Aloha bankruptcy tab at $11M
By Rick Daysog
Advertiser Staff Writer
Aloha Airlines' bankruptcy will cost at least $11 million in legal and consulting fees, making it the third costliest reorganization in Hawai'i history.
But the legal tab for the state's second-largest airline is less than a third of the record $34 million in bankruptcy-related legal and professional fees paid by Hawaiian Airlines, an Advertiser computer-assisted study of the airlines' billing records shows.
Lynn LoPucki, law professor at the University of California-Los Angeles and an expert in bankruptcy law, said that Aloha's expenses are in line with those in similar-sized bankruptcies.
"These fees are a little bit higher than expected for a company of this size, but not by much," LoPucki said.
As with all expenses, it's important for companies to hold down bankruptcy fees. The higher the fees, the less money the company has to fund future operations. High bankruptcy costs also can leave Aloha with less cushion to weather financial crises such as rising fuel costs and increased competition from Mainland carriers.
According to the Advertiser study, which is based on billing records filed with the U.S. Bankruptcy Court, six firms charged Aloha about a million dollars or more for their work while bills from a seventh firm were just under a million dollars.
They include:
Aloha spokesman Stu Glauberman decline to comment for this story.
Paul Singerman, Aloha's lead bankruptcy attorney, said the airline did all it could to keep expenses down. The airline's tight finances forced management and its lawyers to be selective about the types of litigation they pursued, he said.
"We didn't want to bet the farm on a lawsuit with anybody when we had 3,500 jobs at stake," said Singerman. "There was a recognition by the professionals and the (creditor) committee to handle the case more efficiently."
It wasn't efficient enough for John Riddel.
Riddel, a 20-year Aloha pilot, said the company's legal bills are "staggering" given that they're coming at the expense of employees, who have given back millions of dollars in concessions during the past several years.
"That (getting concessions from workers) is what corporate America is doing in bankruptcy court," Riddel said.
Karen Nakaoka, a vice president with the 400-member Aloha unit of the Association of Flight Attendants, said that much of Aloha's legal expenses went to pay for the company's efforts to dump employees' pensions and other benefits.
"It's unbelievable that a bankrupt company can ask their employees for concessions time and time again so that they then can turn around and pay for the legal costs associated with trying to throw out the employee contracts," Nakaoka said.
"It's unbelievable that the employees are asked to give so much when it's the lawyers who are the ones who make out in bankruptcy. They get to walk away with the money that they were promised while the employees have to scrimp and save just to make ends meet. The whole process is disgusting."
Founded in 1946, Aloha is the state's second-largest airline, with more than $300 million in assets. The company filed for Chapter 11 reorganization in December 2004 after its fuel and other costs soared.
The $11 million tab is preliminary and could increase in the next few months as outstanding bills trickle in.
But Aloha's fees aren't likely to challenge Hawaiian's record fees, although they could fall in the range of the $16 million charged by professionals in Liberty House Inc.'s 1998 bankruptcy, which was the state's second-costliest reorganization.
The reason: Hawaiian, with more than $750 million in annual revenues, is a larger company than Aloha, whose yearly revenues are about $400 million.
What's more, Hawaiian's finances when it filed for Chapter 11 reorganization in March 2003 were stronger than Aloha's when it filed for bankruptcy in December 2004. In court papers, Aloha has said it was down to $2 million in cash when it sought bankruptcy protection.
The tight finances prompted the federal Office of the U.S. Trustee to caution Aloha's professionals during the early stage of the case that the airline may not have a lot of money to pay for fees.
Hawaiian's two-year bankruptcy also was more than twice as long Aloha's year-old reorganization and included costly legal disputes with the airline's former head, John Adams, and the Internal Revenue Service.
Aloha, whose reorganization plan was approved in November, was set to emerge from bankruptcy on Dec. 15 under new owners, which included California billionaire Ron Burkle's Yucaipa Companies and former professional football player Willie Gault's Aloha Aviation Investment Group.
Aloha's exit plan was recently delayed by a challenge from the federal Pension Benefit Guaranty Corp., which insures private pension benefits. The dispute over transfer of some Aloha pensions to the PBGC is in the process of being resolved.
Singerman, the airline's attorney, said the Aloha case was probably the most difficult in his 22-year law career.
"From the beginning of the case, we all knew that we had very, very tight liquidity," Singerman said.
"We all knew we had to move quickly ... pick our fights and find creative ways to to keep litigation costs down."
Reach Rick Daysog at rdaysog@honoluluadvertiser.com.
