The Crash Of Pti

Relentless optimism fueled Professional Travel's takeoff, then sent it into a tailspin -- and federal bankruptcy court.

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By 4:30 in the afternoon of Friday, July 8, 1983, Bill Klingener wanted nothing more from work than to pack it in and go home. Executive vice-president of Professional Travel Inc. of Louisiana (#148 on this year's INC. 500), in Atlanta, he had been working for months to keep a host of troubles at bay -- overexpansion, undercapitalization, and, finally, in these recent summer days, impending bankruptcy. Now, as the Independence Day week came to an end, he thought the fight was over. Just one hope remained: PTI would have to file for protection under Chapter 11 of the Federal Bankruptcy Act before Fastern Airlines, the company's major creditor, could repossess the three Boeing 727 airliners that were PTI's major hard assets.

Timing was crucial; as a debtor in possession, there would be an outside chance that PTI could use the planes to fly its way out of its financial woes. The filing, however, wasn't Klingener's responsibility. James L. Shaw, PTI's founder, chief executive officer, and chairman was working with the company's attorney to make sure that the necessary papers were drafted and filed before the weekend.

When Shaw dropped by with a status report, it wasn't the one Klingener was expecting. Shaw needed a favor. He hadn't been able to reach the lawyer.The whole Chapter 11 filing was still up in the air. No big thing -- but could Klingener and Sheila M. Johnson, corporation controller and the second member of Shaw's backup crew, make a few calls on Monday and see about getting the bankruptcy under way? Shaw was leaving for the Virgin Islands on Sunday and wouldn't be back for a week. "I'll have to leave it to you guys," he said as he dashed off.

The story of the rise and fall of PTI is a common one among small, fast-growing businesses. Created out of one man's vision of vertical integration and total control of the travel experiencc, the company started in 1977 with one suburban travel agency and three employees. By 1982, PTI's sales had increased 1,109%; the company had grown to five retail travel agencies, two retail affiliates, a wholesale tour company, and a charter airline, with 90 employees and aggregate unaudited sales of $16 million. Fueling this growth was Jim Shaw's relentless optimism and his single-minded expansionist fervor -- the characteristics that also mired the company in accounting inefficiencies, internecine squabbles, and, ultimately, the cashflow calamity that led to its downfall.

On Tuesday, July 12, Eastern repossessed the jets, destroying Klingener's last hope. The next day, the PTI Chapter 11 finally was filed. The day his airline crashed, the captain was in St. Thomas -- not on a personal vacation, but as leader of a "familiarization trip" for new PTI travel agents. By the time the promotional tour ended on Sunday, however, there was little left to promote.

Jim Shaw came to PTI with a solid apprenticeship in the travel and airline industries -- and an impressive number of lucky breaks. In the late 1960s, while still a college student, Shaw was recommended by a family friend for a summer job in the baggage department of Continental Airlines. Casually undertaken as a way to earn pocket money, the job would turn into a five-year commitment, and the chance for Shaw to parlay his baggage-department and ticket-counter experiences into a marketing position with the then newly reorganized Texas International Airlines. In 1973 Shaw joined TI as a sales representative. In 1975, the 27-year-old Shaw was sent to run the New Orleans district. He was the youngest district manager in the company's history.

Shaw discovered his future business mode by chance. In the course of routine reading, he stumbled upon an article on vertical integration as a management and marketing concept. Although it would be months before he would make an overt move, his course was set.

"Vertical integration in the travel industry makes total sense," he says today. "If you've got a travel agency and a customer wants to go to Mexico, you find him a good trip, you sell him his tickets, he walks out the door, and that's the last you're going to see of that customer until he wants to take another trip. The guy's vacation hasn't even started and you've just lost control of the whole thing. And how much of that customer's vacation dollar have you got? Not a lot.

"So now -- vertical integration -- you say to yourself: What if you can do it all? What if you've got not only the travel agent, but the wholesaler and the airline and the hotel? Now you can control the quality of almost every minute of that customer's trip -- you can virtually ensure that nothing is going to go wrong from beginning to end and that you can do something about it if it does. And I'm a real stickler for quality and responsibility."

Bill Klingener wholeheartedly agrees when it comes to the conceptual under-pinnings of PTI. "It's a real shame that things fell apart so badly," he says. "The original concept was absolutely brilliant."

For a long time, however, the concept worked. In 1977, financed by savings and family loans, Shaw left TI to set up his first travel agency in Metairie, La. Eschewing advertising as an expensive way to share secrets with competitors, he depended instead on a door-to-door approach. Repeat business and word-of-mouth from satisfied customers led to sales that topped the $1-million mark a year after start-up.

By 1980, vertical integration had gone beyond the conceptual stage: Professional Travel Inc. of Louisiana, d/b/a Independence Travel, had four retail operations, all doing a healthy business in commercial and vacation travel and specializing in ski trips packaged by Professional Travel Inc. of Louisiana, d/b/a Westwind Tours. But the largest part of the vacation dollar was still eluding PTI, and a significant aspect of vacation quality control was still out of Shaw's hands. So Shaw decided to start an airline, moving PTI's central offices to Atlanta and filing with the Civil Aeronautics Board (CAB) for certification to operate a charter airline flying large aircraft throughout the Western Hemisphere.

The decision in favor of charter service was simply a matter of supply and demand. "You ask yourself who wants to fly and isn't getting the service they want," explains Shaw. "Tell them you can take them where they want to go, when they want to go, and you've got their business."

In time, PTI's Aerostar, organized for legal purposes as a wholly-owned subsidiary rather than an operating division, would indeed get business, but first there was work to be done. Shaw, striving for total control, decided to forgo any help from lawyers and take the fledgling airline through the administrative certification process himself. Even with help from the CAB, the cost in time, paperwork, and patience was a lot steeper than Shaw had originally estimated.

On July 17, 1980, Aerostar received its operating certificate from the CAB, making PTI the first wholesale and retail travel company also certificated for airline operation. In October of that year, the new airline's operating authority was extended to include international flights. All PTI needed was the planes, but how to get them became a source of contention between Shaw and his closest associates. Aerostar's charter function necessitated large, comfortable jets, but PTI didn't have the money to buy them. Not that Jim Shaw thought cash was a necessity. If the airline could just be put into service, he maintained, the vertically integrated company would soon be making all the money it could possibly need. Not all of his PTI colleagues agreed; some of them wanted outside money to fund an airline, while Shaw wanted an airline to generate money.

As CEO and sole stockholder, Shaw prevailed. In 1981, Aerostar purchased a Boeing 727-100 from Eastern Airlines for a stated purchase price of roughly $3.3 million. The plane was bought on a so-called conditional sale, an installment purchase under which the asset and all legal paper thereon transfer to the buyer, while legal title remains in the seller until full payment has been made. The relatively small (about $170,000) down payment came from travel-agency revenues. Aerostar's original contract with Eastern contained an option for the purchase of two more 727s on similar terms. In 1982, Aerostar exercised its option. Almost overnight, PTI -- a company with equity of under $1 million -- incurred debt of around $10 million, all to a single creditor.

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