10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                      to

Commission File Number 1-13025

AirNet Systems, Inc.

(Exact name of registrant as specified in its charter)

Ohio	31-1458309
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	(I.R.S. EMPLOYER IDENTIFICATION NO.)
3939 International Gateway Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)
614-237-9777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Shares, $.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   ý    No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act ).  Yes   o    No   ý

The aggregate market value of the common shares (the only common equity of the registrant) held by non-affiliates of the registrant based on the price at which the common shares were last sold as of June 30, 2003, of the last business day of the registrant’s most recently completed second fiscal quarter was $41,034,512.

The number of shares of the registrant’s common stock outstanding as of March 29, 2004: 10,063,167.

Document Incorporated by Reference:

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on June 4, 2004, are incorporated by reference into Part III of this Annual Report on Form 10-K.

INDEX

PART I
	Item 1:	Business
	Item 2:	Properties
	Item 3:	Legal Proceedings
	Item 4:	Submission of Matters to a Vote of Security Holders
	Supplemental Item:  Executive Officers of the Registrant
PART II
	Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6:	Selected Financial Data
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operation
	Item 7A:	Quantitative and Qualitative Disclosures About Market Risk
	Item 8:	Financial Statements and Supplementary Data
	Item 9:	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
	Item 9A:	Controls and Procedures
PART III
	Item 10:	Directors and Executive Officers of the Registrant
	Item 11:	Executive Compensation
	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13:	Certain Relationships and Related Transactions
	Item 14:	Principal Accountant Fees and Services
PART IV
	Item 15:	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Signatures
	Exhibit Index

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PART I

ITEM 1 - BUSINESS

General

AirNet Systems, Inc. is a specialty air carrier for time-sensitive deliveries, operating between most U.S. cities and delivering over 20,000 time-critical shipments each working day.  AirNet is the leading transporter of cancelled checks and related information for the U.S. banking industry, meeting more than 2,500 daily deadlines.  AirNet also provides specialized, high-priority delivery services to customers, primarily those involved in the medical, critical parts and entertainment industries.  AirNet also provides passenger charter services through its wholly-owned subsidiary, Jetride, Inc.

AirNet operates a fleet of approximately 120 aircraft (including 33 Learjets and 15 Cessna Caravan turboprops) that depart from over 100 cities and complete more than 420 flights per night, primarily Monday through Thursday.   In addition, Jetride, Inc. operates nine Learjets that offer private passenger charter services.  To supplement its air transportation network, AirNet uses commercial airlines during daytime and weekend hours when its aircraft are operating under a limited flight schedule.  Approximately 70% of AirNet’s shipments are carried on AirNet’s own air transportation network.

In addition to regularly scheduled cargo services, AirNet offers on-demand cargo charter delivery services 24 hours per day, seven days a week.  AirNet provides ground pick-up and delivery services throughout the nation seven days per week, using a combination of company personnel and a network of approximately 450 vendors and independent contractors.

AirNet’s integrated air and ground network provides dependable, time-critical delivery services to its customers.  Later pick-up and earlier delivery times than those offered by other national carriers is one of the primary differentiating characteristics of AirNet’s time-critical delivery network.  AirNet’s flight schedule is designed to provide delivery times between midnight and 8:00 a.m., providing earlier delivery times than those available through other national carriers.  AirNet uses a number of proprietary customer service and management information systems to track, sort, dispatch and control the flow of packages throughout AirNet’s delivery system.  AirNet provides customer service 24 hours per day, seven days a week to handle any inquiries, discrepancies or supply requests, as well as to provide proof of delivery documentation, all of which are value-added features of AirNet’s service.

AirNet Systems, Inc. was incorporated as a C-corporation under the laws of the State of Ohio on February 15, 1996.  AirNet’s principal executive offices are located at 3939 International Gateway, Columbus, Ohio 43219, and can be reached at (614) 237-9777.  AirNet’s Internet web site address is www.airnet.com (this uniform resource locator (URL) is an inactive textual reference only and is not intended to incorporate AirNet’s website into this Annual Report on Form 10-K).

AirNet makes available free of charge on or through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after AirNet electronically files such material with, or furnishes it to, the Securities and Exchange Commission (the “SEC”).

Delivery Services

Bank services

Bank services, which generate approximately 69% of AirNet’s revenues, primarily consist of cancelled check delivery.  AirNet’s time-critical cancelled check delivery service allows its banking customers to reduce their float costs and related processing fees.  AirNet also transports items, such as proof of delivery reports and interoffice mail, for many of the same bank customers.  AirNet has historically priced its Bank services based on the tier of service, and by the pound, on a customer-by-customer basis.  The U.S. banking industry, including commercial banks, savings banks and Federal Reserve banks, represents AirNet’s largest category of customers. AirNet’s bank customers represent over 100 of the nation’s largest bank holding companies.

Express services

Express services, which generate approximately 25% of AirNet’s revenues, focus on customers with time-critical delivery needs.  Express services are primarily targeted at customers involved in the medical, critical parts and entertainment industries.  In the medical industry, Express services are offered to customers shipping packages that require specialized handling, the transportation of which is often highly regulated by varying governmental authorities.  Targeted markets within the medical industry include producers and recipients of radioactive pharmaceuticals, diagnostic specimens, blood, umbilical cord blood, human tissue and organs.

Express services are also marketed to customers whose shipment needs are highly time sensitive or time definite, including just-in-time manufacturers, critical parts suppliers and customers involved in the media and entertainment industries.

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For those customers requiring time-critical delivery options not available on AirNet’s regularly scheduled routes, on-demand cargo charter services are available 24 hours per day, seven days a week.  On-demand charters may be scheduled in advance or on an as-needed basis.

Passenger Charter Services

Jetride, Inc., a wholly-owned subsidiary of AirNet, provides private passenger charter services that offer customers a safe, fast, and convenient way to travel.  Jetride’s private passenger charter service is available 24 hours a day, 7 days a week primarily within the continental United States and neighboring countries.   Jetride provides charter services arranged through third-party charter brokers and, to a lesser extent, to retail customers.  Jetride operates its nine passenger Learjets from various locations across the country.  All passenger Learjets have been configured to comfortably carry seven or eight passengers.  All passenger charter pilots are Airline Transport Pilot rated – the highest Federal Aviation Administration (“FAA”) rating possible.  Jetride, Inc. is certified by both the Wyvern Network of Charter Operators and the Aviation Research Group/US, industry leaders in aviation rating.  Jetride anticipates adding additional Learjets to its passenger fleet during 2004 as it continues to expand its passenger charter services.

Aviation Services

AirNet operates a fixed base operation from AirNet’s Columbus, Ohio facility, offering retail aviation fuel sales and related ground support services.

Business Strategy

AirNet believes that its Bank services revenue will decline in future periods as a result of the continuing evolution of electronic alternatives to the physical movement of cancelled checks.   In October 2003, the Check 21 Act was signed into law.  When it becomes effective in October of 2004, the Check 21 Act will require that all financial institutions accept either the physical cancelled check, or an image replacement document in lieu of a physical cancelled check.  AirNet believes that this may accelerate the transition in the banking industry to the electronic clearing of cancelled checks.

In response to these changes in the banking industry, AirNet has been pursuing a multi-year strategy to transition and diversify AirNet by pursuing growth opportunities for its Express and Passenger Charter services.  During this transition period, AirNet continues to respond to the changing needs of its bank customers.  AirNet intends to focus on expanding its Express services to customers in time-critical markets, and time-definite delivery markets, such as medical, radioactive pharmaceutical, on-demand cargo charters and those that benefit most from just-in-time inventories.  AirNet’s air transportation network offers customers in these industries competitive advantages through delivery speed, customer service, and custody and control throughout the delivery service.  AirNet believes its flexible and reliable air transportation network and demonstrated expertise in providing time-critical deliveries to the banking industry for over 29 years positions it to provide these services to the Express market.

AirNet is also adapting to changes in the banking industry by reconfiguring its operational structure and associated costs to align with the expected volume and revenue changes.  AirNet continues to refine its pricing model for bank customers by introducing pricing models that contain both fixed fee and volume-based components.

AirNet continues to invest in additional aircraft to expand its passenger charter operations.  AirNet believes that demand for private charter services will continue to grow as commercial airlines continue to tighten schedules and require longer boarding times due to security concerns.

The diversification of AirNet’s business will likely require significant changes in its air transportation network, a greater investment in sales and marketing during the transition, and investment in additional service capabilities and technologies to serve a more diverse customer group.

Fast Forward Solutions

Fast Forward Solutions, LLC, a wholly-owned subsidiary of AirNet, was formed to explore growth opportunities associated with existing and emerging image replacement platforms and technologies. Fast Forward Solutions and NetDeposit, Inc., a developer of electronic check processing technologies, have signed a term sheet regarding their intent to finalize an agreement to provide a standard image replacement document check processing solution to the banking industry.  While negotiations with NetDeposit, Inc. are continuing as of March 30, 2004, no agreement had been entered into between Fast Forward Solutions and NetDeposit, Inc. and there can be no assurances that such an agreement will be finalized.

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Operations

Air operations

AirNet’s air operations are headquartered in Columbus, Ohio.  AirNet utilizes an extensive screening process to evaluate potential pilots prior to hiring. These pilots meet stringent company qualifications, as well as all required FAA requirements.  All new pilots must satisfactorily complete a five-week training program conducted by AirNet’s flight training staff prior to assignment of pilot duties.  This training program includes flight simulator training prior to any actual flight time in an aircraft, as well as intensive ground instruction.  Additionally, new pilots gain operating experience in a structured setting prior to assignment in order to gain a familiarity with AirNet’s route system and the unique demands of the flight environment.  In addition to FAA requirements, pilots providing Passenger Charter services for Jetride, Inc. must also meet additional in-flight experience requirements specifically related to the types of Learjets operated by Jetride.

AirNet’s central dispatch system ties together all components of the air operation. Departure and arrival times are continuously updated, and weather conditions throughout the nation are constantly monitored. AirNet dispatchers remain in constant contact with pilots, out-based hub managers, fuelers, maintenance technicians and ground delivery personnel to identify and minimize any potential delays in the delivery process.  AirNet also uses commercial airlines, primarily to transport shipments during the daytime and weekend hours when its aircraft are operating under a limited flight schedule.

Capacity management is an important factor in achieving profitable growth of AirNet’s package delivery services.  AirNet’s air transportation network is positioned around a flexible national route structure designed to facilitate late pick-up and early delivery times, minimize delays and simplify flight scheduling.  AirNet’s flexible route structure allows it to respond to the changing volume needs of its customers or to take advantage of emerging opportunities in its Express services business.  AirNet’s primary hub in Columbus, Ohio, and several mini-hubs across the nation, are located primarily in less congested regional airports. These locations, in conjunction with AirNet’s off-peak departure and arrival times, provide easy take-off and landings, convenient loading and unloading, and fast refueling and maintenance.

AirNet employs approximately 80 aircraft and avionics technicians in eight separate locations across the country performing all levels of maintenance on AirNet’s fleet of aircraft.  AirNet has an in-house engine shop at the Columbus facility where some of the piston engines are overhauled on-site, thereby reducing aircraft downtime and controlling costs.  AirNet also performs avionics troubleshooting and repair at the Columbus facility to provide for maximum efficiency and minimum aircraft downtime for the fleet.  AirNet’s aircraft maintenance center at its Columbus hub recently received ISO 9001:2000 certification.

Shipment  processing

Bank shipments are pre-sorted by bank personnel and packaged in AirNet-supplied bags color-coded to easily identify the final destination.  Express shipments are packaged in either AirNet-provided packaging or the customers’ packaging.  Shipments transported on AirNet’s air transportation network are typically picked up by a courier and transported to the local airport where the airbill is either scanned using bar code technology or entered manually.  Information on each airbill pertaining to the shipper, receiver, airbill number and applicable deadline is captured and downloaded into AirNet’s computer system, where it is available to AirNet’s customer service representatives (“CSRs”).  Upon arrival at AirNet’s Columbus hub or one of its mini-hubs, the shipment is off-loaded, sorted by destination and reloaded onto an aircraft.  At the destination city, the shipment is off-loaded for the final time and delivered by courier to the receiver.  When delivered, information from the airbill is once again captured and downloaded into AirNet’s computer system. Delivery information for all shipments is then available on-line to the customers and AirNet’s CSRs.

For banking customers meeting daytime banking deadlines and Express customers requiring next-flight-out timing, shipments are typically picked up by a courier and transported via commercial airlines or other integrators to destination cities where couriers accept the packages and deliver them to their final destinations.

Ground support

AirNet manages its ground delivery services through the combined use of employees and a network of approximately 450 independent contractors and vendor couriers.  Independent contractors and vendors perform the majority of ground delivery services, allowing AirNet to better match its ground costs with its volume requirements.  In some situations, employees are used for ground delivery services on scheduled routes where volume requirements economically justify employing full-time couriers.  Dispatching functions related to ground delivery services occur at both the Columbus, Ohio hub and on a regional basis in some of the major cities served.

Mercury Business Services

On August 11, 2003, AirNet sold the assets of its Mercury Business Services division to Mercury Business Services, Inc., a Delaware corporation owned by a group that includes the original owners of the Mercury business.  AirNet had acquired Mercury Business Services in August of 1998.

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Regulation

AirNet holds an air carrier certificate granted by the FAA pursuant to Part 135 of the Federal Aviation Regulations. In addition, Jetride, Inc. holds its own air carrier certificate granted by the FAA pursuant to Part 135.  These certificates are of unlimited duration and remain in effect so long as AirNet and Jetride maintain their standards of safety and meet the operational requirements of the Federal Aviation Regulations.  The FAA’s regulatory authority relates primarily to operational aspects of air transportation, including aircraft standards and maintenance, personnel, and ground facilities.

The U. S. Department of Transportation (“DOT”) and Transportation Security Administration (“TSA”) have regulatory authority concerning operational and security concerns in transportation, respectively, including safety, insurance and hazardous materials.  AirNet holds various operational certificates issued by these agencies, including party status to DOT E-7060, which permits AirNet to transport higher volumes of time-critical radioactive pharmaceuticals than is allowed by the DOT for most carriers.  Party status to DOT E-7060 is renewed every two years, with AirNet’s renewal due November 2004.

AirNet is also subject to Food and Drug Administration regulation of its transportation of pharmaceuticals.

In addition to federal regulations, AirNet’s operations are subject to various state and local regulations, and in many instances, require permits and licenses from state authorities.

AirNet believes that both AirNet and Jetride have all permits, approvals and licenses required to conduct their respective operations and that they are  in compliance with applicable regulatory requirements relating to their operations including all applicable noise level regulations.  Current noise level regulations require that AirNet modify its 3 Model 25 Learjets prior to the end of 2004. AirNet intends to retire the Learjet 25’s prior to the end of 2004.  AirNet is working proactively with various local governments to minimize noise issues; however, future noise pollution regulations could require the modification or replacement of other AirNet aircraft.

Seasonality

See “Item 7:  Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Seasonality and Variability in Quarterly Results” of this Annual Report on Form 10-K for a discussion of the seasonal aspects of AirNet’s business.

Competition

The air and ground courier industry is highly competitive.  AirNet’s primary competitor in the transportation of cancelled checks is the Federal Reserve’s Check Relay Network. The actions of the Federal Reserve are regulated by the Monetary Control Act, which requires the Federal Reserve to price its services at actual cost plus a set percentage private sector adjustment factor. AirNet believes that the purpose of the Monetary Control Act is to curtail the possibility of predatory pricing by the Federal Reserve when it competes with the private sector. No assurance beyond the remedies of law can be given that the Federal Reserve will comply with the Monetary Control Act.

In the private sector, there are a large number of smaller, regional carriers that transport cancelled checks, none of which AirNet believes have significant interstate market share. The two largest private sector air couriers, FedEx and United Parcel Service (“UPS”), both carry cancelled checks where the deadlines being pursued fit into their existing system.  AirNet does not believe that FedEx or UPS represent significant competitors in the time-critical cancelled check market to date.  AirNet provides customized service for its customer base, often with later pick-ups and earlier deliveries than the large, national couriers provide.

AirNet competes with commercial airlines and numerous other carriers in its Express delivery business.  AirNet estimates its market share in this industry at less than 1%.  AirNet believes that this market represents a significant expansion opportunity for ultra time-critical shipments requiring later pick-ups or earlier deliveries than are typically provided by major integrators and freight forwarders.  AirNet believes that it is in an excellent position to leverage the use of its national air network system, AirNet’s proprietary information technology and its historically high on-time performance level to compete in this market.

In the passenger charter business, AirNet competes with other owner/operators and charter brokers of small business jets.  AirNet believes its nationwide network of maintenance and related support facilities provides added flexibility in deploying and servicing the passenger charter aircraft fleet to meet customer demands.

Environmental matters

AirNet intends to commence construction of a new corporate and operational headquarters on land leased from the Columbus Regional Port Authority in 2004.  Portions of the leased land, as well as portions of the aircraft ramp, on which AirNet intends to conduct a significant portion of its Columbus operations, contain known pollution conditions.  The

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appropriate amended post closure plan and no further action letters addressing these sites are to be supplied to AirNet by the Columbus Regional Port Authority prior to beginning construction.  AirNet has received the applicable no further action letters.  Identification of additional pollution conditions on the leased land or attached ramp or the inability of the Columbus Regional Port Authority to provide the approved amended post closure plan could increase costs and have an adverse affect on AirNet’s ability to construct the Rickenbacker facility.

AirNet believes that compliance with applicable laws and regulations governing environmental matters have not had, and are not expected to have, a material effect on AirNet’s capital expenditures, operations or competitive position.

Employees

As of December 31, 2003, AirNet employed 895 persons, which includes approximately 225 pilots.  AirNet’s employees are not represented by any union or covered by any collective bargaining agreement.  AirNet has experienced no work stoppages and believes that its relationship with employees is good.

ITEM 2 - PROPERTIES

Operating facilities

AirNet owns its corporate and operational headquarters at 3939 International Gateway in Columbus, Ohio (the “Port Columbus Facility”).  The Port Columbus Facility has 80,000 square feet and sits on land owned by the Columbus Regional Airport Authority (the “Authority”).  AirNet has a 25-year land lease with the Authority, which expires on December 31, 2009 and contains a 20-year renewal option.  AirNet’s headquarters is currently used for operations, training, aircraft maintenance, vehicle maintenance and general and administrative functions.

AirNet leases additional space at 555 Morrison Avenue in Gahanna, Ohio.  The space is used for administrative support personnel.

On January 20, 2004, AirNet entered into a Land Lease with the Authority to lease approximately 8 acres located within the Rickenbacker International Airport (“Rickenbacker”).  Rickenbacker is located in Franklin and Pickaway Counties, Ohio, southeast of Columbus, Ohio, approximately fifteen miles from its current Port Columbus Facility.  AirNet intends to construct a new corporate and operational headquarters at the Rickenbacker site (the “Rickenbacker Facility”).  Construction of the Rickenbacker Facility is anticipated to be completed in the summer of 2005. Upon completion of the Rickenbacker Facility, AirNet’s current corporate and operational functions that are conducted at the Port Columbus Facility, and the administrative functions being conducted at 555 Morrison Avenue, will be consolidated at the new Rickenbacker Facility.

In anticipation of the AirNet’s move to its new Rickenbacker Facility, on January 20, 2004, AirNet entered into an agreement to sell its Port Columbus Facility to the Authority for $3,850,000.  AirNet has retained the right to continue to occupy the Port Columbus Facility until construction and relocation to the new Rickenbacker Facility is complete.

AirNet operates at approximately 40 additional locations throughout the country. These locations, which are leased from unrelated third parties, generally include office space and/or a section of the lessor’s hangar or ramp.

Fleet

Cargo aircraft

The following table shows information about AirNet’s cargo aircraft fleet as of December 31, 2003:

Aircraft Type	Owned	Leased	Payload (1)	Range (2)	Speed (3)
Learjets, Model 35/35A	30		3,800	1,700	440
Learjets, Model 25	3		3,000	1,000	440
Cessna Caravans	8	7	3,400	825	170
Piper Navajo	18		1,500	800	170
Beech Baron	40		1,000	800	170
Cessna 310	16		900	800	170
Total	115	7

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(1)Maximum payload in pounds for a one-hour flight plus required fuel reserves.

(2)Maximum range in nautical miles, assuming zero wind, full fuel and maximum payload.

(3)Maximum speed in knots, assuming maximum payload

An inventory of spare engines and parts is maintained for each aircraft type.

The Learjet 35 is among the fastest, most reliable and most fuel-efficient small jet aircraft available in the world and meets all Stage Three noise requirements currently being implemented across the country.  The Learjet 25 is a smaller jet aircraft with slightly smaller payload and range capabilities.  The Learjet 25 is not Stage Three compliant and will be phased out of scheduled operations in 2004.

The Cessna Caravan Super Cargomaster aircraft is a turbo-prop aircraft.

The Piper Navajo, Beech Baron and Cessna 310 are twin-engine piston aircraft.

Passenger charter aircraft

The following table shows information about AirNet’s passenger charter aircraft fleet as of December 31, 2003:

Aircraft Type	Owned	Leased or Managed	Seating (1)	Range (2)	Speed (3)
Learjets, Model 35A(4)	4	1	8	1,700	440
Learjets, Model 60 (4)	2	2	8	2,300	440
Total	6	3

(1)Maximum number of passengers

(2)Maximum range in nautical miles, assuming zero wind, full fuel and full payload.

(3)Maximum speed in knots, assuming full payload

(4)Includes one model 35A and one model 60 aircraft operated under a management agreement

An inventory of parts is maintained for each type of Learjet.

The Learjet 60 is a midsize business jet with transcontinental range and meets all Stage Three noise requirements.

Vehicles

AirNet operates a fleet of approximately 90 ground transportation vehicles.   Vehicles range in size from passenger cars to full sized vans.  AirNet also rents lightweight trucks for certain weekend ground routes.  In 2001, AirNet entered into a leasing agreement with a third party provider and began replacing owned vehicles with leased vehicles, as replacement became necessary.  AirNet leased 62 vehicles as of December 31, 2003.

ITEM 3 - LEGAL PROCEEDINGS

There are no pending legal proceedings involving AirNet other than routine litigation incidental to its business. In the opinion of AirNet’s management, these proceedings should not, individually or in the aggregate, have a material adverse effect on AirNet’s results of operations or financial condition.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

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Executive Officers of the Registrant

The following table identifies the executive officers of AirNet as of March 29, 2004.  The executive officers serve at the pleasure of the Board of Directors and in the case of Messrs. Biggerstaff and Harris pursuant to employment agreements.

Name	Age	Positions
Joel E. Biggerstaff	47	Chairman of the Board, Chief Executive Officer, and President
Gary W. Qualmann	52	Chief Financial Officer, Treasurer and Secretary
Larry M. Glasscock, Jr.	47	Senior Vice President, Express Services
Jeffery B. Harris	44	Senior Vice President, Bank Services
Craig A. Leach	47	Vice President, Information Systems
Stephen K. Lister	44	Vice President, Aviation Services
Wynn D. Peterson	40	Vice President, Corporate Development
Michael J. Snyder	48	Vice President, Airline Operations
Kendall W. Wright	56	Vice President, Operations

Joel E. Biggerstaff has served as AirNet’s Chairman of the Board since August 2001, Chief Executive Officer since April 2000, and  President since August 1999.  He also served as AirNet’s Chief Operating Officer from August 1999 to February 2004.  He has also served as director of AirNet since May 2000.  Prior to joining AirNet, Mr. Biggerstaff served as President of the Southern Region of Corporate Express Delivery Systems, a national expedited distribution service, from February 1998 through July 1999.  From September 1996 through February 1998, Mr. Biggerstaff provided transportation consulting services and prior to September 1996, he held various positions, including regional vice president and general manager, with Ryder Systems, Inc., a company providing transportation and supply-chain management solutions.

Gary W. Qualmann has served AirNet as the Chief Financial Officer, Treasurer and Secretary since September 1, 2003.  Prior to joining AirNet, Mr. Qualmann served as chief financial officer and treasurer of Metatec,Inc., a manufacturer and distributor of electronic media which filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code on October 17, 2003, from February 2002 through August 2003. Mr. Qualmann provided financial consulting services to the Metatec from October, 2001 through February 2002. From March 1996 until June 2001, Mr. Qualmann was chief financial officer, treasurer, secretary and director of MindLeaders.com, Inc., an e-learning company based in Columbus, Ohio. From May 1988 until July 1995, Mr. Qualmann served as executive vice president and chief financial officer of Red Roof Inns, Inc., a lodging company based in Hilliard, Ohio.

Larry M. Glasscock, Jr. joined AirNet as Senior Vice President - Express Services in February, 2003.  From February 2002 through February 2003, Mr. Glasscock served as senior vice president of Evercom Systems, Inc. a national provider of telecom services.  From April 2001 through February 2002, Mr. Glasscock served as executive vice president of NextJet Technologies, a software and technology solutions organization.  Mr. Glasscock served as chief executive officer of Expedited Delivery Systems, Inc., a time-definite trucking concern from August 1999 to September 2000 and as its president and chief operating officer from January 1998 through August 1999.

Jeffery B. Harris has served AirNet as Senior Vice President, Bank Services since May 2000.  Mr. Harris joined AirNet in June 1996 as the relationship manager for Banking Sales and was appointed vice president, Sales in the banking division in October 1997.

Craig A. Leach has served as Vice President, Information Systems since January 2000.  Mr. Leach established AirNet’s Information Systems Department in 1985 and was named director of Information Systems in 1996.

Stephen K. Lister was appointed Vice President, Aviation services January 2004.  Prior to that Mr. Lister was vice president, Airline Operations since February 2001.  Mr. Lister has served AirNet in a variety of capacities since 1982.

Wynn D. Peterson currently serves as Vice President, Strategic Planning and Analysis.  Mr. Peterson has served as an officer of the company since February, 2000 when he was named Vice President of Corporate Development.  Mr. Peterson joined AirNet in 1997 as manager of Corporate Development.  Prior to joining AirNet, Mr. Peterson managed equity and fixed income portfolios from 1993 until 1997 at Desert Mutual in Salt Lake City, Utah.  From 1988 until 1993, Mr. Peterson held various management positions in Finance, Corporate Development and Strategic Planning at AMR Corporation, the parent company of American Airlines, Inc., in Dallas, Texas.

