Battle for
Hawaiian Air

Three groups may submit
reorganization plans to
compete with trustee Joshua
Gotbaum's proposal

Hawaiian Airlines trustee Joshua Gotbaum may get more help than he bargained for in attempting to bring the carrier out of reorganization bankruptcy.

Three groups, including one led by former chairman and chief executive officer John Adams, have expressed serious interest in filing their own reorganization plans, according to sources familiar with the situation. If approved by U.S. Bankruptcy Judge Robert Faris, those plans could mean additional financing and a managerial change at the airline.

Besides parent company Hawaiian Holdings Inc., the group controlled by Adams and his affiliates, the more serious of the two other groups is based on the mainland, sources said.

Hawaiian Air Gotbaum said yesterday that there have been "a number" of financial institutions that have said they are willing to consider investing capital if Hawaiian Airlines requests it. He said, however, he wouldn't elaborate on whether there have been other groups besides Hawaiian Holdings who have expressed an interest in filing a reorganization plan.

"It's a lot easier to talk about filing a plan of reorganization than it is to do it," he said.

Gotbaum also said it's not necessary for Hawaiian Airlines to seek a capital infusion. The airline reported in its December monthly operating report -- its ninth straight month of operating profits -- that it had $90 million at the end of 2003. That's up from $71.9 million at the end of 2002.

"Hawaiian Airlines is good enough and strong enough that it can reorganize and exit bankruptcy on its own without anybody's capital," he said.

Gotbaum, who presented his business plan in Los Angeles on Tuesday to union leaders and creditors, sought additional labor concessions from employees, who less than a year ago agreed to givebacks with the Adams-led management.

The latest labor concession request, according to a source, is for $11.2 million. If the unions agree to the request, that means the pilots, flight attendants, machinists and others will have given back more than $26 million over the last year.

In another development, an adviser to Smith Management Co., whose president is Adams, lashed out at Gotbaum yesterday for not presenting his business plan sooner and for not having reached an agreement yet with primary aircraft lessor Boeing Capital Corp., which leases Hawaiian Airlines 11 717s that are used for interisland flights and three 767s that are used for trans-Pacific service. Hawaiian previously returned two 717s to Boeing Capital and canceled the scheduled delivery of a 767.

"I think the plan is two months too late," said Mo Garfinkle, CEO and president of Arlington, Va.-based GCW Consulting. "This should have been done months ago. This isn't a wheel that's broken. He doesn't need to fix it. The problem that was there was obvious -- it was Boeing. We've now gone on a year and we have no progress with Boeing, and the Boeing issues should have been resolved a long time ago."

Gotbaum defended the lengthy negotiating process while taking a shot back at Adams.

"We have had serious good-faith negotiations with Boeing since the week I was appointed," he said. "Boeing acknowledged that the trustee was not a known quantity and that Boeing, as a company, would have to get comfortable with the trustee before coming to any conclusion. Fortunately, they have decided they are comfortable and we've had discussions.

"I'd say, but for the change in Boeing's management (the president of Boeing Capital and the CEO and chief financial officer of its parent company left in November and December), we'd probably already have an agreement. I have every confidence we will in March, as planned, have an agreement."

Garfinkle said Gotbaum is taking what should be a simple bankruptcy and making it more complicated. In a meeting yesterday at the Star-Bulletin, Garfinkle offered a 33-page document that outlined all the significant U.S. airline bankruptcy filings since the industry's deregulation in 1978. Of the 24 filings listed, Hawaiian was the only airline not to have sought debtor-in-possession financing.

The adviser also dismissed arguments from Gotbaum that the airline had overextended itself by replacing its DC-9s and DC-10s with a more expensive fleet. He displayed graphics showing that Hawaiian Airlines' new aircraft provide an annual net cost benefit of more than $25 million to the airline when compared with the previous fleet. He said the increased efficiency and cost savings enable Hawaiian to fly an additional 4,425 trips per year with the same amount of fuel.

Garfinkle also said Gotbaum is taking too much credit for the company's financial success following the bankruptcy filing, including the recent announcement that it was going to launch nonstop service to Sydney, Australia.

"The Sydney route, which the trustee took great pains to take credit for, was really forecast, developed and analyzed under (former Hawaiian Airlines consultant) Smith Management, as are half a dozen other routes."

Gotbaum disagreed that he was personally taking the credit.

"The success or failure of Hawaiian Airlines comes from the individual actions of the 3,000 people who work at the airline," Gotbaum said. "Part of the success of the last year will have to be credited to Sen. (Dan) Inouye, who made it possible for Hawaiian and Aloha to restructure the interisland service. Part of the success for the year ought to go to the sales and marketing group of Hawaiian, who recognized in the trans-Pacific routes to fill more seats at higher fares.

"As to those things which we have done since I became trustee that were talked about before I became trustee, I'll go back to my previous statement that's it a lot easier to talk about things then to do them."

Garfinkle also reiterated Adams' previous contention that Boeing Capital was to blame for the airline's bankruptcy.

"Hawaiian wasn't the only airline that went to Boeing and asked for concessions," Garfinkle said. "American, United, US Airways, other airlines -- they all went to Boeing. They all got concessions, and they all got concessions of a greater magnitude than Hawaiian was asking for.

"We all live in the same apartment building. Boeing is the landlord, and if they don't want to lower my rent like they've lowered it for everybody else, they have a legal right to say that. Then, I have a legal right to say, 'I'm not going to live here. I'm going to file for bankruptcy.'

"They had a legal right to do what they did, but whether it was a smart commercial decision to do that, with the possibility they were going to get 13 717s back that they had no market for, that's something they will have to decide."

Boeing Capital spokesman Russ Young expressed bewilderment that Hawaiian Holdings was once again casting blame on Boeing.

"It's a fact of life that, at times, you have to work with customers in need and you give them short-term relief because it's in your best long-term interests," Young said. "Hawaiian was offered short-term relief but it was contingent on returning the money ($17.1 million) that had been paid out to Mr. Adams and his associates in the ($25 million) tender offer. His refusal to do so certainly is tied to our inability to reach an agreement."

Gotbaum told creditors and union leaders in Los Angeles on Tuesday that he's targeting June to submit his reorganization plan with a September confirmation hearing and an emergence from bankruptcy in October.

But Garfinkle said Gotbaum has been costing the airline a million dollars a month in legal and consulting fees for not reaching a deal with Boeing Capital.

"This was a simple bankruptcy," Garfinkle said. "Boeing, Boeing, Boeing is what needed to be done. Maybe Smith Management couldn't fix that, given what happened (Adams' removal for alleged financial irregularities and insider dealings), but that should have been the trustee's first, second and third priorities.

"The big difference is that if Smith Management had been in the role of quarterbacking the bankruptcy, they would have been in and out by now so we wouldn't be running a million dollars a month and continuing to run," Garfinkle said.

Garfinkle said Hawaiian's stock, which has soared as much as 1,300 percent since its bankruptcy, has "substantial value," a statement that's hardly surprising since Adams' group owns just more than half of the outstanding shares.

Garfinkle would not elaborate on any of the potential aspects of Hawaiian Holdings' reorganization plan, including what the intentions are for the stock, since the parent company is still seeking financial information from Hawaiian Airlines.

However, Garfinkle said a competing reorganization plan from Hawaiian Holdings is a virtual certainty.

"Anybody would be foolish to assume that the majority shareholder wouldn't want to participate in the reorganization of Hawaiian in some fashion," he said.


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