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Sealed Air Reports First Quarter 2008 Results

 

8% Increase in Sales

 

 

ELMWOOD PARK, N.J.--(BUSINESS WIRE)--April 30, 2008--Sealed Air Corporation (NYSE:SEE) reported diluted net earnings per common share of $0.33 for the first quarter of 2008, compared with the first quarter of 2007 diluted net earnings per common share of $0.67. Excluding the special items detailed in the table below, diluted net earnings per common share for the first quarter of 2008 would have been $0.35 per common share, compared with the first quarter of 2007 diluted net earnings per common share of $0.39.

                                                         Quarter Ended
Reconciliation of Diluted Net Earnings per Common Share    March 31,
----------------------------------------------------------------------
                                                         2008   2007
                                                         ----- -------
U.S. GAAP diluted net earnings per common share          $0.33 $ 0.67
Net earnings effect resulting from the following(1):
     Gain on sale of equity method investment                -  (0.11)
     Reversal of tax accruals and related interest           -  (0.18)
     Global manufacturing strategy and restructuring and
      other charges                                       0.02   0.01
                                                         ----- -------
Diluted net earnings per common share excluding the
 effect of the items above                               $0.35 $ 0.39
-------------------------------------------------------- ===== =======
(1) The items included in the table above are net of income taxes
 where applicable.

Sealed Air's net sales for the first quarter of 2008 increased 8% to $1.18 billion, compared with $1.09 billion for the first quarter of 2007.

Commenting on the Company's operating performance, William V. Hickey, President and Chief Executive Officer, stated:

"As we expected, the first quarter was challenging due to slowing economic conditions in North America and rising input costs. Despite this, we generated a modest increase in product price/mix and held volume steady with the help of new product sales and the recent acquisition of the Ethafoam(R) product lines. We experienced double-digit growth in our vertical pouch packaging portfolio, our medical applications business and in the developing regions of the world.

While we experienced a reduction in operating profit, we held operating expenses flat on a constant dollar basis and are beginning to see the benefit of price increases that were announced in December 2007 to help offset rising costs. We continued to generate steady cash flow and continued to invest in our growth programs and long term strategies. We repurchased $27 million of our common stock, increased our dividend by 20% in the quarter and utilized $19 million for the dividend payment."

Commenting on the Company's outlook, Mr. Hickey stated:

"Looking ahead, we expect continued weak economic conditions in North America and higher input costs for the duration of the year. In anticipation of continued challenges in the 2008 environment, we recently implemented additional pricing actions, as well as a cost reduction program, to mitigate higher input costs. We remain confident in the fundamentals of our business, the opportunities associated with our long term growth strategy and our proven ability to successfully navigate through challenging conditions."

    Financial Highlights for the First Quarter

    --  Net sales increased 8% to $1.18 billion, compared with $1.09
        billion for the first quarter of 2007. The increase in net
        sales resulted from a $57 million favorable effect of foreign
        currency translation, a $14 million net effect from
        acquisitions and divestitures and $13 million from product
        price/mix. Volume was essentially flat for the quarter.
        Excluding the $57 million favorable effect of foreign currency
        translation, net sales would have increased 2%.

    --  Gross profit decreased to $305 million, or 25.9% of net sales,
        compared with $314 million, or 28.7% of net sales, for the
        first quarter of 2007. The decrease in gross profit as a
        percentage of net sales was primarily due to the impact of
        higher average petrochemical-based raw material costs, which
        were approximately $37 million higher than the first quarter
        of 2007 and $11 million higher sequentially than the fourth
        quarter of 2007.

    --  Marketing, administrative and development expenses increased
        to $186 million compared with $178 million, but decreased as a
        percent of net sales to 15.8%, compared with 16.3% of net
        sales, for the first quarter of 2007. Excluding the $8 million
        unfavorable effect of foreign currency translation, these
        expenses would have been flat for the first quarter of 2008
        compared with the first quarter of 2007.

    --  Operating profit decreased to $117 million, or 9.9% of net
        sales, compared with $136 million, or 12.4% of net sales, for
        the first quarter of 2007. The decrease in operating profit at
        the consolidated and business segment level was primarily due
        to the impact of higher average petrochemical-based raw
        material costs.

