[ HAWAIIAN'S BANKRUPTCY PLAN ]
CINDY ELLEN RUSSELL / CRUSSELL@STARBULLETIN.COM
Hawaiian Air Capt. Jamieson Cheng sits in the cockpit in between interisland flights at Honolulu International Airport.
One year to the day after filing for
bankruptcy protection, it is clear the
reorganization of Hawaiian Airlines
has been no simple undertakingA turbulent year
Hawaiian Airlines' bankruptcy was supposed to be simple.
About Hawaiian
Facts and figures about Hawaiian Airlines:Employees: 3,300
Inaugural flight: Nov. 11, 1929
Fleet: 14 Boeing 767s, 11 Boeing 717s
Destinations: Mainland -- San Diego; Los Angeles; San Francisco; Sacramento, Calif; Portland, Ore.; Seattle; Las Vegas; Phoenix.
Interisland -- Oahu, Kauai, Big Island (Hilo and Kona), Maui, Molokai, Lanai. South Pacific -- Pago Pago, American Samoa; Papeete, Tahiti; Sydney, Australia (service starting May 18, 2004).
File for reorganization in March and emerge in the fall.
Force Boeing Capital Corp. to restructure aircraft leases and come out of Chapter 11 with a lower cost structure for the post-Sept. 11 environment.
At least, that was former Hawaiian Airlines Chairman and Chief Executive John Adams' plan.
But that plan began to unravel in the span of just 10 days when a distrusting Boeing Capital, unwilling to accede to Adams' financial demands, filed a motion asking the federal Bankruptcy Court to replace Adams with a trustee.
At a two-day hearing in May, Adams was removed from office because of several of his financial decisions.
Today, two trustees and exactly one year after its bankruptcy filing, the airline's reorganization is still in doubt.
No longer can this case be called simple. Its complexity can be seen in the nearly 2,100 filings that have been made in Bankruptcy Court and the involvement of more than 100 attorneys and consultants since the Chapter 11 filing on March 21, 2003.
To complicate matters, Joshua Gotbaum, the second trustee to be appointed, filed a $28 million lawsuit against Adams and his affiliates that accuses them of fraudulent and preferential money transfers and breach of fiduciary duties. The Securities and Exchange Commission also is investigating Adams, who repeatedly has claimed that all his decisions were made in the open with public filings and board approval.
"I don't think you can have a Chapter 11 filing for a company of this magnitude and expect it to be a simple procedure," said San Diego-based U.S. Trustee Steven Katzman, who oversees the Hawaii region and was responsible for selecting Gotbaum and his trustee predecessor, John Monahan.
"Chapter 11 is a complicated process, and it's further complicated by the fact that there are several players involved in the process," said Katzman. "We're talking about a significant company with a host of issues, and I think the public pleadings have made it acutely aware of what those issues are."
The good news, though, is that the company has posted 11 consecutive months of operating profits, leads the nation in percentage of seats filled, has the best on-time performance in the United States, has been rated among the top airlines nationally for its cabin service and has $94.6 million in unrestricted cash.
Hawaiian's turnaround has caught the attention of several groups, three whom already have filed reorganization plans and others who plan to participate in the bidding process that will lead to the best proposal to bring the airline out of Chapter 11.
That's encouraging to flight attendant Pono Hiram-Macdonald, who has been with the airline for 29 years and was doubly worried at the bankruptcy's outset because her husband also works for the company as a Boeing 767 pilot.
"In the beginning of the bankruptcy, we were very concerned with both of our incomes coming from one company," she said. "It's a little disconcerting to us ... because my husband is a year away from retirement."
Hiram-Macdonald, who weathered the airline's first reorganization bankruptcy 11 years ago, said she knows more what to expect this time around and is happy to see more than one party interested in investing in the airline.
"I think employees feel better that there may be more choices rather than us being told what we're going to have to do (in regards to agreeing to concessions)," Hiram-Macdonald said. "There are several different plans on how Hawaiian can continue to be successful and make money."
Corporate Recovery Group LLC, a Wilson, Wyoming-based turnaround company, and Boeing Capital, the airline's primary aircraft lessor, filed the first reorganization plan on Feb. 10, 2004. That was followed by plans from Hawaiian Airlines pilot Robert Konop and parent company Hawaiian Holdings Inc., whose chairman and CEO is Adams, the controlling member of majority shareholder AIP LLC.
Gotbaum, as the trustee, eventually will participate in a reorganization plan. Other groups that have expressed interest in getting involved in the process are San Francisco-based Vx Capital Partners, a San Francisco-based private finance firm; a minority investors group consisting of hedge fund firms Lonestar Partners LP and Triage Capital Management LP and Norman J. Caris of investment banking firm Caris & Co.; and a 50-member group that calls itself the Hawaiian Reorganization Committee.
All of the parties involved in the bankruptcy process expect the company to emerge from reorganization sometime in the third quarter of this year. But things figure to get harder before they get easier with an April 1 hearing looming before Bankruptcy Judge Robert Faris that will determine the bidding process for selecting a reorganization plan.
Mechanic Dave Figueira, who has been with the airline for nearly 16 years, said he's feeling better about the airline's future now than he did a year ago.
"There was an uneasy feeling about our future in the beginning, but it's kind of subsided with the success of the company," Figueira said.
"So far, everybody who's come in with plans of reorganization wants to expand the airline," Figueira added. "That's good for the airline because it would bring more jobs and more routes to grow the airline, which is what John Adams' plan was."
