Free Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS ____________________ No. 06-211-T (Judge Victor J. Wolski) JAMES R. THOMPSON, Plaintiff, v. THE UNITED STATES, Defendant _____________________

*************************************************************** ORAL DEPOSITION OF JAMES R. THOMPSON VOLUME 2 ***************************************************************

ANSWERS AND DEPOSITION OF JAMES R. THOMPSON, produced as a witness at the instance of the Defendants, taken in the above-styled and -numbered cause on the 24th day of April, 2007, A.D., beginning at 8:52 a.m. before Andrea Reed, a Certified Shorthand Reporter in and for the State of Texas, in the offices of Winstead Sechrest & Minick, located at 1201 Elm Street, Suite 5400, Dallas, Texas, in accordance with the Federal Rules of Civil Procedure and the agreement hereinafter set forth.

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A P P E A R A N C E S FOR THE PLAINTIFF: MR. STUART M. REYNOLDS, JR. Winstead Sechrest & Minick 5400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270 (214)745-5360 (214)745-5390 (fax) FOR THE DEFENDANT: MR. JEFFREY R. MALO MR. STEVE FRAHM U.S. Department of Justice P.O. Box 26 Ben Franklin Station Washington, D.C. 20044 (202)305-7539 (202)514-9440 (fax)

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I N D E X Appearances...........................................Page Exhibit Index.........................................Page Stipulations..........................................Page Examination by Mr. Malo...............................Page 56 58 59 59

Signature and Corrections.............................Page 205 Reporter's Certificate................................Page 206

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E X H I B I T No. Description

L I S T Page Marked Page Ident.

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Response to Information Request from Mountain Air Charter, LLC to the Internal Revenue Service.. Pilot Proficiency Certificates.. Mountain Air Charter, LLC, Letter of Compliance, Federal Aviation Regulations, Parts 43, 91, 119, 135....................

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P R O C E E D I N G S THE REPORTER: 9:21 a.m. It's Tuesday, April 24th, 2007,

Do you have any stipulations or agreements for the

record before I swear the witness? MR. REYNOLDS: Rules. MR. MALO: yesterday's deposition. MR. FRAHM: Actually, Mr. Thompson has already And it's a continuation from No, we're taking this under the

been sworn, so I think we can just continue from there. JAMES R. THOMPSON, having been first duly cautioned and sworn to testify the truth, the whole truth and nothing but the truth, testified on his oath as follows: EXAMINATION BY MR. MALO: Q. This morning I have a few more documents that I would If I'm

like to just have identified and entered as exhibits.

not mistaken, I believe this is Exhibit No. 20 I'd like to have identified. Mr. Thompson, can you identify this document? (Deposition Exhibit No. 20 was marked.) A. I believe this is a response to an information

request made by the Internal Revenue Service. Q. Ask you to clarify. Is it a response made by the

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Internal -A. Q. A. Q. A. Q. A. No, a response by Mountain Air Charter -To an inquiry from -To an information request. From the Internal Revenue Service? Yes. Right. I haven't seen it for a while, but I think that's

what this is. Q. Okay. And does it appear to be a true and accurate

copy of response to that inquiry? A. Yes. MR. MALO: as Exhibit 21. (Deposition Exhibit No. 21 was marked.) Q. documents? A. Q. A. Q. These a Pilot Proficiency certificates from Simcom. And whose certificates are they? They are mine. Do they appear to be true and accurate copies of your (BY MR. MALO) Mr. Thompson, can you identify these I'd like to have the following marked

certificate of completion of Simcom training? A. Yes. MR. MALO: as Exhibit 22. I'd like to have the following marked

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(Deposition Exhibit No. 22 was marked.) Q. document? A. Yes. This is the Mountain Air Charter Letter of (BY MR. MALO) Mr. Thompson, can you identify this

Compliance submitted in connection with the Part 135 application for Mountain Air Charter. Q. A. Q. And is this a true and accurate copy -Yes. -- of your Letter of Compliance submitted with part

of your 135 application? A. Yes. Page 27 is missing. MAC 1527 or we skipped a

sequence when we stamped it. MR. REYNOLDS: I have Page 27.

(Discussion off the record at 9:26 a.m. for less than a minute.) A. Yes. Anyway, the answer is, yes. MR. REYNOLDS: this Exhibit 22? MR. MALO: Okay. I believe it's all one Jeff, this is all one exhibit,

document if I'm not mistaken. A. Q. I think it is, yes. (BY MR. MALO) Okay. Now, that we've identified

quite a number of exhibits, I would like to discuss some of them in some detail in connection with some of the questions that we covered yesterday. And to recap some of our discussion

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yesterday, I'd like to just clarify my understanding of some issues. Mr. Thompson, yesterday did you tell us that you were not qualified for insurance purposes to fly the Pilatus when you first -- when Mountain Air Charter first owned the vehicle? A. Q. Yes. And I believe you said it was a 200-hour flight time

requirement for you? A. Yes, I believe that's what it was. We can look at

the insurance policy to see. Q. Okay. And, Mr. Thompson, was it required for you to

fly the Pilatus for Mountain Air's business? A. Q. Air? A. Q. Yes. And you stated yesterday that you found out about the I fully expected to and I did. You fully expected to at the inception of Mountain

insurance requirements just a few weeks before delivery of the aircraft? A. No, the insurance requirements changed a few weeks I had started working on

before the delivery of the aircraft.

the insurance issue right after 9-11 and was led to believe that the requirement would be 25 hours and that I would have $10 million worth of liability insurance. That changed kind of

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almost at the closing table.

