Judge clears way for sale of Island Air operating certificate

Bankruptcy Judge Robert Faris, declaring that something is better than nothing, gave the green light Friday for Island Air’s trustee to take the necessary steps to proceed in the sale of the company’s operating certificate to a subsidiary of Hawaiian Airlines’ corporate parent.

Faris also granted approval for Island Air’s trustee to use $100,000 that was advanced by Hawaiian as part of the $450,000 purchase price to be used for administrative expenses, which would include costs incurred in trying to give more than 400 Island Air employees access to their 401(k) accounts.

In issuing his ruling, Faris acknowledged that there is no assurance the sale to Hawaiian subsidiary Elliott Street Holdings Inc. ultimately will take place. The process involves several steps, and eventually other bidders could outbid Hawaiian.

“There’s a number of issues that have to be overcome, and it may be impossible to get this plan confirmed without the consent from the affected parties,” Faris said. “But that doesn’t mean we shouldn’t try. Even if the benefits of this course of action are uncertain, even through there’s a lot of risk in getting benefits, the alternative is basically dismissal, and there’s a virtual certainty that nobody, with the possible exception of the secured creditors, will get anything.

“The administrative creditors, the priority creditors, the employees, the vendors, if the case is dismissed, those people will almost certainly get nothing. If we proceed down this path and if a plan is confirmed, then some of those people might get something. The odds of them getting it are uncertain. The amount they’ll get is uncertain. But a chance at something is better than the certainty of nothing.”

Hawaiian is seeking to secure the operating certificate so that its new subsidiary can oversee turboprop carrier ‘Ohana by Hawaiian rather than have the operation contracted out to Idaho-­based Empire Airlines as it is now.

Simon Klevansky, attorney for Chapter 7 trustee Elizabeth Kane, indicated that the trustee’s office was handcuffed financially without the $100,000 advance from Hawaiian.

“As a consequence of that, we have proceeded to retain benefits counsel to terminate the 401(k), which we could not do without funds before,” he said. “We are in the process of taking the legal procedural steps to get the employees back their moneys. Secondly, we have arranged the issue of $35,000 (from the employees’ final October paycheck) that was by error misdirected, and we understand that has been deposited and to the best of our knowledge the employees’ accounts have been property credited.”

Separately, a hearing on the sale of Island Air’s so-called “other assets” was rescheduled to 9:30 a.m. Jan. 29 because the value of the items for sale has been reduced due to confusion over what Island Air actually owned at the time of its Oct. 16 bankruptcy filing. Klevansky said there were seven or eight potential bidders outside of creditors for the operating certificate or other assets, and the extra time will allow them the opportunity to inspect what is available for purchase. He said the other assets could result in an overbid situation beyond Hawaiian’s $100,000 offer.

Hawaiian initially offered $350,000 for the other assets, but Hawaiian reduced its offer to $175,000 after it was discovered that Island Air had sold spare parts for “quick cash” just before filing bankruptcy. The offer was reduced again to $100,000 when it was further discovered that some of Island Air’s items were not owned by the bankrupt airline and are or may be leased.