Discovery Air Inc. announces $10.1 million in net earnings for its second quarter ended July 31, 2007



    LONDON, ON, Sept. 13 /CNW/ -

    
    SECOND QUARTER FINANCIAL HIGHLIGHTS

    -   Net earnings for the quarter totalled $10.1 million or $0.09 per
        share ($0.09 diluted) compared to net earnings of $4.4 million or
        $0.08 per share ($0.07 diluted) for the same period last year.
    -   Year-to-date net earnings were $6.5 million or $0.06 per share
        ($0.06 diluted) compared to $4.0 million or $0.09 per share
        ($0.08 diluted) last year.
    -   Revenues were $43.6 million for the quarter and $59.7 million
        year-to-date compared to revenues of $18.1 million and $18.2 million
        for the comparative periods last year.
    -   Total hours flown were 29,834 for the quarter and 41,403 year-to-date
        compared to 15,387 hours for the same quarter and year-to-date last
        year.
    -   EBITDA was $18.7 million for the quarter and $17.9 million on a
        year-to-date basis compared to $8.0 million and $7.5 million for the
        comparative periods last year.
    

    PRESIDENT'S COMMENTS

    I am very pleased with this quarter's results. We earned $10.1 million
for the quarter and earnings before interest, taxes, depreciation and
amortization of $18.7 million. This was a significant increase over what we
earned during the same quarter last year and was made despite accounting for
options issued during the quarter to our employees and the negative impact of
an unusually wet summer in Northern Ontario that significantly reduced
revenues.
    One of the primary reasons for creating Discovery Air was to provide
better access to capital for niche aviation companies. I am pleased to tell
you that, despite a liquidity crisis, we were able to raise $33 million in
order to close the acquisition of Top Aces Inc. on schedule. We are excited
about the contribution that Top Aces brings to Discovery Air not only in terms
of earnings but also the talent and calibre of its employees.
    We are presently in discussion with a number of excellent companies about
the possibility of also joining Discovery Air and we look forward to
continuing our rapid growth through organic growth and acquisition.

    
    FINANCIAL HIGHLIGHTS

                                      for the                 for the
                                three months ended       six months ended
    ------------------------------------------------- -----------------------
    (unaudited)

    ($ thousands, except        July 31     July 31     July 31     July 31
     per share amounts)           2007        2006        2007        2006
    ------------------------------------------------- -----------------------

    Results of operations
      Revenue                 $   43,583  $   18,111  $   59,650  $   18,195
      Operating expenses          24,855      10,110      41,727      10,719
      Other expenses               3,559         916       7,806       1,059
      Net earnings                10,057       4,410       6,476       3,962
      Earnings per
       common share:
        Basic                 $     0.09  $     0.08  $     0.06  $     0.09
        Diluted               $     0.09  $     0.07  $     0.06  $     0.08
      Total assets            $  302,320  $  179,743  $  302,320  $  179,743

    

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following management's discussion and analysis (MD&A) of financial
condition and result of operations for the second quarter of fiscal 2008
should be read in conjunction with the unaudited interim consolidated
financial statements and related notes for the period ended July 31, 2007
included herein and the annual audited consolidated financial statements and
related notes for the three-month period ended January 31, 2007 as well as the
related MD&A contained in the annual report, which are available on SEDAR at
www.sedar.com.

    Business Profile

    Discovery Air Inc. (the "Corporation") was incorporated on November 12,
2004. On December 21, 2004, the Corporation acquired 50% of the outstanding
shares of Hicks & Lawrence Limited (H&L) and acquired the remaining 50% of the
outstanding shares on August 16, 2005. On June 20, 2006, the Corporation
acquired 100% of the outstanding shares of Great Slave Helicopters Ltd. and
its subsidiaries and partners (GSHL). On December 19, 2006, the Corporation
acquired 100% of the outstanding shares of Air Tindi Ltd. (ATL). On March 14,
2007, H&L purchased the wheel division assets of Walsten Air Services (1986)
Ltd. (Walsten).
    For management purposes, the operations of the Corporation are segregated
into two operating segments: rotary wing, being the operations of GSHL; and
fixed wing, being the operations of ATL and H&L, including its Walsten
division. GSHL is a Yellowknife-based helicopter company that provides charter
services, throughout northern Canada and several of the Canadian provinces, to
government and private sector companies in areas such as resource and base
mineral exploration and production, wildlife services, forest fire
suppression, oil and gas exploration, power line construction and maintenance,
aerial surveys, tourism and flight training. ATL is a Yellowknife-based
airplane company that provides scheduled and chartered passenger and air cargo
service to government, individuals and private sector companies in such areas
as resource and base mineral exploration, oil and gas exploration and tourism.
ATL also provides air ambulance services throughout the Northwest Territories.
H&L is an Ontario-based aviation company focused on providing air services to
niche markets in the province, primarily to the provincial government.
Non-segmented activities are classified as Corporate Support.

    
                            ---------------------
                              Discovery Air Inc.
                                Incorporated
                              November 12, 2004
                            ---------------------

             ------------------------------------------------------------
                   Fixed Wing                             Rotary Wing
             ----------------------                   -------------------

    -------------------  -----------------------      -------------------
           ATL                     H&L                        GSHL
           100%                    100%                       100%
         Acquired                Acquired                   Acquired
     December 19, 2006    50% December 21, 2004          June 20, 2006
                           50% August 16, 2005
    -------------------  -----------------------      -------------------
    

    Due to the nature of the operations of these two operating segments,
there is increased demand for their aviation services normally commencing in
the spring and continuing through to the end of the summer. As a result, the
operations of the Corporation are subject to seasonal variations. Operating
results therefore vary from quarter to quarter and results of one quarter may
not be indicative of results that may be achieved for another quarter or the
full year.

