David C. Farmer, Trustee vs. Harmon - Witness John Jubinsky

P.O. Box 3595
235 Queen Street, 7th Floor
Honolulu, HI 96811

PHONE: (808) 533-5808
FAX: (808) 533-5840
EMAIL:

John Jubinsky, Esq. graduated from Colby College with a B.A. degree in 1956. He received his J.D. from the University of Chicago in 1959.

From 1960 until April of 1990, Mr. Jubinsky practiced with the law firm of Ashford & Wriston in Honolulu, Hawaii. In 1990, he became a sole proprietor and is currently general counsel for the Title Guaranty of Hawaii Companies. Mr. Jubinsky also maintains an active practice as both a Mediator and Arbitrator, and has served as a neutral in a variety of cases.

Mr. Jubinsky has had a varied practice, including general business law and litigation, but most of his practice has involved all phases of real estate representation, including buying, selling, leasing, managing, developing, financing, constructing and insuring.

Mr. Jubinsky has represented lenders, developers, owners (including lessors and lessees), brokers, property managers, escrow companies and title companies. He has done substantial work over the past 40 years for HMSA, First Interstate Bank, Chicago and Ticor Title Insurance Companies, Title Guaranty Companies, Ala Moana Hawaii Properties, Maui Divers of Hawaii, Capital Investment of Hawaii, Jolly Roger of Hawaii and related companies, Young Laundry, Sea Life Park, and Kaupulehu Developments.

Since 1960, Mr. Jubinsky has been a member of the American Bar Association and the Hawaii State Bar Association. He served on the Hawaii Supreme Court Disciplinary Board from 1974 - 1992, acting as Chairman from 1976-1978. He is also a member of the American College of Real Estate Lawyers and was named in “The Best Lawyers in America” in the Hawaii Real Estate Law Category. Mr. Jubinsky is a contributing editor to the Hawaii Commercial Real Estate Manual and authored chapters on title insurance in both the 1988 and 1997 manuals.

Mr. Jubinsky sits on the Board of Directors for St. Andrews Priory School (1979 to present), and was a member of the Waialae Country Club Board from 1997 through 1999.

The attorney general's office say bills before the Legislature already address the issue

The state doesn't plan to step into the controversy involving Perfect Title Co. but believes several pending legislative bills may help resolve it, a deputy attorney general says.

The company's findings disputing the validity of current land titles have started to cause problems in Hawaii's real estate system, even though many in the industry dismiss Perfect Title's work as absurd.

Because the company's reports have been recorded at the state Bureau of Conveyances, they've cast clouds on ownership deeds for individual parcels.

Randy Young of the Attorney General's Office said the bills before the Legislature would provide more protections against the filing of frivolous claims.

If none of the industry-recommended bills pass, the attorney general will reconsider whether to do something about the controversy, he said.

Since Perfect Title started recording its findings at the bureau last spring, using 19th-century Hawaiian Kingdom law to question current titles, the Attorney General's Office has taken no action because the state considers the matter private.

The filings have started to affect property transfers and prompted a handful of homeowners to stop paying their mortgages, claiming their original titles are no good.

The industry hasn't determined the most effective way to counter the filings, and some officials still say the state has to be involved.

Attorney John Jubinsky, a key player in the fight against Perfect Title, said the proposed legislation will help but probably won't be enough to stop what he considers a scam.

"It's only one more thing to make it a little bit easier to go after them," Jubinsky said.

The best way to stop Perfect Title, he added, would be to impose criminal sanctions and perhaps even jail company officials.

Perfect Title officials say their critics are misdirected. Hawaii's title insurers are leading the opposition because they can't disprove Perfect Title's findings, which trace ownership to the days of King Kamehameha III, and face huge liability if titles are deemed invalid, the company says.

"Everybody is trying to paint Perfect Title as the bad guys, but it's not our fault if someone didn't do a full search of historical public records" to check land titles, said David Keanu Sai, a company official.

The Board of Trustees of St. Andrew's Priory School is charged with keeping the mission of the school and serving as the fiduciary of the school. The school is administered by a professional staff under the direction of the Head of School who reports to the Board of Trustees.

• Michael Broderick	• Dew-Anne Nishida Langcaon '81

• Deanna "Dede" Tyau Chang '61	• Russell J. Lau

• The Rt. Rev. Richard S.O. Chang	• Leimalama Sniffen Lee Loy '51

• Allen Chung	• Ivan M. Lui-Kwan, Chair

• Patricia Foley	• Marilyn A. Matsunaga, Head of School

• Betty Fujii Hirozawa '47	• The Very Rev. Dr. Ann McElligott

• Douglas Ing	• Bill D. Mills

• Timothy Johns	• Gary Okamoto

• John Jubinsky, Vice Chair	• Judy B. Pietsch

• Andrew Kluger	• Gerald Y. Ushijima

• John W. Landgraf

...properly sell trust property if it appears from the language used in the trust instrument that a power of sale was intended to be conferred upon him, although it is not conferred in specific words. Thus, an authorization or direction to the trustee to "invest and manage," or to "invest and reinvest," or to "dispose of" the trust property, may confer a power of sale both of real and personal property. In determining the meaning of a provision in the trust instrument resort can be had to the whole of the instrument and to the surrounding circumstances.

If a trustee is authorized to sell trust property only for a particular purpose, he cannot properly sell except for that purpose. So also, if he is authorized to sell only under certain circumstances, he cannot properly sell except under those circumstances. Thus, if by the terms of the trust the trustee is authorized to sell trust property if such sale is necessary to raise money for the support of the beneficiary, he cannot properly sell
unless it reasonably appears necessary to sell property for this purpose.

Given the “proceeds from the sale or other disposition of any such lands” and “home ownership” language in § 5(f) of the Admission Act and similar language in Article XII, § 4 and § 6 of the Hawaiian Constitution, it appears that the United States may have intended to grant the State the power to sell ceded lands to accomplish purposes of the trust. Both John Jubinsky and David Getches testified that the State had the power to sell ceded lands but they differed on whether the State would breach fiduciary duties if it did so.

NEW DISCOVERY (12-27-08): Undisclosed conflicts of interests between David Farmer, Steven Guttman, Jeffrey Portnoy, Matsuo Takabuki, Mark McConaghy, Dennis Tsuhako, PricewaterhouseCoopers, Sam Silverman, Chinn Ho, Stuart Ho, Aloha Airlines, HonFed, Bank of Honolulu, Sukamto Sia, Diane Plotts, Linda Lingle, Bob Awana, Nathan Aipa, Eric Martinson, Chubb Group, Marsh & McLennan, John Jubinsky, etc:

IF you tune in NBC's "Dateline" tonight, you should see Honolulu attorney Jeffrey Portnoy. An NBC crew spent two hours with him Wednesday, interviewing him in reference to the case of Sante Kimes and her son, Kenneth, suspected in the disappearance and assumed death of New York socialite Irene Silverman.

