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Scott McMurren: Ravn Alaska sells majority stake to Outside private equity firm

  • Author: Scott McMurren
    | Alaska Travel
  • Updated: May 31, 2016
  • Published August 6, 2015

Things are changing again at Ravn Alaska, the state's largest regional airline.

Ravn actually is a compilation of three different air carriers: Frontier Flying Service, Era Aviation and Hageland Aviation. Ravn used to be known as Era Alaska until they changed their name in January 2014.

Bob Hajdukovich, Ravn's CEO, has secured financing from a New York-based private equity firm to buy out his partners and recapitalize the airline.

The investor, J.F. Lehman and Co., has acquired a majority stake in Ravn. The remaining shares will be consolidated with Hajdukovich and his family. "Now there will be one vision for the company instead of three," he said, referring to his former partners at Hageland Aviation. Terms were not disclosed.

"With this recapitalization, we will continue to evolve regional aviation in Alaska. This includes right-sizing our aircraft to each specific market," said Hajdukovich.

Most Anchorage travelers have not flown on Ravn's flights in rural Alaska. The company operates to more than 100 destinations around the state, from Kaktovik on the North Slope to Savoonga on St. Lawrence Island in the Bering Sea. The airline has hubs in St. Mary's, Bethel, Anchorage, Fairbanks and Nome. They have 12 hangars, 70 aircraft and 850 employees.

Most of Lehman's investments to date are in the aerospace, maritime and defense industries. That's logical, since the firm's founder, John Lehman, served as secretary of the Navy from 1981-1987. So what makes Ravn a good fit for Lehman's portfolio?

"Ravn has an established aviation infrastructure in the state," said Hajdukovich. "Because of our longevity in our primary markets, we've also established a difficult barrier to entry for potential competitors," he said.

Still, Ravn does have competitors on many, but not all, of their routes. These includes companies like Bering Air in Nome, Grant Aviation and PenAir in Anchorage and Yute Air in Bethel.

Former U.S. Sen. Mark Begich has a strong interest in aviation. While in the Senate, Begich was founder and co-chair of the general aviation caucus. Now he is a strategic adviser to Grant Aviation through his consulting business, Northern Compass Group. "From an aviation standpoint, recapitalization is good news. But the real question here is, what's their objective? Is it sustainable and long-term? At this point, that's unclear," said Begich.

Flying in rural Alaska is expensive. Here in Anchorage, we're spoiled with great fares, fueled by fierce competition. For example, you can fly from Anchorage to Los Angeles for as little as $263 round trip on Delta. Compare that with a 45-minute flight on Ravn from Nome to Savoonga for $513 round trip. Or a 25-minute flight between Barrow and Wainwright for $430 round trip.

On competitive routes, Ravn offers lower fares. That's how airlines operate. You can fly from Anchorage to Fairbanks on either Ravn or Alaska Airlines. With Ravn, the fare is lower: $184 round trip, compared to Alaska's fare of $193 round trip.

Speaking of Alaska Airlines, Ravn is a mileage partner on most of its flights. Right now, flights between Anchorage and Fairbanks and Bethel are excluded. So are flights operated by Hageland Aviation. "We have a great relationship with Ravn Alaska and with the Hajdukovich family," said Marilyn Romano, Alaska Airlines' vice president for Alaska. "We certainly don't expect that to change."

With a combination of a partnership with Alaska Airlines (PenAir also is a mileage partner) and a new, well-capitalized investor, Ravn's competitors may be concerned about future developments. Specifically, if weaker competitors drop out of the market, local travelers can bank on fares going up.

"I think everyone is pleased with the air service from Ravn," said Lisa VonBargen, director of community and economic development in Valdez. "In fact, the city recently chartered a plane -- so they're certainly responsive. But there is significant distress among local folks at the recent increase in fares. Now it costs more than $300 round trip to fly to Anchorage."

Jon Faulkner owns Land's End Resort in Homer, where Ravn offers five flights each day during the summer. "I think the air service to Homer is adequate," said Faulkner. "For years, we offered a fly/hotel package with Era, then with Ravn, but it never really sold. Visitors from Anchorage want the convenience of a car once they arrived. But for locals and corporate travelers, I think Ravn has done a good job at matching supply and demand. And I think they keep the price up by limiting the seats. We find it's hard to buy a seat in the summer," he said. "One more thing -- the staff is very friendly, including the flight attendants on the deHavilland Dash 8," he said. Currently, Ravn's fare to Homer from Anchorage is $250 round trip.

Bob Hajdukovich is happy about his new partner. "J.F. Lehman is a firm that's not interested in operating an airline," he said. Still, private equity investors do have a mandate to get a good return on their money.

How will Hajdukovich accommodate his new partner? "J.F. Lehman brings stability and opportunities to us," he said. "As a result of our new financial structure, we'll be able to provide better systems, safety and management resources across our whole network," he said. "We'll be able to better analyze the right type of aircraft for each market -- as well as pursuing new routes."

"Lehman is not investing in the status quo," he said.

J.F. Lehman has one other Alaskan company in its portfolio: Emerald Alaska, an environmental clean-up firm for oil and gas companies. How Lehman and their partner Hajdukovich plan to clean up in rural aviation is a good question.

Scott McMurren is an Anchorage-based marketing consultant, serving clients in the transportation, hospitality, media and specialty-destination sectors, among others. Contact him by email at zoom907@me.com. You can follow him on Twitter (@alaskatravelGRM) and alaskatravelgram.com. For more information, visit alaskatravelgram.com/about.

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