Michael J. Snyder has served as Vice President of Airline Operations since February 2004.  Prior to joining AirNet, Mr. Snyder consulted on various aviation and logistics projects since November 2001.  From May through November 2001 he served as president and chief executive officer of Polar Air Cargo, a global express air freight company.  From June 2000 through May 2001, Mr. Snyder was president and chief executive officer of TrafficStation, a leading traffic technology service.  From June 1999 through May 2000, Mr. Snyder served as senior vice president of Operations and Marketing at Smartship and from April 1998 though November 1999 served as president of the Western and Midwestern regions of

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Corporate Express Delivery Systems.  From October 1996 though April 1998, Mr. Snyder served as a vice president at FedEx Corporation, where he had also held various other position with increasing responsibility since 1981.

Kendall W. Wright has served as Vice President, Operations since 2001.  He served as Vice President, Sales from 1988 through 2000.

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common shares of AirNet Systems, Inc. trade on the New York Stock Exchange under the symbol “ANS”.  The table below sets forth the high and low sales prices of the common shares reported for the periods indicated.

	2003				2002
Quarter ended	High		Low		High		Low
March 31	$	5.35	$	2.20	$	11.05	$	7.50
June 30	4.47		2.05		10.45		7.50
September 30	5.18		3.80		8.92		4.38
December 31	4.16		3.23		6.13		4.05

AirNet has not paid any dividends on its common shares and does not intend to pay any dividends in the foreseeable future.  AirNet anticipates using future earnings to finance operations and future growth and development.

The payment of any future dividends on common shares will be determined by the AirNet Board of Directors in light of conditions then existing, including earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors.

On March 29, 2004, there were approximately 2,000 holders of AirNet common shares, based upon the number of holders of record and the number of individual participants in certain security position listings.

AirNet did not purchase any common shares during the fourth quarter of the fiscal year.  On February 18, 2000, AirNet announced a stock repurchase plan under which up to $3.0 million of AirNet common shares may be repurchased from time to time.  These repurchases may be made in open market transactions or through privately negotiated transactions.  As of December 31, 2003, AirNet had the authority to still repurchase approximately $0.6 million of AirNet common shares under this stock repurchase plan.

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ITEM 6 - SELECTED FINANCIAL DATA

Statement of Operations Data

(in thousands, except per share data)

	Years Ended December 31,
	2003			2002			2001			2000		1999
Net Revenues
Bank services	$	103,399		$	102,626		$	106,716		$	102,611	$	99,020
Express services	36,963			33,958			26,252			26,272		21,768
Passenger charter services	7,599			4,316			737			—		—
Aviation services	1,261			1,044			1,499			751		975
Total net revenues	149,222			141,944			135,204			129,634		121,763
Total costs and expenses	142,991			134,236			121,313		(1)	115,800		108,667
Income from operations	6,231			7,708			13,891			13,834		13,096
Impairment on investment (Note 2)	—			—			1,744			—		—
Interest expense	1,340			1,649			1,668			2,283		2,477
Income from continuing operations before income taxes	4,891			6,059			10,479			11,551		10,619
Income tax expense, net	2,103			2,429			5,035			4,690		4,322
Income from continuing operations before cumulative effect of accounting change	2,788			3,630			5,444			6,861		6,297
Income (Loss) from discontinued operations, net of taxes (Note 3)	(8		)	(259		)	(251		)	394		(25		)
Cumulative effect of accounting change, net of tax (Note 4)	—			(1,868		)	—			—		(2,488		)
Net income	$	2,780		$	1,503		$	5,193		$	7,255	$	3,784
Income per common share - basic and diluted
Continuing operations	$	0.28		$	0.36		$	0.51		$	0.62	$	0.55
Discontinued operations	$	—		$	(0.03	)	$	(0.02	)	$	0.04	$	(0.00	)
Cumulative effect of accounting change	$	—		$	(0.18	)	$	—		$	—	$	(0.22	)
Net income	$	0.28		$	0.15		$	0.49		$	0.66	$	0.33

Balance Sheet Data

(in thousands)

Total assets	$	153,273	$	147,324	$	133,079	$	122,533	$	127,281
Total debt	37,776		41,794		28,235		22,719		33,948
Shareholders’ equity	84,280		80,796		78,946		78,845		73,751

Note 12001 includes a $1.0 million non-recurring charge related to the retirement agreement of Gerald G. Mercer (see Note 6 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.)

Note 2Represents 2001 non-recurring charge related to the impairment of Float Control, Inc.’s investment in The Check Exchange System Co. partnership (see Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.)

Note 3In August 2003, AirNet sold the assets of its Mercury Business Services unit, resulting in discontinued operations.

Note 4See Notes 1 and 2 of the Notes to the Consolidated Financial Statements included in Item 8 for discussion of the 2002 charge related to the impairment of goodwill in accordance with the adoption of SFAS No. 142.  In 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP)  No. 98-5, Reporting on the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred.  Prior to July 1, 1998, AirNet Systems, Inc. capitalized start-up costs associated with its premium products line of business.  Effective July 1, 1998, AirNet ceased capitalizing such costs and began amortizing the previously capitalized costs over five years.  The Company adopted the provisions of the SOP in its consolidated financial statements as of January 1, 1999 which resulted in the write-off of unamortized start-up costs at that time.

11

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

General

AirNet’s Bank revenues continue to decline as a result of the continuing evolution of electronic alternatives to the physical movement of cancelled checks and other market forces.   The decline in Bank services requires that AirNet restructure its existing transportation network which was originally established to service its bank customers.  AirNet is taking steps to expand its Express and Passenger Charter services businesses to offset the expected decline in Bank services revenue.  In addition, AirNet is evaluating and adjusting its aircraft mix and fleet size in response to these changing business conditions.  AirNet introduced the Caravan and eliminated the Aerostar from its fleet in recent years and, barring new route requirements, intends to eliminate additional piston aircraft and its Learjet 25’s in 2004.  AirNet is reviewing its ground operations for efficiencies and cost reductions and will continue this review throughout 2004.  The security surcharge and modified fuel surcharge will continue in 2004.  Changes in AirNet’s regional sales and operational structure, increased marketing efforts and adaptation of its fleet to changing market conditions are all critical to achieving AirNet’s goals.

The following management’s discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies of AirNet. This discussion should be read in conjunction with the accompanying audited financial statements, which include additional information about AirNet’s significant accounting policies, practices and the transactions that underlie its financial results.

Results of Operations

Net Revenues

In ‘000’s Net Revenues	2003		2002		2001		$ Increase (Decrease) 2002 to 2003		% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Delivery Services Net Revenues
Bank Services	$	103,399	$	102,626	$	106,716	$	773	1	%	$	(4,090	)	-4	%
Express Services	36,963		33,958		26,252		3,005		9	%	7,706			29	%
Total Delivery Services Revenues	$	140,362	$	136,584	$	132,968	$	3,778	3	%	3,616			3	%
Passenger Charter Services Revenues	7,599		4,316		737		3,283		76	%	3,579			486	%
Aviation Services Revenues	1,261		1,044		1,499		217		21	%	(455		)	-30	%
Total Revenues	$	149,222	$	141,944	$	135,204	$	7,278	5	%	$	6,740		5	%

AirNet has experienced overall net revenue growth each of the last three years.  This can be attributed to several factors including increased Express shipment volume, growth in Passenger Charter services, the implementation of a security surcharge program in August 2002 and, increased revenues from the fuel surcharge program resulting from increased fuel prices and changes to the surcharge program implemented in 2002.

AirNet assesses its customers a fuel surcharge which is based on the Oil Price Index Summary – Columbus, Ohio (OPIS-CMH index).  As index rates increase above a set threshold, surcharge rates increase.  In August 2002, AirNet modified its fuel surcharge program for its bank customers to help offset timing differences between market prices and the OPIS-CHM index used to determine surcharge rates.  In 2001 and through January 2002, AirNet’s Express customers paid a 4% temporary fuel surcharge on most revenues under a separate program.  In February 2002, AirNet rescinded this 4% temporary surcharge on Express services revenues and implemented the program described above based on the OPIS – CMH index.

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Bank Services Revenues

In ‘000’s Bank Services Revenues	2003			2002			2001			$ Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Bank Revenues	$	101,914		$	103,872		$	107,646		$	(1,958	)	-2	%	$	(3,774	)	-4	%
Fuel Surcharge	3,939			1,602			1,939			2,337			146	%	(337		)	-17	%
Federal Excise Tax	(2,454		)	(2,848		)	(2,869		)	394			-14	%	21			-1	%
Total Net Bank Revenues	$	103,399		$	102,626		$	106,716		$	733		1	%	$	(4,090	)	-4	%

Consistent with AirNet’s expectations, Bank revenues (excluding the impact of fuel surcharge and federal excise taxes) continue to decline year over year.  This decline slowed as AirNet continues to focus on additional services for banks beyond cancelled check transportation, such as proof of deposit and interoffice mail delivery services.  From 2002 to 2003 weekday shipment volume decreased 1.3% per flying day and weekend shipment volume per flying day was down by 9.8%.  The decrease in weekly shipment volume was offset by increased fuel surcharges in 2003 as compared to 2002.  Lower check delivery volume as a result of historically low interest rates and the declining use of checks, contributed to the reduction in revenues, as did increased competitive factors from regional carriers and transportation cost reduction initiatives by AirNet’s Bank customers.  AirNet believes that this decline will continue as the Check 21 Act becomes effective in October 2004; however, at this time AirNet is unable to predict the ultimate impact of this Act on future years.

Weekday shipment volume decreased 4.8% from 2001 to 2002.  A portion of the relative lost volume was attributed to additional volume in 2001 that was transported during the days immediately following the September 11, 2001 tragedy, during which AirNet transported checks for several of its bank customers who relied on AirNet for services their normal or secondary vendors could not provide at the time.  The decrease in weekday volume was partially offset by a 17.0% increase in weekend shipment volume, rate increases implemented in January 2002 averaging approximately 2.2% and the implementation of the security surcharge program related to Bank customers in September 2002.

Express Services Revenues

In ‘000’s Express Services Revenues	2003			2002			2001			$ Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Express Revenues - Non  Charter	$	28,035		$	25,100		$	19,635		$	2,935		12	%	$	5,465		28	%
Express Revenues - Charters	9,046			9,534			6,431			(488		)	-5	%	3,103			48	%
Fuel Surcharge	1,007			369			954			638			173	%	(585		)	-61	%
Federal Excise Tax	(1,125		)	(1,045		)	(767		)	(80		)	-8	%	(278		)	-36	%
Total Net Express Revenues	$	36,963		$	33,958		$	26,253		$	3,005		9	%	$	7,705		29	%

AirNet’s Express services  a variety of markets with its time-critical shipping solutions through a combination of AirNet’s scheduled air and ground system, commercial airlines and dedicated charter services.  The 2003 increase in Express revenues is primarily the result of AirNet’s efforts to diversify its revenue base and continue its penetration of the medical market.  Revenues from medical and related companies increased 6.8% in 2003 as AirNet continues to expand its services for transportation of radiopharmaceutical drugs, diagnostic specimens, umbilical cord blood for cryogenic storage and human blood and tissue. AirNet also increased its revenues for services in the media and entertainment market by 13.1% in 2003 compared to 2002; a market  where customers demand a reliable and secure transportation system for the distribution of film screenings and tape distribution. While AirNet experienced a 5% decrease in revenues from dedicated charters from 2002 to 2003, the decrease was offset by growth in the scheduled nightly volume of non-charter shipments, approximately 70% of which are transported via the AirNet air transportation network.

The increase in revenues from 2001 to 2002 was primarily due to increased shipment volume due to increased market penetration in select markets such as medical, as well as a 5% rate increase to most customers in February 2002 and an increase in security surcharge in August 2002.

13

Passenger Charter Services Revenues

In ‘000’s Passenger Charter Revenues	2003		2002		2001		Increase (Decrease) 2002 to 2003		% Increase (Decrease) 2002 to 2003		Increase (Decrease) 2001 to 2002		% Increase (Decrease) 2001 to 2002
Passenger Charter services revenues	$	7,599	$	4,316	$	737	$	3,283	76	%	$	3,579	486	%
Average annual number of jets	7.2		5.9		2.0		1.3		22	%	3.9		195	%
Average revenues per jet	$	1,055	$	732	$	368	$	324	44	%	$	363	99	%

Passenger Charter services revenues have shown the largest percentage growth for AirNet in recent years.  As AirNet commits additional investment in this area, it expects revenue growth to continue as it widens the distribution of its Passenger Charter aircraft in the United States.  AirNet’s Passenger Charter services allow customers greater control and flexibility in air travel than commercial airlines. AirNet has increased its Passenger Charter fleet from three aircraft at December 31, 2001 to seven at December 31, 2002 and nine at December 31, 2003.  AirNet’s Passenger Charter fleet includes owned aircraft as well as leased and managed aircraft.  AirNet will continue to invest in the Passenger Charter business with the anticipated addition of four aircraft in 2004, all of which are expected to be midsized Learjet 60 aircraft.

Aviation Services Revenues

These revenues primarily relate to the AirNet’s fixed base operation and maintenance services provided in Columbus, Ohio. While these services will continue, no significant future growth is expected.

Operating Expenses and Income from Continuing Operations

In ‘000’s Operating Costs and Expenses	2003		2002		2001		$ Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Wages and benefits	$	25,755	$	24,182	$	19,715	$	1,573		7	%	$	4,467		23	%
Aircraft fuel	19,227		17,582		15,486		1,645			9	%	2,096			14	%
Aircraft maintenance	12,242		12,305		10,961		(63		)	-1	%	1,344			12	%
Contracted air costs	9,929		9,069		10,941		860			9	%	(1,872		)	-17	%
Ground courier	25,698		24,292		23,171		1,406			6	%	1,121			5	%
Depreciation	17,535		17,699		14,668		(164		)	-1	%	3,031			21	%
Insurance, rent and landing fees	9,054		7,352		5,540		1,702			23	%	1,812			33	%
Travel, training and other	7,597		8,325		7,079		(728		)	-9	%	1,246			18	%
Total operating costs and expenses	$	127,037	$	120,806	$	107,561	6,231			5	%	13,245			12	%

The increase in Passenger Charter services from 2002 to 2003 accounted for $2.2 million, or 34%, of the overall increase in operating expenses. The remainder of the increase is primarily due to  increased hours flown and service and support costs associated with the increase in Express shipment volumes.  Flight hours for the cargo fleet increased 10% from 2001 to 2002, but remained flat from 2002 to 2003.

An increase in pilots to support the Passenger Charter operation accounted for 32.9% of the increase in wages and benefits from 2002 to 2003.  Additional customer support center staff to service the increase in Express shipment volume and an increase in health benefits costs resulted in a 10.5% increase in wages and benefits.  The increase from 2001 to 2002 is also attributed primarily to the increase in Passenger Charter pilot staff and Express support staff.

In ‘000’s Aircraft Fuel	2003			2002			2001			$ Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002		% Increase (Decrease) 2001 to 2002
Aircraft Fuel	$	19,227		$	17,582		$	15,486		$	1,645		9	%	$	2,096	14	%
Fuel Surcharge Revenues	(4,946		)	(1,971		)	(1,947		)	2,975			151	%	24		1	%
Net	$	14,281		$	15,611		$	13,539		$	(1,330	)	-9	%	$	2,072	15	%

14

Hours flown	2003	2002	2001	Increase (Decrease) 2002 to 2003	% Increase (Decrease) 2002 to 2003		Increase (Decrease) 2001to 2002	% Increase (Decrease) 2001 to 2002
Hours flown  - Total	103,660	102,079	92,116	1,581	1.5	%	9,963	11	%

Aircraft fuel expense has increased year over year as a result of the increase in the number of hours flown as well as the increase in fuel prices.  The average price per gallon of aircraft fuel has increased 11.5% in 2003 compared to 2002 and decreased 1.5% in 2002 compared to 2001.  Increased operational efficiencies allowed AirNet to reduce fuel burn per hour in 2003 by 7% compared to 2002 and 2001.  AirNet continues to maintain its fuel surcharge program to offset these increases in fuel expense.  The amounts related to the fuel surcharge program are classified as revenue.

While overall hours flown from 2002 to 2003 increased only slightly (1.5%), maintenance expense remained flat as AirNet began to experience the benefits of phasing out the Aerostar aircraft in 2001 and 2002 and replacing them with the more operating efficient Cessna Caravans.  The increase in maintenance expense from 2001 to 2002 was directly related to the increase in flight hours.

Contracted air expense includes costs associated with shipments transported on the commercial airlines and costs to third party air operators for subleased air routes and back-up charter services.  Commercial airline costs decreased 4% from 2002 to 2003 and 10% from 2001 to 2002 as AirNet was able to secure better rates with the commercial carriers it utilizes most often.  Back-up and sublease charter expenses decreased 26% from 2001 to 2002 as AirNet decreased its reliance on outside providers as a result of adding aircraft and pilots.  However, the expense increased 31% from 2002 to 2003 as AirNet, once again, began to experience pilot shortages and elected to outsource more routes.

In ‘000’s Ground Courier Costs	2003		2002		2001		Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Company courier costs	$	8,131	$	9,416	$	10,883	$	(1,285	)	-14	%	$	(1,467	)	-13	%
Contracted courier costs	17,567		14,876		12,288		2,691			18	%	2,588			21	%
Total Ground courier costs	$	25,698	$	24,292	$	23,171	$	1,407		6	%	$	1,121		5	%
Number of bank shipments	3,180		3,298		3,352		(118		)	-4	%	(54		)	-2	%
Number of non-charter express shipments	232		223		187		9			4	%	36			19	%
Number of charter express shipments	5		6		5		(1		)	-17	%	1			20	%

The increase in ground costs can be primarily attributed to the increase in Express services shipment volume.  AirNet continues to shift its ground services from employees to contracted vendors and independent contractors to better align its costs with the more variable Express shipment volumes.  Historically, ground courier cost per shipment levels were lower as most Bank deliveries were scheduled or transportation services were from airport to airport with limited ground services.  The Express services business requires expanded delivery services, generally in a more unscheduled environment with greater fluctuations in day to day shipment volumes.

Depreciation expense In ‘000’s	2003		2002		2001		$ Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Aircraft	$	2,613	$	2,079	$	1,303	$	534		26	%	$	776		60	%
Aircraft Improvements, Engines, Inspections	13,687		14,093		11,688		(406		)	-3	%	2,405			21	%
Other	1,235		1,527		1,677		(292		)	-19	%	(150		)	-9	%
Total Depreciation	$	17,535	$	17,699	$	14,668	$	(164	)	-1	%	$	3,031		21	%

Aircraft depreciation has increased significantly in 2002 and 2003 compared to 2001 as AirNet has added aircraft  and accelerated deprecation related to its Cessna 310’s and Lear 25’s.  AirNet continually reviews the remaining useful life and expected salvage value of its aircraft in connection with its depreciation calculation.  Aircraft and engines are depreciated based on the number of hours flown.  Increased depreciation in 2002 over 2001 is also related to the increased hours flown.  Other depreciation includes depreciation related to building and leasehold improvements, computer hardware and software and vehicles.

15

Insurance, Rent and Landing Fees In ‘000’s	2003		2002		2001		$ Increase (Decrease) 2002 to 2003		% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002		% Increase (Decrease) 2001 to 2002
Insurance	$	3,964	$	3,382	$	2,732	$	582	17	%	$	650	24	%
Rent	3,305		2,468		1,341		837		34	%	1,127		84	%
Ramp, landing and tie down fees	1,785		1,502		1,467		283		19	%	35		2	%
Total insurance, rent and landing fees	$	9,054	$	7,352	$	5,540	$	1,702	23	%	$	1,812	33	%

With the firming of the aviation insurance market after the September 11, 2001 tragedy, AirNet has continued to incur increased insurance costs related to operating the air transportation network. In addition, increases in its fleet size and value have increased the cost of insurance coverage. AirNet expects that the insurance market will remain firm in the near future.

Rent expense increased in 2003 and 2002 mainly due to AirNet leasing additional aircraft for both its delivery services and its Passenger Charter services businesses.

Selling, General and Administrative Costs In ‘000’s	2003		2002		2001		$ Increase (Decrease) 2002 to 2003		% Increase (Decrease) 2002 to 2003		$ Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Total selling, general and administrative costs	$	15,954	$	13,430	$	13,751	$	2,525	19	%	$	(321	)	-2	%
Less:  Severance costs	759		72		975		687		954	%	(903		)	-93	%
Selling, general and administrative, net of severance	$	15,195	$	13,358	$	12,776	$	1,837	14	%	$	582		5	%

AirNet has incurred substantial severance costs due to changes in its management group in 2003 and 2001.  Selling, General and Administrative Costs also increased as a result of several other factors.   AirNet self insures its employee group medical coverage.  Claims have increased significantly year over year with the largest increase in 2003 primarily due to increased prescription drug costs, several high dollar claims, and rising medical costs in general.  AirNet annually reviews its medical insurance costs and continues to work to reduce these costs.  Professional fees increased substantially in 2002 and 2003 related to the expansion of the Passenger Charter business as well as lobbying efforts related to Bank services.  AirNet expects to incur substantial costs in 2004 and 2005 related to ensuring compliance with the Sarbanes-Oxley Act.

AirNet continues to work toward identifying additional cost reduction opportunities and to create more efficiency in its air transportation network.

Impairment Charges

In 2003, AirNet tested its remaining goodwill for impairment in accordance with the requirements of Statement of Financial Accounting Standards (SFAS) No. 142, and found there was no impairment and, therefore, no charge against goodwill was made during 2003.

In 2002, AirNet recorded a $1.9 million, or $0.18 per diluted share, non-cash after-tax charge in accordance with its adoption of SFAS No. 142.  A review of goodwill associated with the 1998 purchase of Mercury Business Services, indicated that the $3.1 million (pre-tax) of remaining goodwill related to this acquisition was impaired as of January 1, 2002, and therefore an impairment charge was recorded in 2002.  Under the transition provisions of SFAS No. 142, this non-cash charge was treated as a cumulative effect of accounting change as of January 1, 2002.

In 2001, AirNet recorded a non-recurring $1.7 million impairment charge on its investment in the Check Exchange Systems Co. (“CHEXS”).  Float Control, Inc., a wholly owned subsidiary of AirNet holds a 19% interest in CHEXS.  Float Control accounts for its investment in CHEXS under the equity method of accounting.  During 2001, CHEXS received notice that one of its customers, who accounted for a significant portion of CHEXS’ revenue, would not renew its contract with CHEXS beyond August 2001.  As a result, the $1.7 million impairment charge on investment was recorded in the second quarter of 2001.  This charge included approximately $0.3 million of goodwill.

16

Interest Expense

In ‘000’s	2003			2002			2001			Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Interest Expense	$	1,340		$	1,649		$	1,668		$	(309	)	-19	%	$	(19	)	-1	%
Average Debt Balances	$	37,775		$	41,794		$	28,238		$	(4,019	)	-10	%	$	13,559		48	%
Average Annual Interest Rate	3.5		%	3.9		%	5.9		%	-0.4		%	-10	%	-10		%	-34	%

Interest expense decreased from 2002 to 2003 due to a reduction in debt and lower interest rates.  Interest expense remained flat from 2001 to 2002 as an increase in debt was offset by significantly lower interest rates.  AirNet plans on investing in its Passenger Charter services business and expects to begin construction of a new corporate and operational headquarters in 2004.  These investments are expected to be financed through debt, which is expected to increase interest costs in 2004.

Income Taxes

In ‘000’s	2003			2002			2001			Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Income from continuing operations before income taxes and cumulative effect of accounting change	$	4,891		$	6,059		$	10,480		$	(1,168	)	-19	%	$	(4,421	)	-42	%
Provision for income taxes	2,103			2,429			5,035			(326		)	-13	%	(2,606		)	-52	%
Effective income tax rate	43.0		%	40.1		%	48.0		%	2.9		%	7	%	-8.0		%	-17	%

AirNet’s effective tax rates, excluding the effect of discontinued operations and cumulative effect of accounting change, were 43.0% for 2003, 40.1% for 2002, and 48.0% for 2001.  The increase in the effective tax rate is primarily due to the impact of permanent differences (expenses which are not deductible for tax purposes) and state franchise taxes based on equity.

Discontinued Operations

On August 11, 2003, AirNet completed the sale of substantially all of the assets of its Mercury Business Services unit to Mercury Business Services, Inc., a Delaware corporation owned by a group that includes the original owners of the Mercury business.

The sales price of the transaction was approximately $1.1 million.  Mercury Business Services, Inc. paid approximately $455,000 of the sales price through the issuance of a ninety day promissory note secured by the assets being sold and guaranteed by each of the shareholders of Mercury Business Services, Inc.  Under the terms of the Asset Purchase Agreement, approximately $536,000 of the purchase price was paid with AirNet common shares owned by the shareholders of Mercury Business Services, Inc., including 56,000 common shares tendered to AirNet prior to closing at $4.30 per share (the closing price of the AirNet shares on the NYSE on July 25, 2003) and 68,494 common shares tendered to AirNet on the closing date at $4.31 per share (the average closing price of the AirNet shares on the NYSE on August 4-6, 2003).  The balance of the sales price was paid in cash.

The Mercury Business Services unit had revenues for the year ended December 31, 2003, which consisted of the seven months prior to the sale, of $5,939,000, as compared to $8,940,000 and $8,572,000 for the full years of 2002 and 2001, respectively.

Pre-tax loss for AirNet’s Mercury Business Services unit for the year ended December 31, 2003, which consisted of the seven months prior to the sale, was $24,000, as compared to a $432,000 pre-tax loss for the full year in 2002 and a pre-tax loss of $483,000 in 2001.

17

Net Income and Earnings Per Share

Based on factors noted above, AirNet is reporting per share information with the related dollar amount and percentage changes noted below.

