Ueberroth Team Agrees to Buy Hawaiian Air
Former baseball commissioner Peter V. Ueberroth and Newport Beach developer J. Thomas Talbot, frustrated earlier this year in their bid to buy Eastern Airlines, have agreed to buy troubled Hawaiian Airlines.
The Honolulu-based air carrier would give the Ueberroth-Talbot team a foothold in the center of the Pacific basin, which industry analysts view as the hottest market for air carriers. Hawaiian Airlines has air routes to 14 cities around much of the Pacific Rim, including Los Angeles, and the investor group hopes to infuse enough cash into the airline to reverse more than two years of losses and continue its recent expansion program.
Ueberroth, who lives in Laguna Beach, and Talbot declined Monday to say exactly how much cash their group will need to return Hawaiian Airlines to financial health. At the end of June, however, the liabilities of its parent company, HAL Inc., exceeded its assets by $8.5 million.
HAL’s directors unanimously accepted a $22-a-share tender offer from the Ueberroth-Talbot group, which plans to acquire at least 51% of the stock. The purchase price amounts to nearly $22 million for a simple majority of the stock or nearly $43 million for the entire company.
“The company is in the center of probably the most important economic growth for the next decade,” Ueberroth said in a telephone interview. “I believe in the future of Hawaiian Air and would like to be involved with it.”
In a separate interview, Talbot, 53, a former airline executive who has helped to start three airlines, called the Pacific basin “the fastest-growing airline market in the world,” one that provides the “highest yields” for investors in airline firms.
“We’ve been obviously interested in the airline industry, and this company is strategically located in the center of the Pacific with arms that reach out around the Pacific Rim,” Talbot said.
Hawaiian Airlines was Hawaii’s largest inter-island air carrier when it began an aggressive expansion program five years ago. Since then, it has added routes to U.S. cities such as Anchorage, Seattle and Los Angeles as well as to South Pacific islands like Tahiti, Pago Pago and Tonga. It has also added flights to New Zealand, Australia and Guam.
A few months ago, when the company said it was abandoning its regular service to Portland, Ore., industry analysts said they thought the expansion had come too fast and that the airline had erred in its selection of some of the new routes. The rapid growth placed a major strain on the airline and contributed to much of its $30.6 million in losses over the last 2 1/2 years.
Undaunted, however, Hawaiian Airlines has an application pending with the Department of Transportation, along with many other U.S. air carriers, for an air route to Japan.
Competition in the Pacific Rim has been very tough, said Daniel A. Hersh, an analyst with the investment firm of Bateman Eichler, Hill Richards in Los Angeles. Large domestic and foreign carriers have more flights and offer other conveniences that Hawaiian Airlines cannot.
“Structurally, it’s very difficult to compete with the enormous airlines that have connecting flights throughout the country that can feed into their Hawaii flights,” he said.
In addition, Hawaiian Airlines has only 31 airliners, mostly old and mostly leased. That increases maintenance costs and takes planes out of service more often, which means fewer passenger loads.
Analysts said Ueberroth’s reputation as a strong businessman with worldwide connections could be an invaluable asset in reviving Hawaiian Airlines. Ueberroth, 51, a travel industry executive who started his career in Hawaii, rose to national prominence as president of the Los Angeles Olympic Organizing Committee for the 1984 Olympic Games and then became baseball commissioner.
Worked on Eastern Deal
He stepped down from the commissioner’s post in April as he was trying to put together the deal to buy Eastern Airlines, which its owner, Texas Air Corp., had put into bankruptcy proceedings in March during a strike. But the deal fell through at the last minute.
Ueberroth said Monday that he would expect to take a seat on HAL’s board of directors, though probably not as chairman. John H. Magoon Jr., 73, is expected to remain as chairman. Talbot, who helped to form AirCal in Newport Beach, Jet America in Long Beach and Southwest Airlines in Dallas, would move to Honolulu to take over as president and chief executive.
The Ueberroth-Talbot group reached agreement Sunday with the HAL board, headed by Magoon, who owns 56.9% of the airline company’s common stock. The price is about half of what Magoon had been trying to get from other suitors earlier this year and below Friday’s closing stock price of $31.625 a share. On Monday, the stock closed at $25.25, down $6.375.
Talbot and Ueberroth have more details to wrap up before completing the deal for Hawaiian Airlines.
A hotel subsidiary of Japan Air Lines invested $20 million in HAL last December for 20% of HAL’s preferred voting stock, and the investor group may have to “work with” the preferred stockholders to ensure that the deal goes through, Talbot said.
RELATED STORY: Business, Page 1
