Prosecutors Open Case Against Former Airport Director in Trial Over People Express Deal

The former chairwoman of the board that oversees the Newport News/Williamsburg International Airport testified at a federal fraud trial this week that she didn’t know how the airport had come up with the money to back a $5 million loan to a startup airline in 2014.

LaDonna Finch, chair of the six-member Peninsula Airport Commission, said she left such details to the airport’s then-executive director, Ken Spirito, and others.

But the prospect of getting People Express into Newport News excited her.

The airport had lost more than half its business when its biggest carrier, AirTran Airways, pulled out two years earlier, "and we were anxious to see the planes take off.”

“I didn’t know if it was a good idea,” she said of the $5 million loan guarantee. “But I was excited to get them off the ground. I was so passionate about the idea ... and we were excited to make it happen.”

Finch was the first of dozens of prosecution witnesses expected to testify in the federal fraud trial underway against Spirito in U.S. District Court in Norfolk. The charges stem largely from his actions surrounding the People Express loan guarantee.

A key date at trial is a closed session in June 2014 at which board members discussed backing a $5 million line of credit to the fledgling airline.

Members then came out of closed session and voted on a vaguely worded resolution authorizing Finch “to do and commit any act which the chair deems necessary to provide for the adequate, economical and efficient provision of air service and general business at Newport News/Williamsburg International Airport."

The plan was that People Express would get a $5 million line of credit from TowneBank -- but the airport would repay the loan should the airline default.

Assistant U.S. Attorney Brian Samuels pointed out this week that the board’s resolution doesn’t mention the loan or People Express. When he asked Finch about that on Tuesday, she acknowledged that the language "was kind of non-specific.”

But she knew all along, she said, that the point of the resolution was that she "go to the bank and sign for the money that was being borrowed.”

Samuels asked Finch if Spirito mentioned any “risks” to the Newport News airport as a result of the loan deal. “Not that I remember,” she replied.

Ten days after the resolution, Herbert V. “Bert” Kelly Jr., the airport’s longtime attorney, picked Finch up at work and drove her to TowneBank to sign a litany of documents regarding the loan guarantee — with Kelly assuring her that all was well in signing them.

“I actually asked the attorneys if we were good, and (Kelly) said, ‘Absolutely, that’s what you’re here for,'" Finch testified.

On Tuesday, a TowneBank vice president, Susan Ivey, testified that she worked largely with Spirito and the airport’s finance director, Renee Ford, on the loan. But she said the bank wouldn’t have done the deal without the airport’s backing.

“We didn’t do start-ups, ever,” Ivey said. “I’ve done one, and it was for $10,000 ... And we never do airlines. We have no history, and no concept of how to interpret the numbers ... We didn’t put any stock into (People Express’) numbers."

But TowneBank was willing to loan the airline $5 million, she said, because it was “unconditionally guaranteed” by the airport.

When People Express collapsed in September 2014 — less than three months after it began flying — it had already drawn down its entire $5 million line of credit. That led to the airport paying $4.5 million in taxpayer money in early 2015 to cover the debt.

The Daily Press began reporting about the issue in early 2017, and the coverage ultimately led to a state audit, a management shakeup and a criminal investigation.

Spirito now faces 24 felony counts.

That includes 11 counts of misusing public funds to support People Express, six counts of money laundering in connection to shifting the grant money around to support the loan; four counts of lying in sworn statements about the loan; and two counts of obstruction of justice.

He separately faces a count of illegally putting $5,000 on an airport credit card to pay for repairs and warranty to personal vehicles.

In his opening statement on Tuesday, Samuels said People Express made lots of promises but “could not get its funding together.” Its first choice, the Norfolk International Airport, quickly rebuffed the airlines’ entreaties, as did other investors.

“This was a last resort for People Express after a number of other options had been tried and failed,” Samuels said of Newport News.

TowneBank, he said, didn’t do any “deep dive” into the airline. “They were not bankable,” Samuels said of People Express. “It was too much risk for too speculative a reward.”

People Express, for its part, didn’t care where the money came from, Samuels said, “as long as it’s green and they can spend it to get them flying.”

But Spirito, he said, was driven to make the deal work -- with the director saying at one point that “if there were no pioneers, there would be no historians.” But in order to get it done, Samuels said, Spirito played a “reckless” and improper “shell game” with money the airport got from state and federal grants.

Those grants, Samuels said, are designed for basic airport capital improvements and security needs, and couldn’t be used to bring in new new airlines. Using taxpayer money “for a private loan to a private airline,” he said, “is unjustified and wrong."

“You can’t gamble the money at Caesar’s Palace -- and that’s what this loan was,” Samuels said.

The later public accounting for the spending, he said, was hidden in “bureaucratic boiler plate language” deep within financial audit reports. “You had to look for it, and know what you were looking for, and few did,” Samuels said.

When questions began to be raised — including from federal investigators — about the loan, Spirito “provided false information and testimony concerning these events."

In sworn testimony, the prosecutor, said, Spirito falsely asserted that he warned board members that the loan was “very risky” and that “the $5 million could be gone very quickly."

But Spirito’s attorney, Trey Kelleter, said in his opening statement that his client, who was fired by the board in May 2017, is being made the fall guy for the actions of a host of players.

“He got bum-rushed out of there, and now he’s being scapegoated,” Kelleter said.

Lots of people, he said, were working to replace the loss of AirTran.

“Everybody wanted to get a low-fare airline back to Newport News,” he said, saying that former Newport News City Manager (and airport board member) Jim Bourey, Mayor McKinley Price and others were pressing heavily for new service.

“It was a priority shared by everybody," Kelleter said.

Bourey, he said, was “very active” in pushing the airport’s loan guarantee for People Express’ service. Airport board members who approved the loan “are adults" and must be held accountable for their own actions, Kelleter added.

“His bosses knew what they were doing,” the lawyer said of Spirito.

That doesn’t mean that anyone involved in the loan deal did anything improper under the law, Kelleter said. “There was nothing illegal about the loan guarantee," he said.

In fact, he said, lawmakers passed a new law restricting the use of airport grant money — but that was done after what happened in Newport News, partly as a way for the state to cover its own hide.

“The case is so weak that I’m confident you will reach a conclusion that supports what I’m saying — and not just that there’s no proof beyond a reasonable doubt,” Kelleter told jurors.

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

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