Hawaiian starts Financially strapped Hawaiian Airlines, which has overhauled its entire fleet during the past four years, has been talking to other aircraft lessors about replacing at least some of its planes as it navigates its way through its second bankruptcy in a decade.
plane talks
The bankrupt airline has been
talking to lessors about replacing
at least some of its planesBy Dave Segal
dsegal@starbulletin.com
Two industry insiders say the carrier, facing difficult negotiations with its current aircraft lessors, has been seeking less expensive alternatives since it filed for Chapter 11 reorganization on March 21. The company currently has 13 Boeing 717s and 14 Boeing 767s, with an additional 767 scheduled for delivery both this month and next.
Hawaiian spokesman Keoni Wagner said he was unable to talk about the airline's plans for its fleet although he did say that Hawaiian has resumed negotiations with its three aircraft lessors -- Boeing Capital Corp., International Lease Finance Corp. and Ansett Worldwide. Both Boeing Capital and Ansett confirmed yesterday that negotiations have restarted while a person familiar with ILFC said it also has been talking.
"I can't comment on ongoing negotiations with any lessors," Wagner said. "I also can't comment on our plans in regards to the fleet at this point."
Boeing Co., the parent company of financing unit Boeing Capital, said yesterday it will take a $1.2 billion pretax charge in the first quarter to reflect the continuing severity in the commercial aviation and commercial space businesses and because of a decrease in the company's stock price. The write-down includes $251 million related to Boeing Capital, of which $21 million in interest rate hedges is tied to Hawaiian Airlines. Interest rate hedges are an insurance policy of sorts against interest rate increases. The hedges allowed Boeing Capital to lock in the interest rates it paid for airplanes it subsequently leased to Hawaiian Airlines.
Boeing said the charges for its financial unit were prompted by continued declines in airline customer credit ratings, airplane collateral values, and lease rates. Boeing Capital also said it was increasing its valuation allowance, or reserve, by $130 million, or 50 percent, from $260 million at the end of 2002. The 2002 allowance follows an 86.3 percent increase in its valuation allowance from $139.5 million in 2001.
Meanwhile, Hawaiian appears to be protecting itself by looking at other aircraft. The airline faces the possibility of losing some or all of its aircraft if it is unable to come to negotiations with its three aircraft lessors during the 60-day window that ends May 20.
Conversely, Section 1110 of the federal Bankruptcy Code allows debtors within 60 days to reject leases for unwanted aircraft and return them. The lessor is required to take back the aircraft.
According to airline industry insiders, 717s lease for approximately $200,000 a month and 767s for about $500,000 a month. Old or used aircraft, like a Boeing DC-9, might lease for $20,000 to $30,000 a month.
Boeing Capital, which is seeking a trustee to replace Hawaiian's management, said in a recent motion that Hawaiian will owe Boeing Capital nearly $18.4 million on May 20. That amount includes the 767 due to be delivered this month. Hawaiian hasn't indicated yet if it will take delivery. Ansett is scheduled to deliver its final of eight 767s in May.
The airline industry insiders who are aware of Hawaiian's talks with other aircraft lessors say it would be expensive for Hawaiian to replace its 717s, which are used for interisland flights, because of new training needed for pilots and mechanics, ground equipment adaptation, the availability of parts and the required Federal Aviation Association approval.
Hawaiian also wouldn't be able to easily obtain 717s outside of Boeing because they aren't readily available unless Hawaiian was able to find a company to sublease them.
If Hawaiian had to replace its 717s, it would be faced with "wet-leasing," which means that it would need to bring in replacement crew and mechanics while the current crew and mechanics are trained. Other types of planes would be cheaper to lease but would have higher operating costs than the 717s.
Among 717 replacement possibilities, the airline insiders say, are the DC-9, which is the type of plane that Hawaiian used before switching to the 717; the McDonnell Douglas MD-80; the Boeing 737; and the Airbus A320.
Hawaiian would have more options in obtaining wide-body 767s, used for mainland flights, from other lessors because there are several currently available. The airline also might consider a Boeing 757, which is a narrow-body aircraft with a lower operating cost than a 767. It doesn't have the same range as the 767 but would be able to fulfill Hawaiian's current flight needs.
The 757s also are relatively inexpensive on the market right now, according to the industry insiders, and have the same pilot training course as the 767s.
Aloha Airlines currently uses different types of 737s on its mainland and interisland flights.
Hawaiian Airlines