No one may win Aloha Air labor dispute, judge says
Whether management or the unions prevail, either side could still lose
FEDERAL BANKRUPTCY Judge Robert Faris said there have been very few cases he's ever lost sleep over.
But he said yesterday that Aloha Airlines' contract termination showdown with its pilots and flight attendants is one of them -- and urged the sides to reach a compromise before he has to make what he termed a no-win decision.
A five-day hearing scheduled to end yesterday wasn't completed and was extended an additional day to 10 a.m. Tuesday, when the sides will present their closing arguments.
At the end of yesterday's hearing, Faris encouraged the parties to settle their differences because he feared what could happen if he had to choose between the company and the labor unions.
"Whoever wins this motion really doesn't win," Faris said. "Suppose the union wins the motion decision: They still face the fundamental problems of the business. There has to be a new investor and there's a question whether they would come in and take the company with all the defined-benefit plans. As Clint Eastwood asked in the 'Dirty Harry' movie, 'Do you feel lucky?'"
If there were no new investor, Faris said, he envisioned all the workers would lose their jobs, a reference to court testimony that Aloha's current investors would walk away and the lenders likely would force a liquidation of the airline.
"Suppose the company wins?" Faris asked. "There could very well be a strike or a job action like a sickout and you'd have a lot of grumpy people. It would be much better for everybody if you settled this rather than have me do it for you."
Aloha's current financial situation and the affordability of the unions' pension plans came under attack yesterday, with the airline saying it needed to get its costs lower and to terminate the defined-benefit plans to comply with the investment group's reorganization plan.
But Aloha's chief financial officer, Jeffrey Kessler, said on the witness stand that the company was projecting $18.5 million in earnings before interest, taxes, depreciation, amortization and restructuring for this year. Known in business circles as EBITDA, or EBITDAR in this case, it is a measure of the company's ability to generate cash from operations.
Kessler, under an aggressive attack by attorney Robert Clayman of the Association of Flight Attendants, also said that the airline was expecting operating income of $5 million to $7 million in November and December -- historically profitable months due to the holidays -- but would have a net loss of about $1.5 million in October.
Last night, Aloha filed financial statements that showed the airline had an operating loss in September of $2 million on revenue of $31.1 million. The net loss came to $4.8 million, with $2 million of the airline's $33 million in operating expenses going toward reorganization items. Fuel costs were $8.6 million.
Through the first nine months, Aloha has an operating gain of $6.2 million on $344.7 million in revenue. The nine-month net loss is $21.2 million.
Steve Schreiber, attorney for the Pension Benefit Guaranty Corp., argued that the airline was lumping all of the defined-benefit pension plans together and that based on available numbers the company's liability in the next five to six years wouldn't change if it retained the pension plans of the mechanics, clerical workers and dispatchers. Under the new agreements reached with those groups, the company agreed to contribute 3 percent of annual earnings into a multiemployer plan for the mechanics and clerical workers and a similar amount into a defined-contribution plan for the dispatchers.
However, Al Pattison, Aloha's senior vice president of human resources, said the recently ratified agreements with the three groups -- which still need court approval -- only allow pension-plan termination if all of the airline's unions comply.
Craig Yamaoka, a financial analyst for the PBGC, a federal agency that guarantees pensions, disclosed yesterday that one group that had conversations with the unsecured creditors' committee about two weeks ago said it perhaps could do something about the defined-benefit plan issue. Yamaoka, who is on the creditors' committee, later identified that group as Perseus LLC, a Washington, D.C.-based private-equity firm that manages more than $2 billion in assets.
Perseus, which is aligned with former Hawaiian Airlines Chief Executive Bruce Nobles, attempted in late September to become part of a bidding process for Aloha. However, the airline told the judge it wanted to instead partner on a reorganization plan with two Los Angeles-based investment groups, Yucaipa Cos. and Aloha Aviation Investment Group. Faris, though, left open the door for Perseus to negotiate with the unsecured creditors' committee if Perseus meets certain conditions set by Yucaipa and AAIG.
Nobles said last night that he and Perseus are still interested in Aloha.
"We have not had a formal conversation with the creditors' committee," Nobles said, though he noted there have been some informal talks. "The judge put some pretty difficult conditions on an alternative bid process. While we continue to be interested in Aloha, and we think we can put together a better proposal, the debtor-in-possession (Aloha) has a lot of control over the process.
"While the judge gave us an alternative method, it's pretty expensive and pretty risky and we have elected to continue to be interested and watch the situation develop."
Perseus initially had proposed purchasing Aloha's assets out of bankruptcy rather than take the carrier through reorganization. Nobles declined yesterday to reveal whether Perseus would consider keeping the defined-benefit plans.
"The creditors' committee knows that we're interested," he said. "People have our phone number, and if they want to find out what we're willing to do, they can give us a call."