A California aviation management company is sharing the benefits of a taxpayer-financed loan with its private jet-owning clients after it won the loan through the federal Paycheck Protection Program, according to three clients and a copy of a letter announcing the plan.
Congress and President Donald Trump enacted the loan program, known as PPP, to prevent workers at small businesses from being laid off during the coronavirus crisis. The company, Clay Lacy Aviation, will be able to keep pilots and flight attendants employed with the money it received.
But the company, located near Los Angeles, also decided to provide a benefit for clients who own the jets it manages, a rich set who weren't the target of federal coronavirus relief funds.
The owners who opted in will get account credits through a formula based on the amount of the loan and the cost each owner incurs to employ crew members, according to a letter written by a top company executive that one of the clients provided to NBC News.
"CLA was approved for a loan and recently received funding," Bradford W. Wright, Clay Lacy Aviation's chief financial officer, wrote in the letter, dated April 29. "CLA is prospectively offering aircraft owners a credit for a portion of full-time payroll and employee benefit costs paid through CLA to their respective flight, cabin and maintenance crew members during the covered period."
The crew members keep their jobs, which is a condition of the taxpayer-backed loan, and jet owners keep more of their money, which isn't.
The PPP loans were created to keep businesses afloat by providing money to pay their workers during the crisis. Legally, flight crews are employed by CLA, but it is only a "pass through" company for the jet owners to pay the workers' salaries. The crews are dedicated to each jet owner, who hires, fires and sets salaries for them. Without the PPP loan, jet owners would have had the choice of continuing to pay their crews or laying them off.
While the loan is only a small slice of the $650 billion-plus PPP fund — $10 million is the cap for any company — Clay Lacy Aviation's use of it illustrates one of the many ways the wealthiest Americans have benefited from programs to help workers.
"Everything about this is distressing, deplorable and disgusting," said Steven J. Cloobeck, the founder of Diamond Resorts International and a jet owner who isn't a CLA client. "There should be serious and punitive repercussions for those at the absolute top of the food chain who abuse an emergency government rescue."
CLA's client list includes rocker Don Henley, Sexy Brand CEO Mark Bonfigli and private equity firms the Blackstone Group and Freeman Spogli, which is owned by the finance chairman of President George W. Bush's inaugurations and a former ambassador to Italy and San Marino, according to a list of aircraft registration numbers provided to NBC News by a source and a combination of federal and state disclosures.
Christine Anderson, a spokesperson for the Blackstone Group, said the company turned down the offer to take part in the credit program. Henley declined to comment. And, after this story was first published, Freeman Spogli chief compliance officer Bill Wardlaw told NBC News that the company's co-chairmen, who own the plane, did not apply for the credit. But other jet owners, including Bonfigli, were eager to participate.
"Oh, my God, yes," Bonfigli said in a telephone interview Wednesday.
He said paying for a plane called SexyJet to sit on the ground has been such a financial drain that he would have fired his crew by now if it weren't for the promise of relief from Clay Lacy Aviation — and taxpayers.
Bonfigli said that he plans to sell his plane, a Gulfstream GV that he said has transported the Red Hot Chili Peppers and actor Robert De Niro, among other A-listers, but that the credits from CLA's loan may buy him time to keep renting it out until the market for private jets improves.
"It would be really helpful for us to have a chance to continue to charter," he said. "Otherwise, I think it would have to sell sooner, not later, and for a lower price, because the market is hurting. ... I don't mind the idea of selling it for a good price, but now we'd really have to lose some real money."
CLA declined to disclose the exact amount of its loan, and the two federal agencies that administer the program — the Treasury Department and the Small Business Administration, or SBA — haven't made the information public. The company also declined to answer most questions NBC News posed over email about its operations, the reason it designed the credit system and its clientele.
But a representative of the company said "all funds received under federal programs must and will be used in accordance with federal guidelines to save the jobs of hundreds of mechanics, flight attendants, pilots, customer service representatives, line service technicians, dispatchers, avionics technicians, and other workers."
The representative also said the company has experienced a 94 percent reduction in flights and noted that "the distribution of all funds is also subject to federal audit."
The loan wasn't the only money CLA got from the federal government through the Coronavirus Aid, Relief and Economic Security (CARES) Act, which became law March 27.
The Treasury Department also approved a $27 million grant to CLA on April 20. The money came from a separate CARES Act fund designed to stabilize the airline industry, and CLA's share was the 19th largest among more than 200 aviation companies that received federal money.
Clay Lacy Aviation was named for its founder, who developed air-to-air cinematography techniques for blockbuster films such as "Top Gun" and is a donor to Trump. Brian Kirkdoffer, a longtime friend and employee of Lacy's, is the CEO and majority shareholder, according to a profile in Business Jet Traveler.
On April 3, the National Business Aviation Association, a lobbying group representing companies like CLA, held a webinar for its members in which experts discussed the access that private jet travel companies have to various new streams of federal benefits. The list included Treasury's payroll support initiative, the SBA's Paycheck Protection Program, an economic injury disaster loan fund and a suite of tax breaks.
Aviation industry insiders told NBC News that they found it inappropriate for a management company to ask for federal bailout funds from two separate federal programs, each designed to prevent layoffs, and then use them to offer credits to clients who are in such rarefied air financially.
"The headline of this story should be 'man, f--- these guys,'" said an airline industry executive who asked to remain anonymous because he wasn't authorized by his company to speak on the record.
After the CARES Act became law, the Treasury Department gave multibillion-dollar rescue packages to major carriers American, Delta, United and Southwest on April 20 and 21. In each case, the government received stock warrants in exchange for the money as part of the deals with the publicly traded companies.
