Saturday, January 24, 2015

Feds to reject ADI as airline for Pierre, or anywhere

Federal officials plan to not only deny Aerodynamics Inc.’s bid to start providing scheduled commercial flights to several cities, including Pierre, but also to revoke its authority to fly charters, which is its main business.

The proposed sweeping rejection of the troubled ADI announced this week by the Department of Transportation throws Pierre’s plans to improve its air service into doubt but also appears to threaten ADI’s ability to continue its current business.

It’s a proposal and can be appealed, but the “tentative conclusion” could become final within three weeks, according to the document posted Jan. 22 on the federal regulations website under the name of Brandon Belford, assistant secretary for aviation and international affairs at DOT.

“Our review of the record in this case indicates that ADI does not possess the managerial competence necessary to oversee its current charter and proposed scheduled passenger operations, nor does it have the proper compliance disposition and regard for the laws and regulations governing its services,” said Belford.

Attempts Saturday by the Capital Journal to reach Scott Beale, principal owner and CEO of ADI, were unsuccessful.

Pierre Mayor Laurie Gill, who led the effort that recommended ADI as an alternative to Great Lakes Aviation, which provides flights daily to Minneapolis and Denver, said she received an email Thursday from an official of the federal Department of Transportation.

 “I wasn’t entirely surprised,” she told the Capital Journal Saturday. “I am pulling together my internal staff to take a look at this in further detail on Monday. We will discuss this Tuesday at the city commission meeting.”

 The DOT wants an idea by Friday how city leaders want to move forward, she said.

Over the past year, Gill has said Great Lakes Aviation, which provides several flights a day from Pierre to Minneapolis and Denver, has a record of such poor service, including canceled flights, that an alternative was needed. She and the other four city commissioners recommended ADI to the DOT by a Dec. 3 deadline.

Great Lakes officials, as well as other airline observers, say new federal rules in late 2013 requiring much more training for pilots has led to a pilot shortage affecting many airlines.
Gill said Saturday she assumes Great Lakes will continue to provide air service to Pierre, at least for the near-term.

“It’s better now than it was a year ago,” she said of Great Lakes’ service.

Over the past year, ADI has mounted a two-pronged application to DOT: asking to be certified to provide scheduled interstate air service, which it hasn’t done before; and also to be awarded federal subsidies under the Essential Air Service program, for proposed flights to several small cities in Nebraska, Ohio, Colorado as well as Pierre.  Obviously the EAS subsidies questions depended on ADI, which has a history of charter service, being approved for scheduled commercial flights.

 That means the DOT announcement affects not only Pierre but also several other Midwest and Western communities who have been dealing with ADI.

Just a few days ago, ADI applied for federal subsidies for providing service to Pueblo, Colorado.

In the past year, it has sought EAS subsidies to start flights to cities in Mississippi, but lost the bid.

It applied for EAS subsidies for flights to several Nebraska towns, including Scottsbluff, which would be the one-stop hop on the proposed Pierre-Denver flights; and several in the Youngstown, Ohio, region.

City leaders in those communities had urged DOT to approve ADI, just as Pierre leaders did.

Gill said she’s not second-guessing her support for ADI.

The DOT process for Pierre meant city leaders received proposals from two airlines other than ADI, Gill said. Boutique Air of San Francisco proposed using an aircraft too small to fit the needs of Pierre’s hunting and tourism demand, Gill said. The other proposal came from Great Lakes, but since the company’s service was seen as the reason for seeking an alternative, Gill said it wasn’t recommended to DOT.

ADI, with 50-passenger jets, seemed the way to go, Gill said. “We did know all the way along that financial stability issue was a question.”

But determining ADI’s fitness was the federal government’s role, not the job of the Pierre city commission, she said.

“Our job was to look at the services presented to us. We did our job. The federal government did their job as well.”

The DOT’s process is quite public, with many of the documents, including emails, posted on the website, regulations.gov.  It was clear from the exchange of emails that DOT officials became increasingly unhappy with the information Beale and his attorneys were providing.

