Saturday, November 09, 2013

State filing confirms Evergreen shutdown: Evergreen International Airlines exec declares McMinnville company will close, but founder demurs

Del Smith, founder and owner of Evergreen International Aviation, issued a statement at the close of the business day Friday denying a News-Register report that it intends to close its air cargo subsidiary, Evergreen International Airlines, at the end of the month.

However, Smith's statement was flatly contradicted in an internal company memo Evergreen filed earlier in the day under the WARN Act, which requires notice of mass layoffs and plant closures.

A Friday press release from the state agency said, "The number to be laid off is 131."

In a Thursday memo copied to Smith and other Evergreen executives, and filed with the state Friday, Evergreen Human Resources Manager Monique Gregory said the cargo carrier intends to "end all operations." The memo was addressed to "All Evergreen International Airlines Employees."

“The last day of all operations will be November 30, 2013," Gregory said in her memo. "Therefore, the last day of employment for employees will range from current day (11/07/2013) through November 30, 2013, with a small number of specific employees remaining to complete the closing requirements. … The loss of our company is very unfortunate; however, we appreciate your continued excellent service during this ending phase.”

State rules require that such notices be filed 60 days in advance, but Evergreen actually provided fewer than 30 days. A former company employee estimated that the cargo hauler was already down to fewer than 140 employees when the notice was issued, but that could not be officially confirmed.

The News-Register began getting word Thursday morning, from both current and former employees, of the closure memo.

A reporter placed multiple calls to the company seeking comment, but they went unreturned Thursday and Friday, even though the story began circulating Thursday evening online and Friday morning in print.

The denial released under Smith's name arrived shortly before 5 p.m. Friday. It came less than an hour after state issuance of a press release on the company's WARN Act filing.

In the release, Smith said:

“As has previously been reported in the press, Evergreen's business has been adversely impacted over the past several years by decreased demand in military spending and weakness in global economic markets. Management has moved to aggressively address these challenges, including through the divestiture of businesses and assets and the significant reduction of secured debt. Evergreen is in discussions with its significant constituencies and is exploring available strategic alternatives with those constituencies. While Evergreen does not generally comment on market rumor or conjecture, rumors that a decision has been made to cease operations at this time are false. Evergreen remains committed to continuing to address the current business environment with its customers.”

The contradiction could not be immediately rectified, as the business day had closed by the time it was received.

The Portland Business Journal was the first news outlet to obtain a copy of the memo filed with the state and report on its contents. It filed a story early Friday evening noting the discrepancy between Smith's statement and the memo filed with the state.


In 1980, Evergreen International Airlines Inc. flew the deposed Shah of Iran from Panama to Egypt, where he gained refuge.

Six years later, the McMinnville company launched an undercover airline service to fly U.S. anti-terrorist teams to world trouble spots.

And six years after that, Evergreen shipped the Spruce Goose the late billionaire Howard Hughes’ wooden plane – to a new museum across Oregon 18 from company’s headquarters.

Fast forward to this week: Despite a denial by its octogenarian founder, the storied airline appears to be in a tailspin, planning to lay off 131 employees before closing at the end of November.

Monique Gregory, Evergreen’s human resources manager, wrote in a memo dated Thursday to all the airline’s employees that the privately held company would end operations Nov. 30.

“The loss of our company is very unfortunate,” Gregory wrote. “However, we appreciate your continued excellent service during this ending phase.” 

Staggering debt could be the main culprit in Evergreen’s demise, airline analysts said, judging by the state of the industry and payment deadlines missed by the company. High fuel prices and excess capacity also hinder the global freighter business.

Military contracts wound down along with the wars in Iraq and Afghanistan. And privately held Evergreen has fought for years in labor negotiations with its pilots and flight engineers, enduring several strike threats.

Mike Hines, Evergreen International Aviation’s chairman, said Friday that the 131 announced job losses would follow other recent layoffs. Evergreen employed 363 in McMinnville as recently as March, when debt forced a sale of the helicopter division that employed 100 there.

“It’s a shame,” said Mary Stern, a commissioner in Yamhill County, where the airline and related enterprises amount to one of the biggest employers. “So many people in the community will be out of work.”

