Wednesday, April 16, 2003

Hawaiian Air
short on cash


By Dave Segal

Hawaiian Airlines, struggling to survive a severe industry downturn, said yesterday it lost $15.1 million in the fourth quarter and its available cash had dwindled to $29 million by the end of March.

But despite a deteriorating financial situation, the bankrupt Honolulu-based carrier also received two pieces of good news. The American Stock Exchange resumed trading in Hawaiian's stock this morning after a delayed opening. And Boeing Capital attorney Steven Hedberg said in a U.S. Bankruptcy Court hearing yesterday that the aircraft lessor was negotiating with Hawaiian for a two-week extension to the May 21 date after which Boeing Capital would be permitted to repossess its 16 planes.

Hawaiian Airlines, which filed for Chapter 11 bankruptcy last month, lost $58.3 million during 2002.

Hawaiian's stock, halted at $1.50 since its March 21 filing for Chapter 11 reorganization bankruptcy, opened at 45 cents after a 53-minute delay. The stock lost more than three-quarters of its value at one point before closing down 70 percent, or $1.05, at 45 cents on heavy volume of 366,600 shares. The stock, whose 52-week closing high is $4, fell to as low as 36 cents today.

Hawaiian, which lost $58.3 million for all of 2002, was under attack even before filing for bankruptcy. Most of the criticism has been leveled at its $25 million tender offer last summer that the airline said was meant to reward shareholders. Then on March 31 Boeing Capital filed a motion requesting that a trustee be appointed to replace management in overseeing bankruptcy proceedings.

The airline's annual financial report filed yesterday revealed that Hawaiian's $71.9 million in available cash as of Dec. 31 has dropped by $42.9 million during the past three months.

Richard Aboulafia, an aviation analyst with the Fairfax, Va.-based Teal Group, said the decline of Hawaiian's unrestricted cash is a worrisome trend. An additional $34 million in cash that Hawaiian said it had as of March 31 is restricted and unavailable to the airline since it is held as a reserve by a credit card clearing house as protection against flight cancellations.

"That's a pretty severe cash-burn rate and implies an acceleration," Aboulafia said. "That's unlikely to fill investors with confidence. But, of course, they'll take into account changing seasons and historical trends. If the first quarter has always been a dog, they might be understanding."

Hawaiian spokesman Keoni Wagner said the company was unconcerned about its cash position because the fourth and first quarters are traditionally the weakest of the year.

"The first quarter was a bit of an anomaly as a byproduct of filing Chapter 11," Wagner said. "There are increased holdbacks on the part of credit card companies that are a one-time phenomenon that we would expect over time would be relaxed. Those are offset, to a certain extent, by the relief provided under Section 1110 (of the U.S. Bankruptcy Code) that relieve us of aircraft rent payments for 60 days. The recognition that we're moving into the two stronger periods of the year gives us confidence that our cash position is comfortable."

Still, industry experts expressed concern that Hawaiian might be in danger of going out of business if it doesn't get its operations turned around soon.

"Chapter 7 (liquidation) is a very real possibility in my view," said Peter Walsh, vice president of Dallas-based Mercer Management Consulting's global aviation practice. "The only way for Hawaiian to avoid a Chapter 7 is certainly for its senior shareholders, like (major investor) Randy Smith and (Hawaiian Chairman and Chief Executive Officer) John Adams to put the money back in they took out," he added, referring to the more than $17 million that the majority owners made from the tender offer.

"No. 1, the idea of taking money out on behalf of the shareholders of an insolvent company under the best of circumstances is a judgment call, but under these conditions is unconscionable. No. 2, certainly what they've been trying to do with Boeing is see if they can figure a way to get out of their 767 leases and return to a more sane operating model. If you look at Aloha, the smaller planes (737s) to the mainland makes a tremendous amount of sense for the traveling public out of Hawaii and also for the folks traveling from the mainland."

Wagner said Hawaiian has been making progress with two of its aircraft lessors, Ansett Worldwide and International Lease Finance Corp., on restructuring agreements for the 11 combined 767s they have from those two companies. Wagner declined to characterize the talks with Boeing Capital.

Hawaiian said in its financial report that as of its March 21 bankruptcy filing it owed more than $10 million on its 717 fleet to Wells Fargo Bank, the trustee for Boeing Capital. Boeing Capital said in its trustee motion that as of May 20 that Hawaiian will owe Boeing Capital more than $18.3 million.

Bankruptcy Court Judge Robert J. Faris, who yesterday labeled Boeing Capital's mismanagement charges as "serious allegations" that "need to be flushed out," pushed back the most crucial court and filing dates so the parties could have more time to prepare their arguments on the trustee issue. One of the most notable changes was that the May 6 hearing on whether to appoint a trustee was moved to May 8-9.

Peter Harbison, managing director of the Center for Asia Pacific Aviation, an aviation consulting firm in Sydney, Australia, said the airline has to look at all facets of its operations if it wants to successfully emerge from bankruptcy, starting with its relationship with Boeing Capital.

"It's very difficult to fight your way out of a situation like that when one of your major creditors is not satisfied with the way it's being done," Harbison said. "I think that's the first thing that needs to be addressed if you're going to stay afloat."

Hawaiian, which isn't required to release first-quarter results until May, said operating revenues jumped nearly 30 percent in the fourth quarter to $166.7 million from $128.5 million in the final quarter of 2001. Its full-year revenue increased 3.3 percent to $632 million from $611.6 million a year earlier. However, the 2001 figures include the impact of 9/11.

Hawaiian Airlines
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