ADAMS

The carrier will continue to operate as usual, although the court-appointed trustee, once named, will take over control of the airline from chief executive John Adams.

In an effort to stave off the appointment of a trustee, Adams this week offered to resign if an examiner - one who would review but not operate the carrier - were appointed rather an a trustee.

But Hawaiian's major aircraft lessor, Boeing Capital Corp., and its creditors committee strongly opposed the proposal, and Faris denied Hawaiian's motion for an examiner.

The judge directed the U.S. Office of the Trustee to select a trustee, who would then be approved by Faris. A trustee could be named as early as next week.

"It's going to be interesting," said Zachary Stankovits, a Hawaiian pilot on furlough. "We're looking forward to emerging from bankruptcy speedily and giving our competitors a run for their money."

Among the trustee candidates proposed by Boeing are Paul Casey, who served as Hawaiian's chief executive until he resigned last June after an attempted merger with Aloha Airlines failed, and Michael McQuay, a former Hawaiian executive vice president of operations and chief operating officer. In October 1997 he was named managing director and chief executive of Air Pacific, Fiji's international airline.

Casey and McQuay could not be reached for comment yesterday.

Faris said there is no reason to think the appointment of a trustee will hurt Hawaiian's day-to-day operations. Hawaiian said the same in a written statememt issued after the ruling.

"Hawaiian Airlines' operations today rival the best in the business and will continue unaffected by the ruling," the airline said. Employees and management "will work closely with a trustee to complete the company's restructuring and emerge a stronger carrier as soon as possible."

Boeing Capital, which filed the motion for a trustee and gained the support of Hawaiian's creditors committee, cautiously applauded the ruling.

"There's certainly no reason to celebrate because the airline still has some significant challenges to face," said Boeing spokesman Russ Young. "But we do see it as a reason to be optimistic about the future."

Boeing, which has yet to renegotiate its leases with Hawaiian, charged that Hawaiian's stock buyback and $500,000 transfer to parent Hawaiian Holdings Inc. amounted to fraudulent transfers.

While Faris did not characterize the transactions in that way, the judge suggested the transfers and others that may prove questionable, could lead to legal action and monetary recovery for Hawaiian. He said a credible investigation could not be conducted by Adams but would require an outside trustee, who should be appointed quickly.

The trustee will have the authority to keep some or all members of current management.

"Hopefully they would have our best interests at heart as we move forward," said Hawaiian's chief financial officer Christine Deister. Deister said she was "absolutely not" concerned about the viability of the company under a trustee.

"This company has a strong management team," she said. "I believe we will create a very successful airline for the state of Hawai'i."

In court filings on Hawaiian's arguments against a trustee, Hawaiian said "dire consequences" could befall the the carrier if a trustee was appointed. It said no trustee has taken an airlines out of Chapter 11 bankruptcy proceedings without liquidating the company.

But Faris said appointment of a trustee is not a prelude to liquidation, "but rather is a means of improving Hawaiian's prospects for a speedy and successful reorganization."

One of the biggest challenges the trustee faces is working out a lease agreement with Boeing. Hawaiian and Boeing negotiated a deadline of June 27 for talks, after which Boeing could reclaim the 16 of Hawaiian's 27 aircraft it owns. Another will be developing a reorganization plan that could lead the carrier out of bankruptcy.

The office has received three unsolicited applications, said assistant U.S. trustee Gayle Lau, who did not disclose the applicants. The task of selecting a name will fall to Steven J. Katzman, who starts Monday as U.S. Trustee for region 15 that includes Hawai'i.

Also yesterday, Faris approved new lease agreements between Hawaiian and Ansett Worldwide, one of Hawaiian's three major aircraft lessors.

Separately, a group of about 20 Hawaiian employees are discussing the possibilities of an employee stock ownership plan, which would give them more control over governing the company.