State auditors say they’ve heard the talk that People Express Airlines had lined up more than enough financing to make the Peninsula Airport Commission’s promise to guarantee a loan no more than a temporary stop-gap, but have so far seen no sign of it.
That guarantee eventually required Newport News/Williamsburg International Airport to pay off $4.5 million of debt People Express owed TowneBank, which it did using taxpayer funds.
“We’ve heard plenty, but we haven’t seen anything,” said Bradley W. Gales, director of the Virginia Department of Transportation’s assurance and compliance office.
Daily Press reports about the airport payment to TowneBank on behalf of People Express led Secretary of Transportation Aubrey Layne to order an audit. But despite promises of cooperation from commission officials during a Feb. 1 teleconference, it was only two weeks ago that the commission formally authorized TowneBank to release records about the airport’s financial dealings, Gales said.
And, he told the commission Thursday, he still hasn’t received those records or the commission’s copies of emails to and from Ken Spirito, the airport executive director who is now on paid administrative leave pending completion of the audit. Gales said he had understood that the commission was having technical difficulties.
TowneBank Chairman and CEO G. Robert Aston said the bank had received a list of the exact documents the auditors are seeking last Thursday. He said the bank is assembling the records and will provide them shortly.
Gales told the commission he and his team have conducted several interviews, including one with former commissioner Jim Bourey, who resigned from the commission and as city manager of Newport News earlier this month. They’ve also been able to review records of the commission’s accountant. He said Bourey had been very cooperative.
And while they have interviews scheduled with Spirito and former airport attorney Herbert V. Kelly Jr., the commission chairwoman who signed the loan guarantee agreement, LaDonna Finch, has turned down their request for an interview. The auditors have tried to contact former People Express executives but have not heard back, Gales said.
Finch has not responded to repeated calls from the Daily Press in the past and did not return a call to her office on Thursday.
Three members of commission’s board — Finchv, Bourey and Aubrey Fitzgerald — authorized Finch in June 2014 to take any action she deemed necessary to secure adequate air service.
They did so after a closed-door meeting during which they decided to guarantee a line of credit for People Express from TowneBank, and to use taxpayer funds in case they had to make TowneBank whole if People Express could not, both Spirito and Kelly, who is a member of TowneBank’s Peninsula board, have said. Commissioner Steve Mallon was in the closed meeting but abstained on the vote afterward.
The VDOT audit will look at whether the airport commission complied with state laws and regulations in paying off People Express’ debt. It will also look at the steps the commission took to evaluate People Express’ ability to repay the loan. They’ve also asked other airports whether they ever guaranteed loans for airlines, and are looking to see if People Express asked other airports and financial institutions for financial support.
Layne has said the airport’s use of taxpayer funds to repay the People Express debt violated a 30-year-old state policy, but Spirito and the commission said the state’s written airport financing guidelines say airports can use funds for “air service development projects.”
The commission’s use of $3.55 million of state funds to help pay off the People Express loan prompted Layne to cut off state funding to the airport.
The commission also used $700,000 from the Regional Air Service Enhancement Committee, a regional body funded by local governments that tries to woo airlines to the airport. That prompted Hampton, James City County and York County to put a hold on their contributions to the group. The commission also used $300,000 of federal funds meant to pay for marketing and to guarantee revenue for the People Express service.
At the time the commission voted to guarantee the loan, People Express had been ordered to pay $185,820 it owed to the Chicago leasing firm that was helping finance a failed deal to buy an Idaho-based airline company, and had also been sued in Newport News for $50,000 of unpaid credit card bills. It had also borrowed $985,000 from W.M. Jordan Co., which court records show has not been repaid. U.S. Securities and Exchange Commission filings show People Express’s 2011 offering of up to $20 million of stock raised a total of $250,000.
By that point, the commission and People Express had been promising to bring air service to New York and Boston for two years. The commission was seemingly undaunted by the company’s postponement of its originally announced summer 2012 start date after federal regulators fined it $10,000 for illegal sales of memberships in a travel club or by the collapse of the Idaho deal or People Express founder Michael Morisi’s 2009 bankruptcy.
In 2014, speaking after People Express had stopped flying, company CEO Jeff Erickson said the company had raised a total of $6 million from 140 investors.
In the 12 days that followed the signing of the loan guarantee agreement, People Express drew about $3.5 million on the line of credit. It drew an additional million in the three months it was in service.
The commission has no records tracking People Express’ use of the money, but Spirito has said it went to pay for the use of gates at the seven other cities the airline served, as well as for terminal space, salaries and equipment.
