Put it on Aloha's tab

By Rick Daysog, Advertiser Staff Writer

The shutdown of Aloha Airlines is benefiting one sector of the economy: bankruptcy lawyers and their consultants.

Since March, attorneys and experts hired by Aloha have billed the defunct airline nearly $3 million, federal bankruptcy court filings show.

The legal tab is well below the $11 million that Aloha wracked up during its previous bankruptcy, but the amount is expected to increase since the case is still pending.

Employees and retirees say the money would have been spent better if it were used to keep the airline afloat. It also could have been used to pay for health benefits or severance for the 1,900 Aloha employees who lost their jobs when the airline went out of business on March 31, they said.

"It's outrageous to charge such fees when you are just closing the door and turning off the lights," said Steve Brenessel, a retired Aloha pilot.

"All that money could have been better spent by keeping the airline going instead of going into the pockets of lawyers."

Bankruptcy experts say the fees in the Aloha liquidation aren't out of line.

Typically, attorney fees and other costs for small bankruptcies amount to about 10 percent of the assets, said Lynn LoPucki, a law professor at the University of California-Los Angeles.

Aloha has received about $20 million from the sale of its profitable cargo and contract services unit. It expects to receive another $10 million to $15 million from the sale of its aircraft frames, engines and other aircraft parts.

"This is probably an ordinary fee for this size of a case," said LoPucki.

Founded in 1946, Aloha was the state's second largest airline before shutting down its passenger service on March 31 as a result of soaring fuel prices and a costly interisland fare war.

The closure came 11 days after Aloha filed for Chapter 11 bankruptcy reorganization, two years after Aloha emerged from its first bankruptcy.

In Aloha's previous bankruptcy, six law firms or investment banking firms billed more than $1 million while a seventh billed just under that amount.

This time, just one firm — Imperial Capital LLC — submitted a bill for more than $1 million.

Imperial, whose fees have not yet been approved by the bankruptcy court, helped Aloha sell the cargo division for $17 million to Saltchuk Resources Inc., the Seattle-based owner of Young Brothers/Hawaiian Tug & Barge.

Here's what the other firms billed Aloha:

Miami-based Berger Singerman P.A., which was Aloha's main bankruptcy attorney, received $644,991.51 in fees and expenses. In Aloha's first bankruptcy, the firm earned more than $3 million for its work in helping the airline emerge from reorganization under new ownership;

Sheppard, Mullin, Richter & Hampton LLP of Los Angeles, which represented Aloha on labor related issues, billed $303,904.62;

Char Sakamoto Ishii Lum & Ching, Aloha's long-time law firm, was paid $297,473.48, or less than a third of what it billed during Aloha's first bankruptcy.

Sonneschein Nath & Rosenthal LLP, which represented Aloha's unsecured creditors, earned $242,896.18.

The fees do not include those for Aloha's court-appointed trustee Dane Field who, along with local attorney, James Wagner, have done much of the legal work surrounding the liquidation of Aloha's assets.

Field and Wagner's firm, Wagner Choi & Verbrugge, have not yet applied for their fees.

The total also does not include fees that will be paid to the Los Angeles litigation firm Latham & Watkins LLP and locally based Watanabe Ing Komeiji LLP.

The Latham and Watanabe firms are handling Aloha's anti-trust lawsuit against Mesa Air Group, the Phoenix-based parent of go! airlines.

Aloha recently sold its legal claims against Mesa to its main investor Yucaipa Co., which has agreed to retain the two firms and pay their legal bills.

The suit — which alleges Mesa misused confidential business information to drive Aloha out of business — will likely result in legal fees exceeding $1 million....

June 2008

Aloha Airlines Exposes

the Leadership Void

---

 STILL FLYING (NOT!):

JOHN BERGER / JBERGER@STARBULLETIN.COM David Banmiller, center, president and CEO of Aloha Airlines, was congratulated Saturday by Honolulu attorney David Farmer and his wife, Loren, at the 11th Annual March of Dimes Governors' Ball at the Hilton Hawaiian Village. "60 Years of Aloha" was the theme as Banmiller accepted the Franklin Delano Roosevelt Award for Distinguished Community Service, on behalf of "the men and women of Aloha Airlines." CLICK FOR LARGE http://archives.starbulletin.com/2006/11/09/news/berger.html * * *

July 21, 2008

Aloha Committee Counsel Seeks $235,000

in Fees for One Month

The firm of Sonnenschein Nath & Rosenthal which represented the Creditor's Committee for the month before the chapter 11 case was converted to chapter 7 has filed a fee application seeking $235,000 in fees. GMAC has objected to the application calling it excessive (duh). For some telephone calls, Sonnenschein billed $2,000 per hour. That would be two partners in the $750 range and one in the $600 range.

The objection of GMAC can be found here and here.

The hearing is July 29. I will check back then. These matters are tough for the judge because the objection complains away but doesn't really tell the judge what number he should approve. Judges tend to simply lop off 10% or some other nominal amount since that is the safe path.

http://lawprofessors.typepad.com/bankruptcyprof_blog/

 Aloha Airlines' Bankruptcy Bandits

 

Posted 5/31/2008 7:12 PM HDT on www.honoluluadvertiser.com

Whistler wrote:

     It looks like another win-win situation for the attorneys for both Aloha and Mesa, and a lose-lose proposition for the public who will ultimately pay the millions in legal fees and judgments through higher fares and/or reduced services. I see that the usual cast of questionable characters are involved - including Judges David Ezra and Barry Kurren, bankruptcy Trustee Dane Field, billionaire Ron Burkle, Aloha Airlines' bankruptcy attorney, David C. Farmer, etc., etc.

     To see more of what's going on behind the blinds, fly over and take a peek at:

http://www.kycbs.net/Aloha-Air.htm

 June 17, 2008

Yucaipa to purchase Aloha suit

The airline will receive 5 percent
from any damages against Mesa

By Dave Segal, Star-Bulletin

Yucaipa Corporate Initiative Fund I, LP, the majority investor of Aloha Airlines, will be taking over the bankrupt carrier's 2006 lawsuit against go! parent Mesa Air Group Inc.

The Los Angeles-based company, headed by billionaire Ron Burkle, submitted the only bid by yesterday's deadline. Yucaipa, which is owed $116.7 million by Aloha, made a $10 million credit bid -- a noncash offer that will reduce the amount it is owed by Aloha. In addition, Yucaipa will pay Aloha 5 percent of whatever proceeds it receives from the suit.

A hearing to approve the sale of the lawsuit is scheduled for 9:30 a.m. today in federal Bankruptcy Court.

"If the lawsuit turns up zero, then the estate gets zero," said James Wagner, attorney for Aloha Chapter 7 trustee Dane Field.

Yucaipa is the second secured creditor in the bankruptcy while Aloha's primary lender, GMAC Commercial Finance LLC, is the first secured creditor and is owed about $40 million following the sales of Aloha's cargo and aviation contract services units.

Aloha is suing Mesa for alleged predatory pricing that helped force Aloha out of business, as well as for allegedly misusing confidential information obtained during Aloha's first bankruptcy.

Wagner acknowledged that if Yucaipa prevailed but Mesa were to file for bankruptcy, then Yucaipa "would hold a claim against a bankrupt company.

"Then there may be an issue of collectibility," he said.

