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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.
At the time, all significant US airlines but one were tightly regulated by the Civil Aeronautics Board (CAB), an agency of the Federal government. PSA was the exception, its intrastate status made it exempt from CAB oversight. 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 designed to be like PSA but centered on Orange County. Air California was incorporated on 12 April 1966 OpenCorporates 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.
In October 1967, Air California took delivery of two more Electras, for a total of four. Air California Chief Promises to Expand, Santa Ana Register, May 25, 1967 San Jose and Oakland were added. In 1968, the airline added two DC-9s to the fleet, but by year end both the DC-9s and the Electras had been phased out in favor of six 737-200s. Ontario and Burbank were added. Air Service and Debate Grow at County Airport, Los Angeles Times, April 8, 1968 Air-Cal now All Jet; Electras Served Well, Santa Ana Register, Dec 25, 1968
In April 1971, Air California provided flight attendant training to Southwest Airlines during its startup phase.
| + Air California Financial Results, 1967 thru 1973 ! (USD 000) !! 1967 !! 1968 !! 1969 !! 1970 !! 1971 !! 1972 !! 1973 |
WCC ownership was a mixed blessing. WCC's owner was C. Arnholt Smith, a powerful San Diego businessman and banker, owner of the San Diego Padres baseball team, a close associate and funder of President Richard Nixon and owner of the United States National Bank of San Diego (USNB), largest bank in that city From 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 Smith was highly controversial, accused of lining the pockets of his family and friends through self-dealing (including with WCC, USNB and others) of making illegal campaign contributions, and more. Self-Dealing Tycoon: How a Californian Uses Publicly Owned Firms to Aid Private Ventures, Wall Street Journal, April 16, 1969 Tampering with Justice in San Diego, Life Magazine, March 24, 1972, pg 30 WCC made a loss, its first 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, delivered to WCC and turned over to Air California in September 1970. The eighth was delivered in May 1971. First-class ("Fiesta") service and Palm Springs made their debut in 1969, San Diego in 1970, though Burbank was suspended. In 1971, Sacramento was added to the network.
But then, 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 on the grounds of serious malfeasance by Smith, plus the outside auditors withdrew their certification of Air California's accounts for 1971 and 1972, and those of WCC for 1971. SEC News Digest, May 14, 1973 Trading was halted in Air California and WCC stocks. Unsurprisingly, almost exactly a year after it had been made, 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, knocking out the foundation of Smith's empire. In February 1974, WCC filed for Chapter X bankruptcy. Westgate Former Key Company Of Smith, Plans Reorganization, New York Times, February 27, 1974 Chapter X bankruptcy was eliminated in a 1978 bankruptcy reform, but under it, 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 Therefore, from 1974 until it was sold in 1981, Air California was in the odd situation of being owned by a bankrupt company run by trustees rather than conventional management.
Air California was unprofitable for the first five years (though it broke even on an operating basis in 1970; see table) and CPUC regulation was critical to its survival. In 1969 the CPUC said "From the beginning we have recognized the need to protect Air California from destructive competition, at least until it becomes a viable operator." This took four forms: (i) CPUC ensured that other than some minor routes, Air California did not compete with PSA, leaving the carriers with largely non-overlapping route networks. This left Air California free to concentrate its energies on competing with CAB carriers on its routes, which had higher costs. (ii) The CPUC approved higher airfares for Air California than for PSA was authorized on similar routes. (iii) The CPUC stopped the further new entry of intrastate airlines. (iv) in at least one case, the CPUC restrained PSA growth with the explicit goal of helping Air California. In fact, from 1965 onward, the CPUC certified only one other carrier, Holiday Airlines, which for some reason chose to fly only to Lake Tahoe.
In February 1975, Holiday Airlines collapsed, with Air California and PSA both getting emergency CPUC authorization to back fill for Holiday at Lake Tahoe Airport, which the CPUC required be flown with Electras. Airlines To Serve Tahoe Area, Petaluma Argus-Courier, February 20, 1975 Air California acquired three.
