AIRNET SYSTEMS INC (Form: 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

or

o		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 1-13025

AirNet Systems, Inc.
(Exact name of registrant as specified in its charter)

Ohio		31-1458309
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3939 International Gateway Columbus, Ohio 43219
(Address, including zip code, of registrant’s principal executive offices)

(614) 237-9777
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has 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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of August 2, 2004, 10,085,829 of the registrant’s common shares, par value $0.01, were outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets: June 30, 2004 (Unaudited) and December 31, 2003

	Condensed Consolidated Statements of Operations (Unaudited): Three and Six Months Ended June 30, 2004 and 2003

	Condensed Consolidated Statements of Cash Flows (Unaudited): Six Months Ended June 30, 2004 and 2003

	Notes to Condensed Consolidated Financial Statements (Unaudited)

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures about Market Risk

Item 4.	Controls and Procedures

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Item 3.	Defaults Upon Senior Securities

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

Item 5.	Other Information

Item 6.	Exhibits and Reports on Form 8-K

SIGNATURES

INDEX TO EXHIBITS

AIRNET SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

In thousands	June 30, 2004			December 31, 2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,338		$	125
Accounts receivable, less allowances	21,130			18,647
Inventory and spare parts	7,634			6,589
Taxes receivable	1,388			1,401
Deposits and prepaids	1,985			3,246
Total current assets	33,475			30,008

Net property and equipment	140,093			118,799
Other assets:
Goodwill, net of accumulated amortization	4,018			4,018
Other	382			448

Total assets	$	177,968		$	153,273

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,827		$	7,442
Salaries and related liabilities	4,568			4,955
Deferred revenues	2,488			184
Accrued expenses	675			887
Taxes payable	—			76
Deferred income taxes	4			4
Current portion of notes payable	5,348			5,256
Total current liabilities	22,910			18,804

Other liabilities	1,004			1,280
Notes payable, less current portion	53,003			32,520
Deferred tax liability	16,391			16,389

Shareholders’ equity:
Preferred shares, $.01 par value; 10,000 shares authorized; no shares issued and outstanding	—			—
Common shares, $.01 par value; 40,000 shares authorized; 12,753 shares issued at June 30, 2004 and at December 31, 2003	128			128
Additional paid-in-capital	77,251			77,759
Retained earnings	32,142			31,938
Accumulated other comprehensive loss	(32		)	(35		)
Treasury shares, 2,677 and 2,720 shares held at cost at June 30, 2004 and December 31, 2003, respectively	(24,829		)	(25,510		)
Total shareholders’ equity	84,660			84,280

Total liabilities and shareholders’ equity	$	177,968		$	153,273

See notes to condensed consolidated financial statements

AIRNET SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited

In thousands, except per share data	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004		2003

NET REVENUES
Air transportation, net of excise tax
Delivery services:
Bank services	$	26,230		$	25,682	$	52,062	$	52,005
Express services	12,083			8,631		22,881		17,641
Total delivery services revenues	38,313			34,313		74,943		69,646

Passenger charter services	3,616			1,777		7,253		3,216
Aviation services and other operations	211			494		415		798
Total net revenues	42,140			36,584		82,611		73,660

COSTS AND EXPENSES
Air transportation
Wages and benefits	6,657			6,148		13,003		12,360
Aircraft fuel	6,186			4,951		11,722		9,893
Aircraft maintenance	3,690			2,954		6,880		6,335
Contracted air costs	3,127			2,378		6,197		5,185
Ground courier	7,887			6,174		15,029		12,440
Depreciation	5,050			4,319		9,939		8,511
Insurance, rent and landing fees	2,638			2,384		5,202		4,628
Travel, training and other	2,650			2,165		5,211		4,343
Selling, general and administrative	4,050			3,648		8,009		7,543
Net (gain) loss on disposition of assets	(3		)	—		289		35
Total costs and expenses	41,932			35,121		81,481		71,273
Income from continuing operations	208			1,463		1,130		2,387
Interest expense	407			340		774		742

Income(loss) from continuing operations before income taxes	(199		)	1,123		356		1,645
Provision for income taxes	(86		)	438		153		641

