The Whirled's stock in trade

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The Tulsa Whirled was in full spin mode this weekend in response to the release of the City Council's preliminary investigation into Tulsa airports and the Great Plains Airlines mess, which has the city on the hook for millions of dollars. Let's look at their Saturday editorial defense of parent company World Publishing Co.'s investment in Great Plains:

Mark Twain's wisdom suggests that a lie told about the World Publishing Co.'s interest in the ill-fated Great Plains Airline will be repeated so much by shrill voices in Tulsa that the truth could be lost.

First, the lie: The City Council's investigator, paid $40,000 so far to amass public records, used out-of-date documents to claim the World holds 51 percent equity in the bankrupt airline.

The fact: The final list of stockholders, published elsewhere in the World Saturday, shows that the World owned 3 percent of the airline stock.

Notice the sleight of hand -- the Whirled responds to the fact that it had invested 51% of the private investment in Great Plains Airlines by saying it only owned 3% of the total number of shares of stock. The Whirled is deliberately confusing preferred stock with common stock. In November 2000, World Publishing Co. acquired 233,333 shares of preferred stock for $700,000 -- $3 per share. That's 3,000 times the cost of a share of common stock, which generally went for one-thousandth of a dollar per share. (Some common stock was sold for a nickel a share.) Preferred shares bring greater rights, such as first cut of any dividends. The exact distinction between preferred stock and common stock for a company is defined by the shareholder agreement, which does not appear to be one of the documents released to the City Council investigation. If the the Whirled wants to persuade us that its investment was insignificant, they'll need to show us the shareholder agreement.

As to the "out-of-date" document claim: The City Council's investigator used the latest shareholder list that was provided to it, from February 2001. Only one more investor of any significance came in after that date: Dr. William E. ("Wes") Stricker, the Columbia, Mo., allergist and owner of Ozark Air Lines. Stricker acquired 250,000 shares of preferred stock when Ozark was purchased by Great Plains in March 2001.

Shortly after the Whirled acquisition of Great Plains stock in November 2000, the Whirled editorial board, on November 28, urged the City Council to agree to mortgage Air Force Plant No. 3 to enable a total of $30 million in financing ($15 million in state tax credits, $15 million loan secured by the property). The editorial claimed that the airline would "over the next decade, create 2,000 new jobs and generate $23 million in revenue to the Tulsa Airport Authority. It represents a tremendous private-public partnership to solve a problem, offer a needed service and boost economic development opportunities." The Whirled editorial made no mention of the launch on November 1 of daily non-stop service from Tulsa to Los Angeles on American Airlines, which undercut the need for the niche Great Plains was meant to fill. There was no mention, either, of the failure a year earlier of AccessAir, another airline which had been heavily subsidized by state and local governments to provide service from the midwest to the coasts. There were plenty of reasons to be skeptical, but the Whirled, owner of a majority of preferred stock at that critical moment, didn't let the public know.

More rebuttal after the jump.

Investigator Wilson Busby answered a carefully planted question by District 2 Councilor Chris Medlock at a council meeting Thursday night. It was designed to put World Publishing Co. in a bad light, as if investment in a business venture was wrong.

Carefully planted? Who planted it? Did that wily Medlock plant a question in his own mind? Investment in a business venture isn't necessarily wrong, but when a newspaper has an undisclosed interest in a business at the same time that it is trying to influence public policy to direct public money toward that business, that is wrong, and the newspaper put itself in a bad light by showing such contempt for its readers.

Both men knew they were citing an early list of stockholders that painted a false picture. The World indeed contributed $100,000 and provided free advertising over three years to help the airline. That was done early, before many other stockholders came aboard. That credited the World a big part of the early support for the airline.

By the reasoning of Busby and the council, the person who put up the first dollar would have at that precise moment held a 100 percent equity.

It's not a "contribution" or "help" if it's done for consideration -- the Whirled received a majority of the shares of preferred stock in exchange for the cash and the advertising. And yes, if the equity of a company was $1, than the person who put up that dollar would hold 100 percent of the equity.

But forget the figures. What was the motive of the World's owners in the Great Plains debacle?

It was to help economic development of the city of Tulsa by providing coast-to-coast airline service. The lack of such service has hurt the city's economic development since the major airlines adopted the "hub" concept.

