Posted on: Saturday, January 15, 2005

Hawaiian Airlines to pay IRS $23 million

By Lynda Arakawa
Advertiser Staff Writer

Hawaiian Airlines moved a step closer to exiting bankruptcy yesterday by settling a dispute with the Internal Revenue Service.

Hawaiian will pay the IRS about $23 million in fuel excise taxes and interest but will likely not have to pay a penalty also sought by the IRS, according to a federal bankruptcy judge's ruling.

The ruling by U.S. Bankruptcy Judge Robert Faris resolves a $128.9 million claim the IRS filed against Hawaiian in U.S. bankruptcy court in June. The IRS said the airline owed $84.1 million in overdue excise and corporate income taxes, $40.5 million in penalties and $4.3 million in interest.

The claim covered the periods from March 2001 to June 2003. Hawaiian filed for federal bankruptcy protection in March 2003.

Yesterday's ruling follows a December settlement between Hawaiian and the IRS that resolved about half of the claim, said Josh Gotbaum, Hawaiian's bankruptcy trustee.

Gotbaum said Faris' ruling on the fuel excise taxes was expected. He said Hawaiian officials are also pleased with the judge's "tentative" ruling, pending his written decision, that the $40.5 million penalty the IRS was seeking against Hawaiian was inappropriate.

"I am enormously pleased with these developments," Gotbaum said. "They are another important step in enabling Hawaiian to exit bankruptcy. When the IRS filed the claim months ago for almost $130 million, we said we believed those claims were very substantially overstated and that we believed it would be very substantially reduced. And each step of the way, that's what happened."

Reach Lynda Arakawa at 535-2470 or larakawa@honoluluadvertiser.com.