Great Plains Airlines: November 2004 Archives

It's cute in a pathetic sort of way that on a day with major world news like the ongoing election crisis in Ukraine, the Tulsa Whirled would use its Sunday edition front page lead story to spin the Great Plains Airlines mess to make the Whirled look less evil.

The message of the Sunday lead story (jump page here) is this: The Whirled wants you to believe that no one (especially not the Whirled, which owned a majority of the preferred stock at the time, but failed to disclose this fact for another two and a half years) deceived the City Council in November 2000 into approving the complex deal to finance Great Plains with city property as collateral. As evidence, they feature the two councilors out of nine who voted against the scheme. Clay Bird, now on Mayor Bill LaFortune's staff, and Randi Miller, now a Tulsa County Commissioner, are quoted as saying, in essence, that because they appreciated the risks involved and voted accordingly, that the councilors who voted for the transaction have no right to claim that information was withheld or distorted.

Remember that in November 2000, Tulsans defeated "It's Tulsa's Time," the second attempt to fund a new downtown sports arena with a city sales tax increase. One of the chairmen of that "vote no" effort was former City Streets Commissioner Jim Hewgley. When the Great Plains proposal was under discussion, Hewgley, who was dismissed as a naysayer by the Whirled, KRMG, Mayor Savage and her machine, and the big shots at the Tulsa Metro Chamber, tried to talk to several of the councilors to explain the flaws and risks in the plan. Bird and Miller heeded the advice of Hewgley and voted against the Great Plains scheme.

The Whirled story says that then-Council Attorney Bob Garner "provide[d] information about the risks of startup airlines." I have a lot of respect for Mr. Garner, and I'm not surprised he thought the deal was a bad idea and told the councilors so.

So why did the other seven councilors ignore the advice of sensible men like Bob Garner and Jim Hewgley? This is the part of the story the Whirled doesn't want to and won't bother to tell.

The voices of the skeptics were drowned out by a powerful chorus consisting of Mayor Savage, the Tulsa Whirled, the Tulsa Metro Chamber bureaucrats, and a gaggle of PR professionals, all singing the praises of this tremendous opportunity to invest in Tulsa's future, an opportunity that we dare not pass by. You will look in vain through the Whirled's archives for any hint of skepticism or dissent about the plan prior to the Council's vote. Whatever warnings were given by Bob Garner went unreported. The financial information and the investor lists, if indeed they were given to the Council, went unreported. Instead, you'll find items like the Whirled's November 28, 2000, editorial, urging the Council to approve the Great Plains scheme:

The Tulsa Whirled was in full spin mode this weekend in response to the release of the City Council's preliminary investigation into Tulsa airports and the Great Plains Airlines mess, which has the city on the hook for millions of dollars. Let's look at their Saturday editorial defense of parent company World Publishing Co.'s investment in Great Plains:

Mark Twain's wisdom suggests that a lie told about the World Publishing Co.'s interest in the ill-fated Great Plains Airline will be repeated so much by shrill voices in Tulsa that the truth could be lost.

First, the lie: The City Council's investigator, paid $40,000 so far to amass public records, used out-of-date documents to claim the World holds 51 percent equity in the bankrupt airline.

The fact: The final list of stockholders, published elsewhere in the World Saturday, shows that the World owned 3 percent of the airline stock.

Notice the sleight of hand -- the Whirled responds to the fact that it had invested 51% of the private investment in Great Plains Airlines by saying it only owned 3% of the total number of shares of stock. The Whirled is deliberately confusing preferred stock with common stock. In November 2000, World Publishing Co. acquired 233,333 shares of preferred stock for $700,000 -- $3 per share. That's 3,000 times the cost of a share of common stock, which generally went for one-thousandth of a dollar per share. (Some common stock was sold for a nickel a share.) Preferred shares bring greater rights, such as first cut of any dividends. The exact distinction between preferred stock and common stock for a company is defined by the shareholder agreement, which does not appear to be one of the documents released to the City Council investigation. If the the Whirled wants to persuade us that its investment was insignificant, they'll need to show us the shareholder agreement.

As to the "out-of-date" document claim: The City Council's investigator used the latest shareholder list that was provided to it, from February 2001. Only one more investor of any significance came in after that date: Dr. William E. ("Wes") Stricker, the Columbia, Mo., allergist and owner of Ozark Air Lines. Stricker acquired 250,000 shares of preferred stock when Ozark was purchased by Great Plains in March 2001.

