The stunning collapse of the celebrated hometown airline is a tale of desperate power brokers, angry passengers, bitter employees, wounded civic pride . . . and a pilot who did the right thing.
Skybus captain Matthew Russ was feeling good. The flying was smooth on this Friday evening in early April, the flight ahead of schedule. After a difficult winter, the airline appeared to be on the mend. On-time performance was improving, planes to Florida were packed and new CEO Mike Hodge predicted in a meeting with Russ and other pilots about a week earlier that Skybus would turn a profit in June.
But things were not as they seemed, as was often the case with Skybus. Preparing for a flight from Columbus to the Gulfport-Biloxi area of Mississippi, Russ and his co-captain received a surprise visit from chief pilot Chris Grazel in the cockpit of their Airbus A319 jet. "Initially, I thought maybe I'd gotten in trouble for something," Russ recalls. "Looking back, I wish that was the case."
Grazel dropped a bombshell on the pair: Skybus was finished. The airline would cease operations at the end of that night and file for Chapter 11 bankruptcy on Monday morning. Following a directive from upper management, Grazel told the pilots to keep quiet about the shutdown until the official announcement that would come an hour or so later.
Russ faced a moral dilemma. In a few minutes, he was scheduled to take off. If he obeyed his boss, he might strand passengers at Gulfport-Biloxi International Airport. He knew that, say, a family of five would spend around $1,000 purchasing last-minute fares to get back to Columbus, not exactly chump change for Skybus's budget-minded customers.
Russ's conscience wouldn't let him stay silent. He told his decision to Grazel, who neither endorsed nor condemned it. "I think he felt he had to play neutral just because that's what his marching orders were," Russ says. Amid the chaos of the final hours of Skybus, Russ did something that stood out: He acted honorably.
The pilot's plight captured the drama and outrage of the final hours of Skybus. In cockpits and boardrooms, in terminals and crew lounges, even in a movie theater in Dayton, a long-simmering behind-the-scenes crisis exploded in a stunning spectacle. Passengers were stranded all over the country (including one Skybus board member), employees were laid off without warning, dozens of creditors were stuck with unpaid bills and Columbus power brokers were left embarrassed.
After the collapse of Central Ohio's hometown airline-a source of civic pride, the city's most celebrated new company and the pet project of highly influential people–a Columbuswide group therapy session broke out. People reminisced about past Skybus trips (good and bad), complained about ruined travel plans and tried to figure out how an idea backed by so many seemingly smart people could crash and burn after just 10 months. Even that old cow town inferiority complex reared its head, as folks wondered why anyone would try to start an airline in flyover country in the first place.
The fall of Skybus is part whodunit, part morality play, part comedy of errors. It's a tale of bad luck, corporate gaffes, desperate executives, bitter employees, a devastating credit-card crisis and even leaky water bottles. And like any good Hollywood movie, there's even talk of a sequel.
The oh-my-God moment hit Bob Kidder on a Thursday morning in early April. At a management meeting in Skybus's headquarters just south of Port Columbus, the chairman of the airline's board of directors saw a new financial forecast that predicted the company would run out of money by the end of the month. Skybus was in the so-called "zone of insolvency," the airline's in-house attorney said. That meant, according to their corporate governance rules, managers had two options: declare bankruptcy or raise capital.
Kidder convened the Skybus board for an emergency meeting later that day to decide what to do. Though everyone knew they faced long odds in finding investors in a difficult economic climate, board members chose to make one last push to save the company.
It was familiar territory for Kidder, long the unsung hero of Skybus. The former CEO of Borden and Duracell joined the airline's board of directors in April 2004 and piloted the company through plenty of turbulence. He used his Wall Street contacts to help raise $160 million (a record for a start-up airline) and guided the company through the difficult exit of its founder and first CEO, John Weikle. Though he received little acclaim-and no compensation-Kidder was perhaps the person most responsible for Skybus's improbable journey from a far-out business plan to a carrier that flew more than one million passengers during its 10-month existence.
