Reconsidering the AvCraft Bailout

By Paul Gable

Horry County Council could vote to reconsider the $100,000 economic development incentive package it approved at its December 13, 2011 regular meeting, according to an article published yesterday in the Myrtle Beach Sun News by reporter David Wren.

Council members voted to approve the incentive package for a code named business and did not realize the recipient was AvCraft Technical Services until publicly announced two weeks after the vote. After AvCraft was announced as the recipient in a press conference, some council members became incensed.

Since the controversy erupted, Myrtle Beach Regional Economic Development Corporation chief executive Brad Lofton and Mike Hill, Chief Operating Officer of AvCraft, have joined council chairman Tom Rice in trying to spin the idea that the current version of AvCraft is a new company, not the same old one that has consistently failed to add new jobs to the area.

The article attributed to Hill the statement that he ‘failed to understand why some area politicians continue to criticize his business which has no financial or ownership relation to the one that failed to live up to job promises years ago.’

Hill’s statement is technically true in the narrowest sense. AvCraft was brought to Myrtle Beach by Ben Bartel in 2004. Maple Financial foreclosed on Bartel in 2005 and ran the Myrtle Beach operation for five years, much of that time with Hill at the helm. Hill put together an investment group, principally Indaer (Industrial Aeronautica S.A.) headquartered in Medellin, Colombia, to buy the company just before the bank was scheduled to liquidate it piecemeal in late September 2010.

Just before the purchase was finalized, Hill and Indaer CEO Derek Nice came before council on September 7, 2010 asking the county to lower the rental on the three hangars at Myrtle Beach International Airport that house AvCraft operations. Nice told council the “new” AvCraft needed the rent reduction in order to be profitable.

The reduction in rental payments, if given final approval by council, will total approximately $1.25 million over five years. AvCraft has been paying the reduced rent since September 2010 under terms of a space use agreement with the airport.

The old AvCraft was purchased out of bankruptcy by the current owners to be the new AvCraft in Hill’s manner of thinking. While the company has diversified the types of aircraft it is licensed to work on in the past several years, it is still what is known as an MRO (maintenance, repair and overhaul) operation for regional jets. With high jet fuel prices, it is regional jet service that is the most threatened in today’s market because it is difficult for a small, regional airline to make money with the overhead costs for each flight.

AvCraft brought approximately 50 employees with it when it relocated to Myrtle Beach in 2004. At that time, it promised 400 high paying jobs in four years.

On November 3, 2009, AvCraft and Indaer held an announcement ceremony in Myrtle Beach attended by then Gov. Mark Sanford, at which they announced the new working relationship between the two companies would bring the AvCraft workforce 50 new jobs in three years. It had 50 employees at the time.

When Hill and Nice appeared before council in September 2010 requesting the rent reduction, Nice said the restructuring of the lease would allow the addition of 50 new jobs in three years. AvCraft was still employing 50 people at that time.

When the economic incentive package was announced in late December 2011, AvCraft promised to add 150 new, high paying jobs in five years. AvCraft was employing 50 people and had laid off 20-30 employees in the previous month while it was negotiating the new incentive package which included the requirement to add jobs.

Lofton attributed the layoffs to a dip in the company’s business cycle and restructuring. Lofton told council at the December 13, 2011 meeting that most of the new jobs would be right away, but changed that story last week to say most of the new jobs would be in year three of the incentive package.

Hill may say that this is a new AvCraft, but it is still a company that employs approximately 50 people after seven and one-half years of operation in the county. Old company, new company, AvCraft can’t seem to get much above 50 employees although it routinely promises to create new, more high paying jobs, especially every time it wants something from the county.

Many of these council members are tired of hearing the same tune of new, high-paying jobs from AvCraft. Both ownership groups, not including the bank, have promised new, high-paying jobs and both have requested rent reductions from the airport.

Over the past seven and one-half years, the county has done all the giving with incentives and rent reductions while the “old” and “new” AvCraft(s) have provided only unfulfilled promises of new, high paying jobs.

That’s why Hill has trouble convincing council members that this is a “new” AvCraft. It certainly is failing to act like one! Hill would be smart to remember ‘saying it, doesn’t make it so.’ Only results count and AvCraft has failed to produce any appreciable results in the area of producing new jobs, much less high paying ones, regardless of who owns and operates the company.

It would be a good move for council to reconsider the incentive package as well as delaying consideration of third reading on the lease agreement, which is scheduled for Tuesday’s meeting.

AvCraft is effectively asking the county for a five-year bailout package with reduced rent and incentives for job growth, while it restructures and overcomes the current dip in its business cycle, which Hill and Lofton spoke of to Wren.

Hill admitted to Wren that the original AvCraft business plan did not work out. There is no evidence to date that any new or modified business plan devised by the AvCraft/Indaer partnership is working out either.

The incentive package was a rush job with the name AvCraft being withheld until after it was approved. Council should reconsider it with a long, considered look at the incentive package and what requirements it would make of AvCraft in return.

In addition, council should investigate what it can reasonably expect from AvCraft in the long term, if anything, before codifying the new lease agreement in the form of third and final reading of Ordinance 53-11 Tuesday night.

It is county council, not AvCraft or the Myrtle Beach Regional Economic Development Corporation that must answer to the voters of Horry County with regard to the use of public funds and public facilities. Council should be in the forefront of considerations regarding any new incentive package to AvCraft and in the performance of the due diligence required for its approval.

Lets stop the smoke and mirrors, code names and secrecy about economic development because it doesn’t work. Economic development by quasi governmental agencies attempts to pick winners and losers among potential companies and all too often gives taxpayer money to those with inside connections. The result in Horry County has been the same from its economic development arm as from AvCraft – No Jobs.

Paul Gable is a veteran investigative reporter residing in Horry County, South Carolina and is the current editor of the Grand Strand Daily an online magazine featuring all things local and political.