Trustee names aired
Two former Hawaiian Air executives
are being mentioned if a judge
puts a trustee in charge
Two former Hawaiian Airlines executives are among candidates being suggested to take over as trustee if a U.S. Bankruptcy Court judge decides that new management is needed to assume control of the carrier's operations.
In a hearing that has drawn interest throughout the airline industry, Bankruptcy Court Judge Robert Faris began hearing arguments today on a Boeing Capital Corp. motion to replace Hawaiian's John Adams as chairman and chief executive officer.
Hawaiian filed for Chapter 11 bankruptcy March 21.
Boeing Capital and a seven-member committee of unsecured creditors have already been discussing possible trustee candidates. The two most familiar with the operations of Hawaiian are Michael McQuay, who was executive vice president and chief operating officer of Hawaiian from 1995 to 1997, and Paul Casey, a former vice chairman, chief executive officer and president, who was with the airline from 1997 to 2002.
Also being considered is Jim McCrea, former managing director and CEO of Air New Zealand in Auckland.
John Tague, the former president and CEO of American Trans Air's parent company, also had been considered but took himself out of the running last weekend when he accepted the newly created position of executive vice president of customers for United Airlines parent UAL Corp.
In another development, Hawaiian said it has reached agreement with Ansett Worldwide, one of its three aircraft lessors, on restructuring the financial terms for seven Boeing 767 aircraft. The deal, however, included a restriction on future Hawaiian cash distributions, such as stock buybacks, according to a source familiar with the negotiations. Ansett was the only one of the three lessors that had not extended an aircraft repossession deadline past May 20 and had made it clear to Hawaiian that it would remove its aircraft by that time if there was no agreement, the source said.
Hawaiian previously reached a tentative agreement with International Lease Financial Corp. and also an extension of the 60-day grace period under the U.S. Bankruptcy code. The agreements are subject to review by Hawaiian's creditors committee and the approval of Bankruptcy Court. Hawaiian also extended the 60-day period with Boeing Capital but has not reached any lease restructuring agreement.
The Kailua-born McQuay, who has a son and daughter in Hawaii, said he was contacted briefly by Boeing Capital but hasn't had any further discussion.
"I've always had very fond feelings for Hawaiian," said McQuay, who is now president of Dallas-based Bombardier Business Jet Solutions, an arm of Bombardier Inc.
"I really haven't had a lot of discussion regarding the opportunity so it's hard for me to say at this particular point in time," he said. "It's premature to even be talking about it."
McQuay, who left Hawaiian to join Fiji-based Air Pacific as its managing director and CEO, said he "remains concerned about the welfare" of Hawaiian.
"I've been in the business for 32 years now in every aspect -- sales, marketing, operations, literally every aspect of the business," McQuay said. "At some point in time when they come closer to making a decision, we'll have more in-depth conversations about it and I'll be better prepared to comment."
Casey, who resigned in May 2002, has been living part time in Bangkok, Thailand, working for Galaxy Distribution System Ltd., a travel software company that links retail travel agents globally to inbound tour operators. Casey still maintains a home in Hawaii.
"I don't know what's going on internally," Casey said in a recent interview. "If you look at what's going on in the entire U.S. industry, I think Hawaiian is in better shape than a lot of them."
Casey, who previously was the president and CEO of the Hawaii Visitors & Convention Bureau, said he had five "terrific" years running Hawaiian.
"I believe I did everything asked of me by the board and the chairman, but five years of running a U.S. airline, especially after the events of 9/11, wears on you and it was time for a change."
Casey couldn't immediately be reached for comment about his interest in the trustee position.
Both McQuay and Casey also worked at Continental Airlines.
Mark Dunkerley, Hawaiian's president and chief operating officer, said Tuesday that not only would a trustee be disruptive to the airline but that the appointment of one during the peak of the airline's important summer travel season could have a detrimental effect on the carrier's earnings.
Dunkerley also pointed out that Boeing Capital's grievance is with the corporate governance of the airline and not the management of its day-to-day operations.
Boeing Capital executive Anil Patel, who manages the relationship between Boeing Capital and Hawaiian and is responsible for negotiating the leases, said yesterday that Dunkerley is partially right in his assessment.
"I would have to say we don't necessarily object to how the airline itself is run," he said. "The airline's management knows the business. They know the Hawaiian market. They know the 717s. They know how to operate the 767s. From that standpoint, we don't have an issue with the airline and how it operates and functions.
"Our biggest concern is that senior level management has conflicting interest. Their own personal interest vs. what's in the best interest of the airline and the employees and the creditors. It definitely includes (Chairman and CEO John) Adams because he was a prime beneficiary of the ($25 million) tender offer. There may be some board members that have some conflict as well."
The tender offer, which came at about the same time in 2002 that Hawaiian was negotiating leasing concessions, rubbed Boeing Capital the wrong way.
"This is a very unique situation," Patel said. "Twenty-five million for American or United is a drop in the bucket. But $25 million for Hawaiian is huge, and to have that much cash taken out of the company post-Sept. 11 when the industry was suffering."
Patel said Boeing Capital has a vested interest in the state, as well as the airline, and is trying to keep the line of communications open. He said it wouldn't be beneficial for either party for Boeing Capital to repossess the 16 planes it owns in Hawaiian's fleet.
"We are negotiating with other airlines to try to help them get through these difficult times, but we're doing that on the basis that the management they have in place isn't in conflict," Patel said. "But with the current management at Hawaiian, there's an inherent conflict of interest. We think the tender offer that was done is improper. If you continue to have the current management in place, we believe Hawaiian is not going to get back to health."
Patel said he disputes Hawaiian's contention that a trustee will be harmful to the airline. Rather, he said putting in a trustee -- an idea that has been endorsed by the committee of unsecured creditors -- will be helpful.
"We think that a trustee with strong operational background and experience is appropriate and we would support and encourage the selection for a trustee of that type," he said.
That decision now will come down to Faris, who was appointed by the Ninth Circuit Court of Appeals and has been a bankruptcy judge since Feb. 14, 2002, when he took over for the retiring Judge Lloyd King.
Honolulu bankruptcy attorney Jerrold Guben of Reinwald O'Connor & Playdon said it's difficult to predict how Faris will rule on Boeing Capital's motion since he does not have a track record.
Guben said the complexity and size of the case weighs against appointing a trustee to control a major airline. While Faris has appointed a Chapter 11 trustee in an ongoing reorganization case, it was a smaller case and under different circumstances, Guben said.
"In the Summit Communications case (an alleged mismanagement case), Faris appointed a Chapter 11 trustee after seven or eight months of operations by the debtor-in-possession," Guben said. "By waiting for several months, the court had an opportunity to review the pre-petition conduct as well as the post-petition management of the company.
"In the Hawaiian Airlines case, there's little anyone can say about (Hawaiian's) post-petition management. The difference between the Summit Communications and Hawaiian Airlines cases is that in the Summit Communications case there was alleged mismanagement both pre- and post-petition. In this (Hawaiian) case, there's no apparent allegation of post-petition mismanagement, which is often the prime factor in appointing a trustee."
Guben said the appointment of a trustee would be "an extraordinary remedy" despite the creditors committee's support because there are other alternatives that Faris could consider.
One of the alternatives would be to appoint an examiner, who would investigate Boeing Capital's allegations and, if appropriate, file a lawsuit in bankruptcy court.
The court also could authorize the creditors committee to bring suit on behalf of Hawaiian to recover payments made to stockholders last year if the airline refuses to recover the money or bring its own suit.
