Viva International [VIVI], a start-up airline, has struck an agreement to buy nine-year-old RegionsAir, an American Connection carrier.

Instead of waiting for the deal to close on Nov. 15, the two organizations have an interim operating agreement that paves the way for an immediate integration of the two companies. Viva has already begun closing down its Miami operational headquarters and shifting those functions to RegionsAir's center at Smyrna, Tenn.

While Viva, a thinly traded penny stock company, is based in Traverse City, Mich., it has two budding airlines in the Caribbean (RAN, July 18). Earlier this year, Viva paid $350,000 for Cool Tours, a Part 135 on-demand charter operation in Puerto Rico. Now operating as Eastern Caribbean Air, the carrier flies a nine-passenger King Air 100 on routes between San Juan and Santo Domingo in the Dominican Republic. Viva has been working to get a certificate from the Dominican Republic for a second airline, Viva Air Dominicana, which would fly scheduled routes out of Santo Domingo to other Caribbean nations. Viva Air Dominicana would be classified as Part 129 carrier by the U.S. Federal Aviation Administration (FAA).

Viva is tapping RegionsAir for its operations experience and to fly its equipment for the Caribbean airlines, said Pier S. Bjorklund, a Miami-based consultant for Viva.

According to its June 30 financial statements on file with the U.S. Securities and Exchange Commission (SEC), Viva had a cash balance of $38,886. The company reported a loss of $985,198 on revenue of $10,730 in the second quarter. The company has 45.7 million shares that had been trading for about 16 cents per share prior to the Oct. 7 announcement. Its shares closed at 19 cents per share on Oct. 13. Viva disclosed on Oct. 13 that it is paying RegionsAir investors $6 million in a convertible debenture and 5 million in stock warrants that can be exercised within the next five years. It also plans to raise $10 million in a seconardary private placement after which RegionsAir investors can cash in at least $3 million of its debentures.

According to Viva's statements, RegionsAir has about $24 million in annual revenues. However, the carrier does not file financial statements with the U.S. Department of Transportation (DOT). Operating as an American Connection carrier, RegionsAir flies seven leased Jetstream 32s to 11 communities in six states from its St. Louis hub. In eight of the markets, the air service is subsidized through DOT's Essential Air Service (EAS) program.

As part of the deal, Viva will be retaining all RegionsAir executives, Bjorklund told Regional Aviation News.

While RegionsAir executives did not respond to repeated phone calls for comment, CEO Doug Caldwell in a press statement said his carrier "is excited about assisting Viva in bringing turn key operations and capability to their Caribbean marketplace and we believe as Viva does that the opportunities to expand within the Caribbean are excellent."

The two sides began talking about a month ago after a consultant to Viva suggested that RegionsAir could be a good fit. RegionsAir was not on the market.

"They are not in the business of trying to create markets," Bjorklund said of RegionsAir. "They are in the business of servicing markets with government subsidies. It made a lot of sense to us. We are doing essentially the same thing as the EAS program. We are trying to get subsidies from some islands to bring service to a community. That is our government subsidy. We are also seeking guarantees from hotel associations, tourism development grants and tour operators.

"In the Caribbean we are not in the business of creating a market. We are in the business of serving a need."

While Viva has been trying to build its Caribbean network one step at a time, the RegionsAir deal will permit the company to accelerate its plans. Bjorklund said the company has been considering seeking a Part 121 certificate for Eastern Caribbean Air to fly larger aircraft - primarily the Saab 340A - and to establish scheduled routes out of San Juan. The company determined it would be faster and more cost-efficient to buy a Part 121 carrier. At the same time, it is trying to get Viva Air Dominicana certified by an evolving Dominican Republic government. Certificated in the Dominican Republic, Viva Air Dominicana would have the flexibility of island hopping in the region without the requirement of landing on U.S. soil. The plan had been for Viva Air Dominicana to lease its equipment and crews from Eastern Caribbean Air.

With RegionsAir now in the picture, Bjorklund said RegionsAir would operate its Jetstream 32 aircraft first for Eastern Caribbean Air and later for Viva Air Dominicana, once it's certified. He expects to see RegionsAir's assets working in the Caribbean within 60 days.

In addition, the one Saab that Viva already has under a lease-purchase agreement would be placed on the RegionsAir certificate. Viva is negotiating with Bank of America for four additional Saabs - again these would be placed on the RegionsAir certificate.

Both Viva and RegionsAir have been working to place Saabs on their certificates, with Viva further along in the process. Bjorklund suggested that with RegionsAir's established track record, it should be relatively easy to add the Saabs onto its certificate.

Despite a flurry of press releases over the past nine months, Viva has been operating under the radar screen of much of the regional airline industry. Two analysts - one based in Miami - had little knowledge or insight into Viva's operations. However, both analysts cautioned that Viva is looking at the wrong aircraft to operate in the Caribbean.

"The Jetstream is not a good Caribbean airplane. It is payload restricted and it's marginal at best for island hopping," said Doug Abbey, of The Velocity Group. "The Saab [also] is a not a good Caribbean plane."

"It is very difficult to make money with either plane," said Stuart Klaskin, of Miami-based KKC Aviation Consulting. "The Saabs are expensive to operate. The Jetstreams don't have great hot weather and short runway experience. It is a great passenger experience."

"A lot of critics have come to us and noted we are undercapitalized, under funded and without an infrastructure," Bjorklund said. "Our answer is that we are here to service markets. It is not about airlines or airplanes, it is about the economy."

Klaskin said Viva's concept would probably work. "There is a definable inter-island market. It exists, but there is a question of just how big it is."

Viva is a getting a strong, experienced partner in RegionsAir, Abbey said. "Doug [Caldwell] is a smart guy. He has been in the regional business for many years. He has vast experience with the Jetstream - he knows what it is capable of and what it's not. He has a long history of serving small markets. I have infinite confidence in the management of the company."

Abbey suggested that RegionsAir may have taken up Viva's offer because "it was in a precarious position with limited growth opportunities on the mainland 48 with a 19- seater."

With Saabs on its certificate, Abbey said RegionsAir could be in a position to seek more flying with American Airlines [AMR]. Or, it could follow the Colgan Air model and fly the 35-seat Saab for multiple carriers.

>>Pier S. Bjorklund , Viva, (888) (336) 8482; Doug Abbey, The Velocity Group, (202) 338-1727; Stuart Klaskin, KKC Aviation, (305) 445-3103.<<