Direct Air demise: What happened to $30 million?

dbryant@thesunnews.comDecember 22, 2012 

  • Fast fact Passengers who are owed money by Direct Air have until Jan. 15 to file a claim. Find out how to file a claim at http://www.dot.gov/airconsumer/service-cessations-bankruptcy.

This is the second in a series of 10 articles that examine news events that shaped our area and captured our attention for better or worse in 2012, and look ahead at what developments await in 2013. If you missed one, read it at MyrtleBeachOnline.com.

Monday: Republican presidential candidate debate shines national spotlight on Myrtle Beach

Federal transportation regulators have tweaked rules for charter operators after the abrupt cancellation of Direct Air flights earlier this year, a move that comes as investigators still try to determine what happened to $30 million that is missing from the escrow accounts the Myrtle Beach-based carrier was required to have to protect passengers.

Several practices by Direct Air likely exacerbated the frustration experienced by thousands of passengers when the carrier suddenly stopped flying in mid-March, according to the U.S. Department of Transportation. The department has added new conditions for public charter operators, such as Direct Air, that will take effect Jan. 14, a month later than initially planned because of the amount of comments the DOT has received.

“We have received a number of comments and questions from members of the public about the notice, and we wanted to be sure that anyone with questions or comments about it had a chance to be heard and that we had a chance to consider these views,” DOT spokesman Bill Mosley said.

The new conditions require that charter operators retain control over passenger reservations to make it easier to contact passengers about cancellations and only accept payments by debit cards if they provide the same protections for passengers as those paying by credit card.

“There are some problems we saw that we don’t want to have happen again,” Mosley said.

It also prohibits charter operators from selling vouchers for future travel not tied to specific flights because they are not protected under charter escrow requirements. Direct Air regularly sold vouchers through its “Friends and Family” promotion.

“That should not have been done,” Mosley said. “They were not protected under escrow requirements.”

Transportation and bankruptcy court officials are still trying to unravel what led to the carrier’s sudden demise into Chapter 7 bankruptcy liquidation in the spring. Of particular interest: What happened to $30 million that should have been in escrow accounts Direct Air was required to keep to protect passengers.

“This isn’t a typical case because so many parties have an interest in the funds and 30 million bucks has just disappeared,” said Joseph Baldiga, the trustee in the case. “There’s $30 million missing. A lot of people are out money, not just passengers, but credit card companies [and others].”

Direct Air’s demise affected thousands of passengers, contributed to ongoing monthly declines in passenger numbers at Myrtle Beach International Airport and left a number of businesses owed money.

Most owed money by Direct Air have lined up to collect, while the investigation by the bankruptcy court trustee has been at a standstill as payment for the work has been negotiated. Officials are waiting for the funds to be released by the bank to move forward. Baldiga said last week that work likely will resume at the beginning of the year.

“The investigation on our end has gone nowhere,” Baldiga said. “It really is at an early stage just because this investigation has been on hold.”

Passengers who haven’t yet filed a claim for money they are owed still have a few weeks to do so. Officials have extended the deadline to Jan. 15 because some of the tickets that had been sold were for flights as late as November.

“We are really trying to accommodate passengers,” Baldiga said.

Thousands of passengers were left scrambling after Direct Air flights were canceled starting late March 12 as fuel suppliers refused to fill up planes because they hadn’t been paid. Direct Air outsourced its reservations system, which made it difficult for DOT to obtain passengers’ information to notify them of the cancellations, Mosley said. Direct Air also should have arranged for everything needed to provide air service, but often relied on other companies.

“We don’t know who the other companies are,” Mosley said. “It makes it much more difficult to determine if the rules are being followed. Because it becomes very tangled...It makes it much more difficult to follow up when there are so many hands in the game.”

Direct Air also entered into contracts with carriers that operated the flights but the contracts were limited to providing aircraft, crew, maintenance and insurance. It negotiated separately with fuel suppliers and others, according to the DOT.

“These other contractors don’t have the same responsibility” to abide by DOT rules, Mosley said. “What’s typical is for the airline to take care of all the expenses.”

Direct Air’s downfall left airport, tourism and golf officials trying to line up other carriers to pick up those routes to destinations popular with Grand Strand visitors. Direct Air, which operated year-round, carried 92,502 passengers out of Myrtle Beach in 2011, making it the fourth-largest carrier behind Spirit Airlines, US Airways and Delta, according to airport statistics.

Overall passenger numbers at the airport are down 16 percent through November this year compared to the same 11-month period in 2011, a decline officials have blamed on the loss of Direct Air combined with shifts in the airline industry that have left Myrtle Beach with fewer seats to fill.

Vision Airlines picked up some of Direct Air’s routes during the summer - with mixed success -- and Spirit Airlines plans to start some of its flights --including a few to former Direct Air destinations including Niagara Falls. N.Y. -- in February, weeks earlier than usual aiming to fill the void.

“While gaps still exist in a few markets, we’ve made every airline currently serving us aware of these existing opportunities, and we remain hopeful that new service for 2013 will be announced soon,” Brad Dean, president of the Myrtle Beach Area Chamber of Commerce, said in an email.

It’s a process that takes time, airport spokesman Kirk Lovell said.

“I wish it was as easy as going to Target or CVS and pick things out but it’s not,” he said. “Nothing happens overnight.”

The push to replace those flights and recruit new air services comes as crews put the final touches on a $118 million airport expansion that includes a new terminal, rental car building, parking spaces and restaurants. The airport’s new entrance debuted in October off the extended section of Harrelson Boulevard, which opened earlier this year and connects to Kings Highway.

The new terminal is expected to be fully operational by Feb. 19.

That’s about the time Baldiga estimates the money will have been released and he can resume his investigation of Direct Air. Meanwhile, DOT also continues its investigation into the only public charter to fail this year. In addition to the new rules for charter operators, DOT has so far fined three of the carriers that flew the flights for Direct Air for their role in the abrupt cancellations. Mosley declined to say whether more fines might be coming.

“We are still investigating the entire program,” Mosley said. “These don’t happen very often, but they are all very disruptive to passengers.”

Contact DAWN BRYANT at 626-0296 or at dbryant@thesunnews.com or follow her at Twitter.com/TSN_dawnbryant.

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