A big question in McMinnville, a town of 33,000 about 30 miles southwest of Portland, is whether Evergreen’s nonprofit operations – major tourist draws conceived by founder Delford Smith – will survive. The Evergreen Wings & Waves Waterpark and the Evergreen Aviation & Space Museum rival wineries in attracting visitors to boost the local economy.

“Oh, I hope so, yeah, they’re not tied to Evergreen,” Hines said of the nonprofits’ survival. “Del wants that legacy to survive forever.”

Tax forms filed by the nonprofits reflect financially sound enterprises. But they have heavily depended on Smith’s support.

For example Smith contributed more than $23 million to the Michael King Smith Foundation in 2011. The organization – named for Del Smith’s son, who died in a 1995 auto accident – invested $35.7 million that year in the water park, an attraction deemed “educational” in tax filings. 

The Oregon Department of Justice is investigating money transfers between the nonprofit and commercial entities, so it’s difficult to tell whether the nonprofits are truly self-sustaining. In 2011 for instance, another nonprofit – Evergreen Aviation and Space Museum and the Capt. Michael King Smith Educational Institute paid $343,837 to Evergreen International Aviation for miscellaneous services.

Smith, Evergreen International Aviation’s chief executive officer, did not return phone calls Thursday and Friday.

In a statement released Friday, though, Smith acknowledged his companies had been hurt by decreased military spending and global economic weakness. But, he said, Evergreen is in talks with “significant constituencies” in an effort to continue.

“Rumors that a decision has been made to cease operations at this time are false,” Smith said. His statement contradicted Gregory’s memo and a recorded phone message received by pilots, who reported calling in this week to hear an executive announce the closure planned, they said, for Nov. 29.

Richard Gritta, a finance professor at the University of Portland’s Pamplin School of Business, noted the tremendous amount of financial leverage among airlines. “This downturn has hurt them all, and if they can’t merge and get out of it then they have to restructure somehow, and that may be his plan,” he said of Smith.

Towering debt prompted Evergreen to sell off its helicopter subsidiary for $250 million. Smith said at the time that the deal would enable Evergreen to pay off as much as $276 million of its $300 million in debt.

But debt continued to hound Evergreen, according to the Air Line Pilots Association, International. In August, the union cited unpaid judgments and debts to airline vendors, crew members and other employees.

“It’s hard to go to work, sometimes on the other side of the world, and not know if the airline will shut down or if you’re going to get paid for your services,” said Capt. James Touchette, the Evergreen union chairman, in a written statement at the time.

A union statement said then that a Yamhill County judge had granted judgments against the airline for overdue contributions to the pilots’ pension plans. Yet the company missed the first agreed payment of $744,651 in May and the second payment of $680,359 in August, the union said.

Crew members experienced late paychecks, delays in their voluntary 401(k) contributions and denials of company credit cards at foreign hotels, the union said.

“We are alarmed that Evergreen has so much debt and isn’t taking the necessary steps to pay it off and get back on track to keep the airline afloat,” Touchette said in his August statement. “We have to ask, ‘Will the airline survive?’”

Other airlines are consolidating their cargo operations. Two weeks ago, Asiana Cargo airlines suspended a four-day-a-week cargo service it had operated for two years between Portland and Inchon, South Korea. The airline moved the operation to Seattle, where it also operates passenger planes.

“We still think there’s an opportunity for freighter service” to replace Asiana, said David Zielke, Port of Portland general manager of air service development. “We’re currently evaluating those options.”
As for Evergreen, it has endured near-death experiences before. 

In 1994 as investors unloaded Evergreen junk bonds, Smith held tight to the debt-ridden company he founded in 1960, bucking the advice of his lawyers to seek reorganization under Chapter 11 of the federal bankruptcy code. 

Losses continued through 1996, but by 1997 the company achieved a $21.2 million profit. In 1998, the airline added service from Indonesia to New York via Columbus, Ohio. Revenues rose despite the Asian financial crisis, enabling Smith to open the aviation museum in 2000.

Eleven years later he opened the 70,000-square-foot water park. The attraction has become a local landmark, with a giant Evergreen B747-100 aircraft perched on the roof.

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