Friday, March 11, 2005

Hawaiian Air plan
clear for takeoff

A judge approves the
company's plan to emerge
from bankruptcy on April 1

It took 4,600 court documents, 721 days, two trustees and one arrest by an undercover FBI agent, but Hawaiian Airlines finally has a confirmed reorganization plan.

Hawaiian Air Bankruptcy Judge Robert Faris gave Hawaiian the all-clear yesterday to emerge from Chapter 11 bankruptcy effective April 1 under a company-backed plan, pending contract ratifications from the airline's pilots and flight attendants.

"This case has been successful because some people with an awful lot of money were willing to put in an awful lot of money," said Faris, who also credited airline employees' sacrifices and work by the company's trustee and others. "This is a successful, profitable airline."

It was an anticlimactic end to a hearing that began with drama following Wednesday's arrest of the principal financial backer of a competing reorganization plan for Hawaiian.

"Just when you think you've seen everything," said Faris, who nearly two years ago ordered former Hawaiian Airlines Chief Executive John Adams removed from the company for alleged insider dealings.

At the outset of yesterday's hearing, Faris took to task Hawaiian Airlines pilot Robert Konop, one of three sponsors of the competing plan. "I'm not saying that you've done anything wrong, but you should get a lawyer," Faris said.

Konop was put in an unenviable situation after his plan's sponsor, St. Louis financier Paul Boghosian, was arrested for attempting to bribe an undercover FBI agent with $500,000 in return for a $2.5 million loan. The agent had been masquerading as a hedge fund manager.

Boghosian, who also was allegedly involved in misrepresenting the existence of an overseas $500 million account that would provide financing to the airline, was charged with conspiracy to commit bankruptcy fraud and commercial bribery. Each count carries a maximum penalty of five years in prison.

Faris, who advised Konop not to respond, also chided the pilot for information on Konop's Web site, www.hawaiianpilots.com, which stated that the judge had accepted financial exhibits of the outside group as proof of financial capability.

"That's just plain false," he said. "What's said there couldn't be even remotely construed for what I said. That's a lie."

Under the plan, Hawaiian's unsecured creditors will get 100 percent cash; creditors whose claims arose from aircraft leasing will get 50 percent cash and 50 percent stock or a long-term note; and shareholders will retain full value for their shares.

In addition, the company will receive more capital when it emerges from bankruptcy because some aircraft claims will be converted from debt to stock. Also, the airline will get between $100 million and $125 million in debt financing that can be converted into stock at a higher price.


Hawaiian Air trustee Joshua Gotbaum called yesterday a "great day for a great airline."

"In this bankruptcy, unlike others, the shareholders get to keep their stock, and the value of their stock has risen. The creditors get repaid in full, and the employees get wages and benefits that are as good as or better than our competitors," he said. "For an airline that two years ago was losing money and had less than 20 million bucks in the bank, I think this is a real success."

Gotbaum was hired in July 2003 to replace trustee John Monahan, who resigned after three weeks on the job. Monahan had been chosen to oversee the airline through bankruptcy after Adams was removed by the court after the company filed bankruptcy on March 21, 2003.

Following a long selection process, Gotbaum teamed up last year on a reorganization plan with the airline's unsecured creditors' committee and Larry Hershfield, managing director of investment group RC Aviation LLC.

As part of the plan, Mark Dunkerley, president and chief operating officer of the airline, will become CEO, and Gotbaum will step down as trustee but remain briefly for some "cleanup motions."

U.S. Trustee Steven Katzman, appearing at the outset of yesterday's hearing by videoconference from San Diego, urged Faris to reject the Konop group's plan with prejudice, meaning it cannot be refiled in the future.

"(The misrepresentations have) created significant harm to (Hawaiian) at a number of levels," Katzman said. "First, it caused (the airline) to expend valuable resources to uncover the truth of the viability of the competing plan that could have been put to better use to the benefit of (the airline), its creditors and employees. Second, it attempted to manipulate the federal judicial process and undermine the integrity of the bankruptcy system. Third, it attempted to mislead creditors and employees of the airline with illusory promises of a more favorable alternative plan."

After Katzman's and Faris' remarks, Konop withdrew his group's reorganization plan, and Faris rejected the plan with prejudice.

Even though Faris conditionally approved the company-backed confirmation plan, trustee attorney Sidney Levinson told the court that the company and its pilots are still negotiating contract language and have an agreement in principle.

Levinson said he hoped to have a ratified agreement during the week of March 21.

In lieu of that, the airline scheduled a hearing for March 29 to get legal authority to impose contract terms on the pilots.

The airline's flight attendants, who rejected an earlier contract, have extended their voting period an additional four days to Monday.

Hawaiian Airlines

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