Portnoy had represented an insurance company in an earlier case in which Kimes, already convicted of keeping an alien woman in slavery, was suspected of arson when her home went up in flames. He has videotape of Kimes, something all the networks would love to get their hands on, and he provided it to NBC for "Dateline."

Producers of "20/20" have been after him to give them a copy of the tape, even offering to have Barbara Walters call him personally, but he demurred that he'd given it exclusively to NBC. That network told him the Kimes' story is the biggest thing at the network since the death of Diana, Princess of Wales.

One unasked and unanswered question in the case is did the Kimes family know the missing socialite when she and her husband, Sam Silverman, were in Hawaii around the time they lived here? I knew Sam Silverman as early as 1970 when he was the financial advisor and longtime friend of local business tycoon Chinn Ho. I posed the question and Portnoy answered, "It wouldn't surprise me a bit." ...

by Matsuo Takabuki - 1998 - History - 237 pages -1998 University of Hawaii Press ... from the eyes of Matsy Takabuki working with Chinn Ho and Sam Silverman, ...

Mrs. Silverman, an 82-year-old widow, was probably killed, officials say, ..... Mrs. Kimes filed suit against Chubb and began making threatening calls to Chubb ... were filed in the fire, which was never formally declared to be arson. ... Even before it could be bought, Mrs. Kimes was submitting an insurance claim ...

Matsuo Takabuki 1998 University of Hawaii Press ... Mark McConaghy of Price Waterhouse headed our tax team along with our staff tax ...

Stuart T.K. Ho doesn't like to take a lot of credit for all he's done in 43 years as an attorney, a politician, a real estate developer, a trustee, a hospital CEO.

Others grabbed the glory and the headlines and Ho was mostly content to let them.

"He's not a self-promoter," said friend and attorney Cuyler Shaw, who represented the family business, Capital Investment of Hawaii, started by Ho's late father, Chinn Ho. "He seems to draw people because of his competence and understanding of the situation."

Ho, 71, is one of Hawaii's most influential business leaders, one of the most dedicated stewards of community service, and, to quote his son, "somebody who truly understand the inner workings of Hawaii business."

"He's always been a very quiet, effective leader," said Peter Ho. "He's almost virtually egoless."

For this steady and unassuming leadership, Stuart T.K. Ho has been named the 2007 recipient of PBN's Lifetime Achievement Award. He will be honored at the newspaper's Business Leadership Hawaii event on Nov. 8.

"I take him to Pacific Club for lunch," Shaw said, referring to the private club to which Ho doesn't belong. "He knows more people at Pacific Club than I do!"

Ho cultivated his connections and business savvy during his long career in business, as a state representative and as a member of a dozen corporate and charitable boards of directors. He ran the Rehabilitation Hospital of the Pacific for five years after closing down Capital Investment and he is now the state president for AARP Hawaii and the president of Waialae Country Club.

His wife, Elizabeth, is the area field service director for AFSCME, the parent organization of the state workers union, the Hawaii Government Employees Association.

“One of the benefits I had with being on these various boards was the information you acquired that wasn't exactly street talk, especially with the local boards," Ho said. "Although you had to maintain your secrecy about these things, there's no question that what you put in your head stayed there."

He currently serves as a trustee on the University of Hawaii Foundation board, and as a director on the boards of Nuuanu Memorial Park, the Mamoru and Aiko Takitani Foundation, the Law Library Microform Consortium and Aloha Festivals.

"Everything he's been involved with he's left in better shape than it was when he showed up," said Jim Burns, former chief judge of the Hawaii Intermediate Court of Appeals.

Thee two men have been close friends for more than 30 years and frequently meet for lunch at Ho's favorite Chinatown restaurant, Ken Fong, where, as Ho says, "the cognoscenti go to eat."

"He really cares," Burns said of Ho's involvement with the community. "He's not there just to shine, he's there to accomplish something."

Ho's connections with national organizations such as TIAA-CREF and Gannett Co. also helped to forge business connections far beyond Hawaii. Ho joined the Gannett board after the hui led by Chinn Ho sold the Honolulu Star-Bulletin to the newspaper chain in the early 1970s.

"He's one of those community people that has had tremendous bandwidth when it comes to experiencing local business as well as national," Peter Ho said.

Chinn Ho died in 1987 at 83. He was a local celebrity -- the Chinese businessman famous for developing the Ilikai, Hawaii's first hotel condominium -- but his eldest son preferred to keep it low key.

"He and my grandfather were very different people," Peter Ho said of his father. "My grandfather was always in the limelight and enjoyed that, and my father enjoyed being just to the back."

The first of Chinn and Betty Ho's six children, Stuart T.K. Ho grew up in Honolulu and graduated from Punahou School in 1953, then headed to Claremont McKenna College in Claremont, Calif.

After graduation in 1957, two years of service in the Army took him to France and Lebanon, sparking a lifelong love of travel.

He went to law school at the University of Michigan, earning his degree in 1963. He returned to Honolulu, where he briefly worked as a deputy corporation counsel for the city before moving with his first wife, Mary, to practice law in New York City.

Returning to the Islands, he ran for the state Legislature in 1966 as a Democrat after reapportionment opened up a number of new seats, and represented Manoa for four years, two as majority floor leader.

"One of the most interesting periods of my life was government and the measurement of power and how it's applied," Ho said.

Despite his fascination with politics, Ho knew he needed to focus his attention on the family business, as he was expected to do. His brother, Dean, a business consultant in Shanghai, also worked for Capital Investment.

As a father, Ho did not expect, nor encourage, any of his three children to follow him.

"Real estate's a tough business and frankly, I wanted to encourage them to be in more stable businesses," Ho said. "Basically they went their own way."

Two of them did follow careers in business, although on different paths. Peter Ho was recently promoted to second in command at Bank of Hawaii.

Daughter Cecily Sargent recently sold a restaurant near Sydney, Australia, her second, and is getting ready to start another restaurant-related business.

"We weren't spoiled," Sargent said. "We were taught that you have to work hard to get what you want, and that success doesn't come without hard work."

The youngest of Ho's children was Heather, who died in the Sept. 11, 2001, terrorist attack on the World Trade Center. She was executive pastry chef at Windows on the World.

Heather Ho was attracted to cooking from an early age. When she was in grade school, her father came home and found her trying to create a dessert she saw on the cover of Food & Wine magazine.

Ho said he had hoped Heather would go into the business end of food, but supported her dream of becoming a pastry chef.

Ho eventually became president of Capital Investment of Hawaii and succeeded his father as chairman. But his father's retirement was a fiction; Chinn Ho arrived for work at the company's downtown office each day.

