Jet Republic employees claim start-up mishandled insolvency

 - December 28, 2009, 10:36 AM

Former employees of Jet Republic complain of being betrayed and misled in the sudden collapse of the European would-be fractional ownership company. Speaking to AIN on condition of anonymity, the staff has claimed that the company breached its contractual obligations by failing to give formal notification that they were being laid off, so preventing them from claiming unemployment benefits in their countries.

AIN has made repeated efforts to contact both former Jet Republic CEO Jonathan Breeze and insolvency administrators handling the company’s liquidation but has received no response to questions about how the staff were treated and why and how the company folded. A spokesman for Breeze said that he would not be commenting on these matters because Jet Republic is still in the insolvency process.

Viktor Popovic, the former Jet Republic director and CEO of its main financial backer, Euram Bank, also declined to answer questions. His spokesman referred AIN to the administrator handling the liquidation of the group’s Swiss subsidiary but no response was forthcoming from that corner either.

The former Jet Republic employees have told AIN that they were completely shocked by the company’s sudden closure. They first heard about the closure on August 19, one day before Bombardier announced the cancellation of Jet Republic’s contract to buy 25 Learjet 60XRs (plus options for 85 more).

Soon after August 19, employees of Jet Republic’s Portugal-based operating company were told they could stay home “until further notice.” Then on August 31 they were told verbally that the company would be declared insolvent.

According to the staff, the reason Breeze gave employees for the insolvency was that one of Jet Republic’s shareholders had not made a promised investment. But in a press release, Breeze said the company had collapsed due to difficulties that prospective fractional share buyers had had in arranging finance.

Staff told AIN that they had been paid through the end of August. However, the Portugal-based employees were entitled to a further three months of pay, plus additional compensation to cover unused vacation days, 2010 vacation allowances, a Christmas bonus and training pay. They allege that Jet Republic honored none of these commitments and that the company’s top management simply walked away from their responsibilities. Because of delay in initiating the insolvency process of the Portuguese operating arm of Jet Republic, employees were still legally bound to the company (even though they were not being paid) and so could not claim unemployment insurance payments.

“Jet Republic and the leader of the project [Jonathan Breeze] totally failed its obligations with the employees,” said a former employee. “We were abandoned and a social problem was created for the employees. The foreign employees [i.e. non Portuguese] were left without any support. Some employees were the only salary-earners for their families. Some families had to move the kids from schools and were forced to switch to cheaper houses or to share with family or friends. For sure this is not a respectful or humane way to treat the employees.”

Employees attempted to get resolution of their grievances through both Euram Bank and another leading investor, Grupo Salinas, but told AIN they were not offered any help. They did receive a response from Mexico-based Grupo Salinas and said that the company had acknowledged it was “not aware” of some of the management decisions made by Jet Republic (see sidebar).

Eventually, the Portuguese insolvency administrator provided some help to the former employees. However, it took two months to assemble the necessary documentation and none of them received any back pay until the end of November.

The employees have accused Breeze and his fellow top managers of a complete lack of transparency over the financial state of Jet Republic. As far as they are aware, not one single share in a Learjet 60XR was ever sold. If true, at least this means that no customers have been left out of pocket, although AIN has separately heard from a former Jet Republic vendor that one share was in fact sold since the company’s flamboyant launch in September 2008.

In addition to operating company Jet Republic Portugal, the group also consisted of Swiss and Maltese subsidiaries. The Swiss company was registered first in the tax haven Zug in September 2008, before being reregistered in Geneva in March 2009 as Jet Republic Services. This company, for which the minimum legally required capital had been put up by Jet Republic Malta, was placed into liquidation on Sept. 2, 2009. (See article.)  

Were Jet Republic and its investors on the same page?

When Jet Republic was launched in September 2008, chief executive Jonathan Breeze represented Austria’s Euram Bank and its private customers as the main financial backers. At the time, Breeze indicated that there was no shortage of prospective investors wanting to buy into the venture and that he had been able to pick and choose partners.

However, correspondence ex-changed between Jet Republic’s former employees and another leading investor–Grupo Salinas of Mexico–indicate that Jet Republic’s financial foundations were by no means as firm as they appeared. Responding to employee requests for help, Pedro Molina, president of Grupo Elektra Global (part of Grupo Salinas), disclosed that in fact Breeze himself did not contribute his own promised share of the Jet Republic equity and that it was an undisclosed prospective investor who effectively pulled the plug on the venture at short notice.

According to Molina, Grupo Salinas deposited its share of the Jet Republic equity in summer 2008. At the time, Grupo Salinas agreed to a proposal by “the founding shareholders” (i.e. Breeze and Euram Bank) that they could defer their contributions “to accommodate their own cash flow requirements.” Euram subsequently paid its share, but in June 2009 Breeze said that he could come up with only half of the commitment he had made when selling the business model to Grupo Salinas. He indicated that he had found an alternative investor to make up the shortfall and Grupo Salinas was “led to believe” that these funds would be forthcoming before the end of June. The next they heard was late on August 18 when Grupo Salinas was told that this investor had backed out.

Molina also said that right after the insolvency, Jet Republic management had asked Grupo Salinas to provide yet more money to “meet its obligations” to employees. Grupo Salinas declined to provide more funds, arguing that this was not its role as a “passive investor” and insisting “that those responsible for the failure to fund [i.e. Breeze], rather than Grupo Salinas who met their commitment, should assist the company to meet its obligations to you.” Grupo Salinas did offer to try to find new jobs for any staff willing to relocate to Latin America.

During the course of their correspondence, the Jet Republic employees outlined the following incidents that occurred in the months just before the collapse of the company as an indication of the extent to which they had had no idea of how precarious their situation had become:

• In March 2009, Jet Republic signed a contract with Portuguese construction group Teixeira Duarte to have a new headquarters built.
• At the end of July, Jet Republic leased a Learjet 60XR for training and demonstration flights. The airplane arrived in early August.
• Fifteen days before the company was declared insolvent, Jet Republic announced the opening of a new office in London’s high-rent Mayfair district.
• As late as July and August, Jet Republic was recruiting new employees, persuading them to give up jobs and relocate their families to Portugal.
• On August 17–less than 48 hours before the collapse–Jet Republic directors hired a professional photographer and makeup artist to have new photos taken of themselves for the company Web site.

Euram Bank CEO Viktor Popovic also told Jet Republic employees
that he could not help them. Describing Euram as a minority shareholder in Jet Republic, he said that it had met all its financial commitments and insisted that the directors of Jet Republic Portugal meet any outstanding legal obligations
to employees.