Records show Surf Air owes county $328,371 in taxes

According to an article in the Almanac on October 11, 2018 Surf Air is behind in their taxes.

by Angela Swartz

The commuter airline Surf Air has hardly been in the good graces of a vocal contingent of area residents bothered by its noisy planes flying overhead since it started using the San Carlos Airport. But the San Mateo County tax collector isn’t likely to be looking favorably on the company either, given that, according to public records, the airline owes the county hundreds of thousands of dollars in taxes.

The airline, which confirmed on Oct. 5 that it would resume flights at the county-owned airport later this month after a brief hiatus, owes the county $328,371.69 in taxes, according to county documents updated Oct. 10. Aside from financial penalties for not paying the taxes on time, county assistant tax collector Robin Elliott said she is not aware of nonfinancial penalties, such as not being able to use the airport.

Surf Air paid off $57,613.60 in 2017 county taxes. It still owes the county $7,407.14 for 2014 taxes, $91,521.17 for 2016 taxes, $79,364.48 for 2017 taxes and $150,078.90 for 2018 taxes, according to county records. The charges have penalties attached to the bills since Surf Air did not pay as of Aug. 31, according to Jim Irizarry, assistant assessor-county clerk-recorder and chief elections officer.

The county taxes Surf Air’s planes, which are considered business property. It’s a complicated formula, but factors that go into determining the business property tax are the value of the aircraft and how many hours the aircraft spends in the county, Irizarry said. The county controller’s office calculates the tax after the assessor evaluates the property value, he said. The tax collector levies the penalties, he said.

Surf Air could not immediately be reached for comment on the tax matter.

In August, the federal government reported that Surf Air owes $2.33 million in taxes. At the time, officials reported that Surf Air owed the county $131,371 for 2017 taxes and could owe more for 2015 and 2016.

Surf Air is “nearly at an end” of settlement negotiations with Encompass Aviation, a Surf Air spokesperson said in an email. In mid-June, Surf Air replaced Encompass Aviation LLC with Advanced Aviation LLC as its flight operator. Days later, Encompass sued Surf Air, claiming $3.1 million in unpaid bills.

Surf Air countersued Encompass, asking that Encompass return the PC-12 turboprop planes it subleased from Surf Air. Surf Air claimed at least $10 million in damages.

Two of the PC-12s are already back in the Surf Air fleet and the company expects to have them all back very soon, the spokesperson wrote. Steve Harfst, president and CEO of Encompass, declined to comment on the negotiations.

Surf Air has not settled on the number of flights it will operate out of San Carlos Airport when it returns later this month. In August, airport manager Gretchen Kelly confirmed that the airline had stopped using the airport, saying that the last record the airport had of a Surf Air plane landing there was June 29. She said at the time that workers affiliated with Surf Air indicated the airline may be back in October.

Kelly said on Oct. 9 that the airport hasn’t officially heard from Surf Air about its plans to return. The airline has an operating agreement with the airport in which Surf Air pays the airport a percentage of its revenue and landing fees, she said.

“We’re obviously concerned about our neighbors, but also trying to maintain a successful airport,” Kelly said.

The Surf Air spokesperson said that when the airline returns to San Carlos Airport, “flight operations will start slowly to make sure we are operating in ways that reduce our noise footprint. If all goes well, we’ll gradually increase the number of flights while continuing to operate out of Oakland Airport.”

A startup airline that began using the San Carlos Airport in June 2013, Surf Air offered unlimited flights for a monthly fee and scheduled as many as 45 flights a day in and out of the airport.

Read the article >>

Disruptive problems plaguing distruptive businesses

BY HARVEY RADIN SPECIAL TO LAS VEGAS BUSINESS PRESS

Local resident Harvey Radin has commented several times in the past on the disruption caused by Surf Air.  His recent article appeared in the Las Vegas Business Press.

September 10, 2018 – 4:24 pm

Disruption is thrilling, but there’s also a downside when innovative businesses become mired in disruptive problems. Dockless scooter and bike companies, for example, have to sort things out when people renting two-wheelers leave them scattered along sidewalks. You’re hearing about that as Lime Bike, Bird, Ofo and other companies roll into more cities.

“Although the devices align with local climate action goals and offer an affordable solution for the first and last mile of a daily commute, city officials have said they also create chronic nuisance issues,” according to Fox 5 San Diego.

