Security Pacific Gets Biggest Stake in Hawaiian Air
Former Baseball Commissioner Peter V. Ueberroth has a new partner in his money-losing Hawaiian Airlines venture: Security Pacific Bank.
Security Pacific disclosed Friday that as a result of lending Hawaiian a badly needed $26 million, it has become the airline’s largest stake holder. But if parent HAL Inc. repays the loan, Security’s stake will be sharply reduced.
The Oct. 16 transaction sharply reduces the stake controlled by Ueberroth and his partner, J. Thomas Talbot, to around 35% from 77%. Ueberroth and Talbot led a leveraged buyout of the airline last December that was financed with an $111-million loan from Security.
HAL defaulted on that loan in June after the airline suffered record losses. In late September, Hawaiian won employee wage and benefit concessions that were apparently significant enough to persuade Security to lend the airline more money. Next month, Hawaiian will lay off 100 pilots and flight attendants to further reduce costs.
Even with these measures, Hawaiian’s difficulties are far from over. Its prospects are thought to be so poor that HAL stock has become a favorite among short sellers, who profit when a stock’s price declines.
The airline faces cutthroat competition in Hawaii and in its transpacific market. It has been hit hard by rising fuel costs because its fleet consists of older, less efficient aircraft.
In an interview earlier this week, Talbot said uncertain economic conditions made him “gun-shy about predicting” Hawaiian’s results. “I thought we’d have a profit in the third quarter of this year,” he said. “But the traffic we had indicates we won’t.”
Telephone calls to Talbot on Friday were not returned. Ueberroth referred calls to Security’s spokeswoman Penny Maines, who declined comment.
People familiar with the situation said Ueberroth was unhappy with the terms of the loan agreement.
Hawaiian’s $43.4-million loss for the first six months of 1990 far exceeds projections. Last December, the Ueberroth group said it expected Hawaiian to lose $21 million for the entire year.
Hawaiian’s woes are bad news for Security, especially since it occurs at a time when banks are trying to reduce their exposure to risky transactions. Security has recently taken some big hits in its portfolio of risky loans. The amount of highly leveraged transactions classified as non-performing in the second quarter rose to $226 million from $65 million in the first quarter. Security hasn’t reported figures for the third quarter.
The HAL loan hasn’t been classified as non-performing, according to an officer at Security.
The loan agreement gives Security warrants that are convertible into 42.3% of HAL’s common stock, a stake that would give Security control of the airline company.
However, the warrants are of uncertain value because federal regulations prohibit Security from exercising most of them. Federal rules restrict Security to a 4.9% voting stake in Hawaiian and a 24.9% non-voting stake. And, under the terms of the loan agreement, if HAL repays the $26 million the amount of warrants issued to Security would be reduced to an 8% stake.
Staff writer Tom Petruno contributed to this story.
