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134-712: For three quarters of its existence, PSA operated as a California intrastate airline . PSA's early success as an intrastate airline served as a model for Southwest Airlines , which did in Texas what PSA had done in California. After the Airline Deregulation Act of 1978, PSA expanded to cities in other US western states and Mexico. However, PSA's performance in the new deregulated era was disappointing relative to that of Southwest and PSA's former fellow California intrastate carrier AirCal . In 1986, USAir agreed to purchase PSA,

268-518: A catamaran . In 1973, PSA created a holding company, "PSA, Inc." for the airline and many non-airline subsidiaries. In late summer 1970, PSA ordered five Lockheed L-1011 widebody aircraft, deliveries starting 1972. In the next 12 months, the L-1011 engine maker, Rolls-Royce, went bankrupt , and Lockheed required a US government bailout to avoid the same. In December 1971, PSA cancelled the order, but Lockheed said it couldn't. In September 1972, PSA signed

402-483: A public company . Initial public offerings can be used to raise new equity capital for companies, to monetize the investments of private shareholders such as company founders or private equity investors, and to enable easy trading of existing holdings or future capital raising by becoming publicly traded. After the IPO, shares are traded freely in the open market at what is known as the free float. Stock exchanges stipulate

536-435: A 15% stake in the airline. Note, "airline profits", not the holding company, PSA, Inc., which included aircraft leasing and fuel distribution among other businesses. After some back-and-forth, employees went along with this in late 1984. Employees got to nominate four directors to the airline board. Famed retailer Sol Price of Price Club (a Costco constituent) and FedMart was one such employee director. Another requirement

670-450: A Federal certificate. By then, the CPUC had become the restrictive bureaucracy observers had predicted when it was given additional powers in 1965, second-guessing (in glacial and burdensome processes that could and did last for years) everything California intrastate carriers did, and even itself, as exemplified in the role the CPUC played in the 1975 demise of Holiday Airlines . PSA also played

804-415: A bankruptcy that dramatically lowered its costs. Meanwhile, PSA was making money, but not by flying passengers. In 1982 and 1981 it sold aircraft and tax credits on aircraft to make a net profit while still producing an operating loss. In the years prior to deregulation, PSA said it must be ready for the day it was able to fly outside of California. When the day came, PSA management saw themselves as one of

938-568: A better result. In addition to the extensive international evidence that auctions have not been popular for IPOs, there is no U.S. evidence to indicate that the Dutch auction fares any better than the traditional IPO in an unwelcoming market environment. A Dutch auction IPO by WhiteGlove Health, Inc., announced in May 2011 was postponed in September of that year, after several failed attempts to price. An article in

1072-463: A cheap and low-risk deal to expand into a new geography: under an eight year contract, Braniff would fly 25 to 30 727s from its Texas base with PSA colors and marketing, employing 1,500 Braniff employees (who would have to agree to lower wages and higher productivity) as well as gates and takeoff/landing slots. These slots were key Braniff assets. In the wake of the August 1981 air traffic controllers strike ,

1206-455: A company is listed, it is able to issue additional common shares in a number of different ways, one of which is the follow-on offering . This method provides capital for various corporate purposes through the issuance of equity (see stock dilution ) without incurring any debt. This ability to quickly raise potentially large amounts of capital from the marketplace is a key reason many companies seek to go public. An IPO accords several benefits to

1340-421: A firm's stock of patents mitigates this effect. A Dutch auction allows shares of an initial public offering to be allocated based only on price aggressiveness, with all successful bidders paying the same price per share. One version of the Dutch auction is OpenIPO , which is based on an auction system designed by economist William Vickrey . This auction method ranks bids from highest to lowest, then accepts

1474-601: A handful of states, intrastate carriers tended to be tiny, a reflection of the fact that the economic opportunity was limited except in larger states. But such state regulation tended to be lighter than that exerted by the CAB. Moreover, state regulators had an interest in seeing "their" airlines succeed. The CPUC allocated non-overlapping routes between Air California and PSA, ensuring the survival of Air California (a new entrant in 1967) against interstate airlines competing on Air California routes. In Texas, enabling legislation specified that

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1608-422: A joke. In the 1960s PSA was known for the brightly colored flight attendant uniforms, with miniskirts ; in the early 1970s the fashion changed to hotpants . A PSA flight attendant, Marilyn Tritt, wrote a book about her tenure at the company titled Long Legs and Short Nights . Throughout PSA's lifetime, the flight attendants, with their humor, over-the-top passenger service, and sense of duty, helped to create

1742-614: A large portion of the US airline industry. At year-end 1978 (the end of the regulated era), the fleets of PSA, Air California and Southwest numbered 34, 13 and 13 aircraft respectively against a total of 2,263 aircraft in US air carrier fleets. A 1976 report for the US Department of Transportation said such airlines accounted for less than 2% of all US airline revenue-passenger miles . Nonetheless, these carriers had an outsized impact because of their prominent success. Despite being much smaller than

1876-534: A loyal passenger following. One flight attendant, Sandy Daniels, with the help of a frequent flyer, started the "Precious Stewardess Association". Frequent fliers would bring tasty treats to the crew, particularly on morning flights. In turn, PSA started the "Precious Passenger Association", with certificates and free drinks given to friendly and helpful passengers. PSA headquarters were a windowless gray-brown building on Harbor Drive in San Diego, California . The building

2010-424: A major role in the advent of US airline deregulation and thus airline deregulation globally, and the subsequent growth of low cost and ultra-low cost carriers . Further, US airline deregulation was merely the first in a wave of general economic deregulation by the federal government, eventually extending to railroads, trucking, energy, communications and finance. In aggregate, US intrastate carriers never comprised

2144-451: A majority owner of Western, difficult to dislodge controlling nine out of 21 seats on the board. As outlined in a section below, PSA would instead pursue a non-airline acquisition strategy. Southwest Airlines was founded in 1967, but grueling legal challenges caused its operational start to be delayed until June 1971. Founder Rollin King took inspiration from PSA. Founding president Lamar Muse