You know, I don't know whether it

was the insurance company's fault or whether it was the broker's fault for not adjusting my expectations earlier. At the time that I expected 10 million of liability insurance and 25 hours of what I call SOE experience, supervised operating experience, that was consistent with what the market was particularly for somebody with the number of hours that I had. at the time. I had did some cross-checking to make sure

And then it, you know, literally almost at the There wasn't a lot of room to

closing table when it changed.

maneuver, so I took what I could get right then. Q. changed? A. Yes. Underwriting -- aviation insurance underwriting Were any reasons offered as to why the requirements

backed up considerably in the wake of 9-11 because most of the large insurers had exposure to the events of 9-11. particular was one of them. AIG was another. USAIG in

And underwriting

levels backed up across the board.

Now, I think they backed up

earlier than that, and I think the broker was concerned about me jumping ship and running and hiring another broker and trying to canvas the market differently. So I suspect that the

broker sandbagged a little bit and did not adjust my expectations earlier. Q. Just for the sake of clarity of the record, can you

identify the name of the insurance company that provided

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insurance for Mountain Air during 2000 to 2003? A. I think it might have been W.L. Brown. Did we -- we

entered that as an exhibit yesterday, didn't we? Q. A. We have the policy. And your question is who was the broker or who was

the underwriter? Q. Both. Just for the sake of clarity in the record,

you referenced broker and you referenced the insurance company. You referenced USAIG. If you could just identify these parties and their roles. A. Yes. Air Sure was the broker, and the broker's name And I don't know what's -- the first year's

was Mark Vaughan.

policy, it was written by USAIG. Q. A. Q. A. Q. So the first year the insurance company was USAIG? That's correct. And the broker was Air Sure? Yes. Okay. Mr. Thompson, let me ask you a few other

questions related to discussions we had yesterday. Can you explain how to determine what the total number of hours are on the Pilatus PC-12? A. Yes. There is a Hobbs meter, that's H-o-b-b-s, on

the airplane that is activated when the wheels leave the ground and de-activated when the wheels touch the ground. And it

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records the number of hours -- in effect, the number of hours that the wheels are off the ground. Q. Is there any one log that would record total time for

the plane, the aircraft itself? A. Q. A. Yes. Which log would do that? Well, there would be entries in the airframe log, the There is electronic information that is recorded

engine log.

by the airplane itself that -- I wouldn't say that it backs up. It provides a different set of data -- relating to how long the airplane is in the air, how fast it went, what altitude it was at. I'm trying to think if there's anything else. Well, and

then there's the Hobbs. Q. And for 2002 and for 2003, if you're able to identify

the total number of hours that the aircraft was in use, would you be able to identify the percentage or an estimate of the time that it was in use for your personal use versus in use for Mountain Air business? A. Q. A. sheet. Yes. And how would you do that? Every flight in the airplane was recorded on a trip Trip sheets, I think, we provided. Those were done

contemporaneously.

And then that was rolled up into a

spreadsheet different than my logs spreadsheet -- it was a Mountain Air Charter spreadsheet -- where we accounted for

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every hour on the Hobbs meter; and how many landing cycles; how many engine cycles; where the airplane went; and the nature of the flight, whether it was Part 135 or whether it was a SIFL flight and who the pilot was. Q. Okay. Is that spreadsheet what we've identified as

Exhibit No. 9? A. Yes. There's some columns missing. There's the

engine cycles and landing cycles and fuel used and things like that. Q. But that's the meat of it right there. To the best of your knowledge, you said that this

exhibit is missing some columns of some information that I just requested. To the best of your knowledge, is that information Is that

provided in additional documents that we have? supplemented anywhere else? A. That looks like it. THE REPORTER: said, Mr. Thompson. THE WITNESS: THE REPORTER: said. I'm sorry. That's --

I didn't understand what you

I just didn't understand what you

Would you please repeat it? MR. MALO: He said that this document looks like

it could be. THE WITNESS: Yeah, I couldn't quite see it, so

I thought it was either my personal log or the Mountain Air Charter log.

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A.

Now, the Mountain Air Charter log looks like this

except that it's got columns. MR. FRAHM: A. Q. A. Q. A. Q. A. I'm sorry. "This," you're pointing to what?

The -Exhibit No. 9?

(BY MR. MALO) Yes. Okay. Okay.

We'll follow up on that --

-- on that question in a little bit. But it goes from the trip sheets, which are

contemporaneous to the Mountain Air Charter log, which is sometimes done a month in arrears. And then that information

can be further backed up with EIS, electronic -- or engine information system data that is recorded by the airplane electronically. Q. Okay. I'd like to talk to you about some of the Yesterday we

destinations that we discussed yesterday.

discussed one trip in particular with Mr. Travis in which Mr. Travis described that there were several overnight trips in which he was present and which you were present. A. Q. Yes. One of these overnight trips involved a series of And

flights from California to Colorado to Taos, New Mexico.

