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 JULY 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
September 1, 2006 is 7,365,037 shares.



<PAGE>


<TABLE>
<CAPTION>
                          FIRST AVIATION SERVICES INC.

                                      INDEX

                         PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited):

<S>                                                                                                  <C>
          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>
                                                                     July 31,   January 31,
                                                                       2006        2006
                                                                     --------    ---------
                                                                     (unaudited)    *
Current assets:
<S>                                                                  <C>         <C>
      Cash and cash equivalents                                      $  3,489    $  9,488
      Trade receivables, net of allowance for doubtful                 19,584      18,737
         accounts of $932 and $596, respectively
      Inventory, net of allowance for obsolete and slow moving         38,818      38,809
         inventory of $1,664 and $1,709, respectively
      Prepaid expenses and other                                        1,022       1,351
                                                                     --------    --------

Total current assets                                                   62,913      68,385

Plant and equipment, net                                                5,251       4,963
                                                                     --------    --------
Total Assets                                                         $ 68,164    $ 73,348
                                                                     ========    ========
Liabilities and stockholders' equity
Current liabilities:
      Accounts payable                                               $ 13,214    $ 15,441
      Accrued compensation and related expenses                         1,464       1,823
      Other accrued liabilities                                         1,909       1,750
      Notes payable                                                       385       1,125
      Income taxes payable                                              1,027       1,012
                                                                     --------    --------
Total current liabilities                                              17,999      21,151

      Long-term debt                                                   14,500      14,500
      Notes payable, less current portion                               1,222       1,245
                                                                     --------    --------
Total liabilities                                                      33,721      36,896

Stockholders' equity:

      Common stock, $0.01 par value, 25,000,000 shares authorized,
          9,135,699 shares issued                                          91          91
      Additional paid-in capital                                       38,803      38,799
      Retained earnings                                                 4,177       6,349
      Accumulated other comprehensive income                              591         500
                                                                     --------    --------
                                                                       43,662      45,739
      Less:  Treasury stock, at cost, 1,770,662 and 1,782,449
          shares, respectively                                         (9,219)     (9,287)
                                                                     --------    --------
Total stockholders' equity                                             34,443      36,452
                                                                     --------    --------
Total liabilities and stockholders' equity                           $ 68,164    $ 73,348
                                                                     ========    ========

See accompanying notes.

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

                                       3
<PAGE>



                          FIRST AVIATION SERVICES INC.

           Consolidated Condensed Statements of Operations (Unaudited)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                               Three months ended
                                                                    July 31,
                                                               2006          2005
                                                           -----------    -----------
<S>                                                        <C>            <C>
Net sales                                                  $    29,665    $    32,706
Cost of sales                                                   24,686         27,164
                                                           -----------    -----------
Gross profit                                                     4,979          5,542
Selling, general and administrative expenses                     5,898          4,928
Corporate expenses                                                 607            583
                                                           -----------    -----------
Income (loss) from operations                                   (1,526)            31
Net interest income (expense) and other                           (303)            36
Other income                                                      --              417
                                                           -----------    -----------
Income (loss) before income taxes                               (1,829)           484
Provision for income taxes                                         (77)           (52)
                                                           -----------    -----------
Net income (loss)                                          $    (1,906)   $       432
                                                           ===========    ===========


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

Basic net income (loss) per share, and net income (loss)   $     (0.26)   $      0.06
     per share - assuming dilution
                                                           ===========    ===========

Weighted average shares outstanding - basic                  7,358,576      7,333,457
                                                           ===========    ===========

Weighted average shares outstanding - assuming dilution      7,358,576      7,337,753
                                                           ===========    ===========

</TABLE>


See accompanying notes.


                                       4
<PAGE>




                          FIRST AVIATION SERVICES INC.

