The FAA ordered the Newark-based carrier, which filed Tuesday for Bankruptcy Court protection from its creditors, to immediately surrender its operating certificate. Its six-city schedule was suspended immediately, FAA spokesman Jim Peters said.
The FAA said Kiwi had "deteriorated to the point where without constant monitoring from the agency that it is no longer able to sustain safe operations." It said Kiwi's planes were in "unairworthy condition," and that it failed to adequately maintain aircraft and follow up on maintenance discrepancies in FAA audits.
The agency's grounding of Kiwi came a day after the U.S. Department of Transportation threatened to shut the airline down in three weeks if it didn't come up with a better management plan.
Hours later, Kiwi filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. It said Pan American Airlines Inc., the former commercial airline that now flies charters, would give it $3 million to allow it to fly its current schedule.
In a letter to Kiwi, the FAA said two of the five Boeing 727 planes it lists as available are out of service, one because of the company's failure to pay for maintenance and the other because of its repossession by a British company.
The agency also said high management turnover has affected the safety of Kiwi's operations. Seven managers at the airline have resigned in the past two months.
Kiwi spokesman Rob Kulat, who was attending a bankruptcy hearing for the airline Wednesday, had no immediate comment.
Kiwi pilot Robert Link said he wasn't surprised by the grounding. He blamed a series of poor managers.
"The biggest problem is we were undercapitalized from day one and therefore we were handicapped," Link said.
The FAA said it recently increased its surveillance of the airline after learning of its financial troubles, and found that it had violated several FAA regulations.
Kiwi failed to notice an excessive oil leak in one of its planes' engines and failed twice to repair the leak properly when it was brought to its attention, the FAA said in a letter to Kiwi.
"Kiwi is unable or unwilling to provide service with the highest possible degree of safety," the agency's letter said.
Kiwi had been struggling to meet its schedule recently with only four planes. Two others are in disrepair, and a British company took possession of two other planes last month.
The airline has had difficulties since it was founded in 1992 by airline employees who had lost their jobs at other carriers, mostly Pan Am and Eastern. The founders chose the name of a flightless bird for their upstart enterprise to symbolize the loss of their wings at their old airlines.
At its peak, the airline had 1,200 employees, 15 leased jets and 65 lights a day. It now employs 500 and flies out of Newark, Orlando, Miami and Palm Beach, Fla., and San Juan and Aguadilla, Puerto Rico. The airline recently pulled out of Atlanta, Boston, Chicago and Flint, Mich.
Before those airports were dropped, the airline reported a 26 percent increase in passengers last year, to 58,900.
Kiwi first filed for bankruptcy in September 1996, declaring $20 million in debts. It was resurrected a year later by Baltimore physician Charles Edwards, who bought the airline for $16.5 million and took majority ownership of the company from the employees.
Pan Am, which is owned by Guilford Transportation Industries Inc., now operates charter flights under ownership of a New Hampshire freight rail company.
Pan Am World Airways began flying in 1927. It shut down in 1991, following the 1988 terrorist bombing that killed 270 people over Lockerbie, Scotland.
The discount carrier that followed never turned a profit serving 14 cities in Florida, the Northeast, Midwest and Puerto Rico before falling into bankruptcy. Guilford bought the airline in June 1998.
Written By Amy Westfeldt, Associated Press Writer