Mr. Travis told us that the destination for the night was a private home, a rental home or a leased property that you had
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leased. Can you tell us about that leased property? A. Let's see, this is 2002. It's a property that --

it's a residential property. located just outside of town. Seco. Q.

I still lease it till this day, It's in a town called Arroyo

Do you lease it on an annual basis, or do you lease

it short-term periods during the year? A. Q. A. Q. trip? A. That trip was -- that was a fairly -- I think my At that time, it was short-term. Now it's continuos.

Was it what you would consider vacation property? Yes, second home vacation. Would you characterize that trip as a recreational

recollection is that that was a trip to California, which then went up to Oregon, which then we kind of came back in a more or less direct line. That was an hour-building trip. I mean, if

you look at -- well, maybe you can't tell by the log, but the stops were very brief. It was like overnight. If the

overnight didn't work out because we hadn't make reservations, we just made up another destination, kind of kept going with the idea of doing just a big circle and building hours and coming back. Q. trip? Can you define what you mean by an hour-building

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A.

Tom wanted time in the airplane, and I needed time in So --

the airplane. Q.

And Tom wanted time in the airplane for his

familiarity and comfort level with the aircraft? A. Q. He wanted to fly the airplane. And you wanted time in the aircraft for the sake of

satisfying the 200 hours requirement that the insurance company imposed on you -A. Q. A. Q. That's correct. -- shortly before receiving the plane? Yes. Okay. And were you both able to count the hours on

those flights as -- on this or any other hour-building flights, were you able to count time towards your requirement and Mr. Travis's requirements that he have familiarity with the aircraft? A. Well, he wasn't required to count any time. He just

wanted to spend more time in the airplane.

And Tom's attitude He didn't care In fact,

was, you know, based on his airline experience.

whether he flew in the left seat or the right seat.

when we did multiple approach trips where we would go out to Tyler or to Waco, we would just flip control of the airplane back and forth. You can legally fly that airplane -- unlike

some airplanes, you can act as pilot in command from the right seat in that airplane.

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And we would -- he would do -- fly one approach and then hand it off on the go to me -- on the go-around to me, and then I'd fly approach, and we'd flop back and forth like that. So, you know, he was satisfied. I think I flew a couple He

of those legs in the left seat, and he was happy with that.

didn't care as long as he was in the airplane and got a chance to talk more about the airplane and, you know, do whatever it was that he -- you know, that he felt good about. Q. Was there any business purpose or any requirement

that in order to conduct these hour-building flights, either for Mr. Travis's purpose or for your own, was there any reason that you needed to involve multiple destinations, flights of long duration, would Mr. Travis had been able to -- well, please answer -MR. REYNOLDS: and shoot it, please. MR. MALO: Yes. It had too many -Would you take that question out

MR. REYNOLDS: MR. MALO: Q. (BY MR. MALO)

Allow me to rephrase. Was there any business purpose for

hour-building flights to involve multiple destinations over a long duration? A. Q. A. Sure. Can you state the purpose? The -- there were two ways to accomplish what we did

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or what we wanted to accomplish.

One was to go out and

shoot -- I'm using vernacular here and I'll explain it if you need me to -- was to shoot multiple approaches on a repetitive basis. And we did do that. You'll see in the flight log trips The

to Waco and to Tyler where we did ten or 12 approaches. other way to do it was just take longer trips.

And rather than

have the workload be focused primarily on the approach and landing phase of flight, focus more on the en route stuff. And so on a trip like that, we'd sit there and we'd talk about -- we'd go through, you know, checklists, emergency procedures. We would talk about what we would do and

how we -- if we would do it differently single pilot than versus, you know, two pilots. The main issue there was, you

know, what items did we think had to be memory items on a checklist. Because if you're a single pilot and you're -- you

know, things are starting to go wrong, you can't be grabbing for a checklist in certain situations. And so, you know, what

you're going to consider to be a memory item is kind of a core element of that. So we used both longer trips, and that was -- I don't know how many we did -- but that was one of them. used trips of shorter duration. same purpose. Q. And was the business purpose in any way related to And we

I think they both served the

the destinations chosen --

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A. Q. A. Q. A.

No --- for these trips? -- not on that one. What dictated the destination? It was far away. I mean, you can kind of see that by

virtue of the fact that we really didn't have travel reservations made. There were a couple of instances where we

just showed up and there were no hotel rooms, so we just went to the next place. And it was just a question of picking a

spot, flying to it, going through the -- you know, talking on the way, doing the approach, in some cases landing, picking another spot and then just kind of working it around in a -kind of a big circle to, you know, end up where we started. Q. Would it be accurate to say that the destination was

irrelevant, that the point of the flight was training? A. The point of the flight was training, and I think

some of the destinations were chosen because we flew -- we were looking for weather to fly into. to Oregon. Q. Let me ask you about yesterday. We heard about I think that's why we went up

Adelaide (phonetic) Lake. A. Q. A. Q. I didn't. I think it was --

Whitehorse, Canada? Oh, Atlin Lake. Atlin Lake.

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A. Q. A.

