Down on the Fourth of July

By John Greenwald

Air Florida files for bankruptcy and grounds its jets

Baggage-laden vacationers jammed Air Florida ticket counters at Miami International Airport early last week as the peak summer travel season got under way. But near noon on the day before the Fourth of July, flashing signs destroyed the holiday mood. Their message: Air Florida was immediately grounding its green-blue-and-white jets. The carrier (1983 revenues: $218 million) had filed for bankruptcy. The abrupt halt stunned employees and left many passengers with shattered plans, scattered luggage and tickets that other airlines refused to honor. Said Faye Holub, who had intended to visit her grandchildren in Chicago: "They gave me a customer-service number to call for a claim, but I think I'll have to eat it."

While Air Florida's grounding was sudden, the once flourishing airline had been in trouble for some time. Founded in 1972 to fly within Florida, it grew rapidly at the end of the decade, when airline deregulation permitted wide-open competition. By 1980 Air Florida was offering low-cost flights to major East Coast cities and to Europe, the Caribbean and Central America. But price wars blasted its profits, and aggressive rivals like Delta and Pan American flew off with much of the Miami-based carrier's business. Also damaging was the 1982 crash of an Air Florida jetliner in Washington that killed 78 people. Over the past three years the airline has had $59 million in operating losses.

In recent months Air Florida has lurched from crisis to crisis. Several carriers stopped accepting its tickets in May after an airline-industry clearinghouse expelled Air Florida for failure to come up with $2 million in late payments. Though a $5 million loan from General Electric Credit Corp. helped Air Florida get reinstated, travel agents had become wary of booking passengers on its flights. Meanwhile, airports in New York, Bos ton, Orlando and other cities threatened to revoke Air Florida's landing rights be cause it was behind in paying its fees.

Executive changes have also roiled the company. Two months ago Chairman Donald Lloyd-Jones quit over differences with directors. He was replaced by Ven ture Capitalist J.R.K. Tinkle, who last week presided over the all-night executive session that grounded the carrier.

Ironically, the Air Florida bankruptcy comes just as the airline industry seems to be on the mend. After operating losses totaling some $1.2 billion since 1981, scheduled U.S. carriers could earn more than $1 billion this year. That turnaround reflects shrunken payrolls and the dramatically improved economy. Nonetheless, some airlines, like Republic and Western, have continued to struggle. Says former Civil Aeronautics Board Chairman Mar vin Cohen: "It's possible there will be a further shake-out in the industry."

Air Florida's filing was the third by a large carrier since deregulation began. A slimmed-down Braniff returned to the air last March after entering bankruptcy proceedings in 1982. Last September Continental Airlines first filed for bankruptcy, then voided its union contracts and immediately resumed service, all within three days. Continental is continuing to operate under court jurisdiction while it works out a plan to repay its debts.

Air Florida, which has laid off most of its 1,200 employees, also hopes to take off again soon. At week's end the company was planning a resumption of its Miami-London run. Experts maintain, however, that the carrier's high-flying days are gone forever. "It may be able to make a niche as a charter operator," says one airline-industry insider, "but the outlook is not promising." If Air Florida does return to the skies, it could find them less friendly than ever.

With reporting by Marilyn Alva/Miami