Aloha Airlines and Unions Butt Heads

November 11, 2005 ( - Federal Bankruptcy Court Judge Robert Faris pleaded with Aloha Airlines, Inc. and unions for its pilots and flight attendants to reach an agreement on contract terminations.

Creditors, including the Pension Benefit Guaranty Corporation (PBGC), have filed objections to the disclosure statement submitted by the airline. The air carrier is reorganizing in the US Bankruptcy Court for the District of Hawaii in Honolulu and has warned that, as part of its reorganization, it intends to seek to terminate its pension plans (See  NewsDash – October 26 TERMINATE SHUN? ).

A five-day hearing was scheduled to end Thursday, but has been extended an additional day to 10 a.m. Tuesday, when the sides will present their closing arguments, according to the Honolulu Star-Bulletin.

Aloha’s current financial situation and the affordability of the unions’ pension plans were the hot topics on Thursday.   The airline says it needs to get its costs lower and to terminate the defined-benefit plans to comply with the investment group’s reorganization plan.

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, the Star-Bulletin reports.   He 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.

Steve Schreiber, attorney for the PBGC, 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 new agreements reached with those groups, the company agreed to contribute 3% 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.

Al Pattison, Aloha’s senior vice president of human resources, said the agreements with the three groups only allow pension-plan termination if all of the airline’s unions comply.   The agreements still need court approval.

Craig Yamaoka, a financial analyst for the PBGC, said that Perseus LLC, a Washington, D.C.-based private-equity firm had conversations with the unsecured creditors’ committee about two weeks ago and said it may be able to do something about the defined benefit plan issue.   Perseus initially had proposed purchasing Aloha’s assets out of bankruptcy rather than take the carrier through reorganization.   Hawaiian Airlines Chief Executive Bruce Nobles declined Thursday to reveal whether Perseus would consider keeping the defined-benefit plans.

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.