Creditor wants Boeing Capital Corp. is requesting U.S. Bankruptcy Court appoint a trustee to pilot Hawaiian Airlines through Chapter 11 proceedings.
trustee to take over
Hawaiian Air
It accuses the CEO of enriching
himself as the airline struggledBy Dave Segal
dsegal@starbulletin.comThe financial arm of Boeing Co. also asked that John Adams, Hawaiian's chairman, chief executive and majority shareholder, and his affiliates return more than $17 million they received as part of the airline's $25 million tender offer last summer, according to court papers filed yesterday.
Boeing Capital, one of Hawaiian's largest secured creditors, contends in the motion that Hawaiian was approaching Boeing Capital and other aircraft lessors seeking $20 million in cost reductions at the same time it was conducting the tender offer as a "reward" to shareholders.
Hawaiian filed bankruptcy March 21, blaming the action on its inability to obtain concessions from its three aircraft lessors: Boeing Capital, Ansett Worldwide and International Lease Finance Corp. The airline had earlier reached more than $15 million in labor-cost concessions from its unions.
In its bankruptcy filing, Hawaiian listed a 2002 net loss of $58 million, debts of $399 million and assets of $256 million.
In yesterday's filing, Boeing Capital said that after Hawaiian received a $30 million federal grant following 9/11, the airline authorized more than $30 million in payments to shareholders and other insiders, including $3.1 million for a stock-repurchase program, the $25 million tender offer that paid shareholders a 31 percent premium, and more than $3 million in consulting contracts and compensation increases. Adams, whose partnership provides the consulting services, was the major beneficiary of the payouts.
"Rather than using ($30 million in) stabilization funds to ensure the ongoing viability of the airline as Congress intended, Mr. Adams deliberately chose to reward himself and his interests, at the expense of creditors and the company -- an act which would only help to assure Hawaiian's financial demise," the filing said.
Hawaiian's working capital following the payout dropped to a record deficit of more than $130 million -- twice the airline's historical low -- following the tender-offer payout, the filing said.
The airline had a negative net worth of more than $69 million and sharply declining working capital and cash balances that were indicators Hawaiian was insolvent or near insolvency at the time of the "insider transfers," the filing said. Boeing Capital also said in its filing that on April 26, about a month before the tender-offer announcement, the Adams-controlled board approved a 200 percent increase in Adams' salary -- to $600,000 a year.
Boeing Capital asserted that the move to appoint a trustee is necessary based on past actions of airline management.
"If Hawaiian continues to operate under current management and fails to recover the equity taken from it last year, Boeing Capital is concerned that Hawaiian will not be able to successfully reorganize," Boeing Capital spokesman Russ Young said.
Hawaiian, which notified the Securities and Exchange Commission yesterday that its annual report would be delayed up to 15 days due to its bankruptcy filing, issued a short statement last night in reply to Boeing Capital's motion.
"We are disappointed to learn of Boeing Capital's action," Hawaiian said. "While we have not yet had an opportunity to review the motion, we believe it is a thinly veiled attempt by Boeing Capital to distract the company and the court during the 60-day statutory period during which the company is afforded the opportunity to renegotiate its leases. As to the May 2002 tender offer, it was both legal and proper and publicly disclosed."
Boeing Capital said in its motion that it had been discussing possible cost reductions since May and recently offered Hawaiian $15 million in cash relief during 2003 and 2004 but that Hawaiian management did not accept the offer. Boeing Capital also said it deferred some of the aircraft-rental payments due in January, February and March that totaled $10.3 million at the time of Hawaiian's March 21 bankruptcy filing.
Boeing Capital said that as of the date of Hawaiian's Chapter 11 filing, the airline owed more than $10.3 million and as of May 20 will owe Boeing Capital more than $18.3 million.
Hawaiian spokesman Keoni Wagner said the airline would not comment beyond its statement.
A spokesman for the International Association of Machinists' clerical group said he did not agree with Boeing Capital's attempt to appoint a trustee to replace current management during the bankruptcy.
"Our organization worked well with the current management staff, and I think they're making every effort to see us through the bankruptcy," said Randy Kauhane, assistant general chairman of District 141, whose group encompasses customer service agents, reservation agents and officer workers.
Kauhane said Hawaiian's bankruptcy, which followed Chapter 11 filings by United Airlines and US Airways, is not abnormal given the current economic times.
"Because I'm involved with so many other carriers -- Aloha, Hawaiian, United -- it's not just a Hawaiian thing," Kauhane said. "Everyone in the industry is going through it and dealing with the issues as best as they can right now," he said.
The next step in the process will come May 6 when U.S. Bankruptcy Judge Robert Faris hears motions from both sides and decides whether there are grounds to appoint a trustee. If the judge rules in favor of Boeing Capital, then the Office of the U.S. Trustee would have the duty to select a trustee from qualified applicants.
"The trustee would then come in and take over and determine how best to operate the company," said Gayle Lau, assistant U.S. trustee.
Lau said his office is also currently in the process of forming a creditors committee to represent Hawaiian's unsecured creditors. He said he expected the committee to be formed by midweek with a meeting scheduled for 10 a.m. April 29 at the Office of the U.S. Trustee. Lau said he would like to get five members on the volunteer committee.
Hawaiian Airlines