Island Air to pull back bonus pay for pilots

Island Air gave its eligible pilots $4,000 bonuses just before the holidays and now wants the money back.

The Honolulu-based regional carrier, owned by billionaire Larry Ellison, said it paid the money prematurely in October "due to an internal administrative error" and plans to take whatever steps it can to get the money returned, according to internal company letters obtained Friday by the Hono­lulu Star-Advertiser.

Island Air Chief Operating Officer Ed Davidson said in a Nov. 19 letter to pilots that "the company will take payroll action to recover this erroneous payment from the pilots as permitted under Hawaii law." The bonuses went to between 40 and 45 pilots and amounted to between $160,000 and $180,000, according a person familiar with the payout.

The error stems from an agreement late last year that called for the bonuses to be paid to eligible pilots 30 days prior to the scheduled arrival of a new type of aircraft for the airline, the Bombardier Q400 turboprops, that Island Air had planned to introduce to its fleet beginning this month.

But the scheduled arrival of two Bombardier Q400s was delayed after Chief Executive Officer Paul Casey was replaced Oct. 1 by Dave Pflie­ger, former president and CEO of Ft. Lauderdale, Fla.-based Silver Airways.

Under Pflieger, Island Air has been working with outside experts to conduct an analysis of the company route network and future fleet.

Pflieger, who just returned from the mainland where he had discussions with Bombardier and aircraft manufacturer ATR, said in an internal email Friday that "while I had hoped we’d be done with our negotiations and detailed analysis, that work continues and is not expected to be completed until late January."

Davidson, the chief operating officer, said pilots who elected to have the bonus payment deposited into their company 401(k) plan will have it returned to Island Air by the plan administrator later this month. He said pilots who received a cash disbursement will have that amount taken out by the company over the next eight pay periods — a span of four months. Pilots who received cash disbursements will have the option of writing checks to the company prior to the first pay period of company reimbursements, he added.

Once a new aircraft is ultimately selected, the airline could have the new planes in its fleet by early summer, and the bonuses would be paid then.

"If this is truly the case, what is the point of the planned recovery of the bonus payment if the money will have to be repaid to the eligible pilots in a matter of a few months," the pilot union said in a letter to members. "The bookkeeping and tax complications, plus the waste of staff time, simply do not justify recovery of monies today just to repay in a short period."

Davidson said in his letter to pilots that in addition to the bonus giveback, a 5 percent pay increase scheduled for pilots would be delayed due to the postponed aircraft deliveries.

"While that fleet and network study is still underway, there is nothing new to report," the company said an email to the Star-Advertiser.

Island Air, which is privately held, has lost money in each quarter since Ellison bought the company in February 2013. Ellison bought 98 percent of the island of Lanai in June 2012.

Under Casey, Island Air decided earlier this year to upgrade to the 71-seat Q400 from the 64-seat ATR-72 it uses now. But Casey, who lasted only 16 months as CEO, wasn’t around long enough to see the Q400s come in after Ellison reassigned him to an advisory role on the board of directors.

Pilots are concerned that the delay in adding to the current five-aircraft fleet could result in furloughs.

"Management has indicated pilot staffing is ‘under review’ and has acknowledged that 80-plus pilots (the number the airline currently has) is ‘probably’ too many for a five-aircraft fleet," the union letter said. "But as we write this there are currently no plans we know of to downsize the pilot group."

Island Air, which has about 400 employees, declined to comment about the potential for furloughs, saying "like most companies, we also do not comment on internal company matters."