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Direct Air files for bankruptcy

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Direct Air files for bankruptcy

Old 03-17-2012, 01:27 AM
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Default Direct Air files for bankruptcy

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.

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Old 03-17-2012, 01:48 AM
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Default Direct Air parent files for bankruptcy

NEW YORK — Just three days after abruptly stopping service and leaving travelers stranded, the parent of discount airline Direct Air has filed for bankruptcy protection.

Southern Sky Air & Tours LLC late Thursday filed for Chapter 11 protection in Massachusetts. Court documents show the company has between $10 million and $50 million in debt and just $500,000 to $1 million in assets. The company has not yet filed several documents required by the court as part of the bankruptcy filing process, including a list of its top 20 creditors. The airline said it has 100 to 200 creditors, which could include everything from fuel suppliers to airports.

The airline abruptly stopped flying Monday afternoon — at the peak of the spring break travel season — apparently because it couldn't pay its fuel bills. Direct Air, based in Myrtle Beach, S.C., says it will not fly again until May 15. Ticket holders were told to contact their credit card companies for refunds.

Direct Air began flying in March of 2007. It serves 17 cities in the Midwest, East and South — mostly smaller markets where big airlines don't fly. It's faced increased competition in recent years from a number of discount carriers including Spirit, Allegiant and Southwest. Rapidly accelerating fuel prices this year were also a culprit in the company's filing.

An attorney for Direct Air did not immediately return a telephone call seeking comment on the bankruptcy filing.

The Wall Street Journal - NY AP Top News
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Old 03-17-2012, 05:27 PM
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And some of those "creditors" include the airlines that flew Direct Air flights. I wonder how anxious they will be to continue flying for a company that may not pay them??
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Old 03-30-2012, 09:17 AM
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When charter-air servicer Direct Air suddenly canceled service and filed for bankruptcy earlier this month, it left many customers stranded and frustrated. But there did seem to be some good news—customers would be able to get unused ticket refunds because the Department of Transportation required Direct Air to hold customer payments in escrow until it hands the money to the actual airplane operator. (Direct Air is a charter service that doesn’t actually own any airplanes).

But now, lawyers are testifying that the money isn’t in the escrow account, leaving both customers and credit-card companies exposed.

The Worcester Telegram reported earlier week that a lawyer for Direct Air, Steven Fox, said during a hearing that millions of dollars are missing from the escrow account. And a lawyer for the bank where the escrow account is held confirmed that there’s only about $1 million in the account.

Fox told the judge that “irregularities” had been uncovered in the handling of the escrow account. “It is our belief that the escrow account was invaded. It may have been invaded in an unlawful manner,” he said, adding that customers are owed at least $10 million and maybe as much as $30 million according to the newspaper.

Fox didn’t return repeated requests for comment.

The Department of Transportation couldn’t confirm Thursday that there was any money missing, but spokesman Bill Mosely said the department is investigating.

Customers who’d purchased their tickets by credit card (99% of customers, according to court documents) were directed to seek reimbursements from their credit-card companies. But one credit-card processor said it’s obligated to refund the money and doesn’t have the cash to do so without the escrow account funds.

JetPay, Direct Air’s Visa/MasterCard processor, said its exposure could be as high as $20 million, and that “without reimbursement from the escrow account which JetPay funded, JetPay may run out of cash and be out of business in a matter of weeks.”

JetPay filed a motion last week stating that they haven’t been getting reimbursed from the escrow account and have had to pay the reimbursements out of pocket. The situation is causing a cash shortfall for JetPay, it said, and asked the judge to require it be reimbursed.

A hearing is scheduled for April 11.
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Old 03-30-2012, 12:04 PM
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I know one of those charter companies that used to fly for direct air is owed 700k. I doubt Direct air will ever come back with a tract record like this.
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Old 03-30-2012, 12:14 PM
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Originally Posted by hoover
I know one of those charter companies that used to fly for direct air is owed 700k. I doubt Direct air will ever come back with a tract record like this.

Sky King already opened a vacancy bid to shuffle the people that were in LAL and PBI. They see the writing on the wall that the flying isn't coming back.
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Old 03-30-2012, 02:04 PM
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Where does Judy Tull stand in all this?
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Old 03-30-2012, 08:20 PM
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Originally Posted by Herman
Where does Judy Tull stand in all this?
Hopefully in jail...

Worcester Telegram & Gazette - telegram.com - Charges fly in Direct Air debacle hearing

Charges fly in Direct Air debacle hearing

Company: Execs deserted ‘under cover of darkness'


WORCESTER — As a fuller picture of Direct Air's financial ruin emerged at a hearing in U.S. Bankruptcy Court here yesterday, the charter air service's current and former owners began blaming each other for the company's dramatic collapse.

With Direct Air losing money, suffocating under mounting debt and teetering on the edge of financial collapse last week, its former president, Judy K. Tull, and other top executives left their posts without warning, according to a lawyer for the company.