In ‘000’s	2003				2002			2001			Increase (Decrease) 2002 to 2003			% Increase (Decrease) 2002 to 2003		Increase (Decrease) 2001 to 2002			% Increase (Decrease) 2001 to 2002
Income from continuing operations before cumulative effect of accounting change	$		4,891		$	6,059		$	10,480		$	(1,168	)	-19	%	$	(4,421	)	-42	%
Provision for income taxes	2,103				2,429			5,035			(326		)	-13	%	(2,606		)	-52	%
Income (loss) from discontinued operations	(8			)	(259		)	(251		)	251			97	%	(8		)	-3	%
Cumulative effect of accounting change	0				(1,868		)	0			1,868			100	%	(1,868		)	0	%
Net Income	$	2,780			$	1,503		$	5,194		$	1,277		85	%	$	(3,691	)	-71	%
Number of common shares outstanding:
Basic	10,088				10,141			10,576			(53		)	-1	%	(435		)	-4	%
Diluted	10,089				10,261			10,636			(172		)	-2	%	(375		)	-4	%
Income from continuing operations before cumulative effect of accounting change
Basic and diluted	$	0.28			$	0.36		$	0.51		$	(0.08	)	-23	%	$	(0.15	)	-30	%
Income (loss) per common share from discontinued operations:
Basic and diluted	$	(0.00		)	$	(0.03	)	$	(0.02	)	$	0.03		97	%	$	(0.01	)	5	%
Cumulative effect of accounting change per common share::
Basic and diluted	$	(0.00		)	$	(0.18	)	$	(0.00	)	$	0.18		100	%	$	(0.18	)	100	%
Net Income per common share:
Basic and diluted	$	0.28			$	0.15		$	0.49		$	0.13		87	%	$	(0.34	)	-70	%

Liquidity and Capital Resources

AirNet has historically met its working capital needs with cash flows from operations and borrowing on its credit facilities.  Cash flows from operations were $27.8 million for 2003, $17.7 million for 2002, and $25.9 million for 2001.

The following table sets forth AirNet’s contractual obligations, along with the cash payments due each period (in millions):

	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Contractual Obligations:
Long-term Debt	$	37.8	$	5.3	$	29.3	$	3.2	$	0.0
Operating Leases	2.1		0.9		1.0		0.1		0.1
Other Purchase and Payment Obligations	9.0		7.7		1.3		0.0		0.0
Total Contractual Cash Obligations	$	48.9	$	13.9	$	31.6	$	3.3	$	0.1

AirNet has certain future purchase obligations as to which it has signed contracts.  AirNet has contracted for 27 of its 33 Lear 35 aircraft to be covered under a manufacturer’s Fleet Management Plan (FMP), under which AirNet prepays certain repair and overhaul costs based on a rate per engine hour.  Based upon projected engine hours in 2004, AirNet estimates the cost of the FMP to be approximately $7,000,000.

AirNet anticipates that cash flow from operations and borrowing programs will provide adequate sources of liquidity and capital resources to meet AirNet’s expected long-term needs for the operation of its business, including anticipated capital expenditures.  There were no material capital commitments at December 31, 2003.

Under the terms of Gerald G. Mercer’s retirement agreement, AirNet purchased 818,330 common shares from Mr. Mercer at a total cost of $5.0 million in July 2001.  This privately negotiated transaction was funded through a revolving bank credit

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facility and AirNet intends to hold these common shares in treasury.  Under the terms of the retirement agreement, Mr. Mercer also had the option to sell up to $250,000 of AirNet common shares each quarter at the closing market prices on the last business day of March, June, September and December of 2002 to AirNet.  Mr. Mercer exercised his option and sold 52,410 AirNet common shares to AirNet at a total cost of $249,996 in January 2003.

Also under the terms of his retirement agreement, Mr. Mercer retained his rights to sell his remaining AirNet common shares to private investors at any time in accordance with applicable laws.  On or about December 26, 2002, Mr. Mercer sold an aggregate of 733,200 common shares to seven separate investors in privately negotiated transactions.  On December 24, 2002, he made a gift of 256,800 common shares to Spring Hill Camps, which sold those common shares to three separate investors, one of which also purchased common shares from Mr. Mercer, in privately negotiated transactions.  In connection with and as a condition to the investors’ consummating those transactions, AirNet granted registration rights with respect to the 990,000 common shares collectively purchased by these investors from Mr. Mercer or Spring Hill Camps.  AirNet has filed a registration statement with respect to those common shares under the Securities Act of 1933, as amended, for resale on behalf of the investors.

In February 2000, AirNet announced a stock repurchase program allowing AirNet to purchase up to $3.0 million of its common shares.  During 2000, AirNet purchased $2.4 million in common shares funded by cash flows from operations.  There was no repurchase activity under this program in 2001, 2002 or 2003.  As such, purchases of approximately $0.6 million of AirNet’s common shares may still be made in the open market or through privately negotiated transactions.  Such future purchases would be considered based on availability of funds, current market conditions and the stock price.

Following is a summary of AirNet’s capital expenditures (in millions) for 2001 through 2003 and expected amounts for 2004:

	2004	2003		2002		2001
Aircraft	$27.0-$20.0	$	6.7	$	12.2	$	13.2
Aircraft improvements, engines and inspections	$20.0-$15.0	12.8		15.7		12.5
Increase in prepaid engine costs	$ 4.0-$1.5	3.7		2.3		1.3
Technology, Rickenbacker facility and other	$12.0-$5.0	2.0		0.6		0.4
Total	$63.0-$41.5	$	25.2	$	30.8	$	27.4

Costs of major aircraft inspections, overhauls and engine work are capitalized as incurred and depreciated based on hours flown.  The original cost of airframes less a salvage value is  depreciated based on the straight-line method over the estimated useful life of the aircraft.  Aircraft maintenance costs not meeting AirNet’s capitalization requirements are expensed as incurred.  In 2003, the engines of approximately 27 (24 in 2002, and 20 in 2001) of AirNet’s Learjet 35 aircraft were covered under Fleet Maintenance Plan (FMP), in which AirNet prepays certain repair and overhaul costs.  These prepayments, which totaled approximately $12.7 million at December 31, 2003 (approximately $7.0 million and $4.7 million at December 31, 2002 and 2001, respectively), are classified in fixed assets on the consolidated balance sheet.  Amortization on these prepaid balances does not begin until services have been performed, at which time the prepaid balances are reclassified into depreciable asset categories and depreciated based on hours flown.  AirNet intends to cover all of its Lear 35 jet engines under FMP plans over the next several years as major overhauls on the non-covered engines become due.

Although AirNet has historically financed long-term capital investments through the use of internally generated cash from operations or revolving bank credit facilities, all forms of financing are considered when evaluating the resources committed for capital.  Based upon such consideration, AirNet entered into two five-year term loans in 2002 totaling approximately $3.0 million with fixed interest rates of 5.77%, each secured by an aircraft, and a $3.0 million term loan with a floating interest rate based upon LIBOR, secured by two aircraft.

In December 2003, AirNet financed the $5,300,000 cost of a Learjet 60 for its Passenger Charter services business using its bank credit facility.

In January 2002, AirNet entered into operating leases for four Cessna Caravan 208 aircraft each with a lease term of three years.  In September 2002 the lease terms were extended an additional year.  In January 2002 AirNet also entered into operating leases for two Cessna Caravan 208B aircraft, one with a lease term of 3.5 years and one with a lease term of 4.5 years.

AirNet determined that these operating leases would provide economic benefits favorable to ownership with respect to market values, liquidity and after-tax cash flows. In accordance with accounting principles generally accepted in the United States, AirNet does not record operating leases in its consolidated balance sheet; however, the minimum lease payments

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related to these leases are disclosed in Note 5 of the Notes to Consolidated Financial Statements to the accompanying audited financial statements.

In September 2002, AirNet entered into a  $35 million unsecured revolving credit facility and a five-year $20.0 million unsecured term loan.  The term loan requires quarterly installments of $1.0 million.  The agreement bears interest at AirNet’s option of a fixed rate based upon LIBOR plus a margin determined by its leverage ratio as defined in the agreement, or a floating rate based on the greater of the prime rate and the sum of .5% plus the federal funds rate in effect from time to time.  The new agreement requires the maintenance of certain minimum tangible net worth and cash flow levels, imposes certain limitations on capital expenditures and the sale of assets, and restricts the amount of additional debt.  As of December 31, 2003, there was $6.5 million available under the credit facility. As of March 2004, AirNet is negotiating a new, secured bank revolving credit facility with its existing bank group to increase borrowing availability.  AirNet expects to finalize the new credit facility in April 2004.

Seasonality and Variability in Quarterly Results

AirNet’s operations historically have been somewhat seasonal relative to holidays observed by financial institutions.  When financial institutions are closed on holidays falling on Monday through Thursday, AirNet’s revenue and net income are adversely affected. AirNet’s fiscal quarter ending December 31 is often the most impacted by bank holidays.

Operating results are also affected by the weather.  Winter weather often requires additional costs for de-icing, hangar rental and other aircraft services.  AirNet generally experiences higher maintenance costs during its fiscal quarter ending March 31.

Selected Quarterly Data (unaudited)

The following is a summary of the unaudited quarterly results of operations for the quarterly periods ended (in thousands, except per share data):

	Quarters Ended,
	March 31			June 30			September 30			December 31
2003
Net revenues	$	37,076		$	36,584		$	38,020		$	37,542
Income from continuing operations before income taxes	522			1,123			1,934			1,312
Income(loss) from discontinued operations, net of tax-Note 1	(22		)	39			(25		)	—
Net Income	297			724			1,047			712
Per share – basic and diluted:
Income from continuing operations	$	.03		$	.07		$	.11		$	.07
Income(loss) from discontinued operations	$	.00		$	.00		$	.00		$	.00
Net income per share	$	.03		$	.07		$	.10		$	.07
2002
Net revenues	$	33,475		$	35,417		$	36,943		$	36,109
Income from continuing operations before income taxes and cumulative effect of accounting change	1,963			1,910			2,468			(282		)
Income (loss) from discontinued operations –Note 1	(55		)	(57		)	(65		)	(82		)
Cumulative effect of accounting change – Note 2	(1,868		)	—			—			—
Net income (loss) – Note 2	(725		)	1,108			1,441			(321		)
Per share – basic and diluted:
Income (loss) from continuing operations	$	.12		$	.11		$	.15		$	(.02	)
Cumulative effect of accounting change	$	(.18	)	—			—			—
Net income (loss) – Note 2	$	(.07	)	$	.11		$	.14		$	(.03	)

Note 1 – In August 2003, AirNet sold the assets of its Mercury Business Services unit, resulting in discontinued operations.

Note 2 – AirNet adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets in 2002.  In accordance with the transition provisions of this Statement, AirNet recorded the cumulative effect of the accounting change effective January 1, 2002.

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Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. AirNet maintains a thorough process to review the application of its accounting policies and to evaluate the appropriateness of the estimates; however, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.

The policies and estimates discussed below include the financial statement elements that are either the most judgmental or involve the selection or application of alternative accounting policies, and are material to AirNet’s financial statements. Management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of its Board of Directors and with its independent auditors.

Allowance for Uncollectible Accounts Receivable

Historically, AirNet’s credit losses from bad debts have not fluctuated materially because its credit management processes have been effective. AirNet also recognizes billing adjustments to revenue and accounts receivable for certain discounts, money back service guarantees and billing corrections.

Estimates for credit losses and billing adjustments are regularly updated based on historical experience of bad debts, adjustments processed, current collection trends, and the individual assessment of customers’ credit quality.  Once AirNet considers all these factors, a determination is made as to the need for a bad debt allowance. Allowances for these future adjustments aggregated $0.5 million at December 31, 2003 and $0.9 million at December 31, 2002.  AirNet considers the sensitivity and subjectivity of these estimates to be moderate, as changes in economic conditions and pricing arrangements can significantly affect the estimates used to determine the allowances.

Major Aircraft Maintenance

Costs of major aircraft inspections, overhauls and engine work are capitalized as incurred and depreciated based on hours flown.  The original costs of airframes, less an estimated salvage value, are depreciated based on the straight-line method over the estimated useful life of the aircraft.  Aircraft maintenance costs not meeting AirNet’s capitalization requirements are expensed as incurred.  The engines of approximately 27 of AirNet’s 33 Learjet 35 aircraft are covered under Fleet Management Plan (FMP), in which AirNet prepays certain repair and overhaul costs.  These prepayments, which totaled $12.7 million and $7.0 million at December 31, 2003 and 2002, respectively, are classified in fixed assets on the consolidated balance sheet.  Amortization on these prepaid balances does not begin until services have been performed, at which time the prepaid balances are reclassified into depreciable asset categories and depreciated based on hours flown.  AirNet intends to cover all of its Learjet 35 jet engines under FMP plans over the next several years as major overhauls on the non-covered engines become due.

Property and Equipment

AirNet’s delivery service and passenger charter service businesses are capital intensive. Over 85% of its total assets are invested in flight equipment to serve these markets. AirNet capitalizes only those costs that meet the definition of capital assets under accounting standards.

The depreciation or amortization of AirNet’s capital assets over their estimated useful lives, and the determination of any salvage values, requires management to make judgments about future events. Because AirNet utilizes many of its capital assets over relatively long periods, management periodically evaluates whether adjustments to estimated lives or salvage values are necessary. The accuracy of these estimates affects the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Historically, gains and losses on operating equipment have not been material. However, such amounts may differ materially in the future based on technological obsolescence, accident frequency, regulatory requirements, and other factors beyond AirNet’s control.

AirNet must project aircraft requirements multiple years in advance based on expected volume levels.  As a result, AirNet has risk that capacity may exceed demand and that an impairment of its assets may occur. The accounting test for whether an asset held for use is impaired involves first comparing the carrying value of the asset with its estimated future undiscounted cash flows. If the cash flows do not exceed the carrying value, the asset must be adjusted to its current fair value. Because the cash flows of AirNet’s transportation network cannot be identified to individual assets, and based on the ongoing profitability of its operations, AirNet has not experienced any significant impairment of assets to be held and used. However, from time to time AirNet makes decisions to remove certain long-lived assets from service based on projections of capacity needs, and those decisions may result in a loss being recognized.

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Stock-Based Compensation

AirNet accounts for stock options under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, which does not require compensation costs related to stock options to be recorded in net income, as all options granted under its stock option plan had an exercise price equal to the market value of the underlying common shares at grant date. SFAS No. 148. “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No. 123,” provides guidance on acceptable approaches to the implementation of SFAS No. 123, and requires more prominent disclosures of pro forma net earnings and earnings per share determined as if the fair value method of accounting for stock options had been applied in measuring compensation cost. Stock options are further detailed in the Notes to AirNet’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Self-Insurance Accruals

AirNet is self-insured up to certain limits for costs associated with workers’ compensation claims and benefits paid under employee health care programs. At December 31, 2003, AirNet had total self-insurance accruals reflected in its consolidated balance sheet of approximately $1.3 million ($1.2 million at December 31, 2002).

The measurement of these costs requires the consideration of historical loss experience and judgments about the present and expected levels of cost per claim.  AirNet accounts for these costs primarily through measurement of claims outstanding and projected payments.  AirNet believes its recorded obligations for these expenses are consistently measured on an appropriate basis; however, changes in health costs, loss development factors, accident frequency and severity, and other factors can materially affect the estimates for these liabilities.

Incentive Compensation Plans

AirNet maintains a company-wide incentive compensation plan with payouts tied to the achievement of quarterly company earnings goals and personal/departmental goals.  Bonuses are calculated as a percent of base pay, depending on participation levels, which vary between management and staff levels.

Costs related to the company earnings portion of the plan are accrued based on actual quarterly results.  At December 31, 2003 and December 31, 2002, no accrual existed for this portion of the plan, as the quarterly targets were not met.

AirNet accrues for costs related to the personal/departmental goals portion of the plan based on estimated achievement rates of set goals applied to individuals’ base pay rates.  Payouts may be made quarterly or annually, depending on the nature of the goals.  At December 31, 2003 and 2002, a $0.6 million accrual was recorded for the personal/departmental goals portion of the plan.

Income Taxes

AirNet accounts for income taxes under the liability method pursuant to SFAS No. 109, Accounting for Income Taxes.  Under the liability method, deferred tax liabilities and assets are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Impairment of Goodwill and Other Intangibles

Accounting standards adopted in 2002 required that AirNet cease all goodwill amortization and review intangibles, including goodwill, for impairment on an annual basis. As previously indicated, the adoption of these new rules resulted in a transition impairment of its recorded goodwill of $3.1 million ($1.9 million net of related deferred tax asset) in 2002. AirNet has elected to test for goodwill impairment at the beginning of the fourth quarter of each year.  The annual evaluation of goodwill impairment requires the use of estimates about the future cash flows to determine estimated fair value. Changes in forecasted results and changes in discount rates can materially affect these estimates. However, once an impairment of goodwill has been recorded, it cannot be reversed.   AirNet cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill that totaled $4,018,000 at December 31, 2003.  Such events could include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment and market factors on AirNet’s customer base, or a material negative change in its relationship with its significant customers.

Forward-looking statements

The information included or incorporated by reference in this Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including those identified by the words “believe,” “anticipate,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” and similar expressions.  These forward-looking statements reflect management’s

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expectations and are based upon currently available data; however, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in these statements.  The following factors, in addition to those included in the disclosure under the heading “Risk Factors” below, could cause actual results to differ materially from those expressed in forward looking statements:

•potential regulatory changes by the Federal Aviation Administration, which could increase the regulation of AirNet’s business, or the Federal Reserve, which could change the competitive environment of transporting canceled checks;

•disruptions to operations due to adverse weather conditions and air traffic control-related constraints;

•potential declines in the values of aircraft in AirNet’s fleet and any related asset impairment charges;

•the ability to successfully market the passenger charter business in light of global changes in the commercial airline industry;

•potential changes in locally and federally mandated security requirements;

•increases in aviation fuel costs not fully offset by AirNet’s fuel surcharge program;

•potential cost overruns associated with the construction of a new facility ;

•changes in check processing and shipment patterns of bank customers;

•acts of war and terrorist activities;

•the impact of  prolonged weakness in the U. S. economy on time-critical shipment volumes;

•the acceptance of AirNet’s time-critical service offerings within targeted Express markets;

•technological advances and increases in the use of electronic funds transfers; and

•other economic, competitive and domestic and foreign governmental factors affecting AirNet’s markets, prices and other facets of its operations.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements.  AirNet assumes no obligation or duty to update any of the forward-looking statements included or incorporated by reference in this Annual Report on Form 10-K except to the extent required by law.

Risk Factors

Competition from other providers of express air and ground delivery services may adversely affect AirNet’s results of operations and financial condition.

AirNet’s Bank services competes primarily against the Federal Reserve’s Check Relay Network, which has significantly greater financial and other resources than AirNet.  The Federal Reserve is regulated by the Monetary Control Act of 1980, which in general requires that the Federal Reserve price its services on an actual cost basis plus a set percentage private sector market adjustment factor.  Failure by the Federal Reserve to comply with the Monetary Control Act by pricing its services below the required rates could have an adverse competitive impact on AirNet.  In addition, the Monetary Control Act may be amended, modified or repealed, or new legislation affecting AirNet’s business may be enacted. The market for express air and ground delivery service is highly competitive.   Although major participants in the next-day and second-day air delivery market (such as UPS and FedEx) have also entered the business of same day and early morning delivery, they have not had a material adverse effect on AirNet’s business to date.  However, the efforts of these competitors could have a material adverse effect on AirNet in the future.

The Check 21 Act or similar legislation could have a significant adverse effect on AirNet’s revenues derived from check delivery services.

In October 2003, the Check 21 Act was signed into law with a one-year waiting period prior to becoming effective.  The Check 21 Act creates a new negotiable instrument called a substitute check (also known as an image replacement document or “IRD”) that becomes the legal equivalent of the original item.  The Check 21 Act effectively removes the

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requirement of returning an original paper check to the account holder’s institution and requires that all financial institutions accept an IRD in lieu of a cancelled check.   When it becomes effective in October 2004, The Check 21 Act will likely accelerate the transition in the banking industry to electronic methods of clearing cancelled checks and will eventually replace the need for expedited air transportation services of original cancelled checks by most of AirNet’s banking customers.

The Check 21 Act eventually will have a significant adverse affect on AirNet’s revenues derived from check delivery services.  However, it is unclear when such an electronic clearing system will be implemented on a widespread basis by banking customers and how such implementation would affect their expedited check transportation needs.

Other Technological changes in the check clearance and national payment systems may adversely affect the demand for AirNet’s Bank services from the financial services industry.

Some analysts have predicted that the increased use of electronic funds transfers will lead to a “checkless society,” which could adversely affect the demand for AirNet’s Bank services to the financial services industry.  In addition, some financial services industry analysts have predicted the development of various forms of imaging technology that could reduce or eliminate the need for prompt delivery of cancelled checks.  Similarly, technological advances in the nature of “electronic mail” and “telefax” have affected the demand for on-call delivery services by customers needing express delivery services.  While none of these technological advances has had a significant adverse impact on AirNet’s business to date, these or similar technologies, or other regulatory or technological changes in the check clearance and national payment systems, could have an adverse affect on AirNet’s business in the future.

Government regulation significantly affects AirNet.

AirNet’s delivery operations are subject to various federal, state and local regulations that in many instances require permits and licenses.  Failure by AirNet to maintain required permits or licenses, or to comply with the applicable regulations, could result in substantial fines or possible revocation of AirNet’s authority to conduct certain of its operations.

AirNet’s flight operations are regulated by the FAA under Part 135 of the Federal Aviation Regulations.  Among other things, these regulations govern permissible flight and duty time for aviation flight crews.  The FAA is currently contemplating certain changes in flight and duty time guidelines which, if adopted, could increase AirNet’s operating costs.  These changes, if adopted, could also require AirNet and other operators regulated by the FAA to hire additional flight crew personnel.  In addition, Congress, from time to time, has considered various means, including excise taxes, to raise revenues directly from the airline industry to pay for air traffic control facilities and personnel.  There can be no assurances that Congress will not change the current federal excise tax rate or enact new excise taxes, which could adversely affect AirNet’s business.

Reclassification of Ground Couriers as employees rather than independent contractors could impact AirNet’s operating costs and subject it to back taxes and other liabilities.

AirNet uses the services of independent contractors as couriers to pick up and deliver its packages.  From time to time, federal and state authorities have sought to assert that independent contractors in the transportation industry, including independent contractors providing services similar to those utilized by AirNet, are employees rather than independent contractors. AirNet currently classifies its couriers providing services under an independent contractor agreement as independent contractors rather than as employees.  However, there can be no assurance that federal or state authorities will not challenge this position, or that other laws or regulations, including tax laws or interpretations thereof, will not change. If, as a result of any of the foregoing, AirNet were required to pay withholding taxes and pay for and administer added employee benefits to these couriers, AirNet’s operating costs could increase. Additionally, in the event of any such reclassification, AirNet could be required to pay back-up withholding with respect to amounts previously paid to such individuals and be required to pay penalties or be subject to other liabilities as a result of the incorrect classification of such individuals, such as payment of past due workers compensation and unemployment insurance premiums.

Changes to current transportation security requirements or procedures could adversely impact the AirNet’s ability to efficiently conduct its air and ground operations to meet its current delivery parameters or significantly increase costs to transact those operations.

Considerable focus has been placed on package security requirements and procedures at domestic and international airports since the September 11, 2001 tragedy and related incidents.  The TSA, commercial airlines, fixed based operations (where AirNet transacts a significant portion of its aircraft loading and unloading operations) and airport authorities are still in the process of reviewing all aspects of their security requirements.  While many proposed changes are voluntary, many are being mandated by the TSA, the DOT and the FAA.

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During 2002, the TSA implemented screening procedures for over-the-counter cargo tendered to commercial airlines. The new screening procedures have resulted in additional tender time for packages transported on the commercial airlines in certain locations and during certain times.  In addition, the TSA continues to review and consider additional package screening requirements and changes to the vendor screening procedures, which AirNet may need to perform on packages from its customers.   Many commercial airlines are also adding security surcharges to shipments.

Changes at fixed base operators and by local airport authorities could potentially limit AirNet’s ramp access to its aircraft, thereby increasing tender time from customers.  Changes in chain of custody requirements could also potentially cause AirNet to incur additional costs to staff additional hours at certain locations.  In response to the new security-related procedures being implemented, AirNet added a security surcharge in 2002 for its Bank and Express services customers.  Although the surcharge is expected to help offset the increasing costs associated with security issues, AirNet’s current surcharge program may not be sufficient to cover all new costs it may incur as additional transportation safety procedures are developed and/or required.

Catastrophic accidents involving AirNet’s Passenger Charter aircraft could result in a significant reduction in its business and damage to its Jetride brand.

A catastrophic accident could substantially reduce the demand for Jetride’s passenger charter services and, therefore, significantly reduce its revenue.  In addition, Jetride may not be able to secure liability insurance for its business or secure such insurance at a reasonable cost.

Environmental concerns related to the construction of a facility on leased land with known pollution conditions.

AirNet intends to commence construction of the Rickenbacker Facility on land leased from the Columbus Regional Port Authority in 2004.  Portions of the leased land, as well as portions of the aircraft ramp, on which AirNet intends to conduct a significant portion of its Columbus operations, contain known pollution conditions.  The appropriate amended post closure plan and no further action letters addressing these sites are to be supplied to AirNet by the Columbus Regional Port Authority prior to beginning construction. AirNet has received the applicable no further action letters.  Identification of additional pollution conditions on the leased land or attached ramp or the inability of the Columbus Regional Port Authority to provide the approved amended post closure plan could increase costs and have an adverse affect on AirNet’s ability to construct the Rickenbacker Facility.

Failure to renew party status to Department of Transportation E-7060 would result in significant loss of Express Services revenue.

AirNet maintains party status to DOT E-7060, which permits AirNet to transport higher volumes of radioactive pharmaceuticals than allowed by most air carriers.  AirNet is required to renew its party status every two years.  Although AirNet anticipates it will obtain its DOT E-7060 renewal at its next scheduled renewal date in November 2004, there can be no assurances that the party status will be extended.  Further, although AirNet believes it is compliant with all current DOT E-7060 requirements, there can be no assurances that such requirements will not change in the future negatively affecting AirNet’s ability to maintain such status.

Anti-takeover provisions may delay or prevent an acquisition or change in control of AirNet by a third party.

Provisions of AirNet’s amended articles and code of regulations and of the Ohio Revised Code, together or separately, could discourage potential acquisition proposals, delay or prevent a change in control of AirNet and limit the price that certain investors might be willing to pay in the future for the common shares.  Among other things, these provisions require certain supermajority votes, establish advance notice procedures for shareholder nomination of candidates for election as directors and for shareholder proposals to be considered at shareholders’ meetings, eliminate cumulative voting in the election of directors and provide that directors may only be removed from office for cause.

AirNet’s amended articles authorize the board of directors to issue up to 10,000,000 preferred shares without further shareholder approval, subject to any limitations prescribed by law and the rules and regulations of the New York Stock Exchange.  The preferred shares could have dividend, liquidation, conversion and other rights and privileges that are superior or senior to the common shares.  Issuance of preferred shares could result in the dilution of the voting power of the common shares, adversely affect holders of the common shares in the event of liquidation of AirNet or delay, defer or prevent a change in control of AirNet.

