Goal: Airnet It

April 8, 1999

Goal: 'Airnet' it

Columbus-based firm has made its name in the check-running business; now, it's defining a new niche

BY John F. Infanger, editorial director

May 1999

COLUMBUS, OH — It's an integral part of today's business world: When you want to get a package somewhere overnight, you FedEx it — whether it's being shipped by Federal Express or another overnight carrier. At AirNet Systems, Inc., based at Port Columbus International Airport here, the long-term goal is to become a regular part of the business world's vernacular.

Explain's AirNet's Stephen Lister, who heads up the company's ground and airline operations, "What we intend to do here is to define a mountain within the next five to ten years that answers the question, What do you do after FedEx, UPS, and others have shut down and you still need it there by tomorrow or today? We're going to define a service inside that window of what those guys are normally doing.

"We need to be about branding; we need to get our name out there so that when someone gets to the point they can't FedEx it, they can AirNet it."

During the past 25 years, the company has been building up a transportation network that has positioned it to be able to target such an aggressive ambition. It is today a publicly traded corporation (NYSE: ANS) that utilizes general aviation aircraft to serve cities across the U.S. And, says Lister, it plans on taking a measured approach toward its long-term goal, building up an infrastructure and selling its concept and services one business at a time.

A general aviation network
President and CEO Jerry Mercer founded the company in 1974 in Pontiac, MI, primarily as a check running carrier. Mercer's roots are in general aviation, having earned recognition with his Formula One Owl Racer microjet, billed as the world's smallest jet (17-ft. wingspan, 12-ft. length; 515 lbs. empty weight; 250 kts. airspeed). The microjet has since been placed in the Smithsonian.

In 1980, Mercer moved the company's primary hub to Columbus because of its central location to much of the U.S. Since that time, Air Net Systems has grown into a fleet of 199 aircraft, including 310s, Barons, Chieftains, and 30 Learjets.

Stephen Lister

In 1996, the company became a publicly traded company and the initial public offering raised some $83 million, according to the company, leaving it debt-free with some $75 million in assets. Since that time, it has been aggressive by expansion, acquiring:
• Express Convenience Center, a small package forwarder that added some 1,800 customers and 1,000 nightly shipments;
• Pacific Air Charter, a San Diego-based air courier with eight aircraft serving 19 West Coast cities;
• Data Air Courier, Inc., a Chicago-based check carrier and freight forwarder.

In 1998, AirNet Systems' revenues totaled $113.7 million, up 16 percent from1997. Net income per share for the year was $0.46. Income was impacted negatively by a $2.4 million charge for acquisition termination related to a failed bid to acquire competitor Q International Courier, Inc.

Today, the company flies to more than 100 cities in 40 states and delivers some 18,000 time-sensitive shipments each day, according to investor relations manager Lori Williams. On the ground, it operates 250 company-owned vehicles while also contracting with some 300 independent agents. The company also operates a fixed base operation at Columbus, primarily to service its own fleet.

Looking Beyond Checks
The company continues to generate the bulk of its business from moving checks for the nation's banking system, which accounted for $93.2 million of revenues in 1997. However, it's small package delivery network is growing, with revenues increasing to $19 million in 1998 versus $15.6 million in 1996.

Says Lister, "We'll move checks until checks go away. We're not going to be the buggy whip guy who decides to make buggy whips until they go away. What we're in is the transportation business.

"So, we are working toward taking that to a new level, trying to define a new mountain out there."

The targeted mountain, as he and a team of eight other strategic planners at AirNet have defined it, is guaranteed quick-time delivery outside of the financial and legal niches already defined.

"We had dabbled in the wholesale overnight express market for quite some time and grew that until it became a viable market for us," says Lister.

"Given the way that our airline had matured with the banking industry, it left us with a very unique, flexible airline system that really does some things that are hard to do — for example, in and out of certain cities three or four times a night."

Lister explains that AirNet has an ongoing relationship with commercial airlines and charter companies to fill in its infrastructure holes for express delivery, and that will continue. He feels that the company has identified other potential strategic partners or acquisition candidates, though he keeps the door open to others who may be able to assist with the company's long-term ’AirNet It' goal. The greatest opportunity for others lies, he explains, with ground couriers and aviation companies that can offer maintenance and parts services.

Challenges: Marketing, Pilots
AirNet Systems' greatest short-term challenges as it pursues its package express ambition are in strategically selling the concept and maintaining a cadre of qualified pilots at a time when the commercial carriers are aggressively hiring.

"What we need today is to find the businesses that really need this type of service to enhance their business and give them a competitive edge," says Lister. "When you find those, you start to build your infrastructure.

"We could blitz them with a marketing campaign and pound it into the minds of business people rather quickly. However, what could happen is the phone would ring off the hook, and we couldn't meet the demand.

"We have to grow competently and slowly so that we can say to the masses, ’AirNet is now a verb.' In reality, if it was a verb today, we would fail tonight."

Meanwhile, finding pilots has become a "huge challenge" for the company, explains Lister. It has led the company to work with flight schools and universities to find qualified applicants. Lister says that the hiring frenzy by air carriers in 1997 was particularly hard-hitting, forcing AirNet to charter some of its regular business to meet its own schedule. "It's not so much a shortage of applicants," he says.

"It's the quality of pilots today, particularly in the nighttime environment in which we fly."