GEORGE F. LEE / GLEE@STARBULLETIN.COM
Hawaiian Airlines said it had $66 million in unrestricted cash at the end of this week.
Pilots’ pension
ruling delayed
A Bankruptcy Court judge's decision to give Hawaiian and the union more time to talk about suspending a $4.25 million contribution will cost the airline a $425,000 penalty.
A request by Hawaiian Airlines' trustee to suspend a $4.25 million federally required contribution due Monday to the pilots' pension plan was put on hold yesterday when a U.S. Bankruptcy Court judge said he was going to defer his decision 30 days to allow the company time to bargain with the union.
Bankruptcy Court Judge Robert Faris also said he believed he had limited jurisdiction to interpret the Air Line Pilots Association's collective bargaining agreement rather than have it go to arbitration as ALPA had argued.
Due to scheduling and court conflicts, the hearing was continued for longer than the stipulated 30-day period and will resume at 10 a.m. on Oct. 24.
Faris made his decision following nearly 2 1/2 hours of arguments before a packed courtroom that included more than two dozen current and former pilots. Many of them were dressed in their white uniforms and wore red buttons that read: Trust, Retirement, Trustee?
The decision by Faris to delay making a ruling carries a cost, however. The airline will have to pay a $425,000 fine -- a 10 percent penalty derived from the $4.25 million due -- to the Internal Revenue Service for missing the payment. In addition, the Pension Benefit Guaranty Corp., a federal agency that pays benefits when a company's pension plan fails, will have the option to involuntarily terminate the plan if it so desires due to the missed payment.
Hawaiian First Officer Vance Tilley, a spokesman for Hawaiian's ALPA unit, said the union was unhappy with the payment postponement.
"It keeps the ball in the air for another 30 days, and on the union side of the fence, we are a little unhappy about the penalty," said Tilley, who flies a Boeing 767. "We think it's an expensive 30-day postponement. The company incurring increased nonproductive costs such as that ($425,000) is the wrong direction to go. We've had numerous agreements with the company that this ($4.25 million) payment would be made and the night before the filing it was dropped in our lap that they would not make the payment."
A filing made this week by the unsecured creditors' committee said it would be receiving a copy of trustee Joshua Gotbaum's business plan in the next 30 days. However, Gotbaum said after the hearing yesterday that it was more complicated than that and he didn't expect to have a reorganization plan ready until "sometime next year." He didn't elaborate on what plan the creditors' committee was expecting to receive.
Trustee Attorney Bruce Bennett argued that the airline wasn't seeking a waiver of the payment but merely a suspension since its cash position is expected to dwindle now that the peak summer season has ended. He said the airline had $84 million in unrestricted cash at the end of August and, as of Thursday night, it had been reduced to $66 million. Bennett said it wasn't so much a question of not being able to afford the $4.25 million payment but rather taking steps now to avoid a future shortfall.
"We will not run out of cash at the end of the month and we will not run out of cash between now and the end of the year," he said. "But Hawaiian Airlines does not have enough cash reserves to make the rest of the ($45 million due in contributions over the next 25 months) and make it through the next two years."
In fact, Bennett said in one of his filings that if the payments required under the Employee Retirement Income Security Act, as well as payments previously waived by ALPA, were to be made, the airline forecast its unrestricted cash would decline to $28 million at the end of February 2004 and to as low as $8 million by the end of next year. He said that would leave the airline vulnerable to unanticipated events such as fuel price spikes, losses from inoperable aircraft and terrorist attacks.
"Hawaiian is required to pay $45 million to the pension plan over two years," Bennett said. "There is no way Hawaiian Airlines can make all those payments in the period required and continue to survive."
Bennett acknowledged that suspending the payment is "an emotionally draining and torturous experience for both sides" but that for Gotbaum "it's unpleasant baggage that comes with the assignment." He said it "wasn't even a close call" considering Hawaiian's financial situation, but added that it didn't mean the airline wouldn't consider making the suspended payments in the future. He also said he didn't think PBGC would involuntarily terminate the plan.
"You confront your debt problem when you know you can't pay all your debt, not when you run out of money," Bennett said.
ALPA attorney Thomas Ciantra, arguing that the airline had not proven it needed "emergency debt relief," said the company promised the union in March it would make the September payment when ALPA agreed to waive the airline's second-quarter contribution. The union, which represents 436 pilots, earlier had agreed to $8 million in labor cost concessions.
Bennett, though, said the September payment agreement was made under the regime of ousted Chairman and Chief Executive John Adams and that the airline actually had said it was its "intention" to make the Sept. 15 payment. The airline's pension fund is approximately $67 million underfunded.
Tilley said the Federal Aviation Administration's mandatory retirement age of 60 for pilots makes keeping the pension plan solvent even more important.
"I'm a 34-year-old pilot and I came here because of the pension plan and the benefits it offered," Tilley said. "For a 34-year old pilot such as myself, I'm forced to retire at the age of 60 and my full-time benefits from Social Security won't kick in until I'm 67. Trying to change jobs at the age of 60 is a very difficult thing to do. Pilots need a pension plan to be funded, and it's very important to us. It's really the bedrock foundation of our contract."
Hawaiian Holdings attorney Joel Samuels sided with the pilots and said it was in "the long-term interest of the estate to have a harmonious relationship with the pilots" and that the trustee was risking further degradation of that connection.
However, Bennett said Samuels was trying to paint a picture of a solvent airline because John Adams, the former chairman, chief executive and majority investor, was ousted over questionable financial dealings that included a $25 million tender offer that earned Adams' partnership more than $17 million. Attorneys connected with the case said Adams could be sued over that amount.
