Air California, later renamed AirCal, was a U.S. airline company headquartered in Newport Beach, California that started in the 1960s as a California intrastate airline."Newport Beach city, California ." U.S. Census Bureau. Retrieved on May 25, 2009."World Airline Directory." Flight International. March 30, 1985.34." Retrieved on June 17, 2009. The airline's home airport was Orange County Airport, now known as John Wayne Airport.
Air California was the "other" California intrastate carrier, counterpart to better known Pacific Southwest Airlines (PSA). The two airlines had very different origins. PSA was the product of a highly competitive, lightly regulated earlier period in California intrastate airline history, while Air California was born into a later, far more regulated California environment. The California regulator explicitly aimed to ensure Air California's success by shielding it from PSA competition, in particular at Orange County Airport, from which PSA was excluded. Air California was further protected by Orange County itself. From 1967 through 1980, Orange County ensured Air California was one of only two mainline airlines to have access to (and the dominant carrier at) Orange County Airport, a lucrative duopoly that allowed Air California to prosper.
Air California/AirCal had a series of unusual owners. From 1970 to 1974, it was under the control of C. Arnholt Smith, a San Diego powerbroker, later convicted of fraud. From 1974 to 1981, it was controlled by Smith's former holding company Westgate-California Corporation (WCC), while WCC was in an extended period of bankruptcy run by a court-appointed trustee. From 1981 to 1987, AirCal was controlled by two California real estate developers, who, despite the turbulent nature of the industry at the time, made a success of the airline, before selling it to American Airlines.
Following the federal Airline Deregulation Act in 1978, Air California expanded beyond its namesake state. The airline was renamed AirCal in 1981 and merged into American Airlines in 1987. By that time, AirCal flew as far east as Chicago and as far north as Seattle, Anchorage, and Vancouver, BC. But less than four years later, American gutted the former AirCal network, leaving little to show for its purchase.
History
Startup Air California originated in a December 1965 meeting in Corona del Mar by William Myers, Alan H. Kenison (later a founder of Jet America Airlines), Mark T. Gates Jr., William L. Pereira Jr. (son of noted architect William Pereira who designed the Theme Building at Los Angeles International Airport (LAX)William L. Pereira, Jr. profile in UCI Stories website of University of California Irvine Library, Accessed April 20, 2024) and Lud Renick to discuss air service from Orange County to San Francisco, with the idea of Air California as the result. At the time, air service from Orange County Airport was minimal despite the county having a population of about 1.2 million and being the fastest growing in the country. Air travel in California was then dominated by Pacific Southwest Airlines (PSA) yet it declined to serve Orange County. Airport officials had approached all West Coast carriers in an effort to attract service to Orange County Airport, but none expressed interest.John Wayne Airport Chronology: 1923-PresentAirlines: Competing with the Freeways, Time Magazine, June 9, 1967 As a result, Air California was designed to do what PSA would not: serve Orange County.
At the time, most major US airlines were tightly regulated by the Civil Aeronautics Board (CAB). PSA was the exception: its intrastate status exempted it from CAB oversight, which only applied to interstate flights. It had used that freedom to grow from nothing in 1949 to a jet carrier in 1965, taking market share away on its California routes from much larger but less efficient carriers regulated by the CAB. Air California was incorporated on April 12, 1966OpenCorporates record for Air California and the same month, applied to the California Public Utilities Commission (CPUC) to be a California intrastate airline for its first route, from Orange County Airport to San Francisco Airport at a fare of $14.85. The CPUC approved the application in September, requiring a minimum of five frequencies per day. In December, Air California had an initial public offering and the airline launched its first services January 16, 1967, using two Lockheed Electra aircraft.AirCal Chronology, Los Angeles Times, November 18, 1986 Total capital raised prior to the first flight was $5.3mm, including $2.5mm from the stock offering.
By April 1967, Air California was operating 48 nonstop Lockheed L-188 Electra flights a week from Orange County (SNA) to San Francisco (SFO). Later that year, in October 1967, Air California had taken delivery of two more Electras, bringing its total to four.Air California Chief Promises to Expand, Santa Ana Register, May 25, 1967 Service was subsequently expanded to include San Jose and Oakland. In 1968, the airline added two DC-9s to the fleet expanded service to Ontario and Burbank; however, by the end of the year both the DC-9s and all Electras had been phased out in favor of six 737-200s.Air Service and Debate Grow at County Airport, Los Angeles Times, April 8, 1968Air-Cal now All Jet; Electras Served Well, Santa Ana Register, Dec 25, 1968
By May 1968, the airline was operating 92 flights per week from SNA to SFO, primarily using Douglas DC-9-10 twin jets, as well as 50 flights a week from SNA to SJC, with most continuing on to OAK.