In addition, Section 1701.831 of the Ohio Revised Code contains provisions that require shareholder approval of any proposed “control share acquisition” of any Ohio corporation at any of three voting power thresholds:  one-fifth, one-third and a majority. In addition, Chapter 1704 of the Ohio Revised Code contains provisions that restrict specified business combinations and other transactions between an Ohio corporation and interested shareholders.

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ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AirNet is exposed to certain market risks from transactions that are entered into during the normal course of business.  AirNet’s primary market risk exposure relates to interest rate risk.  At December 31, 2003, AirNet had $35.7 million outstanding on credit facilities subject to market rate changes in interest.  These facilities bear interest at various London Interbank Offering Rates (LIBORs) and floating rates based on prime rates and federal fund rates.  Assuming borrowing levels at December 31, 2003, a one hundred basis point change in interest rates would impact net interest expense by approximately $357,000 per year.

In February 2002, AirNet entered into an interest rate swap agreement with a bank relative to a $3.0 million term loan, with a notional amount of $3.0 million and a fixed rate of 4.25% plus a margin based on AirNet’s funded debt ratio.  At December 31, 2003, the aggregate fair value of the interest rate swap was approximately ($65,000).

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Auditors

Shareholders and Board of Directors

AirNet Systems, Inc.

We have audited the accompanying consolidated balance sheets of AirNet Systems, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003.  Our audits also included the financial statement schedule listed in the Index at Item 15 (a) 2.  These financial statements and schedule are the responsibility of the management of AirNet Systems, Inc.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AirNet Systems, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2, in 2002 AirNet Systems, Inc. changed its method of accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Columbus, Ohio

February 16, 2004

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AIRNET SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

In thousands, except per share data

	December 31,
	2003			2002
ASSETS
Current assets:
Cash and cash equivalents	$	125		$	1,054
Accounts receivable, less allowances of $515 and $865 at December 31, 2003 and 2002, respectively	18,647			17,939
Inventory and spare parts	6,589			6,926
Taxes receivable	1,401			—
Deferred income taxes	—			220
Deposits and prepaids	3,246			3,675
Net assets of discontinued operations	—			1,188
Total current assets	30,008			31,002
Net property and equipment	118,799			111,302
Other assets:
Goodwill, net of accumulated amortization	4,018			4,018
Other	448			1,002
Total assets	$	153,273		$	147,324
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,442		$	5,723
Salaries and related liabilities	4,955			4,474
Deferred revenue	184			—
Accrued expenses	887			897
Taxes payable	76			499
Deferred income taxes	4			—
Current portion of notes payable	5,256			5,193
Total current liabilities	18,804			16,786
Other liabilities	1,280			106
Notes payable, less current portion	32,520			36,601
Deferred income taxes	16,389			13,035
Shareholders’ equity:
Preferred shares, $.01 par value; 10,000 shares authorized; and no shares issued and outstanding	—			—
Common shares, $.01 par value; 40,000 shares authorized; 12,753 shares issued at December 31, 2003 and 2002	128			128
Additional paid-in capital	77,759			77,152
Retained earnings	31,938			29,158
Accumulated other comprehensive loss	(35		)	(59		)
Treasury shares 2,720 and 2,599 shares held at cost at December 31, 2003 and 2002, respectively	(25,510		)	(25,583		)
Total shareholders’ equity	84,280			80,796
Total liabilities and shareholders’ equity	$	153,273		$	147,324

See notes to consolidated financial statements

28

AIRNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except per share data

	Year Ended December 31,
	2003			2002			2001
NET REVENUES
Air transportation, net of excise tax of $3,579, $3,893, and $ 3,636 for the years ended December 31, 2003, 2002, and 2001, respectively:
Delivery services:
Bank services	$	103,399		$	102,626		$	106,716
Express services	36,963			33,958			26,252
Total delivery services revenues	140,362			136,584			132,968
Passenger Charter services	7,599			4,316			737
Aviation services	1,261			1,044			1,499
Total net revenues	149,222			141,944			135,204
COSTS AND EXPENSES
Wages and benefits	25,755			24,182			19,715
Aircraft fuel	19,227			17,582			15,486
Aircraft maintenance	12,242			12,305			10,962
Contracted air costs	9,929			9,069			10,941
Ground courier	25,698			24,292			23,171
Depreciation	17,535			17,699			14,668
Insurance, rent and landing fees	9,054			7,352			5,540
Travel, training and other	7,597			8,325			7,079
Selling, general and administrative	15,954			13,430			13,751
Total costs and expenses	142,991			134,236			121,313
Income from operations	6,231			7,708			13,891
Impairment on investment	—			—			1,744
Interest expense	1,340			1,649			1,668
Income from continuing operations before income taxes and cumulative effect of accounting change	4,891			6,059			10,479
Provision for income taxes	2,103			2,429			5,035
Income from continuing operations before cumulative effect of accounting change	2,788			3,630			5,444
Loss from discontinued operations (including gain on sale of $58,000 in 2003), net of taxes	(8		)	(259		)	(251		)
Income before cumulative effect of accounting change	2,780			3,371			5,193
Cumulative effect of accounting change, net of $1,194 tax benefit	—			(1,868		)	—
Net income	$	2,780		$	1,503		$	5,193
Income (loss) per common share - basic and diluted
Continuing operations	$	0.28		$	0.36		$	0.51
Discontinued operations	$	—		$	(0.03	)	$	(0.02	)
Cumulative effect of accounting change	$	—		$	(0.18	)	$	—
Net income per share - basic and diluted	$	0.28		$	0.15		$	0.49

See notes to consolidated financial statements

29

AIRNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

In thousands

	2003			2002			2001
OPERATING ACTIVITIES
Net income	$	2,780		$	1,503		$	5,194
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash charge for investment impairment	—			—			1,744
Cumulative effect of accounting change	—			1,868			—
Depreciation	17,535			17,699			14,668
Amortization of intangibles	—			17			520
Deferred taxes	3,533			588			2,413
Provision for losses on accounts receivable	495			433			457
Loss (gain) on disposition of assets	(89		)	86			53
Cash provided by (used in) operating assets and liabilities:
Accounts receivable	(1,659		)	(2,701		)	(1,002		)
Inventory and spare parts	337			(222		)	(87		)
Deposits and prepaids	506			(1,972		)	(230		)
Accounts payable	1,715			(49		)	321
Accrued expenses	173			374			(167		)
Taxes payable/receivable	(528		)	503			254
Salaries and related liabilities	480			(264		)	1,469
Other, net	1,266			(213		)	(404		)
Net assets of discontinued operations	1,229			77			660
Net cash provided by operating activities	27,773			17,727			25,863
INVESTING ACTIVITIES
Purchases of property and equipment	(25,287		)	(30,845		)	(27,377		)
Proceeds from sales of property and equipment	195			353			310
Proceeds from sale of business	565			—			—
Net cash used in investing activities	(24,527		)	(30,492		)	(27,067		)
FINANCING ACTIVITIES
Proceeds from 1996 Incentive Stock Plan programs	158			198			84
Net borrowings (repayments) under revolving credit facilities	1,100			(10,449		)	5,549
Borrowings under term loan facilities	1,500			25,983			—
Repayments of term loan facilities	(6,696		)	(1,974		)	(33		)
Purchase of treasury shares, net of issuances	(237		)	14			(4,983		)
Net cash provided by (used in) financing activities	(4,175		)	13,772			617
Net increase (decrease) in cash	(929		)	1,007			(587		)
Cash and cash equivalents at beginning of period	1,054			47			634
Cash and cash equivalents at end of period	$	125		$	1,054		$	47

See notes to consolidated financial statements

30

AIRNET SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

In thousands

	Common Shares			Additional					Accumulated Other
	Number of Shares	Amount		Paid-in Capital			Retained Earnings		Comprehensive Loss			Treasury Shares			Total
Balance December 31, 2000	12,753	$	128	$	77,702		$	22,462	$	—		$	(21,447	)	$	78,845
Net income	—	—		—			5,194		—			—			5,194
Loss on derivative instruments, net of $90 tax benefit	—	—		—			—		(132		)	—			(132		)
Cumulative effect of accounting change, net of $42 tax benefits	—	—		—			—		(62		)	—			(62		)
Comprehensive income															5,000
Purchase of treasury shares	—	—		—			—		—			(5,000		)	(5,000		)
Issuance of treasury shares - Associate Stock Purchase Program	—	—		(238		)	—		—			329			91
Stock option exercises	—	—		(24		)	—		—			34			10
Balance December 31, 2001	12,753	128		77,440			27,656		(194		)	(26,084		)	78,946
Net income	—	—		—			1,503		—			—			1,503
Gain on derivative instruments, net of $86 tax expense	—	—		—			—		134			—			134
Comprehensive income															1,637
Issuance of treasury shares - Associate Stock Purchase Program				(263		)						461			198
Stock option exercises	—	—		(25		)	—		—			39			14
Balance December 31, 2002	12,753	$	128	$	77,152		$	29,158	$	(59	)	(25,583		)	$	80,796
Net income	—	—		—			2,780		—			—			2,780
Gain on derivative instruments, net of $16 tax expense	—	—		—			—		24			—			24
Comprehensive income															2,804
Issuance of treasury shares - Associate Stock Purchase Program	—	—		(688		)	—		—			859			171
Sale of Mercury Business Services	—	—		—			—		—			(536		)	(536		)
Repurchase of treasury shares	—	—		—			—		—			(250		)	(250		)
Tax benefit from Wright warrants	—	—		1,295			—		—			—			1,295
Balance December 31, 2003	12,753	$	128	$	77,759		$	31,938	$	(35	)	$	(25,510	)	$	84,280

See notes to consolidated financial statements

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Significant Accounting Policies

AirNet Systems, Inc. and its subsidiaries (“AirNet”, the “Company”) operate a fully integrated national air transportation network which provides delivery service for time-critical shipments for customers in the U.S. banking industry and other industries requiring the express delivery of packages.  AirNet also offers passenger charter services and retail aviation fuel sales and related ground services for customers at its Columbus, Ohio facility.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of AirNet Systems, Inc. and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

Preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Certain 2002 and 2001 balances have been reclassified to conform with the 2003 presentation.

Revenue Recognition

Revenue on Express and Bank services is recognized when the packages are delivered to their destination. Revenue related to Passenger Charter services is recognized in the period in which the charter services are completed.  Revenue on fixed based operations within Aviation Services is recognized when the maintenance services are complete or fuel is delivered.

AirNet receives advance payments from some customers.  These advances secure space on AirNet’s air transportation network during the period for which the payment applies.  These prepaid revenues are classified as deferred revenue  and revenue is recognized based on the number of flying days elapsed.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments which are unrestricted as to withdrawal or use, and which have an original maturity of three months or less.  Cash equivalents are stated at cost, which approximates market value.

Accounts Receivable

AirNet performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.  AirNet establishes an allowance for doubtful accounts based upon factors surrounding the credit risks of specific customers, historical trends and other information.

Inventory and Spare Parts

Inventory and spare parts are valued at the lower of cost (weighted average method) or market.

Property and Equipment

Property and equipment are stated at cost. Costs of major aircraft inspections, overhauls and engine work are capitalized as incurred and depreciated based on hours flown.  The original costs of airframes, other flight equipment and other property and equipment (primarily furniture and equipment, leasehold improvements, computer related hardware and software and vehicles) are depreciated based on the straight-line method over the estimated useful lives of the assets as summarized below.  Aircraft maintenance costs not meeting AirNet’s capitalization requirements are expensed as incurred.

Airframes	15 years
Buildings	30 years
Other flight equipment	2 - 5 years
Other property and equipment	3 - 10 years

The engines of twenty-seven of AirNet’s thirty-three Learjet 35 aircraft are covered under a Fleet Management Plan (FMP), in which AirNet prepays certain repair and overhaul costs.  These prepayments, which totaled $12,701,000 and $7,043,000

32

at December 31, 2003 and 2002, respectively, are classified in fixed assets on the consolidated balance sheet.  Amortization on these prepaid balances does not begin until services have been performed, at which time the prepaid balances are reclassified into depreciable asset categories and depreciated based on hours flown.

AirNet reevaluates the remaining salvage values and depreciable lives on its property and equipment as conditions dictate.  In response to changes in the projected usage for its fleet of Cessna 310 aircraft, in 2003 AirNet reduced the salvage values and shortened the depreciable lives for these aircraft.  This change in estimate resulted in approximately $489,000 of additional depreciation expense in 2003.

Property and equipment consisted of the following at December 31:

	2003		2002
Flight equipment	$	190,432,000	$	187,201,000
Other property and equipment	27,992,000		24,203,000
	218,424,000		211,404,000
Less accumulated depreciation	99,625,000		100,102,000
Net property and equipment	$	118,799,000	$	111,302,000

Investment in Subsidiary

AirNet Systems, Inc. wholly owns Float Control, Inc., which holds a 19% interest in The Check Exchange System Co. (“CHEXS”).  Float Control accounts for its investment in CHEXS under the equity method of accounting.  During 2001, CHEXS received notice that one of its customers, who accounted for a significant portion of CHEXS’s revenue, would not renew its contract with CHEXS beyond August 2001.  As a result, Float Control recognized a $1,744,000 impairment on its investment in CHEXS in the second quarter of 2001, which included a write-off of approximately $300,000 of goodwill.  As of December 31, 2003 and 2002, Float Control’s remaining recorded investment in CHEXS totaled $49,000 and $384,000 respectively and is included in Other Assets – Other on the consolidated balance sheet, and represents expected final distributions from the partnership.

Income Taxes

AirNet accounts for income taxes under the liability method pursuant to SFAS No. 109, Accounting for Income Taxes.  Under the liability method, deferred tax liabilities and assets are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Goodwill

AirNet adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.  SFAS No. 141 requires business combinations completed after June 30, 2001, to be accounted for using the purchase method of accounting and changes the criteria for recording intangible assets apart from goodwill.  AirNet evaluated its goodwill and intangibles acquired prior to June 30, 2001, and determined that all intangible assets were properly classified using the criteria of SFAS No. 141.

SFAS No. 142 requires that goodwill and indefinite-lived intangible assets no longer be amortized, but instead be evaluated for impairment on a “reporting unit” basis annually, or more frequently if changes in circumstances indicate impairment may have occurred sooner.   A reporting unit is the operating segment unless, for businesses within that operating segment, discrete financial information is prepared and regularly reviewed by management, in which case such a component business is the reporting unit.

The impairment test is conducted by comparing the fair value of the reporting unit, primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit, with its carrying value and if the carrying value exceeds the fair value, goodwill may potentially be impaired.  If there is potential impairment, the fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with the carrying amount of the reporting unit goodwill, and if the implied fair value is less, an impairment loss is recognized.

Financial Instruments

The fair value of AirNet’s financial instruments approximated their carrying value at December 31, 2003 and 2002.

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Derivatives

AirNet has been party to various interest rate swap agreements with banks as a hedge against the interest rate risk associated with borrowing at variable rates.  These swap agreements are accounted for as cash flow hedges.  The objective of the hedge is to eliminate the variability of cash flows in the interest rate payments on the variable rate debt.  AirNet does not use derivative financial instruments for speculative purposes.

In February 2002, AirNet entered into a five-year interest rate swap agreement with a bank relative to a $3.0 million term loan, with a notional amount at December 31, 2003 of $1.9 million and a fixed rate of 4.25% plus a margin based on AirNet’s funded debt ratio.  AirNet was also party to two additional three-year swap agreements which ended in 2002, each with a $5.0 million notional amount and fixed rates of 6.3% and 6.5% plus a margin based on AirNet’s funded debt ratio.

AirNet accounts for it swap agreements under SFAS Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments, SFAS No. 137 and 138.   The statements require AirNet to recognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges are adjusted to fair value through income.  If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.  The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.  AirNet’s adoption of SFAS No. 133 on January 1, 2001 resulted in a cumulative effect of an accounting change charge of $62,155, net of tax, to accumulated other comprehensive income.  In 2003, AirNet recognized comprehensive income of $24,000, net of tax, related to the swaps, compared to $134,000 of comprehensive income, net of tax, in 2002.  At December 31, 2003 and 2002, the aggregate fair value of the interest rate swaps was approximately ($65,000) and ($106,000), respectively, and is recorded in other liabilities on the consolidated balance sheets.  The ineffective portion of the change in fair value is immaterial for all years presented.

Stock-Based Compensation

At December 31, 2003, AirNet had one stock-based employee compensation plan, which is described more fully in Note 4.  AirNet accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  No stock-based employee compensation cost is reflected in net income, as all options granted under the plan have an exercise price equal to the market value of the underlying common shares on the date of grant.  Pro forma information regarding net income and earnings per share is required by SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, and has been determined as if AirNet had accounted for its employee stock options under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation. The fair value of these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the years ended December 31:

	2003		2002		2001
Risk free interest rate	4.00	%	4.75	%	5.00	%
Volatility factor of expected market price of the company’s common shares	65.4	%	55.3	%	46.1	%
Weighted average expected life of options (years)	4.81		5.30		5.44

The weighted average fair value of options granted was $2.37, $4.21 and $2.70 in the years ended December 31, 2003, 2002 and 2001, respectively.

34

The following table illustrates the effect on net income and earnings per share if AirNet had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Year Ended December 31
	2003			2002			2001
Net income, as reported	$	2,780,000		$	1,503,000		$	5,194,000
Deduct:  Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(132,000		)	(398,000		)	(672,000		)
Pro forma net income	$	2,648,000		$	1,105,000		$	4,522,000
Net income per common share - basic and diluted:
As reported	$	.28		$	.15		$	.49
Pro forma	$	.26		$	.11		$	.43

Supplemental Cash Flow Data

Cash paid for interest was $1,584,000, $1,433,000, and $1,591,000 for the years ended December 31, 2003, 2002, and 2001, respectively.  AirNet paid  $459,000, $1,216,000, and $2,603,000 and received $1,332,000, $51,000, and $492,000 for the years ended December 31, 2003, 2002, and 2001, respectively, related to income taxes .

2.Goodwill and Other Intangible Assets

AirNet adopted SFAS No. 142, Goodwill and Other Intangible Assets as of January 1, 2002. AirNet performed the transitional goodwill impairment test using the two-step process prescribed in SFAS No. 142 with a measurement date of January 1, 2002. The first step is a screen of potential impairment, while the second step measures the amount of the impairment, if any. AirNet performed the first of the required transitional goodwill impairment tests in the second quarter of 2002. AirNet performed the second of the required transitional goodwill impairment tests in the fourth quarter of 2002. Under SFAS No. 142, an impairment charge resulting from the transitional impairment tests was reflected as the cumulative effect of a change in accounting principle in the first quarter of 2002. Based on the results of its transitional goodwill impairment test, AirNet recognized an impairment loss, net of tax, of $1,868,000, for goodwill related to the Mercury Business Services division as a cumulative effect of a change in accounting principle in the first quarter of 2002.

AirNet performs an annual goodwill impairment test required by the SFAS No. 142 as of October 1. The annual impairment test indicated that no additional goodwill impairment charge was required in 2003 or 2002.

Prior to the adoption of SFAS No. 142, AirNet’s goodwill was amortized by the straight-line method over 25 years. Since goodwill is no longer amortized, AirNet’s reported results for 2003 and 2002 are not comparable with previous years. The following table presents pro forma information assuming that AirNet adopted SFAS No.142 as of January 1, 2001.

	Year Ended December 31,
	2003		2002		2001
Reported net income	$	2,780,000	$	1,503,000	$	5,194,000
Adjustments:
Goodwill amortization	—		—		342,000
Income tax benefit	—		—		(135,000		)
Adjusted net income	2,780,000		1,503,000		5,401,000
Adjusted net income per share – basic and diluted	$	.28	$	.15	$	.51

35

Following is a progression of goodwill for the years ended December 31:

	2003		2002
Balance at January 1,	$	4,018,000	$	7,080,00
Goodwill acquired	—		—
Impairment loss	—		(3,062,000		)
Balance at December 31,	$	4,018,000	$	4,018,000

3.Notes Payable

AirNet had borrowings as follows at December 31:

	2003		2002
Term notes	$	18,976,000	$	24,094,000
Revolving credit facility	18,800,000		17,700,000
	37,776,000		41,794,000
Current portion of notes payable	5,256,000		5,193,000
Long-term portion of notes payable	$	32,520,000	$	36,601,000

In September 2002, AirNet replaced its $50 million revolving credit agreement.  The new credit agreement provides AirNet with a three-year $35 million unsecured revolving credit facility scheduled to expire on September 30, 2005 and a five-year $20.0 million unsecured term loan.  The term loan requires quarterly installments of $1.0 million commencing on the last day of December 2002 and continuing through September 30, 2007.  The agreement bears interest at AirNet’s option of a fixed rate based upon LIBOR plus a margin determined by AirNet’s leverage ratio as defined in the agreement, or a floating rate based on the greater of the prime rate and the sum of .5% plus the federal funds rate in effect from time to time. The interest rate in effect at December 31, 2003 was 2.39%. The agreement requires the maintenance of certain minimum tangible net worth and cash flow levels, imposes certain limitations on capital expenditures and the sale of assets, and restricts the amount of additional debt.  As of December 31, 2003, AirNet was in compliance with these restrictions. As of December 31, 2003, $6.5 million was available under the credit facility.

During the first quarter of 2002, AirNet entered into three term loans with banks.  As of December 31, 2003 the first note has a principal balance of $832,000 with a 60-month term, a 5.77% interest rate and a $24,000 monthly principal and interest payment.  The second note has a principal balance of $1,146,000 with a 60-month term, a 5.77% interest rate and a $33,000 monthly principal and interest payment.  The third note has a principal balance of $1,900,000 with a floating interest rate based upon LIBOR (London Interbank Offered Rate) and a $50,000 principal payment due monthly over 60 months.  Four aircraft with a net book value totaling approximately $7,116,000 at December 31, 2003 secure these loans.

In conjunction with the purchase of AirNet’s operations facility in 1997, AirNet issued a $263,000 term note.  The terms of the note require monthly principal and interest payments of $4,000 through 2005 and the note is collateralized by the facility.

Aggregate future maturities of long-term debt as of December 31, 2003 are as follows:

2004	$	5,256,000
2005	5,249,000
2006	24,025,000
2007	3,246,000
2008	—
	$	37,776,000

AirNet also maintains standby letters of credit totaling $1,600,000 with a bank related to its insurance policy agreements.

4. Incentive Stock Plan

In 1996, AirNet Systems, Inc. adopted the AirNet Systems, Inc. 1996 Incentive Stock Plan (the “Plan”).  The Plan provides for the issuance of incentive and non-qualified stock options, restricted stock and performance awards and a stock purchase plan (collectively, “Awards”).  The Plan also provides for the grant of non-qualified stock options to non-employee directors.  The maximum number of common shares available for issuance under the Plan is 1,650,000 through May 1, 2006.  The Plan is administered by the Compensation Committee of the Board of Directors, which determines the terms and conditions applicable to the options, restricted stock and performance awards, other than options automatically granted to non-employee directors in accordance with the terms of the Plan.  The exercise price of each option equals the market price

36

of a common share on the date of grant.  An option’s maximum term is ten years (five years for ISOs granted to 10% shareholders).  Option vesting periods range from vesting upon grant to vesting over four years.

A summary of AirNet’s stock option activity and related information follows (in thousands, except price per share data) for the years ended December 31:

	2003				2002				2001
	Common Shares		Weighted Average Exercise Price		Common Shares		Weighted Average Exercise Price		Common Shares		Weighted Average Exercise Price
Outstanding at beginning of period	1,045		$	9.55	1,029		$	10.05	1,142		$	12.45
Granted	132		4.32		102		7.78		208		4.12
Exercised	—		—		(3	)	5.24		(2	)	4.51
Cancelled	(163	)	11.90		(83	)	13.33		(319	)	14.83
Outstanding at end of period	1,014		8.52		1,045		9.58		1,029		10.05
Options exercisable at end of period	787		$	9.50	790		$	10.63	688		$	11.65

The following summarizes information about options outstanding as of December 31, 2003:

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number of Options	Weighted-Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Number of Options	Weighted-Average Exercise Price
Less than $5.00	311,900	7.5	$	4.08	143,960	$	3.99
$5.01-$10.00	464,870	5.6	8.24		405,660	8.31
$10.01-$15.00	183,700	2.6	14.16		183,700	14.16
$15.01-$20.00	53,000	4.5	17.42		53,000	17.42
$20.01-$25.00	500	4.4	22.00		500	22.00
	1,013,970	5.6	$	8.52	786,820	$	9.50

AirNet’s Associate Stock Purchase Program, which is part of the Plan, allows eligible employees the opportunity to acquire common shares of AirNet at up to a 15% discount through payroll deductions.  AirNet issued 39,597, 26,552, and 27,271 common shares respectively during 2003, 2002, and 2001 from treasury shares.

5.Lease Obligations

AirNet leases facility space and courier vehicles at various locations throughout the United States.  In addition, in 2002, AirNet entered into operating leases for four Cessna Caravan 208 aircraft each with a lease term of three years

and two Cessna Caravan 208B aircraft, one with a lease term of 3.5 years and one with a lease term of 4.5 years.  The three-year lease terms were subsequently extended an additional year.   AirNet incurred lease expense of $4,131,000, $3,747,000, and $1,961,000 for the years ended December 31, 2003, 2002 and 2001, respectively.  As of December 31, 2003, future minimum lease payments by year and in the aggregate under non-cancelable operating leases with initial or remaining terms exceeding one year are as follows:  2004 - $912,000; 2005 - $658,000; 2006 - $376,000; 2007 - $55,000; 2008 - $29,000.

6.Related Party Transactions

During 2001, the Board of Directors approved a retirement agreement with Gerald G. Mercer, Founder and former Chairman, of AirNet Systems, Inc.  As contemplated by the retirement agreement, Mr. Mercer retired as Chairman and a Director effective August 3, 2001.  AirNet recorded $975,000 in selling, general and administrative expense in 2001 to cover salary continuance requirements and benefits associated with this agreement that continue until 2003.  Additionally as part

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of the retirement agreement, in 2001 AirNet Systems, Inc. purchased 818,330 common shares at $6.11 per share from the former Chairman at a total cost of $5.0 million.  AirNet intends to hold the common shares in treasury.  Under the terms of the retirement agreement, Mr. Mercer also had the option to sell up to $250,000 of AirNet Systems, Inc. common shares each quarter of 2002 to AirNet based on then current market prices.  Mr. Mercer exercised his option effective January 2, 2003 and sold 52,410 AirNet Systems, Inc. common shares to AirNet at a total cost of $249,996.

