Posted on: Sunday, January 11, 2004
Hawaiian Airlines' trustee plays it tough
By Dan Nakaso
Advertiser Staff Writer
JOSH GOTBAUM
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Gotbaum marks the moment in August when he asked a federal bankruptcy judge for permission to defer a $4.25 million payment into the pilots' pension fund and drew the resentment of Hawaiian Airlines' pilots.
In the months since, Gotbaum has upset a long list of Hawaiian Airlines employees, business vendors and creditors who are owed hundreds of millions of dollars.
Among the many issues was his plan to close pilots' bases on the West Coast, which disrupted the home lives of pilots; renegotiated leases and other agreements that cost business partners money; and Gotbaum's original compensation package that would have paid him $840,000 in annual salary.
Gotbaum, with the agreement of the Office of U.S. Trustee on Friday, has proposed a new compensation package of $50,000 in monthly salary, up to $10,000 per month in living, housing and automobile expenses and the right to request a "success fee" to be later determined based on Hawaiian's situation after it emerges from bankruptcy.
Gotbaum attorney Bruce Bennett is quick to point out that the trustee has won every major issue raised thus far in court, although U.S. Bankruptcy Judge Robert Faris has put limits on some of the rulings.
In a few weeks, Gotbaum predicts that even more bad feelings will be stirred up when he submits a business plan to Hawaiian's creditors committee that likely will call for changes to routes, airport costs, labor contracts, and Hawaiian's fleet of 25 planes.
"The process of bankruptcy is a process of making changes," he said. "People don't like change."
Ed Gilmartin, the attorney for the Association of Flight Attendants, worries for the members of the union.
"We're afraid a leaner, meaner, more efficient airline means the flight attendants are going to take it in the chops," Gilmartin said.
Gilmartin has spoken with Gotbaum several times. The last time they met in person was over the holidays in Washington, D.C., when Gilmartin said he told Gotbaum that he hadn't been truthful.
"I told him to his face that we did not appreciate the statements he was making to the Hawaiian employees that, in regard to his compensation, that the unions were on board, that they more or less made him take it," Gilmartin said. "That simply wasn't accurate."
Those kinds of reports have generated hard opinions of Gotbaum among some employees such as Joe Mocarski, a Hawaiian 767 captain.
"He's upset everyone so much, but he seems to want to," Mocarski said. "What we're trying to do is try and come to consensus. Gotbaum seems to believe that being adversarial is the way to do it."
Gotbaum insists that he's prepared for the blowback that surely will come in the next several months. But in a wide-ranging interview last week at Hawaiian's Koapaka Street headquarters, Gotbaum said he doesn't mind.
At the end of what he expects to be a brief, 14-month tenure as bankruptcy trustee, Gotbaum predicts that he will have positioned Hawaiian Airlines to survive on its own for years to come.
There have been discussions with potential buyers, but other airlines are busy with their own problems, Gotbaum said. A merger with rival Aloha Airlines has been unsuccessfully tried twice and seems unlikely, he said.
And after eight straight months of profits that have helped generate $70 million in cash, Gotbaum doesn't believe Hawaiian will need money from outside investors to right itself.
"You first have to ask yourself, 'Is Hawaiian Airlines desperate?' " Gotbaum said. "Meaning, do we have to do something else or can we make it on our own? Does Hawaiian Airlines control its own destiny? ... From my perspective, I think it's crystal clear that the airline can survive on its own. This is a really good airline."
Gotbaum took a lunch break from poring over Hawaiian's $600 million-per-year budget to talk about the airline's recent, profitable past and the uncertain months ahead.
The budget review by Hawaiian's senior managers is the first of its kind in three years, Gotbaum said. And he can't understand why more attention wasn't paid to Hawaiian's bottom line while it lost money over nine of the past 10 years.
Gotbaum has set a timetable for himself to take Hawaiian out of bankruptcy protection by Labor Day. But Gotbaum expects that the eight months between now and then will be even bumpier than his tenure as trustee so far.
Critics, he said, will make plenty of accusations. But they won't be looking out for the overall health of the company as Gotbaum will be doing, he said.
"I promise you," Gotbaum said, "when we get to the plan of reorganization, you will still have plenty of cannon fodder to report."
He also expects a tougher, more competitive environment than the one that produced consecutive months of profits.
"In this business," he said, "next year is never like last year. It's always going to be different. You never know how."
Last year's profits were the result of several factors, including authority engineered by U.S. Sen. Dan Inouye that allowed Hawaiian and Aloha to work together to restructure their money-losing interisland air operations.
Hawaiian officials also figured out earlier than many competitors that Mainland travelers particularly from the West Coast wanted to come to Hawai'i, allowing Hawaiian to increase revenues.
This year, Gotbaum said, "Travel to Hawai'i looks up. That's the good news. The bad news is other airlines have figured this out. As a result, United and Northwest and ATA and Delta and American have all announced increases in service to Hawai'i."
Gotbaum especially worries about low-cost carriers such as Indianapolis-based ATA Airlines, which will more than double its capacity to Hawai'i.
Their presence in a market puts pressure on all of the other airlines to lower costs, which cuts into revenues.
Gotbaum's most visible critic, former Hawaiian CEO John Adams, recently hired former Hawai'i Attorney General Margery Bronster.
Gotbaum is suing Adams, AIP LLC, Airline Investors Partnership LP, and Smith Management LLC over $28 million that Gotbaum says was improperly diverted from Hawaiian.
Adams, from his home in New Jersey, said last week that Gotbaum seems to be generating "negativism" over Hawaiian's restructuring, which "merely creates among employees anxiety, burnout and cynicism.
"In Hawai'i," Adams said, "you don't build yourself up by tearing other people down. The measure of success in this transaction is not how well Mr. Gotbaum does, but how well Hawaiian Airlines does."
Gotbaum believes he is doing the job at hand, even though he hears little public praise for it.
"During the bankruptcy will people say, 'Good guy?' Nope," Gotbaum said.
But perhaps a year after emerging from bankruptcy, Gotbaum predicts that Hawaiian will be performing so well that even his toughest critics will appreciate the work he's doing right now.
Even if they grow to appreciate Gotbaum's work, he said, praise still will not be loud.
At the most, Gotbaum said, he may finally hear, "Yeah, he did the right thing."
Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.