Flight Capital

How SFO officials used city employees and money -- in apparent violation of state and federal law -- in a very odd attempt to privatize the airports of Honduras

The consortium took over the airport in October and (as reported in a previous column, "Flying Blind," March 28) proceeded to earn the ire of the Honduran business community by immediately jacking up the fees importers pay for processing their goods through customs. But fee hikes were the least of SFO Enterprises' problems.

SFO Enterprises had a problem that many new businesses face -- undercapitalization. SFOE (as it is often called in government documents) did not have a source of start-up funding beyond the pitifully insufficient $10,000 voted by the San Francisco Board of Supervisors. Fees from consortium members would not cover required spending for years. To solve the cash-flow problem, SFO bureaucrats embarked on a truly brazen series of maneuvers.

The simplest, yet most costly, portion of these maneuvers involved the unauthorized use of city personnel and travel expenses. City files are now packed with expense vouchers that airport officials, who are city employees, submitted for work conducted on behalf of SFO Enterprises. These officials spent city money to educate themselves in the ways of international airport privatization -- while boasting during conference round-table discussions of plans for their new private corporation.

In July 1999, for example, the city paid about $5,000 for Fermin to attend the fourth annual Latin American Airport Privatization Development Summit in Miami, a sum that does not include Fermin's salary and benefits during this time. The city paid for John Costas to attend a similar conference in Paris the following year. Martin, likewise, attended a similar conference, at city expense, in Rome. City employees were regularly reimbursed thousands of dollars for travel to Honduras. A Nov. 28, 2000, city travel-advance check made out to Gerardo Fries in the amount of $3,035 is typical of dozens of such SFO Enterprises- related city cash requests made from 1997 through 2001.

Airport officials were selective in providing accounting documentation, making it difficult to assess the full amount of city money that was spent. But judging from the privatization contracts city officials attempted to win around the world, combined with the level of spending reflected in bills, checks, and receipts I was able to view, it's apparent that these officials spent more than a million dollars on SFO Enterprises' behalf.

As helpful as city travel advances were to SFO Enterprises, they did not provide the kind of walking-around money necessary to run a foreign business operation. Costas and Fermin turned to the giant San Francisco-based law firm Morrison & Foerster LLP, which does around $1 million each year in legal work for San Francisco International Airport. Legal billing statements often contain line items that refer to expenses or (in this case) disbursements; these billings usually seek repayment for sundry office expenses such as photocopying fees, messenger services, and the like. But on legal bills submitted to the airport by Morrison & Foerster and another law firm, Felipe Danzilo y Asociados in Tegucigalpa, "disbursements" could total thousands of dollars, and involve a lot more than copying and delivery.

For example, a Morrison & Foerster bill dated Oct. 11, 2000, seeks city reimbursement of $13,986 to "set up office for SFO Honduras," the SFO Enterprises subsidiary in Honduras. Morrison & Foerster submitted dozens of bills with Honduras-related disbursements; the payments total well into the six figures. Such disbursements through law firms appear to have been used to pay SFO Enterprises' on-the-ground expenses in Honduras for several months. (An attorney with Morrison & Foerster specializing in aviation law refused to comment for this story, referring information requests to the airport.)

Legal bills weren't the only method of washing airport money into Honduras. In one case, mentioned previously, Fermin took the odd step of requesting a city cash advance of $40,000, to be made out to airport employee Steven Zehr; according to records at the City Controller's Office, Fermin said the money was needed right away to rent an apartment and to buy a car in Honduras. The Controller's Office approved this highly unusual request.

According to now-retired Controller's Office Accounting Operations Manager Harold Guetersloh, Fermin did not provide an accounting of how the $40,000 had been spent for several months, despite repeated requests from the Controller's Office that he do so. Finally in April, six months later, after I began requesting city documents on SFO Enterprises' finances, the airport's International Services Division returned the $40,000 to the city, using a different check than the one originally issued. The airport officials hadn't needed the $40,000 after all, was the explanation Guetersloh says he was offered. Other documents, however, say SFO employees began using a Tegucigalpa apartment not long after the $40,000 cash advance.

In the end, documents obtained from the city controller and SFO make it clear that airport officials diverted, at minimum, hundreds of thousands of city resources into SFO Enterprises, a private, for-profit corporation.

When a scenario similar to the SFO Enterprises situation was described to Sandra Michiokau, a spokeswoman for the state attorney general, she declined comment, but referred me to state law saying that a public official may not, without authority of law, appropriate public funds "to his own use, or to the use of another."

As Costas and Fermin solved their Honduran cash problem by diverting city funds, they faced a crisis in the area of human resources. For reasons not entirely clear, Costas had a difficult time keeping managers on board. Though Seid did not speak Spanish, officials at the Honduran Public Utilities Commission and elsewhere say the former Boston airport official forged a relatively smooth working relationship with the consortium partners, government officials, the press, and the Honduran business community. Seid left early this spring, to be replaced by Steven Zehr, who had previously worked for the Hong Kong Airport Authority. According to people who worked with him in Honduras, Zehr's brief tenure as manager of Honduras' airports proved a disaster.

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