Shortly after the Whirled acquisition of Great Plains stock in November 2000, the Whirled editorial board, on November 28, urged the City Council to agree to mortgage Air Force Plant No. 3 to enable a total of $30 million in financing ($15 million in state tax credits, $15 million loan secured by the property). The editorial claimed that the airline would "over the next decade, create 2,000 new jobs and generate $23 million in revenue to the Tulsa Airport Authority. It represents a tremendous private-public partnership to solve a problem, offer a needed service and boost economic development opportunities." The Whirled editorial made no mention of the launch on November 1 of daily non-stop service from Tulsa to Los Angeles on American Airlines, which undercut the need for the niche Great Plains was meant to fill. There was no mention, either, of the failure a year earlier of AccessAir, another airline which had been heavily subsidized by state and local governments to provide service from the midwest to the coasts. There were plenty of reasons to be skeptical, but the Whirled, owner of a majority of preferred stock at that critical moment, didn't let the public know.

More rebuttal after the jump.

In 2001, the Wall Street Journal picked four startup companies and tracked the companies' fortunes over the course of 2001, in a series entitled "The Challengers." One of those four startups was Great Plains Airlines, and I'm happy to report that the WSJ articles about Great Plains are available online for free on their StartupJournal.com website. Along with articles specifically about Great Plains, there are related articles about the state of the airline industry and the problems besetting small airlines long before the 9/11 attacks.

Some highlights:

• Bios of Great Plains founders James C. Swartz and John H. Knight.

• An interactive guide to the airline's business concept, including a map of existing non-stop routes from Tulsa in 2000, Great Plains' planned routes, actual routes, and how the major airlines rendered their plans moot by offering direct service.

• A detailed background on the airline and its founders. It mentions that in 1996 the two were "prowling around" for an airline to buy in Florida, talks of their efforts in Wichita, and describes how they wound up in Tulsa:

  The two men were in Wichita, Kan., laying the groundwork for starting an airline there when Tulsa came calling. The city in the northeastern corner of Oklahoma is a classic second-tier city, and for years, the locals have been unhappy with their air service, usually having to make at least one connection to get to cities on the coasts. Finally, Tulsa Chamber of Commerce activists took action. Hearing about Messrs. Swartz and Knight, the city's leading lights in the fall of 1997 persuaded them to focus on Tulsa instead. As Mr. Knight recalls, things weren't progressing so well in Wichita, so the choice was easy.

  What followed was a three-year effort to get state and local government to help finance the airline. David Johnson, a prominent Tulsa lawyer and counsel to the airline, helped push through state legislation that would give the tiny airline tax credits that it could sell to raise money. Last year, through a combination of tax-credit sales and a loan from the Bank of Oklahoma, with property put up as collateral by the city of Tulsa, Great Plains managed to amass $30 million in start-up capital. (Today, Mr. Johnson is an investor in Great Plains and sits on its board.)
  

  The article mentions their revenue projections -- $144 million in the third year of operation.

• A timeline of milestones through the end of 2001.

(More highlights after the jump.)

Before the men who started Great Plains Airlines came to Tulsa, they tried to pitch their idea to the City of Wichita, Kansas.

A headline search on the Wichita Eagle's website turns up the following:

• On April 8, 1997, two groups announce plans to bring jet service to Wichita: SunWest Airlines Inc., headed by James C. Swartz, and AccessAir Holdings Inc., a Des Moines-based company. But they are looking for local "seed money" to make it happen.
• An October 7, 1997, story is headined: "AIRLINES TO WICHITA: ANTE UP / ACCESSAIR WON'T SERVE WICHITA WITHOUT $3 MILLION FROM LOCAL INVESTORS. AND SUNWEST AIRLINES REQUESTS A PACKAGE OF FINANCIAL CONCESSIONS THAT AIRPORT OFFICIALS DON'T EXACTLY EMBRACE."

Here's a story from the Wichita Business Journal about SunWest's business concept from June 9, 1997.

And here's a very brief and non-specific September 15, 1997, story from the Wichita Business Journal about SunWest's pitch to the Wichita Airport Authority.

About the time Wichita officials decided to take a pass, Tulsa leaders worked to get the SunWest team to come look at locating here.

I spent part of today at the library, using the Whirled's online archives to see what the Whirled wrote about Great Plains Airlines from its first appearance on the scene as Sunwest (sometimes Sun West) Airlines in 1999. There is a lot of information to sift through.

