The involvement in the new People Express of one of the founders of the original People Express could complicate the proposed startup carrier’s efforts to obtain U.S. Transportation Department certification.
Harold “Hap” Pareti appeared on stage with leaders of the new People Express at the startup’s public unveiling two weeks ago at Newport News/Williamsburg International Airport in Newport News, Va, where the new carrier is to be based (Aviation Daily, Feb. 14). The low-cost carrier hopes to begin service this summer with-400s if it can obtain and certification and the additional financing it needs.
Last year, DOT fined Pareti and his company, Global Airline Services, $120,000. In addition, he has been involved as an executive with failed carriers in the past, and in the mid-1990s, he had to agree to disassociate himself from almost all involvement in a proposed startup as a condition of the new carrier’s obtaining a certificate from the DOT to operate.
But the new People Express says that Pareti is just “one of many advisers” to the airline and that his involvement, while valued by People Express, should not overshadow its progress.
Initially, the airline described Pareti’s postion as “adviser/counsel.” Asked subsequently about Pareti’s involvement, People Express COO Michael Morisi said Pareti “is not serving as part of our legal counsel, nor do we plan for him to represent us in any legal proceeding in the future.”
Rather, he says, Pareti “has been one of several key players on our advisory team,” helping the airline navigate a complex regulatory process.
“We consider his help to be invaluable,” he adds, but “he has not acted in any legal capacity, is not an officer of the company and owns a small percentage of stock.”
Pareti has been successful, he adds, in bringing several accredited investors to the airline during its seed capital process.
“I would ask you to try to keep the focus on the amazing work we are doing to get our airline certified and ready to fly this summer—no small feat and one that we have sought the help of Mr. Pareti and countless others to achieve,” Morisi says.
Pareti could not be reached for comment.
As part of the certification process, the DOT “looks at the applicant’s compliance record to see whether it and its owners and managers have a history of safety violations or consumer fraud activities that would pose a risk to the traveling public, or whether other factors indicate that the applicant or its key personnel are unlikely to comply with government laws, rules and directives.”
Asked about Pareti, the DOT says only that “the department considers each application for authority on its own merits, and our decision would reflect the specific facts of that application. Compliance disposition is one of the areas considered in all fitness reviews, together with managerial qualifications and financial resources.”
The new People Express has not yet applied for certification.
The DOT fined Pareti and his company, Global Airline Services, last year as a settlement of allegations that Global sold air transportation without the requisite DOT authority, with half of the $120,000 to be forgiven if Global avoided repeating the violation for a year; Pareti owns Global, and he and his wife were its only full-time employees as of 2011, according to the DOT.
The DOT said Global bid for and won contracts in its own right to provide charter flights to college sports teams despite lacking the authority to do so, then entered into separate contracts with direct air carriers to provide the charter air transportation.
In Pareti’s defense, Morisi says Pareti successfully provided charters for college sports teams for 16 years, contracting nearly 4,000 flights without any problems. In its consent order issuing the fine, the DOT says Pareti told the department his company’s alleged non-compliance was “unintentional and inadvertent” and that it “never intended to act as a principal with the charter customers.”
Pareti also was involved in the founding and leadership of two airlines that failed: Presidential Airways and Worldwide Airline Services, which did business as Leisure Air.
Pareti was president and CEO of Presidential and chairman and president of Worldwide/Leisure Air, where Morisi worked for him as COO. Presidential filed for bankruptcy in October 1989 after about four years of operations, shutting down later that year. Charter carrier Leisure Air filed for bankruptcy and called it quits in early 1995 after a few years of charter and scheduled service.
Morisi also worked under Pareti at the original People Express, where Pareti rose to president before resigning in early 1985. Morisi was a team manager at People Express from 1981 to 1987, and was part of the transition team when the carrier was acquired by Continental Airlines. Pareti resigned from People Express about two years before it ceased to exist as a carrier and merged with Continental.
Pareti’s name surfaced again soon after Leisure Air folded. In 1995 and 1996, his involvement in proposed Denver-based startup Jet Aspen dogged that carrier’s certification proceeding with the DOT, primarily because of an ongoing financial dispute involving Worldwide/Leisure Air, DOT documents show.
At the time, the extent of Pareti’s involvement in Jet Aspen was in dispute. Jet Aspen described him in its application to the DOT as a consultant, prospective member of its board of directors and owner of 2.9% of the company’s stock. One opponent of its application argued that Pareti’s involvement was much deeper in terms of his investment and control of the carrier. Ultimately, the DOT concluded the truth was somewhere in between.
“There is ample evidence that Mr. Pareti has played a major role in establishing Jet Aspen’s organization and operational plan,” the DOT said. “He has been the company’s spokesman and has been instrumental in attracting investors and the interest of the community.”
The DOT, however, added that the evidence showed he did all of this as a consultant, paid $15,000 a month for preparing the certificate application, business plan and private offering memorandum, soliciting stock subscriptions, helping to assemble the senior management team and formulating the company’s schedule and pricing structure. The additional stock Pareti held, it found, was as the trustee of a block of non-voting stock held for his family.
To resolve the potential roadblock to certification, Jet Aspen, “in consultation with [DOT] staff,” decided to discontinue Pareti’s consulting involvement with the company until the compliance issues with Worldwide were resolved. Pareti and all of the key personnel at Jet Aspen filed affidavits with the DOT verifying Pareti’s withdrawal from the consultancy position and “the commitment of the company’s key personnel to refrain from consulting with or taking direction from Mr. Pareti or anyone representing him.”
The DOT said it would decide later whether Pareti could become re-involved with the carrier.
Some questions subsequently arose, however, about whether Pareti completely detached from Jet Aspen. The startup filed for bankruptcy protection in 1996. withdrew its application and never got off the ground.