Business Monday

New Eastern Air Lines unfurls its wings

Miami Herald staff

Frank Sinatra crooned the appropriate songs: Come Fly with Me, The Best Is Yet to Come. Photos and drawings of old airplanes flashed on a screen. Fans snapped photos.

And then, a Boeing 737-800 bearing a familiar hockey stick logo flew by. Eastern, the iconic brand that stopped flying in 1991, was back in the air.

“You don’t know how long we’ve been waiting for this,” said Vito Borelli, 89, a Cooper City resident who retired from Eastern in 1987 as maintenance manager.

The December event on the grounds of Miami International Airport marked the arrival of the first aircraft for the new Eastern Air Lines, a Miami-based startup carrier with history.

While not affiliated with the original Eastern, the new group acquired its intellectual property, including the name, branding and old slogans such as “Number One to the Sun” and “Wings of Man.”

“There’s an affection for it, I guess there’s a nostalgia that goes back to the days before you had to pay for bags and you got a meal,” said Edward Wegel, an airline industry veteran who serves as the new company’s president and CEO. “It’s sort of what Eastern was versus what you have today.”

The old Eastern, once Miami-Dade’s largest private employer, filed for bankruptcy protection in 1989 after being weakened by deregulation, years of strife between management and employees and cash flow problems. Its last flight was in January of 1991, almost exactly 24 years ago.

And aside from the December arrival of the first aircraft, the next flight could be just a couple months away.

If all goes as planned — a caveat that includes completion of the certification process with the Federal Aviation Administration and Department of Transportation — the new Eastern will start operating as a charter air service provider in the next couple of months. The target date is mid-March, but the launch could happen later pending final approval from federal agencies and completion of all regulatory requirements.

While the company initially will operate as a charter provider, long-term plans call for Eastern to offer regularly scheduled passenger service with a focus on Latin America.

Toward that end, the company has raised a total of $15 million, including $12.5 million in two equity rounds last year. The final round closed with a “major investment” from Vincent Viola, chairman of Virtu Financial and the owner of the Florida Panthers. The company has also raised $10 million of debt from aircraft finance companies, has commitments in place for the balance of the 737 order and plans to raise another $50 million to $100 million in equity before starting scheduled service.

In addition to the Boeing 737-800 that arrived in December — a plane previously owned by Kenya Airways that is now undergoing modifications to meet FAA standards — Eastern has ordered 10 Boeing 737 Next Generation aircraft to start delivery in April of 2017 and secured purchase rights on 10 Boeing 737 MAX planes. The company has also ordered 20 regional jets from Mitsubishi Aircraft Corporation, with delivery beginning in February of 2019.

The company’s offices, still only partially filled and decorated with some old memorabilia, are located at Miami International Airport’s Building 5A, the former Eastern operations center.

Wegel said he expects about 20 people to be working in headquarters by March as the company makes more management, safety and maintenance hires. Now, Eastern has about 47 employees, including 10 pilots and 25 flight attendants starting this month.

One of the first group of flight attendants hired includes an Eastern veteran: Marilyn Cabrera, a flight attendant from 1979 until the airline folded. She owns her own medical transcription company but applied for a flight attendant job when she heard the company was hiring.

“Eastern was such a big company here in South Florida and there’s such love,” said Cabrera, a Kendall resident who still meets with a group of fellow former flight attendants every year. “Talk to most Eastern people today and they still share that passion for the company.”

While the new Eastern really started to take off in 2014, efforts to get it off the ground date back several years.

Wegel, who joined the original Eastern in 1985 after serving as an officer in the U.S. Army, began talks with the bankruptcy estate back in 2007 with the goal of acquiring the name and brand. He has worked in the industry for about 30 years, including jobs as senior vice president of corporate development for Mesa Air Group; interim president and chief operating officer of Tower Airlines; president, chief executive officer and a director of Chautauqua Airlines/U.S. Airways Express and president, chief operating officer and a director of BWIA International Airways. Most recently, he was chief restructuring officer, chairman and CEO of Internet travel company Travelogix from 2006-2008.

