Air Florida - WikiHQ

thumb|[[Lockheed L-188 Electra|Electra landing at Miami in 1976]]

Air Florida was an American low-cost carrier that operated under its own brand from 1972 to 1984. During the period from 1972 to 1978 Air Florida was an intrastate airline. Until a high-profile 1982 aircraft crash in Washington DC, Air Florida was considered an early success story of U.S. airline deregulation, having expanded rapidly from its original Florida network, including internationally to Europe and Latin America. After the crash, the airline struggled for over two and a half years before finally succumbing to bankruptcy in 1984.

After being grounded for three months in Chapter 11 bankruptcy, Air Florida flew again for 10 months in 1984 and 1985 under contract to Midway Airlines using the brand "Midway Express", with Midway selling the tickets and doing the marketing. In 1985 it was sold to Midway.

History

Intrastate origin

Air Florida was based at Miami International Airport. Air Florida was initially organized as an intrastate airline by a group including Miami native Eli Timoner as chairman, Bill Spohrer as president, Jim Woodman as VP, Robert Bussey as Secretary and Reed Cleary as chief pilot. The inspiration was Pacific Southwest Airlines, the long-established California intrastate airline. Spohrer came from Convair 990 operator APSA, which may account for Air Florida's initial focus on a 149-seat Convair 990 as an aircraft, to be leased from Modern Air Transport. Later the focus changed to an Eastern Air Lines DC-8 before settling on a Pan Am Boeing 707 purchased for $1.1mm. The inability to settle on an aircraft delayed Federal Aviation Administration (FAA) approval and thus start of the carrier.

Ted Griffin, a former marketing director of Eastern Air Lines, became operational head from mid 1972,

Acker group investment

thumb|[[Douglas DC-9|DC-9-15RC in December 1980]]

Air Florida was unprofitable for most of its intrastate existence. In 1972 it attempted a $3.2mm initial public offering, but the market was unfavorable and it had to withdraw. The airline was acquired by a Timoner-controlled publicly listed company, Investment Property Builders (IPB) as a way to give it a stock price. IPB became Air Florida System, Inc, explaining why Air Florida's holding company had a 1955 date of formation. The airline was chronically underfunded and unable to upgrade to jets, which caused some travelers to avoid Air Florida, leaving Timoner scrambling for funds.

In December 1976, an investor group led by Ed Acker, previously a Braniff executive but at that time at an insurance company, led a recapitalization of Air Florida. Acker's group put in $1.5mm, some creditors agreed to take stock in exchange for $2mm in debt, other creditors agreed to a standstill, allowing Air Florida to acquire DC-9 jets. Three DC-9s were financed by Carl Lindner's American Financial Corp, which bought them from Air Canada and leased them to Air Florida in exchange for low-priced stock and warrants that, in early 1980, provided Lindner with a substantial payoff. In mid-1977, Acker became CEO and chairman, Timoner became president and COO, and Ted Griffin left the company. By February 1978, a turnaround was evident. The fleet comprised five DC-9s, with three more on the way. A company tag-line emphasized the change: "All jet. All the time." September 1977 passenger traffic was up 400+%, in October up 600+%, for November 1977 thru January 1978, up over 350%. Year over year call center volume increased over 100%.

{| class="wikitable defaultright"

|+ Air Florida System, Inc. Financial Results, 1976 thru 1980

No longer confined to its home state, Air Florida under Ed Acker was aggressive:

Air Florida grew quickly, to the Northeast US, Caribbean, Central America and Europe. European routes required long-haul aircraft, such as DC-8s or DC-10s. By January 1981, the fleet included four DC-9s, 21 737s and a DC-10. Timoner again became chairman and CEO.

{|class="wikitable"

|+ Air Florida attempted acquisitions

!Target

!Timeframe

!Disposition

|Piedmont Airlines

|June 1979-March 1981

|Bought 4.9% of Piedmont, which refused to engage. Sold stake to help finance Air California bid Won a bidding war for WCC, but the other bidder launched a bid for Air California itself, which Air Florida lost

|Western Airlines

|July 1981-November 1982

|Bought stock in Western in part with WCC proceeds. Air Florida sold the stake at a $10mm loss in 1982.

Flight 90 and aftermath

alt=A severed airplane tail section hangs from a crane just above the water, guyed by crew on barges. A low, steel beam bridge with granite block piers stands behind, it's railing lined with onlookers.|thumb|The tail section of Flight 90 being hoisted from the Potomac River

On January 13, 1982, Air Florida suffered a fatal crash in Washington DC, with a Boeing 737 aircraft hitting a bridge and ending in the Potomac River. Video of rescue efforts were widely broadcast, as was an iconic image of the broken tail of the Air Florida aircraft being pulled from the river. Air Florida reservations dried up. Later in the year the National Transportation Safety Board investigation blamed the crash on the Air Florida pilots.