    Strategy and Strengths

    The Corporation's mission is to build shareholder value by creating an
alliance of profitable aviation businesses that can realize synergies,
economies of scale and deliver safe, professional air services to clients in
selected niche markets.
    The Corporation will continue to utilize its resources to develop core
competencies in the area of safety, customer service, flight operations, and
aircraft maintenance services. In order to ensure that air services provided
to customers are safe and reliable, the Corporation adheres to Transport
Canada-approved operational standards, policies and procedures.
    Growth will be achieved by the Corporation by increasing the revenue of
existing operating entities through fleet expansion, the introduction of new
services and by acquiring complementary niche aviation companies.
    Aviation services are delivered by the Corporation's subsidiaries.
Discovery Air as a corporation has no day-to-day operational responsibilities.
It provides its subsidiaries with access to capital and corporate services
which include managing investor relations, group accounting and corporate
legal services, public company administration, and the development of
group-wide human resource policies. It also provides a forum through which its
subsidiaries can benefit from synergies and economies of scale as well as
sharing of best operational practices.
    The Corporation has a strong business platform in place based upon
outstanding service, a reputation for quality and safety, a loyal customer
base, a dominant position in the Northwest Territories, a minimum 20-year
successful track record among its operating subsidiaries, a management team
with a successful track record, and expanding market opportunities. GSHL and
ATL provide an essential service for many of its customers as access to and
movement at the majority of its customers' location is only possible via the
assistance of aircraft. This includes the movement of people and required
supplies and equipment.

    Overview

    For the three-month period ended July 31, 2007, the total hours flown
were 29,834 resulting in revenues of $43.6 million for the quarter compared to
15,387 hours flown and revenues of $18.1 million for the same period last
year. Net earnings of the Corporation for the quarter were $10.1 million or
$0.09 per share compared to net earnings of $4.4 million or $0.08 per share
for the same period last year. EBITDA for the quarter was $18.7 million or
$0.17 per share compared to $8.0 million or $0.14 per share for the same
period last year (see Non-GAAP Measures).
    On a year-to-date basis, the total hours flown were 41,403 resulting in
revenues of $59.7 million compared to 15,387 total hours flown and
$18.2 million in revenues for the same period last year. Net earnings of the
Corporation on a year-to-date basis were $6.5 million or $0.06 per share
compared to net earnings of $4.0 million or $0.09 per share for the same
period last year. Year-to-date EBITDA was $17.9 million or $0.16 per share
compared to $7.5 million or $0.17 per share for the same period last year.

    Revenue

    The Corporation's revenue is primarily generated from helicopter and
airplane transportation services that are delivered through its subsidiaries
and are largely driven by flight hours. Revenue for the three-month period
ended July 31, 2007 totalled $43.6 million compared to $18.1 million for the
same period a year ago. Hours flown for the quarter were 29,834 compared to
15,387 hours for the same period a year ago. Revenue on a year-to-date basis
was $59.7 million compared to $18.2 million for the same period a year ago.
Hours flown on a year-to-date basis were 41,403 compared to 15,387 hours for
the same period a year ago.
    The Corporation's rotary wing segment, which delivers helicopter
transportation services through GSHL, flew 20,006 hours during the most recent
quarter, generating total revenue of $28.9 million. On a year-to-date basis
the rotary wing segment flew 27,113 hours generating revenues of
$37.8 million. GSHL was acquired by the Corporation on June 20, 2006 and in
its abbreviated reporting period last year the subsidiary contributed
$14.3 million revenues on 10,126 hours flown.
    The Corporation's fixed wing segment, which delivers airplane
transportation services through ATL and H&L, flew 9,828 hours generating
revenue of $14.7 million during the most recent quarter compared to
5,261 hours and $3.8 million of revenue for the same period a year ago. The
hours flown and revenue for the current quarter reflect the activity of ATL
and Walsten for the full quarter. These operations were not owned by the
Corporation during the same period in the prior year and therefore did not
contribute to hours flown and revenue during that period. Year-to-date, the
fixed wing segment flew 14,290 hours generating revenues of $21.8 million
compared to 5,261 hours flown and revenues of $3.9 million in the comparable
periods last year. The current year-to-date results reflect the activity of
ATL for two quarters and Walsten since being acquired on March 14, 2007. As
mentioned above, these operations were not owned by the Corporation during the
same period a year ago.

    Operating Expenses

    Operating expenses consist of fixed and variable expenses including crew
and maintenance costs and general and administrative expenses.
    Crew and maintenance costs are the largest expense categories. Crew costs
are comprised of wages, benefits and training for pilots and maintenance
engineers. Maintenance costs consist of the purchase, repair and overhaul of
parts, major components and accessories. As the Corporation attempts to
perform most major repairs and refurbishment during the slower fall and winter
seasons, maintenance costs from quarter to quarter may vary.
    General and administrative expenses are mainly comprised of wages and
benefits of administrative personnel, facility costs, travel costs, insurance
costs and other overhead expenses. These costs contain both a fixed and
variable cost component.
    Operating expenses totalled $24.9 million for the most recent quarter
compared to $10.1 million for the same period last year. On a year-to-date
basis the operating expenses totalled $41.7 million compared to $10.7 million
for the same period last year. The results for the quarter and year-to-date
ended July 31, 2006 reflect the costs associated with the operations of H&L
for the full reporting periods noted and GSHL, since its acquisition on
June 20, 2006, as well as the cost of corporate services required to support
these operations. The Corporation's scale of operation and business activity
has increased significantly from the prior year and the level of costs in the
current quarter and year-to-date reflect the inclusion of the operating
expenses incurred by GSHL, ATL and Walsten as well as the increased cost of
corporate services required to support a much larger scale of business
operations. The Corporate Services group increased its salary and investor
relations costs over the last year to support the business operations
acquired.
    While most of the increase in operating expenses were directly
attributable and proportionate to the increased operations, the Corporation
incurred a number of non-recurring expenses which were primarily reflected in
the Corporate Services segment. In keeping with the Corporation's vision to
align the interest of employees and shareholders, the Corporation granted
2.8 million stock options to employees in the six month period of the current
year which resulted in a stock option expense of $293,000 in the current
quarter and $784,000 on a year-to-date basis directly related to those options
granted. The Corporation changed its year end from October 31 to January 31
and the associated cost of preparing the annual report and hosting a second
annual meeting was approximately $144,000. Corporate Services incurred
one-time costs related to hiring ($58,000) and the set-up of corporate offices
in its year-to-date expenses.

