Trouble At Markair -- Owner Neil Bergt Creates Financial Turbulence: Airline Lands In Bankruptcy Court Again
ANCHORAGE - It's been more than 11 years since the first MarkAir passenger jet took off from Anchorage International Airport to Fairbanks, but the troubled airline remains in a holding pattern, still unsure of where it's headed.
In part, that's due to the airline's financial problems.
In part, it's due to MarkAir's mercurial owner, Neil Bergt.
Ever since Bergt, 59, converted his airline from a cargo hauler to a passenger carrier in 1984, the airline has demonstrated a propensity to change strategic directions in mid-course, confounding industry observers and frustrating travel agents and passengers.
"Making changes and taking risks have been necessary for the past four years, and they will continue to be necessary for the next four," Bergt said in a recent interview.
Bergt's debt-ridden airline filed for Chapter 11 bankruptcy protection in April, the second time it has sought such protection in three years. Shortly thereafter, Bergt filed for personal bankruptcy.
"If something's not working, you don't stick around to find out why. You do something about it," he said. "This is not nuclear physics."
It's that attitude, that bravado, that helped Bergt, a former milkman turned bush pilot turned airline executive, transform a successful but small cargo hauler - then known as Alaska International Air (AIA) - into Alaska's largest airline and one of the state's largest employers.
But it was that same attitude - that willingness to change directions so quickly - that also helped land MarkAir in hot water, say some industry analysts and former Mark Air executives.
The changes have been frequent and significant.
Some have been simple, such as starting new routes and ending old ones without much notice, which has won MarkAir the reputation among travel agents of being the "destination du jour" airline.
Some have been confusing, such as converting from a full-service airline to a low-fare carrier and back again and back once more. Today, MarkAir serves no hot meals, sells soda for 50 cents a can and offers the poorest service among all domestic carriers, according to Consumer Reports Magazine.
And some changes have been dramatic. MarkAir pulled out of the Alaska market earlier this year, completing a haphazard evolution that took an upscale Alaskan airline and turned it into a low-fare carrier flying exclusively in the Lower 48 with a hub in Denver.
Bergt defends the moves, saying MarkAir can't commit itself to a particular route or strategy when it's committed to making a profit.
"Neil is very much a maverick," said one former MarkAir executive. "He's a creative, innovative man. He just doesn't have the patience to study anything or to wait anything out."
Both traits - creativity and impatience - were evident in MarkAir's relationship and subsequent fallout with rival Alaska Airlines, which played a key role in MarkAir's undoing.
Shortly after launching MarkAir in 1984, Bergt negotiated an agreement with Alaska Airlines that allowed Alaska's passengers in the Lower 48 to connect directly onto MarkAir's flights to Dillingham, Kodiak, King Salmon and Dutch Harbor. Passengers were channeled to and from Anchorage via Alaska Airline's Anchorage-Seattle route.
It was a model that Bergt had originally envisioned in 1981 when he was chairman and chief executive of Western Airlines. At the time, he tried, unsuccessfully, to engineer a merger between Western and Wien Air Alaska that would have connected Wien's flights in Alaska with Western's in the continental United States.
The Alaska-MarkAir arrangement proved to be a huge success. It gave MarkAir access to Alaska Airline's computer reservations system and to its promotional muscle, including Alaska's highly successful frequent-flier program. In addition, Bergt secured a strong revenue split with the rival airline.
The relationship eventually soured, though, in 1991 when Alaska approached MarkAir about changing the revenue split. Bergt refused. Bergt then said he wanted to sell MarkAir to Alaska.
When Alaska balked, MarkAir suddenly announced that it would start its own Anchorage-Seattle run, sparking a fare war with Alaska that cost Alaska roughly $85 million and landed MarkAir in bankruptcy court.
"That (breakup) was probably the beginning of the end for MarkAir," said John Delano, deputy director of the Alaska Industrial Development and Export Authority (AIDEA), which in March turned down Mark Air's request for $40 million in loan guarantees.
MarkAir hasn't seen a profitable year since. In the three months leading up to its bankruptcy filing in April, MarkAir reported a loss of $11.8 million, the worst first quarter in its history. Last year, the airline reported a loss of $10.2 million. The year before that, it lost $21.8 million, according to figures submitted to the U.S. Department of Transportation.
