Hawaiian Air looking
for $30 million
in cost cuts

Pilots are being asked
to accept $8 million of that
in contract concessions

By Dave Segal

Hawaiian Airlines pilots are being asked to accept $8 million in concessions as part of an overall $30 million in savings that the carrier is seeking in order to return to profitability.

The company, which has given its unions until Feb. 20 to meet its request for $15 million in wage reductions, also is seeking $15 million in leasing concessions, most of which is from Boeing Co. The unions have been meeting to discuss their options and whether to go forward with the concessions, which can include measures besides pay cuts.

Hawaiian Air "It's all fluid," said Ron Hoopau, the master executive council chairman for the Air Line Pilots Association at Hawaiian. "Negotiators are doing the best they can do to keep this airline operating. Everyone has their share to come up with and we're doing what we can to meet the goal that (Chairman and Chief Executive Officer John) Adams wants."

The cuts that other unions are being asked to take could not be ascertained. Hoopau wouldn't confirm the $8 million figure for the pilots, but that number was confirmed by multiple sources.

A member of one of the airline's major unions said there's no telling what eventually will be decided.

"Ultimately, it's up to the membership," said the union member who didn't want to be identified. "They're going to vote on all these concessions and whether they believe the company is credible and whether they need to do this."

The three major unions connected with the airline are the Air Line Pilots Association, the International Association of Machinists and Aerospace Workers, and the Association of Flight Attendants. Smaller unions are the Transport Workers Union and Employees of the Communications Section. Hawaiian Airlines has about 3,500 employees.

Analyst Brian Smith, who covers the company for Portland, Ore.-based equity research firm RedChip Review, believes Hawaiian is doing the right thing.

"They have to cut their costs," Smith said. "I think concessions are a good first step to take and hopefully the unions will agree with that approach."

The airline, which has warned that additional layoffs are likely, shook up its management ranks Friday by accepting the resignation of four key executives.

John Happ, senior vice president for marketing and sales; Lyn Anzai, vice president for legal and government affairs; Brian Hermansader, vice president for maintenance and engineering; and John Solomito, senior director of U.S. mainland stations, all have left the company, according to a Jan. 31 memo Adams sent to employees.

Hawaiian, which announced a 4 percent work force reduction in October in order to stem its losses, informed employees and their unions that it needs an answer to previously discussed "Plan B" wage concessions by Feb. 20. The airline's board is scheduled to meet the following day.

In a second memo, also dated Jan. 31, Adams explained the ramifications of Plan B, which is designed to make the company more efficient and allow Hawaiian to be competitive in what Adams called a "new business environment." He said that if employees don't accept Plan B, "we will be faced with the need to downsize operations as other carriers are doing."

Adams, who implied in the memo that Chapter 11 bankruptcy was a possibility without the concessions, said fewer employees will be needed to operate the same schedule as work force productivity improves. However, he added that additional personnel would be hired by summer to accommodate additional flying.

"If we execute 'Plan B' in full, and barring catastrophic effects of a war, we are confident that the plan will allow us to achieve profitability," wrote Adams, who said he wanted to implement the various components of the plan by April. Adams said in the memo that the aircraft lessors have indicated their support contingent upon all of the airline's unions accepting concessions.

A mainland aviation consultant said it's no surprise that Hawaiian is seeking the leasing concessions.

"We're in a situation where the airline industry, in general, is about $15 billion in revenues smaller than it would have been if 9/11 had not taken place," said Mike Boyd, president of The Boyd Group in Evergreen, Colo. "That's a lot of money, especially when you're in Hawaii and you have a strong dependence on the outside economy. If people stop coming to the beach, a carrier like Hawaiian has to look at every single penny."

Although Hawaiian earned $6.4 million in the third quarter, it lost $43.2 million in the first nine months of 2002. The company is scheduled to report its fourth-quarter and full-year 2002 earnings next month.

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