MYRTLE BEACH, SC (WMBF) - More than a half million dollars of taxpayer money were paid to an airline because it did not make the money it expected. WMBF News is digging into the numbers and the profit guarantee deal for WestJet unlike any deal in Horry County history.
The contract to land WestJet Airlines in Myrtle Beach in 2013 was an easy one to sign if you asked then acting Horry County Council Chairman Gary Loftus.
"All they're asking is for a safety net just in case things don't go the way everyone thinks they will go. The odds of any of this happening are between slim and none somewhere, so it was more or less a no-brainer," Loftus said back in February 2013.
That safety net he described was up to a million dollars of taxpayer money to be paid to WestJet as a revenue guarantee if the airline didn't make a 15 percent profit.
"Of the million dollars, we probably won't spend a penny," Loftus assured when the deal was signed.
Horry County Council was confident, voting 10 to 1 in favor of the deal with the Canadian airline, which brought air service from Canada for the first time in the summer months.
According to the airport, the seats were relatively filled, higher than expected with 69 percent capacity. That brought almost 4,700 passengers the Grand Strand between May and October 2013.
County Chairman Mark Lazarus, who was elected to the position after the WestJet deal, said because of a change in WestJet fares, the revenue wasn't adding up, and the county was going to owe money. "They felt the need because of the market possibly that they needed to lower their rates, and that put us in this position. But they had a guarantee behind them, so why wouldn't they."
When WMBF News asked Myrtle Beach International Airport how much WestJet changed the fares, they give us snapshots of fares from different months, it shows the rates didn't change much, so what went wrong?
A WestJet spokesman wouldn't comment about the fares or the agreement, but when WMBF News asked about the million dollar revenue guarantee and whether they could have done anything to reduce the cost to taxpayers, he gave this response via email:
"We do not launch new services and enter new markets with the intention of operating below expectations. Quite the opposite. We have every expectation we will succeed and do everything we can to make that happen. The short answer is no, I don't think there is anything we could or should have done differently...We are looking forward to next year."
But going back to last year, there were problems getting monthly passenger reports from WestJet as promised in the contract.
Myrtle Beach Area Chamber of Commerce President Brad Dean met with Horry County Council before members voted to approve the deal, but sard he was not familiar with the details of the profit guarantee agreement until he saw the contract later on.
"We all know going forward that we would do it much differently," Dean said.
In August, Brad Dean, former Airport Director Mike Lapier and others flew to Calgary to meet with WestJet officials.
"We went up there met with WestJet fact-to-face, and part of that discussion was to see how WestJet had marketed, but they had to show us how they spent money and where they spent money, what types of media did they use and was this a Myrtle Beach message or we just simply included in a lot of what WestJet did," Dean said.
In the end though, Horry County ended up owing $551,000 to WestJet.
When WMBF News Anchor Michael Maely asked Chairman Mark Lazarus if the county had been duped, he said, "I wouldn't go as far as saying they got duped, I just think that they were probably presented some numbers that made sense at the time, and I don't think anybody realized they had the ability to lower the fees. I think everybody thought that was gonna be the structured fee going forward for the airline, but obviously that wasn't the case."
Most of the money owed, $500,000, would come from Accommodations Tax money fronted to WestJet by the Chamber of Commerce.
"The dollars that were invested in this WestJet arrangement had to go to marketing. The only question is when and where they'd be spent, and the community didn't lose money. We actually got a positive return on investment. We just didn't generate as much return on investment as we would have hoped," Dean stated.
Dean said by conservative figures, the return on investment for the WestJet pay off is 10 to 1. Though Dean said without that debt, that money could have gone to advertising in markets with a better return, a more common return he says is more than 100 to 1.
The other $51,000 payoff to WestJet came from county hospitality fees. "It could go to public safety initiatives, it could go to beach cleanup, or other things like that," Chairman Lazarus admitted.
Michael Maely: You verified that they did do some advertising, but once they got the check from the county for 550-some grand, they don't have to say this is how we're gonna use this specific money, they just hey that's part of our deal, that's part of our profit guarantee?
Mark Lazarus: Well it had already been spent for advertising, they already actually spent the dollars, wrote the checks.
Michael Maely: Do we know how much they spent on advertising?
Brad Dean: Yeah it was over a half a million dollars, we reimbursed them.
Shortly after that trip to Canada, the county fired Airport Director Mike Lapier, but Lazarus said he believed it wasn't related to WestJet.
Mark Lazarus: That's really a personnel issue, a lot of other issues too...
Michael Maely: Hindsight what it is, let's say you were chair of the council when this vote went up, would you have supported it?
Mark Lazarus: It's hard to say because I don't know that data that was supported, but I wouldn't support a revenue guarantee to any private enterprise.
Michael Maely: More cautious if you hear guarantee?
Mark Lazarus: Not gonna be more cautious, I'm just not gonna do it. There won't be anymore revenue guarantees coming through, I can tell you that.
And that's the outlook Paul Price had last February. The councilman voted against the WestJet deal. "I don't know how else to say it any plainer, A smart businessman is not gonna walk off and leave a million dollars on the table, it ain't gonna happen."
Price was the only councilman to vote down the deal. "I don't like losing a penny of tax payer money, but again, I'd never question my fellow council members. They do it with good intentions."
Good intentions, but a profit guarantee deal Lazarus and Dean say they've never seen here before, and likely won't see again.
Brad Dean commented, "Hindsight's 20/20 and we should learn a lot from this, and one of the things we did learn is we can grow tourism by investing in places like Canada, but we all know going forward that we would do it much differently."
Gary Loftus, the previous acting chair, said based on the information they were given last year, it was a good project. He added that the expense is offset by the visitor spending.
Councilman Harold Worley, who also voted in favor of the deal as chairman of the Administration Committee, said he apologizes to the taxpayers for not researching the revenue guarantee more closely and for letting the county down.
WestJet resumes flights earlier this season, starting in March to take advantage of golf season, and they're flying this year without any profit guarantee.
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