I'M ED! FLY ME!
Late last month a smiling Edward Beauvais appeared at the Colorado Springs Airport in a wizard's costume to announce his Western Pacific Airline's new $59 "mystery trip" fares. To Beauvais's many Colorado Springs admirers, the sorcerer's garb was appropriate.
For civic boosters in Colorado Springs, after all, the last seven months have been like a fairy tale. The April launch of low-fare Western Pacific has brought thousands of passengers to the city's new $80 million airport, many of them Denver residents fleeing the high cost of flying out of Denver International Airport. Thanks to clever gimmicks such as the "mystery trip" (travelers put down their money without having any idea where they'll be going) and a plane bearing the smiling face of cartoon hipster Bart Simpson, the public has been captivated by Western Pacific--and by its 58-year-old founder, Pueblo native Beauvais.
With business booming, Western Pacific plans to add several new destinations to the thirteen cities it serves from Colorado Springs, doubling the size of its fleet and employing as many as 2,000 people by the end of next year. Plans are in the works to build a second concourse at the airport, primarily to accommodate the fast-growing carrier. Springs officials are falling all over themselves to join the chorus of hosannas for their new hometown airline.
It isn't the first time Beauvais has put a town under his spell.
The airline Beauvais founded in Phoenix in 1983, America West, grew with the speed of a desert wildfire. Starting with three planes and a handful of employees, the carrier rode the booming Southwest economy to become the ninth-largest airline in the country, with 115 planes and 15,000 employees. New 747s flew from Phoenix's Sky Harbor International Airport to Hawaii and Japan, and Beauvais became an Arizona folk hero for bringing the state a low-fare airline whose rapid growth earned it international attention.
But on June 27, 1991, Beauvais's extended honeymoon ended in a nasty divorce. On that day, America West was forced into bankruptcy. By the time angry creditors managed to get the airline into court, it was in debt for more than $1.2 billion. As thousands of employees lost their jobs and the company stock they had been required to buy became nearly worthless, the success story began to look more like a horror movie. Beauvais, whose aggressive expansion campaign was widely blamed for overextending the airline, was pushed out of America West in 1992 in a behind-the-scenes coup by angry investors.
Today America West is back on its feet, bolstered by an infusion of $214 million from several large investment groups. But for bitter America West employees and creditors who almost saw their airline die, the glowing news accounts coming out of Colorado Springs are eerily familiar. In their eyes, Beauvais is no financial wizard--just a purveyor of black magic.
"The employees feel like they were left holding the bag," says Alan Crawford, a pilot for America West and vice chairman of the Airline Pilots Association local in Phoenix. Like most America West employees, Crawford lost almost all of the money he invested in the airline. And he says his experience with America West should serve as a cautionary tale for those in Colorado Springs who are lining up to jump on Beauvais's latest bandwagon.
"Ed Beauvais has burned a lot of people before," says Crawford. "History repeats itself."
America West's spectacular crash landing made headlines for months in the nation's financial press. But Beauvais has had little trouble crawling from the wreckage. Three years after losing his million-dollar mansion in Phoenix and being spurned by that city's civic leaders, he's comfortably ensconced in Colorado Springs--and again playing the role of the conquering hero. Since hitting town last year and taking up residence in a $251,000 home on Camel Drivers Lane, Beauvais has become a celebrity in the Springs, making frequent appearances at the exclusive El Paso Club and serving as a popular speaker at chamber of commerce forums.
"It's unbelievable how well Western Pacific is doing," says Colorado Springs airport director Gary Green. "It was something nobody could have predicted. This startup airline seems to be doing better than any other in the country. Our chamber of commerce for years tried to get additional air service here; now we've got it big time."
A few weeks ago Western Pacific announced that it's heading to the stock market, where it expects to sell 3 million shares and raise as much as $50 million. The carrier, which lost $1.9 million between May and August of this year and has yet to turn a profit, says it will use the proceeds from stock sales to add eight new Boeing 737s to its fleet and expand its reservation center. Investor interest in the offering is strong, and brokers expect the stock to sell out quickly.
"Every time something goes wrong at DIA, it's a buy recommendation for Western Pacific," says Scott Hamilton, editor of Commercial Aviation Report, a Dallas-based trade publication. "It's going to be a blowout stock offering. I think the post-initial offering price will jump dramatically."
