Hawaiian trustee
to pocket $600,000

A judge approves the modified
annual compensation request,
a $10,000 monthly living allowance
and an undetermined success fee
for Gotbaum

Hawaiian Airlines trustee Joshua Gotbaum is now the $600,000 man.

U.S. Bankruptcy Court Judge Robert Faris, making probably his most difficult decision since ordering a trustee for the bankrupt carrier, ruled yesterday that Gotbaum can receive interim compensation of $50,000 a month -- the equivalent of $600,000 a year -- for overseeing the reorganization of the company.

His ruling, which came before a packed courtroom that included about 50 pilots, followed weeks of heated opposition from parent company Hawaiian Holdings Inc., the Air Line Pilots Association and other interested parties.

The compensation, modified by the trustee from an initial request of $70,000 a month, or $840,000 a year, also includes $10,000 a month of living expenses, including housing and automobile costs, and a success fee to be determined after reorganization is completed.

"This decision is the most difficult one, the most charged one (of yesterday's multiple rulings)," Faris said after listening to more than two hours of arguments involving that motion and others. I'm supposed to pick compensation ... that matches the market rate. It would be nice if the Wall Street Journal added a line that said this is the appropriate compensation for Chapter 11 trustees."

Faris, in making his decision, said he looked at hourly figures charged by the legal profession, salaries of chief executive officers and other individuals in Gotbaum's position, ousted Chairman and CEO John Adams' former salary ($600,000) and previous amounts that Gotbaum had made in similar positions.

It probably also helped that Hawaiian Holdings attorney Guy Neal said the parent company had dropped its compensation objection in light of the modification.

"It's a step in the right direction, just not as big a step as we had hoped," Neal said in court.

Later, Neal said Hawaiian Holdings wanted to turn its attention to more important issues.

"We didn't necessarily decide that the $600,000 is reasonable for a man of Mr. Gotbaum's professional experience," Neal said. "It's not reasonable in light of his duties as a Chapter 11 trustee for the airline. What we did do is withdraw our objection with strong reservations. We believe we have bigger issues with respect to Mr. Gotbaum, and the biggest issue is encouraging him to put a plan of reorganization down on the table that will benefit not only the employees, but the creditors, as well as the shareholders of this company.

"Information is currency in this case, and without the information, you can't put a plan together," Neal added.

He said Hawaiian Holdings is "seriously considering putting together a plan of reorganization that will be better than any plan the trustee may file."


Hawaiian Airlines is considering consolidating its present two terminals into one to reduce transfer time for passengers.

Boeing Capital Corp., the company's primary aircraft lessor, also said it was dropping its conditional objection because of the lower compensation request. But ALPA attorney Thomas Ciantra, who repeatedly has asked to the company to make a federally required $4.25 million pilots' pension payment, said the modified amount was still "excessive compensation and undermined employee morale."

In the end, Faris said he was going with the modified amount that had been accepted by the U.S. Trustee's Office, saying it appeared to be "reasonable." Faris added that the final compensation was up for grabs and there was no guarantee there would be a success fee.

But trustee attorney Bruce Bennett said "we're comfortable he will reach a fair and reasonable result then, just as he reached fair and reasonable results today."

Neal said not knowing Gotbaum's eventual total compensation package is "chief among many of the problems."

For one day, though, it was the trustee who came out ahead.

Bennett, beaming afterward, referred to it as a "four-for-four day" because Faris also approved three other trustee motions. Those rulings allowed:

>> Gotbaum to hire airline terminal design consultant HNTB Corp. to study whether the airline should consolidate its passenger flight operations at Honolulu Airport to one terminal from its present two terminals.

>> Hawaiian Airlines to offer a severance program of one year's salary to 11 senior executives that would go into effect under narrow circumstances in the event there was a change of control with the airline. He also allowed severance programs in place before the bankruptcy filing to be re-established for 350 noncontract employees.

>> Five officers who had dual and possible conflicting responsibilities with Hawaiian Holdings and the airline to resign their position with the parent company and remain solely as officers of Hawaiian Airlines.