    Other Expenses

    Other expenses consist of financing charges and amortization expense.
    Financing charges were $2.1 million for the quarter compared to $423,000
for the same period last year. On a year-to-date basis financing charges were
$4.1 million compared to $526,000 for the same period last year. Amortization
expense was $1.4 million for the quarter compared to $493,000 for the same
period last year. On a year-to-date basis amortization expense was
$3.8 million compared to $533,000 for the same period last year. The increase
in financing charges and amortization expense for the current quarter and the
year-to-date was due primarily to expenses associated with the addition of ATL
and Walsten that were not included in the prior year's expenses and the full
period results of GSHL compared to the prior year which only reflects expenses
from June 20, 2006 to July 31, 2006.
    The rotary wing segment incurred financing charges of $786,000 in the
quarter and $1.5 million year-to-date compared to $314,000 for the quarter and
year-to-date in the prior year. The segment incurred amortization expenses of
$732,000 in the quarter and $1.8 million year-to-date compared to $341,000 for
the quarter and year-to-date in the prior year. The prior year expenses
reflect GSHL's results since it was acquired in June 2006.
    The fixed wing segment incurred financing charges of $597,000 in the
quarter compared to $109,000 for the same period last year, and $1.1 million
year-to-date compared to $212,000 for the same period last year. The segment
incurred amortization expenses of $688,000 in the quarter compared to $152,000
for the same period last year, and $2.0 million year-to-date compared to
$192,000 for the same period last year. The prior year comparatives do not
reflect the operations of ATL and Walsten as these subsidiaries were acquired
in December 2006 and March 2007 respectively.
    The Corporate Support segment incurred financing charges of $744,000 for
the quarter, and $1.5 million on a year-to-date basis, which relate to the
convertible debentures issued in December 2006.

    Income Taxes

    The Corporation uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, future tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Future tax assets and
liabilities are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the date of enactment or substantive enactment.
    The Corporation recorded an income tax provision of $5.0 million for the
quarter and $3.5 million year-to-date. The Corporation's statutory rate
approximates 34%; however, due to non-deductible charges related to
stock-based compensation, the income tax provision reflects a higher effective
tax rate. In the current quarter the Corporation reduced the income tax
provision by $352,000 to adjust the future income tax liabilities for the
enacted reduction in future federal tax rates. Factoring in the above
adjustments, the effective tax rate was 33% for the quarter and 35%
year-to-date.

    Liquidity and Working Capital

    Cash resources at July 31, 2007 were $2.7 million compared to
$2.9 million a year ago and $17.6 million as at January 31, 2007. At July 31,
2007, the Corporation had working capital of $17.3 million compared to
$10.5 million a year ago and $16.5 million at January 31, 2007. The
improvement in working capital from a year ago was due primarily to the
acquisition and inclusion of the operations of ATL as well as funds raised for
working capital purposes from public and private equity and convertible
debenture offerings. The decrease in cash from the period ended January 31,
2007 is due primarily to cash used to fund the year-to-date operations, to
fund a portion of the Walsten acquisition, to purchase new aircraft, and to
make scheduled term debt repayments.
    Accounts receivable at July 31, 2007, were $32.5 million compared to
$12.0 million at January 31, 2007, and $21.2 million a year ago. The increase
in accounts receivable from January 31, 2007 reflects the seasonality of the
subsidiaries' operations and the inclusion of Walsten. The increase in
accounts receivable over the prior year are due primarily to the inclusion of
the operations of ATL which had a balance of $7.9 million as at July 31, 2007.
Inventory, consisting of parts and supplies, totalled $10.0 million at
July 31, 2007, compared to $9.5 million at January 31, 2007 and $6.6 million a
year ago. The increase over the prior year was due primarily to the inclusion
of the inventory from the operations of ATL which had a balance of
$2.8 million as at July 31, 2007.
    Accounts payable and accrued liabilities were $10.7 million at July 31,
2007 compared to $7.8 million at January 31, 2007 and $9.0 million a year ago.
The increase from the prior year was due to the inclusion of ATL.
    The Corporation believes it has sufficient working capital to meet its
operating requirements based on its existing working capital position and cash
generated from operations. In addition, the Corporation has various working
capital credit facilities available as a source for any short-term financing
requirements.

    Capital Resources

    Land, buildings and equipment at July 31, 2007 totalled $114.9 million
compared to $97.8 million at January 31, 2007 and $54.8 million a year ago
with the increase from the prior year due primarily to the inclusion of land,
buildings and equipment of ATL and Walsten which totalled $50.3 million and
$4.4 million respectively. The Corporation also purchased $5.6 million of
capital assets during the most recent quarter and $16.8 million year-to-date,
comprised mostly of aircraft which includes the cost of engine and rotable
component overhauls. Goodwill and other intangibles was $140.3 million at
July 31, 2007 compared to $140.9 million at January 31, 2007 and $93.1 million
a year ago with the increase from a year ago due to goodwill and other
intangibles recorded on the acquisition of ATL and Walsten.

    Debt Financing

    Debt at July 31, 2007, totalled $99.7 million compared to $89.0 million
as at January 31, 2007 and $46.2 million for the comparable period a year ago.
The increase in debt from last year was a result of the inclusion of the debt
of ATL and Walsten, as well as the issuance of convertible debentures by the
Corporation in December 2006 to fund the purchase of ATL. On a year-to-date
basis, the Corporation incurred additional debt of $11.4 million to fund the
purchase of new aircraft and $4.2 million to fund the acquisition of Walsten.
The Corporation made $5.1 million in scheduled debt repayment in the same
period.

