KIWI WINGS THROUGH SOME GROWING PAINS NEW MANAGERS TAKE CHARGE AFTER INVESTOR ROW

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Kiwi International Air Lines, reeling from a bloody coup that ousted co-founder Bob Iverson as chairman, CEO and president, is fighting to stay aloft.

The airline has prided itself on employee ownership since its September 1992 start-up by a group of former pilots. But most observers now agree Kiwi needs a cash infusion to survive.

A Kiwi board member said a deal with private investors could happen "any day."

Earlier this month, Kiwi dismissed Mr. Iverson and named a new chairman and president (AA, Feb. 13). Byron Hogue, 58, who retired from Federal Express Corp. as senior VP in 1992 and was one of that company's founders, was named chairman.

Danny Wright, 44, was named president. He remains president-CEO of Aviation Compliance Services, Atlanta, an aviation management company, and brings along specialists who will advise Kiwi.

Kiwi got off to a fast start because of its low fares and high service. Service from the Newark, N.J., base initially included Chicago's Midway Airport, Atlanta and Orlando, and expanded to include Tampa and West Palm Beach, Fla. The airline's cost per available seat mile is 7.5 (cents), on the low end of the industry range of 6.5 (cents) to 12 (cents) to 13 (cents).

In November, Kiwi also was honored as best domestic airline by readers of Conde Nast Traveler, and current ads, themed "America's best airline," tie into the award. Newspaper, spot and cable TV, radio, outdoor and travel trade publication ads from Gianettino & Meredith, Short Hills, N.J., tout Kiwi as "America's low cost, high service airline."

Kiwi plans to launch a new campaign within a month, but expects to stick with its agency, said Beth Mack, VP-sales and marketing.

While Kiwi has won plaudits, its growth was accompanied by problems.

"The original founders were all experienced pilots but their business experience was nil," said Russell Thayer, an independent aviation consultant who's a Kiwi board member. "They were trying to raise their own money and have no debt, but the company was getting too sophisticated ... The new management recognizes you can't keep 100% control and grow the company on its own."

Kiwi also ran into a public relations problem in December when its fleet of 13 leased 727-200s was grounded. The airline took the action on its own, but at the urging of the Federal Aviation Administration over claims of inadequate pilot training records.

The grounding cost $2 million, and speculation persists the situation contributed to Mr. Iverson's departure.

"It was a contributing factor. But not directly" the reason for Mr. Iverson's ouster, Ms. Beth Mack said. "When something like that occurs people must be held accountable. The president of the company in the end must be responsible."

She also said: "Our primary concern right now is to bring Kiwi back to profitability. All our routes and all our operations will be analyzed... We thought it was controlled growth. But it was too fast. Growth is painful, especially when you have to make money to finance that growth."

Mr. Iverson, 51, said he was dismissed because he attempted to bring in $7.5 million from an outside investor who would then control 51% of Kiwi. He described the potential investor as someone well known in the New York business community. The employee-owned company opposed giving up control, Mr. Iverson said.

Mr. Iverson said the company lost $16 million last year on revenues of $116 million, but Kiwi declined to comment.

Mr. Thayer said the board reacted negatively to Mr. Iverson's investor because "they were taking over too much of the company for too little money. Now the new management is making sure there are adjustments to the product, and they are talking to investors to get a cash infusion, but they are negotiating-obviously they want the most money they can get while giving up the least amount of control."

Ms. Mack said "Kiwi has sources of outside investment available to us now, but we need to fix the basic problems at Kiwi first and return to profitability and then bring in outside investment." She said Kiwi would get outside dollars "in a couple of months."

"Kiwi has renegotiated some contracts with vendors but, other than the renegotiations, no payments have been deferred or not been paid," Ms. Mack said.

Mr. Thayer said Mr. Wright, who has a management contract with Kiwi, may be president only temporarily. "He is a good president at the moment, I don't know if he will stay," he said.

There are reports by ex-employees that Mr. Wright and his consulting firm are being paid $125,000 a month by Kiwi. Kiwi's Ms. Mack wouldn't confirm the figure but said there are 17 individuals included in that management contract. By comparison, Mr. Iverson was paid $60,000 annually.

PaineWebber Partner-Transportation Group John Pincavage would only comment on Kiwi generally since he had no data on the privately held company. "What I think happened is that [employee] investors lost some confidence ... [In terms of Kiwi's survival] the question is how much cash do they have left and how fast is it going out the door."

"As a low-price, high-service airline, [Kiwi] seemed to be doing OK. The only argument is, did they have adequate capitalization to get through tough periods ... Everyone who starts an airline is trying to start one on a shoestring, but you can't do it," Mr. Pincavage said.

As to speculation that another airline could acquire Kiwi, it is unlikely, Mr. Pincavage said. Kiwi has no hard assets; it leases everything. "If I were an airline and an acquirer, it would make more sense to not deal with [Kiwi's] problems. I'd let them come to whatever end they come to and then I'd come in at the end and get the landing gates or whatever," he said.

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