NO THREAT OF AIRLINE FOLDING, KIWI SAYS ; SOME SEE BAILOUT AS ITS BEST HOPE
LOUIS LAVELLE, Staff Writer
Kiwi International Air Lines says it's alive and well, but others say the airline named after a flightless bird may soon be flightless itself.
The financially strapped Newark-based carrier, having had to return two of its eight rented planes to their owners last week, needs a bailout to stay airborne, industry insiders say.
"They have a very difficult time ahead,"said Michael Boyd, an airline consultant based in Evergreen, Colo."Unless a white knight comes charging out of the woods with money in his hand, the future looks pretty bleak."
While Kiwi is attracting more customers then ever and repaying some debts, in the past few months things have taken a dire turn for the airline , which was rescued from bankruptcy just 18 months ago.
In addition to losing one-fourth of its rented fleet, it has been threatened with eviction from one airport and faces a lawsuit from another for not paying its bills.
Passenger complaints, once rare, now exceed those lodged against 31 other carriers, prompting federal scrutiny. Kiwi has dropped flights or canceled service in six cities in less than a year. And employees reportedly are fleeing, believing the carrier is headed for bankruptcy.
Charles Edwards, the Baltimore surgeon who owns Kiwi , and who borrowed $ 21 million to keep it afloat , is looking for someone to buy an equity interest. And at least one of his loans reportedly is attracting interest from would-be buyers who view it as an inexpensive way to get their hands on a New Jersey building that Edwards pledged as collateral if and when Kiwi goes under.
Richard Boehm, president of Queens-based Local 504 of the Transport Workers Union of America, which represents 150 Kiwi flight attendants, said the only things that have saved the airline so far were low fuel prices, a warm winter, and labor problems at other airlines .
"You don't have to be a Wall Street genius to see there's problems there,"Boehm said."How long can that last? It's a crap shoot every month."
Not all of the news is bad.
Edwards has made his interest payments on time and even paid off $ 500,000 of principal, says Joseph Wolfer, chairman of Kennedy Funding, a Hackensack company that loaned Edwards $ 2.2 million a year ago. Two other banks with outstanding Edwards loans, Memphis-based Union Planters and New York-based Citicorp, confirmed he also is up to date on those payments, Wolfer said.
And business is booming. Some 685,777 passengers flew on Kiwi in 1998, up 13 percent from the year before. What's more, the airline's "load factor", percentage of seats sold, is vastly improved. In 1998, Kiwi's load factor was 61 percent, up from 53 percent in 1997, figures that are comparable to those of other small carriers.
Wolfer said he is willing to lend Edwards more money if he wants it, and he doesn't believe the airline is likely to stop flying any time soon.
"The predictions of their demise are premature," Wolfer said."Dr. Edwards seems to have the constitution to hang on. It would seem to me he's not as desperate as people make him out to be."
Edwards could not be reached for comment, but a Kiwi spokesman, Rob Kulat, said the company is not at death's door.
"But saying things are hunky-dory is not true, either,"he said.
"There's definitely a need for investment in the company, but the company's in no threat of folding any time soon."
Kiwi , which was founded as an employee-owned airline by refugees from Eastern and Pan Am, took to the air in September 1992 and had 1,200 employees and 15 planes at its peak. Today, it employs 550 at Newark International Airport and has a fleet of six planes, two of them in for repairs.
Some analysts say Kiwi's downward spiral began with its early run-ins with the Federal Aviation Administration. The agency grounded the airline for five days in 1994, and 24 of its 200 pilots in 1996, both times citing concerns about pilot training. On Oct. 15, 1996, two weeks after declaring bankruptcy, the airline ran out of cash and suspended all flights, resuming operations three months later.
While Kiwi , a private company, files no financial statements with federal securities regulators, its financial problems became glaringly public last week, when a British company that had been leasing it two Boeing 727s asked to have them returned. Passengers were rerouted to planes flown by Pan Am and Sun Pacific.
Fly Finance 1 Limited said Kiwi agreed to buy the aircraft for $ 7 million, but reneged on the deal, leaving a $ 2.7 million bill for back rent. Kiwi says it intends to repay the money and is negotiating to purchase the planes. A second bid for return of a plane flown by Kiwi , involving a craft leased by another British company, Sabre Airways Limited, has been halted.
The Fly Finance action was the latest chapter in the troubled history of an airline that has been chronically undercapitalized since birth.