    Shareholders' Equity

    Shareholders' equity at July 31, 2007, totalled $153.7 million compared
to $107.4 million a year ago with the increase attributable to the retention
of earnings, the issuance of Class A common shares on the acquisition of ATL,
the exercise of warrants, the fair value attributable to the conversion
feature on the convertible debentures and the fair value of options granted.
At July 31, 2007, the Corporation had 110,920,019 Class A common shares
compared to 87,982,085 Class A common shares outstanding at the same time last
year. The increase was due to 22.9 million Class A common shares issued during
the most recent 12 month period as follows: the issue of 20.0 million Class A
common shares as partial consideration for the acquisition of ATL, 2.9 million
Class A common shares issued on the exercise of warrants and 20,000 Class A
common shares issued on the exercise of options.
    There were 5,425,920 common share purchase warrants outstanding at
July 31, 2007, entitling the holders to subscribe for one Class A common share
for every warrant held at a subscription price of $1.75 per share.
    There were 6,780,900 common share options outstanding at July 31, 2007.
For the three month period ended July 31, 2007, 1,475,000 common share options
were granted and 2,811,050 common share options were granted on a year-to-date
basis. 30,150 common share options were forfeited in the current quarter and
on a year-to-date basis. Salary expense and an addition to contributed surplus
of $415,000 has been recognized in the current quarter and $1.1M on a
year-to-date basis in the interim consolidated financial statements relating
to these options.
    On March 27, 2006, the Corporation was continued under the Canada
Business Corporations Act. At the time of the continuance, its share structure
was amended to authorize the issuance of an unlimited number of Class A common
voting shares and an unlimited number of Class B common variable voting
shares. As of July 31, 2007 no Class B shares are issued and outstanding. Each
issued and outstanding common voting share as at March 27, 2006, was converted
into a Class A common voting share on a one for one basis.
    Additional information with respect to share capital is contained in
Note 7 to the interim consolidated financial statements.

    Updated Share Information

    At September 12, 2007, there were 130,235,665 Class A common shares
outstanding and 684,354 Class B common shares outstanding.

    Accounting Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the years.
Significant items subject to such estimates and assumptions include the
amortization of buildings and equipment and the recoverability of land,
buildings and equipment, intangible assets and goodwill. Actual results could
differ from those estimates.

    Related Party Transactions

    At July 31, 2007, the Corporation had total indebtedness, including
accrued interest, of $18.6 million (2006 - $17.0 million) owing primarily to
officers and directors of the Corporation or its subsidiaries who were former
owners of the subsidiaries. Interest expense on this debt for the current
quarter totalled $289,000 (2006 - $nil) and $576,000 (2006 - $nil) on a
year-to-date basis.

    Effectiveness of Disclosure Controls and Procedures

    The Corporation's President & CEO and CFO have assessed the effectiveness
of the disclosure procedures and controls used for the consolidated financial
statements and management's Discussion and Analysis as at July 31, 2007. Their
assessment led them to conclude that the disclosure procedures and controls
used for the financial statements and Management's Discussion and Analysis
were effective.
    The President & CEO and CFO are responsible for designing internal
control over financial reporting (ICFR), or causing them to be designed under
their supervision to provide reasonable assurance regarding the reliability of
the Corporation's financial reporting and the preparation of financial
statements for external purposes in accordance with Canadian GAAP. There were
no changes in the Corporation's ICFR during the most recent interim period
that have materially affected, or are reasonably likely to materially affect,
the Corporation's ICFR.

    Risk Factors

    The Corporation is subject to a number of risks and uncertainties and is
affected by a number of factors outside of the control of its management.
Details are provided in the "Risk Factors" section of the Corporation's Annual
Information Form dated April 30, 2007, which can be found on SEDAR at
www.sedar.com.

    Subsequent Event

    On August 24, 2007, the Corporation acquired 100% of the outstanding
shares of Top Aces Inc. for cash consideration of $35.0 million and 20 million
common shares which for accounting purposes will be recorded at approximately
$31.8 million. Top Aces Inc. is an approved supplier to the Canadian federal
government of airborne training services to the Department of National
Defence. Term debt assumed at the time of purchase was approximately
$6.6 million. In order to finance a portion of the purchase consideration, the
Corporation entered into a $33.0 million term loan agreement with a syndicate
of lenders. The term loan has a coupon rate of 9.25% per annum and the
principal balance is due on February 1, 2009. The Corporation issued 1,178,568
warrants to the syndicate with a subscription price of $2.00 per share. Top
Aces Inc. is expected to contribute $13 million of revenue over the balance of
the Corporation's current fiscal year. On an annual basis, Top Aces Inc. is
expected to contribute revenues of approximately $35 million and its EBITDA
margin is expected to be in line with the Corporation's overall annual EBITDA
margin.

    Forward-Looking Statements

    The statements in this management's discussion and analysis which relate
to the future are forward-looking statements. By their very nature,
forward-looking statements involve inherent risks and uncertainties, both
general and specific, and risks exist that predictions, forecasts, projections
and other forward-looking statements will not be achieved. Readers are
cautioned not to place undue reliance on these forward-looking statements as a
number of important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions expressed
in such forward-looking statements. These factors include, but are not limited
to, our ability to secure operating contracts; the strength of the Canadian
economy in general and the strength of the local economies within Canada in
which we conduct operations; the effects of changes in interest rates; the
effects of competition in the markets in which we operate; inflation; capital
market fluctuations; the impact of changes in the laws and regulations
regulating aviation services; changes in tax laws; technological changes;
unexpected judicial or regulatory proceedings; weather conditions in the
geographical regions in which we operate; and our anticipation of and success
in managing the risks implicated by the foregoing.
    The foregoing list of important factors is not exhaustive. When relying
on forward-looking statements to make decisions, investors and others should
carefully consider the foregoing factors and other uncertainties and potential
events. There is no undertaking to update any forward-looking statement that
is contained in this management's discussion and analysis or made from time to
time by the Corporation.

    Non-GAAP Measures

    References to "EBITDA" are to earnings before interest, income taxes,
depreciation and amortization (except for amortization of rotable and
overhauled components, which are considered operating expenses), gain on
disposal of land, building and equipment, and excludes non-controlling
interest. The Corporation uses EBITDA as a supplemental financial measure of
its operational performance. Management believes EBITDA to be an important
measure as it excludes the effects of items which primarily reflect the impact
of long-term investment decisions rather than the performance of the
Corporation's day-to-day operations. Management believes this measurement is
useful to measure a company's ability to service debt and to meet other
payment obligations or as a valuation measurement.