A jury trial is scheduled to begin on Oct. 28 in federal District Court in front of Judge David Ezra.

http://starbulletin.com/2008/06/17/business/story02.html

---

June 13, 2008

No $600,000 bonus for Aloha's ex-CEO

Judge rejects request, saying airline's
collapse doesn't merit windfall

BY RICK DAYSOG, Advertiser Staff Writer

U.S. Bankruptcy Judge Lloyd King yesterday rejected a bonus request of up to $600,000 for former Aloha Airlines CEO David Banmiller, saying Banmiller should not "make a windfall off a collapse of the company."

Aloha, the state's No. 2 carrier, shut down its passenger service on March 31 and laid off 1,900 workers with little prior warning.

When an attorney argued it would be fair to pay a bonus to Banmiller and former Aloha Chief Financial Officer Jeffrey Kessler as they work to sell parts of the company, King said:

"I don't think fairness is an appropriate thing to discuss unless you want to talk about fairness to people who lost their jobs on virtually no notice (and) the hardship that has been imposed upon thousands of people. Now we have the top insiders potentially making a big score on this case. I think that's a very ugly aspect of this motion.

"It simply looks bad when the people who are with the company can make more money when it's going out of business than when it is a going concern."

Last month, the airline's court-appointed bankruptcy trustee, Dane Field, proposed paying Banmiller and Kessler incentives for helping sell off the carrier's assets. Under the plan, the two would get $50,000 each if the sale of Aloha's air cargo operations, contract services division and other assets fetches $19.25 million or more.

The two could receive as much as $600,000 each if the sale of Aloha's remaining assets fetches more than $26.5 million.

Those payments would be made by Aloha's chief lender GMAC Commercial Finance LLC from the proceeds of the asset sales.

The bonuses are on top of the $500 an hour that Banmiller and Kessler are now being paid to help the airline sell off its assets. The hourly pay is capped at $25,000 a month.

Prior to the bankruptcy, Banmiller received $500,000 a year in base salary as Aloha's CEO. When hired as Aloha's CFO in 2005, Kessler and his Atlanta-based firm Tatum CFO Partners received $3,000 a week, or $156,000 a year.

When reached by phone yesterday, Banmiller and Kessler declined to comment.

Others fared poorly

During yesterday's hearing, King questioned why Banmiller and Kessler should receive a bonus when they were already being paid $500 an hour. He also asked why other airline industry consultants couldn't have been hired to do the same work.

"Should Mr. Banmiller and Mr. Kessler be singled out for such favorable treatment in a Chapter 7 (bankruptcy) case where the other employees of the company have come out so poorly?" King said.

Jim Wagner, attorney for Field, said his client played an important role in selling Aloha's cargo and contract services units, which saved more than 1,400 jobs and preserved a business that handles more than 85 percent of all air freight between O'ahu and the Neighbor Islands.

'working very hard'

Aloha Cargo was sold to Seattle-based Saltchuk Resources Inc. for $10.5 million and the contract services unit was sold to Los Angeles-based Pacific Air Cargo for $2.05 million.

"I think Mr. Banmiller or Mr. Kessler have been working very hard in good faith toward liquidating the estate's assets," Wagner said.

Douglas Lipke, an attorney for GMAC Commercial Finance LLC, said Banmiller's and Kessler's institutional memory are invaluable. They have extensive contacts in the airline industry and have the best handle on the value of assets, such as the company's receivables, Lipke said.

Former Aloha pilot John Riddel said the judge did the right thing in rejecting the bonus plan. Riddel said that many of the pilots who continued to fly Aloha's cargo planes after March 31 have not yet received their full pay.

Some are still owed about half their pay, Riddel said.

"We were improperly underpaid," he said.

The Honolulu Advertiser

May 31, 2008

Aloha puts Mesa lawsuit up for auction

Legal claims against Mesa another asset
being sold for creditors

By Rick Daysog, Advertiser Staff Writer

For sale: Aloha Airlines' lawsuit against go! airlines.

The trustee for bankrupt Aloha Airlines said yesterday that he will auction off Aloha's potentially lucrative legal claims against the owner of go!, Mesa Air Group Inc.

In April, Mesa agreed to pay $52.5 million to settle a similar suit by Hawaiian Airlines, which alleged that Mesa misused confidential information to launch go! airline.

"A lawsuit is no different than a propeller," said James Wagner, attorney for Aloha's bankruptcy trustee Dane Field. "It's an asset and we're going to sell it."

Aloha, once the state's second largest airline, shut down its passenger service on March 31 and terminated 1,900 workers, in the largest mass layoff the state has ever seen.

The shutdown came 11 days after Aloha filed for bankruptcy for the second time in less than 3 1/2 years.

Aloha sued Mesa in federal court in January 2007, alleging that the Phoenix-based company misused confidential information to drive it out of business. The trial is scheduled for October.

The rights to the Aloha lawsuit will become one more asset to be sold to pay off Aloha's creditors. Wagner said he has "no concept" of what Aloha's legal claims would sell for.

Asset sales so far have included the $10.5 million sale of Aloha Cargo to Seattle-based Saltchuk Resources Inc. and the $2.05 million sale of Aloha's contract services division to Los Angeles-based Pacific Air Cargo.

Wagner said potential bidders for the lawsuit include Aloha's former financial backer, Yucaipa Co. Yucaipa, which is headed by California billionaire Ron Burkle, rescued Aloha during its first bankruptcy and is owed more than $100 million by the defunct carrier.

In court filings, Wagner said Yucaipa has agreed to use a portion of any recovery to create a hardship fund for laid-off employees.

GMAC Commercial Finance, Aloha's chief lender, also agreed to set aside 5 percent of any proceeds it receives from the sale of Aloha's assets to pay the airline's unsecured creditors.

Mesa also could bid on the rights to the suit, in what would result in a settlement of the lawsuit, Wagner said.

Wagner said potential bidders would have to front what could amount to several million dollars in legal bills to bring the case to trial. He noted that Aloha's expert witnesses alone have asked for a $250,000 retainer.

"It's very expensive litigation," Wagner said.

Also yesterday, U.S. District Judge David Ezra rejected a Mesa motion to dismiss the lawsuit and appointed Federal Magistrate Barry Kurren to oversee the case.

The Honolulu Advertiser

---

May 31, 2008

Aloha lawsuit for sale

By Dave Segal, Honolulu Star-Bulletin

Aloha Airlines, which has been on a fast track to liquidate its assets since filing for bankruptcy in mid-March, said in federal District Court yesterday that it plans to sell the legal claim in its 2006 lawsuit against go! parent Mesa Air Group Inc. to the highest bidder.

"A lawsuit is no different than a propeller," said James Wagner, an attorney for Aloha Chapter 7 trustee Dane Field. "It's an asset and we're going to sell it."

He said a motion would be filed Monday or Tuesday and an auction likely would be held the following week.

Wagner said the likeliest bidder would be Yucaipa Cos. LLC, which is Aloha's majority shareholder and second secured creditor behind Aloha's primary lender, GMAC Commercial Finance LLC. Wagner said Mesa also could be a possible bidder.

"As you can imagine, there's probably very few bidders for this asset," Wagner said.

A winning bid by Yucaipa, which is owed $106.7 million, would allow it to control the lawsuit, while a bid by Mesa would be, in essence, an out-of-court settlement. Aloha is suing Mesa for alleged predatory pricing that helped force Aloha out of business, as well as for allegedly misusing confidential information obtained during Aloha's first bankruptcy.

Last month, Mesa settled a suit with Hawaiian for $52.5 million over the misuse of confidential information.

However, Mesa General Counsel Brian Gillman said yesterday that "we haven't even considered bidding" on the Aloha lawsuit.

"We believe the case is without merit and we intend to vigorously defend the case in any proceeding," he said.

