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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8836
HAWAIIAN AIRLINES, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0042880
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3375 Koapaka Street, Suite G-350
Honolulu, Hawaii 96819
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (808) 835-3700
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Preferred Stock Purchase Rights American Stock Exchange, Inc.
Common Stock ($.01 par value) Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes ( ) No (X)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes (X) No ( )
AS OF MARCH 1, 1999, 40,997,335 SHARES OF COMMON STOCK OF THE REGISTRANT WERE
OUTSTANDING. THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
(21,821,323 SHARES) OF THE REGISTRANT IS $54,553,308.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Notice of 1999 Annual Meeting of Shareholders and Proxy
Statement are incorporated herein by reference in Part III of this Form 10-K.
EXHIBIT INDEX ON PAGE 32
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TABLE OF CONTENTS
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PAGE
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COVER PAGE 1
PART I
ITEM 1. BUSINESS. 4
ITEM 2. PROPERTIES. 12
ITEM 3. LEGAL PROCEEDINGS. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS. 12
ITEM 6. SELECTED FINANCIAL DATA. 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 25
ITEM 11. EXECUTIVE COMPENSATION. 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. 28
EXHIBIT INDEX. 32
SIGNATURES. 33
TABLE INDEX
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEETS. F-2
STATEMENTS OF OPERATIONS. F-4
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME. F-6
STATEMENTS OF CASH FLOWS. F-7
NOTES TO FINANCIAL STATEMENTS. F-9
SUPPLEMENTAL FINANCIAL INFORMATION. F-27
SELECTED FINANCIAL AND STATISTICAL DATA. F-28
INDEPENDENT AUDITORS' REPORT ON SCHEDULE S-1
FINANCIAL STATEMENT SCHEDULE. S-2
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") is the largest
airline headquartered in Hawaii, based on operating revenues of $426.4 million
for 1998. The Company is engaged primarily in the scheduled transportation of
passengers, cargo and mail. The Company was incorporated in January 1929 under
the laws of the Territory of Hawaii. The Common Stock of the Company trades on
the American Stock Exchange and Pacific Exchange under the symbol "HA." The
Company's principal offices are located at 3375 Koapaka Street, Suite G-350,
Honolulu, Hawaii 96819. Its telephone and facsimile numbers are (808) 835-3700
and (808) 835-3690, respectively. Its website address is www.hawaiianair.com.
OPERATIONS
PASSENGER SERVICE
The Company's passenger airline business is its chief source of revenue.
Scheduled passenger service consists of, on average and depending on
seasonality, approximately 130 to 150 flights per day among the six major
islands of the State of Hawaii ("Interisland"), daily service to Las Vegas and
the four key United States ("U.S.") West Coast gateway cities of Los Angeles,
San Francisco, Seattle and Portland ("Transpac"), twice weekly service to Pago
Pago, American Samoa and weekly service to Papeete, Tahiti in the South Pacific
("Southpac"). The Company also provides charter service from Honolulu to Las
Vegas and Anchorage, Alaska ("Overseas Charter"). As discussed below, the
Company operates a fleet of DC-9 and DC-10 aircraft to service these routes.
Management estimates that the entire Interisland market averages approximately
nine to ten million passengers annually. Management estimates that approximately
two-thirds of Interisland travelers are visitors to Hawaii while the balance are
Hawaii residents. Residents rely on Interisland flights in much the same way as
mainland residents rely on a state highway system. The Company's Interisland
operations provide service to seven airports on the six major Hawaiian islands
of Oahu, Hawaii, Maui, Kauai, Molokai and Lanai. The Company's Interisland
routes are serviced with DC-9 aircraft. During 1998, the Interisland market
represented approximately 36.3% of the Company's total operating revenues.
During 1998, the Company's Transpac operations served Las Vegas and the U.S.
West Coast gateway cities of Los Angeles, San Francisco, Seattle and Portland.
DC-10 aircraft are used to service Transpac routes. In 1998, the Transpac market
represented approximately 50.1% of the Company's total operating revenues.
Hawaiian Airlines currently is the sole carrier providing air service from
Honolulu to American Samoa and Tahiti. Fares are relatively stable throughout
the year. These Southpac routes are serviced with DC-10 aircraft. During 1998,
the Southpac market represented approximately 5.1% of the Company's total
operating revenues.
In addition to its regular scheduled service, the Company operated, on average,
six weekly charter flights to Las Vegas and two charter rotations per week to
Anchorage. The Company's Overseas Charter operation utilized DC-10 aircraft and
produced 8.5% of the Company's total operating revenues in 1998.
Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS contained in Part II, Item 7 of this Form 10-K for further
discussion on the Company's passenger service routes.
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FUEL
Aviation fuel is a significant expense for any air carrier and even marginal
changes in fuel prices can greatly impact a carrier's profitability. The
following table sets forth statistics about Hawaiian Airlines' aviation fuel
consumption and cost for each of the last three years:
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Gallons Total cost, Average % of
consumed including taxes cost per operating
Year (in thousands) (in thousands) gallon expenses
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1998 107,260 $66,387 61.9 CENTS 16.2%
1997 103,271 $77,948 75.5 CENTS 19.4%
1996 98,729 $75,642 76.6 CENTS 19.8%
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Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS contained in Part II, Item 7 of this Form 10-K for further
discussion on aircraft fuel expense.
The single most important factor affecting petroleum product prices, including
the price of aviation fuel, continues to be the actions of the major oil
producing countries in setting targets for the production and pricing of crude
oil. In addition, aviation fuel prices are affected by the markets for heating
oil, diesel fuel, automotive gasoline and natural gas. All petroleum product
prices continue to be subject to unpredictable economic, political and market
factors. Also, the balance among supply, demand and price has become more
reactive to world market conditions. Accordingly, the price and availability of
aviation fuel, as well as other petroleum products, continues to be
unpredictable. In the event of a fuel supply shortage resulting from a
disruption of oil imports or otherwise, higher fuel prices or curtailment of
scheduled service could result. A one cent change in the cost per gallon of fuel
has an impact on the Company's operating expenses of approximately $89,000 per
month (based on 1998 consumption). Changes in fuel prices may have a greater
impact on the Company than certain of its Transpac competitors with more modern,
fuel efficient aircraft.
As discussed below, although Hawaiian Airlines has contracts with several
different fuel suppliers, almost all of its aviation fuel is purchased from
Northwest Airlines, Inc. ("Northwest").
AIRCRAFT
At December 31, 1998 the Company's fleet consists of 11 DC-10 and 14 DC-9
aircraft of which one DC-10 and three DC-9s are owned by the Company. The
remaining ten DC-10s are leased under long-term operating leases with American
Airlines, Inc. ("American"), which expire in 2001. Of the 11 leased DC-9s
(including related flight equipment), five are under operating leases and six
are under capital leases. The DC-9 leases expire at various times between 2000
and 2004.
Aircraft maintenance costs represent a significant operating cost for the
Company (approximately 21%, 19% and 18% of total operating expenses for 1998,
1997 and 1996, respectively) which will increase as the Company's aircraft
increase in age. The average age of the Company's DC-10 and DC-9 aircraft is 26
years and 21 years, respectively. The Company intends to replace some or all of
its existing aircraft with replacement aircraft in the next decade in order to
reduce maintenance costs and achieve other operating efficiencies, although no
assurance can be given that the Company will have the capital necessary to
replace such aircraft.
In the event one or more of the Company's aircraft were to be out of service,
the Company may have difficulty completing its scheduled or chartered service.
Any interruption of service caused by the unavailability of aircraft due to
unscheduled servicing or repair or otherwise, or lack of availability of
substitute aircraft, could have a material adverse effect on the Company's
service, reputation and profitability. As is customary in the airline industry,
the Company does not have business interruption insurance.
Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS contained in Part II, Item 7 of this Form 10-K for further
discussion on the Company's aircraft fleet and the maintenance thereof.
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SEGMENT INFORMATION
Due to the centralization of the Company's operations in the State of Hawaii and
the interdependence of its routes, management considers its operations to be one
industry segment. Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS contained in Part II, Item 7 of this Form
10-K for discussion on Industry Segment Information and those certain operating
revenue products which constitute the segment.
SEASONALITY
The airline industry is a highly cyclical business with substantial volatility.
Airlines frequently experience short-term cash requirements caused by both
seasonal fluctuations in traffic that often deplete cash during off-peak periods
and other factors that are not necessarily seasonal, including the extent and
nature of price and other competition from other airlines, changing levels of
operations, national and international events, fuel prices and general economic
conditions, including inflation. Because a substantial portion of airline
travel, both personal and to a lesser extent business, is discretionary, the
industry tends to experience adverse financial results in general economic
downturns. Accordingly, airlines require substantial liquidity to sustain
continued operations under most conditions. Working capital deficits are not
uncommon in the airline industry since airlines typically have no product
inventories and sales of tickets not yet flown are reflected as current
liabilities.
The Company's results are sensitive to seasonal and cyclical volatility
primarily due to seasonal leisure and holiday travel. The Company believes that
Hawaii is one of the most popular destinations for passengers flying on frequent
flyer travel awards and is in general a popular spot for vacation travelers. As
such, traffic levels are typically lowest in the first quarter of the year with
strong travel periods during June, July, August and December. Aggressive fare
pricing strategies that increase the availability and size of ticket discounts
are utilized during weaker travel periods. Because certain of the Company's
costs do not vary significantly regardless of traffic levels, such seasonality
substantially affects the Company's profitability and liquidity.
DEPENDENCE ON TOURISM
Since the Company's operations are limited almost exclusively to flights to,
from and among, the Hawaiian Islands, the Company's profitability is linked to
the number of travelers to, from and among the Islands and a material reduction
in the number of such travelers would have a material adverse effect on the
Company's operations. Tourism constitutes a majority of the visitor counts to
and from Hawaii. Because tourism levels are related to discretionary income, the
level of Hawaii tourism is affected by the strength of the local Hawaii economy
and economies in the areas from which tourists to Hawaii typically originate.
Hawaii tourism is also dependent upon the popularity of Hawaii as a tourist
destination and negative events reduce tourist interest in Hawaii. In addition,
from time to time, various events such as the Persian Gulf War and
industry-specific problems such as strikes have had a negative impact on tourism
in Hawaii.
In 1998, for the first time in five years, the total number of visitors to
Hawaii declined as compared to the previous year. Preliminary statistics from
the Hawaii Visitors and Convention Bureau (the "HVCB") estimate that Hawaii
ended the 1998 year with approximately 6.7 million visitors, a 1.6% decline from
1997. Westbound arrivals from the U.S. mainland and European markets increased
by 4.1% over 1997. However, the increase was offset by a decrease in Eastbound
traffic, primarily from Japan, of 10.8%. Year over year, the islands of Maui,
the Big Island of Hawaii and Kauai experienced increased visitor counts of 0.7%,
6.6% and 3.1%, respectively. The increase was countered by a 5.5% decrease for
Oahu, which has historically had the largest number of visitors.
Significant influences on passenger traffic to Hawaii have been and will
continue to be 1) the local Hawaii economy, which has stagnated in the 1990s due
to declines in outside capital investment, sluggish tourism, reduced military
spending and reduction in the sugar and pineapple industries, once the mainstays
of the Hawaii agricultural business; 2) the strength and growth of the U.S.
mainland economy; 3) the general economic crisis in Asia, especially Japan; and
4) the recent resurgence of the vacation cruise industry and more effective
promotion by areas such as Mexico, the Caribbean and Europe and domestic leisure
attractions, such as theme parks and Las Vegas. Also, the increased incidence of
tactical pricing sales for
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travel in and among the 48 contiguous states of the U.S., which have become
more prevalent during the past two years, has resulted in the diversion of
potential Hawaii discretionary travel.
No assurance can be given that the level of passenger traffic to Hawaii will not
decline further in the future. A decline in the level of Hawaii passenger
traffic could have a material adverse effect on the Company's operations.
COMPETITION
The airline industry is highly competitive, primarily due to the effects of the
Airline Deregulation Act of 1978, recodified into the Transportation Act, which
has substantially eliminated government authority to regulate domestic routes
and fares and has increased the ability of airlines to compete with respect to
destination, flight frequencies and fares. Airline profit levels are highly
sensitive to and can be severely impacted by, adverse changes in fuel costs,
average yield and passenger demand.
The U.S. airline industry has consolidated in recent years as a result of
mergers and liquidations, and further consolidation may occur in the future. The
consolidations have, among other things, enabled certain carriers to expand
their international operations and increase their presence in the U.S. domestic
market. In addition, the airline industry has experienced in recent years
alliances between large U.S. and foreign carriers and between U.S. carriers,
allowing those carriers within such alliances to strengthen their overall
operations. Conversely, the industry has also seen in recent years the emergence
and growth of low cost, low fare domestic carriers who have further intensified
competitive pressures. Aircraft, skilled labor and gates at most airports
continue to be available to start-up carriers. In some cases, the new entrants
have initiated or triggered price discounting.
Many of the Company's competitors are larger and have substantially greater
resources. In addition, the commencement of service by new carriers on the
Company's routes could negatively impact the Company's operating results.
Competing airlines (including the Company) have, from time to time, reduced fare
levels and increased capacity beyond market demand on routes served by the
Company in order to maintain or generate additional revenues. Such activity,
which may occur in the future, by competing airlines could reduce fares or
passenger traffic to levels where profitable operations could not be achieved.
Due to its smaller size and liquidity, the Company may be less able to withstand
aggressive marketing tactics or a prolonged fare war initiated by its
competitors.
Vigorous price competition exists, with competitors frequently offering reduced
discount fares and other promotions to stimulate traffic during normally slack
travel periods, generate cash flow or increase relative market share in selected
markets. The introduction of broadly available, deeply discounted fares by a
major U.S. airline could result in lower yields for the entire industry and
could have a material adverse effect on the Company's operating results.
Airlines are subject to a high degree of financial and operating leverage. Due
to high fixed costs, the expenses of each flight do not vary proportionately
with the number of passengers carried, but the revenues generated from a
particular flight are directly related to the number of passengers carried.
Accordingly, while a decrease in the number of passengers carried would cause a
corresponding decrease in revenue (if not offset by higher fares), it may result
in a disproportionately greater decrease in profits. However, an increase in the
number of passengers carried would have the opposite effect.
The airline industry is highly sensitive to general economic conditions. Because
a substantial portion of airline travel is discretionary, the operating and
financial results of the Company may be negatively impacted by any downturn in
national or regional economic conditions in the U.S., particularly California,
the Pacific Northwest and Hawaii, and certain Asian countries, particularly
Japan. Any prolonged general reduction in airline passenger traffic will
adversely affect the Company.
INTERISLAND
While there are several small commuter and air taxi companies, which provide air
transportation to Hawaii airports that cannot be served with large aircraft, the
Interisland market is serviced primarily by two carriers, the Company and its
primary competitor in the Interisland market, Aloha Airlines, Inc. ("Aloha").
Aloha's competitive position is strengthened through its marketing affiliation
with United Airlines, Inc. ("United"), the largest carrier of passengers to
Hawaii. Aloha participates in United's
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frequent flyer program and also has a code sharing agreement with United.
Aloha principally utilizes 19 Boeing 737 aircraft with a schedule that
averages approximately, depending on seasonality, 150 to 180 daily flights,
which service the same basic Interisland routes as the Company. Hawaiian
Airlines has approximately, depending on seasonality, 130 to 150 Interisland
flights per day. Also, refer to THE DISCUSSION BELOW REGARDING THE COMPANY'S
MAJOR MARKETING AFFILIATIONS, INCLUDING CODE SHARING ARRANGEMENTS. The
Company believes that Interisland competition is primarily based on fare
levels, flight frequency, on-time performance and reliability, name
recognition, frequent flyer programs, customer service and aircraft type.
TRANSPAC
On its Transpac routes, the Company currently competes with major carriers
such as United, Delta Airlines, Inc., Northwest and, to a lesser extent,
Continental Airlines, Inc. ("Continental") and American. In addition, the
Company competes against charter carriers in the Transpac market. The Company
believes that Transpac competition is primarily based on fare levels, flight
frequency, on-time performance and reliability, name recognition, frequent
flyer programs, customer service and in-flight service.
RELIANCE ON THIRD PARTIES
The Company has entered into agreements with contractors, including American,
Northwest, Continental and certain other airlines, to provide certain facilities
and services required for its operations, including aircraft leasing and
maintenance, code sharing, reservations, computer services, frequent flyer
programs, passenger processing, fuel, ground facilities, baggage and cargo
handling and personnel training. This reliance on third parties to provide
services subjects the Company to the risk that such services could be
discontinued without adequate replacement services being available.
The Company leases ten DC-10 aircraft from American. American is responsible for
maintenance on all of the Company's DC-10 aircraft (leased and owned) with the
Company having access to spare parts, engines and rotables for the maintenance
of these aircraft. As such, the Company does not maintain large inventories of
spare engines or parts to support the operation of the DC-10 aircraft. The
Company pays a minimum monthly charge for maintenance services, monthly in
arrears. During 1998, the Company incurred approximately $69.6 million of lease
and maintenance expenses under the American leases and aircraft maintenance
agreements. American has the right to terminate its obligation to provide
aircraft maintenance services on and after January 1, 1999, upon 180 days' prior
notice. American has indicated to the Company its intent to provide maintenance
services through September 2001, although it may still exercise its right to
terminate upon 180 days' prior notice. If American terminated the maintenance
arrangement, the Company would have to seek an alternate source of maintenance
service or undertake to maintain its DC-10s internally. No assurance can be
given that the Company would be able to do so on a basis that is as
cost-effective as the American maintenance arrangement. Refer to MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
contained in Part II, Item 7 of this Form 10-K for further discussion on the
Company's DC-10 aircraft fleet. The Company also participates in American's
AAdvantage frequent flyer program and SABRE reservation system. Commencing March
2, 1998, the Company and American also effected a code sharing agreement. These
programs and services make the Company more competitive, but increase its
reliance on third parties.
The Company purchases almost all of its aviation fuel from Northwest pursuant to
an agreement which provides that, in case of shortages, Northwest will provide
fuel to its own fleet first and then a portion of the remaining fuel available
will be allocated between Hawaiian Airlines and any other applicable airlines.
The agreement requires Northwest to provide Hawaiian Airlines with aviation fuel
at Northwest's actual acquisition cost without markup for profit and with
reimbursement only for out-of-pocket costs. The agreement is renewed
automatically on December 31 of each year unless canceled by either of the
parties with 90 days' written notice. Hawaiian Airlines is prohibited from
reselling such fuel. No assurance can be given that the Company would be able to
secure an adequate supply of fuel from alternate sources if a fuel shortage were
to cause the supply from Northwest to be inadequate or if Northwest were to
cancel the agreement. The Company paid Northwest approximately $60.7 million,
$72.6 million and $70.9 million for the fuel supplied under this agreement in
1998, 1997 and 1996, respectively. Further, effective July 1996, the Company
entered into a cooperative marketing agreement
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with Northwest, which provides for extensive marketing cooperation, including
a code sharing arrangement and frequent flyer participation. In 1998 and in
both 1997 and 1996, a majority of the Company's ticket sales were made by
travel agents, including approximately 40% and 30% by six large wholesalers.
In 1998, a particular Hawaii-based wholesaler, Panda Travel Inc., constituted
approximately 13% of the Company's total operating revenues. Travel agents
generally have a choice between one or more airlines when booking a
customer's flight. Accordingly, any effort by travel agencies to favor
another airline or to disfavor the Company could adversely affect the
Company. Although management intends to continue to offer an attractive and
competitive product to travel agencies and to maintain favorable relations
with travel agencies, there can be no assurance that travel agencies will not
disfavor the Company or favor other airlines in the future, either of which
could have an adverse effect on the Company's operations.
REGULATION
GENERAL
As a certificated air carrier, Hawaiian Airlines is subject to the regulatory
jurisdiction of the U.S. Department of Transportation (the "DOT") and the
Federal Aviation Administration (the "FAA"). The DOT has jurisdiction over
certain aviation matters such as the carrier's certificate of public convenience
and necessity, international routes and fares, consumer protection policies
including baggage liability and denied-boarding compensation and unfair
competitive practices as set forth in the Transportation Act. Hawaiian Airlines
and all other domestic airlines are subject to regulation by the FAA under the
Transportation Act. The FAA has regulatory jurisdiction over flight operations
generally, including equipment, ground facilities, security systems, maintenance
and other safety matters. To assure compliance with its operational standards,
the FAA requires air carriers to obtain operations, air worthiness and other
certificates, which may be suspended or revoked for cause. The FAA also conducts
safety audits and has the power to impose fines and other sanctions for
violations of aviation safety and security regulations. As are other carriers,
Hawaiian Airlines is subject to inspections by the FAA in the normal course of
its business on a routine ongoing basis. Hawaiian Airlines operates under a
Certificate of Public Convenience and Necessity issued by the DOT (authorizing
it to provide commercial aircraft service) as well as a Part 121 Scheduled
Carrier Operating Certificate issued by the FAA.
MAINTENANCE DIRECTIVES AND OTHER REGULATIONS
Hawaiian Airlines has developed extensive maintenance programs, which consist of
a series of phased checks of each aircraft type. These checks are performed at
specified intervals measured either by time flown or by the number of takeoffs
and landings ("cycles") performed. Checks range from daily "walk around"
inspections, to more involved overnight maintenance checks, to exhaustive and
time consuming overhauls. Aircraft engines are subject to phased, or continuous,
maintenance programs designed to detect and remedy potential problems before
they occur. The service lives of certain parts and components of both airframe
and engines are time or cycle controlled. Parts and other components are
replaced or overhauled prior to the expiration of their time or cycle limits.
The FAA approves all airline maintenance programs, including changes to the
programs. In addition, the FAA licenses the mechanics who perform the
inspections and repairs, as well as the inspectors who monitor the work.
