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Monday, April 21, 2003

AirNow Takes Over Telford, Takes On New England

Bennington, Vt.-based AirNow has virtually doubled its air cargo operations by taking over the air cargo assets of Bangor, Me.-based Telford Aviation. This has expanded AirNow's route network that extends down the East Coast and westward to San Antonio, Texas. It also has allowed Telford Aviation to get out of the air cargo business, enabling it to concentrate on its core business of supplying spares and heavy maintenance.

"Telford's routes were in the state of Maine and down the East Coast to Georgia and North Carolina. We had aircraft in Georgia and the Northeast, so we were overlapping geographically," said AirNow President and CEO David Corey. "Telford operated 13 Caravans for the integrators and had an operation very similar to ours. It just made sense to consolidate the operations under one roof. So we did."

Telford Allen III, CEO of the Telford Group, said that the air cargo operations only accounted for 8 percent of its revenue and it had already been leasing to AirNow. Telford leased 12 of its 16 Caravans to AirNow and turned over the feeder contracts.

The merger has taken AirNow's fleet to 15 Cessna Caravans and 13 Embraer EMB- 110 Bandeirantes. Most of these aircraft are used to feed the large express cargo operators from Maine to Georgia, although AirNow also has three aircraft in San Antonio to provide feeder service to the integrators, as well as two aircraft based in Virginia and Columbus, Ohio, for ad hoc charter work, Corey said.

AirNow recorded only $7 million in sales last year, compared to $11 million in 2001. However, Corey said that he expects to get back up to the $11 million revenue mark by the end of this year.

Revenue is based on "per trip," whether it's an ad hoc flight or a scheduled flight for an integrator, Corey explained. "We get paid by the trip rather than by the pound. In the on-demand [ad hoc] charter business we might be flying a five-pound box a thousand miles, but we get paid the same as if it were 5,000 pounds. Same principle as in the feeder business. Whether the airplane is full or empty, we get paid."

Birth of an Airline

AirNow began in 1973 as a rural fixed-base operator (FBO) called Business Air. "I was doing flight school work, aircraft rental, that sort of thing," he said. "Then in the early 1980s we started doing scheduled freight work, mostly for the commercial banks. We started with Piper Aztecs, Beech Barons and for several years had six DC-3s." The name was later changed to AirNow "to reflect the kind of flying we do, particularly in the on-demand world. It has to happen right now."

Corey developed his marketing capability from earlier efforts to sell swimming pools in San Diego. He earned his pilot's license and an A&P mechanics license and then worked as a mechanic for the now-defunct Pacific Southwest Airlines. While there, he began looking around for opportunities. "So when I saw a small flight school in Bennington for sale, I [bought] it with a partner and have been there ever since," he said.

Now, Corey's leading a prosperous air cargo business. As part of a growth program, he has started a web-based cargo bidding system designed specifically for the ad hoc charter business.

"What generally happens in the ad hoc charter world is that an operator will have the airplane stay at the most recent destination until the phone rings again. If it is a trip he's positioned for, he'll try to run the trip. We developed our on-line bidding system for that business," he said.

Putting charters up for bid "is primarily being done by intermediaries right now, by freight forwarders and people in the business of arranging transportation. If a customer calls FedEx with a shipment that is too time critical for their overnight system to deal with, they will give it to their 'custom critical' division, which will post it on our website," Corey explained.

The website is monitored by carriers 24/7, so that whenever a carrier sees a trip pop up that fits the geographic positioning of its aircraft, it can instantly put in a bid. "Generally, this all happens within a period of 15 minutes," Corey said. "The trip comes up on the site and from seven to 10 bids get posted. Then the carrier that's best suited for the trip gets selected. It may not be based on price, but rather on time enroute or for the time it will take the carrier to get into position."

The bid board is free for carriers, and customers pay a fee for each trip that is posted. "It is not the only bidding system available, but it's the only one that's unbiased and available to anyone in the industry," Corey said. Prior to establishment of the bidding system, anyone needing an emergency ad hoc charter "would have to pick up the phone and call three or four carriers. That was all the time they had because of the time critical nature of things. They couldn't make 20 or 30 phone calls. So when a trip goes up on the bid board, it's just like making those 20 or 30 calls, only it's done instantly."

Turnaround Ahead

Cargo traffic is improving, he said. Whereas loads had been down from five to 15 percent, depending on the route, "that has clearly leveled off. On some of the routes we're even beginning to see a little bit of growth." Prior to 9/11 the carrier had been experiencing "about 20 percent growth per year," he said. Additional growth is expected this year "and hopefully more next year."

With the Caravans and Bandeirantes that AirNow uses and the express packages it carries, the aircraft tend to bulk out before they hit maximum takeoff weight. "In general, when the market is there, we're ready to move to larger aircraft. But right now, our customers haven't really pressed us for that. There hasn't been any indication that they are ready for something larger than what we are providing. At this point we are where we need to be," Corey said.

From time to time he has looked at the possibility of moving to larger aircraft, such as the Saab 340 and Embraer Brasilia EMB-120. However, to get full utilization out of these aircraft with cargo payloads in the 8,500 to 9,000 pound range, AirNow would have to become certified under FAR Part 121.

"If that obstacle wasn't there we would consider it. And if the FAA's Part 135 review results in the elimination of the 7,500-pound payload limitation, then that kind of expansion might be very attractive to us," Corey said.

The increased weight limit is a major agenda item for the Regional Air Cargo Carriers Association (RACCA), something AirNow is very much involved in. Corey serves as a board member for the organization. Although the carrier used to be a member of the Regional Airline Association (RAA), it is now concentrating its energies on RACCA. "It's a matter of focus. RAA has pretty much outgrown us with the advent of the regional jet. They have outgrown the activities that we are involved in. There are a number of freight feeder operators that really have not had a voice in the past, or a very loud voice, and we're hoping that RACCA can fill that void."

Although the air cargo carriers' needs are better met by RACCA, "we still want to have a cooperative relationship with RAA to the extent that we can help them and they can help us. They do a great job, but for our particular business, it seemed that RACCA was a good vehicle."

One of the constant problems AirNow faces is the severe weather of New England. Corey said that back when he was operating the DC-3s, "it was a real challenge to keep going in the winter environment." Today, however, "the airplanes we're operating are so much more reliable than in the past. Now the principal focus is on pilot training in terms of operating in the environment."

AirNow does its own in-house training, with three dedicated instructors for all ground school and flight training. The company has 35 pilots out of a total 60 employees. One of the problems of finding employees, including pilots, is convincing people to live in the Bennington area. "It's not a big city and they have to be comfortable with the lifestyle," he said. "But for people who like that lifestyle, it's perfect."

AirNow

Suite 1
1563 Waloomsac Rd.
Bennington, Vt. 05201
802-442-3582
Fleet: 15 Cessna Caravans, 13 EMB-110 Bandeirantes
Employees: 60
Revenue:
2001 $11 million
2002 $7 million

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