Judge: Aloha Air Can Cancel Pension Plans

A federal judge on Thursday upheld Aloha Airlines' effort to jettison its worker pension plans, rejecting an appeal by the federal pension agency that could have derailed the airline's exit from bankruptcy.

U.S. District Judge J. Michael Seabright said Aloha may abandon its obligations to its defined-benefit pension plans because the airline had showed it could not survive outside bankruptcy proceedings otherwise.

"The court is looking at the economic reality of Aloha's situation," Seabright said, rejecting an appeal by the Pension Benefit Guaranty Corp., the federal agency that insures private pensions.

Federal taxpayers, through the PBGC, will be responsible for Aloha's pension obligations when the company terminates them. Aloha's four plans were underfunded by a total of $155 million, the PBGC said in its appeal. The agency had argued Aloha could afford to pay employees their full pension benefits and that the new investors were attempting to dump the pension plans for "convenience."

Aloha had argued no potential investors were willing to invest in the airline if they had to maintain the pensions.

It was not clear whether the PBGC would appeal the ruling, or what impact any appeal would have on Aloha's plans to receive fresh funding from its investors.

Stephen Schreiber, the PBGC's lead counsel, did not immediately return a phone call seeking comment.

Aloha, which filed for Chapter 11 bankruptcy a year ago, planned to leave court protection this week with financing from California investors under a reorganization plan approved last month.

The plan calls for billionaire supermarket chain owner Ron Burkle's Yucaipa Cos. LLC and former pro football star Willie Gault and the owners of the airline, the Ching and Ing families, to recapitalize the company with a combination of $50 million in equity and up to $50 million in debt financing.

The investors had set Thursday as a deadline for the airline to leave bankruptcy and receive the funds. Investors said the deal remains on track, although it was not immediately clear when Aloha would formally emerge.

Aloha Airlines is one of Hawaii's two major interisland airlines. It is also one of the state's biggest employers, with 3,600 workers.


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