The FAA frequently issues air worthiness directives, often in response to
specific incidents or reports by operators or manufacturers, requiring operators
of specified equipment to perform prescribed inspections, repairs or
modifications within stated time periods or numbers of cycles. In the last
several years, the FAA has issued a number of maintenance directives and other
regulations relating to, among other things, cargo compartment fire
detection/suppression systems, collision avoidance systems, airborne windshear
avoidance systems, noise abatement and increased inspection requirements. The
Company expects to continue to incur substantial expenditures for the purpose of
complying with these new regulations, including, but not limited to:
1) The Company anticipates that in the period 1999 through 2001, eight of its
DC-9 aircraft will require heavy airframe overhaul checks (the "C5-Check",
previously referred to as a D-Check). The C5-Check for a DC-9 requires more
than 20,000 man-hours of maintenance work and includes stripping the
airframe, extensively testing the airframe structure and a large number of
parts and components, and reassembling the overhauled airframe with new or
rebuilt components. The Company anticipates each C5-Check to cost
approximately $1.0 million;
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2) The FAA has and is expected to continue to require structural modifications
and the replacement of certain parts, as well as the implementation of
additional maintenance programs or changes to current programs, with
respect to various types of aircraft over a certain age. These requirements
vary, depending on the type of aircraft covered. Based on information
currently available, the Company estimates that the total cost of complying
with the aging aircraft requirements over the 1999 through 2003 period will
approximate $660,000 per DC-9 aircraft;
3) The Company expects to incur approximately $100,000 per DC-9 aircraft per
year for maintenance required under a corrosion prevention and control
program. This program is anticipated to continue indefinitely in the
future;
4) The FAA has mandated the installation of smoke detection and fire
suppression systems in the cargo compartments of both DC-10 and DC-9
aircraft by December 2000. The cost for systems and installation is
estimated to be $130,000 and $83,000 per each DC-10 and DC-9 aircraft,
respectively;
5) As a result of certain incidents where Digital Flight Data Recorder
("DFDR") information was insufficient to determine the cause of the
accident, the FAA has also mandated additional recording parameters for the
DC-10 and DC-9 aircraft by the first heavy maintenance check after August
1999 but no later than August 2001. The DC-10 DFDR will be upgraded from 17
to 22 parameters at an estimated cost of $60,000 per aircraft. The DC-9
DFDR will be upgraded from 11 to 18 parameters at an estimated cost of
$47,000 per aircraft;
6) During the period from 1999 through 2003, the Company anticipates continued
implementation of its supplemental inspection document program for certain
of its DC-9 aircraft, which is estimated to range up to $27,000 per
aircraft.
The estimated future cost of complying with FAA regulations as discussed in the
preceding paragraphs will be in addition to the costs of the Company's current
DC-10 and DC-9 fleet maintenance programs.
In 1990, Congress passed legislation (the Airport Noise and Capacity Act of
1990) which provided for a reduction in commercial aircraft noise levels.
Carriers were permitted to comply with the transitional requirements either by
1) phasing out, or retrofitting with noise abatement equipment, certain older
aircraft known as Stage 2 aircraft, or 2) phasing in quieter aircraft, known as
Stage 3 aircraft by December 31, 1999, with the possibility of certain waivers
until December 31, 2003, when full phase out is required. Congress provided an
exemption for air carriers operating turnaround service in Hawaii, or between a
place in Hawaii and a place outside the 48 contiguous states, to operate as many
Stage 2 aircraft of a certain weight as they operated on November 5, 1990. Air
carriers that provided flights between places only in Hawaii on November 5, 1990
may include in the number of Stage 2 aircraft under the exemption all Stage 2
aircraft that it owned or leased on November 5, 1990, whether or not the
aircraft were operated by the carrier on that date. However, an air carrier may
provide flights between places only in Hawaii using Stage 2 aircraft only if the
carrier provided the service on November 5, 1990. The Company believes these
exemptions restrict air carriers other than the Company and Aloha from operating
Stage 2 aircraft in Hawaii. Because Stage 2 aircraft are less expensive to
acquire than Stage 3 aircraft, this exemption provides limited protection
against the entry of another carrier, which would be required to operate an all
Stage 3 fleet. This advantage is partially offset by the fact that Stage 3
aircraft are generally less expensive to operate and maintain, as well as the
fact that in any event over time, carriers will move toward having an all Stage
3 fleet. Although the Company and Aloha may operate Stage 2 aircraft in Hawaii
after December 31, 1999, the air carriers will be prohibited from transporting
Stage 2 aircraft to and from the 48 contiguous states for any purpose, including
heavy airframe overhaul and maintenance, unless an amendment to the Federal law
is enacted by Congress or an exemption is obtained from the FAA. No assurance
can be given that the Company can obtain the exemption from the FAA or that
Congress will pass legislation allowing non-revenue operations of Stage 2
aircraft to and from the contiguous 48 states. Should neither of these events
occur, the Company would have to seek alternatives, primarily with regard to
heavy maintenance service on its Stage 2 aircraft. No assurance can be given
that the Company would be able to do so on a cost-effective basis.
Additional laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by, for example, imposing
additional requirements or restrictions on
10
<PAGE>
operations. Laws and regulations also have been considered from time to time
that would prohibit or restrict the ownership and/or transfer of airline
routes or takeoff and landing slots. Also, the award of international routes
to U.S. carriers (and their retention) is regulated by treaties and related
agreements between the U.S. and foreign governments, which are amended from
time to time. The Company cannot predict what laws and regulations will be
adopted or what changes to international air transportation treaties will be
effected, if any, or how they will affect the Company.
Hawaiian Airlines believes that it is in compliance with all requirements
necessary to maintain in good standing its operating authority granted by the
DOT and its air carrier operating certificate issued by the FAA. A modification,
suspension or revocation of any of the Company's DOT or FAA authorizations or
certificates would have a material adverse effect upon the Company.
Several aspects of airlines' operations are subject to regulation or oversight
by Federal agencies other than the FAA and DOT. The antitrust laws are enforced
by the U.S. Department of Justice. The U.S. Postal Service has jurisdiction over
certain aspects of the transportation of mail and related services provided by
the Company's cargo services. Labor relations in the air transportation industry
are generally regulated under the Railway Labor Act. The Company and other
airlines certificated prior to October 24, 1978 are also subject to preferential
hiring rights granted by the Transportation Act to certain airline employees who
have been furloughed or terminated (other than for cause).
LIMITATION ON FOREIGN OWNERSHIP OF SHARES
The Transportation Act prohibits non-U.S. citizens from owning more than 25% of
the voting interest of a U.S. air carrier. The Company's Restated Articles of
Incorporation prohibit the ownership or control of more than 25% (to be
increased or decreased from time to time to that percentage permissible under
the laws of the U.S.) of issued and outstanding voting capital stock of the
Company by persons who are not "citizens of the U.S.". As of December 31, 1998,
less than 25% of the Common Stock of the Company was held by non-U.S. citizens.
INSURANCE
The Company is exposed to potential losses that may be incurred in the event of
an aircraft accident. Any such accident could involve not only the repair or
replacement of a damaged aircraft and its consequential temporary or permanent
loss of service, but also significant potential claims of injured passengers and
others. The Company is required by the DOT to carry liability insurance on each
of its aircraft. The Company currently maintains public liability insurance
which management believes is adequate and consistent with current industry
practice. However, there can be no assurance that the amount of such coverage
will not be changed or that the Company will not bear substantial losses from
accidents. Substantial claims resulting from an accident in excess of related
insurance coverage could have a material adverse effect on the Company.
LANDING FEES
Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS contained in Part II, Item 7 of this Form 10-K for discussion on
State of Hawaii landing fees from September 1, 1997 to September 1, 1999.
TICKET TAXES
Refer to MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS contained in Part II, Item 7 of this Form 10-K for discussion on
ticket taxes.
EMPLOYEES
As of December 31, 1998, Hawaiian Airlines had 2,577 employees, of which
2,147 were employed on a full-time basis. The majority of Hawaiian Airlines'
employees are covered by labor agreements with the International Association
of Machinists and Aerospace Workers (AFL-CIO), the Air Line Pilots
Association International, the Association of Flight Attendants, the
Transport Workers Union and the Communications Section Employees Union. The
amendable date of all five contracts is February 28, 2000. Refer to
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS contained in Part II, Item 7 of this Form 10-K for further
discussion on the Company's employees.
11
<PAGE>
ITEM 2. PROPERTIES.
Information provided in Notes 4, 5 and 6 to the Financial Statements
contained in Part IV, Item 14 of this Form 10-K is incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS.
Information provided in Note 10 to the Financial Statements contained
in Part IV, Item 14 of this Form 10-K is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
(a) Market Information.
The Registrant's Common Stock is traded on the American Stock Exchange
and Pacific Exchange under the symbol HA. The following table sets
forth the reported high and low sales prices for the Common Stock for
the quarters indicated, as reported by the American Stock Exchange:
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
-----------------------------------------------------------
<S> <C> <C> <C> <C>
High 3-13/16 3-1/2 3 3-1/2
Low 2-5/8 2-13/16 1-1/2 1-3/4
</TABLE>
<TABLE>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
-----------------------------------------------------------
<S> <C> <C> <C> <C>
High 3-15/16 5 5-1/4 4-13/16
Low 3-1/8 3-1/8 4-1/4 3-1/2
</TABLE>
(b) Holders.
As of March 1, 1999, there were approximately 1,061 holders of record
of the Company's Common Stock.
(c) Dividends.
Under the terms of the financing arrangement with CIT Group/Credit
Finance, Inc., the Company is restricted from paying any cash or stock
dividends. No dividends were paid by the Company in 1998 or 1997.
ITEM 6. SELECTED FINANCIAL DATA.
Information under the caption "Selected Financial and Statistical Data"
on pages F-28 to F-30 contained in Part IV, Item 14 of this Form 10-K
is incorporated herein by reference.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained here and throughout, that are not related to
historical results, including, without limitation, statements regarding the
Company's business strategy and objectives, future financial position and
estimated cost savings, are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
and involve risks and uncertainties. Although the Company believes that the
assumptions on which these forward-looking statements are based are reasonable,
there can be no assurance that such assumptions will prove to be accurate and
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed under Part I, Item
I, Business and heretofore, as well as those discussed elsewhere in this Form
10-K. All forward-looking statements contained in this Form 10-K are qualified
in their entirety by this cautionary statement.
It is not reasonably possible to itemize all of the many factors and specific
events that could affect the outlook of an airline operating in the global
economy. Some factors that could significantly impact capacity, load factors,
revenues, expenses and cash flows include the airline pricing environment, fuel
costs, labor union situations both at the Company and other carriers, low-fare
carrier expansion, capacity decisions of other carriers, actions of the U.S. and
foreign governments, foreign currency exchange rate fluctuations, inflation, the
general economic environment and other factors discussed herein.
Developments in any of these areas, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings, could cause the Company's results to differ from results that have been
or may be projected by or on behalf of the Company. The Company cautions that
the foregoing list of important factors is not exclusive. The Company does not
undertake to update any forward-looking statements that may be made from time to
time by or on behalf of the Company.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
For the year ended December 31, 1998, the Company generated operating income of
$17.4 million, a $14.9 million improvement from 1997 operating income of $2.5
million. The Company also generated net income of $8.2 million, a $9.2 million
improvement from the $1.0 million net loss experienced in 1997. The improvement
is associated with the Company's generation of $22.2 million more of operating
revenues. Decreases of $11.5 million and $3.9 million in overall fuel and
landing fee expenses, respectively, were offset by other operating expense
increases as a result of increased flight activity in 1998.
Included in the 1998 and 1997 results of operations are provisions for income
taxes of $7.8 million and $1.7 million, respectively. While generally accepted
accounting principles require that the provisions for income taxes be recorded,
most of the amounts recorded will not require cash outlay as the amounts will be
offset by net operating loss carryforwards available to the Company. As noted in
Note 7 in NOTES TO FINANCIAL STATEMENTS contained in Part IV, Item 14 of this
Form 10-K, the estimated income tax benefit from the expected utilization of
these net operating loss carryforwards has been applied as a reduction to
reorganization value in excess of amounts allocable to identifiable assets.
13
<PAGE>
OPERATING REVENUES
Operating revenues totaled $426.4 million in 1998 compared to $404.2 million in
1997, an increase of $22.2 million or 5.5%, driven principally by a $22.1
million or 6.7% increase in passenger revenues.
PASSENGER AND CHARTER
The following table compares operating passenger revenues and statistics, in
thousands, except as otherwise indicated, for the years ended 1998 and 1997:
<TABLE>
<CAPTION>
Operating Passenger Increase
Revenues and Statistics 1998 1997 (Decrease) %
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interisland:
Passenger revenues. . . . . . . $ 138,614 $ 132,626 5,988 4.5
Revenue passengers. . . . . . . 3,734 3,735 (1) -
Revenue passenger miles . . . . 495,323 497,137 (1,814) (0.4)
Available seat miles. . . . . . 885,682 859,545 26,137 3.0
Passenger load factor . . . . . 55.9% 57.8% (1.9) (3.3)
Yield . . . . . . . . . . . . . 28.0 CENTS 26.7 CENTS 1.3 CENTS 4.9
Transpac:
Passenger revenues. . . . . . . $ 196,670 $ 180,424 16,246 9.0
Revenue passengers. . . . . . . 1,214 1,168 46 3.9
Revenue passenger miles . . . . 2,988,341 2,819,783 168,558 6.0
Available seat miles. . . . . . 3,783,287 3,569,138 214,149 6.0
Passenger load factor . . . . . 79.0% 79.0% - -
Yield . . . . . . . . . . . . . 6.6 CENTS 6.4 CENTS 0.2 CENTS 3.1
Southpac:
Passenger revenues. . . . . . . $ 18,961 $ 19,104 (143) (0.7)
Revenue passengers. . . . . . . 62 61 1 1.6
Revenue passenger miles . . . . 165,360 162,136 3,224 2.0
Available seat miles. . . . . . 271,032 270,926 106 -
Passenger load factor . . . . . 61.0% 59.9% 1.1 1.8
Yield . . . . . . . . . . . . . 11.5 CENTS 11.8 CENTS (0.3) CENTS (2.5)
Overseas Charter:
Charter revenues. . . . . . . . $ 35,742 $ 37,172 (1,430) (3.8)
Revenue passengers. . . . . . . 250 253 (3) (1.2)
Revenue passenger miles . . . . 689,578 683,384 6,194 0.9
Available seat miles. . . . . . 733,735 739,619 (5,884) (0.8)
</TABLE>
Significant year to year variances were as follows:
Interisland passenger revenues totaled $138.6 million in 1998 compared to $132.6
million in 1997. The $6.0 million or 4.5% increase is in direct correlation to a
1.3CENTS or 4.9% increase in yield. Year over year, revenue passengers carried
and revenue passenger miles ("RPM") were relatively comparable. The increase in
yield is attributed to 1) general price increases initiated by the Company
throughout 1998 and 2) improved fare and inventory management through use of the
Company's relatively new yield management system.
Transpac passenger revenues totaled $196.7 million in 1998, an increase of $16.3
million or 9.0% over 1997 Transpac
14
<PAGE>
passenger revenues of $180.4 million. The Company experienced increases of
3.9% and 6.0% in its passengers carried and RPM, respectively. These
increases were complemented by a 0.2CENTS or 3.1% increase in yield, again
reflecting improved fare and inventory management and general price increase
initiatives by the Company throughout 1998.
Overseas charter revenues decreased by $1.4 million or 3.8% in 1998. The
decrease is primarily due to, during the first half of 1998, the Company flying
on average, two fewer charters per week to Las Vegas and general price decreases
charged for both its Las Vegas and Anchorage charter flights.
OTHER OPERATING
Other operating revenues in 1998 totaled $14.7 million, an increase of $1.1
million or 8.3%, primarily due to additional revenues related to the promotion
of the Company's frequent flyer program.
OPERATING EXPENSES
Operating expenses totaled $409.0 million in 1998, an increase of $7.3 million
or 1.8% from total operating expenses of $401.7 million in 1997.
The following table compares operating expenses per Available Seat Mile ("ASM")
by major category for 1998 with 1997:
<TABLE>
<CAPTION>
Operating Increase
Expenses Per ASM 1998 1997 (Decrease) %
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wages and benefits . . . . . . . . . . . . 2.10 CENTS 2.11 CENTS (0.01) CENTS (0.5)
Aircraft fuel, including taxes and oil . . 1.17 1.44 (0.27) (18.8)
Maintenance materials and repairs. . . . . 1.48 1.40 0.08 5.7
Rentals and landing fees . . . . . . . . . 0.54 0.60 (0.06) (10.0)
Sales commissions. . . . . . . . . . . . . 0.21 0.24 (0.03) (12.5)
Depreciation and amortization. . . . . . . 0.22 0.20 0.02 10.0
Other. . . . . . . . . . . . . . . . . . . 1.49 1.40 0.09 6.4
---------- ---------- ------------ ------
Total . . . . . . . . . . . . . . . . . 7.21 CENTS 7.39 CENTS (0.18) CENTS (2.4)
---------- ---------- ------------ ------
---------- ---------- ------------ ------
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 4.3% in 1998 from 1997. Significant year to
year variances were as follows:
Wages and benefits per ASM remained relatively consistent from year to year.
The dilutive effect of increased ASMs was offset by increased wages and
benefits in 1998 of $4.3 million or 3.8% over 1997. Wages and benefits
totaled $118.9 million in 1998 versus $114.6 million in 1997. A majority of
the increase is attributable to additional wages and benefits from increased
flying operations and the accrual for the Company's profit sharing program.
Aircraft fuel, including taxes and oil ("Aircraft Fuel"), per ASM decreased year
over year by 0.27CENTS or 18.8%. The Company incurred $11.5 million or 14.8%
less Aircraft Fuel cost in 1998, the combination of a 3.9% increase in gallons
consumed, a 19.8% decrease in the average cost of aircraft fuel per gallon and
$2.3 million in aggregate realized and unrealized losses on the Company's
Aircraft Fuel derivative financial instruments.
Maintenance materials and repairs per ASM increased by 0.08CENTS or 5.7% in 1998
from 1997. The Company experienced $7.7 million or 10.1% in additional
maintenance principally due to 1) $5.3 million more in DC-10 maintenance expense
from increased utilization of DC-10 aircraft for long-haul flying and 2) $2.3
million more in DC-9 engine repairs.
15
<PAGE>
Rentals and landing fees per ASM decreased by 0.06CENTS or 10.0%. Commencing
September 1, 1997, a two-year moratorium was placed on landing fees at all
airports in the State of Hawaii. The Governor of the State of Hawaii reserved
the right, however, to reinstate the landing fee charges before the two-year
period ends. Under the current moratorium, the Company incurred approximately
$3.9 million less for landing fees in 1998 than in 1997.
Sales commissions per ASM decreased by 0.03CENTS or 12.5%. Sales commissions
decreased by $1.4 million or 10.6% in 1998, principally due to a decrease in the
interline commission rate and an increase in the volume of non-commissionable
tickets sold year over year.
Depreciation and amortization per ASM increased by 0.02CENTS or 10.0%.
Depreciation and amortization totaled $12.6 million in 1998 versus $10.7 million
in 1997. A majority of the $1.9 million or 17.8% increase is due to $1.1 million
and $700,000 in additional depreciation and amortization on ground equipment and
DC-9 overhauls in 1998.
Other operating expenses per ASM increased by 0.09CENTS or 6.4% between 1998 and
1997. The Company incurred approximately $8.4 million or 11.0% of additional
other operating expenses in 1998 over 1997, primarily as a result of additional
aircraft service, advertising and promotion and general and administrative
expenses, including professional and legal fees.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 130 requires reclassification of financial
statements for earlier periods provided for comparative purposes.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 requires restatement of comparative information
presented for earlier periods.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in SFAS Nos. 87, 88 or 106. SFAS No. 132 requires
restatement of comparative information presented for earlier periods.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
In March 1998, the American Institute of Certified Public Accountants Accounting
Standards Executive Committee (the "AcSEC") issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires that certain costs related to the development or
purchase of internal-use software be capitalized and amortized over the
estimated useful life of the software. SOP 98-1 also requires that costs related
to the preliminary project stage and the post-implementation/operations stage,
as defined, in an internal-use computer software development project be expensed
as incurred. SOP 98-1 is effective for fiscal years beginning after December 15,
1998.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires that
16
<PAGE>
costs incurred during start-up activities, including organization costs, be
expensed as incurred. The provisions of SOP 98-5 are effective for fiscal
years beginning after December 15, 1998.
The Company adopted the provisions of SFAS Nos. 130, 131 and 132 effective
January 1, 1998. Adoption of SFAS No. 130 did not result in the reclassification
of comparative financial statement information presented for earlier periods.
Adoption of SFAS No. 131 did not result in a modification to the Company's
reporting segment and accordingly, comparative financial statement information
presented for earlier periods was not restated. The Company's disclosures
regarding pension and other postretirement benefits for prior periods have been
restated to comply with the provisions of SFAS No. 132. Further, management does
not expect the adoption of SFAS No. 133, SOP 98-1 or SOP 98-5 by the respective
required dates to have a material impact on the Company's financial condition,
results of operations, liquidity and/or previously reported financial
information.
1997 COMPARED TO 1996
For the year ended December 31, 1997, the Company generated operating income of
$2.5 million, a $475,000 improvement from 1996 operating income of $2.0 million.
The Company also reduced its net loss before extraordinary items and cumulative
effect of change in accounting principle by $1.7 million to $572,000 in 1997
from $2.3 million in 1996. The Company incurred a net loss of $1.0 million for
the year ended December 31, 1997, a $511,000 improvement from the net loss of
$1.5 million in 1996.