Wagner said that unless Mesa decides to settle, Wagner said Yucaipa likely would be the winning bidder. In that case, Aloha creditors would have to wait until the end of the lawsuit to share in any possible recovery.

GMAC, which initially was owed about $49 million, still is due about $34 million following the sales of Aloha's aviation contract services and cargo divisions. If there is additional money left after GMAC is made whole, then Yucaipa would be next in line for up to the $106.7 million it is owed.

Both GMAC and Yucaipa have said they would give 5 percent of any recovery to Aloha.

Federal Judge David Ezra chastised both parties' attorneys yesterday for letting the case sit for two years with very little action. He said he wouldn't allow the case to sit around as "a bargaining chip."

"We're going to be on the fast track in this case and it's not going to be decided two years from today," Ezra said. "This is a case of some importance to the community, and it's also important to the Mesa shareholders."

The trial is scheduled for Oct. 28.

http://starbulletin.com/2008/05/31/business/story02.html

---

May 20, 2008

Aloha executives may receive

hefty bonuses

By RICK DAYSOG, Advertiser Staff Writer

Former Aloha Airlines Chief Executive Officer David Banmiller and Chief Financial Officer Jeffrey Kessler could each receive a bonus for helping sell off the bankrupt airline's assets.

Both executives are eligible for a $50,000 payout if the sale of Aloha's air cargo operations, contract services division and other assets fetches $19.25 million or more, under an agreement with Aloha's chief lender GMAC Commercial Finance LLC.

But Banmiller and Kessler could pocket more than $1.1 million each if the sale of Aloha's non-passenger service assets generates more than $26.5 million.

"It's disgusting," said former pilot John Riddel, who lost his job after 23 years when Aloha shut down its passenger operations. "I find it despicable that this management, which was at the helm of a 62-year-old institution and allowed it to be run into the ground, now wants to reward itself for a job well done."

The bonus plan, which was outlined in a filing last week by Aloha's court-appointed trustee Dane Field, requires the approval of U.S. Bankruptcy Judge Lloyd King.

Banmiller and Kessler could not be reached for immediate comment.

But Field defended the proposal, saying Banmiller and Kessler played an important role in selling Aloha's cargo and its contract services units, which saved more than 1,400 jobs and preserved a business that handles more than 85 percent of all air freight between O'ahu and the Neighbor Islands.

The deals include the $10.5 million sale of Aloha Cargo to Seattle-based Saltchuk Resources Inc. and the $2.05 million sale of contract services to Los Angeles-based Pacific Air Cargo.

Although the combined amount is below the $19.25 million minimum threshold for a bonus, Aloha still has considerable assets to sell. Field's filing last week noted that the airline must liquidate its company-owned aircraft, jet engines, its receivables and its intellectual property, which includes Aloha's trademarks and brand name.

The airline also holds the rights to its lawsuit against the Phoenix-based owner of go! airlines, Mesa Air Group, which Aloha accuses of using anti-competitive measures to drive it out of business. A similar suit by Hawaiian Airlines was settled with Mesa agreeing to pay $52.5 million.

"Without these guys (Banmiller and Kessler), we wouldn't be able to figure out how to get rid of everything," Field said.

"They know what equipment Aloha has, they know its values, they know where it's located and they know its approximate value."

The bonus would be on top of Banmiller's $500,000-a-year base salary. When they were hired as Aloha's CFO in 2005, Kessler and his Atlanta-based firm Tatum CFO Partners received $13,000-a-month, or $156,000 a year.

Aloha shut down its passenger service on May 31 and terminated 1,900 workers. The closure came 11 days after the carrier filed for bankruptcy reorganization.

The proposed bonuses for Banmiller and Kessler are modest compared to the so-called $8 million "success fee" sought by Joshua Gotbaum, the former bankruptcy trustee appointed in the Hawaiian Airlines bankruptcy.

In October 2005, Federal Bankruptcy Judge Robert Faris cut Gotbaum's bonus request to $250,000, saying it would be difficult to justify an excessive payment to Gotbaum given the concessions made by Hawaiian's employees during the airline's three-year bankruptcy.

Riddel, the Aloha pilot, believes that Aloha could put the money to better use giving it to the people who need it the most: the employees.

When Aloha shut down its passenger service, many employees were left without any severance and healthcare coverage, he said.

"As the captain, I would have been the last one who left the ship. I would want to make sure that it went to the people who (were) struggling," Riddel said.

The Honolulu Advertiser

---

May 3, 2008

Trustee asks judge to reject

Aloha's union contracts

AOL News, AP

HONOLULU (AP) - The new trustee of Aloha Airlines has asked a federal bankruptcy court to reject all six of the company's union labor contracts as Aloha moves forward with plans to liquidate and stop its business operations.

The demand from trustee Dane Field, which has been criticized by Aloha's pilots union, comes as the airline is expected to complete the sale of its cargo unit to Seattle-based Saltchuk Resources Inc. on May 14.

Saltchuk, meanwhile, has met with representatives of the International Association of Machinists and Aerospace Workers union. The group represents Aloha's cargo and supply agents.

Assistant Chairman of IAM District 141 Randy Kauhane says Saltchuk has been willing to negotiate and is not anti-union.

---

May 2, 2008

Return flight

Ruling resurrects cargo unit

STORY SUMMARY »

Aloha Airlines' cargo division received the green light from a federal Bankruptcy Court judge to begin operating last night, capping off a chaotic day that earlier saw the sale of the company's airport contract services unit finalized four days early.

The courtroom action involving the two units saved about 1,300 jobs -- although in the case of the cargo unit, it amounts only to a two-week reprieve.

Bankruptcy Judge Lloyd King, acting on an order from new Chapter 7 trustee Dane Field, approved an oral motion to allow cargo operations to resume flying immediately. The pilots showed up last night, and the first flights were scheduled to take off around 11:30 p.m.

The decision to revive cargo operations brings needed relief to thousands of customers throughout the state who have been scrambling to make alternative plans since cargo operations were shut down Monday night.

King's order permits the cargo unit to operate until at least May 14, when an 11th-hour sales agreement to Saltchuk Resources is scheduled to close. A hearing is set for May 12.

Saltchuk, which had walked out of the cargo bidding auction last week, revived its interest after receiving a call from U.S. Sen. Daniel Inouye.

FULL STORY »

By Dave Segal, Star-Bulletin

In yet another twist in Aloha Airlines' bankruptcy saga, Federal Bankruptcy Judge Lloyd King approved an oral motion last night by the new Chapter 7 trustee to allow the company's cargo operation to resume flying immediately.

King's order, amounting to a two-week temporary reprieve for the cargo unit, permits it to operate until at least May 14 when an 11th-hour sales agreement to Saltchuk Resources, the parent of interisland cargo shipper Young Bros., is scheduled to close.

The decision to revive cargo operations brings needed relief to thousands of customers throughout the state who have scrambled to make alternative plans since Monday night when Aloha's lender, GMAC Commercial Finance LLC, cut off funding and prompted Aloha to convert its bankruptcy to Chapter 7 liquidation from Chapter 11 reorganization.

Earlier in the day, King ordered that the sale of Aloha's contract services division to Pacific Air Cargo for $2.05 million be expedited to close yesterday instead of Monday.

The survival of the two units saved about 1,300 jobs.

Former Aloha Chief Executive David Banmiller, who is being retained along with management during the interim period by new trustee Dane Field, said last night that Aloha pilots had been put on standby and that three planes were expected to be put in service to fly from eight to 10 segments. The pilots showed up last night, and the first flights were expected to go out around 11:30 p.m., according to a source familiar with the situation.

