WorldCorp, Inc.

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WorldCorp, Inc.

13873 Park Center Road, Suite 490
Herndon, Virginia 22071
U.S.A.
(703) 834-9200
Fax: (703) 834-9412

Public Company
Incorporated: 1986
Employees: 640
Sales: $200.4 million
Stock Exchanges: New York Boston Pacific Philadelphia
SICs: 4522 Air Transportation, Nonscheduled; 7375 Information Retrieval Services

WorldCorp, Inc. is an American holding company whose subsidiaries operate in two industries: air transportation and transaction processing. The oldest of the company’s businesses is World Airways, a leading worldwide provider of passenger and cargo air transportation for commercial and governmental customers. Another major subsidiary, World Flight Crew Services, works in the same general field, contracting out flight crews to foreign airlines. WorldCorp’s transaction processing businesses include US Order, Inc., of which WorldCorp owns 51 percent, and WorldGames, a wholly owned subsidiary. US Order develops and markets automated ordering systems for residential and commercial use; WorldGames is the sole licensee of US Order’s patented technology for applications in the gaming industry.

Although WorldCorp was created and incorporated in 1986, its primary subsidiary, World Airways, had its start decades earlier. Edward J. Daly, known as a boxer, a gambler, and an “adventurer,” founded World Airways in 1948. With $50,000 in poker winnings, Daly bought two surplus C-46 Army planes and began passenger service from Teterboro, New Jersey, to the Caribbean. He soon established a base in southern California and expanded the company’s service to transcontinental flights of both passengers and cargo. As major airlines strengthened their hold on the air transportation business with their scheduled service, successful airlines offering nonscheduled service dwindled. World Airways became known as one of the few prosperous “non-scheds” of its time.

The U.S. entry into the Korean War offered World Airways an opportunity to increase its business with military contracts. The charter contributed to the rapid air lift in the early 1950s by moving materials and troops. With the end of the war in 1954, World Airways transferred its military experience to the commercial civilian air transport market. By that time, Daly had purchased two DC-4s, thereby doubling his fleet and tripling his payload capacity. Despite the end of the war, World’s relationship with the U.S. military solidified. The DC-4’s extended range and pressurized cabins helped World win a “Call” contract from the Military Transport Service, which extended World’s flying operations to distant locations, including Guam, Casablanca, Morocco, and Frankfurt, Germany. Soon World was providing daily flights to such Far East countries as Japan, Manila, and Formosa (Taiwan).

In 1957, Daly added the bigger and more powerful DC-6 to his fleet. The new planes had interiors that could be quickly converted from a passenger configuration to a cargo configuration. This flexibility enabled World to proportion its fleet according to the current market needs, an ability uncommon in the charter industry. Unfettered by a fleet of single-purpose planes, World rode out the cycles of the airline industry, simply converting its planes to passenger or cargo configurations as needed. Soon, World Airways boasted operations that justified its name: it had become the world’s largest charter airline serving the government and the airline industry.

In the 1960s, World Airways began a long history of leading the charter industry in its acquisition of new types of aircraft. The company purchased the first three convertible B707-320Cs ever made, allowing it to introduce its first charter jet service in 1962. The planes reduced flight times and offered more safety and comfort features. World kept pace with jet technology by adding the B727-100Qs to its fleet in 1966, the first charter airline to do so. The company again upgraded its fleet a short time later with the DC-8-63CFs, which were also convertible. In 1973, World Airways became the first charter airline to purchase wide-body aircraft when it acquired the first three B747-200Cs manufactured by Boeing. Daly moved the company headquarters to Oakland, California in 1973. The new World Air Center the company had opened there covered seven acres and could house four 747s or six DC-8-63s in its hangar. The facility was intended to service and maintain both the company’s fleet and third-party aircraft.

World Airways’ role in the Vietnam War would earn it a place in history. In the late 1960s and early 1970s, World pilots faced enemy fire to transport troops, food, and supplies into Vietnam and Cambodia. It was the company’s airlifts of refugee children out of Southeast Asia, however, that garnered the public’s attention. The famous “Baby Lift,” which transported Vietnamese orphans from Saigon to the United States in 1975, was conducted by Edward Daly himself. Defying even the U.S. Department of State, Daly arranged the “Last Flight from Da Nang,” a mission into Da Nang Airport, under siege by North Vietnamese and Viet Cong troops. World Airways crews evacuated numerous Vietnamese civilians in that airlift.

