Executive aviation dream grounded after partners split, sue

Pinnacle Air, the executive jet charter service that was once the pride of Bill Schwyhart’s investment empire, was grounded in 2008 after a disastrous merger with Aspen Executive Air.

And the figurative wreckage is immense.

Schwyhart Holdings is the target of a lawsuit in Benton County by Johnelle Hunt, the widow of former Schwyhart partner J.B. Hunt, who said Schwyhart breached a contract to refinance Pinnacle Air’s debt, which included loans on 19 jets.

A co-defendant in the suit, Chicago businessman John Calamos, said in a crossclaim that as a representative of Pinnacle Air, Schwyhart was “fraudulent and duplicitous.”

The business was founded in 2001 by Schwyhart, Robert Thornton and architect Collins Haynes. They partnered with Central Flying Service of Little Rock, which owned one-third of the business. In 2003, Pinnacle Air was purchased by The Pinnacle Group, which included Schwyhart, Thornton, J.B. Hunt and Tim Graham.

Three years later, the business seemed to be flying high as Pinnacle announced the $41 million purchase of Ohio-based Jetride. The fleet was doubled, and the airline’s reach into the world of executive transportation expanded.

After J.B. Hunt’s death in 2006, though, Johnelle Hunt and Graham decided to divest themselves from Pinnacle Air, and that’s when the company began to plummet.

To replace the Hunt-Graham interests, Pinnacle negotiated a merger with Aspen Executive Air, a failing airline that had recently come under the control of Calamos. According to Hunt’s lawsuit, Schwyhart and Thornton, as well as Calamos, were to refinance a combined $30 million that Hunt and Graham had guaranteed on the debt of Pinnacle Air, which was renamed Aspen Jetride.

But that never happened, according to Hunt. She and Graham filed suit in July 2008, accusing the defendants of reneging on their contracts to release them from the debt.

“They just wanted to be relieved of the debt obligation,” said Ken Shemin, attorney for Hunt and Graham.

Instead, Hunt and Graham settled with the banks on their portion of the guaranty and are looking to collect from Schwyhart, Thornton and Calamos.

The suit against Schwyhart and Calamos was dismissed in August 2010 due to Pinnacle Air filing for Chapter 7 bankruptcy in 2009. Schwyhart has a counterclaim against Calamos that’s still pending.

Schwyhart said he expected Calamos to get Hunt and Graham off the bank notes. With 16 percent ownership, Schwyhart said he had little power to get the financing done, but the Hunt suit states that Schwyhart was still the managing member of the company at that time, so he and Calamos were responsible for refinancing the debt under the agreement that was made.

“If John Calamos would have honored his contractual obligations in 2008, Aspen Jetride would still be in business and 200 people would be employed, and half of them live in Northwest Arkansas,” said Schwyhart.

Richard Donovan, an attorney with the Rose Law Firm in Little Rock, represents Calamos in the case. He said his client did everything possible to make the merger with Pinnacle Air a success, while Schwyhart and Thornton did not.

“This is a case where Mr. Calamos is wearing the white hat,” he said.

In February 2009, Pinnacle Air, doing business as Aspen Jetride, declared bankruptcy in U.S. Bankruptcy Court for the Western District of Arkansas, saying it owed $46 million and had $3.7 million in assets. The bankruptcy included only the operating company, not the real estate or airplanes, which were each listed as separate limited liability companies. The lenders have repossessed or have filed suit to repossess the jets.

In some cases, banks are taking action against Schwyhart and Thornton to cover losses on the planes.

Two jets from the fleet were sold at auction for about half of what they had cost.

The demise of Pinnacle Air and Aspen Jetride, which happened less than two years after J.B. Hunt’s death, has come to symbolize the dramatic rise and fall of fortunes in Northwest Arkansas.

That’s definitely the case for Schwyhart.

“It hurt my reputation and cost me millions of dollars,” he said of the airline’s collapse. “It jeopardized the livelihood for me and my family.”

But back in 2001, there was no reason for a confident Schwyhart to fear the future.

Getting started

Thornton owned a home in Palm Springs, Calif., and frequently went there for vacation. After Bubba, his pet chow escaped from a crate during a commercial flight, Thornton started chartering private jets to the West Coast, said Schwyhart. Eventually, Schwyhart and Thornton secured an interest in a jet based in Little Rock.

When J.B. Hunt came calling in 2003, Schwyhart and Thornton already had their feet wet in the aviation industry. Hunt, an energetic entrepreneur, wanted to take the full plunge.

“He [Hunt] came to me and said, ‘I want to be your partner — in everything,’” said Schwyhart.

And Hunt was more than willing to become part owner of an airline.

“He said he wanted this to be the biggest thing he’d ever done,” said Schwyhart.

With the backing of Hunt’s deep pockets, Pinnacle Air lifted off. In short order, the airline was busy with contract work for charter services. In 2006, Pinnacle purchased Jetride.