Saltchuk announced earlier in the day it had signed a letter of intent to buy the operations for $10.5 million after receiving a phone call from U.S. Sen. Daniel Inouye. However, Saltchuk stipulated that the offer was good only if cargo flights resumed by midnight. Last night, King declined to approve the sale due to the short notice but scheduled a hearing on the matter for May 12.

Aloha pilots agreed to fly the planes even though they were given no assurances of future employment by Saltchuk, despite objections by the Air Line Pilots Association.

In addition, Field told the court that he plans to file a motion to reject all six of Aloha's labor union contracts. That motion also will be heard on May 12.

Field, who had been wavering on accepting the trustee appointment over a pay dispute, did not ask King to resume cargo services until after Field had worked out a deal with GMAC for additional money that the trustee could use to pay for professional help and other expenses. Under the agreement, Field will get a $100,000 advance on a guaranteed $250,000 in compensation, plus 5 percent of net proceeds for the estate from the sale of any cargo assets and anything else sold, with the exception of contract services.

Field initially had asked for $1 million.

Although Field was appointed trustee Wednesday morning, his indecision in accepting the case prompted King to overrule the objections of U.S. Trustee Carol Muranaka and order that Pacific Air Cargo's deal be completed yesterday.

"If the trustee wants to get on board, the trustee needs to get on board," King snapped in reference to Field, who started his position in September after relocating from Texas.

By the afternoon, Field decided to accept the appointment even though his attorney, Simon Klevansky, had walked out. King then ordered a reluctant Field to execute the closing documents for the contract services sale.

Field later retained as his attorney Jim Wagner, who previously represented the other cargo bidder in the case.

Pacific Air Cargo CEO Beti Ward, who seemed overwhelmed by the entire event, said, "I'm close to hysterical, and I don't know if that's hysterical bad or hysterical good."

"We've got a business, and now we've got to figure out a way to make it run properly."

Ward praised the contract services workers who have stayed on the job without any guarantee of payment.

"These people have been fantastic," she said. "They're working on faith. All they've got is my personal guarantee that they're going to get paid, and they're believing in me."

Saltchuk, which walked away last week from bidding for the cargo unit after GMAC requested that Saltchuk raise its $13 million bid to $20 million, revived its interest after conversations with Inouye and his staff.

"He was greatly concerned about the 300 jobs and the vital service that Aloha Air Cargo has provided for the people of Hawaii and asked we try once again to see if we could make something happen," Saltchuk President Tim Engle said.

Aeko Kula Inc., a recently formed subsidiary of Saltchuk, intends to hire out of the existing Aloha cargo work force, the company said.

"We owe a tremendous amount of gratitude to our senior senator for interceding on behalf of the employees and the operation in working out a deal," Banmiller said.

http://starbulletin.com/2008/05/02/news/story01.html

---

April 30, 2008

Air turbulence

The potential loss of Aloha's last division
threatens air carriers

Honolulu Star-Bulletin

STORY SUMMARY »

They say bad things come in threes.

First, Aloha Air ended its passenger service. Then on Monday it closed up its cargo operations, which handled 85 percent of interisland freight.

Now Aloha's aviation contract services unit, which handles ground operations for nearly all of the major domestic and international carriers flying into the state, could be shut down as early as today in a move that could paralyze much of the air travel throughout Hawaii.

Aloha's aviation contract services unit has a buyer, Pacific Air Cargo, but that deal has yet to close, and Aloha's lender is refusing to fund it any further. That threatens to force the unit's closure, possibly as soon as today.

Meanwhile, Pacific Air Cargo is leasing a Boeing 727 freighter aircraft, which was expected to arrive today from Oakland, Calif., to fill some of the void left by the shutdown of Aloha Airlines' cargo unit.

And a number of food industry executives, led by Love's Bakery President Mike Walters, are urging the Hawaii Superferry, Gov. Linda Lingle and Kauai politicians to bring the vessel back to Kauai, where it was greeted by protesters last summer.

FULL STORY »

By Dave Segal, dsegal@starbulletin.com

Aloha Airlines' aviation contract services unit, which handles ground operations for nearly all of the major domestic and international carriers flying into the state, could be shut down as early as today in a move that could paralyze much of the air travel throughout Hawaii.

Even though the approximately 400 contract services employees continued to work yesterday, there was no guarantee they would continue to get paid. Similar to the chaos that erupted Monday following the abrupt shutdown of Aloha's cargo operations, confusion reigned again yesterday on what was happening with contract services.

Among those carriers affected are United Airlines, American Airlines, US Airways, Japan Airlines, Air Canada, Korean Air and China Airlines.

It had been expected that a Chapter 7 liquidation trustee, Dane Field, would be appointed yesterday on an interim basis to give the parties some guidance. But as of last night, Carol Muranaka, assistant U.S. trustee for the District of Hawaii, had not made an appointment. She did not return phone calls.

"If the employees aren't getting paid, and there's no insurance to cover the operations, then a responsible trustee will shut them down," said attorney David Farmer, who was Aloha's local co-counsel in the bankruptcy case and sometimes serves as a Chapter 7 trustee. "That's Bankruptcy 101."

But Farmer added that there were indications late last night that saving both the cargo and contract services divisions still could be possible.

"The company is in discussions and remains optimistic to achieve preservation of these two divisions," he said.

Additional details were not available, Farmer said.

Pacific Air Cargo, the prospective new buyer of Aloha's contract services unit, said yesterday it is "moving forward" with its deal to buy the unit.

The Los Angeles-based company's chief executive, Beti Ward, said the employees who are working during this interim period "will get paid by one entity or another."

Approximately 950 employees in the contract service unit have been working since Monday night without any guarantee of getting paid after Aloha's lender, GMAC Commercial Finance LLC, cut off financing and Aloha announced it was converting to Chapter 7 liquidation from Chapter 11 reorganization.

"I put the burden on all of our guys," said Randy Kauhane, assistant general chairman of International Association of Machinists and Aerospace Workers, District Lodge 141. "I told our guys to continue to work for free if it means keeping the operation going until we can find out more details what's going to happen. If we stop, it would interrupt the operations of the carriers that we service."

The contract services deal is scheduled to close Monday, but people familiar with the situation said Pacific Air Cargo was trying to move up the closing date before the business deteriorates.

The ripple effect of the cargo shutdown already was being felt locally and nationally yesterday.

Mike Walters, president of Love's Bakery, said the company's regular Tuesday shipment of bakery goods to Kauai "is still sitting in Los Angeles" because a freight forwarder it hired used United, which has stopped flying cargo to Lihue Airport.

United suspended its cargo operations to Kauai because the transfer of the airline's interisland cargo had been handled by Aloha's now-defunct cargo unit.

Walters said Love's will sign a contract with a smaller freight service, Pacific Wings, to start flying bread tomorrow to Lihue.

http://starbulletin.com/2008/04/30/news/story01.html

---

April 3, 2008

Most creditors of Aloha

likely to receive ‘squat’

The sale of assets and a pending lawsuit will generate
funds, but the airline owes too much

By Dave Segal, Star-Bulletin

Aloha Airlines' unsecured creditors, who received one-hundredth of a cent on the dollar after the company's last bankruptcy three years ago, likely will receive nothing this time around.

The unsecured creditors include all those who paid for Aloha tickets using cash or checks -- people whom Aloha's Web site advises to file claims with the U.S. Bankruptcy Court.

"Between you and me, the unsecureds are not going to get squat," said one insider close to the case.