Ironing out problems is a real pain for business firms. Fixing them can be time-consuming and costly. Companies may have to change procedures, tweak business models and spend time resolving issues with city government officials and activist groups. They may need to bring in legal counsel, lobbyists, marketing and public relations staff.

Human nature seems to play a role in some of the problems plaguing innovative businesses. In a story, last May, about “illegal short-term rentals,” CNBC, reported that Boston was “pushing back against properties being rented out as commercial operations.”

You hear about strangers staying a few days at a time making short-term rental properties seem like hotels. You hear about raucous parties.

Another innovative business model — a membership airline — has been in the news. According to an article in a Northern California newspaper, the Daily Post, the all-you-can-fly airline: “Surf Air began operating out of the San Carlos Airport in 2012, disrupting many residents who live along the planes’ flight path.”

The airline provides service at several airports in California and elsewhere, including San Carlos Airport, some 20 miles north of San Jose.

“Some residents” in one of the communities along the flight path said at a meeting in 2015: “They can no longer have conversations in their homes because of the planes.”

People in at least seven communities have been voicing complaints, according to articles in other news media.

The Daily Post also reported a possible reduction, recently, in the number of Surf Air planes over neighborhoods. The airline has denied “cutting back on flights … but residents say skies are less noisy.”

Whether people filing noise complaints, attending public hearings and holding a protest last year at the airport had an impact remains to be seen.

There’s nothing wrong with disruption. Shaking things up is OK as long as companies thoroughly evaluate how new business models might be perceived by people outside their customer base, and attempt to address problems before they spiral out of control.

Harvey Radin is a crisis communication expert who lives in Northern California. His articles about business, government and public opinion have appeared in a number of media, including Business Insider, Talking Biz News, American Banker, Times of San Diego and regional newspapers.

Surf Air flights down by 85 percent, but noisy legal fight continues

Commuter airline responds to suit claiming it owes former operator millions

July 10, 2018

Author: Barbara Wood/ Almanac

The skies over the Midpeninsula may have become quieter in the weeks since Surf Air, a commuter airline that uses the county-owned San Carlos Airport, announced it had changed the company operating its planes. But there’s a noisy fight going on behind the scenes.

County officials say the number of Surf Air flights going in or out of the San Carlos Airport fell by 85 percent after Surf Air replaced Encompass Aviation LLC with Advanced Aviation LLC as its flight operator in mid-June.

County spokeswoman Michelle Durand said that between June 17, when Advanced took over the flights, and July 5, Surf Air had only 51 arrivals or departures. In comparison, between May 17 and June 5, Surf Air had 338 arrivals and departures, Durand said.

An attorney representing the airline, Louis R. “Skip” Miller of the Los Angeles firm Miller Barondess LLP, said the airline will be back to its full schedule at San Carlos as soon as it gets its PC-12 turboprop planes back from Encompass, which has sued Surf Air claiming $3.1 million in unpaid bills. In the meantime, Miller said, Surf Air used the Moffett Federal Airfield for a short time but is now using the San Jose and Oakland airports for Bay Area flights that can’t land at San Carlos. The San Carlos runway is too short for most of the planes Advanced uses.

On July 5, Surf Air filed a response to the Encompass lawsuit, claiming Encompass has not returned its planes and owes Surf Air over $10 million.

Encompass isn’t the only one dunning Surf Air over allegedly unpaid bills. The federal government says Surf Air owes $2.33 million in taxes, and San Mateo County says Surf Air owes it $131,371 for 2017 taxes and may owe more for 2015 and 2016.

Miller said that “the taxes are being paid.”

The Encompass lawsuit, filed on June 19 in the United States District Court for the Southern District of New York, says in the last six months of 2017 Surf “continued to demand full performance from Encompass in exchange for little to no payments.” The lawsuit says, “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.”

The July 5 Surf Air response to the lawsuit states that Surf Air ended the agreement with Encompass because it “proved to be a subpar operator. Encompass demanded payments far in excess of the proposed contract rates, failed to provide full transparency for financial and operating data, and demonstrated an inability to handle managerial aspects of the business.”

“In June 2018, Surf Air discovered that Encompass had conjured a plan to oust management and take over Surf Air for itself,” Surf Air’s legal filing says.

The document states that Encompass tried to get two of Surf Air’s partners, key financial backer Partners for Growth and Stonebriar Commercial Finance, which leases Surf Air its planes, to replace Surf Air’s management with Encompass. “Out of concern for the business, (Partners For Growth) reached out to Surf Air and told management what Encompass was scheming. In the process, PFG reiterated its commitment to Surf Air,” the legal filing says.

