Newport News Officials Worked to Keep $5 Million Loan to People Express Airline a Well-Guarded Secret, Witness Says

A key witness in the federal fraud trial against Newport News’ former airport executive director Ken Spirito said that her boss — Newport News’ then-city manager — didn’t want her to tell others in 2014 about a taxpayer-backed loan to a private airline.

Florence Kingston, Newport News’ top economic development official, testified Thursday that she knew why the Newport News/Williamsburg International Airport was asking for a $700,000 grant from a regional air service group in the summer of 2014.

Kingston, the city’s director of development, said she knew the airport wanted the money to use as collateral for a $5 million loan to a fledgling private airline, People Express.

But Kingston left out that key detail when she presented the motion to the Regional Air Service Enhancement Committee, or “RAISE,” for a board vote in June 2014 — even as she testified that she had lots of concerns about People Express’ finances and ability to operate.

A federal prosecutor, Assistant U.S. Attorney Brian Samuels, asked Kingston on the witness stand in Norfolk federal court on Thursday why the motion talked about funding to help the new airline get started but left out any reference to a loan collateral.

She replied that her direct supervisor — Newport News City Manager Jim Bourey — didn’t want her to tell RAISE board members those details.

“I knew that the city manager did not feel it necessary to share that,” Kingston testified.

A few months later, when news reporters began asking about People Express after it collapsed, Bourey sought assurances that Kingston had not told them about the loan guarantee.

Under the arrangement, TowneBank issued the $5 million line of credit to the airline, but the Newport News airport was on the hook to cover the entire debt should People Express default.

“So she did not ask about the loan info and, of course, you did not volunteer it," Bourey wrote in an email, referring to a Daily Press reporter.

“Heck no and no,” Kingston wrote back. “She got into Raise detail more (which we accommodated). We kept it high detail."

When Samuels asked her on Thursday to explain that reply, Kingston said: “I knew (Bourey) did not want me to talk about the loan guarantee."

Kingston’s testimony came on the third day of a federal jury trial against Ken Spirito, the Newport News airport’s former executive director.

Spirito is charged with 24 felony fraud counts, mostly pertaining to his actions surrounding the $5 million loan guarantee.

After People Express collapsed in September 2014 — less than three months after it began flying — the airport quietly paid the debt in 2015 using $4.5 million in taxpayer money.

The Daily Press learned in early 2017 about those debt payments.

The ensuing news coverage led to a state audit into the airport, a management shakeup — with Spirito and Bourey both losing their jobs — and a criminal investigation that resulted in the current federal charges against Spirito.

Kingston’s testimony Thursday could cut two ways.

Federal prosecutors have contended that there was a heavy shroud of secrecy surrounding the loan guarantee, and they presented Kingston’s testimony as evidence of that.

Many of the charges against the against pertain to shifting grant money around at the airport to pay off the debt.

But Spirito’s lawyer, Trey Kelleter, asserts that his client is being made the “fall guy" for the actions of several people — including Bourey — who pressed for the loan guarantee as a way to bring in more air service to the region.

Kelleter also says that Spirito was simply attempting to help the region with the new air service and that none of the loan proceeds went into Spirito’s pocket.

At the time of the loan, People Express touted itself as a way to help the Newport News airport replace the loss of AirTran Airways, which had accounted for nearly half the airport’s passenger traffic.

AirTran pulled out of the airport in 2012, two years after Southwest Airlines acquired AirTran and cut Newport News out of its service. (Southwest already serves Norfolk and Richmond).

Desperate for new service, Newport News officials were receptive when People Express came calling.

When Bourey came to Newport News as city manager that 2013, Kingston testified, he told her he wanted to take “a lead role” in attracting new air service to the Newport News airport.

She said he told her that he had worked on bringing in new airlines at his previous job in South Carolina.

The Newport News City Council soon appointed Bourey to serve on the Peninsula Airport Commission, the six-member body that oversees the airport, in addition to his city manager duties.

