Judge OKs
Hawaiian Air
reorg process
In what he described as a "free-for-all," the federal bankruptcy judge overseeing the Hawaiian Airlines case approved a confirmation process yesterday that sets the gears in motion for getting the carrier out of reorganization.
Bankruptcy Judge Robert Faris' ruling allows competing reorganization plans while at the same time permits the carrier's trustee and the unsecured creditors' committee to solicit bids for a possible alternative proposal. He declined, though, to approve a full-fledged auction process that was proposed by the trustee and the creditors' committee.
Faris generally followed confirmation procedures proposed by Boeing Capital Corp. and Corporate Recovery Group LLC but said the $5.4 million fee the group was seeking for initiating the process wasn't justified. Faris said he might consider a fee later for actual expenses if the group's plan is not accepted.
Also at yesterday's hearing, Faris set a deadline for next Friday for eligible groups to receive additional financial information from the airline.
"I'm very pleased with how the process is moving along and it should get very interesting," Faris told an overflow courtroom of about 90 spectators and attorneys that spilled into the jurors' box.
Faris also set Aug. 31 as the date of the confirmation hearing. That will be exactly 10 years to the day since the airline's last reorganization hearing. That earlier reorganization, which began in September 1993, took just under one year. The airline filed for its latest Chapter 11 reorganization on March 21, 2003, and is expected to emerge sometime in September.
Developments
The 2 1/2 hour hearing, which ended with most parties expressing satisfaction, also revealed a few surprises.>> Carol Muranaka, special assistant U.S. attorney for the Internal Revenue Service, said the agency is auditing the airline's 2001 and 2002 tax years and expects a large federal tax claim.
>> Boeing Capital will have to pay Corporate Recovery Group a $3.5 million break-up fee if it pulls out of its agreement with Corporate Recovery in favor of another reorganization plan.
>> Jefferies & Co., a New York-based investment banker, and Pegasus Capital, a San Francisco private equity investment firm, have joined San Francisco-based private finance firm Vx Capital Partners in expressing interest for the airline.
>> A consultant recently hired by Hawaiian Airlines trustee Joshua Gotbaum has been marketing the carrier to potential investors by "dialing for dollars to every airline in the country," said Boeing Capital executive Scott Scherer.
Plans proposed
Boeing Capital, the airline's primary lessor, and turnaround firm Corporate Recovery Group jointly filed the first of four reorganization plans in the case. They were followed by parent company Hawaiian Holdings Inc., headed by former Hawaiian Airlines Chairman and CEO John Adams; Hawaiian Airlines pilot Robert Konop; and a joint filing by the Hawaiian Reorganization Committee, comprised of some airline employees and small creditors, and the Hawaiian Investment Partners Group LLC, which is made up of investors and venture capitalists. More reorganization plans from others may follow.Guy Neal, an attorney for Hawaiian Holdings, said the company plans to file another plan by the June 14 deadline. Hawaiian Holdings and Adams have insisted equity should be left over for shareholders.
"I would even think that Boeing and CRG will have to recognize at the end of the day that there's value to equity," Neal said.
With the high-stakes poker game heating up, no one is willing to say how much capital will be put into the airline when the winning hand is displayed.
Allan Tessler, a co-founder of FT Interactive Data and CBS Marketwatch and a principal in Corporate Recovery Group, personally has put a "substantial amount" of his own money into the reorganization plan and said the Boeing Capital-Corporate Recovery Group proposal offers more than just words and projections.
"At this point, a lot of the interest is just interest, and we have yet to see anyone come up with a plan that is funded which isn't seeking money at some distant point in the future," Tessler said. "We've come in with our money up front with the plan of reorganization, putting a value on the total plan. We'll react to people if they appear and if they come up with funded plans."