Ho is like his father in that respect. Within weeks of retiring from Capital Investment, Ho was back on the job, this time as president and CEO of the Rehabilitation Hospital of the Pacific, a job he kept until Aug. 1 of this year, when he officially retired.

"Stuart could have been a senior delegator-type leader," Cuyler Shaw said. "But he actually dug in, got his hands dirty."

Shaw said Ho became an expert in Medicare regulations, mastering the volumes of bureaucracy to better understand the changes affecting the hospital.

"I learned a lot about Medicare, but I don't think anybody could claim to be an expert," Ho said.

His education is useful for his newest post-retirement job as president of AARP Hawaii, an organization of 155,000 members age 50 and above.

Ho still maintains an interest in politics, though he has no plans to ever run for office again. He's concerned that Hawaii is becoming a place where it is harder for young people to earn a living, and that Hawaii is a difficult place to establish a thriving business.

"He's always thinking about the future, which is what true leaders do," Burns said. "There's not a whole lot of those around."

Ho's thoughts of the future sparked his interest in spearheading what became the Hawaiian National Bibliography, a list of everything ever written about Hawaii, in all languages, from 1780 to 1900.

"It's been fun because we don't invest a lot in Hawaii in our history," he said. "Actually the sources of Hawaiian history are rather shallow and the reason for the bibliography ... was so that people who wanted to write histories, whatever aspect of Hawaiian history, would have a much handier reference for doing their work for going to original source material."

Ho enlisted longtime friend and fellow Punahou graduate Samuel Cooke to help raise $700,000 to pay for David Forbes' six years of research.

Although the project was Ho's idea, he generously shares the credit with his friend.

"It was both our ideas," Ho said. "It took no time at all for Sam to say 'Let's go,' so I think it's both our ideas."

William Hamilton, director of the University of Hawaii Press, which published the four volume, 2,728-page work between March 1999 and February 2003, said the project never would have been done without Ho's backing.

"It's extremely important," he said. "Nobody ever took the time, effort or had the motivation to go take a look at all the written documents in all the languages about Hawaii."

In the early 1990s, Ho also was part of a group that helped the state purchase the Paul Markham Kahn Collection of Hawaiiana, a collection of rare books and journals that now resides in the Hawaii State Archives.

Although Ho is as busy as ever with his jobs at AARP and Waialae Country Club, he is looking forward to settling into a slower pace of retirement next year when his term at the club is up.

And he is settling in to one more new role -- grandfather. Peter and Michelle Ho's son Kahn, Ho's first grandchild, is now 7 months old.

He doesn't have plans for more large history projects in the works, but there is one thing he would like to do, a project that could help mold Kahn and other future business leaders.

"I want to write a children's book that basically is an explanation of what an economy is," he said.

The Royal Hawaiian Hotel and Waialae Golf Course were built by the Territorial Hotel Co. as part of a promotional program to develop luxury travel trade to Hawaii. Matson Navigation Co. built the luxury passenger liner Malolo as part of this program. The hotel and golf course lands were leased from the Bernice P. Bishop Estate.

STUART HO, President
JOHN JUBINSKY, President-Elect
RICHARD INGERSOLL, Secretary
ALLAN LUM, Assistant Secretary
JAMES AHLOY, Treasurer
ALLAN LUM, Assistant Treasurer
DENNIS TSUHAKO, Internal Auditor

The free memberships, accepted by all
Bishop Estate trustees but Oswald Stender,
are called a conflict of interest

Four out of five Kamehameha Schools/Bishop Estate trustees receive free memberships from exclusive country clubs that sit on Bishop Estate land, in what critics called a clear conflict of interest.

The four trustees also are listed as honorary members at the Mid-Pacific Country Club in Lanikai, which also sits on Bishop Estate land.

The fifth trustee, Oswald Stender, turned down the free club memberships in 1995 to avoid the appearance of a conflict and for tax purposes.

"They don't get the idea that they are trustees of a charitable trust," said Senior U.S. District Judge Samuel King, one of the five authors of the critical "Broken Trust" article that helped launch the state's investigation of the $10 billion charitable trust.

Golf club memberships and other trustee perks, such as airline VIP club memberships, have been a subject of inquiries from the Internal Revenue Service, which is conducting an audit of the estate, according to one source familiar with the audit.

King believes honorary memberships underscore the need to remove some of the trustees from the board. He said the memberships create "an appearance of impropriety" since the estate owns the land under the golf courses and negotiates their leases.

According to Waialae's membership directory, the four trustees were honorary members in 1995 when the estate and club members rewrote the lease. Those talks raised the 144.9-acre course's annual lease rent from $60,000 to about $1 million, according to club members familiar with the lease terms.

Trustees also were honorary members at Mid-Pacific when the club renegotiated its rent in 1991. The 163-acre Windward Oahu golf course now pays $469,000 a year in lease rent, up from $6,000 previously.

Jervis, Lindsey and Wong were not Bishop Estate trustees when Mid-Pacific's lease was last negotiated.

"This certainly raises questions about the independence of trustees," said Edward Halbach, one of the nation's top experts on trust law and the former dean of the Boalt School of Law at the University of California Berkeley.

An estate spokeswoman referred questions regarding the club memberships to the individual trustees. Peters and Lindsey did not return calls.

Wong, who doesn't golf, said he's been an honorary Waialae member for 22 years but has never used it. Jervis, who became a trustee in late 1994, said he became a Waialae member in 1995 but has golfed there only once.

He said he had been a regular paying member at Mid-Pacific but later became an honorary member after he became a trustee.

Stender had been an honorary member at Waialae when he was appointed to the board in 1989 but declined the memberships two years ago, according to sources. He now is a regular, paying member of the Oahu Country Club, which is not on Bishop Estate land.

Managers at both golf clubs declined comment when asked about the potential conflicts.

The honorary memberships are a traditional perk that the clubs have extended to trustees for many years, some members said. One said the memberships don't pose a direct conflict since the lease talks with the clubs were handled by Bishop Estate staffers, not by trustees.

He added that Waialae's new lease terms are favorable to the club. Waialae, the site of the Hawaiian Open golf tournament for decades, now has a 75-year lease, although it has had to raise monthly dues by $62 to adjust for the higher lease rent, he said.

Randall Roth, a University of Hawaii law professor and one of the "Broken Trust" co-authors, believes some trustees may have breached their fiduciary duties in accepting the free memberships since they're personally benefiting from their position with the estate.

For instance, a regular membership at Waialae costs $44,000 -- roughly equivalent to the median household income in Hawaii -- in addition to monthly dues of about $310.

Mid-Pacific Country Club members pay a one-time initiation and certificate fee of $36,000 and monthly dues of $265, according to Hal Okita, general manager.

Honorary member at both clubs enjoy nearly the same privileges as regular members, although they are not allowed to vote on club policy.