17
<PAGE>
OPERATING REVENUES
Operating revenues totaled $404.2 million in 1997 compared to $384.5 million in
1996, an increase of $19.7 million or 4.9%. Significant year to year variances
were as follows:
PASSENGER AND CHARTER
The following table compares operating passenger revenues and statistics, in
thousands, except as otherwise indicated, for the years ended 1997 and 1996:
<TABLE>
<CAPTION>
Operating Passenger Increase
Revenues and Statistics 1997 1996 (Decrease) %
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interisland:
Passenger revenues. . . . . . . $ 132,626 $ 133,019 (393) (0.3)
Revenue passengers. . . . . . . 3,735 3,828 (93) (2.4)
Revenue passenger miles . . . . 497,137 508,286 (11,149) (2.2)
Available seat miles. . . . . . 859,545 921,752 (62,207) (6.7)
Passenger load factor . . . . . 57.8% 55.1% 2.7 5.0
Yield . . . . . . . . . . . . . 26.7 CENTS 26.2 CENTS 0.5 CENTS 1.9
Transpac:
Passenger revenues. . . . . . . $ 180,424 $ 173,419 7,005 4.0
Revenue passengers. . . . . . . 1,168 1,080 88 8.1
Revenue passenger miles . . . . 2,819,783 2,647,869 171,914 6.5
Available seat miles. . . . . . 3,569,138 3,371,049 198,089 5.9
Passenger load factor . . . . . 79.0% 78.5% 0.5 0.5
Yield . . . . . . . . . . . . . 6.4 CENTS 6.5 CENTS (0.1) CENTS (1.5)
Southpac:
Passenger revenues. . . . . . . $ 19,104 $ 19,828 (724) (3.7)
Revenue passengers. . . . . . . 61 63 (2) (3.2)
Revenue passenger miles . . . . 162,136 167,850 (5,714) (3.4)
Available seat miles. . . . . . 270,926 279,154 (8,228) (2.9)
Passenger load factor . . . . . 59.9% 60.1% (0.2) (0.3)
Yield . . . . . . . . . . . . . 11.8 CENTS 11.8 CENTS - -
Overseas Charter:
Charter revenues. . . . . . . . $ 37,172 $ 27,835 9,337 33.5
Revenue passengers. . . . . . . 253 190 63 33.2
Revenue passenger miles . . . . 683,384 515,982 167,402 32.4
Available seat miles. . . . . . 739,619 528,787 210,832 39.9
</TABLE>
Interisland passenger revenues decreased by $393,000 or 0.3% to $132.6 million
in 1997 from $133.0 million in 1996. Interisland passenger revenues were
impacted by softness in tourism throughout the State of Hawaii, principally
through the first six months of 1997. The decrease in Interisland passenger
revenues was also caused by less ASM as evidenced by the 6.7% decrease in
available seat miles year over year. The decrease in revenue passengers carried
and RPM, however were offset by a 0.5CENTS or 1.9% increase in yield, the result
of certain price increases initiated in the Interisland market by the Company in
the latter months of 1997.
Transpac passenger revenues totaled $180.4 million in 1997, an increase of $7.0
million or 4.0% over 1996 Transpac passenger revenues of $173.4 million. In
1997, the Company adjusted its Transpac frequencies to particular Transpac
18
<PAGE>
destinations depending on market demand. The Company experienced increases of
8.1% and 6.5% in its passengers carried and RPM, respectively. However, these
increases were offset by a 0.1CENTS or 1.5% decrease in yield reflecting more
aggressive pricing actions taken by the Company to stimulate travel demand and
be competitive, primarily in the second and third quarters of 1997. These
pricing strategies, combined with cooperative advertising and promotions, were
targeted at Transpac markets in which the Company had increased its level of
service and those in which the Company maintained code share alliances.
Overseas charter revenues in 1997 totaled $37.2 million, an increase of $9.3
million from 1996 Overseas charter revenues of $27.8 million. The increase is
attributable to the Company operating on average, eight charters per week to Las
Vegas throughout the first six months of 1997 versus six per week throughout the
first six months of 1996, and from February 1997 to April 1997 and from May 1997
to December 1997, on average, two and one charter rotations per week,
respectively, to Anchorage, Alaska. The Anchorage charters were not operated in
1996.
CARGO
Transpac cargo revenues increased by $1.1 million or 9.2% to $13.0 million in
1997 from $11.9 million in 1996. The increase was primarily due to increased
frequencies in Transpac routes which allowed the Company to transport 1,783 or
9.2% more tons of freight in 1997 compared to 1996.
OTHER OPERATING
Other operating revenues in 1997 totaled $13.6 million, an increase of $3.4
million or 32.9%, primarily due to approximately $2.3 million in additional
revenues related to the promotion of the Company's frequent flyer program and
inflight media and service products.
OPERATING EXPENSES
Operating expenses totaled $401.7 million in 1997, an increase of $19.3 million
or 5.0% from total operating expenses of $382.4 million in 1996.
The following table compares operating expenses per ASM by major category for
1997 with 1996:
<TABLE>
<CAPTION>
Operating Increase
Expenses Per ASM 1997 1996 (Decrease) %
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wages and benefits . . . . . . . . 2.11 CENTS 2.13 CENTS (0.02) CENTS (0.9)
Aircraft fuel, including taxes and oil 1.44 1.49 (0.05) (3.4)
Maintenance materials and repairs. 1.40 1.35 0.05 3.7
Rentals and landing fees . . . . . 0.60 0.69 (0.09) (13.0)
Sales commissions. . . . . . . . . 0.24 0.26 (0.02) (7.7)
Depreciation and amortization. . . 0.20 0.17 0.03 17.6
Other. . . . . . . . . . . . . . . 1.40 1.41 (0.01) (0.7)
---------- ---------- ------------ ------
Total . . . . . . . . . . . . . 7.39 CENTS 7.50 CENTS (0.11) CENTS (1.5)
---------- ---------- ------------ ------
---------- ---------- ------------ ------
</TABLE>
All fluctuations in operating expenses per ASM were affected by an overall
increase in ASM of approximately 6.6% in 1997 from 1996. Significant year to
year variances were as follows:
Wages and benefits per ASM decreased by 0.02CENTS or 0.9%. The dilutive effect
of increased ASM was offset by increased wages and benefits in 1997 of $6.0
million or 5.5% over 1996. Wages and benefits totaled $114.6 million in 1997
versus $108.6 million in 1996. The Company incurred additional customer service,
crew and inflight wages and benefits primarily due to increased long-haul
flying.
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Aircraft Fuel per ASM decreased year over year by 0.05CENTS or 3.4%. The effect
of increased ASM was offset by an overall increase in Aircraft Fuel costs of
$2.2 million or 2.9% to $78.1 million in 1997 from $75.9 million in 1996. The
Company incurred $3.5 million in additional costs from the consumption of
approximately 4.5 million or 4.6% more gallons of fuel in 1997 than in 1996 and
$1.1 million in aggregate realized and unrealized losses on the Company's
Aircraft Fuel derivative financial instruments. These additional costs were
offset by a decrease in Aircraft Fuel expense year over year of $2.2 million
resulting from a decrease in the average cost per gallon of 2.2CENTS or 2.9%.
Maintenance materials and repairs per ASM increased by 0.05CENTS or 3.7% in 1997
from 1996. The Company experienced $7.3 million or 10.6% in additional
maintenance principally due to 1) $5.7 million more in DC-10 maintenance expense
as the Company utilized between nine and ten DC-10 aircraft throughout 1997
versus a varying fleet of eight to ten DC-10 aircraft in 1996 due to increased
long-haul frequencies and 2) $1.2 million more in DC-9 airframe and engine
repairs.
Rentals and landing fees per ASM were primarily affected by decreased landing
fees of $2.2 million in 1997. A two-year moratorium was placed on landing fees
at all airports in Hawaii commencing September 1, 1997. The Company had averaged
approximately $500,000 per month in landing fees at airports in the State of
Hawaii prior to the moratorium.
Depreciation and amortization per ASM increased by 0.03CENTS or 17.6%.
Depreciation and amortization totaled $10.7 million in 1997 versus $8.7 million
in 1996. A majority of this $2.0 million or 23.0% increase in 1997 is due to 1)
$1.2 million in additional depreciation and amortization on DC-9 and DC-10
capitalized parts and overhauls and 2) $548,000 in additional depreciation on
DC-9 flight equipment financed through capital leases.
Other operating expenses per ASM is comparable between 1997 and 1996. Other
operating expenses increased by $4.5 million or 6.2% in 1997 compared to 1996
primarily due to $3.7 million in additional catering, ground handling and
personnel expenses from increased long-haul flying.
EXTRAORDINARY ITEMS
In 1996, the Company paid approximately $4.7 million to GPA Group plc and its
affiliate AeroUSA, Inc. to repurchase 827,221 shares of Common Stock and to
repay approximately $4.5 million of long-term debt at a 15.0% discount,
including any deferred costs and other expenses owed. These transactions
resulted in an extraordinary gain, net of income taxes, of approximately
$409,000.
Further, in December 1996, the Company exercised its option to prepay to
American a $10.25 million promissory note secured by certain assets of the
Company (the "American Note"). The Company paid American $9.15 million plus
accrued interest with all liens securing the American Note being released. Early
extinguishment of the American Note resulted in an extraordinary gain, net of
income taxes, of approximately $357,000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
As promulgated by the FASB's Emerging Issues Task Force, in fourth quarter 1997,
the Company wrote off business process reengineering costs it had previously
capitalized. As discussed below in INFORMATION TECHNOLOGY SYSTEMS AND YEAR 2000,
the Company has commenced and committed significant resources to upgrading its
business processes and information technology for strategic and year 2000
positioning. The write-off totaled approximately $450,000, net of income tax
benefit of approximately $300,000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company believes that it has various options available to meet its capital,
debt and operating commitments, including cash and liquid short-term investment
securities on hand at December 31, 1998 of $31.0 million, internally generated
funds and a credit facility with total availability of $11.1 million as of
December 31, 1998, with aggregate term loans and letters of credit outstanding
in the amounts of $4.9 million and $1.1 million, respectively. The Company
believes that its ability to generate cash, both internally from operations and
externally from debt and equity issues, is adequate to maintain sufficient
liquidity to fund its capital expenditure programs and to cover debt and other
cash requirements in the foreseeable future.
Cash and cash equivalents for the year ended December 31, 1998 increased by
$15.3 million from December 31, 1997. Operating activities for the year ended
December 31, 1998 provided $30.2 million in cash and cash equivalents, primarily
due to the Company generating $17.4 million in operating income. Investing
activities for the year ended December 31, 1998 used $22.8 million of cash and
cash equivalents primarily to acquire property and equipment, including two used
aircraft as discussed below, continued investments in improved software,
hardware and implementation costs and capitalized portions of DC-9 checks and
overhauls. Including the effects of the two used aircraft discussed below, the
Company had estimated its capital expenditures in 1998 to approximate $29.6
million. Financing activities for the year ended December 31, 1998 provided $7.9
million in cash and cash equivalents, principally the result of $7.6 million in
net borrowings related to its debt and capital lease obligations.
The Company estimates that its capital expenditures in 1999 will approximate
$49.8 million. Approximately, $20.8 million is associated with the acquisition
of additional aircraft as discussed below. The remaining $29.0 million
principally represents (1) capitalized portions of DC-9 and DC-10 checks,
overhauls and configurations; (2) improvements in software and related hardware
and airport and office facilities; and (3) purchase of ground equipment and
other assets. Acquisition of additional aircraft is anticipated to be funded
primarily through debt financings. Other authorized expenditures will be funded
through use of available cash and cash equivalents and internally generated
funds.
ROUTES, AIRCRAFT AND EMPLOYEES
In September 1998, the Company announced plans to expand its Transpac operations
by adding in first quarter 1999 four weekly nonstop flights between Los Angeles
and Maui and three weekly flights from Los Angeles to Maui to Kona on the Big
Island of Hawaii. Further, in November 1998, a charter agreement was entered
into with Renaissance Cruises. The two-year agreement provides for approximately
20 round-trip charter flights per month between Los Angeles and Tahiti,
commencing in August 1999. The agreement is estimated to be worth more than $70
million in incremental passenger charter revenue to the Company.
Additional wide-body aircraft will be required to service the additional
Transpac frequencies discussed immediately above. In November 1998, the Company
entered into a purchase agreement for two used DC-10-30 aircraft. As of December
31, 1998, the Company had taken delivery of one of the used DC-10-30 aircraft.
Delivery of the second used DC-10-30 aircraft took place during the first
quarter 1999. Efforts have also commenced to acquire a third DC-10-30 aircraft.
It is anticipated that approximately 280 to 380 additional employees will be
hired to service the new routes.
In December 1998, the Company entered into a purchase agreement to acquire
two used DC-9-50 aircraft in an attempt to maximize its code sharing
arrangements with American and Northwest. The aircraft will be used in the
Interisland market. As of December 31, 1998, one of the used DC-9-50 aircraft
had been acquired. Delivery of the second used DC-9-50 is anticipated in
first quarter 1999.
As stated earlier, the aircraft purchases discussed above have and will be
primarily funded through debt financing. Management continues to assess the
status and alternatives with regard to its DC-10 and DC-9 fleet, including, but
not limited to, the extension of existing leases, exercise of purchase options
and replacement of aircraft.
The Company also has been provisionally awarded authority to commence nonstop
flight operations between Tokyo
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and Maui in January 2000. No estimate can be given as to when or if a final
decision awarding the route will be issued by the DOT. A decision by the
Company to progress on operation of the route is subject to a number of
future events, the outcome of which cannot be predicted at this time,
including, in addition to the issuance of a final order from the DOT,
obtaining takeoff and landing slots at the Narita International Airport and
the resolution of litigation over lengthening of the runway in Maui.
WARRANTS
In January 1996, due to its participation in certain recapitalization efforts of
the Company, American's parent company, AMR Corporation ("AMR"), received, among
other things, warrants which, subject to certain conditions and as adjusted
pursuant to applicable anti-dilution provisions, entitled AMR to purchase up to
1,949,338 shares of the Company's Common Stock (the "AMR Warrant Shares") at
$1.07 per share. If not exercised, the warrants expire on September 11, 2001.
AMR also retained the right to require the Company, on two occasions, to use its
best efforts to register, at the Company's expense subject to certain
conditions, some or all of the AMR Warrant Shares under the Securities Act of
1993, as amended.
Pursuant to its reorganization in 1994, the Company granted warrants to certain
individuals, which, as adjusted for anti-dilution provisions, entitled such
individuals to purchase 1,618,972 shares of Common Stock (the "Reorganization
Warrant Shares") at $1.67 per share. As of December 31, 1997, all of the
warrants had been exercised.
The AMR Warrant Shares have been included in a registration statement filed by
the Company with the Securities and Exchange Commission, which became effective
on December 31, 1998. Pursuant to piggyback rights, the registration statement
also includes the Reorganization Warrant Shares and 2.2 million shares of Common
Stock owned by Airline Investors Partnership, L.P.
DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 1998, the Company utilized crude oil forward contracts to
manage market risks and hedge its financial exposure resulting from fluctuations
in its aircraft fuel costs. The Company employs a strategy whereby crude oil
contracts are used to cover up to 45% of the Company's anticipated aircraft fuel
needs on a rolling 12 month basis.
At December 31, 1998, the Company had petroleum forward contracts to purchase
45,000 barrels of crude oil in the aggregate amount of $722,000 through February
1999. These forward contracts represented approximately 1% of the Company's
anticipated 1999 aircraft fuel needs. At December 31, 1998, the estimated fair
value and carrying value of these outstanding contracts was a net receivable of
$200,000. Included as a component of Aircraft Fuel Cost are net realized and
unrealized losses on such contracts amounting to $2.3 million and $1.1 million
for the years ended December 31, 1998 and 1997, respectively.
TICKET TAX
In 1997, legislation was enacted to, among other things, gradually reduce the
Federal passenger excise tax from 10% to 7.5% and phase-in a $3 "head tax" per
domestic flight segment by the year 2002. On October 1, 1998, the passenger
excise tax decreased from 9% to 8%, with a correspondent increase in the "head
tax" from $1 to $2 per domestic flight segment. The Company has and will adjust
its fares accordingly due to these enacted tax changes based upon prevailing
market conditions. There can be no assurance that the Company will be able to
maintain its current fare levels or predict with any certainty the effects on
its fares should the taxes again be adjusted, lapse and/or be reinstated.
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FREQUENT FLYER PROGRAM
The Company's HawaiianMiles frequent flyer program was initiated in 1983. As of
December 31, 1998 and 1997, HawaiianMiles had more than 693,000 and 642,000
members, respectively, including approximately 518,000 and 432,000 active
members, respectively.
The HawaiianMiles program allows passengers to earn mileage credits by flying
Hawaiian Airlines and other carriers, particularly Continental and Northwest.
Members may also receive mileage credits pursuant to exchange agreements
maintained by Hawaiian with a variety of entities, including hotels, car rental
firms, credit card issuers and long distance telephone service companies. The
Company also sells mileage credits to other companies participating in the
program.
HawaiianMiles members are entitled to a choice of various awards based on
accumulated mileage, with a majority of the awards being certain free air travel
at a later date. Travel awards available in the HawaiianMiles program range from
a 5,000 mile award, which offers a one-way Interisland flight, to 60,000 and
75,000 mile awards, which offer a round trip first-class Transpac flight and a
round trip first-class Southpac flight, respectively. Miles traveled under the
HawaiianMiles program are accounted for as revenue passenger miles, which, in
turn, are used in the calculation of the Company's yield. Non-travel awards are
valued at the incremental cost of tickets exchanged for such awards.
The Company recognizes a liability in the period in which members have
accumulated sufficient mileage points to allow for award redemption. The
liability is adjusted based on net mileage earned and utilized for award
redemption on a monthly basis. The incremental cost method is used, computed
primarily on the basis of fuel and catering costs, exclusive of any overhead or
profit margin. In estimating the amount of such incremental costs to be accrued
in the liability for potential future HawaiianMiles free travel, a current
average cost per award mile is determined. Incremental fuel expended per
passenger is based on engineering formulas to determine the quantity used for
the weight of each added passenger and baggage. Such incremental quantity of
fuel is priced at current levels. Catering is based on average cost data per
passenger for the most recent 12-month period.
As of December 31, 1998 and 1997, HawaiianMiles members had accumulated
approximately 3.7 billion and 3.0 billion miles, respectively, representing
liabilities totaling approximately $1.1 million. The Company's accruals assume
full redemption of mileage points. During the years ended December 31, 1998,
1997 and 1996, 1.2 billion, 736 million and 857 million award miles were
redeemed, respectively.
The Company believes that the usage of free travel awards will not result in the
displacement of revenue customers and, therefore, such usage will not materially
affect the Company's liquidity or operating results. The use of free travel
awards is subject to review by the Company to limit the possibility of
displacing revenue passengers. HawaiianMiles travel redemption accounted for
approximately 4.1%, 2.4% and 2.9% of Interisland traffic and a negligible
percentage of Transpac and Southpac traffic in 1998, 1997 and 1996,
respectively.
INFORMATION TECHNOLOGY SYSTEMS AND YEAR 2000
The Company is currently in the process of bringing a number of major
information technology systems on line for strategic purposes as well as to
address issues associated with the year 2000. These information technology
projects are designed to either replace or enhance existing systems, including
local and wide area networks, yield management and all or portions of revenue
and financial accounting. Estimated external costs associated with these efforts
is estimated to approximate $10 to $12 million, of which approximately $8
million had been incurred as of December 31, 1998.
In addition to replacing a number of core information systems, the Company has
recognized the potential impact of the year 2000 on its operations and has
established a dedicated director and Year 2000 Project Office to oversee the
Company's compliance efforts. The Year 2000 Project Office operates on four
tracks including 1) information and communication systems; 2) hardware; 3)
business partnerships; and 4) government and externalities. Each track utilizes
the Federal General Accounting Office methodology and available best practices.
The strategy is to create a comprehensive review of mission critical systems as
they apply to the continuum of Hawaiian Airlines' business operations.
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STATE OF READINESS
The Company has and continues to perform constant awareness activities through
regular informational briefings and newsletter updates, formal briefs of
management and senior management, and the development of "personal Y2K kits" for
all employees to address their concerns. The Company has initiated public
relations activities, and is working with the Air Transport Association (the
"ATA") on a coordinated industry effort.
The Company has inventoried all of its hardware and software applications and is
in the process of formally documenting its inventory assessments. Applications
and hardware configurations of computers operating on the Company's networks
have been audited using automated tools, and standalone machines will be
subjected to the same detailed audits.
Remediation of legacy systems is well underway with completion of all
remediation expected before April 30, 1999. Hawaiian has contracted with
external vendors to assist in its testing efforts and is currently developing
the requisite background information prior to testing.
The Company continues an aggressive business partner management program and is
in the process of following up with vital and important vendors via telephone
survey. Critical vendors not covered under the ATA effort are planned for site
visit by Hawaiian Airlines personnel.
Hardware assessments have found a very small amount of equipment being date
aware, with no systems yet identified as requiring remediation. Currently, the
Company believes that all mission critical systems will be remediated and tested
by a target milestone of mid-1999.
ESTIMATED COSTS TO ADDRESS YEAR 2000 ISSUES
Because a substantial portion of the Company's information systems are being
replaced by new applications that are represented to be Year 2000 compliant, the
Company's remaining Year 2000 issues are primarily related to remediation of
legacy code and assistance in conducting Year 2000 testing. The Company
estimates that it will expend $1 to $2 million for such remediation and testing.
This will be in addition to the $10 to $12 million for replacement of the
Company's information systems as described above.
CONTINGENCY PLANS FOR HAWAIIAN AIRLINES
In addition to its normal operational disaster recovery plans, Hawaiian Airlines
will be including Year 2000 specific activities. To this end, the Company has
established a dedicated position for the coordination of contingency plans.
While the Company believes that all systems will be Year 2000 ready, all
critical, vital, and important systems will have appropriate contingency plans
developed to address complete and partial systems failure. Contingency plans are
expected to be completed in May of 1999.
RISKS OF YEAR 2000 ISSUES
Preliminary reviews of flight systems have found little potential impact of Year
2000 issues, and existing contingency plans and training address the loss of
most affected operations systems. The primary risks to Hawaiian Airlines are
those of business continuity. The Company is aggressively addressing both its
supply and revenue chains to assess, to the best of the Company's knowledge,
that both products and business operations of its partners are not adversely
affected by the Year 2000 problem.
Notwithstanding the foregoing, the Company's business, financial condition or
results of operations could be materially adversely affected by the failure of
its systems or, which the Company believes is the most reasonably likely worst
case scenario, failure of those systems operated by third parties on which the
Company's business relies (including those of the Federal Aviation
Administration) to operate properly beyond 1999. There can be no assurance that
such systems will be modified for Year 2000 operational requirements on a timely
basis. Because of the variables associated with the year 2000 date problem,
management cannot give assurance that in-progress
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system transitions will be sufficient or assure that the Company will not be
affected by the year 2000 issue in some form or manner.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is subject to certain market risks related to its aircraft fuel.
Refer to BUSINESS, OPERATIONS, FUEL contained in Part I, Item 1 of this Form
10-K and DERIVATIVE FINANCIAL INSTRUMENTS, as described above for further
discussion on aircraft fuel and related financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Financial Statements, accompanying Notes and related Independent
Auditors' Report and Selected Financial and Statistical Data are contained in
Part IV, Item 14 of this Form 10-K and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information provided in the Company's 1999 Proxy Statement is incorporated
herein by reference other than the following, which comprise the Executive
Officers of the Company.
