Aloha Air can cut
mechanics’ pay
10%, court says

But the cuts will end April 5, and
the court rejects a pension freeze

A federal bankruptcy judge gave Aloha Airlines minimal financial relief yesterday by allowing the company to impose a 10 percent pay cut on the airline's mechanics unit until April 5.

But Judge Robert Faris stopped short of granting the airline's other short-term requests, which included outsourcing heavy machinery work and freezing the mechanics' defined-benefit pension plan. Faris also shortened the airline's request to impose the pay cuts through July 31.

"I'm trying to do what (Aloha) needs to survive, no more," Faris said.

The 10 percent pay cut is retroactive to Feb. 1.

In a separate matter, Aloha filed a motion yesterday seeking an emergency hearing for Friday to approve bidding procedures for a $65 million loan from investor MatlinPatterson Global Opportunities Partners II LP or another party because the airline said it needs about $10 million to pay end-of-the-month obligations.

Faris urged the International Association of Machinists District 142 and the company to continue to negotiate. He denied the airline's requests for outsourcing and freezing the pension plan because no heavy machinery work is scheduled until late April and no pension payments are due.

Aloha, which has declined to disclose how much cash it has, is more than two weeks late in filing a monthly financial report as required by federal bankruptcy law and has hired outside auditing firm Ernst & Young to handle its finances. Aloha Chief Executive David Banmiller has said that the company had "a couple million" in cash when it filed for Chapter 11 reorganization on Dec. 30.

Since then, Aloha has received $4.6 million in loans from its majority shareholder Ching and Ing families, a $4 million loan from MatlinPatterson -- $2 million of which is in escrow -- and $1 million from credit-card processor First Hawaiian Bank from money Aloha had in a collateral account with the bank.

In yesterday's hearing, Aloha attorney Sheldon Kline said the airline's mechanics "need to step up to the plate."

"Everyone has to make concessions to share the pain ... and only the mechanics are left," Kline said.

He said the airline can save $1 million each time it outsources heavy machinery work because the turnaround time is 15 days faster than if the work were performed in-house and the company could use that equipment to potentially generate additional revenue.

"(Aloha) faces an immediate and critical need to achieve cost savings," Kline said.

But Sharon Levine, IAM's New Jersey-based attorney, said the group's 250 mechanics and inspectors are being rushed into making a decision. She said the 10 percent pay cut comes on top of a 10 percent pay cut from two years ago that will not be restored and a 2 percent pay raise from last December that is being reconsidered.

"We have a group of people who feel they're being treated unfairly," Levine said.

In addition, she said the company's business plan and cash needs are not being communicated to the membership and that union members don't trust Aloha.

One of the areas of distrust occurred when Aloha implemented the second round of 10 percent pay cuts on the mechanics unit before union members had ratified a contract, one of the IAM motions said.

Kline said the company has shared its financial details with union leaders and that the mechanics group is not being asked to do anything different than Aloha's four other labor groups, who all have ratified new contracts.

Levine said the airline's outsourcing demand is critical to the negotiations.

"They're saying, 'We're not going to just cut your pay and your benefits, but we're going to be taking your job.' And when jobs go out, quite often they don't go back."

Joseph Tiberi, communications representative for the IAM Transportation Department, said he hopes the two sides can settle their differences.

"We are disappointed that the judge imposed wage reductions, but pleased that he did not permit Aloha to make long-term, wholesale changes to the contract," Tiberi said. "The issues of permanent wage rates, pensions and outsourcing will be addressed through the collective bargaining process, as they should."

Aloha Chief Financial Officer Jim Clarke said he regretted that the company had to resort to such an action but that it became necessary after the mechanics and inspectors unit rejected two tentative contracts.

"It was an unfortunate step in the reorganization process that we had to do, but we'll continue to bargain and get a consensual deal," he said.