According to Okita, Mid-Pacific extends honorary memberships to public figures such as Gov. Ben Cayetano and Mayor Jeremy Harris, as well as trustees. Okita said trustees haven't formally accepted Mid-Pacific's honorary memberships and noted that they seldom use the club's facilities.

"I don't see any problem in giving away honorary memberships to the governor," said King, whose father served as a Bishop Estate trustee during the late 1950s.

Few people in Hawai'i have ever heard of Cerberus Capital Management LP, yet in the past year, the New York-based hedge fund has become a top hotel owner in the state and major lender to the state's No. 2 airline.

Cerberus took control of Waikiki's crown jewels — the Sheraton Waikiki, the Royal Hawaiian and the Sheraton Moana Surfrider — when it bought a 65 percent interest in the hotels' owner, Japan-based Kokusai Kogyo KK, for $2.4 billion in November 2004.

"These properties are worth billions of dollars, making them (Cerberus) one of the biggest hotel owners in Hawai'i," said Mike Hamasu, director of consulting and research at Colliers Monroe Friedlander Inc.

The company also played a pivotal role in Aloha Airlines' reorganization. In March, Ableco Finance LLC, Cerberus' lending arm, teamed up with Goldman Sachs Credit Partners LP to provide up to $65 million in financing to help the bankrupt carrier continue operating.

The rapid rise of Cerberus on the Hawai'i business landscape comes amid a resurgence of investment from Mainland companies.

New York-based Cendant Corp., which in addition to running Avis, Budget, Century 21 and Cheap Tickets, bought the local Coldwell Banker residential real-estate franchise last month.

HRPT Properties Trust, based in Newton, Mass., which paid nearly $600 million to acquire more than 400 acres of industrial properties owned by the Damon Estate and the Campbell Estate.

While much of the outside investment in Hawai'i in the 1990s involved businesses that bought cheap, added improvements and sold three to five years later, today's investor is taking a more hands-on management approach and may end up waiting a decade before they see a big payoff.

"They're much more patient, and they're much more willing to take much more complex risk," said Jon Miho, co-founder of local real-estate investor Trinity Investment LLC, whose affiliate is purchasing the Kahala Mandarin Oriental Hawaii hotel.

Cerberus, a major global player with over $16 billion invested worldwide, declined to comment on its Hawai'i strategy for this story. Local executives who have dealt with the company say its record in the state is mixed.

Managers of the Sheraton chain say that Cerberus is committed to improving its Hawai'i properties, while representatives of Aloha Airlines paint a picture of a demanding lender keeping a close eye on all operations.

Keith Vieira, senior vice president and director of Hawai'i operations for Starwood Hotels & Resorts, which manages the five Sheraton hotels controlled by Cerberus, said Starwood had preliminary discussions with Cerberus about renovating its local properties.

He noted that Kamehameha Schools' $84 million facelift of the nearby Royal Hawaiian Shopping Center has prompted Starwood and Cerberus to consider upgrading the properties.

"We think they're going to be a good owner of our hotels in Hawai'i," Vieira said.

David McNeil, a spokesman for Prince Hotels, said the chain's Japan-based owners haven't planned any changes at this time.

Unlike the mid-1990s "vulture" investors like Colony Capital and the Blackstone Group that bought distressed Hawai'i real estate for as little as 25 cents on the dollar, Cerberus is paying nearly the full value of the properties.

"They're not buying on a huge discounted basis; they're buying on value," said Joseph Toy, president of the local consulting firm Hospitality Advisors LLC.

In July, Ableco, Cerberus' lending arm, abruptly increased the interest rate on its multimillion-dollar loan to Aloha from 11.25 percent to 14.25 percent, Aloha said in Bankruptcy Court documents.

The following month, Ableco stopped lending money to Aloha until management agreed to hire a chief restructuring officer and reach an agreement to sell the airline. Aloha attorney Charles Dyke stated during a Bankruptcy Court hearing in October that Ableco and Goldman Sachs would consider liquidating Aloha if a deal to sell it fell through.

Aloha, which is being sold to a group headed by California billionaire Ron Burkle and former football star Willie Gault, won approval from Bankruptcy Court last week for its reorganization plan. Aloha could emerge from bankruptcy as soon as Dec. 15.

In a recent Bankruptcy Court filing, Jeffrey Kessler, Aloha's interim chief financial officer, described the pressure Cerberus put on the airline.

"For several days, funds were withheld as the lenders made daily sweeps of cash revenues from (Aloha's) accounts while refusing to re-advance the monies so swept," Kessler said.

"The lenders began demanding, as a condition to each daily advance under the loan, a daily 'deal report' detailing the company's progress in obtaining a transaction sufficient to repay the loan," Kessler added. "They further informed the company that financing would be cut off by Oct. 15, 2005, if a signed letter of intent from an investor were not secured by then."

Cerberus has been involved in a controversy in Japan over its planned investment in the parent of the Prince Hotels.

Cerberus' investment in financially troubled Seibu, one of Japan's largest real-estate firms and owner of the Seibu Railway, has led to legal action by the sons of the company's founder, Yasujiro Tsutsumi.

The brothers, Yuji and Seiji Tsutsumi, recently lost an appeal to Tokyo's high court to essentially block Cerberus' investment and Seibu's restructuring plan. The two brothers recently filed suit in Hawai'i Circuit Court, seeking to be recognized as the rightful owners of the Prince Hotels in Hawai'i.

Founded in 1992 by Stephen Feinberg, a former Drexel Burnham Lambert manager, Cerberus began as a vulture fund specializing in bankrupt and distressed companies. The name, Cerberus, comes from the mythical three-headed dog that guarded the gates of the ancient Greek underworld.

In recent years, the company, whose executives include former Vice President Dan Quayle, has branched out to lending and investing in less-risky companies, says the Wall Street Journal.

The closely held company shies away from publicity, preferring to work in the background. It has no local office or employees based in Hawai'i.

The firm has invested in a broad range of companies, including Mervyn's department stores, building products maker Formica Corp., Italian sportswear maker Fila and DaimlerChrysler's former aircraft leasing business, according to BusinessWeek.

In more recent years, the firm has taken huge bets in troubled companies in Japan, where restrictions on foreign ownership have relaxed in recent years.

Before its investment in Kokusai Kogyo, the company paid $850 million for a controlling stake in Aozora Bank Ltd., formerly known as Nippon Credit Bank Ltd. before it was taken over by Japanese regulators in 1998.

Kevin Aucello, senior vice president at CB Richard Ellis Hawaii who worked with Cerberus Japan executives in the mid-1990s, said that Cerberus' combined ownership stake in the local Sheraton and Prince hotels has advantages.

Owning several high-end hotels in Hawai'i means Cerberus can leverage the advertising, marketing and managing efforts. "It's much more efficient to manage a larger portfolio," Aucello said.

