California Pacific Airlines wants to raise up to $11.5 million by selling a 50% equity stake in the start-up carrier to local Southern California investors.
The Carlsbad, California-based carrier plans to sell 600,000 shares at $9.20 per share on a first-come-first-serve basis and an additional 600,000 at $10 per share through a private placement managed by Stephens, according to a memorandum filed with the US Department of Transportation (DOT) on 24 July. This is equal to 50% of the company.
About $7.5 million of the proceeds would be used for expenses related to obtaining final certification from the US Federal Aviation Administration (FAA) and DOT, with about $1.5 million going to aircraft acquisition.
The FAA restarted its part 121 certification review of California Pacific in June after suspending it twice before for various reasons. The review is being conducted by the agency's Los Angeles field standards office.
California Pacific now anticipates starting service in the fourth quarter - or fall - of this year, according to the memorandum. It originally intended to begin flying in late 2010.
The memorandum sheds light on the airline's strategy once operations commence. It has long said that it plans to begin with flights to cities in California, Las Vegas, Phoenix and San Jose del Cabo but points to Mexico as where it sees the most growth in the future.
"These routes represent an excellent opportunity for expansion of CP [California Pacific] Air in the years ahead," says the memorandum, citing an anticipated 3% annual growth rate on routes to Mexico. This compares to an about 1% annual growth rate on "mature" routes in California and the western USA.
A "phase three" route map shows nonstops from California Pacific's Carlsbad's McClellan-Palomar airport base to Acapulco, Culiacan, Guadalajara, Ixtapa/Zihuatanejo, Manzanillo, Mazatlan, Mexico City, Monterrey, Puerto Vallarta and San Jose del Cabo in Mexico as well as additional routes in the western USA.
The memorandum also identifies Southwest Airlines as the carrier's "largest competitor" and outlines an advertising campaign where it hopes to avoid direct comparisons to the Dallas-based low-fare carrier.
California Pacific optimistically anticipates a net profit during the second full year of operations, in its financial predictions in the memorandum.
The airline more realistically lays out some of the biggest issues facing it in the risk factors section of the memorandum. These include the fact that McClellan-Palomar airport has never supported significant commercial airline flights previously, high fuel costs and the fact that its chairman and founder Theodore Vallas is 92 years old.
California Pacific plans to fly 70-seat Embraer 170s, and has already acquired two used aircraft under leases from the Brazilian airframer.