World’s business was not consumed by the war, however. The company began offering customized development services to new airlines in the 1970s. The Republic of Mali contracted with World to operate scheduled service from 1971 to 1978. Yemen Airways, the flag carrier of Yemen, leased three 727-100 aircraft from World and arranged for the company to provide support service in the areas of flight crews, cabin crews, maintenance, and in-flight services from 1976 to 1979. The company again updated its fleet by acquiring new DC-10-30CFs in 1979 and 1980. Throughout the 1970s and 1980s, World aircraft set distance and speed records, and the company was recognized for its high maintenance standards.

In 1973, World Airways contracted with national carriers in Indonesia, Algeria, and Niger to transport Muslims to Saudi Arabia for the Hadj pilgrimage. For decades, World provided transportation for pilgrims to the Islamic Holy Land, in what had become an annual commitment to various national airlines. As of 1994, World continued this tradition with its contracts with Malaysia Airlines and Garuda Indonesia.

Daly’s purchase of jumbo aircraft in 1973 was among the early indications that World hoped to compete with the major airlines on their own scheduled-flight turf. Daly lobbied for years for airline deregulation; when it came in 1978 he increased his efforts to get World scheduled routes. The next year the Civil Aeronautics Board granted World permission to provide scheduled transcontinental service. Using a new fleet of DC-10s, World began flying four scheduled coast-to-coast flights a day. The service began on April 12, with $99.99 one-way fares. Daly had risked a great deal; the purchase of the new DC-10s had increased the company’s long-term debt from $83 million in 1977 to $294 million in 1978, almost triple its $109 million in shareholders’ equity. However, with one-way fares $135 lower than the standard economy fare other carriers were offering, Daly felt sure World could easily compete. World’s first days providing the service were aided by the 58-day strike that United Airlines, the transcontinental leader, was battling.

World’s honeymoon lasted less than a month, however. United’s strike ended and the airline resumed service with fares that matched World’s. A price war ensued, with most major lines meeting the low fares. Another blow to World came when DC-10s were grounded indefinitely following an American Airline crash that killed 275 people. Although the extensive safety checks affected other airlines, none were as dependent upon the DC-10 as World. World survived what turned out to be a six-week grounding only to suffer a four-and-a-half-month strike soon after. Despite these setbacks, World achieved a 77 percent load factor by 1981, although the company’s debt and low-fare strategy left no room for profit. Losses mounted and, early in 1982, World laid off 800 workers and demanded wage and productivity concessions from the remaining 1,700.

World abandoned scheduled service in 1986, after six years of consecutive losses. With this huge cut in operations, World laid off 1,500 of its 2,600 employees. Daly did not witness the end of World’s challenge to the major airlines; he had died in 1984. The string of chief executives that followed Daly had fared no better than he had with scheduled service. The price wars World had initiated and the company’s hefty long-term debt left it constantly struggling for capital. That lack of resources prevented World from scheduling flights frequently enough to attract business travelers, the primary customers of the major airlines. In addition, World had chosen important routes— between the coasts and to Europe and Hawaii—that the larger carriers were not willing to share.

WorldCorp, Inc. was created in 1986 as a holding company for World Airways, and T. Coleman Andrews III, the fifth chief executive since Daly, was brought on to refocus the airline on its traditional commercial and military charters. A $62 million loan from Drexel Burnham and an agreement from United Airlines and Pan Am to honor World’s remaining tickets gave the company the breathing room to recover from its brush with bankruptcy. Although the U.S. charter industry had been hurt by the proliferation of discount fares that followed airline deregulation, World had a strong history of military contracts to fall back on. In addition, its service to foreign airlines, such as its yearly charters for the Muslim pilgrims, had remained strong.

Within a year, World Airways was once again profitable. It had had a loss in 1986 of $28 million on revenues of $106 million; in 1987 it turned a profit of $7 million on revenues of $144 million. Two-thirds of World’s revenues came from transporting personnel for the military. A year after taking over World Airways, Andrews arranged for the company to buy Key Airlines, a Nevada-based military and charter airline he had chaired before joining World. The $18 million deal indicated, as Andrews told Business Week, that World had “moved beyond the question of survival.”

For the next five years, World Airways maintained its profitability, a distinct achievement not only because of the company’s seven previous years of losses, but also because of the general downturn in the air transportation industry. World’s 1990-92 net income of around $100 million compared very favorably with the losses incurred by the major airlines, which ranged from United’s $600 million loss to Continental’s over $1.5 billion loss. In addition, during the 1980s, World’s stock price more than tripled.

