PHOTO ILLUSTRATION BY KIP AOKI / KAOKI@STARBULLETIN.COM
Hawaiian Airlines, which filed for Chapter 11 and then had its top executive removed by the court, was the top business story of this past year. Here are the top 10.
Hawaiian charts
new flight planTrustee Joshua Gotbaum is put
at the controls in bankruptcy
after CEO John Adams is ousted
It was a year of high drama for Hawaii business in 2003.
Top stories of the year
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Forget the mutual fund scandals and exorbitant pay packages that dominated national headlines.
The Aloha State had its own running soap opera with Hawaiian Airlines filing for bankruptcy protection and then a federal judge subsequently ousting Chairman and Chief Executive John Adams over alleged insider dealings.
Throw in a hostile merger between two rival banks -- complete with CEO mud-slinging -- and, well, you get the picture.
Any other year, housing prices going through the roof and a rebounding economy might have demanded top billing.
But not this time.
That being said, here are the Star-Bulletin's top 10 business stories of 2003.
1. Hawaiian Airlines files for bankruptcy. The airline's fortunes now rest in the hands of the former chief executive officer of the September 11th Fund. How that transpired could be the basis for a movie. But as one attorney commented during a court hearing, who would have believed such a script?
Hawaiian filed for Chapter 11 reorganization on March 21, 2003, after the airline, which already had received $15 million in employee concessions, was unable to renegotiate $20 million in lease concessions from its aircraft lessors. Before filing for bankruptcy, however, Adams convinced the company's board of directors in the summer of 2002 to reward investors by approving a $25 million stock tender offer at a 31 percent price premium. Adams and his investor group ultimately received more than $17 million of that amount.
That proved to be Adams' undoing because, just months earlier, Hawaiian received the remaining amount of a $30.1 million federal grant intended to help the airline stabilize operations in the aftermath of 9/11. Although Adams claimed the tender offer was a separate issue and that the concessions were needed regardless of the grant, the tender offer prompted Boeing Capital Corp., the airline's primary aircraft lessor, to file a motion requesting a trustee. Federal Judge Robert Faris ultimately agreed to take the bold move and order a trustee appointment after a two-day hearing. Faris sided with the arguments of Boeing Capital attorneys that the tender offer was based on aggressive growth projections at a time when Hawaiian's financial condition was deteriorating.
Former Liberty House CEO John Monahan, now the head of the Hawaii Visitors & Convention Bureau, was appointed trustee but resigned after just three weeks for personal reasons that insiders attributed to health issues. Joshua Gotbaum, an investment banker and airline consultant, was then appointed to oversee the airline through reorganization and to investigate claims against Adams. Gotbaum subsequently sued Adams and his affiliates for $28 million.
In the meantime, Gotbaum, in seeking to reduce expenses, has created his own adversary in the Air Line Pilots Association after withholding a $4.25 million mandatory pension payment.
The battle on all fronts continues as Gotbaum targets the summer of 2004 for emerging from reorganization.
2. Hostile bank merger. Central Pacific Financial Corp.'s unsolicited takeover attempt of CB Bancshares Inc. didn't have to take a back seat to anyone as far as drama was concerned. Central Pacific Bank's parent, eager to grow by gobbling up its downtown rival, took its offer public in April after City Bank's parent ignored CPF's overtures.
Then things got ugly as CPF went on a media blitz to force the hand of CB's board. When that didn't work, CPF took CB to court. CB CEO Ronald Migita responded by declaring at a press conference that CPF's aggressive tactics were not the "local" way of doing business in Hawaii. Fellow CEOs Walter Dods of First Hawaiian Bank and Mike O'Neill of Bank of Hawaii joined the mud-slinging after CPF called into question the "local" make-up of those other two banks. Several rallies and a public hearing later, the battle is still continuing. Whether the deal ultimately gets down is anyone's guess.
What is certain, though, is that the attorneys will continue to get richer.
3. Damon Estate land sold. The December sale of the Damon Estate, one of the highest valued properties in Hawaii, will give a Massachusetts company control of a collection of commercial property on Oahu rich in redevelopment opportunity.
The $480 million deal with HRPT Properties Trust, a publicly traded real estate investment trust, has left real estate analysts and renters of the leasehold land in Mapunapuna and Moanalua speculating on what will become of the properties.
It could result in the revitalization of a more than 200 acres of decaying commercial tracts in Honolulu. In its offering, the Damon Estate listed 200 tenants -- mostly commercial, industrial and retail businesses -- almost half of whom have leases expiring within 20 years.
