But that didn't prevent the school from continuing to recruit new students--and many of them are now on the hook for up to $70,000 each in student loans, for flight training they never received.
One of those suing is firefighter Paul Mischel, 39, a 19-year veteran with Northwest Fire District.
"I'd heard the ads on the radio: 'You can be flying in 18 months.' It sounded too good to be true," Mischel said. "But everything promised was attainable. It's not like they were offering to make elephants fly."
The first sign of a problem: Even though flight training requires hundreds of hours in the air, there were no helicopters available for the first three months when Mischel started in the summer of 2004, he said. After that, the school provided one helicopter and two flight instructors for 80 students.
Part of the school's attraction was its lure of full-time employment for top students after training. "People who grumbled were warned that they were on a perpetual job interview if they wanted to work for Silver State," he said.
Mischel, who owes more than $50,000 on his school loan and has spent $5,000 to $6,000 in legal fees to sue the company, said he spent 28 months in the program, but completed only half of it by November 2006, when he dropped out in disgust.
"In my class of 80 students, only eight or 10 got a private license"--the first of five required licenses and ratings--"and only seven had become Silver State employees" by the time of the lawsuit.
Silver State's former president and CEO, Jerry Airola, started the company in Henderson, Nev., with one helicopter in 1999, and eventually enrolled some 2,500 students in more than 30 schools in 15 states, three of them in Arizona (Mesa, Glendale and Tucson).
In a release sent to students from Silver State's public-relations firm, MassMedia, the company cited the "unprecedented downturn in the U.S. credit markets, which severely curtailed the availability of student loans for the company's flight academy students and resulted in a sharp and sudden downturn in new student enrollment."
On Feb. 4, 2008, the company filed for Chapter 7 bankruptcy. In its filing, the company estimated that it had 5,000 to 10,000 creditors and $10-$15 million in liabilities, but only $50,000 in assets. Because of the bankruptcy, the fraud lawsuit, filed by Mesa attorney C. Randall Stone and Georgia attorney Peter C. Lown in U.S. District Court in Phoenix on behalf of the 18 Arizona students, is on hold.
The whereabouts of Airola, a high-powered Republican fundraiser and failed candidate for Nevada's Clark County sheriff in 2006, are unknown. His Las Vegas bankruptcy attorney, Jeanette E. McPherson, of the Schwartzer and McPherson Law Firm, referred calls to MassMedia, where a representative had "no idea" where he was. Silver State's Las Vegas headquarters no longer has phone service, and its Web site has been shuttered.
Michael Berger, the attorney representing more than half of Silver State's former students as creditors in the company's bankruptcy, said he believes Airola is AWOL. "Let me put it this way: I don't know anyone who's talked to him."
Lon Enos, 39, an ex-forklift driver who had worked for 16 years for Costco before he quit to attend Silver State, did get work with the company as a certified flight instructor, but was fired after six months when a student of his rolled the helicopter's throttle, which can damage the rotor system.
He now commutes between Tucson and a flight school in Virginia, where he's still an instructor, which is considered an entry-level position for a pilot.
"My biggest problem now is that I can't get a job anywhere else because of having Silver State on my résumé," Enos said, explaining that other employers who hire pilots shy away from the school's name.
Like most students, Enos enrolled at Silver State after attending a glitzy sales seminar during which Airola pitched the dream of earning more than $100,000 a year after 18 months of training.
Enos' retirement account, with about $90,000, paid the bills while he attended flight school full-time. "We were told that if we had good availability, we'd get more flying time. So I quit my job and spent my 401(k) plan over two years, and didn't get done any sooner."
Berger represents 1,330 former Silver State students--including 28 from Arizona--as creditors in the company's bankruptcy proceedings.
"A lot of people seem to be investigating Silver State. The biggest problem is that students are stuck with these large loans. Co-signers are on the hook as well," he said.
In Florida, where Silver State had 200 students (including one who was killed along with an instructor in a March 2007 crash), U.S. Sen. Bill Nelson has described the school's practice of arranging large, unsecured student loans and then delivering little as a pyramid scheme. He has called for the Federal Trade Commission to investigate.
"With the crunch in the consumer credit market, (Silver State) ran out of banks to get loans," Berger explained. "It depended on a stream of new investors to keep everything going. Without that, everything fell apart."
Berger said he's suspicious about a pattern of early loan disbursements to Silver State--sometimes, the entire amount of the loan was paid to the school after only three months--and that his firm is looking into any unusual relationships between Silver State and its lenders.
"I haven't seen student loans like this before," he said. One of school's private lenders, Student Loan Xpress, is no longer in the business.
"With a federally guaranteed loan, if the school closes, you can discharge the loan, but there's no equivalent for these private loans," he added. Silver State was a "part 61" flight school; only flight schools certified by the Federal Aviation Administration, or "part 141," are eligible for federal financial aid.
Last fall, the private-equity firm Eos invested $30 million to purchase a 60 percent ownership share in Silver State. The firm typically invests in companies that have an annual revenue base between $30 and $500 million, according to its Web site.
"Some of the folks at Eos walked away with millions" according to testimony recorded by the trustee in the company's Nevada bankruptcy case, Berger said. "Airola walked away with $13 million. Then in February, the company's in bankruptcy." (For more on the first meeting of Silver State's bankruptcy creditors, see Berger's Web site.)
One of Berger's Tucson clients, Britta Penca, 42, was about a third of the way through her training, with 90 of 200 promised flight hours, when the school abruptly shut down. The paperwork for her $69,900 loan through Student Loan Xpress and American Education Services shows three disbursements to Silver State in February, April and July 2007--comprising the entire amount of the loan, disbursed in the first five months of what should have been 18 months of training.
"It was a disaster--shock, loss, my own personal tsunami," Penca said about the school's closing. "I'd given up everything--and suddenly, (the school) didn't exist." She paid another $4,000-$5,000 to finish her private pilot's license through another school.
Penca is considering leaving the Tucson area to finish at a part 141 school, where her loan will be federally backed. "It's a little scary. We don't know what's going to happen with the current litigation. It seems risky to take out another loan--and pay for (the training) twice, with interest."