2278-440: A minimum free float both in absolute terms (the total value as determined by the share price multiplied by the number of shares sold to the public) and as a proportion of the total share capital (i.e., the number of shares sold to the public divided by the total shares outstanding). Although IPO offers many benefits, there are also significant costs involved, chiefly those associated with the process such as banking and legal fees, and

2412-509: A new order, deliveries starting 1974. PSA grounded its two L-1011s after eight months. A 300 seat aircraft never made sense in a business model that depended on quick aircraft turnarounds. Economics presented to the CPUC showed L-1011 per-seat costs no better than a 727 despite being twice as large. PSA refused the last three aircraft and was stuck paying a 15-year lease on the first two. It entered into years of litigation with Lockheed. By 1975, losses from diversification and L-1011s brought PSA to

2546-461: A preliminary prospectus, known as a red herring prospectus , during the initial quiet period. The red herring prospectus is so named because of a bold red warning statement printed on its front cover. The warning states that the offering information is incomplete, and may be changed. The actual wording can vary, although most roughly follow the format exhibited on the Facebook IPO red herring. During

2680-463: A raft of bills to punish the carriers, even suggesting a state-owned airline, but 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 and 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. The resulting Los Angeles Basin to San Francisco Bay fare war

2814-661: A routing in the name of safety. The "high seas" were otherwise reserved for CAB certificated carriers. Geographical intrastate operation alone did not imply legal intrastate status. Prior to 1979, airlines with such status were economically regulated, if at all, by their home state. For example, prior to 1965, the California Public Utilities Commission (CPUC) regulated ticket prices for California intrastate carriers like PSA and Air California under pre-existing legislation pertaining to intrastate transportation generally. Only in that year did legislation increase

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2948-474: A seat on the Board of Directors but continued as a full-time pilot for the airline. Tom astutely invested in a Toyota distributorship in the late 1960s, Gulf States Toyota , now a multi-billion dollar business run by Tom's son, Kenny's grandson, Dan Friedkin . PSA was known for its sense of humor. Founder Ken Friedkin wore Hawaiian shirts and encouraged his pilots and stewardesses to joke with passengers. Its slogan

3082-444: A small unregulated, or less regulated, sector within what was otherwise then a tightly regulated industry. As detailed below, flying within the geographic boundaries of a single state was a necessary but not sufficient condition to qualify as an intrastate carrier. Despite providing a small proportion of US airline capacity, the success of these airlines, in particular Pacific Southwest Airlines (PSA), and Southwest Airlines , played

3216-541: A special role at the CPUC. It was assumed to be the most efficient carrier, therefore CPUC fares were set relative to what would make the highest permissible profit for PSA – all other carriers operating in California then had to toe that line. So PSA had ample reason to regret its support of that 1965 legislation. However, under the Airline Deregulation Act, the minute PSA started flying to Nevada in December 1978, it

3350-533: A takeover candidate from which he could profit. PSA won a shareholder vote to implement takeover defenses with just a bit more than 50% but the company had post-dated the shareholder record date to ensure Simmons couldn’t vote his whole stake. Simmons said he’d sue. In the end, PSA paid him off by giving him some aircraft in exchange for his stake. To be fair, notwithstanding Flight 182, PSA’s 1978 financials were somewhat better, but significantly flattered by an accounting change. As PSA headed towards deregulation, both

3484-407: A terrible accident in 1964. PSA believed it would benefit from market stability, but observers predicted that over time the CPUC would become just as restrictive as the CAB, which, in fact, happened. From 1965 through US airline deregulation in 1978, the CPUC certified only two intrastate airlines: Air California and Holiday Airlines . From September 17, 1965, through 1978, PSA would have to apply to

3618-411: A very poor decision to buy wide-bodied aircraft, leading to significant financial distress. Air California was the one other notable California intrastate airline, not so much a rival to PSA as a complement, because its success was in large part due to being protected from PSA competition by its state regulator and by being part of a duopoly (from which PSA was excluded) at its main base. Air Florida

3752-438: Is theglobe.com IPO which helped fuel the IPO "mania" of the late 1990s internet era. Underwritten by Bear Stearns on 13 November 1998, the IPO was priced at $ 9 per share. The share price quickly increased 1,000% on the opening day of trading, to a high of $ 97. Selling pressure from institutional flipping eventually drove the stock back down, and it closed the day at $ 63. Although the company did raise about $ 30  million from

3886-408: Is Southwest Airlines, originally a Texas intrastate airline that PSA inspired. Southwest inspired low-cost airlines globally. PSA therefore was a key company in the advent of low-cost air travel. Another legacy stems from Kenny Friedkin's son Thomas H. Friedkin , a PSA pilot in 1962 when his father died. A year later, Tom's mother (Kenny's widow) died, making him the largest PSA shareholder. Tom had

4020-411: Is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment banks , who also arrange for the shares to be listed on one or more stock exchanges . Through this process, colloquially known as floating , or going public , a privately held company is transformed into

4154-585: Is a consequence of the Commerce Clause - one aircraft is the same as any other in matters such as air navigation, and it would make no sense for both state and federal agencies to both provide services like air traffic control. Courts have long viewed safety as a federal responsibility. The first intrastate carrier to make a substantial impact was California Central Airlines (CCA) from 1949 to 1955. CCA slightly preceded PSA (which started later in 1949) and during its existence flew many more passengers than PSA. CCA

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4288-539: Is an expensive process, IPOs also typically involve one or more law firms with major practices in securities law , such as the Magic Circle firms of London and the white-shoe firms of New York City. Financial historians Richard Sylla and Robert E. Wright have shown that before 1860 most early U.S. corporations sold shares in themselves directly to the public without the aid of intermediaries like investment banks. The direct public offering (DPO), as they term it,

4422-451: Is low enough to stimulate interest in the stock but high enough to raise an adequate amount of capital for the company. When pricing an IPO, underwriters use a variety of key performance indicators and non-GAAP measures. The process of determining an optimal price usually involves the underwriters ("syndicate") arranging share purchase commitments from leading institutional investors. Some researchers (Friesen & Swift, 2009) believe that

