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April 12, 2012

Direct Air bankruptcy goes to Chapter 7

PLATTSBURGH — A judge has approved a request to convert the Direct Air bankruptcy from a Chapter 11 reorganization to a Chapter 7 liquidation.

U.S. Bankruptcy Judge Melvin Hoffman issued the order in U.S. Bankruptcy Court for the District of Massachusetts on Wednesday afternoon, following a hearing on the expedited motion by the U.S. trustee appointed to oversee the original bankruptcy proceeding to Chapter 7.

Many of the reasons set forth for the conversion are contained in a motion filed with the court by Chemoil Corp., Direct Air's largest creditor, in support of the trustee's request.

Chemoil filed its motion in response to a response by Southern Sky Air and Tours LLC d/b/a Direct Air's response to the trustee's motion.

UNDERFUNDED ESCROW

Chemoil noted Direct Air didn't dispute facts included in the trustee's motion — that the airline had no current operations and its prior management team resigned on or about March 13, among other specific points.

In addition, the debtor acknowledged that several significant obstacles would have to have been overcome before flight operations could be restored. That includes securing access to sufficient funding, airports, aircraft, fuel and payment processing.

Documents filed by Chemoil show Direct Air had a net operating income of $2,751,760 in the first half of 2011. Additional documents revealed the company had a $9,908,789 net income loss for 2011.

Chemoil also refers to the ongoing U.S. Department of Transportation investigation into Direct Air's abrupt shutdown and an underfunded escrow account that was supposed to cover ticket refunds and other costs.

Direct Air had requested additional time to reorganize, saying it was premature to switch to Chapter 7 status on the basis it would not be able to do so. Chemoil alleges there are millions of dollars missing from the escrow account, even though those funds were supposed to remain there until after flights were completed.

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