In October 1980, Air Florida announced it had purchased interests in the to-be-reorganized WCC from two WCC creditors. Air Florida Moves to Acquire Westgate, Parent of Air California, Los Angeles Times, October 22, 1980 This kicked off a bidding war for post-reorganization WCC, which Air Florida ultimately won in November for $47mm. Air Florida buys Air California, Sacramento Bee, November 15, 1980 WCC at the time owned only Air California, plus a Puerto Rican tuna cannery, but Air Florida would have to wait until WCC completed its reorganization and in the meantime, the WCC trustee was still in charge, with a mandate to get the best deal for WCC investors. The losing bidder in the WCC auction thus bid for Air California at a price that would give a better return for WCC investors. And when the dust settled on that auction in May 1981, the new group won, with a bid of $61.5mm, $57.5mm of which was financed by Wells Fargo. Successful Builder Pilots AirCal Through Turbulent Times, Los Angeles Times, February 5, 1984 This was AirCal Investments, a vehicle for two Orange County real estate developers, William Lyon and George Argyros. WCC's trustee didn't bother to hide his satisfaction with the outcome. He preferred local ownership. He had been angered by the surprise bid by Air Florida to buy WCC, had in fact put Argyros and Lyon together in the first place, when each had separately inquired. AirCal Gets More Financial Muscle but Faces Stiffer Competition, Too, Los Angeles Times, May 19, 1981 Risk Pays Off For AirCal Owners, Los Angeles Times, Nov 18, 1986
The airline that Lyon and Argyros bought came, as of April 6, 1981, with a new name (AirCal) and a new image. Landor Associates did the new livery, Mary McFadden did the new uniforms. AirCal: a new name, a new image, San Francisco Examiner, March 16, 1981
There was another factor: AirCal was squeezed at its SNA base, its historic source of profits. From 1970 to 1985, SNA capped daily average jet departures to 41/day, History of the Orange County Airport, Los Angeles Times, January 31, 1985 with AirCal having 27 during the duopoly period that ended 1980. But the FAA insisted other airlines be accommodated. As other airlines entered, incumbent frequencies were cut to accommodate them. AirCal was the biggest incumbent, so was the biggest victim; AirCal’s average daily SNA frequencies dropped over the course of several years from 27 to 12.5. Employees of AirCal Take Case to Court, Los Angeles Times, July 28, 1983 PSA Charges Favoritism, Seeks Writ to Block AirCal, Los Angeles Times, March 22, 1986 Many airlines wanted a piece of SNA and were even willing to buy MD-80s (then the quietest narrowbody available) to do so. For instance, Frontier’s decision to get MD-80s was SNA-driven. Frontier to Add DC-9 Super 80s to Keep Place at Wayne Airport, Los Angeles Times, March 7, 1981
AirCal came close to failure, but was saved by a combination of cost savings, with substantial layoffs, a 10% wage reduction for those who remained, a realignment of its route network, concentrating on increasing frequency on important routes like LAX to San Francisco. Entrepreneurs Lot Not So Hot, Symposium Told, Los Angeles Times, October 30, 1985 Lyon took over the CEO position himself. During this period, the historic Hughes Airwest network was being eliminated, as Hughes successor Republic withdrew from the west coast. Western Airlines intrastate service was also shrinking. AirCal was also substantially recapitalized, with the combination of an initial public offering with Lyon & Argyros converting debt they’d loaned the airline into equity. This relieved the airline of a substantial debt load. AirCal Seeks Approval for 1st Public Offering, June 24, 1983
In the fourth quarter of 1985 the string of profits was upset due to the entry of Continental West into California. AirCal’s Net Jumps 9% Despite 4th-Quarter Loss, Los Angeles Times, February 20, 1986 Continental West was a short-lived Texas Air subsidiary created to take delivery of aircraft due to limits placed on Continental by its bankruptcy judge. New airline planned by Texas Air Corp., Fort Worth Star-Telegram, March 21, 1985 Additional capacity cratered west coast fares once again, leading to 1986 being once again unprofitable. In June 1986, AirCal created a holding company for the airline, ACI Holdings. AirCal Shareholders OK Holding Company, Los Angeles Times, June 20, 1986
In November 1986, AirCal accepted a purchase offer from American Airlines for $225mm, $90mm of which would be split by Lyon & Argyros. American was in the midst of a hub expansion program, then building new (now defunct) hubs in Raleigh, Nashville and San Juan. Building a west coast presence from scratch at the same time was considered a bridge too far for American, so it bought rather than built. Another factor was that Frank Lorenzo's Texas Air was also interested and American was eager to block it. AirCal had achieved a 1985 market share on the LA Basin to SF Bay corridor market of just under 33%, second to PSA which had just less than 49%. AirCal had expanded up the coast to Canada and Alaska and as far east as Chicago with a fleet of 39 aircraft. American to Purchase AirCal for $225 Million, Los Angeles Times, November 18, 1986 American’s purchase closed May 1, 1987 and AirCal was merged out of existence on July 1. United Airlines to Begin County Operations Sept 9, Los Angeles Times, May 21, 1987 AirCal Fades Into Orange County History, Los Angeles Times, July 2, 1987 AirCal's long-time rival, PSA, was likewise swallowed by US Airways.
