CONMAN POSSINO EVEN USING DTC ANGLE->L-AIR HOLDING, INC. (OTCBB: LAIR), Part II – AU REVOIR FRANCE, BONJOUR BELGIUM
February 17, 2003
These would seem to be discouraging times for the airline industry. A poor economic climate, rising fuel costs, and the after effects of September 11, 2001 have created a crisis for many carriers. So why would anyone want to get into the airline business just now? L-Air Holding, Inc. (OTCBB: LAIR) seems determined to get up and flying. The Company already has something in common with operating airlines – money problems. As of August 31, 2002 L-Air had no cash, and there is no sign that it has become financially sound in recent months.
Still, as we saw in Part I of this series, in October 2002, L-Air announced its plan to acquire an interest in a French-based regional airline. That deal was terminated in February 2003, but the Company still clings to its dreams of a future in aviation. What’s next for L-Air? If it’s February, this must be Belgium.
An Airline Sprouts in Brussels
If at first you don’t succeed, fly, fly again. At least that seems to be the approach adopted by L-Air. On February 11, 2003, the Company announced that it had entered into final negotiations for 49% of Brussels, Belgium-based Belgium Universal Airline. The Company’s press release stated that all necessary steps had been taken to secure an “Air Operating Certificate” from Belgian aviation authorities.
But just what was the Company obtaining? Did Belgium Universal Airline have any assets – other than its name? The press release provided few details, and the Company has yet to file a Form 8-K or audited financial statements relating to the proposed acquisition.
According to the February 11th announcement, the airline would commence operations in April 2003, utilizing management and flight personnel from Belgium’s defunct national airline, Sabena, including a former Sabena pilot identified as Raymond Nicholai. L-Air did not indicate who would own the remaining 51% of the carrier, although it explained that the majority interest would be held by Europeans, in order to comply with existing requirements for European-based airlines.
Plans for the airline appear to be ambitious. According to the February 11th press release, the airline will operate a fleet of five Airbus 340-300 aircraft with First Class, Business Class and Economy sections, serving destinations in Asia, Middle East, Africa, USA, Canada, Caribbean and Europe. The Company claims its planes will have various amenities, including state of the art video and audio systems.
But while creature comfort and amenities are an admirable goal, and diverse routes sound appealing, there is no indication that the Company, or Belgium Universal Airline, presently owns or leases any aircraft – of any configuration. Indeed, we have been unable to find any sign that Belgium Universal Airline is an existing, operating air carrier, operating commercial planes, employing air and ground personnel, or maintaining a presence at any airport terminal.
The Company believes it can establish a niche as a small carrier servicing long-haul routes with low maintenance aircrafts. To support that view, it notes that “commitment to cost efficiencies and customer satisfaction is at the core of its business model, just like JetBlue” and other small regional services. The Company’s Internet site declares that L-Air is “destined to become the ‘JetBlue’ of Europe.”
Still, L-Air has not addressed critical problems that may confront this enterprise – starting with the Company’s lack of capital. As we noted previously, at last report L-Air had no money. Compare that with JetBlue. By the time it went public, Jet Blue was operating 108 flights per day and serving 19 cities. It maintained a fleet of new aircraft, and had raised $175 million in private equity transactions before its $165 million Initial Public Offering.
On the other hand, so far the Company has generated nothing but L’Air.
All’s Fare
On February 13, 2003 L-Air issued a press release announcing that Belgium Universal Airline had entered into an agreement to operate a weekly flight for a Belgian tour operator called VGAA.NV. The flight would travel from Brussels to Los Angeles, with stops in Yeravan, Armenia and Lyon, France.
The Company projected that the flights would generate revenues of $18 million a year, at a rate of $360,000 per week. It said that it had finalized negotiations to lease two Airbus A340-300 airplanes from an unnamed “major manufacturer,” and planned to start flying as soon as it received approval from the Belgian authorities.
Is this consistent with the Company’s commitment to “cost efficiencies?” A typical Airbus A340-300 airplane seats roughly 250 to 300 passengers. A full plane, carrying 300 passengers, would have to charge an average of $1,200 per person in order for the Company to receive $360,000. Of course, the per passenger cost will be even greater since this does not include the tour operator’s profit. As a practical matter, is VGAA.NV likely to fully book a plane each week, at these costs? How much will it cost the Company to operate each flight, lease the planes and purchase fuel? None of these questions are addressed in the February 13th press release.
