Air Transport World

The pros and cons of going public. (commuter regional airline industry)

"Psst, mister, want to float a public stock offering?"

Going public, i.e., selling equity in a company to the public, may not be as easy as buying French postcards or any other product available from street-corner purveyors. But it certainly gave that appearance during the great bull market of 1982-83. In an unprecedented flurry of activity more than a dozen commuter airlines joined their bigger brothers to take advantage of the so-called "window of opportunity" to sell common stock.

In 1983, when the airline industry sold some $2.4 billion worth of equity and equity-related issues (ATW, 3/84), Air Midwest and Comair each raised more than $10 million; Provincetown-Boston and Mississippi Valley, some $9 million each; Royale and Empire, $7 million; combs and Simmons more than $6 million; Command, $5.5 million, and North Atlantic Airlines (Air Vermont), $2 million. (The latter airline declared Chapter 11 in March.)

To many in the business world successfully selling stock means arrival in corporate heaven, making it in the world of business, convincing others that one's efforts are worthy of investment. As Kingsley Morse, president of Command Airways, says, "We did not need the money. We were doing just fine. But it was a goal to go public." Some must go public

To an increasing number of people, however, selling commuter airline equity no longer represents simply fulfillment of a long-time goal. Rather, it is a must. Says David Hulick, VP of American Security Bank, N.A., "Ultimately, strong profit performance and good management of a regional airline alone will be inadequate to cover growth needs. The cost of new aircraft for an expanding regional airline will eventually exhaust the borrowing capacity unless outside equity is brought in."

In other words, for some commuters who have not already surrendered their independence to the scrutiny of stockholders the time may be soon at hand when they will have to go public. Firms such as Britt, Pilgrim and Ransome, for example, are still firmly in the control of their founders. But as John Leonard, VP-finance of Ransome acknowledges, "It's inevitable we will go public. It's a question of timing, when our situation is ripe and when the needs are there." Or, as Hulick told ATW more bluntly, "The airlines won't be able to generate enough profit to pay for aircraft that cost $130,000 per seat."

Just because a company wants to go public does not mean underwriters are knocking on the door, even in a market such as existed in 1982-83 when almost every airline that decided to sell stock found investors to buy it. …

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