World’s convertible passenger/cargo aircraft helped the company adapt to sudden changes in the market during the late 1980s and early 1990s. “The Gulf War was the best example of our flexibility,” World Airways president Charles Pollard told Aviation Week and Space Technology. “From the start we were flying troops on aircraft configured for passenger; we then converted to the all-freighter configuration and flew the sustain-ment mission to the end of the war, and we went back to passenger layout to fly troops back home.”

Although military contracts accounted for a significant portion of World’s business after it dropped its scheduled service, the company also developed several other important markets. Wet lease services, leasing aircraft and crews to other carriers, increased to include not only contracts with Malaysian Airlines and Garuda Indonesia for the Hadj pilgrimage, but also the major foreign carriers Virgin Atlantic, British Airways, and Qantas. Moreover, passenger flights for tour operators were expected to account for 18 percent of the company’s total revenue in 1994. World also cultivated cargo business in Asia and with domestic shippers United Parcel Services and Burlington Air Express. In 1992, the company sold Key Airlines for $8 million, a move WorldCorp chairman Andrews admitted should have been taken earlier, when it became apparent that the airline would be unprofitable for World to run.

World led the charter industry again with its acquisition of seven MD-lls: four passenger aircraft, two convertible passenger/cargo aircraft, and one freighter. Compared to the company’s DC-10s, the MD-lls provided 37 percent more cargo capacity yet burned 15 percent less fuel per hour. The company planned to phase out its DC-10s over the next several years.

In the mid 1990s, World prepared for a shift away from its core military and wet lease business. With the withdrawal of U.S. troops from Europe and defense spending cuts, the military’s transportation needs were likely to decline. World also saw a decreased need for wet leases as other carriers built up surpluses of aircraft. The company’s general plan was to lower the amount of ad hoc flying it performed by winning more long-term operating contracts and increasing the seasonal services it performed for tour operators, foreign passenger airlines, and express/shipping companies. In an effort to increase its market access in Asia, where the company already derived nearly 40 percent of its business, World sold 24.9 percent of its stock to Malaysian Helicopter Services in 1993 for $27.4 million in cash.

Part of World’s new strategy was a return to regularly scheduled service. If successful, it would provide steady year round business that would balance the erratic financial results of World’s contract business. World has carefully selected the routes it has requested, hoping to avoid the intense competition it aroused by entering the coast-to-coast market in the late 1970s. In 1994, the company asked the U.S. Transportation Department for three of the six frequencies to South Africa that had been awarded to USAfrica Airways, a start-up airline that had been unable to begin service due to a lack of financing. Charles Pollard, president of World Airways, explained to Aviation Week and Space Technology the company’s reentry into a field where the company had failed before: “[Scheduled service to Johannesburg] is a defensible niche market that provides very high utilization of aircraft and crews, it offers moderate to high yields, and it has traffic rights that are not readily duplicated by other carriers.” The company also sought three weekly frequencies to Tel Aviv from the Israeli Civil Aviation Administration, having already gotten approval from the U.S. Transportation Department and the State Department.

In the early 1990s, WorldCorp expanded its business outside the air transport industry by acquiring 46 percent of the preferred stock of US Order, a transaction processing company. US Order developed the ScanFone, a screen-based telephone system that facilitates the purchase of goods and services from the home, including home grocery shopping and delivery, electronic bill payment, and mail order catalog shopping. The company has developed business alliances with Michigan Bell, Ameritech, and Bell Atlantic. With their cooperation, US Order introduced the ScanFone system in the Detroit area in 1992 and planned to start service in the Washington, D.C., area in 1993. With 10,000 ScanFones in consumers’ households as of early 1993, US Order was the clear leader in this nascent market.

As military contracts dwindled and the wet lease market shrank, WorldCorp’s profitability depended on World Airway’s ability to cultivate business in its other markets and to enter new ones. Its steady profits during the general industry recession in the early 1990s bodes well for its success in the future. WorldCorp’s efforts to diversify into transaction processing may help stabilize World Airway’s revenues from the difficult air transport industry.

Principal Subsidiaries:

World Airways, Inc.; WorldCorp Leasing, Inc.; WorldCorp Leasing II, Inc.; WorldCorp Services, Inc.; World Airways Cargo, Inc.; WorldGames; World Flight Crew Services, Inc.; US Order, Inc. (51%).