Friday, January 27, 2017

State cuts funding to Newport News/Williamsburg International Airport (KPHF) after reports it paid off failed airline's $4.5 million loan

The state has cut off funding to Newport News/Williamsburg International Airport while it conducts an audit of the airport after commissioners used $4.5 million to pay off a failed airline’s bank loan, Virginia Transportation Secretary Aubrey Layne said.

The Daily Press first reported the Peninsula Airport Commission’s early 2015 loan payment on Thursday. The commission agreed in June 2014 to be on the hook for a $5 million TowneBank loan to the now-defunct airline People Express, or PeoplExpress.

Layne said the newspaper’s story led him to check if the airport used state funds dedicated for capital improvements to pay off the loan.

It did – about $3.5 million, according to a report the airport submitted to the state in October 2016, noting it was for “air service development,” essentially attracting new airlines or routes.

Layne called that a significant amount of money and “significant breach” of state policy. He said the state typically gives the airport up to $2 million annually dedicated specifically for capital improvement projects.

The airport’s executive director, though, said Friday that using the funds to pay off the loan was within the airport’s right, pointing to language in a three-page Airport Program Manual from Virginia’s Department of Aviation.

In it, the manual states that if entitlement funds are used for projects “outside of normal expenditures,” including air service development, the state will deduct that amount from any future requests for state discretionary funds.

Airport Executive Director Ken Spirito said he was confident that once the state finished its audit looking at the last three years of the airport’s financials, it would find, “we’ve done everything according to their policies.”

Spirito said the remaining $1 million the airport used to pay off the loan came from a U.S. Department of Transportation grant and the Regional Air Service Enhancement Committee.

The airport commission discussed the loan in closed session at its June 9, 2014, meeting and, in open session, voted to approve a resolution authorizing the commission’s chair “to do and commit any act ” to provide for the “adequate, economical, and efficient provisions of air service and general business” at the airport.

Nowhere in the minutes does it note the commission agreed to guarantee a $5 million loan to PeoplExpress.

No vote or discussion was held when the loan was paid off in February 2015.

PeoplExpress, which flew to New York, Boston and a few other locations from the airport for a short time starting in mid-2014, stopped flying and was evicted by early 2015.

An airport spokeswoman said 418,889 passengers used Newport News/Williamsburg in 2015. That same year, about 3 million people traveled through Norfolk International Airport and 3.5 million used Richmond International Airport.

Spirito said airport operations won’t be affected by the state’s decision to stop funding while it investigates. As for state entitlement funds that might be in limbo, the airport had expected to receive about $600,000 by late spring, around the same time Spirito said he expects the audit to be resolved in the airport’s favor.

“We will be found we were using these funds properly,” he said.

He said the airport took a risk in guaranteeing the loan, thinking it would help the airport recover after losing AirTran: “We did it because this community wants low-cost air service,” he said. “Unfortunately, it didn’t work out.”

Elite Airways had recently announced it would launch non-stop service between the Newport News/Williamsburg airport and New Jersey and Long Island starting in March. Elite spokeswoman Rebecca Ayers said the airline’s officials had just learned about the situation Friday and were talking with airport leaders.

“The airline is not yet in a position to comment on what impact, if any, this will have on the planned service,” she said in an email.


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