Facing a long-term threat to its check transportation operations, the air courier AirNet Systems Inc. announced Wednesday that it has formed a subsidiary that will sell check imaging systems to financial institutions.
The subsidiary, Fast Forward Solutions LLC, will focus on selling digital imaging technology to AirNet's customers, the parent said.
This seems like a big departure for a company whose main business is providing charter passenger service and transporting small, time-sensitive packages to customers in such industries as banking and medicine. (AirNet also delivers copies of American Banker to several locations.) However, one observer said that if its role in the check processing chain is transportation, selling imaging equipment is a near-match.
"Instead of moving the checks with planes, they are talking about moving the checks electronically," said Avivah Litan, a vice president and the research director of the Stamford, Conn., market research firm Gartner Inc.
A closer parallel would be a digital image network, such as Endpoint Exchange, which some banks currently use to send check images across the country. However, creating such a network would require AirNet to develop a new electronic infrastructure and would be far more complicated than simply reselling imaging systems, Ms. Litan said.
She called the unit's creation a response to the recently enacted Check Clearing Act for the 21st Century, which will take effect in October and is widely expected to drive financial institutions to begin settling checks electronically, rather than transporting the paper items. That will be a significant challenge to AirNet's business.
Moreover, with overall check volume on the decline, "in the next several years they will see a lot fewer checks being transported," Ms. Litan said. "AirNet is obviously under tremendous threat."
Bank services are by far the largest chunk of its business. It reported third-quarter net revenue of $38 million, with 68.4% of it coming from bank services. Though overall revenue rose 2.9% from the same quarter last year, revenue from bank services dipped 1.1% over the same period, to $26 million.
AirNet managed to temporarily block the passage of Check 21 this summer, by lobbying the House to add an amendment that would require the Federal Reserve Board to disclose its check transportation costs. The Columbus, Ohio, company argued that such a provision was necessary to ensure that government subsidies did not put private companies at a disadvantage. The entire bill stalled when the Senate balked at that provision, but in September the Fed agreed to reveal its expenses and revenues for transporting commercial checks between processing facilities.
Joe Biggerstaff, AirNet's chairman, president, and chief executive, said in a press release last month that Check 21 would not change his company's fundamental strategy. "We anticipate there will be opportunities for us to continue serving the banking community for many years."
Ms. Litan said that air transportation operations have thin margins, and that even a 10% reduction in AirNet's check volume could mean the difference between posting a profit and posting a loss.
Check 21 is almost certain to lead to far steeper cuts in the number of checks being flown around the country. Many banks cite lower transportation fees as one of the main reasons for image processing. Ms. Litan said AirNet's volume might drop 10% within six months after the law takes effect, and 50% within two years.
She characterized Fast Forward's creation as a survival technique. "Obviously, they see the writing on the wall, and they need to diversify their business."
However, she also said that, in the near term at least, the unit could be a good fit for AirNet. "This is probably the easiest business to get into, because it is just selling equipment, and they already have the right contacts in the right places. They are just going to leverage their existing sales channel."
In the long term, AirNet will likely find itself competing against many of the same companies that manufacture the systems, Ms. Litan said. "Check imaging equipment is a commodity business. It will be hard to compete against big companies like NCR or Unisys."
