Hawaiian Airlines
seeks additional

A business plan proposed by
the airline’s trustee calls for more
than $10 million in labor givebacks

Hawaiian Airlines' trustee, seeking to file his reorganization blueprint for the bankrupt carrier this summer, unveiled a business plan to creditors and union leaders yesterday that includes the second round of labor concessions in less than a year, a freezing of the pilots' pension plan and the expansion of trans-Pacific service.

Joshua Gotbaum, who presented his plan in Los Angeles at the office of his attorney, Bruce Bennett, also said the airline continues to renegotiate aircraft leases with Boeing Capital Corp. and is hoping to strike an accord with the pilots to pay more than $60 million that is owed to the pilots' pension plan.

The cost of the latest concessions sought from the unions, according to an informed source, is in excess of $10 million. Early last year, the unions agreed to more than $15 million in labor cost reductions.

Gotbaum singled out the airline's recently announced service to Sydney, Australia, at the meeting as an example of trans-Pacific expansion. Gotbaum did not specify any other trans-Pacific routes he was considering, other sources said.

"We all recognize that Hawaiian's employees have already given, and that these proposals affect the lives of the very people who are essential to Hawaiian's success," Gotbaum said in a statement. "Despite a competitive environment that could easily justify larger labor cost reductions, this plan proposes only those changes that are necessary."

Gotbaum called the labor cost reductions "fair" and said that the concession would be returned in cash through profit sharing if the airline does well.

But Rusty Ayers, a national spokesman for the Air Line Pilots Association, said Hawaiian Airlines' pilots were upset with the request for additional sacrifices.

"We're disappointed that the company is coming back to the pilots again for further concessions," he said. "We've already made substantial concessions. We feel the company is profitable and doing better and there should be other ways found to avoid taking another hit on the pilots."

Under former Chairman and Chief Executive John Adams, the airline's concessions last year included givebacks of $8 million from the pilots, $3.8 million from the International Association of Machinists and $3.5 million from the Association of Flight Attendants. The airline also sought $20 million in concessions from its three aircraft lessors -- Boeing Capital, Ansett Worldwide and International Lease Financing Corp. -- and subsequently filed for Chapter 11 on March 21 after reaching an impasse with Boeing Capital.

"It's pretty obvious we haven't been able to find terms that both parties are willing to sign up for," said Boeing Capital spokesman Russ Young. "We've worked to make sure they can continue to have the use of our planes while we continue to look for that answer that would be acceptable to both parties."

The pilots' pension plan has been a sore subject with ALPA ever since Gotbaum asked a U.S. Bankruptcy Court judge for permission to suspend paying a mandatory $4.25 million pension payment that was due Sept. 15. Judge Robert Faris has delayed his decision until Feb. 27.

In the meantime, Gotbaum offered an olive branch of sorts to the pilots yesterday by agreeing to make up the more than $60 million shortfall in the plan but, at the same time, freezing future contributions.

"The pilots negotiated their pension plan in good faith," Gotbaum said. "It is the bedrock on which pilots and their families base their lives and we have, for months, worked to see how we can maintain it.

"Rather than terminate the plan, as has happened elsewhere (such as at US Airways), we think that -- if the pilots are willing -- we can together come up with the more than $60 million needed to pay for the benefits they have earned.

"It won't be easy. It will mean a different plan in the future and sacrifices to share in the funding shortfall. But we think it's the right thing to do, and we're going to try to work with the pilots to make it happen."

Gotbaum, who hopes to negotiate the necessary changes in the next two months, said existing retirees would continue to receive full payment and active pilots would retain their earnings to date. He said the plan would be succeeded by a defined contribution plan, like a 401(k).

Ayers, the ALPA spokesman, said the union's economic analysts would review the plan before ALPA decides whether it will go forward with any concessions or any bargaining.

Adams, who last May was removed by the court as the airline's chairman and CEO because of alleged financial irregularities, said yesterday he was saddened to see Gotbaum's plan rely on more givebacks.

"I had hoped the trustee's plan would not rely so heavily on further concessions from the airline's dedicated employees," said Adams, who is still chairman and CEO of parent company Hawaiian Holdings Inc., president of Smith Management LLC and the controlling member of AIP LLC, the airline's majority investor with more than 50 percent of the shares.

Adams said he hasn't seen the plan but has been told by his attorney that Gotbaum intends to discuss the matter with Adams.

Margery Bronster, legal counsel for Smith Management, said the parent company's exclusion from the meeting was an injustice.

"All of the parties with an interest in Hawaiian Airlines were invited to hear the trustee's plan except the 4,000-plus shareholders, including those whose investments saved Hawaiian from insolvency six years ago," Bronster said. "We are disturbed that the trustee continues to withhold information from those whose investments enabled Hawaiian to survive and helped it become a great airline."

Hawaiian, which restructured lease agreements with Ansett and ILFC, has continued to negotiate with Boeing Capital on 14 remaining aircraft after two were returned. The two sides repeatedly have sought extensions on their negotiations and their latest agreement is scheduled to expire March 15.

Meanwhile, industry experts offered mixed views on Hawaiian's business plan.

Aviation consultant Mike Boyd, president of The Boyd Group in Evergreen, Colo., called the plan "rational."

"It's a tough plan, but I don't see any other options," Boyd said.

"The days of pattern bargaining (a take-it-or-leave-it ultimatum) in the airline industry are over and the labor unions have to understand some airlines don't generate the same kind of cash that others do. So they're probably going to have to go back to the concession stand or the unemployment line."

However, Richard Aboulafia, an airline analyst for the Teal Group in Fairfax, Va., said it may be too late for Hawaiian Airlines.

"I think it's PBGC here we come," Aboulafia said of the Pension Benefit Guaranty Corp., a federal agency that pays retirement benefits when a company's pension plan fails,

"I don't know what to make of it. It's unlikely that they have found a winning formula. It's like third marriages -- the triumph of hope over experience."

Gotbaum did not publicly reveal any specifics, but he did say that the proposed labor concessions are considerably smaller than those recently agreed to by unions at United and other airlines.

But Jeff Zack, a national spokesman for the flight attendants, scoffed at Gotbaum's claim.

"United and US Airways were both in bankruptcy and both are significantly larger than Hawaiian," Zack said. "So it's an understatement to say that the concession Hawaiian is seeking is less than United and US Airways. It has to be. Hawaiian is so much smaller that you can't possibly get $110 million a year out of Hawaiian like US Airways got out of the flight attendants. United got over $300 million from its flight attendants."

Prescription for success?

Hawaiian Airlines trustee Joshua Gotbaum unveiled his proposed business plan yesterday to restructure the bankrupt carrier. Among the plan's main elements are:

>> Acquiring additional labor concessions from the company's unions

>> Expanding trans-Pacific service while maintaining service within the Hawaiian islands

>> Renegotiating Hawaiian's aircraft leases with Boeing Capital Corp.

>> Freezing the pilots' current pension plan but allowing existing retirees to continue to receive full benefits and permitting active pilots to retain their earnings per date

>> Reaching an agreement with the pilots to come up with the more than $60 million that is owed to their pension plan

>> Increasing the company's existing profit-sharing formula so that concession would be fully offset if profitability remains high



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