The Tulsa Metropolitan Chamber of Commerce, a majority of business and industry leaders here and the state of Oklahoma joined the effort.

The motive appears to be to make inappropriate use of public resources to make private individuals wealthy. If the motive had been to provide non-stop service from Tulsa to the coasts, a much simpler approach would have been to work with the major airlines to make it happen, like Oklahoma City did.

Northwest Arkansas Regional Airport (XNA) is proof that where there is a market for non-stops to the coast, the major airlines will serve the market. XNA has one daily non-stop to and from Los Angeles, three to and from LaGuardia, two to and from Newark, plus non-stop service to Cleveland and Charlotte, in addition to nearly all of the cities with non-stop service to Tulsa. (Southwest Airlines cities Phoenix, Las Vegas, and Kansas City, and Delta's Salt Lake City hub are the exceptions.) XNA did not get this airline service through massive public subsidy. The airlines serve XNA because there are homegrown businesses in the region that create the demand. As usual, Tulsa's Chamber of Commerce and "business and industry leaders" had the cart before the horse.

As everyone knows by now, the tragedy of Sept. 11, 2001, decimated airline travel and doomed Great Plains.

In short, it was a business deal that went sour, one that profited no one. Everyone, including the World, lost their investments. No one from the World had a say in management of Great Plains nor did the World have a seat on the airlines' board.

Great Plains was in serious trouble before September 11. Major airlines had already begun to fly two of the long-distance non-stop routes it had planned to serve and Northwest Airlines was putting the word out that it would start non-stop service from Tulsa to Newark. (And it did -- we took the non-stop to get to and from the Republican National Convention this summer.) Great Plains couldn't get the regional jet aircraft it needed to fly to either coast, and it couldn't get landing rights at Washington Reagan National Airport. It should have been clear well before Spetember 11 that Great Plains was not going to provide the promised non-stop service to the coast and therefore wasn't worthy of further public subsidy. But the Whirled continued to boost further public investment through its news and opinion pages.

The Tulsa Airport Authority and its sister authorities cooperated mightily to help Great Plains. Two governors pushed the idea; the Oklahoma Legislature overwhelmingly endorsed help with tax credits.

All the efforts weren't enough; Great Plains failed. Now the City Council, including two members who voted for the Great Plains procedure is crying foul.

Public relations firms and lobbyists who donated their time in return for stock are being pilloried; the World's owners are castigated for leading a community effort to bring better airline service to Tulsa.

If Great Plains had succeeded, the critics say, the original investors would have gotten big returns on their original investment.

But that depends on how successful the airline became. Frankly, no one expected it to do much more than provide service to Tulsa while breaking even. That was optimistic, it turns out.

The PR flacks and lobbyists who traded their time, energy, and connections for stock clearly believed it would pay off handsomely. As late as May 2001, Great Plains estimated that the airline would generate $144 million in revenue in its third year of operation. Great Plains Airlines, which began as little more than two attorneys, used stock to acquire supporters among the politically influential, who would use their influence to turn on the spigots of public finance. Rather than finding investors who believed in the concept enough to risk their own money, Great Plains found the experts in obtaining large quantities of OPM (other people's money) to put at risk.

If it had been successful, who would have reaped the financial reward? Would it have been the taxpayers of Oklahoma and Tulsa, who put the money up? No. The reward would have gone to these flacks, lobbyists, former legislators, and opinion leaders who put the pressure on to turn the public money loose.

Tulsans will hear a lot more lies and propaganda about Great Plains and the general airport operation.

We suggest our readers and the citizens of Tulsa look at all the facts.

Translation: "There's a lot more coming out that makes us look really, really bad. Please ignore it."

UPDATED April 23, 2013, to replace dead link to Wall Street Journal "Startup Journal" story with working link to a copy on the Internet Archive's Wayback Machine.

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In response to the City Council's Phase 1 Investigative Report showing World Publishing Company's involvement in the Great Plains Airlne scandal, the Tulsa Whirled's editorial board is in full spin mode. See HFFZ's initial comment on this scandal at Ha... Read More

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This page contains a single entry by Michael Bates published on November 22, 2004 1:26 AM.

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