon the  Company's  financial
condition, its results of operations, current and anticipated cash requirements,
plans for  expansion,  the  ability  of its  subsidiaries  to pay  dividends  or
otherwise  make cash  payments or advances  to it, and  restrictions  under debt
obligations,  as well as any other  factors  that the Board of  Directors  deems
relevant.

CONTRACTUAL OBLIGATIONS

As of October 31, 2006, there have been no material changes outside the ordinary
course  of  the  Company's  business  in  the  Company's  specified  contractual
obligations  disclosed in the Company's  Annual Report on Form 10-K for the year
ended January 31, 2006.

Off -Balance Sheet Arrangements

         The Company has no material  off-balance sheet  arrangements as defined
in Item 303(a)(4)(ii) of Regulation S-K.

                                       18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The  Company's  Canadian   operations  utilize  the  Canadian  dollar  as  their
functional  currency,  while the  Company's  Asian  operation  utilizes the U.S.
dollar as its functional currency.  The Company has transactions  denominated in
Canadian  dollars and  Philippine  pesos.  The Company is exposed to market risk
from foreign exchange rates.  Foreign currency  transaction exposure principally
arises from the  transfer of foreign  currency to and/or from U.S.  dollars from
one  subsidiary  to  another  within  the  Company,  and from  foreign  currency
denominated trade receivables.  Currency  transaction and translation  exposures
are not hedged.  Foreign currency  transaction  gains and losses are included in
earnings,  and gains or losses will increase in significance  with the growth of
the  Canadian  operations.  Unrealized  currency  translation  gains and  losses
resulting from the  translation of foreign  subsidiaries  balance sheets to U.S.
dollars are not recorded as income or expense, but are recognized in the Balance
Sheet as other  comprehensive  income or loss as a  component  of  Stockholder's
Equity.  The Company does have risk  principally  relating to the translation of
accounts in which the Canadian  dollar is the functional  currency.  Sensitivity
analysis of foreign  currency  exchange rate risk assumes an  instantaneous  10%
change in the foreign  currency  exchange  rates from their level at October 31,
2006,  with all  other  variables  held  constant.  A 10%  strengthening  of the
Canadian  dollar  versus  the  U.S.  dollar  would  result  in  an  increase  of
approximately  $291,000 in the net asset  position of financial  instruments  at
October 31, 2006. A 10% weakening of the Canadian  dollar versus the U.S. dollar
would result in a decrease of  approximately  $353,000 in the net asset position
of  financial  instruments  at October 31,  2006.  During the three months ended
October 31, 2006 the Company experienced foreign currency  translation losses of
($53,000) due to a decrease in the value of the Canadian  dollar relative to the
U.S. dollar. For the nine months ended October 31, 2006, the Company experienced
foreign currency  translation gains of $38,000,  due to an increase in the value
of the Canadian dollar relative to the U.S. dollar.

Borrowings of the Company are denominated in U.S. dollars.  Management  believes
that the carrying  amount of the Company's  borrowings  approximates  fair value
because the interest rates are variable and reset frequently.

ITEM 4. CONTROLS AND PROCEDURES

The Company's  management  evaluated,  with the  participation  of the Company's
principal executive and principal  financial officers,  the effectiveness of the
Company's  disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e)  under the Securities  Exchange Act of 1934, as amended (the "Exchange
Act")),  as of  October  31,  2006.  Based on their  evaluation,  the  Company's
principal   executive  and  principal  financial  officers  concluded  that  the
Company's  disclosure  controls and procedures  were effective as of October 31,
2006.

There  has been no change  in the  Company's  internal  control  over  financial
reporting (as defined in Rules  13a-15(f) and 15d-15(f)  under the Exchange Act)
that occurred  during the Company's  fiscal quarter ended October 31, 2006, that
has  materially  affected,  or is reasonably  likely to materially  affect,  the
Company's internal control over financial reporting.

                                       19
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company's business exposes it to possible claims for personal injury,  death
or property  damage that may result from a failure of certain parts  serviced by
the Company or spare parts and components  sold by it, or in connection with the
provision of its supply chain  management  services.  The Company  takes what it
believes  to be  adequate  precautions  to  ensure  the  quality  of the work it
performs and the  traceability  of the  aircraft  parts and  components  that it
sells.  The  original  equipment   manufacturers  that  manufacture  the  parts,
components and supplies that the Company sells carry liability  insurance on the
products they manufacture.  In addition,  the Company maintains what it believes
is adequate liability insurance to protect it from any claims.

In the normal  conduct of its business,  the Company also is involved in various
claims and lawsuits,  none of which, in the opinion of the Company's management,
will have a material,  adverse  impact on the Company's  consolidated  financial
position. The Company maintains what it believes is adequate liability and other
insurance to protect it from such claims.  However,  depending on the amount and
timing,  unfavorable  resolution  of any of these  matters could have a material
effect on the Company's consolidated  financial position,  results of operations
or cash flows in a particular period.

ITEM 1A.  RISK FACTORS

NONE

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5.    OTHER INFORMATION

NONE

ITEM 6.    EXHIBITS

31.1 Certification of Principal Executive Officer required by Rule 13a-14(a).

31.2 Certification of Principal Financing Officer required by Rule 13a-14(a).

32.1 Certification of Principal Executive Officer required by Rule 13a-14(b) and
     18 U.S.C. Section 1350 (furnished herewith).

32.2 Certification of Principal Financial Officer required by Rule 13a-14(b) and
     18 U.S.C. Section 1350 (furnished herewith).

                                       20
<PAGE>
                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                     FIRST AVIATION SERVICES INC.
                                                 (Registrant)


Date: December 15, 2006              /s/  Aaron P. Hollander
                                     -------------------------------------------
                                     Aaron P. Hollander,
                                     President, Chief Executive Officer and
                                     Director (Principal Executive Officer)


Date: December 15, 2006              /s/ Bobbie Espitia
                                     -------------------------------------------
                                     Bobbie Espitia
                                     Principal Accounting Officer

                                       21
<PAGE>
INDEX TO EXHIBITS

Exhibit No.        Description

31.1 Certification of Principal Executive Officer required by Rule 13a-14(a).

31.2 Certification of Principal Financial Officer required by Rule 13a-14(a).

32.1 Certification of Principal Executive Officer required by Rule 13a-14(b) and
     18 U.S.C. Section 1350 (furnished herewith).

32.2 Certification of Principal Financial Officer required by Rule 13a-14(b) and
     18 U.S.C. Section 1350 (furnished herewith).

                                       22