Intrastate origin

Air Florida was based at Miami International Airport. Air Florida was initially organized as an intrastate airline by a group including Miami native Eli Timoner as chairman, Bill Spohrer as president, Jim Woodman as VP, Robert Bussey as Secretary and Reed Cleary as chief pilot. Spohrer came from APSA which may account for the initial focus on a 149-seat Convair 990 as an aircraft, to be leased from Modern Air Transport. The inspiration was Pacific Southwest Airlines, the long-established California intrastate airline.^[6] Later the focus changed to an Eastern Air Lines DC-8^[7] before settling on a Pan Am Boeing 707,^[8] purchased for $1.1mm.^[3] The inability to settle on an aircraft delayed Federal Aviation Administration (FAA) approval and thus start of the carrier.

FAA approval was needed for operational authority. As an intrastate airline, Air Florida avoided economic regulation by the Civil Aeronautics Board (CAB), the Federal regulator for interstate air travel, then extremely rigid. Prior to 1972, there was no economic regulation of intrastate carriers in Florida. Such regulation started October 1, 1972. Air Florida, having started service on September 27, was grandfathered. Thereafter, for as long as it remained an intrastate airline, Air Florida would be economically regulated by the Florida Public Service Commission (PSC) as to matters like route entry and fares.^[9]

Ted Griffin, a former marketing director of Eastern Air Lines, became operational head starting from mid 1972,^[8] ultimately taking the president title.^[10] The airline operated its first flights on September 27, 1972,^[3] offering twice-daily service in Florida between Miami (MIA), Orlando (MCO) and St. Petersburg (PIE) on "triangle" routings of MIA-MCO-PIE-MIA and MIA-PIE-MCO-MIA with a one way introductory fare of $12.00.^[11][3] By May 15, 1973, The airline acquired three Lockheed Electra turboprop aircraft, replacing the Boeing 707.^[12]

Acker group investment

Air Florida was unprofitable for most of its intrastate existence. In 1972 it attempted a $3.2mm initial public offering,^[13] but the market was unfavorable and it had to withdraw.^[14] The airline was acquired by a publicly listed company, Investment Property Builders (IPB) controlled by Timoner, as a way to give it a stock price.^[15] This became Air Florida System, Inc, explaining why Air Florida's holding company had a 1955 date of formation.^[2] In 1975, the U.S. Securities and Exchange Commission accused Timoner and a Swiss bank (among others) for having artificially increased the price of IPB in 1971. Timoner did not admit to this, but agreed not to do such things in the future.^[16] The airline was chronically underfunded and unable to upgrade from Electras to jets. The issue was widely noted: there were segments of the market that avoided Air Florida because it did not fly jets, which left Timoner constantly scrambling to finance losses.^[10]

In December 1976, a group of investors led by Ed Acker, previously a Braniff executive but at that time at an insurance company, made an investment as part of a recapitalization of Air Florida. Acker's group put in $1.5mm, some creditors agreed to take stock in exchange for $2mm in debt, other creditors agreed to a standstill. Better still, Air Florida could now acquire jets, including DC-9s.^[17][18] Three of the DC-9s were financed by Carl Lindner's American Financial Corp, which bought them from Air Canada, leased them to Air Florida in exchange for low-priced stock and warrants that, in early 1980, provided Lindner with a huge payoff.^[19] In mid 1977, Acker became CEO and chairman, Timoner became president and COO, and Ted Griffin left the company.^[20] By February 1978, the turnaround was apparent. High-frequency jet service finally worked to make Air Florida relevant in a way it had not been before. The fleet comprised five DC-9s, with three more on the way. September 1977 passenger traffic was up over 400%, in October up over 600%, for November 1977 thru January 1978, up over 350%. Calls to the call center were up over 100% year over year.^[21]

Post intrastate

In 1978, Congress passed the Airline Deregulation Act, which phased out Federal regulation of the airline industry starting in 1979. The act allowed Air Florida to fly outside of Florida starting in 1979, but in fact the CAB used its administrative discretion to allow Air Florida to jump the gun, and by year end 1978, Air Florida was already flying to Washington, DC, and, in the Bahamas, Rock Sound and Nassau.^[2][22][23]

Acker-era Air Florida was one of the most aggressive of the small carriers:

• Air Florida grew extremely quickly, both domestically and internationally, including Caribbean, Central America and Europe. European routes required long-haul aircraft, such as DC-8s or DC-10s. By January 1981, the fleet included four DC-9s, 21 737s and a DC-10.^[2]
• Air Florida initiated three attempted takeovers of other carriers, two of them materially larger than Air Florida. This was not unusual for the time. Frank Lorenzo's Texas Air was another small carrier that put larger carriers in play in the early years of deregulation.

