Charter firm nears deal with new buyer

 - March 30, 2009, 4:57 AM

The plan by JDA Acquisition Company (JDAAC) to buy the assets of charter/
management firm JetDirect Aviation is expected to reach fruition by April 7. On March 16, JDAAC said that it concluded an agreement to purchase JetDirect assets. But that transaction appeared to be subject to sufficient management clients agreeing to join JDAAC, and the FAA issuing a new Part 135 certificate. After concluding the transaction, JDAAC plans to adopt a new name. The company is backed by private-equity firm Brantley Partners.

The Brantley Partners/JDAAC purchase of JetDirect assets should provide up to $20 million to JetDirect lienholders, according to information obtained by AIN, far less than the $112.5 million in secured debt JetDirect Aviation owes. JDAAC has also promised to bring payroll and expense reimbursements up to date, although management clients, employees and vendors of two JetDirect Aviation subsidiary companies that have been placed into bankruptcy– Regal Jets and Sunset Aviation, Inc.–are very low on the creditors list.

JetDirect Aviation is what remains of the bold attempt to create a national charter/ management/jet card company via JetDirect Aviation’s acquisition of Sentient Jet in 2007. Sentient Jet had purchased Atlantic Aviation Flight Services in 2005, and between 2005 and early 2007 JetDirect had added Summit Jet, Chester County Aviation’s FBO, maintenance company JetCorp, Regal Jets, Spirit Aviation and Presidential Jets.

After Sentient Jet and JetDirect joined in April 2007, the new company, renamed Sentient Jet Holdings, acquired Sunset Aviation, Hawker Beechcraft Charter Management, The Air Group, Southwest Jet Aviation and assets of TAG Aviation USA. The plan was to combine all the charter certificates from the different companies to create a single charter/management firm. At its peak, Sentient Jet Holdings managed more than 300 aircraft.

Last year, as the charter market suffered a severe decline, Sentient Jet Holdings began to unravel. Charter companies that provided lift for Sentient customers began complaining that they were not getting paid. One company claimed it was owed $300,000. Last July, Sentient announced that Gregory Campbell, formerly CEO of JetDirect before the two companies were joined, had taken over as CEO of Sentient Jet Holdings. CEO Steven Hankin was shifted to an advisory role. Campbell explained that cash-flow problems were due to challenges integrating 13 different accounting systems from all the acquisitions as well as a slowdown in the charter market.

Campbell said at the time that an infusion of funds from its financial backers–CD Ventures, Argosy Capital, ABS Capital Partners, Brantley Partners, HSBC and AIG–would help Sentient bring its payables back into line.

Last August, Macquarie Global Opportunity Partners bought the Sentient jet card, charter brokerage and fuel buying operations and placed them under a new company called Sentient Flight Group, headed by Hankin.

While the sale of those operations to the new Sentient Flight Group generated cash to help pay bills, some vendors were paid while other vendors were not. The sale to Macquarie was done “at a substantial loss,” according to JetDirect, and “left the company with a working capital deficit of $30 million–a deficit it was never able to overcome.”

In January, JetDirect Aviation announced plans to be acquired by a private-equity firm by the end of February. The plan included JetDirect selling its FBOs and JetCorp, as well as Sunset Aviation and Presidential Jets. JetDirect said at the time that the private equity firm, later revealed to be Brantley Partners, would provide interim capital to help bring “our client obligations more current prior to closing.”

The sale of Sunset Aviation, Presidential Jets, the FBOs and JetCorp never took place, although some sales remained pending as this issue went to press. JetCorp was sold to Flying Colors on March 20. Many JetDirect employees and representatives of management clients contacted AIN with tales of unpaid salary and benefits, thousands of dollars owed to aircraft owners for charters flown in their aircraft and unreimbursed expenses placed on pilots’ credit cards. One pilot claimed he was owed $12,000 in unreimbursed expenses, another claimed $70,000.

On February 25, JetDirect placed Regal Jets into Chapter 11 (liquidation) bankruptcy; it did the same with Sunset Aviation on March 6. Sunset owner and founder Dan Drohan, who had sold the company to JetDirect but was still owed millions of dollars, had filed with the California secretary of state’s office on December 9 to start a new company, Sunset Aviation, LLC, necessary as part of his plan to buy back his company.

However, as prospects of the buyback appeared dim, Drohan has been signing management clients and working with the FAA to obtain a new Part 135 certificate.

Retaining Management Clients
The purchase of JetDirect, according to a March 16 letter to management clients from JDAAC chairman and Brantley Partners managing general partner Robert Pinkas, “will close upon the assignment of a specified number of management contracts and the issuance of the new FAR Part 135 certificate to the buyer.”

In a March 11 letter to management clients, JetDirect chairman Gregory Campbell wrote that “JetDirect Aviation Holding, LLC’s, senior secured lender is in the process of selling substantially all of the company’s assets in order to satisfy its loans to the company.” The sale and liquidation of assets is expected to yield up to $20 million, according to Campbell, and that money will be used to pay lienholder Sovereign Bank, which has a current balance of $4 million. The remainder will go to Contrarian Capital, which is owed $35.5 million. No money will be available for lienholders TAG Aviation, owed $33 million, and SJH Capital Partners, owed $40 million.

JetDirect management clients have been asked to sign a consent document to assign their previous management agreement to JDAAC. “Prior to close, we will provide you with a complete account reconciliation as well as JDAAC’s plan to repay any past operating funds and charter revenue owed to you,” a March 9 letter from a JetDirect v-p stated. The letter doesn’t say whether owners who leave JetDirect or don’t sign the consent document will be repaid for charter revenues they are owed, nor how long they have to remain with the new company to be repaid.

“This is absolutely an effort to preserve some of their clients,” said William Quinn, chairman of Aviation Management Systems of Portsmouth, N.H.

Quinn has observed a trend–aircraft owners taking more of an interest in the financial circumstances of management companies. According to the March 9 letter, JDAAC will establish segregated bank accounts for each management client to help customers “rebuild that trust” and ensure that JetDirect does not fall behind in payments again. “There are people seeking [segregated accounts],” Quinn said, “not only as a result of this JetDirect debacle, but there’s enough instability now that people are concerned about how their money is used and commingled. We all know that JetDirect commingled deposits and revenues, which created the biggest problem.”