Retired Aloha pilots must cough up legal fees

A judge rules against creating an airline-funded committee to represent the group of retired pilots

A federal bankruptcy judge yesterday denied a request by retired Aloha Airlines pilots to set up their own official committee to represent them as the bankrupt carrier seeks to alter pension plans and contracts with its employees' unions.

The decision by U.S. Bankruptcy Judge Robert Faris means that if retired pilots continue to fight a reorganization plan proposed by parent company Aloha Airgroup Inc., then the retirees must pay for their own attorneys rather than having the airline foot the bill.

Under bankruptcy law, the debtor company typically pays the legal fees of its creditors, who are represented by one of several official committees, depending on the priority of each creditor's claim. In asking the court to set up a new official committee to represent them, the retired pilots argued that they are uniquely positioned and need special representation to protect their interests.

Later this week, the court is scheduled to hold hearings on proposals by Aloha to alter union contracts and pension plans. Central to yesterday's argument by attorneys for the 90 to 100 retired pilots was an assertion that the retired pilots' interests diverge from those of active pilots, who are represented by the Air Line Pilots Association.

The retired pilots argued that active pilots are primarily concerned with current compensation and would likely be willing to accept less attractive retirement benefits to ensure good wages once Aloha emerges from bankruptcy.

But lawyers for the retired pilots said some retirees would suffer greatly under Aloha's proposed plan. Under the plan, some retired pilots would suffer a 50 percent decrease in pension payments, said George Calhoun, a Washington, D.C.-based lawyer for the retired pilots. This, Calhoun said, would create "extreme hardship" for them.

"It stands to reason," the retired pilots argued, "that the group most adversely affected by a bankruptcy proceeding should at least have an opportunity to participate meaningfully in that proceeding."

But Aloha, the U.S. Trustee's Office and the official committee of unsecured creditors made several arguments against establishing a separate committee. Among those were assertions that the retired pilots technically are not creditors, that the pilots union adequately represents the retirees' interests and that setting up a new committee would slow the proceedings and increase costs for the bankrupt company.

"The retired pilots do have a voice; it's Mr. Calhoun," Brett Miller, an attorney for the unsecured creditors committee, said yesterday. "It's a question of who's going to pay for it."

Judge Faris said the retired pilots could always pool their money and pay for their own lawyer without billing the estate.

"I don't see any evidence that the pilots can't represent themselves without shifting the burden to the debtor's estate," Faris said.

Faris said he had some misgivings about rejecting the retired pilots' request; however, the judge said the retirees did not need a separate committee to be represented adequately.

"The word is 'adequately' and not 'perfectly,'" Faris said.

Faris acknowledged that the retired pilots' interests might not align with those of the airline's unsecured creditors and could be lost amidst the majority. But Faris said that was "inherent in the beast" of the bankruptcy process, in which many creditors receive less than they are owed so the debtor company can survive.

Faris also rejected some of the arguments made by those opposing the establishment of the new committee. For example, Faris said it was irrelevant that the new committee might slow down the bankruptcy proceedings.