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Eastern Airlines Shopping for Used Jets to Revive a Brand

Mar 25, 2014 2:00 pm

Skift Take

Reviving a storied airline brand sounds appealing, but the story so far for other brands has been lots of failures.

— Dennis Schaal

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Bertrand Duperrin  / Flickr.com

Eastern Airlines had expressed interest in purchasing the Comair C919 for its charters, but this aircraft's debut has been subject to delays. Bertrand Duperrin / Flickr.com


Eastern Air Lines Group Inc., the startup carrier whose namesake was shut down in 1991, is shopping for as many as 10 used jets and looking at new models as it plots its debut as a charter operator.

Talks are under way with lessors for secondhand aircraft and with Boeing Co. and Airbus Group NV about new narrow-body models, Chief Executive Officer Ed Wegel said in an interview. Joining Wegel at Miami-based Eastern are investment managers and several former airline-industry executives.

Lining up planes is an essential step toward Eastern’s plan to start flights in nine to 12 months as a charter service after filing with U.S. regulators in January for required certification. Investors have tried before, and failed, to revive venerable airline brands, including Pan American World Airways — once the largest U.S. carrier — and Braniff Airlines.

“In the charter division, we would need up to 10 planes,” Wegel said. Lessors “are the only ones who have used planes, and Boeing and Airbus know where all the used aircraft are.”

New planes would wait until Eastern decides whether to move into scheduled service.

Wegel declined to identify lessors involved in the talks, and said the company hopes to have decided on leasing opportunities in the next 30 to 45 days. The charter effort would start with a single Airbus jet and grow to three planes in its first year, according to its Jan. 28 U.S. Transportation Department application.

Comac Interest

Eastern agreed to a “statement of interest” in 2012 with Commercial Aircraft Corp. of China, or Comac, for C919 aircraft that company plans to produce, Wegel said. Comac last year said it would delay to 2015 the maiden test flight of the plane, which would seat 168 passengers.

“That wasn’t an order for airplanes by any means,” Wegel said, adding that Eastern was interested in new engine technology planned for the C919.

Leasing pre-owned aircraft would conserve capital as the carrier takes wing, while orders eventually placed with Boeing and Airbus would ensure Eastern has delivery slots when it can better afford jets with list prices that start at more than $85 million.

A 2009-vintage Airbus A319-100 is valued at about $30 million, based on prices tracked by Chantilly, Virginia-based consultant Avitas. A Boeing 737-700 from the same year is valued at about $31 million.

“We are indeed talking to the Eastern redux team but, as always, the details of our conversations with customers or prospective customers are confidential,” said Mary Anne Greczyn, a U.S. spokeswoman for Toulouse, France-based Airbus.

Doug Alder, a spokesman for Chicago-based Boeing, declined to comment.

Private Placement

Eastern recently completed a private placement of voting common stock to raise $9 million to $14 million, Wegel said. The effort was “a success,” he said, declining to detail the results.

The old Eastern, whose founders included U.S. World War I fighter ace Eddie Rickenbacker, went out of business after a strike and financial losses pushed it into bankruptcy in 1989. The new company acquired the intellectual property of the original carrier in 2009 and has been working since then to assemble financing to begin operations.

The revival effort plans to splash Eastern’s winged logo and blue livery on its aircraft and has set its headquarters in the carrier’s former operations center at Miami International Airport.

“We think the name still has tremendous recognition,” said Wegel, who worked for airlines including the original Eastern, Pan Am and Atlantic Coast Airways. “It has a very, very favorable view among the traveling public based on surveys we conducted and creates a great platform for us to do other things in the airline business.”

Tough Market

Airline start-ups may find it tough to attract funding at a time when the largest U.S. carriers have endured bankruptcies and consolidation to emerge as disciplined competitors, said Richard Aboulafia, aerospace analyst with Teal Group, a Fairfax, Virginia-based consultant.

“Investors realize the big guys are getting their act together and are no longer egg-laying dinosaurs,” Aboulafia said. “The idea of adding more to the fray when everybody seems to have their costs in line with market reality — that’s just a very bad idea.”

If successful, Eastern would join other recent U.S. startups including Spirit Airlines Inc., Allegiant Travel Co. and Virgin America Inc. Since 1978, more than 100 airlines have filed for bankruptcy and at least 23, including the original Eastern, were liquidated, according to the Airlines for America trade group.

To contact the reporters on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net Molly Schuetz

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