Judge orders trustee
to give sealed
leases to AdamsFaris rules that the former CEO
and affiliated parties of Hawaiian
are entitled to the finances to work
on a reorganization plan
Hawaiian Holdings Inc. and ousted airline executive John Adams scored a victory yesterday in their attempt to gain information for a possible reorganization plan when a U.S. Bankruptcy Court judge ruled that trustee Joshua Gotbaum must turn over sealed information regarding the carrier's restructured aircraft leases.
Judge Robert Faris said the intent of an April 28 order sealing the information was to keep it confidential from other aircraft lessors and airline competitors. He said parent company Hawaiian Holdings, Adams and two other affiliated parties can receive the information because they are entitled to participate in the reorganization plan process due to their equity roles as parties in interest. Faris also said he believes as much information as possible should be made public in court filings.
However, Faris said in his limited ruling -- which applies only to the restructured aircraft leases -- that executory contract holder Smith Management LLC, the other party seeking the sealed information, is a creditor and thus already represented by the committee. Smith Management has an unfulfilled advisory services agreement.
Faris also told attorneys to come up with an agreement protecting the confidentiality of the information.
"I'm pleased with the ruling," said Hawaiian Holdings attorney Joel Samuels. "I think it was the right verdict, but it's always difficult when every major constituency in the case is lined up against you."
Adams, who was replaced in May as the chairman and chief executive of Hawaiian Airlines, still holds those titles with the parent company and is the controlling member of AIP LLC, which is the majority shareholder of Hawaiian Holdings' stock with a 50.9 percent stake. Also entitled to the information is SDR Group Holdings Inc., the consulting company of which Adams is president. SDR Group recently changed its name from Smith Management Co.
Faris, in making his ruling, acknowledged that a potential reorganization plan from Hawaiian Holdings that preserves some or all of the stock value was "a long odds kind of a bet." But, he added, "the more people who can prepare a plan, the better it is for competition" in producing the best plan.
Boeing Capital Corp., which had brought the motion seeking a trustee shortly after Hawaiian Airlines filed for Chapter 11 reorganization bankruptcy in March, said it has been renegotiating contracts with other airlines and couldn't trust Adams to keep the information confidential.
Attorney Steve Hedberg, representing Boeing Capital, charged that Hawaiian Holdings was going to use this process to improve its position and "to create value in the stock where there is none."
"Mr. Adams can be a spoiler and come in early on with a plan and scare away potential new investors," said Hedberg, who added that Hawaiian Holdings was asking for "preferential treatment."
Samuels countered in a later argument that the court may have to conduct an enterprise valuation that will have to take into account projections of Hawaiian Airlines' future cash flows. He said the methodology used to do that is not as simple or as straight forward as simply taking a snapshot of the balance sheet.
Attorney Brett Miller of the unsecured creditors' committee said Hawaiian Holdings' rights had been terminated because of its "unclean hands."
"They seem to be waiting to claw their way back inch by inch" into the process," Miller said.
Samuels, the Holdings attorney, said his clients have been left out in the cold by the trustee's reluctance to turn over any information.
"We've hoped their people will speak to us, but then they throw a brick at us," he said.
In July, Hawaiian Holdings' stock was halted by the American Stock Exchange for five weeks after Gotbaum declined to pay Hawaiian Holdings' stock transfer agent and refused to turn over information needed for mandatory filings with the Securities and Exchange Commission. The issue was ultimately resolved when Hawaiian Holdings took out about a $15,000 loan from the former Smith Management Co. and worked out an agreement with the Amex to substitute the airline's monthly operating expense reports for the regular SEC financial filings.
Samuels said Hawaiian Holdings and its affiliated parties had the right under the Bankruptcy Code as a party in interest to receive the information and to submit a competing plan because the exclusivity rule was lifted with the appointment of a trustee. He said opponents of their request are citing their distrust of Hawaiian Holdings and its ability to keep the financial information confidential.
"People think they can throw out the name John Adams and dispense with the need for evidence," Samuels said.
Samuels accused Gotbaum of "being slow" in turning over various documents and alleged that the trustee has a motive "to create co-exclusivity" between the airline and the unsecured creditors' committee.
"What this motion is all about is getting access" so that Hawaiian Holdings can "effectively participate in the case," Samuels said.
Attorney Sidney Levinson, representing the trustee, said it was important to the airline to preserve the confidentiality because releasing it could harm the airline in its negotiations. He also said that from the trustee's viewpoint it was important to preserve the relationship it has with Boeing Capital, which still is in restructuring talks with the airline and had opposed the releasing of the information.