“Given this treachery and intentional interference by Encompass with two of Surf Air’s key financial partners, and because of ongoing poor management of services and lack of financial transparency, Surf Air decided to, and did, terminate Encompass,” the filing says.

Soon after Surf Air began using San Carlos for scheduled flights in June 2013, complaints about the noise from its turboprop planes began to flood in. The airline offers unlimited flights for a monthly fee and has had as many as 45 scheduled flights a day using 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.

Read the full article in the Almanac >>

What’s happening at Surf Air? A press release after midnight, June 19, 2018 raises more questions than it answers (Updated)

Who is Surf Air in 2018 and what are they doing?

Short answer:
(1) They are late in tax payments to the County.  We hear that Surf owes $131,000.   Poor form by the County of San Mateo to let Surf pay late with no penalties.  We will try to find the agreement with Surf and see if there are remedies that the County is not pursuing.   It is unclear what taxes are owed.
(2) The IRS has a lien against Surf for $2,330,000.
(3) Former Surf business partner Encompass is suing Surf for $3,100,000.
Greater detail and links to articles follow:

Surf had a relationship with Encompass and it is now over. The County of San Mateo took the opportunity of the merger with Encompass to file a legal challenge to Surf’s business model. That legal challenge was previously on our home page and is now filed in the website. As we know, Surf’s entire business model and existence is predicated on a misapplication of the FAA’s Part 150 designation.

For those of you following this saga, the founder of Surf Air was eventually forced out and filed a lawsuit against Surf in 2015. From that lawsuit:
“One of the most significant hurdles to starting Surf Air was to obtain FAA approval to operate a passenger airline with regularly-scheduled flights under a part 135 certificate.” The Part 121 certificate is the appropriate one for this service. More detail is found in the FAQs 8 and 9. http://calmtheskies.org/faqs/

Also from the lawsuit and FAQ 9:
“At first the FAA expressed skepticism to Dave that his plan of operating such an airline was legal. The FAA told Dave it had never seen this regulation used in the way he was proposing. Dave had to walk the FAA through arcane FAA regulations to demonstrate the legality of his idea. Dave worked tirelessly with the FAA for two years to obtain FAA approval. Without approval from the FAA, Surf Air could not operate. After two years, in June 2013, Surf Air received FAA approval and had its inaugural flight.” Pg 8 – 9

This Part 135 certificate has allowed Surf to bring the volume of passenger service along with the problems. It is what differentiates Surf from the other businesses at KSQL. It is why complaints against Surf are not complaints against the airport and against other businesses at the airport.

Around June 2017 Surf Air became owned by Encompass Aviation. Encompass was the operator of Surf. They hired and trained the pilots. Surf does its own scheduling and marketing. On Flightaware.com the flights were listed under the Ident column as ROM—. If you clicked on the flight for additional information, you would see Empresa Aeromar as the airline. FAQ 26.

This Encompass acquisition provided an opportunity for the County of San Mateo to challenge the bogus business model of Surf – the use of Part 135 to engage in scheduled passenger service.

In 2017 Encompass filed an Application for authority to operate as a commuter air carrier. The County filed an Answer objecting to the Encompass Application. FAQ 27. The page reference below is from the County’s challenge to the Encompass Application. “Surf air separately contracts with operators – Encompass and Advanced- and dictates virtually all of the service – schedule, aircraft type, airport, and livery-other than the actual operation of the flight.” Pg 12

The gyrations of Surf get a bit complicated but are explained in the FAQs and the pdfs attached in the FAQs. A few excerpts:

“Thus Surf Air’s entire legal structure seems designed to circumvent direct regulation by DOT.” Pg 19

“If Encompass Application is granted, Encompass would facilitate the unauthorized operations of Surf Air.” Pg 18

“Surf Air’s operation is a classic indirect carrier operation and its “innovative” business model is simply a distraction.” Pg 12

…the arrangement between Encompass and Surf Air seems carefully designed to avoid DOT regulation of Surf Air.” Pg 18

Now, June 2018, Surf is on the move again. Encompass is out. They don’t like it.

Aviation Air is the new partner with Surf. If you look for the flights on Flightaware, the designation is WSN20. Further discussion can be found in this article:
https://privatejetcardcomparisons.com/2018/06/16/whats-happening-at-surf-air-a-press-release-after-midnight-raises-more-questions-than-it-answers/

Nice to know that we are not the only ones blindsided and confused by Surf behavior.

