Posted on: Friday, April 25, 2003

Hawaiian rejects call for trustee

By Dan Nakaso and Kelly Yamanouchi
Advertiser Staff Writers

Hawaiian Airlines Inc. officials fired back yesterday and argued that a trustee should not be appointed to oversee the airline during its bankruptcy proceedings.

The attempt to remove Hawaiian CEO John Adams and his managers comes, in part, because of controversial moves such as a $200,000 raise for Adams and a stock repurchase program.

Hawaiian defended the actions in bankruptcy papers filed yesterday, saying they met federal disclosure requirements and were approved by Hawaiian's board of directors. The airline also maintained that its management team is sound and had done nothing to demonstrate egregious conduct.

The filing was a response to a motion by one of Hawaiian's major creditors, Boeing Capital Corp., which leases airplanes to Hawaiian. Hawaiian said it filed for bankruptcy protection last month to help it win more favorable leases from Boeing and other lessors.

Boeing, according to Hawaiian, "has not come forward with any evidence to demonstrate that Hawaiian's current management has engaged in 'fraud' or 'dishonesty.' Nor is there any evidence to show that Hawaiian's management is incompetent or that it has grossly mismanaged the company's affairs. (Boeing) has not made any such showing because it cannot."

Boeing asked the federal bankruptcy court last month to appoint a trustee to replace Hawaiian's management.

Boeing criticized Hawaiian CEO John Adams' raise from $400,000 to $600,000 in April 2002. It also claimed that Hawaiian misused $30 million of post-Sept. 11 federal money to buy back Hawaiian stock at the expense of creditors while earning Adams $17 million on the value of his stock.

A hearing on Boeing's motion for a trustee is scheduled for May 8.

Hawaiian said in its filing yesterday that appointing a trustee would elevate Boeing's interests "above those of the other parties interested in these proceedings. (Boeing's) 'best interests' argument, when stripped to the core, is nothing but a 'self-interest' argument."

"In effect," Hawaiian said, Boeing "threatens that unless a trustee is appointed it will exercise its ... rights and take possession of its aircraft."

Boeing Capital Corp. spokesman Russ Young said late yesterday, "I don't understand what that's supposed to mean. Trustee or no trustee, everything has to be approved by the court. I don't see how our interests would be put above anyone else's."

Young pointed to a motion granted yesterday by Bankruptcy Court Judge Robert Faris to allow Hawaiian, Boeing and aircraft lessors to extend the deadline for negotiations before the airline must pay debts or risk seeing its planes reclaimed.

"It would tend to argue against a threat since we were able to reach an agreement to extend the deadline," Young said. "With a trustee in place, or not, it's more time after the 60-day deadline in order to look at alternatives to see if some kind of agreement can be reached."

Boeing has extended the deadline for negotiations with Hawaiian to June 27. Bankruptcy rules dictate a standard 60-day period for negotiations, which would have made the deadline May 20.

Faris also approved a plan to allow Hawaiian to reject two aircraft leases that had been scheduled for delivery.

Hawaiian said in bankruptcy court it has agreed with Boeing to wait until May 16 before it signs financial terms should it proceed to replace Boeing aircraft.

Hawaiian and International Lease Finance Corp. also agreed to extend the deadline to late June. Hawaiian said it has not yet agreed on an extension with its other aircraft lessor, Ansett Worldwide.

Meanwhile, the union representing Hawaiian Airlines pilots voiced its opposition to Hawaiian's request to line up short-term leases of aircraft and crews in case it is unable to negotiate favorable lease terms from Boeing.

The Air Line Pilots Association International says the new leases would be a violation of Hawaiian's labor agreement.

According to the pilots, their contract generally requires that all revenue flying be performed by Hawaiian pilots, which prevents the airline from subcontracting flight operations to another airline.

Hawaiian attorney Lisa Beckerman acknowledged that the airline must reach agreements with its labor unions to enter into lease arrangements involving different types of aircraft or other crews.

"We are not anxious to upset any of our labor relations," Beckerman said.