Owners Head for Exits as Avantair’s Prospects Dim

BJT Waypoints
Owners Head for Exits as Avantair’s Prospects Dim
Owners Head for Exits as Avantair’s Prospects Dim
Tuesday, July 30, 2013 - 10:15am

The future of Avantair, the operator of Piaggio Avanti fractional ownership, Axis Lease and Edge Card flight access programs, was hanging in the balance at the end of Friday as the Clearwater, Florida-based company urgently sought restructuring options following its June 26 cessation of operations. The shutdown came after a June 6 fleet grounding that followed concerns about proper tracking of time-controlled parts, which the company apparently swapped among aircraft in a bid to maintain fleet availability.

The fleet was also grounded last October for three weeks after an aircraft shed an elevator during operations. Both of these groundings were termed “voluntary” by the company, though former employees tell Aviation International News they believe the standdowns were undertaken in response to FAA pressure.

AIN made repeated requests to Avantair’s senior leadership to explain developments at the company. In the case of former president David Haslett (see below), the requests went unanswered. CEO Steven Santo said he was unable to comment publicly at the time. Avantair is a publicly traded company (stock symbol AAIR).

An estimated 17 to 20 aircraft of the 56 Avantis in the company’s fleet are currently flyable. Many of the approximately 620 fractional owners are trying to locate their aircraft, determine their condition and make contact with co-owners in an effort to reclaim their airplanes, according to owners and owner representatives AIN has spoken with. Some say Avantair, which has cited privacy concerns, has not made itself available to assist in these efforts.

A “NewCo” restructuring plan Avantair floated on July 3 called on each owner to place $25,000 into an escrowed “catch-up maintenance fund” to bring the fleet to airworthy condition. At the same time, the company sought $4.5 million in outside financing in addition to $2 million in cash and credit it said Piaggio Aero, the Avanti’s manufacturer, had pledged. Piaggio America president John Bingham told AIN that Piaggio is “pleased to support [Avantair] in any way we can within the boundaries of the situation,” but declined to discuss specific figures.

The proposed plan also called for hourly rates to rise about 40 percent and for Avantair to reduce its service area to the eastern U.S. and Texas, eliminating about half its members, though the restructuring required participation by 300 owners. The plan didn’t address how the company would deal with its $125.11 million in debts and liabilities.

Additionally, the company faces lawsuits from owners claiming contractual breaches and former employees claiming labor-law violations, and liens filed by creditors on owners’ aircraft.

In a July 9 email, Avantair’s then president, David Haslett, told owners that, based on feedback to the plan, “we want to be absolutely clear that the first priority of Avantair is to preserve the value of your fractional share asset in your aircraft, independent of any involvement in a NewCo,” again asking all owners to pay a one-time $25,000 assessment. “Once all the maintenance is completed, owners will have any number of options which may include, but not be limited to, participating in a NewCo, divesting of their fractional share or participating in a co-op or transferring the aircraft onto another vendor’s operating certificate,” Haslett wrote. The following day Haslett resigned as president (no public announcement was made until an 8-K form was filed a week later), telling some owners in emails “the Board has retained me to consult for them on certain projects and a restructuring.”

Many owners are now turning to attorneys to investigate their legal options. Aerlex Law Group of Santa Monica, California, which represents 53 owners, according to lawyer Amanda Applegate, hosted a conference call with more than 40 clients and interested parties on July 18 to provide general advice on what owners can do individually and collectively to recover their airplanes. Legal experts note that many states give mechanics wide latitude in placing liens on vehicles on which they claim non-payment for performed maintenance. But some have cast doubt on whether these so-called “mechanics liens” give sufficient authority to go so far as to auction off these assets.

Legal Action Under Way

On July 25, four Texas creditors—Soldier Creek Ranch LLC, R. David Jones (Soldier Creek’s manager), Joel Trammel and Mike L. Allred—filed an involuntary Chapter 7 bankruptcy filing against Avantair in Florida’s Middle District (Tampa) U.S. Bankruptcy Court. According to the court docket, Avantair was served notice of the case on July 26, and initial hearings had yet to be scheduled at press time.

Longtime Avantair maintenance provider Teterboro Rams has placed liens on 41 Avantis and is in possession of four of them, and has filed a lawsuit in Bergen County Court in New Jersey seeking permission to auction the four aircraft in 30 days (i.e., on July 27). Rams co-owner Dennis Espinosa posted the four N-numbers on the Avantair Owners Forum in the hope that owners would contact him to resolve the bill, but as of July 22 no funds had been received. Espinosa said he instructed his attorney not to file the final paperwork for the auctions until the 30 days expired, and he estimates the auction could be held by mid-August. Espinosa also told AIN an FAA Special Emphasis Investigations Team (SEIT) visited Rams to gather information related to Avantair and the maintenance of its fleet. The FAA declined comment.

Avantair also faces repossession of six company-owned aircraft. On June 13, the company reached a forbearance agreement with Midsouth Services and Clear Aircraft related to past-due lease payments for these core airplanes, according to an SEC 8-K filing by Avantair on June 26. But on June 18 and 25, the company was notified that it was in breach of this forbearance agreement, and, according to Avantair’s filing, “the lessor has been exercising…all rights and remedies available under the [agreement] and applicable law, including taking possession of its leased aircraft and aircraft engines.”

Owner lawsuits filed thus far include a class-action lawsuit from Heisman Square in Oklahoma County District Court that contends the loss of the elevator that led to the first grounding should have been disclosed when Heisman Square was buying a share in the program last August; Gary West’s suit, filed in the Dallas Division of U.S. District Court, seeks return of his aircraft (N139SL) and alleges, among other charges, that the company has removed parts from some aircraft and replaced them with “less desirable” parts; Stone America Licensing Group filed suit in the U.S. District Court in New Jersey alleging failure to provide contracted services.

A pair of class-action lawsuits on behalf of former employees has also been filed. The company furloughed almost all its 500 employees (which included more than 225 pilots at its peak) when it ceased operations on June 26. A lawsuit filed in U.S. District Court in Tampa by Mary Peterson and Scott Piwinski claims the company violated the Fair Labor Standards Act by failing to pay employees for their last 2.5 weeks of work, and violated the Worker Adjustment and Retraining Notification Act by failing to provide sufficient advance notice of termination. As is customary in such filings, the suit names Avantair officers Steven Santo, Bret Holmes and David Haslett as well as the company itself.

Meanwhile, the Avantair Owners Forum, started this January by owner Joel Trammell of Austin, Texas, serves as a conduit for sharing information as well as the owners’ mounting complaints, and provides a window into Avantair’s apparently deteriorating service and downward spiral seen from the owners’ perspectives. Postings that a number of owners provided to AIN tell of hours-long delays, short-notice cancellations and flights that failed to materialize. Additionally, Avantair allegedly refused to provide charter lift to customers when no Avantair aircraft were available, contrary to what owners say it was contractually obligated to do.

Avantair’s apparent collapse doubtless creates question marks for owners in other fractional programs as well as jet cardholders about the safety of their investments, but nothing found in AIN’s research suggests any infection is about to spread through the fractional industry. Nonetheless, the head of one fractional program told AIN he has already heard questions from at least one customer about his company’s financial viability. Other fractional providers didn’t respond to AIN’s queries by deadline. The problems at Avantair could also affect the market for Piaggio aircraft, as it has been the Italian manufacturer’s biggest commercial customer. For example, it remains to be seen what impact the possible closure of Avantair could have on prices for preowned Avantis if its fleet is put up for sale.

This article also appears in BJT sister publication Aviation International News.

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