Baltia Air Lines, the 20 year old startup

A few weeks ago, I stumbled across a press release that said that a New York-based startup, Baltia Air Lines, had signed a letter of intent to purchase a Boeing 747. Who the heck is Baltia? I did a little research (mostly in the form of 10-Q filings with the SEC) and turned up some basic history about the airline.

Baltia was founded on August 24, 1989 (that's right - a startup airline older than I am) with the goal of connecting New York-JFK to the then-Soviet Union. In June 1991, the carrier received permission from the DOT to start flying between New York and St. Petersburg (then Leningrad). They also were to fly between JFK and Riga, Lativa, and from there serve Kiev, Minsk, and Tbilisi, Georgia. That same month, Baltia expressed interest in grabbing two Boeing 767s to fly to Riga and St. Petersburg, as well as some 737-200s to use on connecting flights to the three other destinations from Riga. That was all in 1991 - and then the news articles about Baltia stopped, until just recently. It was as though Baltia just dropped off the radar for the better part of the last twenty years.

So now for the obvious question - why, twenty years later, are they still in the startup process? What's taken them so long? In a nutshell: lots of financial problems. Let's take a look at the timeline (which has some holes in it, but should be helpful nonetheless):

• 1991: The airline's "financing efforts were destroyed" as a result of the August 1991 attempted coup d'état in the USSR, according to an SEC filing. "Subsequently the route authorities terminated for dormancy."
• 1995: Baltia reapplies for the JFK-St. Petersburg route.
• 1996: DOT reissues JFK-St. Petersburg route authority to Baltia, "based upon reexamination of the Company's operating plan and fitness as a US air carrier." By then, the airline had apparently dropped plans for Riga and instead focused on serving St. Petersburg with a single Boeing 747.
  
• 1998: Baltia makes a $100,000 down payment on a Boeing 747-200 owned by Cathay Pacific.
  
• 1999: Baltia finally "had all the variables" needed for flight operations in place, except for enough working capital. The airline was supposed to raise the cash through an IPO, but that failed, and the DOT revoked its route authority, telling it once again to come back when it had the money.
• October 2007: Baltia files once again for non-stop service between JFK and St. Petersburg. The third time must really be the charm, because it's granted by the DOT.
  
• December 2008: DOT declares Baltia "fit, willing and able" to fly.
• Currently: Baltia is "conducting the FAA Air Carrier Certification process under Part 121. Upon completion of the Air Carrier Certification, Baltia intends to commence scheduled non-stop service from its Base of Operations at Terminal 4, JFK... to Pulkovo II Int'l Airport of St. Petersburg."

I called up Barry Clare, Baltia's VP of Finance, to ask him about his carrier's long, long history. Why has it taken so long, and why will this latest attempt be the one that works? Clare said that the airline had many setbacks raising capital in the 1990s, and part of that had to do with the fact that the airline wanted to launch with several airplanes. The latest attempt, Clare notes, will see Baltia starting out with only one airplane, a Boeing 747 purchased from an American carrier (since the deal is still in the works, he could not divulge which model or from which airline it was purchased).

"It was always a lack of capital, not a lack of know-how... it's been a bunch of fiascos with Wall Street professionals who make promises and never delivered," he said. "This time around, we went out and raised the capital that we felt was necessary to launch, even before we submitted our application to the DOT in 2007. We raised $2.7 million... it looks like this time around, Baltia Air Lines will fly." Clare expects that the first flight will take off before the end of the year, and that the airline is seeking to codeshare with a "major American airline" to provide some feed into JFK.

Baltia's planes will be configured in a four-class layout: Voyager Class (coach), Super Voyager (what Clare calls a "step up from regular coach), business, and first. "Service aboard the plane will be second to none," says Clare, noting that there will only be 296 seats on the main deck of the 747.

The airline plans to gradually ramp up its schedule. Baltia is only planning on flying one round trip between JFK and St. Petersburg for the first month; the second month will see three round trips per week, to be increased to five trips by the third month. After the first four months, the airline plans to take delivery of a second 747 and start service to Moscow and start with the same schedule frequency, to be followed by Minsk, Kiev, and so on. "Within a two year period, we'll have five aircraft in the air servicing the Baltic region, generating close to $500 million in revenue."

As for finances, Clare claims that one 747 will generate $40 million in profit off of $100 million in revenue annually, even with a 64% load factor. Voyager tickets will be between $800 and $1,200; Super Voyager seats will be around $2,000 apiece. Business class seats will go in the range of $4,000 to $5,000, while first class seats will set you back a slick $16,000. "First class has only twelve seats," explains Clare. "It's sort of a gimmick because we want to show that we have that kind of service available. Even though service will be superior throughout the entire aircraft, first class service will really be far superior. The entire upper deck... will be dedicated as a first class lounge, with a bar and gourmet chefs, live entertainment, strictly for the first class passengers... If the [first class] seats get filled, great; if not, it's there to show that Baltia Air Lines has that kind of service." The airline is hiring "stewards" from "fine restaurants, not flight attendants who work for other airlines that have bad habits. The experience will be incredible... like the grand old ocean liners."

But I've got a feeling that this isn't the best time to be starting up a premium-travel carrier. Remember that whole slew of premium transatlantic carriers a couple years back? Silverjet, eos, MaxJet? They're all gone, and BA's OpenSkies is on life support. Baltia may not be business-class only, like those airlines, but it's clear that they're going after the upscale traveler here. Premium travel has taken a huge hit, and it's not likely to bounce back anytime soon. And while the airline understandably touts its non-stop New York to Eastern Europe service, is it going to be able to compete with the likes of Lufthansa and Air France, which offer frequent connecting flights to the same destinations that Baltia will serve? It's trying to be a niche carrier, but I'm not sure that that niche is big enough, even for a small carrier like Baltia.

(Oh, and you'd think that an upscale airline would choose a better name for its frequent flyer program than Freeloaders, but that's what Baltia's done. Not kidding.)