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Evergreen's troubles continue to mount

McMinnville aviation company continues to fight battles on many fronts


Evergreen International Airlines has made consistent headlines since 2013, when the company fired its staff and filed for Chapter 7 bankruptcy a month later. Since doing so, both planes and properties have been sold, thousands of creditors have filed with the court seeking payment and investigations into the business’ practices have resolved. The following is a comprehensive look at Evergreen’s troubles to date.Photo Credit: GARY ALLEN - Dwindling empire - In the latest move by Evergreen International Aviation, the McMinnville campus is now for sale. The listing price is $20 million as a package or $23 million if the six buildings are purchased individually.

Bankruptcy proceedings

Since filing Dec. 31, 2013, for Chapter 7 bankruptcy in Delaware, the list of creditors and grievances has continued to grow for EIA. The list now totals more than 5,000 and 135 pages of companies and individuals seeking payment for services rendered.

Most recently the Air Line Pilots Association filed a motion with a federal bankruptcy court to allow grievance proceedings to proceed concerning five Evergreen International Aviation pilots who were “unjustly” fired in 2013 as the company deteriorated.

Led by Capt. James Touchette, then chairman of the pilots’ association Evergreen Master Executive Council, the July 30 motion outlines the five instances of “disproportionate penalties” from May 25 to Sept. 13, 2013.

“For many years preceding Evergreen’s bankruptcy, the company discharged pilots infrequently — firing perhaps one pilot every two to three years — and did so only for the most serious offense,” Touchette wrote in the motion. “Most pilot disciplinary issues were handled short of discharge. However, in 2013, as Evergreen’s financial position deteriorated, the company went on a rampage of unjustified firings. These terminations were all for alleged misconduct that had nothing to do with the ability of the discharged pilots to competently and safely operate the company’s aircraft.”

That grievance is set before the court Sept. 17.

Aside from the grievance, the May 30 deal with Jet Midwest Inc., a Kansas City company, is the only recent progression in the case. Although the deal to sell “substantially all” of Evergreen’s assets for $4.3 million was objected by the United States Trustee — which oversees bankruptcy proceedings — various creditors and Multnomah County, which is also owned $4.6 million in back property taxes, Walrath approved the sale that included five Boeing 747 airplanes, 11 engines and thousands of airplane parts.

The filing estimated the total assets of the Evergreen companies at up to $100 million and total debts up to $500 million.

Subsidiaries sold

The decline started prior to the massive layoffs with the sale of more than $11 million in land. EIA subsidiary Evergreen Agricultural Enterprises Inc. sold undisclosed acreage for $1.65 million in December 2013. Another subsidiary, Evergreen Vintage Aircraft Inc., sold three properties worth $2.3 million to EIA founder Delford Smith in mid-November that year. Earlier in 2013, between June and October, at least 1,000 acres in Yamhill County were sold for $7.4 million.

So far the only subsidiary known to be sold is Evergreen Helicopters in March. The company sold to Erickson Air-Crane Inc. for $250 million. The deal included 64 aircrafts.

Planes sold

EIA representatives have remained adamant through the bankruptcy that the Evergreen Air Museum will remain intact and operational. However, 20 percent of the about 140 exhibits are owned by troubled for-profit subsidiaries. With the most planes under its belt, Evergreen Vintage Aircraft owned about 15 of the planes on display. Evergreen Holdings also owned two at the museum. These planes have faced the chopping block to raise money for the parent-company’s debt.

One of 12 remaining airworthy Ford Tri-motor passenger liners from 1928 sold for $1.75 million with a Grumman TBM-3 torpedo bomber still for sale at $250,000 and a 1945 Lockheed P-38L Lighting warbird remains listed for $6.75 million. Less valuable planes have been sold as a part of larger deals, including the sale of Evergreen Helicopters.

The iconic Spruce Goose — a centerpiece at the museum — has been touted as safe as Executive Director Larry Wood said it is owned by the museum. But California lawyer Robert Lyon alleges there’s still money owned on the plane, with a final payment of $50,000 past due.

