Saturday, February 04, 2017

Kerry Dougherty: Newport News/Williamsburg International Airport (KPHF) commissioners bet big with taxpayers' money, and we're left holding the bag

They must have been desperate.

How else to explain a troubling financial gamble that resulted in millions of public dollars wasted and Richmond abruptly cutting state funding to the Newport News/Williamsburg International Airport?

What else could have caused the airport's commission members to risk state money on a startup airline's bank loans? An airline with just two jets and a mountain of debt.

Let's back up.

In 2012, AirTran Airways, which had merged with Southwest Airlines, stopped flying out of the Peninsula airport, cutting passenger service from about 1 million fliers a year to around 500,000, according to  airport commission member and Newport News City Manager Jim Bourey.

A blow, no doubt about it.

Airport officials believed there was a hunger for low fares and wanted another discount airline at their gates. Enter People Express, a new company that promised flights between Newport News, Boston and Newark, N.J.

The business had trouble obtaining financing, however. That should have been a red flag. Instead, public officials did the unthinkable: They pledged $3.55 million in state funds and $1 million in regional and federal dollars to guarantee about $4.5 million in bank loans.

The state dollars were intended for capital improvements or buying equipment such as airport firetrucks, Virginia transportation officials insist today.

Not exactly true, Bourey counters. According to vague state policy, he says, that money could be used for "air service development."

People Express, or PEOPLExpress, flew for three months in 2014 before going bust.

Taxpayers all over Virginia helped make good on the loan.

Lucky us.

A blistering editorial in Thursday's Daily Press said "Newport News City Manager Jim Bourey still thinks it was a wise decision to guarantee up to $5 million of borrowings by a start-up airline that was already more than $1 million in debt and that was planning to use planes operated by a firm that owed $30 million more than its total financial assets."

When I talked to Bourey on Friday he showed little remorse. In fact, he predicted that as soon as the investigation is complete, the Peninsula Airport Commission will be exonerated and state funds will flow again.

Bourey says it is easy to be a "Monday morning quarterback," but the loan guarantee seemed like a splendid idea at the time.

"There was such a tremendous upside," Bourey told me. "Risking $3.5 million seemed like a reasonable risk."

In his city manager's online newsletter last week, Bourey cheerfully assured the public that there was nothing improper about the loan guarantee.

"As the airport carefully evaluated this plan, it was evident there was a high likelihood of success," Bourey wrote. "The market clearly demonstrated and projections showed a fairly quick progression to profitability."

Bourey blamed the airline's failure on unexpectedly too few planes and a "fluke event" – "an unauthorized individual with the company contracted by People Express to service the airplanes, (who) drove a vehicle into one of the planes, damaging it and putting it out of service."

I hesitate to bring this up, but an airline with a pair of planes in its "fleet" is barely an airline. Hardly a recipe for quick profitability.

It's the plot of a slapstick comedy, perhaps, but not a prudent public investment.

Secretary of Transportation Aubrey Layne says that when he became aware of the loan guarantee through newspaper reports, he was "flabbergasted."

It appears to be "a misuse of funds," Layne says, choosing his words carefully.

Virginia's transportation chief says he hopes the state finishes its investigation within 60 days.

In the meantime, Bourey is blaming the media for the airport's troubles. He claims the loan was acted upon in open meetings, but the press missed it. Worse, he says, the "poison" climate created by recent publicity has caused another low-fare airline to postpone service to Newport News.

Elite Airways had been scheduled to begin flights from Newport News to Newark, N.J., and New York next month, but has delayed.

According to a report in the Daily Press, Elite was close to landing $1 million in local incentives, a common practice in the industry.

It’s a pity that foolhardiness by desperate airport commission members three years ago may be causing problems for the commission today. But that's what happens when public officials gamble millions in taxpayer dollars and lose.


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