Reborn People Express airline buys a troubled carrier to help FAA certification
People Express has had a number of bumps along the road to re-building the loved-yet-shuttered low-cost carrier from the 1980s. Buying XTRA lets it cut to the front of the line and start conducting operations with its Boeing 737 passenger jets.
The Idaho-based airline acquired Wednesday by People Express agreed in October to pay up to $300,000 for violating federal rules meant to protect passengers when public charter flights are suddenly canceled.
However, the president of People Express said Thursday the issue did not affect negotiations, and the Newport News company will only have to assume $25,000 of the original fine.
Xtra Airways of Boise was one of four carriers fined by the U.S. Department of Transportation related to last year’s sudden shutdown of Direct Air, a charter operator that abruptly canceled its flights in mid-March 2012. Direct Air first attempted to reorganize under Chapter 11 bankruptcy, but the case was converted to a Chapter 7 liquidation by April, according to reports.
Because of the shutdown, flights were canceled on short notice and round-trip passengers were left stranded without a return flight. The department fined Xtra because it violated rules requiring that it be paid before the flights began. Xtra also broke a rule forbidding the cancellation of such flights less than 10 days before scheduled departure, authorities said.
The details of the case are spelled out in a consent order between Xtra and the U.S. Department of Transportation that resulted in the $300,000 maximum assessment.
Trouble with Direct Air began shortly before its mid-March 2012 shutdown, the documents state. Starting March 3, Direct Air did not transfer sufficient funds to Xtra before scheduled flights began. Several flights before March 3 involved late payments.
Xtra continued to operate flights without requiring advance payment. By March 13, the day Direct Air ceased all flights, it owed “several hundred thousand dollars to Xtra Airways for flights Xtra Airways had completed on Direct Air’s behalf.”
Federal rules require that a charter operator have a security arrangement, such as a bond or letter of credit, and an escrow account to protect consumers’ money if flights are canceled.
Besides violating rules on payment arrangements and short-term cancellations, federal authorities said in a press release that “the late payments should have prompted Xtra Airways to look into whether Direct Air was following the rules.”
Although transportation officials reported the fine as $300,000, the consent order spells out an installment payment schedule that began in October. If the schedule is kept and no further violations occur, the remaining $150,000 doesn’t have to be paid, said Bill Mosley, transportation department spokesman.
Mike Morisi, president of People Express, said in a statement emailed to the Daily Press that the fine did not affect the acquisition or the negotiations that led to it. The fine “has a balance of $25,000 left. PEOPLExpress will operate at all times within the regulations of the DOT.”
Xtra defended its response to the Direct Air shutdown and its attempt to help passenger left in the lurch.
The carrier said it was fully prepared to return stranded passengers at its own expense, but it could not obtain passenger information required by the Transportation Security Administration to prepare a manifest and issue boarding passes. It “repeatedly sought passenger lists and contact information, but . . . Direct Air and the service provider it used for reservations declined to provide any information,” the consent order states.
Xtra also disputed that it canceled flights on less than 10 days’ notice. When Direct Air terminated its charter program, it notified the public via its website to seek other means of transportation.
“There were thus, in Xtra’s view, no flights left to be canceled,” the consent order states.
But the department said the obligation of direct air carriers is independent of charter operators. And while the department expressed appreciation for Xtra’s effort to help passengers, that wouldn’t have been necessary had it adhered to the rules.
The transportation department fined three other carriers in relation to the demise of Direct Air: Sky King, $500,000; World Atlantic Airlines, $180,000 and Vision Airlines, $50,000. ___