Also under the terms of his retirement agreement, Mr. Mercer retained his rights to sell his remaining AirNet common shares to private investors at any time in accordance with the applicable laws.  On or about December 26, 2002, Mr. Mercer sold an aggregate of 733,200 common shares to seven separate investors in privately negotiated transactions.  On December 24, 2002, he made a gift of 256,800 common shares to Spring Hill Camps, which sold those common shares to three separate investors, one of which also purchased common shares from Mr. Mercer, in privately negotiated transactions.  In connection with and as a condition to the investors’ consummating those transactions, AirNet granted registration rights in respect to the 990,000 common shares collectively purchased by these investors from Mr. Mercer or Spring Hill Camps and registered the shares in 2003.

7.Retirement Plan

AirNet has a 401(k) retirement savings plan.  All associates who have completed a minimum of one month of service may contribute up to 15% of their eligible annual earnings to the plan.  AirNet may elect, at its discretion, to make matching and profit-sharing contributions. AirNet’s contribution expense related to the 401(k) retirement savings plan totaled $519,000, $481,000, and $526,000 for the years ended December 31, 2003, 2002, and 2001, respectively.

8.Income Taxes

Income taxes are summarized as follows for the years ended December 31:

	2003			2002			2001
Current:
Federal	$	(1,227,000	)	$	1,751,000		$	2,415,000
State and local	295,000			431,000			510,000
	(932,000		)	2,182,000			2,925,000
Deferred:
Federal	2,978,000			341,000			1,930,000
State and local	57,000			(94,000		)	180,000
	3,035,000			247,000			2,110,000
	$	2,103,000		$	2,429,000		$	5,035,000

Significant components of AirNet’s deferred tax liabilities and assets are as follows at December 31:

	2003			2002
Long-term deferred tax asset:
Alternative minimum tax credits	$	3,621,000		$	1,057,000
Goodwill	—			1,027,000
Other	188,000			184,000
Long-term deferred tax liabilities:
Property and equipment	(19,968,000		)	(13,875,000		)
Other	(230,000		)	(1,428,000		)
Net long-term deferred tax liabilities	$	(16,389,000	)	$	(13,035,000	)
Current deferred tax assets:
Workers’ compensation reserves	$	494,000		$	448,000
Allowance for bad debt reserves	204,000			353,000
Other	153,000			200,000
Total current deferred tax assets	851,000			1,001,000
Current deferred tax liabilities:
Prepaid expenses	(828,000		)	(756,000		)
Other	(27,000		)	(25,000		)
Total current deferred tax liabilities	(855,000		)	(781,000		)
Net current deferred tax assets (liabilities)	$	(4,000	)	$	220,000

Differences arising between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows for the years ended December 31:

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	2003				2002				2001
Tax expense at federal statutory rate on pre-tax income	$	1,663,000	34.0	%	$	2,069,000	34.0	%	$	3,600,000	34.0	%
Add:
State taxes, net of federal benefit	311,000		6.4		220,000		3.6		559,000		5.3
Non-deductible permanent differences	129,000		2.6		140,000		2.5		876,000		8.7
Total taxes	$	2,103,000	43.0	%	$	2,429,000	40.1	%	$	5,035,000	48.0	%

In connection with the 1996 repurchase and cancellation of the Donald Wright Warrant, AirNet recognized a related tax benefit estimated to be $7.0 million based upon management’s judgment and estimation of the portion of the Donald Wright Warrant which would be deductible for income tax purposes.  This tax benefit was recognized as additional paid in capital on AirNet’s consolidated balance sheet and has had no effect on AirNet’s consolidated statement of operations.  During the third quarter 2003, this matter was partially resolved and AirNet has realized tax deductions related to this transaction in excess of management’s original estimates resulting in additional tax benefits.  The additional tax benefits associated with the deductible portion of the Donald Wright Warrant have exceeded the original estimate by $1.3 million.  The additional tax benefit, as was the initial estimated tax benefit associated with the Donald Wright Warrant, has been recorded as an increase to additional paid in capital.

10.  Discontinued Operations

 On August 11, 2003, AirNet Systems, Inc. completed the sale of substantially all of the assets of its Mercury Business Services unit to Mercury Business Services, Inc., a Delaware corporation owned by a group that includes the original owners of the Mercury business.

AirNet sold the assets, primarily the accounts receivable, personal property and intellectual property, with a carrying amount at the time of sale of approximately $1.0 million, for approximately $1.1 million.

AirNet received approximately $455,000 of the purchase price in a ninety day promissory note secured by the assets being sold and guaranteed by each of the shareholders of Mercury Business Services, Inc. Under terms of the Asset Purchase Agreement, approximately $536,000 of the purchase price was paid with AirNet Systems, Inc. common shares owned by the shareholders of Mercury Business Services, Inc., including 56,000 common shares tendered to AirNet Systems, Inc., prior to the closing at $4.30 per common share (the closing price of the AirNet Systems, Inc., common shares on the NYSE on July 25, 2003) and 68,494 common shares tendered to AirNet Systems, Inc., on the closing date at $4.31 per common share (the average closing price of the AirNet Systems, Inc., common shares on the NYSE on August 4-6, 2003). The balance of the purchase price was paid in cash.

AirNet accounted for these operations as discontinued operations.

The Mercury Business Services unit had revenues for the year ended December 31, 2003, which consisted of the seven months prior to the sale, of $5,939,000, as compared to $8,940,000 and $8,572,000 for the full years in 2002 and 2001, respectively.

Pre-tax loss for AirNet’s Mercury Business Services unit for the year ended December 31, 2003, which consisted of the seven months prior to the sale, was $13,000, as compared to a $432,000 and $483,000 pre-tax loss for the full years 2002 and 2001, respectively.

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11.Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share for the years ended December 31:

	2003			2002			2001
Numerator:
Income before discontinued operations and cumulative effect of accounting change	$	2,788,000		$	3,630,000		$	5,445,000
Loss from discontinued operations, net of tax	(8,000		)	(259,000		)	(251,000		)
Cumulative effect of accounting change, net of tax	—			(1,868,000		)	—
Net income	$	2,780,000		$	1,503,000		$	5,194,000
Denominator:
Basic - weighted average shares outstanding	10,088,000			10,141,000			10,576,000
Diluted
Options - associates, officers and directors	1,000			120,000			60,000
Adjusted weighted average shares outstanding	10,089,000			10,261,000			10,636,000
Net income per share – basic and diluted:
Income from continuing operations before cumulative effect of accounting change	$	.28		$	.36		$	.51
Loss from discontinued operations, net of tax	—			(.03		)	(.02		)
Cumulative effect of accounting change, net of tax	—			(.18		)	—
Net income	$	.28		$	.15		$	.49

For the years ended December 31, 2003, 2002, and 2001, 981,000, 697,000, and 787,000 options, respectively, were excluded from the diluted weighted average shares outstanding calculation, as their exercise prices exceeded the average fair market value of the underlying common shares for the year.

12.Litigation and Contingencies

AirNet is subject to claims and lawsuits in the ordinary course of its business.  In the opinion of management, the outcome of these actions, which are not clearly determinable at the present time, are either adequately covered by insurance, or if not insured, will not, in the aggregate, have a material adverse impact upon AirNet’s financial position or the results of future operations.

13.Subsequent Events

On January 20, 2004, AirNet Systems, Inc. entered into a land lease with the Columbus Regional Airport Authority (the “Authority”) whereby AirNet Systems, Inc. will lease approximately 8 acres located within the Rickenbacker International Airport (“Rickenbacker”) in Franklin and Pickaway Counties, Ohio.  The land lease is for a term of 20 years with minimum annual lease payments based on the square footage of the premises which are at a fixed rate which escalates annually for the first three years after construction is complete and then increases based on an index.  AirNet Systems, Inc. intends to construct a new corporate and operational headquarters on the Rickenbacker property.  In anticipation of AirNet’s future move to the Rickenbacker property on January 20, 2004, AirNet Systems, Inc. entered into an agreement to sell its existing corporate headquarters facility to the Authority for $3,850,000.  AirNet has retained the right to continue to occupy its existing facility until construction and relocation to Rickenbacker is complete.

The quarterly financial data required to be disclosed in this Item 8 is incorporated herein by reference to the table captioned “Selected Quarterly Data (unaudited) in Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

No response required.

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ITEM 9A.   CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

With the participation of the Chairman of the Board, President and Chief Executive Officer (the principal executive officer) and the Chief Financial Officer, Treasurer and Secretary  (the principal financial officer) of AirNet Systems, Inc. (“AirNet”), AirNet’s management has evaluated the effectiveness of AirNet’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K.  Based on that evaluation, AirNet’s Chairman of the Board, President and Chief Executive Officer and AirNet’s Chief Financial Officer, Treasurer and Secretary have concluded that:

•information required to be disclosed by AirNet in this Annual Report on Form 10-K would be accumulated and communicated to AirNet’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

•information required to be disclosed by AirNet in this Annual Report on Form 10-K would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

•AirNet’s disclosure controls and procedures are effective as of the end of the period covered by this Annual Report on Form 10-K to ensure that material information relating to AirNet and its consolidated subsidiaries is made known to them, particularly during the period for which the periodic reports of AirNet, including this Annual Report on Form 10-K, are being prepared.

Changes in Internal Control over Financial Reporting

There were no changes in AirNet’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during AirNet’s fiscal quarter ended December 31, 2003, that have materially affected, or are reasonably likely to materially affect, AirNet’s internal control over financial reporting.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for in this Item 10 is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the captions “ELECTION OF DIRECTORS”, “EXECUTIVE COMPENSATION – Employment Contracts and Termination of Employment and Change-In-Control Arrangements” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.”  In addition, information concerning AirNet’s executive officers is included in the portion of Part I of this Annual Report on Form 10-K entitled “Supplemental Item:  Executive Officers of the Registrant.”  Also, information concerning AirNet’s Audit Committee and the determination by AirNet’s Board of Directors that at least one member of the Audit Committee qualifies as an “audit committee financial expert” is incorporated herein by reference from AirNet’s definitive Proxy Statement related to the Annual Meeting of Shareholders to be held on June 4, 2004, under the Caption “ELECTION OF DIRECTORS – Committees and Meetings of the Board – Audit Committee.”  Information concerning the nomination process for director candidates is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the captions “ELECTION OF DIRECTORS – Committees and Meetings of the Board – Nominating and Corporate Governance Committee” and “ELECTION OF DIRECTORS – Nominating Procedures.”

AirNet’s –Board of Directors has adopted charters for each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee as well as Corporate Governance Guidelines as contemplated by the applicable sections of the New York Stock Exchange listed Company Manual.

In accordance with the requirements of Section 303A(10) of the New York Stock Exchange Listed Company Manual, the Board of  Directors of AirNet has adopted a Code of Business Conduct and Ethics covering the directors, officers and employees (team members) of AirNet, including AirNet’s Chairman of the Board, President and Chief Executive Officer (the principal executive officer), AirNet’s Chief Financial Officer, Treasurer and Secretary (the principal financial officer) and AirNet’s Controller and Principal Accounting Officer.  AirNet intends to disclose the following on the “Corporate Governance” page of its website located at www.airnet.com within five business days following their occurrence required by the applicable rules of the SEC and the requirements of Section 303A(10) of the New York Stock Exchange Listed Company Manual: (A) the nature of any amendment to a provision of its Code of Business Conduct and Ethics that (i) applies to AirNet’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, (ii) relates to any element of the “code of ethics” definition enumerated in Item 406(b) of SEC Regulation S-K, and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a description of any waiver

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(including the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver), including an implicit waiver, from a provision of the Code of Business Conduct and Ethics granted to AirNet’s principal; executive officer, principal financial officer, principal accounting officer or controller, of persons performing similar functions, that relates to one or more of the items set forth in Item 406(b) of SEC Regulation S-K.

The text of each of the Audit Committee Charter, the Compensation Committee Charter, the Nominating and Corporate Governance Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics is posted on the “Corporate Governance” page of AirNet’s website located at www.airnet.com .  Interested persons may also obtain Copies of the Audit Committee Charter, the Compensation Committee Charter, the Nominating and Corporate Governance Committee Charter, the Corporate Governance Guidelines and the Code of Business Conduct and Ethics, without charge, by writing to the Chief Financial Officer, Treasurer and Secretary of AirNet at AirNet Systems, Inc., 3939 International Gateway, Columbus, Ohio 43219, Attention:  Gary W. Qualmann.  In addition, a copy of AirNet’s Code of Business Conduct and Ethics is being filed as Exhibit 14 to this Annual Report on Form 10-K.

ITEM 11 - EXECUTIVE COMPENSATION

The information called for in this Item 11 is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the captions “ELECTION OF DIRECTORS –  Compensation of Directors” and “EXECUTIVE COMPENSATION.”  Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of SEC Regulation S-K.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information called for in this Item 12 regarding security ownership of certain beneficial owners and management is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the captions “BENEFICIAL OWNERSHIP OF COMMON SHARES” and “TRANSACTIONS WITH MANAGEMENT.”

The information called for in this Item 12 regarding securities authorized for issuance under equity compensation plans is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the caption “EXECUTIVE COMPENSATION—Equity Compensation Plan Information.”

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for in this Item 13 is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the captions “ELECTION OF DIRECTORS—Nominees Standing for Election to the Board of Directors” and  “TRANSACTIONS WITH MANAGEMENT.”

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for in this Item 14 is incorporated herein by reference from AirNet’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 4, 2004, under the captions “AUDIT COMMITTEE MATTERS—Pre-Approval of Services Performed by Independent Auditors” and “AUDIT COMMITTEE MATTERS—Fees of Independent Auditors.”

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)Documents filed as part of this Annual Report on Form 10-K:

1.The following consolidated financial statements are included in Item 8:

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2.Schedule II - Valuation and Qualifying Accounts is included below:

COL A	COL B		COL C				COL D		COL E
			Additions
Description	Balance at Start of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions (1)		Balance at End of Period
Year end December 31, 2003:  Deducted from asset accounts; Allowance for doubtful accounts	$	864,888	$	328,459	$	0	$	678,301	$	515,046
Year end December 31, 2002:  Deducted from asset accounts; Allowance for doubtful accounts	$	660,647	$	432,290	$	0	$	228,049	$	864,888
Year end December 31, 2001:  Deducted from asset accounts; Allowance for doubtful accounts	$	601,114	$	457,386	$	0	$	397,853	$	660,647

(1)  Uncollectible accounts written off, net of recoveries

Schedules not listed above have been omitted because they are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

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3.Exhibits

The following exhibits are included or incorporated by reference in this Annual Report on Form 10-K:

Exhibit No.	Description	Location
2.1	Asset Purchase Agreement, dated July 11, 2003, by and among AirNet Systems, Inc., AirNet Management, Inc., Mercury Business Services, Inc., Andrew R. Cooke, Peter G. Salisbury and Christopher F. Valente.  [Pursuant to Item 601(b)(2) of SEC Regulation S-K, certain schedules and exhibits to this Asset Purchase Agreement have not been filed with this exhibit.  The schedules contain various items relating to the assets being sold and the representations and warranties of the parties to the Asset Purchase Agreement.  AirNet Systems, Inc. has agreed to furnish supplementally any omitted schedule or exhibit to the SEC upon request.]	Incorporated herein by reference to Exhibit 2.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated and filed on July 15, 2003 (File No. 1-13025)
3.1	Amended Articles of AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 2.1 to AirNet Systems, Inc.’s Registration Statement on Form 8-A (File No. 0-28428) filed on May 3, 1996 (the “1996 Form 8-A”)
3.2	Certificate of Amendment to the Amended Articles of AirNet Systems, Inc. as filed with the Ohio Secretary of State on May 28, 1996	Incorporated herein by reference to Exhibit 4(b) to AirNet Systems, Inc.’s Registration Statement on Form S-8 (Registration No. 333-08189) filed on July 16, 1996 (the “1996 Form S-8”)
3.3	Amended Articles of AirNet Systems, Inc. (as amended through May 28, 1996) [for SEC reporting compliance purposes only - not filed with the Ohio Secretary of State]	Incorporated herein by reference to Exhibit 4(c) to AirNet Systems, Inc.’s 1996 Form S-8
3.4	Code of Regulations of AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 2.2 to AirNet Systems, Inc.’s 1996 Form 8-A
3.5	Certificate regarding adoption of amendment to Section 1.10 of the Code of Regulations of AirNet Systems, Inc. by the shareholders on May 12, 2000	Incorporated herein by reference to Exhibit 3.1 to AirNet Systems, Inc.’s Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-13025)
3.6	Code of Regulations of AirNet Systems, Inc. (reflecting amendments through May 12, 2000) [for SEC reporting compliance purposes only]	Incorporated herein by reference to Exhibit 3.2 to AirNet Systems, Inc.’s Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-13025)
4.1	Credit Agreement dated September 30, 2002, among AirNet Systems, Inc.,  the Lenders from time to time party thereto and The Huntington National Bank, as Administrative Agent and Lead Arranger	Incorporated herein by reference to Exhibit 4.1 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-13025)
4.2	Agreement to furnish instruments defining rights of holders of long-term debt	Filed herewith.

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Exhibit No.	Description	Location
10.1*	AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan (reflects amendments through February 17, 2004)	Filed herewith.
10.2	Indemnification Agreement, dated as of May 15, 1996, among AirNet Systems, Inc. and Eric P. Roy, Glenn M. Miller, Charles A. Renusch, Guy S. King, Lincoln L. Rutter, Kendall W. Wright and William R. Sumser	Incorporated herein by reference to Exhibit 10.11 to AirNet’s Amendment No. 2 to AirNet Systems Inc.’s Form S-1 Registration Statement (Registration No. 333-03092) filed on May 24, 1996 (“Amendment No. 2”)
10.3	Indemnification Agreement, dated as of May 15, 1996, between Gerald G. Mercer and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.12 to AirNet Systems, Inc.’s Amendment No. 2
10.4*	Employment Agreement, effective March 1, 2001, between AirNet Systems, Inc. and Joel E. Biggerstaff	Incorporated herein by reference to Exhibit 10.4 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.5*	Employment Agreement, effective March 1, 2001, between AirNet Systems, Inc. and William R. Sumser	Incorporated herein by reference to Exhibit 10.5 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.6*	Employment Agreement, effective March 1, 2001, between AirNet Systems, Inc. and Jeffrey B. Harris	Incorporated herein by reference to Exhibit 10.6 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.7*	AirNet Systems, Inc. Director Deferred Compensation Plan amended March 17, 2004	Filed herewith.
10.8*	AirNet Systems, Inc. Salary for Options Conversion Plan, effective February 6, 2000	Incorporated herein by reference to Exhibit 10.8 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.9*	Agreement, made as of July 17, 2001,  between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference to Exhibit 10.9 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-13025)
10.10*	Jerry Mercer Transition Agreement, effective May 26, 2001, between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference to Exhibit 10.10 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-13025)
10.11*	Agreement between AirNet Systems, Inc. and Guy King, effective February 7, 2003	Incorporated herein by reference to Exhibit 10.11 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 1-13025)

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Exhibit No.	Description	Location
10.12	Stock Purchase Agreement, dated as of December 26, 2002, between Gerald G. Mercer and Gryphon Master Fund, L.P. with AirNet Systems, Inc. as a party for purposes of the registration rights provisions contained in Section 7 thereof and Exhibit III attached thereto; and Schedule A to Exhibit 10.1 identifying other substantially identical Stock Purchase Agreements between Gerald G. Mercer and other purchasers as identified in such Schedule A to Exhibit 10.1	Incorporated herein by reference to Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated January 14, 2003 and filed on January 15, 2003 (File No. 1-13025)
10.13	Stock Purchase Agreement, dated as of January 9, 2003, between Spring Hill Camps and Bonanza Master Fund, Ltd. with AirNet Systems, Inc. as a party for purposes of the registration rights provisions contained in Section 7 thereof and Exhibit III attached thereto; and Schedule A to Exhibit 10.2 identifying other substantially identical Stock Purchase Agreements between Spring Hill Camps and other purchasers as identified in such Schedule A to Exhibit 10.2	Incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K, dated January 14, 2003 and filed on January 15, 2003 (File No. 1-13025)
10.14	Land Lease at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated February 20, 2004 and filed on February 24, 2004 (File No. 1-13025) (“AirNet Systems, Inc.’s February 2004 8-K”)
10.15	Leasehold Improvements Purchase Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.2 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.16	Rickenbacker International Airport Operating Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.3 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.17	Non-Exclusive License Agreement to Conduct an Aeronautical Business at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.4 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.18	Rickenbacker International Airport Non-Public Self-Fueling Permit, executed by  Columbus Regional Airport Authority on January 20, 2004 and by AirNet Systems, Inc. on January 15, 2004	Incorporated herein by reference to Exhibit 10.5 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.19	Rickenbacker International Airport Commingling Fuel Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.6 to AirNet Systems, Inc.’s February 2004 Form 8-K

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Exhibit No.	Description	Location
10.20	Non-Exclusive Access Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference to Exhibit 10.7 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.21	No-Build Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference to Exhibit 10.8 to AirNet Systems, Inc.’s February 2004 Form 8-K
14	Code of Business Conduct and Ethics	Filed herewith
21	Subsidiaries of AirNet Systems, Inc.	Filed herewith
23	Consent of Ernst & Young LLP	Filed herewith
24	Powers of Attorney	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)	Filed herewith
32	Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)	Filed herewith

* Denotes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 15 of Form 10-K.

(b)Reports on Form 8-K:

On December 4, 2003, AirNet Systems, Inc. filed a Current Report on Form 8-K, dated December 3, 2003, reporting under Item 5. Other Events and Regulation FD Disclosure, the creation of a wholly-owned electronic check processing subsidiary, Fast Forward Solutions, LLC.  A copy of the related news release was included as Exhibit 99.

On December 9, 2003, AirNet Systems, Inc. filed a Current Report on Form 8-K dated December 8, 2003 reporting under Item 5. Other Events and Regulation FD Disclosure, that Fast Forward Solutions, LLC, a wholly-owned subsidiary of AirNet Systems, Inc., issued a news release announcing that it had signed a term sheet with NetDeposit, Inc. regarding their intent to finalize an agreement to provide a standard Image Replacement Document (“IRD”) check processing solution to the payments industry.  A copy of the news release was included as Exhibit 99 and incorporated herein by reference.

(c)Exhibits filed with or incorporated by reference in this Annual Report on Form 10-K are listed in Item 14(a)(3) above.

(d)The required financial statement schedule is included in Item 14(a)(2) above.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

			AIRNET SYSTEMS, INC.
Dated: March 29, 2004	By:	/s/ Joel E. Biggerstaff
	Joel E. Biggerstaff, Chairman of the Board, Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Joel E. Biggerstaff	Chairman of the Board, Chief Executive Officer,  and	March 29, 2004
Joel E. Biggerstaff	President (Principal Executive Officer)
/s/ Gary W. Qualmann	Chief Financial Officer, Treasurer and Secretary (Principal	March 29, 2004
Gary W. Qualmann	Financial Officer)
/s/ Denise D. Brown	Controller and Principal Accounting Officer	March 29, 2004
Denise D. Brown
*Russell M. Gertmenian	Director	March 29, 2004
Russell M. Gertmenian
*David P. Lauer	Director	March 29, 2004
David P. Lauer
*Bruce D. Parker	Director	March 29, 2004
Bruce D. Parker
*James E. Riddle	Director	March 29, 2004
James E. Riddle

*By	/s/ Joel E. Biggerstaff
	Joel E. Biggerstaff, Attorney-in-Fact

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INDEX TO EXHIBITS

Exhibit No.	Description	Location
2.1	Asset Purchase Agreement, dated July 11, 2003, by and among AirNet Systems, Inc., AirNet Management, Inc., Mercury Business Services, Inc., Andrew R. Cooke, Peter G. Salisbury and Christopher F. Valente.  [Pursuant to Item 601(b)(2) of SEC Regulation S-K, certain schedules and exhibits to this Asset Purchase Agreement have not been filed with this exhibit.  The schedules contain various items relating to the assets being sold and the representations and warranties of the parties to the Asset Purchase Agreement.  AirNet Systems, Inc. has agreed to furnish supplementally any omitted schedule or exhibit to the SEC upon request.]	Incorporated herein by reference to Exhibit 2.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated and filed on July 15, 2003 (File No. 1-13025)
3.1	Amended Articles of AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 2.1 to AirNet Systems, Inc.’s Registration Statement on Form 8-A (File No. 0-28428) filed on May 3, 1996 (the “1996 Form 8-A”)
3.2	Certificate of Amendment to the Amended Articles of AirNet Systems, Inc. as filed with the Ohio Secretary of State on May 28, 1996	Incorporated herein by reference to Exhibit 4(b) to AirNet Systems, Inc.’s Registration Statement on Form S-8 (Registration No. 333-08189) filed on July 16, 1996 (the “1996 Form S-8”)
3.3	Amended Articles of AirNet Systems, Inc. (as amended through May 28, 1996) [for SEC reporting compliance purposes only - not filed with the Ohio Secretary of State]	Incorporated herein by reference to Exhibit 4(c) to AirNet Systems, Inc.’s 1996 Form S-8
3.4	Code of Regulations of AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 2.2 to AirNet Systems, Inc.’s 1996 Form 8-A
3.5	Certificate regarding adoption of amendment to Section 1.10 of the Code of Regulations of AirNet Systems, Inc. by the shareholders on May 12, 2000	Incorporated herein by reference to Exhibit 3.1 to AirNet Systems, Inc.’s Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-13025)
3.6	Code of Regulations of AirNet Systems, Inc. (reflecting amendments through May 12, 2000) [for SEC reporting compliance purposes only]	Incorporated herein by reference to Exhibit 3.2 to AirNet Systems, Inc.’s Form 10-Q for the quarterly period ended June 30, 2000 (File No. 1-13025)
4.1	Credit Agreement dated September 30, 2002, among AirNet Systems, Inc., the Lenders from time to time party thereto and The Huntington National Bank, as Administrative Agent and Lead Arranger	Incorporated herein by reference to Exhibit 4.1 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002 (File No. 1-13025)
4.2	Agreement to furnish instruments defining rights of holders of long-term debt	Filed herewith.

