Creditors want ruling
Negotiations with Hawaiian
Airlines have broken off, they say
The battle for the leadership of Hawaiian Airlines took a critical turn yesterday when Boeing Capital Corp. and the unsecured creditors committee asked U.S. Bankruptcy Court Judge Robert Faris to immediately rule on a motion to oust the airline's chief executive.
Boeing Capital, the major lessor of Hawaiian's aircraft, and the committee accused Hawaiian of attempting "to alter or delay" a ruling by filing a motion Wednesday in which the airline sought the appointment of an examiner and offered the resignation of Chairman and CEO John Adams, as well as several directors.
"Mr. Adams' proposed solution ... does little to address the demonstrated inability of (Hawaiian's) management to recognize and control its inherent conflict of interest," Boeing Capital and the committee said in a letter to Faris. "While the board composition may change slightly, several of Mr. Adams' director appointees will remain in place, and the key management team would continue, without any further independent oversight."
Hawaiian, which filed for Chapter 11 bankruptcy March 21, has been on the defensive since Boeing Capital filed a motion 10 days later requesting a trustee be appointed to steer the airline through bankruptcy. Boeing Capital, which was later joined on the motion by the committee, accused Adams and his affiliates of self-dealing, conflict of interest and insider transactions.
In the letter to Faris, Boeing Capital and the committee said they initially intended to tell him that discussions between the parties had been terminated. But they said statements contained Wednesday in a Hawaiian press release constituted "a complete and desperate fabrication that only serve to highlight the ... immediate need for a trustee."
Boeing Capital and the committee said in its letter they were "shocked" to read a Hawaiian press release in which Adams was quoted as saying the airline had "assented to Boeing's and the creditor committee's demands" and had asked them to formally abandon their trustee request.
Faris, who said a week ago that he would decide "promptly," is scheduled to rule at 2 p.m. today on some previously scheduled procedural motions, including restructured aircraft leases with Ansett Worldwide.
Several people associated with the case believe Faris could take the opportunity with all the parties present to rule on the trustee motion.
Boeing Capital's Anil Patel, who negotiates aircraft leases to Hawaiian, said it would be financially beneficial for Faris to rule for a trustee before deciding on the restructured Ansett agreement.
Patel said to do so would give a trustee the opportunity to examine the details of the new leases. He pointed out that a 60-day period preventing Ansett from repossessing its planes ends Tuesday.
Although Ansett and Hawaiian have reached agreement on new leases, Patel said it could be very expensive to undo those leases if a trustee later finds they are not appropriate.
Hawaiian spokesman Keoni Wagner said the airline also would like a speedy resolution. However, Wagner said the request by Boeing Capital and the committee to expedite a decision on the trustee motion rather than consider the examiner motion is "a little transparent."
"Frankly, the whole response strikes us as disingenuous," Wagner said. "They profess surprise when the substance of our motion is no different than had been discussed with Boeing and the committee. They've accused Adams of conflict of interest, yet their counterproposal would result in their complete control of the company. They have previously stated that they have no problem with the company's existing management, other than Mr. Adams and his affiliates on the board.
"Now that Mr. Adams has offered to remove himself and any influence ... on the board, they have a problem with the appointment of (current President and Chief Operating Officer Mark) Dunkerley. They criticize our board's proposal for eliminating exclusivity, even though this is exactly what would happen under a trustee."
Hawaiian's motion requested that Dunkerley be named the new CEO and given a seat on the board of directors.
The company also offered the resignations of five of its 11 board members, including Adams, and said it would return to the airline $500,000 that was transferred to its parent company the day before the airline filed for bankruptcy.
The board members offering to resign had ties to either Adams; majority shareholder AIP LLC, of which Adams is the controlling member; or Smith Management Co., of which Adams is president.
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 to join the airline's board.
Normally, Hawaiian would have an exclusive 120-day period to file its own reorganization plan. Giving up exclusivity would give other parties, such as Boeing Capital or the committee, an opportunity to file a plan.
Boeing Capital and the committee said despite Hawaiian's proposed resignations, the key management team that assisted Adams "in his self-dealing" and which "failed to recognize the impropriety of its conduct" would continue.