           Consolidated Condensed Statements of Operations (Unaudited)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                Six months ended
                                                                    July 31,
                                                              2006           2005
                                                           ------------   -----------
<S>                                                        <C>            <C>
Net sales                                                  $    58,907    $    64,687
Cost of sales                                                   48,201         53,491
                                                           -----------    -----------
Gross profit                                                    10,706         11,196
Selling, general and administrative expenses                    10,943          9,788
Corporate expenses                                               1,226          1,187
                                                           -----------    -----------
Income (loss) from operations                                   (1,463)           221
Net interest income (expense) and other                           (605)            (2)
Minority interest in subsidary                                    --              (10)
Other income                                                      --              417
                                                           -----------    -----------
Income (loss) before income taxes                               (2,068)           626
Provision for income taxes                                        (104)           (42)
                                                           -----------    -----------
Net income (loss)                                          $    (2,172)   $       584
                                                           ===========    ===========
Basic net income (loss) per share, and net income (loss)
     per share - assuming dilution:

Basic net income (loss) per share, and net income (loss)   $     (0.30)   $      0.08
     per share - assuming dilution
                                                           ===========    ===========
Weighted average shares outstanding - basic                  7,355,957      7,329,077
                                                           ===========    ===========

Weighted average shares outstanding - assuming dilution      7,355,957      7,333,590
                                                           ===========    ===========


</TABLE>

See accompanying notes.




                                       5
<PAGE>



                          FIRST AVIATION SERVICES INC.

           Consolidated Condensed Statements of Cash Flows (Unaudited)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   Six months ended
                                                                                      July 31,
                                                                                   2006        2005
                                                                                 --------    ---------
Cash flows from operating activities
<S>                                                                              <C>         <C>
Net income (loss)                                                                $ (2,172)   $    584
Adjustments to reconcile net income (loss) to net
     cash used in operating activities - non-cash charges:
      Depreciation and amortization                                                   852         538
      Compensation paid through share-based payments                                   75          80
(Increase) decrease in current assets:
      Trade receivables                                                              (903)     (2,642)
      Inventory                                                                        12      (2,720)
      Prepaid and other                                                               276        (253)
Increase (decrease) in current liabilities:
      Accounts payable                                                             (2,102)      2,599
      Accrued compensation and related expenses, and other accrued liabilities       (155)          3
      Income taxes payable                                                             14         125
                                                                                 --------    --------
Net cash used in operating activities                                              (4,103)     (1,686)

Cash flows from investing activities
Purchases of plant and equipment                                                   (1,139)       (885)
                                                                                 --------    --------
Net cash used in investing activities                                              (1,139)       (885)

Cash flows from financing activities
Borrowings on revolving line of credit                                                500      29,000
Repayments on revolving line of credit                                               (500)    (29,000)
Repayments on notes payable                                                          (763)       --
Repurchase of preferred stock of subsidiary                                          --          (500)
                                                                                 --------    --------
Net cash used in financing activities                                                (763)       (500)
                                                                                 --------    --------
Net decrease in cash and cash equivalents                                          (6,005)     (3,071)

Effect of exchange rates on cash                                                        6           3

Cash and cash equivalents at beginning of period                                    9,488      22,584
                                                                                 --------    --------
Cash and cash equivalents at end of period                                       $  3,489    $ 19,516
                                                                                 ========    ========
Supplemental cash flow disclosures:
      Interest paid                                                              $    531    $     63
      Income taxes paid                                                          $     26    $     12


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)

                                  July 31, 2006

1.  BASIS OF PRESENTATION

First Aviation Services Inc. ("First Aviation"),  together with its wholly owned
subsidiaries Aerospace Products International,  Inc. ("API"),  Aircraft 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 a leading  supplier 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 six months
ended July 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 - assuming dilution:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                JULY 31,                           JULY 31,
                                                          2006             2005             2006              2005
                                                      -------------     ------------    -------------     -------------
   Denominator:
<S>                                                     <C>               <C>             <C>               <C>

     Denominator for basic net income (loss)
        per share - weighted average shares             7,358,576         7,333,457       7,355,957         7,329,077

     Effect of dilutive employee stock options                  -             4,296               -             4,513
                                                      -------------     ------------    -------------     -------------
     Denominator for net income (loss) per
        share - assuming dilution, adjusted
           weighted average shares and assumed
           dilutions                                    7,358,576         7,337,753       7,355,957         7,333,590
                                                      =============     ============    =============     =============
</TABLE>



For the three and six months ended July 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. The number of 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 six months ended July 31, 2006,  were 5,657
and 5,012 shares, respectively.