On August 27, 1981, Ed Acker left Air Florida to take up the CEO position at Pan Am, saying that Cunard told him the position of captain of the Titanic was no longer available, so he was seeking a comparable challenge.^[24][25] Timoner once again became chairman and CEO.^[26]

Flight 90 and aftermath

On January 13, 1982, Air Florida suffered a devastating fatal crash in Washington DC, with a Boeing 737 aircraft hitting a bridge and ending in the Potomac River. Video of rescue efforts were captured in real time and widely broadcast, as was an iconic image of the broken tail of the Air Florida aircraft being pulled from the river. Air Florida reservations dried up.^[32] Even worse, later in the year the National Transportation Safety Board placed the blame squarely on the Air Florida pilots.^[33] Six months later, Pan Am had a weather-related crash (Pan Am Flight 759) that was almost twice as deadly, but it happened away from the cameras and the pilots were not to blame. Air Florida Flight 90 was far more prominent.

Air Florida's fortunes had turned for the worse even before the crash. A substantial financial loss in the fourth quarter of 1981 was driven by fierce fare wars,^[34] including by Pan Am now run by Ed Acker.^[35] Heavy losses continued into 1982, despite which, Air Florida continued to focus on possible mergers and acquisitions, specifically around the future of Braniff, which was in obvious distress as it headed towards what would be its May 1982 bankruptcy and grounding.^[36] It's hard to overstate how bad the environment was, both generally and for airlines.^[37] To make matters worse, in July, Timoner suffered a debilitating stroke, leading to the elevation to CEO of Donald Lloyd-Jones, an American Airlines veteran who lost the heir-apparent competition at American to Bob Crandall and had joined Air Florida as president.^[38][39]

Two years of struggle

Central to Lloyd-Jones's strategy was shrinking Air Florida. From June 1982 to May 1984 its fleet dropped from 29 to 11.^[45][46] Unfortunately:

• Air Florida shrank but did not simplify. It continued to fly to Europe (requiring a few long-range aircraft in what was otherwise a mostly-737 operation), yet financials filed with the CAB showed Europe to be, by far, the worst of the three Air Florida geographies – US, Europe and Latin America (Latin America, was consistently close-to-break-even or better). Europe was an expense Air Florida could not afford.^[42][44] Simplifying to a 737 operation was an available strategy, but unpursued. Indeed, even after it collapsed, the first operation Air Florida tried to resuscitate was its London route,^[47] yet the real value turned out to be the 737 operation, as described below.
• The company focused for too long on main east coast Florida routes. Pan Am and Eastern would defend routes like New York to Miami to the death – Eastern because it was its marquee route since before WWII, a source of profits for decades.^[48] Pan Am, meanwhile, overspent to buy National Airlines in 1979, which for decades shared that key route with Eastern.^[49] Pan Am would have little to show for National if it conceded that market. But as much as Eastern and Pan Am lost on such routes, for them it was a smaller proportion of revenue than for Air Florida. Eastern CEO Frank Borman noted in 1982 “we bled seriously, but only from a vein, [Air Florida] bled from an artery”.^[50] By contrast, People Express, which made a point of flying from Newark to everywhere, avoided Miami – it started Newark-Miami flights only after Air Florida expired.^[51] Only in late 1983 did Air Florida enter less competitive markets to Florida like Cincinnati and Indianapolis.^[52] The piece of Air Florida that did survive, Midway Express, was that kind of network.

