Aloha resumes crucial talks with federal pension agency
One day after a federal judge upheld its reorganization plan confirmation, Aloha Airlines resumed talks yesterday with the Pension Benefit Guaranty Corp. in the hope of getting past the last obstacle that blocks the carrier from getting out of bankruptcy.
The federal agency, which had appealed the Bankruptcy Court confirmation of Aloha's reorganization plan to U.S. District Court, wants to stop Aloha from terminating its unions' defined-benefit pension plans. The agency had threatened to appeal to the 9th U.S. Circuit Court of Appeals if it lost in U.S. District Court. But yesterday the agency, which insures pension plans, declined to say what its next move would be.
"The PBGC is reviewing its options in light of yesterday's ruling," agency spokesman Jeffrey Speicher said.
One of the options that Aloha has been discussing with the PBGC is the sale of Aloha's assets, according to people familiar with the situation. In that fire-sale scenario, all the necessary parts to keep the airline operating would be sold, such as its name, aircraft leases and gate space, as well as its fixed assets, to its new investors, Yucaipa Companies LLC and Aloha Aviation Investment Group LLC. The investors' $100 million cash-and-debt offer would remain the same, but a new company would emerge free of debts owed by the old Aloha Airlines.
The old company, which eventually would go away, would be left behind in Bankruptcy Court and would be responsible for paying creditors' claims with money left behind from Yucaipa that is earmarked for those claims.
Although the unions' pension plans still would be terminated under such a process, the liquidation could put the PBGC in a better position for discouraging other airlines from terminating pensions because there would be the perception that the old Aloha Airlines was shuttered rather than reorganized.
However, there are some problems with such an arrangement. The airline's Federal Aviation Administration license would be terminated and it would have to obtain a new one. Also, the deal would have to be approved by Bankruptcy Court, union contracts would need to be reaffirmed and the door could be opened to other interested asset buyers.
Another topic that has been discussed between Aloha and the PBGC, a source said, has been the size of the agency's administrative claim against Aloha involving the unions' pension plans. Bankruptcy Judge Robert Faris has placed an upper limit of $4.5 million on the claim. But PBGC has said it is owed more than $10 million and has threatened to appeal that issue to U.S. District Court. A hearing is scheduled for Jan. 13 in Bankruptcy Court on the size of the claim.
Aloha, which had planned to emerge from reorganization on Thursday, said yesterday that nothing has changed in the airline's daily operations and that there was no new information regarding its investors or lenders.
The investors had said they would walk away if the airline wasn't out of bankruptcy by Thursday, and a $68 million loan from the senior lenders, Ableco Finance LLC and Goldman Sachs Credit Partners LP, also expired that day.
Another person familiar with the situation said yesterday that the lenders and investors are on "hold" while they wait to see if Aloha and the pension agency can reach a compromise.
Aloha said after Thursday's ruling that it wants to emerge from bankruptcy as soon as possible. On Dec. 30, it will have spent a year in Chapter 11.