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.)

29 comments:

Mike Hillwig said...

I'd love to take these people seriously. And I can't.

Their logo is a rooster. Need I say more?

An airline that starts with one weekly flight is going to bleed cash unless they supplement their scheduled service with charter services. The golden rule in aviation is that planes on the ground don't make money.

With a business plan like this, I question how they'll get any financing.

Nick said...

Baltia, a strange name, since they no longer seem to be focusing on Baltic countries. I do not know why Air Baltic, does not just add a few US flights?

Bob said...

This article is full of falsehoods, the author needs to do research before writing.
The author wonders if Baltia can compete with Air France. Baltia's forte is non-stop flights from New York City to St. Petersburg.
Well, I suppose a person could fly from New York to France, switch planes and eventually get to St. Petersburg after 18 hours or so. However, Baltia is betting a rational person would rather fly directly from to New York to St. Petersburg in around 8 hours. Sounds like a niche to me.
That goes double for cargo and mail which would eliminate around 10 hours, switching planes and reloading cargo multiple times, also reducing, damaged, lost and misplaced cargo.
http://baltia.com/

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Dean said...

Thanks, Tom, for your post. It was a fairly factual history, but leaving out that Boris Yeltzin standing in front of a tank in Red Square precipitated the breakup of the USSR. The uncertainty of both the political and economic climates, combined with the break-away of the three Baltic States (Latvia, Lithuania, & Estonia), drove the perception of risk through the roof and the investors pulled back their money for the startup. Understandable.

Next - Baltia didn't get the company public until recently, resulting in the raising of capital in 2007.

Next - the U.S. Dept of Transportation didn't issued the final authority (waiting period for public comment, responses, etc etc) until many months after your December 2008 statement. The company IS progressing through the certification process at a normal pace.

Finally - it takes between 11 and 18 hrs to get between North America and St. Petersburg via all other airlines, and they require a change of aircraft, downsizing to a narrow-body aircraft. Baltia's non-stop service will win a big chunk of the 1 million plus passengers that travel between that part of Russia and the U.S. every year - not to mention that the U.S. law requires ALL U.S. mail and travelers on government business, and ALL travelers going from a company/school/etc who receive U.S. gov't funding, to travel on a U.S. carrier, if available. St. Petersburg is the 4th largest city in all of Europe (7+ mil pop.), and there is a lot of travel for education, high-tech research, and more.

For someone who says he's less than twenty years old, your research is almost what I would expect from a teenager - just a little short of meaningful facts to draw a good conclusion. lol

Anonymous said...

The void in the market place should make Baltia a welcome service - non-stop to St. Petersburg is needed. With around a million pax a year between N. America and that region, a non-stop flight in 8 hrs should do well compared to 11-18 hrs and a plane change where your bags & cargo can be damaged/misplaced.

I bet it'll be successful.

Anonymous said...

Well isn't it a risk. Do you expect the airline to start with 20 planes and 50 flights a week. In an industry where there are strict barriers to entry such as high financing cost, don't you think it is a positive that they haven't given up after 20 years. They must know that there is a market out there.

Anonymous said...

The rooster is their symbol of reliability. Dating back to Roman times, a rooster was universally recognized as a symbol of punctuality and dependability. A golden rooster is also a good luck charm.
http://www.baltia.com/rooster.html

IF you educated yourself on their business plan of starting with one flight a week, and increasing when feasible, you would understand how brilliant it really is. They are also looking at Charter services. Baltia already has their Financing.

Tom, Baltia's route is New York to St. Petersburg, how often does Lufthansa and Air France originate flights from New York?

Air Baltic or any other airline can not just add a few U.S. flights. The U.S. and Russia has an agreement, Baltia is the ONLY airline that has authority to fly Non-Stop from New York to St. Petersburg.

Baltia Inaugural Flight should be in Spring 2010 if not sooner.

Tom from The Airline Blog said...

Bob:

I did, in fact, do research for this article (I spoke with Baltia's VP of Finance and reviewed several financial filings that Baltia has submitted over the years). I understand that Baltia's market is non-stop flights (i.e. NYC to St. Petersburg, as you mention), but a layover in Paris probably won't add 10 hours to the trip as you say it would.

Dean:
Your historical anecdote is slightly off - Boris Yeltsin did not, in fact, stand in front of a tank in Red Square (he was on a tank in front of the Russian "White House"); nor did this precipitate the breakup of the USSR, so perhaps before you belittle my "lack of meaningful facts" you should do a little research of your own.

You could very well be correct that the breakup of the USSR did lead to investors pulling their money out of Baltia. That is indeed understandable, and nowhere in the article did I suggest the contrary.

Of course, you are correct that it would be much more convenient to fly non stop from New York to St. Petersburg. But I think you're overestimating the potential that this niche has. The Russian economy has taken a very hard hit over the past year, and while there is a small glimmer of recovery, it's going to be a long time before things are they way they were a few years ago. Finally, the US government business that you mention cannot be very large - while there have to be US government related travel between the US and St. Petersburg, I'm not sure that it's enough to really be significant.


