Hawaiian Air files for bankruptcy protection

By Andrew Gomes and Kelly Yamanouchi
Advertiser Staff Writers

Hawaiian Airlines filed for bankruptcy yesterday for the second time in less than a decade and said it took the action largely to negotiate better deals on its aircraft leases.

The airline, which filed for Chapter 11 reorganization under federal bankruptcy laws, by late yesterday had obtained court approvals to allow the company to continue all of its operations, honoring tickets, redeeming frequent-flier miles and maintaining flight schedules.

John Adams, Hawaiian's chairman and chief executive, said the bankruptcy action is not a "shotgun approach," where the entire company's finances need overhauling. Rather, he said, the airline sought bankruptcy protection to help it renegotiate more favorable leases for new aircraft, one of the key and final pieces in a restructuring started several months ago.

"We wanted to deal with the leases with a sense of urgency because in the environment we're facing there are a lot of opportunities and challenges," Adams said.

While Hawaiian executives tried to cast the action as a positive step that will strengthen the airline's financial position, the bankruptcy comes at an especially precarious time for the airline industry.

United Airlines and US Airways are already in Chapter 11 and other major carriers say the soft economy, the Sept. 11 attacks and now the war in Iraq have dramatically reduced passenger traffic.

Yesterday, Northwest Airlines announced it was cutting 4,900 jobs and 12 percent of its flights because of decreased traffic. United said it was eliminating 104 domestic and 20 international flights a day starting April 1 and April 6, respectively, and confirmed it would lay off 3,400 more workers.

"We almost have gotten to the point where it's common practice for airlines to file for bankruptcy," said Danny Casey, president of the Hawai'i chapter of the American Society of Travel Agents.

Hawaiian's bankruptcy attorney, Lisa Beckerman of the law firm Akin Gump Strauss Hauer & Feld LLP of Washington, D.C., said she expects intense negotiations over lease terms in the next 60 days. Leading the negotiations will be Avitas Inc., a Chantilly, Va.-based aircraft lease consulting firm hired by Hawaiian yesterday.

Hawaiian's largest aircraft lessor is Boeing Co. Others include Los Angeles-based International Lease Finance Corp. and Ansett Worldwide, an international aircraft leasing company.

In October 2001, Hawaiian began taking delivery of 16 Boeing 767-300 airplanes as part of a $1 billion fleet upgrade. The airline has 12 767s in service with four more jets scheduled for delivery by May. It recently replaced its interisland fleet with 13 Boeing 717-200 planes.

At the end of last year, Hawaiian was Boeing's fifth-largest customer, with $476 million in lease agreements out of Boeing's total portfolio of $11.8 billion.

The airline is also asking the bankruptcy court to let it out of five leases for retired DC-10 aircraft owned by Continental Airlines and an American Airlines subsidiary. The planes, which are no longer used, are mothballed at a desert airport in California.

Adams said the company does not need emergency financing to continue operations and that he will not seek any further concessions from the airline's unions, which recently agreed to concessions worth about $15 million annually.

"We're going arm and arm (with employees) into this process," Adams said. Hawaiian has about 3,200 employees in the Islands and on the Mainland.

Union officials at yesterday's court hearing said they did not have concerns about the bankruptcy filing, but did not comment further. The International Association of Machinists said Hawaiian assured the union that its agreements will not be affected by the bankruptcy filing.

Trading of shares of Hawaiian's parent company, Hawaiian Holdings Inc., was halted on the American Stock Exchange yesterday. The stock last traded at $1.50 a share, down from a 52-week high of $4.

John Pincavage, an airline analyst with Pincavage & Associates in Westport, Conn., said the war with Iraq and the specter of terrorism continue to take a toll on passenger traffic while the industry is getting pinched by higher fuel and labor costs. "It's not a pretty picture," he said.

Hawaiian reported a net loss of $58 million last year on revenue of about $632 million. At the end of 2002, the company said it had about $256 million in assets and $399 million in debts.

It was the second time Hawaiian, the nation's 12th largest airline, sought bankruptcy protection. It filed for Chapter 11 in September 1993 and emerged about a year later.

Gov. Linda Lingle said that she felt reassured about the bankruptcy filing after being told that the move was focused on bringing down its aircraft lease payments.

"This is not the first time that Hawaiian has sought protection of the bankruptcy court and they came out of it stronger, and we certainly hope they do that," Lingle said.

Aloha Airlines executives yesterday said the carrier is stable and has a different strategy of targeting smaller niche markets. Aloha officials said they would not comment on Hawaiian's filing.

After a failed attempt at a merger last year, Hawaiian and Aloha received a special antitrust exemption from the federal government that allows them to coordinate some aspects of passenger capacity on interisland flights. Hawaiian had been seen as the stronger of the two local airlines, but Aloha had the benefit of a federal loan guarantee granted after the Sept. 11 attacks. The loan guarantee granted Aloha access to capital, and to receive approval, Aloha restructured agreements with labor and lessors last year.

Hawaiian did not seek federal loan guarantees, and recently concluded its aircraft lease negotiations were likely not going to be fruitful, according to airline spokesman Keoni Wagner.

Russ Young, a spokesman for Boeing Capital, Hawaiian's aircraft lessor, said Boeing will continue to look for a solution that works the best for the airline, Boeing and other stakeholders.

"Their filing is a source of concern, but it was a possibility we recognized," Young said.

He added that under bankruptcy laws, Boeing has the right at the end of 60 days to repossess airplanes from Hawaiian if the airline says it will not abide by the terms of agreements. Young said he did not know the likelihood of Boeing repossessing the aircraft.

Hawaiian, which began flying in the Islands in 1929, operates 30 nonstop daily flights between nine Mainland cities and Hawai'i, along with service to Neighbor Island destinations, American Samoa and Tahiti.

The company has an estimated 35,000 creditors. Among the largest unsecured creditors are Wells Fargo Bank, owed $10.3 million for aircraft lease loans; Panda Travel, owed $5.6 million in commissions; and Aviation Insurance Services, owed $2.5 million on policies.

State airports director Davis Yogi said Hawaiian is current on landing fees and other airport payments.

Advertiser staff writer Sean Hao and The Associated Press contributed to this report.