Bankruptcy court judge approves payments to Direct Air passengers

01/09/2014 10:06 PM

01/09/2014 10:06 PM

A bankruptcy court judge on Thursday approved payments totaling $250,000 to about 1,900 Direct Air customers who bought tickets for flights on the former Myrtle Beach-based air carrier before it was abruptly grounded in March 2012.

The payments amount to 26.5 percent of the money each customer claimed they were owed for the unused tickets. The payments will range from a low of $2.65 for one individual to a high of $2,297.64 for a high school group’s canceled trip. Payments should be mailed to customers in the coming days.

“Checks will be going out over the next week or so, certainly before the end of January,” Joseph Baldiga, the trustee overseeing Direct Air’s bankruptcy, told The Sun News.

Judge Melvin Hoffman approved the payments following a hearing Thursday afternoon in federal bankruptcy court in Worcester, Mass.

The money to make the payments will come from a Direct Air surety bond and another account the failed charter service had, Baldiga has said.

The payments will go to customers who bought tickets with cash or other means besides a credit card. Most of the people who bought Direct Air tickets have already received refunds through credit card chargebacks.

There were about 93,000 people who bought tickets for Direct Air flights that did not occur after the charter service was grounded and filed for Chapter 11 bankruptcy reorganization.

The case was quickly converted to a Chapter 7 liquidation, and officials determined that between $25 million and $30 million was missing from an escrow account Direct Air was required to keep to protect passenger payments in case a refund is needed. An investigation into what happened to that money is wrapping up, according to Baldiga.

“I suspect that we will conclude the investigation within next 30 or so days and then determine the next course of action,” he said. “It is premature to project whether and to what extent there will be any subsequent distributions [to creditors].”

Merrick Bank – which processed $25 million worth of credit card chargebacks – is suing Direct Air’s founders, claiming they signed documents assuming personal liability for the charges. That lawsuit is pending.

Merrick Bank also is trying to collect the money Direct Air owes from a chargeback insurance policy it had through Chartis Specialty Insurance Co., an affiliate of insurance giant American International Group. Chartis is fighting Merrick’s attempts in federal court in New York, saying its insurance policy only covers chargeback amounts that exceed the $29.5 million that should have been left in Direct Air’s escrow accounts. That case is in mediation and a settlement conference is scheduled for later this month.

Direct Air, which was formed to help bring tourists to the Myrtle Beach area, announced in 2006 that it would start offering air charter services with its first flight on March 7, 2007. The charter service stopped flying five years later after running up $80 million in unpaid bills, according to bankruptcy documents.

Direct Air’s failure prompted the U.S. Department of Transportation, which oversees such carriers, to tweak its rules for charter operators, including not allowing the sale of vouchers for future travel not tied to specific flights because they are not protected under charter escrow requirements. Direct Air regularly sold vouchers through its “Friends and Family” promotion.

DOT also fined several of the carriers for Direct Air flights for their roles in the abrupt shutdown of flights that left thousands of travelers stranded or scrambling to line up alternate means of travel.

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