Air L.A. takes off for Midwest with merger.

Carrier moves to acquire Minnesota-based airline

Air L.A. Inc., operator of a regional airline by the same name based in Los Angeles, is expanding to the Midwest.

The company, which operates AirLA, has signed a letter of intent to buy Capitol Air Inc., which operates a regional carrier out of St. Paul, Minn., with service rights to seven cities in the Midwest. The Capitol Air carrier operates under the name Empire Airlines.

The proposed acquisition is a stock transaction with Air L.A. Inc. paying the owners of Capital Air 800,000 common shares that have a value of about $1.5 million. Air L.A. is traded on the NASDAQ market while Capitol Air is a private company.

Last week, Air L.A. stock was trading for about $1.75 a share compared to a 52-week high of $4.66 and a low of $1.60.

Air L.A. Chairman and Chief Executive Officer Wayne Schoenfeld said it was always his plan to expand by buying other small carriers.

"In the airline business, like many other businesses, you have tremendous economies of scale as you get bigger. This is going to work because of our cost structure and their revenues," he said.

Accent on Mexico

Air L.A. was founded in 1979 and went public last May. The carrier is based at Los Angeles International Airport with service to Stockton, Fresno, Bakersfield, Phoenix and Las Vegas.

The carrier's primary service, however, is into Tijuana and Hermosillo, Mexico, where Air L.A. has a marketing and reservations agreement with Aeromexico, one of Mexico's biggest commercial airlines. Air L.A. feeds passengers to Aeromexico flights that travel throughout Mexico.

"While we remain committed to our alliance with Aeromexico and are optimistic about the long-term future of our international service and marketing agreements with Mexican air carriers, we also think it is important to seek expansion opportunities in other parts of the country," Schoenfeld said in a statement.

Last week he said in an interview that he expects to complete the deal and start operating Capitol Air flights between St. Paul (Minn.) Downtown Airport and Midway Airport in Chicago on Jan. 30.

Capitol Air does not have service to any other city but has operating rights for flights from St. Paul to Milwaukee and Madison, Wis., Fargo and Bismark, N.D., Omaha, Neb., and Des Moines, Iowa, said Schoenfeld.

Capitol in Midwest

He said the Midwest service will operate under the Capitol name and will be expanded to eventually include all cities where Capitol has operating rights.

Air L.A. has been a money loser for most of the period since it went public. In its latest financial results, for the three months ended Sept. 30, the carrier lost $1.2 million on revenue of about $650,000. Schoenfeld said he expects the airline to increase revenues to about $500,000 a month and turn a profit in the second quarter of 1995.

We're growing," he said.

In response to a question about results for the three months ended Dec. 31, Schoenfeld said, "The best I can say is that our expenses are growing at a much slower rate than our revenues."

Air L.A. Inc. leases or owns six, 19-passenger Metroliners, which are a type of propeller-driven aircraft made by Fairchild Aircraft Co. in San Antonio, Texas. Initially, Air L.A. will move one of its aircraft to St. Paul for the St. Paul-Chicago (Midway) service.

Air L.A. has another five Metro aircraft on order from Fairchild, said Schoenfeld.

Capitol had been operating leased aircraft on its flights but as of last week it was uncertain what was to become of those planes, he said.