Investor Communications

FLYHT CEO Letter – Fourth Edition

June 2, 2016 Subject: Fourth Edition 2016 CEO Letter to FLYHT Shareholders: The State of Commercial Aviation Today Dear Shareholders and Interested Parties; It is not acceptable in this age of ubiquitous connectivity that we remain clueless about the possible sources of problems on EgyptAir 804 that resulted in its loss. Why do we have to wait to recover the wreckage before we can begin to understand what happened on this flight? Apart from seven or so ACARS messages (the Aircraft Communications Addressing and Reporting System), we have precious little information. Was it a bomb? Is there a sequence of problems that caused the aircraft to implode? At the time of publication of this letter, it will have been fourteen (14) days since EgyptAir Flight 804 disappeared into the Mediterranean Sea, tragically shuttling the 66 people onboard to their untimely end. The reason for the disaster is unknown and may never be fully known. Certainly, key to understanding is now completely linked to finding and securing the flight data (FDR) and cockpit voice recorders (CVR) from the sea floor and reading out the data; provided the data within those recorders is recoverable. To date, the batteries in the beacons on these recorders will have been approximately half spent, assuming they contain the 30-day battery as reported in news sources. Recovery of the “black boxes” becomes significantly more difficult once the underwater locator beacon batteries are discharged; the activity then becomes a blind search in an area reported to be the size of Connecticut at depths of 9,000 to 12,000 feet. Now the commercial aviation community finds itself in the same situation again for the third time in seven years! This type of search was successful in 2011; two years after AF447 crashed into the mid-Atlantic and settled into the mid-Atlantic ridge with underwater mountains relatively higher than the Himalayas and 13,000 feet under water. I applaud that effort and the resulting successful recovery of data from the flight recorders that shed light on that particular aircraft system and procedural errors with the flight. The search area was enormous; the time and energy spent was massive and cost was significant. Frankly, I am still amazed that the AF447 aircraft was ever found. AF447 was followed with the disappearance of MH370; horrific as it was in 2014. This aircraft disappeared after taking off from Kuala Lumpur International Airport on a flight to Beijing. The aircraft deviated from its flight plan and systems designed to periodically track the aircraft were somehow disabled. The aircraft and the 239 humans on board are missing; we simply do not know what happened to the flight. It is not conceivable to me in these days of connectivity how a wide-body aircraft and its precious cargo can simply vanish. Not so astonishing is the cost expended looking for the missing aircraft. The NBC news article (Link) published on 30 May indicated that the search costs for MH370 was at $130 million USD! So, now that we are faced with yet another commercial airliner’s disappearance, what can we say we have changed as an industry to prevent the loss of aircraft, to reduce the incredible confusion involved in these incidents and to provide more clarity for the affected families, the airlines, the air framers and the travelling public? I say, not much. We increased the black box’s beacon battery life from 30 days to 90 days as a result of AF447. However, this was done on an attrition basis and there are still many thousands of 30-day batteries flying that will continue to fly until supplies purchased are consumed. Other discussions and proposals in the wake of AF447 did not find satisfactory support. Low frequency beacons were not added to the aircraft frames in order to allow the aircraft debris field “haystack” to be found so that the “needles” could be found – the CVR/FDR and their beacons. Also evaluated, but not mandated, was triggered streaming of FDR data. This proposal recommended augmenting existing CVR/FDR devices with satellite enabled streaming of the “essential parameters” from the FDR when certain aircraft alarm conditions, acceleration or unusual aircraft attitude conditions were met. FLYHT successfully demonstrated this capability following AF447 and has commercialized this function, now in service with First Air in Canada. FLYHT’s AFIRS remains the only system to have automated the streaming of essential parameters from the FDR Unfortunately,there have been zero practical commercial aircraft changes that have come about as a result of MH370 to this point. We have goals for 15-minute tracking of aircraft by 2018, established by ICAO to be accomplished in non-prescriptive means. We also have goals for aircraft in distress to be tracked in one minute intervals by 2021. This is also non-prescriptive, meaning that any number of different solutions can be used to accomplish the objective. Neither of these objectives have made their way into law. Can we really wait until 2021 to know WHERE our commercial aircraft are? Even if we know WHERE they are, is it not equally important to know HOW they are? HOW describes the aircraft status and situation. It’s time for our commercial airliners to operate with 21st century technologies which include real-time tracking and real-time aircraft data access. FLYHT has a commercially available system that will provide these benefits while at the same time saving the aircraft operators money in their operations. We are now formulating a more aggressive strategy to communicate this message. At FLYHT we sincerely wish peace for all of the families and friends who have had to endure the loss and uncertainty following AF447, MH370, MS804 and other commercial air transport disasters. It is certainly complicated to discuss essential changes that should be pursued at times like this; unfortunately, this appears to be the only window of time when those with the power to promote change are open to considering it. Thomas R. Schmutz CEO, FLYHT Listed on the next page are some details about FLYHT’s AFIRS system and a practical discussion about the cost of deploying this system. Capital cost: The cost of the AFIRS unit, antenna, and installation wiring and installation labor is up to US$100,000 per aircraft and many airlines have the equipment installed and operational for significantly less than US$100,000. The payback on that investment in terms of operational, maintenance and fuel savings is usually measured in terms of a few months. Infrastructure cost: There is NO investment in infrastructure required to implement AFIRS or AFIRS-based services. Return on Investment (ROI): FLYHT’s customers buy AFIRS because it allows them to operate more efficiently. Each customer has slightly different requirements, so FLYHT’s data services are offered on a menu basis, with total charges to an airline ranging from a few dollars to $15/flight hour. Note that the usual cost of operating an airliner is in the range of $7,000-$29,000 per flight hour with the fuel component of that cost constituting between $2,500/hour for small airliners to $11,000/hour for large aircraft (using $3.00 US per gallon as the fuel price). Therefore, absent any payback, AFIRS services would add less than 0.05%-0.2% to an airline’s operating cost; however, the payback realized is always much greater than the cost. For example, one service offered with AFIRS, FLYHTFuelTM, is a fuel management service that can potentially save 2-4% of the fuel burn, or between $50- $300/flight hour, depending upon the aircraft type and operation. Cost of a streaming event: When AFIRS goes into streaming mode, the cost is a maximum of $10/minute. This cost occurs only during the emergency streaming mode. To put this in context, if an aircraft streamed data for seven hours the total cost of receiving all the flight data and second-by-second tracking and position information would be under $4,200. The cost for one search aircraft is likely to be in the $7,000-$20,000/hr. range (or higher with specialized equipment and crews). The total acknowledged cost of the AF447 black box search was at least $100M and the MH370 search has reportedly reached $130M. If AFIRS streaming could pinpoint the location, there is the possibility emergency response crews could reach the accident location sooner and there would be a significant saving in time and cost of the recovery effort. This could also aid in prevention of further accidents by alerting other aircraft operators or the authorities of any mechanical or structural faults. Is there enough bandwidth to handle all aircraft? The mistaken notion that is put forward is that we’re talking about streaming all the data from all the aircraft all the time. The facts are (1) select FDR data is streamed only during exceptional events; (2) the infrastructure is in place today to handle any realistic number of simultaneously streaming events and to track ~20,000 aircraft simultaneously. AFIRS technology is programmed to bundle (or compress) the data and send it down in smaller packages, so bandwidth is not an issue. Is the system secure? Where does the streamed data go and how is it controlled? The FDR data streamed from AFIRS is delivered to the UpTimeTM server controlled by FLYHT. UpTime will store and forward the data to the airline operations center or provide login access to the data, according to the airline operator’s preference.