Clear, the dominant U.S. Registered Traveler service until it suddenly shut down in late June, could resume operations by the end of the year if a Bay Area investment banker’s efforts to restructure the debt of its parent company are successful.
Clear, operated by parent Verified Identity Pass, charged its approximately 200,000 subscribers $199 a year for access to accelerated lines to security checkpoints at 18 U.S. airports.
Under a pending agreement with Verified’s principal debt holder, Morgan Stanley, Verified would be acquired by Henry Inc., an Emeryville, Calif.-based private-equity firm led by Kurtis Fechtmeyer, the former managing director of FBR Capital Markets.
"The airports are all enthusiastic about having the service back," Fechtmeyer said. He said he expected that most of the 18 participating airports would continue with Clear’s service and added that 90% of the Clear customers he’s surveyed would keep the service.
Clear, which began operations in 2005, had grown its customer base by about 50% during the year prior to closing.
What made its growth remarkable was that it came despite a slump in business travel and despite the refusal of Transportation Security Administration regulators to accelerate screening times for Registered Travelers, even though Clear and its smaller competitors, FLO and Vigilant Solutions, performed background checks on members and compiled biometric information such as fingerprints and iris scans.
The Registered Traveler program, along with the TSA, was created by Congress shortly after the 9/11 attacks and the resulting increases in airport security. The intent was to allow such travelers to pass through security checkpoints with minimal screening.
"The real tragedy in all this is that Clear and everyone else, except TSA, fully expected RT members to be put through the same FBI criminal history background check as airport workers must pass to have badges and gain access to secure areas," said Robert Poole, a Clear customer and director of transportation policy at the Los Angeles-based Reason Foundation.
Clear, whose airports included San Francisco, Denver and Orlando, got the TSA to test shoe scanners as an alternative to requiring shoe removal, but it was unable to get further concessions.
As a result, it negotiated with airlines and airports to offer conveniences not related to security, such as faster lines, a limitation that effectively reduced it to competing with the airlines’ premium-passenger privileges.
The company will continue to lobby the TSA for security-related concessions.
Fechtmeyer said, "We will take the time and research necessary to get the TSA comfortable that any security-related conveniences they provide us are more than offset by the increased security represented by biometric identification and background screens" by Verified Identity Pass.
Stephen McHale, a partner at the Washington law firm Patton Boggs and former deputy administrator at the TSA, said that such efforts highlighted the need for the TSA to re-examine its airport security policies for all travelers, not just those who sign up for premium services.
"Since 9/11, we’ve piled them up one on top of the other," McHale said of security rules. "And some have become redundant."
TSA spokeswoman Ann Davis said that the shoe scanners the agency tested for Clear customers were never used because they didn’t meet TSA standards.
She also noted that shortening lines for Clear customers was an issue covered by agreements between Clear and either the airlines or airports.
However, Verified’s original plan, and by all accounts the plan originally envisioned by Congress, assumed that Registered Travelers would pass through special TSA checkpoints, avoiding screening lines altogether.
Davis declined to say if the TSA would consider future security-related concessions pitched by Clear.
Even without the cooperation of the TSA, however, Clear customers’ wait times were about 20% shorter than those of other travelers, leading Fechtmeyer to predict that, whether or not the company won any further TSA concessions, it would grow fast enough to reach profitability in the near future.
Fechtmeyer added that the company, whose roots are in the Silicon Valley, is hoping to boost business by signing up same-day customers at the airport. To that end, it hopes to develop the technology and a business model enabling the company to gather the necessary biometric and other information quickly, while meeting the security standards of both the company and the TSA.
Though Verified ceased operating Clear, it never declared bankruptcy.
Fechtmeyer, who will be the company’s CEO if the deal goes through, said he first became familiar with Clear when the company approached FBR for financing. His prior private-equity-backed startup experience includes East Peak Advisors.
Most of Verified’s senior management would remain in place, Fechtmeyer said. The company’s founder and former CEO, Steven Brill, was pushed out of the company earlier this year by some investors and debt holders.