Capt. Jamieson Cheng, who flies Boeing 717s on interisland routes, said a dispute between the trustee and the Air Line Pilots Association about the funding of the pilots' pension plan has kept him and other pilots glued to their cockpit seats.
"We're worried about our futures," he said. "A lot of the pilots would be devastated (if something happened to the plan). It's one of the reasons why you become a professional aviator."
The pension plan was $94.5 million underfunded at the end of last year, and the pilots and Gotbaum have been at odds over whether a $4.25 million payment due last Sept. 15 can be deferred. But the pilots received some good news last Wednesday when Gotbaum agreed to put $4 million -- unrelated to the $4.25 million payment -- into the pension plan.
"Morale has gone up and down depending on the news, but currently we're all confident the company is doing better," Cheng said. "The employees are working as hard as they can, being as professional as they can, treating the customers with just the greatest of care. It's like one big family pulling together, and we're hoping to emerge from bankruptcy soon."
Gotbaum -- hired as trustee on July 3 after Monahan resigned for personal reasons following three weeks on the job -- said bankruptcy is always more complex than it seems and that the appointment of a trustee has lengthened the process. He cites the early part of the reorganization that was taken up by the litigation over whether to appoint a trustee, followed by the process to appoint a second trustee and the time that was needed for him to become familiar with the company.
The other byproduct of having Adams replaced is that the appointment of a trustee removed the "exclusivity" period that company management would have had to propose its own reorganization plan. As a result, any party can file its own plan.
"John Adams' public statements oversimplified the issues at Hawaiian, and I'm sure even privately he didn't expect that, two months after filing, he would be removed by the court," Gotbaum said. "Even in a case where, like Hawaiian, the company is doing very well, getting out of bankruptcy involves negotiations to resolve dozens or hundreds of claims, and that's not 'simple.' "
Gotbaum also is suing Adams, his investment groups and Hawaiian Holdings for $28 million, which includes $17.4 million they received from a $25 million shareholders tender offer in 2002. That tender offer proved to be a sticking point in lease concessions with Boeing Capital when the aircraft lessor demanded the return of that money.
"At that time (of the lease concession talks), we made it clear that the money that had been taken out of the airline in 2002 had to be returned before we could reach an agreement," said Boeing Capital executive Anil Patel, who negotiates leases with Hawaiian. "A bankruptcy filing did not change that; we still insist on it. In fact, Hawaiian Holdings' own plan of reorganization acknowledges that the matter of the $28 million still needs to be resolved."
Adams is proposing a separate litigation trust to take care of that matter so that the issue won't stand in the way of the airline's reorganization. But Adams also insists the reorganization shouldn't be taking this long to reach a conclusion.
"This was a simple bankruptcy because we had plenty of cash, and we had completed 90 percent of the airline's restructuring when bankruptcy was filed," said Adams, noting the company's technological improvements, new aircraft, labor concessions and agreements to restructure leases from two of the airline's three aircraft lessors.
"The fact is, the bankruptcy remains simple, but the process has been made complex. Instead of completing the final lease renegotiations, the trustee decided to work on things that had already been fixed. Now we believe that many parties, including Boeing, are working very hard to move Hawaiian Airlines out of bankruptcy."
BACK TO TOP |
A turbulent year
Hawaiian Airlines marks the 1-year anniversary today of its Chapter 11 bankruptcy filing. Here are some of the key events that have transpired during the past 12 months.
March 21, 2003: Hawaiian Airlines files for Chapter 11 reorganization for the second time in 10 years. Parent company Hawaiian Holdings Inc. does not file for bankruptcy. Stock price: $1.50
March 31: Boeing Capital Corp., the airline's primary aircraft lessor, files a motion in U.S. Bankruptcy Court requesting that a trustee replace Hawaiian Airlines Chairman and Chief Executive John Adams, at right. Stock price: $1.50
May 16: Bankruptcy Judge Robert Faris, citing a $25 million tender offer in 2002, rules that Adams has placed the interests of the shareholders ahead of those of the creditors and orders Adams removed from office. Stock price: $0.78
May 30: Former Liberty House President and Chief Executive John Monahan is appointed as trustee. He begins June 2. Stock price: $1.00
June 12: Hawaiian Holdings' stock hits 52-week closing low of 30 cents.
June 24: Monahan resigns as trustee for personal reasons. Stock price: $0.50
July 3: Joshua Gotbaum is appointed as trustee and begins July 7. Stock price: $0.85
Sept. 22: The Securities and Exchange Commission notifies Hawaiian Holdings that it is investigating the company and several of its officers in regards to the $25 million tender offer. Stock price: $1.62
Nov. 28: Gotbaum files a $28 million lawsuit against Adams, his investment groups and Hawaiian Holdings. Stock price: $2.75
Dec. 5: Hawaiian Airlines announces that it will give employees $3 million in profit-sharing bonuses. Stock price: $2.39
Jan. 23: Gotbaum, who earlier had requested the equivalent of $840,000 a year as wage compensation, has his motion granted for $600,000 a year, plus $10,000 a month in living expenses and a success fee to be determined after the reorganization is completed. Stock price: $4.05
Feb. 10: Boeing Capital and turnaround firm Corporate Recovery Group LLC jointly file the first reorganization plan. Stock price: Hawaiian Holdings' stock reaches 52-week closing high of $4.90.
Feb. 26: Hawaiian Airlines pilot Robert Konop files the second reorganization plan. Stock price: $3.95
March 1: Hawaiian Holdings files a preliminary reorganization plan, which is the third plan to be filed overall. Stock price: $3.81
March 19: Hawaiian Airlines announces its 11th consecutive month of profitable operating income. Stock price: $3.61