Do bear in mind that I'm not against Baltia at all, and I would like to see them succeed. But I'm not optimistic about their chances, that's all.

Anonymous said...

My question is with time changes, crew layovers, maintenance, weather, etc...how do you fly round trip 5 times a week with only 1 plane? Also who wants to be a FREELOADER and only get a freeticket to russia, I'd want to go somewhere else.

Anonymous said...

January 17, 2009

Just tried to place a trade through tdameritrade on the Baltia stock. Received an order status that said opening positions are not being taken at this time. Called tdameritrade and spoke to a rep who informed me that there is an indefinent hold on buy orders. You can only place sell orders on current open positions. Makes me go hmmmmmmmmm!



LBR

Anonymous said...

Baltia Air. Interesting Name. I believe that with the right leadership & management, these folks will prevail. The president of the company has had a dream & is going to deliever on that dream. I will give him & his team some credit, alot of credit. No one ever got anything done by "throwing in the towel", so as to say.Persistance is going to pay off. 747 for this run, time proven quality aircraft & the quality of service that the traveling public are wanting. Going back to the days of the great cruise liner & the days when flying was a wonderful adventure. With the determination that the leadership has shown, this operation Will FLY!I would rather go direct any day compared to having to put up with the problems at intermediate airports of getting off one plane to go to another & not to mention the time that you loose. Best Wishes Baltia Air, heres to your bright future. You Will Fly.

Anonymous said...

Baltia Air. Interesting name. I believe that they will prevail. They have hung in there for the last 20 years & they are going to do something no one else would attempt.With the leadership & the management staff onboard, they will fly high this year. You probably think, 20 year startup, ya right. One thing I will say for they, is that they haven't " thrown in the towel" like most would. Look at Family Airlines,nice people but they have been up & down thru the years & just last year they attempted it again. Having the right & proven leadership & determination (like Igor) they will fly high.They already have one aircraft & it is paid for & for the motors they are going by power by the hour like Atlas Air does.The service that Baltia wants to offer, will be like going back to the great cruise liner days. Customers want & desire quality service/s for the dollar paid. Most US airlines now days are like getting on a cattle car & with no good service. It is like flying the Joint Prisoner Air Transport Service (JPATS). Baltia will be the change that will bring sucess & pleasure back to flying. Also the Golden Rooster, it has alot of history behind it that dates back to mythology & in some parts of the world, is still used on the top of buildings in Europe.
Baltia Air will be the one airline to fly. Granted starting out the 1st month with a schedule of one flight a week isn't going to find the pot of gold, but the 747 can fill her lower pits with revenue cargo that will be the cash cow for Baltia Air. Also going non-stop to St.Pete or Keiv will be another attraction. No wasting my time at some other airport to change aircraft. Baltia has had alot of ups & downs, but they are going to come out the winner this time. Fly high Baltia Air, your time has come!

Anonymous said...

A quick note about the rooster, which some find funny: it would be perfectly appropriate in the minds of anyone familiar with the region Baltia plans to serve.

The golden roosters are a common decoration of church spires, found throughout the Europe, but particularly in the eastern and northern parts. The roosters also usually double as wind indicators. Several of them prominently mark the skyline of Riga (which was going to be the Baltia hub) and the rooster is sometimes regarded as one of that city's symbols. Thus, it makes good sense.

If they ever get to it, having direct service from somewhere U.S. to Riga would be nice. In past, direct flights from the New York area airports to RIX have been operated by airBaltic and Uzbekistan Airways (as a stopover on the way to/from Tashkent), but I don't believe either is offered presently.

Not having an option which doesn't involve a stop in a third country can be a problem for people forced to use temporary travel documents (instead of a regular passport) and in other special circumstances, and I don't think there is such an option for travel between the U.S. and Latvia right now.

Boe said...

Now now, boys ... let's extricate some of both of your competitive edge and stay in flight and on point. Where oh tell me where was it published that the current 734 was purchased somewhere between $475K and $485K ... w/o engines, of course. And that this former flyer - mfg'd in 1975 by Boeing - was delivered initially to TAP...afterwards PAL took 'delivery' of the a/c.
Just that historical data alone would lend one into the realization that the interior alone...imagine the seats and galley area wear and tear ...had to be totally restored through major upgrades. And what's the deal with JAL and the association with NavTech? Anybody out there have the low down...I mean the real low down on this upstart?

Anonymous said...

Yeah, sounds like a pump and dump to me. GFL.

Airline Complaints said...

my biggest concern? security and safety with these no namers. i am inherently skeptical about airlines - after all i will be 30k ft above ground with no control over my destiny. let is soak up over time, observe and then try . . .

Anonymous said...

With all due respect to the "RUMOR" thats seems to be leaked, Baltia air lines is or will be or has something that might interest the Owner "Richard Branson" of Virgin Air lines..??? Can someone clear this up..?? They are possibly trying to hold a meeting of some Kind.
We need rumor control..