In April 1967, Air California was operating 48 nonstop Lockheed L-188 Electra propjet flights a week from Orange County (SNA) to San Francisco (SFO). It added Orange County (SNA) to San Jose (SJC) and Oakland (OAK) flights around the beginning of 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, Jan. 1, 1976, Air California system timetable route map
The successors of PSA and AirCal, USAir and American, raised prices, reflecting their higher costs. In early 1990, the last-minute roundtrip fare from Los Angeles to Sacramento was $456, over $1000 in 2024 dollars. State legislators were increasingly irate, finally proposing a raft of bills to punish the carriers, even suggesting a state-owned airline. 6-Bill Package Seeks to Lower State Air Fares, Los Angeles Times, February 28, 1990 They didn't notice that the market had already taken care of the problem. United Airlines had already announced an increase in frequency on Los Angeles to San Francisco from 16 to 27 per day. United Plans Sharp Boost in Number of L.A.-S.F. Flights, Los Angeles Times, January 23, 1990 More to the point, Southwest Airlines had announced it was entering Burbank with 10 a day service to Oakland at a last-minute fare of $59 one way, $29 in advance. Southwest expanding Oakland flights, Oakland Tribune, February 1, 1990
The resulting Los Angeles Basin to San Francisco Bay fare war was brutal, made worse when Iraq invaded Kuwait thereby spiking oil prices, collapsing demand for international travel and tipping the US into the Gulf War. In January 1991, in announcements only two weeks apart, American and then US Air gutted the former AirCal and PSA systems, throwing in the towel less than five years after offering to buy the former intrastate airlines. US Air to Cut Most California Flights, Los Angeles Times, January 26, 1991
Despite this, in the case of PSA its indirect legacy is substantial because it was the inspiration for Southwest Airlines, and thus PSA is generally viewed as the original low-cost carrier. Air California/AirCal can't make the same claim. In fact, there's a good case to be made that Air California only survived to be sold to Lyon & Argyros because of regulation. Air California was a product of the post-1965 CPUC and the Orange County duopoly, and thus not a good argument for deregulation.
That makes AirCal's success under Lyon and Argyros even more anomalous. The chance that two Orange County real estate barons, airline industry outsiders, could buy an apparently healthy airline, have it immediately fall on hard times, but quickly turn it around and make a success of it during one of the most turbulent eras in US airline history would seem rather slim. But that's what happened. And then they had the good sense to sell the airline at a healthy profit (since it appears that the vast majority of their purchase money was funded by a loan from Wells Fargo) and apparently never again dabble in airlines. They might have had the single greatest return on investment of any airline owners in the 1980s, and yet this part of US airline history is little known.
In 2015, American Airlines added to its heritage livery series a AirCal Boeing 737-800.
On June 5, 1986, an AirCal 737 flying from Los Angeles to Portland came within 100 feet of a private plane before the AirCal pilot banked to avoid a collision. No crew or passengers were injured during the incident.
| + Air California fleet | ||
| BAe 146-200 | 6 | All were transferred to American Airlines and later retired in 1990. |
| Boeing 737-100 | 2 | All were transferred to American Airlines and later retired in 1988. |
| Boeing 737-200 | 21 | All were transferred to American Airlines and later retired in 1991. |
| Boeing 737-300 | 8 | All were transferred to American Airlines and later retired in 1992. |
| + Air California retired fleet | ||||
| Lockheed L-188 Electra | 7 | 1967 | 1980 | |
| McDonnell Douglas DC-9-14 | 2 | 1968 | 1969 | Leased from McDonnell Douglas. |
| McDonnell Douglas MD-81 | 2 | 1981 | 1986 | |
| McDonnell Douglas MD-82 | 6 | |||
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