,I
Executive Summary Company TRANSDIGITAL AF- 336054 COMMUNICATIONS
THE OPPORTUNITY
The Company provides in-flight entertainment ("IFE") and information systems to the world's major airlines. The Company is a primary developer and integrator of digital servers that offer passengers unparalleled amounts of audio and video entertainment (as compared with the tape systems employed by most carriers today). The Company's "next generation" in-flight entertainment network is revolutionary in that it provides benefits to both the carrier and the passenger alike. • In addition to its digital hardware, including retractable LCD screen mechanisms and cabin communication devises, the Company has developed proprietary software that includes passenger map displays, connecting gate information and a maintenance polling and call-ahead system for the onboard IFE systems. This allows the crew to make maintenance and service notations in-flight that are transmitted ahead to the destination, eliminating routine maintenance delays or lost seat revenues. The airlines may also share in advertising revenues generated by the AeroNet IFE network. For the passenger, the IFE system will have the look and feel of a terrestrial cable network. With the AeroNet system, fresh content can be loaded each time the aircraft lands. The content can include news from the departure and destination cities as well as syndicated content. The content delivery will also include broadcast style advertising.
•
From an advertiser's perspective, airline passengers represent a highly prized (and captive) demographic. After spending the last two years designing and testing its digital systems, the Company is currently shipping products to 4 major airline customers and to its two aerospace industry partners for OEM installations. The Company's on-board digital systems will form the critical component or first leg of the Company's business plan, the development and deployment of AeroNet.
AeroNet is the Company's advanced high speed fiber optics system, which will be initially rolled out at those Hub airports served by its existing customers. This system is primarily targeting narrow body aircraft, which have marginal if not antiquated IFE systems capabilities. The AeroNet transmission system will have the capability of delivering massive amounts of information to the Company's onboard digital servers, while the aircraft is parked at the terminal. This will create additional revenue streams for the carriers through the creation of an IFE network with the look and feel of a terrestrial based cable network servicing the upscale demographics of its passengers. The quality and reliability of this in-flight network will be far superior to the technically complex "live" satellite broadcast alternative and can be installed and operated for a fraction of the cost of a satellite/antenna system. The content can be refreshed at each stop so that the information is never more than several hours old. THE INVESTMENT
The Company is seeking a strategic partner that would be willing to provide a combination of debt and equity in amounts up to $30 million dollars. The ideal partner would provide assistance to the Company in securing content and managing the advertising process on the AeroNet system. The total investment will be separated into an initial tranche of $10.0 million dollars and a second tranche of $20 million dollars. The initial $10.0 million will be used to complete development of the cabin operations controller and to complete the development of the next generation of on-board digital servers. The Company will also use funds to complete development of its proprietary software systems for maintenance polling, connecting gate and cabin operations control software. The next round of funding $20.0 million will be used to complete the development of AeroNet, conduct beta tests of the system at two airports with two carriers and to complete the commercial roll-out of the product. EXPERIENCED MANAGEMENT TEAM- CURENT CONTRACT BASE
The management of the Company has experience with some of the largest most successful aviation electronics companies in America. In addition, management is extremely well regarded by the commercial airline industry, aircraft OEM's and the FAA. Two members of the management team hold World Airline Entertainment Association Lifetime Achievement Awards (only three such awards have been awarded). Deployment of the server portion of the network is well underway. The Company has contracts in place with four major international carriers calling for the installation of the IFE servers on a total of 875 aircraft with contract bids pending for an additional $90 million of digital onboard networks with four other carriers.
SIGNIFICANT
WORLDWIDE
MARKET
The end-users or "viewership" for the Company's IFE network is projected to reach 270 million passengers per year in the U.S. Additionally, it is reported that approximately 197 million business trips occur annually. It is particularly interesting to note the demographic profile of the IFE network's captive business traveler audience: • The average age of business travelers is 42; sixty percent are male and their average annual household income is $76,100. 73% of business travelers carry laptops with them when they travel. travelers) 74% have
• •
For Frequent Flyers (most of whom are business access the Internet and of those 88% shop on-line.
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In United Airlines' case 31% of their passengers are Senior Executives/CEO's or professionals - doctors, lawyers or consultants.
F US
1998 1999
S
2000
2001
Projections 2002
2003
$
Revenues COGS Gross Margin Sales + Admin. EBITDA EBIT 195 130 65 2,101 (2,037) (2,325)
$
515 140 375 2,678 (2,303) (2,854)
$
1,216 833 383 3,363 (2,980) (3,074)
$
18,992 13,344 5,648 8,785 (3,137) (3,136)
$
163,896 94,250 69,645 13,849 55,797 55,797
$
413,977 197,970 216,007 19,698 196,308 196,308
REASONS TO INVEST IN THIS COMPANY • The Company currently offers the only line of digital servers available to the market. The combination of the Company's proprietary digital servers with the AeroNet fiber optic delivery system makes "broadcast quality" IFE networks possible and makes high speed intranet services available to the highly prized airline passenger demographic.
•
The opportunity to participate in the extension of broadcast quality networks into the in-flight environment, which combines two mature industries into an early stage opportunity.
•
The fact that the Company has a unique line of proprietary products being installed in so many commercial aircraft when coupled with the appropriate strategic partner will assure continued market leadership in in-flight broadcast networks.
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