Jim Bourey did not want surprises. On May 30, 2014, Gov. Terry McAuliffe was scheduled to visit Newport News for the announcement of the first flights by the startup airline People Express. But with just four days to go, the airline did not have the money it needed to start flying. Bourey stepped in to get things on track.
"What I need right away is to totally understand your financial position. I need an up-to-date, as of today, balance sheet," Bourey wrote in an email on Memorial Day, May 26, 2014, to Jason Moulton, People Express' chief financial officer. At the time, Bourey was the city manager of Newport News and vice chairman of the Peninsula Airport Commission.
"We are really at a very critical stage with the announcement on Friday (with the Governor attending) and the conversations with banks. I cannot be surprised to learn anything given the nature of commitment that appears to be needed by the public sector."
City and airport officials had been working for two years to get People Express off the ground. By mid-May 2014, it was clear that People Express couldn't persuade investors to buy enough shares of its stock to raise the money it needed to hire planes — about $5 million.
The city, the airport and People Express turned to TowneBank for help — and TowneBank responded. It provided a $5 million line of credit — basically a corporate credit card — that People Express could draw from as needed.
But the bank did not put any of its own money at risk, because the airport commission agreed to guarantee the loan. If People Express defaulted, the airport would be on the hook for the money. And that's how it ultimately turned out — with the airport commission using $4.5 million of public money to pay off People Express' IOU.
Getting to that point, from idea to guarantee, took about two weeks of hurried meetings and a willingness to cut corners, a Daily Press review of thousands of pages of airport, state and city records shows. In the rush to secure financing for a long-shot, startup airline, there was little time to think about details and their implications.
When one key document finally did land at the commission seven weeks later, then-airport Executive Director Ken Spirito said he wouldn't have recommended the guarantee if he had seen the agreement it detailed between People Express and Vision Airlines, the firm that actually operated the service.
But by then, it was much too late.
Lost in the details
The Daily Press recently obtained the cache of documents, released under the Freedom of Information Act, that state auditors sifted through to put together a report on the Peninsula Airport Commission, a review sparked by the newspaper's report about the commission paying off the loan to People Express.
The documents include emails, interview notes, invoices, meeting minutes and cellphone text messages. The information contained in those records allowed the Daily Press to put together an extensive timeline of the frantic weeks that led up to the launch of People Express' first flight out of Newport News.
On May 22, 2014 — the Thursday before Memorial Day — Bourey and Spirito met with David Burris, the Peninsula president of SunTrust Bank, to sound him out about lending $5 million to support People Express' operations.
An email that day from Burris to Bourey, Spirito and People Express CEO Jeff Erickson noted that they had promised the airport commission would guarantee the loan.
The documents contain no further communications from SunTrust Bank about a loan.
But Bourey also was working another angle.
On Friday, May 23, he sat down with Newport News City Councilman Bert Bateman, who is an executive at TowneBank. They talked about the money People Express needed and ways it might be raised.
"Bert," Bourey wrote in an email to Bateman that evening, "Thanks for spending all the time with us this afternoon. I was pretty surprised as you that they are not in better position with revenues to get in the air ... If it looks like they will not have a clear path to flying, we will cancel the Friday event" where McAuliffe was to announce the new service.
"It is better to have that problem than the incredible black eye of failing."
Bateman replied:
"Jim, we are not venture capitalists and the flow of funds that would serve as surety on any TB (TowneBank) credit is convoluted and unprecedented at best. Red flags on PEX accounts have flown (because) of garnishments."
Bateman's email does not describe how the money would flow. But he promised to discuss the idea of a loan with TowneBank Peninsula President Brian Skinner when the office reopened after that Memorial Day weekend.
That same Friday, Spirito sent a email with the portions of a state airport manual the two would later say showed that the $2 million a year the airport received from the state could be used to guarantee the loan.
A meeting at TowneBank
On Memorial Day, when Bourey wrote to Moulton, the People Express finance officer, he was preparing to persuade TowneBank to provide People Express the $5 million line of credit.
Moulton had just shared a spreadsheet that predicted People Express would turn enough of a profit to cover all interest payments on the credit line after eight weeks of operations.
But Bourey also wanted to see what People Express already owed, and what resources it had to cover those obligations.
In response, Moulton forwarded a balance sheet showing the airline was already having problems paying its bills.
