Aloha reorganization plan confirmed

The airline and pilots OK a tentative deal

TEETERING on the brink of liquidation, Aloha Airlines capped off a yearlong sprint through bankruptcy yesterday by winning confirmation of a reorganization plan that will bring the carrier out of Chapter 11 by Dec. 15.

David Banmiller, president and chief executive of Aloha, exchanged hugs in court yesterday after federal Bankruptcy Judge Robert Faris confirmed the plan backed by two Los Angeles-based investors, Yucaipa Cos. LLC and Aloha Aviation Investment Group.

Afterward, Banmiller, who describes himself as an eternal optimist, called it "a fabulous day."

At the conclusion of the hearing, Banmiller said the airline has never faced greater challenges in its 60-year history than it has this year. He cited the chaotic nature of the industry, the fact that half the U.S. airlines are in bankruptcy, increasing competition in the Hawaii market and oil prices at unprecedented levels.

"I am a relative newcomer (to Aloha) and have been through a few 'economic Vietnams' in this industry, but none as challenging, certainly sometimes frustrating, but on the whole no more satisfying than this experience," said Banmiller, who took over as CEO just more than a year ago.

The reorganization plan's confirmation was made possible at the outset of yesterday's hearing when Faris received his so-called "Perry Mason moment" he had sought for weeks from Aloha and its unionized pilots. Following a late-night negotiating session that ended at 3 a.m. yesterday, the two sides stood up in court nearly seven hours later and announced they had a tentative deal on a new labor contract.

In an unprecedented move, the Aloha unit of the Air Line Pilots Association said it would let all of its approximately 300 members vote on the agreement instead of relying on ratification by the pilots' three-member master executive council. Unlike all of Aloha's other unions, the pilots' contracts typically are ratified only by the executive council. The vote will begin in the next couple of days and is expected to last about a week.

Details of the new contract, which runs through April 30, 2009, were not available yesterday.

"We've never sent anything out for vote before, but this affects too many lives," said Michael Feeney, a member of the negotiating committee and the chairman of Aloha's unsecured creditors' committee. "The individual pilots have the right to determine their own future."

Faris had been facing the unenviable task of ruling on the airline's motion to terminate the pilots' collective-bargaining agreement and their pension plan, and was relieved he didn't have to make a decision. That ruling was expected yesterday.

A decision in favor of the pilots likely would have resulted in the investors walking away from Aloha and the airline liquidating. A ruling in favor of the company set the stage for a possible strike by the pilots or a work stoppage that also could have shut down the airline.

Faris, calling the bankruptcy process "very painful" for all of the company's employees, acknowledged they made the decision they had to make.

Banmiller, who brought the airline into bankruptcy on Dec. 30, 2004, said the company is as well-positioned now as it's ever been after cutting $75 million in costs in the past year.

"For this company, (reorganization) means taking 60 years of history and a quality product with a great reputation, and reorganizing the balance sheet, recapitalizing the company, getting its costs in line with where the cost structure is for the successful airlines today and for the future, and recapitalizing it in such a way where we have growth opportunities," he said.

The pension plan that was at the heart of the pilots' fight with the company may get frozen instead of terminated because of pension legislation that is fast-tracking through Congress. If the pilots' pension plan is terminated, the "me too" provision in the renegotiated contracts of the other labor unions will kick in and their pensions will be frozen as well instead of terminated.

"The pension relief bill was huge," Feeney said. "I don't think we would have come to an agreement without it. The proposed pension relief benefits our side and the company's side."

A Senate version of the bill, which was passed 97-2 two weeks ago, provides that companies can freeze their pension plans and amortize funding for the plans over 20 years. An amendment to that bill by U.S. Sen. Daniel Akaka requires that the Pension Benefit Guaranty Corp. treat pilots who are forced by federal law to retire at age 60 as if they retired at age 65, increasing their benefits.

Under the pilots' tentative contract agreement with Aloha, their pension plan would be frozen retroactive to Jan. 1, 2005, if the proposed pension bill is enacted as law effective Jan. 1, 2006, or sooner. If the law is not in place by that date, the pilots' pension plan would be terminated but the company and pilots jointly could seek reinstatement of the plan if the pension bill becomes law by Dec. 31, 2006.