Judge orders a trustee to run Hawaiian Airlines

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Judge orders a trustee to run Hawaiian Airlines

HONOLULU (AP) =97 A federal bankruptcy judge on Friday ordered an=
 independent=20
trustee be appointed to run Hawaiian Airlines. In approving Boeing Capital=
=20
Corp.'s request to replace the financially troubled carrier's management,=20
U.S. Bankruptcy Judge Robert J. Faris said "the benefits of the appointment=
=20
of a trustee outweigh any potential detriment." "The appointment of a=20
trustee is an extraordinary remedy," Faris said in a written ruling. "There=
=20
is a strong presumption that the debtor should be left in possession and=20
given an opportunity to formulate a plan of reorganization.
"Nevertheless, where the facts of a particular case show that cause exists=
=20
or the appointment of a trustee is in the best interests of the estate, the=
=20
court must act," he said. The appointment will likely result in the removal=
=20
of Hawaiian Chairman and Chief Executive Officer John W. Adams, who had=20
offered to resign in a motion filed Wednesday to halt the possible=20
appointment of the trustee. "Who goes and who stays will be up to the=20
trustee, but we assume he will leave," Boeing Capital spokesman Russ Young=
=20
said.

In a statement Friday, Hawaiian said its operations will continue=20
unaffected by the ruling. "The employees and management of the company=20
remain committed to providing the highest level of service to our customers=
=20
and will work closely with a trustee to complete the company's=20
restructuring and emerge a stronger carrier as soon as possible," the=20
statement said. Seattle-based Boeing Capital filed the motion for the=20
appointment of a trustee to replace what it called Hawaiian's "self-dealing=
=20
management" on March 31, just 10 days after the nation's 12th-largest=20
carrier filed for Chapter 11 bankruptcy protection. At the end of 2002,=20
Hawaiian was Boeing Capital's fifth-largest client with $476 million in=20
lease agreements. Boeing claimed that after receiving more than $30 million=
=20
in federal grants to stabilize the airline industry following the Sept. 11,=
=20
2001, terrorist attacks, Hawaiian's board of directors used the proceeds as=
=20
a "reward" to shareholders, principally Adams, and to other company=20
insiders. Adams holds 50.9 percent of the company's parent stock and has=20
the right to nominate six of the 11 board members. And despite Hawaiian's=20
struggling financial condition, Adams' salary went from $200,000 in 2000 to=
=20
$600,000 in 2002, the motion said.

Hawaiian reported losing $58.2 million in 2002. Boeing also criticized a=20
payment of about $25 million to shareholders in a 2002 tender offer in July=
=20
at the same time that the lessors were being asked for $20 million in cost=
=20
reductions. According to court documents, $17 million went to shareholders=
=20
of AIP LLC, Adams' controlling partnership in Hawaiian Airlines. Hawaiian=20
has denied any wrongdoing or mismanagement and called the stock buyback a=20
legitimate corporate action meant to reward shareholders and restore=20
investor confidence after the carrier's failed merger with rival Aloha=20
Airlines. Faris said a debtor must be free of disabling conflicts of=20
interest. "While under Mr. Adams' control, Hawaiian cannot conduct a=20
credible investigation of the potential claims, a disinterested=20
determination of which claims =97 if any =97 have merit and a forceful=20
prosecution of those claims." Hawaiian said that having a trustee appointed=
=20
would place a stigma of failure on the airline, drive away business at a=20
crucial time for bookings and delay implementation of what it believes is a=
=20
sound business plan for saving the airline.

But Faris disagreed. "There is no reason to fear that the appointment of a=
=20
trustee will adversely affect the debtor's day-to-day business operation,"=
=20
Faris said. "Any public perception to the contrary would be misplaced and=20
should be dispelled by the prompt appointment of a qualified and=20
disinterested individual to serve as trustee." Hawaiian operates 27 Boeing=
=20
aircraft including 14 767-300s and 13 717-200s. Boeing has a stake in 16 of=
=20
the planes. "Hawaiian remains an airline with substantial challenges ahead=
=20
of it and we're going to work with the airline and the trustee in a good=20
faith effort to address those challenges, continue looking for a solution=20
that provides fair value for Boeing and the airline," Young said. "We=20
continue to think having a healthy Hawaiian Airlines is in our best=
 interest."


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