HERE IS A VERY NICE READ FOR DD. TAKE SOME TIME TO LOOK IT OVER. 10/19/04 - Florida Firm Hopes To Build Largest Cargo Carrier Alpine Air First Of Five Acquisitions
Oct 18, 2004 (Commuter/Regional Airline News/Access Intelligence via COMTEX) -- Using its recent purchase of Utah-based Alpine Air [ALPE] as a foundation, Universal Express [USXP] wants to assemble the nation's largest cargo airline within the next 12 months.
Universal CEO Robert A. Altomare plans to assemble an airline with 200 planes. The new airline would serve the company's growing Luggage Express division. The Luggage Express division, and its companion company, Virtual Bellhop, ferries luggage from a customer's front door via a cargo carrier to the passenger's end destination.
Alpine CEO Gene Mallette, on Altomare's behalf, has identified four other airlines that Universal is courting, but he declined to name them. "If we do the four acquisition targets, that will put us close to the goal. It is a hard goal and we both have signed off on it and we will work our tails off," Mallette said. Universal hopes to reach a sales agreement with two of the airlines by the end of the year.
Florida-based Universal is not just targeting regional carriers flying planes similar to Alpine's Beech 99s and Beech 1900s."The companies that we have visited and discussed have a wide variety of aircraft. Some are much larger than Alpine and some are smaller than Alpine's," Mallette told CRAN.
Earlier this year Universal tried to purchase the assets of Arrow Air, while it was exiting bankruptcy. The Florida-based carrier flies DC-8s and DC- 10s. "We wanted to buy Arrow and then Alpine so we could have some big planes and some smaller ones," Altomare told CRAN.
Universal plans to build the network by leveraging the assets of the carriers it purchases. Universal's balance sheet pales in comparison to Alpine's.
Universal filed its fiscal 2004 annual report, which ended June 30, on Oct. 13 - two days after announcing the Alpine deal. Universal posted a loss of $9 million in fiscal 2004 on top of a $6.5 million loss in fiscal 2003. On June 30, Universal had total assets of $296,000 including $100,000 in cash. In the U.S. Securities and Exchange Commission (SEC) filing, Universal's auditors stated its current financial conditions raised "substantial doubt about the company's ability to continue as a going concern without raising additional debt or equity."
On the other hand, Alpine had a quarterly net income of $135,000 on July 31. Alpine's third quarter statement lists $25.8 million in assets, including $155,000 in cash.
"We both have warts to some degree," Mallette said. "The underling principle provides Alpine with the ability to derive cash from the market. The deal outweighs a couple of warts."
In the Alpine deal, Universal will pay $12 million for 80 percent of the company's stock. In addition, it will refinance a portion of the airline's fleet of 30 planes.
"We have some funders and bankers who will allow us to collateralize the equipment to get the funds to begin this journey," Altomare said. "If Alpine did not have the assets, it would be impossible for this young company [Universal] to get the capital."
To that end, Universal has announced that it will offer a series of equipment trust certificates to raise $225 million by collateralizing cargo aircraft that it acquires from regional cargo airlines. While Universal released a press release announcing the offering, it has not filed paperwork with the SEC.
The Deal
Mallette, who owns 80 percent of Alpine's stock, agreed to sell the carrier to Universal in order to tap the equity market. (Alpine is one of two publicly traded regional cargo carriers.) Although Alpine went public in 2001, its stock is thinly traded. On the other hand, Universal's 25,000 shareholders average 10 million sales each day.
Both companies are considered penny stocks trading on the over-the- counter market. So thinly traded is Alpine's stock that it took two days after the sales announcement on Oct. 11 for the first shares to trade hands. The sales announcement did little to move the sales price off the 51 cents per share mark. Over the course of the week, Universal's share price increased from about 0.006 cents a share prior to the announcement, peaking at 0.03 cents per share on Oct. 12 and then falling to 0.017 cents per share by Oct. 14. More than 14 million shares traded hands on Oct. 12.
Alpine stock failed to move in over-the-counter trading despite posting two consecutive quarterly profits. "Our stock continues to languish. An atomic bomb could go off in our hangars and no one would know it," Mallette said. "We are not followed by large companies. We have very little held by institutional investors."
"We are good at getting money and getting the story out there," Altomare said. "Gene [Mallette] has the company, but he could not get $30 or $40 million. We could."
The deal creates greater liquidity. As Universal courts other airlines, Mallette said that it could offer both cash and stock to other airline owners. "They would not have to wait 23 years to sell on a thinly traded market. It enhances Alpine's and Universal's ability to do acquisitions," he said.
