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Just a few weeks after believing that it had lined up $8.5 million in post Chapter 11 petition financing, international air charter operator Zetta Jet is ceasing operations today and turning over its air operator’s certificate to the U.S. FAA. Court documents show that the trustee in the Zetta Jet bankruptcy case, Jonathan King, a partner and co-chair of DLA Piper's white collar, corporate crime and investigations practice, has asked the court for a change from Chapter 11 proceedings to Chapter 7 proceedings. The change to liquidation came after the U.S. Court apparently denied Zetta Jet’s bid for new financing, a decision that was said to have come as a surprise.
Zetta Jet had filed for Chapter 11 bankruptcy protection in September after ousting managing director Geoffery Cassidy. Zetta Jet in mid-November announced it had arranged financing from existing lessor Scout Aviation II and said it hoped to secure a buyer for the company.
The Zetta Jet brand was launched a little more than two years ago and had become one of the fastest-growing charter operators in the Asia-Pacific region with a fleet of Bombardier Globals and Challengers. Although it was originally a Singapore-based company, the bankruptcy proceedings were filed in U.S. courts. The U.S. branch was built up following a merger less than a year ago with aircraft management specialist Advanced Air Management.
Two yers after launching charter service with an owned and operated all-Bombardier large-cabin fleet, Singapore-based Zetta Jet has ceased operations, following a U.S. bankruptcy court’s rejection last November of its refinancing plan.
The closure came two months after the rapidly rising company’s problems came to public light. In September, Zetta Jet Pte and U.S. subsidiary Zetta Jet USA filed two court actions in the Central District of California–Los Angeles Division: the first accused former managing director and board member Geoffery Cassidy, ousted last August, of misappropriation of funds and fraud; and the second sought Chapter 11 bankruptcy protection, necessitated, it claimed, by Cassidy’s actions. The latter filing estimated liabilities and assets at between $50 million and $100 million each.
The company’s implosion pitted Cassidy against his two U.S. co-founders, James Seagrim and Matthew Walter. They, along with Zetta Jet, have filed suit against Cassidy. The suits accuse Cassidy and wife, Miranda June Tang, former head of human resources, of “conversion of corporate funds, fraud,” and other illegal activities, and allege Cassidy used company funds to buy homes, yachts, luxury cars, and other goods and services that cost the company between $20 million and $30 million. Cassidy has denied some allegations outright and claimed others represent legitimate business expenditures.
The lawsuit also alleges that brokerage firm Jetcraft, from whom Zetta Jet bought aircraft, funneled some $2 million per jet in illegal kickbacks to Cassidy, amounting to between $14 million and $18 million. Jetcraft has denied the allegation.
By the time of its closure, Zetta Jet’s fleet included some dozen Global 5000s and 6000s and four Challenger 650s.
The charges and counter charges cast a harsh light on Zetta Jet’s operations. In its bankruptcy filing, Zetta Jet USA, under whose charter certificate the company’s flights operated, claimed being 100 percent controlled by Zetta Jet Pte, a Singapore company majority owned by non-U.S. citizens. This suggests Zetta Jet was operating in violation of FAA rules prohibiting non-U.S. citizens from holding a U.S. charter certificate.
Cassidy aired his own charges against the company in a 10-page “statement.” While primarily responding to company allegations and recounting management infighting, the document also claimed Zetta Jet often operated charter flights within Europe under Part 91 rules due to crew duty, permit, curfew, and maintenance issues; that the FAA was aware of the company’s foreign ownership; and that the company had an “extremely friendly relationship” and undue “control” over personnel in the FAA’s Flight Standards District Office (FSDO) with responsibility for its oversight.
An FAA spokesperson told AIN the agency “increased its surveillance of Zetta Jet after the company announced bankruptcy in September,” that it “asked Zetta Jet to surrender its operating certificate” [which the company reportedly did on November30], and is “investigating a number of allegations about the company, its ownership and its operations.”
Cassidy’s scorched-earth response also alleged that Zetta Jet’s “director of sales was bumping and adding not only blindly but falsely [flight] hours to pilots, in order to pass Wyvern and Argus trip checks.”
Both auditing services dispute Cassidy’s claim, saying internal controls prevent such manipulation. Joe Moeggenberg, Argus International founder, president, and CEO, said the company has “very good processes in place to make sure we don’t get into a situation where the operator is providing us with bad data.”
Ed Wandall, Argus’s director of charter evaluation and qualification, said the manager Cassidy identified had “no access to the system. Our system is gated with user name and password.” Argus also checks “significant” operator-supplied type ratings information against the FAA database, Wandall said. Zetta Jet made “a lot of updates of pilots and flying,” and where questions arose, the company was “responsive” and “pretty much complied” with requests for logbooks or other documentation, according to Wandall. “We have questioned [the company] on multiple updates just like we would with everybody,” he said.
Art Dawley, CEO of Wyvern, said, “The overwhelming majority of companies registered in our system, including Zetta Jet before it went out of business, provide automated data feeds of all pilot and aircraft times through their fleet and pilot management systems. Algorithms built into our data platform are designed to detect unnatural changes in pilot hourly experiences, and, with few exceptions, we have not determined this to be an ongoing problem.”
Chapter 7 Liquidation
Zetta Jet had hoped to continue operations as it restructured its debt, having lined up $8.5 million in financing from existing lessor Scout Aviation II. But court-appointed trustee Jonathan King, a partner and co-chair of DLA Piper's white collar, corporate crime and investigations practice, asked for the change in venue from Chapter 11 reorganization to Chapter 7 liquidation. In a letter to employees, Seagrim and Walter said they were “shocked and disappointed” by the decision, while informing the team that the company’s “limited liquidity” meant salaries could be paid only through its November 30 closure.
The largest creditors are Bombardier ($15.1 million); Rolls-Royce Deutschland ($4.1 million); World Fuel Services; Pte Ltd Singapore ($4 million); Universal Fuels, Houston ($2.7 million); CAE SimuFlite Dallas ($2.2 million); Hong Kong & Shanghai Banking Corp Singapore ($2 million); Scout Aviation II, LLC Guernsey ($1.3 million); and Universal Weather & Aviation, Houston ($1.1 million). Numerous FBOs, airports and business aviation support services are on the 58-page list of creditors.
AIN spoke to Cassidy the day of Zetta Jet’s closure. Asked how clients can be assured of the security of funds they have on deposit with aircraft access providers, Cassidy said, “As with anything, there are certain risks involved, and here we’ve seen the downside to it. You look at the numbers and can’t explain why we got in this situation. People need to be diligent.”
Courts will weigh whether mismanagement, misappropriation, a failed business model, or some combination thereof brought down Zetta Jet. Meanwhile, “There will be a need for the industry to get clarity with respect to these allegations,” said attorney Stephen Hofer {{checking with JW. I don't think he represents anyone in this case, just is an expert}}. Hofer is founder and president of aviation law firm Aerlex, which represented the majority of Avantair shareowners in the aftermath of the fractional provider’s 2013 bankruptcy. Hofer believes the Zetta Jet bankruptcy will be simpler to deal with because “there isn’t as much of a problem with third-party ownership or fractional [program] involvement that needs to be sorted out.”