Beauvais launched Western Pacific with $27 million in equity, with the bulk of the cash raised via a discreet appeal to the Colorado Springs elite. The airline's single largest investor is billionaire Edward Gaylord, with a 30 percent stake. Gaylord also owns the Broadmoor Hotel, the Grand Ole Opry and an Oklahoma City-based chain of newspapers and country-music cable-TV networks. Members of the Hill family, who inherited a fortune from the Hunt oil empire in Texas, also hold a sizable chunk of Western Pacific stock.
But it's Beauvais who calls the shots at Western Pacific, leading a management team that has a 31 percent share in the airline and holding down the titles of president, chief executive officer and chairman of the board. He draws a salary of $195,000 per year and tools around town in an Infiniti sedan. Beauvais, who along with the company's other executives also gets a $550 per month automobile allowance, declined to be interviewed for this story, citing Securities and Exchange Commission rules that forbid executives from talking to the press before an initial public offering. But his exploits with America West in the early 1980s haven't been forgotten back in Arizona.
"I met Mr. Beauvais when America West was going public," says Seymour Licht, a Scottsdale, Arizona, investor and well-known corporate gadfly who became a thorn in Beauvais's side during the bankruptcy. "They had a luncheon at the Arizona Biltmore hotel. You just walked in and took a seat, and I sat with Ed Beauvais."
At the time, Licht held bonds in bankrupt Braniff Airlines, and the two men got into a discussion of the mistakes Braniff had made and how America West would avoid meeting the same fate. For instance, Beauvais told Licht that, unlike Braniff, America West would fly only one type of aircraft, a strategy to reduce maintenance expenses that had helped make Dallas-based Southwest Airlines the star of the aviation industry. The charming executive then rose and spoke to the investors in the crowd, assuring them America West would always be an exclusively Western carrier.
"He stood up and said, `We've found a niche, and we're not going east of the Mississippi River,'" Licht recalls.
In its first years America West concentrated on serving Phoenix and Las Vegas, two Sunbelt cities that themselves were undergoing explosive growth. The airline ran popular shuttles between Phoenix and Las Vegas, Los Angeles and San Diego, competing with its new rival Southwest for the short-hop business and flying 737s in and out of Sky Harbor with clocklike regularity. Despite relatively low pay, the airline attracted a loyal work force through innovations such as round-the-clock child care and job sharing. Significantly, the carrier also required new employees to purchase stock--ostensibly to give them "a sense of ownership," but also providing America West with a ready source of cash.
America West's expansion during the 1980s made it a media darling, with glowing articles appearing in the Wall Street Journal and Business Week. Phoenix was particularly infatuated with the easygoing Beauvais. The former Frontier Airlines accountant and aviation consultant was hailed as a civic icon who had helped put the city on the map. Working for America West became fashionable in Phoenix; announcements of new routes were made weekly, and the carrier always seemed to be hiring. The constant stream of America West planes flying in and out of Sky Harbor made the airline's familiar logo--a burgundy sun setting over stylized initials that look like mountain peaks--an everyday sight.
As the airline grew, however, Beauvais's ambitions grew with it. In the late 1980s America West abandoned Beauvais's vow never to go east of the Mississippi. Flights were added to several cities on the East Coast, and service to Hawaii began in 1989. That same year the carrier bid $751 million for bankrupt Eastern Airlines' popular northeast shuttle service between Boston, New York and Washington, D.C. The deal also included ten Boeing 757s. But America West was beat out for the shuttle by Donald Trump, in part because lenders thought the airline was already leveraged to the hilt, carrying a debt load that was 30 percent higher than the industry average. Beauvais was unperturbed by the setback.
"It's a disappointment," he told USA Today at the time, "but you might say it's round three in a scheduled 25-round fight."
At the end of the 1980s, all the major American airlines were trying to expand into Asia. In keeping with its newfound aspirations, America West did its best to keep up with the big boys.
The airline began service to Nagoya, Japan, in 1990, a decision that forced Beauvais to put aside his initial plan to buy only 737s. Supremely confident in its future, America West placed a $1 billion order for 27 new Boeing jets that included fifteen 737s, ten 757s and two 747s, the most glamorous--and expensive--plane in the sky. In less than a decade America West had gone from serving five destinations to flying to 54 cities and building a route system that stretched from the Atlantic coast all the way to the Pacific Rim.
Many of the airline's employees were openly troubled by the acquisition of the 747s and the new trophy routes to Hawaii and Japan. Most of the seats on the flights to Hawaii were filled with people taking trips with frequent-flyer miles, costing the airline a small fortune in lost revenues. Beauvais, though, insisted the Hawaiian flights were necessary to compete with larger competitors such as United, and his employees' misgivings were ignored.