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Exhibit No.	Description	Location
10.1*	AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan (reflects amendments through February 17, 2004)	Filed herewith.
10.2	Indemnification Agreement, dated as of May 15, 1996, among AirNet Systems, Inc. and Eric P. Roy, Glenn M. Miller, Charles A. Renusch, Guy S. King, Lincoln L. Rutter, Kendall W. Wright and William R. Sumser	Incorporated herein by reference to Exhibit 10.11 to AirNet’s Amendment No. 2 to AirNet Systems Inc.’s Form S-1 Registration Statement (Registration No. 333-03092) filed on May 24, 1996 (“Amendment No. 2”)
10.3	Indemnification Agreement, dated as of May 15, 1996, between Gerald G. Mercer and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.12 to AirNet Systems, Inc.’s Amendment No. 2
10.4*	Employment Agreement, effective March 1, 2001, between AirNet Systems, Inc. and Joel E. Biggerstaff	Incorporated herein by reference to Exhibit 10.4 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.5*	Employment Agreement, effective March 1, 2001, between AirNet Systems, Inc. and William R. Sumser	Incorporated herein by reference to Exhibit 10.5 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.6*	Employment Agreement, effective March 1, 2001, between AirNet Systems, Inc. and Jeffrey B. Harris	Incorporated herein by reference to Exhibit 10.6 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.7*	AirNet Systems, Inc. Director Deferred Compensation Plan amended March 17, 2004	Filed herewith.
10.8*	AirNet Systems, Inc. Salary for Options Conversion Plan, effective February 6, 2000	Incorporated herein by reference to Exhibit 10.8 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-13025)
10.9*	Agreement, made as of July 17, 2001,  between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference to Exhibit 10.9 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-13025)
10.10*	Jerry Mercer Transition Agreement, effective May 26, 2001, between AirNet Systems, Inc. and Gerald G. Mercer	Incorporated herein by reference to Exhibit 10.10 to AirNet Systems, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File No. 1-13025)
10.11*	Agreement between AirNet Systems, Inc. and Guy King, effective February 7, 2003	Incorporated herein by reference to Exhibit 10.11 to AirNet Systems, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 1-13025)

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Exhibit No.	Description	Location
10.12	Stock Purchase Agreement, dated as of December 26, 2002, between Gerald G. Mercer and Gryphon Master Fund, L.P. with AirNet Systems, Inc. as a party for purposes of the registration rights provisions contained in Section 7 thereof and Exhibit III attached thereto; and Schedule A to Exhibit 10.1 identifying other substantially identical Stock Purchase Agreements between Gerald G. Mercer and other purchasers as identified in such Schedule A to Exhibit 10.1	Incorporated herein by reference to Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated January 14, 2003 and filed on January 15, 2003 (File No. 1-13025)
10.13	Stock Purchase Agreement, dated as of January 9, 2003, between Spring Hill Camps and Bonanza Master Fund, Ltd. with AirNet Systems, Inc. as a party for purposes of the registration rights provisions contained in Section 7 thereof and Exhibit III attached thereto; and Schedule A to Exhibit 10.2 identifying other substantially identical Stock Purchase Agreements between Spring Hill Camps and other purchasers as identified in such Schedule A to Exhibit 10.2	Incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K, dated January 14, 2003 and filed on January 15, 2003 (File No. 1-13025)
10.14	Land Lease at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.1 to AirNet Systems, Inc.’s Current Report on Form 8-K, dated February 20, 2004 and filed on February 24, 2004 (File No. 1-13025) (“AirNet Systems, Inc.’s February 2004 8-K”)
10.15	Leasehold Improvements Purchase Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.2 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.16	Rickenbacker International Airport Operating Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.3 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.17	Non-Exclusive License Agreement to Conduct an Aeronautical Business at Rickenbacker International Airport, dated as of January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.4 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.18	Rickenbacker International Airport Non-Public Self-Fueling Permit, executed by  Columbus Regional Airport Authority on January 20, 2004 and by AirNet Systems, Inc. on January 15, 2004	Incorporated herein by reference to Exhibit 10.5 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.19	Rickenbacker International Airport Commingling Fuel Agreement, dated January 20, 2004, between Columbus Regional Airport Authority and AirNet Systems, Inc.	Incorporated herein by reference to Exhibit 10.6 to AirNet Systems, Inc.’s February 2004 Form 8-K
10.20	Non-Exclusive Access Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference to Exhibit 10.7 to AirNet Systems, Inc.’s February 2004 Form 8-K

51

Exhibit No.	Description	Location
10.21	No-Build Easement granted by Columbus Regional Airport Authority in favor of AirNet Systems, Inc., executed on January 20, 2004	Incorporated herein by reference to Exhibit 10.8 to AirNet Systems, Inc.’s February 2004 Form 8-K
14	Code of Business Conduct and Ethics	Filed herewith
21	Subsidiaries of AirNet Systems, Inc.	Filed herewith
23	Consent of Ernst & Young LLP	Filed herewith
24	Powers of Attorney	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)	Filed herewith
32	Section 1350 Certification (Principal Executive Officer and Principal Financial Officer)	Filed herewith

*  Denotes a management contract or compensatory plan or arrangement required to be filed pursuant to Item 15 of Form 10-K.

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EX-4.2

Exhibit 4.2

[AirNet Systems, Inc. Letterhead]

March 29, 2004

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C.  20549

Re:          AirNet Systems, Inc. – Annual Report on Form 10-K for the fiscal year ended December 31, 2003

Ladies and Gentlemen:

AirNet Systems, Inc., an Ohio corporation (“AirNet”), is today executing and filing an Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the “Form 10-K”).

Pursuant to the instructions to Item 601(b)(4)(iii) of Regulation S-K, AirNet hereby agrees to furnish to the Commission, upon request, copies of those instruments and agreements defining the rights of holders of long-term debt of AirNet and its consolidated subsidiaries, which are not being filed as exhibits to the Form 10-K.  Such long-term debt does not exceed 10% of the total assets of AirNet and it subsidiaries on a consolidated basis.

Very truly yours,

AIRNET SYSTEMS, INC.

/s/ Gary W. Qualmann

Gary W. Qualmann

Chief Financial Officer, Treasurer and Secretary

EX-10.1

Exhibit 10.1

AIRNET SYSTEMS, INC.

AMENDED AND RESTATED

1996 INCENTIVE STOCK PLAN

(Reflects amendments through February 17, 2004)

SECTION 1.  Purposes.  The purposes of the Amended and Restated AirNet Systems, Inc. 1996 Incentive Stock Plan are to promote the interests of AirNet Systems, Inc. and its shareholders by (a) attracting and retaining exceptional executive personnel and other key employees of, and advisors and consultants to, and directors of the Company and its Subsidiaries; (b) motivating such employees, advisors and consultants and Eligible Directors by means of performance-related incentives to achieve longer-range performance goals; and (c) providing all long-term employees of the Company and its Subsidiaries with the opportunity to participate in the long-term growth and financial success of the Company.

SECTION 2.  Definitions.  As used in the Plan, the following terms shall have the meanings set forth below:

“Award” shall mean any Option, Restricted Stock Award or Performance Award but shall not include any Director Option, any Right to Purchase or any Share issued pursuant to Section 10 of this Plan.

“Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award which may, but need not, be executed or acknowledged by a Participant.

“Board” shall mean the Board of Directors of the Company.

“Cash Account” shall mean an account established for each Participant to which amounts withheld through payroll deductions shall be credited to purchase Shares under the provisions of Section 10.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

“Committee” shall mean a committee of the Board designated by the Board to administer the Plan which shall satisfy the requirements contained in Section 1.162-27(c)(4) of the Final Regulations.  The Committee shall be composed of not less than the minimum number of persons from time to time required by Rule l6b-3, each of whom shall be (a) a person from time to time permitted by the rules promulgated under Section 16 of the Exchange Act in order for grants of Awards to be exempt transactions under said Section 16; and (b) receiving remuneration in no other capacity than as a director, except as permitted under Section 1.162-27(e)(3) of the Final Regulations.

“Company” shall mean AirNet Systems, Inc., together with any successor thereto.

“Covered Employee” shall mean any individual who, on the last day of the Company’s taxable year, is

(a)the chief executive officer of the Company or is acting in such capacity; or

(b)among the four highest compensated officers (other than the chief executive officer).

For this purpose, whether an individual is the chief executive officer or one of the four highest compensated officers of the Company shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act.

“Director Option” shall mean a Non-Qualified Stock Option granted to an Eligible Director pursuant to Section 6(e) of the Plan.  [Amended effective August 18, 1999.]

“Effective Date” shall mean the date on which the Plan is approved by the shareholders of the Company.

“Eligible Director” shall mean, on any date, a person who is serving as a member of the Board but shall not include a person who is an Employee of the Company or a Subsidiary or a person who was a member of the Board on May 1, 1996.

“Employee” shall mean (a) an employee of the Company or of any Subsidiary; and (b) except with respect to an Incentive Stock Option, a Right to Purchase and the issuance of Shares under Section 10, an advisor or consultant to the Company or to any Subsidiary.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Fair Market Value” shall mean the fair market value of the property or other item being valued, as determined by the Committee in its sole discretion, provided that the fair market value of Shares shall be determined by reference to the most recent closing price quotation or, if none, the average of the bid and asked prices, as reported as of the most recent available date with respect to the sale of Shares on any quotation system approved by the National Association of Securities Dealers then reporting sales of Shares or on any national securities exchange on which the Shares are then listed.

“Final Regulations” shall mean the final regulations promulgated by the Internal Revenue Service under Section 162(m) of the Code.

“Incentive Stock Option” shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan and that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto.

“Non-Qualified Stock Option” shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan and that is not intended to be an Incentive Stock Option.

“Offering” shall mean an opportunity provided by the Committee to purchase Shares under the provisions of Section 10.  Offerings may be consecutive or concurrent, as determined by the Committee.  The Committee shall designate the maximum number of Shares that may be purchased under each Offering.  Shares not sold under one Offering may be offered again in any subsequent Offering.

“Offering Effective Date” shall mean the first business day of the month designated by the Committee as the start of the Offering Period applicable to an Offering.

“Offering Period” shall mean the duration of an Offering, as designated by the Committee.  The Offering Period for any Offering shall not exceed 12 months.

“Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option but shall not include a Director Option.

“Participant” shall mean any Employee selected by the Committee to receive an Award under the Plan.  In addition, for purposes of Section 10, the term “Participant” shall include any Employee who has satisfied the requirements of such section to acquire Shares under the Plan.

“Performance Award” shall mean any right granted under Section 8 of the Plan.

“Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.

“Plan” shall mean the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan.

“Restricted Stock” shall mean any Share granted under Section 7 of the Plan.

“Right to Purchase” shall mean an option to purchase Shares granted to a Participant who elects to participate in an Offering under the provisions of Section 10.  A Right to Purchase granted for an Offering shall terminate following the close of business on the Right to Purchase Date for that Offering to the extent that such Right to Purchase is not exercised on such Right to Purchase Date.

“Right to Purchase Date” shall mean the last business day of an Offering Period to purchase Shares under the provisions of Section 10.

“Rule l6b-3” shall mean Rule l6b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time.

2

“SEC” shall mean the Securities and Exchange Commission or any successor thereto and shall include the staff thereof.

“Shares” shall mean the Common Shares, $0.01 par value, of the Company or such other securities of the Company as may be designated by the Committee from time to time.

“Share Account” shall mean an account established for each Participant who exercises a Right to Purchase under Section 10.  A Participant’s Share Account will be credited with the number of Shares purchased on each Right to Purchase Date and debited for the number of Shares withdrawn by the Participant after such date.

“Subsidiary” shall mean any corporation which, on the date of determination, qualified as a subsidiary corporation of the Corporation under Section 424(f) of the Code.

“Substitute Awards” shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by the Company or with which the Company combines.

“Ten Percent Shareholder” shall mean any shareholder who, at the time an Incentive Stock Option is granted to such shareholder, owns (within the meaning of Section 424(d) of the Code) more than ten percent of the voting power of all classes of stock of the Company or a Subsidiary.

SECTION 3.  Administration.

(a)The Plan shall be administered by the Committee.  Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to an eligible Employee; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights or other matters are to be calculated in connection with Awards; (iv) determine the terms and conditions of any Award or Director Option; (v) determine whether, to what extent and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property or canceled, forfeited or suspended; (vi) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award or Director Option made under, the Plan; (viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.

(b)Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award or Director Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including the Company, any subsidiary, any Participant, any holder or beneficiary of any Award or Director Option, any shareholder and any Employee.

SECTION 4.  Shares Available for the Plan.

(a)Shares Available.  Subject to adjustment as provided in Section 4(b), the number of Shares available for issuance under the Plan shall be 1,650,000. If any Shares covered by an Award or Director Option granted under the Plan, or to which such an Award or Director Option relates, or any Shares issued under Section 10, are forfeited, or if an Award or Director Option otherwise terminates or is canceled without the delivery of Shares, then the Shares which may be issued under this Plan, to the extent of any such settlement, forfeiture, termination or cancellation, shall again be, or shall become, Shares available for issuance, to the extent permissible under Rule l6b-3.  In the event that any Option, Director Option or other Award granted hereunder is exercised through the delivery of Shares, the number of Shares available under the Plan shall be increased by the number of Shares surrendered, to the extent permissible under Rule l6b-3.

(b)Adjustments.  In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall proportionately adjust any or all (as necessary) of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) which may be issued under the Plan; (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards; (iii) the number of Shares or other securities

3

of the Company (or number and kind of other securities or property) and the purchase price per Share subject to purchase under Section 10 hereof; and (iv) the grant or exercise price with respect to any Award; provided, in each case, that with respect to Awards of Incentive stock Options, no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code, as from time to time amended.  If, pursuant to the preceding sentence, an adjustment is made to outstanding Options held by Participants, a corresponding adjustment shall be made to outstanding Director Options and if, pursuant to the preceding sentence, an adjustment is made to the number of Shares authorized for issuance under the Plan, a corresponding adjustment shall be made to the number of Shares subject to each Director Option thereafter granted pursuant to paragraph (iii) or paragraph (iv) of Section 6(e).  [Last sentence of Section 4(b) amended effective September 7, 2001.]

(c)Sources of Shares.  Any Shares issued pursuant to the terms of this Plan may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares.

SECTION 5.  Eligibility for Awards and Director Options.  Any Employee, including any officer or employee-director of the Company or any Subsidiary, who is not a member of the Committee, shall be eligible to be designated a Participant for purposes of receiving an Award under the Plan.  Each Eligible Director shall be eligible to receive Director Options in accordance with Section 6(e) hereof.  [Last sentence of Section 5 amended effective August 18, 1999.]

SECTION 6.  Options and Director Options.

(a)Grant.  Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Options shall be granted, the number of Shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option.  The Committee shall have the authority to grant Incentive Stock Options or to grant Non-Qualified Stock Options or to grant both types of options.  In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to, and comply with, such rules as may be prescribed by Section 422 of the Code, as from time to time amended, and any regulations implementing such statute, including, without limitation, the requirements of Code Section 422(d) which limit the aggregate Fair Market Value of Shares for which Incentive Stock Options are exercisable for the first time to $100,000 per calendar year.  Each provision of the Plan and of each written option agreement relating to an Option designated as an Incentive Stock Option shall be construed so that such Option qualifies as an Incentive Stock Option, and any provision that cannot be so construed shall be disregarded.

(b)Exercise Price.  The Committee shall establish the exercise price at the time each Option is granted, which price, except in the case of Options that are Substitute Awards, shall not be less than 100% of the per Share Fair Market Value on the date of grant.  Notwithstanding any provision contained herein, in the case of an Incentive Stock Option, the exercise price at the time such Incentive Stock Option is granted to any Employee who, at the time of such grant, is a Ten Percent Shareholder, shall not be less than 110% of the per Share Fair Market Value on the date of grant.

(c)Exercise.  Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter; provided, in the case of an Incentive Stock Option, a Participant may not exercise such Incentive Stock Option after (i) the date which is ten years (five years in the case of a Participant who is a Ten Percent Shareholder) after the date on which such Incentive Stock Option is granted; or (ii) the date which is three months (twelve months in the case of a Participant who becomes disabled, as defined in Section 22(e)(3) of the Code, or who dies) after the date on which he ceases to be an Employee of the Company or a Subsidiary.  The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable.  The Committee shall have the right to accelerate the exercisability of any Option or outstanding Option in its discretion.  Notwithstanding anything herein or in any Award Agreement to the contrary, in the event the Company merges with another Person and the Company is not the survivor in the merger, or in the event all or substantially all of the Company’s assets or stock is acquired by another Person (a “Change in Control”), each Option granted on or after May 1, 1996 and which has not expired, been cancelled or been exercised prior to the effective date of such Change in Control, shall immediately vest and become exercisable in full.  [Last sentence added February 17, 2004.]

(d)Payment.  No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Company.  Such payment may be made in cash, or its equivalent or, if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest) or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such option price.

(e)Director Options.

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(i)On March 7, 1997, each individual then serving as an Eligible Director was granted an immediately exercisable Director Option to purchase 2,000 Shares at an exercise price per Share equal to the Fair Market Value on the date of grant.

(ii)On August 19, 1998, each individual then serving as an Eligible Director was granted a Director Option to purchase 20,000 Shares at an exercise price per share equal to the Fair Market Value on the date of grant.  Each Director Option granted on August 19, 1998 shall vest and become exercisable as follows: (A) with respect to 20% of the Shares covered thereby on the grant date; and (B) with respect to an additional 20% of the Shares covered thereby on each of the first, second, third and fourth anniversaries of the grant date.

(iii)Any individual who is a newly-elected or appointed Eligible Director after August 19, 1998 shall be granted a Director Option to purchase 20,000 Shares effective on the date of his appointment or election to the Board.  Each Director Option granted in accordance with this paragraph (iii) of Section 6(e) shall be granted at an exercise price per Share equal to the Fair Market Value on the date of grant.  In addition, each such Director Option shall vest and become exercisable as follows: (A) with respect to 20% of the Shares covered thereby on the grant date; and (B) with respect to an additional 20% of the Shares covered thereby on each of the first, second, third and fourth anniversaries of the grant date.

(iv)On the first business day of each fiscal year of the Company commencing January 1, 2002, each individual who (A) is then serving as an Eligible Director and (B) has served for at least one full one-year term as an Eligible Director, will automatically be granted a Director Option to purchase 4,000 Shares at an exercise price per share equal to the Fair Market Value on the grant date.  Each such Director Option shall vest and become exercisable as follows: (X) with respect to 20% of the Shares covered thereby on the grant date; and (Y) with respect to an additional 20% of the Shares covered thereby on each of the first, second, third and fourth anniversaries of the grant date.  [Paragraph (iv) added effective September 7, 2001.]

(v)The Board shall have the sole and complete authority to grant Director Options to the Eligible Directors in addition to those nondiscretionary Director Options granted in accordance with paragraphs (i) through (iv) of this Section 6(e).  The Board shall have the authority to determine the date of grant of each such Director Option, the number of Shares covered by each such Director Option, and the date or dates when each such Director Option becomes exercisable.  Any Director Option granted by the Board shall be granted at an exercise price per Share equal to the Fair Market Value on the date of grant.  [First sentence of paragraph amended and paragraph redesignated from (iv) to (v) effective September 7, 2001.]

(vi)Each Director Option granted to an Eligible Director on or after August 18, 1999 shall become immediately exercisable in full (A) by the Eligible Director if he retires from service as a director of the Company, (B) by the Eligible Director if he becomes disabled within the meaning of Section 22(e)(3) of the Code or (C) upon the death of an Eligible Director, by the Eligible Director’s estate or by the person who acquires the right to exercise the Director Options of the Eligible Director upon his death by bequest or inheritance.  [Paragraph redesignated from (v) to (vi) effective September 7, 2001.]

(vii)Once vested and exercisable, each Director Option shall remain exercisable until the earlier to occur of the following two dates: (A) the tenth anniversary of the date of grant of such Director Option; or (B) three months (twelve months in the case of an Eligible Director who becomes disabled, as defined in Section 22(e)(3) of the Code, or who dies) after the date the Eligible Director ceases to be a member of the Board, except that if the Eligible Director ceases to be a member of the Board after having been convicted of, or pled guilty or nolo contendere to, a felony, each of his Director Options shall be canceled on the date he ceases to be a member of the Board.  [Paragraph redesignated from (vi) to (vii) effective September 7, 2001.]

(viii)In the event the Company merges with another Person and the Company is not the survivor in the merger, or in the event all or substantially all of the Company’s assets or stock is acquired by another Person, each Director Option shall immediately vest and become exercisable in full.  [Paragraph redesignated from (vii) to (viii) effective September 7, 2001.]

(ix)An Eligible Director may pay the exercise price of a Director Option in the manner described in Section 6(d).  [Paragraph redesignated from (viii) to (ix) effective September 7, 2001.]

SECTION 7.  Restricted Stock.

(a)Grant.  Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Shares of Restricted Stock shall be granted, the number of Shares of Restricted Stock to be granted to each Participant, the duration of the period during which, and the conditions under which, the Restricted Stock will vest and no longer be subject to forfeiture to the Company and the other terms and conditions of such Awards.  The

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Committee shall have the right to accelerate the vesting of any Restricted Stock or outstanding Restricted Stock in its discretion.

(b)Transfer Restrictions.  Until the lapse of applicable restrictions, Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered except as provided in the Plan or the applicable Award Agreements.  Certificates issued in respect of Shares of Restricted Stock shall be registered in the name of the Participant and deposited by such Participant, together with a stock power endorsed in blank, with the Company.  Upon the lapse of the restrictions applicable to such Shares of Restricted Stock, the Company shall deliver such certificates to the Participant or the Participant’s legal representative.

(c)Payment of Dividends.  Dividends paid on any Shares of Restricted Stock may be paid directly to the Participant, or may be reinvested in additional Shares of Restricted Stock, as determined by the Committee in its sole discretion.

SECTION 8.  Performance Awards.

(a)Grant.  The Committee shall have sole and complete authority to determine the Employees who shall receive a Performance Award denominated in cash or Shares; (i) valued, as determined by the Committee, in accordance with the achievement of such performance goals during such performance periods as the Committee shall establish; and (ii) payable at such time and in such form as the Committee shall determine.

(b)Terms and Conditions.  Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award and the amount and kind of any payment or transfer to be made pursuant to any Performance Award.

(c)Payment of Performance Awards.  Performance Awards may be paid in a lump sum or in installments following the close of the performance period or, in accordance with procedures established by the Committee, on a deferred basis.

SECTION 9.  Code Section 162(m) Limitations.

(a)General Limitations.  Any Awards issued under this Plan to Covered Employees must satisfy the requirements of this Section 9.

(b)Requirements For All Awards.  Any Award issued to a Covered Employee shall constitute qualified performance-based compensation.  For this purpose, an Award shall constitute qualified performance-based compensation to the extent that:

(i)  it is granted by the Committee on account of the attainment of one or more preestablished, objective performance goals established by the Committee, in accordance with the provisions of Section 1.162-27(e)(2) of the Final Regulations;

(ii)  the material terms of the performance goal under which the Award is issued are disclosed to and subsequently approved by the shareholders of the Company, in accordance with the provisions of Section 1.162-27(e)(4) of the Final Regulations; and

(iii)  the Committee certifies, in writing, prior to the payment of any compensation under the Award, that the performance goals and any other material terms were in fact satisfied.

(c)Special Rules For Options.  The grant of an Option to a Covered Employee under the Plan shall satisfy the requirements of Section 9(b)(i) above to the extent that the following requirements are satisfied:

(i)subject to the provisions of Section 4(b), no Covered Employee shall receive Options for more than 200,000 Shares over any one-year period.  For this purpose, to the extent that any Option is canceled (as described in Section 1.162-27(e)(2)(vi)(B) of the Final Regulations), such canceled Option shall continue to be counted against the maximum number of Shares for which Options may be granted to a Covered Employee under the Plan; and

(ii)under the terms of the Option, the amount of compensation that the Covered Employee may receive is based solely on an increase in the value of the Shares after the grant of the Option, unless

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the grant of such Option is contingent upon the attainment of a performance goal that otherwise satisfies the requirements of Section 9(b)(i) above.

SECTION 10.  Stock Purchase Plan.

(a)Eligibility.  Each Employee whose employment with the Company or a Subsidiary commenced prior to an Offering Effective Date shall be eligible to participate in the Offering which is applicable to such Offering Effective Date.  Nothing contained herein and no rules and regulations prescribed by the Committee shall permit or deny participation in any Offering contrary to the requirements of the Code (including, without limitation, Sections 423(b)(3), 423(b)(4) and 423(b)(8) thereof).  Nothing contained herein and no rules and regulations prescribed by the Committee shall permit any Participant to be granted a Right to Purchase:

(i)if, immediately after such Right to Purchase is granted, such Participant would own, and/or hold outstanding options or rights to purchase, shares of the Company or of any Subsidiary, possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or such Subsidiary; or

(ii)which permits a Participant’s rights to purchase Shares under all employee stock purchase plans of the Company and of its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000.00) of Fair Market Value of Shares (determined as of the date such Right to Purchase is granted) for each calendar year in which such Right to Purchase is outstanding at any time.

For purposes of clause (a)(i) above, the provisions of Section 424(d) of the Code shall apply in determining the stock ownership of each Participant.  For purposes of clause (a)(ii) above, the provisions of Section 423(b)(8) of the Code shall apply in determining whether a Participant’s Rights to Purchase and other rights are permitted to accrue at a rate in excess of the permitted rate.

[First sentence of Section 10(a) amended February 17, 2004.]

(b)Purchase Price.  The purchase price for a Share under each Offering shall be determined by the Committee prior to the Offering Effective Date and shall be stated as a percentage of the Fair Market Value of a Share on either the Right to Purchase Date or the Offering Effective Date, whichever is the lesser, but the purchase price shall not be less than the lesser of eighty-five percent (85%) of the per share Fair Market Value of the Shares as of the Offering Effective Date or eighty-five percent (85%) of the per share Fair Market Value of the Shares as of the Right to Purchase Date for the Offering.

(c)Participation in Offerings.  Except as may be otherwise provided for herein, each Employee who is eligible for and elects to participate in an Offering shall be granted Rights to Purchase for as many Shares as he may elect to purchase during that Offering, to be paid by payroll deductions during such period.  The Committee shall establish administrative rules and regulations regarding the payroll deduction process for this Section 10, including, without limitation, minimum and maximum permissible deductions; the timing for initial elections, changes in elections and suspensions of elections during an Offering Period; and the complete withdrawal by a Participant from an Offering.  Amounts withheld through payroll deductions under this paragraph shall be credited to each Participant’s Cash Account.  Such amounts will be delivered to a custodian for the Plan and held pending the purchase of Shares as described in paragraph (e) of this Section 10.  All amounts held in a Participant’s Cash Account shall bear interest at a rate as may be agreed upon by the Committee and the custodian of the Plan.  If a Participant withdraws entirely from an Offering (pursuant to rules established by the Committee), his Cash Account balance will not be used to purchase Shares on the Right to Purchase Date.  Instead, the portion of the Cash Account equal to the Participant’s payroll deductions under the Plan during the Offering Period will be refunded to the Participant without interest (notwithstanding any provision contained herein).  Such a Participant will not be eligible to re-enroll in that Offering, but may resume participation on the Offering Effective Date for the next Offering.  In addition, the Committee may impose such other restrictions on the right to withdraw from Offerings as it may deem appropriate.