Air Florida's fortunes turned for the worse even before the crash. A substantial financial loss in the fourth quarter of 1981 was driven by fierce fare wars, including by Pan Am now run by Ed Acker. Heavy losses continued into 1982, but even after the crash, Air Florida management continued to consider mergers, this time with Braniff, in distress as it headed towards a May 1982 bankruptcy and grounding. The economy was in trouble and airlines particularly so. In July, Timoner suffered a debilitating stroke, with Donald Lloyd-Jones becoming CEO. Lloyd-Jones was an American Airlines veteran who lost the heir-apparent competition at American to Bob Crandall and had joined Air Florida as president.

{|class="wikitable plain-row-headers defaultright"

|+ Air Florida(1) Financial Results, 1979 thru YE3Q83(2)

! (USD mm) !! 1979 !! 1980 !! 1981 !! 1982 !! YE3Q83

! Op revenue

| 60,047 || 161,262 || 302,962 || 281,770 || 214,433

! Op profit (loss)

| 3,965 || 9,495 || (12,070)|| (33,480)|| (16,309)

! Net profit (loss)

| 3,383 || 5,631 || (4,122)|| (78,507)|| (50,941)

! Op margin

| 6.6%|| 5.9%|| -4.0%|| -11.9%|| -7.6%

! Net margin

| 5.6%|| 3.5%|| -1.4%|| -27.9%|| -23.8%

|+ align="bottom" style="caption-side: bottom; text-align: left;" | (1) Solely the airline, as filed with the CAB

|+ align="bottom" style="caption-side: bottom; text-align: left;" | (2) Air Florida did not file with CAB 4Q83 and after

Two years of struggle

Central to Lloyd-Jones's recovery strategy was shrinking Air Florida. From June 1982 to May 1984 the fleet dropped from 29 to 11.

Air Florida shrank but did not simplify. It continued to fly to Europe, despite financials that showed Europe to be the worst of the three Air Florida geographies: US, Europe and Latin America (Latin American operations were consistently close-to-break-even or better). yet it was the domestic 737 operation that survived the bankruptcy.
It continued to fly Northeast to Florida routes in the face of brutal competition from Eastern and Pan Am – Eastern because New York to Miami was its marquee route since before WWII, a source of profits for decades. Pan Am for its part had bought National Airlines in 1979, which for decades shared that New York to Miami route with Eastern. Therefore, that market was also important to Pan Am. But as much as Eastern and Pan Am lost on such routes, it did not have the proportionate impact on them as it did on Air Florida. As Eastern CEO Frank Borman noted in 1982, "we bled seriously, but only from a vein, [Air Florida] bled from an artery".

High 1982 losses led Air Florida's outside accountants to qualify that year's financials with a going concern warning; they had reason to doubt Air Florida's survival. Interest expense ballooned to $35mm in 1982 Air Florida main lender declared a default on loans in July 1983, almost a year before the carrier Florida ceased operation. Headlines remained negative, as Air Florida tried increasingly creative ways to remain funded. Towards the end, the company funded itself in part by not making required payments to the employee credit union, payroll taxes and medical insurance.

Chapter 11, Midway Express and sale

thumb|[[Boeing 737-200|737-200 at Miami, October 1984]]

In May 1984, Lloyd-Jones resigned abruptly after losing the confidence of the board. He was replaced by board chair, J.R.K. Tinkle. On July 3, the airline ceased operations and filed for Chapter 11 bankruptcy. and would make an even bigger loss in 1984. Tinkle said he picked Midway for its "experienced personnel", "$40mm in cash" and "a route system that has been very well run". It certainly had the cash to get Air Florida operating again. Attractions for Midway included Air Florida's slots at New York LaGuardia and Washington National airports, and winter demand to offset the winter lull in Midway's primarily east–west system.

Air Florida would fly 737s under contract to Midway under the brand-name "Midway Express" until the CAB gave permanent approval (it initially provided temporary approval) for a Midway acquisition, with Midway selling the seats. The deal was nominally $53mm, $35mm of which paid the FAA for three 737s (the FAA administered a federal aircraft loan guarantee program that had financed the aircraft). Many parties objected to the bankruptcy court, but Midway had the only offer so the judge approved it, putting 300 Air Florida employees back to work. In the end, Midway didn't need to pay for the aircraft, instead a lessor bought them and leased them back to Midway. Midway supervised Air Florida under the eye of the court and provided it with working capital. On October 15, 1984, Air Florida dba Midway Express was back in the sky. Eastern sued to stop the deal. It had a prior deal with the Air Florida bankruptcy estate for the airport slots, but the FAA rejected it saying the slots weren't airline property. Eastern said Midway Express was just a workaround to allow Midway to buy the slots, but the court noted the fact that Air Florida was back in operation was a pretty big difference.

