BALTIA AIR LINES, Inc.
63-65 Saunders Street, Suite 71
Rego Park, NY 11375
September 15, 2011
Mr. David R. Humphrey
Accounting Branch Chief
U.S. Securities & Exchange Commission
Division of Corporation Finance
Washington, DC 20549
Reference: BALTIA AIR LINES, INC.
Form 10-K for the year ended December 31, 2010
SEC Comment Letter dated August 18, 2011
File No. 001-14519
Dear Mr. Humphrey,
This letter responds point by point to your letter of
August 18, 2011. Please note that, in the absence of
additional comments, we will amend our Form 10-K for year
ended December 31, 2010 within 2 weeks following the
submission of our comments.
COMMENT 1. SIGNIFICANCE OF BEING THE ONLY PART 121 START-UP
AIRLINE TO HAVE RECEIVED DOT FITNESS APPROVAL.
It is significant that Baltia has successfully
demonstrated to the U.S. Department of Transportation,
approved by the U.S. President, that it possesses the
management, regulatory-required employees, capital, and
equipment to safely and financially perform its proposed
business plan to engage in foreign scheduled air
transportation of person, property and mail. The DOT
fitness certificate, Order 2009-3-7 was issued on March
10, 2009.
DOT fitness approval is distinct from FAA certification,
i.e. "Air Carrier Certification".
Upon receiving fitness certification, the carrier is
eligible to apply for Air Carrier Certification, which
includes FAA approval of the carrier's aircraft and FAA
issuance of carrier's Operating Specifications. FAA
certification is a prerequisite to commencing operations
pursuant to the DOT certification.
COMMENT 2. QUESTION CONCERNING PRIOR EFFORTS TO OBTAIN
CERTIFICATION
Baltia received DOT fitness approval in 1990 and
initiated Air Carrier Certification with the FAA.
Unfortunately, the USSR disintegrated caused Baltia to
stop certification. There is little, if any,
significance in the fact that Baltia had initiated FAA
certification 20 years ago where the certification
process has been modified.
However, if the SEC believes otherwise, Baltia suggests
including the below language and will await a response
from the SEC.
Twenty years ago Baltia was authorized to provide
international air transportation and began the
next step, Air Carrier Certification. All was
stopped as a result of the USSR disintegration and
Baltia reapplied for Air Carrier Certification in
2010.
COMMENT 3. SAFE HARBOR REFERENCES.
Baltia has removed references to safe harbors and will
refrain from referring to the PLSRA safe harbors in
future press releases and in other materials available
on Baltia's internet site, until such time as the
Company so qualifies.
COMMENT 4. DISCUSSION OF DIRECTORS AND EXECUTIVE OFFICERS OF
BALTIA AIR LINES, INC.
Baltia proposes to revise its discussion of Item 10 of
Form 10-K to include more information concerning the
background and qualifications of its Directors and
Executive Officers as follows:
A. Board of Directors:
Igor Dmitrowsky
Igor Dmitrowsky, Chairman and President, Chief Executive
Officer and CFO, founded the Company in August 24, 1989. Guiding,
directing and maintaining daily operations of the Company has been his full
time occupation and executive profession throughout the years.
Prior to founding Baltia Air Lines, Inc., in 1979, Mr. Dmitrowsky
immigrated from Latvia, learned the English language, attended US
university in engineering and business, founded American Kefir Corporation,
a dairy distribution company, which completed a public offering in
1986 and from which he retired in 1987 and became a U.S. Citizen. As a
hobby he designed and began construction of a personal flying machine,
became a pilot and pursued an interest in securities.
As of December 2010, Mr. Dmitrowsky had the language,
culture and social skills necessary to structure a business involving
both the United States and Russia. His engineering and business
education as well as the above stated experience enables him to manage the
various aspects of an international airline.
No organization to which Mr. Dmitrowsky has been
associated is a parent, subsidiary or other affiliate of Baltia Air Lines.
Walter Kaplinsky
Walter Kaplinsky, Director and Corporate Secretary since
1993, has been a retired engineer for the past five years,
contributing his time to the Company. Together with Mr. Dmitrowsky, Mr.
Kaplinsky was a co-founder of American Kefir Corporation, where he served
full-time professionally as Secretary and Vice President. As an emigre
from Russia, he has substantial knowledge of the culture which will be the
primary destination of the Company.