All the money that Aloha receives from the sales of its cargo division, aviation services unit and the company's intellectual property, such as the Aloha name and logo, will go first to its primary lender, General Motors Acceptance Corp., and then -- if anything is left over -- to its majority investor, Yucaipa Cos. LLC.

Aloha owes GMAC $44 million of principal, plus an additional $4.9 million for letters of credit that the lender issued on behalf of Aloha, while Yucaipa is owed $106.7 million.

Aloha reported in its March 20 bankruptcy filing that it has in excess of 4,000 creditors. On Monday the 61-year-old airline shut down its passenger operations.

"We have major concerns that this is essentially being operated for the benefit of the secured lenders rather than for the creditors and the people of Hawaii," said attorney Christopher Prince, who represents the unsecured creditors committee.

Under federal Bankruptcy Law, secured creditors -- those with collateral -- get paid first from the proceeds of any sales. Administrative claims, such as attorney fees, are paid next, while unsecured claims are last in the pecking order.

In a case where there is little money available, attorneys can get paid through "carve-outs" in which the secured creditors set aside money to pay the attorneys and other professionals for the debtor -- in this case, Aloha -- and the unsecured creditors committee.

The one wild card for creditors is Aloha's lawsuit against Mesa Air Group, which is scheduled to be heard in federal District Court in October. Aloha is alleging that Mesa used predatory pricing and confidential information obtained as a potential investor during Aloha's bankruptcy to gain a competitive advantage in entering the Hawaii market.

A federal Bankruptcy Court judge already has awarded Hawaiian Airlines more than $80 million in a separate lawsuit with some of the same allegations. Aloha President and Chief Executive David Banmiller thinks the damages award could be even higher if Aloha prevails in its suit.

Banmiller said the shutdown of Aloha's passenger operations increases the amount of damages it could seek from Mesa in the lawsuit.

But the next turning point for Aloha's creditors comes today, at a court hearing over the potential sale of the cargo unit.

Cargo, the airline's most profitable division, flies 85 percent of the state's goods as well as all the U.S. mail to Maui and the Big Island. The unit has generated earnings before interest, taxes, depreciation and amortization of more than $6 million annually in recent years.

A dispute over pilot seniority and the company's fears of a walkout that could scuttle the cargo unit's sale prompted Aloha to file a motion Tuesday in Bankruptcy Court seeking a temporary restraining order against the Air Line Pilots Association. Bankruptcy Judge Lloyd King put off making a decision on the motion to give the sides time to talk. A status conference on those talks is scheduled for today.

Prince said he is concerned that there is a "rush to judgment to sell these assets piecemeal and deny the state of Hawaii the business that it's enjoyed for the last 61 years."

But Banmiller said there was no rush to sell the cargo unit at all.

"I've been trying for at least a year to sell Aloha Airlines -- the entire entity -- because I think it has great value," Banmiller said. "The problem is, the realities that are out there today are frankly different. Fuel has dramatically increased the bet on trans-Pac and interisland because most of the fuel goes to that. So when you talk about a doubling of fuel, it really affects interisland and trans-Pac and not cargo, because the cargo cost fuel surcharge is passed on. Contract services just handle other carriers, so the economics is different for those two.

"Go! trashed the environment interisland, but not cargo. Fuel did the same for trans-Pac and interisland. So we woke up one day and everybody is saying, 'I'd like to buy this but not the entire entity.' So as a responsible debtor, I have to listen to the marketplace, and we have a lot of interest in cargo."

Also on the docket today is a motion by Aloha to reject 14 of its 27 aircraft leases. The remaining aircraft are either cargo planes or aircraft already owned by Aloha.

http://starbulletin.com/2008/04/03/news/story02.html

See also:

http://www.kycbs.net/Aloha-Air-Bankruptcy.mht

http://www.kycbs.net/Aloha-Air-Creditors.mht

 

DAVID BANMILLER HAS NO ALOHA

http://www.youtube.com/watch?v=NzkZwk0UWlQ

/\o/\

 

---

< < < FLASHBACK < < <

September 24, 1999 

Entrepreneur soared with Aloha

By Russ Lynch, Star-Bulletin

EVERY Christmas Day, Hung Wo Ching, Aloha Airlines' chairman, would hop on his company's planes and tour the islands just to shake hands with employees and wish them well. That, says one long-time employee, was one indication of the type of man Ching was.

Others remember him as a man of his word, someone who could be trusted. He was accessible, too. Long after his retirement, Ching had an office downtown. The former Bishop Estate trustee and board member of some of Hawaii's most prestigious companies had a listed phone number and answered his own phone.

Where Ching truly was different and made a difference, however, was that he was of Asian ancestry and was a great success at a time when Hawaii was run by Caucasians.

Ching gave the Caucasian establishment a run for their money, jumping into real estate after World War II, successfully developing eight subdivisions. In 1958, he bought a 10 percent stake in a nearly bankrupt company called Trans- Pacific Airlines, which was trying to compete with Hawaiian Airlines in interisland travel.

He renamed it Aloha Airlines, stepped in as president, led it to success and was chairman of the publicly held company's board from the mid-1960s until he converted it to a private company in 1987, after surviving hostile takeover bids. When he died in 1996 at age 83, he was vice chairman of Aloha Airgroup, parent of Aloha Airlines and Island Air.

Ching was one of the Hawaii-born Asian entrepreneurs who started poor, worked hard and succeeded in an often-difficult environment.

In a 1968 interview, Ching showed his awareness of just what he was achieving for himself and others like him, chuckling at the knowledge that the big Caucasian-run businesses were missing a good bet by not bringing them in, leaving them outside to become fierce competitors.

"The haole community does not realize that by not taking on Orientals and integrating their companies, they are forcing the young Orientals to go into business for themselves and they are going to give them a hard time," Ching said.

Stuart Ho, chairman of Capital Investment of Hawaii Inc., remembers Ching -- not unlike his own father, the late Chinn Ho -- as representing a breed of lowly born, successful Hawaii-born Chinese entrepreneurs....

Ching was born in 1912 and lived in a tenement on School Street as the youngest of six children of poor Chinese immigrants.

Ching showed a remarkable ability to learn and had an equally remarkable education -- Royal School, McKinley High, the University of Hawaii, Yenching University in Beijing, Utah State and the University of California. He earned a doctorate in agricultural economics from Cornell University.

He took the knowledge gained in his doctorate work to China at the end of World War II, to start a sugar beet industry. Two years later, the Communist revolution broke out and Ching came back to Hawaii in 1948.

He kept his education growing and graduated from the Harvard Business School in the mid-1950s at age 42.

Ching was finally tapped by the big companies, serving on the boards of Bank of Hawaii, Hawaiian Telephone Co., Alexander & Baldwin Inc., Hawaiian Life Insurance Co. and others.

http://starbulletin.com/1999/09/24/news/story6.html

---

March 31, 2008

Airline's quick demise didn't surprise everyone

Lenders refused to fund money-losing
passenger operations, some say

By Rob Perez, Advertiser Staff Writer

The speed with which Aloha Airlines shut its passenger business has surprised many, but not those familiar with the airline's bankruptcy case.

Lenders were unwilling to throw more money into the money-losing passenger service part of the operation and no other group was willing to come to the rescue, according to several people familiar with the case.

"I'm not blaming the lender," said one bankruptcy attorney who is involved in the case and didn't want to be identified. "It was a business decision. They didn't want to keep losing money, either."

Less than two weeks after filing for Chapter 11 bankruptcy protection, Aloha announced yesterday that it plans to halt passenger service with its last flight tonight. It will continue operating its cargo and charter operations.