Plenty of Partners
So far, the Company has not demonstrated any ability to raise sufficient funds to operate its business. It has, however, managed to find the means to promote its latest plans. On February 5th the Company issued a press release announcing that it had retained a company called Geneva Equities Ltd. to develop investor awareness and “contribute to funding, analyzing, structuring, negotiating and financing business acquisitions, joint ventures, alliances and other desirable projects of great value to the Company and its shareholders.”
The press release claimed that the relationship with Geneva Equities would “facilitate” the Company’s ability to raise the financing necessary to finalize its latest acquisition. It did not indicate how this might be accomplished. Nor did it identify any of the individuals involved with Geneva Equities, explain how the Company had developed the relationship, specify how Geneva Equities would be compensated for its services, or say where this new business partner was located. We were unable to find any details about Geneva Equities, although we did learn that a business using that name sought office space in Santa Monica, California in September 2002.
The Company also has referred to its relationship with a Toronto, Canada-based company called Universal Capital Partners (UCP). In its February 11th press release, the Company said that UCP was negotiating the acquisition of Belgium Universal Airline. It also identified UCP as the Company’s single largest shareholder.
That information seems to be at odds with the Company’s previous public disclosures. According to documents filed with the SEC, there were approximately 22.3 million shares of common stock outstanding as of August 31, 2002. Publicly filed documents indicate that the Company’s President, Alex Goldman of Toronto, Canada, is L-Air’s largest shareholder, with 15 million shares. He acquired that stock from his predecessor as president, Robert Rosner, in September 2002.
Stock Patrol readers may remember Robert Rosner as the President, Chairman of the Board, and largest shareholder of Money Club Financial, Inc., another struggling over-the-counter company with grand plans and virtually no cash. See Money Club Financial, Inc. – Money Business or Monkey Business?
And what is Universal Capital Partners? UCP is an investor relations firm located at 130 King Street West, Suite 3670, Toronto, Canada – the same office address and suite occupied by L-Air. UCP, L-Air, and Belgium Universal Airline also share a common telephone number.
UCP’s business, according to information we found on its website, is to help clients increase their profile with brokers, institutional investors, and the general public. In other words, the entity identified as the Company’s largest shareholder is in the promotion business.
The UCP website identifies two of the firm’s clients, one of which is L-Air. It does not, however, indicate that UCP owns L-Air stock. Is Alex Goldman associated with UCP, and if so, in what capacity? The UCP website does not say – and fails to identify who controls or manages that entity.
L-Air may welcome its associations with UCP and Geneva Equities, but the Company says that there are some relationships it wishes to sever. On October 30, 2002, L-Air announced that it had amended its Articles of Incorporation to prohibit its transfer agent from registering common shares in the names of the Depository Trust Company (DTC) or other securities clearing houses. DTC is the world’s largest securities depository, and provides a clearinghouse for the settlement of transactions.
The Company claimed that it was taking this action in order to force short sellers to cover their positions by purchasing shares in the open market. Theoretically, if shares held by DTC were distributed to brokerage firms, the brokers would discover that there were fewer certificates than shares outstanding, and could demand that investors buy stock to cover their short positions. It is not clear, however, that there has been significant naked short selling of the Company’s stock, or that the Company can circumvent the securities clearinghouses like DTC.
Investors Respond
If increasing investor interest was a goal, the Company certainly succeeded with its string of recent press releases. Those announcements may not establish that Belgium Universal Airline is an operating venture, or explain how a cashless company can finance an airline, but they apparently have generated activity for L-Air stock.
L-Air shares, which closed at 16 cents on February 6th (the day after the Company rescinded its plans for a French regional air carrier) soared to 22 cents a share on February 11th, the day the Company disclosed plans to acquire a piece of Belgium Universal. Share prices rose to 25 cents on February 13th, the day the Company announced its agreement with VGAA.NV. Once again, investors were content to purchase stock based upon minimal details of a vaguely defined relationship.
Volume has been increasing as well – from just 7,500 shares on February 5th to 474,300 on February 10th, 532,500 on February 11th and more than 1 million shares on February 13th.
For investors, the principal questions remain. Will there be a functioning airline? Where will it fly, and how will it pay the bills?
In other words, will the Company and its public shareholders be flying high or will Belgium Universal, and L-Air, be another aero-flop?
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