(d)Grant of Rights to Purchase.  Rights to Purchase with respect to Shares shall be granted to Participants who elect to participate in an Offering.  Such Rights to Purchase may be exercised on the Right to Purchase Date applicable to the Offering.  The number of Shares subject to Rights to Purchase on each Right to Purchase Date shall not exceed the number of Shares authorized for issuance during the applicable Offering.

(e)Exercise of Rights to Purchase.  Each Right to Purchase shall be exercised on the applicable Right to Purchase Date.  Each Participant automatically and without any act on his part will be deemed to have exercised a Right to Purchase on each Right to Purchase Date to purchase the number of whole and fractional Shares which the amount in his Cash Account at that time is sufficient to purchase at the applicable purchase price.  Any remaining amount credited to a Participant’s Cash Account after such application shall remain in such Participant’s Cash Account for use in the next Offering unless withdrawn by the Participant.  The Company shall deliver to the custodian of the Plan as soon as practicable after each Right to Purchase Date a certificate for the total number of Shares purchased by all Participants on such Right to

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Purchase Date.  The custodian shall allocate the proper number of Shares to the Share Account of each Participant.  If the aggregate Cash Account balances of all Participants on any Right to Purchase Date exceeds the amount required to purchase all of the Shares subject to Rights to Purchase on that Right to Purchase Date, then the Shares subject to Rights to Purchase shall be allocated pro rata among the Participants in the proportion that the number of Shares subject to Rights to Purchase bears to the number of Shares that could have been purchased with such aggregate amount available, if an unlimited number of Shares were available for purchase.  Any balances remaining in Participants’ Cash Accounts due to over subscription will remain in the Participants’ Cash Accounts for use in the next Offering unless withdrawn by the Participant.

(f)Withdrawals From Share Accounts and Dividend Reinvestment.  A Participant may withdraw the Shares credited to his Share Account on a first-in-first-out basis.  The Committee shall establish rules and regulations governing such withdrawals.  All cash dividends paid, if any, with respect to the Shares credited to a Participant’s Share Account shall be added to the Participant’s Cash Account and thereby shall be applied to exercise Rights to Purchase for Shares on the Right to Purchase Date next succeeding the date such cash dividends are paid by the Company.  An election to leave Shares with the custodian shall constitute an election to apply the cash dividends with respect to such Shares to the exercise of Rights to Purchase hereunder.  Shares so purchased shall be applied to the Shares credited to each Participant’s Share Account.

(g)Termination of Employment.  If the employment of a Participant terminates for any reason, including death, disability, retirement or other cause, his participation in this Section 10 of the Plan shall automatically and without any act on his part terminate as of the date of termination of his employment.  As soon as practicable following the Participant’s termination of employment, the Company shall refund to such Participant (or beneficiary, in the case of the Participant’s death) any amount in his Cash Account which constitutes payroll deductions, without interest, and the custodian shall deliver to such Participant a share certificate issued in his name for the number of whole Shares credited to his Share Account through prior Offerings.

(h)Effect of Merger or Liquidation Involving the Company.  In the event the Company merges with another entity and the Company is not the surviving entity, or in the event all or substantially all of the Company’s assets or stock is acquired by another entity, the Committee may, in connection with any such transaction, cancel each outstanding Right to Purchase and refund sums previously collected from Participants under the canceled Rights to Purchase, or, in its discretion, cause each Participant with outstanding Rights to Purchase to have his or her Rights to Purchase exercised immediately prior to such transaction and thereby the balance of his or her Cash Account applied to the purchase of Shares at the purchase price in effect for that Offering, which would be treated as ending with the effective date of such transaction.  The balances of the Cash Accounts not so applied shall be refunded to the Participants.  In the event of a merger in which the Company is the surviving entity, each Participant shall be entitled to receive, for each Share as to which such Participant’s Rights to Purchase are exercised, the securities or property that a holder of one Share was entitled to receive in connection with the merger.  To the extent that this paragraph is inconsistent with any other provision in this Plan, this paragraph shall control.

SECTION 11.  Amendment and Termination.

(a)Amendments to the Plan.  The Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act for which or with which the Board deems it necessary or desirable to qualify or comply.  Notwithstanding anything to the contrary herein, the Committee may amend the Plan, subject to any shareholder approval required under Rule l6b-3, in such manner as may be necessary so as to have the Plan conform with local rules and regulations in any jurisdiction outside the United States.

(b)Amendments to Awards.  Subject to the provisions of Section 9, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any Award theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would impair the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.

(c)Cancellation of Award.  Any provision of this Plan (except Section 9) or any Award Agreement to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in consideration of the granting to the holder of an alternative Award having a Fair Market Value equal to the Fair Market Value of such canceled Award.

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SECTION 12.  General Provisions.

(a)Nontransferability.

(i)  Each Award, each Director Option and each Right to Purchase, and each right under any Award, any Director Option or any Right to Purchase, shall be exercisable during the Participant’s or the Eligible Director’s lifetime only by the Participant or the Eligible Director or, if permissible under applicable law, by the Participant’s or the Eligible Director’s guardian or legal representative or a transferee receiving such Award, Director Option or Right to Purchase pursuant to a qualified domestic relations order (“QDRO”), as determined by the Committee.

(ii)  No Award, Director Option or Right to Purchase that constitutes a “derivative security,” for purposes of Section 16 of the Exchange Act, may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant or Eligible Director otherwise than by will or by the laws of descent and distribution or pursuant to a QDRO, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Subsidiary; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.

(b)No Rights to Awards.  No Employee, Participant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Employees, Participants or holders or beneficiaries of Awards.  The terms and conditions of Awards need not be the same with respect to each recipient.

(c)Share Certificates.  All certificates for Shares or other securities of the Company or any Subsidiary delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the SEC, any stock exchange or national securities association upon which such Shares or other securities are then listed and any applicable federal or state laws; and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(d)Withholding.  A Participant or Eligible Director may be required to pay to the Company or any Subsidiary and the Company or any Subsidiary shall have the right and is hereby authorized to withhold from any Award, Director Option or Share otherwise issued under the Plan, from any payment due or transfer made under any Award or any Director Option or otherwise under the Plan, or from any compensation or other amount owing to a Participant or Eligible Director, the amount of any applicable withholding taxes in respect of an Award, a Director Option or a Share otherwise issued under the Plan, its exercise or any payment or transfer under an Award, under a Director Option or otherwise under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes.  With respect to Participants who are not subject to Section 16 of the Exchange Act, the withholding may be in the form of cash, Shares, other securities, other Awards or other property as the Committee may allow.  With respect to Participants and Eligible Directors who are subject to Section 16 of the Exchange Act, the withholding shall be in cash or in any other property permitted by Rule 16b-3 as the Committee may allow.  The Committee may provide for additional cash payments to Participants or Eligible Directors to defray or offset any tax arising from the grant, vesting, exercise or payments of any Award or Share otherwise issued under this Plan.

(e)Award Agreements.  Each Award hereunder shall be evidenced by an Award Agreement which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including but not limited to the effect on such Award of the death, retirement or other termination of employment of a Participant and the effect, if any, of a change in control of the Company.

(f)No Limit on Other Compensation Arrangements.  Nothing contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options, restricted stock, shares and other types of awards provided for hereunder (subject to shareholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases.

(g)No Right to Employment.  Eligibility for participation in this Plan or the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Subsidiary.  Further, the Company or a Subsidiary may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

(h)No Rights as Shareholder.  Subject to the provisions of the Plan and/or the applicable Award, no Participant or holder or beneficiary of any Award, Director Option or Right to Purchase shall have any rights as a shareholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares.

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Notwithstanding the foregoing, in connection with each grant of Restricted Stock hereunder, the applicable Award shall specify if and to what extent the Participant shall not be entitled to the rights of a shareholder in respect of such Restricted Stock.

(i)Governing Law.  The validity, construction and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Ohio.

(j)Severability.  If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

(k)Other Laws.  The Committee may refuse to issue or transfer any Shares or other consideration under the Plan if, acting in its sole discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the issuance of such Shares shall be promptly refunded to the relevant Participant, holder or beneficiary.  Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal securities laws.

(l)No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Subsidiary and a Participant or any other Person.  To the extent that any Person acquires a right to receive payments from the Company or any Subsidiary pursuant to the Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company or any Subsidiary.

(m)Rule l6b-3 Compliance.  With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable terms and conditions of Rule 16b-3 and any successor provisions.  To the extent that any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

(n)Headings.  Headings are given to the sections and subsections of the Plan solely as a convenience to facilitate reference.  Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

(o)No Impact on Benefits.  Plan Awards or Shares otherwise issued under this Plan shall not be treated as compensation for purposes of calculating an Employee’s rights under any employee benefit plan.

(p)Indemnification.  Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be made a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf.  The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Regulations, by contract, as a matter of law, or otherwise.

SECTION 13.  Term of the Plan.

(a)Effective Date.  The AirNet Systems, Inc. 1996 Stock Incentive Plan was effective as of May 1, 1996.  The amendment and restatement of such Plan shall be effective as of the date of its approval by the shareholders of the Company.

(b)Expiration Date.  No Award or Right to Purchase shall be granted under the Plan after May 1, 2006.  Unless otherwise expressly provided for in the Plan or in an applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any conditions or rights under any such Award shall, continue after May 1, 2006.

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EX-10.7

Exhibit 10.7

AIRNET SYSTEMS, INC.

DIRECTOR DEFERRED COMPENSATION PLAN

(Reflects amendments through March 17, 2004)

Section 1.  PURPOSE - The Company desires and intends to recognize the value to the Company and its Affiliates of the past and present services of the Directors of the Company and its Affiliates, to encourage their continued service to the Company and its Affiliates and to be able to attract and retain superior Directors by adopting and implementing this Plan to provide such Directors an opportunity to defer compensation otherwise payable to them from the Company and/or Affiliate.

Section 2.  CERTAIN DEFINITIONS - The following terms will have the meanings provided below.

“Additions” means the credits applied to Deferred Compensation Accounts as provided in Section 4 hereof.

“Adjustment Date” means the last business day of each calendar quarter.

“Affiliate” means any organization or entity which, together with the Company, is a member of a controlled group of corporations or of a commonly controlled group of trades or businesses [as defined in Sections 414(b) and (c) of the Code], or of an affiliated service group [as defined in Code Section 414(m)] or other organization described in Code Section 414(o).

“Annual Retainer” means, with respect to any calendar year or other period, the fixed retainer which, absent an election to defer hereunder, would be payable to a Participant during those pay periods beginning in the given calendar year or other period.

“Beneficiary” means the person or persons designated in writing as such and filed with the Plan Administrator at any time by a Participant.  Any such designation may be withdrawn or changed in writing (without the consent of the Beneficiary), but only the last designation on file with the Plan Administrator shall be effective.

“Board” means the Board of Directors of the Company.

“Code” means the Internal Revenue Code of 1986, as may be amended from time to time.

“Common Shares” means the common shares of the Company.

“Company” means AirNet Systems, Inc. and any successor entity.

“Deferred Compensation Account” means the separate Deferred Compensation Account established for each Participant pursuant to Section 4 of the Plan.

“Director” means any director of the Company and any director of an Affiliate of the Company.

“Effective Date” means May 27, 1998.

“Eligible Compensation” means, to the extent applicable to any given Participant, the Annual Retainer and all Meeting Fees.  The extent to which a given Participant may defer a given component of Eligible Compensation shall be based upon such Participant’s eligibility to receive the given component of Eligible Compensation (as determined under applicable agreements and pay practices of the Company or applicable Affiliate) and the provisions and limitations applicable to the given component as provided under this Plan.

“Fair Market Value” of the Common Shares means the most recent closing price of the Common Shares on any securities exchange on which the Common Shares are then listed.

“Meeting Fees” means, with respect to any calendar year or other period, the fees for attendance at meetings of the Board of Directors of the Company or applicable Affiliate or any committees thereof (exclusive of expenses) which, absent an election to defer hereunder, would be payable to a Participant during those pay periods beginning in the given calendar year or other period.

“Participant” has the meaning specified in Section 3 of the Plan.

“Plan” means the AirNet Systems, Inc. Director Deferred Compensation Plan, as reflected in this document, as the same may be amended from time to time after the Effective Date.

“Plan Administrator” means the Company.

“Plan Year” means the calendar year.

Section 3.  PARTICIPANTS

Each Director as of the Effective Date shall be eligible for participation in the Plan as of such date.  Each Director who first becomes a Director after the Effective Date shall be eligible for participation in the Plan as of the date on which he becomes a Director.  A Director who is eligible for participation in the Plan and who elects to make deferral contributions pursuant to Section 4 shall be designated a “Participant” in the Plan.  A Participant shall continue to participate in the Plan until his status as a Participant is terminated by either a complete distribution of his Deferred Compensation Account pursuant to the terms of the Plan or by written directive of the Company.

Section 4.  DEFERRED COMPENSATION ACCOUNTS

A.Establishment of Deferred Compensation Accounts.  The Plan Administrator will establish a Deferred Compensation Account for each Participant.  A Participant’s Deferred Compensation Account shall have two subaccounts— a Cash Account to record amounts allocated under Section 4.D.(ii) and a Stock Account to record amounts allocated under Section 4.D.(iii).  Such Deferred Compensation Account shall be a bookkeeping account only, maintained as part of the books and records of the Company or applicable Affiliate.

B.Election of Participant.  With respect to each Plan Year, a Participant may elect to have a percentage or a flat dollar amount of his Eligible Compensation which is to be paid to him by the Company or applicable Affiliate for the Plan Year in question allocated to his Deferred Compensation Account and paid on a deferred basis pursuant to the terms of the Plan.  To exercise such an election for any Plan Year, within thirty (30) days prior to the commencement of the Plan Year, the Participant must advise the Plan Administrator of his election, in writing, on a form prescribed by the Plan Administrator (each, a “Deferral Notice”).  Notwithstanding the preceding sentence, in the first year of the Plan, or in the case of a Director who first becomes eligible to participate in the Plan after the Effective Date, a Participant may complete a Deferral Notice at any time within thirty (30) days following the date on which he is first eligible to participate in the Plan.  Such Deferral Notice shall apply only to Eligible Compensation payable to, or earned by, the Participant after the date on which the Deferral Notice is received by the Plan Administrator.  To the extent that a Participant completes a Deferral Notice in accordance with the provisions of this paragraph, such Deferral Notice shall remain in effect for future Plan Years until changed or revoked by the Participant.

C.Company Contributions.  Each time a Deferral Notice is submitted to the Plan Administrator in accordance with Section 4.B. above, during the next Plan Year (or, if applicable, the remaining Plan Year), the Company or applicable Affiliate will allocate to the Participant’s Deferred Compensation Account the percentage or dollar amount of Eligible Compensation specified in the Deferral Notice.  Any amounts allocated by the Company or Affiliate under this Section 4.C. are called “Company Contributions.”

D.Adjustment of Account Balances.

(i)Participant Election.  At the time that a Participant submits a Deferral Notice, he shall elect the percentage of his deferred amounts to be allocated to his Cash Account (to be adjusted pursuant to Paragraph (ii) of this Section 4.D.) and his Stock Account (to be adjusted pursuant to Paragraph (iii) of this Section 4.D.).  Any election made pursuant to this Paragraph (i) shall be irrevocable with respect to the affected amounts.

(ii)As of each Adjustment Date, the Plan Administrator shall credit the balance in the Participant’s Cash Account with Additions which shall mirror a specific interest rate.  For this purpose, the interest rate to be used shall be equal to the rate of return on       [designate investment (e.g. 3-year Treasury Bill)] as of the applicable Adjustment Date.  The crediting of Additions shall be determined by multiplying the Participant’s Cash Account balance as of the previous Adjustment Date by the applicable rate of interest determined under the preceding sentence.  The crediting of Additions shall occur so long as there is a balance in the Participant’s Cash Account regardless of whether the Participant has terminated service as a Director or has died.  The Plan Administrator may prescribe any reasonable method or procedure for the accounting of Additions.

(iii)As of each Adjustment Date, the amount credited to the Stock Account of each Participant shall be divided by the then Fair Market Value of the Common Shares.  Upon completion of this calculation, each Stock Account shall be credited with the resulting number of whole Common Shares; and any remaining amounts shall continue to be credited to the Stock Account until converted to whole Common Shares at a future Adjustment Date.  The Stock Account of each Participant shall be credited with cash dividends on the Common Shares on and after the date credited to the Stock Account.

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At the following Adjustment Date, the amount of cash dividends credited to each Stock Account (and any other amounts then credited to such account) shall be divided by the then Fair Market Value of the Common Shares; and the Stock Account of each Participant shall be credited with the resulting number of whole Common Shares and any remaining amounts shall continue to be credited to the Stock Account until converted to whole Common Shares at a future Adjustment Date.  The Plan Administrator may prescribe any reasonable method or procedure for the accounting of Additions.

E.Stock Adjustments.  The number of Common Shares in the Stock Account of each Participant shall be adjusted from time to time to reflect stock splits, stock dividends or other changes in the Common Shares resulting from a change in the Company’s capital structure.

F.Participant’s Rights in Accounts.  A Participant’s only right with respect to his Deferred Compensation Account (and amounts allocated thereto) will be to receive payments in accordance with the provisions of Section 5 of the Plan.

Section 5.  PAYMENT OF DEFERRED BENEFITS

A.Time of Payment.  Distribution of a Participant’s Deferred Compensation Account shall commence within thirty (30) days of the earlier of (i) the date specified by the Participant in the Deferral Notice delivered to the Plan Administrator at the time the deferral election is made; or (ii) the date of the Participant’s termination of service as a Director due to resignation, retirement, death or otherwise.

B.Method of Distribution.  A Participant’s Deferred Compensation Account shall be distributed to the Participant either in a single lump sum payment or in equal annual installments over a period of not more than ten (10) years.  To the extent that a Deferred Compensation Account is distributed in installment payments, the undisbursed portions of such account shall continue to be credited with Additions in accordance with the applicable provisions of Section 4.D.  In addition, if, as of any Adjustment Date, the amount allocated to a Participant’s Deferred Compensation Account is less than $1,000, the Plan Administrator may elect to pay such amount to the Participant and reduce the balance of his Deferred Compensation Account to zero.  The method of distribution shall be elected by the Participant in the Deferral Notice delivered to the Plan Administrator at the time the deferral election is made.  Cash Accounts shall be distributed in cash.  Stock Accounts shall be distributed either in Common Shares or in cash at the election of the Plan Administrator.  In the event that a distribution of a Participant’s Stock Account is made in cash, the Plan Administrator shall determine the amount of such distribution by using the Fair Market Value of the Common Shares as of either the date of distribution specified by the Participant in his Deferral Notice or the date on which the Participant’s service as a Director terminated, whichever may be applicable.

C.Hardship Distributions.  Prior to the time a Participant’s Deferred Compensation Account becomes payable, the Plan Administrator, in its sole discretion, may elect to distribute all or a portion of such account in the event such Participant requests a distribution due to severe financial hardship.  For purposes of this Plan, severe financial hardship shall be deemed to exist in the event the Plan Administrator determines that a Participant needs a distribution to meet immediate and heavy financial needs resulting from a sudden or unexpected illness or accident of the Participant or a member of the Participant’s family, loss of the Participant’s property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.  A distribution based on financial hardship shall not exceed the amount required to meet the immediate financial need created by the hardship and shall be made in cash.  With respect to a Participant’s Stock Account, any hardship distribution shall be made in cash, based upon the Fair Market Value of the Common Shares as of the date of distribution.

D.Designation of Beneficiary.  Upon the death of a Participant, his Deferred Compensation Account shall be paid to the Beneficiary designated by the Participant.  If there is no designated Beneficiary or no designated Beneficiary surviving at a Participant’s death, payment of the Participant’s Deferred Compensation Account shall be made to the Participant’s estate.

E.Taxes.  In the event any taxes are required by law to be withheld or paid from any payments made pursuant to the Plan, the Plan Administrator shall deduct such amounts from such payments and shall transmit the withheld amounts to the appropriate taxing authority.

Section 6.  ASSIGNMENT OR ALIENATION - The right of a Participant, Beneficiary or any other person to the payment of a benefit under this Plan may not be assigned, transferred, pledged or encumbered except by Will or by the laws of descent and distribution.

Section 7.  PLAN ADMINISTRATION - The Plan Administrator will have the right to interpret and construe the Plan and to determine all questions of eligibility and of status, rights and benefits of Participants and all other persons claiming benefits under the Plan.  In all such interpretations and constructions, the Plan Administrator’s determination will be based upon

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uniform rules and practices applied in a nondiscriminatory manner and will be binding upon all persons affected thereby.  Subject to the provisions of Section 8 below, any decision by the Plan Administrator with respect to any such matters will be final and binding on all parties.  The Plan Administrator will have absolute discretion in carrying out its responsibilities under this Section 7.

Section 8.  CLAIMS PROCEDURE

A.Filing Claims.  Any Participant or Beneficiary entitled to benefits under the Plan will file a claim request with the Plan Administrator.

B.Notification to Claimant.  If a claim request is wholly or partially denied, the Plan Administrator will furnish to the claimant a notice of the decision within ninety (90) days in writing and in a manner calculated to be understood by the claimant, which notice will contain the following information:

(i)the specific reason or reasons for the denial;

(ii)specific reference to pertinent Plan provisions upon which the denial is based;

(iii)a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(iv)an explanation of the Plan’s claims review procedure describing the steps to be taken by a claimant who wishes to submit his claims for review.

C.Review Procedure.  A claimant or his authorized representative may, with respect to any denied claim:

(i)request a review upon a written application filed within sixty (60) days after receipt by the claimant of written notice of the denial of his claim;

(ii)review pertinent documents; and

(iii)submit issues and comments in writing.

Any request or submission will be in writing and will be directed to the Plan Administrator (or its designee).  The Plan Administrator (or its designee) will have the sole responsibility for the review of any denied claim and will take all steps appropriate in the light of its findings.

D.Decision on Review.  The Plan Administrator (or its designee) will render a decision upon review.  If special circumstances (such as the need to hold a hearing on any matter pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review.  Written notice of any such extension will be furnished to the claimant prior to the commencement of the extension.  The decision on review will be in writing and will include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent provisions of the Plan on which the decision is based.  If the decision on review is not furnished to the claimant within the time limits prescribed above, the claim will be deemed denied on review.

Section 9.  UNSECURED AND UNFUNDED OBLIGATION - Notwithstanding any provision herein to the contrary, the benefits offered under the Plan shall constitute an unfunded, unsecured promise by the Company and its Affiliates to pay benefits determined hereunder which are accrued by Participants while such Participants are Directors.  No provision shall at any time be made with respect to segregating any assets of the Company or any Affiliate for payment of any benefits hereunder.  No Participant, Beneficiary or any other person shall have any interest in any particular assets of the Company or any Affiliate by reason of the right to receive a benefit under the Plan and any such Participant, Beneficiary or other person shall have only the rights of a general unsecured creditor of the Company and its Affiliates with respect to any rights under the Plan.  Nothing contained in the Plan shall constitute a guaranty by the Company, any Affiliate or any other entity or person that the assets of the Company or its Affiliates will be sufficient to pay any benefit hereunder.  All expenses and fees incurred in the administration of the Plan shall be paid by the Company or an Affiliate.

Section 10.  AMENDMENT AND TERMINATION OF THE PLAN - The Company reserves the right, by a resolution of the Board, to amend the Plan at any time, and from time to time, in any manner which it deems desirable, provided that no amendment will adversely affect the accrued benefits of any Participant under the Plan.  The Company also reserves the right, by a resolution of the Board, to terminate this Plan at any time without providing any advance notice to any Participant;

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and in the event of any Plan termination, the Company reserves the right to then distribute all amounts allocated to Participants’ Deferred Compensation Accounts.

Section 11.  BINDING UPON SUCCESSORS - The Plan shall be binding upon and inure to the benefit of the Company, its Affiliates, any of their successors and assigns and the Participants and their heirs, executors, administrators and legal representatives.  In the event of the merger or consolidation of the Company or any of its Affiliates with or into any other corporation, or in the event substantially all of the assets of the Company or any of its Affiliates shall be transferred to another corporation, the successor corporation resulting from the merger or consolidation, or the transferee of such assets, as the case may be, shall, as a condition to the consummation of the merger, consolidation or transfer, assume the obligations of the Company or Affiliate hereunder and shall be substituted for the Company or Affiliate hereunder.

Section 12.  NO GUARANTEE OF PLAN PERMANENCY - This Plan does not contain any guarantee of provisions for continued service as a Director to any Participant nor is it guaranteed by the Company or any of its Affiliates to be a permanent plan.

Section 13.  GENDER - Any reference in the Plan made in the masculine pronoun shall apply to both men and women.

Section 14.  INCAPACITY OF RECIPIENT - In the event that a Participant or Beneficiary is declared incompetent and a guardian, conservator or other person legally charged with the care of his person or of his estate is appointed, any benefits under the Plan to which such Participant or Beneficiary is entitled shall be paid to such guardian, conservator or other person legally charged with the care of his person or his estate.  Except as provided hereinabove, when the Plan Administrator, in its sole discretion, determines that a Participant or Beneficiary is unable to manage his financial affairs, the Plan Administrator may, but shall not be required to, direct the Company to make distribution(s) to any one or more of the spouse, lineal ascendants or descendants or other closest living relatives of such Participant or Beneficiary who demonstrates to the satisfaction of the Plan Administrator the propriety of making such distribution(s).  Any payment made under this Section 14 shall be in complete discharge of any liability under the Plan for such payment.  The Plan Administrator shall not be required to see to the application of any such distribution made to any person.

Section 15.  GOVERNING LAW - This Plan shall be construed in accordance with and governed by the laws of the State of Ohio.

IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer as of the Effective Date.

AIRNET SYSTEMS, INC.

By:

Its:

AIRNET SYSTEMS, INC.

DIRECTOR DEFERRED COMPENSATION PLAN

DEFERRAL NOTICE

1.ELECTION TO DEFER.