The Whirled's parent company, World Publishing Co., paid $700,000 for 233,333 shares of preferred stock in the airline in November 2000. (The Whirled claims it paid $100,000 in cash -- the remainder was $600,000 in advertising space. The Whirled didn't bother to disclose its investment in Great Plains Airlines until February 16, 2003. By that time, the taxpayers of the State of Oklahoma and the City of Tulsa had donated millions of dollars in subsidies to support this airline that never came close to delivering on its promises. Throughout this period, in which public officials were deciding whether to continue to pump more money into the venture, the Whirled ran positive stories promoting the airline and its potential. You will look in vain for even a hint of skepticism or concern.

A newspaper has the trust of many citizens and decision-makers in the community. It's assumed that the local daily is doing its best to inform us completely and accurately -- that they wouldn't have any reason to distort or conceal information.

The F&M Bank zoning controversy and the Great Plains Airlines scandal have exposed to the public the extent to which the business interests of World Publishing Co. and its owners skew the Whirled's coverage of local government.

If the Whirled wishes to regain the trust of its readers they should stop using their news pages to defend the company's actions and instead recuse themselves from coverage of the story. Let's have a newspaper from another part of the country with no Tulsa business ties come in and investigate the story.

The findings of the first phase of the City Council's investigation into the operation of Tulsa's airports were released today, published on the City Council's website. You'll find the main body of the report here and the "abbreviated addendum" here.

(Be warned that the addendum is PDF file that has been optimized within an inch of its life. It appears that someone scanned in the addendum documents to create a PDF in Adobe Acrobat, then decided it was too large for people to download, so he ran optical character recognition on the result, keeping only the text found by the OCR and throwing away the image of the original. Hopefully, this will be corrected before long, because what is on the web now is hard to decipher.)

I'm just starting to dig through this. I didn't see the presentation of the report at the City Council meeting, so I'm probably missing some context, but this is what it looks like to me: Great Plains Airlines appears to have been a scheme to take a relatively small amount of private money, allow influential citizens to buy in at a very low cost, in order to pry loose a much larger amount of public money, ultimately for the enrichment of a few stockholders.

First among the preferred stockholders is World Publishing Company (WPC), publishers of the Tulsa Whirled, purchasing 233,333 shares of preferred stock of Great Plains Airline Holding Co. for $700,000. That represents a majority of the 445,699 shares of preferred stock sold at $3 a share, for a total value of $1,337,103. That investment also represents a majority of the capitalization: 6,495,137 shares of common stock were sold at either 1 mill (one tenth or a cent) per share or five cents per share, for a total value of $31,926.14. So the total price of issued stock was $1,369,029.14.

There was a dispute some months ago about what share of Great Plains Airlines was owned by World Publishing Company (WPC). Michael DelGiorno reported that WPC owned a majority of Great Plains Airlines. WPC sent legal nastygrams and insisted that it only held 3% of the stock. WPC's answer was misleading, honest only in a narrow technical sense -- if you divide the number of WPC's preferred shares by the combined number of common shares and preferred shares, you get 3.592%. But if you consider the price paid for the shares, the Whirled's parent company had invested 51% of the private money invested in Great Plains Airline Holding Co. The Tulsa Whirled's parent company had the biggest financial stake in the airline, the most to gain.

The price of the common stock is strange -- selling a thousand shares for a dollar is no way to raise capital for a startup business. The list of names of investors seems to point to an explanation. Many of them were in a position of influence to smooth the way for public financing and subsidy for the airline: Steven Berlin, former CFO of Citgo and a member of the Tulsa Industrial Authority (TIA); Don McCorkell, former Democrat State Representative and an influential lobbyist; Thomas Kimball, head of economic development for the City of Owasso a friend to then-Gov. Frank Keating; Bob Cullison, former Senate President Pro Tempore; Patrick Schnake and Steve Turnbo from the PR firm of Schnake Turnbo, plus Lauren Brookey, formerly a partner in that firm; Margaret Erling Frette, lobbyist and wife of John Erling, once the highest-rated local talk show host; Clyde Cole, former President and CEO of the Metropolitan Tulsa Chamber of Commerce; Van Scoyoc Associates, a DC lobbying firm specializing in government grants. While some of these people invested a tiny amount for their common shares, what would have happened to the value of their shares if an initial public offering (IPO) had occurred (especially if it had occurred before the tech bubble burst)?

I'll be combing through the report over the next few days. I hope you will, too, and I'd enjoy reading your observations, if you'll e-mail them to me -- or head over to the TulsaNow forums for an online discussion.