Family feud inside
Hawaiian Airlines
over who pays billsThe parent company says
it needs money from the airline,
which is refusing to pay
Hawaiian Holdings Inc., facing a possible stock delisting without a cash infusion from subsidiary Hawaiian Airlines, has scheduled a Tuesday meeting in New York to bring together ousted airline executive John Adams with trustee Joshua Gotbaum.
With time running out for the parent company to meet its Aug. 15 second-quarter filing deadline with the Securities and Exchange Commission, Hawaiian Holdings representatives hope to convince Gotbaum that it is in the best interests of the airline's employees and shareholders to pay an overdue bill to Mellon Investor Services LLC, as well as meet other holding company financial obligations.
Neither of the companies, nor Mellon, has revealed the amount of the bill, but one source said it is more than $14,000. Mellon, which records stock buying and selling transactions as the transfer agent, resigned Monday. That prompted the American and Pacific exchanges to halt trading in the stock, which last traded at 80 cents.
The airline's decision to divorce itself from its parent, however, goes further than just its reluctance to pay the nominal bill.
Insiders say that if the airline were to pay other administrative costs, such as separate auditors, the cost of SEC filings and the expense of an annual shareholders meeting, that amount easily could reach hundreds of thousands of dollars over a year.
"Because of the trustee's relative newness to the role, and perhaps because of a more strict separation of the two entities, we have to figure out if it's possible if the two can work together," said Hawaiian Holdings attorney Richard Havel, who also represents Adams; Smith Management Co., of which Adams is president; and majority shareholder AIP LLC, of which Adams is the controlling member.
"Whether (paying Hawaiian Holdings' bills) is an obligation of the holding company or an obligation of the airline may be open to a legal question," Havel added. "The airline has historically made those payments, and may be in a position to make future payments because of historical practice."
Gotbaum, though, indicated little inclination yesterday to compromise.
"When Judge Faris appointed me trustee for Hawaiian Airlines, he assigned me responsibility for the continuing operations of the airline and the efforts to reorganize Hawaiian Airlines," he said in a statement. "These responsibilities as trustee of Hawaiian Airlines do not extend to Hawaiian Holdings ... I am not authorized to use the company's assets to pay liabilities of any other person or entity."
Havel acknowledged that simply paying Mellon might not prompt the exchanges to resume trading in the stock.
"Even if the stock transfer bill could be resolved at this time, there remains important questions that have to be dealt with regarding the relationship with Amex in regard to trading and delisting issues," Havel said. "I'm not confident the mere payment of the transfer agent is a solution."
Havel said Hawaiian Holdings won't make a decision until it meets with Gotbaum.
One option, he said, would be to have the stock trade on the over-the-counter bulletin board. Another scenario, he said, would be for the holding company to be liquidated.
"If it were dissolved, it would, in effect, undo the restructuring that occurred in August 2002, and the shareholders of the holding company would have their stock exchanged into stock of Hawaiian Airlines," he said.
Adams, the former chairman and CEO of the airline, was replaced after U.S. Bankruptcy Court Judge Robert Faris ruled in May that Adams had made questionable financial decisions and put shareholders' interests, including his own, ahead of the airline's creditors. Gotbaum took over July 7 and is working on a reorganization plan for the airline. Adams remains chairman and CEO of the holding company.
Hawaiian Holdings issued a press release yesterday in which it said it hasn't received the financial information and financial support it needs from the airline to continue as a public company.
Los Angeles-based attorney Bruce Bennett, who represents Gotbaum, said the airline has not received a request for information from Hawaiian Holdings.
"Thus, we genuinely do not understand the part of the press release that suggests that they cannot comply with their responsibilities," said Bennett.
Hawaiian Holdings' only available funds to pay its administrative obligations is $500,000 that Adams had transferred to the holding company the day before the airline's March 21 Chapter 11 bankruptcy filing. Faris cited that eleventh-hour transfer as an example of Adams' conflict of interest. That amount currently is frozen.
"The $500,000 is subject to a claim by the trustee to give it back," Havel said. "I don't think Holdings agrees with that claim. If they can't agree, there probably would be some litigation to force Holdings to give it back."