"747s are extremely expensive planes to operate," says America West pilot Crawford. "A small airline shouldn't have them. They got out of their league instead of staying in their niche. If we'd stayed out of the 747 business, we wouldn't have gone into bankruptcy. They were so intent on going into the Pacific, but you can't make money on those routes."
When America West finally began to lose altitude, it plummeted so quickly that investors barely had time to reach for an air-sickness bag. The war in the Persian Gulf scared away air passengers, and the economy nosedived into recession. No industry was hit harder than the airlines, and at America West's Tempe, Arizona, headquarters, the bad news started coming fast and furious.
As war loomed, the Japanese government warned its citizens to avoid flying on American carriers. Fears of terrorist attacks had already cut into America West's passenger loads, and now the airline was flying half-empty 747s across the Pacific. Fuel prices soared, and competition for passengers became even more brutal when American Airlines launched a fare war, slashing many ticket prices in half.
With revenues plunging, America West couldn't meet the lease payments on its 115-plane fleet. In the summer of 1991 the airline was forced to file for bankruptcy when leaseholders refused to allow the carrier to make payments as much as three months late.
The bankruptcy was devastating for the airline's employees. Almost 5,000 of them lost their jobs as the carrier began several rounds of layoffs. The remaining workers took 10 percent pay cuts. Beauvais also took a pay cut, reducing his $1 million annual salary to $500,000. The symbolic sacrifice did little to endear him to employees.
"He should have reduced his salary to $1 a year while the airline was in bankruptcy, but he wouldn't do it," Licht says.
Employees had been required to invest 20 percent of their first year's salary in America West stock. Management touted the purchase requirement as a major benefit, intended to make up for salaries averaging half of what was paid by rival carriers. The net effect was that employees wound up owning almost 20 percent of America West's stock--which after the bankruptcy became virtually worthless.
The carrier also demanded and got major concessions from the City of Phoenix, which deferred millions of dollars in rental fees for America West's facilities at Sky Harbor. The state chipped in a cool $1 million in cash and cut aviation fuel taxes to save America West another $880,000. Arizona Governor J. Fife Symington III also asked the Arizona business community for help in bailing out America West and raised $53 million for the carrier, though much of that aid came in the form of agreements by the airline's creditors to delay repayments.
Licht, who held about $90,000 in America West bonds, was outspoken during the airline's bankruptcy hearings, constantly challenging Beauvais's leadership. He believes the airline never would have crashed if Beauvais hadn't tried to build an aviation empire.
"The bankruptcy was Beauvais's responsibility," Licht says. "The buck stops with the chairman. The man is brilliant, but he has to accept responsibility for his actions. He started with three airplanes and did a fabulous job, but he lost it with delusions of grandeur."
For years Colorado Springs was little more than an isolated landing strip to the aviation world. An estimated 200,000 people a year routinely drove seventy miles north to Stapleton International Airport rather than pay exorbitant fares for the twenty-minute flight to Denver. The idea of a hub carrier operating out of the Springs was a joke, as businesspeople based in Colorado Springs knew all too well.
The city's colonial status in relation to Denver was a major hindrance to recruiting new companies. And the giddy reception Western Pacific has received can be traced to a longstanding inferiority complex.
"We're no longer an hour and a half away from a major airport," says Rocky Scott, president of the Greater Colorado Springs Economic Development Corporation. "It transforms our market position. It's given us service we've needed for many years, particularly nonstops to Los Angeles and San Francisco."
The Springs area was hit especially hard by the regional recession that struck Colorado in the late 1980s. While the city has bounced back, the economy remains heavily dependent on defense spending, and city leaders are trying to diversify the industrial base by attracting high-tech companies. They're convinced Western Pacific will help them do that.
"I got a call a few months ago from a firm in San Jose," says Jim Palmer, senior vice president for government affairs at the Colorado Springs Chamber of Commerce. "They said, `We're going to relocate. We're looking at Colorado Springs, St. Louis, Dallas and Phoenix. We think we can eliminate Colorado Springs over the phone, because we have to travel to both coasts and need a hub.' When they found out about Western Pacific, they said, `Wait a second, we're going to come out and take a look now.'"
Palmer predicts that Western Pacific will supercharge everything from tourism to real estate in the area. There's even talk of luring a commuter airline to the Springs so that travelers can connect directly to mountain ski resorts. "If somebody is going between Chicago and Los Angeles, they can stop in Colorado Springs," says Palmer. "They might go skiing for the weekend. It can't help but boost our profile."