In July 1985, Midway committed the cash and preferred stock it promised for the deal and on August 14, 1985, the bankruptcy court gave final approval to the sale of Air Florida to Midway, which Midway initially constituted as a subsidiary called "Midway Airlines (1984)", painting the aircraft in Midway livery. In its 1985 annual report, Midway disclosed that Midway Express made a profit of $1.4mm in the period prior to acquisition. and a "skyrocket" of an airline that outgrew its management, had a terrible accident and was punished for it. Thomas Petzinger in the classic book Hard Landing about the airline industry of the era, leaves a similar impression, telescoping the period from Flight 90 to collapse in just a paragraph, making it sound like collapse occurred only months later.

Air Florida, in the form of Midway Express, had a material impact on Midway. After poor 1983 and 1984 results, Midway's management changed in 1985 and new management restructured the airline. The new Midway was more like Midway Express than the all-business class airline it had been in 1984. In fact, the airline would eventually become all economy class, like Midway Express. Midway added more leisure destinations (like Phoenix and Las Vegas) to accompany Florida and by 1987 the 737 fleet increased to 12. The old Air Florida maintenance base in Miami became Midway's maintenance base. This version of Midway did better than the old. Midway broke even on an operating basis in 1985 and made a solid profit in 1986, 1987 and 1988.

Air Florida Commuter

Air Florida Commuter was not an airline, but a system of affiliated commuter and regional air carriers that fed traffic into Air Florida's hubs. In an arrangement commonly known as code-sharing, each airline painted their aircraft in Air Florida colors and their flights were listed in reservations systems as Air Florida flights. Air Miami became the first affiliate in 1980 and over a dozen other airlines became part of the system, including: Air Sunshine, Marco Island Airways, Florida Airlines, Key Air, Southern International, Skyway Airlines, North American Airlines, National Commuter Airlines, Gull Air, Pompano, Finair, Slocum, Atlantic Gulf, Skyway of Ocala and others. As Air Florida became financially strapped, the commuter system was dismantled in early 1984.

Destinations

{| class="wikitable" style="text-align:center;"

!City

!Feb 1979

!Dec 1981

!Sep 1982

!Jan 1984

|Bermuda

|Boston

|Brussels

|Burlington

|Chicago O'Hare

|Chicago Midway

|Cincinnati

|Cleveland

|Columbus

|Daytona Beach

|Detroit

|Fort Lauderdale

|Fort Myers

|Freeport

|Gainesville

|George Town

|Grand Turk

|Guatemala City

|Hyannis

|Indianapolis

|Jacksonville

|Key West

|Kingston

|London Gatwick

|Marathon

|Marco Island

|Marsh Harbour

|Miami

|Montego Bay

|Nantucket

|Newark

|New Orleans

|New York JFK

|New York LaGuardia

|North Eleuthera

|Ocala

|Orlando

|Oslo

|Panama City, FL

|Pensacola

|Philadelphia

|Port-au-Prince

|Puerto Plata

|Rock Sound

|Saint Croix

|Saint Thomas

|San Jose (C.R.)

|San Pedro Sula

|San Salvador

|Santo Domingo

|Sarasota

|Shannon

|Stockholm

|Stuart

|Tallahassee

|Tampa

|Tegucigalpa

|Toledo

|Treasure Cay

|Washington National

|West Palm Beach

|White Plains

Some of the above destinations in the U.S. and the Bahamas were served by commuter air carriers operating Air Florida Commuter service with prop and turboprop aircraft via respective code sharing agreements.

Air Florida also served Belize City, Belize; Charleston, South Carolina; Chicago (Midway Airport), Illinois; Dallas/Ft. Worth (DFW Airport), Texas; Düsseldorf, Germany; Frankfurt, Germany; Houston (Hobby Airport), Texas; Paris, France; Madrid, Spain; Providence, Rhode Island; Providenciales, Turk and Caicos Islands; St. Petersburg, Florida; San Juan, Puerto Rico; Savannah, Georgia; and Zürich, Switzerland with mainline jet service at various times during its existence. In addition, Air Florida Commuter served Lakeland, Florida in early 1983.

Fleet

When Air Florida ceased operations in July 1984, it was operating the following aircraft:

{| class="wikitable" style="text-align:center; margin:0.2em auto"

!Aircraft

!Total

!Orders

!Notes

|Boeing 737-100

|—

|Boeing 737-200

|—

| 1 Destroyed as Air Florida Flight 90

|Boeing 757-200

|—

|Douglas DC-8-62

|—

|Leased from Rich International Airways

|McDonnell Douglas DC-10-30CF

|—