It's a new airline with one plane and one route. Its chairman has no previous experience running an airline, and in fact doesn't much care to fly, period. As for its president, he did run an airline once before, but it went broke within a year.
Welcome aboard the California Air Shuttle, a commuter airline that four months ago began flying its lone 19-passenger turboprop from its base in Oxnard to Las Vegas and back, four times daily, under the guidance of its founder, chairman and biggest stockholder, Michael E. Minson.
Despite its brief history, the shuttle's holding company, California Commuter Shuttle Inc., plans to sell its first stock to the public with an offering of 600,000 common shares, which it hopes to sell for $5 a share. That would give the carrier roughly $2.5 million in proceeds after expenses.
"We think the little airline will be a big airline," Minson said.
Minson, a former tax-shelter promoter who said he's already sunk $1 million of his own money into California Commuter, plans to expand its service to San Francisco, Sacramento, San Jose, Santa Maria, Santa Ana, San Diego and Tucson. The stock sale would enable the carrier to lease several more airplanes and hire the pilots and other personnel to service the additional aircraft, he said.
But there could be turbulent skies ahead for California Commuter. Although the commuter, or regional, airline business has several success stories--including Air Wisconsin, which has been in business since 1965--it also is littered with small carriers that ran out of cash, often because they failed to correctly match their service to the routes that were in demand.
Only last week, for instance, CCAir Inc., a Charlotte, N.C., commuter airline that fed passengers to USAir flights from 23 cities, filed for protection under Chapter 11 of the U.S. bankruptcy laws because of a cash squeeze. And it was the short life of a Long Beach-based commuter, Qwest Air, that led to creation of California Commuter.
Minson, 50, said he initially was asked in mid-1988 to invest in Qwest--which served Long Beach, Oxnard and Sacramento--but that he determined "the patient had already died," and Qwest filed for bankruptcy in September, 1988. But he became intrigued with starting a commuter airline in the wake of deregulation.
After the airline industry was deregulated in 1978, the major carriers during the 1980s abandoned many mid-size communities to focus on the large cities. They also created hubs at certain airports. Passengers from various smaller areas are fed to the hubs, helping the big airlines fill their flights to other major cities.
As part of this evolution, commuter airlines began servicing the smaller cities, primarily to help feed traffic to the giant airlines' hubs.
For instance, California Commuter's two rivals in Oxnard are WestAir Holding Inc., a Fresno-based company that does business under the name of United Express, and Wings West Airlines Inc., which flies its planes as American Eagle. They mainly feed Oxnard passengers to Los Angeles International Airport so that the passengers can connect with United and American flights to other destinations. (United Express also flies to San Francisco.)
Minson looked at the Oxnard airport, where 27,584 passengers took off last year, as a niche to be exploited. Anyone wanting to fly from Oxnard to Sacramento via United Express or American Eagle must first stop in Los Angeles. He wanted to give Ventura County passengers the alternative of flying directly.
"Our mandate is to provide the passengers in this market with an option," he said.
Even Minson's rivals aren't complaining. WestAir spokesman Mark Peterson said, "clearly they're not competing with us directly," and to the extent California Commuter builds awareness of Oxnard Airport, "all of the airlines could benefit."
Minson said he chose the Oxnard Airport as his base because of the region's demographics. About 650,000 people live in Ventura County, its family income and housing prices are higher than average, and the business community--his primary market--is expanding.
He said he isn't worried that the big airlines might also find Oxnard appealing and move in. His reason: Ventura County currently does not allow commercial jets to land because of their noise.
Having settled on Oxnard as home, why is California Commuter flying only to Las Vegas, for which it charges between $49 and $98 one way? Minson initially wanted to fly into Las Vegas, Sacramento, San Jose and San Francisco, but he had to scale back when Fairchild Aircraft, which was to lease planes to Minson, filed for bankruptcy protection in February. He kept Las Vegas because of its hard-to-get landing slots at the airport, Minson said.
So far, 35% to 40% of California Air Shuttle's seats have been filled on average, which about covers the flight's cost, Minson said. But it comes nowhere close to covering all of the airline's costs, which is why Minson is selling stock in the company to the public.
"Had the planes been delivered, we would not be looking for a public offering this early in the game," he said.
To staff his airline, Minson hired several former Qwest employees. Steven S. Lay, Qwest's founder, is now president of California Commuter, and the shuttle's vice president of flight operations, its chief financial officer and its chief pilot all worked at Qwest. But Minson bristles at any further comparison between Qwest and his carrier.
Qwest had only a fifth of the capital when it started as compared with California Commuter, he said. Qwest's flight schedules also were not in the major computerized reservations systems used by travel agents; California Commuter's are, he said.
If California Commuter's stock offering flies, Minson will still own about 29% of the total stock, and Warren Haber, another director who has invested $500,000 in California Commuter, would own 23%.
The little financial information available on California Commuter shows just how the tiny airline needs the stock sale's proceeds, especially if it wants to expand.
Between May, 1989, when the company was formed, and March 31, the carrier's revenue totaled a mere $171,225, but its start-up costs produced a loss of $771,548, according to California Commuter's stock-registration filing with the Securities and Exchange Commission. On its balance sheet, the airline listed having zero cash as of March 31.
After the stock offering, California Commuter wants to buy or lease up to six additional planes, which the airline estimated would cost between $25,000 and $40,000 a month, excluding the aircraft's operating costs.
Minson, a tall, stout Cincinnati native, earned an anthropology degree from the University of Cincinnati and went to work in the securities business. In 1973, he started Minson Oil Co. to sponsor oil and gas partnerships that, for the next decade, provided investors with big tax savings. The company later became The Minoco Group of Companies.
In 1982, Minson sold his company to a Texas investors group for an undisclosed sum, and shortly thereafter some Minoco partnerships went sour with the collapse in oil prices. Its main unit, Minoco Southern Corp., filed for bankruptcy protection. And Minson, who now commutes from his million-dollar mansion in Los Angeles to a second residence in Oxnard, was named a defendant in several lawsuits filed by disgruntled investors.
All of the suits were settled out of court or dropped, Minson said. "I have nothing to be embarrassed about," he said.
As for the California Air Shuttle, Minson's lack of airline experience won't hurt "if I can employ my talents to develop an efficient, cost-effective business," he said.
Of course, one need only look at such struggling airlines as Eastern, Trans World Airlines, Pan American and the failed commuter airlines to see that experience alone does not keep a carrier airborne. It also requires lots of cash.