To: "Bobby Harmon" <bobby_n_harmon@yahoo.com>, "David Farmer" <farmerd001@hawaii.rr.com>, "Michael Mukasey" <AskDOJ@usdoj.gov>, "Kevin Chang" <sa@hid.uscourts.gov>, "Robert Faris" <hib@hib.uscourts.gov>, "Barry M. Kurren" <richlyn_young@hid.uscourts.gov>, "Carol K. Muranaka" <ustp.region15@usdoj.gov>, "J P Schmidt" <insurance@dcca.hawaii.gov>, "Janet Kamerman" <HONOLULU@FBI.GOV>, "Mark Bennett" <hawaiiag@hawaii.gov>, "Hugh Jones" <hugh.r.jones@hawaii.gov>, "Linda Lingle" <governor.lingle@hawaii.gov>

"Mediation Center of The Pacific" <mcp@mediatehawaii.org>, "Sheryl Nicholson" <office@acluhawaii.org>, "Robert Bruce Graham" <bgraham@awlaw.com>, "James Wriston" <jwriston@awlaw.com>, "Andrew Winer" <winer@pacificlaw.com>, "James Cribley" <jcribley@caselombardi.com>, "Lawrence Goya" <hawaiiag@hawaii.gov>, "Pension Benefit Guaranty Association" <participant.pro@pbgc.gov>, "James B Nicholson" <jamesbnicholson@aol.com>, "Executive Office for U.S. Trustees" <ustrustee.program@usdoj.gov>, "Office of Inspector General US Dept of Justice" <oig.hotline@usdoj.gov>, "George Will" <georgewill@washpost.com>, "Haunani Apoliona" <info@oha.org>, "Leroy Colombe" <lcolombe@ckdbw.com>, "Scott Helman" <shelman@globe.com>, "Bob Nichols" <bob.bobnichols@gmail.com>, "Laura Thielen" <dlnr@hawaii.gov>, "Barry Taniguchi" <communications@hcf-hawaii.org>, "Paul Achitoff" <honoluluoffice@earthjustice.org>, "Laurie Bennett" <info@muckety.com>, "Dave Shapiro" <volcanicash@gmail.com>, "Gail Kim-Moe" <Gkim.moe@gmail.com>, "Marshall Chriswell" <mc@whistleblowers.org>, "Greg Palast" <palast@gregpalast.com>, "Dee Jay Mailer" <ksinfo@ksbe.edu>, "Laser Haas" <laserhaas@msn.com>, "Michael Moore" <mike@michaelmoore.com>, "Texas Observer" <editors@texasobserver.org>, "Brian W. Bisignani" <bbisignani@postschell.com>, "Aon Insurance Managers" <mike_coulter@agl.aon.com>, "William Burgess" <hwburgess@hawaii.rr.com>, "Brian E. Schatz" <teamschatz@gmail.com>, "Patricia Case" <pattycase@aol.com>, "Cheryl Nakamura" <CNakamura@rmhawaii.com>, "Bill Yuen" <billyuen@cymlaw.com>, "Randall W. Wulff" <rwulff@wqsadr.com>, "Karen Spiller" <karen.spiller@baesystems.com>, "Andrew Killgore" <akillgore@wrmea.com>, "Patrick Leahy" <senator_leahy@leahy.senate.gov>, "Pamela A. McCullough" <HONOLULU@FBI.GOV>, "James Duke Aiona" <ltgov@hawaii.gov>, "Ken Conklin" <ken_conklin@yahoo.com>, "William H. Donaldson" <enforcement@sec.gov>, "Ian Lind" <diary@ilind.net>, "Jim Terrack" <tnthawaii@aol.com>, "Andrew Walden" <hfpeditor@email.com>, "All Senators" <sens@Capitol.hawaii.gov>, "All Representatives" <reps@Capitol.hawaii.gov>, "Thomas Fitton" <info@judicialwatch.org>, "Stew Webb" <stewwebb@stewwebb.com>, "Judson Witham" <jurisnot@yahoo.com>, "J C Shannon" <Hapa1234@aol.com>, "Jeff Biener" <jeffandmary@ozarkopathy.org>, "V K Durham" <vkdtdht@pionet.net>, "Richard Grove" <Richard@8thEstate.com>, "Bradley Tamm" <btamm@hawaii.rr.com>, "Susan Tius" <STius@rmhawaii.com>, "Paul Alston" <palston@ahfi.com>, "John Goemans" <wip@kamuela.com>, "William K Slate" <Websitemail@adr.org>, "Lissa Andrews" <landrews@rmhawaii.com>, "John D. Finnegan" <info@chubb.com>, "Terry Mullen" <tmullen@johnmullen.com>, "Margery Bronster" <info@bchlaw.net>, "Michael N. Tanoue" <mtanoue@paclawgroup.com>, "Neil Ambercrombie" <Neil.Abercrombie@mail.house.gov>, "Lyn Flanigan Anzai" <lflanigan@hsba.org>, "Lorraine Inouye" <seninouye@Capitol.hawaii.gov>, "Samuel P. King" <leslie_sai@hid.uscourts.gov>, "Arthur Rath" <imua@spamarrest.com>, "Randall Roth" <rroth@hawaii.edu>, "Rick Daysog" <rdaysog@honoluluadvertiser.com>, "Jim Dooley" <jdooley@honoluluadvertiser.com>, "Robin Campaniano" <aigh001@aighawaii.com>, "Blossom Tong" <blossom.d.tong@marsh.com>, "Sammye Richardson" <sammyerichardson@yahoo.com>, "Daniel Hopsicker" <madcownews@gmail.com>, "Richard L Righter" <righterwmx@aol.com>, "Dirk Kempthorne" <webteam@ios.doi.gov>, "Jeffrey Sia" <Jeff.Sia@excite.com>, "Jim Babka" <downsizer-dispatch@downsizedc.org>, "Truth" <truth@grandecom.net>, "J. C. Jones" <JCJJONES@aol.com>, "Dane Field" <danefl@gucl.com>, "Jeffrey Watanabe" <jwatanabe@wik.com>

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.

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.

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.

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.

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.

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.

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

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."

"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.

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.

"This is an incredibly dark day for Hawaii," said David Benmiller [sic], 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."

When new executives take over a company, they often choose to quietly watch before making waves.

And then there's David A. Banmiller, the new president and chief executive of Aloha Airlines, who will lead the struggling carrier through the Chapter 11 bankruptcy organization it filed Thursday.

The privately held company, which had a $1.3 million profit in 2002 after four straight years of losses, began its recent string of quarterly losses with a $3.2 million loss in the fourth quarter of 2003. The airline lost another $6 million in the third quarter of this year.

Banmiller has been on a cost-cutting mission since joining the company in mid-November.