                                        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 July 31, 2006 and July 31, 2005,  the
Company  issued  4,788 and 5,837  shares  respectively,  to directors in lieu of
board  fees.  For the six months  ended  July 31,  2006 and July 31,  2005,  the
Company  issued 9,264 and 17,211  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.  The  Company's
shareholders  voted at the 2003 annual  meeting to approve  the  increase in the
number of shares  available  under the Plan. On September 12, 2003,  the Company
filed a registration statement on Form S-8 to register 200,000 additional shares
of common stock, for issuance pursuant to awards under the Plan. Subsequently, 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 July 31, 2006,  649,432  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  July 31,  2006,  and $26  expense in
corporate  expenses  for options  vested for the six month period ended July 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 six months  ended July 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 six months  ending  July 31,  2005  because all
grants were issued at the fair market value of the Company's common stock at the
date of grant.


                                       8
<PAGE>

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 six months ended July 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.

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 six months ended July
31, 2005, prior to adoption of FAS 123(R) on February 1, 2006, was:

<TABLE>
<CAPTION>
                                                         Three Months Ended July          Six Months Ended
                                                             July 31, 2005                 July 31, 2005

<S>                                                               <C>                          <C>
Net income as reported                                            $ 432                        $ 584

Pro forma compensation expense for issuance of
  stock options, net of tax effect                                   13                           26
                                                                 -------                     --------
Pro forma net income                                              $ 419                        $ 558

BASIC NET INCOME PER SHARE, AND NET INCOME PER
SHARE - ASSUMING DILUTION AS REPORTED
                                                                  $ .06                        $ .08

PRO FORMA BASIC NET INCOME  PER SHARE, AND NET

INCOME  PER SHARE - ASSUMING DILUTION                             $ .06                        $ .08
</TABLE>

All of the stock options vest ratably over two to three-year periods,  beginning
one year after the date of the grant,  and expire ten years after  issuance.  At
July 31, 2006,  options for 160,150 shares (after  forfeitures)  had been issued
under the Plan. The following tables summarize activity related to stock options
for the six month period ended July 31, 2006:

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

Granted                                        -             -            -

Exercised                                      -             -            -

Forfeited                               (46,200)          4.71        8.0
                                      -----------    ------------ ------------
Outstanding at July 31, 2006             160,150     $    4.27        6.9 YEARS
                                      ===========    ============
Exercisable at July 31, 2006             106,272     $    4.33
                                      ===========    ============
</TABLE>


                                       9
<PAGE>

<TABLE>
<CAPTION>

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

Granted                                        -             -

Vested                                   (16,554)         4.53


Forfeited                                 (2,666)          4.51
                                      -----------    ----------
Nonvested at July 31, 2006                53,878     $    4.17
                                      ===========    ==========
</TABLE>


The total fair value of options  which  vested  during the six months ended July
31, 2006, was  approximately  $75 (16,554  shares).  As of July 31, 2006, $33 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 six months  ended July 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 is currently in the
process of evaluating the alternative methods.

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 six months  ended July 31,  2006.  The
compensation recorded for the six months ended July 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
decrease to net income  (loss) to arrive at  comprehensive  income (loss) during
the three and six months  ended July 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                SIX MONTHS ENDED
                                                             JULY 31,                         JULY 31,
                                                       2006             2005             2006         2005
                                                   -------------    -------------    -------------    ----------
<S>                                                <C>              <C>              <C>              <C>
Net income (loss) as reported                      $   (1,906)      $    432         $   (2,172)      $    584

Net impact of foreign currency translation
  adjustments - gain                                       64             43               91               20
                                                   -------------    -------------    -------------    ----------
Comprehensive income (loss)                        $   (1,842)      $    475         $   (2,081)      $    604
                                                   =============    =============    =============    ==========
</TABLE>

5.  INCOME TAXES

The Company  recorded a provision 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.

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  Chairman of the Board and Chief Executive  Officer 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 $29 and $22,
for the three months ended July 31, 2006, and 2005, and $56 and $45, for the six
months  ended July 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's CFO 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,  $14 and
$10, for the three months ended July 31, 2006, and 2005,  respectively,  and $25
and $20 for the six months ended July 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.  NET 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           Six Months ended
                                         July 31,                    July 31,
                                    2006            2005        2006           2005
                                  -------         -------      -------        -------
<S>                               <C>             <C>          <C>           <C>
Interest income                   $     -         $   14       $    1         $   41
Interest expense                     (272)           (29)        (554)           (63)
Foreign exchange gain (loss)          (31)            51          (52)            20
                                  -------         -------      -------        -------
Net interest income (expense)
 and other                        $  (303)        $   36       $ (605)        $   (2)
                                  -------         -------      -------        -------
</TABLE>