Bergt said MarkAir had to respond - and quickly - with its own Seattle-Anchorage route because Alaska "set out to kill us."
Larry Evertson, who resigned as MarkAir's director of accounting in 1993, said MarkAir's management team spent months going over projections and models to see what they could do about the Alaska situation.
But despite the deliberations, Bergt "jumped the gun heavy duty," Evertson said.
Bergt launched a makeshift Seattle-Anchorage run in November 1991 - instead of February 1992 as the management team had discussed - to take advantage of the Dutch Harbor fishing season, Evertson said. But that was before additional 737s that MarkAir ordered had arrived and before the airline could get its own reservation system fully in place.
Immediately, Alaska terminated the code-share agreement and "by next May or June, we were so far over our heads," he said. "In a lot of ways, I think Neil was trying to force Alaska's hand to buy him out."
It took a year for MarkAir to emerge from bankruptcy proceedings, a time of crisis, which shortened the airline's already short-term decision-making process, former MarkAir executives said.
"I'd like to say there was a five-year plan on the table, but that wasn't the case," said Leslye Langla, who served as MarkAir's vice president of sales and marketing during that time. "It was just a chaotic environment."
Things grew worse after the bankruptcy filing, she said, as Bergt became less willing to listen to ideas that weren't his own.
"It was like working for an (emotionally) abusive parent." She noted that during one meeting, she saw Bergt throw a marble bookend at one of his vice presidents in frustration. Others recall that Bergt once hurled a pen at one of his formercontrollers during a meeting.
A tough taskmaster
Bergt, who admits he'd prefer to sell the airline, says he's no saint.
"I'm a tough taskmaster and a disciplinarian, but I know I'm good at crisis management," he said.
When Bergt took over Western, he fired nearly half of his vice presidents, cut more than 500 management positions and ordered his remaining executives to work 10 hours a day, six days a week.
Henry Dautrich, MarkAir's former director of revenue accounting who was fired by Bergt in 1993, said it's difficult to get Bergt to listen because "MarkAir's planning is all in (Bergt's) head."
But it's not impossible, he said.
In 1993, for instance, Bergt agreed to launch a promotion that offered Alaska residents three round-trip tickets in exchange for their permanent fund dividend (PFD) checks, a bonus of about $950 that Alaska residents receive annually from the state.
It was a creative and successful way to boost short-term cash flow, which would be copied by a number of competitors.
But soon after, Dautrich said, Bergt "panicked" and raised the exchange to four round-trip tickets and then to five.
Giving out so many tickets, combined with the fact that the airline had begun an aggressive push into the continental United States, cut into already-thin operating margins, said Michael Harder, a pilot with MarkAir and one of its creditors from its second bankruptcy filing.
As a creditor, Harder is pushing for a change in MarkAir's management and removing Bergt as chairman. Earlier in the year, an employee stock ownership plan was proposed that would have removed Bergt. But that plan died when AIDEA turned down MarkAir's loan guarantees.
Today, MarkAir is a shadow of its former self. Its fleet of 15 jets has been reduced to six, and the airline has changed course - again.
Shortly after it filed for bankruptcy protection this time, MarkAir - whose slogan proclaims "Alaska is Our Home" - announced it was abandoning Alaska altogether and would move to Denver to become a Lower 48 carrier flying east-west routes from Seattle to New York.
It's a risky move, analysts said.
Ernest Arvai, president of the Arvai Group, an aviation consulting firm based in Windham, N.H., said United Airlines controls the Denver hub and could, at any moment, "quash" MarkAir like Alaska did in Seattle.
"It's not as if MarkAir is in the financial position to withstand another protracted fare war," said Arvai, whose group served as consultants to AIDEA.
"Frankly, I've been puzzled by (MarkAir's) strategy from day one," said Bill Whitlow, an analyst with Pacific Crest Securities in Seattle. "The last place you'd go is Denver, one of the most expensive airports to fly out of, if you're in a situation like MarkAir."
But Tom Medland, MarkAir's vice president for sales and marketing, insists that the low-fare, low-frequency strategy will work. He believes MarkAir's presence in Denver is large enough to generate profits but is small enough to stay clear of United's way.
Thus far, MarkAir pilots report that their planes have been full.
And MarkAir officials said their summer bookings are higher than expected.