Kingston testified that her staff initially drafted a motion for the June 2014 meeting that would inform RAISE members that the $700,000 would be “used as collateral security” for the TowneBank loan to People Express.

But Bourey objected to the draft, trial evidence shows.

“Florence, I am ok with this but do not (think) we need to be as specific on how the money will be used," Bourey wrote to Kingston.

That language was removed from the motion before the meeting.

The RAISE committee — which operated with taxpayer money from Newport News, Hampton, York County, Poquoson, James City, Williamsburg and Gloucester — voted to approve the $700,000 grant, which would become part of the $2 million collateral that TowneBank required before loaning the money.

Six days later, on June 9, 2014, the Peninsula Airport Commission passed a motion following a closed special board meeting.

The vaguely-worded motion gave the board’s then-chairwoman, LaDonna Finch, the authorization to “do or commit any act ... to provide for the adequate, economical and efficient provision of air service enhance air service at the airport."

Finch testified this week that that language served as the authorization to sign the loan guarantee.

The RAISE Committee has since been disbanded, as localities have pulled out of the arrangement.

J. Michael “Mike” Swain, the engineering manager for the Virginia Department of Aviation — a state agency that provides grants to dozens of airports around the state — testified Friday that by late 2016, the Newport News airport was late in filing its annual reports on what it did with its state grant money.

Those reports, Swain said, must be filed annually “within 30 days” of each fiscal year ending June 30. But by September 2016, he said, the Newport News airport had filed neither its 2015 nor its 2016 report -- with the 2015 report more than 15 months late.

After his prodding, Swain testified, airport finance director Renee Ford finally emailed him electronic versions of both reports in October 2016.

Yet Swain acknowledged that he didn’t look at those reports at the time — in part because he had to get ready for an Aviation Board meeting in Richmond around that time.

He began asking questions about one of the reports three months later, in January 2017, about the same time the Daily Press was asking questions about the loan guarantee.

Swain emailed Spirito on Jan. 24, 2017, asking for details about a line in the 2015 report that said the Newport News airport had spent $3.5 million in state grant money on “Air Service Development."

“Great timing,” Spirito wrote in forwarding Swain’s email to several airport officials.

Ford replied to Swain two days later, on Jan. 26, telling him the $3.5 million was “funds used for a loan guarantee.”

“Was that the first time that (the state Aviation Department) learned that this money had been used for a loan guarantee,?" Samuels asked.

“Yes, it was,” Swain testified.

Swain testified Friday that annual “state entitlement grants” to airports — designed for such things as capital projects on terminals and runways — are “ineligible” to be used for loan guarantees to private airlines.

(The state Secretary of Transportation later cut discretionary state grant funding to the Newport News airport to account for what it called misspent funds).

Also on Friday, John Lawson, the executive chairman of W.M. Jordan Co., a large Newport News-based construction company and developer, testified that his company put just under $1 million into People Express in 2013, in a combination of loans and stock ownership.

It was Ken Spirito, Lawson testified, who introduced him to People Express’ founder, Mike Morisi, and Morisi showed Lawson some basic financials of his company.

“It wasn’t anything sophisticated, I’ll tell you that,” Lawson said. “But we went into it with eyes wide open. We knew there was risk. We just wanted to help the community. With AirTran leaving, there was a void there.”

But by later in 2013, W.M. Jordan “began to wonder if we were throwing good money after bad," said the construction company’s chief financial officer, James Burnett.

“They always had some last minute deadline” that caused them to ask for more money, Burnett said of People Express. “There was always going to be ‘some big investor’ that was going to come in, ‘and they would pay it back within 30 days.’"

W.M. Jordan stopped putting money into the airline in late 2013, Burnett said, with the company losing $958,000 to People Express, according to a document introduced at trial.

“We wrote it off as a loss,” Burnett said.

Bourey, testifying as a prosecution witness, is expected to testify at the trial next week.

Peter Dujardin, 757-247-4749, [email protected]

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