Posted on: Friday, October 3, 2003
SEC probes Hawaiian $25M stock buyback
By Dan Nakaso
Advertiser Staff Writer
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JOHN ADAMS
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Hawaiian Holdings Inc., the parent company of Hawaiian Airlines, disclosed yesterday that the SEC is investigating the company and several of its officers.
The SEC's action is the first major investigation against a Hawai'i publicly traded company in recent memory and comes amid a tighter regulatory climate.
"We're in a new era," said Nick Ordway, a University of Hawai'i professor of financial economics and institutions. "They are starting to scrutinize everybody because of the moral hazard associated with some of the shenanigans of corporate executives like (those at) WorldCom and Enron."
| Buybacks explained
Stock buybacks — or repurchase programs, as they're sometimes called — can provide a profitable place to put excess cash if a company thinks its stock is undervalued. A share buyback reduces the total number of shares outstanding and increases the portion of the company that each remaining share represents. When Hawaiian announced its $25 million stock buyback in May 2002, spokesman Keoni Wagner said: "We believe the company is currently undervalued. It is a one-time transaction designed to enhance shareholder value." Hawaiian Airlines Chairman John Adams said at the time that he wanted to increase Hawaiian's value and stock price and would consider selling the company after he accomplished those goals. |
In a statement yesterday, Hawaiian Holdings officials said, "All our activities were proper and fully disclosed and we will cooperate fully with the SEC investigation."
Company officials, including Adams, declined further comment.
Hawaiian Holdings shares closed yesterday on the American Stock Exchange at $1.35, up 3 cents. The stock has rebounded from a low of 30 cents on Aug. 12.
Hawaiian Holdings was incorporated in Delaware as the parent company of Hawaiian Airlines. It has no staff or capital, its attorneys have said.
Hawaiian Airlines officials said in a statement yesterday that bankruptcy trustee Josh Gotbaum, who is running the airline, "was charged with investigating the stock repurchase. Mr. Gotbaum said that he has been working with the SEC on this matter."
Airline representatives declined to elaborate on how Gotbaum has been working with the SEC or whether he requested the investigation.
John Heine, a spokesman for the SEC in Washington, said he could not comment specifically on the Hawaiian Holdings case.
| Events leading to SEC's inquiry
• Sept. 22, 2001: President Bush signs law giving $5 billion in emergency assistance to airlines following the Sept. 11 attacks. Hawaiian gets $30 million in federal aid in late 2001 and 2002. • May 31, 2002: Hawaiian says it will buy back $25 million worth of its own stock, or 5.88 million shares, at $4.25 per share. The buyback price is 31 percent higher than the price at which shares were trading before the buyback was announced. Eventually $17 million of the buyback money goes to Hawaiian CEO John Adams, or the companies he controls, according to Boeing Capital attorneys. • March 21, 2003: Hawaiian files for Chapter 11 bankruptcy protection, saying it needs the court's help to renegotiate more favorable leases for aircraft. • May 16, 2003: U.S. Bankruptcy Judge Robert Faris removes Adams from power and puts the airline under a trustee. Faris says the stock buyback shows that Adams, the largest shareholder, sought to benefit shareholders at a time when the company's fortunes were deteriorating. • Sept. 22, 2003: The SEC tells Hawaiian it is investigating the stock buyback. |
Hawaiian Airlines filed for Chapter 11 bankruptcy protection in March after losing $60 million in 2002.
On May 16, U.S. Bankruptcy Judge Robert Faris wrote that, "Despite the company's uncertain prospects and the impending demands on its resources, Hawaiian decided to distribute roughly a quarter of its cash to its shareholders rather than conserve that cash for current and expanded operations and as a reserve against unforeseen contingencies."
The largest shareholders, Faris wrote, were Adams and another company he controlled, Airline Investors Partnership.
Faris cited the buyback program as one of the reasons he removed Adams from any management role in Hawaiian Airlines.
Boeing Capital Corp., which provides the majority of Hawaiian Airlines fleet through leases, said at the time that the stock buyback amounted to a fraudulent transfer.
"It was a sweet deal," said stock analyst Randy Havre. "Everyone's been talking about it since it happened. They could take a bunch of money and still maintain control of the company."
The SEC investigation should have little effect on Hawaiian Airlines' efforts to reorganize under bankruptcy protection, Havre and people close to the bankruptcy case said.
But it offers a new chapter in what has been an already colorful period in the airline's history.
"The soap opera continues," Havre said. "The investigation doesn't affect the day-to-day operations. But it is very interesting."
Advertiser staff writer David Butts contributed to this report. Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.
