Hawaiian audit released

By Debbie Sokei
Advertiser Staff Writer

An audit of Hawaiian Airlines finances said the carrier had $573 million in bankruptcy claims filed against it and $328 million in assets. However groups interested in buying the airline say the claims are much lower. Advertiser library photo

The airline's 2003 audited financial statement, compiled by the accounting firm Ernst & Young LLP, also listed the company's assets at $328 million.

Investor groups interested in taking Hawaiian Airlines out of bankruptcy said the claims are much lower and there is value in the company.

Bruce Nobles, former CEO of Hawaiian Airlines and a member of the Corporate Recovery Group bidding for the airline, said he believes the claims filed against the company are closer to $300 million.

"We are not sure if all those claims are valid," Nobles said. "If the claims are really $573 million how can the company be worth anything?"

In March, Hawaiian reported an operating profit of $77.5 million and a net loss of $49.5 million for 2003, compared with an operating loss of $52.2 million and a net loss of $57.4 million in 2002. The report showed a positive cash flow of $87 million for 2003, compared with $71 million the year before.

Nobles said Hawaiian's 2003 operating profit would have been lower if the airline didn't get a $17.5 million security fee reimbursement from the federal government, labor concessions and a negotiated discount on its aircraft leases with Ansett Worldwide Aviation Services Inc.

"The $77 million would have only been $60 million," Nobles said. And a large part of that $60 million was caused by the reduced rents on airplanes and employee concessions. The profitability comes on the backs of its people and the aircraft lessors are getting paid less than they bargained for," Nobles said.

Josh Gotbaum, Hawaiian Airline trustee, disagrees with Nobles.

Gotbaum said Hawaiian's operating profit would actually be higher if concession negotiated with Boeing on leases were included.

"We are reporting aircraft rents as if Boeing had never agreed to give concessions, which they have done," Gotbaum said.

Of the $573 million in claims against the airline, about $184 million relates to claims associated with renegotiated or rejected aircraft leases and related maintenance agreements. Ansett Worldwide Aviation Services Inc. has a $97 million claim against the company for renegotiated leases. Boeing Capital Corp. filed a $40 million claim for the non-delivery of three jets.

Mo Garfinkle, president and CEO of Arlington, Va.-based GCW Consulting, who is assisting former Hawaiian CEO John Adams in a bid to win back control of the airline, also said he believes the total amount of the claims is lower. He thinks the claims are between $250 million and $300 million.

"So, the assets are more than the liabilities," Garfinkle said.

Ernst & Young said in its audit Hawaiian's financial report "raises substantial doubt about Hawaiian's ability to continue as a going concern." Gotbaum said that language is "absolutely standard" for an auditors report on a company in Chapter 11 bankruptcy.

Hawaiian Airlines filed for Chapter 11 in March 2003 after Adams could not reach a lease agreement with Boeing to reduce leases on Hawaiian's fleet.

Reach Debbie Sokei at 525-8064 or dsokei@honoluluadvertiser.com.