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Friday, October 3, 2003



Trustee aiding SEC
in probe of Adams

Hawaiian Air's ousted CEO and
other officers are under investigation
for a $25 million tender offer


Hawaiian Airlines made another effort to distance itself from its parent company yesterday in the wake of a Securities and Exchange Commission investigation into a controversial $25 million tender offer made last summer by Hawaiian Holdings Inc.

Hawaiian Air The airline, which filed for Chapter 11 reorganization bankruptcy on March 21 and has been under a trustee's stewardship since May 30, stressed in a statement yesterday that former Chairman and Chief Executive John Adams is no longer involved in any way with the management of the airline even though Hawaiian Holdings continues to hold the common stock of the carrier.

"As part of his obligations as trustee, (Joshua) Gotbaum was charged with investigating the stock repurchase," the statement said. "Mr. Gotbaum said that he has been working with the SEC on this matter."

Gotbaum was appointed as trustee on July 3 to oversee the airline through reorganization. He replaced John Monahan, who resigned three weeks into his trusteeship.

Adams, who still is chairman and CEO of Hawaiian Holdings, signed off on yesterday's SEC filing that disclosed the federal regulatory agency has opened a formal, nonpublic probe of the holding company and several of its officers in regards to last summer's tender transaction. That offer resulted in the company -- which at the time was known as Hawaiian Airlines Inc. -- buying back about 17.5 percent of its stock at a 31 percent premium. Adams, the controlling member of AIP LLC, the majority investor of Hawaiian with 50.9 percent of the shares, received about $17 million in the exchange.

Hawaiian Holdings said in yesterday's filing it was notified of the investigation on Sept. 22 and that it intends to fully cooperate.

Richard Havel, the attorney for Hawaiian Holdings, Adams and AIP, declined yesterday to expand on the filing.

"We are not going to be making any additional comments to what was previously disclosed," he said.

U.S. Bankruptcy Judge Robert Faris, who on May 16 of this year ordered that a trustee be appointed, said in making his decision that Adams had consistently placed the interests of the company's shareholders ahead of its creditors. Faris also said that the company made the tender offer at a time when the airline was in "severe financial distress."

Adams argued that even though Hawaiian lowered its earnings projections, the company's board of directors went ahead with the tender offer in June 2002 because it felt Hawaiian had enough cash on hand and he wanted to reward the shareholders.

San Diego-based U.S. Trustee Steven Katzman, who oversees the Hawaii region and appointed Gotbaum, declined to comment yesterday.

Boeing Capital Corp., which filed a motion seeking a trustee 10 days after Hawaiian filed for bankruptcy, accused Adams during a May trustee hearing of looking after his own interests in making the tender offer. Boeing Capital said the timing of the offer was troubling because it came about the same time that the airline was talking to the aircraft lessor about restructuring Hawaiian's leases. Hawaiian announced it was commencing the tender offer on May 31, 2002.

The tender offer also came just months after Hawaiian Airlines began receiving the initial payout of what eventually would be $30.1 million in federal grants to help recover from the 9/11 terrorist attacks.

Following two days of arguments in the trustee hearing that ended May 9 of this year, Faris gave the sides nearly a week to work out a compromise. Talks stalemated, though, and on May 16 Faris ordered that a trustee be appointed.

Boeing Capital spokesman Russ Young said the aircraft lessor, which leases Hawaiian 16 of its 27 planes and recently agreed to a fifth extension on lease restructuring talks, has responded to requests by the SEC but wouldn't elaborate further.

"We made clear our feelings about the tender offer in the form of the motion to the Bankruptcy Court, but as to the SEC investigation, we don't think it's appropriate for us to comment," Young said.

In its motion seeking a trustee, Boeing Capital, the financing arm of the Boeing Co., questioned Adams' intentions.

"The fact that Hawaiian was making such large shareholder payments when it was in dire financial shape and while simultaneously seeking creditor concessions, strongly suggests that the transfers were made with the actual intent to hinder, delay or to defraud creditors," the motion said.

Although the SEC didn't identify the officers being investigated, Adams and Chief Financial Officer Christine Deister were both put on the witness stand during the hearing and were questioned extensively. Mark Dunkerley, the airline's president and chief operating officer, didn't assume his position until last December -- seven months after the tender offer was announced. Several officers who were in place at the time of the tender offer have since left the company.

Adams and Deister didn't return phone calls left for them yesterday. Dunkerley is out of state until next week.

Hawaiian Holdings, which is not in bankruptcy, was formed on Aug. 29, 2002 -- two months after the tender offer was completed -- to give the company more strategic and operational flexibility. At the same time, Hawaiian also shifted its incorporation from Hawaii to business-friendly Delaware. Less than seven months later, the holding company's lone operating subsidiary, Hawaiian Airlines, filed for bankruptcy.

In another development, a local representative of Hawaiian's Air Line Pilots Association said the union is still awaiting an arbitration ruling regarding the closure of the company's San Francisco and Los Angeles bases. Hawaiian announced last month it would close those bases as part of its ongoing cost-cutting efforts. The closures, effective Nov. 1, will affect the jobs of 40 to 45 pilots in those areas and will result in 12 of the affected pilots being furloughed. An arbitration hearing took place Tuesday and Wednesday.



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