Startup Airline Awaits Funding, Cuts Jobs and Gets Sued
Funding, funding, funding. Yes, you indeed need it to start an airline and get it flying, even with an iconic name like People Express.
“Making decisions that impact people’s lives is always difficult for senior leadership. As much as I personally regret having to take this step, it is in our best interest as a company and will enable us to focus on the final stages of funding and developing our long-term objectives,” President Michael Morisi said in an emailed statement. “We expect it to be a very short-term matter.”
People Express, which has committed to flying out of Newport News-Williamsburg International Airport, talked with employees about the layoffs in a group meeting where their questions could be answered in addition to handing them letters, Morisi said.
A copy of a letter sent to the Daily Press indicated the company has been struggling to obtain funding and could not pay its employees. Five vice presidents also received the letter they couldn’t be paid, but plan to continue working toward the launch, Morisi added.
Denver-based investment bank Headwaters MB is expected to come through with the necessary funding for the airline’s launch within the coming weeks, Morisi said. In June, People Express acquired Idaho-based Xtra Airways, which is certified by the Federal Aviation Administration to conduct operations with Boeing 737 passenger jets.
Morisi said he needed to make a difficult decision to be financially responsible and also maintain operations at Xtra Airways. People Express invested more than $1.5 million in Xtra while pumping a “couple million” into its Newport News launch, he said.
He said he expects to bring employees back when People Express closes on “significant funding.”
The company furloughed employees last year in August and was able to bring back all staff who wished to come back when a new round of funding came in, Morisi said. Laid-off employee Bob Brown, director of security, has been with the company for two years and plans to come back for a second time, he said in a company email.
Morisi added that startups typically face difficulties, and that the move to furlough employees isn’t unlike actions taken by other businesses and the federal government.
The firm has indeed been struggling. People Express failed to pay $137,208 in federal taxes for two tax periods ending last year, according to notice of a lien filed in March by the Internal Revenue Service in Newport News Circuit Court. The Virginia Employment Commission also filed notice of a lien in February for $1,307 in taxes owed from last year.
Additionally, American Express Travel Related Services Co. Inc. filed a lawsuit in Newport News Circuit Court seeking $50,546 the company owes on two corporate credit cards. Morisi explained that problems arose when funding slowed but the company has worked out payment schedules for its debts.
The firm continues to seek individual investors while the investment bank plans to target institutional investment, Morisi said.
The company first announced plans to relaunch a 1980s-era discount carrier in February 2012. A regional airport committee in January this year gave People Express a $500,000 short-term refundable loan, which was paid back in March. It hasn’t used any other public money, Morisi said.
People Express plans to announce better news soon, including a “strategic partnership with a major airline” and opening of reservations, Morisi said. The company has identified 10 aircraft for its first year of operation and obtained landing slots to operate at Newark International Airport. The company also identified operations space at Pittsburgh International Airport, he said. ___