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AeroMechanical Services’ afirs UpTime Solution Is Providing Airlines With
Information On Their Aircrafts Critical To Operational Performance In
Real-Time From Anywhere In The World
Airlines
Efficiency Solutions
(AMA-TSXV)
AeroMechanical Services Ltd.
3016-21st Street N.E.
Calgary AB Canada T2E 6Z2
Phone: 403-250-9956
Bill Tempany
Chief Executive Officer
Tom French
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – November 9, 2007
BIO:
Bill Tempany, CEO
Bill has more than 30 years of senior management experience in hi-tech
companies and more than 10 years in the public market. Mr. Tempany has been
the CEO of AMS since March 2003.
He was founder, President, and CEO of Fintech Services Ltd. (now Sylogist
Ltd. TSX.V:SYZ), President and founder of QByte Services Ltd. (now owned by
P2 Energy Solutions, previously by IBM), and a consultant in the
international Oil and Gas business to companies such as Ziff Energy and
Petrobras.
Tom French
Chief Financial Officer
Tom is a Certified General Accountant with 26 years of experience. He has
worked in global Aviation and is experienced in dealing with a number of
multi-national companies.
Company Profile:
AeroMechanical Services Ltd. provides proprietary solutions designed to
reduce costs and improve efficiencies in the airline industry. The
corporation has successfully commercialized three products and associated
services currently marketed to airlines, manufactures and maintenance
organizations around the world. Its premier technology Automated Flight
Information Reporting System (AFIRS) and UpTime allows airlines to monitor
and manage aircraft operations in real time, all the time, anywhere on the
planet.
CEOCFO: Mr. Tempany, what was your vision
when you became CEO of AeroMechanical Services and where is the company
today?
Mr. Tempany:
“I actually joined the company when it was five years old. The founders of
the company founded the company on the premise that they were going to find
technology solutions for business problems in aviation. When it came time
for them to raise some money we amalgamated their company with mine, which
was a public shell called Dream Wizard Investments Ltd., and became a public
company; I joined the company at that point as the CEO. The vision that the
company had been to provide communication solutions and data gathering
solutions for aircraft and a ground infrastructure to take that data and
turn it into information for the airlines was very attractive to me as an
investor and an aviation enthusiast. That is how I got involved in the
company.”
CEOCFO:
What are you services do you provide today?
Mr. Tempany:
“Today we provide several different products that solve problems for
airlines around the world. Some are very simple, others are very complex.
One is a solution for something that people had a problem after September 11th
with the locked cockpit door, because they could not keep the manuals in the
coat closet anymore. Therefore, we designed a box that goes in the floor of
the cockpit to store manuals that have to be within reach of the pilot and
we sell that around the globe. That is a very simple example of some of the
products that have been developed by AMS over the almost ten years that the
company has been around. The more complicated and more mainline products we
have today is a solution which uses our airborne component, AFIRS (Automated
Flight Information Reporting System). That system goes on the aircraft,
attaches to the data buses on the aircraft, including the one that goes to
the black box, monitors those data streams and picks information out that
the airline needs to know to operate their business. It is then sends them
either by satellite or by ground link to the UpTime servers, the ground
component of the solution, which is software we developed and is hosted by
IBM. Those servers take that and create reports that are delivered anywhere
on the planet to anyone within the airline that needs to get that
information. It sometimes sends one report a day, but may send it
immediately if it is very critical information such as information about an
engine that may have problems or whatever. Then the information can be sent
to pagers or cell phones or by email. There are many different ways of
delivering the information so that the customers can improve their
operational performance by having better information faster. The tools we
are adding to the solution set now actually analyze this information and
provide answers to the end user based on the information available. ”
CEOCFO:
Will you explain the industry for the types of products you have?