As of December 2010, Mr. Kaplinsky has knowledge of the
Company business operations and efforts, collaborating in the
development of the Company business plan since inception, through its earlier
efforts to commence operations and to date. In exercising the functions
of a corporate Secretary, he served the Company diligently over
many years, and provides institutional memory and experience with the
problems and powers of the corporate structure.
No organization to which Mr. Kaplinsky has been
associated is a parent, subsidiary or other affiliate of Baltia Air Lines,
Inc..
Andris Rukmanis
Andris Rukmanis, Director and Vice President Europe, is
and has been for more than twenty years a full-time qualified
licensed attorney in Latvia, specializing in business law, and has been
a Director of the Company since 1990. From 1988 through 1989, he was
Senior Legal Counsel for the Town of Adazhi in Riga County, Latvia. From
1989 to 1990, he served as Deputy Mayor of Adazhi.
As of December 2010, Mr. Rukmanis had the political
experience, legal education, and language as well as cultural skills that
were needed by the Company in light of the Baltia's initial market
in European foreign Soviet controlled countries.
No organization to which Mr. Rukmanis has been
associated is a parent, subsidiary or other affiliate of Baltia Air Lines,
Inc..
Vick Luis Bolanos
Vick Luis Bolanos, has served as Director since 2009.
Mr. Bolanos is, and has been since 1992, full-time President of
Eastern Construction & Electric, Inc. Since May 2005, Eastern has
been the Simplified Acquisition Base Engineering Requirements (SABER)
contractor. The USAF uses the SABER contractor to fulfill engineering
requirements on a variety of projects, ranging from small renovations to
large scale infrastructure needs involving pipelines, electrical
substations, and life safety issues. Eastern is also working on McGuire AFB
for the Corps of Engineers under a Basic Agreement to both design and
build or install several projects and is currently working for the Air
Force at Willow Grove Air Station and a Task Order Contract at Fort
Monmouth, New Jersey.
As of December 2010, Mr. Bolanos had the specific
experience of developing a company from the start as 8a. He understands
managing large projects to produce growth and profit. He is familiar
with working with government agencies and has specific experience
working projects in the aviation field. These skills are critical to
the Company in light of Baltia's being a start-up company in aviation with
the need to initiate and bring to fruition many projects to enable the
Company to grow profitably.
No organization to which Mr. Rukmanis has been associated is a
parent, subsidiary or other affiliate of Baltia Air Lines, Inc..
B. Executive Officers In Addition to Mr. Dmitrowsky and Mr.
Rukmanis:
Russell Thal
Russell Thal, Executive Vice President, joined the
Company in year 2000 and his full time occupation has been as Executive
Vice President of the Company where he has maintained his executive
profession. In 1958, he left the US Army and entered the civilian human
relationsfield. In 1964,he joined Ceabord World Airlines as Personnel
Manager. Soonwas moved to Director of Crew Scheduling and Dispatch and
finished asinterface with Military Airlift Command for Ceabord. From 1980
to 1981 he was Director of Stations with responsibility for hiring and
outfitting all stations for the start-up New York Air. In 1981, Mr. Thal
started Compuflight, Inc., and served as President and Chairman until he
retired in 2001. Compuflight provided both flight planning and engineering
services to the airline industry.
As of December 2010, Mr. Thal had the specific
experience in airline operations and management to assist Baltia President
Igor Dmitrowsky. He functions as head of human resources,
purchasing and provide all management services required by the Company. Mr.
Thal's experience and skills is particularly needed as Baltia is
starting up. A limited number of people are required with skills in many
fields.
No organization to which Mr. Thal has been associated is
a parent, subsidiary or other affiliate of Baltia Air Lines,
Inc.
Barry Clare
Barry Clare, Vice President of Finance joined the
Company in 2006 and it has been his full-time occupation and profession for
the past four years. From 2004 to 2006 his full-time occupation and
profession. From 2001 to 2004 Mr. Clare had been Chief Operating Officer for
Advance Plant Pharmaceuticals, Inc. From 1995 to 1996, Mr. Clare served as
Vice President of Intermediaries, Inc., an investment banking firm.
As of December 2010, Mr. Clare had the specific
experience in raising capital that has been absolutely critical to the
Company's being able to purchase aircraft, hire specialized experts for
pursuing certifications, to enlarge the staff and physical workplace,
create and maintain a station in St. Petersburg, Russia, and support the
extensive travel required to prepare for commencing international
scheduled flights. All this has been maintained financially over the
past five years with zero operating revenue.
No organization to which Mr. Clare has been associated
is a parent, subsidiary or other affiliate of Baltia Air Lines, Inc.