Earlier this month, Boston's Logan International Airport notified Kiwi , which recently had decided to drop its Boston route, that it would not be permitted to land after today unless it paid all outstanding bills, said airport spokesman Phil Orlandella.
A spokesman for the Chicago Airport System said Kiwi also owes more than $ 300,000 in back fees to Midway Airport, and that the city of Chicago has announced plans to file suit against Kiwi to recoup the money. The spokesman, Dennis Culloton, said Kiwi was unable to compete in Chicago.
"I think it was not so much ducking the landlord,"he said of Kiwi's departure last month."They decided to retreat rather than compete."
Kiwi insists it will repay all the money it owes, and says both its Boston and Chicago routes were unprofitable.
"We pulled out for competitive reasons,"Kulat said."We were pulling out because we made a strategic decision to put our resources into our core markets of Florida and Puerto Rico."
Chicago and Boston weren't the only cities Kiwi up and left. In less than a year, Kiwi also has canceled flights to Detroit and Flint, Mich.; Minneapolis, and Niagara Falls, N.Y. It now flies to Newark and Atlanta, Palm Beach Orlando, and Miami in Florida, and San Juan and Aguidilla, Puerto Rico.
The cancellations and other flight problems triggered 86 customer complaints to federal regulators last year, a more than five-fold increase over 1997. In all, 209 complaints were lodged against the airline , up from 93 the year before _ a number that rivals Pan Am, which had 215 complaints in 1998.
Kulat downplayed the significance of the complaints, blaming them on Kiwi's decision to withdraw from some markets and "people... just complaining more." But the complaints troubled federal regulators enough to request a meeting with Edwards in December. A spokesman for the U.S. Department of Transportation, Bill Mosley, said the agency continues to monitor Kiwi , but believes the carrier is"fit to operate."
Still, there are some who are betting on Kiwi's failure.
Wolfer said he's been approached by several people who want to buy his Kiwi loan. Their goal: to gain possession of the Cherry Hill apartment building Edwards put up for collateral if and when Kiwi files for bankruptcy.
The vermin-infested building was evacuated last summer and declared unfit for human habitation, but Wolfer said it's still worth upwards of $ 10 million. Wolfer said he's discussed selling the property, but Edwards is not interested.
Meanwhile, Kiwi says Edwards is searching for a partner to share some of the airline's financial burden. Kulat said Edwards has been in regular contact with 20 potential partners, but has not yet reached an agreement.
Kiwi founder, former president, and former CEO Robert Iverson, who was ousted from the company in 1995, said the airline needs a "massive injection"of new capital, at least $ 5 million, but even that might not save it. He said he knows of two companies interested in buying an equity interest in Kiwi , and both have insisted the airline "rebrand" itself, establishing a new corporate identity that would distance it from its problematic history.
"Unless they have a change in their business plan, it really doesn't matter how much money they put into it,"Iverson said."It's just not going to work."
Iverson said he's heard from current Kiwi employees that turnover among Kiwi pilots and flight attendants is at an all-time high, with many fearing that bankruptcy is imminent, a characterization with which union officials agree. But he said this isn't the first time the company has been declared dead in the water.
"There have been so many times in the last three or four years where people have predicted the imminent demise of Kiwi and they just keep going,"he said."I know a lot of people in the industry are convinced they're out of business, but who knows? It's hard to say."
(TEXT OF GRAPHICS)
Kiwi Passenger Volume
PERCENTAGE OF YEAR PASSENGERS SEATS SOLD
1998 685,777 61% 1997 607,539 53% Increase 13% 8 points
PERCENTAGE OF MONTH PASSENGERS SEATS SOLD
January 1999 58,900 64% January 1998 46,800 54% Increase 25% 10 points
Source: Kiwi International Air Lines
Complaints against Kiwi
From 1994 to 1998, complaints against Kiwi lodged with federal regulators have increased nearly 2,000 percent, at a time when major U.S. carriers saw an average increase in complaints of 41 percent. most of Kiwi's most recent complaints were for flight problems, which include cancellations, delays, and other deviations from schedule.
KIWI KIWI FLIGHT U.S. AVERAGE YEAR TOTAL PROBLEMS (TOTAL) 1994 10 3 132 1995 19 8 125 1996 71 18 123 1997 93 16 161 1998 209 86 187
Source: U.S. Department of Transportation. |
