Airline trustee unlikely Boeing Capital Corp.'s request for a trustee to oversee Hawaiian Airlines' Chapter 11 bankruptcy proceedings is "excessive" and unlikely to be approved, a Honolulu bankruptcy attorney said yesterday.
Attorneys say it's an uphill
battle to oust management;
Creditors committee named
in Hawaiian bankruptcyBy Dave Segal
dsegal@starbulletin.com
But a Colorado-based aviation consultant, saying that Boeing Capital's accusations are "explosive stuff," said he thinks that the financial arm of Boeing Co. may have grounds to seek the replacement of Hawaiian's management during bankruptcy.
One day after Boeing Capital filed a motion that it labeled unprecedented for its own company, the main parties in the tug-of-war over aircraft leasing payments retired to their hangars while aviation and bankruptcy experts weighed in with their observations.
The bankruptcy case also took another step forward with the formation of a seven-person creditors' committee, which includes three of the 20 largest unsecured creditors as well as Hawaiian's three major unions. The committee, which is expected to select a law firm within the next few days, consists of Panda Travel, the second-largest creditor with a claim of $5.6 million; Aviation Insurance Services, the third-largest creditor with a claim of $2.5 million; Pratt & Whitney, the seventh-largest creditor with a claim of $1.4 million; and Starr Seigle Communications Inc., the 14th-largest creditor with a claim of $570,000. Also on the volunteer committee are representatives of the Air Lines Pilots Association International, International Association of Machinist and Aerospace Workers, and the Association of Flight Attendants.
The creditors are due to have an organizational meeting by conference call this week and will talk about how they want to be organized. One of the committee's first tasks is expected to be the selection of counsel. A meeting of the creditors is scheduled for 10 a.m. April 29 at the Office of the U.S. Trustee.
Bankruptcy attorney Jerrold Guben, of Reinwald O'Connor & Playdon, said he thought it was "excessive" and "unusual" that Boeing Capital requested a trustee rather than an examiner to intervene in the case, since an examiner has more power than a trustee to look into alleged irregularities. A trustee would oversee the company's operations during bankruptcy, he said.
"An examiner would be able to come in and investigate the redemption to shareholders that Boeing is complaining about to see if they received preference or a fraudulent transfer, or if the company was technically insolvent when the money was paid out," Guben said. "An examiner would not disrupt the management but would work parallel with them. The examiner would have all the rights and powers of the trustee to recover the alleged preferential payments, and the examiner could bring his own lawsuit to recover the funds. The advantage of an examiner over a trustee would be keeping the airline people in place, yet Boeing would accomplish its investigative concerns through the examiner.
"Often times, a trustee is someone new who comes in and doesn't have the background to run that airline."
Guben said it would be "very rare" for the U.S. bankruptcy judge to appoint a trustee in the Hawaiian case unless there was "actual wrongdoing" and "self-dealing."
Two other Honolulu bankruptcy attorneys, who declined to speak publicly, also said they thought the appointment of a trustee would be unusual. One of the attorneys expressed surprise that a trustee would be requested this early in the bankruptcy process.
Robert Mann, an airline analyst and president of Port Washington, N.Y.-based R.W. Mann & Co., also wondered about the timing of the trustee request.
"The request is unusual, but not unprecedented," Mann said. "I can't think of another airline case that has gone to a trustee this early, though both Eastern and Pan Am did eventually."
Boeing Capital spokesman Russ Young declined to respond to Guben's assessment of the filing, referring instead to Boeing Capital's motion. In that motion, Boeing Capital said it is concerned that Hawaiian won't be able to successfully reorganize if it continues to operate under current management and doesn't recover the money taken during its $25 million stock tender offer last July.
Aviation consultant Mike Boyd, president of The Boyd Group in Evergreen, Colo., said "if Boeing can prove management malfeasance or management game-playing, there's a good chance they can pull off" the trustee request.
"I think they've ripped the sheets with the current management," Boyd added. "I don't think there's any going back where they can be happy, happy."
Boeing Capital's motion contends that Hawaiian used more than $30 million it received in federal aid following 9/11 to fund its $25 million tender offer that paid shareholders a 31 percent premium. John Adams, Hawaiian's chairman and chief executive officer, and his affiliates received 69 percent of that payout, the filing said.
Hawaiian has reiterated that the tender offer was separate from the restructuring it says is necessary now for the airline to survive.
The airline also said the buyback was meant to reward investors and to improve the company's ability to raise additional capital in the future.
In another development, Hawaiian has notified about a dozen furloughed employees that severance pay, accrued vacation and health benefits owed to them will not be paid due to the Chapter 11 filing, according to one furloughed employee.
Hawaiian Airlines spokesman Keoni Wagner declined to comment.
A Jan. 31 letter from Hawaiian to some noncontract employees said they were required to report to work through February and then be on call during March. The letter said the employees would be paid through March, as long as they didn't accept a position outside Hawaiian Airlines, and then would receive severance for each year of service.
In addition, the letter said individuals would be covered under medical and dental insurance through June 30. But last Friday, one week after the company's Chapter 11 filing, the company began notifying the furloughed workers that they wouldn't receive their severance and vacation pay as previously promised and that health benefits would cease at the end of March, according to the employee. Only those who had logged hours after the March 21 filing were entitled to remuneration, Hawaiian said. The worker, who spoke on the condition he not be named, said he was out thousands of dollars.
Guben, the bankruptcy attorney, said Hawaiian had no choice but to renege on its previous financial obligations due to the bankruptcy filing. He said the bankruptcy code prevents Hawaiian from fulfilling obligations from before the filling except by special court order.
To seek money owed, Guben said, workers would need to file a claim in U.S. Bankruptcy Court.
"I'm just a little fish, but it makes me kind of mad," said the former Hawaiian employee. "They notified me late (about the change) and unemployment won't kick in for another week."
Hawaiian Airlines
Boeing Capital Corp.