Air service deal crumbles from loss of political support

Fly Frontera, a proposed passenger air service between Brownsville and the Mexican cities of Monterrey and Tampico, has crashed to earth without ever getting off the ground..

It happened Tuesday, after weeks of turbulent public debate and two days before a city commission special meeting to vote on signing a contract with Public Charters Inc., the firm that would have been doing business as Fly Frontera. PCI president Jim Gallagher withdrew his proposal to the city of Brownsville on Tuesday, the same day the Brownsville Economic Development Council released its due diligence report of PCI and Charter Air Transport Inc., the second firm behind Fly Frontera. CAT would have provided the aircraft, which it leases, while PCI would have been responsible for ticket sales.

BEDC was called in to perform financial due diligence on PCI and CAT only after April 5, when a scheduled city commission vote on a contract with Fly Frontera was delayed “no more than 25 days” in order to study the companies in question and the feasibility of the deal more closely. The decision to delay a vote was prompted in part by intense public criticism over the size of a proposed incentive package the city was mulling for Fly Frontera. The incentives — basically the same deal the city negotiated to bring American Eagle — called for $500,000 in startup funds and potentially $2 million more in revenue guarantees over a period of two years, depending on whether ticket sales fell short and by how much.

The city commission may have had the votes April 5 to approve a contract with Fly Frontera, but the same can’t be said for the April 28 special meeting, cancelled after Gallagher’s decision to pull out, which in turn was likely caused by a collapse of support on the commission for Fly Frontera after Tuesday’s release of BEDC’s due diligence report.

Gilberto Salinas of BEDC, while declining to discuss details of the confidential report, said PCI and CAT failed to meet all the metrics BEDC uses when deciding what if any incentives to give a company interested in Brownsville as a base of operation. Normally, BEDC would perform due diligence first, then make a recommendation to the Greater Brownsville Incentives Corporation, which has access to sales tax revenue and awards incentives. In Fly Frontera’s case, however, Gallagher and other principals presented directly to GBIC, BEDC only being called in later in the game. GBIC agreed, without input from BEDC, to put up $250,000 of the start-up funds — contingent on the City of Brownsville signing a contract with Fly Frontera.

“(Gallagher) provided just about everything that we needed in order to do due diligence,” Salinas said. “I can’t get into specifics as to what he did or not provide, but I can say that he almost met all of our requirements.”

Gallagher, reached by phone Wednesday, said the BEDC report is inaccurate and incomplete in that it omitted financial information BEDC requested and that he provided, and in other cases did not request important follow-up information Gallagher says he gladly would have provided if asked.

“They really picked and chose what they wanted to say in the report,” he said. “It seems to me that they already had their minds made up.”

Salinas said BEDC would be happy to continue due diligence on PCI and CAT if the city requests it, but that the 21-day deadline in which BEDC had to complete the report has come and gone.

“If (Gallagher) has sent information after the fact, it is after the fact,” Salinas said. “It does not mean we will not look at it. We will review it, but at this point we’ve already completed our report as per the mayor and the city commission. If they come back and say look at it again, we will do it. That’s what we do.”

Brownsville Mayor Pat Ahumada, who strongly supported a Fly Frontera deal, said Wednesday it wasn’t the BEDC report that killed Fly Frontera but rather politics — though he also asserted BEDC’s due diligence was incomplete. The mayor singled out Commissioner Edward Camarillo for pulling his support for the deal. Camarillo is one of four candidates hoping to unseat Ahumada in the Brownsville mayor’s race.

Ahumada said that as far as he’s concerned city and airport officials had already done due diligence on the deal, which he was comfortable contained plenty of financial safeguards for taxpayers. Among these safeguards, he said, was that money from ticket sales couldn’t be touched by Fly Frontera until the service paid for — flying to Brownsville, Monterrey, or Tampico and back again in this case — was complete. Also, Gallagher had pledged to put up a $1 million personal performance bond, or some similar legal instrument, to protect the city of Brownsville from financial harm.

As for the timing of Thursday’s cancelled special meeting, Ahumada said it was scheduled then because the 25-day delay period on a vote was up and the commission “had to make a decision.” Meanwhile, the city has blown a rare opportunity to finally establish air service to Mexico, he said.

“It’s a sad day for Brownsville,” he said. “A very sad day.”