Boeing Capital and the committee also said Adams would be free to work behind the scenes. Boeing Capital and the committee said Hawaiian is using the proposed reversal of its $500,000 transfer "as a carrot to induce the court" not to grant the trustee motion even when Hawaiian has "a fiduciary duty to seek repayment in any event."
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Adams harbors no regrets
It's been a bumpy flight for John Adams.
His investment group, Airline Investors Partnership LP, landed in Hawaii seven years ago to save Hawaiian Airlines with a $20 million investment shortly after it emerged from Chapter 11 bankruptcy.
Today, he's leaving the airline in another bankrupt position -- although Adams said the condition of the airline is in much better shape than how he found it in January 1996.
CRAIG T. KOJIMA / CKOJIMA@STARBULLETIN.COM
John Adams: Hawaiian Airlines' CEO said he doesn't regret last year's tender offer
Adams, who refers to himself has a "lightning rod" for Boeing Capital Corp.'s alleged mismanagement concerns, said yesterday in a telephone interview from New York that the aircraft lessor is making an example of Hawaiian to signal to other airlines that it is unwilling to renegotiate leases.
"We were an easy target to send a message to the industry that if you're going to be aggressive in negotiations with Boeing, something like this is going to happen," Adams said. "I also think filing the motion and seeking to get me and AIP out, and appointing a new CEO and a trustee, would get someone who would be a lot more friendly in the negotiations. I think it's been a pretty successful strategy so far. It's been a personal attack, but I know their motives are rational business motives."
Until Boeing Capital filed a motion March 31 requesting a trustee to replace Hawaiian's management, the aircraft lessor had never resorted to that type of drastic action. However, Anil Patel, who negotiates leases for Boeing Capital with Hawaiian, said he disagrees with Adams' claim that the lessor is singling out Hawaiian.
Patel said Boeing Capital sought a trustee because it "has never encountered conduct by the management of any of its customers as objectionable as that of Adams and his associates."
He said Boeing Capital evaluates individual deals on their own merits and that circumstances vary between customers.
"With respect to Hawaiian, we offered concessions," Patel said. "I can't see how we're making an example of Hawaiian. We offered them $17.6 million in concessions over 2003 and 2004."
Adams said the airline's controversial $25 million tender offer last June isn't the reason why Hawaiian is in bankruptcy. He said the offer was made after several meetings of full discussions based on consultation with professionals. Boeing Capital alleges the consultants were given incomplete financial information.
"We believe what we did was in the best interest in the company," Adams said. "We don't think we did something wrong. Hindsight itself is problematic. Foresight is extremely difficult."
Still, Adams said it wasn't the tender offer that pushed the airline into bankruptcy.
"The stock self-tender is unrelated to the company being in bankruptcy and having financial problems," Adams said. "The restructuring of Hawaiian Airlines and other airlines is because their expenses exceed their revenues, and Hawaiian needed to restructure its union costs and its leasing costs so that revenue today and in the future can exceed expenses.
"Had we not taken the money out of the company in early July of 2002, the company today still would be in bankruptcy because expenses exceed its revenues. Maybe we wouldn't have filed March 21. We may have filed on April 10. But the basic fundamental problems still exist.
"To say would I put the money back now had I known everything, I would say it has nothing to with conditions of the company today. Looking back at what we saw in June of 2002 and based on all the information we knew at the time and the advice we were given, we made a rational business judgment."
Adams said it's important that Mark Dunkerley, the current president and chief operating officer, be elevated to the CEO position since Adams' days as an executive appear numbered.
"Mark should be the CEO because he represents the head of a management team that has worked for months and months restructuring this airline and preparing for the future and gone an awful long way in getting there," Adams said. "To go out and get a trustee would be to throw that away unnecessarily."
Adams said he has brought a lot to the airline, including the overhaul of its entire fleet and the addition of new mainland destinations.
"I would like to be remembered as an investor who came in with capital when the company needed it, who through a seven-year period of time worked very hard professionally and personally to make Hawaiian Airlines a better airline and that, as an independent person told me today who was involved in the bankruptcy 10 years ago, that the company today looks nothing like it did in 1994."
Adams also said he would like people to remember the job he and Hawaiian's management team did in restructuring the airline both financially and operationally over the past six months to deal with high prices in the industry, and that when he became targeted in the trustee issue, he "gracefully stepped aside so that the company could carry on what I have started."