C. Nominations for Director:
Baltia Air Lines, Inc., has had only one new nomination
for director, Vick Luis Bolanos, who was nominated and chosen as a
director in 2009 because Baltia sought someone with the skills stated
above.
The Baltia has four Board members. Each has direct access to
others and "hands on" opportunities to advance the Company. Mr.
Bolanos was unanimously selected to replace the retiring Board member
because he brought insight, experience, and skills that had enabled him
to bring Eastern Construction & Electric, Inc. from inception to a
large company operating in several geographic locations. Similar to the
operations which Mr. Bolanos has been a part of, Baltia is a start-up
with plans to become a large company with stations in Russia and in
several former Soviet controlled countries.
COMMENT 5. QUESTIONS CONCERNING EXECUTIVE COMPENSATION.
The Company proposes to amend its 10-K to correct
certain errors related to the reporting of compensation
to its officers. We have prepared such amended language
to reflect that options were not issued to any of its
executive officers but rather shares of common stock as
set forth below in the proposed amendment to Item 11.
PROPOSED AMENDMENT
Item 11. Executive Compensation.
No cash compensation has been paid to the Company's executive officers during
the fiscal years ended December 31, 2009 and 2010.
In 2010, the Company issued 191,000,000 shares of common stock to
executive officers, the shares recorded at fair value, awarded as bonus fully
earned and non-assessable, and containing no future earned performance or
forfeiture requirements. Of this, 149,000,000 shared, valued
at $8,800,000 was issued to the Company's President and CEO, Igor Dmitrowsky.
In 2009, the Company issued 150,000,000 shares of common stock to
executive officers, the shares recorded at fair value, awarded as bonus fully
earned and non-assessable, and containing no future earned performance or
forfeiture requirements. Of this, 116,000,000 shares, valued
at $5,308,000 was issued to the Company's President and CEO, Igor Dmitrowsky.
SUMMARY COMPENSATION TABLE
Change in Pension
Non-Equity Value and Nonqualified
Incentive Plan Compensation
Name & Principal Year Base Stock Option Compensation Deferred All Other
Position Salary Bonus Awards<FN1> Awards<FN1> Earnings Earnings Compensation Total
Igor Dmitrowsky 2010 $0 $0 $8,800,000 $0 $0 $0 $0 $8,800,000
President, CEO 2009 0 0 5,308,000 0 0 0 0 $5,308,000
Barry Clare 2010 0 0 1,782,230 0 0 0 0 $1,782,230
Vice-President 2009 0 0 474,539 0 0 0 0 $474,539
Russell Thal 2010 0 0 718,833 0 0 0 0 $718,833
Vice-President 2009 0 0 230,048 0 0 0 0 $230,048
<FN><FN1> These columns represent the grant date fair value of the awards as
calculated in accordance with FASB ASC 718 (Stock Compensation). Pursuant
to SEC rule changes effective February 28, 2010, we are required to reflect
the total grant date fair values of the option grants in the year of grant,
rather than the portion of this amount that was recognized for financial
statement reporting purposes in a given fiscal year which was required
under the prior SEC rules, possibly resulting in a change to the amounts
reported in prior Annual Reports.</FN>
COMMENT 6. ERROR IN REPORTING COMMON SHARES ISSUED TO IGOR
DMITROWSKY.
Answered in Response to Point 5 supra.
COMMENT 7. DISCLOSURE OF RELATED PARTY LOAN.
The Company proposes to amend Form 10-K Item 13 as follows:
Mr. Vick Luis Bolanos was elected to the Baltia Board of
Directors while he was, and remains, President and Chairman of Eastern
Construction & Electric, Inc. The transaction between Baltia and Eastern was
made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable loans with persons not related to the lender; and
did not involve more than the normal risk of collectibility or present
other unfavorable features. This transaction is discussed further in
Note 7 to the Financial Statements infra.
COMMENT 8. INACCURATE REFERENCE IN FINANCIAL STATEMENT
Note 7 is now referenced as Note 8.
COMMENT 9. POWER-BY-THE-HOUR LEASE REPORTING
The Company proposes to amend Form 10-K to add a section
to the Summary of Critical Accounting policies with the
following section and text:
Capital and Operating Leases
We classify leases at the inception of the lease as either a
capital lease or an operating lease. A lease is classified as
a capital lease if any of the following conditions are met:
- the ownership of the leased property is transferred to the
lessee by the end of the lease term
- there is a bargain purchase option,
- the lease term is at least 75% of the property's estimated
remaining economic life or
- the present value of the minimum lease payments at the
beginning of the lease term is 90% or more of the fair
value of the leased property.
