OST-97-2592, OST-96-676, OST-96-677 / Falcon Air / July 17, 1997

 

Mr. Pierre Murphy

Ms. Elizabeth Collins

Attorneys for Falcon Air Express, Inc.

One Westin Center, Ste. 260

2445 M Street, N.W.

Washington, D.C. 20037

 

Dear Mr. Murphy and Ms. Collins:

 

We have reviewed the financial information you have submitted relative to Falcon's applications in Dockets OST-95-676, OST-95-677, and OST-97-2592 as well as other financial information available to us, in particular, the June 30 and December 31, 1996, Form 41 balance sheets and six-months statements of operations. This review has uncovered several inconsistencies and/or entries for which there is no apparent explanation. As a result, it is not clear to what extent the financial statements accurately reflect the current and historical operating results and financial position of the company. In order for us to fully assess Falcon's financial position, and thus make an informed decision on its ability to support the operation of additional aircraft, it is important that these inconsistencies/entries be satisfactorily explained. For example, we note that:

 

a. the Schedules P- 1.1 (statements of operations) for the six months ended June 30 and six months ended December 31, 1996, indicate that, during that period, Falcon incurred a net ~ of $157,853 for the period. However, the Schedule B-l-1 (balance sheet) for the company at December 31, 1996, indicates that, at that date, Falcon had $251,640 in retained earnings (indicating profitable operations), a difference of over $400,000.

 

b. we do not understand (and there are no notes explaining) other entries on the December 31, 1996, B-1.1 including, but not necessarily limited to, the amounts shown for line items 1 (cash and cash equivalents), line items 5 & 9 (property and & equipment), line items 12 & 16 (notes and accounts payable & long term debt), and line items 19 through 26, l9A and 20A (liabilities & stockholders' equity).

 

c. it is not clear to us what the "balance sheets" provided for January 1996-February 1997, March, April, and May 1997, purport to represent since we cannot reconcile the amounts shown on these statements with the B-l.l at December 31, 1996.

 

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d. the monthly profit and loss statement submitted July 11 for the month of March 1997 does not appear to include any expenses attributable to flight or maintenance employee salaries, and the monthly statement for May 199? does not appear to include any expenses associated with the lease of or insurance coverage for the aircraft it was operating at the time.

 

e. during Falcon's initial certification, we understood that Mr. & Mrs. Dirube provided the carrier with approximately $1.5 million in equity, yet the financial statements subsequently submitted do not appear to reflect this equity infusion.

 

In light of the above, we ask that Falcon provide the following information.

 

1. Provide an explanation as to how the amount for each line item on the December 31, 1996, Schedule B-1.1 (balance sheet) was derived.

 

2. State whether the balance sheets for January 1996-February 1997, March, April, and May 1997, represent the company's financial position at, respectively, February 28, March 31, April 30, and May 30, 1997. If so, provide a reconciliation of each of these end-of-month balance sheets with the December 31, 1996, statement. If not, explain what these statements represent and provide a current balance sheet for Falcon, including a reconciliation of all amounts shown on such document with the December 31, 1996, statement.

 

3. Verify whether the operating results reported on the P-l.1 reports for the periods ending June 30 and December 31, 1996, accurately reflect the results of operations for those periods. If they do not, state why they do not and provide revised statements as necessary. Verify whether the profit and loss statement attached to Falcon's June 6 application (Exhibit FAE-1) accurately reflects the operating results of the company during the January 1996-February 1997 period noted on the statement. Verify whether the March, April, and May 1997 profit and loss statements enclosed with your letter of July 11 accurately reflect the company's operating results during those months. In this connection, explain why the statements for March and May appear to exclude certain expense items (see d. above). If any of these statements are not correct, provide revised statements as needed.

 

4. With respect to the above-requested financial information, provide the identity and qualifications of the person(s) preparing the information, as well as whatever assurances are available, such as audited financial statements, that the information is accurate.

 

In addition, Falcon should respond to the following:

 

1. Does Falcon have access to financial resources outside of those shown on its balance sheet, such as a line-of-credit, etc.? If so, describe such resources and provide verification of their availability.

 

2. Falcon states that Aeropostal and Pelican Air Courier will be required to cover any deposits due on the two additional aircraft Falcon intends to obtain. If this is the case, we will need a

 

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statement from both companies stating that they will pay for any required aircraft deposits as part of their arrangements with Falcon. In the meantime, how does Falcon intend to cover these costs, as well as any additional crew hiring and training, insurance, etc., expenses associated with the addition of the two additional aircraft intends to obtain?

 

We appreciate your prompt attention to the above noted matters. Falcon's response should be filed in each of the dockets noted below. If you have any questions, please feel free to call me at (202) 366-2343.

 

Sincerely,

 

Delores King

Air Carrier Fitness Division