Nonprofit taxes

The museum also owed more than $1 million in back property taxes to Yamhill County. During the 2014 legislative session, there were two attempts by state Sen. Larry George to create an exception for the facility. First there was House Bill 4106, which would have created a specific exemption for nonprofits, but it died in the House Committee on Revenue. George then made a last ditch attempt with an amendment to House Bill 4005 that would allow the museum to avoid payment until June 2018. That amendment also died in session.Photo Credit: GARY ALLEN - Future unknown - The Evergreen Aviation and Science Museum is still open and hosting events, but its nonprofit status for tax exemption purposes is still under review by the Internal Revenue Service.

In March, Oregon Attorney General Ellen Rosenblum asked the Internal Revenue Service to consider whether the museum is entitled to its tax exemption. In a statement, Rosenblum said she and the state Justice Department were concerned with whether the waterpark should be treated as a nonprofit. The office declined to comment on the ongoing proceedings. The IRS was also unavailable to comment on the progress of the investigation.

Buildings for sale

In a continuing downward spiral for the company, the EIA campus in McMinnville was listed for sale in July. Asking $20 million as a package or $23 million individually, the six buildings on Highway 18 across from the museum are listed with the realty company CBRE.

The move is followed by the sale of an office building on Adams Street last month for $500,000 to Stuart Lindquist with Lindquist Development Co. in Port­land. The company also purchased a 7,667-square-foot space from Tualatin Valley Fire & Rescue in May.

The recent listing includes a 13,500 square-foot Learjet hangar and 2,500 square feet of office space. Five of the spaces are vacant after the company began selling off its planes and firing employees last year. One space is currently occupied by Erikson Air-Crane, which bought Evergreen’s helicopter division last year.

The company also sold $4.3 million of its assets May 30 to Jet Midwest Inc. The sale was approved by Judge Mary Walrath of the Delaware Bankruptcy Court — where Evergreen filed for Chapter 7 bankruptcy Dec. 31. That sale was being disputed by numerous creditors seeking more than $500 million in debt. With the future sale of the remaining assets it’s unclear where the proceeds will end up. Among the creditors are Yamhill and Multnomah counties, which are owed $1.06 million and $4.6 million, respectively.

“When you buy a home taxes have to paid,” said Yamhill County Deputy Assessor Jeff Ivie. “But because the company is in bankruptcy I don’t know how that whole situation works.”

Investigation

Also in March, the Oregon Department of Justice released findings from an investigation into the practices of EIA and the Evergreen Aviation and Space Museum.

Although a statement released by the museum was optimistic, the DOJ findings were less so, and led Rosenblum to ask the IRS to look into the museum’s operations and determine if they are consistent with its tax exempt status.

“Charities are subsidized by taxpayers and depend on public trust,” Rosenblum said in a press release. “That trust is shaken when nonprofits stray from their charitable purposes, and when charitable assets are used to benefit affiliated for-profit companies.”

The investigation started after an unnamed whistleblower reported concerns that the museum had transferred more than $700,000 to the for-profit EIA. The investigation determined that the claim was valid.

According to a release from the DOJ, former financial director Olga Mery was contacted by John Irwin, president of EIA and the museum’s treasurer, and asked about museum funds. With about $750,000 in the museum’s bank account, Mery told Irwin the funds were needed by the nonprofit. The next day, Irwin requested the balance again and informed Mery that EIA didn’t need all of the funds and would repay the debt in three days. When she refused to transfer the funds, Irwin took it upon himself to obtain the cash.

“As a result on Oct. 3, (2012) Mr. Irwin and Ms. (Blythe) Berselli, both Evergreen executive and museum board members, who also had signing authority on museum accounts, went to the bank themselves and wired $725,000 from the museums account to Evergreen,” according to the report.

But this mismanagement of funds wasn’t all the DOJ discovered. There was another questionable interaction between the nonprofit and for-profit entities. Mike Hines, then president of Evergreen Trade, presented Larry Wood, museum director, with a $500,000 contract to purchase a DC-9 airplane and a Boeing 747 cutaway from EIA to use in the museum.



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