Direct Air Management and Marketing Mistakes Case Study

Excerpt from Case Study :

Dierct Air - Management & Marketing Mistakes

The following case study employs the array of industry metrics discussed above to determine major factors that contributed to Direct Airways filing for Chapter 11 bankruptcy during the time period from 2007-212. This time period was chosen because SEC filings at that time available, providing valuable insight into the stark differences between the two airlines. Direct Airways was a major U.S. carrier that was founded in 2001 and operated for 7 years until it fell into bankruptcy in 2001. This terminated an unrestrained years for Direct Airways, which filed for Chapter 11 bankruptcy last year of 2012 (Jayanti).

I understood that already the subject of a federal investigation by transportation regulators, the outdated charter service Direct Air long ago would soon may be facing a far-reaching investigation of its finances by the bankruptcy trustee (Bomkamp). The lawyer governing Direct Air's bankruptcy went ahead and asked a judge for approval to interview under oath all of the people that were connected with the company and to force the company's banks and professional services firms to turn over financial statements and other records. Worcester lawyer Joseph H. Baldiga, the trustee chosen to supervise Direct Air's liquidation, mentioned in a motion that had been filed in U.S. (Lavery). Bankruptcy Court here yesterday that he needs approval to do so in order to get a glimpse into potential fraud and embezzlement of funds leading up to the company's sudden collapse in late March (Bomkamp).

In his motion, Mr. Baldiga made the point that he and his staff have been "examining the many allegations of fraud that had been raised by interested parties" (Bomkamp) during the bankruptcy case, and that he "believes that this is the reason for the misappropriation and transfers of significant sums of money may have been made by the borrower or its managers previous to the petition date."

Just three days after shortly stopping service and leaving explorers stranded, the parent of discount airline Direct Air went ahead and then filed for bankruptcy security. Southern Sky Air & Tours LLC then moved along to file for Chapter 11 protection which would late Thursday in Worcester, Mass. Court forms show the corporation has some where among $10 million and $50 million in debt and just $500,000 to $1 million in assets (Bomkamp). Since this case study, the company has not yet really filed a list of its top 30 creditors. The airline did mention that it had somewhere around 100 to 200 creditors, which could contain everything from energy dealers to airports.

Figure 1 this graph shows that part of Direct Air bankruptcies was due to bankruptcies.

The research shows that on a Monday this airline abruptly stopped flying during the middle of the afternoon -- and all of this happened to be at the peak of the spring break travel season - apparently because it could not pay its fuel bills (Baran). Direct Air, which was founded in Myrtle Beach, S.C., at the time made the statement that it would not fly again until May 15. During that time all ticket holders were told to contact their credit card companies to get all of the refunds back (Gutc). Direct Air started its flying process somewhere in March 2007. During the time it brought service to about East, Midwest, and South. It has gone through increased rivalry in recent years from a lot of discount carriers and that includes Spirit, Allegiant, and Southwest. Rapidly quickening fuel charges this year were also an offender in the business's filing (Lavery).

Figure 2 one of causes of bankruptcy at Direct Airways was the decline with passengers.

Background Information

Southern Sky Air Tours, which is also known as Direct Air was an airline corporate that was first started in Myrtle Beach, South Carolina, in the United Sates (Gutc).Direct Air actually begin is major missions trips in 2007 and rents aircraft with contract airlines. Its key base during that time was in Myrtle Beach International Airport. Most of the Direct Air's flights had been operated by Sky King, Inc., Xtra Airways, World Atlantic Airlines, and USA Jet. In March 2012 Direct Air stopped maneuvers, marooning a lot of its passengers (Lavery). The airline intended to restart procedures on May 15, 2012, (Baran) even though this was disputed by the U.S. Department of Transportation (Lavery) The charter carrier was the topic to Chapter 7 closing on April 12, 2012. (Bummer: Direct Air Files for Bankruptcy and REDjet Cancels All Flights ) Direct Air's flights are now operated primarily by principal platers such as Sky King and Xtra Airways, Inc. Boeing 737-400 aircraft. Sometimes, particularly throughout peak travel periods, extra other working aircraft and carriers and types are being utilized. These have comprised Dynamic Airways, Vision Airlines, USA Jet, and Miami Ai (Bomkamp)r.