Encompass filed a Complaint 6/19/18 against Surf Air:
Encompass v. Surf Complaint

The Complaint alleges that Surf owes Encompass “more than $3.1 million for services already rendered.”
The Complaint in Section 4 references the County and DOT (Department of Transportation) Legal Challenge when in Section 4 “…Surf, facing uncertain future prospects and a federal agency investigation…”

Note the following Sections:

#14. Encompass seeks damages…including the more than $3.1 million that Surf owes in overdue payments for services rendered.

#23: “Surf was facing uncertain financial prospects and pending federal government investigations concerning its possible illegal activities.”

#24: “Upon information and belief, Surf determined that it could no longer provide air transportation services to its members.”

31: “….Encompass continued repeatedly to chase Mr. Shahani (Surf’s Executive Chairman) for Surf’s contractually owed payments”

#36: “Mr. Shahani sought to use Encompass’ cash to create a fiction for another creditor seeking overdue payments from Surf.”

#44: “Advance Air spent the weekend days of June 16 and June 17, 2018 soliciting Encompass pilots to fly for them.”

Read The Almanac’s news story dated June 22, 2018 >>

County Challenge to Surf Air (Encompass) Explained

On June 15, 2017 Encompass filed an Application with the Department of Transportation (DOT) “for authority to conduct scheduled passenger operations as a commuter air carrier.” The San Mateo County filed an Answer in Opposition to this Application on July 6, 2017.
This Answer is attached as a pdf. The material gets complicated.Summarizing Surf Air’s business plan, we quote Mr. Allen, “It’s a travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham.”

Some of the statements from the County Answer:

“Thus Surf Air’s entire legal structure seems designed to circumvent direct regulation by DOT.” Pg 19

“If Encompass Application is granted, Encompass would facilitate the unauthorized operations of Surf Air.” Pg 18

“Surf Air’s operation is a classic indirect carrier operation and its “innovative” business model is simply a distraction.” Pg 12

…the arrangement between Encompass and Surf Air seems carefully designed to avoid DOT regulation of Surf Air.” Pg 18

“County also requests the DOT to investigate (1) Surf Air for operating as a direct or indirect air carrier without the appropriate economic authority from DOT..” pg 19

There is a more detailed discussion of Surf’s operation in the County Answer. Here are some of the points with their page location if you want to follow the subterfuge as Surf tries to game the system so they can fly what we consider an “airline” (Part 121, flying scheduled passenger service, TSA) under rules (Part 135) applicable to a charter or commuter service.

In the beginning, and “as of late 2016, Surf owned and operated its own aircraft in intrastate travel, and therefore did not require economic authority from the DOT. When Surf decided to add interstate service, which would have made it a direct carrier, it changed its model, as described above, to cease direct operations itself and to use the services of other direct carriers to provide its service.” Pg 18 – 19

The County Answer claims Surf Air knew it would need permission from the federal government for interstate flights and that Encompass has applied for the federal approval “only to facilitate Surf Air’s plans.”

“Surf leased all its aircraft to Encompass and then contracted with Encompass to provide full use of those aircraft for Surf Air’s customers. Surf contracted with Advanced Air to provide its Las Vegas flights, and Advanced Air then sought economic authority to provide interstate service. Now Encompass also seeks economic authority to provide Surf Air’s interstate service.” Pg 19

Encompass, which in mid-May took over Surf Air’s flight operations, currently can only fly within California. “Surf air separately contracts with operators – Encompass and Advanced- and dictates virtually all of the service – schedule, aircraft type, airport, and livery-other than the actual operation of the flight.” Pg 12

Surf Air is a Direct Carrier. See page 12 – 17 for a good explanation of the why Surf would be considered a direct air carrier in spite of their claims otherwise.

Surf Air is a common carrier pg 17 and an air carrier engaged in interstate air transportation pg 18

“If Encompass Application is granted, Encompass would facilitate the unauthorized operations of Surf Air.” Pg 18

“…the arrangement between Encompass and Surf Air seems carefully designed to avoid DOT regulation of Surf Air.” Pg 18

“Thus Surf Air’s entire legal structure seems designed to circumvent direct regulation by DOT.” Pg 19

“County also requests the DOT to investigate (1) Surf Air for operating as a direct or indirect air carrier without the appropriate economic authority from DOT…” pg 19

This situation is discussed further in the website FAQ (26) Who Owns Surf Air Now?