Within in a week, Universal plans to file offering documents with the SEC giving each shareholder the opportunity to sell at a still undisclosed share price. Mallette said he will tender how ever many shares are need to reach the 80 percent threshold.
Fitting In
As Universal's Luggage Express continued to grow, Altomare said a decision was made so that the company would not be dependent on outside providers. The company now uses 7,000 courier companies around the world including FedEx, UPS and DHL. "We are the first logistical company that has outsourced 95 percent of its stuff. This is the first time we are purchasing a nuts-and-bolts, brick-and-mortar operation. We can use our own aircraft at less than the cost of using FedEx. We can bring the cost down of the luggage business without disturbing [the regional carriers'] core business."
Luggage Express now carries 9,000 to 11,000 pieces of luggage every month. Altomare said that 72 percent of those who use the service once, do so again. "It is hard the first time to get someone to give up their stuff, but when you walk into your hotel room and it is already on the bed that is terrific," he said.
The service once cost $130 per suitcase but it is now $60 to $70 per bag.
In the last six months, Luggage Express has picked up contracts with the Ritz-Carlton, Citibank and cruise lines. "We have become the No. 1 niche luggage movement company in the country," Altomare said. "We have done more than 4 million suitcases since we started. We have never misplaced a single suitcase."
"This is a deal where two plus two equals five," said Mallette. "There is not only synergy on the expense side, but also synergy on the income side. All the aircraft will continue to honor existing contracts. Alpine hopes to secure some of the Luggage Express business that is going to other carriers." However, Mallette admitted that Alpine's existing routes in the Rocky Mountain states may draw little of the new business. At the same time, Alpine's new Hawaiian operations has much greater potential (CRAN, May 31).
Universal's original division, UniversalPost, is a network providing support services and products to 8,000 independent postal centers. Altomare draws a parallel to the FTD network of independent floral shops.
"We do believe that some regional cargo aircraft would benefit from the synergy with the postal stores. They are in direct competition with their providers. [FedEx and UPS now both operate storefront, full-service retail locations.] We are interested in that $8 billion industry, which is not on anyone's radar screen."
Altomare has much grander plans for Luggage Express. A year ago he made a presentation on Capitol Hill suggesting that luggage for buses and trains be transported by companies similar to Luggage Express. Since neither bus nor train operators can effectively screen their passengers' luggage, he said it would be safer to keep the suitcases separate. Taking the idea a step further, Altomare suggested that airlines encourage their passengers to send their luggage ahead. By implementing this procedure, he said, the government and the airline would save billions at the airport by inspecting less checked luggage. Airlines, he said, could encourage the use of a luggage services by charging stiff prices to stow a suitcase.
As Alpine joins the Universal family, Altomare said his firm could build upon Alpine's established relationship with the U.S. Postal Service to promote the luggage transfer concept.
Track Record
Alpine and Arrow Air are not the first airlines that Universal attempted to buy. A year ago, Universal paid a $1 million deposit to buy privately held North American Airlines, a passenger charter operation. Six weeks later the deal was scrapped. The two sides have traded lawsuits, with Universal seeking $168 million. North American CEO Dan McKinnon declined to comment due to pending litigation.
According to the SEC filing, Universal in the last year shed two other firms it had acquired shortly after purchasing the firms. Two months after buying Bags to Go, Universal sold the company back when Altomare, the company's sole director and officer, decided to reduce Universal's long-term debt. Earlier this year, Universal sold Subcontracting Concepts back to its original owner, nixing a deal that was made last November.
Alpine's Contracts
Alpine expects a decision this quarter on another major mainland contract, Mallette told CRAN. He would not disclose the details. Alpine's only substantial current contract is with the postal service both on the mainland and in Hawaii. Whether the carrier gets the new contract or not will influence where Alpine deploys its newly acquired Saab 340 freighters.
The carrier is about to take delivery of its first Saab 340 freighter, which was ordered last spring (CRAN, June 14). Its second plane should arrive shortly after the first, Mallette said. The Saabs will be sent to Hawaii unless the new mainland contract comes through, he said.
In November, Alpine will ferry two more planes to Hawaii to provide extra capacity during the Christmas season. "According to the post office, we have the best service score ever posted in the state," Mallette said.
Alpine is now in the process of developing additional contracts in Hawaii providing same-day transport of other goods between the islands. These "co-load' contracts have provided enough additional income to cover the higher fuel prices the carrier has had to absorb, he said.
>>Contacts: Robert Altomare, Universal, (561) 367-6177; Gene Mallette, Alpine, (801) 373-1508; Dan McKinnon, North American, (718) 656-2650.<<
Commuter/Regional Airline News, Vol. 12, No. 40
UBBFriend: Email this page to someone!
Printer-friendly view of this topic