"He's known as a mover and a shaker by the whole industry," said Thom Nulty, Aloha's new senior vice president of marketing and sales. "He doesn't let moss grow on any rocks."

Nulty, former president of Navigant International Inc., who came out of retirement to join Aloha in December, first crossed paths with Banmiller 20 years ago at Air Cal.

Banmiller, who started as senior vice president of marketing for Air Cal, went on to become the company's president.

"He was constantly in the L.A. Times then and was known for his ability to stir things up in a positive way," Nulty said.

Banmiller has more than 30 years of experience in air travel and has held senior airline industry positions in the United States, Europe, South America, Mexico and the Far East. He most recently served as Air Jamaica's executive vice president and chief operating officer.

At his former companies, Banmiller earned a reputation as the guy who can get quick concessions from employees and take a carrier through bankruptcy, said Aloha pilot John Riddel.

"Certainly the board considered (Banmiller's) background with bankruptcies when they hired him," Nulty said. "However, they also considered his experience and his track record of being able to attract good people and get high visibility."

Banmiller took Aloha's reins at a turbulent time in the airline industry, when few carriers are making money and many are restructuring, including Hawaiian Airlines.

"Today our industry is in chaos. Every legacy carrier is fighting to survive in the midst of attempts to compete against low-cost carriers and grab market share," Banmiller said in a December memo to employees.

With less than one month's time on the job, Banmiller reduced the company's top management by 36 percent, firing some employees and freezing open management positions.

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.

"We object to these benefits for executives while the rank and file are getting cuts in pay," Katz said.

David C. Farmer is the potential co-counsel for Debtor in the NEW Aloha Airlines bankruptcy, providing further evidence of conflicts of interest with numerous entities and witnesses in this case:

A state government bailout of Aloha Airlines is gaining momentum as key lawmakers and hundreds of employees voiced their support yesterday.

At a state Capitol rally yesterday, House Speaker Calvin Say and Senate Ways and Means Chairwoman Rosalyn Baker pledged to support the airline, which filed for bankruptcy last week for the second time in about three years.

"We would not be doing our jobs if we didn't make an effort to assist a company that has as much reach and impact in the community," said Baker, D-5th (W. Maui, S. Maui).

At least one leading airline industry analyst said the state could be wasting its money.

"Putting more money into this company is like giving a transfusion without trying to stop the bleeding," said Bob McAdoo, senior research analyst with Nashville, Tenn.-based Avondale Partners LLC.

On Monday, the state Senate will vote on a House measure that will exempt local carriers from paying the general excise tax on the millions of dollars in jet fuel that they use every year. The Senate Ways and Means Committee will hold a hearing on Tuesday on a bill that would provide loan guarantees for Aloha.

Aloha, the state's No. 2 carrier, filed for Chapter 11 reorganization last week after losing more than $120 million in the past two years. Aloha, which is down to about $3.8 million in cash, blamed its bankruptcy on soaring fuel prices and "predatory pricing" by its interisland competitor go!

Lowell Kalapa, executive director of the nonprofit Tax Foundation of Hawaii Inc., said there's precedent for providing financial assistance to the airline industry.

In 1993, the state issued about $14 million worth of loan guarantees to Hawaiian Airlines, which was experiencing financial troubles at the time.

Four years later, the state provided Continental Airlines $2 million in tax incentives, more than $25 million in revenue bonds and a $1.2 million general excise tax break to build a $24 million, state-of-the-art jumbo-jet maintenance hangar at Honolulu International Airport.

Kalapa said he opposed the 1993 loan guarantees for Hawaiian because he thought that government shouldn't guarantee the debt of a private company. But since the state has already granted Hawaiian a loan guarantee, it would only be fair to give its competitor a similar loan guarantee, Kalapa said.

"If they can bail out Hawaiian, the only fair thing to do is to bail these guys out, too," Kalapa said.

Kalapa added that the state provides tax credits and other incentives to high-tech and film industries, so it can provide similar breaks for the airline industry, which plays a more vital role in the state's economy.

Airline industry analyst McAdoo believes that Hawai'i taxpayers may wind up paying for Aloha's loan guarantees should the company wind up closing its doors.

McAdoo said loan guarantees have been used in the airline industry when a company has a temporary problem and has a business plan that will "stop the bleeding."

He noted that the federal loan guarantee program enacted shortly after the Sept. 11 tragedy included a rigorous evaluation process and required the airlines to provide the government with protections against default.

In Aloha's case, the fare war and high fuel prices aren't problems that are going to go away in the short term but are part of the carrier's everyday business environment....

Aloha Airlines today said it is in discussions with several parties to sell the entire airline or parts of it.

Aloha, the state's second-largest carrier, filed for Chapter 11 bankruptcy protection yesterday with assets and liabilities both in excess of $100 million. Aloha also blamed unfair competition by low-cost carrier go!.

In a hearing in U.S. Bankruptcy Court this morning, Aloha said it was down to $3.5 million in cash and that its expenses over the next 10 days would eat away about $2.3 million of that.

Aloha said its main investor, Yucaipa Co., had plowed more than $110 million in the airlines since it emerged from bankruptcy in February 2006. Yucaipa said it is unwilling to provide further financing.

During the hearing, U.S. Bankruptcy Judge Lloyd King granted Aloha permission to pay some of its daily operating costs, such as utility bills and wages. King will hold further hearings this afternoon on Aloha's agreement with lenders to secure more financing.

Interisland airline go!, whose low prices started a fare war, has lost a court ruling that might prompt it to leave Hawai'i, industry analysts said.

A judge yesterday ruled that go!'s parent, Mesa Air Group, must pay $80 million to Hawaiian Airlines for misusing confidential business information.

Mesa said it will likely appeal the decision and said it remained committed to the Hawai'i market. But analysts said that if the ruling stands, it will likely affect whether go! continues to offer $19, $29 and $39 one-way fares, or operate at all in Hawai'i.

"This definitely hurts Mesa," said Nick Capuano, managing director and head of equity research at Los Angeles-based Imperial Capital LLC, whose firm follows Hawaiian.

The $80 million judgment is more than double the $34 million that Mesa earned for all of 2006 and is equivalent to about $2.78 for each outstanding share of Mesa's stock.

Since the June 2006 launch of go!, Mesa's cash holdings have fallen from about $345 million to about $198 million, according to a recent filing with the Securities and Exchange Commission.

Local airline industry historian Peter Forman said he believes the ruling will likely hasten Mesa's exodus from Hawai'i.

"I would think that this puts more pressure on Mesa to look at finding a settlement with Hawaiian for an exit strategy," Forman said.

The judge said Mesa used proprietary information it obtained from Hawaiian Airlines to "gain a competitive advantage ... to enter the market for Hawai'i interisland air transportation services."