JOHN W. ADAMS has been Chairman of the Board of Directors of Hawaiian Airlines
since February 2, 1996 and he is also Chairman of the Executive Committee. He
has been the President since 1984 of Smith Management Company, a private
investment firm. He was a member of the Board of Directors of Harvard
Industries, Inc. from October 1994 until November 1998, and was Chairman of the
Board and Chief Executive Officer from February 1997 until November 1998. He
served on the Board of Directors of Servico, Inc., a lodging owner and
management company, from April 1994 until August 1997, being Chairman of the
Board from December 1995 until he resigned from the Board. Mr. Adams was
Chairman of the Board of Directors of Regency Health Services, Inc. from July
1994 until October 1997. Age 55.
PAUL J. CASEY has been President and Chief Executive Officer of Hawaiian
Airlines since April 1997. He has also been a director and a member of the
Executive Committee of Hawaiian Airlines since April 1997. He was the President
and Chief Executive Officer of the Hawaii Visitors and Convention Bureau from
1995 until March 1997. He was Managing Director-Asia/Pacific of the Thomas Cook
Group during 1994. He was Vice President-International Division of Continental
Airlines from 1991 until 1994, and Vice President-Asia/Pacific of Continental
Airlines from 1985 until 1991. Age 53.
JOHN L. GARIBALDI has been Executive Vice President and Chief Financial Officer
of Hawaiian Airlines since May 1996. He was Vice President and Chief Financial
Officer of the Queen's Health Systems from 1992 until 1996 and Senior Vice
President-Finance and Planning and Chief Financial Officer of Aloha Airgroup,
Inc./Aloha Airlines, Inc. from 1985 until 1992. Age 46.
JOHN B. HAPP has been Senior Vice President-Marketing & Sales of Hawaiian
Airlines since December 15, 1997. He served dual roles of Vice President Market
Planning for LTU Airlines and Vice President Marketing for their subsidiary, Go
America, from 1996 to 1997. From 1989 to 1996, he held various senior marketing
and business development positions at Continental Airlines, Inc., including most
recently Managing Director of the Newark Business Unit. Age 43.
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RUTHANN S. YAMANAKA has been Senior Vice President-Human Resources of Hawaiian
Airlines since March 1, 1998. She was Senior Vice President-Assistant Director,
Human Resources for Bank of Hawaii from July 1994 through February 1998 and
Manager, Quality Assurance Administration from 1988 to 1994. Age 45.
LYN F. ANZAI has been Vice President-General Counsel and Corporate Secretary of
Hawaiian Airlines since July 1997. She was Senior Counsel in the
Corporate/Investment Legal Division of Kamehameha Schools Bishop Estate from
November 1990 until July 1997. Age 56.
DAVID M. BOAZ has been Vice President-Flight Operations of Hawaiian Airlines
since June 1997. He was Managing Director of Delta Airlines, Inc. in the
People's Republic of China from 1996 to 1997. He was Chief Pilot in Los Angeles
for Delta Airlines, Inc. from 1991 until 1996. Age 62.
H. NORMAN DAVIES JR. has been Vice President-Safety and Security of Hawaiian
Airlines since January 6, 1997. He was Chief Pilot in New York for Delta
Airlines, Inc. from November 1991 until June 1996. Age 62.
MICHAEL P. LOO has been Vice President-Controller of Hawaiian Airlines since
1996. He was Staff Vice President-Controller of Hawaiian Airlines from 1994
until 1995. He was previously with KPMG LLP until 1993. Age 34.
CLARENCE K. LYMAN has been Vice President-Finance, Treasurer and Assistant
Corporate Secretary of Hawaiian Airlines since 1991. Age 53.
GLEN L. STEWART has been Vice President-Transpacific and Southpacific Marketing
of Hawaiian Airlines since 1993. He was Senior Vice President-Transpacific of
Hawaiian Airlines from 1991 to 1993. Age 56.
GLENN G. TANIGUCHI has been Vice President-Schedule Planning and Reservations of
Hawaiian Airlines since 1995. He was Staff Vice President-Schedule Planning and
Reservations of Hawaiian Airlines from 1991 until 1995. Age 56.
Effective February 1, 1999, Blaine J. Miyasato was appointed Vice
President-In-Flight, Catering and Product Development of Hawaiian Airlines. From
1993 to 1998 he held various senior positions at the Company including most
recently Senior Director-In-Flight, Product Development & Catering. Age 36.
Effective March 1, 1999, Edward W. Pinion was appointed Vice
President-Purchasing of Hawaiian Airlines. He was manager of aviation fuels for
BHP/Tesoro from March 1996 until 1999. From 1994 to 1996, he was Commander of
the Defense Fuel Region, Pacific, and Commander of the Defense Logistics Agency,
Pacific, at Camp H.M. Smith. Age 48.
All officers are appointed annually by the Board of Directors at their first
meeting after the annual meeting of stockholders at which the Board of Directors
is elected.
No executive officer of the Company bears any relationship by blood, marriage or
adoption to any other executive officer or director, except that John W. Adams'
sister is married to director Robert G. Coo.
In September 1993, the Company, HAL, INC. and West Maui Airport, Inc. filed a
voluntary petition for relief under Chapter 11. At the time or within two years
before the time of the Chapter 11 filing, Messrs. Lyman and Stewart were
executive officers of the Company, HAL, INC. and/or West Maui Airport, Inc.
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Information provided in the Company's 1999 Proxy Statement is incorporated
herein by reference for Part III, Items 11 through 13 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
Independent Auditors' Report.
Balance Sheets, December 31, 1998 and 1997.
Statements of Operations for the Years ended December 31, 1998,
1997 and 1996.
Statements of Shareholders' Equity and Comprehensive Income for
the Years ended December 31, 1998, 1997 and 1996.
Statements of Cash Flows for the Years ended December 31, 1998,
1997 and 1996.
Notes to Financial Statements.
Quarterly Financial Information (Unaudited).
Selected Financial and Statistical Data.
2. Financial Statement Schedule.
Independent Auditors' Report on Financial Statement Schedule for
the Years Ended December 31, 1998, 1997 and 1996.
Schedule of Valuation and Qualifying Accounts.
Schedules not listed above are omitted because of the absence of
the conditions under which they are required or because the
required information is included in the financial statements or
notes thereto.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
Exhibit 3 Articles of Incorporation, Bylaws
(1) Restated Articles of Incorporation of the
Company filed as Exhibit 3(a) to the Company's
Registration Statement on Form S-3 as filed
December 31, 1998 is incorporated herein by
reference.
(2) Amended and Restated Bylaws of the Company
filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K as filed September 14, 1998
is incorporated herein by reference.
Exhibit 4 Instruments Defining the Rights of Security
Holders Including Indentures
(1) Rights Agreement dated December 23, 1994 filed
as Exhibit (1) to the Company's current report
on Form 8-K during the fourth quarter of 1994
(date of report - December 23, 1994) is
incorporated herein by reference.
(2) The following Agreements filed as Exhibit 4 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995 are
incorporated herein by reference:
(a) Amendment No. 1 dated as of May 4, 1995
to Rights Agreement dated
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as of December 23, 1994 by and between
Hawaiian Airlines, Inc. and Chemical
Trust Company of California;
(b) Amendment No. 1 to 1994 Stock Option Plan
dated as of May 4, 1995;
(c) Amendment No. 1 dated as of May 4, 1995
to Warrants Nos. 1-10.
(3) 1994 Stock Option Plan, as amended, filed as
Exhibit 4 to the Company's Registration
Statement on Form S-8 as filed November 15,
1995 is incorporated herein by reference.
(4) The following Agreements filed as Exhibit 4 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 are
incorporated herein by reference:
(a) Rightsholders Agreement dated as of
January 31, 1996, by and among Hawaiian
Airlines, Inc., Airline Investors
Partnership, L.P., AMR Corporation,
Martin Anderson and Robert Midkiff;
(b) Amendment No. 2 to the Rights Agreement,
as amended, dated as of January 31, 1996
by and between Hawaiian Airlines, Inc.
and Chemical Trust Company of California;
(b) Amendment No. 2 to 1994 Stock Option
Plan, as amended, dated as of December 8,
1995.
(5) 1996 Stock Incentive Plan, as amended, filed
as Exhibit 4 to the Company's Amendment No. 1
to Registration Statement on Form S-2 as filed
July 12, 1996 is incorporated herein by
reference.
(6) Amendment No. 3 to the Rights Agreement, as
amended, dated as of May 21, 1998, by and
between Hawaiian Airlines, Inc. and
ChaseMellon Shareholder Services, L.L., C., as
successor to Chemical Trust Company of
California, filed as Exhibit 4 to the
Company's Amendment No. 2 to Registration
Statement on Form 8-A as filed May 22, 1998 in
incorporated herein by reference.
(7) Amendment No. 4 to the Rights Agreement, as
amended, dated as of August 28, 1998, by and
between Hawaiian Airlines, Inc. and
ChaseMellon Shareholder Services, L.L., C., as
successor to Chemical Trust Company of
California, filed as Exhibit 5 to the
Company's Amendment No. 3 to Registration
Statement on Form 8-A as filed September 14,
1998 in incorporated herein by reference.
(8) The Company agrees to provide the Securities
and Exchange Commission, upon request, copies
of instruments defining the rights of security
holders of long-term debt of the Company.
Exhibit 10 Material Contracts
(a) The following contracts filed as Exhibit 10 to
the Company's Amendment No. 1 to Registration
Statement on Form S-2 as filed July 12, 1996
are incorporated herein by reference:
(1) Aircraft Lease Agreement dated as of May
15, 1996 between American Airlines, Inc.
and Hawaiian Airlines, Inc. filed in
redacted form since confidential
treatment has been requested pursuant to
Rule 406 for certain portions thereof;
(2) Cooperative Marketing Agreement between
Northwest Airlines, Inc. and Hawaiian
Airlines, Inc. filed in redacted form
since confidential treatment has been
requested pursuant to Rule 406 for
certain portions thereof;
(b) The following contracts filed as Exhibit 10 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 are
incorporated herein by reference:
(1) Code Sharing Agreement dated November 26,
1996 by and between Hawaiian Airlines,
Inc. and Reno Air filed in redacted form
since confidential treatment has been
requested pursuant to Rule 24b-2 for
certain portions thereof;
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(2) Software Development, Maintenance, and
License Agreement dated as of December
31, 1996 by and between SABRE Decision
Technologies, a division of The SABRE
Group, Inc. and Hawaiian Airlines, Inc.;
(3) Hawaiian Airlines, Inc. 1996 Nonemployee
Director Stock Option Plan;
(4) Employment Agreement dated as of May 1,
1996 by and between John L. Garibaldi and
the Company;
(5) Form of Secured Promissory Note dated
September 12, 1996;
(6) Form of Stock Pledge Agreement dated as
of September 12, 1996.
(c) The following contracts filed as Exhibit 10 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997 are
incorporated herein by reference:
(1) Code Share Agreement, dated January 6,
1997, between the Company and Wings West
Airlines, Inc. filed in redacted form
since confidential treatment has been
requested pursuant to Rule 24.b-2 for
certain portions thereof;
(2) Amendment No. 1 to Code Share Agreement,
dated as of January 21, 1997, between the
Company and Wings West Airlines, Inc.;
(3) Information Technology Services
Agreement, dated as of February 1, 1997,
between the Company and Electronic Data
Systems Corporation filed in redacted
form since confidential treatment has
been requested pursuant to Rule 24.b-2
for certain portions thereof;
(4) Aircraft Lease Agreement, dated as of
January 3, 1997, between the Company and
American Airlines, Inc. filed in redacted
form since confidential treatment has
been requested pursuant to Rule 24.b-2
for certain portions thereof;
(5) Separation Agreement and Complete
Settlement and Release of All claims,
dated as of February, 1997, between the
Company and Bruce R. Nobles;
(6) Employment Agreement, effective as of
April 14, 1997, between the Company and
Paul John Casey.
(d) Code Share Agreement, dated July 15, 1997,
between the Company and American Airlines,
Inc. filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 are incorporated herein by
reference.
(e) The following contracts filed as Exhibit 10 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 are
incorporated herein by reference:
(1) Employment Agreement, effective as of
December 15, 1997, between the Company
and John B. Happ;
(2) Employment Agreement, effective as of
March 1, 1998, between the Company and
Ruthann S. Yamanaka;
(3) Form of warrant for the Purchase of
25,696 shares of Class A Common Stock
issued to AMR Corporation;
(4) Form of Addendum to Warrant for the
Purchase of Shares of Common Stock;
(5) Form of Amendment No. 1 to Warrant
Certificate No. 12 for the Purchase of
Shares of Common Stock;
(6) Form of Amendment No. 2 to Warrant
Certificate No. 12 for the Purchase of
Shares of Common Stock;
(7) Form of Amendment No. 1 to Warrant
Certificate No. 23 for the Purchase of
Shares of Common Stock;
(8) Form of Amendment No. 2 to Warrant
Certificate No. 23 for the Purchase of
Shares of Common Stock;
30
<PAGE>
(9) Aircraft Lease Agreement dated as of May
9, 1997, between American Airlines, Inc.
and Hawaiian Airlines, Inc. filed in
redacted form since confidential
treatment has been requested pursuant to
Rule 24.b-2 for certain portions thereof;
(10) Aircraft Lease Agreement dated as of
December 12, 1997, between American
Airlines, Inc. and Hawaiian Airlines,
Inc. filed in redacted form since
confidential treatment has been requested
pursuant to Rule 24.b-2 for certain
portions thereof.
(f) Aircraft Loan Agreement dated December 29,
1998, between Bank of Hawaii and Hawaiian
Airlines, Inc. filed in redacted form since
confidential treatment has been requested
pursuant to Rule 24.b-2 for certain portions
thereof;
(g) Aircraft Sale and Purchase Agreement dated
November 18, 1998, between Fin 3 Limited
and Hawaiian Airlines, Inc. filed in redacted
form since confidential treatment has been
requested pursuant to Rule 24.b-2 for
certain portions thereof.
(h) Form of Passenger Aircraft Charter Agreement
dated November 9, 1997, effective
February 1, 1998 between Hawaiian Vacations,
Inc. and Hawaiian Airlines, Inc.
(i) Form of Passenger Aircraft Charter Agreement
dated November 2, 1998 between Renaissance
Cruises and Hawaiian Airlines, Inc.
Exhibit 23 Consent of KPMG LLP.
Exhibit 24 Power of Attorney.
Exhibit 27 Financial data schedule.
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ------------
<S> <C>
10(f) Aircraft Loan Agreement dated December 29, 1998, between
Bank of Hawaii and Hawaiian Airlines, Inc. filed in
redacted form since confidential treatment has been
requested pursuant to Rule 24.b-2 for certain portions
thereof;
10(g) Aircraft Sale and Purchase Agreement dated November 18,
1998, between Fin 3 Limited and Hawaiian Airlines, Inc.
filed in redacted form since confidential treatment has
been requested pursuant to Rule 24.b-2 for certain
portions thereof;
10(h) Form of Passenger Aircraft Charter Agreement dated
November 9, 1997, effective February 1, 1998 between
Hawaiian Vacations, Inc. and Hawaiian Airlines, Inc.
10(i) Form of Passenger Aircraft Charter Agreement dated
November 2, 1998 between Renaissance Cruises and Hawaiian
Airlines, Inc.
23 Consent of KPMG Marwick LLP.
24 Power of Attorney.
27 Financial data schedule.
</TABLE>
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
HAWAIIAN AIRLINES, INC.
March 29, 1999 By /s/ PAUL J. CASEY
--------------------------------------
Paul J. Casey
President and Chief Executive Officer
(Principal Executive Officer)
March 29, 1999 By /s/ JOHN L. GARIBALDI
--------------------------------------
John L. Garibaldi
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Hawaiian Airlines, Inc.:
We have audited the accompanying balance sheets of Hawaiian Airlines, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
shareholders' equity and comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawaiian Airlines, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Honolulu, Hawaii
March 11, 1999
F-1
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 31,011 $ 15,713
Investment securities . . . . . . . . . . . . . . . . . . . . - 4,003
Accounts receivable, net of allowance for doubtful
accounts of $500 in 1998 and 1997 . . . . . . . . . . . . 36,427 31,387
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 8,546 9,350
Assets held for sale. . . . . . . . . . . . . . . . . . . . . 1,345 1,344
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . 4,578 4,344
---------- -----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . 81,907 66,141
---------- -----------
PROPERTY AND EQUIPMENT:
Flight equipment. . . . . . . . . . . . . . . . . . . . . . . 86,980 65,796
Ground equipment, buildings and leasehold
improvements. . . . . . . . . . . . . . . . . . . . . . . 23,526 17,612
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 110,506 83,408
Accumulated depreciation and amortization . . . . . . . . . . (25,584) (17,165)
---------- -----------
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . 84,922 66,243
---------- -----------
OTHER ASSETS:
Assets held for sale. . . . . . . . . . . . . . . . . . . . . 2,167 3,970
Long-term prepayments and other . . . . . . . . . . . . . . . 6,065 6,920
Reorganization value in excess of amounts
allocable to identifiable assets, net . . . . . . . . . . 46,850 57,550
---------- -----------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . . 55,082 68,440
---------- -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $ 221,911 $ 200,824
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-2
<PAGE>
HAWAIIAN AIRLINES, INC.
BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt . . . . . . . . . . . . . . $ 3,532 $ 2,260
Current portion of capital lease obligations. . . . . . . . . 4,614 4,244
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 28,883 27,587
Air traffic liability . . . . . . . . . . . . . . . . . . . . 22,131 21,169
Other accrued liabilities . . . . . . . . . . . . . . . . . . 16,517 14,934
---------- -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . 75,677 70,194
---------- -----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 14,454 3,991
---------- -----------
CAPITAL LEASE OBLIGATIONS. . . . . . . . . . . . . . . . . . . . 5,966 10,580
---------- -----------
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated pension and other postretirement
benefit obligations . . . . . . . . . . . . . . . . . . . 25,968 23,353
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,959 5,833
---------- -----------
TOTAL OTHER LIABILITIES AND DEFERRED CREDITS. . . . . . . 34,927 29,186
---------- -----------
SHAREHOLDERS' EQUITY:
Common Stock - $.01 par value, 60,000,000 shares authorized,
40,997,335 and 40,624,586 shares issued and outstanding
in 1998 and 1997, respectively (263,983 shares issuable
in 1997). . . . . . . . . . . . . . . . . . . . . . . . . 410 409
Special Preferred Stock - $.01 par value, 2,000,000 shares
authorized, seven shares issued and outstanding . . . . . - -
Capital in excess of par value. . . . . . . . . . . . . . . . 99,418 99,237
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,153 3,153
Notes receivable from Common Stock sales. . . . . . . . . . . (1,581) (1,714)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (6,007) (14,212)
Accumulated other comprehensive loss -
minimum pension liability adjustment. . . . . . . . . . . (4,506) -
---------- -----------
SHAREHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . 90,887 86,873
---------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTES 3, 4, 5, 6, 8, 9, 10 AND 11)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . . . $ 221,911 $ 200,824
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . $ 354,245 $ 332,154 $ 326,266
Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,742 37,172 27,835
Cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,682 21,272 20,123
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,746 13,618 10,249
---------- ---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 426,415 404,216 384,473
---------- ---------- ----------
OPERATING EXPENSES:
Wages and benefits. . . . . . . . . . . . . . . . . . . . . . 118,885 114,571 108,626
Aircraft fuel, including taxes and oil. . . . . . . . . . . . 66,601 78,137 75,884
Maintenance materials and repairs . . . . . . . . . . . . . . 84,004 76,267 68,984
Rentals and landing fees. . . . . . . . . . . . . . . . . . . 30,541 32,707 34,995
Sales commissions . . . . . . . . . . . . . . . . . . . . . . 11,655 13,033 13,369
Depreciation and amortization . . . . . . . . . . . . . . . . 12,607 10,665 8,731
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,717 76,334 71,857
---------- ---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 409,010 401,714 382,446
---------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 17,405 2,502 2,027
---------- ---------- ----------
NONOPERATING INCOME (EXPENSE):
Interest and amortization of debt expense . . . . . . . . . . (2,042) (2,439) (3,887)
Interest income . . . . . . . . . . . . . . . . . . . . . . . 1,639 2,045 1,455
Loss on disposition of equipment. . . . . . . . . . . . . . . (831) (140) (729)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . (163) (820) (297)
---------- ---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . (1,397) (1,354) (3,458)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE . . . 16,008 1,148 (1,431)
INCOME TAXES:
Currently payable . . . . . . . . . . . . . . . . . . . . . . (390) (78) (43)
Reduction to Excess Reorganization Value. . . . . . . . . . . (7,413) (1,642) (825)
---------- ---------- ----------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . (7,803) (1,720) (868)
---------- ---------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE . . . . . 8,205 (572) (2,299)
Extraordinary Gains, Net of Income Taxes
(Currently payable of $26, Reduction to Excess
Reorganization Value of $485) . . . . . . . . . . . . . . . . - - 766
---------- ---------- ----------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE. . . . . . . . . . . . . . . . . . . . . 8,205 (572) (1,533)
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes . . . . . . . . . . . . . . . . . . . . . - (450) -
---------- ---------- ----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . $ 8,205 $ (1,022) $ (1,533)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NET INCOME (LOSS) PER COMMON STOCK SHARE:
<TABLE>
<S> <C> <C> <C>
BASIC
Before extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . . . . $ 0.20 $ (0.02) $ (0.08)
Extraordinary items, net of income taxes. . . . . . . . . . . - - 0.03
Cumulative effect of change in accounting
principle, net of income taxes. . . . . . . . . . . . . . - (0.01) -
------- -------- --------
NET INCOME (LOSS) PER COMMON STOCK SHARE . . . . . . . . . . . . $ 0.20 $ (0.03) $ (0.05)
------- -------- --------
------- -------- --------
DILUTED
Before extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . . . . $ 0.19 $ (0.02) $ (0.08)
Extraordinary items, net of income taxes. . . . . . . . . . . - - 0.03
Cumulative effect of change in accounting
principle, net of income taxes. . . . . . . . . . . . . . - (0.01) -
------- -------- --------
NET INCOME (LOSS) PER COMMON STOCK SHARE . . . . . . . . . . . . $ 0.19 $ (0.03) $ (0.05)
------- -------- --------
------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,921 40,361 * 29,032 *
------- -------- --------
------- -------- --------
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,205 40,361 * 29,032 *
------- -------- --------
------- -------- --------
The following table shows a reconciliation of the weighted average shares
outstanding used in computing basic and diluted net income (loss) per
Common Stock share:
WEIGHTED AVERAGE COMMON STOCK SHARES OUTSTANDING. . . . . . . 40,921 40,361 * 29,032 *
Incremental Common Stock shares issuable upon exercise of
outstanding warrants and stock options
(treasury stock method) . . . . . . . . . . . . . . . . . 1,284 - -
------- -------- --------
WEIGHTED AVERAGE COMMON STOCK SHARES AND
COMMON STOCK SHARE EQUIVALENTS. . . . . . . . . . . . . . 42,205 40,361 * 29,032 *
------- -------- --------
------- -------- --------
</TABLE>
* Includes shares reserved for issuance under the Consolidated Plan of
Reorganization dated September 21, 1993, as amended.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
SPECIAL CAPITAL IN FROM
COMMON PREFERRED EXCESS OF COMMON STOCK
STOCK STOCK PAR VALUE WARRANTS SALES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . . $ 94 $ - $ 41,193 $ 900 $ -
Net loss . . . . . . . . . . . . . . . . . . . . . . - - - - -
Minimum pension liability adjustment . . . . . . . . - - - - -
Comprehensive loss . . . . . . . . . . . . . . . . .