People familiar with the bankruptcy case said the airline's hand was forced because its existing lenders were unwilling to put more money into passenger operations, no other lenders were interested in filling that void and no airline or investor group was willing to purchase the passenger operation or the entire company.

Even before filing for bankruptcy protection March 20, Aloha had been shopping its overall business and just the passenger operation to other airlines and investor groups. Aloha came close more than once to striking a deal, according to one person familiar with the case. But those potential deals collapsed, said the person, who like most people involved with the case was unwilling to speak on the record.

While Aloha was searching for buyers, its lenders were pressuring the airline to stop selling tickets to passengers, taking the position that such sales would further expose the lenders to more potential losses, the person said.

Aloha was under the gun to find a buyer by today, when it returns to bankruptcy court to get a financing arrangement extended, one person said.

"To pull the plug, it wasn't an easy decision," said David Farmer, Aloha's attorney in the bankruptcy case.

"But it would also be foolish" to continue operations under existing conditions, given Aloha's responsibilities to its employees, the public, owners and others, he said.

An indication of how quickly Aloha is bleeding financially came in a court filing yesterday. The airline said its unrestricted cash had dwindled from $3.8 million on March 20 to $900,000 as of yesterday.

Aloha's lenders are willing to fund the airline's profitable cargo and charter operations, but not its money-losing interisland and transpacific passenger service, according to one attorney.

Aloha cited the soaring cost of fuel and an interisland fare war, triggered by the entrance of go! airlines, when it filed for bankruptcy protection, a move that was meant to buy the company time while it restructured.

With no substantive offers for its passenger business, Aloha officials decided to stop the bleeding by shutting that operation, people familiar with the case said.

A tight credit market nationally added to Aloha's woes, making it difficult to find new lenders willing to risk their money in a slowing economy and a bare-knuckles interisland fare war, several people said.

"In this credit market, no one else is crazy enough to lend," said one attorney....

It's not unusual for a company that files Chapter 11 to be unable to continue operations in the same manner as before the filing, said attorney Don Gelber, who handles bankruptcy cases but is not involved in the Aloha's.

"What is unusual is that a company is forced to terminate a major segment of its business so rapidly," he said.

Other airlines operating out of bankruptcy have sold parts of their business — often lucrative parts — to raise money to focus on the rest of their operations. Years ago, Eastern Airlines sold its shuttle service while in bankruptcy, while Pan Am sold lucrative routes to sustain its operations.

But Aloha's case is different, in part because this is the airline's second go-around with bankruptcy. It first filed for bankruptcy protection in December 2004 and emerged only two years ago.

"It's not going to be your usual bankruptcy the second time around," said one attorney involved in the case.

---

March 30, 2008

Aloha Airlines shutting down;

Monday last day of operations

Advertiser Staff

Aloha Airlines announced today that it will be shutting its inter-island and trans-Pacific passenger flight operations. Aloha's last day of operations will be Monday.

On that day Aloha will operate its schedule with the exception of flights from Hawaii to the West Coast and flights from Orange County to Reno and Sacramento and Oakland to Las Vegas.

Effective immediately, Aloha will stop selling tickets for travel beyond tomorrow.

The shutdown will affect about 1,800 employees.

"This is an incredibly dark day for Hawaii," said David Banmiller, Aloha's president and chief executive officer.

"Despite the groundswell of support from the community and our elected officials, we simply ran out of time to find a qualified buyer or secure continued financing for our passenger business. We had no choice but to take this action."

www.honoluluadvertiser.com

* * *

< < < FLASHBACK < < <

April 28, 2006

Aloha Says Goodbye to Pensions

Aloha Airlines becomes the latest carrier to
slough off its pensions in bankruptcy.

Stephen Taub,

CFO.com

The Pension Benefit Guaranty Corporation 

(PBGC) has taken over the pensions of nearly 4,000 employees and retirees in three pension plans of Aloha Airlines Inc., making it the latest airline to ditch its defined-benefit plans as part of a bankruptcy reorganization. The agency said it expects to be responsible for $117 million of the $155 million shortfall.

The three pension plans covered are the

Pilots’ Fixed Retirement Plan, the Pension Plan for Non-Represented Employees, and the Pension Plan for Employees Represented by the International Association of Machinists. The airline will maintain responsibility for a fourth plan, for dispatchers, the PBGC said.

Aloha Airlines

recently emerged from bankruptcy reorganization. It had filed for bankruptcy protection on December 30, 2004, and notified employees on October 14, 2005, that it would seek bankruptcy court approval to terminate its pension plans. On February 2, 2006, the court approved a settlement between Aloha and the PBGC providing for termination of the three plans.

The PBGC said that assumption of the plans will have no material effect on its balance sheet since an estimate of the liability was included in its fiscal 2005 financial statements.

The Associated Press pointed out that the

PBGC's most recently reported deficit was $22.8 billion. Airlines and steel companies have accounted for much of this shortfall.

FOR IMMEDIATE RELEASE

August 01, 2006

PBGC Public Affairs

202-326-4343

PBGC Will Meet With Participants in Aloha Airlines Pension Plans

WASHINGTON - Pension Benefit Guaranty Corporation (PBGC)

representatives will meet with workers and retirees covered by the Aloha Airlines Inc. Pension Plan for IAM Employees, the Aloha Airlines Inc. Pilots’ Fixed Retirement Plan and the Aloha Airlines Inc. Pension Plan for Non-Represented Employees to explain the federal pension program and answer questions.

PBGC took over the plans on April 27, 2006, and continued uninterrupted payment of benefits to retirees. The plans cover more than 3,900 workers and retirees and are underfunded by about $169 million. PBGC uses its insurance funds to make up the shortfall and guarantees to pay benefits as promised by the plans up to the maximum allowed by law.

February 23, 2006

Aloha's pension dealings probed

By Rick Daysog, Advertiser Staff Writer

The U.S. Department of Labor is investigating whether Aloha Airlines used employee pension funds to pay its bank loans.

Under federal law, an employer is barred from using workers' pension money to pay for the company's business expenses, including bank loans. Pension money must be used to pay for employee benefits designated by the retirement plans.

Aloha declined to comment on the investigation. The state's second largest airline emerged from bankruptcy last week. The investigation involves events before the bankruptcy when the airline was headed by former CEO Glenn Zander.

The Labor Department's investigation centers on the 2,400-member machinists union's defined-benefit plan.

The federal agency earlier this month subpoenaed First Hawaiian Bank, asking for loan records, investment agreements and other financial records relating to Aloha's management of machinists union pension.

The Labor Department said, in a copy of a subpoena obtained by The Advertiser, that it is requesting similar records from the Bank of Hawaii, American Savings Bank and Central Pacific Bank.

In a Feb. 3 letter accompanying First Hawaiian Bank's subpoena, Labor Department Deputy Regional Director Crisanta Johnson said the department is looking into possible violations of federal labor laws involving the management of the machinists union pension.

"This office is conducting an investigation of the above referenced employee benefit plan ... to determine whether any person has violated or is about to violate" federal law, wrote Johnson, who is based in the Labor Department's office in Pasadena, Calif.

First Hawaiian Bank spokesman Brandt Farias declined to comment, saying the company doesn't discuss pending investigations or customer matters. Bank of Hawaii, American Savings and Central Pacific also had no comment.

The four banks were part of a team of local lenders that provided financing for Aloha.

Aloha's management of its employees' pensions has been a major source of controversy for the local carrier during its 13-month bankruptcy.