A federal bankruptcy court judge recently allowed the airline to continue flying until Aug. 31, when the airline must return to court to prove it can fly profitably.
At the time, Bergt was so elated by the decision that he boasted - characteristically - that MarkAir could expand its Denver operations to 20 planes and may even return to Alaska.
Behind the face
If Neil Bergt is anything, he is a survivor.
Born in Tacoma but raised in Anchorage, Bergt has become a near-mythical figure in the Alaskan business community. He is loved and hated with equal vim. His persona is that of a modern-day Alaskan frontiersman.
Some of the flamboyance has dissipated, though.
Gone are the excessively high salaries. The airline can no longer afford to pay them.
In 1988, MarkAir reportedly paid Bergt a salary of $3.15 million.
"The financial drain resulting from such high levels of compensation . . . puts the company at risk," Bergt admitted in an affidavit in 1989 during his divorce from his second wife, Judith, according to the Anchorage Daily News.
Based on divorce court filings, which are now sealed, the Daily News also reported that MarkAir's parent company, Alaska International Industries (AII), built a lavish 16,000-square-foot estate, called La Cuesta, for Bergt and his wife to live in, then financed its sale to him in 1986.
The estate, which sits on 10 acres north of San Diego in Rancho Sante Fe, cost $6.9 million and was one of several perks Bergt and his wife received through MarkAir and AII.
Last year, Bergt's salary from MarkAir was $269,588.36, according to bankruptcy schedules filed in Anchorage.
In May, Bergt filed for personal bankruptcy to protect himself from the IRS, which is seeking to collect $2.7 million in back excise taxes that MarkAir owes.
After receiving so much criticism in the past few years, Bergt has become contemplative about it all.
"Business is like golf," he said, ever-confident that MarkAir will succeed. "You keep a scorecard. If you make a profit, you're considered a winner, a genius. If you lose money, you're an idiot."
In May, shortly after the company announced that about half of its 1,200 workers would be laid off, 200 Mark- Air employees gathered for a goodbye party in Fairbanks.
Someone brought a cake displaying a plastic model of a MarkAir plane, its nose crashing into the frosting.
Someone else brought a whole pig to roast in the backyard.
They nicknamed it Neil.
KEY DATES IN THE HISTORY OF NEIL BERGT AND MARKAIR ---------------------------------------------------
-- May 1971: Neil Bergt is named president and chief executive of Interior Airways, a 24-year-old cargo carrier that just reorganized under Chapter 11 bankruptcy protection.
-- May 1974: Bergt makes Interior Airways, now renamed Alaska International Air (AIA), profitable and forms holding company Alaska International Industries (AII).
-- November 1981: Bergt creates Eagle International Corp. and makes a $50 million bid to purchase Wien Air Alaska from Household International.
-- December 1981: Bergt is named chairman and chief executive of Western Airlines. Simultaneously, Western announces it plans to purchase Wien from Bergt's Eagle International for about $80 million in stock once Eagle purchases it from Household.
-- October 1982: Civil Aeronautics Board approves merger of Western and Wien, but only if Bergt surrenders control of AIA for at least 18 months.
-- October 1982: Household sues Bergt for backing out of deal to purchase Wien.
-- April 1983: Bergt resigns from Western.
-- March 1984: Bergt launches MarkAir in Anchorage, offering passenger and cargo service, but only to Alaskan cities.
-- November 1991: MarkAir expands outside Alaska, establishes Anchorage-Seattle route, triggering fare war with Alaska Airlines and other carriers.
-- June 1992: MarkAir files for Chapter 11 bankruptcy protection.
-- November 1992: Bankruptcy court judge allows MarkAir to continue operating by expanding further into the Lower 48.
-- June 1993: The airline emerges from bankruptcy proceedings, offering service from Alaska to New York.
-- April 1995: MarkAir files for Chapter 11 bankruptcy protection again, announces it will no longer fly in Alaska and lays off an estimated 600 of its 1,200 employees. It establishes new hub at Denver International Airport.
-- May 1995: MarkAir staves off IRS attempt to force liquidation. Bankruptcy court judge allows MarkAir to continue flying through Aug. 31 when it will have to show that it can fly profitably.
Copyright (c) 1995 Seattle Times Company, All Rights Reserved.