In accordance with the provisions of the AirNet Systems, Inc. Director Deferred Compensation Plan (the “Plan”), I hereby elect to defer              percent or $              of the Eligible Compensation (as defined in the Plan) payable to me for services as a Director of AirNet Systems, Inc., or any of its Affiliates.  This election supersedes any prior deferral election made by me and shall remain in effect until terminated or otherwise amended.

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2.DISTRIBUTION ELECTION.

I hereby elect to commence distribution of my Deferred Compensation Account in the Plan within 30 days of my termination as a Director or, if earlier, within 30 days of                        .

3.INVESTMENT ELECTION.

I hereby elect to have amounts deferred pursuant to this election allocated to the applicable subaccounts in the following percentages (total must equal 100%):

               Cash Account

               Stock Account

4.METHOD OF PAYMENT.

I hereby elect to receive the distribution of my Deferred Compensation Account in the Plan in the following form of payment:

               A single lump sum payment; or

               Substantially equal annual installments over a period of                (not to exceed 10) years.

5.DESIGNATION OF BENEFICIARY.

I hereby designate                                       as my primary Beneficiary and                                       as my contingent Beneficiary(ies) to receive any amounts payable under the Plan in the event of my death.

6.ACKNOWLEDGMENT.

I hereby acknowledge that my election to defer Eligible Compensation under the Plan is irrevocable with respect to amounts which are deferred under the Plan and shall remain in effect until terminated or modified.

Date	Signature
	Name (please print)

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EX-14

Exhibit 14

AirNet Systems, Inc.

Code of Business Conduct and Ethics

Established September 2001; revised February 17, 2004

Directors, officers and team members of AirNet Systems, Inc. and its subsidiaries (collectively, “AirNet”) are all ambassadors of the organization.  As ambassadors, each individual has a responsibility to project professionalism, honesty, integrity and trust on behalf of the organization, to AirNet’s shareholders, customers, potential customers and suppliers and fellow team members.  This Code of Business Conduct and Ethics (“Code of Ethics”) has been adopted by the Board of Directors of AirNet Systems, Inc. to demonstrate to the public and AirNet’s various stakeholders the importance that the Board of Directors and management place on ethical conduct.  The Code of Ethics is intended to set forth AirNet’s expectations for the conduct of ethical business practices by its officers, directors and team members, to promote advanced disclosure and review of potential conflicts of interest and similar matters, to protect and encourage the reporting of questionable behavior and to discipline appropriately those who engage in improper conduct.

It is AirNet’s expectation that each and every officer, director and team member of AirNet will carry out their responsibilities in accordance with this Code of Ethics and that each such individual shall:

•Act with honesty and integrity, avoiding actual or apparent conflicts of interest between interests of AirNet and the personal interest of the individual or his or her family.

Conflicts of interest occur when business judgments or decisions may be influenced by personal interests not shared by the organization as a whole.  Conflicts of interest will cast doubts as to an individual’s ability to act in an objective, disinterested and impartial manner.  A conflict situation may arise when a team member, officer or director, or a member of his or her family, takes actions or has interests that make it difficult to perform his or her work for AirNet objectively, impartially and effectively such as when a team member, officer or director, or a member of his or her family, has an interest in a transaction to which AirNet is a party, competes with AirNet, uses corporate property, information or position for personal gain or takes advantage of an opportunity that belongs to AirNet.  Conflicts of interest may also occur when officers, directors or team members receive loans, guarantees, excessive gifts, kick-backs or other improper personal benefits from persons with whom AirNet does business.

When a conflict of interest arises, an officer, director or team member has a duty to place AirNet’s interests ahead of his or her own personal interests.  It is essential that in those instances where a decision or practice of AirNet may appear to have been made to advance a personal interest, that the decision be made or approved by the independent and “disinterested” officers or directors of AirNet.  Thus, in those instances where a team member faces a potential conflict of interest, the team member should report the potential conflict of interest to the Director of Human Resources for his or her review.  Any action or transaction in which the personal interests of an officer or a director of AirNet may be in conflict with those of AirNet must be promptly reported to the chairperson of the Audit Committee of the Board of Directors of AirNet Systems, Inc. (the “Audit Committee”).  The Audit Committee shall have the right to determine in advance that any such action or transaction does not constitute a conflict of interest in violation of this Code of Ethics.

For purposes of determining whether a conflict of interest exists, the receipt of any personal benefit (such as a gift, gratuity or entertainment) that is not clearly reasonable and business-related from any person with whom AirNet does business, must be reported to the Audit Committee, in the case of an officer or a director, or to the Chief Financial Officer, in the case of a team member.  The Audit Committee or the Chief Financial Officer, as the case may be, shall have the right to determine in advance that any such personal benefit does not constitute a conflict of interest in violation of this Code of Ethics and/or to require that such personal benefit be returned to the provider and/or reimbursed by AirNet.

Generally, AirNet team members may accept gifts, gratuities or entertainment from non-government suppliers, potential non-government suppliers or non-government customers that are reasonable, customary in value and business-related.  AirNet team members may not, however, accept gifts, gratuities or entertainment from government suppliers, potential government suppliers or government customers that are greater than modest in value ($25).  Small gifts of food items may be shared among team members.  Large gifts of food items should be donated to local area food banks.  Customer requests for donation of significant sums of money should be forwarded to the Chief Financial Officer for approval.  Team members are not permitted to make a donation at a customer’s request and then seek reimbursement from AirNet as a business expense.  All corporate donations must have appropriate prior approval and be paid directly by AirNet.

•Assist AirNet in meeting its accounting, financial reporting and disclosure obligations and work to ensure that AirNet’s public reports and communications are accurate, certifiable, complete, objective, relevant and timely.

In compliance with the rules and regulations of the United States Securities and Exchange Commission and the New York Stock Exchange, AirNet is required to issue financial statements in conformity with generally accepted accounting principles and to make public disclosures regarding certain aspects of its business.  It is expected that all officers, directors and team members of AirNet will demonstrate honesty in our accounting policies, keep accurate and complete books, records and accounts and report all transactions in an accurate, complete and timely manner which will enable AirNet to in turn meet its accounting and financial reporting obligations in a timely manner.  False or misleading records, information or accounting entries (as to either purpose or amount) are prohibited.  Team members may not modify or sign documents without the proper authorization.  It is expected that any officer, director or team member of AirNet involved in preparing AirNet’s disclosures, or any team member or officer asked to provide information relevant to such disclosure, will adhere to the above stated principles.  Any team member or officer who, in good faith, believes that AirNet’s accounting method is inappropriate or not in compliance with generally accepted accounting principles, or has concerns about any questionable accounting or auditing matters or any other accounting, internal accounting control or auditing matter, should report this concern immediately to the Audit Committee by contacting the Human Resources Department or by contacting the Mysafeworkplace.com Hotline to confidentially and anonymously report your concern.  Mysafeworkplace.com may be reached at 800-461-9330 or via e-mail at www.mysafeworkplace.com.  The Audit Committee has established a procedure for such reports that ensures the confidentiality of the reporting person.  In addition, any officer or team member who becomes aware of a material event or fact involving AirNet that has not been previously disclosed publicly by AirNet should immediately report such material event or fact to AirNet’s Chief Financial Officer, Controller or Director of Human Resources.

•Comply with applicable federal, state, local and foreign laws, rules and regulations governing AirNet’s business and operations, including insider trading laws.

While this principle is seemingly self-explanatory, at times, the application of any particular law, rule or regulation to AirNet may not be perfectly clear.  Where a team member is unsure or has any question as to the application to AirNet of any law, rule or regulation, it is expected that the team member will seek appropriate guidance from the Director of Human Resources, who may seek guidance from the Chief Financial Officer or outside counsel to AirNet.  Officers and directors of AirNet should seek guidance from outside counsel to AirNet.  In addition, the Audit Committee is specifically empowered to engage non-company counsel if and when it believes such engagement is prudent.

During the course of employment or association with AirNet, officers, directors and team members will acquire proprietary and/or confidential information.  It is unlawful to use non-public information of AirNet or a customer or a supplier of AirNet to engage in securities transactions.  If any officer, director or team member has material, non-public information relating to AirNet or another company with which AirNet does business, including any of AirNet’s customers or suppliers, it is the policy of AirNet that the officer, director or team member may not buy or sell the securities of AirNet or the other company or engage in any other action to take personal advantage of that information.  Equally important, the information may not be passed on to others, including family members and friends.  Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure) are no exception.  Even the appearance of an improper transaction must be avoided to preserve AirNet’s reputation for adhering to the highest standards of conduct.  The very same restrictions apply to your family members who reside with you, anyone else who lives in your household, and any family members who do not live in your household but whose securities transactions are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in securities).  You are responsible for the compliance of these other persons.  A copy of AirNet’s “Statement of Company Policy Regarding Securities Trades by Officers, Directors and Team Members” can be obtained from the Chief Financial Officer or the Secretary of AirNet.

AirNet expects that no director, officer or team member will perjure himself or herself or obstruct justice while associated with or employed at AirNet.

•Work to deal fairly with AirNet’s customers, suppliers, vendors and team members.

No officer, director or team member of AirNet should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair dealing practice.  Failure to negotiate, perform or sell in good faith damages the reputation of AirNet and is not acceptable.  For example, material purchases should be made only after receiving quotes from multiple suppliers.  AirNet does not sanction offering or making payments of any kind, whether of money, services or property, to any domestic or foreign governmental or other public official or employee (whether a supplier, potential supplier, customer or potential customer) or of providing personal benefits that are not clearly reasonable and business-related to any employee, agent or representative of any non-governmental organization seeking to or doing business with AirNet.  Special rules may apply when dealing with state or local public officials such as Port Authorities and, as described below, special rules will apply when dealing with the Federal government and its agencies.  In any event, offering bribes, kickbacks, lavish gifts or entertainment to a customer or its purchasing agent or any other person

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employed by a customer in order to secure business is strictly prohibited.  If there is any question as to whether any such personal benefit is clearly reasonable and business-related, an officer or director should seek pre-approval from the Audit Committee, and a team member from the Chief Financial Officer.

All gifts made to any customer or potential customer must be properly and promptly reported to the Accounting Department of AirNet or recorded on expense reports.  Business entertainment must be moderately scaled and clearly intended to create understanding and goodwill among business partners.  For example, if tickets to a sporting or cultural event are offered, the individual offering the ticket should plan to attend the event as well.  As a general guideline, business entertainment in the form of meals and beverages is acceptable, as long as it is not lavish and does not become routine.  You should refer to the Expense Report Guidelines for details on recording entertainment expenses for tax purposes.

•Contracting with Agencies of the Federal Government

When you are selling to or contracting with an agency of the Federal government, the offering or giving of any gifts is strictly forbidden.  Government contracts require that all team members associated with the contract follow the regulations of the Office of Federal Procurement Policy Act, as amended, which is codified at 41 U.S.C. 423 and commonly known as the Procurement Integrity Act.

The requirements of the Procurement Integrity Act relate to contractors, such as AirNet, who seek procurement contracts from the Federal government in order to provide the government or one of its agencies with goods or services.  For AirNet, the majority of such relationships include air cargo transportation (scheduled - 481212; nonscheduled - 481112), charter services (481219) and passenger charter (481211).

The Procurement Integrity Act provides that no officer, team member or agent of AirNet may knowingly, directly or indirectly:

•Make any offer or promise of future employment or business opportunity to, or engage in any discussion of future employment or business opportunity with, any Federal procurement officer;

•Offer, give or promise to offer or give any gratuity, gift, favor, entertainment, loan or anything of monetary value to any Federal procurement officer; or

•Solicit or obtain from any officer or employee of a Federal agency, prior to the award of a contract, any contractor bid or proposal information, any other proprietary information or any source selection information regarding such procurement.

The Chief Executive Officer of AirNet is responsible for establishing procedures to comply with the Procurement Integrity Act, including the requirement to obtain a written certificate of compliance from each officer, team member and/or agent who personally and substantially participates, or will participate, in the preparation or submission of a bid or offer under the Procurement Integrity Act.  The certification will state that the participant:  (1) is familiar with and will comply with the requirements of the Procurement Integrity Act; and (2) will report immediately any information concerning a violation of the Procurement Integrity Act.

•Protect AirNet’s assets, using them only for legitimate business purposes, and the confidentiality of information entrusted by AirNet to an officer, director or team member.

Theft, carelessness and waste of AirNet’s assets have a direct impact on AirNet’s profitability and cannot be tolerated.  You are entrusted with the use of company assets and resources for legitimate business purposes.  Those individuals authorized to use funds of AirNet are responsible for assuring that AirNet receives proper value in return.  The use of AirNet’s funds for personal, improper or illegal purposes is strictly prohibited and AirNet will take appropriate action, including notifying the appropriate civil authorities, if this principle is violated and in any such case, disciplinary action will be taken.  Further, the use of any company assets in a manner that is offensive, disruptive or destructive is prohibited.

AirNet’s property also includes confidential information as well as certain corporate opportunities which may be disclosed to AirNet’s officers, directors or team members while carrying out their duties for AirNet.  AirNet strives to provide information to team members and the public which is accurate, complete, relevant, timely and understandable.  No officer, director or team member of AirNet should disclose any such confidential information except when disclosure is authorized or legally mandated, or utilize such confidential information or corporate opportunity for his or her own personal gain.  Each officer, director and team member has a duty to advance the best interests of AirNet and, except with the prior approval of the Audit Committee, in the case of an officer or director, or AirNet’s Chief Financial Officer, in the case of a team member, to refrain from engaging in any conduct which may compete with AirNet or interfere with the AirNet’s pursuit of its business opportunities.

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THERE ARE MANY OTHER POLICIES THAT ARE VERY IMPORTANT TO AIRNET AND ITS OPERATIONS, INCLUDING THOSE SET FORTH BELOW.  NOTHING HEREIN SHALL RELIEVE ANY OFFICER, DIRECTOR OR TEAM MEMBER FROM COMPLYING WITH ANY OTHER APPLICABLE POLICY OF AIRNET.

Equal Employment Opportunity Employer

It is the policy of AirNet to provide equal employment opportunities without regard to race, color, religion, sex, national origin, age, sexual orientation, disability or veteran status.  Team members will be hired, evaluated, and promoted based on ability, performance, experience and achievement.  AirNet has a no tolerance policy against any form of discrimination as well as any form of harassment including sexual harassment.

Team Member Privacy

Team member data is to be used for the purpose of supporting company operations and providing team member benefits.  Matters regarding these records are to be addressed to the Director of Human Resources.

Drug and Alcohol

AirNet is committed to providing a healthy, safe and drug/alcohol free work environment.  The illegal use, sale or possession of drugs or other controlled substances while on company business or property is strictly prohibited.  Being under the influence of illegal drugs or alcohol while on company business or property is strictly prohibited and will result in disciplinary action, up to and including termination of employment.  All team members are subject to pre-employment drug testing as well as random testing as outlined by FAA and DOT regulations and AirNet policy.

Reporting Violations of Code of Ethics

AirNet expects full compliance with this Code of Ethics.  In that regard, team members are encouraged to report any violation of the Code of Ethics to their supervisor or team leader, to the Director of Human Resources or to the Audit Committee.  Officers and directors are to report any violation of the Code of Ethics to the Audit Committee.  Reporting violations of the Code of Ethics is not an act of disloyalty, but an action that shows a sense of responsibility and fairness to fellow team members, customers, suppliers and shareholders.  Directors, officers and managers are expected to handle reported violations in a prompt and professional manner.  AirNet will not permit any retaliation against a team member or an officer who appropriately reports a matter that he or she believes, in good faith, to be a violation of the Code of Ethics to the appropriate personnel.  Any such retaliation will result in disciplinary action, including the possible termination of employment.  Reports to the Audit Committee may be made on a confidential basis through the procedure established by the Audit Committee and summarized below.

The procedures that team members may use to report a possible violation of the Code of Ethics are as follows:

•Direct your inquiry to your immediate supervisor, team leader and/or the Director of Human Resources.

•Contact the Mysafeworkplace.com Hotline to confidentially and anonymously report your concern.  Mysafeworkplace.com may be contacted via e-mail at www.mysafeworkplace.com or by calling their toll-free number at 800-461-9330.

•If your immediate supervisor does not resolve your inquiry or if your immediate/local team leader is unclear or particularly sensitive to the concern (for example, if that individual is involved in the possible violation), contact AirNet’s Director of Human Resources.

Any team member who is found to have violated the Code of Ethics may be subject to discipline, including termination of employment.

The Audit Committee shall investigate any and all violations of the Code of Ethics by any of AirNet’s officers or directors.  In the event that the Audit Committee determines that a violation of the Code of Ethics has occurred, the Audit Committee shall be authorized to take any action it deems appropriate, including disciplinary action.  In the event that the Audit Committee recognizes that a violation by an executive officer or a director has occurred but elects not to take any remedial or other actions against the offending executive officer or director, AirNet shall disclose the facts and circumstances of its election to waive the Code of Ethics by posting the same on AirNet’s website or by any other such means required under applicable law or the requirements of the Securities and Exchange Commission or the New York Stock Exchange.

4

Also, nothing in this Code of Ethics affects the general policy of AirNet that employment is at will and can be terminated by AirNet at any time and for any or no reason.

Acknowledgement of Code of Ethics

All team members are required to read this Code of Ethics and sign an acknowledgement form promising to uphold AirNet’s commitment to promoting an ethical working environment.  Abiding by the Code of Ethics is a condition of employment at AirNet and any violation will result in disciplinary action.

Each director, officer and member of senior management will be required annually to certify such individual’s compliance with the Code of Ethics.  It is essential that each of these individuals engages in honest and ethical conduct including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.  These individuals must avoid conflicts of interest, including the disclosure to the Audit Committee of any material transaction or relationship that reasonably could be expected to give rise to such a conflict.

5

TEAM MEMBER’S ACKNOWLEDGEMENT

OF

AIRNET SYSTEMS, INC.

CODE OF BUSINESS CONDUCT AND ETHICS

The foregoing Code of Ethics will not answer or resolve every question you may have.  If you are uncertain about what the right thing to do is, you are encouraged to seek the advice and guidance of your supervisor, your team leader, the Director of Human Resources or the Chief Financial Officer of AirNet.

YOU MAY ALWAYS DIRECTLY REPORT ANY MATTER WHICH YOU BELIEVE, IN GOOD FAITH, TO BE A VIOLATION OF THE FOREGOING CODE OF ETHICS TO THE AUDIT COMMITTEE ON A CONFIDENTIAL BASIS.

I have read and understand the foregoing Code of Ethics, have been given a copy to retain for my reference, and agree to be bound by its terms.  I understand I can be subject to discipline, dismissal from my job and prosecution under the law for violating any of the above provisions of the Code of Ethics.

Print Name	SSN
Signature	Date

6

OFFICER’S ACKNOWLEDGEMENT

OF

AIRNET SYSTEMS, INC.

CODE OF BUSINESS CONDUCT AND ETHICS

The foregoing Code of Ethics will not answer or resolve every question you may have.  If you are uncertain about what the right thing to do is, you are encouraged to seek the advice and guidance of the Chief Financial Officer of AirNet.

YOU MAY ALWAYS DIRECTLY REPORT ANY MATTER WHICH YOU BELIEVE, IN GOOD FAITH, TO BE A VIOLATION OF THE FOREGOING CODE OF ETHICS TO THE AUDIT COMMITTEE ON A CONFIDENTIAL BASIS.

I have read and understand the foregoing Code of Ethics, have been given a copy to retain for my reference, and agree to be bound by its terms.  I understand I can be subject to discipline, dismissal from my job and prosecution under the law for violating any of the above provisions of the Code of Ethics.

Print Name	SSN
Signature	Date

7

DIRECTOR’S ACKNOWLEDGEMENT

OF

AIRNET SYSTEMS, INC.

CODE OF BUSINESS CONDUCT AND ETHICS

The foregoing Code of Ethics will not answer or resolve every question you may have.  If you are uncertain about what the right thing to do is, you are encouraged to seek the advice and guidance of outside counsel to AirNet or other counsel designated by the Audit Committee of the Board of Directors.

YOU MAY ALWAYS DIRECTLY REPORT ANY MATTER WHICH YOU BELIEVE, IN GOOD FAITH, TO BE A VIOLATION OF THE FOREGOING CODE OF ETHICS TO THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OR TO THE FULL BOARD.

I have read and understand the foregoing Code of Ethics, have been given a copy to retain for my reference, and agree to be bound by its terms.  I understand I can be subject to discipline, removal for cause from the Board of Directors and prosecution under the law for violating any of the above provisions of the Code of Ethics.

Print Name	SSN
Signature	Date

8

Federal Procurement Integrity Act Certification Copy

(Participating Officer, Team Member, Agent, Representative and/or Consultant)

Pursuant to the requirements of subsection 27 (d)(7)(A) of the Office of Federal Procurement Policy Act, 41 U.S.C. 423 (hereinafter the Act), and Sections 3.104-1 through 3.104-9 of the Federal Acquisition Regulation (FAR) and preparation and/or submission of bids and/or offers for which the undersigned has participated or will participate  personally and substantially, the undersigned declares that:

I am familiar with, and will comply with, the requirements of subsection 27(a) of the Act and FAR 3.104-3 as follows:

During the course of any Federal agency procurement of property or services, I understand that I am prohibited from knowingly, directly or indirectly:

1.making any offer or promise of future employment or business opportunity to, or engaging in any discussion of future employment or business opportunity with any procurement official of such agency;

2.offering, giving, or promising to offer or give any gratuity, gift, favor, entertainment, loan or anything of monetary value to any procurement official of such agency; or

3.soliciting or obtaining from any officer or employee of such agency, prior to the award of a contract, any contractor bid or proposal information, any other proprietary information or any source selection information regarding such procurement; and that

I will report immediately to the officer or team member of AirNet Systems, Inc. responsible for the offer or bid for any contract or the modification of such contract, as the case may be, any information concerning a violation or possible violation of subsections 27 (a), (b), (c), or (d) of the Act, as implemented in Section 3.104 of FAR.

In witness whereof, I have signed this certification this        day of                        , 20     .

Signature:

Printed Name:

Title:

9

EX-21

EXHIBIT 21

SUBSIDIARIES OF AIRNET SYSTEMS, INC.

Name of Subsidiary	State or Jurisdiction of Incorporation or Formation
Float Control, Inc.	Michigan
AirNet Management, Inc.	Ohio
Jetride, Inc.	Ohio
Fast Forward Solutions, LLC	Ohio
AirNet Systems Inc.	Ontario, Canada

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the use of our report dated February 16, 2004 included in this Annual Report  (Form 10-K) of AirNet Systems, Inc. for the fiscal year ended December 31, 2003 with respect to the consolidated financial statements and financial statement schedule of AirNet Systems, Inc. included herein.

We also consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 333-08189 and No. 333-62659) pertaining to the AirNet Systems, Inc. Amended and Restated 1996 Incentive Stock Plan and the Registration Statement (Form S-8 No. 333-43605) pertaining to the AirNet Systems, Inc. Retirement Savings Plan of our report dated February 16, 2004, with respect to the consolidated financial statements and financial statement schedule of AirNet Systems, Inc. included in this Annual Report (Form 10-K) of AirNet Systems, Inc.

We also consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-103050) of AirNet Systems, Inc. and in the related Prospectus of our report dated February 16, 2004, with respect to the consolidated financial statements and the financial statement schedule of AirNet Systems, Inc. included in this Annual Report (Form 10-K) of AirNet Systems, Inc.

/s/ Ernst & Young LLP

March 29, 2004

EX-24

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Gary W. Qualmann as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto said attorney-in-fact and agent, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that the said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 29^th day of March, 2004.

/s/  Joel E. Biggerstaff

Joel E. Biggerstaff

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Joel E. Biggerstaff as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto said attorney-in-fact and agent, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that the said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this 29^th day of March, 2004.

/s/  Gary W. Qualmann

Gary W. Qualmann

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Joel E. Biggerstaff and Gary W. Qualmann as her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has hereunto set her hand as of this 29^th day of March, 2004.

/s/  Denise D. Brown

Denise D. Brown

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Joel E. Biggerstaff and Gary W. Qualmann as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement  schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF,  the undersigned has hereunto set his hand as of this 29^th day of March, 2004.

/s/ Russell M. Gertmenian

Russell M. Gertmenian

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Joel E. Biggerstaff and Gary W. Qualmann as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement  schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF,  the undersigned has hereunto set his hand as of this 29^th day of March, 2004.

/s/  David P. Lauer

David P. Lauer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Joel E. Biggerstaff and Gary W. Qualmann as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement  schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF,  the undersigned has hereunto set his hand as of this 29^th day of March, 2004.

/s/  Bruce D. Parker

Bruce D. Parker

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of AirNet Systems, Inc., an Ohio corporation, which is about to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, the Annual Report on Form 10-K for the fiscal year ended December 31, 2003, hereby constitutes and appoints Joel E. Biggerstaff and Gary W. Qualmann as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign both the Annual Report on Form 10-K and any and all amendments and documents related thereto, and to file the same, with any and all exhibits, financial statements and financial statement  schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, and grants unto each of said attorneys-in-fact and agents, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person and hereby ratifies and confirms all things that each of the said attorneys-in-fact and agents, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF,  the undersigned has hereunto set his hand as of this 29^th day of March, 2004.

/s/  James E. Riddle

James Ernest Riddle

EX-31.1

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification

(Principal Executive Officer)

I, Joel E. Biggerstaff, certify that:

1.I have reviewed this Annual Report on Form 10-K of AirNet Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that has occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  March 29, 2004	By:	/s/ Joel E. Biggerstaff
		Joel E. Biggerstaff,
		Chairman of the Board, President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification

(Principal Financial Officer)

I, Gary W. Qualmann, certify that:

1.         I have reviewed this Annual Report on Form 10-K of AirNet Systems, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that has occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  March 29, 2004	By:	/s/ Gary W. Qualmann
		Gary W. Qualmann,
		Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer)

EX-32

Exhibit 32

SECTION 1350 CERTIFICATION*

In connection with the Annual Report of AirNet Systems, Inc. (the “Corporation”) on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Joel E. Biggerstaff, Chairman of the Board, President and Chief Executive Officer of the Corporation, and Gary W. Qualmann, Chief Financial Officer, Treasurer and Secretary of the Corporation, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:

(1)The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Joel E. Biggerstaff	/s/ Gary W. Qualmann
Joel E. Biggerstaff Chairman of the Board, President and Chief Executive Officer	Gary W. Qualmann Chief Financial Officer, Treasurer and Secretary
Dated:  March 29, 2004	Dated:  March 29, 2004

*This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section.  This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.