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World Airways thriving

Old 07-09-2005, 02:15 PM
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JULY 11, 2005


Online Extra: The View from World Airways' Cockpit

CEO Randy Martinez and President Jeffrey MacKinney talk about the reasons their airline is thriving in such tough times

It's a rare occasion when BusinessWeek's Hot Growth list includes a 57-year-old company. And quite some time had passed since the Hot Growth list included an airline. But World Airways differs from your typical airline.

Founded in 1948 as a contract carrier for hire, the Peachtree City (Ga.)-based company -- now a subsidiary of World Air Holdings -- has shuttled everyone and everything from soldiers bound for war, African white rhinos on their way to zoos and theme parks, and Jaguars and Bills competing for glory. (During football season, World Airways does a brisk business in transporting several National Football League teams to their games each Sunday.)

BusinessWeek Atlanta Bureau Chief Dean Foust recently discussed the company's heritage and outlook with World Air CEO Randy J. Martinez and President Jeffrey L. MacKinney. Edited excerpts follow:

Q: I have to tell you, it isn't every year that 57-year-old companies make our Hot Growth list. What's the story behind World Airways?
Martinez: Our founder was a man named Ed Daly. He actually bought the company in 1950 for $50,000, and there are a lot of stories going around as to how he came up with the money. Some will tell you he won it in a poker match -- others will tell you he just used family money.

The original planes, the B314 Flying Boats, were used to run a passenger service out of New York down to San Juan. Shortly after that, in the early 1950s, he got involved with the U.S. government to start doing some military flying, and that is a huge portion of our heritage.

Q: What was your involvement in Vietnam?
Martinez: We had the last flight out of Da Nang when it was being overrun by the North Vietnamese. We had a [Boeing] 727 in there that ended up taking out more than 300 people. They were crammed in everywhere -- wheel wells, cargo holds. They were being shot at, and bombs were going off. Within days after that, Mr. Daly got involved with local orphanages and wanted to bring some Vietnamese orphans to the U.S. to find homes for them.

It was not supported by either the Vietnamese government or the U.S. government at the time, but he went ahead and took a cargo plane, a DC-8, and they made do by building in little bassinets to accommodate these kids. There was so much international attention that the U.S. government actually then formally started a baby lift program, got a couple of other airlines involved, and ended up bringing back several thousand kids.

We're getting ready in June to do an official celebration of the 30th anniversary of this event. We're going back to Vietnam, on our nickel, and taking back 20 of the original orphans that we have found and a lot of other people that were involved, including some of the original air crew. We're actually repainting one of our MD-11s, so the paint job will look the same as it did back in 1975. It is really going to be an emotional trip. [Editor's Note: This interview occurred before June 13, when the Operation Babylift plane departed from Oakland International Airport to Vietnam.]

Q: Why does the military need carriers like you to ferry soldiers to and from battles and military bases? Why doesn't the military just fly its own planes?
Martinez: They don't have any passenger airplanes, per se. The program you're referring to has been around for about 50 years. Historically, it has proven to be a wonderful thing for our taxpayers as well as the military and folks like us. The government and taxpayers don't pay a penny for this program other than when it's used.

That's a good deal. And typically, the guys like American (AMR ), Delta (DAL ), and United (UAL) don't like to do this business, because it's very disruptive, especially when you get into their busier seasons, like spring and summer. They don't like to disrupt their [commercial] schedules.

MacKinney: The military business requires a tremendous amount of flexibility. And that's what carriers like World Airways were designed to do. We can react quickly and position aircraft and crews in response to their needs.

Q: How quickly do you generally need to supply aircraft to the military?
MacKinney: Within days.

Martinez: Sometimes in as short a time as 24 hours. And from a scheduled service standpoint, it's very hard for [American, Delta, and United] to respond to that kind of demand.

Q: You've had quite a rebound since the late 1990s, when your former parent company, World Corp., made a disastrous foray into buying tech businesses and ended up filing bankruptcy. How did World Airways turn it around?
Martinez: Back in 1999, with World Corp. going away, there were certainly some pressures on us to also give consideration to bankruptcy. We never did. And it was the right decision. [Former Continental (CAL ) and Delta Air Lines executive] Hollis Harris joined us [as CEO] in 1999 and made some obviously good decisions to get us to where we are.

He was able to get some pretty significant concessions from our aircraft lessors. He was able to bring in some commercial passenger business through some contacts he had with the cruise lines, which offset a loss of military revenue in that first year. He was able to get the employees to agree to a 10% pay reduction in exchange for a stock swap.

And later on, we got involved with the government loan program -- the Air Transportation Stabilization Board -- and were able to secure one of the government loans that was issued back in 2003. And fortunately, the military business started to grow dramatically [after the invasions of Afghanistan and Iraq].

About two weeks ago, we just closed on an acquisition of another charter airline, North American Airlines. They have no debt, have been consistently profitable since 1989, and they have the two types of airplanes that we've been wanting to add to our product mix. They're a good company. And they're a perfect fit.

The other thing that has happened is the massive buildup in the Far East in the cargo market. So we've got a darned good foundation. The cash will continue to grow. You won't find many airlines that have the balance sheet we have today.

Q: The beauty of being a charter airline, I gather, is that you don't have to compete with low-fare commercial operators. Martinez: [Laughs.] We have really no exposure to fuel fluctuations. About 97% of our fuel exposure is passed through directly to the customer. Our only exposure to fuel is basically in our maintenance ferries and occasionally, a positioning flight.

Q: There seems to be a lot of concern on Wall Street that your revenues will drop after the U.S. begins pulling out of Iraq, and the military might not have as much need for you to shuttle soldiers to and from Iraq.
Martinez: Everything we're being told is that the operational level is going to remain fairly high for some time. Secondly, the dynamics of what's going on in the Defense Dept. tell us that there are going to be a lot of mobility requirements.

You've read in the paper about them bringing back troops out of Central Europe, out of the Far East, and back to the U.S. You've heard of them talking about moving our people into Eastern Europe and the Middle East. So those types of rotations will certainly require a lot of [airlift].
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