By Rick Daysog
Advertiser Staff Writer
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Hawaiian Airlines, which emerged from bankruptcy this summer, opposes its former trustee's request for an $8 million bonus, saying the payout could jeopardize the airline's future.
In a scathing, 72-page report filed yesterday in U.S. Bankruptcy Court, the airline said Josh Gotbaum was a failure as chief executive officer, had little to do with the airline's successful reorganization and alienated the company's unionized workers.
"Gotbaum attempts to support his unprecedented request for a bonus ... by overstating the results achieved in this Chapter 11 case, understating the value of the debtor when he was appointed, grossly exaggerating his role in the Chapter 11 case by taking credit for the accomplishment of others and completely ignoring the massive fees and expenses to be paid to the cadre of professionals he engaged to achieve those results," Hawaiian's attorney Eric Winston wrote.
"Gotbaum simply is not entitled to any bonus."
Gotbaum, contacted at his home in Washington, D.C., declined comment yesterday. But he previously defended his fee request as conservative, saying Hawaiian emerged from bankruptcy as profitable and that its creditors were paid in full.
U.S. Bankruptcy Judge Robert Faris will decide what Gotbaum should be paid and has scheduled a hearing for Wednesday on Gotbaum's request.
If approved, Gotbaum's bonus would be paid by the airline. The bonus would be on top of more than $34 million in legal and consulting fees billed in the Hawaiian bankruptcy, which is by far the state's costliest bankruptcy.
Gotbaum's request for a bonus is on top of his court-approved compensation, which included $50,000 a month in salary plus $10,000 a month in living and other expenses. During his two-year tenure as Hawaiian's trustee, Gotbaum received about $1.4 million in compensation and expenses.
Hawaiian, the state's largest airline, emerged from bankruptcy protection in June under the ownership of San Diego-based Ranch Capital LLC.
The airline said it could ill afford Gotbaum's $8 million bonus given the financial difficulties it faces. The recent surge in oil prices has nearly tripled the cost of jet fuel during the past two years, increasing Hawaiian's costs by $125 million.
At the same time, Hawaiian is facing increased competition on its mainland routes from carriers such as America West Airlines, which plans to begin daily service to Hawai'i from its Phoenix home base in December.
Gotbaum's Los Angeles-based attorney Sidney Levinson previously argued that Gotbaum added $330 million in value to Hawaiian by eliminating $179 million in costs while increasing the airline's stock market value, or market capitalization, by $151 million.
According to Levinson, a success fee was reasonable given the difficulties faced by the airline, which included a lawsuit against the airline's former chairman, John Adams, a tax dispute with the IRS and negotiations over aircraft leases. All three disputes were successfully resolved during the bankruptcy, said Levinson, who said Gotbaum logged 4,995 hours — or about 50 hours a week — during his tenure as Hawaiian's trustee.
In his court filing, Hawaiian's attorney Winston alleged that Gotbaum made a number of misleading statements about his record. For instance:
"A CEO who is so vehemently disliked and disrespected by his entire workforce has failed the primary test of his role, and is by definition a bad CEO," said Winston.
"Gotbaum contributed little or nothing to the operations of the debtor's business."
Hawaiian's criticisms were echoed in separate filings this week by the airline's creditors, its pilots union and the Office of the U.S. Trustee, which supervises bankruptcy cases in Hawai'i and was the agency that appointed Gotbaum as Hawaiian's trustee in 2003.
Curtis Ching, attorney with the Office of the U.S. Trustee, said Gotbaum's request for an $8 million bonus was "unreasonable," and should be reduced to $1.2 million.
According to Ching, Gotbaum is essentially asking to be paid $1,832.50 per hour. He added Gotbaum's proposed bonus included $220,000 to compensate him for time and effort spent filling out his fee application.
"The Hawaiian Airlines trustee position was a 'dream position' in which the trustee held a high profile and his expenses and fees were paid generously and promptly," Ching said.
Rebecca Covert, attorney for the 380-member Hawaiian unit of the Airline Pilots Association, believes that Gotbaum is not entitled to any bonus, adding that Gotbaum's fee request is "offensive" in light of the concessions the airline's pilots were forced to make during the bankruptcy.
Covert alleged that Gotbaum wasted company assets by hindering negotiations with pilots over their pensions and that he played no role in attracting Hawaiian's new investor, Ranch Capital.
"This is the type of gross overreaching that saps public and employee confidence in the bankruptcy process," Covert said.
"Even in the Alice-in-Wonderland world of executive compensation in bankruptcy, the application is outrageous."
Reach Rick Daysog at rdaysog@honoluluadvertiser.com.