Yes. I misspoke. Yes. I think that was our first Part 135 trip. Or

we could look, but I'm pretty sure that was the one. Q. that trip? A. Yes. Well, at least, Ned Mundell, myself, Willa I don't know. We'd have to look Okay. And do you recall who the passengers were on

Mundell, maybe Elise Mundell.

at the manifest, but I think that was it. Q. Okay. And what is your relationship to any of the

passengers that were on board? A. Ned Mundell is the -- is a fellow that hired me at He is on the board of directors. He is the

ORIX in 1990.

chairman of the audit committee. committee. Q. Mundells? A. Q.

He's on the compensation

And his family are friends of mine. Do you know what the purpose of this trip was for the

Yes, it was a fishing trip. And were you present as a guest of theirs on this

fishing trip? A. Q. A. Yes. Where did you go fishing? A -- Inklin River, which is a little south of

Whitehorse. Q. Okay. And who paid for that trip?

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A. Q. A.

Mundell. Was he given any kind of special rate? I'd have to go back and look. It would be -- I think

we gave you billing records. records. Q.

It would be in the billing

Once you obtained Part 135 certification, how long

did it take to develop a customer base? A. It took a while. You know, the first -- my initial It was charter broker

business strategy was not ORIX centered. centered.

And the idea there was to just get the airplane out

with the charter brokers and stir up as much interest as I could and see -- and develop a customer base that way. Q. Did you market Mountain Air Charter services to your

co-workers? A. Q. No. How did your co-workers -- or how did ORIX become

aware of Mountain Air services? A. Some things came up and -- or some -- I think there But either in

were a couple -- I'd have to look at the log.

late 2002 or 2003, they asked me to do some things that involved travel, and I asked them if I could travel this way and they were fine with it. started really. Q. A. And who at ORIX makes decisions about air travel? Well, at the time, I was chief executive officer of And that's kind of how it got

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ORIX Capital Markets.

And if somebody else was -- the CEO -- a

fellow named John Moss was CEO of the holding company, which is ORIX USA. And I might have been able to make -- I mean, that

was certainly within my authority to make that decision, but because it was -- the fact it related party transaction, I asked Moss to make the determination and he did. process evolved, it became more formalized. And as the

And there is now a

-- those decisions are made by the compensation committee after conducting an inquiry and they're renewed annually. Q. And since ORIX was first obtained as a customer, it

has annually reviewed its contract; is that correct? A. Q. Yes, every year. And what are the criteria that ORIX considers in

determining whether it would renew the contract? A. The overall -- well, the overall cost, the rate --

you know, how much just total dollars gets put in that direction, the rate, what the comparable rates are. Early on,

there was an inquiry directed at establishing or quantifying what the third-party liability might be if there were a problem, and they subsequently took out a wrapper, insurance wrapper, to mitigate that. Q. A. And they looked at the usage.

What do you mean by "look at the usage"? Well, they looked at where it went and why it went

and where it went. Q. I see. In determining the rates and comparable

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rates, how did Mountain Air Charter establish its rates that it would charge for all passengers and separately what it would charge for ORIX? A. I just called around and looked at what other guys

were getting for PC-12s and tried to -- with ORIX tried to bring it in just a little bit below that. And with other

people, it would depend on how good of a customer I thought they were. And then it was highly correlated to fuel prices.

In 2000 -- when we first started out in 2000 -- I think it was 2003, in July of 2003, I bought bulk fuel as a way of insulating myself from fuel price increases. And as that bulk

fuel purchase burned off and my fuel cost rate went up, I raised prices over time. Q. To what extent, if any, were operating costs a factor

in deciding rates? A. They were huge. The question -- I mean, you're The question is Margin against

definitely going to cover your operating cost. how much margin are you willing to work for.

your fixed cost and then margin against sort of your soft cost that are out down the road, which is, you know, your engine reserve and other airframes items that are time or life limited that are not necessarily cash expenses day one. Q. And when you talk about fixed costs and soft costs,

are you including overhead -A. Yes.

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Q. A. Q.

-- in soft cost? Yes. The initial rates you charged were sufficient to

cover these costs? A. Q. Yes. And how did these compare to the standard industry

fair level rates or SIFL rates for the record? A. Q. A. Or what? SIFL rates. Well, you're going to get me into an area beyond my But SIFL rates are rates established by

technical expertise.

the Internal Revenue Service as a means for calculating what has to be included in your income if you take a flight for personal purposes. Now, it's all different now. So that was a

period of time in which that was the methodology that you had to use. And I don't know how the IRS came up with that. I

mean, to me it looked fairly low, but that was the -- what you had to do to comply with the regulations. Q. Were the SIFL rates that you are aware of, were they

sufficient to cover your costs, operating expenses for flights? A. I never looked at them that way. I don't know. I'd

have to figure it out. Q.

They were fairly low.

Were they below what you would have charged paying

passengers that inquired their flights? A. Yes.

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Q. A.

Were they below what you would have charged ORIX? I'd have to do the math, but I wouldn't be surprised

if they were. Q. A. Q. A. When did you first consider starting a 135 operation? Middle of 2001. And why? Well, I had a -- I thought I could work. Charter

rates at the time were fairly high.