    
    The following is a reconciliation of EBITDA to net earnings:

                                       for the                 for the
                                 three months ended       six months ended
                              ----------------------- -----------------------
                                July 31     July 31     July 31     July 31
    (thousands of dollars)        2007        2006        2007        2006
    ------------------------------------------------- -----------------------
                              (unaudited) (unaudited) (unaudited) (unaudited)

    Earnings before non-
     controlling interest     $   10,204  $    4,442  $    6,618  $    3,994
    Income taxes                   4,965       2,643       3,499       2,423
    Financing charges              2,127         423       4,046         526
    Amortization                   1,432         493       3,760         533
    ------------------------------------------------- -----------------------

    EBITDA                    $   18,728  $    8,001  $   17,923  $    7,476
    ------------------------------------------------- -----------------------


    Summary of Quarterly Results

    (thousands of
     dollars except
     per share amounts)            2008          2007(*)
    ----------------------- ------------------ ----------
                               Q2        Q1        Q1
                             Jul 31    Apr 30    Jan 31

    Results of operations:
    Total revenue           $ 43,583  $ 16,067  $  7,114
    Operating expenses        24,855    16,872    12,412
                            ------------------- ---------
    EBITDA                    18,728      (805)   (5,298)

    Amortization               1,432     2,328     1,510
    Financing costs            2,127     1,919     1,366

    Income (loss) before
     income taxes and
     non-controlling
     interest                 15,169    (5,052)   (8,174)
    Income tax provision
     (recovery)                4,965    (1,466)   (3,616)
    Non-controlling
     interest                    147        (5)      (47)

                            ------------------- ---------
    Net earnings (loss)     $ 10,057  $ (3,581) $ (4,511)
                            ------------------- ---------
    Earnings per share
      -basic                $   0.09  $  (0.03) $  (0.05)
      -diluted              $   0.09  $  (0.03) $  (0.05)


    (thousands of
     dollars except
     per share amounts)                       2006                    2005
    ----------------------- --------------------------------------- ---------
                               Q4        Q3         Q2       Q1        Q4
                             Oct 31    Jul 31     Apr 30   Jan 31    Oct 31

    Results of operations:
    Total revenue           $ 22,133  $ 18,111  $     84  $     22  $  1,525
    Operating expenses        13,372    10,110       609       597     1,171
                            --------------------------------------- ---------
    EBITDA                     8,761     8,001      (525)     (575)      354

    Amortization               1,326       493        40        40        76
    Financing costs              929       423       103        98       148

    Income (loss) before
     income taxes and
     non-controlling
     interest                  6,506     7,085      (668)     (713)      130
    Income tax provision
     (recovery)                2,041     2,643      (220)     (176)       41
    Non-controlling
     interest                    200        32         -         -        72

                            --------------------------------------- ---------
    Net earnings (loss)     $  4,265  $  4,410  $   (448) $   (537) $     17
                            --------------------------------------- ---------
    Earnings per share
      -basic                $   0.05  $   0.08  $  (0.02) $  (0.02) $      -
      -diluted              $   0.05  $   0.07  $  (0.02) $  (0.02) $      -

    (*) The Corporation changed its year end from October 31 to January 31

    Dated: September 12, 2007
    


    Discovery Air's mission is to build shareholder value by creating an
alliance of profitable aviation businesses that can realize synergies,
economies of scale and deliver safe, professional air services to clients in
selected niche markets.
    Discovery Air's Class A common shares trade on the Toronto Stock Exchange
under the symbol DA.A.
    Discovery Air's Debentures trade on the Toronto Stock Exchange under the
symbol DA.DB.


    
    DISCOVERY AIR INC.
    Consolidated Balance Sheet
    (thousands of dollars)

                                          July 31    January 31     July 31
                                            2007         2007         2006
                                       ------------ ------------ ------------
                                        (unaudited)   (audited)   (unaudited)

    Assets
    Current assets:
      Cash                             $     2,710  $    17,634  $     2,914
      Accounts receivable                   32,451       12,028       21,229
      Inventory                             10,031        9,532        6,595
      Prepaid expenses and other             1,867        1,817        1,095
                                       ------------ ------------ ------------
                                            47,059       41,011       31,833

    Land, buildings and equipment          114,917       97,840       54,772

    Intangible assets                       25,747       26,754       19,948

    Goodwill                               114,597      114,159       73,190

                                       ------------ ------------ ------------
                                       $   302,320  $   279,764  $   179,743
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable and accrued
       liabilities                     $    10,686  $     7,842  $     8,991
      Income taxes payable                   3,060        2,435        2,442
      Bank loan, secured (note 5)            1,189            -        2,141
      Current portion of long-term
       debt (note 6)                        14,851       14,218        7,805
                                       ------------ ------------ ------------
                                            29,786       24,495       21,379
                                       ------------ ------------ ------------

    Long-term debt (note 6)                 84,818       74,729       38,378

    Future income taxes                     22,071       22,837        7,228

    Non-controlling interest                 1,775        1,633        1,446

    Shareholders' equity
      Share capital (note 7)               153,683      152,359      107,355
      Retained earnings                     10,187        3,711        3,957
                                       ------------ ------------ ------------
                                           163,870      156,070      111,312
                                       ------------ ------------ ------------

                                       $   302,320  $   279,764  $   179,743
                                       ------------ ------------ ------------
                                       ------------ ------------ ------------

    See accompanying notes to consolidated financial statements.



    DISCOVERY AIR INC.
    Consolidated Statement of Earnings
    (thousands of dollars)

                                   for the                   for the
                             three months ended         six months ended
                          ------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2007         2006         2007         2006
                          ------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Revenue               $    43,583  $    18,111  $    59,650  $    18,195
    Operating expenses         24,855       10,110       41,727       10,719
                          ------------------------- -------------------------
                               18,728        8,001       17,923        7,476

    Financing charges           2,127          423        4,046          526
    Amortization of
     buildings and
     equipment                    929          482        2,754          511
    Amortization of
     intangible assets            503           11        1,006           22
                          ------------------------- -------------------------
                                3,559          916        7,806        1,059
                          ------------------------- -------------------------
    Earnings before income
     taxes and non-
     controlling interest      15,169        7,085       10,117        6,417

    Income taxes (note 10)      4,965        2,643        3,499        2,423

    Earnings before non-
     controlling interest      10,204        4,442        6,618        3,994

    Non-controlling
     interest                     147           32          142           32
                          ------------------------- -------------------------

    Net earnings          $    10,057  $     4,410  $     6,476  $     3,962
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Basic earnings
     per share            $      0.09  $      0.08  $      0.06  $      0.09
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Diluted earnings
     per share            $      0.09  $      0.07  $      0.06  $      0.08
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Weighted average
     number of common
     shares               110,901,541   58,023,101  110,229,534   43,434,267
                          ------------------------- -------------------------
                          ------------------------- -------------------------


    See accompanying notes to consolidated financial statements.