"In this case, the award of money damages adequately redresses the harm suffered by (Hawaiian Airlines) as a result of Mesa's breach of the confidentiality agreement," Faris wrote in a 14-page finding accompanying his ruling.

"Today's ruling is a triumph for fair competition and ethics over dishonesty and illegal behavior," he said.

"Nobody benefits when a company like Mesa misuses confidential information to gain an unfair competitive advantage, then lies about it and destroys evidence."

Jonathan Ornstein, Mesa's chief executive officer, said the likelihood of an appeal "is very high."

Ornstein said his company remains "more committed" to the interisland market in light of yesterday's ruling.

But should Mesa decide to leave Hawai'i in the future, Faris' ruling could cost consumers "hundreds of millions of dollars," Ornstein said.

He said Faris "basically ruled that the actions of one person were enough to punish" Mesa, its 5,000 employees and Hawai'i's residents and visitors.

He was referring to Mesa Chief Financial Officer Peter Murnane, who downloaded thousands of pages of proprietary information about Hawaiian's business, then destroyed the records, saying he thought he was deleting pornography from his work computers.

"We are extremely disappointed, and that judge has put the interest of Hawaiian above the interests of the people of Hawai'i," Ornstein said.

Hawaiian sued Phoenix-based Mesa last year for $173 million in damages, alleging that Mesa used confidential financial data from Hawaiian to set up go! airline.

The ruling came after yesterday's close of the stock market. Mesa's stock closed at $5.10 on the Nasdaq market yesterday, up 16 cents. Shares of Hawaiian rose 61 cents to $5 per share on the American Stock Exchange in after-hours trading yesterday.

Mesa has up to 10 days to appeal Faris' decision with the U.S. District Court or with the bankruptcy appellate panel of the 9th U.S. Circuit Court of Appeals in California.

Such an appeal would require Mesa to post a bond for the full $80 million, unless Faris were to grant Mesa a stay pending the outcome of such an appeal.

Besides Hawaiian's lawsuit, Aloha Airlines has filed an antitrust lawsuit in U.S District Court against Mesa, alleging that Mesa used confidential information to drive it out of business.

"Aloha believes it is important for all companies serving the people of Hawai'i to conduct their business affairs with the highest ethical and legal standards, and the court today found that Mesa did not meet that standard of conduct," said David Banmiller, Aloha's president and chief executive officer.

"Contrary to what Mesa has been saying, today the court confirmed what we have been saying all along, that Mesa's actions as a new entrant have been inconsistent with fair play."

In its February 2006 lawsuit, Hawaiian alleged that Mesa received more than 2,000 pages of confidential financial information when Mesa expressed an interest in acquiring Hawaiian in 2004 while Hawaiian was in bankruptcy.

Mesa, whose bid was rejected, was supposed to return the documents or destroy them but didn't, Hawaiian alleged. Hawaiian emerged from bankruptcy protection in June 2005 under the ownership of California-based Ranch Capital LLC.

Mesa previously has argued that losses suffered by Hawaiian after go!'s entry were largely self-inflicted because the local airline increased capacity in response to go!'s entry.

Mesa also has said that Hawaiian wants go! out of the market so it can increase fares.

Yesterday's ruling comes after two weeks of court hearings from Sept. 25 to Oct. 4.

During a pretrial hearing, Faris found that Mesa kept confidential information it was supposed to return or destroy; Mesa misused information it kept, and that was a substantial factor in Mesa's decision to enter the Hawai'i market.

In his findings of facts and conclusion of law, Faris cited about a half dozen confidential documents that Mesa misappropriated to start go! They include:

> Internal projections on Hawaiian Airlines' future operations and financial performance;

> Documents spelling out Hawaiian's contracts with its codeshare partners like American Airlines, Continental Airlines, Northwest Airlines and US Airways;

"A skilled and experienced expert in the airline business might have been able to make an 'educated guess' about some of these topics by drawing inferences from publicly available information," Faris wrote.

"These inferences would not have been as accurate and reliable as the information, which Mesa obtained directly from HA."

Scott Hamilton, a Washington state-based aviation industry consultant, called go! a "misadventure from the beginning."

Hamilton said the interisland market could not sustain more than two major players, especially when fares are as low as $29 or $19.

He predicted that fares will return to where they were in 2005 when the local carriers were charging more than $79 each way if go! leaves the market.

"If indeed Mesa does decide to withdraw and shuts down go!, fares will go up the day go! shuts down, if not before," Hamilton said.

"There is no incentive to keep fares at present levels without go! in the market," he said.

"This situation cannot continue indefinitely; eventually fares must increase to a level that eliminates the market-wide losses. (It is highly unlikely that any of the three carriers could reduce its costs enough to eliminate its losses.)

"It is impossible to say with any decree of certainty, however, when this will occur or what the new fare level will be. It is also possible that another carrier could enter the market, holding fares down."

March 2003: Hawaiian Airlines files for bankruptcy protection.

April 2004: The federal bankruptcy court allows potential investors to study Hawaiian's books under a confidentiality agreement.

April to May 2004: Mesa downloads more than 60 documents, including more than 2,000 pages of proprietary information about Hawaiian's financial performance, projections and business strategy.

May 2004: Mesa is eliminated as a bidder for Hawaiian.

December 2004: Aloha Airlines files for bankruptcy protection.

April 2005: Mesa starts looking into acquiring or forming a business alliance with Aloha. Mesa retains GCW Consulting, an Arlington, Va.-based aviation consulting firm, to "look at a possible acquisition or some other structure for entry into the Hawai'i market."

June 2005: Hawaiian Airlines exits bankruptcy protection under the ownership of California-based Ranch Capital LLC.

January 2006: Mesa's Chief Executive Officer Jonathan Ornstein tells investors that Mesa's decision to enter the interisland market was based on its review of Hawaiian and Aloha Airlines during their bankruptcy cases.

February 2006: Hawaiian sues Mesa to bar the company from operating in the interisland market for two years. Hawaiian alleges Mesa improperly used confidential data it received when Hawaiian was in bankruptcy. Hawaiian later reduces the length of the ban it seeks to one year.

March 2006: Mesa begins selling tickets for its June 9 launch of interisland carrier go!

March 2006: Mesa files countersuit, accusing Hawaiian of trying to illegally block competition.

June 2006: Mesa launches go!

September 2006: Hawaiian alleges Mesa tried to drive Aloha out of business and cites e-mails by Mesa Chief Financial Officer Peter Murnane. One e-mail says: "If we assume Aloha stays in market and in business forever, this project makes no sense. We definitely don't want to wait for them to die, rather we should be the ones who give them the last push."

October 2006: U.S. Bankruptcy Judge Robert Faris rejects Hawaiian's request for a ban but says Mesa "probably breached the confidentiality agreement" by failing to return or destroy material it received. Faris also concludes that "at one time, Mesa hoped to drive Aloha out of business."