4556-510: Is now the largest airline in the US by domestic passengers carried. Southwest was fortunate that deregulation occurred when it did, almost at the exact time the airline ran out of Texas cities to which to expand. Southwest had swept Texas of competition but had not had a chance to lose its competitive fire, its focus nor discipline. It simply kept methodically expanding nationally the same way it had within Texas. Initial public offering An initial public offering ( IPO ) or stock launch

4690-417: Is possible that the financial incentives of the advisor and client may not be aligned. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under a specific circumstance known as the greenshoe or overallotment option. This option is always exercised when the offering is considered a "hot" issue, by virtue of being oversubscribed. In the US, clients are given

4824-399: Is to generate additional interest in the stock and a rapid rise in share price when it first becomes publicly traded (known as an "IPO pop"). Flipping , or quickly selling shares for a profit , can lead to significant gains for investors who were allocated shares of the IPO at the offering price. However, underpricing an IPO results in lost potential capital for the issuer. One extreme example

4958-452: Is usually underwritten by a " syndicate " of investment banks, the largest of which take the position of "lead underwriter". Upon selling the shares, the underwriters retain a portion of the proceeds as their fee. This fee is called an underwriting spread . The spread is calculated as a discount from the price of the shares sold (called the gross spread ). Components of an underwriting spread in an initial public offering (IPO) typically include

5092-577: The Commerce Clause of the Constitution of the United States , under which the US federal government may only regulate interstate commerce, leaving states considerable leeway to regulate companies that operate solely within a single state, so long as that operation has minimal interstate impact. Prior to PSA's launch in 1949, it was not obvious that such a niche existed for airlines - PSA had to assert

5226-514: The Federal Aviation Administration (FAA) operationally regulated PSA. As of September 17, 1965, the CPUC had new powers over California intrastate airlines of economic certification (PSA was grandfathered) route entry/exit and service quality (e.g. frequency). PSA was in favor of this. In the early 1960s, a number of new entrant California intrastate carriers had come and gone, the most notorious being Paradise Airlines , which had

5360-498: The publicani were legal bodies independent of their members whose ownership was divided into shares, or partes . There is evidence that these shares were sold to public investors and traded in a type of over-the-counter market in the Forum , near the Temple of Castor and Pollux . The shares fluctuated in value, encouraging the activity of speculators, or quaestors . Mere evidence remains of

5494-470: The Bay Area and Los Angeles than any other airline. Total PSA passengers climbed from 355,000 in 1959 to 1,305,000 in 1963 and 5,162,000 in 1970. On March 16, 1962, founder Kenny Friedman, only 47 years old, died of a cerebral hemorrhage . He had lived to see his airline become a success, but it was still tiny, with only five aircraft. J. Floyd Andrews, one of Friedkin's fellow founders, took over. Andrews's era

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5628-479: The CAB allowed interstate carriers competing on such routes (e.g. United Airlines and Western Airlines ) to match the lower fares of PSA, such fare matching applied only to tickets sold within the state of California - on purchases of tickets outside of California on United on a route within California that competed with PSA, normal (higher) CAB fares applied. The CAB took the requirement for minimal impact on interstate commerce extremely seriously. As an example, in

5762-438: The CAB, notwithstanding that the route itself was between two California points. Hawaiian Airlines and Aloha Airlines are examples of airlines that, prior to 1979, operated solely within a single state yet for several reasons remained regulated by the CAB. First, the carriers did participate in interstate commerce by, for instance, selling connecting tickets to the rest of the United States. Moreover, at times in their history

5896-472: The CPUC asking for a fare increase to bail them out. The CPUC excoriated PSA, questioning management competency at length and especially withering about a 1974 $ 8mm share buyback. In March 1976, J. Floyd Andrews gave up the CEO position, and in May, resigned as chair of the board. As airline deregulation was being debated, for most of the country, it promised lower prices. But California already had lower prices, set by

6030-467: The CPUC for all new routes, generally in competition with Air California. Despite having total network freedom, PSA evolved its network minimally from 1949 to 1965: it served only five airports: San Diego, LAX, Burbank, San Francisco and Oakland. In 1965, Orange County Airport (later John Wayne Airport (SNA)), had a new runway. It approached PSA (among other airlines) about serving it (SNA had long-standing minimal service from Bonanza Air Lines ), and like

6164-662: The CPUC's authority to airline certification, market entry/exit and service quality. Southwest Airlines was certified by the Texas Aeronautics Commission (TAC). Air Florida was overseen by the Florida Public Service Commission . By 1976, 25 US states regulated intrastate carriers within their borders. Of the 25 requiring certification for intrastate airlines, 15 regulated flight schedules, 17 regulated quality of service, 19 regulated market entry/exit and 19 regulated prices. However, other than in

6298-570: The CPUC. By comparison, in Texas, Southwest Airlines set its own fares, the Texas Aeronautics Commission didn’t get involved. The concern (and expectation) was deregulation would lead to higher prices. California legislators and governor Jerry Brown wanted the CPUC to remain in charge of any airline that did over 50% of its business in California. This amendment was voted down in the relevant US House of Representatives subcommittee by one vote. Instead, deregulation as passed included strong Federal preemption – states had little say over an airline with

6432-492: The Commerce Clause against the US Civil Aeronautics Board (CAB), the federal agency responsible for economic airline regulation, and the CAB's requirement that PSA's service not have a material impact on interstate commerce required, among other things, that PSA not sell joint tickets to/from out-of-state cities and that PSA not sell tickets on its routes to anyone located outside California. It also meant that when

6566-507: The Dutch auction is still a little used method in U.S. public offerings, although there have been hundreds of auction IPOs in other countries. In determining the success or failure of a Dutch auction, one must consider competing objectives. If the objective is to reduce risk, a traditional IPO may be more effective because the underwriter manages the process, rather than leaving the outcome in part to random chance in terms of who chooses to bid or what strategy each bidder chooses to follow. From

6700-407: The Dutch auction system for its initial public offering. Traditional U.S. investment banks have shown resistance to the idea of using an auction process to engage in public securities offerings. The auction method allows for equal access to the allocation of shares and eliminates the favorable treatment accorded important clients by the underwriters in conventional IPOs. In the face of this resistance,