As part of its cost-cutting measures taken during bankruptcy, Aloha decided to terminate defined pension benefits for about 3,000 of its union and nonunion employees. The decision was opposed by the airline's union members and the federal Pension Benefit Guaranty Corp., delaying the airline's emergence from bankruptcy for several months.

The airline eventually settled with the unions and the PBGC, allowing it to jettison the pensions.

The Labor Department's probe follows concerns raised during Aloha's bankruptcy proceedings

by the carrier's smaller creditors.

The airline's unsecured creditors committee had been looking into the use of airline employee pension money to acquire Aloha stock issued several years ago by the airline. Proceeds from the stock sale went to the airline, which the committee said was used to pay bank loans.

The pension was left with Aloha stock, which became worthless during the bankruptcy.

In bankruptcy court filings, the creditors committee said it was considering suing one or more of Aloha's lenders, but the dispute was settled out of court just as the airline was exiting bankruptcy.

The terms of the settlement were

sealed by federal Bankruptcy Judge Robert Faris.

The Labor Department's subpoena said its investigation is being handled by its Employee Benefits Security Administration division, which investigates misuse and mismanagement of pension and health plans run by private employers.

The division oversees about 730,000 pension plans and another 6 million health and welfare plans and investigates about 4,000 pension plans each year.

- For more on pension plan fraud, GO TO > > > The Great Nest Egg Robberies

* * *

July 22, 2005

Aloha Airlines chief to earn $497,400

By Rick Daysog, Advertiser Staff Writer

Aloha Airlines Inc. CEO David Banmiller will earn about $500,000 this year and could receive up to $1 million in severance should the airline emerge from bankruptcy under new ownership, according to documents filed in U.S. Bankruptcy Court.

Banmiller will receive an annual base salary of $455,400 plus annual housing expenses of at least $42,000, the airline said in documents filed Wednesday.

Aloha's filing — which provides the first public glimpse into the pay of the airline's top executive — revealed that Banmiller owns 5 percent of the privately held airline and could receive more than $1 million in severance pay over two years should Aloha emerge from bankruptcy under new investors. As a privately held company, Aloha has not been required to report such information in public filings with the Securities and Exchange Commission.

Aloha also said Banmiller could seek a success fee when the company completes its reorganization. A success fee, the details of which are yet to be determined, would be subject to the bankruptcy court's review.

Banmiller's compensation package was contained in a filing seeking bankruptcy court approval for his employment contract. The airline negotiated Banmiller's contract in October but needs court approval to assume his contract.

Bankruptcy Judge Robert Faris has scheduled a hearing Tuesday on Banmiller's contract.

Aloha said Banmiller's compensation was reasonable, given his experience in the airline business and his expertise in restructuring distressed companies.

Banmiller, who was named Aloha's chief executive officer in November, has more than three decades of experience in the airline industry. He previously served as president and CEO of Sun Country Airlines and Pan American World Airways. He also was president and chief operating officer of Air Cal before the company was acquired by American Airlines.

Aloha said Banmiller and other top executives have seen their pay reduced by 20 percent since the bankruptcy and added that its chief executive likely would lose his post should the company emerge from bankruptcy under new investors.

"Mr. Banmiller's contract is reasonable for an executive of his caliber," said Stephanie Ackerman, Aloha's senior vice president for public relations and government affairs.

In its filing, Aloha said Banmiller's annual compensation is well below that of his peers on the Mainland, including the chief executives of United Airlines and American Airlines who each received more than $1 million last year.

The airline also compared Banmiller's pay with that of his predecessor, Glenn Zander, who was paid $500,000 a year in salary and housing allowance, and former Hawaiian Airlines bankruptcy trustee Joshua Gotbaum, who received $720,000 in annual salary, housing and living expenses.

Gotbaum's pay figures did not include a success fee, which he is entitled to seek for steering Hawaiian out of bankruptcy. He has not yet applied for the fee but has until next month to do so.

Hawaiian, which emerged from bankruptcy protection in June, had no immediate comment on Aloha's filing.

Aloha, the state's second largest airline with more than 3,600 employees, filed for bankruptcy protection in December. The company is searching for new investors that will help it get out of bankruptcy.

Banmiller's pay, along with the compensation of other top executives, has been a sore point for the airline's unionized workers, who say they have made significant concessions during the past year.

Daniel Katz, attorney for the Air Line Pilots Association, said he plans to file an objection to Banmiller's contract later today. The pilots, who have given up more than $20 million in concessions, previously criticized the executive packages as extravagant.

Engineer fears repeat of 1988 Aloha jet accident

On April 28, 1988, an Aloha Airlines 737's fuselage blew open at 24,000 feet, killing a flight attendant and injuring eight people. Associated Press library photo • April 28, 1988

 By Gary Stoller
USA Today

As an Aloha Airlines jet began landing on Maui, passenger Matt Austin noticed the luggage racks rattling and swaying when the thrust reversers came on.

It didn’t startle him. He had seen that happen before on other older Aloha jets. But Austin remembered the name painted across the plane’s exterior: Queen Lili‘uokalani. It was a 19-year-old Boeing 737.

A week later — on April 28, 1988 — the same jet’s roof ripped open 24,000 feet over the Pacific Ocean, killing one flight attendant and seriously injuring seven passengers and a crew member. Austin counted himself lucky. Aloha Flight 243’s last flight didn’t really begin to grip him until the next year, when the National Transportation Safety Board issued its accident report.

This is a detective story. It’s about a mystery that aviation professionals say was solved 12 years ago and the persistence of Austin, a former Hawai‘i boiler inspector, who has spent all those years and $45,000 of his money trying to prove that the experts got it wrong.

It’s also about an accident that forever changed maintenance practices for old planes and about an alternative theory that could have far-reaching consequences. Finally, it’s about the intriguing possible parallels between boiler safety and airplane safety.

Austin, a mechanical engineer, has no professional expertise in airplane accidents. He is an expert on boilers; the NTSB once consulted him about a train boiler explosion in Gettysburg, Pa. Austin, 43, runs a consulting business, Hawaiian Steam Engineering, which designs, inspects and restores boilers and locomotives. He also consults for the Navy on servicing nuclear submarine power plant components.

Since 1989, Austin has researched the Aloha accident independently, always maintaining that his only motivation is "engineering truth" and a conviction that sharing his insights can prevent similar accidents. He has a Web site, www.disastercity.com, where he details his theories on the Aloha accident and other disasters.

If Austin’s theories are correct, a design that is intended to prevent catastrophic failures on nearly all Boeing jets could be flawed. It may even pose a danger to passengers, Austin says. Boeing says the design meets FAA requirements and works as intended.

Old planes called unsafe

Austin also says his study has convinced him that:

Old jets are not safe to fly, even if all required maintenance has been done.

The FAA’s aging aircraft program, which requires airlines to inspect and repair old jets, should be scrapped. The program allows planes to fly beyond their design life and relies on airline inspectors who may not detect all structural problems, he says.

To reach those conclusions, Austin purchased and pored over more than 4,000 pages of NTSB accident findings. He attended a course for airline maintenance managers on aging aircraft and studied books for aeronautical engineers. He bought special computers to study the NTSB’s photos of the accident and related forensic evidence.

Austin also corresponded with NTSB investigators, FAA officials and a Boeing engineer. The investigators stand by the NTSB’s conclusions but say they respect Austin’s engineering knowledge.

"In every accident I ever worked, all kinds of crazies came out of the woodwork with theories about what happened," says former NTSB investigator Brian Richardson, who led the NTSB group that studied why the Aloha jet broke apart. "Matt Austin is not one of those people. He has good, solid credentials, and he’s not going off the deep end."