“That brought us to a new level,” said Schwyhart. “We wanted to have a national footprint.”

According to Schwyhart, Hunt wanted the airline to own as many as 100 airplanes.

“He loved the jets and he loved buying the jets,” said Schwyhart. “Our goal was to get big enough to go public.”

At its peak, Pinnacle operated 27 planes and grossed $1 million a week with some tickets going for as much as six figures. Movie stars, professional athletes, powerful politicians and important businessmen were chartering flights. Junkets to Las Vegas, even those scheduled at the last minute, were packed.

Schwyhart said owning an airline enhanced his status.

“It was a sexy business,” he said. “You get real popular when you have access to planes.”

But in December 2006, J.B. Hunt died from head injuries suffered when he slipped on ice and fell. The driving force behind Pinnacle Air was suddenly gone, and the game immediately changed.

“Johnelle didn’t like the business and never did,” said Schwyhart. “She wanted to pull back from everything and she didn’t like the jets, so I didn’t know what was going to happen.”

On that point, Schwyhart and Hunt agree.

“It was a business that Mrs. Hunt did not want to be in,” said Shemin. “She was always concerned that there could be a crash or something like it.”

Schwyhart said that’s when he started looking to sell.

“I thought it was too big for me,” he said. “I didn’t have the wherewithal to own that company.”

A new deal

Early into his search for a buyer, Schwyhart was introduced to Calamos. A pilot who had flown jets in Vietnam, Calamos also controlled a charter service, Aspen Executive Air, with a portal at the airport in Aspen, Colo. He needed jets and Schwyhart had plenty. Calamos, meanwhile, had worldwide contacts and access to big capital.

A deal was hashed out in which Calamos would become majority owner of the airline with a two-thirds interest, and Schwyhart and Thornton would split the remaining third. The Hunt debt would be refinanced and she and Graham would be out of the picture.

The deal appeared to be a good one, but the partners were never able to make it work.

Calamos needed to revitalize Aspen Executive Air. To do that, he filed for bankruptcy on behalf of Aspen Executive Air in September 2007 and used Pinnacle Air to purchase the Aspen assets. The new company, Aspen-Jetride, emerged in December.

But before and after the new company was formed, Calamos had problems with his new partners, Schwyhart and Thornton.

In a cross claim filed in the Hunt suit, Calamos accused Schwyhart and Thornton of lying about Pinnacle’s financial situation to entice Calamos to invest in the airline. Schwyhart and Thornton overstated the value of Pinnacle’s debt, so that when the debt was refinanced, they had extra money to invest in other business ventures, Calamos’ suit said. The suit claims Schwyhart and Thornton refused to invest money into the company, as promised in the agreement with Hunt and Graham, and ran up more than $260,000 in bills for personal use of Pinnacle jets.

In Calamos’ suit, he argued that Schwyhart went out of his way to prove that he was a player in Northwest Arkansas business circles. Schwyhart flew Eric Scott, the son of Lee Scott, then Wal-Mart’s chief executive officer, to Chicago for a meeting with Calamos in an attempt to impress him, according to the suit. Schwyhart said Eric Scott had been working with him on some deals, so it was not unusual for him to travel to Chicago for a business meeting.

When asked about his travels on behalf of Schwyhart, Eric Scott said he had no comment.

Schwyhart, according to Calamos, even attempted to use one of the company’s jets to bid on a $7.7-million contract with GE — in direct competition with Aspen Jetride. As a result Schwyhart was ousted as manager of the airline in August 2008.

Calamos blamed Schwyhart and Thornton for Pinnacle’s problems and said their “deceptive conduct commenced from the inception of the business relationship and continues to the present and their conduct is responsible for the failure of Pinnacle Air.”

After the airline’s collapse, one jet was found abandoned in a hangar in Bismarck, S.D., while another was found disassembled in a hangar in Springdale, according to a second lawsuit that Hunt filed in February 2009.

Schwyhart said the plane wasn’t “disassembled” as the suit states. Parts had been removed for routine maintenance, he said.

According to a separate suit filed by Hunt, J.B. Hunt LLC was seeking payment from Schwyhart and Thornton for their guaranty — a combined 64 percent — on two Lear 60 jets. A guaranty is an obligation to pay the outstanding debt in the event of a loan default. One of the jets was purchased with a $5.8 million loan and sold for $2.4 million, while the other was purchased with a $6.3 million loan and sold for $2.7 million. Those loans were originally through Fifth Third Bank of Cincinnati, Ohio.

On March 8, Benton County Circuit Judge Doug Schrantz ordered Schwyhart and Thornton to each pay J.B. Hunt LLC $2.7 million plus interest for their obligation on the debt. Schwyhart said he and Thornton plan to appeal.

While he says the odds are stacked against him, Schwyhart has vowed to keep fighting.

“Everyone thought I’d go bust and go away,” he said.

Information for this article was contributed by Bill Bowden of the Arkansas Democrat-Gazette.