A sworn declaration by JetSuite’s chief restructuring officer, Edward T. Gavin of Gavin/Solmonese, gives a unique view into the Part 135 charter operator leading up to grounding its fleet and subsequent Chapter 11 bankruptcy filing earlier this week.
The document, filed prior to a video hearing yesterday, confirmed $50 million in unused SuiteKey jet card balances, the amount estimated by Private Jet Card Comparisons in our earlier report.
Gavin said after its launch in 2009, JetSuite “quickly grew from its California base to maintain operations on both coasts.” He noted, “At one time, the Debtor maintained a fleet of eighteen planes, although as of the date of this filing, the fleet has dwindled to only ten.”
He said JetSuite’s strengths included, “a nearly impeccable safety record, a reputation for good pilots and management, and overall reliability and service among its customers.”
However, JetSuite suffered from woes often lamented by many Part 135 operators. “Notwithstanding its initial growth and operational expansion, the Debtor was beset by the incredibly tight margins common to the charter airline industry and was never able to operate profitably,” the filing claimed.
Gavin continued, “Despite maintaining consistent bookings and flights, the Debtor was unable to meet a level of daily flight hours which would allow it to do more than break even on operating costs, leaving aside the burden of its fixed expenses.” Ironically, JetSuite often noted its fleet productivity was among the best in the industry.
He said, “Compounding these issues were the company’s inability to successfully penetrate the highly competitive East Coast market for private jet travel, due in large part to the unreliability of the planes the Debtor had acquired for that purpose.”
The document does not specify which planes it was having issues with. Over the past year, JetSuite had been shedding its Embraer Phenom 100 very light jets. In their place, it was adding the longer range, higher capacity Phenom 300s. During the summer of 2019, it had intentions of moving some Phenom 100s to the East Coast. That plan was never executed. It had previously flown Cessna Citation CJ3s before converting over to the Phenom 300s.
With its pressed margins and operational obstacles, Gavin said, “The Debtor could ill afford the economic destruction that the worldwide Coronavirus (COVID-19) pandemic would come to cause across a spectrum of industries. In short, it decimated the Debtor’s operations, with potential customers no longer able or willing to seek out the Debtor’s services.”
Things took a quick turn for the worse. “The Debtor’s cash flows dropped by essentially 100% almost immediately after the (stay-at-home) restrictions went into place.”
California, a key market, implemented restrictions on March 19. By the first week of April, Arizona, Nevada, and Texas as well as most states followed.
Gavin said, “Because the duration of the COVID-19 crisis is indeterminate, the Debtor expects demand to remain very weak for many months to come.”
He told the court, “By mid-April 2020, it became apparent the Debtor had little choice but to ground its fleet and furlough most employees and crewmembers.”
He added, “Coupled with steadily accumulating liabilities (including costly litigation relating to the unreliable planes acquired for east coast operations), the presently bleak outlook for the travel industry (and economy at large) would otherwise sound the death knell for the Debtor were it not for the intervening Chapter 11 Case.”
An initial statement said JetSuite was hoping to relaunch operations. The filing noted options also include an “orderly wind-down.”
In terms of lost jobs, “Until the recent COVID-19 disruption, the Debtor employed more than 100 employees.”
It also appears all eight of its Phenom 300s were on leases. Immediately prior to the bankruptcy, two of the lessors delivered default notices to JetSuite and retook possession of the aircraft.
In terms of the company structure, Gavin told the court, “Debtor (JetSuite) is a wholly-owned subsidiary of the non-debtor JSI, LLC (“JSI”). In turn, JSI is wholly owned by the non-Debtor JetSuiteX, Inc. (“JSX”). JSX likewise wholly owns non-debtor Delux Public Charter LLC (“DPC”, and together with JSI and JSX, the “Non-Debtor Affiliates”). The Non-Debtor Affiliates’ operations are unrelated to and unaffected by the Debtor’s case, except in the limited circumstances…”
JetSuite’s revenues primarily came from its SuiteKey customers, the filing affirmed. “Agreements were purchased by way of Non-Refundable Pre-Purchase Payments, in amounts ranging from $100,000 to $500,000.”
The majority of customers had up to 24 months to utilize the balance of their accounts. Forty percent (40%) had non-expiring agreements, dating to before JetSuite relaunched SuiteKey in 2018.
The filing confirmed SuiteKey deposits to have a combined “notional balance” of approximately $50 million. As we previously reported, an earlier document ticked a box that states, “After any administrative expenses are paid, no funds will be available for distribution to unsecured creditors.”
A number of SuiteKey customers who had flight credits outstanding are irked that sister JSX is continuing its operations. They are concerned some of their deposits may have been used to fund its expansion.
The court document notes “for the sake of efficiency,” there were a number of transactions and shared services. They are described as “in the ordinary course of business.” Services were “without any markup or premium.”
JetSuite is a party to a series of promissory notes with JSX. Issued between September 2019 and March 2020 the principal sum is $16.2 million.
The notes are unsecured, payable upon demand, and bear no interest. JetSuite is not required to make any payments unless demand is made or an event of default is uncured.
Immediately prior to the Chapter 11 filing, JSX advanced one final note for approximately $220,000. The money was used to assist with the payment of bonuses otherwise due to certain furloughed pilots under state law.
Estimated unsecured creditors, including jet card customers, are owed nearly $75 million.
Gavin was appointed to his position on April 24, about one week after the shutdown. He noted, “As a result of the accelerated pace of the COVID-19 pandemic, the Debtor realized it would not have sufficient cash to fund operations, including its payroll obligations due and payable on and after April 30, 2020.”
He said JetSuite had been seeking financing based on its existing aircraft and working with existing lessors. “As a result of the accelerated pace of the COVID-19 pandemic, the Debtor realized it would not have sufficient cash to fund operations, including its payroll obligations due and payable on and after April 30, 2020.”
JetSuite also explored the relief via the CARES Act. “Ultimately, the Debtor found the applicable sources of funding under the CARES Act to be expressly prohibited for companies that have sought Chapter 11 protection.”
Monthly payroll, including related withholding and other tax obligations, was running about $2.2 before the furloughs and shutdown. Court documents indicate JetSuite had less than $500,000 in cash at the time it entered bankruptcy.