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The Honolulu Advertiser
Posted on: Tuesday, April 1, 2003

Trustee requested to oversee Hawaiian

By Kelly Yamanouchi
Advertiser Staff Writer

Boeing Capital Corp. is asking the federal court to appoint a bankruptcy trustee to replace Hawaiian Airlines' management in overseeing the airline's Chapter 11 proceedings, arguing that a $25 million stock buyback executed by Hawaiian management last summer came at the expense of creditors and the company.

Hawaiian Airlines filed for bankruptcy protection March 21 saying it needed to cut the cost of aircraft leases and talks with lessors, including Boeing, had broken down. The airline has said the reason for the bankruptcy filing was limited to lease contracts and it was not seeking a wholesale restructuring.

Boeing Capital said in its motion filed yesterday that Hawaiian was asking Boeing and other aircraft lessors for $20 million in concessions at the same time as Hawaiian management and affiliates received the payout of a $25 million stock buyback announced last May. Hawaiian's chairman and chief executive, John Adams, is a majority shareholder of the airline.

"There are a number of concerns ... one of the principal ones being the stock buyback and subsequent refusal to put money back into the airline," said Boeing Capital spokesman Russ Young.

Hawaiian called the motion "a thinly veiled attempt by Boeing to distract the company and the bankruptcy court during the 60-day statutory period" to renegotiate leases. Hawaiian said its tender offer "was both legal and proper and publicly disclosed."

According to Hawaiian, the buyback was intended to enhance shareholder value and was unrelated to the bankruptcy case.

Boeing Capital said it "feels that the appointment of a trustee would ensure that the interests of creditors are appropriately protected."

Young said the amount of Hawaiian's requests of concessions from Boeing have escalated and now amount to "several hundred million dollars."

"If Hawaiian continues to operate under current management and fails to recover the equity taken from it last year, Boeing Capital is concerned that Hawaiian will not be able to successfully reorganize," according to Boeing's statement on its motion.

It is unclear how Boeing's request may influence the Chapter 11 proceedings and their effect on Hawaiian employees and operations. Hawaiian executives have said they will continue business as usual and are not seeking additional concessions from labor groups.

Boeing said it has not requested a trustee to replace management in any other Chapter 11 case it has been involved in, including filings by United Airlines, TWA and US Airways.

Trading of Hawaiian shares was halted March 21, and last traded at $1.50. The American Stock Exchange will decide whether to resume trading after Hawaiian submits its annual financial results due by April 15.

Boeing and others have also criticized Hawaiian for executing the stock buyback after receiving $30.1 million in federal air transportation stabilization funds.

"Rather than using the stabilization funds to ensure the ongoing viability of the airline as Congress intended, Mr. Adams deliberately chose to reward himself and his interests, at the expense of creditors and the Company — an act which would help to assure Hawaiian's financial demise," according to Boeing's filing.

The motion also noted Adams received a salary increase last year to $600,000 a year; a $2 million payment; and a $75,000 per month consulting agreement for his consulting firm.

Young said there is no set date for talks to resume between Hawaiian and Boeing on lease concessions. Both parties have said they are open to continuing negotiations.

Boeing said it offered the airline $15 million in cash relief covering this year and next year but airline management did not accept the offer. The aircraft manufacturer also deferred aircraft rental payments due in January, February and March that were worth $10.3 million at the time of the bankruptcy filing. By the end of the 60-day period to renegotiate leases, the amount owed will total $18.4 million.

According to the filing, Hawaiian's requests for concessions from Boeing have increased by more than $780,000 per aircraft per year for 717s and by $1.02 million per aircraft per year for 767s, and the airline has also asked to shorten lease terms.

Hawaiian's pilots union chairman Ron Hoopai said he was not concerned about Boeing's request for a trustee.

"That's natural. They're gonna ask that things like that happen, but we'll see what the bankruptcy court has to say," said Hoopai.

"I don't think that's going to be any concern."

The pilots union has in the past criticized the stock buyback and the company's subsequent request for $15 million in concessions from employees. Nearly all labor groups approved the concessions earlier this year, before Hawaiian announced it was filing for bankruptcy protection.

Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.