More Trouble for Capital

The nation's fifth biggest and least profitable airline moved another step closer to the time when it will either have to solve its financial woes or turn in its wings for good. To Capital Airlines last week went formal notice that the Civil Aeronautics Board will launch a full-scale investigation into the line's affairs, its unpaid $33.8 million mortgage debt to Britain's Vickers Ltd. for 60 Viscounts, and its mounting losses, which total $5,400,000 for 1960's first quarter, v. $936,878 in 1959. The study will consider whether to merge the line with another carrier, suspend all or part of its routes, or transfer some or all of its routes to another line.

CAB & the Management. CAB gave Capital 45 days to file a reply. From the sound of things at Capital's annual meeting last week, the answer is likely to be a familiar one: to blame CAB for its troubles, demand a subsidy to stay in business. Said President David H. Baker to 200 worried stockholders: "Capital's route system is a creature of CAB." And he went on to complain about Capital's unprofitable short-haul runs (average length: 255 miles), its inability to boost fares or to drop marginal stops. Added Capital's biggest stockholder and chairman of the executive committee, Washington Lawyer Charles Murchison: "We have in mind getting out of 19 cities, if CAB would approve."

What no one mentioned was that Capital itself had fought its way into every city on its route--and therein lies the airline's major problem: its own management. By buying the wrong equipment, pushing its debt too high, expanding without careful study, Capital has been in competitive trouble for years and usually looked to CAB for help. The last time was in 1958, when CAB bailed out Capital by giving the line access to the lucrative Florida market, with a run from Buffalo. Cleveland, Pittsburgh, to Jacksonville and beyond. Object of the move: to keep Capital off subsidy for all time. Yet the line could not make the long-haul run pay off. Its year-round traffic estimates were too optimistic: its stations in four Florida cities cost more than they were worth, and it failed to push coach service, stuck to an 80%-20% first-class-tourist ratio while its competitors reaped the benefits of mass travel. The company's one small nod to economy last week: a 10% cut in salary for 18 top officers, for a saving of $40,000 a year, or about 1 10 of 1% of Capital's debts.

In the Public Interest? This week Capital will file a formal petition arguing that CAB has a mandate under law to hold the airline together for a "useful purpose in the public interest and necessity,'' i.e., to give it another subsidy. Outside of bankruptcy, one obvious possibility is merger with other airlines. Both Delta and Northwest could use sections of Capital's routes, but the big carriers are sitting it out until Capital clears up its lawsuit with Planemaker Vickers and settles its management troubles. Among other things, Stockholder Murchison has been trying to oust Capital's Chairman George Hann, 71, and take over for himself (TIME, April 25). At last week's meeting. Chairman Hann stepped down. Yet Murchison was apparently unable to convince the other members that he is the man to manage Capital. At week's end, the chairman's job was still vacant.

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