Sentient changes leaders amid funding ‘hiccup’

 - July 25, 2008, 10:04 AM

Cash-flow problems at Sentient Jet Holdings, parent of charter, management and jet card firm Sentient Flight Group, have led to a leadership change at the company and an influx of funds to help the company catch up on delayed payments to vendors. On July 9, Sentient announced that Gregory Campbell was taking over as CEO and that former CEO Steven Hankin would be moved to an advisory role at the company.

The move came amid industry rumblings about Sentient’s cash-flow problems. One charter operator told AIN that Sentient owed $300,000 for charters that his company had provided for Sentient. As late as April, this operator said, Sentient was still paying its bills, but as of the middle of last month, he couldn’t get anyone in Sentient’s accounting department to return his calls.

Another operator that flew charters for Sentient said he didn’t get paid for two large-cabin jet trips flown in late June. This operator has experienced the bankruptcy of another company for which he flew charters. Even though he got paid for the flights, he said he had to return money received 90 days before the bankruptcy, because the bankrupt company made the payments to him out of sequence with other vendors. From a bill of a few hundred thousand dollars, the operator had to settle for a third of what he was owed. “I think [Sentient’s] problem is a lot more serious than people realize,” he said.

“The timing was horrible,” the first operator said. “[Sentient] clearly overpaid for the companies [that it bought], thinking the industry would continue to be incredibly robust. It turned quickly.” (See story on charter market decline on page 8.)

New CEO Campbell was JetDirect’s CEO before the two companies merged last April and Sentient CEO before Hankin took over in September. The merged companies snapped up five charter and management firms since then, including TAG Aviation USA, and Sentient now consists of what used to be 13 different charter certificates and a fleet of 300 airplanes, 200 of which are on charter certificates. Sentient has been working steadily on consolidating its 13 charter certificates into one managed by the Portland, Maine FAA Flight Standards District Office and expects to complete the single-certificate effort in November, according to Campbell.

The cash-flow problem stems from the challenge the merged company encountered in integrating 13 different accounting systems, Campbell said. Although the current state of the charter industry hasn’t helped, Sentient’s combined fleet flew more hours in June than in any previous month, he said. Sentient also added 19 new charter aircraft in the last few months and had 14 under letter of intent in mid-July.

Although jet card sales are down about 15 percent compared with last year, according to a spokesman, the company sold 400 jet cards since the beginning of the year. Sentient’s charter and aircraft management businesses, according to Campbell, have not declined but their growth has slowed.

Sentient is working to integrate the two major accounting platforms it is using. “In migrating to those two platforms,” Campbell said, “we ended up with fairly substantial delays in billing for charters [conducted by Sentient].” Typically, Sentient bills customers within two to three days of completing a trip, “which is pretty typical in the industry,” he said. Around the end of May, he added, “our billing cycle had stretched to 31 days because of some of the issues that arose out of the back-office and accounting integration. When you’re doing $800 million a year in revenue, that’s quite a bit of working capital to tie up in a fairly short period of time. So that truly did create some issues with payables.”

In other words, because the cash due for its own charters was slow coming in, Sentient had to delay making payments to vendors flying charters for Sentient, which included flights for Sentient jet card holders.

To deal with the cash-flow problems, Sentient has reduced its billing cycle from 30 days to two to three days, speeding up the flow of money coming in. Campbell said that by the middle of last month about one third of the vendor cash-flow delays had been resolved and he expected the rest to be back to normal in 60 days.

A Temporary Setback
The company’s ability to pay vendors is not just a result of Sentient’s improving its own billing cycle but also due to an infusion of funding from its investor group, which includes CD Ventures, Argosy Capital, ABS Capital Partners, Brantley Partners, HSBC and AIG. The funding, said Campbell, “will be used primarily for bringing vendor payments back into line. We anticipate this is probably a 60-day hiccup for us that we’ll get over quickly.”

Sentient had already received a substantial amount of this new funding by the time this issue went to press, according to a company spokesman. And there is now a payment schedule designed to get Sentient caught up and bring everyone current, he explained.