City of Denver officials continue to hold out hope that debt-ridden airline MarkAir can bail them out of a jam at Denver International Airport--even though the Alaska company's own attorney says it's on the verge of financial collapse.

The city, which backed away from handing MarkAir a $30 million tax-funded subsidy last November, remains willing to cut a deal in part because it desperately seeks to generate more air traffic at DIA. MarkAir, which last fall was reportedly more than $100 million in debt, has said it will fly more planes into Denver in return for financial assistance. More than $3.2 billion in bonds sold to finance the new airport must be paid back with airport revenues, and more flights would mean more landing fees to cover Denver's massive debt service, estimated at more than $250 million per year.

"We have never perceived the MarkAir deal to be completely dead," says Denver deputy director of aviation Diane Koller. "We just put it on the back burner till we got up and operating."

The airline itself, however, is barely clinging to life. A recent decision by the State of Alaska to turn down MarkAir's request for $40 million in loan guarantees could lead to the company's failure, says Edgar Paul Boyko, an attorney for the airline. Following the rejection of the Alaska package last week, MarkAir announced it would lay off more than 300 employees and begin raising fares.

The airline emerged from Chapter 11 bankruptcy last March but remains saddled with debt. MarkAir owner and president Neil Bergt, who himself has done battle with the Federal Deposit Insurance Corporation over $6.2 million in unpaid bank loans, was quoted last week in the Anchorage Daily News as saying that his airline could be forced back into bankruptcy by its creditors at any moment.

In fact, the airline was so concerned about efforts by thirteen Alaskan commuter airlines to drum up publicity against the state bailout that it sued those competitors earlier this month, accusing them of trying to drive it out of business by spreading what it described as "defamatory" information to the media and state legislators. Among the airline's concerns was a series of anonymous faxes that lampooned MarkAir's habit of touting its independent spirit and simultaneously asking for public handouts.

The airline asked for the $40 million in loan guarantees even though it still owes Alaska more than $18 million from a grab bag of earlier taxpayer loans and subsidies. And a blue-ribbon panel set up by Alaska's governor to consider the MarkAir request appeared to agree with critics that propping up MarkAir with more public money was a dangerous idea. In a written report, the panel cited "extremely high" risks associated with the bailout. The group noted the airline's "limited" cash flow and said MarkAir was "extremely vulnerable" to any downturns in the air-travel market.

MarkAir attorney Boyko says the airline blames the "defamatory" PR blitz by its competitors for the panel's decision to nix the deal and may jack up the amount of damages it's asking for in its civil lawsuit--perhaps to as much as $40 million. One competitor named in the suit, Peninsula Airways president Orin Seybert, calls the lawsuit, which accuses Peninsula and other airlines of unfair trade practices, "ludicrous." Seybert says he had nothing to do with the faxes, which poked fun at the airline's courtship with Denver and referred to a vice president of finance named "Ben Dover." But, he adds, "we all got a chuckle out of them."

And back in Denver, city officials continue to see a silver lining in MarkAir's cloudy finances. City aviation director Jim DeLong said last week that the airline's decision to slash West Coast flights after losing the Alaska bailout package might actually be good for Denver, because it could leave more of MarkAir's fifteen aircraft available for flights into DIA.

In the past, Denver officials have appeared to endorse the view that subsidizing MarkAir with public money would pay off even if it folds. A risk analysis done for the city during last year's negotiations concluded that if the airline went under, it would likely die a "slow and painful death" and would respond by slashing fares, thereby providing savings to consumers. The report also predicted that Denver, a key hub for the small airline, would be among the last creditors stiffed under such a scenario--meaning that, while other municipalities might go unpaid, Denver could continue to collect rents until the bitter end.

The city's Koller says she can't say what the terms of any new MarkAir incentive package might be. The city hasn't had any contact with MarkAir since November, she says, and it wants to wait until DIA officials figure out how to cover the shortfall at Concourse A created when Continental Airlines drastically cut its flights. Bergt, however, appears to be more eager. The MarkAir boss had planned to fly to Denver last Friday in an impromptu attempt to jump-start negotiations. He didn't end up making that trip, says MarkAir director of public relations Lance Ross. "Both sides are waiting to see if further talks are practical," says Ross. "The company has left all options open."

Koller, meanwhile, says the city won't just focus on MarkAir in its attempt to attract budget carriers to DIA. The current cash flow at DIA is "fine," Koller says, but "the more flights you get in there, it's more revenue." She says city officials are convinced discount airlines can make money in Denver--and are needed to provide "pricing discipline" for United Airlines, which has a virtual stranglehold on the Denver market thanks to Continental's hasty exit prior to DIA's opening. (During a presentation before Alaska's blue-ribbon panel last week, a consultant for that state's economic-development agency said MarkAir "exists virtually at the sufferance of United" in Denver.)

The city may also dangle incentive packages in front of such companies as ValuJet and Reno Air, says Koller, and is even likely to touch base with Southwest Airlines, commonly regarded as the most profitable and well-managed low-fare carrier in the country.

Dallas-based Southwest has said DIA's high costs would prevent the airline from earning an acceptable profit. When Southwest purchased Morris Air last year, it actually took the airline out of Denver rather than move to the new airport.

MarkAir has been making headlines since long before it went into bankruptcy. In the mid-1980s the airline hauled supplies to the Nicaraguan Contras under a U.S. State Department contract. When critics suggested the flights might include weapons and ammunition in violation of a Congressional mandate, Bergt was quoted in the Anchorage Daily News as saying he didn't care if guns were aboard as long as his planes weren't shot at.

In 1992 the federal government won a court judgment against Bergt over millions in unpaid bank loans dating from the 1980s. The following year, U.S. marshals seized personal property from his homes in Alaska and California, including a Cartier watch and sterling-silver flatware.

In a recent Zagat Airline Survey of airline passengers, MarkAir was rated as the world's sixth-worst carrier.

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