A capital lease is accounted for as if there were an
acquisition of an asset and an incurrence of an obligation at
the inception of the lease. All leases not identified as
capital leases are accounted for as operating leases.
We lease office space and aircraft engines under operating
leases. The real estate lease agreement contains, among other
terms and conditions, tenant improvement allowances, rent
holidays, lease premiums, rent escalation clauses and
contingent rent provisions. For purposes of recognizing lease
incentives, premiums and minimum rental expenses on a
straight-line basis over the terms of the leases, we use the
date of initial possession to begin amortization, which is
generally when we enter the space and begins to make
improvements in preparation of intended use.
The sole aircraft engine operating lease is based on hours
flown and provides for 4 engines. We accrue a liability and
record an expense under this contract on the basis of hours
flown. The lease term is two years and expires on February 1,
2012. The lease provides for an escalating minimum guaranteed
usage of 50 hours per engine in month five up to 150 hours per
engine beginning in month nine. Maintenance costs are based
upon cycle usage (take-offs and next subsequent landing) and
are in addition to the base hourly rate.
COMMENT 10. Answered in Response to Point 5 supra..
COMMENT 11. Answered in Response to Point 5 supra.
COMMENT 12. The reference in this item will be amended to
reflect the proper year, 2010 rather than 2009.
COMMENT 13. The second signature block has been added to
include that of the Company's principal
financial officer.
COMMENT 14. Material Exhibits
The exhibits referred to are primarily industry operating
agreements that are confidential in the normal course of
business, representing terms that are negotiated with a view
that competitors will not be able to adjust their business
operations to negatively impact the each Vendor or the Company
due to knowledge of the terms. Accordingly, and by provisions
contained in the body of those agreements, disclosure is not
normally made to the public.
In addition, due to the materiality of such agreements to
the ability of the Company to conduct its business, such
agreements are provided to the US agency responsible for the
oversight and certification of the fitness of the Company for
operations, in this case, the United States Department of
Transportation, which has established a mechanism for the
receipt of these agreements, under provisions of
confidentiality, under the common rules related to the airline
and transportation industry.
Discussion of Specific Documents:
- The agreement with Logistic Air, Inc., for the purchase of a
Boeing 747 aircraft is a purchase done in the business of every
airline on substantially market terms. The transaction was
immediately complete. Purchase has been made in full. The
aircraft registration was changed upon purchase. There are no
forward looking or continuing terms. No director, officer,
promoters, trustees or related parties are or were involved.
- The agreement with Logistic Air, Inc., is an engine
power-by-the-hour lease rate at $200 per flight hour per
engine. Maintenance burden/direct includes $800 for 4 engines
which is a normal operating expense. This is an agreement done
in the normal business of airlines. No director, officer,
promoters, trustees or related parties are or were involved.
- The lease and operating agreements for operations at John F.
Kennedy International Airport involves rent expense. The
lease is at public market rates and done in the normal business
of airlines. A record of all rents are reported by the Company
in Periodic Filings. No director, officer, promoters, trustees
or related parties are or were involved.
- The agreements for Baltia's operations at Pulkovo Airport
were arranged with public parties at market rates and done in
the normal business of airlines. A record of all expenses
related to the agreements are reported by the Company in
Periodic Filings. No director, officer, promoters, trustees or
related parties are or were involved.
- The agreement with Kalitta Air for the purchase of a Boeing
747 aircraft is a purchase done in the business of every
airline on substantially market terms. The transaction was
immediately complete. Purchase has been made in full. The
aircraft registration was changed upon purchase. There are no
forward looking or continuing terms. Eastern Construction &
Electric, Inc., loaned cash as part of the purchase price. See
note 7 in the financial statement. Otherwise, no director,
officer, promoters, trustees or related parties are or were
involved.
COMMENT 15. The title of the certifying officer has been
omitted in the identification of the certifying
individual at the beginning of the
certification.
This is to confirm and acknowledge that Baltia Air Lines, Inc.
is responsible for the adequacy and accuracy of disclosures
made in its filings with the Commission, and in particular,
with respect to this filing, and that SEC staff comments and
changes to this disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to
this filings, and further, that the Company is not permitted to
assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities
laws of the United States.
Sincerely,
Baltia Air Lines
by: /s/ Igor Dmitrowsky
Igor Dmitrowsky, President
and Chief Financial Officer
September 15, 2011