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Why Startups Can't Wait To Fly The Risky Skies


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WHY STARTUPS CAN'T WAIT TO FLY THE RISKY SKIES

Put aside the wind-in-the-hair romance of it, and the recent history of startup airlines in this country is hardly inspiring. Witness the wreckage of such bold ventures as People Express Airlines Inc. and Presidential Airways Inc. Come to think of it, there isn't much to recommend anything with wings and engines these days. After 10 months of industry turmoil, even United and American are black and blue.

But hope springs eternal in the airline industry. Perhaps the miracle of hurtling tons of metal through thin air is inspiration enough. Forget the bankruptcy courts. Cast off those grim reminders of past aviation failures. With "niches" and cheap airplanes beckoning, suddenly there's a rush to launch new airlines.

WINGS OF DESIRE. Fledgling ventures are popping up everywhere. Braniff International Airlines Inc.--the namesake of the twice-bankrupt, once-liquidated former carrier--will fly used narrowbodies out of Dallas and Long Island's Islip. Baltia Air has won Transportation Dept. approval to fly from New York to the Soviet Union. Groups of former airline executives are pushing plans for small carriers based in under-served Reno, Nev., and Kansas City, Mo. And 170 former Eastern pilots in Atlanta are spending $5,000 each to try to launch a regional carrier to fill the void left by Eastern's demise.

The lure is a flood of inexpensive airplanes. Hundreds of jets have been grounded over the past few quarters, driving down used-aircraft prices. Many planes are owned by lessors eager to see them fly again. "These people have airplanes coming out the gazoo," says Lee Hydeman, a long-time aviation attorney and board member of fledgling Reno Air. They're tempting startups with inexpensive leases.

Raising working capital is the hard part. Still, these fledglings are finding surprising allies. Baltia is run by Igor Dmitrowsky, a Latvian immigrant who used to run American Kefir Corp., a yogurt business. One of Baltia's top advisers is Harold J. Pareti, a former top executive at both People Express and Presidential. Dmitrowsky's lack of experience and Pareti's track record may stir questions. But exclusive routes to Leningrad and Riga have enticed investors. A Houston firm has placed $148 million in debt to pay for planes. And the Delaware Insurance Commission, hoping to create jobs in the state, is helping to line up $50 million in funding--though a deal is far from done.

RUBBER CHECKS. Reno Air, which hopes to lure gamblers and skiers from California and the East Coast, is trying to raise part of its capital from local casino hotels in a rooms-for-equity swap. KC Air is hoping local businesses will invest in its efforts to give Kansas City its own low-cost commuter airline. Both ventures have planes lined up but still need more money. Says Michael Rudd, a KC Air principal, "Everyone is well aware of the disasters. It's a perception problem."

Using your own money is easier. But in Braniff's case, it's hard to figure why real estate investors Jeffrey R. Chodorow and Arthur G. Cohen are willing to risk it. After leading the former Braniff Inc. into bankruptcy a year after buying it from Chicago's Pritzker family in 1988, Chodorow and Cohen are coming back for more. They bought a bankrupt charter carrier called Emerald Air Inc., purchased the rights to the Braniff name out of its bankruptcy proceedings, and then mapped a strategy to undercut American Airlines Inc. and Delta Air Lines Inc. with low-cost, nonunion service out of Dallas. All told, they have sunk $10 million into the new airline.

Helping them with their new investment--until Transportation objected--was Scot Spencer, a key player in the former Braniff. Spencer, 26, had been involved in two other airline failures before leading Chodorow and Cohen into their first Braniff investment. He was slated to become the new Braniff's marketing vice-president, but then Transportation officials balked at his record of arrests for writing bad checks. Spencer couldn't be reached for comment.

Even with such distractions, Chodorow and Cohen say their new venture--already profitable from its charter business--is on solid ground. But Pareti, who has learned plenty in the startup game, says the only way to survive is to avoid competing with the big guys. "The airline industry is full of ego cancer," says Reno Air's Hydeman. "You can survive if you don't get it and go off and do dumb things." Given the myriad examples of failure, it's a wonder that lesson is so hard to learn.REVVING UP

FOR TAKEOFF

BRANIFF Dallas to Newark and Los Angeles; Islip, N.Y., to Orlando and Fort

Lauderdale

BALTIA AIR New York to Leningrad and Riga, with connections to Minsk, Kiev, and

Tbilisi

RENO AIR Reno, Nev., to various cities in California and along the East Coast

KC AIR Kansas City to Dallas, St. Louis, and Minneapolis

DATA: BW

Michael Oneal in New York, with Gail DeGeorge in Miami PHOTOGRAPH BY REID HORN


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