In March, John Adams, left, chairman and CEO of Hawaiian Holdings, met the press with Don Carty, whom Adams' group had proposed as the airline's new chairman under its reorganization plan. That scenario is now uncertain after yesterday's transaction.

Hawaiian CEO
gets $41.4M

John Adams' deal for AIP
gives a San Diego company
10 million shares of the airline, but
he resigns from Hawaiian Holdings

The Adams deal


Friday, June 18, 2004

A headline on Page A1 in Tuesday's early edition may have given the impression that John Adams, former chairman and chief executive of Hawaiian Airlines, personally received $41.4 million from the sale of 10 million shares of Hawaiian Holdings Inc. stock. Actually, it was AIP LLC, the majority shareholder of Hawaiian Holdings, that received the $41.4 million. Adams said yesterday that he received less than $2 million from the stock sale.

The Honolulu Star-Bulletin strives to make its news report fair and accurate. If you have a question or comment about news coverage, call Editor Frank Bridgewater at 529-4791 or email him at

John Adams has sold nearly three-quarters of his controlling stake in the parent company of Hawaiian Airlines for $41.4 million to a San Diego-based company that invests in distressed companies.

Adams, acting on behalf of majority shareholder AIP LLC, received $4.14 a share for 10 million shares from an investor group of Ranch Capital LLC.

He also stepped down as chairman and chief executive of parent company Hawaiian Holdings Inc. and resigned his position at AIP, which is keeping 4 million shares in Hawaiian.

Adams' turbulent career at Hawaiian Airlines ended with his removal from office last year by a federal Bankruptcy Court judge.

Hawaiian Air Ranch Capital, Hawaiian's top shareholder now with roughly 35 percent of the airline's 28.5 million shares, said it will file its own reorganization plan for the bankrupt airline under Hawaiian Holdings' name.

The transaction price reflected the stock's value from trading when the two sides began negotiations about a month ago.

Hawaiian Holdings closed yesterday at $5.19.

Hawaiian Airlines has been in Chapter 11 reorganization since March 21, 2003, and expects to emerge later this year.

"This transaction will end my involvement in the management and stock ownership of Hawaiian Holdings and Hawaiian Airlines," said Adams, whose deal included the 274,005 shares that he personally owned. "Although I had wanted to continue to lead the fight in the bankruptcy court to preserve the value that rightfully belongs to the shareholders of Hawaiian Holdings, I reluctantly concluded that this effort would have a better chance of success if I removed myself from the process."

Bankruptcy Judge Robert Faris ordered Adams replaced by a trustee in May 2003, two months after Adams placed Hawaiian Airlines in Chapter 11. Faris questioned some of Adams' financial decisions, including a $25 million stock tender offer that came at a time when the airline's finances were deteriorating.

With yesterday's transaction, AIP, Adams and business partner Randy Smith have now tripled the $20 million investment they made in January 1996 when they bought shares at $1.10 each. In 2002, AIP received more than $17 million from the tender offer, and Smith Management, whose president is Adams, received $3 million in management fees. This latest deal brings their investment return to more than $61 million.

Ranch Capital, which is taking a huge gamble if the stock is wiped out in the bankruptcy, said it was attracted by the improved financial performance of the airline. Hawaiian has had 13 consecutive months of operating profits since filing for reorganization.

"Because of the significantly improved performance of Hawaiian Airlines, we believe that its stock, which is 100 percent owned directly and indirectly by Hawaiian Holdings, has significant value," said Lawrence Hershfield, founder and CEO of Ranch Capital.

Ranch Capital, which was formed in 2002 by Hershfield and Randall Jenson, invests in distressed, bankrupt and other special situations.

It has been involved in the bankruptcies of manufacturer Oakwood Homes and Seitel Inc., which looks for oil and gas using seismic data.

Hawaiian Airlines trustee Joshua Gotbaum said that he welcomed the new investor.

"I think the main point is that an outside group of investors with no history or axes to grind sees a very substantial value in Hawaiian Airlines," he said. "I think that is terrific. That will help ensure that it will exit bankruptcy successfully from the creditors' perspective and very probably the shareholders' perspective."

Gotbaum did not rule out teaming with Ranch Capital on a reorganization plan.

"My job is to maximize the value of the estate," he said. "If working with Ranch Capital achieves that, then of course we're going to do it, but at the moment we have other equally serious investors who are interested in Hawaiian."

Boeing Capital, the primary aircraft lessor for Hawaiian, had been instrumental in Adams' removal as chairman and CEO of the airline. Adams has repeatedly said that the only reason he put the airline in bankruptcy was because he was unable to reach an agreement on renegotiated leases with Boeing Capital.

For its part, Boeing Capital said it would not negotiate until Adams and AIP returned more than $17 million they received from the tender offer.

"It's certainly an interesting turn of events," Boeing Capital spokesman Russ Young said. "Obviously, we're going to be very interested in seeing what their (Ranch Capital's) plan for the airline is."

Ironically, an initial reorganization plan filed by Boeing and turnaround firm Corporate Recovery Group LLC claims the airline is insolvent and that its stock should be canceled.

But a person familiar with the Ranch Capital deal said the San Diego owners felt they bought into the airline at a reasonable price.

Adams, who is being sued for $28 million by the trustee for his financial actions and is being investigated by the Securities and Exchange Commission, said he hopes that by stepping down that he no longer will be a "distraction" in the reorganization process.

As part of the transaction, two Hawaiian Holdings directors, Edward Safady and Thomas Trzanowski, will resign along with Adams. The three will be replaced by Hershfield, Jenson and one other Ranch Capital nominee as soon as certain legal and regulatory requirements are met.

A fourth Hawaiian Holdings director is retaining his seat on the board.

The status of Don Carty, the former American Airlines chairman and CEO who was being promoted as the new chairman under Hawaiian Holdings' reorganization plan, is in doubt. A person familiar with the situation said no decision has been made yet on his position.


The art of the Adams deal

A synopsis of the Hawaiian Air deal involving John Adams:

>> A Ranch Capital LLC investor group buys 10 million shares of Hawaiian Airlines' parent, Hawaiian Holdings Inc., from AIP LLC. John Adams, chairman and CEO of Hawaiian Holdings, was also a controlling member of AIP.

>> The purchase price of $41.4 million, or $4.14 a share, will make the new group the company's controlling shareholder with a 35 percent stake.

>> Ranch Capital, which invests in distressed, bankrupt and special-situation companies, plans to file a reorganization plan as Hawaiian Holdings.

>> John Adams resigns as chairman and CEO of Hawaiian Holdings and also gives up his position with AIP.


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