And I thought the -- I did

a lot of research at the time and I thought that the PC-12 would be uniquely qualified as a charter vehicle because of its low operating costs, one engine versus two; one pilot versus two on many other platforms. looked at it, did the math. Well, it was kind of that simple, I mean, the published operating

costs on it at the time, including reserves, were about $400 an hour and guys were getting 800. Q. Did you view the decision to start Mountain Air

Charter as an investment? A. Q. A. Q. A. No. Was it personal interest? It was a business decision. It was a business decision? Yeah. It wasn't -- when you say "investment,"

meaning you buy something and you think over time, you know, the asset is going to appreciate. stock. You know, it was more like a

I looked at it as you can -- you can buy this animal,

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it depreciates very slowly because the long-term currency trend on the Swiss franc, which is how the costs are figured, has been favorable against the dollar so that that would -- you know, the prices of the -- the U.S. dollar prices of the asset would tend to increase over time, which they have. And in the

meantime -- so that would cushion the depreciation that's sort of implicit or inherent in owning an asset with a fixed life, and that you could earn a rate of return on that asset that would be favorable on a cash basis. excluding the depreciation. Q. I'm a little confused by your reference to Swiss Are you -So in other words,

francs and depreciation. A. Q. A.

The airplane is made by the Swiss. I see. And so all of their input pricing is Swiss franc

denominated. Q. I see. I'd like to turn your attention, please, to

what we've identified as Exhibit No. 10. A. look at? Q. We'll get to that. First, generally, you identified Is there a specific page number you want me to take a

this document yesterday as a presentation that you were familiar with. And if I'm not mistaken, I believe you said you

prepared large portions of this document yourself. A. Yes.

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Q. A.

Can you tell me, again, what this document is? When my return was selected for examination, it was

for 2002, maybe 2003 initially -- in other words, maybe they were both selected at the same time -- I thought it would be a good idea -- it was clear from the questions that were being -that were coming back to me from the examiner that she had trouble getting kind of her arms around what this was. I mean,

she saw the big depreciation numbers, which is what I think got her attention. But this was an effort to kind of pull it all

together and explain to her -- put it in one sort of simple presentation to what the underlying thought process and the results were. Q. So is it accurate to state that this document was

prepared for the benefit of the IRS examiner examining your return? A. Q. Yes, I think that's correct. And this document then was prepared to support your

examination or support your positions on your examination of your tax return? A. Q. Yes. Okay. I'd like to ask you a couple of questions

about the document itself. A. Q. A. Okay. On Page 8 -Uh-huh.

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Q.

-- you state that "Mr. Thompson spent considerable

time ensuring this part -- FAA Part 135 certification was obtained as quickly as possible in 2002 because it was key and critical to MAC's viability, and MAC could not generate revenue until it was obtained and a pilot was hired and trained." Can you explain what you meant by this comment, specifically "could not generate revenue until a pilot was hired and trained"? Q. What training are you referring to?

Well, there are -- I'm struggling with it because But you

it's -- I think you're just looking for clarification.

can't just, in my estimation anyway, take a pilot in off the street, send them to Simcom, stick them in the airplane and say good luck. Particularly, you know, I viewed myself -- look, I But I viewed myself as somebody

had separate entities here.

that, if there was an accident, as somebody that would be attacked. As -- you know, because MAC didn't have -- I

didn't -- I had very low insurance, and I didn't put a lot of capital into MAC as a result. I mean, if you've gone through this stuff, you'll see that I funded the purchase of the airplane with a note from where I lent money to the Mountain Air Charter. didn't want to expose a lot of capital in it. But I always I

assumed that if something went wrong that I would be named as a co-defendant, and I thought the best thing to do was to make sure that I minimized the chances of anything ever happening,

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that that was the first line of defense; the second being, you know, corporate formalities and everything else. But -- so

it's -- it's just the kind of thing you look at it and say I'm not going to turn anybody loose, a single pilot, in an airplane like this flying passengers for hire unless I'm satisfied that this guy is not going to bend metal or hurt people. Q. Okay. On the same page, there's the statement is

made "Mr. Thompson spent considerable time in 2002 ensuring that MAC's newly hired pilot obtained the necessary certification with the FAA, in parentheticals, even accompanying him on virtually every flight in 2002." A. Q. That's true. Can you distinguish between the time necessary to

satisfy FAA certification and the time that you deemed necessary and proper to ensure the safety of your passengers and to insulate you from potential liability? A. Well, not as we sit here. I mean, I haven't It was all

really -- never really thought about it that way. sort of one to me.

You know, typically, the FAA requirements

are the easiest to address from the standpoint of, you know, complexity or things like that. I mean, insulating yourself or

trying to reduce the theoretical possibility of an accident is a much less -- much more, you know, difficult thing to quantify. takes. I mean, you just -- you do whatever you think it

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Q.

Can I ask you, is the following statement accurate

then, that considerable time may not have been necessary for FAA certification but considerable time actually modifies the time deemed necessary to train and properly ensure the safety of your passengers? A. I don't know. I mean, you're asking me to parse it a I was never

lot thinner than I've ever thought about it.

terribly concerned that Tom couldn't pass an FAA check ride. But, you know, guys pass FAA check rides all the time and have accidents. Q. I just want to make sure I understand. I think the

way that the requirements for the FAA have been described, they are fairly minimal compared to what, in practice, was a sound decision to ensure the safety of passengers and provide additional training. Is that an accurate statement? A. Q. Yes. And would it therefore be accurate that the

descriptive term "considerable time" was not necessarily related to FAA certification as it relates to flight time, but considerable time most likely related to the safety and training of -- or the additional comfort level and familiarity with the aircraft that Mr. Travis required? A. Well, I understand where you're trying to go, and I However, I don't

don't even think I mind giving you the point.

