Prelude to Bankruptcy?

Prelude to Bankruptcy?

OneJet just announced suspension of all its flights, including from Pittsburgh, its focus airport– where the destinations had dwindled to two cities, Hartford and Indianapolis. The airline is being sued by the Allegheny County Airport Authority to reclaim over $700,000 of a million dollar loan because the company had failed utterly to start or sustain promised flights to 10 destinations. The airline says it will be back in October, stronger than ever.

Then, it was learned that the IRS had filed a lien against OneJet for over $600,000 in unpaid taxes. To top off the airline’s horrific two weeks, on August 21 Ultimate JetCharter announced it was cancelling the sale to OneJet. Ultimate JetCharter was to be an addition that would bring 30-seat planes to the OneJet fleet. Of late, that has been OneJet’s mantra. It needed bigger planes to handle demand and to be more profitable. Ultimate JetCharter would not say why the sale was cancelled but it followed closely on the heels of the Pittsburgh lawsuit. No doubt the final straw for them.

The problem for OneJet has been its habit of making reckless promises to investors, lenders and airports. It left its focus operation in Indianapolis to come to Pittsburgh where $3 million was handed to them with grandiose promises about starting service to 10 destinations.

With the Pittsburgh airport suing, the IRS imposing a lien and the charter company it hoped to purchase dropping them, how does OneJet plan to come back in October? Obviously, the decision to stop all flights indicates revenue was falling short of expenses while debt obligations and taxes were not being paid. Milwaukee businesses put significant additional funds (newspaper accounts said it was seven figures) into the company last October with OneJet promising service to several destinations from that airport. Milwaukee flights ended months ago.

Two problems for OneJet. If the airline is not transporting customers, there is no revenue—except what they might get from investors and lenders. And who at this point would loan money to or invest in the airline? It has been very loose with its promises and short on performance to date. Moreover, the tickets sold for future flights that are now cancelled will have to be reimbursed. All in all it is hard to see how this airline ever gets back on its feet absent some big angel investors stepping up or possibly being sold to another air charter service.

As we noted in a Policy Brief recently, there are strong indications that Allegheny County Airport Authority failed completely in doing the due diligence necessary to enter into the loan and grant arrangement with OneJet. It borders on gross negligence. And to make matters worse, an authority board member was put on the OneJet board as a non-voting director and another authority board member is an investor in the airline.

Allegheny County is not the only municipality to be stung by OneJet. But given that a significant amount of public money was used, it might be the one most in need of an internal review of its procedures.