Income(loss) from continuing operations	$	(113	)	$	685	$	203	$	1,004

Income from discontinued operations, net of taxes	$	0		$	39	$	0	$	17

Net income (loss)	$	(113	)	724		$	203	$	1,021

Income (loss) per share - basic and diluted
Continuing operations	$	(0.01	)	$	0.07	$	0.02	$	0.10
Discontinued operations	—			—		—		—
Net income (loss) per share - basic and diluted	$	(0.01	)	$	0.07	$	0.02	$	0.10

See notes to condensed consolidated financial statements

AIRNET SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited

In thousands	Six Months Ended June 30,
	2004			2003

Operating activities:
Net income	$	203		$	1,021
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	9,939			8,511
Deferred taxes	(3		)	—
Provision for losses on accounts receivable	117			188
Loss on disposition of assets	289			35
Cash provided by (used in) operating assets and liabilities:
Accounts receivable	(2,599		)	725
Inventory and spare parts	(1,045		)	(174		)
Prepaid expenses	1,260			1,254
Accounts payable	2,106			177
Deferred revenues and accrued expenses	2,103			2,126
Taxes payable	(59		)	384
Salaries and related liabilities	(387		)	(507		)
Other, net	62			435
Net assets of discontinued operations	—			397
Net cash provided by operating activities	11,986			14,572

Investing activities:
Purchases of property and equipment	(34,625		)	(8,782		)
Proceeds from sales of property and equipment	3,103			109
Net cash used in investing activities	(31,522		)	(8,673		)

Financing activities:
Proceeds from incentive stock plan programs	80			98
Net borrowings (repayments) under the revolving credit facility	4,000			(6,100		)
Net borrowings (repayments) of long-term debt	16,575			(594		)
Issuance (purchase) of treasury shares	94			(250		)
Net cash provided by (used in) financing activities	20,749			(6,846		)

Net increase (decrease) in cash	1,213			(947		)
Cash and cash equivalents at beginning of period	125			1,054
Cash and cash equivalents at end of period	$	1,338		$	107

See notes to condensed consolidated financial statements

AIRNET SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

AirNet Systems, Inc. and its subsidiaries (“AirNet” or the “Company”) operate a fully integrated national air transportation network which provides delivery service for time-critical shipments for customers in the U.S. banking industry and other industries requiring the express delivery of packages. AirNet also offers passenger charter services and retail aviation fuel sales and related ground services.

The accompanying condensed consolidated financial statements include the accounts of AirNet Systems, Inc. and its subsidiaries. These financial statements are unaudited and have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The results of operations for the quarterly and six month periods ended June 30, 2004 are not necessarily indicative of the results for the full year.

The financial information included herein reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the results of interim periods.

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in those financial statements and accompanying notes thereto. Actual results could differ from those estimates.

Certain reclassifications have been made in the prior year’s financial statements to conform to the presentation for the three and six month periods ended June 30, 2004.

2 . Stock Plans and Awards

SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure , requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

The Company accounts for its employee and director stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted have an exercise price equal to the market value of the underlying common shares on the date of grant. Pro forma information regarding net income and net income per share, as required by SFAS No. 148, has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation . The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model.

The following table illustrates the effect on net income and net income per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share data).

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003

Net income (loss), as reported	$	(113	)	$	724		$	203		$	1,021
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects	(29		)	(28		)	(182		)	(88		)
Pro forma net income (loss)	$	(142	)	$	696		$	21		$	933

Net income (loss) per share – basic and diluted:
As reported	$	(.01	)	$	.07		$	.02		$	.10
Pro forma	$	(.01	)	$	.07		$	.00		$	.09

3. Income Per Share From Continuing Operations

The following table sets forth the computation of basic and diluted income per common share from continuing operations (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004		2003
Numerator:
Income(loss) from continuing operations	$	(113	)	$	685	$	203	$	1,004

Denominator:
Basic - weighted average shares outstanding	10,076			10,132		10,063		10,125

Diluted
Stock options–employees, officers, and directors	40			0		35		0
Adjusted weighted average shares outstanding	10,116			10,132		10,098		10,125

Income (loss) per share from continuing operations -
Basic and diluted:	$	(0.01	)	$	0.07	$	0.02	$	0.10

Common shares subject to outstanding stock options excluded from the diluted adjusted weighted average shares outstanding calculation, as the exercise price of the stock options exceeded the average fair market value of the underlying common shares for the period, were 729,370 and 709,370 for the three and six month periods ended June 30, 2004.