Indeed, Skybus appeared to be the little airline that could. The Port Columbus-based carrier created 450 jobs (350 in Central Ohio), flew direct flights to cities all over the country and offered some of the cheapest fares in the industry. It was exciting, promising and even a little glamorous-how many cities have their own airlines? "I was proud of it," says Columbus Mayor Mike Coleman, the first Central Ohio power broker to back the idea. "Heck, I bragged about it. I admit it."
He wasn't the only one. State development officials touted Skybus as an Ohio success story in giant ads that appeared in the Wall Street Journal, and the company basked in the glow of reams of positive press. In the fall, the hullabaloo reached fever pitch. One investor, speaking at a business luncheon in September, called Skybus "Columbus's most important business for the future," while another told Columbus Monthly, "We're going to look back and say, 'This is one of the best things that ever happened to the city of Columbus.' " (Wolfe Enterprises, Nationwide, Huntington and Battelle provided the $3.5 million initial investment for Skybus-and gave more money later-while prominent individual investors included PR guru David Milenthal, construction mogul Jack Ruscilli and developer Dick Solove, who said in the fall he handed over $500,000 to the company.)
This spring, however, the picture changed dramatically. Bookings were down, the economy was tanking, oil was at $110 a barrel, Skybus pilots were agitating for a union and capital was disappearing fast. Kidder and other leaders went into attack mode, putting together a turnaround plan and shaking up management. On March 24, Kidder and his board colleagues promoted Hodge, the airline's chief financial officer, to CEO, replacing Bill Diffenderffer, the face of the airline and the man behind its trademark $10 tickets. (Another key executive, Bud Sittig, vice president for operations, also resigned about a week later.)
On the last day of March, Kidder didn't sugarcoat the situation. Asked if he was satisfied with a key executive's performance, Kidder told Columbus Monthly, "I'm not satisfied with anybody, including our board." But Kidder also offered no signs that the airline was on the verge of imploding. He talked confidently about how Skybus would weather the storm and fix its internal problems: slowing growth, tweaking flight schedules, renegotiating with vendors, communicating better with customers. He even found time for a little humor, saying that his regular presence at Skybus headquarters ensured that the 35-year-old Hodge would be aided by a "couple of people with gray hair."
The confident mood didn't last. Just three days later, Kidder saw that devastating financial update, and he, the executive team and other board members launched a desperate quest to raise $30 million to $70 million over the next 24 hours. Focusing primarily on Skybus backers in Columbus, they called city, county and state officials, along with local investors. On Friday morning, board member Bob Milbourne, president of the Columbus Partnership, even reached Mayor Coleman on his cellphone as he exited customs during a trade mission to Israel.
Coleman couldn't offer much help. "Hell, I was in Israel," he says. "And my economic development person was with me. There might have been some small things we could have done, but not to the scale that they were dealing with." Still, the mayor remained optimistic. "I was very encouraging and thought, frankly, that it might work out," he says. "But it sounded tough. There were some tough business decisions ahead of them."
On Friday, board members updated each other on their progress in conference calls in the morning and around noon. Then the nine-member panel assembled for its final meeting of the day about 3 pm-some at Skybus headquarters, others on the telephone. (The board consisted of four Wall Street representatives and Charlie Clifton, a former Ryanair executive, as well as the Columbus directors: Kidder, Milbourne, David Meuse, a principal in the Columbus private equity firm Stonehenge Partners, and Ryan Helon, Nationwide Mutual Capital managing director.)
The group faced a hard truth: They had come up short. Each board member took a turn speaking and a consensus emerged. The mood was somber, particularly among the Columbus contingency. "We were all volunteers and also investors," says Milbourne. "We were doing this for the good of the city, and that was true through the whole history of Skybus." After about an hour, they did what seemed so unthinkable a few months earlier. They killed Skybus. The vote was unanimous. "It was unanimous not because anybody wanted to call the curtain down," Kidder says. "It was because everybody understood what the situation was."