    DISCOVERY AIR INC.
    Consolidated Statements of Shareholders' Equity
    (thousands of dollars)

                                   for the                   for the
                             three months ended         six months ended
                          ------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2007         2006         2007         2006
                          ------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Share capital (note 7)

    Class A common shares:
    Outstanding,
     beginning of period  $   147,841  $     5,076  $   147,579  $     1,226
    Issued for cash                 -       13,356            -       17,206
    Issued on acquisition
     of subsidiary                  -       81,900            -       81,900
    Issued on exercise
     of options                    15            -           15            -
    Issued on exercise
     of warrants                    -        2,260          262        2,260
                          ------------------------- -------------------------
                              147,856      102,592      147,856      102,592
    Less share issue costs,
     net of tax                     -         (762)           -         (762)
                          ------------------------- -------------------------
    Outstanding, end
     of period            $   147,856  $   101,830  $   147,856  $   101,830
                          ------------------------- -------------------------

    Contributed surplus:
    Balance, beginning
     of period            $     5,417  $       280  $     4,780  $       224
    Fair value of
     warrants granted               -        5,564            -        5,564
    Warrants exercised              -         (682)           -         (682)
    Fair value of options
     granted                      415          363        1,052          419
    Options exercised              (5)           -           (5)           -
                          ------------------------- -------------------------
    Balance, end of
     period               $     5,827  $     5,525  $     5,827  $     5,525
                          ------------------------- -------------------------

                          ------------------------- -------------------------
    Total share capital   $   153,683  $   107,355  $   153,683  $   107,355
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Retained earnings

    Retained earnings
     (deficit), beginning
     of period            $       130  $      (453) $     3,711  $        (5)
    Net earnings               10,057        4,410        6,476        3,962
                          ------------------------- -------------------------
    Retained earnings,
     end of period        $    10,187  $     3,957  $    10,187  $     3,957
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    See accompanying notes to consolidated financial statements.



    DISCOVERY AIR INC.
    Consolidated Statement of Cash Flows
    (thousands of dollars)

                                   for the                   for the
                             three months ended         six months ended
                          ------------------------- -------------------------
                            July 31      July 31      July 31      July 31
                              2007         2006         2007         2006
                          ------------------------- -------------------------
                          (unaudited)  (unaudited)  (unaudited)  (unaudited)

    Cash provided by
     (used in):

    Operations:
    Net earnings          $    10,057  $     4,410  $     6,476  $     3,962
    Items not
     involving cash:
      Future income tax
       expense (recovery)       1,029          (52)        (766)         (81)
      Amortization              1,432          493        3,760          533
      Amortization of
       deferred engine
       overhaul expense         1,055            -        1,390            -
      Amortization of
       discount on
       convertible
       debenture                  124            -          244            -
      Stock-based
       compensation
       (note 7)                   415          363        1,052          419
    Non-controlling
     interest                     147           32          142           32
    Change in other assets
     and liabilities
     (note 8)                 (14,649)      (2,812)     (17,065)      (3,187)
                          ------------------------- -------------------------
                                 (390)       2,434       (4,767)       1,678
                          ------------------------- -------------------------

    Investing:
    Equipment                  (5,575)        (245)     (16,818)        (295)
    Acquisition of
     subsidiary
     operations                   (21)     (20,417)      (5,279)     (20,417)
                          ------------------------- -------------------------
                               (5,596)     (20,662)     (22,097)     (20,712)
                          ------------------------- -------------------------

    Financing:
    Proceeds from
     (repayment of) bank
     loan (note 5)              1,189         (419)       1,189         (419)
    Proceeds from long-
     term debt                  3,415          142       15,608          692
    Repayment of long-
     term debt                 (3,203)        (962)      (5,129)      (1,672)
    Net proceeds of
     common shares                 10       20,166          272       23,262
                          ------------------------- -------------------------
                                1,411       18,927       11,940       21,863
                          ------------------------- -------------------------

    Increase (decrease)
     in cash                   (4,575)         699      (14,924)       2,829

    Cash, beginning
     of period                  7,285        2,215       17,634           85
                          ------------------------- -------------------------

    Cash, end of period   $     2,710  $     2,914  $     2,710  $     2,914
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Supplementary cash
     flow information:
      Interest paid
       during the period  $     2,689  $       455  $     3,794  $       571
      Income taxes paid
       during the period  $     2,435  $         -  $     3,807  $         3


    See accompanying notes to consolidated financial statements.
    


    DISCOVERY AIR INC.
    Notes to the interim consolidated financial statements (unaudited)
    For the six months ended July 31, 2007

    Discovery Air Inc. (the "Corporation") was incorporated on November 12,
2004 under the Ontario Business Corporations Act and on March 27, 2006 was
continued under the Canada Business Corporations Act. Its primary business
activities are carried out by its subsidiaries Great Slave Helicopters Ltd.
(GSHL), Air Tindi Ltd. (ATL) and Hicks & Lawrence Limited (H&L).

    GSHL is a helicopter company that, independently and in partnership with
first nations aboriginal groups, operates a fleet of 75 helicopters and
provides services throughout northern Canada and several of the Canadian
provinces to governments and private sector companies in areas such as
resource and base mineral exploration and production, wildlife services,
forest fire suppression, oil and gas exploration, power line construction and
maintenance, aerial surveys, tourism and flight training. GSHL's principal
operations are carried out in Yellowknife, Northwest Territories and Calgary,
Alberta. It has additional facilities in Fort Simpson, Fort Liard, Norman
Wells and Inuvik in the Northwest Territories, Rankin Inlet in Nunavut,
Churchill in Manitoba and Dryden in Ontario.

    ATL operates a diversified fleet of 23 fixed wing aircraft offering
scheduled and chartered passenger and cargo services, as well as air ambulance
services, in Northern Canada. Its customers include, among others, major
diamond and base mineral exploration and mining companies and the Government
of Canada and the Northwest Territories.

