CEO offers to resign from Hawaiian Airlines

By Kelly Yamanouchi
Advertiser Staff Writer

Hawaiian Airlines chief executive John Adams, whose management of the troubled airline has made him the focus of hearings in federal bankruptcy court, offered yesterday to step down.

Name: John W. Adams Age: 59 Title: Hawaiian Airlines chairman/chief executive Salary: In 2002, $600,000 base plus a $2 million bonus payment and $900,000 in consulting fees to one of his firms. Timeline February 1996 — Adams, a New York City investor, pays $20 million for 68 percent stake in Hawaiian soon after the company emerges from its first Chapter 11 bankruptcy. December 2001 — Adams proposes a merger between Hawaiian and Aloha Airlines. The deal falls through in early 2002 after Aloha refuses to accept terms that would have left Adams with substantial control over the combined operations. May 2002 — Hawaiian announces plans to repurchase $25 million worth of its stock at a premium, resulting in payments of $17 million to Adams’ Airline Investors Partnership. June 2002 — Adams temporarily takes control of day-to-day operations at Hawaiian when President Paul Casey resigns. December 2002 — Adams hands the company presidency to former British Airways executive Mark Dunkerley, but retains his position as chairman and chief executive officer. March 2003 — Hawaiian Airlines Inc. files for bankruptcy protection for a second time in the company’s history.

"While Boeing has said that they want Hawaiian Airlines to remain a customer, the effort they have focused on me is wreaking profound damage on the company, and I can't allow this to continue," Adams said in a written statement. "What's most important to me is that Hawaiian Airlines is given every opportunity to complete the last mile of this marathon and emerge the strong competitor that I know it can be."

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 the Hawaiian 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 produce a settlement of their dispute over the carrier's leadership.

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 resolving 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 a host of 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 would 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 of the "Hawai'i business community" to join the company's board. The other three board positions would be eliminated, said spokesman Keoni Wagner. It is unclear who would replace Adams as chairman of the board.

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.

Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.