    --  Other income, net, decreased $4 million, which was primarily
        due to higher foreign currency exchange losses of $2 million
        and advisory expenses of $1 million in the first quarter of
        2008 related to ceasing work on an acquisition in late 2007.

    --  As previously reported, on February 9, 2007, the Company sold
        its 50% investment in PolyMask Corporation to its joint
        venture partner, 3M. The Company received an aggregate cash
        amount of $36 million for the transaction and other related
        assets and recorded a pre-tax gain of $35 million in the first
        quarter of 2007, resulting in a diluted net earnings per
        common share effect of $0.11.

    --  The Company's effective income tax rate was 25.4% for the
        first quarter of 2008 and 9.4% for the first quarter of 2007.
        The first quarter 2008 effective income tax rate was reduced
        by $4 million of income tax benefits primarily associated with
        the repatriation of certain foreign earnings. The Company's
        expected full year effective income tax rate is 29.6%.

    --  As previously reported, the Company's tax provision for the
        first quarter of 2007 was reduced by the reversal of $34
        million of tax accruals, and related interest, for
        contingencies that did not materialize due to outcomes of tax
        audits and the expiration of relevant statutes of limitations.
        This resulted in a diluted net earnings per common share
        effect of $0.18.

    Business Segment Review

    Food Packaging Segment

The Company's Food Packaging segment net sales for the first quarter increased 7% to $468 million compared with $437 million last year. Excluding a $23 million favorable effect of foreign currency translation, segment net sales would have increased 2% primarily reflecting the positive impact of product price/mix in Latin America and North America, and to a lesser extent, the positive impact of unit volume growth in North America and Europe, which were partially offset by declining unit volume growth in the Asia-Pacific region. Operating profit for the first quarter was $56 million, or 12.0% of Food Packaging net sales, compared with $56 million, or 12.8% of net sales, in 2007.

Food Solutions Segment

The Company's Food Solutions segment net sales for the first quarter increased 10% to $236 million compared with $215 million last year. Excluding a $14 million favorable effect of foreign currency translation, segment net sales would have increased 3% primarily reflecting strong product price/mix in Europe and North America, and to a lesser extent, moderate unit volume growth in the Asia-Pacific region, which was partially offset by a decline in unit volumes in North America. Operating profit for the first quarter was $17 million, or 7.2% of Food Solutions net sales, compared with $19 million, or 9.0% of net sales, in 2007. In addition to the impact of higher average petrochemical-based raw materials costs mentioned above, operating profit was unfavorably affected by a decline in unit volumes in North America.

Protective Packaging Segment

The Company's Protective Packaging segment net sales for the first quarter increased 1% to $373 million compared with $371 million last year. Excluding a $16 million favorable effect of foreign currency translation and a $6 million unfavorable impact from the sale of a small product line in 2007, segment net sales would have decreased 2% primarily due to a decline in unit volume. Operating profit for the first quarter was $41 million, or 11.1% of Protective Packaging net sales, compared with $54 million, or 14.4% of net sales, in 2007. In addition to the impact of higher average petrochemical-based raw materials costs mentioned above, operating profit was unfavorably affected by lower unit volume due to the ongoing challenging economic conditions in North America.

Other Category

The Other category net sales for the first quarter increased 39% to $101 million compared with $72 million last year. Excluding a $4 million favorable effect of foreign currency translation, Other net sales would have increased 33%. This increase was primarily due to the acquisition of certain assets relating to Ethafoam(R) and related polyethylene foam product lines in November 2007, the acquisition of Alga Plastics in August 2007, and strong unit volume growth in the medical applications business. Operating profit for the first quarter was $4 million, or 4.2% of Other net sales, compared with $8 million, or 10.4% of net sales in 2007. In addition to the impact of higher average petrochemical-based raw materials costs mentioned above, operating profit was unfavorably affected by an interim supply and distribution agreement for the Ethafoam(R) product lines.

Global Manufacturing Strategy

During the quarter, the Company incurred $4.4 million relating to the implementation of its global manufacturing strategy. This includes $2.4 million of operating expenses primarily recorded as cost of sales and an additional $2.0 million of restructuring charges due to severance costs incurred at one of the Company's European facilities. This compares to $2.9 million in the first quarter of 2007, which included $2.5 million of operating expenses primarily recorded as cost of sales and $0.4 million of restructuring charges.