    H&L is an Ontario-based aviation company that operates 31 aircraft
focused on providing specialized air transport services to niche aviation
markets in the Province of Ontario. H&L currently provides aerial forest fire
services to the Province of Ontario with 27 of its aircraft, which are
supported by flight operations and maintenance bases throughout Northern
Ontario. Its primary flight operations and maintenance base is located in
Dryden, Ontario. On March 14, 2007, H&L purchased the wheel division and
related assets of Walsten Air Service (1986) Ltd, including 4 Beech King Air
aircrafts, an aircraft hangar and associated equipment and inventory located
in Kenora, Ontario and goodwill related to the business.

    The business of the Corporation follows a seasonal pattern with the
lowest revenues occurring from November to April. Furthermore, repairs and
maintenance on aircraft are not incurred evenly during the year and may also
vary from year to year. Therefore, the Corporation's results for the interim
period are not necessarily indicative of the results that may be expected for
a full year.

    
    1.  Accounting Policies:

        The consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles
        ("GAAP"). The disclosures in these interim financial statements do
        not meet all disclosure requirements of GAAP for annual financial
        statements and should be read in conjunction with the Corporation's
        most recent audited annual consolidated financial statements for the
        three-month period ended January 31, 2007.

        These interim financial statements follow the same accounting
        policies as the most recent annual consolidated financial statements.

    2.  New Accounting Pronouncements:

        Inventories

        In May 2007, the Accounting Standards Board issued Handbook Section
        3031, Inventories, which supersedes Handbook Section 3030.

        The standard introduces significant changes to the measurement and
        disclosure of inventory. The measurement changes include: the
        elimination of LIFO, the requirement to measure inventories at the
        lower of cost and net realizable value, the allocation of overhead
        based on normal capacity, the use of specific cost method for
        inventories that are not ordinarily interchangeable or goods and
        services produced for specific purposes, the requirement for an
        entity to use a consistent cost formula for inventory of a similar
        nature and use, and the reversal of previous write-downs to net
        realizable value when there is a subsequent increase in the value of
        inventories. Disclosures of inventories have also been enhanced.
        Inventory policies, carrying amounts, amounts recognized as an
        expense, write-downs and the reversals of write-downs are required to
        be disclosed.

        This new standard will apply to the Corporation effective February 1,
        2008. The Corporation is assessing the impact this standard will have
        on its consolidated financial statements.

    3.  Business acquisition:

        On March 14, 2007, the Corporation purchased the wheel division
        assets of Walsten Air Service (1986) Ltd., including aircraft, an
        aircraft hangar, associated equipment and inventory, and goodwill
        related to the business. The purchase price was $5.3 million. The
        results of its operations have been included in the Corporation's
        consolidated financial statements since the date of acquisition. The
        estimated fair value of the assets acquired and liabilities assumed
        are summarized in the table below:

        (thousands of dollars)
        ---------------------------------------------------------------------
        Net assets acquired:
        ---------------------------------------------------------------------

        Land, buildings and equipment                            $     4,403
        Current assets                                                   438
        Goodwill                                                         438
        ---------------------------------------------------------------------
                                                                 $     5,279
        ---------------------------------------------------------------------

    4.  Goodwill:

        The Corporation tests goodwill for possible impairment on an annual
        basis and at any other time if an event occurs or circumstances
        change that would more likely than not reduce fair value of a
        reporting unit below its carrying amount. During the second quarter
        of fiscal 2008, the Corporation completed its goodwill impairment
        test for all reporting units. The results of the test have indicated
        that there is no impairment.

    5.  Bank loan:

        The Corporation has available to it a receivables financing facility
        to a maximum of $1.5 million, bearing interest at prime plus 0.25%,
        whereby it pledges eligible accounts receivable at face value.

    6.  Long-term debt arrangements:

        The scheduled principal repayments of the long term debt over the
        next five years and thereafter are as follows:

        2008                                                     $    14,851
        2009                                                          14,920
        2010                                                           8,655
        2011                                                           6,158
        2012                                                          39,564
        Thereafter                                                    15,521


    7.  Share capital and stock-based compensation:

        (a) Authorized and outstanding:

            The Corporation is authorized to issue an unlimited number of
            Class A common voting shares and an unlimited number of Class B
            common variable voting shares. As at July 31, 2007, there were
            110,920,019 Class A common voting shares issued and outstanding
            and no Class B common variable voting shares issued or
            outstanding.

        (b) Warrants:

            At July 31, 2007, the Corporation had 5,425,920 (2006 -
            8,343,854) common share purchase warrants issued and outstanding.
            The holders of these warrants are entitled to subscribe for 1
            Class A common share for every 1 warrant held for a subscription
            price of $1.75 per share. The warrants expire in December 2007.

        (c) Stock-based compensation:

            During the six months ended July 31, 2007, 2,811,050 (2006 -
            710,000) stock options with a weighted-average exercise price of
            $1.69 (2006 - $1.64) were granted, 20,000 stock options were
            exercised and 30,150 (2006 - nil) stock options were forfeited.
            In the same period, salary expense of $1,052,000 (2006 -
            $419,000) has been recognized by the Corporation relating to the
            estimated fair value of the options that have been granted in
            total. As at July 31, 2007 there were 6,780,900 common shares
            issuable under options. The fair value of options granted was
            estimated using the Black-Scholes option pricing model based on
            the following assumptions: (i) weighted-average risk-free
            interest rate of 4.36%, (ii) expected option life of 4.5 years,
            (iii) expected volatility of 50%, and (iv) expected forfeiture
            rate of 5%. The weighted-average fair value of options granted
            was estimated at $0.78 per share.

    8.  Change in other assets and liabilities

                                      for the                 for the
                                three months ended       six months ended
                              ----------------------- -----------------------
        (thousands of           July 31     July 31     July 31     July 31
         dollars)                 2007        2006        2007        2006
        --------------------------------------------- -----------------------

        --------------------------------------------- -----------------------
        Accounts receivable   $  (16,892) $   (7,749) $  (20,423) $   (7,817)
        Inventory                   (484)       (502)        (61)       (511)
        Prepaid expenses
         and other                   286         931         (50)        356
        Accounts payable and
         accrued liabilities         821       2,066       2,844       2,343
        Income taxes payable       1,620       2,442         625       2,442
        --------------------------------------------- -----------------------
                              $  (14,649) $   (2,812) $  (17,065) $   (3,187)
        --------------------------------------------- -----------------------

    9.  Related party transactions:

        At July 31, 2007, the Corporation had total indebtedness, including
        accrued interest, of $18.6 million (2006 - $17.0 million), bearing an
        interest rate range of prime to prime plus 1% per annum, owing
        primarily to officers and directors of the Corporation or its
        subsidiaries and who were former owners of the subsidiaries. For the
        six months ended July 31, 2007, interest expense on this debt
        totalled $576,000 (2006 - $nil).