Amortization of unearned compensation on options
to acquire 592,500 shares of Common Stock . . . - - - - -
Remeasurement of compensation on options
to acquire shares of Common Stock . . . . . . . - - 1,071 - -
Repurchase and retirement of 827,221 shares
of Common Stock . . . . . . . . . . . . . . . . (8) - (902) - -
Sale of 18,181,818 shares of Common Stock,
net of $2.2 million of transaction costs. . . . 182 - 17,638 - -
Issuance of warrants to acquire 974,669
shares of Common Stock. . . . . . . . . . . . . - - - 825 -
Issuance of seven shares of Special Preferred Stock. - - - - -
Sale of 12,092,500 shares of Common Stock,
net of $3.2 million of transaction costs. . . . 121 - 35,977 - (1,926)
Exercise of options to acquire 415,000 shares of
Common Stock. . . . . . . . . . . . . . . . . . 4 - 850 (168) 212
------- --- -------- ------- ------
BALANCE AT DECEMBER 31, 1996 . . . . . . . . . . . . 393 - 95,827 1,557 (1,714)
Net loss . . . . . . . . . . . . . . . . . . . . . . - - - - -
Issuance of warrants to acquire 974,669
shares of Common Stock. . . . . . . . . . . . . - - - 2,328 -
Exercise of options to acquire 307,500 shares of
Common Stock. . . . . . . . . . . . . . . . . . 3 - 495 - -
Exercise of warrants to acquire 1,318,972 shares
of Common Stock . . . . . . . . . . . . . . . . 13 - 2,915 (732) -
------- --- -------- ------- ------
BALANCE AT DECEMBER 31, 1997 . . . . . . . . . . . . 409 - 99,237 3,153 (1,714)
Net income . . . . . . . . . . . . . . . . . . . . . - - - - -
Minimum pension liability adjustment . . . . . . . . - - - - -
Comprehensive income . . . . . . . . . . . . . . . .
Exercise of options to acquire 112,500 shares of
Common Stock. . . . . . . . . . . . . . . . . . 1 - 181 - 133
------- --- -------- ------- ------
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . $ 410 $ - $ 99,418 $ 3,153 $ (1,581)
------- --- -------- ------- ------
------- --- -------- ------- ------
<CAPTION>
ACCUMULATED
UNEARNED ACCUMULATED COMPREHENSIVE
COMPENSATION DEFICIT LOSS TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 . . . . . . . . . . . . $ (182) $ (11,657) $ (1,170) $ 29,178
Net loss . . . . . . . . . . . . . . . . . . . . . . - (1,533) - (1,533)
Minimum pension liability adjustment . . . . . . . . - - 1,170 1,170
---------
Comprehensive loss . . . . . . . . . . . . . . . . . (363)
---------
Amortization of unearned compensation on options
to acquire 592,500 shares of Common Stock . . . 182 - - 182
Remeasurement of compensation on options
to acquire shares of Common Stock . . . . . . . - - - 1,071
Repurchase and retirement of 827,221 shares
of Common Stock . . . . . . . . . . . . . . . . - - - (910)
Sale of 18,181,818 shares of Common Stock,
net of $2.2 million of transaction costs. . . . - - - 17,820
Issuance of warrants to acquire 974,669
shares of Common Stock. . . . . . . . . . . . . - - - 825
Issuance of seven shares of Special Preferred Stock. - - - -
Sale of 12,092,500 shares of Common Stock,
net of $3.2 million of transaction costs. . . . - - - 34,172
Exercise of options to acquire 415,000 shares of
Common Stock. . . . . . . . . . . . . . . . . . - - - 898
-------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1996 . . . . . . . . . . . . - (13,190) - 82,873
Net loss . . . . . . . . . . . . . . . . . . . . . . - (1,022) - (1,022)
Issuance of warrants to acquire 974,669
shares of Common Stock. . . . . . . . . . . . . - - - 2,328
Exercise of options to acquire 307,500 shares of
Common Stock. . . . . . . . . . . . . . . . . . - - - 498
Exercise of warrants to acquire 1,318,972 shares
of Common Stock . . . . . . . . . . . . . . . . - - - 2,196
-------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1997 . . . . . . . . . . . . - (14,212) - 86,873
Net income . . . . . . . . . . . . . . . . . . . . . - 8,205 - 8,205
Minimum pension liability adjustment . . . . . . . . - - (4,506) (4,506)
----------
Comprehensive income . . . . . . . . . . . . . . . . 3,699
----------
Exercise of options to acquire 112,500 shares of
Common Stock. . . . . . . . . . . . . . . . . . - - - 315
-------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . $ - $ (6,007) $ (4,506) $ 90,887
-------- ---------- -------- ----------
-------- ---------- -------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ 8,205 $ (1,022) $ (1,533)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 12,607 10,665 8,731
Net periodic postretirement benefit cost . . . . . . . . . . 1,473 935 726
Loss on disposition of equipment . . . . . . . . . . . . . . 831 140 729
Income tax benefit recognized as a reduction to Excess
Reorganization Value. . . . . . . . . . . . . . . . . . 7,413 1,342 1,310
Stock option compensation. . . . . . . . . . . . . . . . . . - - 1,253
Extraordinary gains, net of income taxes currently payable . - - (1,251)
Increase in accounts receivable. . . . . . . . . . . . . . . (5,040) (3,365) (10,485)
Decrease (increase) in inventories . . . . . . . . . . . . . 804 (2,300) 598
Decrease (increase) in prepaid expenses. . . . . . . . . . . (234) 501 959
Increase in accounts payable . . . . . . . . . . . . . . . . 1,296 788 1,867
Increase (decrease) in air traffic liability . . . . . . . . 962 (4,355) (4,937)
Increase (decrease) in other accrued liabilities . . . . . . 1,583 2,311 (3,106)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 293 (1,553) 6,138
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.. . . . . . . 30,193 4,087 999
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investment securities.. . . . . . . . . . . . . . . . . . 4,001 - -
Purchase of investment securities.. . . . . . . . . . . . . . . . - (4,003) -
Additions to property and equipment . . . . . . . . . . . . . . . (27,946) (18,468) (9,677)
Net proceeds from disposition of equipment. . . . . . . . . . . . 1,153 1,422 2,780
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . (22,792) (21,049) (6,897)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock. . . . . . . . . . . . . . . . . . . . . 182 2,694 52,846
Issuance of long-term debt. . . . . . . . . . . . . . . . . . . . 13,359 792 7,564
Repayment of long-term debt.. . . . . . . . . . . . . . . . . . . (1,533) (3,141) (19,258)
Repayment of capital lease obligations. . . . . . . . . . . . . . (4,244) (4,907) (2,708)
Proceeds on notes receivable from Common Stock sales. . . . . . . 133 - 212
Repurchase and retirement of Common Stock . . . . . . . . . . . . - - (910)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . 7,897 (4,562) 37,746
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . 15,298 (21,524) 31,848
Cash and cash equivalents - Beginning of Year. . . . . . . . . . . . . 15,713 37,237 5,389
--------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR. . . . . . . . . . . . . . . . $ 31,011 $ 15,713 $ 37,237
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE>
HAWAIIAN AIRLINES, INC.
STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,864 $ 2,267 $ 3,579
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . 761 - 250
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Minimum pension liability adjustment. . . . . . . . . . . . . . . 4,506 - (1,170)
Property and equipment financed
through capital lease. . . . . . . . . . . . . . . . . . . . - 9,432 -
Issuance of warrants to acquire 974,669
shares of Common Stock . . . . . . . . . . . . . . . . . . . - 2,328 825
Reclassification of accounts payable to
long-term debt . . . . . . . . . . . . . . . . . . . . . . . - - 10,250
Remeasurement of compensation on options
to acquire shares of Common Stock. . . . . . . . . . . . . . - - 1,071
Receipt of notes receivable from Common Stock sales . . . . . . . - - 1,926
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-8
<PAGE>
HAWAIIAN AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") was incorporated
in January 1929 under the laws of the Territory of Hawaii and is the largest
airline headquartered in Hawaii, based on operating revenues of $426.4 million
for 1998. The Company is engaged primarily in the scheduled transportation of
passengers, cargo and mail. The Company's passenger airline business is its
chief source of revenue. Scheduled passenger service consists of, on average
and depending on seasonality, approximately 130 to 150 flights per day among the
six major islands of the State of Hawaii ("Interisland"), daily service to Las
Vegas and four key United States ("U.S.") West Coast gateway cities
("Transpac"), twice weekly service to Pago Pago, American Samoa and weekly
service to Papeete, Tahiti in the South Pacific ("Southpac"). In 1998, the
Company also operated, on average, six charter flights per week to Las Vegas and
two charter rotations per week to Anchorage ("Overseas Charter"). The Company
operates a fleet consisting of DC-9 aircraft and DC-10 aircraft.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. Short-term cash equivalent
investments at December 31, 1998 and 1997 were valued at cost and amounted to
$27.0 million and $11.6 million, respectively.
INVESTMENT SECURITIES
Investment securities at December 31, 1997 consist of U.S. Treasury and
mortgage-backed securities. The Company classifies its debt securities as
available-for-sale with such securities recorded at cost, which approximates
fair-value. Unrealized holding gains and losses, net of the related tax effect,
on available-for-sale securities are excluded from earnings and are reported as
a separate component of accumulated other comprehensive income (loss) until
realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis. A decline in the
market value of any available-for-sale security below cost that is deemed to be
other than temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or accreted over the life of
the related available-for-sale security as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized when
earned.
INVENTORIES
Inventories consisting of flight equipment expendable parts and supplies are
stated at average cost, less an allowance for obsolescence.
ASSETS HELD FOR SALE
Assets held for sale consisting of expendable inventory parts and rotable flight
equipment are stated at the lower of average cost or net realizable value for
expendable inventory parts and the lower of average cost or fair value less cost
to sell for rotable flight equipment. As of December 31, 1998 and 1997, the
Company had approximately $3.5 million and $5.3 million, respectively, of
expendable inventory parts and rotable flight equipment held for sale internally
or on a consignment basis with a third party.
F-9
<PAGE>
PROPERTY AND EQUIPMENT
Owned property and equipment are stated at cost. Costs of major improvements
are capitalized. Depreciation and amortization are provided on a straight-line
basis over the following estimated useful lives:
<TABLE>
<S> <C>
Flight equipment. . . . . . . . . . 4-15 years, 15% residual value
Ground equipment. . . . . . . . . . 5-15 years
Airport terminal facility . . . . . 30 years
Buildings . . . . . . . . . . . . . 15-20 years
Leasehold improvements. . . . . . . Shorter of lease term or useful life
</TABLE>
Maintenance and repairs are charged to operations as incurred, except that (1)
costs of overhauling engines are charged to operations in the year the engines
are removed for overhaul and (2) scheduled heavy airframe overhauls and major
structural modifications on DC-9 aircraft are recorded under the deferral method
whereby the cost of overhaul is capitalized and amortized over the shorter of
the period benefited or the lease term. Additionally, provision is made for the
estimated cost of scheduled heavy airframe overhauls required to be performed on
leased DC-9 aircraft prior to their return to lessors. Maintenance and repairs
on DC-10 aircraft are charged to operations on a flight hour basis.
In 1997, the Company commenced concentrated efforts to update its information
technology systems for strategic reasons. Direct external costs subsequent to
the preliminary stage of these projects are capitalized as property and
equipment. Capitalized costs are amortized on a straight-line basis over the
estimated useful life of each installation or module once it is complete and
ready for its intended use.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
The Company emerged from Chapter 11 bankruptcy on September 12, 1994 (the
"Effective Date") with Hawaiian Airlines being the sole surviving corporation.
Under fresh start reporting, the reorganization value of the entity was
allocated to the Company's assets and liabilities on a basis substantially
consistent with the purchase method of accounting. The portion of
reorganization value not attributable to specific tangible or identifiable
intangible assets of the Company is reflected as reorganization value in excess
of amounts allocable to identifiable assets ("Excess Reorganization Value") in
the accompanying balance sheets. Excess Reorganization Value is amortized on a
straight-line basis over 20 years. Accumulated amortization at December 31,
1998 and 1997 totaled approximately $15.0 million and $11.7 million,
respectively. The estimated income tax benefit from the expected utilization of
net operating loss carryforwards arising prior to the Effective Date has also
been applied as a reduction to Excess Reorganization Value. The Company will
continue to assess and evaluate whether the remaining useful life of the asset
requires revision or, through the use of estimated future undiscounted cash
flows over the remaining life of the asset, whether the remaining balance of the
asset is recoverable. The assessment of the recoverability of the unamortized
amount will be impacted if estimated future operating cash flows are not
achieved.
ACCRUED VACATION LIABILITY
Accrued vacation in excess of the amount expected to be taken by employees
during the following year is classified as a noncurrent liability.
FREQUENT FLYER AWARDS
A liability for frequent flyer awards is recognized on the incremental cost
basis in the period during which passengers have accumulated sufficient mileage
for award redemption. Incremental costs primarily include fuel and catering.
PASSENGER REVENUES
Passenger fares are recorded as operating revenues when the transportation is
provided. The value of unused passenger tickets is included as air traffic
liability.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments comprised of crude oil
forward and options contracts to manage market risks and hedge its exposure to
fluctuations in its aircraft fuel costs. Realized and unrealized changes
F-10
<PAGE>
in the fair value of the derivative financial instruments are recognized in
income in the period in which the change occurs. The Company's practice is
to not hold or issue financial instruments for trading purposes.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
STOCK OPTION PLANS
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (the "APB") No. 25, "Accounting for Stock Issued to
Employees," in accounting for its fixed stock options. As such, compensation
cost is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price.
EARLY EXTINGUISHMENT OF DEBT
In 1996, the Company paid approximately $4.7 million to GPA Group plc and its
affiliate AeroUSA, Inc. to repurchase 827,221 shares of Common Stock and to
repay approximately $4.5 million of long-term debt at a 15.0% discount,
including any deferred costs and other expenses owed. These transactions
resulted in an extraordinary gain, net of income taxes, of approximately
$409,000.
Further, in December 1996, the Company exercised its option to prepay to
American Airlines, Inc. ("American") a $10.25 million promissory note secured by
certain assets of the Company (the "American Note"). The Company paid American
$9.15 million plus accrued interest with all liens securing the American Note
being released. Early extinguishment of the American Note resulted in an
extraordinary gain, net of income taxes, of approximately $357,000.
BUSINESS PROCESS REENGINEERING COSTS
As promulgated by the Financial Accounting Standards Board's (the "FASB")
Emerging Issues Task Force, in fourth quarter 1997, the Company wrote off
business process reengineering costs which had been incurred and capitalized in
the implementation of information technology projects. The write-off totaled
approximately $450,000, net of income tax benefit of approximately $300,000 and
is reflected as a cumulative effect of change in accounting principle in the
accompanying statements of operations.
EARNINGS (LOSS) PER SHARE
Basic earnings per share represents income available to common shareholders
divided by the weighted average number of Common Stock shares outstanding for
the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue Common Stock shares were
exercised or converted into Common Stock shares or resulted in the issuance of
Common Stock shares that then shared in the earnings of the Company.
Outstanding rights, warrants and options to purchase shares of the Company's
Common Stock are not included in the computation of diluted earnings per share
if inclusion of these rights, warrants and options is antidilutive. For 1998,
1997 and 1996, options and warrants to purchase approximately 1.4 million, 2.5
million and 4.0 million shares of Common Stock, respectively, were outstanding,
but not included in the computation of diluted earnings per share as inclusion
of these options and warrants would be antidilutive. See Note 9.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
F-11
<PAGE>
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of air traffic liability, accruals for loss
contingencies and the amounts reported for accumulated pension and other
postretirement benefit obligations. Management believes that such estimates have
been appropriately established in accordance with generally accepted accounting
principles.
SEGMENT INFORMATION
Due to the centralization of the Company's operations in the State of Hawaii and
the interdependence of its routes, management considers its operations to be one
industry segment.
RECLASSIFICATIONS
Certain prior year amounts were reclassified to conform to the 1998
presentation. Such reclassifications had no effect on previously reported
financial condition and/or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. SFAS No. 130 requires
reclassification of financial statements for earlier periods provided for
comparative purposes.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 requires restatement of comparative information
presented for earlier periods.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in SFAS Nos. 87, 88 or 106. SFAS No. 132 requires
restatement of comparative information presented for earlier periods.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
In March 1998, the American Institute of Certified Public Accountants Accounting
Standards Executive Committee (the "AcSEC") issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires that certain costs related to the development or
purchase of internal-use software be capitalized and amortized over the
estimated useful life of the software. SOP 98-1 also requires that costs
related to the preliminary project stage and the post-implementation/operations
stage, as defined, in an internal-use computer software development project be
expensed as incurred. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred. The provisions of SOP
98-5 are effective for fiscal years beginning after December 15, 1998.
F-12
<PAGE>
The Company adopted the provisions of SFAS Nos. 130, 131 and 132 effective
January 1, 1998. Adoption of SFAS No. 130 did not result in the
reclassification of comparative financial statement information presented for
earlier periods. Adoption of SFAS No. 131 did not result in a modification to
the Company's reporting segment and accordingly, comparative financial statement
information presented for earlier periods was not restated. The Company's
disclosures regarding pension and other postretirement benefits for prior
periods have been restated to comply with the provisions of SFAS No. 132.
Further, management does not expect the adoption of SFAS No. 133, SOP 98-1 or
SOP 98-5 by the respective required dates to have a material impact on the
Company's financial condition, results of operations, liquidity and/or
previously reported financial information.
3. FINANCIAL INSTRUMENTS AND FAIR VALUES
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and other accrued liabilities approximate fair value due to the short
maturity of those instruments. The carrying amount of notes receivable from
Common Stock sales approximates fair value as the terms of such instruments are
reflective of terms offered for similar instruments of comparable maturities.
The cost of investment securities held at December 31, 1997, consisting of U.S.
Treasury and mortgage-backed securities amounted to $3.0 million and $1.0
million, respectively, which approximates fair value. Investment securities
held at December 31, 1997 are classified as available-for-sale and were sold
during 1998. Realized gains and losses from the sale of such securities were
not material in 1998 or 1997.
The estimated fair values of long-term debt amounted to $17.6 million and $6.3
million at December 31, 1998 and 1997, respectively. These fair values were
estimated by discounting the future cash flow requirements of each instrument at
rates currently offered at the respective year-end dates to the Company for
similar debt instruments of comparable maturities.
In 1997, the Company began utilizing derivative financial instruments comprised
of crude oil forward and options contracts to hedge its financial exposure
resulting from fluctuations in its aircraft fuel costs. At December 31, 1998,
the Company had petroleum forward contracts to purchase 45,000 barrels of crude
oil in the aggregate amount of $722,000 through February 1999. The estimated
fair value and carrying value of these outstanding contracts was a net
receivable of $200,000 at December 31, 1998. Realized and unrealized losses on
such contracts amounted to $2.3 million and $1.1 million in 1998 and 1997,
respectively, and are included as a component of aircraft fuel expense. The
estimated fair value of these contracts are based on quoted market prices and
generally have maturities of one year or less. The contracts are either
exchanged or traded with counterparties of high credit quality; therefore, the
risk of non-performance by the counterparties is considered to be negligible.
4. FLIGHT EQUIPMENT
All of the Company's aircraft are leased except for one DC-10 and three DC-9s.
At December 31, 1998 and 1997, the composition of the Company's aircraft fleet
is as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------
Aircraft Type Leased Owned Leased Owned
------------------- ------------------------------------------------------
<S> <C> <C> <C> <C>
DC-10 10 1 9 -
DC-9 11 3 11 2
------------------------------------------------------
Total 21 4 20 2
------------------------------------------------------
------------------------------------------------------
</TABLE>
In November 1998, the Company entered into a purchase agreement for two used
DC-10-30 aircraft. As of December 31, 1998, the Company had taken delivery of
one DC-10-30 aircraft. Delivery of the second DC-10-30 aircraft took place
during the first quarter 1999, subject to long term debt financing to be in
place by the end of the first quarter 1999. Efforts have also commenced to
acquire a third DC-10-30.
In December 1998, the Company entered into a purchase agreement to acquire two
used DC-9-50 aircraft. The aircraft will be used in the Interisland market. At
December 31, 1998, the first DC-9-50 had been delivered. Delivery of the second
DC-9-50 is anticipated in first quarter 1999.
F-13
<PAGE>
At December 31, 1998, the Company had purchase commitments for one DC-10-30
aircraft and one DC-9-50 aircraft in an aggregate amount of approximately $15
million.
