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Air North, Yukon's Airline held it's Annual General Meeting in Whitehorse, Yukon on June 25, 2008

June 25, 2008

Presidents' Message

On behalf of the Officers and the Directors of Air North, Yukon's Airline, I would like to welcome all of you to our 2007 Annual General Meeting, especially our new Class C and Class D shareholders. At this meeting we are pleased to present the 2007 Annual Report to our shareholders and I would encourage you all to pick up a copy if you have not already done so. I think you will find this years Annual Report to be particularly interesting and informative.

This evening I will not spend a lot of time talking about our 2007 performance. It was a good year for the company and our performance is described in detail in our Annual Report. We are now almost half way through 2008 and 2007 is old news. Tonight we will talk more about what lies ahead for your airline.

During 2007, the company generated total revenues of just under $40 million and operating income of almost $7 million. During 2007 we transported 113,192 passengers and 4,447,128# of cargo on our scheduled routes. It was a record year for both scheduled service and charter sales and also a record year for passenger and cargo volumes. Needless to say, we are very pleased with and proud of these accomplishments, none of which would have been possible without the continuing support of our customers, our employees, and our shareholders.

With more than 30 years experience in this industry, we certainly know that the airline business is a tough one. Over the years there has been far more money lost than made in aviation. Despite this, there never seems to be a shortage of people who want to make their fortune in the flying business. It has often been said that in order to make a small fortune in aviation you first have to start with a large fortune and over the years we have seen many airlines come and go and much capital lost.

While the industry has fared well over the past couple of years, it is one characterized by thin margins and because of this profitability can turn on a dime. Fuel prices are now $1.00/litre or more and as a result 2008 has started out as a bit of a disaster for most airlines. North American carriers collectively lost billions during the first quarter and several airlines have entered bankruptcy. Of all of the major carriers, only Southwest Airlines and WestJet showed a profit. We believe that there will be some tough times ahead for this industry and that it is a good time to be cautious.

With record high fuel prices, travel is becoming more expensive. Other goods and services are becoming more expensive as well. Ultimately, today's economic environment will cause consumers to have less disposable income and as a result they will likely travel less often. Before we started our jet service, Whitehorse had 2 jets/day in the winter and 3 jets/day in the summer. Last winter, between us and Jazz, there were 5 jets/day on many days and this summer there are 5 jets/day on most days. If traffic drops then frequency will have to drop as well. That is why the media is full of reports about airlines parking airplanes, cutting back capacity, and laying off employees. Some of this may happen here as well, but in the north, air travel is more essential than discretionary and we have a lot of confidence in our Yukon stakeholders. We have always been pretty careful about the amount of capacity that we put into the market in the first place and between passengers and freight I'm sure that we will continue to keep our flights full.

Air North has been in operation since 1977 and we have been able to operate profitably in most years. We were even able to show a profit in the first quarter of 2008, when most airlines posted losses. Over the past thirty-one years our growth has been steady and calculated, not dramatic, and our profits have been moderate, not exceptional. The fact that we have been able to sustain ourselves and grow over time makes us somewhat unique in the airline industry and we take some pride in that. Our ability to grow and prosper even when times are tough is due, in no small part, to the tremendous local market support that we are so fortunate to have. We provide a good product and we charge a fair price for it. We have a disciplined approach to both cost control and pricing and this, along with great local support, allows us to do well in both good times and bad.

When we launched our jet service in 2002, the airline industry was in deep trouble. Many US carriers were operating under bankruptcy protection, and in Canada we had seen CanJet discontinue scheduled service and Canada 3000 go broke. Within all of this doom and gloom there were a few bright spots. The big airlines were parking airplanes and so we were able to acquire our Boeing 737's at a good price and on favourable terms. In early 2003 Air Canada entered bankruptcy protection and our marketplace became much more disciplined.

