BY THE SEAT OF THEIR PANTS
City of Denver airport officials are continuing to woo financially troubled MarkAir--this time with a deal that could give the Anchorage-based airline up to seven months of free rent for agreeing to put a new reservations center at Stapleton International Airport.
Despite MarkAir's precarious fiscal history, city officials and the Greater Denver Chamber of Commerce are also continuing to push for a separate $30 million "incentive package" to lure the airline's corporate headquarters to Denver. Under that deal, the city would partially guarantee loans from private lenders with fuel-tax money. Those talks have been on hold as the city attempts to sort out the baggage system at Denver International Airport, but Chamber vice president Tom Clark says MarkAir has submitted a financing proposal that he expects the city to respond to shortly.
MarkAir emerged from Chapter 11 bankruptcy just five months ago and is saddled with debts of approximately $130 million, including $10 million in de- linquent loans from the state of Alaska. The airline also owes $1.1 million in back property taxes and interest penalties to the city of Anchorage, which was among its many creditors in the bankruptcy proceedings, says Anchorage municipal treasurer Ellen Braden. MarkAir is now making payments on that debt under the reorganization plan, Braden says. However, the airline missed a $30,000 payment that was due August 15 for its 1994 taxes, says Braden. A separate $185,000 payment was due today, she says. "We are monitoring it closely and will consider any action if the payment isn't made," she adds.
Meanwhile, the airline is funding an aggressive ad campaign touting itself in Denver.
The airline's controversial owner and chairman, self-made entrepreneur Neil Bergt, has fought a long battle with the Federal Deposit Insurance Corporation over $6.2 million in unpaid bank loans dating from the mid-1980s. The government won a court judgment against Bergt in 1992, and in the summer of 1993, four U.S. marshals were sent to the businessman's opulent homes in Alaska and California to seize personal property including a Cartier watch, sterling-silver flatware and expensive artwork. According to FDIC spokeswoman Cherron McIntosh, the government and Bergt have not yet reached a settlement in the case.
However, if a hurriedly negotiated lease for a MarkAir reservations center at Stapleton is any indication, Mayor Wellington Webb's administration remains gung-ho about landing Bergt's airline, which once helped make ends meet by flying supplies to the Nicaraguan Contras.
The city's new deal with MarkAir would allow the airline to lease 10,175 square feet at Stapleton for just $4 per square foot--and then roll those payments into future rent payments should it decide to keep the center at Stapleton once DIA opens. That would effectively give the airline seven months of free rent, confirms Errol Stevens, who heads the mayor's Stapleton 2000 redevelopment agency. The phone center would be located in the city's empty New Airport Office, built by former mayor Federico Pena for the professionals planning DIA.
"It's very important to the citizens of this community that we attract any viable airline business to this community," says Stevens. The going rate for other airline tenants at Stapleton is $30 per square foot, says Stevens, and private office space near the airport now goes for around $10 per square foot. But the city agreed to give MarkAir an "inducement," because the airline theoretically could have located its phone bank somewhere else.
The deal was pushed through quick-ly, says Stevens, to accommodate MarkAir's desire to move in this week. "City government, when it knows how to do its business, can proceed in a timely businesslike fashion and get business taken care of," Stevens adds. "That's what we did here."
The city had issued a permit for workers to begin wiring the phones even before Stevens presented the deal to the Denver City Council's airport committee on Monday, August 22. The administration negotiated a one-month lease itself, Stevens says, and plans to seek council approval for a second, six-month lease. Under city charter, the council must approve city leases of more than thirty days.
Stevens claims that MarkAir's costs will actually approach the area average of $10 per square foot because the company has agreed to pay for employee parking and janitorial expenses. The city has agreed to cover the airline's electric, gas, water and sewer bills. MarkAir, which as part of its reorganization is making weekly payments to chip away at a $408,000 debt to an Alaska long-distance phone carrier, has also agreed to be responsible for its own phone bill.
According to bankruptcy records, MarkAir lost $5.8 million in the first two months of 1994. The closely held airline now claims to be profitable, but won't release figures.
The Chamber's Tom Clark says he, city councilwoman Mary DeGroot and former DIA finance director Gennifer Sussman, now a private consultant to the city, got a look at MarkAir's books during a whirlwind fact-finding trip to Anchorage last June. The three say they can't discuss the airline's finances. But Clark says that based on a six-and-a-half-hour study session--the trio flew in on a Thursday afternoon and came home Friday night--he is confident the airline will "get current" on its debts by year's end.
However, according to John Delano, deputy director of the Alaska Industrial Development and Export Authority, MarkAir remains ninety days delinquent on $10.3 million in loans from the state of Alaska. He says the airline is also now ninety days delinquent on a separate deal under which the AIDEA agreed to help MarkAir by buying three of its hangars for $8.6 million and leasing them back for an annual fee.
MarkAir has said it wants to expand and turn Denver into a major hub, but it needs to raise money in order to lease new airplanes. And while the city's $30 million incentive package relies on lining up private loans, MarkAir has a backup plan to raise money with a public stock offering.
Last week the airline reported it had hired Denver investment bank Hanifen Imhoff Inc. as its financial advisor for a possible offering. Two weeks earlier, the Englewood firm of Chatfield Dean had said it expected to handle such a sale, but that deal fell through. According to a statement from Chatfield Dean, the firm had not "become comfortable that terms could be arrived at to put proper safeguards in for this to become a public company."
Kathy Evers, Hanifen Imhoff's managing director of corporate finance, says if the city's loan guarantee comes through, a stock offering "would be a strong consideration." But others in the local investment community take a skeptical view of a MarkAir offering. "The problem with MarkAir is that Neil Bergt is a one-man show that does not want to be held accountable to an independent board of directors," says one source. "He wants someone to raise him money, but he still wants to act as if it's a private company."
Bergt has a long and flamboyant history in the airline industry. In the early 1980s he served as president of Western Airlines for seventeen months, coming aboard when the airline was on the verge of financial collapse and leaving after federal regulators cited a possible conflict of interest in his plan to buy Wien Air Alaska--which competed with MarkAir on cargo routes--and merge it with Western in a deal that would have given Bergt 48.9 percent of Western's common stock.
Bergt made news again in 1986 when MarkAir agreed to haul supplies to the Nicaraguan Contras under a U.S. State Department contract. Bergt fired a pilot who refused to fly into a Contra military base in Honduras, and when concerns were raised that supplies being delivered might include weapons and ammunition in violation of a Congressional mandate, he told the Anchorage Daily News the flights were a business decision and he didn't care if guns were aboard or not. "As long as my airplanes don't get shot at, and as long as Lloyd's of London insures them, I could care less," he was quoted as saying.
Beginning in 1988 Bergt was involved in a bitter divorce from his second wife, former stewardess Judith Bergt. According to the News, affidavits filed in that case indicated that Bergt received a salary of $3.15 million from MarkAir in 1988, an amount the vice president of the airline's holding company, Alaska International Industries, described as "excessive in light of the services he provides."
The Anchorage paper also said that prior to the divorce the Bergts used company money to help finance their lavish lifestyle, which included a $6.9 million estate north of San Diego and skiing trips to St. Moritz, Switzerland. The newspaper reported that Bergt gave his wife $1 million for her 40th birthday but borrowed the money from a bank.
This isn't the first time Bergt has talked about taking his airline public. In 1991 he hired longtime acquaintance Frank Lorenzo (the embattled financier who took Continental Airlines into Chapter 11, broke its union and was later forced out by a bankruptcy court) to advise him on a possible stock offering. The sale never took place, however, and in June 1992 Bergt took MarkAir into Chapter 11.
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