Hawaiian Airlines tries for new start
By Kelly Yamanouchi
Advertiser Staff Writer
Hawaiian Airlines became another example of the airline industry's ongoing struggles when it filed for Chapter 11 bankruptcy protection Friday citing overwhelming debts to aircraft lessors.
But industry observers noted that given the difficulties Hawaiian faces, with diminishing air travel, rising fuel costs and other challenges, the move may well be the only way to maintain dependable air service to Hawai'i and between the Islands.
Hawaiian said it filed for bankruptcy protection to allow it to renegotiate agreements with aircraft lessors, including Boeing Co., its largest, and two other leasing companies.
The value of Hawaiian's leases to Boeing totaled $476 million at the end of last year. Hawaiian was seeking to reduce its obligations to Boeing, but the two sides were unable to reach agreement. Hawaiian and Boeing both said they plan to continue negotiations while Hawaiian operates under bankruptcy protection.
"The company decided that this was the prudent step to take," said Hawaiian spokesman Keoni Wagner. "We just wanted to move this step along."
Hawaiian Airlines, one of two major interisland carriers along with Aloha Airlines, also operates up to 30 nonstop daily flights between nine cities on the U.S. Mainland and Hawai'i.
Hawaiian executives plan to continue business as usual, honoring all tickets and operating flights, and said the Chapter 11 restructuring should not be evident to consumers. The airline recently secured concessions from employee groups to save about $15 million annually, and it does not plan to ask for more givebacks.
Hawaiian has gone through reorganization before, first filing in 1993 and emerging about a year later. But the timing of the latest move surprised many, including some employees who thought they were agreeing to labor concessions to avoid seeing the company file for bankruptcy protection.
At the same time, industry observers said bankruptcy is fast becoming standard practice for airlines these days — an indication of the depth of trouble suffered by the airline sector.
"The volatile industry has claimed another victim," Robert Roach Jr., general vice president of transportation for the International Association of Machinists and Aerospace Workers, told members. "We knew bankruptcy had been a possibility for quite some time."
Panda Travel, Hawaiian's second largest unsecured creditor, has an estimated $5.6 million in claims against the carrier, some of which may be offset by amounts owed to Hawaiian from Panda.
Panda spokesman Jim Donovan would not say specifically how the Hawaiian debt affects Panda. But the travel company said it will continue to work with Hawaiian through the financial restructuring and would continue to sell Hawaiian packages and tickets with no changes.
Pleasant Holidays spokesman Les Gargen said the bankruptcy filing wasn't a huge shock and the move does not affect business operations. "So many of the airlines are operating so close to the vest, with the cost of fuel going through the roof (and) the falloff of passenger travel," he said.
Tourism industry leaders hope Hawaiian's bankruptcy protection will help it achieve stability.
"They need to get their costs restructured so that they can remain competitive and hopefully get back to profitability," said Rex Johnson, Hawai'i Tourism Authority executive director.
Many in the Islands continue to worry about the operations of Hawaiian and other airlines, not because they are in bankruptcy, but rather because they represent the risk of flight cuts during the war with Iraq and beyond. Permanent cutbacks could severely damage the state's economy.
House Speaker Calvin Say said he told reporters a couple weeks ago that he expected two or three national airlines to file for bankruptcy or liquidation if there would be a war. The possibility of liquidation by United Airlines, Hawai'i's major national carrier, and the troubles of American Airlines are especially worrisome.
"So if it's United today, then tomorrow it's going to be American? Oh, my goodness," Say said. "The number of flights will be cut back, the number of seats will be cut and visitors will have a difficult time traveling to Hawai'i."
Tourism leaders agree that the outlook for air travel to and within Hawai'i is an unsettling one.
"Consumers are now much more used to airlines operating in bankruptcy, so it's not as big of a stigma as it used to be at one time," said David Carey, chief executive of Outrigger Enterprises Inc.
"The big thing that still scares me is if United goes through Chapter 7 (liquidation)."
Others warned that airline bankruptcies like Hawaiian's will keep happening.
"We haven't seen perhaps the last of the major carriers running into this problem. It's unfortunate," said Joseph Patoskie, associate professor of travel industry management at Hawai'i Pacific University.
Many airlines have struggled with high fuel and labor expenses, the two largest operating costs for airlines.
"What has really separated some of the strong ones today from the not-so-strong has been how well they've been able to manage their costs, and that's a difficult thing for airlines to do," Patoskie said.
Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.
