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Friday, May 30, 2003



Monahan will
lead Hawaiian

The executive piloted
Liberty House through its
bankruptcy reorganization


Former Liberty House executive John Monahan, who piloted the Hawaii department store chain through a three-year reorganization, was chosen today to be the trustee of bankrupt Hawaiian Airlines.

Hawaiian Air The selection by U.S. Trustee Steven Katzman followed a two-week search that was triggered after federal Bankruptcy Court Judge Robert Faris found questionable business dealings in Hawaiian's financial operations.

Monahan, who was president and chief executive officer of Liberty House but doesn't have any airline experience, beat out a field of more than 20 candidates. They included Rono Dutta, former president of United Airlines parent UAL Corp.; Bill Compton, former CEO of Trans World Airlines; and Joshua Gotbaum, former executive associate director and controller of the U.S. Office of Management and Budget.

Former Hawaiian executives Michael McQuay and Paul Casey dropped out of consideration earlier in the search due to financial ties with the airline, while Jim McCrea, the former CEO of Air New Zealand, was ruled out because he wasn't a U.S. citizen.

The 52-year-old Monahan, who led the Hawaii retailer through the costliest bankruptcy in state history, couldn't be reached for immediate comment. A court filing naming him as trustee was expected this afternoon.

Monahan would have the option of bringing in an outside airline expert as CEO to complement whatever current management he decided to keep. As the trustee, Monahan would have complete control in running the airline and would have the power to retain or release any management.

The only certain casualty will be Chairman and CEO John Adams, who came under fire at a Bankruptcy Court hearing earlier this month. The hearing had been requested by aircraft lessor Boeing Capital Corp. Hawaiian filed for bankruptcy March 21.

Faris said he ordered a trustee be appointed because Hawaiian, and specifically Adams, consistently had placed the interests of the investors ahead of creditors and said a $25 million tender offer by Hawaiian was ill-timed in light of the airline's decreasingly worsening financial condition.

Despite his lack of airline expertise, individuals acquainted with Monahan said he more than makes up for it with his knowledge of bankruptcy reorganization.

Carlsmith Ball attorney Tom Roesser, who was the local counsel for the secured creditors in the Liberty House bankruptcy, said Monahan has proven his ability to function effectively under public scrutiny.

"I think John did an excellent job under very difficult circumstances," Roesser said. "In the Liberty House case, there was a dispute over which board of directors was in control, and John basically had to respond to both boards. That was difficult for someone in his position, but he did a great job."

Roesser said he didn't think Monahan's airline knowledge shortcoming would be a disadvantage because Monahan can rely on some of Hawaiian's current management or bring in outside help.

"He went through a successful Chapter 11 reorganization with Liberty House and I think that's what Hawaiian wants to accomplish," Roesser said.

Monahan, who came to Liberty House from Los Angeles-based May Co. in 1990, began his career with the Hawaii retailer as the vice president, director of stores. He was named senior vice president and chief operating officer in 1994 before being promoted to president and CEO in May 1997.

Liberty House's three-year bankruptcy ultimately ran up legal fees and other expenses totaling a record $16 million. Ironically, the previous record holder was Hawaiian, which spent $5.4 million before emerging from Chapter 11 in 1994.

In the process, though, Monahan worked himself and other local management out of a job but succeeded in keeping alive the stores and saving most employees' jobs.

Monahan started his own consulting company last year, JMN Associates, which specializes in restructuring, retail and real estate.

"You know, this is a real bittersweet time," Monahan said at a June 2001 press conference after it was announced that Liberty House had been sold to Macy's parent Federated Department Stores Inc. "(It's) bitter because of reaching the end of my association with this great store and with the great people at Liberty House.

"However, today is sweet also because it puts an end to all the uncertainty and speculation about Liberty House."

Once again, Monahan finds himself surrounded by uncertainty and speculation. Hawaiian's 3,200 employees and one of the state's two major airlines could be counting on his ability.

Roesser, for one, isn't betting against him because Monahan has been through the bankruptcy process before.

"I think that would be a big advantage because bankruptcy is kind of a world of its own," Roesser said. "It has its own specific set of rules that govern it. So to have lived through a Chapter 11 reorganization previously means he has familiarity with the bankruptcy rules and what's necessary to get a plan confirmed."

Liberty House, which filed for Chapter 11 in March 1998, emerged from bankruptcy in March 2001, largely owned by two venture capital companies, Oaktree Capital Management of Los Angeles and DDJ Capital Management of Wellesley, Mass. The companies had bought up the bulk of Liberty House's devalued debt during the bankruptcy and sold the company in June 2001 to Federated.

The $200 million sale was completed in July 2001 and all the Liberty House stores were renamed Macy's in November of that year.

Dwight Yoshimura, general manager of Ala Moana Center, said Monahan had to walk a fine line in leading the company through reorganization. Liberty House was an anchor tenant at the center.

"He's a very capable individual," said Yoshimura. "He's got tremendous character. I think it was very difficult for him because he obviously had the community at heart and was just trying to balance what the owners of Liberty House were trying to do. A lot of time he was caught between a rock and a hard place and, in the end, he did the right thing to make sure the employees were taken care of as well as the community."



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