Story last week
The defunct charter service Direct Air filed its required financial statements in U.S. Bankruptcy Court this week, revealing for the first time a detailed picture of the fiscal mess that drove the company out of business.
Direct Air reported just $229,030 in assets including the value of a surety bond held by the company compared to a whopping $46.5 million owed to creditors — largely passengers left holding unusable tickets.
The financial situation detailed in the reports is one in which unsecured creditors are unlikely to recover anything as Direct Air's few remaining assets are cashed in or sold off.
U.S. Bankruptcy Court Judge Melvin S. Hoffman ordered that the Myrtle Beach, S.C., company be liquidated at a hearing in Worcester last month. Direct Air had been the only consumer air carrier serving Worcester Regional Airport before its collapse in late March. Direct Air's liabilities include $33.9 million owed to consumers who bought tickets, vouchers or travel club memberships, according to the court records. The list of consumer creditors filed with the court is more than 3,000 pages. Many have already gotten refunds from their credit card issuers, while other customers that used debit cards to buy tickets have not.
The passengers who haven't been able to get refunds from the banks that issued their debit cards would appear to have little hope of getting their money back through the court liquidation process. While the company lists $229,030 in assets, that number includes an estimated $33,030 in accounts receivable, money owed to the company, that will have to be collected and roughly $45,000 worth of furniture and equipment at various airports and offices that will have to be sold.
Consumers and other unsecured creditors, such as fuel suppliers and airport authorities, would be third in line to collect any money after the lone secured creditor, Wachovia Bank, which is owed $178,800, and creditors with priority claims, such as the Transportation Security Administration. Direct Air lists nearly $3 million in priority unsecured claims. “That means the unsecured, non-priority creditors aren't going to get a dime as a general matter,” said Worcester bankruptcy lawyer James P. Ehrhard, who is not involved in the case.
One of the many angry customers on the creditor list is Brad Solomon Jr. of Worcester, who had Direct Air tickets to fly to Florida last month. He put the $340 fare on his Bank of America debit card. Bank of America gave him a temporary credit to his account but said it would have to reinstate the charge if it wasn't able to recoup the money from Direct Air. Mr. Solomon hasn't heard from the bank yet, but he fears the financials revealed in court filings this week mean he will end up having to pay the $340 for a flight he never took.
“It's very upsetting. Even if another airline comes in to Worcester, unless it's a big name like Southwest, I'd be afraid I'm going to get stuck with another Direct Air. I've lost my trust in these small airlines,” he said. The Holiday Inn Express Hotel of Auburn, Worcester Airport Limo of West Boylston and the Telegram & Gazette are the only Central Massachusetts businesses listed as unsecured creditors in the filing. Direct Air, which was being run by majority owner Avondale Aviation I LLC at the time it ceased operations in March, names Avondale as a creditor in the filings, reporting that the firm is owed $460,000.
Avondale bought a controlling stake in Direct Air last September, but the previous owners, who founded the company, stayed on as minority owners and managers, according to court records. In court hearings, Direct Air's lawyers have blamed the collapse of the company on the previous owners. But a lawyer for the previous owners claimed Avondale is attempting to shift the blame to them through what he called a smear campaign.
A statement of financial affairs filed in court yesterday afternoon showed Direct Air took in $83.8 million in revenue last year and $19.7 million in revenue this year through March 15, when the company filed for bankruptcy protection. However, lawyers for the company shed doubt on those figures in accompanying documents, saying they were taken from accounting records kept by previous owners.
“Avondale has reason to suspect that the debtor's books and records, both in the context of inducing it to invest in the business and thereafter, may contain manipulated or falsified information and thus Avondale cannot attest to the veracity of the records,” according to the filing, which is signed by Avondale's Hank L. Torbert of Washington D.C