The Company's capital expenditures for its global manufacturing strategy in the first quarter of 2008 were $9 million compared with $11 million in the first quarter of 2007.

Capital Expenditures

The Company's capital expenditures in the first quarter of 2008 were $41 million compared with $51 million in the first quarter of 2007. The Company is targeting capital expenditures in 2008 to be in the range of $175 to $200 million, which includes $70 million related to the Company's global manufacturing strategy.

Debt Retirement

As planned, the Company retired its 5.375% senior notes due April 15, 2008 on their maturity date. These notes had a face value of $300 million. The face value of these notes, along with $8 million of accrued interest, were paid through a combination of the sale of receivables interests under the Company's accounts receivable securitization program and funds drawn under its credit facility.

Earnings Guidance

Sealed Air now expects its full year 2008 diluted net earnings per common share to be at the lower end of its previously announced guidance range of $1.64 to $1.74. This guidance includes charges of $21 million net of taxes, or $0.11 per common share, expected to be incurred relating to its global manufacturing strategy. Excluding these charges, the Company now expects its full year 2008 diluted net earnings per common share guidance to be at the lower end of its previously announced range of $1.75 to $1.85. This guidance reflects updated assumptions of higher raw material costs and lower volume growth than previously expected. We expect to offset the higher raw material costs by implementing additional selling price increases and manufacturing and supply chain initiatives. Also, we expect that operating expense reductions and a lower full year effective income tax rate will contribute to achieving this guidance.

Web Site and Conference Call Information

Mr. Hickey and David H. Kelsey, the Company's Chief Financial Officer, will conduct an investor conference call today at 11:00 a.m. (ET). The conference call will be webcast live on Sealed Air's web site at www.sealedair.com in the Investor Information section under the Presentations & Events tab. Listeners should go to the web site prior to the call to register and to download and install any necessary audio software. Prior to the call, the Company will also post supplemental financial and statistical information on its web site in the Investor Information section under the Reports & Filings tab. A replay of the webcast will also be available on the Company's web site.

Investors who cannot access the webcast may listen to the live conference call via telephone by dialing (877) 591-4951 (domestic) or (719) 325-4884 (international). Telephonic replay will be available beginning today at 2:00 p.m. (ET) and ending on Wednesday, May 7, 2008 at 12:00 midnight (ET). To listen to the replay, please dial (888) 203-1112 (domestic) or (719) 457-0820 (international) and use the confirmation code 4094839.

Business

Sealed Air is a leading global innovator and manufacturer of a wide range of packaging and performance-based materials and equipment systems that serve an array of food, industrial, medical, and consumer applications. Operating in 51 countries, Sealed Air's international reach generated revenue of $4.7 billion in 2007. With widely recognized brands such as Bubble Wrap(R) cushioning, Jiffy(R) protective mailers, Instapak(R) foam-in-place systems and Cryovac(R) packaging technology, Sealed Air continues to identify new trends, foster new markets, and deliver innovative solutions to its customers. For more information about Sealed Air, please visit the Company's web site at www.sealedair.com.

Non-U.S. GAAP Information

The Company's management from time to time presents information that does not conform to U.S. Generally Accepted Accounting Principles, or U.S. GAAP. In this press release, the Company has presented diluted net earnings per common share, including full year 2008 guidance, excluding items that are included in U.S. GAAP calculations of such measures. The excluded items are indicated in the reconciliation table above. Sealed Air has also presented changes in net sales, segment net sales and marketing, administrative and development expenses excluding the effects of foreign currency translation and, for Protective Packaging segment net sales, excluding the impact of the sale of a small product line in 2007. Presenting results excluding the items indicated in this press release aids in the comparisons with other periods or prior guidance. Diluted net earnings per common share, growth in net sales and measures of expense control, adjusted to eliminate the effects of specified items that would otherwise be included under U.S. GAAP, are among the criteria upon which the Company may determine performance-based compensation. The Company's management generally uses changes in net sales excluding the effects of foreign currency translation to measure the performance of the Company's operations. Thus, management believes that this information may be useful to investors.