Mr. Tempany:
“There are two or three different ways to get our solution components on an
aircraft; by all means the OEMs provide an aircraft that by the end of the
day has everything it needs to safely fly passengers. Included in that are
communications via VHF radio and they have sensors and monitors on board
that create information that the airlines can use. When an aircraft is
produced off the assembly line, it comes with what is called a Type
Certificate meaning that everything that is on that aircraft is certified by
the manufacturer to be safe. If you want to add things after the fact, the
way to do it in the commercial airline business is what is called the
Supplemental Type Certificate or STC. We have completed the engineering work
and procured STC in Canada and the US on a wide variety of aircraft such as
the Boeing 737 and 757, Airbus 319-20-21 and Bombardier DCH-7 and -8 as well
as CRJ’s. We can provide within the rules of most of the countries of the
world amendments to the type certificates for those aircrafts with our
supplemental type certificates to install this equipment on those aircraft
types. People do the same things with entertainment systems and interiors to
the aircraft where they get supplemental type certificates to add things to
the aircraft that were not put there originally by the manufacturers.”
CEOCFO:
Who is using your technology today?
Mr. Tempany:
“We have twenty-three airlines today that are using our technology. We have
six carriers in China that have signed up that will be using our technology
starting no later than February 2008. We have some large carriers like Aloha
with about 30 aircraft, and very small carriers with two or three aircraft
as well. There is huge interest in our product outside of North America and
Western Europe. North America and Western Europe have the infrastructure to
be ale to handle the majority of the data that comes from airlines. Outside
of America and Western Europe there is very little infrastructure to be able
to handle the older technology. Countries such as China and India are
looking for ways to not invest in old technologies, but to put new
technology on the aircraft and be able to build their infrastructure around
the state of the art technology and we are having great success in these
countries.”
CEOCFO:
Do you have partners or distributors?
Mr. Tempany:
“We work directly with the government of China. Our customer is a company
that is a department of the Chinese government. We are currently working
with a partner in India who is working with the government to get our
product accepted in India. In Africa for example, we are working closely
with the world food program of the UN to roll out our products in Africa,
and give them a common view of all of the assets they have under lease, what
is going on with them, and how those assets are being maintained. We are
doing a lot of work in the former Soviet Union; we are doing it directly
with the airlines and the lease companies that are leasing aircraft to the
airlines of the former Soviet Union. Therefore, we do have partners and we
are about to sign up an agent for Africa. We have a strong relationship
globally with Meggitt Aerospace, a group out of England that sells to
military and to the large commercial enterprises. We formed that partnership
because of the relationships Meggitt has with OEMs and military
organizations around the world. We do have a direct sales force, we also
deal directly with governments and we have agents and partners throughout
the globe.”
CEOCFO:
Is there much competition?
Mr. Tempany:
“The competition in North America and Western Europe are systems based
around ACARS (the aircraft communications and reporting standard), which is
a standard that was developed in the late 1960’s or early 1970’s about how
to collect data on an aircraft, how to transmit it by VHF radio to ground
infrastructure that has been built by a couple of large companies. That is
the main competition for us in those parts of the world. Other parts of the
world there are companies out there that have parts of what we provide.
There are people who sell quick access recorders with QARs, which collect
data and it is then downloaded when the aircraft lands. There are lots of
people out there that sell parts of what we do, but to the best of my
knowledge there is no company out there today that does everything that we
do from that aircraft sensor to the end user in a single solution from one
company.”
CEOCFO:
Is it one offering or can customers choose from a menu of items?
Mr. Tempany:
“We do have a menu of items that can be selected. Some companies do not want
platforms and some do not want some of the reports. We do engine monitoring
at multiple different levels including sending the data directly to the
engine manufacturer or a group that helps them monitor their engines and
maintain their engines. Therefore, there are levels of service. We also have
two boxes that we sell, one for light aircraft that does flight following
and text messaging, because the smaller aircrafts do not have the data buses
that the big aircraft have so there is no need to have the sophistication of
the larger unit that has all the monitoring. We have multiple offerings and
we tailor our services to the requirements of our customers.”
CEOCFO:
I would imagine most of your potential customers would benefit from the
breadth of your offerings,
Mr. Tempany:
“They typically do buy everything from us; it is just that different
airlines have different requirements. If we sell to an airline that is
flying exclusively in the continental US, having a satellite phone is not
that big of an advantage, because they always have radio contact. However,
if we are selling to someone that flies polar routes, or China or India
where they do not have VHF infrastructure, they need the satellite phone. It
is more of the operational procedures and locations that our customers fly
and that dictate which component they buy from us. They like the fact that
they can have everything they need in one solution.”