Clay Lacy Aviation and other small charter and private jet management companies applied for and received millions of dollars from the Treasury program without having to give taxpayers shares in their businesses. In determining how much money to give eligible recipients, the Treasury Department required companies to provide data and sworn statements disclosing how much they paid in salaries, wages, benefits and other compensation to employees.
Recipients were also required to promise to use federal money "exclusively for the continuation" of those costs and "refrain from conducting involuntary layoffs or furloughs or reducing pay rates and benefits," according to the department.
But Clay Lacy Aviation's participation in the PPP program, which also gives out money on the condition that recipients keep their workforces intact, wasn't publicly known until now. Some industry competitors with different business models have taken the stance that federal money isn't supposed to support high fliers.
"We have observed others in our industry badly bruised by the pandemic as the recipients of CARES Act monies have become public," Patrick Gallagher, president of sales, marketing and service for NetJets, wrote in a recent email blasting other players in the aviation industry for taking federal money. "The names on the list and amounts received have been eye-popping."
Why CLA was eligible for two bailout programs
CLA is unusual both because it's a major player in the aviation industry and because its executives say it qualifies as a small business for the purposes of the new lending program. The CARES Act created its own matrix of eligibility standards for small businesses, which include companies with fewer than 500 U.S.-based employees, caps on revenue and a variety of metrics.
While PPP funds are legally limited to companies that don't have other debts to the SBA, Congress didn't prohibit a company's taking both a PPP loan and grant money from Treasury's aviation fund.
"There's no question there were beneficiaries who lawmakers did not intend to have access to these funds," said Caroline Bruckner, a former chief counsel to the Senate Small Business Committee who is the managing director of American University's Kogod Tax Policy Center. "Mistakes are always made when legislation is drafted so quickly to respond to an emergency — that's inevitable — but this also means, and this could be a prime example why, oversight post-CARES Act is critically important."
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The planes managed by the company are all owned by its clients. CLA stores and maintains the aircraft for the owners, and it charters flights and acts as a "pass through" for the owners to pay flight crews. The company and its clients share revenue generated from renting planes when the owners aren't using them.
So when the CARES Act was enacted, CLA had three obvious options: forgo the loan, take all the money for itself, even though its revenue is supported by jet-owning clients, or devise a way for the clients to share the bounty. The account credits allow for the latter.
On April 29, the company advised its clients that they had until May 11 to decide whether they wanted to take the credits. The only requirement was to sign a statement making a good-faith representation that "1) the current economic uncertainty makes receipt of these credits necessary in order to support the ongoing operations of the owner's aircraft and 2) aircraft owner has neither separately applied for nor received relief under the SBA-PPP or another SBA program."
CLA has signaled that it may be worried that its loan might not be forgiven — or that it could get yanked altogether.
In the letter to jet owners, Wright, the company's CFO, wrote that the credits won't be awarded until after the loan is forgiven and that owners would have to repay CLA if the company is "subsequently deemed ineligible" for the program "upon audit."
Fliers who are hard to track
Many private jet owners have no interest in publicity about their planes.
To find the owners of jets managed by Clay Lacy Aviation, NBC News obtained a list of identifying numbers for each of the planes registered under the company's flag and matched it against Federal Aviation Administration records, Securities and Exchange Commission disclosures and filings with state business compliance offices. The planes tend to be owned by limited liability partnerships with names that have little obvious connection to the people or parent companies that own them.
Jon Croasmun, senior vice president and corporate trust manager for the Bank of Utah, which is the registered owner of more than a half-dozen aircraft managed by Clay Lacy Aviation, said the company holds titles to planes in trust but isn't part of financial arrangements with management companies.
The bank generally represents both U.S. citizens and foreign nationals who own airplanes. He declined to say whether any of the clients it shares with Clay Lacy Aviation aren't Americans.
"The only time we divulge ultimate ownership is if the FAA asks," he said, adding that the agency hasn't sought that information. That means it is unlikely that the Treasury Department or the SBA know whether bailout money is being turned into credits for foreign nationals.
In part because of the confidentiality offered by the Bank of Utah and a Delaware company that offers similar services to management firms, NBC News was able to identify only about two-thirds of Clay Lacy's 50-plus clients. In addition to Henley, Blackstone, Bonfigli and Freeman Spogli, the list includes:
- Brian Fitterer, owner of a chain of trailer parks.
- Shlomo Rechnitz, owner of a chain of nursing homes.
- Aby Rosen, a real estate tycoon and art collector.
- Edward Roski Jr., a co-owner of the Los Angeles Lakers.
- Ernie Moody, a video poker magnate.
Rosen "was not in receipt of such an offer and he would have never taken it if he had received it," a representative from his office said.
NBC News' attempts to obtain comment from Fitterer, Rechnitz, Roski and Moody were unsuccessful. It is unclear whether they opted in or out of the credits.
But Bonfigli said he doesn't recommend buying a plane unless "you win a really large lottery" and can afford not to rent it out.
"I don't know about other owners and how they operate their planes, but I can tell you this: When a plane sits like that, you're paying a fortune for it to sit," he said. "From a business perspective, honestly, it couldn't get any worse than owning a plane. It's been terrible."
Cloobeck has little sympathy for jet owners who get taxpayer-subsidized benefits.
"No government program is perfect, especially given the need and urgency it is designed to serve," Cloobeck said. "But this company and these owners all know the money was not designed for them, and they have a moral, if not legal, duty to treat the country that enabled them to become so wealthy a whole lot better than this."