4. Comprehensive Income

Comprehensive income is comprised of net income of the Company and the change in the fair value of interest rate swap agreements, net of income taxes. Comprehensive income for the six months ended June 30, 2004 and June 30, 2003 was $543,000 and $1,021,000, respectively. Comprehensive income for the three months ended June 30, 2004 and 2003 was $203,000 and $722,000, respectively.

5. Discontinued Operations

On August 11, 2003, AirNet Systems, Inc. completed the sale of substantially all of the assets of its Mercury Business Services unit to Mercury Business Services, Inc., a Delaware corporation owned by a group that include the original owners of the Mercury business.

The sales price of the transaction was approximately $1.1 million. Mercury Business Services, Inc. paid approximately $455,000 of the sales price through the issuance of a ninety day promissory note secured by the assets being sold and guaranteed by each of the shareholders of Mercury Business Services, Inc. Under the terms of the Asset Purchase Agreement, approximately $536,000 of the purchase price was paid with AirNet Systems, Inc. common shares owned by the shareholders of Mercury Business Services, Inc., including 56,000 common shares tendered to AirNet Systems, Inc. prior to closing at $4.30 per share (the closing price of the AirNet Systems, Inc. common shares on the NYSE on July 25, 2003) and 68,494 common shares tendered to AirNet Systems, Inc. on the closing date at $4.31 per share (the average closing price of the AirNet Systems, Inc. common shares on the NYSE on August 4-6, 2003). The balance of the sales price was paid in cash.

AirNet accounted for these operations as discontinued operations.

The Mercury Business Services unit had revenues for of $2,487,000 and $4,919,000 for the three months ended June 30, 2003 and the six months ended June 30, 2003, respectively.

Pre-tax profit for AirNet’s Mercury Business Services unit was $64,000 and $28,000 for the three months ended June 30, 2003 and for the six months ended June 30, 2003, respectively.

6. Bank Financing Matters

In June 2004, AirNet entered into an amended and restated term loan and revolving loan facility (collectively, the “Amended Credit Agreement”) with its banks. The Amended Credit Agreement provides AirNet with a secured revolving credit facility with up to $35.0 million available and a secured term loan in the aggregate amount of $14.0 million. The amount of revolving loans available under the Amended Credit Agreement is further limited to a borrowing base equal to the aggregate of 80% of eligible accounts receivable, plus 50% of eligible inventory, plus 70% of the market value of certain fixed assets, reduced by the aggregate amount of AirNet’s outstanding letters of credit. As of June 30, 2004, $22.8 million and $13.0 million were outstanding under the secured revolving credit facility and secured term loan, respectively. As of June 30, 2004, AirNet had approximately $10.7 million available to borrow on its secured revolving loan facility.

The revolving credit facility under the Amended Credit Agreement expires on September 30, 2005 and the secured term loan matures on September 30, 2007. Quarterly principal payments of $1.0 million are required for the secured term loan beginning in June 2004 and continuing through September 30, 2007. The Amended Credit Agreement is secured by a first lien on all of the property of AirNet and its subsidiaries, other than any interest in real estate and certain excluded fixed assets. The Amended Credit Agreement permits AirNet and its subsidiaries to incur other indebtedness for the purpose of purchasing or refinancing aircraft and related tangible fixed assets, subject to certain annual limitations. AirNet has also pledged the interests in its subsidiaries, and each of AirNet’s subsidiaries has guaranteed AirNet’s obligations under the Amended Credit Agreement. The Amended Credit Agreement contains limitations on operating leases, indebtedness, significant corporate changes including mergers and sales of assets, investments in subsidiaries and acquisitions, liens, capital expenditures, transactions with affiliates, sales of accounts receivable, sale and leaseback transactions and other off-balance sheet liabilities, contingent obligations and hedging transactions. The Amended Credit Agreement also contains financial covenants that require AirNet to maintain a minimum consolidated tangible net worth and to not exceed fixed charge coverage and leverage ratios specified in the Amended Credit Agreement. As of June 30, 2004, AirNet was in compliance with these covenants. The Amended Credit Agreement bears interest, at AirNet’s option, at (a) a fixed rate equal to LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the Amended Credit Agreement, or (b) a floating rate based on the greater of the sum of (i) the prime rate established by The Huntington National Bank from time to time plus a margin determined by AirNet’s leverage ratio and (ii) the sum of 0.5% plus the federal funds rate in effect from time to time. After the effective date of the Amended Credit Agreement, AirNet paid off its three five-year term loans totaling approximately $3.4 million incurred during first quarter 2002.