CEOCFO:
Once a company finds you do they remain with you?
Mr. Tempany:
“We lost one company this year Hawkair out of Terrace, BC, unfortunately
went into the receivership and returned all of our equipment to us. However,
once we get a customer signed up, we expect to have them for the life of
their company and more importantly the life of their aircraft. I have found
in the five years that I have been here that airlines come and go but
aircraft are here forever. The average useful life of an aircraft is thirty
years. If we are doing a good job and have our equipment installed on that
aircraft, chances are we are going to have the next airline that uses that
aircraft, using our services.”
CEOCFO:
Do you do the installations?
Mr. Tempany:
“We provide technical support on the first installation for each type for
each customer, and then the customers do the installations for themselves.
We provide a kit, which includes the STC, the antenna, the box, the tray,
the cable, all of the connectors and doublers for the antenna installation.
The customer does the installation either themselves or at a maintenance
repair overhaul facility that they use to do that kind of work. It is not a
complicated install, but because we have to have an antenna on the roof of
the aircraft, they have to take the interior out where the antenna is being
put and the interiors where the cable needs to be run down to the avionics
bay and wires to go to our box connected at junction boxes and terminated at
our tray. It does typical happen during a C check. A C check for an aircraft
occurs after 5000 hours of flight and the aircraft has to be torn down to
the bare bones and make sure there is no damage to the structures or the
rivets, etc. That is typically when our customers do their installation.”
CEOCFO:
What is the financial picture of the company?
Mr. French:
“We have $4.6 million in working capital. We have a small amount of debt,
about $355,000, which are government loans. They are government loans for
R&D in Canada. They are repayable based on revenue, so they do not have a
payment schedule and there is no interest on them. Our cash revenue first
nine months is going to be about $2.0 million. The Q-4 revenue is expected
to be our busiest quarter to date. Q-4 there are 69 million outstanding
shares basic and 86 million fully diluted of which the management directors
and officers have about 10%. The thing that attracted me to this business is
something that is proving to be that I made the right choice.
We do not sell a box, we sell a solution. It is an evergreen revenue stream
for us and it is continual cost savings for our customers to have our
technology on board. If we install a box today, they turn that box on and
immediately start saving $20-$40 per flight hour by having the information
they need to control their maintenance cost, operations cost, understand how
their aircraft is being flown, understand how the maintenance and/or
warranty issues around an aircraft are being handled. From an investor point
of view, our average contract is about 5.8 years with our customers. The
renewal period is the same length. From an investor point of view, we have a
backlog today of about $16 million of installed revenues and recurring
revenue backlogs of about $16 million a year for the next six years that we
expect to have fully installed within the next 24 months. We have earnings
of roughly $8.6 million a year EBITDA once the whole 665 units that are
installed are up and running. From a customer point of view, the customers
start saving money the day they get it on an aircraft so there is
encouragement for them to get the installs done and get the product up and
running.”
CEOCFO:
Is the investment community starting to pay attention?
Mr. Tempany:
“I believe the investment community in the last two or three months is
starting to see what we are doing and that we actually do have the business
that we have talked about for the last three years. We were a little slow
out of the gate because I didn’t understand the complexity of the aviation
world when I joined the business, so I made some assumptions about how long
it would take that were incorrect. Those assumptions were not incorrect, it
was just timing. The acceptance of our product and our business model has
proven itself in the last six months and the investment community seems to
be catching on to that.”
CEOCFO:
What should readers remember most about AeroMechanical Services?
Mr. Tempany:
“I think management is bullish about our opportunities and both the airline
market and the financial market are starting to pay attention to the
AeroMechanical Services story. We have lots of upside and very little
downside left. There are always risks in any investment and as director in
the company I am not saying there is no risk, but we certainly are to the
point where we have the contacts, the people, the customers, and the
management team to deliver superior value to our investors.”
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