5. LEASES
AIRCRAFT LEASES
Ten DC-10 aircraft are leased from American under operating leases which expire
in 2001. Effective January 31, 1996, the Company and American agreed to a
reduction in basic rents due on DC-10 operating leases by approximately 28%
through January 31, 1999, at which time such rents revert to their original
levels. Rent has been expensed under the straight line method. Five and six
DC-9 aircraft and related flight equipment are leased under operating and
capital leases, respectively, for various periods through the year 2004. Most
of the operating leases for DC-9 aircraft include renewal options and fair
market value purchase options at the end of the lease period.
OTHER LEASES
The Company leases office space for its headquarters, airport facilities, ticket
offices and certain ground equipment in varying terms to 2008.
GENERAL
Rent expense for aircraft, office space, real property and other equipment
during 1998, 1997 and 1996 was $28.4 million, $26.6 million and $26.7 million,
respectively, net of sublease rental income from operating leases of $66,000,
$50,000 and $102,000, respectively.
Scheduled future minimum lease commitments under operating and capital leases
for the Company as of December 31, 1998, in thousands, are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1999.............................................................. $ 20,695 $ 5,365
2000.............................................................. 18,787 3,572
2001.......................................................;...... 12,785 842
2002.............................................................. 2,248 842
2003.............................................................. 2,237 242
Thereafter........................................................ 8,285 1,804
--------- ---------
Total minimum lease payments............................ $ 65,037 $ 12,667
---------
---------
Less amount representing interest
(rates ranging from 8.0% to 10.25%)................ 2,087
---------
Present value of capital lease
obligations............................................. 10,580
Less current portion of capital lease
obligations............................................. 4,614
---------
Capital lease obligations, excluding
current portion......................................... $ 5,966
---------
---------
</TABLE>
In addition to scheduled future minimum lease payments, the Company is required
to pay for, under agreement with American, monthly DC-10 maintenance charges.
These charges are based on flight hours for the month and are expensed as
incurred. See Note 11. For the years ended December 31, 1998, 1997 and 1996,
the Company incurred $55.4 million, $50.9 million and $45.2 million,
respectively, in maintenance charges under such agreement.
F-14
<PAGE>
The net book value of property held under capital leases as of December 31, 1998
and 1997 totaled $19.8 million and $21.4 million, respectively. Amortization of
property held under capital leases is included in depreciation and amortization
expense in the accompanying statements of operations.
6. DEBT
At December 31, 1998 and 1997, the Company's long-term debt consists of the
following, in thousands:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Secured obligations due 1999-2005.......................... $ 17,986 $ 6,161
Other obligations paid in 1998............................. - 90
----------------- -----------------
17,986 6,251
Current portion............................................ (3,532) (2,260)
----------------- -----------------
Long-term debt obligations, excluding current portion $ 14,454 $ 3,991
----------------- -----------------
----------------- -----------------
</TABLE>
Secured obligations due 1999-2005 are as follows:
(1) A promissory note executed in 1998 for the acquisition of a used DC-10-30
aircraft. The note is secured by lien on the aircraft, as described in the
security agreement. The note is due in 2005 and is payable in monthly
installments of principal and interest of $131,553. Interest accrues at
8.15% per annum. At December 31, 1998, $8.4 million was outstanding;
(2) A promissory note executed in 1998 for the acquisition of a used DC-9-50
aircraft. The note is secured by first priority liens on the aircraft,
other collateral as described in the security agreement and a $1.0 million
letter of credit issued under the Credit Facility defined below. The note
is due in 2005 and is payable in monthly installments of principal and
interest ranging from $78,039 to $34,673. Interest accrues at 8.95% per
annum. At December 31, 1998, $4.3 million was outstanding;
(3) A secured note executed in 1993 for the purchase of a DC-9 aircraft from a
lessor. The mortgage note is due in 1999 and is payable in monthly
installments of principal and interest of $59,876. Interest accrues at
10.315% per annum. At December 31, 1998 and 1997, $405,000 and $1.0
million, respectively, were outstanding;
(4) The Company maintains a Credit Facility with CIT Group/Credit Finance, Inc.
(the "Credit Facility"). The Credit Facility consists of two secured term
loans and a secured revolving line of credit including up to $6.0 million
of letters of credit. The term loans will amortize in equal installments
over periods of 48 and 60 months, respectively. The outstanding principal
amounts of the term loans will become due and payable upon termination of
the Credit Facility. Available credit is subject to change determined by
recalculation of the borrowing base, repayments due under the term loans
and repayments arising from the disposition and other changes in the
related collateral securing the Credit Facility. The Credit Facility has an
initial term of three years from April 29, 1996 and renews automatically
for successive terms of two years each, unless terminated by either party
on at least 60 days notice prior to the end of the then-current term.
Interest accrues at prime plus 2.0% (8.16% at December 31, 1998). The
Company may terminate the Credit Facility at any time, on 30 days notice
and payment of certain early termination fees during the initial term and
without termination fees during any renewal term.
As of December 31, 1998, the total availability under the Credit Facility
was $11.1 million with aggregate term loans and letters of credit
outstanding in the amounts of $4.9 million and $1.1 million, respectively.
As of December 31, 1997, the total availability under the Credit Facility
was $11.9 million with aggregate term loans and letters of credit
outstanding in the amounts of $5.2 million and $100,000, respectively.
The Credit Facility is secured by a first lien on substantially all of the
Company's property, excluding the Company's owned and leased aircraft, the
Company's aircraft engines while installed on an aircraft and certain
F-15
<PAGE>
security deposits. In addition, terms of the Credit Facility restrict the
Company from paying any cash or stock dividends on its Common Stock.
Other obligations paid in 1998 represented priority tax claims for various
taxing jurisdictions recognized upon the Company's emergence from Chapter 11
bankruptcy. The obligations bore interest at 7.0% per annum and were payable in
24 quarterly installments commencing on the first anniversary of the Effective
Date.
Maturities of long-term debt for the Company, including those estimated for the
Credit Facility, as of December 31, 1998, in thousands, are as follows:
<TABLE>
<S> <C>
1999.......................... $3,532
2000.......................... 3,259
2001.......................... 3,404
2002.......................... 2,016
2003.......................... 2,112
Thereafter.................... 3,663
</TABLE>
7. INCOME TAXES
Income tax expense is based on an estimated annual effective tax rate, which
differs from the federal statutory rate of 35% in 1998 and 34% in 1997 and 1996,
primarily due to state income taxes and certain nondeductible expenses. The
Company's reorganization and the associated implementation of fresh start
reporting gave rise to significant items of expense for financial reporting
purposes that are not deductible for income tax purposes.
The estimated income tax benefit from the expected utilization of net operating
loss carryforwards arising prior to the Effective Date has been, and will
continue to be, applied as a reduction to Excess Reorganization Value, not as a
reduction to income tax expense. While generally accepted accounting principles
require that a provision for income tax be recorded, a majority of the provision
for 1998, 1997 and 1996 will not require cash outlay as it will be offset by net
operating loss carryforwards available to the Company. As noted, in 1998 and in
1997 and 1996, approximately $7.4 million and $1.3 million, respectively, of
estimated income tax benefit from the expected utilization of these net
operating loss carryforwards has been applied as a reduction to Excess
Reorganization Value.
Income tax expense in 1998, 1997 and 1996 differs from the "expected" tax
expense (benefit) for that year computed by applying the respective year's U.S.
federal corporate income tax rate to income (loss) before income taxes,
extraordinary items and cumulative effect of change in accounting principle as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............. $ 5,600 $ 400 $ (500)
Amortization of Excess Reorganization Value........... 1,200 1,200 1,200
State income taxes, net of federal income
tax benefit..................................... 800 20 100
Other................................................. 203 100 68
--------------- --------------- ---------------
$ 7,803 $ 1,720 $ 868
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-16
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the Company's deferred tax assets and deferred tax liabilities at December
31, 1998 and 1997 are presented below, in thousands:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 13,366 $ 21,921
Accumulated pension and other
postretirement benefit obligations............. 8,585 9,341
Provision for loss on devalued assets.............. 2,724 2,442
Accrued vacation................................... 2,263 2,085
Airframe return provision.......................... 1,271 932
Accounts receivable, principally due to
allowance for doubtful accounts................ 200 200
Other.............................................. 2,627 4,760
----------------- -----------------
Total gross deferred tax assets........... 31,036 41,681
Less valuation allowance.................. (21,479) (34,127)
----------------- -----------------
Net deferred tax assets................... 9,557 7,554
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation............... (9,557) (7,554)
----------------- -----------------
Net deferred taxes........................ $ - $ -
----------------- -----------------
----------------- -----------------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1998, 1997 and
1996 was $34.1 million, $35.3 million and $47.2 million, respectively. The net
change in the total valuation allowance for the years ended December 31, 1998,
1997 and 1996 were decreases of $12.6 million, $1.2 million and $11.9 million,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.
The Company underwent an ownership change in January 1996, as defined under
Section 382 of the Internal Revenue Code ("IRC Section 382"). IRC Section 382
places an annual limitation on the amount of income that can be offset by net
operating loss carryforwards generated in pre-ownership change years. The
ownership change resulted in an IRC Section 382 limitation of approximately $1.7
million plus certain "built-in" income items. This new limitation applies to
all net operating losses incurred prior to the ownership change. As of December
31, 1998, the Company has total net operating loss carryovers of approximately
$33.4 million to offset future taxable income. If not utilized to offset future
taxable income, the net operating loss carryforwards will expire between the
years 2003 and 2009. If, in future years, the Company were to recognize income
tax benefit from the utilization of net operating loss carryforwards arising
prior to the Effective Date, such benefit will be applied as a reduction to
Excess Reorganization Value.
8. BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
The Company sponsors three defined benefit pension plans covering its Air Line
Pilots Association, International ("ALPA"), International Association of
Machinists and Aerospace Workers (AFL-CIO) ("IAM") and salaried personnel. The
plans for the IAM and salaried employees were frozen effective October 1, 1993.
As a result of the freeze, there will be no further benefit accruals and no
additional participants in those plans. Pension cost for the pilots plan is
funded on a current basis based on the amortization of prior service cost over
20 years. Funding for the ground personnel plans is based on minimum Employee
Retirement Income Security Act of 1974 requirements. Plan assets
F-17
<PAGE>
consist primarily of common stocks, government and convertible securities,
insurance contract deposits and cash management and mutual funds.
In addition to providing pension benefits, the Company sponsors two unfunded
defined benefit postretirement medical and life insurance plans. Employees in
the Company's pilot group are eligible for certain medical and life insurance
benefits under one plan if they become disabled or reach normal retirement age
while working for the Company. Employees in the Company's non-pilot group are
eligible for certain medical benefits under another plan if they meet specified
age and service requirements at the time of retirement.
The following tables summarize changes to benefit obligations, plan assets,
funded status and amounts included in the accompanying balance sheets as of
December 31, 1998 and 1997, in thousands:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------- -------------------------------------
Change in benefit obligation 1998 1997 1998 1997
- ---------------------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year........... $ 163,792 $ 151,691 $ 13,909 $ 14,460
Service cost...................................... 4,047 3,609 739 714
Interest cost..................................... 12,078 11,506 1,037 1,044
Actuarial (gain) loss............................. 11,857 5,701 (901) (1,631)
Benefits paid..................................... (8,760) (8,715) (645) (678)
--------------- --------------- --------------- ---------------
Benefit obligation at end of year................. 183,014 163,792 14,139 13,909
--------------- --------------- --------------- ---------------
Change in plan assets
- ----------------------------------------------------
Fair value of assets at beginning of year......... 160,770 145,884 - -
Actual return on plan assets...................... 1,869 19,798 - -
Employer contribution............................. 4,805 3,803 645 678
Benefits paid..................................... (8,760) (8,715) (645) (678)
--------------- --------------- --------------- ---------------
Fair value of assets at end of year............... 158,684 160,770 - -
--------------- --------------- --------------- ---------------
Funded status..................................... (24,330) (3,022) (14,139) (13,909)
Unrecognized actuarial net (gain) loss............ 25,435 1,973 (12,434) (12,395)
--------------- --------------- --------------- ---------------
Prepaid (accrued) benefit cost at end of year..... $ 1,105 $ (1,049) $(26,573) $ (26,304)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Amounts recognized in the
accompanying balance sheets
- ----------------------------------------------------
Prepaid benefit cost.............................. $ 14,120 $ 14,018 $ - $ -
Accrued benefit liability......................... (17,521) (15,067) (26,573) (26,304)
Intangible asset.................................. - - - -
Accumulated other comprehensive loss.............. 4,506 - - -
--------------- --------------- --------------- ---------------
Prepaid (accrued) benefit cost at end of year..... $ 1,105 $ (1,049) $(26,573) $ (26,304)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average assumptions at end of year
- ----------------------------------------------------
Discount rate..................................... 7.0% 7.5% 7.0% 7.5%
Expected return on plan assets.................... 9.0% 9.0% Not applicable Not applicable
Rate of compensation increase..................... 4.5% 4.5% 4.5% 4.5%
</TABLE>
At December 31, 1996, the discount rate, expected return on plan assets and
rate of compensation increase for pension benefits was 7.75%, 9.0% and 4.5%,
respectively. At December 31, 1996, the discount rate and rate of
compensation increase for other benefits was 7.75% and 4.5%, respectively.
The rate of compensation increase is not applicable to the frozen plans. At
December 31, 1998, the health care cost trend rate was assumed to increase by
7.3% for 1999 and decrease gradually to 4.0% over 7 years and remain level
thereafter.
F-18
<PAGE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for plans with accumulated benefit obligations in excess
of plan assets, in thousands, were $136,087, $122,719 and $105,197,
respectively, as of December 31, 1998 and $107,009, $95,440 and $91,107,
respectively, as of December 31, 1997.
The following table sets forth the net periodic benefit cost for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------- -----------------------------
Components of Net Periodic Benefit Cost 1998 1997 1996 1998 1997 1996
- --------------------------------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost......................... $ 4,047 $ 3,609 $ 3,857 $ 739 $ 714 $ 923
Interest cost........................ 12,078 11,506 10,882 1,037 1,044 1,153
Expected return on plan assets....... (13,473) (12,607) (11,982) - - -
Recognized net actuarial (gain) loss. - - 198 (861) (823) (418)
-------- -------- -------- ------- ------- -----
Net periodic benefit cost $ 2,652 $ 2,508 $ 2,955 $ 915 $ 935 $1,658
-------- -------- -------- ------- ------- -----
-------- -------- -------- ------- ------- -----
</TABLE>
Assumed health care cost trend rates have a significant impact on the amounts
reported for other benefits. A one-percentage point change in the assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
----------------- -----------------
<S> <C> <C>
Effect on total of service and interest cost
components.................................... $ 262,000 $ (216,000)
Effect on postretirement benefit obligation......... $ 1,905,000 $ (1,585,000)
</TABLE>
OTHER BENEFIT PLANS
The Company sponsors separate deferred compensation plans (401(k)) for its
pilots, flight attendants and ground and salaried personnel. Participating
employer cash contributions are not required under the terms of the pilots'
plan. The Company is required to contribute up to 7.0% of defined compensation
pursuant to the terms of the flight attendants' plan. Contributions to the
flight attendants' plan are funded currently and totaled approximately $1.3
million in 1998 and $1.1 million in 1997 and 1996, respectively. The Company is
also required to contribute 4.0% of eligible earnings to the ground and salaried
plan for eligible employees as defined by the plan. Contributions to the ground
and salaried 401(k) plan totaled $2.0 million, $1.8 million and $1.6 million in
1998, 1997 and 1996, respectively.
The Company further sponsors a profit sharing plan, which provides all employees
(other than senior management) with cash bonuses if the Company achieves certain
pre-tax profit levels. At December 31, 1998, the Company has provided for
approximately $760,000 under the provisions of the profit sharing plan, with
distribution of the amounts, as defined by the plan, to occur in first quarter
1999.
9. CAPITAL STOCK, WARRANTS, RIGHTS AND OPTIONS
AUTHORIZED CAPITAL STOCK
As of December 31, 1998 and 1997, the authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock, par value $.01 per share, and
2,000,000 shares of Special Preferred Stock, par value $.01 per share.
Under the terms of the Credit Facility, the Company is restricted from paying
any cash or stock dividends. No dividends were paid by the Company in 1998 or
1997.
F-19
<PAGE>
SPECIAL PREFERRED STOCK
Four shares of Series B Special Preferred Stock are owned by Airline
Investors Partnership, L.P. ("AIP") with such shares entitling AIP to
nominate directors. The Association of Flight Attendants ("AFA"), IAM and
ALPA each hold one share of Series C Special Preferred Stock, Series D
Special Preferred Stock and Series E Special Preferred Stock, respectively,
(collectively the "Special Preferred Stock") which entitle each union to
nominate one director. The holders of each series of the Special Preferred
Stock are entitled to fill a vacancy on the Board of Directors caused by the
removal, resignation or death of a director nominated by that series if the
Board fails to fill such vacancy within 30 days. AIP has agreed with each of
IAM, ALPA and AFA that so long as the right to have a representative on the
Board is in its respective collective bargaining agreement, AIP will vote its
shares in favor of such union's nominee for the Board of Directors. In
addition to the rights described above, the Special Preferred Stock (1) is
senior to Common Stock and each series is PARI PASSU with each other with
respect to rights on liquidation, dissolution and winding up and will be
entitled to receive $.01 per share, and no more, before any payments are made
to holders of any stock ranking junior to the Special Preferred Stock; (2)
has no dividend rights other than at any time that a dividend is declared and
paid on the Common Stock dividends in an amount per share equal to twice the
dividend per share paid on the Common Stock will be paid on the Special
Preferred Stock; (3) is entitled to one vote per share and votes with the
Common Stock as a single class on all matters submitted to the shareholders
of the Company; (4) automatically converts into one share of Common Stock
upon the transfer of such share from the person to whom originally issued to
any person that is not an affiliate of such person; and (5) does not have
preemptive rights in connection with future issuances of the Company's
capital stock.
SHAREHOLDER RIGHTS PLAN
In December 1994, the Board of Directors of the Company authorized adoption
of a shareholder rights plan (the "Rights Plan") pursuant to which there
would be attached to each share of Common Stock of the Company one preferred
stock purchase right (a "PSP Right"). The Rights Plan, as amended, provides
that in the event any person (with certain exceptions) becomes the beneficial
owner of 15.0% or more of the outstanding common shares, each PSP Right
(other than a PSP Right held by the 15.0% shareholder) will be exercisable,
on and after the close of business on the tenth business day following such
event, to purchase Hawaiian Airlines Common Stock at 50% of the market value
of such stock. The Rights Plan further provides that if, on or after the
occurrence of such event, the Company is merged into any other corporation or
50.0% or more of the Company's assets or earning power are sold, each PSP
Right (other than a PSP Right held by the 15.0% shareholder) will be
exercisable to purchase common shares of the acquiring corporation at 50% of
the market value of such stock. The PSP Rights expire on December 1, 2004
(unless previously triggered) and are subject to redemption by the Company
at $0.01 per PSP Right at any time prior to the first date upon which they
become exercisable.
WARRANTS
In January 1996, due to its participation in certain recapitalization efforts
of the Company, American's parent company, AMR Corporation ("AMR"), received,
among other things, warrants (the "AMR Warrants") which, subject to certain
conditions, entitled AMR to purchase up to 1,949,338 shares of the Company's
Common Stock at $1.07 per share, as adjusted pursuant to applicable
anti-dilution provisions. One-half of the warrants were exercisable
immediately and the remaining one-half were to become exercisable only if
American and the Company entered into a code sharing arrangement. In July
1997, the Company consummated the code share marketing agreement with
American. All of the warrants became exercisable upon implementation of the
code share agreement with American on March 2, 1998. If not exercised, the
warrants expire on September 11, 2001. The estimated fair value of the
codeshare agreement and the underlying warrants approximated $2.3 million and
has been reflected in the accompanying balance sheets as warrants and other
assets. The amount included in other assets is being amortized on a
straight-line basis over five years from the implementation date of the code
share agreement.
Pursuant to its reorganization in 1994, the Company granted warrants to
certain individuals (the "Reorganization Warrants"), which entitled such
individuals to purchase 1,618,972 shares of Common Stock at an exercise price
of $1.67 per share, as adjusted for applicable anti-dilution provisions. As
of December 31, 1997, all Reorganization Warrants to purchase 1,618,972
shares of Common Stock had been exercised.
F-20
<PAGE>
STOCK OPTION PLANS
Under the 1994 Stock Option Plan, 600,000 shares of Common Stock were
reserved for grants of options to officers and key employees of the Company.
Under the 1996 Stock Incentive Plan, as amended, 4,500,000 shares of Common
Stock were reserved for issuance of discretionary grants of options to the
Company's employees. The Company also has a 1996 Nonemployee Director Stock
Option Plan which reserves 500,000 shares of Common Stock for issuance and
grants of options to members of the Board of Directors. Stock options are
granted with an exercise price equal to the Common Stock's fair market value
at the date of grant, generally vest over a period of four years and expire,
if not previously exercised, 10 years from the date of grant.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted
Shares of Common Stock average of
-------------------------------------- exercise price
Available for Under of shares
options plan under plan
-------------------------------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 7,500 592,500 $ 1.62
--------------
--------------
Authorized
1996 Stock Incentive Plan 2,000,000 - -
1996 Nonemployee Director Stock
Option Plan 500,000 - -
Granted
1994 Stock Option Plan (7,500) 7,500 1.62
1996 Stock Incentive Plan (807,500) 807,500 3.33
1996 Nonemployee Director Stock
Option Plan (89,000) 89,000 3.69
Exercised
1994 Stock Option Plan - (115,000) 1.62
1996 Stock Incentive Plan - (592,500) 3.25
Forfeited
1996 Stock Incentive Plan 15,000 (15,000) 3.25
----------------- -----------------
Balance at December 31, 1996 1,618,500 774,000 $ 2.36
--------------
--------------
Granted
1996 Stock Incentive Plan (150,000) 150,000 4.06
Exercised
1994 Stock Option Plan - (307,500) 1.62
Forfeited
1996 Stock Incentive Plan 72,000 (72,000) 3.56
----------------- -----------------
Balance at December 31, 1997 1,540,500 544,500 $ 3.09
--------------
--------------
Authorized
1996 Stock Incentive Plan 2,500,000 - -
Granted
1996 Stock Incentive Plan (1,035,000) 1,035,000 3.50
1996 Nonemployee Director Stock
Option Plan (56,000) 56,000 3.50
Exercised
1994 Stock Option Plan - (112,500) 1.62
Forfeited
1996 Stock Incentive Plan 28,000 (28,000) 3.56
----------------- -----------------
Balance at December 31, 1998 2,977,500 1,495,000 $ 3.49
----------------- ----------------- --------------
----------------- ----------------- --------------
</TABLE>
F-21
<PAGE>
As of December 31, 1998, vesting requirements and exercise periods under each
respective plan are as follows:
<TABLE>
<CAPTION>
Vesting Exercise Period
----------------- -----------------
<S> <C> <C>
1994 Stock Option Plan Fully vested Through 2005
1996 Stock Incentive Plan Various from Various from
1999 through 2002 1999 through 2008
1996 Nonemployee Director
Stock Option Plan Fully vested Various from
1999 through 2008
</TABLE>
At December 31, 1998, the range of exercise prices and weighted-average
remaining contractual lives of outstanding options was $1.62 to $4.06 and 7.8
years, respectively.
