AR: Mr. Tempany, in the course of a long life, I have visited many high-tech companies and they have a common denominator: everything is upside down like a Hungarian Kitchen. And nobody could figure out what the company and individuals are doing. You were kind enough to take me around and what I’ve seen is an organized assembly line and structure of entity. How did this happen?

BT: Well, it wasn’t an accident.. This is the third company I’ve built and through that process I’ve learned that if you put proper infrastructure in place, the proper procedures, checks and balances, people work as a team.

AR: Now, what do you think the basic underlying trend of the company, could you describe what Aero Mechanical is about today, what you have accomplished, and what you would like to see two years from now.

BT: Well, we’ve taken it from a concept to a realistic, revenue-generating company, with proven products, successful customers and the ability to expand into new markets through hiring the right people in the right areas. Where I see this in two to three years is AMS being a major force in aviation communication and data delivery. One of the unique things that we’ve done is we are becoming the data repository for aviation customers for their in-flight data. Our data affects how aircraft are flown, how fuel is used, passenger comfort data that with large masses of data from a lot of aircraft. You can get invaluable information that helps companies operate their businesses better; helps people with manufacturing aircraft build a better products, and at the end of the day, help the customer enjoy the experience of air travel.

AR: In a single sentence, what is it that you do for the airline industry?

Customers are in a position to do the following:

• Break-even on investment in 9 months
• Return on investment of 45:1 over 10 years
• Eliminates errors and biases in reporting
• Saves on costs of crew and fleet operation
• Decrease delays and improves logistics
• Effective manage and monitor fuel consumption

 

BT: We provide the necessary tools to gather and get the information that operators in all departments in the airline, that allows them to improve the efficiency of the airline. Our motto is “Data that you want; where you need it when you need it”.

AR: Now, Bill, this is 2006. It is sixty years that Howard Hughes has flown around the globe. Now, Howard Hughes did not see your products. How did the airline industry survive without him?

BT: The airline industry survived like every other industry in the world: on cheap fuel. Oil, in thee last thirty years has been a commodity that has been undervalued and underappreciated by everyone and the airline business survived because they could get people from point A to point B quickly and cheaply. That’s not happening anymore. Fuel costs are rising, maintenance costs are rising, and the industry is in the middle of a metamorphosis to have to become a lean, mean machine to survive like every other industry in the world.

AR: So in other words, automation, electronics, modified Microsoft type of programming, all this together has descended on the airline industry?

BT: The airline industry has to change its practices from the 1970s. We are in the 21st Century. They also have to change, much like the oil companies did from being run by geologists and engineers to the airlines being run by pilots and maintenance people. Financial people are starting to take over the airlines and they need information to improve the performance of the airline, which isn’t readily available today in today’s technology, particularly where you need it and when you need it.

AR: I flew from London to Kennedy in a 707 jet airline. The year was 1964. In 1968 when life was easy, and the only disturbance America had was Abby Hoffman in the streets and burning down a few cities, the new element came into being, namely, Sheik Yamani in ’73 on nationwide television, “Gentleman, the cheap energy is over.

BT: Yes. That’s true. And it continues from 1973 to today, it’s continued to escalate. We are in a declining reserve for oil and gas globally, and it becomes a scarcer and scarcer commodity. The airline industry is a huge consumer of oil and gas. It’s one of the things there isn’t a ready solution for. Biodiesel isn’t an option; coal isn’t an option; electricity isn’t an option to fly aircraft today.

• Airlines taking extreme measures to reduce weight to mitigate fuel costs
        • After labor, jet fuel + the 2nd largest operating expense for airlines.
• One Airline estimates it will save 14 million liters of jet fuel anally through enhanced     logistical planning with AFIRS technology.
        • AFIRS System weighs 10 lbs; systems currently used weigh up to 150 lbs.
        • 100 lbs of extra weight adds $1.00 in fuel costs per flight hour.

 

AR: Some people are taking over to make flying practical and information about other electronics is handled efficiently and cheaply so business can continue?

BT: The airline business is no different than anything else. You have to provide an affordable product to your end user. To get an affordable product you have to improve efficiencies and the best way to improve efficiencies is to group the information flow so that the people that are providing the service can provide it in the best and cheapest possible way.

AR: Now, if Bill Gates heard you, he would be very happy. This is exactly his theory. Now, there is something else that happened. Because of political changes today, we have seven billion working people in the world and the seven billion is basically working for a better life. There are still some 150 million, what I call the “lunatic freaks” who choose. But the seven billion people in Shanghai, in Moscow, in New Delhi, they want to live the way people like you in Calgary live. Correct?

BT: No, they like the warm weather better than living in Calgary with the snow and everything. But the biggest growing markets in the world for the airline manufacturers are the Far East, India and South America. That’s because there’s an upwardly mobile middle-class emerging because of the changes in their economy and they want to travel, want to see friends, want to see family.

AR: So in other words, there is a huge increase for the number of jet aircrafts that are needed in this world?

BT: There’s a need for more aircraft, more efficient aircraft. Brazil adds more people to the middle class every year than Canada has in their entire middle class.

AR: That means more energy?

