The court-appointed trustee in the 2008 Silver State Helicopters (SSH) collapse has filed suit against the company’s ex-CEO, Jerry Airola, and his top deputy, Steve Pickett, charging that the two used a complex shell game to fraudulently transfer $8.2 million out of the company in the months immediately before it declared bankruptcy.
The trustee also alleges that Airola was paid more than $10 million as part of a $40 million recapitalization of SSH by Orix Commercial Finance, secured by the company’s helicopters and other real property, in August 2007. One month later, Airola sold a 60-percent stake in SSH to Eos Capital Partners for an estimated $30 million, but retained a seat on the company’s board and check-writing authority. Under the terms of the recapitalization, SSH was required to repay Orix $31 million by February 2008. Rather than making that payment, SSH filed for bankruptcy on Feb. 4, 2008.
The trustee’s suit alleges that Airola and Pickett should have known that the Orix recapitalization likely would have resulted in SSH’s bankruptcy and that the asset transfer, because it occurred concurrently with the recapitalization, was made to “hinder, delay or defraud” creditors. Central to the charge is that a company controlled by Airola and Pickett, First American Equity, received the assets of an SSH-owned company called Air Excel for “no consideration.” Those assets included proceeds from the sale of the Boulder City, Nev. FBO and the North Las Vegas heliport on Cheyenne, Ave.
Between April and June 2007 Air Excel sold the Boulder FBO to Stars and Stripes Air Tours LLC for $1.2 million in cash, a $700,000 promissory note and debt assumption on a hangar mortgage. Airola and Pickett then formed First American. Two months later, in August 2007, SSH transferred the proceeds from the Stars and Stripes transaction and the SSH-owned Cheyenne heliport to First American. On May 9, 2008, Pickett and Steve Trenk formed Stars & Stripes Heliplex and on June 2, 2008, First American transferred the Cheyenne property to Heliplex.
The Trenk family runs New York’s West 30th Street Heliport under its Air Pegasus umbrella and purchased a partnership interest in Las Vegas Helicopters, which then operated under the name of Stars & Stripes, in 2006. In 2008, family patriarch Al Trenk told AIN that the Boulder City deal reached with Airola included a right of first refusal on the Cheyenne property. The 3.5-acre site has 15,000 sq ft of hangar and shop space near the Las Vegas Strip and is the only licensed off-airport heliport in Las Vegas.
First American and Stars & Stripes Heliplex are also named as defendants. Airola’s attorney, Nile Leatham, claims the suit is without merit.
The trustee’s lawsuit is just part of the ongoing saga that involves the Federal Bureau of Investigation and the attorneys general of at least 15 states.
They are continuing to probe the activities of Silver State’s former top management and a series of questionable transactions that immediately preceded the company’s demise. The suit was filed last year even as new details emerged about Airola’s alleged excesses in running the company.
Sage-Popovich, the aviation recovery firm the trustee hired to secure SSH’s records and real property, discovered a treasure trove of items apparently unrelated to flight training, including 476 land vehicles, high-end consumer electronics and an in-office waterfall. Among the “company” vehicles: two Jaguars, a fleet of customized Hummers, Ford Explorers and pick-ups, two customized motorcycles from Orange County Choppers, a Harley-David- son police motorcycle, four Raptor toy hauler trailers, and a jet-ski trailer.
Other property simply walked away. When Sage-Popovich’s team of more than 125 moved in they caught some ex-SSH employees stealing helicopter parts and tools. “We filed theft complaints at several [SSH] locations,” said CEO Nick Popovich.
Former employees and students allege that Airola used SSH resources for other purposes that included a failed run for sheriff of Clark County and Las Vegas in 2006 and to purchase breast implants for a female employee.
Airola founded the school with a single Robinson R22 in Henderson, Nev., in 1999. He quickly built it into the nation’s largest, using targeted advertising blitzes, seminars, deeply discounted prices and other high-pressure marketing strategies. By 2005, SSH ranked 12th on the Inc. 500 list of fast-growing small businesses, and in 2006 it reported revenue of $78 million. It was the nation’s largest civilian helicopter school when it filed Chapter 7 (liquidation) bankruptcy. Before it closed, the school had 750 employees, 2,500 students and 250 helicopters at 33 locations in 14 states. In its bankruptcy petition, Silver State listed assets of less than $50,000 and debt of between $10 million and $50 million.
Debt Relief for Students
On Feb. 1, 2008, three days before the bankruptcy filing, SSH electronically withdrew all the money from numerous student accounts, according to students’ attorneys. Most of SSH’s students were younger than 25 and had paid between $50,000 and $70,000 up front in mostly high-interest loans, often arranged by SSH.
The training package included 200 hours of flight time, ratings up to certified flight instructor, and often promises (false ones, students allege) of future employment with the company. Even though SSH students took 12 to 18 months to complete the program, the company typically drew down their accounts within their first five to six months of enrollment.
Years before SSH failed, students were already suing the school. The lawsuits had a common theme: SSH did not have enough helicopters or instructors for students to finish their training within the 18 months the company prescribed. Students who exceeded the time limit were either expelled from the program or told that they needed to pay additional tuition and fees to complete it. Their contract with SSH precluded refunds but students could use their account balances to purchase “helicopter services” from the company.
The amount of debt run up by SSH students was staggering, and attorneys representing the students, as well as several states’ attorneys general, are working with lenders to fashion some relief. One important agreement was announced October 27 between the attorneys general of 12 states and CIT Group unit Student Loan Xpress, SSH’s preferred student lender from 2005 to 2007. The settlement calls for the lender to forgive $112.8 million of $173 million in SSH student loans and affects 2,900 former students and loan co-signers. Under the deal, the size of the individual loan forgiveness is pro-rated to the amount of training actually received. Student Loan Xpress is also enjoined from reporting any negative credit information about the borrowers and co-signers related to its SSH loans.
Citibank, SSH’s preferred student lender from mid-2007 until the school’s closure, has agreed to forgive 100 percent of the approximately $6 million it made in SSH student loans. However, other large SSH student lenders, including KeyBank, have not reached any settlements.
Sage-Popovich moved all of SSH’s turbine helicopters and fixed-wing aircraft to the Gary (Ind.) Jet Center and those aircraft have been disposed of. However, the company is still in the process of selling SSH’s helicopter parts inventory, about half of which remains in its warehouses in Valparaiso, Ind. All of SSH’s 177 Robinson R22s and R44s were either flown or shipped to Sky Helicopters in Garland, Texas, for disposal. Last October, Sky closed the book on the liquidation after selling 160 of the helicopters. It bought the final 17 for its own refurbishment and resale operation.
The SSH debacle “has not been good for our industry,” said Sky vice president Connie Pyatt.
“We probably talked to 200 to 250 [SSH] students during the course of this thing [liquidating SSH],” said Popovich. “You felt sorry for the students, that was the main thing.”
A source close to the bankruptcy told AIN that Airola tried to buy back several of SSH’s turbine helicopters in the months after the school closed. His offer was rejected.