Gotbaum, who wasn't in court yesterday, issued a statement after the proceeding acknowledging his approval.

"We're pleased the court has again agreed that what we proposed is in the best interests of Hawaiian Airlines," Gotbaum said.

In other developments, Bennett said Gotbaum would be unveiling his business plan Tuesday to specified parties in a closed meeting that will show past operations and projections for the company. The unsecured creditors' committee and Boeing Capital indicated yesterday that they had been invited to hear the plan, which is not the same as a reorganizaton proposal. Hawaiian Holdings, however, did not get an invitation, Neal said.

Hawaiian Holdings and Gotbaum have been at odds with each other since Gotbaum was hired July 3 to oversee the reorganization and to investigate Adams, who was relieved of his airline duties in May for alleged insider dealings and questionable financial decisions. Hawaiian filed for Chapter 11 on March 21, 2003.

Adams is still chairman and CEO of the parent company, which is not in bankruptcy, and also is the controlling member of AIP LLC, the majority shareholder with more than 50 percent of the company's stock.

Faris also approved $46,900 for former Hawaiian Airlines trustee John Monahan for his three weeks of work. The amount is based on 117.4 hours of work at $400 an hour. Like Gotbaum's initial compensation request, Monahan's request was modified from a $500-an-hour rate that would have given him $58,700. Monahan resigned for personal reasons.

The judge also continued his stay of all discovery relating to the pilots' pension plan issue for one week, effectively also delaying Hawaiian Holdings' attempt to conduct discovery.

In a separate hearing, Faris denied a request by Capt. Robert Konop to grant an injunction regarding the airline's San Francisco and Los Angeles base closures. Faris granted Hawaiian Airlines' motion to dismiss the case.

Later in the day, Faris conducted a status conference to establish court filing dates regarding the airline's $28 million suit against Adams and his affiliated parties. He also set a date for the three-week trial to begin June 27, 2005. Adams and his parties, though, have filed a motion in District Court asking that the complaint be withdrawn from Bankruptcy Court and moved to District Court. That matter is scheduled to be heard in March.

Neal, the Hawaiian Holdings attorney, said the parent company needs the financial information to decide whether to submit its own reorganization plan.

Bennett, the trustee's attorney, said the airline is still aggressively targeting early summer to file its reorganization plan with the hope of getting it confirmed around Labor Day.

The terminal consolidation and severance issues also brought strong opposition yesterday.

In the terminal consolidation motion, Faris admonished the trustee for coming to the court virtually after the fact, since HNTB already had performed most of its study at a cost of about $250,000. He said that denying the motion would have the effect of an innocent party, HNTB, not being paid for its work.

"I really don't want this to happen again," he cautioned the trustee's attorneys about the belated filing.

Opposition to HNTB's retention focused on the position that consolidating the two Hawaiian terminals into one was a long-range decision that was being made by a short-term trustee. Konop said later that there had been three previous feasibility studies made over the years about consolidating terminal operations and that the cost of consolidation had ranged from $3 million to $10 million.

Bennett said consolidation was necessary for Hawaiian to remain competitive, offering an example in which a passenger traveling to a neighbor island through Honolulu faced increased travel time by having to navigate a long distance from Hawaiian's mainland terminal to its interisland terminal. Other carriers offering direct flights to a particular island had an advantage, Bennett said.

In the executive severance issue, critics argued it wasn't necessary since no executives had left the company since bankruptcy began and, if the severance went into effect, it could result in significant expense.

Bennett said, though, that the executive severance motion was narrow in focus and only would apply if there was a change of control of the airline. He said talk of a "corporate combination" has been "bandied about" and that executive severance would be proper if a new party came in and wanted to let go of some or all of the existing executives.

When pressed later, though, Bennett said there was no substance to that possibility right now.

"The trustee has not engaged in any debate with anybody interested in doing anything with the company, and we don't believe any other party interest is doing so either," Bennett said.


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