Bourey sent an email to Florence Kingston, the city's development director, saying he still had questions after reviewing the balance sheet. Airport and city records do not include any written or email questions about the balance sheet sent to Moulton or anyone else at People Express.
On Tuesday, May 27, Spirito refined numbers that detailed payments the airport was likely to receive from the state aviation department and from the Regional Air Service Enhancement (RAISE) committee, a regional body funded by local tax dollars.
He also wrote a memo to the commission board saying People Express could generate some $5.7 million of revenue for the airport's operating and capital budgets.
He sent Bourey some suggested talking points for McAuliffe, including an estimate that the economic impact of the People Express service would total $210 million.
"So where does the 210 million come from?" Bourey replied. "I am just curious how that was determined."
Bateman, meanwhile, had arranged for Bourey, Spirito and People Express' Erickson to meet with TowneBank Peninsula President Skinner and other bank officials the next day, Wednesday, May 28, 2014.
At that meeting, they sketched out a deal for the $5 million loan, guaranteed by the commission and secured by a formal pledge that its bank accounts would be used to repay any money People Express owed if it did not make good on the debt.
Most of the money in those accounts would come from state payments to the airport, Bateman wrote in an email to the meeting's participants.
The deal needed more than the state money to make it work — the commission needed to pledge some $700,650 the RAISE committee was planning to provide to match a federal grant of $950,000 to subsidize air service to New York and Boston.
Everyone there agreed to the terms.
With a deal in principle in hand, Bourey's fears that the airport might have to cancel McAuliffe's announcement were eased.
It was, the governor said on the big day, a "truly incredible" moment.
"Folks, this is how we grow and diversify our economy," he said.
The service was set to start at the end of June.
But enthusiasm was somewhat dimmed because the plane People Express had promised to have on hand wasn't there. An Illinois court order barred its operator, Vision Airlines, from flying the 737 because a creditor had sued it for the $93,695 it still owed on a leased engine.
No airport or city records indicate that officials had checked on the plane or on Vision's ability to live up to its commitment. Its filings with the U.S. Department of Transportation showed its debts exceeded its assets by $29 million at the time. Spirito would later say that was no big deal.
The airport commission still hadn't voted on guaranteeing the loan.
No need to be specific
On June 3, the Tuesday after the governor's announcement, development director Kingston set to work to let the RAISE committee know about the airport's plans for its money. She drafted a resolution for the RAISE committee to vote on, to authorize releasing funds to the airport. The draft she mailed to Bourey clearly stated that the funds would be used as collateral security for a TowneBank loan to People Express until disbursed as a grant.
Bourey replied: "I am ok wit (sic) this but do not thin (sic) we need to be as specific on how the money will be used."
The motion the committee voted on didn't mention the loan. Kingston told the Daily Press that she was doing what she was told. As city manager, Bourey was her direct boss.
On June 5, the day the vote was taken, Spirito emailed Bourey, Kingston and her assistant Sam Workman a four-slide presentation he planned to give the committee. There is no mention of the loan, just that the total grant of $1.65 million would be used to offset the airline's expenses in the New York/Newark and Boston markets.
Spirito also emailed Leonard Sledge, Hampton's director of economic development, about the RAISE meeting. He said he would ask RAISE to support a local match of funds for the federal grant, again not mentioning the loan guarantee.
The RAISE committee approved the motion.
TowneBank, meanwhile, had not waited for the airport commission. Its Hampton Roads Executive Committee approved the People Express line of credit on June 4.
The committee did so despite seeing the financial projections People Express' Moulton had prepared showing it would not have enough money to pay interest on the loan.
But the report the bank committee reviewed also included extensive detail on the airport commission's finances, the money it expected to receive from the state and the RAISE committee, and noted that the bank could rely on the bank accounts the commission pledged for repayment of the loan.
The commission vote
On Monday, June 9, 2014, the airport commission met in closed session so Bourey and Spirito could present the People Express financing plan.
Commissioner Steve Mallon would later tell state auditors that things moved fast.
"Jim Bourey took the lead," auditors' interview notes quote him as saying. "Pushed by Jim Bourey w/ Ken being co-pilot ... All of the sudden. Loan guarantee, Urgency to approve."
Mallon asked if the commission had funds to cover the guarantee, the notes show, which then summarize his next comment as: "Jim Bourey — Can't afford not to."
Bourey has said all the commissioners, including former Hampton Mayor George Wallace, who was not at that meeting "certainly understood this was a loan guarantee. ..."
