Commuter airline facing millions in tax liens and lawsuit
Surf Air’s distinctive blue and white planes may soon disappear from Peninsula skies, but not because of continuing noise complaints from local residents or measures San Mateo County has imposed on the commuter airline at the San Carlos Airport.
The company that has been operating the airline’s planes says Surf Air owes it $3.1 million, and county officials say the company has also been slapped with bills for $2.33 million in unpaid taxes.
On June 19, just after Surf Air announced it had hired a new company to operate its planes, the previous operator, Encompass Aviation LLC, filed a lawsuit in United States District Court for the Southern District of New York. Several business news outlets have reported Surf Air is in serious financial trouble and the Encompass lawsuit says that by June 14, Surf Air owed it more than $3.1 million.
While Surf Air did not respond to requests for a comment on the lawsuit, it sent out a press release on June 20 saying: “The Encompass claims are not accurate, the lawsuit is without merit and Surf Air intends to defend itself vigorously. Surf Air is also considering counterclaims.”
Also on June 19, San Mateo County Public Works Director Jim Porter said in an email sent to the Board of Supervisors that the number of flights Surf Air flies in and out of the San Carlos Airport would be temporarily reduced as the airline transitions to a new operator, Advanced Air LLC.
“Surf Air is facing liens imposed by the I.R.S. for a total of $2.33 million in unpaid taxes,” Mr. Porter said in the email.
He said the county is working with attorneys “to discuss how this announcement impacts operations at the San Carlos Airport.”
In a statement, Encompass president and CEO Steve Harfst, said: “We have been happy to serve as Surf’s primary carrier in the state of California. But we’ve come to the breaking point. Surf has repeatedly allocated its revenue on things other than paying in full for flight operations and aircraft maintenance.”
In the past year Surf Air has announced a number of acquisitions, the purchase of several aircraft and expanded service to Texas and Europe. Surf charges $1,950 per month for an individual membership within California for “unlimited” flights that are limited only by how many reservations may be held at one time. An individual membership that also includes flights in Texas is $2,450 per month. The company also sells group memberships and by-the-flight memberships.
The Encompass lawsuit says that within four months of taking over the operation of Surf Air’s fleet of turbo-prop PC-12 planes, the airline stopped paying its bills.
“Despite collecting revenue from its members, Surf failed to pay the contracted costs for flight operations and related maintenance responsibilities undertaken by Encompass,” the statement from Encompass says.
Surf Air announced that Advanced Aviation LLC, based in Hawthorn, California, would take over from Encompass on June 14. The suit says that action also violates the agreement Encompass has with Surf Air.
Complaints about airport-related noise began pouring in to the county-owned San Carlos Airport soon after Surf Air began using San Carlos for scheduled flights in June 2013. The airline offers unlimited flights for a monthly fee and has had as many as 45 scheduled flights a day to or from the airport.
Because Surf Air’s planes carry fewer than nine passengers, under FAA regulations the company may operate out of the San Carlos Airport even though it is a general aviation — not a commercial — airport. The airport is considered a “reliever airport,” keeping small planes out of busy regional airports such as San Jose, San Francisco International and Oakland.
Those who live and work under Surf Air’s flight path claim the PC-12s are extraordinarily loud and annoying, and the complaints became so frequent that San Mateo County hired several employees and contractors to deal with them.
In June 2017, the San Mateo County Board of Supervisors voted to budget more than $1 million in spending over three years as part of a multi-pronged plan crafted in response to the wave of complaints. The board approved hiring an airport communications specialist to work with the public and pilots; hiring a contractor to investigate new air routes that avoid residences; and putting in place an automated flight tracking system tied to the noise complaint system.
Complaints fell after Encompass started routing many of the planes over San Francisco Bay, although residents of Sunnyvale and nearby areas said that strategy moved more noise over their homes. But residents say Surf Air flights still wake them up many days.
The Encompass lawsuit says that in the last six months of 2017, Surf “continued to demand full performance from Encompass in exchange for little to no payments.” It says the company “pleaded with Encompass time and again beginning in mid-2017 to continue to provide flight operations and maintenance of the aircraft so that Surf’s business would not come to a screeching halt.”
The lawsuit says that “Surf made and broke promises over and over again, and imposed on Encompass to be patient and allow, among other things, Surf to grow its cash balances to make its business seem more profitable.”