    10. Income taxes:

                                      for the                 for the
                                three months ended       six months ended
                              ----------------------- -----------------------
        (thousands of           July 31     July 31     July 31     July 31
         dollars)                 2007        2006        2007        2006
        --------------------------------------------- -----------------------

        Tax provision at
         basic rate of 34%
         (2006 - 36%)         $    5,150  $    2,512  $    3,438  $    2,272

        Changes resulting from:
          Stock-based
           compensation              151         131         380         151
          Other permanent
           differences                16           -          33           -
          Adjustment to future
           tax assets and
           liabilities for
           enacted changes in
           tax laws and rates       (352)          -        (352)          -

        --------------------------------------------- -----------------------
        Balance, end of
         period               $    4,965  $    2,643  $    3,499  $    2,423
        --------------------------------------------- -----------------------

    11. Commitments:

        The Corporation has annual lease obligations for aircraft and
        premises. Amounts under these leases for each of the five succeeding
        years and thereafter are as follows:

        2008                                                      $    2,718
        2009                                                           1,528
        2010                                                           1,454
        2011                                                           1,279
        2012 and thereafter                                            1,622


    12. Segmented information:

        The Corporation has two reportable business segments: rotary wing and
        fixed wing. These segments are differentiated by the nature of the
        aircraft used to provide aviation services. The rotary wing segment
        is represented by helicopter charter services as provided by GSHL and
        the fixed wing segment is represented by airplane services as
        provided by ATL and H&L. Customers serviced by both segments consist
        of governments and private sector companies in the resource and base
        mineral exploration and production, wildlife services, forest fire
        suppression, oil and gas exploration, power line construction and
        maintenance, aerial surveys exploration, tourism and flight training.

        All other activities that are not allocated to these two business
        segments are reported under Corporate Support.


    (thousands of dollars)       for the three months ended July 31, 2007
    -------------------------------------------------------------------------
                              Rotary       Fixed      Corporate
                               Wing         Wing       Support       Total
    -------------------------------------------------------------------------

    Revenue                $   28,889   $   14,665   $       29   $   43,583
    -------------------------------------------------------------------------

    Operating expenses         15,329        8,213        1,313       24,855
    Amortization                  732          688           12        1,432
    Financing costs               786          597          744        2,127
    Income taxes                3,471        1,192          302        4,965
    Net earnings (loss)         8,436        3,963       (2,342)      10,057
    -------------------------------------------------------------------------

    Total assets           $  183,239   $  118,493   $      588   $  302,320
    -------------------------------------------------------------------------


    (thousands of dollars)       for the three months ended July 31, 2006
    -------------------------------------------------------------------------
                              Rotary       Fixed      Corporate
                               Wing         Wing       Support       Total
    -------------------------------------------------------------------------

    Revenue                $   14,284   $    3,810   $       17   $   18,111
    -------------------------------------------------------------------------

    Operating expenses          8,064        1,467          579       10,110
    Amortization                  341          152            -          493
    Financing costs               314          109            -          423
    Income taxes                2,003          719          (79)       2,643
    Net earnings (loss)         3,530        1,363         (483)       4,410
    -------------------------------------------------------------------------

    Total assets           $  166,418   $   11,720   $    1,605   $  179,743
    -------------------------------------------------------------------------


    (thousands of dollars)        for the six months ended July 31, 2007
    -------------------------------------------------------------------------
                              Rotary       Fixed      Corporate
                               Wing         Wing       Support       Total
    -------------------------------------------------------------------------

    Revenue                $   37,808   $   21,751   $       91   $   59,650
    -------------------------------------------------------------------------

    Operating expenses         23,822       15,074        2,831       41,727
    Amortization                1,773        1,974           13        3,760
    Financing costs             1,496        1,055        1,495        4,046
    Income taxes                2,412          420          667        3,499
    Net earnings (loss)         8,183        3,208       (4,915)       6,476
    -------------------------------------------------------------------------

    Total assets           $  183,239   $  118,493   $      588   $  302,320
    -------------------------------------------------------------------------


    (thousands of dollars)        for the six months ended July 31, 2006
    -------------------------------------------------------------------------
                              Rotary       Fixed      Corporate
                               Wing         Wing       Support       Total
    -------------------------------------------------------------------------

    Revenue                $   14,284   $    3,895   $       16   $   18,195
    -------------------------------------------------------------------------

    Operating expenses          8,064        1,996          659       10,719
    Amortization                  341          192            -          533
    Financing costs               314          212            -          526
    Income taxes                2,003          528         (108)       2,423
    Net earnings (loss)         3,530          967         (535)       3,962
    -------------------------------------------------------------------------

    Total assets           $  166,418   $   11,720   $    1,605   $  179,743
    -------------------------------------------------------------------------

    13. Subsequent event:

        On August 24, 2007, the Corporation acquired 100% of the outstanding
        shares of Top Aces Inc. for cash consideration of $35.0 million and
        20 million common shares which for accounting purposes will be
        recorded at approximately $31.8 million. Top Aces Inc. is an approved
        supplier to the Canadian federal government of airborne training
        services to the Department of National Defence. In order to finance a
        portion of the purchase consideration, the Corporation entered into a
        $33.0 million term loan agreement with a syndicate of lenders. The
        term loan has a coupon rate of 9.25% per annum and the principal
        balance is due on February 1, 2009. The Corporation issued 1,178,568
        warrants to the syndicate with a subscription price of $2.00 per
        share.
    





For further information:

For further information: Wade MacBain, Director of Investor Relations,
Phone: (519) 913-2204, ext. 358, Toll-free: (866) 903-3247, ext. 358, E-mail:
wadem@discoveryair.com


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