Hawaiian Air
gets trusteeThe judge singles out a $25 million
tender offer in his decision that effectively
removes its chairman and CEO
Saying Hawaiian Airlines' top executive consistently placed the interests of its shareholders ahead of its creditors, a U.S. Bankruptcy Court judge yesterday ordered a trustee be appointed to pilot the ailing company through Chapter 11 bankruptcy.
Judge Robert Faris' order effectively replaces Chairman and Chief Executive Officer John Adams with a trustee.
Faris said there was "no reason to believe that (the airline's) attitude suddenly changed when Hawaiian filed its bankruptcy petition."
In making his decision, Faris singled out a $25 million tender offer made to shareholders, including Adams, when the company was in "severe financial distress" and $500,000 transferred to its parent company, Hawaiian Holdings Inc., on the eve of its bankruptcy filing.
Faris discounted the argument by Hawaiian, which filed for bankruptcy March 21, that no trustee has ever successfully led an airline through a bankruptcy reorganization. He also rejected Hawaiian's contention that the appointment of a trustee would signal to the public that liquidation was imminent. Additionally, he said the tender offer, pre-bankruptcy payment to Hawaiian Holdings and other transactions may give rise to claims that, if prosecuted, could benefit the company.
"The benefits of the appointment of a trustee outweigh any potential detriment," Faris wrote. "There is no reason to doubt that Hawaiian's management can operate the airline effectively and efficiently. The duties of (Hawaiian), however, go far beyond the operation of the business."
Faris said there was no reason to fear that the appointment of a trustee will adversely affect Hawaiian's day-to-day business operations. He said any public perception to the contrary would be misplaced and should be dispelled by the prompt appointment of a qualified and disinterested individual to serve as trustee.
Michael McQuay, one of the front-runners for the trustee position, said from his Richardson, Texas, home last night that he agreed with the judge's decision.
"I think it's the right thing to do under all the circumstances that have transpired and what I've read about," said the Kailua-born McQuay, who was executive vice president and chief operating officer of Hawaiian from 1995 to 1997.
"I know a lot of critical decisions have got to be made in fairly short order and one of the key things is credibility among the creditors committee and gaining the confidence of the employees, the unions and everyone else. Those will be key things that will have to happen pretty quickly."
McQuay, president of Dallas-based Bombardier Business Jet Solutions, also scoffed at Hawaiian's claim that the appointment of a trustee would damage the airline.
"I don't think it's a lot different than having a situation where you would select a new CEO going into a company in a less-than-ideal situation where things have to be done," McQuay said. "There are success stories like that all over the place. The difficulty of that, obviously, is that you've got creditors and the interests of a lot of different parties to take under consideration. But it's all about running the business."
Paul Casey, a former vice chairman, CEO and president of Hawaiian, who was with the airline from 1997 to 2002, also has been considered. He works at a travel software company in Bangkok, Thailand, but still has a home on Oahu. He could not be reached for comment.
The U.S. Trustee's Office in Honolulu will now begin gathering names and screening applicants. Ultimately, a list of finalists will be forwarded to San Diego-based U.S. Trustee Steven Katzman, who begins Monday overseeing Region 15. The region, which had been temporarily covered by U.S. Trustee Maureen Tighe, covers San Diego, Hawaii, Guam and Saipan.
To be considered, trustee candidates need to have knowledge of the airline industry, have the right qualifications, and not be a creditor, stockholder or have an investment banking relationship with Hawaiian. Casey is owed $923,000 in severance, but might be able to waive that amount to gain the eligibility requirement.
Hawaiian tried to avert the appointment of a trustee by filing a motion Wednesday requesting an examiner, offering Adams' resignation and giving ground on several other key issues.
But aircraft lessor Boeing Capital Corp., which filed a motion March 31 seeking a trustee, and the unsecured creditors committee submitted a strongly worded letter to Faris Thursday in which they requested an immediate ruling. The letter said the parties had broken off negotiations.
Nearly lost in yesterday's trustee order was a comparatively smaller victory that Hawaiian gained at Boeing Capital's expense. Faris ruled against Boeing Capital in allowing the airline to keep its restructured agreement with aircraft lessor Ansett Worldwide. Boeing Capital said Hawaiian might be able to get a better deal under a trustee or could lease planes from another lessor, but Hawaiian argued there was no guarantee it could obtain better financial terms. Ansett attorney Sheldon Solow said on a court conference call that Ansett was prepared to repossess its seven Boeing 767s Tuesday if the restructured lease wasn't approved.
Hawaiian's reaction to yesterday's ruling came in a brief statement in which it said its operations "rival the best in the business and will continue unaffected by the ruling.
"The employees and management of the company remain committed to providing the highest level of service to our customers and will work closely with a trustee to complete the company's restructuring and emerge a stronger carrier as soon as possible," the statement said.
Boeing Capital also kept its comments to a minimum.
"This is not an occasion to celebrate, but it's a reason to be optimistic about the future," Boeing Capital spokesman Russ Young said. "Obviously, the process will go through the U.S. Trustee's Office, and if they ask for our input, we'll certainly share our ideas."
Hawaiian Chief Financial Officer Christine Deister, who came under fire during the hearing over financial disclosure, was in court yesterday but declined to speculate on her future with the company. However, she said the airline is heading in the right direction.
"I think the company has a strong management team, terrific employees, and what we have in place is a business model that I think going forward will be successful for the airline and for the state of Hawaii," she said.
The last major airline to have a trustee appointed was Eastern Airlines, which Hawaiian often cited as an example of a failed trusteeship. However, in Eastern's case, a trustee came aboard in 1990 -- more than a year after the company filed for Chapter 11 -- and by that time the airline was well on its way to liquidation.
In the case of two smaller airlines, Kiwi International Air Lines and Tower Air, trustees were brought on board to help the airlines liquidate after they had ceased operations.
Hawaiian Airlines