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Friday, August 27, 2004



Hawaiian Air
plan endorsed


Hawaiian Airlines trustee Joshua Gotbaum and the airline's parent Hawaiian Holdings Inc. agreed yesterday to submit a joint reorganization plan for the bankrupt carrier.

If the proposal, which will be filed Monday, is confirmed by the U.S. Bankruptcy Court, it would take Hawaiian out of bankruptcy and set an industry standard by making it the first bankrupt airline to offer creditors full payment for their claims, Gotbaum said.

Hawaiian Air "This plan provides value both to shareholders and creditors of Hawaiian Airlines in a consensus proposal that will make it easier and faster to exit bankruptcy," Gotbaum said.

The plan, developed largely by Larry Hershfield, chairman of Hawaiian Holdings and chief executive of Ranch Capital LLC, is not expected to include employee givebacks and will focus on growing the airline by helping it expand direct flights to East Coast cities and to emerging markets such as China.

Ranch Capital LLC is the managing member of RC Aviation LLC, a company that recently acquired a substantial stake in Hawaiian Holdings. Since buying roughly 35 percent of the company's 28.5 million shares, RC Aviation has committed to invest more than $160 million to purchase claims and reorganize the carrier.

"The company's strategy calls for an infusion of equity well in excess of (Hawaiian's debts)," Hershfield said.

Gotbaum said he is endorsing the plan because it provides full recovery of the claims that Hawaiian owes, ponies up capital for the airline to grow and gives the company more financial flexibility. The trustee's endorsement of the plan is expected to give it more weight over other reorganization plans proposed for Hawaiian.

"Hawaiian Holdings is going to invest enough and the company is profitable enough to make this work," Gotbaum said.

Under the proposed plan, Hawaiian's aircraft lessors -- its largest creditors -- would receive full payment of their approved claims, either in 50 percent cash and 50 percent stock or a long-term note from Hawaiian.

Other creditors would be offered full payment of their claims, either in cash or with 50 percent cash and 50 percent stock. Shareholders would keep their stakes in the company.

The plan also promotes Dunkerley, Hawaiian's president and chief operating officer, to chief executive officer. After months of speculation, the role of former American Airlines Chairman Don Carty has also been carved out: He is expected to join Hershfield on the board of Hawaiian Airlines. The board also may expand to include independent directors, both from the industry and Hawaii.

Carty had initially agreed to serve as chairman and an investor of Hawaiian Airlines once it emerged from bankruptcy under a reorganization plan filed by John Adams, former chairman of Hawaiian Holdings. However, that plan was restructured since Adams sold nearly three-quarters of AIP LLC's controlling stake in the parent of Hawaiian Airlines to Ranch Capital.

Hawaiian also will have to resolve outstanding legal issues associated with Adams, who being sued for $28 million by the trustee for his financial actions and is being investigated by the Securities and Exchange Commission, Gotbaum said.

No other significant management changes are planned, though the airline will have to resolve several labor issues before coming out of bankruptcy. The pilots' 3 1/2-year contract comes up for negotiation this summer and the future of their pension plan, which is about $100 million underfunded, is still unresolved. The flight attendants' contract also comes up this fall with the machinists' contract following in the spring.

Ranch Capital, which is taking a huge gamble if Hawaiian's stock is wiped out in the bankruptcy, said it was attracted by the improved financial performance of the airline. Hawaiian has had 16 consecutive months of operating profits.

Other companies have their eye on the prize, too. So far, three other reorganization plans have been filed in the case.

Gotbaum said he chose not to file his own reorganization plan since he believes Hershfield's is the best, and cutting the number of competing plans will reduce the potential for litigation later on.

Members of management and labor at Hawaiian Airlines have said they are looking forward to reviewing the plan on Monday.



Hawaiian Airlines
www.hawaiianair.com

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