Trustee’s $840,000
wage bid ‘exorbitant’Hawaiian Holdings and other parties
file motions opposing Gotbaum's
compensation request
Hawaiian Holdings Inc., the parent company of Hawaiian Airlines, filed a pleading Monday in Bankruptcy Court asking a federal judge to deny the $840,000-plus compensation package requested by the carrier's trustee.
Objections were also filed by the Association of Flight Attendants; the Air Line Pilots Association; and Robert C. Konop, a pilot for Hawaiian Airlines. A limited objection was filed by American Airlines and a conditional objections was submitted by Boeing Capital Corp. and BCC Equipment Leasing Corp. U.S. Bankruptcy Judge Robert Fairs will rule on the motion at 10 a.m. on Jan. 23.
Joshua Gotbaum was appointed trustee on July 3 by Faris after allegations surfaced that John Adams, chairman and chief executive officer of the airline, may have improperly diverted funds from the bankrupt carrier. Hawaiian filed for Chapter 11 reorganization on March 21, 2003, after the airline, which already had received $15 million in employee concessions, was unable to renegotiate $20 million in lease concessions from its aircraft lessors.
If Faris grants Gotbaum's package, it would make him the second-highest paid executive in the airline industry, with no incentive to expediently complete the bankruptcy proceedings, said Guy Neal, attorney for Hawaiian Holdings. Gotbaum is seeking cash remuneration of $500 an hour, subject to a cap of 140 hours per month, that could earn him $840,000 a year.
"The trustee has invented compensation terms that give him a significant incentive to stay in place and drain money from the estate, its creditors and its equity holders," Neal said.
Bankruptcy law requires that Gotbaum's compensation package take into account his professional experience, current job responsibilities and the market, said Neal, who added that the "exorbitant compensation" requested by Gotbaum fails to meet that criteria and, if approved, will only "drag out" the proceedings.
"This flies in the face of what everyone knows is a relatively straightforward bankruptcy situation that could and should be resolved in a matter of a few months," Neal said.
Although Hawaiian Airlines has had nine consecutive months of operating profits and Gotbaum has set a goal to get the airline out of bankruptcy by summer, legal adversaries have said he's played a limited role in the carrier's success. The carrier's restructuring was 90 percent complete before the bankruptcy filing and there was already a strong management team in place before Gotbaum came to Hawaii, Neal said.
Gotbaum's requested compensation package has been criticized by some who say it would net the executive at least a quarter of a million dollars a year more than his predecessor. They have said Adams, by comparison, was making $600,000 a year as chairman and CEO in addition to other compensation that he received from his other affiliations.
However, Adams, who is also president of Smith Management LLC and controlling member of AIP LLC -- Hawaiian's majority owner -- came under fire for his financial take during initial bankruptcy proceedings.
He received a $200,000 pay increase to $600,000 in April 2002 when he added the title of CEO, and he also received $600,000 as president of Smith Management, to which he said he devotes about 5 to 10 percent of his time.
Smith Management also received a $2 million lump sum for advisory services and $75,000 a month.
Bruce Bennett, an attorney representing Gotbaum and Hawaiian Airlines, said the trustee's requested compensation package, which has the support of the official creditors' committee, would not make him the second-highest paid executive in the airline industry. It's also in line with his experience and with the market, Bennett said.
"It is less than the total amount that Hawaiian Airlines ended up paying for Mr. Adam's services," Bennett said. "Unfortunately or sadly, it's not a coincidence that the entities who are objecting to the proposed compensation are entities that have other conflicts with the trustee."