Boeing Capital enters
advanced talks with
Hawaiian Air investors

Boeing Capital Corp. has dropped its partner in a plan to reorganize bankrupt Hawaiian Airlines, and is in advanced discussions on a critical aircraft leasing deal with an investors group that has filed a competing plan for the carrier, according to people familiar with the situation.

The change in allegiance marks a key turning point in the 18-month-old Hawaiian Airlines bankruptcy and firmly establishes a reorganization plan proposed by Ranch Capital LLC Chief Executive Lawrence Hershfield as the leader among the multiple plans for the airline.

Hershfield, chairman of the airline's parent company Hawaiian Holdings Inc., is spearheading a joint plan with Hawaiian Airlines trustee Joshua Gotbaum, the airline's unsecured creditors' committee and RC Aviation LLC, a 16-member hedge fund group led by Hershfield.

Boeing Capital, whose battle with Hawaiian Airlines over leases has been a sticking point in the bankruptcy, has reached a settlement on a breakup fee with Corporate Recovery Group LLC, a Wilson, Wyo., turnaround firm, according to the people familiar with the situation. Terms are unknown, but a previous disclosure called for Boeing Capital to pay Corporate Recovery Group as much as $3.5 million if Boeing backed out of the partnership.

Corporate Recovery Group and Boeing Capital, who in February teamed up to file the first reorganization plan for Hawaiian, had proposed former Hawaiian Chief Executive Bruce Nobles to run the airline.

Both Nobles and Ron Orr, a principal with Corporate Recovery Group, declined comment yesterday, which was the final date for groups to modify their reorganization plans. Boeing Capital also declined comment.

Given the split between Boeing Capital and Corporate Recovery Group, it's likely that they'll withdraw their reorganization plan, the people familiar with the situation said.

Boeing Capital's decision to abandon Corporate Recovery Group represents a big victory for Hershfield. His RC Aviation group was a latecomer to the bankruptcy process but became a major player in June when it bought roughly 35 percent of Hawaiian Holdings. That made RC Aviation the airline holding company's top shareholder.

Hershfield did not return a phone call yesterday.

Under Hershfield's original proposed plan, Hawaiian's aircraft lessors -- the company's largest creditors -- would receive full payment of their approved claims, either in 50 percent cash and 50 percent stock or a long-term note from Hawaiian. Other creditors would receive full payment of their claims, either in cash or with 50 percent cash and 50 percent stock. Shareholders would keep their stakes in the company. The Hershfield plan commits to invest more than $160 million to purchase claims and reorganize the airline. A modified plan was due to be filed late last night with the U.S. Bankruptcy Court.

With Corporate Recovery Group out of the picture, only two other groups remain with vying reorganization plans for Hawaiian. They are:

>> Madison 50 Air Partners LLC, an entity of New York-based Jefferies & Co. and;

>> A group comprised of Hawaiian Airlines pilot Robert Konop; the Hawaiian Reorganization Committee, which consists of some airline employees and small creditors; and the Hawaiian Investment Partners Group LLC, which is made up of investors and venture capitalists.

Madison's modified plan, which treats aircraft lessors and unsecured creditors equally, would pay all creditors fully in cash. However, if the amount of unsecured claims exceeds $220 million, creditors would receive the balance in reissued stock in the company. Madison also plans to put $70 million into the plan. Hawaiian Holdings would receive stock in 49.9 percent of the company, but those shares could be diluted to give some stock to the creditors.

An amended plan filed by the Konop group, which is similar to its previous proposal, offers to pay creditors fully in cash, allows stockholders to swap their existing shares for stock of the new company, and will offer shares of new stock to employees through a temporary salary reduction program.