Now, in 2008 after several good years for most airlines, record high fuel prices are causing the industry as a whole to lose money once again and the big airlines are making plans to park airplanes. From late 2007 to mid 2008, no fewer than eight US carriers either stopped flying or filed for bankruptcy protection. In Canada, Harmony Airways closed their doors in early 2007. As we now search for suitable aircraft to upgrade and modernize our fleet we are now finding more good aircraft on the market and available at favourable terms. Furthermore, our market suddenly became more disciplined after our competitor posted a large first quarter loss.

Our plans for 2008 and beyond are very conservative. We are committed to providing safe and affordable air transportation to, from, and within the Yukon and we know that we must continuously work to maintain and improve our product in order to ensure that we earn the continuing support of our Yukon stakeholders. As always we will continue to do this in a cautious and conservative manner.

Air North truly is Yukon's Airline and we owe our success to our Yukon stakeholders. Our original Class C investors who chose to invest in Air North in 2002 did so before we acquired our jet aircraft and at a time when our competitor had just successfully bankrupted start-up carriers in other regions. I could tell from talking to many of these people that their reasons for investing involved more than just a return on investment and some free flights. They wanted to help make sure that Yukoners would always get a fair shake with respect to air travel. I think that together we have done just that. Before we started our jet service, the average cost of a one way ticket from Whitehorse to Vancouver was more than $300 and jet fuel then cost about $.35/litre. Today, our jet fuel costs us more than $1.00/litre and the average fare, including fuel surcharges, is approaching, but still less than $300.

In September 2007, our first two groups of Class C shares reached their conversion/redemption date. Each shareholder had the option of exchanging their Class C share for either $5,000 or for one Class D share which provides 4 dividend flight segments each year. A total of 292 Class C shares elected to convert to Class D shares and 28 Class C shares received their original investment back. Those 28 Class C shares have since been reissued and sold as Class D shares to waitlisted investors. That is better than a 90% conversion rate for our first two groups of original investors. We expect the conversion rate to be even higher for our third and fourth offerings which reach their conversion/redemption dates in September 2008 and 2009 respectively.

The continuing interest by Yukoners in Air North was demonstrated once again this spring when in just 2 ½ days we received 636 subscriptions and still had a waitlist for a new equity offering priced at $7,500/share.

With almost 1400 Class C and D shareholders, almost 800 Vuntut Gwitchin beneficial shareholders, and more than 220 full and part time employees, approximately one in fifteen individual Yukoners and more than one in ten Yukon households has either an equity stake or an employment stake in this company. I take tremendous pride in what we have accomplished and I cannot think of any other industry or jurisdiction where something like this might be accomplished.

Since the majority of our customers, almost all of our employees, and all of our shareholders are Yukoners, it is clear that our greatest strengths lie in the Yukon market and looking ahead, our best growth opportunities lie pretty close to home. Because air transportation is so important, in fact essential, to northern communities, northern air carriers will always play an important role in Canada's domestic airline industry. Today there are just six airlines providing scheduled domestic air service in Canada with jet equipment and they are (ranked inversely by number of aircraft operated):

  • Air North, Yukon's Airline
  • Canadian North Airlines
  • First Air
  • WestJet
  • Jazz
  • Air Canada

The first three carriers on the list are all northern carriers with predominantly north-south route structures, regional turbo-prop services, significant northern employment and local economic benefit, and major First Nations ownership. The other carriers are southern based and have predominantly east-west route structures.

Air transportation is an essential component of our northern economy and northern based/northern owned carriers operate with a clear focus on northern service and in doing so they provide much local economic benefit.

There is no magic involved in running an airline. Our job is to provide safe and dependable service at a fair price. Our shareholders have provided us with capital to help do this. In order to be successful however, we need to sell our product and this is where our Yukon stakeholders have really stepped up to the plate by encouraging their friends, family, and business associates to fly with us. It is this type of support that allows us to succeed no matter who the competition is or what shape the industry is in.

In closing, on behalf of the Board of Directors of Air North, Yukon's Airline, I would once again like to take this opportunity to thank our customers, our employees, and our shareholders for your continued loyal support and for your attendance this evening. All of us can be very proud to be a part of the "Yukon's Airline".

Joseph Sparling, President
Air North, Yukon's Airline

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