Power grab effort killed airline deal, Aloha says
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By Susan Hooper
Advertiser Staff Writer
The proposed merger between the state's two local airlines foundered because Hawaiian Airlines wanted to change the terms of the agreement, including eliminating the Houston consulting firm coordinating the deal, the chief executive of Aloha Airlines said in a statement yesterday.
Hawaiian's proposal also would have given Hawaiian chairman John Adams the top spots in the merged airline, eliminating Greg Brenneman, the TurnWorks executive who had been orchestrating the merger, according to Glenn Zander, Aloha's president and chief executive officer.
"Aloha could not accept Hawaiian's new proposal because in our judgment, it was not in the best interest of the state, the traveling public or Aloha's shareholders and employees," he said.
The details emerged a day after Hawaiian said it was pulling out of the deal because it did not wish to extend what it called an April 18 "outside date for completing the merger." It said increasing costs and risks of the deal were factors. The announcement surprised many, including employees of both airlines and state legislators who as late as last Tuesday held a hearing on the merger.
Yesterday, Zander said Hawaiian's action was "regrettable" and said members of Aloha's board of directors voted unanimously to reject Hawaiian's proposal. He also praised Brenneman and TurnWorks for their work on the merger.
Hawaiian spokesman Keoni Wagner said last night: "We don't necessarily agree with Aloha's characterization of the negotiations, but we also choose not to discuss publicly what would otherwise be private conversations."
The apparent power grab by Adams came even though he and his affiliated companies would have been the financial winners if the merger had gone through. Adams stood to receive assets valued at about $109 million. Adams, his companies and other Hawaiian shareholders would have held a 52 percent stake in the new airline.
Under terms of the original merger, the shareholders of privately owned Aloha Airlines — many of them relatives of the company founders — would have gotten 28 percent of the merged airline, worth an estimated $56 million. TurnWorks would have received a 20 percent stake in the company.
For more than a year, Aloha and its consultant have viewed TurnWorks and Brenneman as essential to the success of the merger, according to documents filed with the Securities and Exchange Commission last month that outlined how the merger came about.
Aloha's consultant, Mercer Management, initially approached Brenneman in February 2001, asking whether he wanted to invest in the airline. In July, Brenneman, a former top executive with Continental Airlines, met further with Mercer to discuss a possible investment and subsequent merger with Hawaiian.
Hawaiian officials, contacted in August, initially appeared cool to the idea but after the Sept. 11 attacks, and subsequent downturn in travel, they agreed to "discuss a possible merger involving the two airlines and TurnWorks," according to the documents.
On Sept. 22, according to the documents, Mercer and senior management officials of Aloha and Hawaiian met, and Mercer proposed that both airlines should continue to include Brenneman and TurnWorks in the merger discussions as Brenneman "was likely to be an important factor in creating an agreement between the two airlines, leading the integration efforts, and running the combined carrier and in generating maximum value for shareholders of both companies."
On Sept. 25, the documents say, all parties agreed to proceed with merger talks. They also agreed "that the involvement of TurnWorks and Brenneman would be an important factor in consummating a deal, as past efforts to combine the two airlines were not successful."
TurnWorks officials said in a statement yesterday, "We were surprised and disappointed (by Hawaiian's decision) ... The failure to extend the timetable essentially precludes completing this complex transaction.
"Mergers in the airline industry are difficult at best," Brenneman said in the statement. "In addition, Aloha and Hawaiian have very different corporate cultures and this transaction has a long and fateful history. It is my hope that someday Hawai'i will receive the benefits that this merger could have provided."
The abrupt end to the merger that was announced Dec. 19 leaves the future of the two airlines and of Hawai'i's interisland airline market uncertain. In announcing the deal three months ago, executives with both airlines said they needed to merge because conditions in the airline industry — and in the interisland market in particular — had made it impossible for them to survive separately.
After the Sept. 11 attacks, both airlines lost tens of thousands of dollars a day and furloughed hundreds of workers. In recent weeks, as the Mainland economy has recovered, there have been signs of improvement in the local airline market. Still, documents filed with the Securities and Exchange Commission show that Aloha is financially more vulnerable than Hawaiian. The privately held airline has more debt on its books and reported a $1.25 million loss at the end of the third quarter, Sept. 30. The airline also has smaller and older aircraft and fewer flights to the Mainland.
Yesterday, Zander said Aloha has its own business plan to move ahead "on a stand-alone basis." Aloha spokesman Stu Glauberman said Zander will be meeting with Aloha's employees' union leaders today. Before the announcements over the weekend, the two airlines had been working on a joint application to take advantage of a special antitrust exemption granted by Congress last November to cooperate on some operations, such as routes, scheduling and pricing. Yesterday, spokesmen for both airlines said they did not know whether the airlines would continue with that application process.
Gov. Ben Cayetano had been a supporter of the merger and said yesterday, "The failure of the merger had nothing to do with the U.S. Department of Justice, the state Legislature or public opposition. This was a business decision that we will have to accept. The state administration will do its best to try to assure that Hawai'i will continue to have two viable interisland carriers."
State Sen. Ron Menor, D-18th (Mililani, Waipahu, Crestview), chairman of the Senate Commerce, Consumer Protection and Housing Committee, had opposed the merger, and his committee took part in statewide hearings.
"I think that if the merger in fact is not going to happen, then the Legislature needs to do everything it can to ensure the viability and survival of both airlines ..." he said. "I think there are still some concerns about the ability of either or both airlines to survive in this market, and I think that both the federal and state governments need to evaluate what measures may have to be taken to support the continued survival of two airlines in Hawai'i."
The mood among workers at Honolulu's interisland terminal was split between the two airlines yesterday, with Aloha employees grim-faced and in no mood to talk about the failed merger, and Hawaiian employees buoyant.
Baggage handlers outside the Hawaiian half of the terminal yesterday afternoon burst into ebullient giggles when asked how they and their co-workers felt about the merger being called off.
"We still have our jobs!" said Thad Estrada, one of the Hawaiian handlers. "Everybody is pretty happy right now. There had been a lot of stress lately, and then today, even though all the schedules and everything are still the same, everybody is smiling. It sure makes the day go better."
On the Aloha side, employees waved off questions, shook their heads and looked at the ground or referred questions to an airline spokeswoman. Outside the terminal, Tammy Castro of Mililani and Diane Halemano of Makakilo grew tired of driving around the airport while waiting to pick up relatives, and parked in a lot to talk until their cell phones rang.
"Did you see about the merger?" Castro said. "Oh, I am so happy."
Castro said she'd signed a petition earlier to stop the merger.
"They'd have a monopoly on the fares, and we'd have no one else to go to," she said. "We need a choice. People would lose their jobs and we already have enough unemployment. Besides, no offense, but I just love Aloha."
Advertiser staff writer Karen Blakeman contributed to this report.
