Joel E. Biggerstaff wishes bankers would be more forthcoming about their plans for check-image exchange.
As the chairman, chief executive, and president of AirNet Systems Inc., Mr. Biggerstaff has reason to be concerned. The Columbus, Ohio, company is the nation’s largest courier for canceled checks, each night putting 32 Learjets and 80 piston-engine aircraft in the sky to meet the banking industry’s early, normal, and late deadlines for check clearing.
And what is Mr. Biggerstaff hearing from bankers about the Check Clearing for the 21st Century Act, the law that is driving check-image exchange?
“It depends on the conversation,” he said last week. “We’re getting very inconsistent messages.”
That should be no surprise. Some bankers and other observers say the big shift away from paper-based check processing could occur next year. Some say it may not happen until 2010.
But though the timing is in doubt, the direction of change seems clear. The business of hauling paper checks — 60% of AirNet’s business — is headed the way of the buggy-whip industry.
“We’re going to hang in there as long as it makes sense for us, in conjunction with and for the benefit of our financial industry customers,” Mr. Biggerstaff said.
In November, AirNet announced third-quarter impairment charges of $47 million before taxes — a $43 million writedown of cargo aircraft assets and a $4 million writedown of goodwill. The charges, three times its profit for the last three years, reflect an expectation of declining check volume; AirNet predicted a significant drop in 2006 or 2007 in revenue from hauling checks and related bank services.
The noncash charges resulted in a net loss of $30.2 million, or $2.99 per share, for the third quarter, compared with net income of $1 million, or 10 cents per share, a year earlier.
Apart from the charges, the company’s results actually improved by several measures. Revenue grew 16%, to $43.9 million, and operating profits for each of its three divisions grew, though partly because of fuel-cost surcharges.
So far, at least, the impact of Check 21 on the air-cargo business has been negligible. Jeffrey B. Harris, AirNet’s senior vice president of bank services, said it is still carrying about 125,000 pounds of checks and related paperwork each weeknight, more than 99% of the year-ago volume. (AirNet’s planes also carry American Banker as daily cargo.)
With all the uncertainty, a few things do seem clear, Mr. Harris said. One is that the impact will be felt first in the sprawling 12th Federal Reserve district, a 10-state region whose reserve bank is in San Francisco.
Bankers have frequently pointed to the deadline headaches involved in shipping checks west to east, saying that image exchange could pay off on such routes first by accelerating the settlement especially of high-value items.
But from a transportation standpoint, that strategy could leave empty planes sitting on runways, Mr. Harris said. “What about all the checks that still need to go out to California?” he asked. The issue affects banks as well as his company, he said. “It’s not as simple as pulling those routes down one at a time.”
AirNet has been feeling banks out about their changing needs, Mr. Harris said. “We’re getting more cooperation from our customers than we ever have before.”
Meanwhile the company is trying to diversify. Mr. Biggerstaff said it has expanded in nonfinancial freight, especially high-value markets such as health care (shipping medications and body tissues for transplant) and entertainment and media. The fastest-growing segment of its business, though the smallest, is passenger charter. Revenue there almost doubled in the third quarter, to $4.2 million.
What will AirNet look like five years from now? To speculate “would be a guessing game at this point,” Mr. Biggerstaff said.