6834-475: The FAA had limited air traffic control capacity, so allocated each airline takeoff/landing slots at specific airports. When Braniff collapsed, those rights were temporarily allocated to others. If Braniff flew again, it could recover those rights, grounding some operations at other carriers. It was a strong competitive lever. The initial deal failed when Braniff pilots refused to agree to lower seniority than PSA pilots in

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6968-470: The IPO are restricted from issuing any earnings forecasts or research reports for the company. When the quiet period is over, generally the underwriters will initiate research coverage on the firm. A three-day waiting period exists for any member that has acted as a manager or co-manager in a secondary offering. Not all IPOs are eligible for delivery settlement through the DTC system , which would then either require

7102-581: The MD-80s and 175 for the 727-200s. In one respect, PSA was lucky: the BAe-146 was eventually notorious for fairly significant engine problems that PSA management never had to deal with because it sold the company before they became well known. As a stopgap, the airline also acquired four 110-seat used DC-9s from Air Canada in 1983. PSA did not prioritize a single fleet type. But if looking for reasons for underperformance, management might have considered itself, since it

7236-756: The San Franciscan Hotel in downtown San Francisco. In June, PSA bought the Islandia in San Diego's Mission Bay . In June 1971, PSA committed to a to-be constructed hotel at the Los Angeles Hollywood Park Racetrack (now the site of SoFi Stadium ), and in December 1971, committed to a to-be constructed hotel within the Queen Mary attraction in Long Beach The synergies were not obvious. None of

7370-544: The TAC was to encourage and develop intrastate air service. Lamar Muse , Southwest's first CEO, saw the TAC as "anxious to have a real airline ... under the TAC's jurisdiction." In Florida, the Public Service Commission likewise sought to increase service by intrastate carriers. During the regulated era, certification of new domestic scheduled passenger carriers by the CAB was extremely rare. From 1950 until 1974, there

7504-517: The Tahoe routes between Air California and PSA on an emergency basis, but required the two carriers use Electras for Tahoe. One of PSA's first actions of the deregulated era (which started January 1, 1979) was to exit Tahoe, citing the high cost of Electras in a fleet that otherwise comprised 31 727s. In 1967 PSA was finally allowed to use offshore airway V25 to San Diego, despite being an intrastate airline. An early indication that, for J. Floyd Andrews, PSA

7638-495: The Wall Street Journal cited the reasons as "broader stock-market volatility and uncertainty about the global economy have made investors wary of investing in new stocks". Under American securities law, there are two-time windows commonly referred to as "quiet periods" during an IPO's history. The first and the one linked above is the period of time following the filing of the company's S-1 but before SEC staff declare

7772-459: The airline and Wall Street thought it would be a winner. But in December 1978, Paul Barkley, then PSA’s chief operating officer (later CEO), spoke about the deregulated future a few weeks away. He expected something fairly sedate, quite different from the bitter Darwinistic struggle that would engulf the industry: Dallas-Fort Worth –based Braniff International Airways was the first trunk carrier to fail after deregulation. US trunk airlines were

7906-456: The airline due to lessons learned from a failed precursor airline ( Friedkin Airlines ). Reservations were initially taken at a World War II surplus latrine refitted as a ticket office. The original fare from Burbank to Oakland was $ 9.99. In July 1951 PSA added a flight to San Francisco . Oakland would be dropped in 1954, but restored to the system in 1965. DC-3s would go in and out of the fleet, but

8040-408: The assumption of independent private values (that the value of IPO shares to each bidder is entirely independent of their value to others, even though the shares will shortly be traded on the aftermarket). Theory that incorporates assumptions more appropriate to IPOs does not find that sealed bid auctions are an effective form of price discovery, although possibly some modified form of auction might give

8174-408: The brink of bankruptcy. Operating losses on rental cars, radio stations and hotels through 1974 (not including cost of acquisition) were almost $ 9M. Through 1977, PSA lost another $ 1M on discontinued businesses and recognized $ 18mm in L-1011 losses. In 1982, PSA took another $ 4.2M loss against its two L-1011s, still unable to find a home for them. PSA's troubles attracted national attention. PSA went to

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8308-422: The capital to its public investors. Those investors must endure the unpredictable nature of the open market to price and trade their shares. After the IPO, when shares are traded in the market, money passes between public investors. For early private investors who choose to sell shares as part of the IPO process, the IPO represents an opportunity to monetize their investment. After the IPO, once shares are traded in

8442-407: The company (primary offering) as well as to any early private investors who opt to sell all or a portion of their holdings (secondary offerings) as part of the larger IPO. An IPO, therefore, allows a company to tap into a wide pool of potential investors to provide itself with capital for future growth, repayment of the debt, or working capital. A company selling common shares is never required to repay

8576-484: The competition were First Class only ($ 22.05); the rest carried coach passengers for $ 13.50, all fares subject to then 5% federal excise tax. In July 1958 PSA shifted some flights from Burbank to Los Angeles International Airport (LAX); that year it carried 296,000 passengers. In late 1959 PSA began flying Lockheed Electra turboprops with 92 seats and a six-seat lounge, replacing 70-seat DC-4s. In 1963 PSA got its sixth Electra; by then it carried more passengers between

8710-442: The concession, while the member of the syndicate who provided the shares to that broker-dealer would retain the underwriting fee. Usually, the managing/lead underwriter, also known as the bookrunner , typically the underwriter selling the largest proportions of the IPO, takes the highest portion of the gross spread , up to 8% in some cases. Multinational IPOs may have many syndicates to deal with differing legal requirements in both

8844-457: The continued success of Southwest. PSA started as an offshoot of San Diego–based Friedkin Aeronautics, the flight school Kenny Friedkin started to train returning GIs . When GI business dried up, on May 6, 1949, Friedkin started flying once a week from San Diego to Oakland via Burbank with a $ 1,000-a-month leased Douglas DC-3 . Friedkin obtained information from a travel agent upon starting

