Arizona airline not
taking part in Hawaiian
reorg process
Mesa Air Group Inc. is out, Vx Capital Partners is going it alone and four investment firms have made the final cut for teaming up on a Hawaiian Airlines reorganization plan with trustee Joshua Gotbaum and the unsecured creditors' committee.
Together with the four groups that filed earlier plans, the 15-month-old bankruptcy really is living up to the "free-for-all" moniker it was given by federal Bankruptcy Judge Robert Faris when he set the bidding process in motion two months ago.
GCW Consulting President Mo Garfinkle, an adviser for Hawaiian Airlines parent Hawaiian Holdings Inc. and an industry analyst, said he thinks that ultimately there will be two, and possibly three, reorganization plans that will go out to the creditors for approval.
"I think what we have now, for the most part, are people interested in buying the company on the cheap," Garfinkle said.
Faris allowed a two-tier process in which competing groups could file reorganization plans while at the same time permitting Gotbaum and the creditors' committee to conduct their own bidding process to find a potential partner for a joint reorganization plan.
Phoenix-based Mesa Air Group, the only airline among 13 parties to submit an expression of interest to the trustee and the committee, has been looking for ways to replace possible lost business from struggling partner US Airways. Jonathan Ornstein, the chairman and chief executive officer of Mesa, had teamed up with venture capitals in expressing interest. But Ornstein, who has a reputation as a turnaround specialist, acknowledged his group is no longer in the process. "I guess we were outbid," Ornstein said.
Vx Capital Partners, a San Francisco-based firm that invests in the aviation sector, initially was one of five groups on the Gotbaum-creditors short list but has withdrawn for undisclosed reasons and is expected to file its own reorganization plan, sources said.
Vx declined to comment.
With eight weeks to go before the July 29 deadline for filing reorganization plans, potential Hawaiian Airlines investors are conducting their due diligence and management interviews.
One potential stumbling block before the airline emerges from bankruptcy later this year could be the pilots' contract and pension issues. The pilots' 3 1/2-year contract is amendable at the end of this month while the future of their pension plan, which is about $100 million underfunded, is still unresolved.
"I think it's critical that we find a satisfactory resolution to the pilots' pension plan by the time the company exits from bankruptcy, but that doesn't mean it's going to be resolved by the time any particular plan is filed," said Gotbaum.
Jim Giddings, chairman of the Hawaiian pilots union, said the group is focusing on the pension issue since the contract, under normal circumstances, usually takes several months to negotiate.
"We're looking for a fair outcome and, if it's resolved in the near term, that's great. If it takes a longer time, that's fair, too," Giddings said. "It's important for us to be able to negotiate a good contract for ourselves going forward, and it's important we preserve our expected pension."
Giddings said he would be "perfectly comfortable" with the pension plan's status quo. That would include the airline paying the $4.25 million payment withheld last year and dropping its proposal to freeze the plan and convert it to a defined benefit plan.
Among the groups expressing interest in the airline but not making the cut was California-based Zubair Kazi, whose company, Kazi Foods Inc. is the franchisee of Hawaii's KFC and Burger King restaurants. Kazi has 28 KFC and 23 Burger King restaurants in Hawaii and is the second-largest KFC franchisee in the nation.
Others considered were Pegasus Capital Advisors LP, a Cos Cob, Conn.-based private equity company that looks for distress situations; Cerberus Capital Management LP, a New York-based private investment firm; and several hedge fund firms.
So far, four reorganization plans have been filed in the case. But it's likely those plans will be amended by the July 29 deadline. Those plans were filed by co-proponents Boeing Capital Corp. and turnaround firm Corporate Recovery Group; parent company Hawaiian Holdings; Hawaiian Airlines pilot Robert Konop; and a joint plan by the Hawaiian Reorganization Committee, comprising some airline employees and small creditors, and the Hawaiian Investment Partners Group LLC, which is made up of investors and venture capitalists.