Download now: The Downfall of Cable, and the Rise of 5G!

Buy a New Airline for Two Cents

A look at Baltia Airlines

Written by Briton Ryle
Posted December 3, 2014

The airline industry has at least two strong tailwinds keeping it aloft at the moment: interest rates at their lowest levels in decades which help cut financing costs for their planes and operations, and fuel prices that are at their lowest levels in years which help reduce the largest single operating cost after employee wages.

Investors in the space have seen their returns soar in recent years, with annual gains ranging from 400% to as much as 1,600% since the economic recovery began 5.5 years ago. Yet now there is a new comer to the group which can still be purchased for just two pennies a share. Should we buy this one before it takes off into the stratosphere like all the others have done?

Buying a Jumbo Jet for 2 Pennies

The newest airline in the U.S. is in the final stages of certification, and its stock is almost cleared to take off.
Baltia Air Lines Inc. (OTC: BLTA), headquartered in Jamaica, New York (a district of Queens), at present still a development stage company, has won the exclusive right to fly the only direct, non-flight service between New York and St. Petersburg, Russia. Exclusive, non-stop routes are a big deal in the world of aviation.

As the company revealed in its most recent SEC filing on November 19th:

“Baltia intends to provide full service, i.e. passenger, cargo and mail… Only U.S. airlines and Russian airlines are permitted to fly nonstop between the two countries. Currently no U.S. or Russian carrier is providing non-stop service between New York and St. Petersburg. Connecting service is provided mainly by third-nation carriers individually and in code shares with U.S. carriers… As third-nation carriers, each must make an intermediate stop in its respective country (Helsinki, Frankfurt, Stockholm, Copenhagen, etc.). Delta and two Russian airlines, Aeroflot and Transaero, currently operate non-stop between JFK and Moscow. With the exception of the JFK-Moscow route, there exists no non-stop competitive air transportation service on the routes for which Baltia intends to apply.”

As far as direct, non-stop service from JFK to St. Petersburg goes, Baltia will have a protected monopoly. “With non-stop service, a passenger can fly from JFK to St. Petersburg in about 8 hours… Cargo arrives containerized, palletized, and secure,” the company extols its virtues.

By contrast, on “foreign, stop-over journeys with stop-over service, it would take a passenger 10 to 18 hours to fly through Helsinki, Copenhagen, Moscow, or Frankfurt on a foreign carrier... Cargo is broken up and manually loaded onto narrow-body aircraft, or trucked from Helsinki.”

On such a lengthy journey, you can bet passengers will be willing to pay a little premium for the convenience and speed of a direct flight, giving Baltia a lot of flexibility to bilk a few extra dollars for each seat.

And just how many seats will it have? To start, just around 500 or so, given that it has only one airplane. But it anticipates a lot of demand, and if all it can afford is just one plane, it may as well go with the biggest – a Boeing Jumbo 747.

As the company outlines in its SEC filing: “In the last quarter of 2010, we purchased a Boeing 747 aircraft from Kalitta Air. On October 23, 2014, the final C4 check was completed and the B747 aircraft passed inspection. Baltia carries $100,000,000 aircraft liability insurance, generally ground only, of which $10 million is through State National Insurance Co. and $90 million through Lloyds of London. Baltia is in the process of adding flight risk insurance of one billion dollars US ($1,000,000,000) prior to initiating flight. The Company will carry airline liability insurance as required for a US airline by DOT regulation.”

That may seem like a great deal of time from the purchase of the plane in 2010 to its recent C4 check six weeks ago. But the company has been slowly gearing itself up for a very long time:

• 1989: Baltia Air Lines, Inc. was organized in the State of New York on August 24, 1989.
• 2007: Baltia filed its application with the U.S. Department of Transportation (DOT) in October 2007.
• 2009: On January 5, 2009, in its Order 2009-3-7, the DOT certified Baltia Air Lines as fit, willing and able to engage in foreign scheduled air transportation of persons, property, and mail, subject principally to obtaining an Air Carrier Certificate and Operations Specifications from the Federal Aviation Administration (collectively "FAA certification").
• 2009: In the DOT certification, Baltia was awarded route 890 from JFK International Airport, New York, New York to Pulkovo International Airport, St. Petersburg, Russia.
• 2010: In the last quarter of 2010, Baltia purchased a Boeing 747 aircraft from Kalitta Air.
• 2014: On October 23, 2014, the final C4 check was completed and Baltia’s B747 aircraft passed inspection.
• 2014: On December 1, 2014, Baltia Air Lines announced that the IATA (International Air Transport Association) has assigned Baltia the two-letter designator "BQ", while the ICAO (International Civil Aviation Organization) has assigned it the three-letter designator "BTL" and the telephony designator "Baltia Flight".
• 2014: On December 2, 2014, Baltia Air Lines announced it has engaged 121 Inflight Catering LLC as its catering provider.

Baltia is currently in Stage 3 of FAA Air Carrier Certification, which is the final stage and includes demonstration flights. Upon completing FAA certification Baltia will be authorized to operate worldwide charter services.

Investors’ Ticket to Ride

While passengers looking for a lift to St. Petersburg may have to wait a little while longer before they can purchase their ticket to ride, investors looking for a lift to their portfolio have a ticket readily available in Baltia’s stock right now.

How many times have we looked a graph like the one below detailing the stratospheric rise of airline stocks over lthe past 5.5 years since the economic recovery began and kicked ourselves for not having climbed aboard?

baltia airlines chart 1

Source: BigCharts.com

Well now investors may just be getting the change of a decade to get in on the ground floor of a success story that is just about to reach for the sky. With shares trading at just 2 pennies each, investors can score returns of 850% just with a rise up to its all-time high of 17 cents. And if it reaches a dollar, investors would clear a stellar 5,000%.

baltia airlines chart 2

Source: BigCharts.com

Investors Grounded For the Time Being

Of course the airline isn’t making any money right now. In fact, it’s burning through it at a pretty bad rate.
“Since our inception,” the company reported in last month’s SEC filing, “we have incurred substantial operating and net losses, as well as negative operating cash flows. As of September 30, 2014, our working capital deficit was $2,705,641 and our stockholders' deficit was $1,542,374. Our stockholders' equity balance at September 30, 2013 was $461,365, compared to the $1,542,374 stockholders' deficit reported as of September 30, 2014, an increase in stockholders' deficit of $2,003,739.”

Hence the steadily eroding stock value as shareholder equity is being used to pay for the company’s preparations.

“Our operating activities utilized $6,874,998 in cash during the nine months ended September 30, 2014, an increase of $3,549,267 from the $3,325,731 in cash utilized in operating activities during the nine months Ended September 30, 2013.”

But they are managing to locate the cash as they need it:

“For the nine months ended September 30, 2014 and 2013, our financing activities provided cash of $7,472,038 and $3,408,014, respectively, primarily from the sale of our common stock. Our unrestricted cash balance decreased to $29,566 at September 30, 2014 from $54,591 reported at September 30, 2013.”

It may take a while for the airline to become profitable. But in the opening year, just the start of cash flows into the company’s coffers will be enough to provide its stock with a good deal of lift. For just two pennies you can’t even buy a bubble gum these days.

Joseph Cafariello

Buffett's Envy: 50% Annual Returns, Guaranteed