Air Florida waited too long to declare Chapter 11. Losses in 1982 were catastrophic, and external accountants gave a going concern warning in their audit.^[53][54] Financing costs were overwhelming: interest expense ballooned to $35mm in 1982^[42] from $10mm in 1980,^[40] for a shrinking company that never had an annual operating profit of more than $10mm. From 4Q83, the company did not take care of the basic administrative obligation of filing CAB reports and when it collapsed Air Florida had $27mm in accounts receivable – amounts uncollected from travel agencies, credit cards, other airlines and so forth.^[55][56] Its main lender first declared a default on loans in July 1983, almost a full year before Air Florida ceased operation and from then on the Air Florida headlines, already poor since Flight 90, turned desperate, as it took increasingly creative ways to remain funded, all playing out in the press.^[57] Worse, at the end the company was funding itself by shorting payments for the employee credit union, payroll taxes and medical insurance.^[58]

Until the Continental Airlines bankruptcy of September 1983, there was no precedent for an airline flying through bankruptcy. However, that precedent occurred about eight months before Air Florida's collapse, when the airline's unsustainable financial condition was readily apparent.

Chapter 11, Midway Express and sale

In May 1984, Lloyd-Jones resigned abruptly after losing the confidence of the board. He was replaced by board chair, J.R.K. Tinkle. On July 3, the airline ceased operations and filed for Chapter 11 bankruptcy.^[31] The airline said it would fly again, but made little progress. Finally, a week in advance of a judicial deadline of late August, Tinkle approached Midway and a deal came together quickly. Midway was not an obvious candidate as it then operated all-business class "Metrolink" service, quite different from proposed Air Florida-operated all-economy Florida service from Chicago and other northern cities. There were at least two attractions: Air Florida's slots at New York LaGuardia and Washington National airports, and winter demand to offset the winter lull in Midway's primarily east-west system.^[59] Tinkle said he picked Midway for its "experienced personnel", "$40mm in cash" and "a route system that has been very well run". The latter was flattery. Midway made a significant loss in 1983^[60] and was on its way to making an even bigger loss in 1984.^[61] But it had cash.^[62]

Air Florida would operate 737s as Midway Express until the CAB gave permanent approval (it initially provided temporary approval). The deal was nominally $53mm, $35mm of which paid the FAA for three 737s (the FAA administered a federal aircraft loan guarantee program that was initially part of deregulation). Many parties objected to the bankruptcy court, but this was the only deal on the table so the judge approved it. After all, 300 Air Florida employees would be back to work.^[63][64] In the end, Midway didn't pay for the aircraft, instead a lessor bought them and leased them back to Midway.^[65] Midway supervised Air Florida under the eye of the court and provided it with working capital. On October 15, 1984, Air Florida was back in the sky, dba Midway Express, with Midway selling the tickets.^[66] Eastern sued to stop the deal. It had a prior deal for the airport slots, but the FAA rejected it saying the slots weren't airline property. Eastern said the Midway Express deal was just a workaround to give Midway the slots, but the court noted that, in fact, Air Florida was back in operation and that was a pretty big difference.^[67]

In July 1985, Midway committed the cash and preferred stock it promised for the deal^[68] (which may be why it viewed July 24, 1985 as the closing date for the deal),^[69] and on August 14, 1985, the bankruptcy court gave final approval to the sale of Air Florida assets to Midway, which Midway constituted as a subsidiary called "Midway Airlines (1984)", painting the aircraft in Midway livery.^[65][70] However, the name was also sold as part of the deal, obligating Air Florida System, still working through Chapter 11, to change its name to Jet Florida.^[58] In its 1985 annual report, Midway disclosed that Midwest Express had made a profit of $1.4mm in the 1985 period prior to acquisition, implying the operation was at least roughly break-even.^[69]

Retired fleet

Air Florida also operated the following aircraft in its mainline fleet, but retired these types before the demise of the airline:^[87]

• BAC One-Eleven (operated by British Island Airways in Europe to provide passenger feed for Air Florida's transatlantic flights. The aircraft had Air Florida titles in addition to their British Island Airways titles)
• Boeing 707-320
• Boeing 727-100
• Boeing 727-200
• McDonnell Douglas DC-9-15RC
• Lockheed L-188C Electra