In Milwaukee on a business trip, Milbourne faced a challenge-the vote left him stranded. He was supposed to fly back to Columbus via the airline on Saturday. "The first thing I did was find a different way home," he says. "I had to fly Delta through Cincinnati. It was not good."
Skybus operations would cease at the end of Friday, and no official announcement would be made until 9:30 pm when the company's last flights of the day were scheduled. That type of shutdown is not unprecedented; a few days earlier, two other carries, ATA and Aloha airlines, ended things in the same abrupt and secretive way. "When you stop an airline, inevitably you are going to have people in the wrong places," Kidder says.
Managers also were concerned about an outstanding bill to their fuel provider, World Fuel Management. That vendor might have pulled Skybus's supply-and grounded planes before the night was over-if the airline warned the public about the bankruptcy ahead of time. "I wish we could have, but that is just impossible," Kidder says.
Still, Skybus couldn't contain the story. Rumors of its demise first hit aviation websites just before 7 pm. Then TV stations and the Dispatch picked up on the story and descended on Port Columbus. The Dispatch even put a reporter on a Skybus flight to Fort Lauderdale to describe the experience-flight attendants made no mention of the impending collapse-and talk to passengers once they arrived in Florida. People there-as well as at other Skybus destinations-were angry and confused, and the shutdown was hard to swallow. "That's not the Columbus way," says Coleman, who received phone calls while in Israel from friends and staffers describing the confusion.
Skybus founder Weikle heard about the collapse while watching the Jodie Foster movie Nim's Island at a Dayton cinema. After ignoring several cellphone calls, he picked up one from his daughter, who worked in the Skybus human resources department, and spoke to her in the lobby. "I've never been so shocked in my life," he says. In a daze, he got in his car and drove off, forgetting about his wife and friends in the movie theater. He realized his mistake before he got too far and headed back. When he returned and his wife and the other couple saw his face, Weikle says, "They thought there was a death in the family."
Then there was Russ, perhaps the only hero of the day. After deciding to ignore the corporate gag order, the pilot walked across the tarmac, grabbed a microphone in the terminal and broke the news to the people waiting to take his flight to Mississippi, the penultimate Skybus departure of the night. He gave them 20 minutes to consider whether to make the trip and guaranteed that their bags would be removed if they chose to stay in Columbus. "The room went whisper quiet," he says. "I definitely had the audience." Russ also struggled a bit with his own emotions. "You're trying to put your best face on for the public, but I'm sure they could read between the lines that I was caught off guard myself."
About 10 decided to stay; most passengers were heading home and weren't affected. No one was angry-Russ's honesty probably helped eliminate that-but there was plenty of shock and disappointment. One man told Russ he was heading to a funeral and had no choice but to go. The plane left a little after 9 pm, more than 40 minutes late. For once, no one cared.
Jana Bailey-Heffler was the unofficial voice of the flight attendants. Whenever problems popped up-and that was often-she would march into Skybus's headquarters and speak her mind to top management.
Like many Skybus employees, the 34-year-old former hostess at Bravo! was seduced by the company's bold business model, which promised no-frills, a la carte service like Ireland's Ryanair, the world's most consistently profitable carrier, and caring employee relations like Southwest Airlines, the U.S.'s aviation superstar. The pay wasn't great-$11 an hour plus commission on the sale of onboard food and trinkets-but the company promised up to 1,000 stock options for flight attendants (6,000 for pilots) if it went public. Plus, there was the romance of flying and the chance to build a new kind of company. "I truly believed in the Skybus system," says Bailey-Heffler, who started with the airline in April 2007, a month before its first flight. "I planned to retire from here. I really wanted to go as far as I could."
Then reality sunk in-flights that ran out of food, pricey onboard goods that budget-conscious passengers didn't want, even moldy strawberries. "It was disgusting," she says. The problems cut into flight attendants' commission checks-which also were delayed due to paperwork snafus, Bailey-Heffler says-and weren't fair to passengers, who officially were forbidden from bringing their own food on board.