“Like the Baltimore Colts, they left under the cover of darkness, packed up their offices and took what they took, and we don't know what they took, and abandoned the debtor,” said Steven E. Fox, one of several lawyers representing Direct Air in its bankruptcy.

What's more, Mr. Fox said at the hearing, it appears that millions of dollars are missing from an escrow account set up by Direct Air under U.S. Department of Transportation regulations intended to protect ticket holders in the event of flight cancellations.

Ms. Tull, Direct Air's former president and chief executive officer and one of its founders, shot back in a telephone interview yesterday evening saying that she and other former owners did not leave their posts as Mr. Fox claimed, but rather were locked out of the company's Myrtle Beach, S.C., offices by the new owners.

Ms. Tull said she resigned in February following the purchase of Direct Air last September by Avondale Ventures LLC, a private equity firm based in Washington, D.C.

She said that she had been serving as a consultant to Direct Air recently but that Avondale Managing Partner Hank L. Torbert had installed several of his own executives at Direct Air, including a chief financial officer who was well aware of company's mounting losses.

“They have been running the company since September, making all the financial decisions,” Ms. Tull said. “On the Monday that they decided to close, Mr. Torbert came in and said, ‘This is my company. I'm shutting this company down.' ”

Another of the former executives and founders, Kay Ellison, said in an interview that she pleaded unsuccessfully with Mr. Torbert to use the airplanes of another aviation company he owns, Swift Air LLC of Phoenix, to get stranded Direct Air passengers home.

While it remains unclear amid all the finger pointing on whose watch the company failed, there is no question that Direct Air's assets are nowhere near sufficient to pay off its creditors and refund fares paid by passengers.

A lawyer for the New Jersey bank that held the escrow account into which fares were supposed to have been deposited told Judge Melvin S. Hoffman that the account balance is little more than $1 million, far short of the potentially tens of millions of dollars that it should contain to pay refunds to consumers.

Federal transportation regulations require that fares paid by charter air passengers be deposited into an escrow account and not released to the charter service, Direct Air in this case, until the flights are completed. That means Direct Air's escrow account at Valley National Bank should contain enough money to pay refunds to all the passengers left holding useless tickets, even any paid for with cash, checks or debit cards.

But Mr. Fox, one of Direct Air's lawyers in the bankruptcy case, told the judge that Avondale Ventures has uncovered “irregularities” in the handling of the escrow account.

“It is our belief that the escrow account was invaded. It may have been invaded in an unlawful manner,” said Mr. Fox, who did not elaborate on who his client believes raided the account.

While none of the numerous lawyers representing banks, credit card companies and others who spoke during a two-hour emergency hearing yesterday morning in Judge Hoffman's Worcester courtroom could say for sure how much money the charter air service owes to customers, several said it was clear that the amount far exceeds Direct Air's assets and the money left in the escrow account, which together total roughly $2 million.

That's bad news for passengers who didn't use a credit card to buy their tickets and for credit card processors, who were expecting to be reimbursed from the escrow account for refunds they already have paid to credit card customers.

The only other potential source of refunds for consumers is a $200,000 surety bond held on behalf of Direct Air by Platte River Insurance Co. of Ramsey, N.J.

Lawyers for the insurance company were not present at the hearing yesterday. But the president of Platte River's surety operation, Rick Allen, said in an interview that the company has received or is aware of roughly 750 specific claims against the bond and has been told to expect as many as some 2,000 claims.

Because the total dollar value of those claims likely will far exceed the $200,000 value of the bond, Platte River is evaluating how to handle the claims. It could pay them as they come in until the money runs out or seek to turn the entire sum over to the bankruptcy court to disburse to consumers as it sees fit, Mr. Allen said.

“Theoretically, there should be enough money in the escrow account to pay everybody back, and the bond is just there as a backstop in case anything falls through the cracks,” he said. “If there's a big shortfall in the escrow account, that creates a problem.”

The problem is especially acute, as it turns out, for credit card processors.

A lawyer for a division of American Express said the company so far has paid out about $1.8 million in refunds to customers who used their AmEx cards to buy Direct Air tickets. A lawyer for JetPay Merchant Services LLC of Texas, which processed Master Card, Visa and Discover transactions online for Direct Air, said it has paid out roughly $4 million and counting in chargebacks to credit card companies since last week with no reimbursement from the escrow account.

It was JetPay's emergency motion asking Judge Hoffman to rule that the escrow account was outside the scope of the bankruptcy proceeding that prompted yesterday's hearing. Judge Hoffman didn't make a ruling and continued the hearing until April 11.

JetPay argued in its motion that the mounting chargebacks with no reimbursement from the escrow account could threaten its ability to stay in business, a situation that would appear to be largely unavoidable given that there's only $1 million in the account.

