In an attempt to forestall appointment of a trustee to oversee the airline in its Chapter 11 bankruptcy, Hawaiian's board yesterday proposed that Adams resign as CEO and chairman. The board also suggested appointment of a court examiner to investigate Hawaiian's business, a move considered less intrusive than the appointment of a trustee who would run the airline on behalf of the bankruptcy court.

"I felt that I was a lightning rod for Boeing and the creditors' committee and I was concerned with the impact of that on the airline," Adams said in an interview with The Advertiser today. "It was time for me to step aside and permit the company to move on."

Hawaiian's board yesterday also approved the appointment of Mark Dunkerley, president and chief operating officer, as chief executive officer and board member who would replace Adams. Dunkerley was brought to Hawaiian by Adams.

Adams' resignation, as well as the other management changes, while approved by Hawaiian's board, also require the approval of a bankruptcy court judge.

A hearing on the proposal is expected soon.

Hawaiian filed its proposal for a change in management in bankruptcy court yesterday after Hawaiian and its aircraft lessor, Boeing Capital Corp., failed to reach a settlement in their dispute over the carrier's leadership.

The proposal from Boeing and the creditors' committee was for the creditors' committee to appoint the chief executive of Hawaiian, Adams said. That would lead to Boeing and the committee essentially controlling the airline, according to Adams.

"I think it's not in the best interests of the company," Adams said. "We wanted to speak to the judge and speak to the public indicating that we were willing to be very flexible."

Bankruptcy Court Judge Robert Faris had urged the two sides to work on an agreement as he weighed Boeing's motion for a trustee. Faris indicated last Friday that he was likely to appoint a trustee or an examiner for Hawaiian, which Adams has continued to run since the airline filed for Chapter 11 bankruptcy protection on March 21.

Boeing, which filed its motion for a trustee March 31, has had the backing of a creditors' committee that represents companies and labor groups that are owed millions of dollars by the state's largest airline.

With opposition mounting and focusing on the conduct of top management, Adams appeared to have little choice but to offer to step aside.

"It is important that both Boeing and the committee recognize that disruption in the day-to-day management of the company threatens its ability to successfully restructure," Adams said. He said having an examiner is a "more reasonable and constructive way" to resolve issues raised by Boeing without damaging the carrier.

"To do otherwise would be irresponsible to every creditor, employee and customer of Hawaiian Airlines," he said.

Adams said he has asked Boeing and the creditors' committee to formally abandon their motion for a trustee.

But Boeing spokesman Russ Young said Hawaiian's proposal is not supported by Boeing.

"We continue to believe that a trustee offers the best opportunities for successful reorganization and this motion (by Hawaiian) would not tend to move us from that position," Young said.

He also said Boeing feels that having Dunkerley step in as chief executive officer is not ideal.

"We feel strongly that a CEO from the outside who has no ties, no allegiances to the existing board, would be a better solution," Young said.

Hawaiian's board also approved other changes in response to allegations raised by Boeing, its creditors' committee and two days of hearings. One of the proposed changes calls for parent company Hawaiian Holdings to repay $500,000 received from Hawaiian Airlines shortly before its Chapter 11 filing.

However, Hawaiian failed to offer to put $30 million back into the company as demanded by Boeing, which claimed Hawaiian misused that amount of post Sept.11 federal money to buy back Hawaiian stock at the expense of creditors.

Hawaiian further offered to open up the process for proposing a reorganization plan.

The board also said it will stipulate that Adams and four other members would resign their positions on the 11-member board. The members resigning would include Robert Coo, who is Adams' brother-in-law and a former director of Regency Health Services Inc., an investment by Smith Management, which Adams manages.

Also resigning would be Todd Cole, who served as a consultant with Hawaiian; Edward Safady, chairman, president and CEO of Liberty Bank SSB in Austin, Texas, who was vice president of Smith Management until it acquired the bank; and Thomas Trzanowski, president of Spire Realty Group Inc., a former treasurer of Smith Management and a director of Liberty Bank.

Hawaiian's proposal would also allow the federal Office of the Trustee to nominate two independent board members from the "Hawai'i business community." The other three board positions would be eliminated, said Hawaiian spokesman Keoni Wagner. It is unclear who would replace Adams as chairman of the board.

Adams also said he and his investment company, Airline Investors Partnership, "would be pleased to be part of ... (Hawaiian's) future" and may want to propose a reorganization plan with an investment of additional capital.

Wagner said Hawaiian's proposal "addresses the concerns that have been raised and if there's another view, one would have to question the agenda."

An attorney for the creditors' committee could not be reached yesterday.