The chairman of Hawaiian Airlines and the carrier's unions have something in common: Both are displeased with the $8 million success fee requested by the company's former trustee, Joshua Gotbaum.

Former Hawaiian Air
trustee seeks $8M
success fee

A union representative calls
the request 'ridiculous'

Former Hawaiian Airlines trustee Joshua Gotbaum, who helped fashion a reorganization plan that repaid creditors in full and allowed existing stockholders to keep their shares, is seeking an $8 million success fee for piloting the company through a 26-month-old bankruptcy.


Joshua Gotbaum: Helped the carrier pay off its creditors in full and prevented shareholders from being wiped out

Gotbaum's long-awaited request, filed in federal Bankruptcy Court late Monday night, comes on top of a $1.75 million success fee authorized by Gotbaum that is being sought by airline consultant Simat, Helliesen & Eichner Inc.

The combined $9.75 million in success-fee requests drew a firestorm of opposition from the company's labor unions, who gave $15 million in concessions in early 2003 before the airline filed for Chapter 11 and then renegotiated their contracts again to keep costs flat and help the airline emerge from bankruptcy. A hearing on those success-fee applications and final compensation for all professionals is scheduled for Sept. 21.

As trustee, Gotbaum earned a salary of $50,000 a month and $10,000 a month for living expenses. In January 2004, Bankruptcy Judge Robert Faris postponed ruling on a success fee until after Hawaiian emerged from reorganization.

Including other compensation Gotbaum already has received for his services, his total compensation would amount to nearly $9.2 million through his hiring date of July 3, 2003, until the day the airline emerged from bankruptcy on June 2, 2005. The company filed for bankruptcy on March 21, 2003.

In addition, Gotbaum said his total expenses were more than $276,000, of which nearly $259,000 have been paid. He also is seeking undetermined relocation expenses for moving back to Washington, D.C., which is where he lived before assuming his Hawaiian duties.

Gotbaum, who returned to Washington on Aug. 1, said in an interview yesterday morning that the Hawaiian Airlines bankruptcy was "extraordinarily successful."

"The creditors were repaid in full, the shareholders saw the value of their stock rise instead of being wiped out and the employees got contracts that for the first time put them at or above United and American," he said from Washington. "Now the question is: What's fair compensation for the trustee?

"In making the proposal, we looked at the compensation package for (Aloha Chief Executive) David Banmiller, for other trustees, and other executives responsible for airline bankruptcies. Obviously, that was a range and I tried to put my proposal at the lower end of that range."

But Kirk McBride, master executive council chairman of the Air Line Pilots Association Hawaiian Airlines unit, called the $8 million success fee request "reprehensible."

"You have labor making significant changes in their collective-bargaining agreement in order to ensure the company is a viable success going forward, and then we're seeing others in the case (Gotbaum and SH&E) believing that they deserve large sums of money from the corporation," he said.

Larry Hershfield, chairman of the airline's parent, Hawaiian Holdings Inc., and the head of the majority investor group, criticized both fee requests.

"The proper forum for a complete response to both success-fee requests is in court," he said. "However, given current industry conditions and a realistic analysis of who did what during the bankruptcy, we think the requests are outrageous."

As expected, the combined $9.75 million in success-fee requests drew fierce criticism yesterday from the company's labor unions.

"It's ridiculous," said Dave Figueira, who represents the International Association of Machinists and Aerospace Workers District 142. "I think he should get a very, very small success fee. I think he was highly compensated for a job that he had little or no experience for, which was running an airline."

Sharon Soper, president of the Hawaiian unit of the Association of Flight Attendants, called Gotbaum's new pay request "unconscionable."

But airline analyst Robert Mann, who also served as a consultant to Gotbaum's Los Angeles-based lawyers, said Gotbaum's request was justifiable.

"The issue is how many airline bankruptcies do you see where there's 100 percent payout to creditors?" said Mann, who is president of R.W. Mann & Co. in Port Washington, N.Y.

"You had some very contentious issues that in the final analysis were resolved consensually. While it might seem like a large payout, it was a success -- and demonstrably so."

Mann took issue with Hershfield's description of the fee request as being "outrageous."

"I'm kind of puzzled by that actually," Mann said. "I guess his view must be that it was all his doing somehow. I can't fathom his statement."

Gotbaum declined to respond to Hershfield's comments.

Gotbaum's fee application specifically singled out the compensation that Banmiller is receiving for trying to navigate Aloha through bankruptcy. Banmiller is getting an annual salary of $455,400 —reduced by pay cuts from $562,222 — and a $90,000 a year housing and car allowance. Banmiller also is entitled to two years pay in severance benefits and a 5 percent equity stake in Aloha whereas Gotbaum isn't entitled to severance and wasn't given a stake in Hawaiian Airlines.

"Had the trustee been awarded these same terms as Mr. Banmiller, his total compensation on the emergence of Hawaiian from Chapter 11 would be more than $11 million," the filing said.

Gotbaum acknowledged that what he ultimately receives will be left up to Faris.

"Throughout Hawaiian's bankruptcy, the court has been called on to hear all the arguments and decide what's right," Gotbaum said yesterday. "That's what we're asking the court to do, one more time."

It has been anything but a smooth ride for Gotbaum, who had to endure sometimes contentious negotiations with the company's six labor groups, including a court showdown with the pilots in which Gotbaum sought to impose a contract on the group. In the end, the pilots approved a contract that froze their pension plan and converted their defined-benefit plan to a defined-contribution plan.

"I believe that Josh Gotbaum was very well compensated for serving as a trustee of an estate, and to me the word 'trustee' means something," McBride said. "It means you have the estate's best interest at heart, not your own."

Gotbaum also persevered through drawn-out negotiations with Boeing Capital Corp., the airline's primary aircraft lessor which owns more than half of Hawaiian's fleet.

Despite the hurdles, though, Gotbaum achieved what few people thought was possible when he aligned himself with the Hershfield-led RC Aviation LLC, an investment group that was willing to fully repay all the creditors and maintain the existing stock.

Hawaiian Airlines

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