October 2006: Aloha sues Mesa, alleging that it misused confidential information in an attempt to drive Aloha out of business.

December 2006: Faris throws out Mesa's countersuit against Hawaiian.

August 2007: Hawaiian accuses Mesa CFO Murnane of destroying several computer files that included confidential Hawaiian material.

Yesterday: Faris orders Mesa to pay Hawaiian $80 million in damages for misusing confidential business information.

Postings at www.honoluluadvertiser.com

This is a representative sampling of comments posted at honoluluadvertiser.com after the go! airline ruling was announced:

go! just wanted to drive out Aloha or Hawaiian, then it would have raised prices for sure.

Dan, Honolulu

Please don't go, go! We need the "reasonable" fares to stay. Hawaiian and Aloha were gouging us for too long!

RCM, Honolulu

I think it is fair considering Mesa came in to put either Hawaiian or Aloha out of business using confidential information.

Nate

Mesa will go buh-bye,
Hawaii Superferry will go buh-bye,
Hawai'i consumers will suffer once again,
And the "ol' boy network" will live happily ever after.

Largo, Honolulu

David Banmiller, center [photo], 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."

The Gelber firm was at the center of a dispute
between the carrier and its lenders

Aloha Airlines' lead legal firm, which has represented the carrier during its four-month bankruptcy, is withdrawing from the case.

The Honolulu firm Gelber, Gelber, Ingersoll & Klevansky didn't offer any specific reasons for its decision. However, earlier this month, Aloha went to court after having a dispute with the company's new lenders over whether the Gelber firm's Aloha Airlines trust account was vulnerable if the lenders were to collect on a lien.

The Gelber firm's Aloha trust account contains the firm's pre-bankruptcy retainer, which has a balance of $250,000, plus additional money for legal services that were deposited in keeping with court procedures.

Don Gelber, partner in the Gelber law firm, declined to comment on reasons for withdrawing as counsel. However, the firm said in its motion that it was an opportune time because the withdrawal would eliminate any question concerning a conflict of interest between the firm and the airline, many of the company's legal problems have already been addressed and the firm's withdrawal probably would reduce Aloha's legal expenses.

People familiar with the case said fee issues and a difference of opinion over the bankruptcy process prompted the Gelber firm's decision to want out.

The move to pull out comes as Aloha is entering a new chapter in its bankruptcy.

Earlier this week, the company's mechanics and inspectors union became the last of the airline's five unions to ratify a labor contract that has concessions. The new pact will allow the outsourcing of heavy-machinery work, which will result in 79 positions being lost.

In addition, Aloha sent letters to its flight attendants last week requesting volunteers to take three-month unpaid vacations.

Al Pattison, the company's senior vice president of human resources, said about 40 jobs will be affected and that the airline will be forced to lay off flight attendants if it doesn't get enough volunteers. The airline won't need as many flight attendants because a new contract provision reduces the number of attendants on trans-Pacific flights from four to three.

David Banmiller, president and chief executive of Aloha, said the company has made "monumental progress" during its reorganization. He cited new aircraft leases, paying off more than $20 million in federally guaranteed loans, paying off another $20 million in commercial loans, obtaining a new $65 million loan and securing the new labor contracts.

"We are now at a new juncture that places great emphasis on the capitalization of the company and its emergence from bankruptcy," Banmiller said.

Berger Singerman, a Miami-based law firm that has been acting as the airline's special transaction counsel, will replace the Gelber firm as the lead attorneys. Hawaii lawyer David Farmer, a former president of the bankruptcy law section of the Hawaii State Bar Association, will join Berger Singerman's legal team as the local co-counsel.

Paul Singerman said the Gelber firm has done "a great job" but declined to comment on why the firm decided to pull out.

"A development of this kind is not a particularly common occurrence in a Chapter 11 case," Singerman said.

Madge Schaefer, a Maui resident, can't wait for the Hawaii Superferry (www.hawaiisuperferry.com) to sail into her future.

"No one from Maui wants to live in Honolulu because it's so crowded. But we want to be able to go there to shop or see a show," said Schaefer, a former Ventura County supervisor. "I can't think of a better way to do it than by ferry — and get a relaxing mini-cruise out of the trip."

The Superferry, a football field-sized catamaran, is scheduled to begin daily runs between Honolulu on Oahu, Kahului on Maui and Lihue on Kauai in July, carrying passengers and vehicles. It will be the only service of its kind in the islands....

The project has been six years in the making and will cost nearly $200 million by the time the second ship is launched. Passengers will pay $42 to $60 one way; passenger vehicles will cost $55 to $65 extra...

The new service will present more competition for inter-island airlines, which are currently slugging it out in a price war, with fares as low as $19 one way.

"We anticipate that the ferry will be costly, slow, bumpy and not much use to our customers," said David A. Banmiller, president and chief executive of Aloha Airlines. Flights between Honolulu and Maui or Kauai take less than 30 minutes, excluding airport and security line waiting time.

Environmental groups have also attacked the plan, saying the ferry will endanger the humpback whales that migrate into the area in winter and will spread invasive species from island to island. Ferry developers say they have worked with community and environmental groups to create a whale avoidance plan and will screen vehicles to avoid spreading invasive species....

WAILUKU » The Hawaii Superferry would transfer its vessel "elsewhere to generate revenue" if it cannot operate while an environmental study is prepared, President and Chief Executive Officer John Garibaldi testified in court yesterday.

"I can't guarantee the vessel will return if it leaves the state," said Garibaldi, adding that the Superferry is losing about $650,000 a week because its vessel, the Alakai, sits idle.

Garibaldi was called to testify yesterday in a Circuit Court hearing on an injunction to stop the company from operating at Kahului Harbor while an environmental assessment is conducted.

In August the Hawaii Supreme Court ruled that the state should have done an environmental assessment for Kahului Harbor improvements....

Garibaldi said the events of Sept. 11, 2001, "brought home the fact that we were relying on one mode of transportation." ...

Garibaldi pointed to his experience as an executive with Aloha Airlines in 1985 and later with Hawaiian Air in concluding that "the establishment of the Hawaii Superferry meets the needs of providing a public purpose."

When asked about previous testimony from other witnesses on invasive species, Garibaldi agreed that occasional random high-intensity inspections of vehicles utilizing the ferry service would not be objectionable....

Garibaldi said 12 meetings were called for, but they conducted 22 statewide, with seven of them on Maui.

Isaac Hall, the attorney for environmental groups seeking the injunction, objected to the line of inquiry, saying, "Any public involvement is irrelevant to the argument because the Hawaii Supreme Court has already ruled that the public was deprived of their participation rights by the failure to prepare an EA (environmental assessment)."

Judge Joseph Cardoza overruled the objection because the two sides will later argue the information's relevance.