8978-488: The descendants of the original 16 airlines certified by the CAB and thereafter regulated to be the main US carriers. Braniff had been successful just prior to deregulation, but Harding Lawrence , Braniff’s imperious long-time leader, expanded the carrier excessively immediately after deregulation, resulting in its May 1982 bankruptcy and shut-down. Until Continental did so in 1983, no one knew an airline could recover from Chapter 11 bankruptcy . In October 1982, PSA announced

9112-461: The dying days of the regulated era, the CAB was still engaged in a fight with PSA and Air California over the service of these carriers to Lake Tahoe Airport . This airport is located in California, right next to Nevada, and clearly many travelers used such flights to travel between California and Nevada. In the eyes of the CAB, this constituted a more-than-incidental impact on interstate commerce, which therefore meant such service should be regulated by

9246-438: The end of 1978 it transpired corporate raider Harold Simmons had accumulated a 20% stake. When PSA, appealing to investors, referred to a 30-year history of success, Simmons printed ads summarizing PSA’s far-from-successful 1970s financials and noting 1977 profits were about half those of 1971, despite revenues almost twice as large. But as PSA said, Andrews was gone. Simmons evinced no desire to "destroy" PSA, seeing it instead as

9380-485: The event PSA ever merged with the PSA-Braniff operation (to ensure PSA pilots always got first pick of flying). Pride as well as pay was in play: PSA was perceived as junior-league relative to Braniff. A new deal with Braniff simply equipped a new carrier with Braniff equipment to fly under contract to PSA, sidestepping Braniff’s unions. Braniff would even loan PSA the funds. Further, the FAA noted if Braniff resumed flying it

9514-442: The eye of one observer included: Until 1965, as an intrastate airline PSA had a free hand in terms of how and where it flew within California. The California Public Utilities Commission (CPUC) was limited to regulating PSA's prices. So long as PSA stayed within the boundaries of an intrastate airline, the federal Civil Aeronautics Board (CAB), which otherwise tightly regulated US airlines, had no say, though as with any US airline,

9648-404: The federally-regulated carriers, PSA and Air California came to dominate intra-California air travel, and Southwest the same in Texas. Moreover, the fares of such carriers were notably lower than federally regulated fares, leading to substantial increases in passenger traffic on the routes on which they competed, despite which the financial results of these carriers were far superior. The contrast

9782-448: The final IPO prospectus is for the issuer to retain one of the major financial "printers", who print (and today, also electronically file with the SEC ) the registration statement on Form S-1. Typically, preparation of the final prospectus is actually performed at the printer, wherein one of their multiple conference rooms the issuer, issuer's counsel (attorneys), underwriter's counsel (attorneys),

9916-564: The fleet comprised one 727-100, 16 727-200s and nine 737s. In the late 1960s PSA also briefly had DC-9s, the justification was to train pilots of other airlines. As discussed below, the L-1011s made a brief appearance in 1974-1975, but by then PSA was shedding the 737s; the last left in the fleet in 1976. In 1975, Lockheed Electras returned to support flights to Tahoe (see below). Other than the Electras (required to operate to Tahoe), PSA settled on 727s in

10050-402: The flightcrew, causing the aircraft to crash, killing everyone on board. The fact pattern of a (former) USAir employee killing PSA crew and passengers overshadowed the last days of PSA. PSA finally merged into USAir on April 9, 1988. PS Group had long since banked what it was paid for its PSA, creating a well-funded life-raft for select former PSA executives, among which Chairman Paul Barkley. By

10184-468: The following (on a per-share basis): Manager's fee, Underwriting fee—earned by members of the syndicate, and the Concession—earned by the broker-dealer selling the shares. The Manager would be entitled to the entire underwriting spread. A member of the syndicate is entitled to the underwriting fee and the concession. A broker-dealer who is not a member of the syndicate but sells shares would receive only

10318-460: The following domestic destinations in the U.S. at various times during its existence. Intrastate airline Intrastate airlines in the United States were air carriers operating solely within a single US state and taking other steps to minimize participation in interstate commerce , thus enabling them to escape tight federal economic airline regulation prior to US airline deregulation in 1979. These intrastate carriers therefore amounted to

10452-421: The highest bids that allow all shares to be sold, with all winning bidders paying the same price. It is similar to the model used to auction Treasury bills , notes, and bonds since the 1990s. Before this, Treasury bills were auctioned through a discriminatory or pay-what-you-bid auction, in which the various winning bidders each paid the price (or yield) they bid, and thus the various winning bidders did not all pay

10586-528: The hotels were located at airports, none of them were value-oriented. In 1973, CEO Andrews called the hotels "a complete flop" and in 1974 gave three of them to Hyatt to run. It took years for PSA to extricate itself. In 1979, PSA finally sold the San Franciscan but had yet to sell the Queen Mary hotel. In August 1970, PSA started buying radio stations. By 1975, its four stations were for sale. PSA also bought

10720-458: The issued shares, the stock may fall in value on the first day of trading. If so, the stock may lose its marketability and hence even more of its value. This could result in losses for investors, many of whom being the most favored clients of the underwriters. Perhaps the best-known example of this is the Facebook IPO in 2012. Underwriters, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that

10854-425: The issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the major selling syndicate in its domestic market, Europe, in addition to separate group corporations or selling them for US/Canada and Asia. Usually, the lead underwriter in the head selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements and because it

10988-451: The late 1970s, acquiring used 727-100s as well as additional new 727-200s. PSA entered Tahoe after Holiday Airlines collapsed. Holiday basically served nowhere other than Tahoe, a choice that that sealed its fate . PSA applied to the CPUC for Holiday's routes in 1974 Holiday said it couldn’t afford to defend itself in front of the CPUC and went out of business in February 1975. The CPUC split

11122-654: The lead underwriter(s), and the issuer's accountants/auditors make final edits and proofreading, concluding with the filing of the final prospectus by the financial printer with the Securities and Exchange Commission. Before legal actions initiated by New York Attorney General Eliot Spitzer , which later became known as the Global Settlement enforcement agreement, some large investment firms had initiated favorable research coverage of companies in an effort to aid corporate finance departments and retail divisions engaged in

