Mission Improbable At Kiwi Air

Veteran airline executive Russell Thayer III has gone down in flames before. He was president of Braniff Airways Inc. prior to its bankruptcy filing in 1982. And he tried to right beleaguered Pan American World Airways Inc. before its 1991 crash landing. Now, at 72, he has emerged from a six-year retirement to rescue struggling Kiwi International Air Lines.

Thayer walked into Kiwi's corner office on July 12, the same day Danny Wright, Kiwi's third chief executive in five months, aalked out. In a Securities & Exchange Commission filing that day, Kiwi admitted it must find an outside investor willing to pony up $15 million in cash to survive the third quarter. And its auditors, Arthur Andersen & Co., expressed "substantial doubt" that Kiwi can continue as a going concern.

AN IFFY SITUATION. The fledgling carrier, which has lost $40 million since its 1992 founding, has only $4 million in cash on hand, no credit lines available, and all its major assets pledged. "Kiwi is a pending bankruptcy candidate. End of subject," says Michael Lowry, president of Aviation Forecasting & Economics. Kiwi admits in SEC filings that bankruptcy is a possibility.

Enter Thayer. His plan: to attract investors to shore up finances at Newark (N.J.)-based Kiwi and then to take the carrier public, perhaps as soon as yearend. The pitch? The airline's second-quarter profits of $1.7 million represent a permanent improvement over 1994's dismal $25 million in losses.

To make sure he's right, Thayer plans to trim Kiwi's flight schedule and to push ticket prices higher. And he will try to boost morale at the employee-owned airline, where workers are shell-shocked by the February ouster of founder Robert Iverson, as well as the subsequent turmoil in the airline's executive suite.

Veteran Thayer-watchers think he is up to the task. "He's one of the most respected people in the business," says Michael Boyd, president of Aviation Systems Research Corp. One advantage that's Thayer's: Because of his years in the industry, he has the contacts to lure experienced CEO candidates. Thayer says he already has talked to "middle manager" refugees from the downsizing of American Airlines Inc.

Finding an equity investor could prove tougher. Pilots don't want to dilute their equity or wind up working for another Frank Lorenzo, who steered Eastern Air Lines Inc. to its death. "The pilots are coming around, but it has taken two-and-a-half years," says Thayer. "There's an investor out there who will want to take this gamble." Thayer concedes no one has stepped forward yet.

Gamble is the operative word. Kiwi's second-quarter profit looked good on paper. But here's the fine print: On Mar. 8, the carrier struck a deal to defer more than $800,000 in lease payments on eight of its 15 aging Boeing 727 aircraft. Lessors granted "rent holidays" on four others. The airline is one of the industry's slowest bill-payers, running more than 90 days late on nearly half of its $6 million in trade debt as of Mar. 31, according to its SEC filing. Kiwi also owes $3 million to the Internal Revenue Service and $1 million to the Port Authority of New York & New Jersey.

FARE WARS. Not long ago, Kiwi's financial woes would have landed it in good company. No longer. The industry, led by turnarounds at high-cost carriers Delta, American, and United, is having its best year since 1989. Wall Street analysts expect record airline profits of $700 million in the second quarter, nearly five times last year's level. Credit goes to fare-war free planes flying 66% full, according to the Air Transport Assn. Kiwi lags, at only 53% of capacity.

Kiwi wouldn't look so bad if fellow startup ValuJet Airlines Inc. and low-fare trendsetter Southwest Airlines Co. also were struggling. But ValuJet has turned profits almost since its October, 1993, launch, and Southwest has smoothed some recent profit turbulence. The operations comparisons hurt, too. Kiwi flies from Newark, Atlanta, and Chicago to Orlando, Tampa, and West Palm Beach in Florida--prime ValuJet territory. And Southwest just announced plans to serve Tampa, Fort Lauderdale, and Orlando this winter from Baltimore, pressuring Kiwi's pricing.

Thayer had better move fast. Kiwi's cash won't hold out for long. This airline, named for New Zealand's flightless bird, could soon find its own wings clipped.

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