Anonymous said...

Baltia's business model needs work for the airline to be successful. At present, the airline's costs will be way too high: a 747 is not a low cost airplane (that 767 they wanted in the '90s would be a better choice) plus the extra services cost money. The airline's revenue will be too low: under 300 seats on the plane plus not enough traffic (few people want to go to eastern europe plus minimal connecting traffic). While the New York- St. Petersburg route definitely needs service, Aeroflot, Continental, Rossiya, American, or Delta could do a much better job filling the niche profitably because they have stronger presences in the New York and St. Petersburg markets than Baltia ever will. (Plus they have better planes and likely lower costs.) As for the rest of the routes to eastern Europe, I doubt that the market is mature enough for even a major airline to profitably serve the markets. (The only current flights from the US to eastern Europe are the Delta flights from New York to Kiev)

In light of the above, I wish Baltia the best of luck; I think they'll need it.

Anonymous said...

My son Barry Clare is the most upstanding,hard working individual anyone could ever want to meet.He is a highly ethical young man with a dream, which is what makes this country great. If you don't dream big , nothing will ever happen.I'm rooting for them 100%

Anonymous said...

The plan, from the beginning till now, is a complete BS. Being a Russian, and having some relation to airline business, I see no prospects for that airline not to succeed but to survive even.

And old B742 which is proudly presented by Mr. Dmitrovsky (or whatever) is a odd choice in 2010 when a plenty of ex JAL`s B744 are in easy access at bargain prices (and many others, just take a look at Airfax or something alike it).

Russian market is very, extremely specific. And doing marketing reserches of it from NYC is a complete mislead.

Me and my mates had a project feseability studies similar to Silverjet, we met with Lawrence Hunt - that`s definitely not a good time and model for such kind of services.

Anв personally for some Baltia staff advocates detected here - your mascot and symbol choosen is completely wrong for Russian speaking market. A rooster, pethukh in Russian, is commonly used word for passive gays and sexually abused inmates in jails. You could only guess about the public image and reception you would gain there in Russia using that.

I wish only the best for any aviation project for Russia - but if you blokes want to achive something sound you need to change everything in your project from the scratch (which happened 20 yrs ago as I can see) so you have lots to do.



Best, Igor.

Anonymous said...

TAP should buy this 747-200 (CS-TJD), the last of the four delivered to the company (17-10-1975), the only not scrapped yet, paint him with the original colors and logos and store him at the museum.

Paulo

Anonymous said...

Any updates on this airline. I noticed last comment was posted in Nov. 2010. Of all the comments, no one mentioned anything about the management team and what sort of experience they have had over the years (and whether it was successfull). Anyone know? Thanks.

Anonymous said...

Symbol might best be a turkey. After, oh-so-many-years, they might actually get off the ground this winter, (and maybe not). They have apparently arranged use of two B747-200's. You heard correctly - not low-time,300's or the far more fuel-efficient 400's. One of these Jurassic jets was supposedly manufactured in 1975. Ya, I want to be one of the first on this launch in a 36 year old airplane, NOT. It seems they would lose only half as much money if they operated only one 200. One gets to St. Petersburg LED via so many more (daily) Finnair flights JFK-HEL in two-year old AirBus aircraft, purchased new. I don't wish these guys ill - they've had fortitude, but common sense suggests this isn't going to work for a number of reasons, not the least of which is, there's nothing that suggests they have the finances. If they make it, I'll be the first to congratulate them.

Pilot Salary said...

You have to give them top marks for persistance, most would have given it up as a lost cause years ago.

Anonymous said...

I am very excited for BALTIA airlines! ROOSTER WILL BRING LUCK -it is symbolic. I love the idea that you will have fun and entertainment and GOOD FOOD AGAIN WILL BE SERVED!And in short 7-8hours you will be overseas!!! FLY HIGH BALTIA!

Anonymous said...

This week, Jan. 27, 2012, there is a new posting on Go4Funding.com by this start-up, seeking funding. I hope they've changed their business plan -- four classes of service is nuts. The 121 certification is in limbo, pending financial fitness test. So some things in this world do NOT change after 20 years, no matter the persistence in a dream.

Anonymous said...

I'm not sure that the issue of potential competition has been fully addressed. Any commercial airline service agreement between nations would allow for each side to open and trade slots into their respective markets. If these routes are as profitable as Baltia officials believe, it only makes sense that Russian and Eastern European state carriers would likely also look to compete in these markets with equal or better service. They would also come to the fight with better equipment and superior funding streams. Thoughts?

Anonymous said...

The real question is... Is it worth dumping a few thousand dollars in? I mean this company has the potential to hit 2 dollars a share, but only if that plane gets off the ground. The FAA needs to hurry up!

Anonymous said...

There is a Baltia B747 (N706BL)currently in Oscoda, MI undergoing routine maintenance. The plane is in very good shape.