Forward-Looking Statements

Some of the statements made by the Company in this press release are forward-looking. These statements include comments as to future events and trends affecting the Company's business, which are based upon management's current expectations and are necessarily subject to risks and uncertainties, many of which are outside the control of the Company. Forward-looking statements can be identified by such words as "anticipates," "estimates," "expects," "intends," "plans," "will" and similar expressions. The following are important factors that the Company believes could cause actual results to differ materially from those in the Company's forward-looking statements: changes in raw material and energy costs; market conditions; the success of the Company's growth, profitability and global manufacturing strategies; the effects of animal and food-related health issues; tax, interest and exchange rates; and legal proceedings. A more extensive list and description of these and other such factors can be found under the headings "Risk Factors" and "Cautionary Notice Regarding Forward-Looking Statements," which appear in the Company's most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as filed with the Securities and Exchange Commission.

               SEALED AIR CORPORATION AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (Unaudited)
                 (In millions, except per share data)

                                            Quarter Ended
                                               March 31,
                                            ---------------
                                                            % Increase
                                             2008    2007   (Decrease)
                                            ------- ------- ----------

Net sales: (1)
     Food Packaging                        $  468.3$  437.3     7
     Food Solutions                           235.7   214.6     10
     Protective Packaging                     372.9   370.7     1
     Other                                    100.5    72.1     39
                                            ------- -------
         Total net sales                    1,177.4 1,094.7     8

Cost of sales                                 872.3   780.5     12
                                            ------- -------

Gross profit                                  305.1   314.2    (3)
     As a % of total net sales                25.9%   28.7%

Marketing, administrative and development
 expenses                                     186.4   177.9     5
     As a % of total net sales                15.8%   16.3%

Restructuring and other charges (2)             2.0     0.4     NM
                                            ------- -------

Operating profit                              116.7   135.9    (14)
     As a % of total net sales                 9.9%   12.4%

Interest expense                             (35.4)  (35.6)    (1)

Gain on sale of equity method investment          -    35.3   (100)

Other income, net                               0.2     4.5    (96)
                                            ------- -------

Earnings before income tax provision           81.5   140.1    (42)

Income tax provision                           20.7    13.1     58
                                            ------- -------

Net earnings                               $   60.8$  127.0    (52)
                                            ======= =======
     As a % of total net sales                 5.2%   11.6%

Basic and diluted net earnings per common
 share: (3)
            Basic                          $   0.38$   0.79    (52)
                                            ======= =======

            Diluted                        $   0.33$   0.67    (51)
                                            ======= =======

Weighted average number of common shares
 outstanding: (3)
            Basic                             159.7   159.9
                                            ======= =======

            Diluted                           191.3   191.2
                                            ======= =======

NM Not Meaningful
(1) In the second quarter of 2007, the Company expanded and realigned
 its segment reporting to reflect the Company's growth strategies both
 in core markets and in new business opportunities. This new structure
 reflects the way management now makes operating decisions and manages
 the growth and profitability of the business. It also corresponds
 with management's current approach to allocating resources and
 assessing the performance of the Company's segments. The Company's
 business segment information is reported in accordance with the
 provisions of Financial Accounting Standards Board Statement No.131,
 "Disclosures about Segments of an Enterprise and Related
 Information," or SFAS No. 131. In accordance with SFAS No. 131, the
 2007 segment information has been recast from amounts previously
 reported to reflect the Company's new reportable business segments.
 Accordingly, there has been no change in the Company's consolidated
 financial position or results of operations previously reported in
 total for the Company.
(2) The restructuring and other charges in 2008 relate to the
 Company's multi-year global manufacturing strategy, primarily for the
 Company's Food Packaging segment. The 2007 restructuring charges
 related to the consolidation of the Company's customer service
 activities in North America.
(3) See the Supplementary Information included in this release for the
 reconciliation of the basic and diluted earnings per common share
 computations.
               SEALED AIR CORPORATION AND SUBSIDIARIES
                      Supplementary Information
             CALCULATION OF NET EARNINGS PER COMMON SHARE
                             (Unaudited)
                 (In millions, except per share data)

                                                        Quarter Ended
                                                           March 31,
                                                        --------------
                                                         2008  2007(1)
                                                        -----  -------
Basic Net Earnings Per Common Share:
Numerator

Net earnings ascribed to common shareholders - basic   $ 60.8 $  127.0
                                                        =====  =======