According to the DOT’s Belford, it was only through media reports in November that DOT learned that a federal jury in Virginia last summer had found Beale guilty of defrauding a former partner and investor of $500,000 by giving false promises of purported contract for services. That, as well as Beale’s history of bankruptcy filings, raised questions for DOT about his financial wherewithal as well as an apparent “disregard for the law.”

Beale told the Capital Journal two months ago that he disagreed with the federal court decision in the Virginia case, ordering him to pay his former partner $500,000 as compensation for the loan plus $100,000 in punitive damages. 

Beale filed for personal bankruptcy several months ago in Ohio after the Virginia verdict, listing liabilities of $5.9 million and assets of only $22,000. He told the Capital Journal that filing should not affect ADI’s financial fitness.

DOT said the federal court finding of fraud looks bad and said Beale’s poor response to DOT’s request for financial information was made worse by not telling them about the court case.

“The court found that Mr. Beale committed fraud while soliciting funds for ADI from an investor and expended those funds in a manner which was not consistent with the agreement between the parties,” Belford wrote in the DOT post Jan. 22.

“Mr. Beale’s actions indicate a disregard for the law. Thus, Mr. Beale’s ownership and positions of influence at the air carrier raise serious questions as to ADI’s ability to satisfy the Department’s requirements that an air carrier must possess a positive compliance disposition and the requisite competency to oversee its operations. Exacerbating this issue is the fact that ADI failed to notify the Department regarding the outcome of this . . .”

Beale, on ADI’s website, touts the company’s 54 years of excellent service. But 50 of those years happened in Michigan before he got involved in 2011 and little of the former company still exists.

With none of the previous employees or equipment, Beale moved the corporate headquarters to the Cleveland area, where he lives, and the operations base to near Atlanta. He said he’s leased five Brazilian-made 50-passenger jets.

Belford lines out ADI’s eventful recent history: it ceased flying Oct. 15, 2012, under Beale’s leadership, “due to financial pressure” and filed for reorganization under Chapter 11 bankruptcy on Jan. 7, 2013, emerging from bankruptcy Aug. 12, 2013. ADI filed a request with DOT March 12, 2014, to resume its charter operations and got oral approval April 25 for such service. On June 25, ADI sought a new thing: a certificate to fly “interstate scheduled” flights between Youngstown and Chicago. Other applications followed. But it wasn’t until November that DOT learned, through news reports, that Beale had been found guilty of fraud in July by the federal jury in Virginia, Belford said.

DOT wants Pierre to decide by Friday how it wants to move forward, Gill said. She said she doesn’t think the city will file any appeal of the DOT proposal about ADI. Gill said she’s quite certain that in the short term, DOT will order Great Lakes to continue its air service to Pierre. The questions going forward will include whether to ask for another round of applications from other airlines or keep working with Great Lakes, she said.

“There aren’t a lot of airlines offering to come to Pierre,” she said. “If Great Lakes remains, we will work with them. We have got to have air service here people are willing to use. 

That’s where we have to get to.”

 “We need commercial air service in Pierre . . . and we will work with whatever airline is here to make that happen,” she said.

 It might appear Beale did not expect such a sweeping denial from DOT.

On Jan. 14, he announced the hiring of Mickey Bowman, a 37-year veteran of the regional airline business and explained in a news release why he named Bowman, who had been working for him as a consultant.

“Currently in our industry we are subject to the larger carriers controlling the commercial aviation markets. 

A direct side-effect from that evolving structure is leaving smaller cities with fewer and fewer options for air travel. Mickey has helped to identify those markets and begin the conversation on what alternatives can be created to ensure citizens in small and rural towns have access to larger connecting airports. Mickey has successfully gone out and met with those people and key local figures to leverage his experience and connections and pair it with ADI’s Embraer product. The result will be a new cost-effective option and restored faith by future travelers. These projects will now connect travelers to larger cities in the states and ultimately the world.”

Bowman said, “I feel ADI is in the right place, at the right time with the right equipment and I look forward to helping launch an airline operation with the same high standards that ADI has accomplished in its prior charter and corporate shuttle programs.”

Original article can be found at: http://www.capjournal.com

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