Aloha Air’s unions fight back in court

Lawyers for pilots and flight attendants say the carrier is posting operating profits

Concessions already secured from union employees have allowed Aloha Airlines to generate a substantial operating profit, indicating the airline does not need more givebacks from pilots and flight attendants to survive, a lawyer for the airline's pilots said yesterday.

Aloha posted an $8.3 million operating profit in the first eight months of this year and projects it will generate another $3.7 million in operating profit for September through December, said Daniel Katz, an attorney for the Air Line Pilots Association.

"That adds up to a $12 million operating profit over the course of the year," Katz said, pointing to financial statements Aloha has submitted in court.

Katz's comments followed an all-day hearing yesterday in U.S. Bankruptcy Court, where the airline's pilots and flight attendants are fighting Aloha's request to cancel and change their contracts.

Aloha says that its main investor, Yucaipa Corporate Initiatives Fund I LP, requires the contracts to be altered, and employee pension plans eliminated, under its agreement to save the carrier. Yucaipa leads an investor group that has pledged $100 million in equity and debt to Aloha.

Aloha technically is seeking to terminate its contracts with some 3,100 unionized workers. However, Aloha has forged tentative agreements for new contracts with approximately 2,500 of these workers, including dispatchers and some 2,400 mechanics, clerical workers, agents and inspectors.

But the pilots and flight attendants are another matter. Unable to reach a new agreement with those workers that will satisfy Yucaipa, Aloha has asked for the court's permission to terminate its contracts with the workers, a request known as an 1113 motion.

The pilots and flight attendants say that, in exchange for earlier concessions, Aloha gave them specific written assurances that the airline would not file motions to terminate the contracts.

"The employees didn't think it was meaningless," David Borer, an attorney for the flight attendants, said of an 1113 waiver that Aloha gave the attendants. "We got that in exchange for painful concessions. If the letter means anything, it means (Aloha management) can't be in here using this tool against us."

U.S. Bankruptcy Judge Robert Faris said he was going to allow Aloha to make its case to terminate the contracts. But Faris said the existence of the waiver could raise questions about whether Aloha has negotiated in good faith.

"I'm troubled that the waiver is there and that (Aloha) is proceeding in the face of it," Faris said.

Aloha's attorney, Charles Dyke, said the carrier's situation has changed since Aloha made the agreements with the pilots and flight attendants in late 2004 and early this year.

Since then, the company has faced sharp increases in the price of jet fuel, which has driven up operating costs, Dyke said. Plus, Aloha's bankruptcy lenders began to pressure Aloha to find an investor. Finally, Dyke said, stating a mantra repeated by Aloha throughout the hearing, "Without the pension changes, no investor has been willing to come forward and commit."

The concessions that Aloha wants go beyond the pension issues. According to Dyke and other Aloha representatives, investors also want contract changes that will allow Aloha to operate more like a "low-cost carrier," such as Southwest Airlines.

But getting Aloha executives or representatives to define the key characteristics of a low-cost carrier proved difficult. During cross-examination by Katz, Mark Bilbao, a financial adviser who helped Aloha finds its investors, struggled to explain just what it meant to be a low-cost carrier -- even though Bilbao had submitted a written statement to the court that all of the potential investors wanted the airline to operate as a low-cost carrier.

Meanwhile, Katz hammered on Aloha's financial statements. Although the company has failed to generate net income, it has posted positive operating income as well as positive earnings before interest, taxes, depreciation and amortization -- a measure of cash flow that financial analysts frequently use to measure the health and value of a company.

The positive performance, Katz said, suggests that concessions already given by the pilots and flight attendants are adequate.

Aloha spokeswoman Stephanie Ackerman said the company needs still more concessions to appease investors. Ackerman said that Aloha's disclosure statement for its bankruptcy reorganization specifies the company's labor agreements must be "modified."

Changes to work rules for pilots and flight attendants, which the company refers to as "productivity" concessions, are needed to give management the flexibility it needs to operate like a low-cost carrier, she said.

The hearing is scheduled to continue Monday.

While both sides expressed a desire to reach an agreement, the threat of a strike that would shut down the airlines lurked yesterday in court.

Amidst the throngs of uniformed pilots at the hearing were two children wearing T-shirts bearing the slogan: "No Pilots, No Aloha." The message echoed signs carried by pilots who picketed outside Aloha's headquarters on Thursday.

As for the flight attendants, their union "believes it has the right to strike if the company terminates our contract," said Karen Nakaoka, a spokeswoman for the union.