11256-426: The listing regime. Planning is crucial to a successful IPO. One book suggests the following seven planning steps: IPOs generally involve one or more investment banks known as " underwriters ". The company offering its shares, called the "issuer", enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares. A large IPO

11390-520: The marketing of new issues. The central issue in that enforcement agreement had been judged in court previously. It involved the conflict of interest between the investment banking and analysis departments of ten of the largest investment firms in the United States. The investment firms involved in the settlement had all engaged in actions and practices that had allowed the inappropriate influence of their research analysts by their investment bankers seeking lucrative fees. A typical violation addressed by

11524-530: The most consistently successful airline in the United States, in turn inspiring many copycats worldwide. The advent of airline deregulation globally, and in particular such carriers as Ryanair and EasyJet in Europe and IndiGo and Air Asia in Asia, can therefore be traced back, in significant part, to these intrastate pioneers. The opportunity for intrastate carriers to escape federal economic regulation arose because of

11658-407: The natural beneficiaries of deregulation (see prior sections). But in fact, PSA did poorly. As the nearby table shows, AirCal’s nominal growth from 1978 (the last year of regulation) to 1985 was double that of PSA, Southwest was nearly triple. Perhaps most striking was the comparison of PSA with Piedmont Airlines , which pre-deregulation had been a local service airline regulated by the CAB. Piedmont

11792-427: The offering, it is estimated that with the level of demand for the offering and the volume of trading that took place they might have left upwards of $ 200 million on the table. The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of

11926-417: The ongoing requirement to disclose important and sometimes sensitive information. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus . Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide several services, including help with correctly assessing

12060-405: The open market, investors holding large blocks of shares can either sell those shares piecemeal in the open market or sell a large block of shares directly to the public, at a fixed price , through a secondary market offering . This type of offering is not dilutive since no new shares are being created. Stock prices can change dramatically during a company's first days in the public market. Once

12194-401: The others, PSA demurred. This was a mistake: PSA tried to buy Air California twice: PSA’s fleet changed constantly in the 1960s and 1970s. The 1960s started with Electras, then Boeing 727-100s arrived in 1965, PSA's first pure jet. The last Electra flight was September 1968 By 1969, PSA was swapping out 727-100s and replacing them with bigger 727-200s plus 737-200s. At the beginning of 1970,

12328-401: The physical delivery of the stock certificates to the clearing agent bank's custodian or a delivery versus payment (DVP) arrangement with the selling group firm. "Stag profit" is a situation in the stock market before and immediately after a company's initial public offering (or any new issue of shares). A "stag" is a party or individual who subscribes to the new issue expecting the price of

12462-482: The populations of California, Texas and Florida were 20.0mm, 11.2mm and 6.8mm respectively. The highest profile intrastate carrier was PSA, the acknowledged inspiration for the other three. PSA became super dominant within California, with a market share as high as 70% and playing a substantial role in the life of the state. However, in the late 1960s and early 1970s it became distracted by ill-conceived diversification into hotels, rental cars and radio stations, and made

12596-653: The previously private company: There are several disadvantages to completing an initial public offering: IPO procedures are governed by different laws in different countries. In the United States, IPOs are regulated by the United States Securities and Exchange Commission under the Securities Act of 1933 . In the United Kingdom, the UK Listing Authority reviews and approves prospectuses and operates

12730-536: The prices for which partes were sold, the nature of initial public offerings, or a description of stock market behavior. Publicani lost favor with the fall of the Republic and the rise of the Empire . In the United States, the first IPO was the public offering of Bank of North America around 1783. When a company becomes publicly listed, the money paid by the investing public for the newly issued shares goes directly to

12864-512: The quiet period, the shares cannot be offered for sale. Brokers can, however, take indications of interest from their clients. At the time of the stock launch, after the Registration Statement has become effective, indications of interest can be converted to buy orders, at the discretion of the buyer. Sales can only be made through a final prospectus cleared by the Securities and Exchange Commission. The final step in preparing and filing

12998-413: The registration statement effective. During this time, issuers, company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO (U.S. Securities and Exchange Commission, 2005). The other "quiet period" refers to a period of 10 calendar days following an IPO's first day of public trading. During this time, insiders and any underwriters involved in

13132-530: The rise in fuel prices, which PSA also blamed) and too labor intensive (given its three person cockpit vs two places for the MD-80). 727s were a big factor in driving the company to ordering 20 BAe-146 aircraft in late 1983, which were both smaller and extremely quiet (an advantage in California where noise politics was a factor at airports like Orange County, Long Beach and Burbank). PSA may have overcorrected – PSA ultimately configured BAe-146s with only 85 seats vs 150 for

13266-428: The same legislation). Further, it protected federally certified air carriers from attempted state economic regulation. Federal, not state, certification now provided the most economic freedom for intrastate airlines, which left state regulatory bodies with no airlines to regulate. For safety purposes, intrastate carriers were regulated, as with any other US carrier, by the Federal Aviation Administration (FAA). This too

13400-549: The same price. Both discriminatory and uniform price or "Dutch" auctions have been used for IPOs in many countries, although only uniform price auctions have been used so far in the US. Large IPO auctions include Japan Tobacco, Singapore Telecom, BAA Plc and Google (ordered by size of proceeds). A variation of the Dutch auction has been used to take a number of U.S. companies public including Morningstar , Interactive Brokers Group , Overstock.com , Ravenswood Winery, Clean Energy Fuels, and Boston Beer Company . In 2004, Google used

13534-466: The settlement was the case of CSFB and Salomon Smith Barney , which were alleged to have engaged in the inappropriate spinning of "hot" IPOs and issued fraudulent research reports in violation of various sections within the Securities Exchange Act of 1934 . A company planning an IPO typically appoints a lead manager, known as a bookrunner , to help it arrive at an appropriate price at which

13668-414: The shares should be offered. There are two primary ways in which the price of an IPO can be determined. Either the company, with the help of its lead managers, fixes a price ("fixed price method"), or the price can be determined through analysis of confidential investor demand data compiled by the bookrunner (" book building "). Historically, many IPOs have been underpriced. The effect of underpricing an IPO