During the second quarter 2004, AirNet entered into four seven-year term loans totaling $22.5 million with fixed interest rates of approximately 6.7%. Each of the term loans is secured by aircraft used in the Passenger Charter fleet. As of June 30, 2004, there was $22.5 million outstanding on these secured term loans, and the net book value of the aircraft securing the loans totaled approximately $28.9 million. In July 2004, AirNet financed two additional passenger charter Learjet 60’s for the Passenger Charter fleet at $5.0 million each, for a total of $32.5 million in financing related to AirNet’s Passenger Charter services.

AIRNET SYSTEMS, INC.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement

Except for the historical information contained in this Form 10-Q, the matters discussed, including, but not limited to, information regarding future economic performance and plans and objectives of AirNet’s management, are forward-looking statements that involve risks and uncertainties. When used in this document, the words “believe”, “anticipate”, “estimate”, “expect”, “intend”, “may”, “plan”, “project” and similar expressions are intended to be among statements that identify forward-looking statements. Such statements involve risks and uncertainties including, but not limited to, the following which could cause actual results to differ materially from any forward-looking statement: potential regulatory changes by the Federal Aviation Administration (“FAA”), which could increase the regulation of AirNet’s business, or potential regulatory changes by the Federal Reserve which could change the competitive environment of transporting cancelled checks; changes in check processing and shipment patterns of bank customers; adverse weather conditions; potential declines in the values of aircraft in AirNet’s fleet and any related asset impairment charges; the ability to successfully market the passenger charter business in light of global changes in the commercial airline industry; potential changes in locally and federally mandated security requirements; increases in aviation fuel costs not fully offset by AirNet’s fuel surcharge program; potential cost overruns associated with the construction of a new facility at Rickenbacker International Airport; acts of war and terrorist activities; the acceptance of AirNet’s time-critical service offerings within targeted Express markets; technological advances and increases in the use of electronic funds transfers; as well as other economic, competitive and domestic and foreign governmental factors affecting AirNet’s markets, prices and other facets of its operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Please refer to the sections captioned “Forward-looking statements” and “Risk Factors” in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 of AirNet Systems, Inc. (File No. 1-13025) for additional details relating to risk factors that could affect AirNet’s results and cause those results to differ materially from those expressed in forward-looking statements.

General

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. AirNet maintains a thorough process to review the application of its accounting policies and to evaluate the appropriateness of the estimates; however, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

Management has discussed the development and selection of AirNet’s critical accounting policies and estimates with the Audit Committee of AirNet Systems, Inc.’s Board of Directors and with its independent auditors. AirNet’s critical accounting policies have not changed significantly from the policies disclosed in Item 7 of AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.

AirNet’s audited consolidated financial statements for the fiscal year ended December 31, 2003, included in Item 8 of AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, contain additional disclosures regarding AirNet’s significant accounting policies and Item 7 of that Annual Report on Form 10-K includes a summary of AirNet’s critical accounting policies. The information appearing therein may be useful when reading this discussion and analysis of financial condition and results of operations.

Results of Operations

Net Revenues

In ‘000’s Revenues	3 months ending June 30, 2004		3 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004		6 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004
Package Delivery Services:
Bank Services	$	26,230	$	25,682	$	548	2	%	$	52,062	$	52,005	$	57	0	%
Express Services	12,083		8,631		3,452		40	%	22,881		17,641		5,240		30	%
Total Package Delivery Services	38,313		34,313		4,000		12	%	74,943		69,646		5,297		8	%
Passenger Charter Services	3,616		1,777		1,839		103	%	7,253		3,216		4,037		126	%
Aviation Services	211		494		-283		-57	%	415		798		-383		-48	%
Total Net Revenues	$	42,140	$	36,584	$	5,556	15	%	$	82,611	$	73,660	$	8,951	12	%

AirNet has experienced overall net revenue growth for the quarter and six months ended June 30, 2004 over the same periods of the prior year. This can be attributed to several factors including increased Express shipment volume and growth in Passenger Charter services as well as additional fuel surcharge revenues.

