Hawaiian managers battle for control

By Kelly Yamanouchi
Advertiser Staff Writer

Locked in a court battle with aircraft lessor Boeing, Hawaiian Airlines' executives are battling charges of mismanagement. Although a bid to appoint a trustee has support from creditors and workers, managers say such plan could doom Hawaiian. Advertiser library photo • March 16, 2001

Hawaiian's projected loss for the three months ending June 30 would be an improvement over the carrier's $31.1 million shortfall in the second quarter of 2002.

The state's largest local carrier filed for Chapter 11 bankruptcy protection on March 21. This week, it will be in court arguing against its major aircraft lessor and creditors who want the court to remove Hawaiian's management and appoint a trustee to handle its reorganization.

Hawaiian Chairman and Chief Executive John Adams asserted in a written filing with the bankruptcy court yesterday that there is no adequate reason why a trustee should be appointed.

He said that The Boeing Co.'s charge that he has failed to agree to any controls on shareholder distributions or insider transactions "is not true," adding that he has never refused any requests from Boeing for such controls.

Adams also reiterated that a premium price of $4.25 per share in a $25 million stock buyback last year was paid because shareholders who had bought Hawaiian shares anticipating a merger with Aloha Airlines earned it, although the merger eventually failed.

"We were concerned that, if the tender offer price was below that level, people who purchased during the pendency of the merger might feel unfairly treated," he said.

Hawaiian president and chief operating officer Mark Dunkerley said in his own court filing that the appointment of a trustee "would likely roil the ranks of our employees." He said a trustee would not be bound by the agreement management struck with employees to not reopen labor agreements in the event of a Chapter 11 bankruptcy proceeding.

However, a creditors committee that includes pilots, flight attendants and other labor representatives is supporting Boeing's motion for a trustee.

The creditors committee's support makes appointment of a trustee more likely, according to bankruptcy experts. "The support of the committee raises the likelihood that the motion will be granted," said Rick Tilton of Greenacre Asset Advisors, which advises creditors of bankrupt companies. "There still needs to be some showing of mismanagement."

Hawaiian's managers have denied charges of mismanagement and insider dealing.

They also said appointing a trustee as travelers are making their summer vacation plans could hurt the airlines. "History would support this fear, as no trustee has ever been able to lead a United States airline out of a Chapter 11 proceeding."

According to a financial report filed in court by the airline, Hawaiian's projected loss for the second quarter of this year includes shortfalls of about $2.9 million in April and $4.4 million in May, and $2 million in net income in June.

Hawaiian expects total operating revenue of $154.4 million in the second quarter, up from $148 million in the same period a year ago. Operating expenses for the quarter are projected at $158.5 million, including $24.1 million in aircraft rental.

The carrier also reported it has or will make aircraft lease payments of $8.9 million in April, $7.7 million in May and $7.6 million in June.

Under bankruptcy protection rules, Hawaiian was allowed to defer aircraft rent payments for 60 days from the date of its filing. However, Hawaiian and aircraft lessors agreed to extend the 60-day deadline to renegotiate leases and work out amended terms.

During the third quarter of last year, Hawaiian reported operating expenses of $173.1 million, including $18.8 million for aircraft rental.

Hawaiian's forecast shows trans-Pacific flight revenues amounting to $30.5 million in April, $26.8 million in May and $31.6 million in June. Interisland revenues total an estimated $13.6 million in April, $14 million in May and $16 million in June. Projected revenues from South Pacific flights revenues come to less than $2 million each month.

May is typically a slower season for travel than the summer months.

Hawaiian also reported that it expects to pay $22.2 million for fuel, oil and taxes and $52.5 million for labor and benefits in the second quarter, compared with $21.4 million for aircraft fuel and $52.5 million wages and benefits a year ago.

The airline projected legal fees amounting to $250,000 a month in the second quarter.

Bloomberg News Service contributed to this report. Reach Kelly Yamanouchi at kyamanouchi@honoluluadvertiser.com.