Bailey-Heffler raised her concerns with then CEO Diffenderffer, who seemed to welcome the feedback. "I talked to Bill all the time," she says. Articulate and friendly, Diffenderffer, a lawyer by training and the author of a business leadership book called The Samurai Leader, was a good salesman and big-picture guy. His marketing brainchild, 10 tickets for $10 each on every flight, attracted tons of publicity and captured the imagination of the public. Columbus Monthly named him a runner-up for its Person of the Year honor for 2007, while Business First declared him its Business Player of the Year.
But even as the media celebrated him, signs of trouble were popping up. In December, the airline's on-time performance tanked as it struggled to squeeze de-icing into its tight flying schedules. Despite warnings from pilots and others, the company failed to prepare for the harsh Midwestern winter, former employees say. The result: Half of all Skybus flights from Port Columbus were 15 minutes late or worse in December, according to FlightStats.com, making the airline the least reliable major carrier at the airport. Then came the Christmas debacle; mechanical mishaps grounded two planes, stranding thousands during the holiday and creating a PR crisis for Skybus.
In March, tense employee relations were threatening the airline's perilous finances. Some 80 percent of the pilots signed union cards to join the Teamsters, and Bailey-Heffler says a flier was circulating among flight attendants urging them to organize. Flight attendants were upset that overnight stays were appearing on the schedule-something they were told when they were hired wouldn't be the case-and a strange dispute over water broke out. Looking to save money, managers eliminated free bottled water and provided employees with containers they could fill with tap water. "They leaked all over the passengers from the overhead bins because of the pressure," Bailey-Heffler says. Management relented and gave back the bottled water, but the damage had been done.
In mid March, Bailey-Heffler ran into Diffenderffer on a flight from Port Columbus to Punta Gorda, Florida. "I had another day of no food for passengers and what we had was yucky," she says. She told him about the problems, and he promised things would improve soon. "I looked at him, 'You've been promising that from the beginning. We've seen absolutely nothing in regard to helping us,' " she recalls. "I'm like, 'I'll believe it when I see it, and then I'll be behind you. Until then, I don't believe a word coming out of your mouth.' "
Turns out she wasn't the only one fed up with Diffenderffer: He resigned later that week. The company described his exit-and the elevation of CFO Hodge-as mutually agreed upon. In late March, Kidder, the Skybus chairman, predicted the detail-oriented Hodge would cut costs and improve operations. "That's not Bill's strengths," Kidder said at the time. Though he never had led a company before, Hodge has an impressive pedigree. Before coming to Skybus, Hodge was a managing director and an airline industry analyst at Tiger Management, the hedge fund founded by legendary investor Julian Robertson. A great teacher of the investing craft, Robertson has mentored a generation of so-called "Tiger cubs"-and it seems Hodge was one of his favorites. In a 2002 Institutional Investor story, Robertson described Hodge as his "alter ego."
Weikle, the Skybus founder who withdrew from the company after losing a power struggle with Diffenderffer, welcomed the change. "When Bill left, I took that as a good sign," Weikle says. "Maybe they had a chance now." But just 11 days after the shake-up, he and the rest of the world learned that wasn't the case.
So what killed Skybus? Diffenderffer blames external issues. "If oil wasn't over a hundred a barrel and the economy hadn't gone south, we'd be flying and everybody would be thrilled," he says. "It's as simple as that." But some former employees and Weikle point to mismanagement. They say the litany of performance issues-lousy food, late planes, the Christmas fiasco-alienated customers and contributed to the major drop in load factors (the percentage of seats sold on flights) the airline experienced in January and February-a 15 to 20 percent decline. "It was ours to lose, and management lost it," Weikle says.