BT: It means more aircraft, but it also means flying full aircraft; it means making more effective use of the aircraft that exist today. It’s more time in the air and the airline industry is measured on revenue-per-seat miles and that’s the biggest measure for regional airlines and we have to improve the effectiveness of the airline businesses by adding more people on the aircraft and flying all the aircraft for less money than they spent two years ago and ten years ago.

• The only existing real-time data technology with a global reach for airlines.
• Designed to help airlines:

       o Stay informed;
       o Stay on schedule;
       o Save money;
       o Improve safety standards
       o Create revenue opportunities (SkyMalls, text messaging, email, etc.)
• 10 lb “shoe box” size (12”x5”x5”)
       o Fuel savings;
       o Cargo space savings and
       o State-of-the art technology.

 

AR: For every merchant, there is one question. How many more customers can you get?

BT: That’s correct, yes.

AR: So in other words, if you take 2006 as your first year of meaningful deliveries, you can foresee five or ten years of increased demand in terms of numbers, airlines, that you can service?

BT: That’s correct. The growth in the AMS’s business is going to be because we have retrofits for the most of the aircraft on the planet today. Most of the Boeing, most of the Airbus, most of the Bombardier fleet, we are already certified for. The future is with making sure that we’re installed by the OEMs before the aircraft leaves the factory. We’re working with five OEMs today to make that happen.

AR: Okay. Describe to me one deal, simple deal, one particular airline, what you provide, how much, how do you get income and what happens after the first delivery?

BT: It is our estimate that there are 40,000 on the planet that can make use of our technology. Recent statistics from one of the major industrial-based data provision organizations say that there are about 15,000 of these equipped with data gathering of which slightly higher than ½ of them transmit data so it looks to me that roughly 90% of its market does not have a viable solution. Our projected sales anticipate fairly broad acceptance of our technologies by that 90%. We have in excess of 50 installed of that pipeline of over 1,000 aircraft. With an initial fee and remaining revenue from these 1200 aircraft the recovery revenues are in excess of 35mm/year once install. Installations occur over a 2 to 2 ½ year window with new airlines. A simple airline would be an airline that has fifteen Dash-8 aircraft flying in the Caribbean. What their requirements were, is they needed information on the aircraft, about where it was and when it was going to land because the VHF capabilities in the Caribbean are very spotty because of sunspots. They had a requirement by their government to have an alternate means of communication so they could talk to the aircraft. Our device happens to include the ability to have a satellite phone in the cockpit, text messaging to the cockpit as well as collecting the data that the airline needs. What we’ve done is the first install was done on the Dash-8, about two weeks after we signed the contract, we went down, we installed it. We were doing the second one and they started getting messages. Within fourteen seconds of the aircraft turning on, they started getting messages. When the aircraft took off, there were several messages that came, saying there’s been a problem on this take-off. Engine torque parameters had been exceeded. The manufacturer’s recommended level had been exceeded. They managed to catch that in time to train pilots to stop that happening and save thousands and thousands of dollars of warranty expiration because of over-torque on engines.

AR: Now, you mention this fifteen airline aircraft company. What can you sell them today?

BT: Well, today we’ve sold them the unit, the phone service, the data service.

AR: And how much – what is the contract?

BT: What we do is we sell our service on a per-flight hour or per-flight cycle basis. For each airline, it’s different because of usage and because of the kind of information they want. That airline is being it’s serviced for 1800 to $2000 US a month per aircraft. The main saving for the airline is during take-off and landing. So people who fly short flights, it costs a little more per hour than those who fly long flights.

AR: An actual unit, you sell to the aircraft?

BT: We don’t sell the unit to the aircraft. It’s part of the service that’s provided. They do pay a network access fee to get everything set up and running but we don’t sell the box. The reason we don’t sell the box is because we want to control the technology to ensure all of our customers have access to the latest technologies.

AR: You get a certain amount of money when you install their equipment?

BT: We receive about $24,000 US per aircraft, depending on whether they want phone sets and other options.

AR: And then approximately $2,000 a month?

BT: Yes.

AR: So I will set up a date for that.

BT: Well, if you look at the number of airlines in the world, there’s over 300 airlines in the world today. 85% of them are less than twenty aircraft. This means 6,000 potential aircraft. We focus particularly on the regional and low-cost carriers, because for them, this is a very easy implementation. I can go after a major airline like United or American Airlines that has three-hundred aircraft, but the changes they have to make in their operating procedures are expensive

AR: You are not going after the major?

BT: Well, we go after the people who can take advantage of the product early. We have twelve airlines signed today. Aloha, LIAT, Sky Services, there’s a couple we can’t name because they’re flying sensitive missions for the U.N. They’ve asked us not to use their name.

AR: How about overseas airlines?

BT: We have several overseas airlines, including China Eastern signed, which is a 200 aircraft company; China Southern, Hanan Airways are signing this year and we are negotiating right now with four carriers in India. Negotiating with about six carriers in Europe.

AR: Let me ask you this. If we take 2007, give me a range, just a number, roughly how many do you expect to deliver?

BT: We expect to deliver between 250 and 350 aircraft in 2007.