Western Pacific is now lobbying for an expansion of the Colorado Springs Airport--a request that evokes visions of the sprawling new concourse that was built for America West at Sky Harbor before the airline scaled back its flights. The twelve gates on the Springs' sole concourse are completely booked, and the city is considering construction of another wing that would give the airport a total of 24 gates. The expansion would cost about $50 million, probably paid for by revenue bonds, and a decision on whether to break ground likely will be made early next year.
Civic leaders such as Palmer insist Colorado Springs isn't getting in over its head in the rush to accommodate Western Pacific. "We won't overbuild," he says. "We'll constrain them a little bit, as much as we'd like to build on right away. The conservative nature of the people here will mean we won't move as rapidly as Western Pacific would like."
Beauvais has insisted in interviews that he learned from his experience at America West and won't make the same mistakes at Western Pacific. So far, however, the new airline is a veritable corporate flashback to America West's early days. Beauvais has brought dozens of former America West employees to work for him in Colorado Springs, including the new airline's vice presidents for operations, sales and information systems. Nearly half of the people on Western Pacific's board of directors are acquaintances of Beauvais's from Phoenix. And sources say Beauvais has made some familiar pledges to Colorado Springs business leaders: that Western Pacific will always be a one-hub carrier and will fly only one type of plane.
"He's better educated on prudent growth of an airline than he was," says Rocky Scott. "He's a very smart guy and brings the experience of those difficulties to this table. It's a different model and an improved model. Most entrepreneurs who've failed are more likely to succeed the next time. If you haven't had a failure behind you, you haven't learned those lessons."
Scott says he believes that Colorado Springs was underserved by airlines for years and that even if Western Pacific does fail, another carrier will appear to take its place. City airport director Green is even more adamant, insisting that America West was a net benefit to Arizona in spite of the bankruptcy.
"If Western Pacific is as successful as America West, we could sustain that kind of pain," he says. "They did make some mistakes, but it's a great company. We hope Western Pacific is as successful as America West."
The documents companies file with the Securities and Exchange Commission are often full of surprises. Disclosure requirements force a level of honesty seldom seen in the corporate world, as carefully constructed public-relations facades give way to blunt assessments. Western Pacific's prospectus for its stock sale is no exception.
A half-page entry in the prospectus talks about the mistakes America West made, including taking on vast amounts of debt and leasing a huge fleet of planes. The carrier's war of attrition with archrival Southwest is mentioned, as well as the disastrous impact of the Gulf War and the 1990 recession.
But the real eye-catcher is a fleeting reference to the new company's CEO, the same man now asking investors to trust him with $50 million. "The circumstances attending America West's bankruptcy may be viewed as reflecting adversely on Mr. Beauvais's ability as a senior executive," the document says.
Everyone who has dealt with Beauvais credits him for his friendliness and sunny optimism. Even his harshest critics say he has the best of intentions, always sure that his latest venture will be a win-win situation for investors, employees and customers.
"As a person, he's a great guy, he's a visionary," says pilot Crawford of his former boss. "But we feel his ego took over where common sense was left behind. I don't wish Ed Beauvais ill, but investors beware. I don't know if Beauvais is in it for the long term. He might bail out after three or four years."
The country's most successful airlines are sustained by business travelers, who value consistent service and prefer a carrier to offer several daily departures to each destination. Western Pacific is geared to the leisure market and offers only a handful of flights to its thirteen destination cities. The aviation world has seen dozens of low-cost carriers with limited service go down in flames, and Crawford, who lost more than $3,000 when America West's employee-owned stock became next to worthless, predicts a similar fate for Western Pacific.
"These airlines that just go in there once or twice a day don't do much good," he says. "Southwest Airline's philosophy is to hit a city seven or eight times a day. That's what the businessmen like."
America West came out of bankruptcy in August 1994 and is now profitable. The airline has pared down its flight structure from the glory days and is once again focusing on serving the Southwest. The carrier's employees have also been unionized, and America West's flight attendants are negotiating their first contract.
"I pray Western Pacific doesn't make the same mistakes," says Deborah Volpe, president of the America West Association of Flight Attendants. "I wouldn't want anybody else to go through what we've been through the last four years. It was the line employees who saved this company, from the flight attendants to the reservation clerks. They didn't bail out."
Asked if she'd want to invest in Western Pacific, Volpe replies crisply, "Been there, done that and got a T-shirt."
Seymour Licht isn't planning on buying any Western Pacific stock, either. He predicts Western Pacific will soon be hosting investment lunches in Colorado Springs like the one he attended all those years ago in Phoenix. Licht isn't asking for an invitation.
"It's deja vu," he says of the new airline. "It's exactly the same thing happening all over again.
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