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The Honolulu Advertiser

Posted on: Monday, February 21, 2005

Hawaiian pilots' case in court

By Dan Nakaso
Advertiser Staff Writer

Hawaiian Airlines' bankruptcy proceedings will take an unusual turn tomorrow when the court holds what could be a three-day hearing over a single issue: Should Hawaiian's bankruptcy trustee be allowed to impose a new labor contract on the company's 283 pilots against their will?

JOSH GOTBAUM

Two years after Hawaiian filed for federal bankruptcy protection, a ruling by U.S. Bankruptcy Court Judge Robert Faris could have a profound effect on how much longer it takes Hawai'i's largest airline to emerge from bankruptcy.

A decision in favor of trustee Josh Gotbaum's motion would create a two-tiered pension plan for Hawaiian's pilots, which could save Hawaiian retirement costs. But the Air Line Pilots Association says it would also place greater financial risks on pilots under age 55 — the overwhelming majority of Hawaiian's pilots.

Perhaps more importantly for Gotbaum, a favorable ruling would bring him one important contract closer to fulfilling the requirement by Hawaiian's prospective new owner — RC Aviation LLC — that renegotiated agreements have to be in place with each of Hawaiian's six unions.

"We would much rather negotiate an agreement as we've been doing with our other unions," Gotbaum said last week. But "after ALPA rejected our proposal to pay Hawaiian's pilots more than any of our competitors, plus profit sharing, industry standard benefits and a pension plan as generous as any, we have no choice but to ask the court to decide, so Hawaiian can exit Chapter 11."

A victory for the pilots could seriously hamper Hawaiian's timetable for emerging from bankruptcy and would return any pilot contract talks back to the negotiating table after a year of unsuccessful negotiations so far.

It could also jeopardize the agreements that Gotbaum has already negotiated with Hawaiian's other unions because their new terms require that Hawaiian not give "more favorable treatment" to any other union.

"To emerge from bankruptcy Hawaiian Airlines needs to have in place agreements with each of its labor groups," Lawrence S. Hershfield, the chief executive of RC Aviation, said in a statement. "It has been the company's consistent position that it would very much prefer a negotiated deal with each of these labor groups including the pilots, and to that end the company is continuing to engage in discussion with the pilots."

Gotbaum argues that labor costs are going up at a time when some of Hawaiian's competitors are gaining concessions from their unions — including the Air Line Pilots Association.

Hawaiian also needs new contract terms with its pilots, Gotbaum argues, because each of five "qualified and fully financed proposals" to take over Hawaiian required renegotiated labor agreements "that maintained or decreased its labor costs. Three of the five would have required reductions. Those investment proposals prove that (Hawaiian) cannot attract new capital and successfully reorganize if it becomes uncompetitive and labor costs continue to increase."

Hawaiian's pilots argue that they made wage and other concessions in the past to help Hawaiian survive. In exchange, they received written assurance in 2003 from Hawaiian's previous ownership that the company would not pursue the kind of court ruling that Gotbaum now wants.

Even "if the court concludes, as a technical legal matter, that the company cannot be bound to its promise, the company's violation of that promise in these circumstances surely constitutes bad faith," according to the pilots' motion.

Gotbaum's proposed contract would save Hawaiian "no more than $4 million over three years, an amount equal to about one-half of one percent of the company's annual operating expenses," according to the pilots' motion.

"By any measure, Hawaiian is doing remarkably well and cannot show that it is 'necessary' for this court to take the extraordinary step of changing the status quo by imposing contract changes on the pilots."

Pilots also say they are being asked to accept a new pension while the reorganization plan by RC Aviation would fully repay Hawaiian's creditors; Hawaiian's managers will receive $7 million in bonuses; and Gotbaum will have the right to seek an unspecified "success fee" from Hawaiian's finances after the company emerges from bankruptcy.

In a reply motion last week, Gotbaum said "it was precisely the kind of short-term mentality now adopted by ALPA — with eyes firmly closed to accrued costs to be paid in the future — that contributed to the demise of the U.S. steel industry and that has exacerbated the financial troubles now faced by the airline industry."

Gotbaum also defended the bonuses for a management team that "has historically been undercompensated compared to their peers on the Mainland" and said they were necessary to recruit and retain senior and middle managers.

"Unlike the pilots, who are among the highest paid in the industry," Gotbaum said, "the compensation paid to (Hawaiian's) management remains below that of their competitors."

And Gotbaum said that any "success fee" paid to him and his "professionals" after Hawaiian emerges from bankruptcy "will be subject to approval by this court, thereby ensuring that any amounts paid are reasonable as required under the bankruptcy code."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com or 525-8085.