Ex-CEO severs ties to Hawaiian Airlines
BY Kelly Yamanouchi
Advertiser Staff Writer
John Adams cut all ties to Hawaiian Airlines yesterday after eight years of leadership that included a fleet change and expanded Mainland service but ended with the carrier in bankruptcy.
Adams, a New York investor who led a group that bought a controlling stake in the airline in 1996 for $20 million, sold his shares and resigned from Hawaiian Airlines' parent Hawaiian Holdings. San Diego investment firm Ranch Capital LLC bought 10 million Hawaiian shares from the parent company for $41.4 million and will place Ranch Capital executives, led by Lawrence Hershfield, on the Hawaiian Holdings board.
Adams said he quit to protect the interests of shareholders who could lose all their money if the bankruptcy court decides to allow the shares to be canceled. At least one group bidding to take the airline out of bankruptcy, Wyoming-based Corporate Recovery Group LLC, plans to cancel the shares.
Hawaiian Holdings was competing against CRG and others for the right to own the airline after bankruptcy. Adams' continued leadership at Hawaiian Holdings might have been seen as a disadvantage since the bankruptcy court removed him last year from an active role in managing the company and he is under Securities and Exchange Commission investigation related to his decision to use $25 million of company money to buy back stock in 2002.
"The equity holders will be best served by my stepping aside," Adams said in a statement. "Although I had wanted to continue to lead the fight in the bankruptcy court to preserve the value that rightfully belongs to shareholders of Hawaiian Holdings, I reluctantly concluded that this effort would have a better chance of success if I removed myself from the process."
Adams headed AIP LLC, the investor group that owned more than 14 million shares and a majority interest of Hawaiian Holdings. The company had 28.4 million shares outstanding as of May 14.
Ranch Capital will draw up a new plan of reorganization for Hawaiian Airlines and will not have a majority stake in Hawaiian Holdings.
Hawaiian Holdings had planned to work with former American Airlines chief executive Don Carty on its reorganization plan, and it is unclear whether Carty will be involved in the new plan.
AIP sold the shares for $4.14 per share, reflecting the market price of the stock when discussions about the transaction commenced approximately a month ago. Hawaiian shares closed at $5.19 yesterday, the highest close since July 1997.
Adams has resigned from his position at AIP along with stepping down from the helm of Hawaiian Holdings.
The change in ownership of Hawaiian Holdings is not expected to affect operations, employees or management of Hawaiian Airlines, which has operated as a separate entity since last year.
Hawaiian Airlines filed for Chapter 11 bankruptcy in March 2003 after Adams could not reach a lease agreement with Boeing to reduce leases on Hawaiian's fleet.
Creditors led by Boeing Capital Corp. criticized the stock buyback, accused Hawaiian under Adams of mismanagement and requested a trustee be appointed to lead the airline out of bankruptcy. The request was granted in May 2003.
"It was clear we had a real conflict with Mr. Adams," said Boeing spokesman Russ Young. The sale and Adams' resignation "is an interesting twist," he said.
Ranch Capital, founder and chief executive Hershfield said, "Because of the significantly improved performance of Hawaiian Airlines, we believe that its stock ... has significant value."
Young said Boeing, which assisted CRG with its reorganization plan, does not believe the shares will have any value, but is willing to talk to Ranch Capital about its plan.
"We're quite interested in hearing what this group is thinking in terms of a plan and why they think there is a value in the stock," Young said.
Last year, Hawaiian Airlines' court-appointed trustee Josh Gotbaum sued Adams, seeking the return of the $25 million paid to him and other shareholders in the stock buyback.
"The fact that Ranch Capital was willing to purchase Hawaiian Holdings shares says that they have confidence in the value of the airline, and that's clearly good for Hawaiian Airlines and its employees," Gotbaum said.
Ranch Capital has worked with Warren Buffett-led investment company Berkshire Hathaway Inc. on past investments.
Ranch Capital was formed in 2002 to invest in distressed and bankrupt companies. Ranch formed RC Aviation LLC led by Hershfield to buy its share of Hawaiian Holdings.
Three of four Hawaiian Holdings directors — Adams, Edward Safady and Thomas Trzadnowski — will resign from the board. RC Aviation's nominees to sit on Hawaiian Holdings' board include Hershfield and Randall Jenson of Ranch Capital.
Gotbaum said he looks forward to meeting with Ranch Capital principals.
Jim Giddings, chairman of the master executive council of the Hawaiian Airlines unit of the Air Line Pilots Association, said he has met with Hershfield and appreciated that Hershfield "took the time to try to understand our perspective on the issues." The union, which represents 400 Hawaiian pilots, is negotiating amendments to its labor contract.
Imperial Capital LLC advised RC Aviation in the transaction. Ranch Capital has invested in other bankruptcies including Oakwood Homes and Seitel Inc.
Reach Kelly Yamanouchi at kyamanouchi@honoluluadvertiser.com or 535-2470.