 8.  LONG-TERM DEBT

On July 29, 2005,  Aerospace  Products  International  Inc., (the  "Borrower") a
direct   wholly-owned   subsidiary  of  First  Aviation   Services,   Inc.  (the
"Guarantor")  entered into a Commercial  Revolving  Loan and Security  Agreement
(the " Agreement")  and Guaranty  Agreement  (the  "Guaranty")  by and among the
Borrower, Guarantor and Hudson United Bank (the "Lender").

The  facility  created  by the  Agreement  replaces  the  Borrower's  previously
existing,  $20 million  revolving  credit facility  scheduled to expire July 31,
2006. The Agreement has a commitment  expiration  date of September 1, 2007. The
Guaranty replaces the previously existing guaranty agreement that existed on the
previous credit facility.

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.

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 July 31, 2006 and 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.  Substantially all of API's domestic
assets  are  pledged  as  collateral  under the  Agreement,  and First  Aviation
guarantees all borrowings under the Agreement. At July 31, and January 31, 2006,
borrowings  under the  facility  totaled  $14.5  million at an interest  rate of
approximately  6.8% and  5.8%,  respectively.  Approximately  $6.6  million  was
available under the facility at July 31, 2006.

                                       12
<PAGE>

9.  NOTES PAYABLE

<TABLE>
<CAPTION>

                                            JULY 31,           January 31,
                                             2006                 2006
                                         -------------      ----------------
<S>                                      <C>                 <C>
Notes Payable                            $       1,607       $         2,370
Less : Current Portion                            (385)               (1,125)
                                         -------------      ----------------
Long-term portion of notes payable       $       1,222       $         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 July
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.


                                       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 SIX MONTHS ENDED JULY 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 a leading  supplier 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).  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.


                                       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 July 31, 2006  decreased  $3.0 million,  or
9.3%,  to $29.7  million from $32.7  million for the three months ended July 31,
2005. The decrease was largely due to weakening  markets,  and customer  credits
processed due to customer  service issues.  The decrease mainly  reflected lower
revenues to general aviation,  corporate,  and aviation  maintenance  providers,
offset by increased revenues in the airline sector.

Net sales for the six months  ended July 31,  2006  versus the six month  period
ended July 31,  2005  decreased  $5.8  million or 8.9% to $58.9  million in 2006
versus $64.7 million in the comparable 2005 period. The reasons for the decrease
in net sales for the six months  ended July 31, 2006 versus the six months ended
July 31, 2005, were due to the reasons described above.

In the four foreign geographic regions the Company serves, revenues decreased in
the three and six months  ended July 31, 2006 versus the  comparable  prior year
periods 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 July 31, 2006  increased
1.3%, to $480,000 from $473,000 for the prior year three month period ended July
31,  2005.  For the six  month  period  ended  July 31,  2006,  freight  revenue
increased  5.5% to $1,015,000  from $962,000 in the prior year six month period.
The increase was primarily due to reductions in customer incentives in the first
quarter of 2006.  The increase in the six month period had a positive  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 July 31, 2006  decreased  $2.5 million,
or 9.1%, to $24.7 million from $27.2 million for the three months ended July 31,
2005.  Cost of sales for the six month period ended July 31, 2006 decreased $5.3
million,  or 9.9%,  to $48.2 million from $53.5 million for the six months ended
July 31,  2005.  Cost of sales for the three and six months  ended July 31, 2006
decreased  compared  to the prior year  principally  due to the  decrease in net
sales.

                                       15
<PAGE>

As a percentage of net sales, cost of sales increased marginally to 83.2% versus
83.1% for the three month period  ended July 31, 2006 versus 2005.  The increase
in the  percentage  of cost of sales  compared to net sales for the three months
ended July 31,  2006  compared  to the three  months  ended July 31,  2005,  was
primarily due to customer credits issued as cited above in the discussion on net
sales.

Cost of sales as a  percentage  of net sales in the six month  period ended July
31, 2006  decreased to 81.8% versus 82.7% in the six month period ended July 31,
2005.  The decrease in the percentage of cost of sales compared to net sales for
the six months  ended July 31, 2006  compared  to the six months  ended July 31,
2005, was primarily due to sales of higher margin  products in the overall sales
mix.

