|
Who wins and loses Now that the merger of Hawaiian Airlines and Aloha Airlines appears to be dead, observers are asking who gains and who loses.
in failed merger?
Investors, politicians and employees
debate the future of Aloha and HawaiianBy Russ Lynch
rlynch@starbulletin.comOne clear group of winners are those Hawaiian Airlines shareholders who bought their stock for less than $2 a share and sold it for as much as $4.60 a share in the run-up that followed the Dec. 19 merger announcement.
Consumer representatives and anti-merger employees say they will be the winners because a monopoly has been avoided, a monopoly they say would have driven up interisland air fares and reduced service.
But if Greg Brenneman, the former Continental Airlines chief executive whose months-long matchmaking effort has now been rebuffed, is right, consumers will be the losers because the potential to create a profitable and growing airline has, at least for now, been lost.
State senators gave a bipartisan pat on the back to themselves yesterday, taking some of the credit for the merger being called off.
"I think we did do a good job in the handling of the merger," said Senate Majority Floor Leader Kalani English (D, Hana), who added that the merger raised several serious questions, including the impact on service to rural airports.
Sen. Sam Slom (R, Hawaii Kai) said: "First of all, the decision was the right one. The community will benefit, and I think the people can be assured that the Legislature, particularly this body, has done the right thing in really scrutinizing this particular operation. So, to my colleagues, congratulations. I think that we finally earned our keep in this one."
The Senate has held several hearings on the issue of the merger, including on a resolution calling on the Legislature to oppose the merger.
Senate Consumer Protection Chairman Ron Menor, who co-introduced the Senate resolution, said government and the airlines should explore options to keep both airlines viable.
On the airline side, Brenneman stands to lose. He was going to be chairman and chief executive officer of the new airline at a salary of $400,000 a year. His company, TurnWorks Inc., which is essentially Brenneman himself, was to get a management fee of $1.6 million a year as long as he was both chairman and CEO, and $600,000 a year if he were CEO only. In addition, TurnWorks would have owned about 20 percent of the airline with no investment of cash or securities.
But John W. Adams, Hawaiian Airlines' chairman and head of the partnership that owns a 53 percent majority of its stock, wants Brenneman out of the picture and wants to be chairman and CEO himself, according to an Aloha statement.
Adams has not denied that, but Hawaiian has said it does not "necessarily agree with Aloha's characterization of the negotiations."
What is clear is that Hawaiian, as represented by Adams, and Aloha, represented by CEO Glenn Zander, are going in different directions.
The complex merger document filed earlier this year with the Securities and Exchange Commission showed that the Adams group, Airline Investors Partnership, would get $10 million in cash and about a 27 percent ownership of the new airline if the merger were completed.
Smith Management, a private New York-based company that Adams controls, would get $5 million in cash, a million shares in the new airline and $2 million worth of notes as a "fee for advisory services rendered to Hawaiian."
Minority public shareholders of Hawaiian would each get one share of the new company plus a $2, six-year note paying 8 percent interest for each share they held. That would give them about a one-fourth stake in the new airline.
Private Aloha shareholders, members of the Ching and Ing families that have controlled Aloha for decades, would get about a 28 percent holding in the new airline.
For Zander and Paul Casey, vice chairman and CEO of Hawaiian, the merger would mean the end of their jobs, but both stood to receive substantial severance pay.
With all parties -- at least for now -- declaring the merger dead although the April 18 deadline has not passed, there are questions about the future of the airlines.
The several-hundred-page merger document went into a lot of detail. At the end of 2001, Hawaiian had more than $100 million in cash or similar available assets and long-term debt of $10.4 million.
Aloha had a cash balance of about $18 million at the end of the year but was having to negotiate new terms for some debt. At that time Aloha had a $20 million loan and had drawn about $9 million from a revolving credit account.
Brenneman has maintained that looking only at what it costs to operate their businesses each day and the amount of cash coming in to cover those costs, both airlines are losing money.
Neither has said they will fail if the merger does not go through, and both appear willing to keep on competing.
Star-Bulletin reporter Crystal Kua
contributed to this report.