The properties were bequeathed to Samuel Mills Damon in the 1880s by a sister of Queen Liliuokalani and have been managed by the estate since Damon's death in 1924.
4. Housing market soars. For people looking to buy, sell or refinance a home, continuing low mortgage rates helped Hawaii's residential real estate remain the hot topic of conversion throughout 2003. Residential real estate developers dusted off plans for long-stalled new home projects while home resales grew month over month during 2003. On Oahu, the median sales price for a single-family home edged up toward $400,000 in October, surpassing levels not seen since the height of the Japanese investment bubble. On Maui, the median price for a single-family home reached an unprecedented $500,000. Resort home developers, primarily on the neighbor islands, found a lucrative market among West Coast baby boomers looking for primary and secondary residences. Land-use issues also came to the forefront during 2003. At the Big Island's Hokulia luxury residential development, a judge halted all construction until a determination regarding the project's current agricultural zoning can be made.
5. Theo Davies selling off. Hong Kong-based Jardine Matheson Ltd. confirmed the sale of its six TheoDavies Euromotors car dealerships for $100 million in October. Reed/Jones Acquisition HI LLC, a partnership of two mainland dealers, is the buyer. Jardine also acknowledged it was reviewing its other Theo Davies Group businesses for possible sale, including the franchises for Pizza Hut, Taco Bell, A&W All American Foods and Long John Silver's franchises, as well as Pacific Machinery, which sells and maintains Caterpillar equipment in Hawaii and the Pacific. The confirmation echoed earlier reports in the Star-Bulletin.
6. Construction going strong. Construction in 2003 centered mostly around the booming residential real estate market with the neighbor islands leading the way. By midyear, the value of all private building permits statewide, which includes new construction renovations and alterations, reached $1.4 billion, up 76.3 percent from $773.4 million in permits reached in the first six months of 2002. Local economists predict more of the same for 2004 with a 5 percent growth in construction jobs. In 2003, construction jobs grew by 8 percent. With the military's decision to privatize its Oahu housing, and construction on Army, Navy and Air Force housing starting in the new year, economists predict the construction emphasis will begin to shift back to Oahu.
7. Jobless rate stays low. One measure of the strength of Hawaii's economic recovery can be seen in the state's low unemployment numbers that remained well below the national average throughout 2003. Hawaii's monthly unemployment rate has been consistently one of the lowest in the nation, ranking as high as first among the 50 states. The state's lowest seasonally adjusted unemployment rate of 3.0 percent occurred in February when the U.S. unemployment figure stood at 5.8 percent for the month. While the unemployment rate has moved upward since February, reaching 4.1 percent in November, it was still considerably below the national figure which stood at 5.9 percent for the same period. Most of Hawaii's employment gains came from the private sector, notably in the construction, health care and social assistance industries. While public sector employment showed little change over the year, private sector jobs grew in November by 10,300, or 1.8 percent, from a year ago.
8. Norwegian expanding. Norwegian Cruise Line said in May it will begin operating three ships in Hawaiian waters in 2004, an increase from two.
Two of the ships, named Pride of America and Pride of Aloha, will be U.S. flagged and sail exclusively in Hawaii. The company said it must hire hundreds of employees, and held several job fairs here.
9. HVCB stung by audit, loses contracts. A critical state audit of the Hawaii Visitors & Convention Bureau prompted the July resignation of its top executive Tony Vericella, who had ran the bureau since 1997.
The audit, prompted by the state Legislature, came out shortly before the Hawaii Tourism Authority board split up the state's tourism marketing contracts -- always held by the bureau -- for the first time ever. The authority hired private companies to attract international visitors. Vericella was later replaced at the HVCB by Monahan.
10. Japanese tourism hit by SARS. Tourism took an expected hit when the war in Iraq broke out in March and took an unexpected hit from the outbreak of SARS, which spooked Japanese overseas travelers. Japanese arrivals to Hawaii dropped 40 percent in May, compounding the long-term erosion of the high-spending tourists as a visitor market. However, mainland arrivals kept rising this year, and Japanese arrivals bounced back to 2002 levels by November. Hawaii's overall arrivals will be flat this year, though visitor spending is projected to reach $10.5 billion, a 4.8 percent increase from 2002.
Star-Bulletin reporters Dave Segal, Lyn Danninger, Tim Ruel, Erika Engle and Allison Schaefers contributed to this story.