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like trivializing the FAA requirement.

It's -- that's -- I And how much is too

mean, you've got to meet that requirement. much?

In this last -- just by way of explanation, I took the And in

PC-12 off of the 135 certificate and put the CJ-3 on.

connection with that, we were required to do what I call proving runs with the FAA where you go out with the FAA and you fly for a couple of days, and they give you some scenario cards and they watch how you perform and they make a determination. It's something like a lengthy check ride. My pilot flunked that check ride. is too much? So how much

And that was a very, very expensive, not to

mention embarrassing situation for me as the -- sort of the ultimate person in charge of Mountain Air Charter, vis-a-vis the FAA. So I don't have a problem saying that there was a lot

of time spent trying to make sure that -- you know, that the situation was as safe as it could be. But I can't be drawn

into trivializing the FAA requirement, which is what I feel like you'd be asking. Q. That's fair. That's fair. Again, on the same page,

I believe -- I'm sorry.

No, on Page 2, the same Exhibit 10.

The stated goal of Mountain Air Charter was to achieve target earnings before interest, taxes, depreciation, amortization based on return of capital by building relationships with reliable and recurring air passenger customers, including executive business travelers and leisure travelers to vacation

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destinations throughout Mexico, U.S. and the Caribbean. Was that the intended original goal of -- or business model for Mountain Air? A. Q. A. Q. Yes. And in practice, is this what developed? No. Could you describe what Mountain Air's business

developed into once it was operational? A. Sure. In the early part of 2003, end of the first

quarter and beginning of the second quarter, ORIX asked me to take on a lot more responsibility, primarily in connection with other businesses that were underperforming throughout various parts of the United States. And I previously turned them down But by 2003,

as early as 1999 in connection with that request.

the situation had become a bit more acute for them, and they -it was a little tougher for me to say, no, to them. And, you know, the one thing that I didn't want to do having spent, you know, 24 years of my life doing it, is spend a lot of time going through airports on air carriers, particularly with the way things were after 9-11. And so I

said, well, you know, I'm willing to do this if you're willing to take some of the bite out of -- you know, the time friction out of the air travel component. a problem with it. And he said they didn't have

I mean, the business that I was running was

very healthy and was making a lot of money and would have been

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easy for them just to -- certainly within their means to do that. Q. If I could interrupt for a moment, when you said the

business that you were running, which business? A. Q. A. That was ORIX Capital Markets. ORIX Capital Markets? And they're a problem when the rest of the business

was acute enough that it was easy to make a decision that the time was forecast to cost them a couple of $100,000 a year, so they did. And, you know, over time, they became, you know,

really the most meaningful customer. Q. What was the decision that was forecast to cost them

a couple of $100,000 a year? A. Well, before they said, yes, they went back and

figured out what they thought it was going to cost them. Q. A. The decision to use Mountain Air services? Right, as opposed to commercial -- first-class And they concluded that it was a pay up But they were losing a lot of

commercial air travel.

of a couple $100,000 a year.

money outside of my business or outside of ORIX Capital Markets. And, you know, they wanted to do whatever it would

take to, you know, get me to do it. Q. Was your decision to take on a new role with ORIX in

any way contingent upon their consenting to this mode of transportation for you?

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A. that.

I don't know.

I never really thought of it like

I just didn't want to, you know, hunt through airports,

you know, to Atlanta and New York and Chicago, you know, other parts the way that I knew that I would have to in order to fix things. And, you know, in the end if they had said, no, you I mean, they

know, I probably would have done it anyway. needed someone to fix the problem. there because -Q.

But we never had to get

And would this be an accurate statement then, as

originally conceived, the business model for Mountain Air was to provide business and leisure travel services throughout Mexico, the U.S. and the Caribbean, but in practice what developed was a large majority of your business, if not exclusive, was dedicated to business travel; is that true? A. Q. Yes. And a large percentage of that business travel was

ORIX Corporation? A. Q. Yes. And in the course of traveling for ORIX Corporation,

did you ever pilot flights yourself? A. Q. Not revenue flights. So if you were traveling on Mountain Air services or

charters on official business for ORIX as a passenger for revenue purposes, you never sat in a pilot seat either as a co-pilot or as an instructee?

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A.

That's correct.

