Late appeal imperils Aloha bankruptcy
Just days away from getting out of bankruptcy, Aloha Airlines has been hit by a last-minute appeal to its confirmation plan that could unravel its yearlong reorganization and permanently ground the carrier.
The Pension Benefit Guaranty Corp., the federal agency that insures pension plans, notified federal Bankruptcy Court on Friday that it intends to appeal the confirmation of Aloha's reorganization plan to U.S. District Court. Bankruptcy Judge Robert Faris approved Aloha's confirmation plan on Nov. 29.
Aloha, which had planned to terminate its unions' pension plans Wednesday and emerge from bankruptcy on Thursday, was granted on Saturday an emergency hearing at 10 a.m. tomorrow in Bankruptcy Court to establish expedited filing deadlines to force PBGC to designate the issues it will appeal. Aloha also intends to ask District Court for an expedited schedule as well.
"The consequences of a delay in the consummation of the (reorganization) plan are dramatic," Aloha said in a Friday filing.
Aloha said the financial obligation of its lead investor, Yucaipa Cos. Inc., is contingent upon the company coming out of bankruptcy on Thursday. In addition, Aloha said its senior lenders' line of credit also expires that day.
"The PBGC's notice of appeal imperils (Aloha's) restructuring, threatens the very existence of (Aloha) and thus the employment of over 3,600 residents of the state of Hawaii and the provision of air transportation services to (Aloha's) customers," the filing said. "Given (Aloha's) dire need for liquidity, the delay occasioned with an appeal will result in the near certain death of (Aloha).
"Permitting the PBGC to prosecute its appeal 'in the ordinary course' will likely result in the cessation of the business and the shutdown of the airline."
The PBGC, obligated to pay Aloha's pension liabilities up to a capped amount if the pension plans are terminated, objects to the new contracts that Aloha reached with four of its labor groups because they include termination of the plans.
A fifth group, the flight attendants, aren't involved because they have a defined-contribution plan in which they are responsible for the risk.
During last month's confirmation hearing, Aloha had asked Faris to waive the 10-day appeals period that is allowed after a reorganization plan is approved.
Faris declined to grant the request and the PBGC, after two failed meetings with Aloha, filed its appeal on Friday, the final day allowed to make appeals.
The PBGC was $22.8 billion underfunded at the end of its last fiscal year due to the increasing number of companies terminating pension plans.
Legislation going through Congress now would offer companies pension relief by allowing them to spread out payments over a longer period of time. However, the House said last week that it wouldn't take up the issue again until next year.
The Senate already has approved its version of the bill.
The PBGC argued in court last month that Aloha could afford to continue the pension plans for all of its groups.
Aloha's pilots, who are the last union yet to ratify a new contract, are expected to announce the outcome of their vote today.
Aloha reported in its latest financial report last week that it had an operating loss in October of $1.5 million and a net loss of $4.2 million. Revenue was $33 million in what is historically one of the weakest months of the year for the airline. Operating expenses, which included $9.3 million for fuel costs, came to $34.5 million.
For the first 10 months of the year. Aloha had an operating gain of $4.7 million and a net loss of $25.4 million on revenue of $377.7 million. Operating expenses, including $88.5 million for fuel, were $373.1 million. Its 10-month total for legal and professional fees was $13.1 million.