Monday, January 16, 2012

Ontario taxpayers paid part of ORNGE spending spree

One of two "ORNGE choppers" worth a total of $150,000, paid for by the Italian helicopter firm that sold aircraft to ORNGE.

By Kevin Donovan

Ontario taxpayers did fund much of ORNGE air ambulance’s wild spending spree, the Star has learned.

For close to a year, ORNGE officials have maintained that all of their big expenses — buying helicopters, airplanes, a new office building — were paid by private dollars raised on the open markets.

The Star has confirmed that even though money was raised from private investors, the interest and principal payments to those investors comes out of the $150 million Ontario taxpayers give ORNGE each year. Private investors contributed $275 million to ORNGE in 2008, with a return of 5.7 per cent interest per year. The public is paying them back.

The confirmation first came from documents obtained by the Star and then in an interview with ORNGE chief operating officer Tom Lepine and new ORNGE president Ron McKerlie.

“Yes, the money comes from performance agreement dollars,” Lepine said. The performance agreement is between the Ontario ministry of health and the non-profit ORNGE and provides $150 million a year in public funds in return for the air ambulance service.

Forensic auditors from the provincial ministry of finance are at ORNGE’s headquarters digging into the records. With an order to “follow the money” the auditors are faced with a tough task: In the byzantine mix of non-profit and for-profit firms created by ORNGE in a flurry since 2008, plus many high salaries and perks, what did public money pay for and what purchases were privately funded. Also, auditors are trying to find out if publicly funded assets were used for private gain.

As auditors move in and out of the ORNGE building they pass a beautiful orange motorcycle, one of two “ORNGE choppers” custom built by Orange County Choppers for the US television show, American Chopper. The motorcycle on display cost $50,000 and the original, now in storage in the New York State, cost $100,000, ORNGE spokesman Gannon Loftus said.

Both were paid for by Agusta Westland, the Italian helicopter company that sold 12 helicopters to ORNGE in 2008 for an estimated $144 million.

According to ORNGE, Agusta gave the motorcycles as a gift to ORNGE. The Star has reported that Agusta also agreed to pay $6.7 million to Ornge’s for-profit companies for “marketing services.” That deal is being investigated.

The Star has asked for documents showing what top ORNGE executives did for that money and ORNGE is looking for the paperwork. New ORNGE president Ron McKerlie said “I would like to see a copy of that, too.”

Several years ago, former ORNGE president and founder Dr. Chris Mazza and other ORNGE executives decided they needed to buy new aircraft and phase out the way air ambulance was previously delivered. Until 2008, a group of private air carriers fitted out as air ambulances were hired on “standing agreements.” With ORNGE now owning aircraft, six of those carriers have gone out of business.

The purchase of the 12 helicopters and 10 Pilatus airplanes (all for air ambulance purposes) was funded by investors who kicked in $275 million to buy bonds. ORNGE also used the money to buy its $15 million head office and to renovate the structure and outfit it with fine furniture.

How are those investors being repaid? From the $150 million taxpayers pay each year to the Ontario air ambulance service.

As Mazza expanded the air medical service, decisions were made very quickly and there were missteps along the way.

For example, the Star recently went looking for the 12 helicopters, each purchased for about $12 million (with additional expenses to outfit them as flying medical units). We could find only 10. It turns out that ORNGE needed only 10 — the others are in a warehouse in Philadelphia, for sale.

A helicopter source told the Star that the Agusta helicopters, called the AW139, will likely be sold to an offshore oil rig company. Who gets the funds for that is unknown because of the complicated structure of the company that actually owns Ontario’s fleet of air ambulances.

The company that obtained the $275 million is called ORNGE Issuer Trust. The Star has asked ORNGE for a list of the investors, but spokesperson Gannon Loftus said the businesses that contributed money are “institutional investors” and he cannot disclose their identity without their permission.

ORNGE Issuer Trust is the owner of all of the aircraft and leases the helicopters and airplanes back to another company called ORNGE Air, which provides air ambulance service.

A new attempt by ORNGE to raise up to $20 million on the public markets collapsed in the last month. According to ORNGE documents, the money would help fund the creation of air ambulance services in Brazil and Saudi Arabia for governments that want Ontario’s expertise. The new funds were also earmarked for a business that would provide “executive risk” insurance for top corporate performers internationally.

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