He and partners ran into trouble raising capital to launch a new Eastern in 2008 and 2009 because of the souring economy but kept working with the estate and eventually acquired the company’s intellectual property. Shareholders from the old Eastern also received rights to buy a stake in the new company.

“The old company had a vested interest in seeing the new company grow and prosper,” Wegel said.

Wegel believes using the historic name will benefit Eastern, especially after commissioning a poll that showed high name recognition and favorability. Tour operators especially want to see a known brand, he said.

“Combine a modern airplane with a legacy airline name on the side and suddenly you’ve got a very credible product,” Wegel said.

He said he expects to do some charter work for tour operators that go into Cancun or Havana, which he called a “potentially expanding” market.

But Wegel expects the bulk of the charter service to involve working with airlines that operate out of Miami and might need additional lift or backup planes, or that might want to open new markets. He said Eastern is also interested in flying routes for foreign airlines in the Caribbean and Latin America, where the brand is still recognized.

Ultimately, Wegel said he expects the airline to be “somewhere in between” an ultra-low-cost carrier such as Spirit and a legacy airline like Delta.

“Were going to try to stay out of everyone’s way as long as possible an try to work with them,” he said. “In the short term, we’ll try to compete with no one, but in the long term, we’ll compete with everyone.”

Robert Mann, president of airline industry analysis firm R.W. Mann & Co., said that while a charter air carrier is the least difficult type to fund to the satisfaction of the U.S. Department of Transportation, it’s still not easy. And although switching to scheduled service from a charter operations base is possible, Mann said the transition has also led to some carriers’ demise.

“It's exhausting to fund and start a new airline, and it only gets tougher once certificated and operating,” Mann wrote in an email. “Since Eastern filed for bankruptcy in 1989 then ceased service in 1991, there have been only a handful of enduring fresh start-up mainline passenger air carriers certificated, and more attempted start-ups and re-starts have failed than not.”

Every now and then, startups such as JetBlue — with billionaire investor George Soros backing it and a founding CEO, David Neeleman, who had a strong track record — demand attention, said Seth Kaplan, managing partner of the trade publication Airline Weekly.

“I’m not sure that this start-up has yet risen to that level,” Kaplan said of Eastern.

New airlines typically fail because of a combination of a bad business plan and underfunding, he said.

“However much money you think you need to start an airline, you need more,” Kaplan said. “And most of them just run out of cash before they figure out what’s wrong with their business plan and have a chance to fix it.”

Despite the difficulty, he said, Eastern may benefit from a few current factors: The overall airline industry is performing well, demanding somewhat high fares and getting a boost from low fuel costs.

“I hope it works,” Kaplan said. “It would be good for consumers certainly. It’s just another choice, it’s competition.”

Former Miami Mayor Manny Diaz, an independent director on Eastern’s board, said he has been impressed by the company’s progress over the past year, including its ability to forge relationships with Boeing and Mitsubishi.

“I really do believe this can work,” he said. “It’s not just pie in the sky.”

For its part, Miami-Dade aviation officials say they are glad to see a historic name operating in the county again. Wegel said the company is talking to different groups about building a hangar at the airport that would also house permanent offices.

“They’ve done the math and they think they can pull this off,” said Miami-Dade Aviation Director Emilio T. González. “And as an airport, we’re happy they chose to be here.”

Eastern Air Lines Group

Location: 4200 NW 36th Street, Miami

Employees: 47

Fleet: one Boeing 737, with 10 737 Next Generation aircraft orderered, purchase rights for 10 737 MAX airplanes and 20 Mitsubishi regional jets ordered

Funds raised: $15 million in initial rounds

Capital goal: Another $50-$100 million before starting scheduled service

Website: easternairlines.aero

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