Denominator

Weighted average number of common shares outstanding -
 basic                                                  159.7    159.9
                                                        =====  =======

Basic net earnings per common share                    $ 0.38 $   0.79
                                                        =====  =======


Diluted Net Earnings Per Common Share:
Numerator
Net earnings ascribed to common shareholders - basic   $ 60.8 $  127.0

Add: Interest on 3% convertible senior notes, net of
 income taxes                                             2.0      1.9
                                                        -----  -------

Net earnings ascribed to common shareholders - diluted $ 62.8 $  128.9
                                                        =====  =======

Denominator

Weighted average number of common shares outstanding -
 basic                                                  159.7    159.9

Effect of conversion of 3% convertible senior notes      12.7     12.5

Effect of assumed issuance of asbestos settlement
 shares                                                  18.0     18.0

Effect of non-vested restricted stock and non-vested
 restricted stock units (1)                               0.9      0.8

                                                        -----  -------
Weighted average number of common shares outstanding -
 diluted (2)                                            191.3    191.2
                                                        =====  =======

Diluted net earnings per common share                  $ 0.33 $   0.67
                                                        =====  =======

(1) Net earnings per common share for 2007 have been revised. The
 Company had previously included non-vested restricted stock in the
 weighted average number of common shares outstanding in both its
 basic and diluted net earnings per common share calculations. Also,
 the Company had previously excluded non-vested restricted stock units
 from the weighted average number of common shares outstanding in its
 basic net earnings per common share calculations and from the
 weighted average number of common shares outstanding of its diluted
 net earnings per common share calculations when inclusion of such
 units was dilutive. The calculations have been revised in accordance
 with SFAS No. 128, "Earnings per Common Share," to include non-vested
 restricted stock and non-vested restricted stock units only in the
 weighted average number of common shares outstanding of the diluted
 net earnings per common share calculation, using the treasury stock
 method, if the effect is dilutive. Such revisions were immaterial.

(2) In calculating diluted net earnings per common share, the
 Company's calculation of the diluted weighted average number of
 common shares outstanding for 2008 and 2007 provides for: (1) the
 effect of conversion of the Company's 3% convertible senior notes due
 June 2033 in accordance with Emerging Issues Task Force, or EITF,
 Issue No. 04-08, "The Effect of Contingently Convertible Debt on
 Diluted Earnings per Share," (2) the effect of assumed issuance of 18
 million shares of common stock reserved for the Company's previously
 announced asbestos settlement, which was discussed in the Company's
 Annual Report on Form 10-K for the year ended December 31, 2007, (3)
 the exercise of dilutive stock options, net of assumed treasury stock
 repurchases in 2007 and (4) the effect of non-vested restricted stock
 and non-vested restricted stock units using the treasury stock
 method, if the effect is dilutive.
               SEALED AIR CORPORATION AND SUBSIDIARIES
                      Supplementary Information
     RECONCILIATION OF DILUTED NET EARNINGS PER COMMON SHARE (1)
                             (Unaudited)

                                                        Quarter Ended
                                                           March 31,
                                                        --------------
                                                        2008    2007
                                                        -----  -------

U.S. GAAP diluted net earnings per common share         $0.33  $ 0.67

Net earnings effect resulting from the following: (2)

Gain on sale of equity method investment                    -   (0.11)

Reversal of tax accruals, net and related interest          -   (0.18)

Global manufacturing strategy and restructuring and
 other charges                                           0.02    0.01

                                                        -----  -------
Diluted net earnings per common share excluding the
 effect of the items above                              $0.35  $ 0.39
                                                        =====  =======

-------------------------------------------------------

(1) Presenting diluted net earnings per common share excluding the
 items noted above aids in the comparisons with other periods or prior
 guidance and thus management believes that this information may be
 useful to investors. Diluted net earnings per common share excluding
 these items is among the criteria upon which performance-based
 compensation may be determined.

