By Alan Prendergast
By Michael Roberts
By Michael Roberts
By Amber Taufen
By Patricia Calhoun
By William Breathes
By Michael Roberts
By Melanie Asmar
Last fall, as Jet Aspen, a start-up airline that plans to link several major cities to Colorado's most noted ski resort town, prepared its flight application to the U.S. Department of Transportation, the company's chief executive officer boasted that he had accumulated $8 million in financing.
That was a problem--but not because of the money. The amount raised by CEO Hap Pareti was more than enough to get the young airline off the ground, the DOT said. It was Pareti's presence that troubled federal regulators.
Pareti is something of a legend in the post-deregulation airline industry. In a little over ten years he has launched three budget airlines into the sky. One by one, each has filed for bankruptcy protection.
Now it looks as though Pareti's turbulent track record could doom Jet Aspen. Two months ago the DOT granted the airline tentative approval to fly--but only if it could prove that Pareti wasn't in any way connected to the operations of the company. Since then, the transportation department hasn't heard back from Jet Aspen.
Until it does, the company can't fly, and the delay is extraordinarily costly. The ski season is quickly winding down, which means fewer and fewer people are booking reservations to the ritzy resort. In the meantime, without any income, Jet Aspen appears to be suffering a serious cash crunch.
Although executives say they're getting paid regularly, other employees haven't been so lucky. The seventeen or so pilots who moved to Denver to complete their training have been in a holding pattern since December, when they completed flight school. Last week they received word that their paychecks would be delayed--for the second consecutive pay period. Many are still owed per diem expenses incurred earlier this year.
Among the pilots, rumors also are flying that Jet Aspen has been forced to shut down its temporary Denver offices, in the Comfort Inn on Quebec Street, because of nonpayment of its tab. A Comfort Inn manager says the company has paid its bill all along but declines to comment further. Calls to Jet Aspen's room there go unanswered.
The company's apparent tailspin is even more surprising given its auspicious beginnings. With larger airlines abandoning the Denver-Aspen route, there was good business to be had shuttling wealthy people to the resort.
Moreover, Pareti seems to have assembled a reputable team of investors and executives. President Alan Hughes is a thirty-year aviation industry veteran, most recently at British Aerospace. Other officers have similarly long experience in the business.
The young airline's initial financing, too, appears to be in order. After Pareti, the bulk of the company is owned by Abraham Zion, a New York City garment and real estate entrepreneur who controls 16.4 percent of the stock. Although Zion has weathered his share of controversy (a suspicious Pittsburgh development deal between some city officials and Zion came to be known as "Zion-gate"), DOT investigators concluded he was certainly wealthy enough to pay the bills.
Indeed, the only thing Jet Aspen apparently didn't account for was Pareti himself.
Pareti leaped into the newly deregulated airline industry in 1980 as one of the founders of People Express Airlines Inc., which didn't offer much in the way of amenities but did offer a cross-country flight for $99. In 1985 he left to found the Chicago-based Presidential Airways. Seven years later he helped get Leisure Air, based in Winston-Salem, North Carolina, off the ground.
(In between President and Leisure, Pareti worked for a Washington, D.C., consulting firm, Airline Economics. He apparently didn't win many friends there. "I don't know where he is, and I frankly don't care, although there are a few places I wish he'd go," a spokesman for the company said when contacted by Westword. He declined further comment, explaining that "our settlement agreement prevents me discussing his time here.")
Each of Pareti's airlines did well for a while before crash-landing in bankruptcy court. In previous interviews, Pareti has pointed out that he left People in 1985, before its decline and subsequent bankruptcy filing. Presidential declared bankruptcy in October 1989; Leisure taxied to a stop in January 1995, unable to carry a $20 million load of debt.
Part of the legal mess arising out of the Leisure bankruptcy focused on ORIX Aviation Systems, an Irish company that lent planes, parts and money to the airline. ORIX claimed Leisure and Pareti owed just over $215,000 for loans it extended in 1992 and 1993. Despite obtaining a judgment against Pareti, as late as this year ORIX claimed that Pareti has refused to pay.
After another short stint as an airline consultant, Pareti began work on Jet Aspen last June. He has said he was solicited for the job by Meridian Capital Group, an investment firm. Throughout the summer and early fall, whenever Jet Aspen needed a spokesman, Pareti was it. Newspaper articles identified him variously as "the driving force" behind the airline, its founder or its chief executive officer.
Whenever a new airline seeks permission to fly, the Department of Transportation allows a public comment period. After Jet Aspen applied, two companies registered complaints. The first was ORIX, which noted that Pareti still owed it money, a fact he'd failed to disclose in his application.
The second company to speak up was the Aspen-based Peak International. Among other things, Peak provides marketing, sales and customer service to Tri-Star Airlines, which already flies to Aspen from Las Vegas and Los Angeles.
Peak President and CEO Ron Stone acknowledges that Peak and Jet Aspen might someday find themselves chasing the same customers--Jet Aspen hopes to fly out of Houston, Dallas, Chicago and San Francisco. But he insists his company's interest in complaining to the DOT was more general. "We are staking our future and livelihood on the Aspen market, and so anything we see that that might have an effect on, we are an interested party," he explains.
Specifically, Peak's interest revolved around Pareti. In its filing with the government, Peak charged that, although Jet Aspen's application to the transportation department listed Pareti only as a consultant, he was in fact the person "running the show" and "is Jet Aspen." As evidence, the company pointed to the newspaper articles indicating that Pareti was in charge.
Peak further pointed out that Pareti was earning twice the company president's salary and controlled 66.5 percent of Jet Aspen's stock--unusual for a mere consultant.
Jet Aspen answered both companies' complaints by offering to amend its application to note the $215,000 ORIX judgment against Pareti and "to discontinue Mr. Pareti's consulting arrangement with the company" until the Leisure bankruptcy was sorted out.
Still, the complaints are cause for concern, says DOT spokesman Bill Mosley, who notes that any complaints on an airline's application are unusual. So on January 19, the DOT gave Jet Aspen tentative approval to operate--but only if the company were able to submit proof of Pareti's non-involvement with the company. And that, says Mosley, is the last time the agency has heard from Jet Aspen.
Pareti's relationship to the airline remains hazy. In its DOT filings, Jet Aspen lists Pareti as "a principal in the aviation consulting firm of Hap Pareti & Associates in McLean, Virginia." A call to those offices is answered by a recorded message that begins, "You have reached the offices of Jet Aspen..." Messages left there haven't been returned.
Calls to the company's Aspen office were referred to Jet Aspen president Alan Hughes, who also has a consulting firm in McLean. He, too, has not returned numerous calls.
In the meantime, the young airline seems to be moving only in fits and starts. One plane, which it has leased from USAir, is reportedly being painted. A second has yet to be delivered.
And the unpaid pilots? They were told recently that because of the delay between their ground training last winter and Jet Aspen's first flights, they might have to repeat flight school--if the airline ever makes it off the ground.