VIENNA - The CEO of the company attempting to operate flights between the Youngstown-Warren Regional Airport and Chicago was ordered by a jury to pay $600,000 after being accused of defrauding a former business partner in a civil lawsuit.
Scott A. Beale, CEO of Aerodynamics Inc., of Beachwood, Ohio, and Atlanta, was accused of defrauding the president of Flight Test Aviation Inc. of Chantilly, Va., in April 2012, by saying he had a contract with a company called Rectrix Aviation to provide at least 720 annual hours of flights, according to federal court documents.
ADI is now seeking licensing from the U.S. Department of Transportation to add daily flight service from the Mahoning Valley airport to Chicago O’Hare International Airport.
A federal jury in Virginia last July found that Beale fraudulently made the statement to induce the FTA executive, James Paquette, to invest $500,000.
“There is no dispute that the statements that the jury found fraudulently induced the payment of $500,000 were made to Paquette and that defrauded funds were paid directly from FTA to ADI, Beale’s company,” Judge Anthony J. Trenga wrote in an Oct. 24 order affirming the jury’s verdict of $500,000 in compensatory damages and $100,000 in punitive damages.
Beale filed for Chapter 7 bankruptcy protection in Ohio in January of this year, which delayed completion of the FTA lawsuit, but the FTA case reopened in April 2014, when the bankruptcy was discharged.
The bankruptcy court is still considering whether to allow FTA to receive the $600,000 the jury awarded.
According to the trustee for the bankruptcy, $5.9 million of Beale’s debt was discharged, meaning he doesn’t have to pay it. But Beale said he has an agreement with his former creditors to pay them back part of what they are owed. When asked in a telephone interview what percentage of the money he has pledged to repay, Beale said he didn’t have that information.
“In our case, we went to vendors and came up with a plan to pay them back,” Beale said.
Among the creditors were the Bank of North Georgia, $760,000; an individual named Fitz Johnson in Atlanta, $800,000; a Cleveland law firm, $250,000; an Atlanta law firm, $203,698; Flight Test Aviation, $500,000; Bank of America, $123,849; and Nancy Creek Capital of Atlanta, $3 million.
Beale said he filed for bankruptcy protection because of a setback ADI suffered related to a contract the company initially was awarded by the Department of Defense, but which was rescinded through an appeal process.
ADI invested a great deal of money in that project, some of which was reimbursed when a protest of ADI’s bid proved successful, but it hurt ADI enough to force the company into bankruptcy, Beale said.
As for the verdict in the Flight Test lawsuit, Beale said he doesn’t agree with it.
“They said I told them the project was risk-free” even though that is not true, Beale said, adding that he believes Flight Test viewed the lawsuit as a way to get back more of the money it invested with ADI than the amount Beale was offering.
Dan Dickten, the airport’s director of aviation, said he doesn’t believe Beale is guilty of overselling what his company can do for this area. One way Beale has proven his sincerity, Dickten said, is that Beale agreed that the service should not start until the spring to give the airport time to market it and sell tickets.
ADI has money tied up in aircraft and would have preferred to start right after DOT approval, Dickten said. Winter is not a good time to start a new service, Dickten added. Dickten has said he was hoping DOT approval would come this month.
An official at the DOT Air Carrier Fitness Division said it can offer no comment on the merits of ADI’s application because it is a pending matter.
Beale and Dickten, meanwhile, say business frequently involves disputes over money, but that shouldn’t be construed as wrongdoing. “It was a civil suit, not criminal fraud,” Beale said of the jury’s finding in the Flight Test lawsuit.
“There is not a major airline in the business that has not filed for bankruptcy,” Beale said, adding that all of the information about the Flight Test suit and the bankruptcy is in the hands of the DOT: “It’s all filed with DOT. It’s all been out in the open.”
The eight-member Western Reserve Port Authority, which runs the Youngstown-Warren Regional Airport, authorized Dickten to finalize an agreement with ADI to begin the service as soon as DOT grants permission.
Dickten echoed Beale’s remarks about the DOT being aware of all of Beale’s business challenges in recent years, saying Beale “had to do a complete disclosure. If they [DOT] are not concerned about it, I’m not.”
Ron Klingle, port authority chairman, said, “ADI has the ability and desire to provide this service. If or when this service begins, there will only be one reason why it succeeds or fails — whether the people in our community use the service or not.
“It has nothing to do with Scott Beale’s past. It has everything to do with whether or not major companies in our area make the decision to help support and promote this service.”
He added, “If we are able to make it a reality, it will have a very positive impact on our Valley’s future.”
Beale said ADI employs 50 people and has been in business more than 50 years without any aircraft accidents or incidents, and is a good company despite “bumps in the road.”
He said the company has spent a great deal of money applying for permission to operate the Youngstown flights and has a lot riding on the Youngstown service being successful.
“We need it to be successful,” he said, because the company needs to be able to use success here as evidence that ADI can carry forward this model to other markets.
Beale’s company is in the charter airline business and has told the DOT that it would use three leased 50-passenger aircraft to provide flights two times on Monday, Thursday and Friday and one on Tuesday, Wednesday, Saturday and Sunday between Youngstown and Chicago.
The application says ADI would use a $1.2 million revenue guarantee being offered by the Western Reserve Port Authority to ensure it makes a profit during the start-up phase of the service. The port authority also has pledged another $130,000 to ADI before the service begins.
Of the $1.2 million, $780,000 was awarded by the DOT several years ago to help the airport attract daily air service. The other $420,000 is hotel-motel lodging tax money that comes into the port authority from Mahoning and Trumbull counties.
The port authority’s revenue guarantee says ADI is guaranteed to make a 5 percent profit during the start-up phase, until the service is self-sustaining.
In the most recent filing with the DOT in support of its request to begin offering the flights, ADI refers to that airline guarantee money as highly unusual for the type of service ADI is hoping to start.
“To ADI’s knowledge, no previous certificate applicant has presented the Department evidence of a guaranteed profit on its initial scheduled route,” ADI says in the filing.
“Such assurance is unheard of in the context of certificate applications, which ordinarily involve a significant commercial risk on the part of the applicant.”
Beale explained his “unheard of” remark by saying companies seeking a Certificate of Public Convenience and Necessity to begin offering scheduled domestic routes usually don’t get a revenue guarantee to start up such service. That is generally offered to more established operations, he said.
Dickten said the Youngstown-Warren Regional Airport needs to offer a revenue guarantee to any airline that might consider starting up service — whether it’s new to the business or established.
“Any airport without regularly scheduled air service since 2002 is going to have to provide a revenue guarantee,” he said. “Who else do we have knocking at the door?”
- Source: http://www.vindy.com
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