GROSS PROFIT

Gross profit for the three months ended July 31, 2006 of $5.0 million, decreased
$0.6  million  or 10.2%  over the prior year  gross  profit.  Gross  profit as a
percentage of net sales decreased  slightly to 16.8% due to the customer credits
issued,  increasing net freight  expense as described  below.  For the six month
period ended July 31, 2006, gross profit  decreased  $490,000 or 4.4% versus the
six month period ended July 31, 2005.  Gross profit as a percentage of net sales
increased to 18.2% versus 17.3% for the  comparable  period ended July 31, 2005,
due  primarily  to sales of higher  margin  products  the  Company  added to its
inventory, and less price discounting.

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 9.3% and 7.1% for the three
and six month  period  ended July 31,  2006,  compared to a decrease of 6.5% and
6.3%, 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 July 31,
2006 increased by $726,000, or 14.7% to $5.7 million as compared to $4.9 million
for the three  months ended July 31, 2005.  Selling  general and  administrative
expense as a  percentage  of revenues  increased  to 19.9% for the three  months
ended July 31, 2006 versus 15.1% for the three  months ended July 31, 2005.  The
increase for the three months ended July 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, and a one-time $250,000 lease termination penalty.

Selling,  general and administrative  expenses for the six months ended July 31,
2006 increased by $912,000, or 9.3% to $10.7 million as compared to $9.8 million
for the three  months ended July 31, 2005.  Selling  general and  administrative
expense as a percentage of revenues  increased to 18.6% for the six months ended
July 31, 2006 versus 15.1% for the six months ended July 31, 2005.  The increase
for the six months ended July 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,
and a one-time $250,000 lease termination penalty.

CORPORATE EXPENSES

Corporate expenses increased by $24,000 or 4.1% to $607,000 for the three months
ended July 31, 2006 from  $583,000  incurred  during the three months ended July
31, 2005. The increase in corporate  expenses in the quarter ended July 31, 2006
resulted  primarily from the expensing of stock options under FAS 123(R) adopted
on February 1, 2006.  Increases in travel costs and  franchise  tax expense were
partially  offset by lower costs  related to the board of  directors,  corporate
governance charges and other expenses.

Corporate  expenses in the six month  period  ended July 31, 2006  increased  by
$39,000 or 3.3% to $1,226,000 for the six months from $1,187,000 incurred during
the six months  ended July 31, 2005.  The increase in corporate  expenses in the
six months ended July 31, 2006  resulted  primarily  from the expensing of stock
options under FAS 123(R) adopted on February 1, 2006.  Increases in travel costs
and  franchise tax expense were  partially  offset by lower costs related to the
board of directors, corporate governance charges and other expenses.

NET INTEREST INCOME (EXPENSE) AND OTHER

During the three months ended July 31, 2006, net interest  income  (expense) and
other was an expense of $303,000  versus  income of $36,000 in the three  months
ended July 31, 2005,  principally due to a $243,000 increase in interest expense
and foreign  exchange  losses of $31,000 in the three months ended July 31, 2006
versus income of $51,000 in the three months ended July 31, 2005.  This increase
was the result of rising  interest rates and financings  outstanding for product
line expansion, capital expenditures and working capital needs.

                                       16
<PAGE>

For the six months ended July 31, 2006, net interest income  (expense) and other
increased as an expense of $605,000,  principally due to a $491,000  increase in
interest expense and a foreign exchange loss of $52,000 versus income of $20,000
in the six  months  ended July 31,  2005.  This  increase  was the result of the
reasons described above for the three month period.

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.  The effective  rate for
the six months  ended July 31,  2006 was 5.0%  versus  6.7%  for the  comparable
period ended July 31, 2005.

