Days after Direct Air stranded passengers without notice at multiple airports the company filed for Chapter 11 bankruptcy, which allows for a reorganization of debts.
The filing is the latest setback for the carier which recorded about 15 percent of all plane boardings at Myrtle Beach International airport in July 2011, according to Coastal Carolina professor of accounting, finance and economics Robert Salvino.
Airport officials said they hopeful the charter company, which serviced 17 destinations including Myrtle Beach will take flight again.
The bankruptcy documents were filed by attorney Alan Braunstein at 7:19 p.m. Thursday in the U.S. Bankruptcy Court District of Massachusetts, records show. The case has been assigned to Judge Melvin S. Hoffman.
Braunstein said his Boston based firm Riemer & Braunstein, LLP has never done business with Direct Air or the parent company Southern Sky Air and Tours LLC. He declined further comment on the case and said he just got involved and is not authorized to discuss the bankruptcy filing.
Direct Air officials could not be reached for comment Friday, but in a news release the company confirmed the bankruptcy and said that rising fuel costs and other operational expenses had the charter losing money. “As a result of its financial difficulties, Direct Air was compelled to seek bankruptcy protection in an effort to reorganize the business,” the release said.
Court documents are signed by Hank L. Robert, Reginald Greiner, and Ed Warneck who are all listed as mangers on the Board of Managers for the company.
The statement issued by Direct Air said the company still intends to fly again and “hopes to emerge from bankruptcy as soon as possible.”
David Schweiger, distinguished professor emeritus of businesses at the University of South Carolina, said Chapter 11 bankruptcy allows a company to renegotiate terms and payments with creditors or debt holders.
Court documents show Direct Air estimates having 100-199 creditors. Company assets are estimated between $500,000 and $1 million and the estimated liabilities are between $10 million and $50 million, court records show.
The offset of assets compared to liabilities is one reason Schweiger said creditors might be willing to renegotiate payments. "If a company has so many more liabilities than assets, or if it owes more than the things it can sell are worth, it may be worth the first cut because it has the potential to produce cash if the business continues,” he said. He said attorneys for the company will work with the debtors to find a way to lower the payments with changes to interest rates or longer contract terms. He said the debt holders also could agree to simply take less money. But, Schweiger said that’s a decision for the debt holders who have the option to say no and force Direct Air into Chapter 7 bankruptcy, or liquidation. “Usually, [creditors] understand there’s a better chance to get their money back if the company stays alive,” he said. “It’s the hope that it’s worth more alive than the sum from selling its parts.”
Salvino said Direct Air was a major air carrier in 2011. He said Spirit Airlines handle nearly half of the enplanements at Myrtle Beach International, and Direct Air made up 10.5 percent. “They are an important carrier,” he said. “There’s no question about that, especially in the summer.”
Lauren Morris, spokeswoman for Myrtle Beach International, said the top carriers behind Spirit Airlines are U.S. Airways and Delta. While Direct Air wasn’t the largest carrier, Morris said their numbers aren’t insignificant. She said it’s not known yet if Direct Air’s grounding of flights and bankruptcy will affect total enplanements, and the airport is working with carriers to try and offset the losses. “We will have a decrease in the number of markets,” she said. “Some of the markets are carried by other airlines. Direct Air had the small market sweet spot to Myrtle Beach.” That means in many instances there are complementary airports for passengers headed in or out of Myrtle Beach. Worcester, Mass. for example is only an hour from Boston. “Our hope is that we can still get those passengers from airports that aren’t local like Worcester through carriers from Boston.” Additionally, Morris said the airport would work with Direct Air again. “Our hope is that they can emerge from this and reorganize,” she said. “Airlines are running a tricky business and [Direct Air] has new owners with solid experience. There are some really disgruntled passengers out there that they’ll have to figure out how to regain, but we never want to see somebody go out of business.”
Salvino said it’s reasonable to question whether people would have confidence to book with Direct Air in the future, given the abrupt cancellations Monday.
Mary Nardini from Ontario doesn’t plan to board with the company again. “If you think I’m coming back to Myrtle Beach, flying Direct Air, you’ve got another thing coming,” she said. “It’s spoiled my vacation. Our vacation has been totally, totally destroyed. I’ll never come back. I’m totally disgusted.”
But, Mike Snyder from Buffalo, N.Y. who will have to drive home at the end of the month said he would consider it. “I would fly them again if they get back on their feet and you see they are reliable,” he said.
In a statement Friday afternoon Morris said the airport had been working with the new management and investors of Direct Air to collect past due amounts. The last payment Direct Air made to the airport was received on March 5. “It is not uncommon for the seasonal airlines to make smaller payment during the offseason due to the lack of cash flow and repay the balance due once the season starts,” Morris said. “Direct Air has had a history of this at Myrtle Beach International and in the past would repay past due amounts when their passenger levels increased.” Morris said Direct Air had a performance bond on behalf of Horry County for $151,000 that the airport collected when Direct Air suspended service. The amount due to the airport after the bond is $174,912.59. Morris said the airport maintains an allowance for bad debt to cover events like this and the allowance is large enough to cover the amount due from Direct Air. Excluding Direct Air, the airport has less than $45,000 in past due accounts.
Direct Air was sold last November and had just restarted flying out of Myrtle Beach in March after a one-month hiatus in February. Direct Air is listed as having no passengers last month at Myrtle Beach International Airport, though it has flown in February during previous years. Direct Air carried 1,033 passengers out of Myrtle Beach in January, according to airport statistics.
On Monday, thousands of passengers learned their flights wouldn’t be leaving the ground, but they weren’t told anything else. Tuesday, Warneck said skyrocketing fuel prices were to blame and admitted Direct Air had missed a fuel payment.
Filings with the U.S. Department of Transportation show that Direct Air’s fuel supplier refused to fill up anymore planes because it hadn’t been paid. The company released a statement Tuesday saying “The decision was made to address operational matters. We are currently evaluating strategic alternatives for Direct Air,” and said flights would resume on May 15.
On Thursday, the U.S. DOT outlined options for Direct Air consumers and Bill Mosley, a Department of Transportation spokesman said that at least $200,000 in a surety bond exists to refund customers, while officials sort out details of the escrow account Direct Air is required to maintain. The DOT oversees public charters such as Direct Air.
Direct Air has set up a toll-free number to help consumers, 1-855-888-8090. Callers get a recording instructing them to contact their credit card for refunds on tickets already purchased and to make other travel arrangements. The recording says callers can hold to talk to a Direct Air representative.
Ticket holders also can mail requests for refunds, but must include proof of the purchase, either through a Direct Air receipt or invoice or credit card purchase record, DOT says, adding that consumers should write to Direct Air at 1600 Oak St., Suite B., Myrtle Beach, SC, 29577, with copies sent to Valley National Bank, 1455 Valley Road, Wayne N.J. 07470 and to the holder of the surety bond, Platte River Insurance Co., Alejandro Navarro, Attorney-in-Fact, 700 A Lake Street, Ramsey, NJ 07446.