Bank Services Revenues

In ‘000’s Revenues	3 months ending June 30, 2004		3 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004		6 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004

Bank Weekday	$	23,831	$	23,840	$	-9-	0	%	$	47,428	$	47,535	$	-107	0	%
Bank Weekend	1,901		1,742		159		9	%	3,807		3,597		210		6	%
Fuel Surcharge	1,150		695		455		65	%	2,104		2,131		-27		-1	%
Federal Excise Tax	-652		-595		-57		10	%	-1,276		-1,258		-18		1	%
Net Revenues	$	26,230	$	25,682	$	548	2	%	$	52,062	$	52,005	$	57	0	%

Bank weekday and weekend revenues held constant for the three and six month periods ended June 30, 2004 as compared to the same periods of the prior year. Increased fuel prices in the quarter of 2004 resulted in significantly higher fuel surcharge revenues compared to the same quarter of 2003. AirNet believes that lower check delivery volume as a result of historically low interest rates, the declining use of checks, and the Check 21 Act which becomes effective in October 2004, will contribute to a reduction in bank revenues in future periods, as will increased competitive factors from regional carriers and transportation cost reduction initiatives by AirNet’s Bank customers. AirNet is unable to predict the ultimate impact of these factors on future periods.

Express Services Revenues

In ‘000’s Revenues	3 months ending June 30, 2004		3 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004		6 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004

Express services	$	12,033	$	8,646	$	3,387	39	%	$	22,830	$	17,640	$	5,190	29	%
Fuel Surcharge	437		246		191		78	%	761		533		228		43	%
Federal Excise Tax	-387		-261		-126		-48	%	-710		-532		-178		33	%
Net Revenues	$	12,083	$	8,631	$	3,452	40	%	$	22,881	$	17,641	$	5,240	30	%

Express services revenues continue to increase as a percentage of total revenues, increasing from 24% to 29% of total revenues for both the three and six month periods ended June 30, 2004, compared to the same periods of the prior year. Shipments using AirNet’s air transportation network were up 9% and 5% for the quarter and year to date, respectively. Shipments sent via commercial airlines and point to point surface shipments were up over 50% and 40% for the quarter and year to date, respectively. Commercial air and point to point surface shipments incur higher courier costs compared to shipments using AirNet’s airline. The increase in shipments sent via commercial

airlines is principally due to an increase in shipments outside the AirNet airline’s scheduled delivery times and locations, which generally results in lower gross margins per shipment than shipments carried on AirNet’s airline.

Passenger Charter Services Revenues

In ‘000’s Revenues	3 months ending June 30, 2004		3 months ending June 30, 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004		6 months ending June 30, 2004		6 months ending June 30 2003		$ Increase (Decrease) 2003 to 2004		% Increase (Decrease) 2003 to 2004
Passenger Charter Services	$	3,616	$	1,777	$	1,839	103	%	$	7,253	$	3,216	$	4,037	126	%

Passenger Charter services revenues continue to grow as a percentage of total revenues, as AirNet invests in additional aircraft to support additional passenger charter demand. Revenues increased from 4.9% to 8.6% of total revenue for the quarter and from 4.4% to 8.8% year to date compared to the same periods of the prior year. AirNet increased the number of passenger charter aircraft it operates from seven aircraft (two Learjet 60’s and five Learjet 35’s) at June 30, 2003 to fourteen (nine Learjet 60’s and five Learjet 35’s) at June 30, 2004.

In ‘000’s
Costs and Expenses

3 months
ending
June 30, 2004

3 months
ending
June 30, 2003

$ Increase
(Decrease)
2003 to 2004

% Increase
(Decrease)
2003 to 2004

6 months
ending
June 30, 2004

6 months
ending
June 30, 2003

$ Increase
(Decrease)
2003 to 2004