Imperial-Pacific Coast Plan Merger--Again
The on-again, off-again merger of bankrupt Imperial Airlines and Pacific Coast Airlines in Santa Barbara may be on, again, according to sources close to the companies.
“The Pacific Coast deal is still in the making and something should come together very soon,” Art Ulloa, Imperial’s vice president, confirmed Wednesday.
The proposed merger calls for the combined company to buy new airplanes from British Aerospace to complement the 10 Handley Page 15-passenger turboprop planes operated by Pacific Coast, other sources close to the deal said Wednesday.
Carlsbad-based Imperial, which filed for Chapter 11 bankruptcy reorganization three weeks after it was bought by an unidentified group of Kansas City investors in January, has only four of its 14 planes left in stock. The rest, Ulloa confirmed, have been taken back by their owners because of delinquent lease payments.
The proposed merger is reportedly being handled by Henry Voss, Imperial’s former president who now serves as a consultant to both airlines.
Suspended Service
Pacific Coast has been in bankruptcy proceedings for several years and two weeks ago announced it had suspended passenger service for at least 15 days while it negotiates to sell the company.
Pacific Coast officials could not be reached for comment Wednesday.
Telephone calls to the company’s headquarters on Wednesday were greeted only with a recorded message explaining that operations have been halted and that passengers holding Pacific Coast tickets will be accommodated by other carriers.
A merger of Imperial and Pacific Coast had been planned last month, but the deal was called off after the Kansas City group apparently was unable to arrange financing.
A combination of the companies, if fully operational, would have resulted in a formidable carrier, given Imperial’s former route system of Carlsbad to Bakersfield, Santa Barbara, Los Angeles, Orange County and San Diego. Pacific Coast operated 60 daily flights from Santa Barbara to San Francisco, San Jose, Sacramento, Bakersfield, Monterey, Fresno and Lake Tahoe.
Meanwhile, in a related development, former Imperial owner Dr. Charles Heller has filed suit against Helen Alvarez Smith, claiming that Smith never fully paid him when she bought imperial in 1980.
Heller, a Fallbrook physician, also alleged that Smith failed to make timely payments on Imperial’s aircraft leases, contracts that Heller had personally guaranteed.
Suit Files Last Week
Heller’s suit, filed last week in North County, claims that Smith--who bought Imperial in July, 1980, from Heller, North County investor James Montgomery and James Harmon, Smith’s brother-in-law--still owes Heller $598,158 from that sale.
In addition, according to the lawsuit, when Smith sold 70% of the company to the unidentified Kansas City group, she “denied the existence” of her agreement to pay Heller the balance owed.
The lawsuit also asks for $20 million in punitive damages.
Smith bought the company in 1980 for only $1,000, promising to pay an additional $2 million over the next four years out of the airline’s profits, according to an exhibit attached to the lawsuit.
But earnings were never enough to support debt repayments, and, as per the terms of the sale, ownership of the stock was supposed to revert to the sellers, according to an exhibit filed with the lawsuit.
Smith, the former wife of financier C. Arnholt Smith, on Wednesday denied Heller’s allegations.
“We gave him the stock back . . . in December or January,” she said in an interview. “We’ve been ready to give it back anytime he was willing to accept it. But he returned the stock . . . saying he didn’t want it.”
Smith also said there was a dispute over whether Heller owns Montgomery’s stock--Heller claiming he does and Montgomery reportedly denying it.
Harmon, along with Smith, sold his stock to the Kansas City group last month.
Stock in Escrow
Montgomery’s stock is being held in escrow, said Smith, adding that she has been unable to find Montgomery for at least one past year.
Smith was infusing $500,000 in cash per month into Imperial since the fall of 1984, when United Airlines removed Imperial from its “preferential treatment” reservation list, one source close to Smith said Wednesday.
Smith would not confirm the monthly shortfall but acknowledged that she put “many millions” of dollars into the company.
United’s action was ordered by the Civil Aeronautics Board because of concern that the large carriers were using the list as a weapon against smaller airlines.
Imperial never rebounded from the downturn, and its monthly passenger counts dropped from about 34,000 in November, 1984, to fewer than 10,000 last December.
As a result, the company reported a $4-million loss for the year ended July 31.
Four of Imperial’s 14 leased planes have been taken back by the owners, according to a course close to the company. They include five Cessnas, six Brazilian Bandierante turboprops and three Short Brothers planes.
Only Two Planes Operating
By the time the mystery Kansas City group bought Imperial last month, only two of the planes were operating.
The others had been “scavengered” for parts because the company “didn’t have the money to fix them,” according to a source familiar with Imperial’s operations.
“There was just enough money to meet payroll and pay for fuel,” the source said. “When the planes needed major repairs such as an engine or landing gear overhaul, they’d ground the airplane and then take the parts off it and keep the other ones flying.”
Smith sold the airline “for a pittance” last month, according to a source close to her. “She had loaned the airline about $10 million, and she just walked away from it; she gave up that debt.”
Interestingly, the Kansas City group of investors, who have yet to disclose their identities, was introduced to Smith by her former husband.
After the group filed for Chapter 11 bankruptcy reorganization, they shut down Imperial’s operations and are now plotting a reorganization plan, according to the company’s attorney, N. James Richardson.