Voice your opinion to the FAA by Oct 27, 2017

On Sept. 27, the FAA held what it called an informational meeting in San Jose as part of its consideration of whether to make what it calls the Bayside Visual Approach an official charted flight path.

The FAA says comments will be taken on the Bayside approach until Oct. 27, 2017 at 11:59pm. Comments can be emailed to: 9-awp-sql-cvfp@faa.gov or mailed to: Noise Concerns, AJV-W25, FAA, 1601 Lind Ave. SW, Renton, WA 98057. Comments may also be made on the FAA website, which also includes a number of presentations from the meeting.

It’s important to ensure that your voice is heard to counter opponents of the BVA or supporters of Surf Air. Please write to the FAA to ensure they understand you support the BVA.

Residents of Sunnyvale are in the Surf Air GPS flight path. They are justifiably upset with the Surf noise as we are. They feel that the approval of the BVA will be the end of Surf’s efforts to appease residents. We need to continue efforts to get Surf out of San Carlos airport.

According to the FAA, the Sunnyvale GPS slight path is 15 miles. Surf planes have flown 13 of those miles (86%) before the decision is made to continue over some of Sunnyvale and over Mountain View, Palo Alto, Menlo Park, Redwood City, and San Carlos with the GPS path or to fly east over some of Sunnyvale to Moffett Field and over the bay. Use of the BVA will still have significant flight time and noise over Sunnyvale. The effort to reduce Surf noise does not end with the BVA.

(FAA) To Host Meeting for KSQL Bayside Visual Approach

There will be a meeting on Sept 27, 2017 in San Jose to hear from the FAA regarding the Bayside Visual Approach. If you can’t make it to the meeting, please write to the FAA at the email address at the end of this announcement.

The Federal Aviation Administration (FAA) is planning to hold an informational meeting regarding the six-month operational test of the Bayside Visual Approach (BVA) that was conducted July 2016 through January 2017. The BVA informational meeting will include presentations by the FAA, County of San Mateo, and Surf Air/Encompass. The FAA’s meeting will be held on Wednesday, September 27, 2017 from 6pm until 9pm at the following location:

Santa Clara County Government Center
Isaac Newton Senter Auditorium
70 West Hedding Street, San Jose, CA 95110

To submit a comment on the Bayside Visual Approach please email
9-awp-sql-cvfp@faa.gov
or write to:
Noise Concerns
AJV-W25
FAA
1601 Lind Ave SW, Renton WA 98057.

For additional information regarding the FAA’s meeting please contact Mindy Wright, Manager, NAS Analytics & Environmental Team, Operations Support Group at mindy.wright@faa.gov.

New fees imposed at two San Mateo County airports

County board adopts $75 landing fee for charter flights at San Carlos, Half Moon Bay airports

The Mercury News
August 8, 2017

San Mateo County is introducing two new fees at two airports to address impacts from an increase in charter flights.

The county’s Board of Supervisors on Tuesday adopted new fees for charter flights into San Carlos Airport and Half Moon Bay Airport that will be paid by charter operators and passengers. Beginning immediately, all charter flights will be charged a $75 landing fee at both airports.

In addition, for a six-month trial period, passengers at San Carlos Airport will be charged $10 a day for vehicle parking. At the end of the period, the board will review the parking fee and consider whether to continue imposing it. The parking fee was rejected for Half Moon Bay Airport because it has sufficient parking. The board also adopted a new policy that will allow airport cameras to be used to verify incoming charter flights and then bill the operators.

The landing and parking fees together are expected to generate roughly $150,000 in net revenue annually, according to a news release. The landing fee will go toward offsetting increasing costs needed to maintain runways, taxiways and aircraft parking areas, as well as additional staffing and expanded hours of operations to deal with the increase in charter landings.

“While the total number of operations has remained steady over the last five years, commuter and charter operations have increased significantly in that same period,” the release states.

Surf Air is one of five charter operations that fly out of San Carlos, according to the airport. Of the charters, Surf Air runs the most flights by far and is the only one that has scheduled departures.

The board argued that the $75 landing fee is consistent with landing fees charged at several nearby airports. The fee is supported by the San Carlos Airport Association, the California Pilot Association and the San Carlos Airport’s aviation consultants.

Read the Article >>