I sat -- I mean, it's legal to sit I

in the right front -- or in the front seat if you want to.

mean, if you've ever taken a commuter, sometime -- flown by a single pilot, sometimes if they're full, they'll stick you in the front seat. A caravan would be a good example. So there

were times when there was -- there was one time the gear didn't go down, and I came up and held the checklist for the guy. There was -- if the weather was really bad, I would sit up front with my Mike Holderreade in case he needed anything. I sat in the back, you know, 99 percent of the time. Q. So when you were a passenger on a revenue flight for But

ORIX Corporation, did you log any of those hours in your flight log as flight time? A. Q. No. On the same page of this presentation, you referred

to a two-prong strategy that was in part dependent on capturing reliable and recurring "King Air B-200 type" customers. sorry. A. That's on Page 9 actually. Yes. Oh, I'm sorry. I was reading part of it. I'm

There was some of it on 2. Q. A. Q. Some of it is on Page 2. All right. And you state that "Mountain Air Charter is Some of it is on Page 9.

successfully capturing a customer -- such a customer, ORIX USA Corporation. At the start ORIX USA Corporation flights

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constituted less than 50 percent of total MAC flights. that time, increased usage by ORIX USA Corporation has

Since

coincided with the move of ORIX USA Corporation's headquarters from New York to Dallas and Mr. Thompson's added national responsibilities. The move from New York increased the need for efficient executive travel option for flights originating from the new Dallas headquarters to locations nationwide. In describing the increased use of ORIX travelers, how many ORIX executives used Mountain Air services in 2002 or 2003? A. I don't know offhand. I mean, it would be evidenced

by the passenger -- the manifest and the passenger tax that were paid. Q. A. Q. A. Q. A. Would it be a small number, three, four, five? No, it was more than that. More than that? Yes. Would it be as large as 15? It could be, yeah. I mean, I don't think it's more

than that, but it could easily -- it could be that. Q. Do you have any idea what the possible field of ORIX Does ORIX

executives, how large that pool might have been? have a 100 executives or 20 executives? A.

Well, I don't really know what an executive is.

You

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know, there's -- we're fairly small. we had 600 employees.

We have -- at that time,

And the people that you might find on

the airplane would have been the general counsel, the CFO, the president and chief operating officer for ORIX Capital Markets, any of the heads of the businesses. We had a number of They

Japanese ex-patriots that were here in the United States.

occasionally flew usually with us if we were doing something together. estimate. Q. Okay. And were the ORIX personnel that flew on So, you know, 15 probably is not a bad number for an

Mountain Air Charter, were they all personal acquaintances of yours or were there individuals that you did not personally know through your employment with ORIX that flew on Mountain Air services? A. There were people that I never -- I mean, there were

-- I'm confused. Q. A. Q. That you had never met. There were customers that I had never met. Were there ORIX customers that you had never met that

used Mountain Air? A. No. I was the CEO of the business. I knew, you

know, basically everybody at a senior level and the CEO of the business. Q. A. Of which business, ORIX? ORIX Capital Markets at the time. And the sort of

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April period of 2003 was when I began a transition to being the CEO of the holding company, which is ORIX USA. Q. And if I understand you correctly, are you saying

that the only ORIX personnel that ever flew on Mountain Air Charter were people you knew personally through your employment? A. Q. Yes. Okay. You also make the statement that "the increase

in ORIX USA Corporation flights with MAC continues to squeeze out other potential MAC customers; nonetheless, this result is consistent with the overall strategy to develop relationships with regular and reliable customers. The headquarter move from

New York to Dallas has thus benefited MAC and has accelerated the realization of MAC's overall strategy." Yesterday, we discussed with Mr. Holderreade policies that may have been in place with MAC regarding potential scheduling conflicts with potential customers. you state what these policies are? MR. REYNOLDS: question. I object to the form of the Could

I didn't get the connection between whatever you But if the witness understands

read and what the question was. it, he can answer. MR. MALO: Q. (BY MR. MALO)

I'll rephrase. Specifically, in reference to the

statement that "MAC -- or the increase in U.S. -- ORIX USA

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Corporation flights continues to squeeze out other potential MAC customers. With specific reference to that statement, can you describe your scheduling policies where there is a potential conflict? A. Well, the policy was very simple. No pilot, whether

it was Mike or Tom or two subsequent pilots, has the ability to commit the airplane without talking to me. At the time, Mike's

statement referred to, obviously, a period in 2003 when I was working the charter brokers pretty aggressively. And he just

didn't -- he wasn't the nexus, so he had no way of knowing what was going on. So it was a very simple rule. If something

comes up, and I think the Gehan trip was the first thing that came up, you know, you just got to check with me before we book the airplane. Q. And if there was a potential conflict, what order of

priority was assigned to customers? A. Q. Usually we gave it to the customer. If there was a conflict between ORIX usage and a new

customer inquiring about availability? A. It would depend on how important the ORIX trip was.

You know, at that point, new customers were -- I mean, ORIX wasn't really kind of in the game plan, and so new customers would have been given priority. Q. And to the extent that you had personal use of the

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aircraft, if there was a conflict between your personal use of the aircraft and a potential customer, either ORIX or a new customer, what priority would be assigned? A. Q. I'd take the revenue. Okay. I'd take the customer.

And to the best of your recollection, that was

always the case? A. Q. Yes. Okay. You just mentioned that you were involved with

broker deals that -- depending on what was going on, depending on how important the ORIX business was. you mean by those broker deals? A. Most -- many charters -- I don't know about most. Can you describe what

But many charters are booked through brokers, kind of like insurance policies or anything else these days. But -- so

initially, anyway, I focused my efforts on getting -- becoming known to charter brokers. You know, we did some marketing here

in Dallas with travel agents thinking that it might be effective to, you know, pay -- because we paid commissions, and pay commission to travel agents much the way the airlines do, to get them to book flights within the State of Texas or flights that were still short but represented destinations that were a little bit more difficult to get to from Dallas, Kabul, for example, which at the time necessitated a connection through LA, which, you know, for a 750 mile flight is kind of an inconvenience, Santa Fe being another. So that was the plan

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initially anyway. Q. And when you referenced ORIX business that depending

on how important the ORIX business was would determine whether you would schedule new customers as priority over ORIX's business. What type of ORIX's business would take priority

over new customers? A. Well, that comment and, therefore, your question But

relates really to the period outside of 2002 and 2003. I'll answer it anyway because in 2003 there weren't any conflicts.

