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Aloha and the PBGC

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Maika'i Card Member
Jan 10, 2005

Late appeal imperils Aloha bankruptcy

By Dave Segal
[email protected]

Just days away from getting out of bankruptcy, Aloha Airlines has been hit by a last-minute appeal to its confirmation plan that could unravel its yearlong reorganization and permanently ground the carrier.
The Pension Benefit Guaranty Corp., the federal agency that insures pension plans, notified federal Bankruptcy Court on Friday that it intends to appeal the confirmation of Aloha's reorganization plan to U.S. District Court. Bankruptcy Judge Robert Faris approved Aloha's confirmation plan on Nov. 29.
Aloha, which had planned to terminate its unions' pension plans Wednesday and emerge from bankruptcy on Thursday, was granted on Saturday an emergency hearing at 10 a.m. tomorrow in Bankruptcy Court to establish expedited filing deadlines to force PBGC to designate the issues it will appeal. Aloha also intends to ask District Court for an expedited schedule as well.
"The consequences of a delay in the consummation of the (reorganization) plan are dramatic," Aloha said in a Friday filing.
Aloha said the financial obligation of its lead investor, Yucaipa Cos. Inc., is contingent upon the company coming out of bankruptcy on Thursday. In addition, Aloha said its senior lenders' line of credit also expires that day.
"The PBGC's notice of appeal imperils (Aloha's) restructuring, threatens the very existence of (Aloha) and thus the employment of over 3,600 residents of the state of Hawaii and the provision of air transportation services to (Aloha's) customers," the filing said. "Given (Aloha's) dire need for liquidity, the delay occasioned with an appeal will result in the near certain death of (Aloha).
"Permitting the PBGC to prosecute its appeal 'in the ordinary course' will likely result in the cessation of the business and the shutdown of the airline."
The PBGC, obligated to pay Aloha's pension liabilities up to a capped amount if the pension plans are terminated, objects to the new contracts that Aloha reached with four of its labor groups because they include termination of the plans.
A fifth group, the flight attendants, aren't involved because they have a defined-contribution plan in which they are responsible for the risk.
During last month's confirmation hearing, Aloha had asked Faris to waive the 10-day appeals period that is allowed after a reorganization plan is approved.
Faris declined to grant the request and the PBGC, after two failed meetings with Aloha, filed its appeal on Friday, the final day allowed to make appeals.
The PBGC was $22.8 billion underfunded at the end of its last fiscal year due to the increasing number of companies terminating pension plans.
Legislation going through Congress now would offer companies pension relief by allowing them to spread out payments over a longer period of time. However, the House said last week that it wouldn't take up the issue again until next year.
The Senate already has approved its version of the bill.
The PBGC argued in court last month that Aloha could afford to continue the pension plans for all of its groups.
Aloha's pilots, who are the last union yet to ratify a new contract, are expected to announce the outcome of their vote today.
Aloha reported in its latest financial report last week that it had an operating loss in October of $1.5 million and a net loss of $4.2 million. Revenue was $33 million in what is historically one of the weakest months of the year for the airline. Operating expenses, which included $9.3 million for fuel costs, came to $34.5 million.
For the first 10 months of the year. Aloha had an operating gain of $4.7 million and a net loss of $25.4 million on revenue of $377.7 million. Operating expenses, including $88.5 million for fuel, were $373.1 million. Its 10-month total for legal and professional fees was $13.1 million.
I guess another vulture named Nobles is waiting on the sidelines if Yucipa decides to bail.
Judge delays Aloha Airlines exit from bankruptcy[FONT=Trebuchet MS, Verdana][SIZE=-2]By Dan Nakaso
Advertiser Staff Writer
[FONT=Times New Roman, Times, serif]Aloha Airlines will not exit bankruptcy on Thursday as it had planned, which could jeopardize the airlines' proposed sale to new owners.
U.S. Bankruptcy Court Judge Robert Faris delayed the plans today to allow a federal agency, which was to take over responsibility for most of Aloha's pensions, to question the deal.
Faris told attorneys and representatives for Aloha this morning that there is "no way" they will be able to proceed with their plans by Thursday. Aloha had said that up to $100 million in financing was contingent upon it exiting bankruptcy protection this week.
Attorneys for Aloha Airlines and Aloha Airgroup, Inc., said yesterday that terminating the employee defined benefit plans is a condition of Aloha's prospective new owners, California billionaire Ron Burkle's Yucaipa Companies and former NFL football star Willie Gault's Aloha Aviation Investment Group. They plan to add up to $100 million of capital into Hawai'i's second-largest airline.
"I hope you have a Plan B," Faris said.
The Pension Benefit Guaranty Corp., the federal agency which insures corporate pension plans, has challenged Aloha's plans to terminate its union pension plans and turn the responsibility over to the PBGC.
The PBGC has struggled with its own ballooning deficit, in part, because several other airlines have defaulted on their defined benefit plans.
United Airlines and US Airways used bankruptcy earlier this year to transfer their employee pension liabilities — a combined $9.6 billion — onto the federal guarantor agency. Delta Airlines and Northwest Airlines, which both filed for Chapter 11 bankruptcy protection in September, could do the same.
The PBGC, which insures defined-benefit plans of 44 million people and takes over the plans of bankrupt companies, reported a deficit of $22.8 billion at the end of its 2005 fiscal year on Sept. 30.
The federal agency said it assumed responsibility for the pension benefits of an additional 235,000 workers and retirees in 2005, bringing the total to 1.3 million, and paid benefits of $3.7 billion, up from $3 billion in 2004.
Premiums per participant, paid by companies to the agency, totaled $1.5 billion. The agency is now financed entirely by premiums and interest on investments, but there is growing concern that it may one day have to turn to taxpayers for a bailout that could rival the savings-and-loan crisis of the 1980s.

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