AR: And 2008?

BT: We expect to deliver 400 to 500 in 2008 as a minimum.

AR: So by then, you will have over a thousand aircraft using the AFIRS technology. And naming the international aircraft industry, so it’s a possibility in 2009 and 2010, each of the years, you will deliver anywhere between 300 to 1,000 per year.

BT: That’s exactly true. 2006 is the first year we’ve generated any real revenue and it hasn’t kicked in because most of the installs have been in the second half of the year.

AR: Meanwhile, in the year 2006, you managed to raise about 6.5 million dollars?

BT: That’s right.

AR: And you raised it from royalties and sophisticated Canadian investors?

BT: That’s correct.

AR: So in other words, sophisticated securities analysts have gone through your program, your numbers, projections, markets, and they said yes. And the end total, your 6.5 million dollars, without which your company today would be at a deficit?

BT: That’s correct.

AR: Now, people give money to a company if they have supreme confidence that money is safe for them.

BT: That’s correct.

AR: So this has been achieved?

BT: Yes.

AR: Now, we go to 2007, 2008. Each of these years are going to be cash-flow positive?

BT: As far as we know today, they will be cash-flow positive. The one thing that is at risk to us is when the airlines can put these on their aircraft, they have to be set up for sea check. As far as we know, everything within our control, we will be cash-flow positive, 2007 and 2008.

AR: I’m looking from the point of stockholders – future stockholders. We have just over 70 million shares. Our problem is options and balance outstanding, cash, instead of being five million will be seven million dollars. Seven will be eight million dollars. And stockholders’ equities accordingly.

BT: Yes, sir.

AR: Now, seventy million is the current price of, let’s say market cap, is at 20 million dollars. Okay?

BT: Yes.

AR: What is financially unique, that your company in the next two years, can have the chance to establish itself as a more or less unique modern product of vital importance in one of the most important industries in the world, and end up with probably 20 million cash and product line, an organized product line that can deliver a thousand aircraft a year; correct?

BT: Correct. Absolutely.

AR: So now, if you take that hypothetical, if you open your office, which I see you are doing, you have a streamlined operation to deliver 1,000 aircraft with your equipment, which I understand you are improving constantly this modern programming, which is normal. If we have 1,000 aircraft at the original cost of 20 million dollar revenue, monthly income of 2,000 times 12 times a thousand, another thousand to twenty million plus the previously installed equipment, you are really having up to 50 million dollars revenue per year?

BT: 50 million dollars a year is very attainable. I see that very easily. The beauty of this business is that at 50 million dollars a year, we can do it with less than 50 people. There’s very few businesses in the world that can have 1 million dollars revenue per employee.

AR: And furthermore, what is interesting is that you service one of the absolutely most vital industries in the world?

BT: Correct.

AR: It means that the whole market of some 3,000 airlines, servicing the 7 billion working population of the universe connecting continents of Africa, Asia, Siberia and in between.

BT: We fly over it every day with our people talking to customers and prospects.

AR: I thought so. And Eastern Europe, with electronic gadgetry whose principle importance is the programming of how the various communications take place. And thereby become an integral part of one of the major industries in the world, which despite the oil crisis, is likely to perform one of the important functions in the world’s economy?

BT: True. Correct.

AR: One last question. If you take 2009 times the thousand the cash-flow comes in, what do you intend to do with the cash flow? Is it dedicated or surplus?

BT: The majority of it is surplus. We want to continue to improve and keep the product up-to-date. There’s changes happening every day in technology and communications and we want to take advantage of those. The reason we don’t sell hardware to the airlines is we want to be able to keep a common communication platform and a small part of that cash-flow is going to go into product development.

AR: Let me make this comparison. When I was a child, the end of the Second World War, the only toy I had was a few soldiers. My two children had various toys, but by the time the oldest was 16, the youngest 11, we had a Macintosh Apple Computer and – it went out of business –

BT: Atari?

AR: Atari.

BT: Same as my kids had.

AR: If I go to my grandson’s room, it’s filled up with electronics, half of which I don’t know how to program myself. He’s four and a half. He knows everything.

BT: No fear.

AR: So even by your word, what people are talking about, to remake the internal structure of an airline, transfer it from a place of total boredom, will you have electronic entertainment, too?

BT: We’re working with two of our customers today to provide on-board services for people that have electronic devices to be able to do all the things they can do on the ground on the internet, without having to spend the money and effort and the technology that’s very, very expensive today to hook into the internet from here.

AR: Thank you, sir. I hope you succeed. I don’t know why I stopped yet.
Looking at the 20 million dollar market cap that in the next 6, 7 years you provide a vital electronic service, communication service to the airline, that may become a household name all over the world, has the cash-flow, by the way and the entry and the clientele to recreate an industry which almost disappeared a few years ago and is still flooded with bankruptcies, to recreate an industry which people use daily, enjoy it and consider their time spent creatively as well as counting the minutes when the torture is over?

BT: Yes, sir.

AR: Good. Thank you.

   Andrew Racz

(Article 42 - posted November 17, 2006)

e-mail: mlikar@aol.com

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