"Hawaiian Files for Bankruptcy Amid Layoffs in Airline Sector"

Saturday, March 22, 2003

Hawaiian Files for Bankruptcy Amid Layoffs in Airline Sector
By MICHELINE MAYNARD
The New York (NY) Times


The nation's airlines, saying the war with Iraq had frightened travelers
into staying home, announced deeper cuts in flight schedules yesterday and
layoffs of 8,300 workers. Hawaiian Airlines, the nation's 12th-largest
carrier, filed for bankruptcy protection.

United Airlines, which itself filed for bankruptcy protection in December,
said it was cutting its schedule by 8 percent because of a slump in bookings
that preceded and accompanied the start of the war. Unions said United, the
nation's second-biggest airline, after American Airlines, gave them notice
yesterday that it was laying off 1,100 mechanics at its maintenance base in
Indianapolis, and 2,300 flight attendants.

Northwest Airlines, the industry's fourth-biggest carrier, said yesterday
that it would cut its schedules by 12 percent, including domestic and
international flights, and lay off 4,900 employees, citing a drop in
bookings related to the war. Northwest's cuts equal 11 percent of its work
force of 44,000 people.

Hawaiian Airlines is the third major airline in eight months to file for
bankruptcy protection, joining United and US Airways. The airline, which had
tried in recent months to refinance its aircraft leases, said it had more
than $100 million in debt, along with $100 million in assets.

Analysts had predicted that carriers would lose $6 billion this year, even
without a war. Should the war drag on, the airlines could lose $10.7 billion
and be forced to cut 70,000 jobs, the Air Transport Association, the
industry's trade group, predicted this month.

"The airline industry is facing today its biggest crisis that it's probably
faced in the modern jet age," Douglas M. Steenland, Northwest's president,
said in an interview yesterday.

Mr. Steenland and other industry executives say travelers' skittishness in
advance of the war and during its outbreak was the primary reason for their
cuts. On some days this week, Mr. Steenland said, Northwest's bookings were
down 30 percent from the same day last year. On Wednesday, when the war
began, US Airways' bookings fell 40 percent from levels a year ago, the
airline said yesterday.

Northwest, in fact, invoked a clause in its contracts called force majeure,
which allows airlines to act immediately in the event of national
emergencies. The carriers last applied force majeure after the Sept. 11
attacks.

But Kevin Mitchell, president of the Business Travel Coalition, which
represents corporate travel departments and business travelers, said many
passengers were not flying because their companies were cutting travel
budgets. He said he suspected some of the carriers were using the war as a
cover for reductions they should have made anyway, in response to slower air
traffic since spring 2000.

"Clearly the war is sending some of them over the edge, but if they had
addressed this two years ago, they wouldn't be in this condition," Mr.
Mitchell said. "None of them can blame the war directly. It's the result of
not stepping up to circumstances that have been in effect since 2000."

Across the industry, officials are voicing hope that traffic will recover
quickly if a conflict is short. The Federal Aviation Administration issued a
sunny forecast this week that travel would be up for 2003 from 2002 should
the war be brief, though it acknowledged that a longer conflict would put
that prediction at risk.

But Mr. Steenland said he doubted travelers would quickly begin flying
again, even when the conflict ends. For one thing, corporations may be wary
of sending managers out on the road right away, for safety and cost reasons,
he said.

"Our best estimate, and it's only an estimate," he said, "is that the
declines that we've seen are not going to immediately snap back, if and when
the actual physical hostilities are finished. It will take some period - we
don't know how long for us - to recover from the booking declines we've
seen."

Domestic terrorism could make the situation worse, said Morten Beyer,
founder of Morten Beyer & Agnew, an airline consulting firm in Arlington,
Va. "If there's another incident of any kind, the fearmongers will go crazy
and it will have a disproportionate effect on air travel," he said.

Northwest's layoffs will affect employees in all parts of the airline. As
part of its cut, the airline will remove 20 planes from service and
eliminate flights within the United States and to international
destinations. A spokesman, Kurt Ebenhoch, said he could not estimate the
number of flights that would be suspended, but said no cities would be
eliminated from Northwest's schedule.

He said the cuts would be accomplished in three ways: by eliminating the
least popular flights, switching to smaller aircraft and replacing nonstop
flights with routes that require a connection. For example, Mr. Ebenhoch
said, Northwest will reduce its weekly flights between its Detroit hub and
Tokyo to 10 from 14. It is eliminating one of its daily flights from La
Guardia to Detroit and one from La Guardia to Minneapolis, and reducing
service to Minneapolis from Boston and Baltimore.

United did not say which American cities would be affected by its schedule
cuts, but said it would reduce, but not eliminate, service to Amsterdam,
Frankfurt, London, Tokyo, Paris, Brussels and Taipei, Taiwan. United
yesterday began notifying employees at its Indianapolis maintenance base
that they would be laid off, some through June 15, while others will be off
the job until Aug. 15, said Joseph Tiberi, a spokesman for the International
Association of Machinists.

Glenn F. Tilton, chief executive of United's parent, the UAL Corporation,
said yesterday in a recording for employees that United, which warned on
Monday that it might be forced to liquidate if it did not obtain $2.56
billion in wage and benefit concessions, was determined to survive.

But, Mr. Tilton said, "this time for us now is clearly the toughest and the
most difficult of circumstances in United's history." Last week, Mr. Tilton
warned that the airline might be forced to impose a 9 percent pay and
benefit cut on all employees, because of the drop in travel accompanying
fears of a war.

In a court filing Monday, United said its international bookings had dropped
40 percent. At a hearing in bankruptcy court yesterday, United's chief
financial officer, Frederic F. Brace, said total bookings had slumped "a
meaningful amount" but declined to state a number.

Weaker traffic prompted Continental Airlines this week to cut its flights
between the United States, Europe and Japan. It also said it would lay off
1,200 employees through the end of the year.

Hawaiian became the latest airline to join the bankruptcy group only weeks
after reaching agreements with its unions on $15 million in annual contract
concessions that it hoped could stave off a bankruptcy filing. Hawaiian had
just completed a transformation of its aircraft fleet, retiring its
remaining McDonnell Douglas DC-10 jumbo jets and focusing on Boeing 717 and
767 jets instead.

The airline, which has 3,311 employees, flies 135 flights a day, within the
Hawaiian Islands, to the West Coast and to Tahiti and American Samoa. It has
code-sharing arrangements with American Eagle, a subsidiary of American
Airlines, and Alaska Airlines.

The carrier announced a merger in December 2001 with its rival, Aloha
Airlines, in a deal worth $200 million. But the arrangement, which was
opposed by its unions and state officials, fell apart a year ago. Hawaiian
said its parent, Hawaiian Holdings, was not included in the filing.

The airline said it would continue to operate its flights and planned no
layoffs. In its court filing, it said its biggest creditor was Wells Fargo
Bank, with an $11.3 million claim.

John W. Adams, the airline's chief executive, said Hawaiian was forced to
make the filing when it could not reach agreement on new terms with its
airline leaseholders. He said the carrier hoped to emerge from bankruptcy
protection by fall.