By 1976, Air California was operating nonstop intrastate jet service between Orange County and San Francisco, San Jose, Oakland, Sacramento, San Diego and Palm Springs; between San Diego and Oakland and San Jose; between Ontario and Oakland and San Jose; and between Palm Springs and San Francisco, San Jose and Oakland.http://www.departedflights.com, January 1, 1976, Air California system timetable route map
First failed PSA merger and sale Air California's initial financial performance was weak. In December 1969 it agreed to a merger with PSA, citing these results.Air Cal Board Accepts PSA Acquisition Offer, Air California Magazine, November 1969Air California OKs PSA Merger Despite Earlier Denial Air California shareholders approved the deal, but shortly thereafter, in May 1970, PSA withdrew from the deal, citing a "negative view" by the CPUC. Within a week, Air California's CEO had resigned, and a new buyer surfaced, Westgate-California Corporation (WCC).Air California Now Talking Deal with San Diego Company, Los Angeles Times, May 28, 1970 In June 1970, WCC acquired 60% of the carrier, which was approved by the CPUC on the grounds that Air California's future was in doubt.Westgate Takeover of Air California Allowed, Los Angeles Times, March 3, 1970 In July 1971, WCC pumped $2.5mm into Air California, buying shares that increased its stake to 81%.Air California Sells Common to Westgate, Los Angeles Times, July 1, 1971 Notably during this period Air California provided flight attendant training to Southwest Airlines during its startup phase.
+ Air California Financial Results, 1967 thru 1973 (US$000) 1967 1968 1969 1970 1971 1972 1973 Operating revenue 4,354 8,849 13,686 16,144 19,729 22,905 27,023 Operating expense 5,295 9,992 15,540 15,950 20,304 21,905 23,956 Operating result (941) (1,143) (1,854) 194 (575) 1,000 3,067 Interest (258) (616) (564) (596) (460) (376) (343) Pre-tax net (1,199) (1,759) (2,418) (402) (1,035) 624 2,724 Operating margin -21.6% -12.9% -13.5% 1.2% -2.9% 4.4% 11.3% Pre-tax margin -27.5% -19.9% -17.7% -2.5% -5.2% 2.7% 10.1%
WCC ownership was a mixed blessing. Its owner C. Arnholt Smith, was a powerful San Diego businessman and banker, as well as the owner of the San Diego Padres baseball team and United States National Bank of San Diego (USNB), largest bank in that cityFrom the Archives: October 19, 1973: City’s largest bank fails, San Diego Union-Tribune, October 19, 2018 and the 10th largest in California.A San Diego Empire, New York Times, May 14, 1972 He was also a close associate and donor of President Richard Nixon. Smith was highly controversial and was accused of self dealing, including enriching family members and associates through transactions involving WCC, USNB, and related entities, as well as making illegal campaign contributions.Self-Dealing Tycoon: How a Californian Uses Publicly Owned Firms to Aid Private Ventures, Wall Street Journal, April 16, 1969Tampering with Justice in San Diego, Life Magazine, March 24, 1972, p. 30 WCC made its first loss in 11 years, in 1971.$2.6 million Loss at Westgate Doubles Estimate by Smith, Los Angeles Times, April 4, 1972
There was one immediate benefit from WCC ownership: Air California was able to take its seventh 737, which was delivered to WCC and transferred to the airline in September 1970. An eighth aircraft was delivered in May 1971. During this period, the airline also expanded its service offerings, including introducing first-class ("Fiesta") service and adding flights to Palm Springs in 1969, followed by San Diego in 1970, though service to Burbank was suspended. In 1971, Sacramento was added to the network.
Second failed PSA merger, parent company bankruptcy and scandal
In mid 1972, WCC agreed to sell Air California to PSA.PSA to Acquire Air California Control From C. Arnholt Smith, Los Angeles Times, July 7, 1972 WCC told the CPUC that Air California showed no signs of making money and WCC would not further support it.Westgate Refuses to Prop Up Airline Further, PUC Told, Los Angeles Times, September 29, 1972 In February 1973 the CPUC approved the merger despite heavy opposition including from its own legal staff.PSA, Air California Merger Plan Called Illegal by PUC Staff, Los Angeles Times, November 21, 1972PUC Votes Approval of PSA's Purchase of Air California, Los Angeles Times, February 24, 1973 However the merger faced opposition from the US Department of Justice on anti-trust grounds.U.S. v. Pacific Southwest Airlines Inc. and Westgate-California Corp., Anti-Trust Division, Department of Justice, December 5, 1972 The combined airline would have had an 81% market share on the Los Angeles Basin to San Francisco Bay market, with an even higher market shares on individual submarkets.United States v. Pacific Southwest Airlines, 358 F. Supp. 1224 (C.D. Cal. 1973) These figures illustrate the extent to which California's intrastate carriers had displaced the far larger CAB-regulated carriers prior to deregulation.
However, in May 1973,Smith Assails S.E.C.'s Bid On Westgate Receivership, New York Times, July 23, 1973 the U.S. Securities and Exchange Commission sued to place WCC in receivership, citing serious malfeasance by Smith. At the same time outside auditors withdrew their certification of Air California's accounts for 1971 and 1972, as well as WCC1971 account.SEC News Digest, May 14, 1973 Trading in both Air California and WCC stocks was subsequently halted. Almost exactly a year after it had been announced, the PSA offer for Air California lapsed.PSA and Air California Merger Plan Dropped, Los Angeles Times, July 6, 1973 In October, USNB was seized by the FDIC, effectively undermining the foundation of Smith's empire and in February 1974, WCC filed for Chapter X bankruptcy.Westgate Former Key Company Of Smith, Plans Reorganization, New York Times, February 27, 1974 Under chapter X bankruptcy WCC operated under the control of trustees, who managed it in the interests of shareholders.Asa S. Herzog, The Chapter X Rules, 31 U. Miami L. Rev. 227 (1977) The bankruptcy dragged on for eight years, with WCC selling pieces of itself along the way, until it was finally liquidated in 1982.Final Chapter Written in Saga of Westgate, New York Times, May 6, 1982
Survival: the role of the California regulator