At December 31, 1998, 1997 and 1996, the number of options exercisable was
252,000, 322,500 and 485,000, respectively, with weighted-average exercise
prices of $3.14, $2.53 and $2.36, respectively.
The Company applies APB Opinion No. 25 in accounting for stock options. Had
the Company determined compensation cost based on the fair value at the grant
date of the respective options under SFAS No. 123, the Company's net income
(loss) would have been reduced or increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net Income (Loss)
As reported $ 8,205 $ (1,022) $ (1,533)
Pro forma $ 7,146 $ (1,322) $ (1,935)
Basic earnings per share
As reported $ 0.20 $ (0.03) $ (0.05)
Pro forma $ 0.17 $ (0.03) $ (0.07)
Diluted earnings per share
As reported $ 0.19 $ (0.03) $ (0.05)
Pro forma $ 0.17 $ (0.03) $ (0.07)
</TABLE>
The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $1.78, $1.81 and $0.79, respectively, on the date of
grant using a Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 40.0% 40.0% 50.0%
Risk-free interest rate 5.76% 6.30% to 6.40% 4.05% to 7.55%
Expected life Up to 7 years Up to 6 years Up to 7 years
</TABLE>
Pro forma net income (loss) reflects only options granted since December 31,
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
(loss) amounts presented above because compensation cost is reflected over
the various options' vesting periods and compensation cost for options
granted prior to January 1, 1996 is not considered.
F-22
<PAGE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
LITIGATION AND CONTINGENCIES
All claims asserted against the Company for alleged prepetition and/or
administrative claims on or before the Effective Date of the Company's
reorganization have been resolved utilizing reserved Common Stock shares and
the Company's Chapter 11 Bankruptcy proceeding has been closed.
The Company is party to several other claims and legal actions. Also, the
Company is involved in discussions with the State of Hawaii regarding general
excise tax as it relates to leased aircraft. The matter is subject to
continued discussion with no discernable amounts and/or arguments at this
time. In the opinion of management, and after consultation with legal
counsel, the Company believes that the ultimate disposition of these matters
will not have a material adverse effect on the Company's operations or
financial condition.
AIRCRAFT MAINTENANCE
Maintenance on the Company's DC-10 aircraft fleet is performed by American in
accordance with the Federal Aviation Administration's (the "FAA") regulations
and Hawaiian Airlines' approved maintenance program.
The Company anticipates that in the period 1999 through 2001, eight of its
DC-9 aircraft will require heavy airframe overhaul checks (the "C5-Check",
previously referred to as a D-Check). The C5-Check for a DC-9 requires more
than 20,000 man-hours of maintenance work and includes stripping the
airframe, extensively testing the airframe structure and a large number of
parts and components, and reassembling the overhauled airframe with new or
rebuilt components. The Company anticipates each C5-Check to cost
approximately $1.0 million.
The FAA has and is expected to continue to require structural modifications
and the replacement of certain parts, as well as the implementation of
additional maintenance programs or changes to current programs, with respect
to various types of aircraft over a certain age. These requirements vary,
depending on the type of aircraft covered. Based on information currently
available, the Company estimates that the total cost of complying with the
aging aircraft requirements over the 1999 through 2003 period will
approximate $660,000 per DC-9 aircraft.
The Company expects to incur approximately $100,000 per DC-9 aircraft per
year for maintenance required under a corrosion prevention and control
program. This program is anticipated to continue indefinitely in the future.
The FAA has mandated the installation of smoke detection and fire suppression
systems in the cargo compartments of both DC-10 and DC-9 aircraft by December
2000. The cost for systems and installation is estimated to be $130,000 and
$83,000 per each DC-10 and DC-9 aircraft, respectively.
As a result of certain incidents where Digital Flight Data Recorder ("DFDR")
information was insufficient to determine the cause of the accident, the FAA
has also mandated additional recording parameters for the DC-10 and DC-9
aircraft by the first heavy maintenance check after August 1999 but no later
than August 2001. The DC-10 DFDR will be upgraded from 17 to 22 parameters
at an estimated cost of $60,000 per aircraft. The DC-9 DFDR will be upgraded
from 11 to 18 parameters at an estimated cost of $47,000 per aircraft.
During the period from 1999 through 2003, the Company anticipates continued
implementation of its supplemental inspection document program for certain of
its DC-9 aircraft, which is estimated to range up to $27,000 per aircraft.
The estimated future cost of complying with FAA regulations as discussed in
the preceding paragraphs will be in addition to the costs of the Company's
current DC-10 and DC-9 fleet maintenance programs.
LOS ANGELES AIRPORT OPERATING TERMINAL
On December 1, 1985, the Company entered into an interline agreement with
other airlines for, among other things, the sharing of costs, expenses and
certain liabilities related to the acquisition, construction and renovation
of certain passenger terminal facilities at the Los Angeles International
Airport ("Facilities"). Current tenants and participating members of LAX Two
Corporation (the "Corporation"), a mutual benefit corporation, are jointly
and severally obligated to pay their share of debt service payments related
to Facilities Sublease Revenue Bonds issued to finance the acquisition,
construction and renovation of the Facilities which totaled $111.9 million at
completion. The Corporation
F-23
<PAGE>
leases the Facilities from the Regional Airports Improvement Corporation
under a lease agreement. In addition, the Corporation is also obligated to
make annual payments to the city of Los Angeles for charges related to its
terminal ground rental. All leases of the Corporation are accounted for as
operating leases with related future commitments as of December 31, 1998
amounting to approximately $214.5 million. Rent expense relating to these
operating leases totaled $4.9 million, $5.0 million and $4.8 million in 1998,
1997 and 1996, respectively.
Member airlines pay the expenses associated with the Facilities on a prorata
share basis calculated primarily upon their respective numbers of passengers
utilizing the Facilities. The Company accounts for its obligation under this
agreement as an operating lease and incurred $592,000, $338,000 and $750,000
of rent expense in 1998, 1997 and 1996, respectively.
FREQUENT FLYER PROGRAM
The Company's HawaiianMiles frequent flyer program was initiated in 1983. As
of December 31, 1998 and 1997, HawaiianMiles had more than 693,000 and
642,000 members, respectively, including approximately 518,000 and 432,000
active members, respectively.
The HawaiianMiles program allows passengers to earn mileage credits by flying
Hawaiian Airlines and other carriers, particularly Continental Airlines, Inc.
and Northwest Airlines, Inc. ("Northwest"). Members may also receive mileage
credits pursuant to exchange agreements maintained by Hawaiian with a variety
of entities, including hotels, car rental firms, credit card issuers and long
distance telephone service companies. The Company also sells mileage credits
to other companies participating in the program.
HawaiianMiles members are entitled to a choice of various awards based on
accumulated mileage, with a majority of the awards being certain free air
travel at a later date. Travel awards available in the HawaiianMiles program
range from a 5,000 mile award, which offers a one-way Interisland flight, to
60,000 and 75,000 mile awards, which offer a round trip first-class Transpac
flight and round trip first-class Southpac flight, respectively. Miles
traveled under the HawaiianMiles program are accounted for as revenue
passenger miles, which, in turn, are used in the calculation of the Company's
yield. Non-travel awards are valued at the incremental cost of tickets
exchanged for such awards.
The Company recognizes a liability in the period in which members have
accumulated sufficient mileage points to allow for award redemption. The
liability is adjusted based on net mileage earned and utilized for award
redemption on a monthly basis. The incremental cost method is used, computed
primarily on the basis of fuel and catering costs, exclusive of any overhead
or profit margin. In estimating the amount of such incremental costs to be
accrued in the liability for potential future HawaiianMiles free travel, a
current average cost per award mile is determined. Incremental fuel expended
per passenger is based on engineering formulas to determine the quantity used
for the weight of each added passenger and baggage. Such incremental
quantity of fuel is priced at current levels. Catering is based on average
cost data per passenger for the most recent 12-month period.
As of December 31, 1998 and 1997, HawaiianMiles members had accumulated
approximately 3.7 billion and 3.0 billion miles, respectively, representing
liabilities totaling approximately $1.1 million. The Company's accruals
assume full redemption of mileage points. During the years ended December 31,
1998, 1997 and 1996, 1.2 billion, 736 million and 857 million award miles
were redeemed, respectively.
The Company believes that the usage of free travel awards will not result in
the displacement of revenue customers and, therefore, such usage will not
materially affect the Company's liquidity or operating results. The use of
free travel awards is subject to review by the Company to limit the
possibility of displacing revenue passengers. HawaiianMiles travel
redemption accounted for approximately 4.1%, 2.4% and 2.9% of Interisland
traffic and a negligible percentage of Transpac and Southpac traffic in 1998,
1997 and 1996, respectively.
11. RELIANCE ON THIRD PARTIES
The Company has entered into agreements with contractors, including American,
Northwest and certain other airlines, to provide certain facilities and services
required for its operations, including aircraft, code sharing, reservations,
computer services, frequent flyer programs, aircraft maintenance, passenger
processing, fuel, ground facilities, baggage and cargo handling and personnel
training. This reliance on third parties to provide
F-24
<PAGE>
services subjects the Company to various risks, including the risk that such
services could be discontinued without adequate replacement services being
available.
The Company leases ten DC-10 aircraft from American. American is responsible
for maintenance on all of the Company's DC-10 aircraft (leased and owned)
with the Company having access to spare parts, engines and rotables for the
maintenance of these aircraft. As such, the Company does not maintain large
inventories of spare engines or parts to support the operation of the DC-10
aircraft. The Company pays a minimum monthly charge for maintenance
services, monthly in arrears. During 1998, the Company incurred
approximately $69.6 million of lease and maintenance expenses under the
American DC-10 aircraft leases. American has the right to terminate its
obligation to provide aircraft maintenance services on and after January 1,
1999, upon 180 days prior notice. American has indicated to the Company its
intent to provide maintenance services through September 2001, although it
may still exercise its right to terminate upon 180 days prior notice. If
American terminated the maintenance arrangement, the Company would have to
seek an alternate source of maintenance service or maintain its DC-10s by
itself. No assurance can be given that the Company would be able to do so on
a basis that is as cost-effective as the American maintenance arrangement.
See Notes 4 and 5. The Company also participates in American's AAdvantage
frequent flyer program and SABRE reservation system. Commencing March 2,
1998, the Company and American also effected a code sharing agreement. These
programs and services make the Company more competitive, but increases its
reliance on third parties.
The Company purchases almost all of its aviation fuel from Northwest pursuant
to an agreement which provides that, in case of shortages, Northwest will
provide fuel to its own fleet first and then a portion of the remaining fuel
available will be allocated between Hawaiian Airlines and any other
applicable airlines. The agreement requires Northwest to provide Hawaiian
Airlines with aviation fuel at Northwest's actual acquisition cost without
markup for profit and with reimbursement only for out-of-pocket costs. The
agreement is renewed automatically on December 31 of each year unless
canceled by either of the parties with 90 days, written notice. Hawaiian
Airlines is prohibited from reselling such fuel. No assurance can be given
that the Company would be able to secure an adequate supply of fuel from
alternate sources if a fuel shortage were to cause the supply from Northwest
to be inadequate or if Northwest were to cancel the agreement. The Company
paid Northwest approximately $60.7 million, $72.6 million and $70.9 million
for the fuel supplied under this agreement in 1998, 1997 and 1996,
respectively. Further, effective July 1996, the Company entered into a
cooperative marketing agreement with Northwest, which provides for extensive
marketing cooperation, including a code sharing arrangement and frequent
flyer participation.
In 1998 and in both 1997 and 1996, a majority of the Company's ticket sales
were made by travel agents, including approximately 40% and 30% by six large
wholesalers. In 1998, one particular Hawaii-based wholesaler constituted
approximately 13% of the Company's total operating revenues. Travel agents
generally have a choice between one or more airlines when booking a
customer's flight. Accordingly, any effort by travel agencies to favor
another airline or to disfavor the Company could adversely affect the
Company. Although management intends to continue to offer an attractive and
competitive product to travel agencies and to maintain favorable relations
with travel agencies, there can be no assurance that travel agencies will not
disfavor the Company or favor other airlines in the future, either of which
could have an adverse effect on the Company's operations.
12. CONCENTRATION OF BUSINESS RISK
The Company's scheduled service operations are primarily focused on providing
air transportation service to, from, or throughout the Hawaiian Islands.
Therefore, the Company's operations, including its ability to collect its
outstanding receivables, are significantly affected by economic conditions in
the State of Hawaii and by other factors affecting the level of tourism in
Hawaii.
F-25
<PAGE>
13. SEGMENT INFORMATION
Due to the centralization of the Company's operations in the State of Hawaii
and the interdependence of its routes, management considers its operations to
be one industry segment. The Company is engaged principally in one line of
business, the scheduled and chartered transportation of passengers, which
constitutes more than 90% of its operating revenues. The following table
delineates scheduled and chartered passenger revenue of the Company, in
thousands:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Transpac $196,670 $180,424 $173,419
Interisland 138,614 132,626 133,019
Southpac 18,961 19,104 19,828
Overseas Charter 35,742 37,172 27,835
------------ ------------ ------------
$389,987 $369,326 $354,101
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-26
<PAGE>
HAWAIIAN AIRLINES, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL
INFORMATION (IN THOUSANDS, EXCEPT
FOR PER SHARE DATA)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Operating revenues. . . . . . . . . . . . $ 100,245 $ 109,003 $ 115,532 $ 101,635
Operating income (loss) . . . . . . . . . (1,918) 6,063 11,510 1,750
Net income (loss) . . . . . . . . . . . . (1,100) 2,940 6,134 231
Net income (loss) per Common Stock share
Basic. . . . . . . . . . . . . . . . (0.03) * 0.07 * 0.15 * 0.01
Diluted. . . . . . . . . . . . . . . (0.03) * 0.07 * 0.15 * 0.01
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Operating revenues. . . . . . . . . . . . $ 99,766 $ 103,860 $ 105,357 $ 95,233
Operating income (loss).. . . . . . . . . (4,504) 1,999 5,253 (246)
Net income (loss) . . . . . . . . . . . . (2,396) 1,203 1,439 (1,268)
Net income (loss) per Common Stock share
Basic. . . . . . . . . . . . . . . . (0.06) * 0.03 * 0.04 * (0.03) *
Diluted. . . . . . . . . . . . . . . (0.06) * 0.03 * 0.03 * (0.03) *
</TABLE>
*Includes shares reserved for issuance under the Consolidated Plan of
Reorganization dated September 21, 1993, as amended.
F-27
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
--------------------------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1998 1997 1996 1995 1994 1994
- ----------------------------------------------------------------------- -------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Operating revenues. . . . . . . . . . . . . . . . . . . . . $426,415 $404,216 $384,473 $346,904 $89,157 $216,823
Operating expenses. . . . . . . . . . . . . . . . . . . . . 409,010 401,714 382,446 348,805 95,425 223,244
--------- -------- -------- -------- ------- -----------
Operating income (loss) . . . . . . . . . . . . . . . . . . 17,405 2,502 2,027 (1,901) (6,268) (6,421)
Interest expense, net . . . . . . . . . . . . . . . . . . . (403) (394) (2,432) (3,579) (968) (850)
Gain (loss) on disposition of equipment . . . . . . . . . . (831) (140) (729) (233) 558 45
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . (163) (820) (297) 207 527 502
Reorganization expenses . . . . . . . . . . . . . . . . . . - - - - - (13,950)
--------- -------- -------- -------- ------- -----------
Income (loss) before income taxes, extraordinary items
and cumulative effect of change in accounting principle 16,008 1,148 (1,431) (5,506) (6,151) (20,674)
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . (7,803) (1,720) (868) - - -
--------- -------- -------- -------- ------- -----------
Net income (loss) before extraordinary items and
cumulative effect of change in accounting principle . . 8,205 (572) (2,299) (5,506) (6,151) (20,674)
Extraordinary items, net of income taxes. . . . . . . . . . - - 766 - - 190,063
--------- -------- -------- -------- ------- -----------
Net income (loss) before cumulative effect of change in
accounting principle. . . . . . . . . . . . . . . . . . 8,205 (572) (1,533) (5,506) (6,151) 169,389
Cumulative effect of change in accounting principle,
net of income taxes . . . . . . . . . . . . . . . . . . - (450) - - - -
--------- -------- -------- -------- ------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 8,205 $ (1,022) $ (1,533) $ (5,506) $(6,151) $169,389
--------- -------- -------- -------- ------- -----------
--------- -------- -------- -------- ------- -----------
</TABLE>
F-28
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
(CONTINUED)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR
--------------------------------------------------------------------
PERIOD FROM PERIOD FROM
SEPTEMBER 12, JANUARY 1,
1994 TO 1994 TO
DECEMBER 31, SEPTEMBER 11,
1998 1997 1996 1995 1994 1994
- ---------------------------------------------------------------------- ------ ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) per Common Stock Share:
Basic
Before extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . . . $ 0.20 $ (0.02) $ (0.08) $ (0.59) $ (0.65) $ N/M*
Extraordinary items, net. . . . . . . . . . . . . . . . . . - - 0.03 - - N/M*
Cumulative effect of change in accounting principle, net. . - (0.01) - - - N/M*
------- ------- ------- ------- ------- ---------
Net income (loss) per Common Stock share. . . . . . . . . . $ 0.20 $ (0.03) $ (0.05) $ (0.59) $ (0.65) $ N/M*
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
Diluted
Before extraordinary items and cumulative effect
of change in accounting principle . . . . . . . . . . . $ 0.19 (0.02) (0.08) $ (0.59) $ (0.65) $ N/M*
Extraordinary items, net. . . . . . . . . . . . . . . . . . - - 0.03 - - N/M*
Cumulative effect of change in accounting principle, net. . - (0.01) - - - N/M*
------- ------- ------- ------- ------- ---------
Net income (loss) per Common Stock share. . . . . . . . . . $ 0.19 (0.03) (0.05) $ (0.59) $ (0.65) $ N/M*
------- ------- ------- ------- ------- ---------
------- ------- ------- ------- ------- ---------
Weighted Average Shares Outstanding:
Basic.. . . . . . . . . . . . . . . . . . . . . . . . . . . 40,921 40,361** 29,032** 9,400** 9,400** 7,137
Diluted.. . . . . . . . . . . . . . . . . . . . . . . . . . 42,205 40,361** 29,032** 9,400** 9,400** 7,137
Shareholders' Equity Per Share (Without Dilution). . . . . . . $ 2.22 $ 2.12 $ 2.11 $ 3.10 $ 3.60 N/M*
Shares Outstanding at End of Period. . . . . . . . . . . . . . 40,997 40,889** 39,262** 9,400** 9,400** 7,137
Balance Sheet Items:
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $221,911 $200,824 $196,289 $161,640 $163,301 $167,211
Property and equipment, net . . . . . . . . . . . . . . . . 84,922 66,243 45,794 41,391 37,756 33,312
Long-term debt, excluding current portion . . . . . . . . . 14,454 3,991 6,353 5,523 14,152 11,421
Capital lease obligations, excluding current portion. . . . 5,966 10,580 7,387 10,102 12,764 12,591
Shareholders' equity. . . . . . . . . . . . . . . . . . . . 90,887 86,873 82,873 29,178 33,849 40,000
</TABLE>
* Not Meaningful - Per share data is not meaningful as the Predecessor
was recapitalized and adopted fresh start reporting as of September 12, 1994.
** Includes shares reserved for issuance under the Consolidated Plan of
Reorganization dated September 21, 1993, as amended.
F-29
<PAGE>
HAWAIIAN AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA (IN THOUSANDS, EXCEPT AS OTHERWISE
INDICATED) (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers. . . . . . . . . . . . . . 5,010 4,964 4,971 4,781 4,584
Revenue passenger miles . . . . . . . . . . . 3,649,024 3,479,056 3,324,005 3,171,366 2,880,339
Available seat miles. . . . . . . . . . . . . 4,940,001 4,699,609 4,571,955 4,238,319 3,995,649
Passenger load factor . . . . . . . . . . . . 73.9% 74.0% 72.7% 74.8% 72.1%
Passenger revenue per passenger mile. . . . . 9.7 CENTS 9.5 CENTS 9.8 CENTS 9.4 CENTS 9.7 CENTS
OVERSEAS CHARTER OPERATIONS:
Revenue passengers. . . . . . . . . . . . . . 250 253 190 155 1
Revenue passenger miles . . . . . . . . . . . 689,578 683,384 515,982 425,797 2,202
Available seat miles. . . . . . . . . . . . . 733,735 739,619 528,787 439,142 4,141
TOTAL OPERATIONS:
Revenue passengers. . . . . . . . . . . . . . 5,260 5,217 5,161 4,936 4,585
Revenue passenger miles . . . . . . . . . . . 4,338,602 4,162,440 3,839,987 3,597,163 2,882,541
Available seat miles. . . . . . . . . . . . . 5,673,736 5,439,228 5,100,742 4,677,461 3,999,790
Passenger load factor . . . . . . . . . . . . 76.5% 76.5% 75.3% 76.9% 72.1%
Revenue Per ASM . . . . . . . . . . . . . . . 7.52 CENTS 7.43 CENTS 7.54 CENTS 7.42 CENTS 7.65 CENTS
Cost Per ASM. . . . . . . . . . . . . . . . . 7.21 CENTS 7.39 CENTS 7.50 CENTS 7.46 CENTS 7.97 CENTS
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Hawaiian Airlines, Inc.:
Under date of March 11, 1999, we reported on the balance sheets of Hawaiian
Airlines, Inc. as of December 31, 1998 and 1997, and the related statements of
operations, shareholders' equity and comprehensive income and cash flows for
each of the years in the three-year period ended December 31, 1998, which are
included herein. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule as listed
in item 14(a)(2). The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Honolulu, Hawaii
March 11, 1999
S-1
<PAGE>
HAWAIIAN AIRLINES, INC.