But JetPay Chairman and Chief Executive Officer Trent Voigt clarified in an interview yesterday that the company has insurance against such catastrophic chargebacks and that it also has legal recourse against the personal wealth of Direct Air's founders, including Ms. Tull and Ms. Ellison, whom he said signed personal guarantees protecting JetPay from such losses.

Meanwhile, Mr. Fox said it was his understanding that the total amount owed to consumers is at least $10 million and could be as much as $30 million. Direct Air also owes $8.6 million to its largest creditors such as fuel suppliers, aircraft operators and airports.

Given the bleak financial picture, the U.S. Trustee in the bankruptcy case, Richard King, has asked Judge Hoffman to convert the matter from a Chapter 11 bankruptcy reorganization that Direct Air is seeking to a Chapter 7 liquidation of the company's remaining assets.

Mr. Fox acknowledged in court that Direct Air faces major obstacles to resuming operations.

In addition to having to rebuild relationships with aircraft operators, fuel suppliers, airport authorities and others, Mr. Fox said, “We are going to need to rebuild some customer confidence because we assume there is little to none today.”
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Old 03-30-2012, 08:23 PM
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Direct Air owes $8.6M to firms; Thousands more due ticket-holders Mobile

March 26, 2012
Direct Air owes $8.6M to firms; Thousands more due ticket-holders


The charter air service Direct Air, which suspended operations last week, stranding area passengers in Florida and wrecking spring vacation plans for others, owes a total of $8.6 million to its largest creditors, according to court records.

That sum doesn't include the potentially tens of thousands of dollars owed to individual customers who bought tickets for air travel on flights that have since been canceled.

Direct Air filed a required list of its largest creditors with the U.S. Bankruptcy Court in Worcester yesterday that includes an $84,716 debt to the Massachusetts Port Authority.

MassPort spokesman Richard Walsh couldn't immediately confirm Direct Air's tally of the debt but said the company owes MassPort, a quasi-public agency that owns Worcester Regional Airport, for landing fees and terminal rent at the airport.

MassPort initially waived landing fees as an incentive to get Direct Air to fly out of the Worcester airport, which has long struggled to attract regular commercial air service. Mr. Walsh said the fees the company owes MassPort date back to February 2011.

The Myrtle Beach, S.C.-based charter air service had provided low-cost air service from the airport for about three years before filing for bankruptcy protection late last week.

Direct Air owes the most by far, $3.3 million, to Chemoil Corp. of Fort Lauderdale, Fla., a jet fuel supplier that recently cut off service to Direct Air over unpaid bills, throwing the company's scheduled flights into disarray and ultimately leading to its abrupt suspension of operations.

Direct Air's majority owners last week removed its upper management team and filed for Chapter 11 bankruptcy reorganization in U.S. Bankruptcy Court in Worcester.

Direct Air released a statement at the time saying rising fuel prices and other expenses had left the discount charter service in a "severe operating loss position," meaning that it was losing a lot of money.

In its initial bankruptcy filing, which contained little financial information, Southern Sky Air & Tour LLC, doing business as Direct Air, reported assets of between $500,000 and $1 million - far less than its reported debts of between $10 million and $50 million.

The list of its 20 largest unsecured creditors filed with the court yesterday includes other airport authorities in Pennsylvania, South Carolina, Michigan, New York, Florida and Illinois.

JetPay LLC of Carrollton, Texas, an online payment processing service, is owed $2 million, according to the document. Other large unsecured creditors include aircraft operators Sky King Airlines of Lakeland, Fla., which is owed $889,000; Xtra Airways of Boise Idaho, which is owed $663,000; and Vision Airlines of Suwanne, Ga., which is owed $140,864.

Direct Air reported owing Quickflight Inc. of Lexington, Ky., an aircraft ground handling service, more than $116,000. Other unsecured creditors include television stations in Colchester, Vt., and Buffalo, N.Y.

The filing is signed by Hank L. Torbert, the founder of a Washington, D.C.-based investment group that bought a controlling stake in Direct Air last September.

The bankruptcy filing identifies the people now authorized to act for Direct Air in the bankruptcy as Mr. Torbert, Reginald Greiner and Edward Warneck. Mr. Warneck has been the public face of Direct Air as its marketing director, while Mr. Greiner is a principal of Mr. Torbert's private equity investment firm Avondale Ventures LLC.

Direct Air has said it plans to resume flights after May 15, but U.S. Department of Transportation officials have said the agency would have to reauthorize Direct Air to operate charter flights for that to happen, assuming it emerges from bankruptcy by then.
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Old 03-31-2012, 01:34 PM
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Originally Posted by pilotgolfer
Sky King already opened a vacancy bid to shuffle the people that were in LAL and PBI. They see the writing on the wall that the flying isn't coming back.
What's up with that -400 you guys had...now in MIA? Heard repo from leassor?
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