But generally, if it was somebody that we were

interested in -- and we did have a number of people that came through over the years that booked us quite a bit -- you know, we -- if it wasn't something really important, we could give it to them and do the trip on a later date. revenue trips than one. You'd rather have two

So, you know, if it was something that

couldn't be moved and it was important, then the ORIX's customer took priority. Q. In part the increase use of Mountain Air service by In your

ORIX is attributed to move from New York to Dallas.

role at ORIX, did you have any role in deciding to move the headquarters? A. Q. A. Yes. Can you describe that role? I was the one who came up with the idea in part But

because I didn't want to go to New York all the time.

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really the underlying motive was that they had a cost problem that I needed to work on. And one of the ways to take out a

lot of those costs was to get rid of the headquarters in New York. Now, I didn't -- ultimately, I didn't make the final

decision because their headquarters in New York was a Japanese decision that had been made, you know, 25 years ago, and it was something that they did not want to give up. The Japanese banks are there. They have a lot

of -- you know, we borrow billions of dollars from those Japanese banks. And they thought it was important to have a

headquarters there in the U.S. to -- for, say, some marquee value. And they thought it was important to be able to However,

maintain the relationship with the Japanese banks.

they had asked me to fix the problem, and I told them that was part of what they needed to do to fix that problem -Q. A. Okay. -- or at least that element of the problem, which was

a cost problem. Q. And when you refer to fixing the problem, that is the

other element I think that is attributed to the increase use by ORIX of Mountain Air Services, Mr. Thompson's added national responsibilities; is that correct? A. Q. Yes. And can you describe what these added national

responsibilities were?

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A. Q.

I can, but I have to go to the bathroom, first. Oh, let's take a break. (Break was taken at 10:22 a.m. to 10:30 a.m.)

Q.

(BY MR. MALO)

Mr. Thompson, you were in the process

of describing to me the big problems that ORIX had that were responsible for you taking on a national role with the organization. A. Q. A. Uh-huh. Can you describe what those problems were? Well, beginning in 2000 or 2001, they -- the company

I ran at that time was ORIX Capital Markets, and it was making money. And one by one, sort of, the other businesses in the That sort of culminated -- let me

U.S. started losing money.

just look something up real quick if that's all right -- in a situation in 2003. I'll give you the numbers in a second. Where in 2000 -- fiscal I

can't remember this stuff anymore.

year 2002, which was March of 2002, ORIX Capital Markets, for example, made 126 million pretax. And ORIX USA overall as a --

you know, even after taking that into account, lost 16 million. So that means they lost 65 -- maybe about 150 million in the other businesses. In March of -- fiscal year ended March of

2003, ORIX Capital Markets made $65 million, and they lost, you know, 90 million in the other businesses. problem that they were trying to fix. Q. And how were you to address this problem? And so that was the

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A.

Well, there were a number of problem areas.

There There

were cost issues, rampant everywhere in the businesses.

were margin issues in terms of the financial business that they were taking on, you know. And there were credit issues. There

were fairly serious credit issues.

Guys were doing deals that

they weren't getting a spread for them, the deals weren't working, so there were credit costs. And, you know, they sort

of needed to be addressed, you know, at a very high level, but also, you know, at a day-to-day level. I mean, they were decisions that in many respects that were sort of overarching and then there were, you know, who's doing what deals, why are they doing the deals that they're doing, you know, what do they think they're supposed to be getting paid for and how are they underwriting them. And

then there were operational issues that were kind of grandular (sic) in nature. Q. A. Q. And were you personally involved in deals? Yes. And was this a challenging role, this new role that

you took on? A. Yes, and, no. I mean, in terms of understanding what

the problem was and fixing it, no. Q. A. to do. In terms of correcting it? Yeah. I mean, it was just -- just something you had Here's the problem.

You looked at it, you said, Okay.

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How am I going to fix that problem.

Okay.

Typically, my

business plans consist of, you know, sort of one, two, three, and that's what it was. You know, cut costs, get the right

people in the right spots doing the right things for the right reasons. Q. A. Q. A. Q. Did it involve a lot of travel? Yes. Business travel? Yes. And you were personally involved with many of the

deals that needed corrections, then, correct? A. Q. A. Q. Most of them, yes. And were these time-consuming activities? Yeah, it -- it ate up time. Was it labor intensive? Did it require a lot of

hours from you? A. It did for the period from April 2003 until the first So there was about a nine-month period where it

part of 2004.

was -- it was -- you know, it was busy. Q. And by "busy," did that imply working more than

standard 40-hour workweeks? A. I have no idea. I mean, there were periods when I

worked a lot of hours, and there were -Q. A. What do you mean by "a lot of hours"? Well, a 60-hour week. And then there were periods

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where I worked a lot les