Hawaiian Air
may get new leaders

A creditors panel votes support
for a bankruptcy trustee

Hawaiian Airlines' chances of retaining its current management, including Chairman and Chief Executive Officer John Adams, were dealt a serious blow yesterday.

A committee representing the carrier's unsecured creditors voted to support Boeing Capital Corp.'s motion for a bankruptcy trustee to steer the airline through reorganization.

Hawaiian Air The seven-member committee's decision -- although not unanimous -- is expected to weigh on U.S. Bankruptcy Court Judge Robert Faris' ruling when he begins hearing arguments on that motion Thursday.

Hawaiian filed for Chapter 11 reorganization bankruptcy March 21, and Boeing Capital filed its motion 10 days later.

The creditors committee, acknowledging that the appointment of a trustee is a drastic step, said it weighed the pros and cons and believes "a trustee is absolutely needed in order to assure the best prospects for the reorganization." The committee, whose members voted anonymously, also emphasized in its filing that it supports the reorganization of Hawaiian and not the airline's liquidation.

Perhaps most damaging, though, was the committee's comments that ongoing discovery established "an apparent pattern of self-dealing" by Adams, who also is the company's majority shareholder.

"It has been established that millions of dollars were paid to insiders (of Hawaiian) in the year prior to the bankruptcy," the filing said. "These payments resulted in a substantial and significant depletion of the estate's assets that could otherwise have been available for the payment of (Hawaiian's) obligations."

One of Boeing Capital's major complaints is that the airline spent $25 million last summer on a tender offer several months after receiving a $30.1 million federal grant intended to help the airline recover from Sept. 11, 2001. Boeing Capital also said the board had authorized a one-time payment of $2 million and monthly $75,000 payments to Smith Management LLC, which is the investment management company of Adams and business partner Randy Smith.

In addition, the filing points out that Hawaiian approached its aircraft lessors and employees regarding concessions shortly after payments were made to insiders. Boeing Capital has requested that Adams' partnership, which received more than $17 million of the $25 million, return the money.

"Given the allegations against Adams, who was responsible for appointing a majority of the board, there can be little doubt that the appointment of an independent fiduciary will be a positive move toward the reorganization of Hawaiian," the committee said. The committee also said it intends to further investigate the transactions and will ensure all appropriate actions will be considered in order to recover the assets.

Hawaiian issued a statement expressing its disappointment and said it anticipated further discussions with the committee next week.

"Our goal will be to address the committee's concerns regarding corporate governance issues and resolve them in the best interests of the company and all of its constituents," Hawaiian said.

If Faris sides with the committee, Adams would lose his position with virtually no chance of returning. The trustee would take total control of the airline's operations and would be free to decide which executives to retain or replace.

"This is a positive development," Boeing Capital spokesman Russ Young said. "We continue to believe that a trustee provides the best path to a successful reorganization. But in the end it will be the facts that drive a ruling."

The committee expressed concern in its filing about the "substantial acrimony" that exists between Boeing Capital, the airline's major aircraft lessor, and Adams. Boeing Capital leases Hawaiian all 13 of the 717s it uses for interisland flights and three of the 14 767s it uses for trans-Pacific routes.

"The committee is concerned that absent the appointment of a trustee, this acrimony would result in significant operational problems for (Hawaiian) to overcome," the filing said. "This is of the utmost importance as (Hawaiian) needs to restructure its leases with BCC (and the other aircraft lessors) in order to become more cost-effective."

Hawaiian said it has made "substantial progress" renegotiating leases with its lessors and that its best chance for success rests in allowing those efforts to continue.

"Appointing a trustee would only serve to disrupt this process, to the detriment of all parties in interest," Hawaiian said.

However, it might be a tough sell for Hawaiian, based on the committee's response.

"The committee strongly believes in the viability of this airline and that the appointment of a trustee will have minimal effect on the day-to-day operations of Hawaiian," the filing said.

Also yesterday, Hawaiian said in a Bankruptcy Court filing that it expects to lose a combined $5.28 million during the months of April, May and June. The carrier estimated it lost $2.86 million in April and will lose $4.42 million in May and make $2 million the following month.

Since Hawaiian plans to continue its talks with the committee next week, the possibility exists that the airline could get the committee to amend its filing with some type of compromise prior to Thursday's hearing.

Hawaiian Airlines

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