He has said the commission's then-attorney, Herbert V. Kelly Jr., told the commissioners that the guarantee and the use of state funds to back it were allowed.
Kelly drafted the motion to authorize the guarantee that the commission would vote on, in public, as required by law. Kelly was a member of TowneBank's Peninsula board of directors.
The motion did not mention a loan, a guarantee, or a pledge of bank accounts. It did not mention People Express. It simply empowered the commission's then-chairwoman, LaDonna Finch, to take whatever steps were necessary to provide for air service at the airport and for the airport's general business.
Kelly had refined the motion after Spirito, the Friday before, asked if it could drop any reference to action "replacing air service," the purpose of its People Express agreement.
The vote to approve the motion was 3-0. Bourey, Finch and commissioner Aubrey Fitzgerald voted yes. Mallon abstained. The auditors' interview notes report that Mallon said he would have voted against, but Kelly advised him to abstain. Commissioners Bateman and Wallace were absent.
Another million-dollar loan
Emails on June 10 and 11 from the bank officer assigned to the People Express loan reminded Spirito that he needed to start moving state funds into a special account to back the loan, and to confirm that the RAISE money would be deposited, too.
On June 12, the airport commission voted to waive rent and most airport fees otherwise due from People Express for its first year.
Four days passed.
On Monday, June 16, 2014, two days before People Express would close on the loan, W.M. Jordan Co. raised an issue about $1 million it had lent to the airline in 2013. Airport officials were asking W.M. Jordan to subordinate that loan, or take a backseat to TowneBank in getting its money back.
Jim Burnett, a controller for W.M. Jordan, wasn't having that. He emailed Spirito on the evening of June 16: "I am only asking for what's fair. PEX, The City, and the PAC have a lot to gain from seeing PEX succeed. As a lender, we have no gain and the best we can do is to hopefully not lose money. I am asking that as a lender similar to TowneBank, we be afforded the same guarantee protection as TowneBank from the PAC."
Later that night, after Burnett and Moulton discussed the airline's finances, People Express CEO Erickson wrote in an email to unidentified recipients that, "We have created an unnecessary monster. He has refused subordination."
Erickson seemed appalled when, nine minutes later, he wrote to Spirito, "And he now wants PAC to guarantee his loan!?!?!"
Spirito forwarded this conversation to Bourey. At 7:28 p.m., Bourey replied: "They are in a dream world. We have basically bailed them out of a total loss. We have an agreement with People Express to guarantee the loan. WM Jordan is not a party to this transaction."
About an hour later, Kelly emailed Bourey, Spirito and other lawyers in his law firm:
"... Although the three of us want this to happen there are limits to our generosity. This was a good risk until we learned Friday that they could not meet their representation that there were no liens or judgments. ..."
The next morning, at 8:28 a.m., Bourey told Spirito that he had talked to Kelly, and, "We are ok with the outstanding debts of PEOPLExpress. The WM Jordan issue is outstanding. I have a call into John Lawson to discuss."
Lawson is the CEO of W.M. Jordan.
Spirito replied, "Ok. Good. We can get this done."
About an hour later, Bourey emailed Spirito that "We are good to go."
One day to closing
That evening, Spirito told Kelly and lawyers for the airline and the bank that the closing on the loan "must be done tomorrow to meet deadlines."
Steve Meade, a lawyer representing TowneBank, said he would do his best, but he had another meeting scheduled that day. The bank's paperwork was fine, he said. The only adjustments that might need to be made were for the line-of-credit agreement between the airline and the airport commission.
Spirito pushed to have those issues resolved before noon; Meade said it was possible.
At 8:20 a.m. on Wednesday, June 18, Spirito emailed the lawyers, Erickson and Bourey to say that bag tag technology and paint for the second airplane were on hold until deposits are in. "Please let's close this afternoon," he said. "It's critical at this point."
The deal closed shortly before 1:38 p.m., according to an email from TowneBank loan officer Sue Ivy to Spirito.
On Monday, June 30, 2014, People Express launched its first two flights from Newport News/Williamsburg International Airport. Among the passengers was Ladonna Finch, celebrating her last day as chairwoman of the Peninsula Airport Commission.
On Friday, Sept. 26, 2014, without a public announcement and stranding passengers in several cities, People Express canceled all of its flights.
Original article can be found here ➤ http://www.dailypress.com
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