13802-401: The state they were certified within. PSA became superdominant within California, hitting a market share of 70% of passengers flying within California, but until deregulation had no ability to go beyond California. The 1978 Airline Deregulation Act effectively abolished federal economic regulation of domestic air travel in the United States starting in 1979 (the CAB was dissolved in 1985 under

13936-419: The stock to rise immediately upon the start of trading. Thus, stag profit is the financial gain accumulated by the party or individual resulting from the value of the shares rising. This term is more popular in the United Kingdom than in the United States. In the US, such investors are usually called flippers, because they get shares in the offering and then immediately turn around " flipping " or selling them on

14070-508: The time the merger was consummated, PS Group had used some the PSA money to buy a stake in a travel agency business, to go along with its aircraft leasing and oil & gas interests. 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

14204-452: The total number was never more than four. PSA was one of eight California intrastate carriers that started flying in the 13 month period from January 1949 through January 1950 - but only California Central Airlines (CCA) and PSA lasted longer than a year. CCA started in January 1949 and through its demise in February 1955 was larger, and flew better equipment ( Martin 2-0-2s ) than PSA. But CCA

14338-561: The transaction closed in 1987 and PSA was integrated into USAir in 1988. The PSA acquisition gave USAir a network on the West Coast, but by 1991 USAir had largely withdrawn from California in the face of fierce fare wars driven, in significant part, by the spread of Southwest. Today's American Airlines Group continues to protect the PSA trademark by using it as a name for a regional airline subsidiary, PSA Airlines . PSA did not survive for long after deregulation, but its influence lives on through

14472-538: The two carriers were directly subsidized by the CAB, including participating in CAB aircraft finance programs. Further, when the State of Hawaii attempted to certificate an intrastate carrier, Island Airlines, the CAB challenged it on the basis that the channels between the Hawaiian islands were under CAB jurisdiction and therefore no airline could fly from one Hawaiian island to another without engaging in interstate commerce. This

14606-447: The underpricing of IPOs is less a deliberate act on the part of issuers and/or underwriters, and more the result of an over-reaction on the part of investors (Friesen & Swift, 2009). One potential method for determining to underprice is through the use of IPO underpricing algorithms . Other researchers have discovered that firms with higher revenues from licensing-based technology commercialization exhibit greater IPO underpricing, while

14740-399: The underwriters. A licensed securities salesperson ( Registered Representative in the US and Canada) selling shares of a public offering to his clients is paid a portion of the selling concession (the fee paid by the issuer to the underwriter) rather than by his client. In some situations, when the IPO is not a "hot" issue (undersubscribed), and where the salesperson is the client's advisor, it

14874-517: The value of shares (share price) and establishing a public market for shares (initial sale). Alternative methods such as the Dutch auction have also been explored and applied for several IPOs. The earliest form of a company which issued public shares was the case of the publicani during the Roman Republic , although this claim is not shared by all modern scholars. Like modern joint-stock companies,

15008-405: The viewpoint of the investor, the Dutch auction allows everyone equal access. Moreover, some forms of the Dutch auction allow the underwriter to be more active in coordinating bids and even communicating general auction trends to some bidders during the bidding period. Some have also argued that a uniform price auction is more effective at price discovery , although the theory behind this is based on

15142-498: The windows to make them resemble the more modern Douglas DC-6 . In January 1958 PSA scheduled 37 DC-4s a week Burbank to San Francisco (29 of which originated in San Diego) and four nonstops San Diego to San Francisco; United Airlines , Western Airlines and TWA then scheduled a total of 241 nonstop flights each week from Los Angeles to San Francisco, plus 49 flights a week from Burbank to San Francisco. About half of these flights by

15276-417: Was "The World's Friendliest Airline", and its recognizable trademark was a smile painted on the nose of each plane and an accompanying advertising campaign declaring "Catch Our Smile". Because of the major San Diego flight schedule and its discount fares, military personnel nicknamed PSA the "Poor Sailor's Airline." After PSA was bought by USAir, ex-PSA mechanics would occasionally paint smiles on USAir planes as

15410-517: Was San Diego International Airport's commuter terminal until 2015 when it was converted into administrative offices of the San Diego County Regional Airport Authority. There were other attempted hijackings which resulted in no injuries and the surrender of the hijacker(s). These incidents are not included. The following are notable hijackings because of fatalities or because the aircraft flew to another country: PSA served

15544-413: Was a separate publicly-traded stock for the airline. On July 28, 1986, there was an initial public offering for the airline (1.8mm shares at $ 7). Meanwhile, to eliminate confusion, the parent company (which retained its own stock listing) was renamed "PS Group, Inc.". In the midst of this activity, the holding company continued to diversify. In September 1985, it added to its oil and gas investments. 1986

15678-462: 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, first American and then USAir gutted the former AirCal and PSA systems, throwing in the towel less than five years after offering to buy the former intrastate airlines. The indirect legacy of PSA

15812-493: Was credited to moving most transport between Los Angeles and San Francisco from ground to air, which was noticed nationally. Intrastate carrier success required a state that was physically large and had a substantial population. Unsurprisingly, the four intrastate airlines that acquired jet equipment were from California (PSA and Air California), Texas (Southwest Airlines) and Florida (Air Florida). Air California first flew in 1967, Southwest in 1971 and Air Florida in 1972. In 1970,

15946-607: Was entitled to its takeoff/landing slots, but a new airline that just happened to use Braniff assets was not. The deal died in March 1983. A second iteration of Braniff did start flying in 1984 without PSA help, ultimately without success, possible due to Texas already being home to Southwest (which, expanding westward, had already entered PSA’s home city of San Diego in January 1982), American Airlines (which viewed Dallas-Fort Worth as its own, having moved its headquarters there in 1979) and Continental Airlines , which in 1983 would go through

16080-408: Was expressed monetarily: in 1978, Southwest management and directors owned 6% of PSA, while PSA directors and management owned 10% of Southwest. In July 1968, PSA bought rental car company Valcar, a former Hertz subsidiary with a west-coast presence. Like PSA, Valcar had a budget orientation, but PSA couldn't make it work and shut it down in 1971, after failing to sell it. In April 1969, PSA bought

