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No one may win Aloha Air labor dispute, judge says

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Sep 1, 2004
Whether management or the unions prevail, either side could
still lose

By Dave Segal

[email protected]

FEDERAL BANKRUPTCY Judge Robert Faris said there have been
very few cases he's ever lost sleep over.
But he said yesterday that Aloha Airlines' contract
termination showdown with its pilots and flight attendants is
one of them -- and urged the sides to reach a compromise
before he has to make what he termed a no-win decision.

A five-day hearing scheduled to end yesterday wasn't completed
and was extended an additional day to 10 a.m. Tuesday, when
the sides will present their closing arguments.

At the end of yesterday's hearing, Faris encouraged the
parties to settle their differences because he feared what
could happen if he had to choose between the company and the
labor unions.

"Whoever wins this motion really doesn't win," Faris said.
"Suppose the union wins the motion decision: They still face
the fundamental problems of the business. There has to be a
new investor and there's a question whether they would come in
and take the company with all the defined-benefit plans. As
Clint Eastwood asked in the 'Dirty Harry' movie, 'Do you feel

If there were no new investor, Faris said, he envisioned all
the workers would lose their jobs, a reference to court
testimony that Aloha's current investors would walk away and
the lenders likely would force a liquidation of the airline.

"Suppose the company wins?" Faris asked. "There could very
well be a strike or a job action like a sickout and you'd have
a lot of grumpy people. It would be much better for everybody
if you settled this rather than have me do it for you."

Aloha's current financial situation and the affordability of
the unions' pension plans came under attack yesterday, with
the airline saying it needed to get its costs lower and to
terminate the defined-benefit plans to comply with the
investment group's reorganization plan.

But Aloha's chief financial officer, Jeffrey Kessler, said on
the witness stand that the company was projecting $18.5
million in earnings before interest, taxes, depreciation,
amortization and restructuring for this year. Known in
business circles as EBITDA, or EBITDAR in this case, it is a
measure of the company's ability to generate cash from

Kessler, under an aggressive attack by attorney Robert Clayman
of the Association of Flight Attendants, also said that the
airline was expecting operating income of $5 million to $7
million in November and December -- historically profitable
months due to the holidays -- but would have a net loss of
about $1.5 million in October.

Last night, Aloha filed financial statements that showed the
airline had an operating loss in September of $2 million on
revenue of $31.1 million. The net loss came to $4.8 million,
with $2 million of the airline's $33 million in operating
expenses going toward reorganization items. Fuel costs were
$8.6 million.

Through the first nine months, Aloha has an operating gain of
$6.2 million on $344.7 million in revenue. The nine-month net
loss is $21.2 million.

Steve Schreiber, attorney for the Pension Benefit Guaranty
Corp., argued that the airline was lumping all of the
defined-benefit pension plans together and that based on
available numbers the company's liability in the next five to
six years wouldn't change if it retained the pension plans of
the mechanics, clerical workers and dispatchers. Under the new
agreements reached with those groups, the company agreed to
contribute 3 percent of annual earnings into a multiemployer
plan for the mechanics and clerical workers and a similar
amount into a defined-contribution plan for the dispatchers.
However, Al Pattison, Aloha's senior vice president of human
resources, said the recently ratified agreements with the
three groups -- which still need court approval -- only allow
pension-plan termination if all of the airline's unions

Craig Yamaoka, a financial analyst for the PBGC, a federal
agency that guarantees pensions, disclosed yesterday that one
group that had conversations with the unsecured creditors'
committee about two weeks ago said it perhaps could do
something about the defined-benefit plan issue. Yamaoka, who
is on the creditors' committee, later identified that group as
Perseus LLC, a Washington, D.C.-based private-equity firm that
manages more than $2 billion in assets.

Perseus, which is aligned with former Hawaiian Airlines Chief
Executive Bruce Nobles, attempted in late September to become
part of a bidding process for Aloha. However, the airline told
the judge it wanted to instead partner on a reorganization
plan with two Los Angeles-based investment groups, Yucaipa
Cos. and Aloha Aviation Investment Group. Faris, though, left
open the door for Perseus to negotiate with the unsecured
creditors' committee if Perseus meets certain conditions set
by Yucaipa and AAIG.

Nobles said last night that he and Perseus are still
interested in Aloha.

"We have not had a formal conversation with the creditors'
committee," Nobles said, though he noted there have been some
informal talks. "The judge put some pretty difficult
conditions on an alternative bid process. While we continue to
be interested in Aloha, and we think we can put together a
better proposal, the debtor-in-possession (Aloha) has a lot of
control over the process.

"While the judge gave us an alternative method, it's pretty
expensive and pretty risky and we have elected to continue to
be interested and watch the situation develop."

Perseus initially had proposed purchasing Aloha's assets out
of bankruptcy rather than take the carrier through
reorganization. Nobles declined yesterday to reveal whether
Perseus would consider keeping the defined-benefit plans.

"The creditors' committee knows that we're interested," he
said. "People have our phone number, and if they want to find
out what we're willing to do, they can give us a call."
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Sounds like they've got a really crappy standoff going there. I can certainly undertsand where the pilots / FAs / etc are coming from. They have given a *lot* back to the company over the last few years, only to hear each time that they have to give more.

I hope they can work this out and keep flyin'.
The stench is overpowering. Best of luck to the fine folks who have become pawns in this game through no fault of their own.

Aloha? Hardly........

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