Hawaiian, Aloha report major losses after 9/11
By Susan Hooper
Advertiser Staff Writer
Hawai'i's two interisland airlines were losing as much as $270,000 a day in the months following the Sept. 11 terrorist attacks as air travel plummeted and they struggled to cut costs by paring flights and workers.
The financial disclosure, part of a shareholder document filed yesterday with the federal Securities and Exchange Commission, provides one of the best snapshots so far of the airlines' health as they move forward with a proposed merger.
In the filing, Hawaiian Airlines' daily operating losses through December are estimated at between $75,000 and $100,000 ; Aloha Airlines' at between $109,000 and $170,000. While both airlines have received tens of millions of dollars in emergency federal bailout money, they have said that without a merger, the drastic loss of business has put their individual survival in doubt.
Excluding the federal subsidies in the last three months of the year, Hawaiian reported an operating loss of between $12 million and $17 million, and Aloha had an operating loss of about $11.9 million.
While the airlines have seen some signs of improvement this year, it's unclear how much and officials have said interisland performance remains weak.
The financial details are just some of the information in yesterday's filing, known as a proxy statement, that gives shareholders, who still must vote on the merger, some of the clearest details yet of the airlines and the proposal.
The merger also still must receive federal and state antitrust clearance. The state attorney general's office and the U.S. Department of Justice are conducting reviews but have not revealed details of their investigations.
Information in yesterday's filing indicated that the Department of Justice has asked for more information on the merger, suggesting that its review will not be completed soon. The filing did not specify what information federal lawyers wanted.
Severance pay for the two airlines' executives has been a topic of intense speculation since the merger was announced. The proxy says that Paul Casey, Hawaiian Airlines' vice chairman and chief executive, will receive approximately $1.7 million; Glenn Zander, Aloha's president and chief executive, will receive $3.2 million from Aloha.
A federal law passed after the September attacks provides for assistance to all U.S. airlines and air cargo carriers. Hawaiian received $24.9 million from the federal government under the law in 2001 and expects to receive $5.9 million early this year.
Aloha received $7.8 million from the federal government under the law last year and expects to receive another $2.2 million this year, the proxy says.
Greg Brenneman, a former Continental Airlines executive, will be the chairman and chief executive of the merged airline. Brenneman will have an initial two-year employment agreement with the new airline, and his minimum base salary will be equal to $400,000 "or such other amount agreed to by the board," the proxy says. Other benefits include a car allowance of $1,000 a month and moving expenses.
Brenneman's Texas turnaround firm, TurnWorks, will have a two-year management services agreement with the new merged airline and receive a fee at an annualized rate of $1.6 million if Brenneman is serving as the merged airline's chairman and chief executive, or $600,000 if Brenneman is acting as chairman only.
Aloha and Hawaiian have been paying TurnWorks $100,000 a month since the merger was announced Dec. 19. Upon completion of the merger, TurnWorks also will receive 20 percent of stock in the merged airline.
Among other payments related to the merger, Aloha adviser Mercer Management will be paid $1 million for its merger management consulting services. Hawaiian board chairman John Adams and his New York investment firm Smith Management Co. will be paid $5 million cash. Smith Management also gets 1 million shares of company common stock and notes valued at $2 million. Airline Investors Partnership, which owns approximately 53 percent of Hawaiian's common stock, will get $10 million in cash, 18 million shares of the new company's common stock, as well as notes with the aggregate principal amount of $36 million.
To complete the merger, the new airline expects to issue between about $70.3 million and $76.3 million worth of notes and expects to incur additional new debt "if necessary to satisfy the liquidity conditions to the completion of the merger," the proxy states.
Hawaiian and Aloha have each agreed to pay a total fee of up to $4 million to the other and to TurnWorks if either airline terminates the merger.
Hawaiian is a publicly held company. The new company will continue to trade on the American Stock Exchange under the former Hawaiian Air ticker symbol, HA.
Aloha and its sister company, Island Air, are privately owned. Stockholders include members of the families of the late Hung Wo Ching and Sheridan Ing. The merger would give Aloha's owners 28 percent of the common stock of the new company. Hawaiian shareholders, together with AIP and its affiliates, would hold about 52 percent of the common stock of the new company.
The proxy also notes the board members of the new airline will be Brenneman, chairman; Steven DeSutter, currently a senior vice president of TurnWorks; Hawaiian board chairman John Adams; Hawaiian directors Todd Cole and Joseph Hoar; Aloha chairman Han Ching, who will be board vice chairman; Aloha directors Eldon Ching and Richard Ing; and Hawaiian directors and employees' union representatives Reno Morella of the Air Line Pilots Association, Samson Poomaihealani of the International Association of Machinists and Aerospace Workers and Sharon Soper of the Association of Flight Attendants.
Reach Susan Hooper at shooper@honoluluadvertiser.com or by calling 525-8064.