The NTSB says it will not reopen the accident investigation, but Richardson says the FAA should study Austin’s theory. Then goes a major step further.

"Matt may well have nailed the cause of the accident," he says. "I don’t really know."

Aloha Airlines no longer flies the 737-200 "basic" planes that were in use at the time of the accident. The carrier's current aircraft, 737-200 "advanced," are manufactured differently and are not related to that particular aircraft.

Aloha Flight 243 was bound from Hilo to Honolulu when its roof tore off. An emergency landing was made in Maui.

Many aviation experts consider the flight the most significant accident in commercial aviation. It showed how inadequate airline maintenance procedures and poor FAA oversight can result in tragedy, and it prompted an FAA program to more vigilantly inspect aging airplanes.

The NTSB, which investigated the Aloha accident, concluded the jet’s roof and walls tore off in flight because multiple fatigue cracks existed in the jet’s skin.

Those cracks developed, the NTSB said, because lap joints that were supposed to hold the fuselage together became corroded and failed. A lap joints connects two overlapping metal sheets of the fuselage.

The role of lap joints on the Aloha plane is what first captured Austin’s attention. He read a story about lap-joint failure in the accident and realized the same words had been written about a boiler explosion in Brockton, Mass., in 1905.

The danger of failed lap joints is well known in the boiler industry, which stopped using them on large boilers in the 1920s. In Brockton, a shoe factory boiler explosion collapsed a building, killing 58 people and injuring 117 others.

When a boiler’s lap joint fails, a hole opens in the boiler’s shell. The water inside instantly turns to steam, and increased pressure causes an explosion. Such a phenomenon is known as a fluid hammer, which Austin says caused the Aloha accident.

If Austin’s theory is correct, it solves a question that the accident’s investigators asked: Why didn’t Boeing’s "fail-safe" design, which is supposed to prevent a massive breakup, work?

Boeing says the 737 was designed to decompress safely with as much as a 40-inch crack in the plane’s skin, the 0.036-inch thick, aluminum outer layer of the fuselage. Instead of an explosive decompression, the hole in the skin is supposed to release internal pressure in a controlled way. In the Aloha accident, investigators concluded that more damage occurred — about 18 feet of the fuselage tore away — because many fatigue-caused cracks had gone undetected.

Austin says that a weakened fuselage was not the main reason for the extensive damage.

A 10-inch-by-10-inch hole opened, he says, in the roof of the cabin at a location known as body station 500. (Body stations are points on the fuselage that are measured in inches from near the nose of the jet to the rear.) A powerful stream of air swept an Aloha flight attendant off her feet and toward the hole, Austin says. Her head and right arm went through the hole, he says, but her body momentarily plugged it, blocking the escaping air and creating a jolt of pressure that ripped the jet apart. The flight attendant was swept out, and her body was never found.

"Slamming the door on a 700 mph jet stream creates a localized, short-duration high-pressure spike, up to several orders of magnitude (greater than) the allowable design pressure," Austin says. "This is a fluid hammer."

Forensic evidence, Austin says, shows where the flight attendant’s skull struck the exterior of the plane. The location of the skull print is consistent with the location of a plugged hole at body station 500, he says.

The NTSB’s official accident report says, however, that the breakup of the jet began about 5 feet farther forward, at about body station 440.

But Richardson, the former NTSB investigator, says Austin pinpointed a mistake in the NTSB’s report. He says he always assumed the breakup began close to the point that Austin says.

The wreckage that could reveal where the breakup occurred is at the bottom of the Pacific Ocean.

NTSB chief disagrees

USA Today brought Austin’s analysis to NTSB Chairman James Hall, who joined the board five years after the Aloha accident and recently announced his resignation. He said Austin’s theory makes sense, but the NTSB doesn’t believe it happened that way.

"We don’t disagree with Mr. Austin’s explanation about how an airplane can decompress at 24,000 feet after a 10-inch-by-10-inch hole is blown open in the skin and about how devastating the ‘fluid hammer’ effect can be at this altitude," Hall said in a letter. "We disagree, however, with his conjecture involving the role the flight attendant’s body played.

"The roof of the Aloha airplane came off as a result of multiple site damage — mainly, small fatigue cracks· These cracks joined together, resulting in the catastrophic separation of the skin."

Austin agrees that fatigue cracks weakened the structure, but he says the plane wouldn’t have ripped apart had the hole not been plugged. And, Austin adds, "The NTSB validated my fluid-hammer theory. They couldn’t say anything more without reconvening a pool of experts and reopening the investigation."

Richardson says he never heard of the fluid-hammer theory until Austin explained it. He says, though, he’ll stand behind his and the NTSB’s conclusions. "We never thought that the hole in the fuselage remained small enough long enough for anything to plug it and produce the kind of pressure spike that is common to the pressure vessels that you are familiar with," Richardson wrote Austin.

Austin says, however, that the difference between the NTSB’s findings and his analysis is, "We’re 60 inches and probably 20 thousandths of a second apart."

He says he enlarged NTSB photos of the skull print, used a computer to view them from a different angle and pinpointed the skull print’s exact location. "The skull print is the key," Austin says. "It wouldn’t be there so graphically if the flight attendant didn’t plug the hole. If there would have been an out-rush of air without a hole being plugged, her whole body would have been sucked out at once away from the aircraft."

Austin also corresponded with FAA officials in 1998. He was told that the FAA intended to do studies on his theory, but the agency later said it could not do the work because Congress had cut the FAA’s research budget. King Frey, a retired aeronautical engineer who worked for two aircraft manufacturers, Hughes and Douglas, and for Northrop Grumman, which makes fuselages for 747s, buys the fluid-hammer theory.

"Matt’s reasoning and logic is right on target, and he has an excellent, probable theory that should be researched," Frey says. The odds are very small that such a phenomenon will occur, Frey says, "but rare things do happen."

As 737s get older, however, the theory raises the possibility from an astronomically small number to a number that should be taken seriously, Frey says. The increased possibility of a fluid-hammer effect, he says, needs to be heeded by Boeing and airline mechanics.

‘Fly it ‘til it breaks’

Regardless of whether he’s right about the Aloha accident, he questions whether a plane can be designed for a safe decompression when a fuselage tears open. That would cause a powerful stream of air to escape from the cabin, he says, which could sweep up people or objects not belted down.

"Safe decompression is a fly-it-’til-it-breaks philosophy," he says. "It’s stupid to have a design concept that says a plane is OK until it blows a hole at 24,000 feet."

But Boeing officials say their design is sound and meets FAA regulations. Further, the company says, it tested the plane for the theory that Austin has. Boeing’s Jack McGuire says computer simulations were done in 1965 to test what would happen if a 40-inch hole — one much larger than the hole that Austin believes popped open on the Aloha plane — was plugged. The tests showed that cabin pressure is maintained longer, increasing passengers’ chances of survival, he says.

"I think it’s worth determining if this type of scenario should be a design consideration in the future," says Richardson, now an airline pilot. "Testing by the FAA/manufacturer is the only way to determine if it can happen in an aircraft."

FAA officials in Washington did not respond to written questions about safe-decompression design and aging aircraft.

Richardson and other aviation experts say the FAA should study the fluid-hammer phenomenon.

"The industry needs to be constantly reminded of the past so it can be ever vigilant in the future," he says.

That’s Austin’s credo. "Disasters keep recurring because we don’t learn from those that have struck in the past," he says. "History is repeating itself before our eyes."