Former exec recounts woes at Silver State

HAI Convention News » 2008
February 25, 2008, 5:00 PM

When Silver State Helicopters salesman “John Smith” (not his real name) was laid off in mid-November from his job recruiting student helicopter pilots, he figured that the now-bankrupt company was cutting expenses in an attempt to make the financials look better for an initial public stock offering. Silver State owner Jerry Airola had often discussed an IPO, according to Smith, and it seemed that it might be a possibility. But then all the regional sales managers were fired. After Smith left the company, he learned that the general managers at the helicopter training bases were let go, too. It soon became clear that Silver State’s financial situation was not improving.

The first indications that there was something wrong at Silver State came a couple of months earlier, Smith said, when loans to pay for helicopter training became harder to obtain. “We saw that the credit markets were not supporting our efforts,” he told HAI Convention News.

Silver State depended on readily available student financing as it advertised heavily on radio and TV stations to bring prospective students to informative seminars. Smith started with the company in April 2007, and his primary activity was running the seminars to bring in as many prospective students as possible. After the TV and radio ads attracted prospects, Silver State would invite them to attend an afternoon or evening seminar, and those who were interested in helicopter pilot careers would fill out enrollment and financial applications.

The heavy advertising would attract 500 to 600 people to the seminar, and about 100 might fill out the application, but then only about 10 to 12 would qualify for financing. The loans, with interest rates ranging from 10 to 15 percent, included deferral terms so students wouldn’t have to begin making payments until six months after they graduated from the 18-month Silver State training program. Graduates would earn 200 hours of flight time and their flight instructor certificate. Payments for the roughly $70,000 cost of the training would average $1,200 to $1,400 per month, Smith said. Many of the graduates were offered jobs teaching at Silver State.

Former student Aliree Ragan said she attended a Silver State seminar at age 16 and filled out the application right away. Ragan began flight training in Ogden, Utah, at age 18, paying for her lessons with a loan arranged by Silver State and co-signed by her father. As she neared time to take her private pilot checkride, Silver State cut Ragan’s flying from 10 hours per week to half that. Just before Ragan was due to take her checkride, scheduled for the second week of February, Silver State shut down, but not before it withdrew $17,700 remaining in her account, she said.

Ragan has not been able to recover her training records from Silver State’s locked and guarded Ogden facility and she now owes $76,000 on her training loan. She recently took a job as a secretary for an electrical contractor and said she has no idea how she is going to repay the loan.

After the credit crunch, Smith said, “It was becoming increasingly difficult to bring students in.” Many could not qualify for the financing unless a creditworthy cosigner was available, and Smith cited instances where prospective cosigning family members balked at the terms, wondering how a graduate could afford to make the heavy payments on a flight instructor’s salary. “Some of those [Silver State] flight instructors still have loan payments due,” he said. But still, “people did find a way to finance the training because they really wanted to do it. It was something exciting. We had people from all walks of life.”

At Smith’s base, which he declined to identify, Silver State operated seven Robinson R22s and two R44s. He didn’t see any evidence that maintenance was deferred or ignored as the financial problems mounted, but he did experience increasing pressure from management to bring in new students, including daily reporting on calls made and tours given. “It got to be overbearing,” he said in an interview yesterday. “Many of us were wondering how long it could last.”

In a recently released accident report, the National Transportation Safety Board found that the probable cause of a fatal accident involving a Silver State R44 near Jacksonville, Fla., on March 27 was due to “the [Silver State] mechanic’s improper installation of the attachment hardware for the servo-to-swashplate push-pull tube joint, which resulted in a disconnection, subsequent loss of control and impact with terrain. Contributing factors were the company management’s inadequate surveillance and enforcement of maintenance procedures, the excessive maintenance workload due to inadequate staffing of maintenance personnel and the insufficient management of maintenance tasks.”

On February 3, Silver State shut down abruptly and halted operation of its 250 helicopters, then filed Chapter 7 (liquidation) bankruptcy a day later. Utah attorney Dan Reed, who has been contacted by a number of former Silver State students and employees, said he has been told that Silver State removed all the money
remaining in student accounts on February 1. Reed said he is exploring the possibility of a class-action lawsuit against Silver State and its leaders and backers.

Airola, who is suspected of having moved to Texas, may be able to take advantage of Texas homesteading laws that protect bankrupt residents from having to liquidate real estate, insurance policies, qualified retirement plans and personal automobiles from seizure during bankruptcy proceedings.

Earlier lawsuits filed against Silver State starting in 2002 complained that the company didn’t deliver training that it promised within 18 months due to lack of helicopters.

Salesman Smith said he still believes that a properly managed and solidly financed nationwide helicopter flight school could be successful.

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