The most devastating obstacle, however, was a bookkeeping issue. At the beginning of the year, Skybus's credit card processor, First Data Corp., stopped allowing the airline to include credit-card orders on its balance sheet before flights occurred. With banks tightening credit due to the subprime crisis, and the airline industry in the doldrums (almost all carriers are losing money now), First Data viewed Skybus as a credit risk. Skybus saw its cash drop from around $80 million to about $20 million at one point, Kidder says. When Frontier Airlines went bankrupt shortly after Skybus, it, too, blamed First Data. "It's in their interest not to take that risk," Kidder says. "The other way to look at it is, of course, we'd still be flying if we had that cash, and we might have been able to survive."
In a written statement provided to Columbus Monthly, the Colorado-based First Data said it was acting in accordance with its agreement with Skybus. "We continually monitor and manage the credit risks associated with processing transactions in industries where we provide services," the statement says.
Today, lawyers are sorting through what's left of Skybus in a Delaware bankruptcy court. The airline owes between $50 million and $100 million, according to court records, with the largest claim, $8.5 million, belonging to World Fuel Management of Chicago. Among Central Ohio creditors, the Columbus Regional Airport Authority is owed the most-$200,000; Authority chairwoman Kathy Ransier said in late April the figure probably was larger. Kidder says liquidation is the most likely means to settle the claims, and it appears the airline has some assets-plane leases and orders, a Federal Aviation Administration operating certificate-that might attract interest (the airline reported between $100 million and $500 million in assets in its bankruptcy petition).
Weikle may play a role in the proceedings. The day after Skybus shut down, he abandoned plans to start an airline in his hometown of Charleston, West Virginia, and launched a long-shot crusade to save Skybus. "I have to," he says. He felt an obligation to the employees, by far the biggest losers in the company's demise. Bailey-Heffler, the flight attendant, and her 10-year-old son Malik are moving in with her boyfriend, also a former Skybus employee, to save money. If things get desperate enough, Russ, the ex-Skybus captain who's married with three children, might take a job in India or China, where pilots are in great demand as those countries enjoy an economic boom. "Ultimately, that might be something I have to do," says Russ, who relocated his family from South Carolina to Columbus and turned down a more lucrative job offer to work for Skybus.
But if Weikle manages to buy the FAA certificate and secure planes, Russ and other employees are eager to rejoin Skybus. "There is overwhelming support for him from the employee group," Russ says. Weikle faces huge odds, though. Kidder estimates Weikle will need to raise $50 million to $100 million to resurrect the company. "I've seen no indications that Mr. Weikle is able to do that," Kidder says. (In early May, Weikle said two potential investors-a "very wealthy" individual from North Carolina and an airline holding company-were interested in helping him.)
There's another issue to consider: Does Columbus even want another airline? The city vested a lot in the first one and got burned. Local investors lost millions-Huntington pegged its Skybus loss at $5.9 million in mid April-and were tainted by the airline's messy collapse. The Dispatch even faced criticism when it delayed telling its readers about Skybus's shutdown. "I found that to be deeply troubling, especially given the fact that the Columbus Dispatch [through Wolfe Enterprises] was an investor in Skybus," says blogger and syndicated travel writer Christopher Elliott. (In an April 13 column, Dispatch editor Ben Marrison said the paper was obligated to honor an agreement with a source.)
In a town hardly synonymous with risk and speculation, a lot of people gambled on a bold idea and lost. "I do sort of worry about the psyche of the city," Coleman says. The emotional wounds might be deeper than the financial ones. "I heard some of it on talk radio: 'What makes people think there could be anything like this in Columbus?' " Coleman says. "Well, you never know if you don't try. You got to try. You got to always have a higher vision. If you're too scared, too fearful, to try to be successful, you'll never be successful."
In late April, however, Kidder wasn't ready to move on. "The work is not complete, and certainly the criticism is not complete, and the emotional letdown is not complete," he said. "Somebody said to me, 'It's kind of like a death in the family. You almost have to go through a grieving process.' That's the way I feel, and I haven't exited that period yet."
Dave Ghose is an associate editor for Columbus Monthly.
This story appeared in the June 2008 issue of Columbus Monthly.