Hawaiian Air loses $15M

By Dan Nakaso
Advertiser Staff Writer

The first-quarter loss compared with an $18.6 million shortfall in the same period last year. Operating revenue for Hawaiian Holdings Inc. in the first quarter rose nearly $19 million, according to financial statements released yesterday by the state's largest airline now operating under Chapter 11 bankruptcy protection.

"The improved results during a more difficult period, with the Iraq war and SAR affecting travel demand worldwide in the first quarter of 2003, reflect the company's ongoing efforts to reduce operating costs and increase revenues," Hawaiian said in a statement.

The carrier's fleet modernization last year trimmed big-ticket expenses such as maintenance costs, said Hawaiian spokesman Keoni Wagner. The new fleet saved $5.5 million — 26 percent — in maintenance costs, Wagner said.

But when Hawaiian retired its DC-10 fleet and converted to Boeing 767s, it also sent the cost of aircraft rentals up $11.9 million, or 67 percent. Aircraft fuel costs also rose $4.8 million, or 23 percent.

Operating expenses rose to $170.6 million for the quarter from $156.8 million for the first three months in 2002.

Included in the operating expenses for the first quarter was $2.2 million in payment to consulting firm Smith Management LLC, according to Hawaiian's filing. Smith Management is run by John Adams, who is also Hawaiian's chief executive and majority shareholder.

Payments to Smith Management were cited during recent bankruptcy court hearings scrutinizing the management of Hawaiian amid accusations of insider dealing.

Over Hawaiian's denials of the charges, Bankruptcy Judge Robert Faris last week ousted Adams and ordered the selection of a trustee to run the company.

Faris said managers "consistently placed the interests of its shareholders ahead of the interests of its creditors, even while the company was in severe financial distress."

A trustee is expected to be named within two weeks.

Hawaiian filed for Chapter 11 bankruptcy protection on March 21 after negotiating concessions from unions representing machinists, pilots and flight attendants estimated to save the company $15.3 million. Hawaiian also has since renegotiated contracts with two of its three major airline lessors. The airlines has yet to come to terms with its major lessor, Boeing Capital Corp.

None of the savings in labor and aircraft leases affect the first quarter earnings but will show up in future reports, Wagner said.

"Basically we added lots of capacity, we filled most of those seats and we held (costs) pretty stable," Wagner said. "Flying more miles means you're spreading your costs over a larger base."

Shares of Hawaiian Holdings closed 3 cents higher to 75 cents a share yesterday.