(2) Net of income taxes where applicable.
                SEALED AIR CORPORATION AND SUBSIDIARIES
                       Supplementary Information
       BUSINESS SEGMENT INFORMATION AND CAPITAL EXPENDITURES (1)
                              (Unaudited)
                             (In millions)

 BUSINESS SEGMENT INFORMATION: (2)
 -----------------------------------------------------
                                                       Quarter Ended
                                                          March 31,
                                                       ---------------
                                                        2008    2007
                                                       ------- -------

 Operating profit:
    Food Packaging                                     $ 56.2  $ 55.8

          As a % of Food Packaging net sales             12.0%   12.8%

    Food Solutions                                       16.9    19.4

          As a % of Food Solutions net sales              7.2%    9.0%

    Protective Packaging                                 41.4    53.5

          As a % of Protective Packaging net sales       11.1%   14.4%

    Other                                                 4.2     7.6

          As a % of Other net sales                       4.2%   10.5%

                                                       ------- -------
    Total segments and other                            118.7   136.3

    Restructuring and other charges (3)                   2.0     0.4

                                                       ------- -------
    Total                                              $116.7  $135.9
                                                       ======= =======

          As a % of total net sales                       9.9%   12.4%

 Depreciation and amortization:
    Food Packaging                                     $ 17.8  $ 19.4
    Food Solutions                                        8.0     7.3
    Protective Packaging                                 14.6    11.1
    Other                                                 4.3     2.8
                                                       ------- -------
    Total                                              $ 44.7  $ 40.6
                                                       ======= =======

 -----------------------------------------------------
 (3)The restructuring and other charges by business
  segment were as follows:
                                                       Quarter Ended
                                                          March 31,
                                                       ---------------
                                                        2008    2007
                                                       ------- -------
    Food Packaging                                     $  1.9  $    -
    Food Solutions                                          -     0.1
    Protective Packaging                                  0.1     0.3
                                                       ------- -------
    Total                                              $  2.0  $  0.4
                                                       ======= =======

 ---------------------------------------------------------------------

                                                       Quarter Ended
                                                          March 31,
                                                       ---------------
                                                        2008    2007
                                                       ------- -------

 CAPITAL EXPENDITURES                                  $ 40.5  $ 50.9
                                                       ======= =======

 ---------------------------------------------------------------------

 (1) The 2008 amounts presented are subject to change prior to the
  filing of the Company's upcoming Quarterly Report on Form 10-Q.
 (2) See Note 1 of the Condensed Consolidated Statements of Operations
  included in this release for a discussion of the Company's new
  segment reporting structure.
 (3) See Note 2 of the Condensed Consolidated Statements of Operations
  included in this release for a discussion of the Company's
  restructuring and other charges.
               SEALED AIR CORPORATION AND SUBSIDIARIES
                      Supplementary Information
                CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Unaudited)
                            (In millions)

                                               March 31,  December 31,
                                                2008(1)       2007
                                               ---------- ------------

Assets
Current assets:
 Cash and cash equivalents                     $   430.9  $      430.3
 Receivables, net of allowances for doubtful
  accounts                                         796.2         789.8
 Inventories                                       642.4         581.7
 Other current assets                              141.9         134.3
                                               ---------- ------------
Total current assets                             2,011.4       1,936.1
Property and equipment, net                      1,115.3       1,080.1
Goodwill                                         1,975.6       1,969.7
Non-current investments--available-for-sale
 securities                                         38.7          40.8
Other assets, net                                  414.0         411.6
                                               ---------- ------------
Total assets                                   $ 5,555.0  $    5,438.3
                                               ========== ============

Liabilities and shareholders' equity
Current liabilities:
 Short-term borrowings                         $    45.0  $       36.5
 Current portion of long-term debt                 305.8         303.7
 Accounts payable                                  313.7         316.3
 Asbestos settlement liability and related
  accrued interest                                 680.1         670.9
 Other current liabilities                         377.1         414.2
                                               ---------- ------------
Total current liabilities                        1,721.7       1,741.6
Long-term debt, less current portion             1,530.7       1,531.6
Other liabilities                                  152.5         145.5
                                               ---------- ------------
Total liabilities                                3,404.9       3,418.7
Total shareholders' equity                       2,150.1       2,019.6
                                               ---------- ------------
Total liabilities and shareholders' equity     $ 5,555.0  $    5,438.3
                                               ========== ============


(1) The amounts presented are subject to change prior to the filing of
 the Company's upcoming Quarterly Report on Form 10-Q.

    CONTACT: Sealed Air Corporation
             Amanda Butler, 201-791-7600

    SOURCE: Sealed Air Corporation