Dallas firm now major shareholder

A Dallas-based private investment firm has become the largest shareholder of Hawaiian Airlines’ parent company with a stake of nearly 11 percent and is seeking a seat on the board of directors.

Hirzel Capital Management LLC disclosed in a regulatory filing Thursday that it owns 10.8 percent of Hawaiian Holdings Inc., with more than 5.6 million of the company’s 52.1 million outstanding shares.

At Thursday’s closing price, Hirzel’s shares were worth more than $43.2 million, nearly $10 million more than the $33.6 million — including commissions — that the firm spent purchasing the stock.

Zac Hirzel, 36, president of Hirzel Capital, said in a May 11 letter to the governance and nominating committee of Hawaiian that the airline offers "an intriguing opportunity" and that it is an important time for the company with its ongoing expansion into Asia and the changing environment in the capital markets.

"Each will be critical for future prosperity and are areas where I believe my expertise would be helpful," Hirzel said in the letter that was also copied to Hawaiian President and CEO Mark Dunkerley, one of 11 board members.

Hirzel, who said in the filing he held subsequent discussions with Hawaiian’s management after sending the letter, leads a team of eight senior executives at Hirzel Capital. He describes his company as one of the most successful funds in the country.

"We have consistently provided returns of 20 percent annually to investors while taking far less risk than most other funds," Hirzel wrote. "I created a team of investors, board members and analysts who have worked together over the past five years to grow the firm and achieve our clients’ goals. We now have over 100 partners and $500 million in assets with almost no turnover. Many of our investors are some of the country’s most successful businessmen, whose knowledge and experiences I am able to draw from."

Hirzel, who has no background in the airline business, said he is interested in Hawaiian as a long-term investment for four major reasons: its well-established inter­island and mainland-Hawaii operations; the "big opportunity" in Asia; his belief that fuel prices will decline relative to wages throughout the rest of the decade; and his belief that a current investor bias against airlines will naturally lessen over time and can be mitigated in the current environment.

"Investors currently favor companies with highly predictable earnings that pay dividends, as the yield compares favorably to bank deposits or bond yields," Herzel wrote. "Investors do not generally favor companies like Hawaiian with the potential for volatile earnings. As we have seen many times before, periods of oversupply in airline capacity combined with high fixed costs leads to severe earnings volatility. … With current lower population growth in the U.S. leading to more consolidation rather than expansion, I believe industry supply changes will be more modest and predictable. This should lead to more stable earnings over time."

Hirzel said he is committed to being a strong member of Hawaiian’s board.

"I am personally and professionally focused on seeing Hawaiian remain a strong franchise and to help it make breakthroughs to consistently enhance its value," he said. "I am dedicated to serving the interests of the stockholders and look forward to bringing my skills, interests and qualifications to the board for years to come."

Hirzel said in his filing that Hawaiian’s shares are undervalued but that his purpose for buying the shares was for an investment and not for the purpose of acquiring control of the airline.

"We are happy to be associated with a great business led by a strong CEO," Hirzel said in an emailed statement Thursday.

"We hope to be able to help guide the company toward what we believe is a bright future."

Hawaiian spokeswoman Ann Botticelli said the filing indicates that Hirzel "is very bullish about Hawaiian Airlines and he supports the company’s expansion strategy."

"That is consistent with the conversations the board has had with Mr. Hirzel over the last several months," Botticelli said. "The composition of the board is a matter for the board itself to decide, and the board will continue its consideration of Mr. Hirzel’s request."

Hirzel’s filing came in the final hour of trading Thursday and helped give Hawaiian’s shares a bump. The stock, which had been trading around $7.56 just prior to the filing, ended the day up 25 cents, or 3.4 percent, at $7.68 on the Nasdaq Stock Market. The 1.3 million shares that exchanged hands totaled about 500,000 more than Hawaiian’s average daily volume. Hawaiian’s shares are up 16.9 percent so far this year.

The filing showed that Hirzel aggressively began buying shares earlier this week by picking up 150,000 shares priced at $7.40 (worth $1.1 million) on Tuesday and an additional 340,000 shares priced at $7.41 (worth $2.5 million) on Wednesday.

Hirzel has now passed Milwaukee-based investment management firm Artisan Partners Holdings as the largest shareholder of Hawaiian. Artisan is now second with a 7.96 percent stake while Dunkerley is the company’s 14th-largest shareholder at 2.15 percent.