Posted on: Wednesday, January 5, 2005

Airline trustee, ex-CEO settle suit

By Deborah Adamson
Advertiser Staff Writer

John Adams, former chief executive of Hawaiian Airlines, and two of his affiliated companies have agreed to pay $3.6 million to the carrier's bankruptcy trustee to settle a lawsuit alleging they "improperly diverted" money from the airline.

"This should close a sorry chapter in Hawaiian's history," said trustee Josh Gotbaum in a statement. "The funds will help complete our successful reorganization of Hawaiian."

Through his attorney, Adams said the settlement "is in the best interests of all parties."

In November 2003, Gotbaum filed a lawsuit to recoup $28 million he said was improperly diverted from the ailing carrier. He sued Adams, parent company Hawaiian Holdings, AIP LLC, Airline Investor Partnership LP and Smith Management for allegedly setting up a scheme to "defraud" the carrier's creditors.

Adams and AIP LLC earlier agreed to pay $2.5 million in excess profits to the Securities and Exchange Commission for failing to disclose "weak performances" by Hawaiian Airlines when they executed a 2002 stock buyback plan.

The lawsuit, and the SEC probe, centered on a $25 million tender offer in which $17.1 million went to Adams and companies in which he had an interest, and an additional $3 million was paid to a company — in part controlled by Adams — for consulting and other services.

The deal called for Airline Investor Partnership LP to sell nearly 6 million shares of Ha-

waiian Airline back to the carrier for $25 million in May 2002. The offer price was 31 percent higher than what the stock was trading for at the time. Airline Investor Partnership is the Adams-led group that invested $20 million in the carrier in 1996.

Adams had defended the tender offer as one that enhanced shareholders value.

Shares of Hawaiian closed at $6.90 yesterday, down 37 cents.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.