On March 12, 2012, everything was cancelled at bot to mention all of their charter flights all over the United States (Bomkamp).Passengers were initially not given reasons for the abrupt cancellations. On March 13, 2012, Marketing Manager, Ed Warnek, delivered a statement making the point that flights would carry on that following Wednesday, March 14. Flight annulments were credited to a wasted fuel imbursement (Gutc). Additional news announcements on March 13 specify that flights will not recommence until May 15 at the latest (Bomkamp). On March 15, the U.S. Department of Transportation delivered a declaration demonstrating that "The business has proclaimed that it means to resume processes as of May 15, 2012; however, the company presently does not have power to do so." (Lavery)

Avondale Ventures

Avondale Ventures, LLC ("Avondale Ventures") is considered to be a private equity acquirement platform absorbed on both middle-marketplace change-of-control dealings and minority asset dealings. Their strategy is to be able to partner with current owners/managers like Direct Air as they obtain and capitalize in well-accomplished and well-situated businesses situated mainly in North America. They chiefly sponsor transactions that involve the businesses with business standards from $6 million to $80 million. Their industry knowledge comprises of financial services consumer products, transportation, business services, media, technology and communications. Their lead principals each have something that is way beyond the 15 years of monetary and equity asset experience in middle market businesses making outstanding returns. Avondale Ventures also is pursuing to influence its vast system of relations in addition to its Managing Partners' widespread functioning and monetary know-how to help management teams construct fruitful businesses and produce noteworthy long-term capital gratitude for their investors.

Claims Issues

As said by a claims specialist from Platte River Insurance Company, the business keeping tabs on the bond on behalf of Direct Air, the DOT are the ones that prohibit settling claims until 60 days after the last arranged flight. Ever since customers pre-bought tickets for flights that went back to November 2012, claims, I discovered that the claims cannot legally be satisfied until after that date (Bomkamp).

A Direct Air customer decided to leak an email to GoLocal from Platte River Insurance Corporation answering to a customer's claim. "We will be working with our attorney moving forward but, unfortunately, we do not anticipate we will be able to bring this matter to conclusion until sometime after January 2013," says Patricia Framke, a claims specialist with Platte River (Bomkamp). "Typically, what we have to do next is interplead the bond funds into the court. They (the court) then make a ruling on how the funds should be distributed (Bummer: Direct Air Files for Bankruptcy and REDjet Cancels All Flights )."

Before looking at manufacturing exact ratios, it is useful to look at some standard accounting ratios to deliver a solid base of investigation. When undertaking a risk analysis, it is significant to keep in mind the relationship risk and debt they have together. As debt is regularly used to leverage spending, it turns into crucial looking at the probability of bankruptcy, as a company with a heavy debt load is likely headed towards filing for Chapter 11 (Gutc). In Direct Air case, both long-term debt and current debt accounted for a progressively growing serving of total liability and stockholder's impartiality.




Current Liabilities




Long-Term Debt









Issues with the reimbursement process

As stated by local legal experts, there is good reason to question whether the creditors and customers will ever even be remunerated. Joe Baldiga, who is a partner at Worcester law firm Mirick O'Connell and the Chapter 7 trustee chosen to manage the case, records that the reimbursement procedure pivots on numerous issues and is filled with unknowns, and is also dealing with fraudulent claims filed by passengers who actually used their Direct Air vouchers without issue (Bummer: Direct Air Files for Bankruptcy and REDjet Cancels All Flights ).

"Right now, there is somewhere in regards to $1 million in the escrow version. There are slight dollars, surely not enough to pay claims any time soon," says Baldiga (Bomkamp). "The merely way to collect money to pay…

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