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

The Company  incurred a net loss of  ($1,906,000),  or ($0.26) per share for the
three months ended July 31, 2006,  compared to net income of $432,000,  or $0.06
per  share  for  the  three  months  ended  July  31,  2005,  and a net  loss of
($2,172,000)  or ($0.30) per share for the six months ended July 31, 2006 versus
net income of $594,000 or $0.08 per share for the six month ended July 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 six months ended July 31, 2006 the Company utilized $4.1 million in cash
for  operating  activities,  compared  to $1.7  million  cash used in  operating
activities  for the six months ended July 31,  2005.  The use of cash in the six
months  ended  July 31,  2006  versus  the cash used in the prior year six month
period was  principally  due to the loss incurred,  payments to vendors,  and an
increase in trade  receivables.  Cash used in investing  activities  for the six
months  ended  July  31,  2006,  and  2005  was  $1.1  million,   and  $885,000,
respectively.  Cash used in investing  activities for the periods ended July 31,
2006 and 2005,  respectively,  was  related  to  purchases  of fixed  assets and
information  technology  costs.  Cash used in financing  activities  for the six
months ended July 31, 2006, and 2005 was $763,000,  and $500,000,  respectively.
Cash used in financing  activities for the period ended July 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 July 31, 2005.

First Aviation's aggregate cash used for capital expenditures for the six months
July 31, 2006, and 2005 was $1.1 million, and $885,000, respectively. The use of
cash for  capital  requirements  in the first six  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.

Effective  July 29, 2005 API entered  into 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 which expires on September 1,
2007 replaces the Company's prior facility which was scheduled to expire July 1,
2006.  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. 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 July 31,
2006,  borrowings under the facility totaled $14.5 million,  at an interest rate
of approximately 6.8%. Of the $14.5 million,  $0.5 million represented a draw on
the facility just prior to July 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  $6.6 million was available under the
facility at July 31, 2006.  The new facility  extended the maturity to September
1, 2007,  therefore,  borrowings under the facility are classified as long term.
Management  believes  that  the  carrying  amount  of the  Company's  borrowings
approximates  fair market value because the interest rate is variable and resets
frequently.

                                       17
<PAGE>

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 July 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 July 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 July 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 July 31,  2006.  During the three and six months  ended July 31,
2006, the Company experienced foreign currency translation gains of $64,000, and
$91,000,  respectively  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 July 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 July 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 July 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

The  Company's  Annual  Meeting  of  Stockholders  was held on June 13,  2006 in
Memphis,  Tennessee, for the purpose of (i) electing two Class I Directors for a
term to expire at the Annual Meeting of  Stockholders in the year 2009, and (ii)
ratifying the appointment of Ernst & Young LLP, as independent  auditors for the
year ending  January 31, 2007.  Proxies were solicited from holders of 7,357,726
outstanding  shares of Common  Stock as of the close of business on May 5, 2006,
as described in the Company's Definitive Proxy Statement dated May 11, 2006. The
Inspectors of Election,  American  Stock  Transfer and Trust Co.,  certified the
election results for the Annual Meeting. Mr. Aaron P. Hollander, and Mr. Stanley
J. Hill, the nominees for director, were elected, and the appointment of Ernst &
Young LLP was ratified by the following votes:

        (1)    To elect two directors for a three-year term to expire at the
               Annual Meeting of Shareholders in the year 2009 (Class I).

                                        Votes             Votes         Broker
               Name                     FOR            WITHHELD       Non-Votes
               ----                    -----           --------       ---------

               Aaron P. Hollander      7,157,049       179,432         -0-
               Stanley J. Hill         7,323,431        13,051         -0-


               Joseph J. Lhota, Michael C. Culver, and Robert L. Kirk continue
               to serve as directors of the Company after the Annual Meeting of
               Stockholders.

        (2)    To ratify the appointment of Ernst & Young LLP as the Company's
               independent auditors for the fiscal year ending January 31, 2007.

                Votes            Votes            Votes          Broker
                 FOR            AGAINST         ABSTAINED       Non-Votes
                -----           -------         ---------       ---------

               7,324,531        9,700            2,250            -0-


ITEM 5.    OTHER INFORMATION

NONE

ITEM 6.    EXHIBITS

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

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

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

32.2 Certification of Chief 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: September 14, 2006          /s/ Michael C. Culver
                                  -------------------------------------------
                                  Michael C. Culver,
                                  President, Chief Executive Officer and
                                  Director (Principal Executive Officer)


Date: September 14, 2006          /s/  Robert G. Costantini
                                  -------------------------------------------
                                  Robert G. Costantini,
                                  Chief Financial Officer (Principal Financial
                                  and Accounting Officer)





                                       21
<PAGE>



INDEX TO EXHIBITS


Exhibit No.      Description

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

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

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

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



                                       22