Hawaiian CEO
offers to resignHawaiian Airlines says John
Adams would resign as part
of a deal to avert a trusteeshipThe airline also requests an
examiner and offers to have
four other board members quit
Hawaiian Airlines, attempting to avert the appointment of a trustee, filed a motion in U.S. Bankruptcy Court yesterday asking for an examiner and offering the resignation of Chairman and Chief Executive Officer John Adams.
The carrier, which filed for Chapter 11 reorganization bankruptcy March 21, also requested that Mark Dunkerley, the current president and chief operating officer, be named the new CEO and given a seat on the board of directors. The company offered the resignations of five board members, including Adams, and said it would return to the airline $500,000 that was transferred to its parent company, Hawaiian Holdings Inc., the day before the airline filed for bankruptcy.
Hawaiian also said it would relinquish its exclusive right to propose a reorganization plan and requested that the U.S. Trustee's Office be asked to nominate two independent members of the Hawaii business community to join the airline's board. Normally, Hawaiian would have an exclusive 120-day period -- plus any extensions granted by the court -- to file its own reorganization plan.
Giving up exclusivity would give other parties, such as aircraft lessor Boeing Capital Corp. or the committee of unsecured creditors, an opportunity to file a combined plan or separate plans.
One of the concerns of Boeing Capital and the creditors committee has been that Hawaiian's 11-member board not be controlled by members affiliated with Adams or majority shareholder AIP LLC, of which Adams is the controlling member. The creditors also are concerned about control by consulting firm Smith Management Inc., of which Adams is president.
Hawaiian said board members, besides Adams, who would offer their resignations are:
>> Robert Coo, Adams' brother-in-law.
>> Edward Safady, a former officer of Smith Management and the chairman, president and CEO of Liberty Bank SSB, which has had business dealings with Hawaiian.
>> Thomas Trzanowski, a former treasurer of Smith Management and currently a director of Liberty Bank.
>> Todd Cole, a consultant for Hawaiian whose consulting contracts were questioned by Boeing.
No date has been set for the court to hear the airline's motion.
Hawaiian's filing, which came yesterday following the airline's second board meeting in three days, caught aircraft lessor Boeing Capital by surprise. Boeing Capital and the creditors committee have been negotiating with Hawaiian since May 5 over governance of the airline.
"Although we had been talking about potential alternatives since May 5, this one is news to us," Boeing Capital spokesman Russ Young said yesterday. "It should not be mistaken for something we have agreed to. We continue to believe that a trustee offers the best opportunities for successful reorganization."
Hawaiian spokesman Keoni Wagner said he was surprised by Young's statement.
"We can't imagine how this would come as a surprise in form or substance, given the amount of negotiation that's taken place over the past couple days," Wagner said.
Attorneys for the creditors committee could not be reached for comment.
Boeing Capital, the airline's major aircraft lessor, filed a motion March 31 seeking a trustee after accusing Adams of self-dealing, conflict of interest and insider transactions. The seven-member creditors committee later supported Boeing Capital's motion.
Bankruptcy Court Judge Robert Faris said Friday at the end of a two-day hearing that he would rule "promptly" but had urged the sides to strike a deal.
Faris said at the hearing he was unlikely to keep the status quo and was concerned that Hawaiian had transferred $500,000 to its holding company prior to filing bankruptcy and had spent $25 million on a tender offer at a time when Boeing Capital's attorneys contend the company was falling short of financial projections.
Faris indicated at the hearing he probably would choose either a trustee or an examiner. An examiner would work parallel with management but would not have the same power as a trustee in running day-to-day operations. An examiner also would be able to investigate alleged preferential payments.
"What's most important to me is that Hawaiian Airlines is given every opportunity to complete the last mile of this marathon and emerge the strong competitor that I know it can be," Adams said.
Hawaiian said in last week's hearing that the airline had been close to reaching restructured leasing agreements with International Lease Finance Corp. and Ansett Worldwide but was forced to file for Chapter 11 protection because it was far apart in its negotiations with Boeing Capital, which leases Hawaiian all 13 of its Boeing 717s and three of the airline's Boeing 767s.
The 717s are used for interisland routes, and the 767s are used for trans-Pacific routes.
"The only major stakeholder that hasn't agreed to participate in Hawaiian's restructuring is Boeing," Adams said yesterday. "While Boeing has said that they want Hawaiian Airlines to remain a customer, the effort they have focused on me is wreaking profound damage on the company, and I can't allow this to continue."
Young contended that Adams was pointing his finger at the wrong party.
"Based on what we've seen, the profound damage was wreaked on the company last year by the tender offer and other, similar transactions," Young said.
One of Boeing Capital's demands was that Adams return more than $17 million that his partnership, AIP, received from the tender offer.
While Hawaiian did not specifically offer to return that amount, it did say in its motion that the examiner would be able to investigate insider transactions, report findings to the court and, if appropriate, prosecute any misdeeds uncovered. Hawaiian said, though, the related party transactions were supported by legitimate corporate purposes and were properly approved.
Adams called for Boeing Capital and the creditors committee to abandon their request for a trustee due to the concessions the airline made in its motion.
"It is important that both Boeing and the committee recognize that disruption in the day-to-day management of the company risks its ability to successfully restructure," Adams said.
"I would gladly accept the appointment of an examiner with the power to bring a cause of action as a much more reasonable and constructive way to resolve issues that have been raised without damaging the business. To do otherwise would be irresponsible to every creditor, employee and customer of Hawaiian Airlines."