16214-486: Was free of the CPUC. The CPUC didn’t take that lying down. The CPUC sued in Federal court to overturn the Airline Deregulation Act , lost, appealed, and lost again. As the regulated era drew to a close, PSA suffered a terrible crash in September 1978 when a 727 collided with a small plane over San Diego, fatal to all on both aircraft and to some on the ground. It was made worse for PSA by: 1978 wasn't through with PSA yet. At

16348-432: Was minimal. The purchase closed May 29, 1987, but PSA and USAir pilot union chapters fought over transition agreements, delaying the merger of PSA into USAir beyond the original January 1, 1988, date. PSA thus still existed under USAir ownership when on December 7, 1987, a fired USAir employee used his credentials (which had not been recovered from him) to sneak a gun on board PSA Flight 1771. En-route, he shot, among others,

16482-485: Was not as focused as PSA (which stuck just to the San Diego to Bay Area route) and ultimately went bankrupt. PSA bid on CCA in the bankruptcy auction, but lost to a group composed of Allegheny Airlines and Southwest Airways (no relation to today's Southwest Airlines ) which shut CCA immediately, leaving PSA as the only intrastate competitor. In 1955, four Douglas DC-4s replaced the DC-3s, with PSA painting rectangles around

16616-513: Was not done by auction but rather at a share price set by the issuing corporation. In this sense, it is the same as the fixed price public offers that were the traditional IPO method in most non-US countries in the early 1990s. The DPO eliminated the agency problem associated with offerings intermediated by investment banks. The sale (allocation and pricing) of shares in an IPO may take several forms. Common methods include: Public offerings are sold to both institutional investors and retail clients of

16750-512: Was not enough came in December 1968 with an audacious bid for Western Air Lines , then under attack by Kirk Kerkorian . Western was four times the revenue of PSA, and as an interstate carrier, regulated by the CAB. It was unclear how this would work, putting together two airlines with different regulators, whether CAB approval would be forthcoming. PSA pulled the bid in April 1969, citing deteriorating Western results. By that time, Kerkorian was, while not

16884-769: Was of long-standing. William Shimp, CEO and Chairman from 1976 to 1984, joined PSA in 1949. Paul Barkley, who succeeded Shimp, had been a C-suite officer at PSA since 1967. Notwithstanding the disastrous experience of the 1970s, management never lost its taste for diversification, diverting corporate attention from the airline. PSA, Inc.'s 1983 annual report noted energy subsidiaries involved in fuel supply and distribution and oil and gas exploration and production, as well as aviation-related subsidiaries providing engine maintenance, aircraft leasing and flight training. In 1984, following another poor year in 1983, PSA asked for wage givebacks from airline employees. Employees would reduce pay by 15% in exchange for 15% of pre-tax airline profits and

17018-426: Was only one certification ( Air New England ). Only in the last year of regulation (1978) did the CAB relax and award economic certificates. Until deregulation it was impossible for an intrastate airline to swap its state certificate for a CAB certificate. Therefore, while intrastate carriers were one of the few ways to start a scheduled carrier, there was a natural limit bounded by the geography/demography/economics of

17152-493: Was open about the debt to PSA, saying "we don't mind being copycats of an operation like that", including hotpants. PSA hosted King and Muse for a four day visit in 1971 and gave them a copy of PSA's FAA operating manuals, from which Southwest created its own in what Muse said was "primarily a copy-and-paste procedure". PSA helping Southwest made sense in 1971, with each airline strictly limited to flying within its state and seemingly no prospect of that ever changing. Mutual admiration

17286-484: Was smaller than PSA in 1978 but well over twice its size in 1985. Piedmont also had an unbroken string of profits since deregulation. A July 1984 Los Angeles Times article noted PSA had been hanging fire since deregulation; management always waiting for some obstacle to clear. For instance, waiting to swap out the 727 fleet it had at deregulation (yet the abortive 1982/1983 Braniff deal would have doubled-down on 727s), which were too large and too fuel inefficient (given

17420-434: Was stark. The success of these small carriers stood out among a US economy that, in the 1970s, was generally stagnant. They therefore helped inspire the 1979 deregulation of the US airline industry. While PSA and Air California had minor impact thereafter, choosing to become effectively traditional carriers and being swept up in the first decade of post-deregulation consolidation, Southwest stuck to its business model and became

17554-432: Was the year of the airline merger – Republic into Northwest , Ozark into TWA , Western into Delta Air Lines and others. In November, AirCal accepted an offer from American Airlines. On December 8, USAir announced an agreement to purchase PSA for $ 400mm. The combination had its skeptics: USAir’s pre-PSA California presence was 12 flights per day to Pittsburgh and Indianapolis so its brand awareness among Californians

17688-733: Was tumultuous, PSA achieving a high national profile. This was the era of hot-pant clad flight attendants on pink-liveried aircraft, a classic image of California in the late 1960s and early 1970s. As discussed below, PSA became utterly dominant in the intra-California market, but also overreached to the point it almost went bankrupt. Less than a year later, PSA went public, with a February 14, 1963, initial public offering , 313,000 shares (100,000 of them primary ) at $ 19. Preparations had been underway for some time. PSA had an unusual corporate structure, with its aircraft owned through three companies owned by founders (Friedkin and others). In January 1962, these were merged into PSA. Prospectus facts that caught

17822-605: Was unsuccessful for most of its intrastate existence, finally turning it around in the last year of regulation (1978). Air Florida thereafter expanded extremely rapidly in the early years of deregulation and was celebrated as the "little airline that could" until a devastating accident in early 1982 , after which it fell on hard times until its bankruptcy in 1984. After being grounded for three months, it operated in Chapter 11 as Midway Express, flying under contract to Midway Airlines until being acquired by that airline in 1985. Southwest

17956-461: Was upheld in court. So intrastate Hawaiian carriers were limited to flying within the boundaries of each individual island. For similar reasons, California intrastate airlines could not fly too far offshore. In 1967, the CAB provided Pacific Southwest Airlines with a specific exemption to allow it to fly between Los Angeles and San Francisco more than three miles offshore. Federal Aviation Administration asked PSA to request CAB permission to use such

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