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
--------------------------
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1998. . . . . . . . . . . . . . . . . . . . . . . . . $ 500 350 - 350 (a) $ 500
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1997. . . . . . . . . . . . . . . . . . . . . . . . . $ 500 456 - 456 (a) $ 500
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1996. . . . . . . . . . . . . . . . . . . . . . . . . $ 800 641 - 941 (a) $ 500
---------------------------------------------------------------------------
---------------------------------------------------------------------------
ALLOWANCE FOR OBSOLESCENCE OF FLIGHT EQUIPMENT
EXPENDABLE PARTS AND SUPPLIES:
1998. . . . . . . . . . . . . . . . . . . . . . . . . $ 120 - - - $ 120
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1997. . . . . . . . . . . . . . . . . . . . . . . . . $ 315 - - 195 (b) $ 120
---------------------------------------------------------------------------
---------------------------------------------------------------------------
1996. . . . . . . . . . . . . . . . . . . . . . . . . $ 315 - - - $ 315
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
(a) Doubtful accounts written off, net of recoveries
(b) Obsolete parts and supplies written off
S-2
<PAGE>
AIRCRAFT LOAN AGREEMENT
Intending to be legally bound by this Aircraft Loan Agreement
("Agreement"), dated December 29, 1998, BANK OF HAWAII, a Hawaii corporation,
whose address is 130 Merchant Street, Honolulu, Hawaii 96813 (the "Bank") and
HAWAIIAN AIRLINES, INC., a Hawaii corporation, whose address is 3375 Koapaka
Street, Suite G350, Honolulu, Hawaii 96819 (the "Borrower") agree as follows:
I. TERM LOAN
1.1 LOAN. Subject to the satisfaction of the conditions stated in Article
II of this Agreement, and on and subject to the terms stated in this Agreement,
the Bank shall make a term loan (the "Loan") to the Borrower in the principal
amount of _____________________________. The Loan shall be repaid, with interest
thereon, in accordance with the provisions of this Agreement.
1.2 PURPOSE. The proceeds of the Loan shall be used exclusively to
finance the purchase of the Aircraft by Borrower.
1.3 SECURITY. The Loan shall be secured by liens on or security interests
in the Aircraft, the Assigned Agreements and the other Collateral described in
the Security Agreement, which liens or security interests shall be of first
priority unless otherwise agreed by the Bank.
1.4 INTEREST; REPAYMENT OF THE LOAN.
(a) INTEREST RATE. The Borrower agrees to pay interest on the outstanding
principal balance of the Loan at the rate of _____ per annum.
Interest shall be computed on the basis of the actual number of days
elapsed between payments and on the basis of a 365-day year (or, in leap years,
on the basis of a 366-day year).
In no event shall the Borrower be obligated to pay any amount under
this Agreement that exceeds the maximum amount allowable by law. If any sum is
collected in excess of the applicable maximum amount allowable by law, the
excess collected shall, at the Bank's discretion, be applied to reduce the
principal balance of the Loan or returned to the Borrower.
(b) REPAYMENT OF THE LOAN.
(1) PAYMENT SCHEDULE. The Borrower agrees to make equal monthly
payments of principal and interest, each in the amount of ___________, beginning
with a payment on January 29, 1999, and continuing on the same day of each
subsequent month (each such date, a "Monthly Payment Date").
<PAGE>
The Borrower agrees to pay in full on or before December 29, 2005,
all principal and accrued interest then outstanding with respect to the Loan,
not required to have been previously paid.
(2) CURRENCY, PLACE AND DATES OF PAYMENTS. Payments shall be
made in United States money in immediately available funds at the Bank's address
stated below, or at such other place as the Bank shall have designated by
written notice to the Borrower. Any payment due on a day that is not a Business
Day shall be made on the next succeeding Business Day and the extension of time
shall be included in the computation of interest.
(3) EVIDENCE OF MAKING AND REPAYMENT OF THE LOAN. The Bank's
records evidencing the date of disbursements of the Loan and the amounts of all
repayments of principal and payments of interest on the Loan shall constitute
prima facie evidence of the making and repayment of the Loan and of the payment
of such interest. However, the Bank's making of erroneous notations in its
records shall not affect the Borrower's obligation to repay the outstanding
balance of principal under the Loan, and accrued interest thereon, as provided
in this Agreement.
(5) APPLICATION OF PAYMENTS. Payments under this Agreement may
be applied by the Bank to the Loan and the other indebtedness evidenced by this
Agreement in any manner the Bank deems appropriate. The priority of application
elected by the Bank on any one occasion shall not determine any such election in
the future.
(6) PREPAYMENTS. Borrower may make prepayments of principal as
hereinafter provided. Borrower shall give the Bank at least three (3) Business
Days prior written notice of Borrower' intention to prepay principal. On the
date designated in the aforesaid notice, Borrower shall pay: (i) the principal
amount specified in said notice to be prepaid; (ii) the Prepayment Premium on
the principal amount prepaid; and (iii) accrued interest on the principal amount
prepaid. The Prepayment Premium shall also be payable if an Event of Default
occurs and the Bank exercises its right to declare the unpaid principal and
interest of the Loan to be immediately due and payable. To and including the
first anniversary of the date hereof, the "Prepayment Premium" shall be equal to
3% of the principal amount prepaid. From and after the first anniversary of the
date hereof to and including the second anniversary of the date hereof, the
"Prepayment Premium" shall be equal to 2% of the principal amount prepaid. From
and after the second anniversary of the date hereof the "Prepayment Premium"
shall be equal to 1% of the principal amount prepaid. Partial prepayments shall
be applied against required payments of the most remote maturity, and will not
extend the dates or change the amounts of subsequent installment payments.
1.5 EVIDENCE OF INDEBTEDNESS; LOAN DOCUMENTS. The Loan is or is to be
evidenced and/or secured by this Agreement, the Note, the Security Agreement and
all such other documents as the Bank may reasonably require from time to time in
order to effectuate the intent of this Agreement, together with all renewals,
extensions and modifications thereto (the "Loan Documents").
2
<PAGE>
1.6 THE BORROWER'S OBLIGATIONS. The Borrower's obligations to pay,
observe and perform all indebtedness, liabilities, covenants and other
obligations on the part of the Borrower to be paid, observed and performed under
this Agreement, the Note and all other Loan Documents are herein collectively
called the "Obligations".
1.7 FEES. In respect of the Loan, the Borrower shall pay to the Bank a
non-refundable fee in the amount of ___________, receipt of which is hereby
acknowledged by the Bank.
II. CONDITIONS PRECEDENT
The obligation of the Bank to make the Loan is subject to the satisfaction
of all of the following conditions on or before the date or dates on which the
Bank shall make any disbursement of the Loan proceeds to the Borrower (the
"Closing Date"):
2.1 DOCUMENTS REQUIRED FOR CLOSING. The Bank shall have received, in each
case in form and substance satisfactory to the Bank, such fully executed
originals or certified copies as the Bank may have requested of each of the
following, in each case as amended through the Closing Date:
(a) CLOSING DOCUMENTS. The documents listed on Annex A attached hereto
and made a part hereof.
(b) CONSENTS. Evidence that all parties to the Loan Documents (except the
Bank) have obtained all necessary and appropriate authority, approvals and
consents to execute and deliver the Loan Documents.
(c) ORGANIZATIONAL DOCUMENTS. (1) An officer's certificate from Borrower
(i) certifying Borrower's articles of incorporation, by-laws and resolutions,
with such resolutions authorizing the Loan and Borrower's execution, delivery
and performance of the Loan Documents and (ii) containing an incumbency
certification of Borrower including the name(s), title(s) and specimen
signature(s) of the person(s) authorized on behalf of Borrower to execute the
Loan Documents; and (2) a Certificate of Good Standing with respect to Borrower
from the State of Hawaii Department of Commerce and Consumer Affairs evidencing
Borrower's good standing and authority to conduct its business in the State of
Hawaii.
(d) EVIDENCE OF PRIORITY. Evidence acceptable to the Bank that the Bank's
liens on and/or security interests in the Collateral have the priority required
by the Bank, including, without limitation, a written opinion of Daugherty,
Fowler, Peregrin & Haught, FAA counsel, and FAA lien searches.
(e) PAYMENT OF TAXES. Evidence of (1) payment of any and all sales,
transfer, use, documentation or similar taxes due in connection with the
acquisition of the Aircraft by Borrower or (2) exemption from the same.
3
<PAGE>
(f) OPINION(S) OF COUNSEL. An opinion or opinions of counsel for the
Borrower, addressed to the Bank, covering to the Bank's satisfaction (1) the due
authorization, execution, delivery, binding effect, and enforceability of the
Loan Documents; and (2) such other matters as the Bank may require.
(g) INSURANCE. Evidence of the Borrower's compliance with the provisions
stated below in Section 7.1.
2.2 CERTAIN OTHER EVENTS. On the Closing Date:
(a) No event shall have occurred and be continuing that (1) constitutes
an Event of Default, or (2) a Default.
(b) No material adverse change shall have occurred in the financial
condition of the Borrower since the date of its most recent financial statements
submitted to the Bank.
(c) No material adverse change shall have occurred in the physical
condition of the Borrower's assets since the date of this Agreement.
(d) All legal matters incidental to the Closing shall be satisfactory to
legal counsel for the Bank.
(e) The Borrower shall have paid to the Bank all fees described in
Section 1.7 above.
III. REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Loan, the Borrower makes the following
representations and warranties to the Bank, which representations and warranties
shall survive the execution of this Agreement and continue so long as the
Borrower is indebted to the Bank under the Loan Documents, and until payment in
full of the Loan:
3.1 ORGANIZATION. The Borrower is duly organized, validly existing and in
good standing under the laws of the State of Hawaii and has the lawful power to
own its properties, including, without limitation, the Collateral, and to engage
in the business it conducts.
3.2 NO BREACH. The execution and performance of the Loan Documents will
not immediately, or with the passage of time or the giving of notice, or both:
(a) Violate any law or result in a default under any contract, agreement,
or instrument to which the Borrower is a party or by which the Borrower or its
property is bound; or
(b) Result in the creation or imposition of any security interest in, or
lien or encumbrance on, any of the assets of the Borrower, except in favor of
the Bank.
4
<PAGE>
3.3 AUTHORIZATION. The Borrower has the power and authority to incur and
perform the Obligations, and has taken all corporate or other action necessary
to authorize the execution and delivery of the Loan Documents and Borrower's
incurring of the Obligations.
3.4 VALIDITY. This Agreement, the Note and Security Agreement are, and
the remainder of the Loan Documents when delivered will be, legal, valid,
binding, and enforceable in accordance with their respective terms.
3.5 FINANCIAL STATEMENTS. All financial statements or reports heretofore
given by the Borrower to the Bank, including any schedules and notes pertaining
thereto, were prepared in accordance GAAP and fully and fairly present the
financial condition of the Borrower at the dates thereof and the results of
operations for the periods covered thereby, except in the case of quarterly
financial statements or reports, which are subject to changes resulting from
normal year-end adjustments, and as of the date of this Agreement there have
been no material adverse changes in the financial condition or business of the
Borrower from the date of the most recent financial statements or reports given
to the Bank.
3.6 TAXES. Except as otherwise permitted by this Agreement and as set
forth on SCHEDULE F hereto, the Borrower has filed all tax returns it was
required by law to have filed prior to the date of this Agreement, has paid or
caused to be paid all taxes, assessments, and other governmental charges that
were due and payable prior to the date of this Agreement, and has made adequate
provision for the payment of such taxes, assessments, or other charges accruing
but not yet payable, and the Borrower has no knowledge of any deficiency or
additional assessment in a materially important amount in connection with any
taxes, assessments, or charges not provided for on its books.
3.7 COMPLIANCE WITH LAW. Except to the extent that the failure to comply
would not materially interfere with the conduct of the business of the Borrower,
the Borrower has complied with all applicable laws in respect of: (1)
restrictions, specifications, or other requirements pertaining to products that
the Borrower sells or to the services it performs; (2) the conduct of its
business; and (3) the use, maintenance, and operation of its properties.
3.8 STATEMENTS AND OMISSIONS. No representation or warranty by the
Borrower contained in this Agreement or in any certificate or other document
furnished by the Borrower pursuant to this Agreement contains any untrue
statement of material fact or omits to state a material fact necessary to make
such representation or warranty not misleading in light of the circumstances
under which it was made.
3.9 NO PENDING ACTIONS. Except as set forth on SCHEDULE F hereto, there
is no pending or to the Borrower's knowledge threatened action or Proceeding
affecting Borrower or any of its properties before any court, governmental
agency or arbitrator which may materially and adversely affect the condition
(financial or otherwise) or
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operations of Borrower or any of its properties or which purports to affect
the validity or enforceability of the Loan Documents.
3.10 CITIZENSHIP. Borrower is on the date hereof domiciled in the United
States and is "a citizen of the United States" as defined in 49 U.S.C.
Section 40102(a)(15).
3.11 SALES TAX. All sales, transfer, use, documentation or similar taxes,
fees or other charges due and payable prior to or as of the date hereof, if any,
have been paid to the extent such are in connection with the sale to and
purchase by Borrower of the Aircraft.
3.12 PRINCIPAL PLACE OF BUSINESS; PRINCIPAL HANGER LOCATION. Borrower's
principal place of business and chief executive office is located at 3375
Koapaka Street, Suite G350, Honolulu, Hawaii 96819-1869 and has been located at
such address for a period no less than five (5) months prior to the date hereof.
The principal hangar location of the Aircraft is in Los Angeles, California.
3.13 TITLE. Borrower owns good and marketable title to the Collateral and
the Collateral is free and clear of all Liens (except for Permitted
Encumbrances).
3.14 CONDITION OF AIRCRAFT. The Aircraft is in good condition and is
ready for operation.
3.15 FIRST PRIORITY SECURITY INTEREST. Uniform Commercial Code financing
statements naming Borrower as debtor and Bank as secured party and covering the
Collateral subject to this Agreement and the Security Agreement will be filed in
the Bureau of Conveyances of the State of Hawaii and with the Secretary of State
for the State of California. The Security Agreement will be filed with the FAA.
The filing of all such financing statements and the Security Agreement will
create a valid perfected first priority security interest (subject only to
Permitted Encumbrances) in the Collateral, securing the payment and performance
of the Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interests will have been taken. On the Closing
Date, no Person other than Bank will hold any security interest affecting the
Collateral, except for Permitted Encumbrances. No effective security instrument
or other instrument similar in effect covering all or any part of the Collateral
will be on file on the Closing Date in any recording office or with the FAA,
except such as may have been filed in favor of Bank relating to this Agreement
and the Security Agreement.
3.16 ERISA. Borrower has not incurred any accumulated unfunded deficiency
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended from time to time ("ERISA") nor has Borrower incurred any material
liability to the Pension Benefit Guaranty Corporation ("PBGC") established under
such Act (or any successor thereto under such Act) in connection with any Plan.
Borrower and its Subsidiaries are in compliance in all material respects with
those provisions of ERISA and the regulations and public interpretations
thereunder which are applicable to Borrower and its Subsidiaries, except for
such noncompliance as would not have a
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material adverse effect on the financial condition of Borrower and its
Subsidiaries taken as a whole.
3.17 INVESTMENT COMPANY; HOLDING COMPANY. Borrower (i) is not an
"investment company" as such term is defined in, or otherwise subject to
regulations under, the Investment Company Act of 1940 and (ii) is not a "holding
company" as that term is defined in, and is not otherwise subject to regulations
under, the Public Utility Holding Company Act of 1935.
3.18 OFFER TO SELL. Borrower has not sold, extended any offer to sell nor
accepted any offer to purchase any of Borrower's interest in the Collateral or
with respect to the transactions described in any Security Instrument or the
Note.
IV. AFFIRMATIVE COVENANTS
For so long as any of the Obligations remains outstanding, the Borrower
will, unless otherwise permitted by the Bank in writing:
4.1 PAYMENTS. Punctually pay when due all sums which may be due under the
Loan Documents.
4.2 PERFORMANCE OF OTHER OBLIGATIONS; NO LIENS. (1) Duly and punctually
perform its Obligations; (2) maintain the Liens and security interests created
by this Agreement, the Security Agreement and each other Security Instrument to
which it is a party as valid and perfected Liens on and security interests in
all of the Collateral, prior in right to any other Lien, security interest,
claim or other encumbrance other than Permitted Encumbrances; (3) warrant and
defend its interest in, and to, the Collateral against the claims and demands of
all Persons; provided that Borrower may engage in Permitted Contests; (4)
maintain good and marketable title to the Collateral, free and clear of any
Liens, security interests, charges or encumbrances except for Permitted
Encumbrances; and (5) defend, at Borrower's cost, any action, claim or
Proceeding affecting the Collateral.
4.3 ACCOUNTING RECORDS. Maintain accurate and proper accounting records
and books in accordance with GAAP, and provide the Bank with access to such
books and accounting records at the Bank's request during the Bank's normal
business hours.
4.4 FINANCIAL REPORTING. Furnish the Bank with financial reports,
certified as true and correct by the Chief Financial Officer of the Borrower, in
reasonable detail and form approved by the Bank, as follows:
(a) Not later than 120 days after the end of each fiscal year of
Borrower, a financial report for the Borrower and its Consolidated Subsidiaries
for such year, including therein a balance sheet of Borrower and its
Consolidated Subsidiaries as of the end of such fiscal year and related
statements of income and retained earnings and changes in financial position of
the Borrower and its Consolidated Subsidiaries for such
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fiscal year, setting forth in each case in comparative form corresponding
figures for the preceding fiscal year, all in reasonable detail and as
certified by the Borrower's public accountants, including their certificate
and accompanying comments;
(b) Not later than 60 days after the end of each of the first three
fiscal quarters, an unaudited balance sheet of the Borrower and its Consolidated
Subsidiaries, as of the end of such quarter and related unaudited statements of
income and retained earnings of the Borrower and its Consolidated Subsidiaries,
setting forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year;
(c) The financial reports required pursuant to clauses (a) and (b) shall
be accompanied by a compliance certificate in the form attached as SCHEDULE C
certifying (i) the financial ratios and other requirements referred to in
Section 4.10, (ii) that the financial reports delivered to the Bank concurrently
therewith were prepared in accordance GAAP and fully and fairly present the
financial condition of the Borrower at the dates thereof and the results of
operations for the periods covered thereby, except in the case of quarterly
financial reports, which are subject to changes resulting from normal year-end
adjustments, and that, as of the date of such certificate, there have been no
material adverse changes in the financial condition or business of the Borrower
from the date of the financial reports delivered concurrently therewith, and
(iii) that no Default or Event of Default has occurred or is continuing
(d) As soon as available, quarterly and year-end unaudited Reports of
Financial and Operating Statistics for Large Certified Air Carriers (U.S.
Department of Transportation Form 41 Schedule A);
(e) Promptly upon their becoming available, one copy of each financial
statement, report, notice or proxy statement sent by Borrower to stockholders
generally and of each regular or periodic report, registration statement or
prospectus filed by Borrower with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order issued by any
governmental authority in any proceeding in which Borrower is a party;
(f) As soon as available, and in any event within 120 days after the end
of each fiscal year of Borrower, 3-year operating forecasts and projections; and
(g) From time to time such other information as the Bank may reasonably
request.
4.5 EXISTENCE. Except as permitted by Section 5.5, preserve and maintain
the Borrower's legal existence, remain duly qualified to do business and in good
standing in each jurisdiction in which the Collateral now or hereafter is
principally hangared or in which the failure to be in good standing would have a
material adverse effect on the business or operations of Borrower and timely
file all necessary and appropriate documents and exhibits and pay all
appropriate fees and charges in
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connection therewith, except where the failure to file or pay would not have
a material adverse effect on the business or operations of Borrower.
4.6 OBSERVANCE OF LAWS. Conduct the Borrower's business activities in an
orderly, efficient and regular manner and comply with all applicable laws,
rules, regulations and orders regarding the operation of Borrower's business,
except those which would not have a material adverse effect on the Borrower, and
otherwise relating to the Aircraft; and preserve and maintain all federal, state
and local licenses, privileges, franchises, certificates and other permits
necessary for the operation of its business, except those which would not have a
material adverse effect on the Borrower, and the operation of the Aircraft
(including without limitation the registration of the Aircraft with the FAA and
the certificate of airworthiness issued by the FAA) and promptly notify Bank of
any change in the FAA registration number of the Aircraft.
4.7 INSPECTION. (a) Permit Bank to inspect the Airframe and the Engines
at all reasonable times wherever located; (b) upon the request of the Bank,
confirm, or cause to be confirmed, to the Bank the location of the Airframe and
the Engines; (c) at any reasonable time, and upon reasonable notice, make the
Airframe and the Engines, and all books and records pertaining to the Airframe
and the Engines, available to the Bank for inspection; provided, however, that
such inspection shall not interfere with the Borrower's normal operation and
scheduling of the Aircraft; provided, further, that during the term of any lease
permitted hereunder reasonable inspection rights will be provided
notwithstanding the schedule operated by the lessee in the event such lessee's
schedule would otherwise practically preclude inspections hereunder; provided,
further, that following any notice to Borrower under Section 9.8 hereof with
respect to Borrower's (or any lessee's) failure to perform a maintenance
obligation of Borrower under Section 6.1(a) hereof until such failure has been
corrected to the extent required under Section 6.1(a) hereof, Bank shall have
the right to inspect the Aircraft, upon twenty-four (24) hours' prior notice, at
Borrower's (or such lessee's) place of business where the Aircraft is located,
and any such inspection of the Aircraft or Engines shall include a "walk
around", but shall not include the opening of any bays and panels unless a
Default or Event of Default shall have occurred and be continuing, and in any
case, shall not interfere with the operation or maintenance of the Aircraft; and
(d) pay for the cost of Bank's inspection if Borrower shall not promptly
commence any required repair discovered during Bank's inspection; in the case of
any inspection by Bank pursuant to this Section 4.7, Bank shall indemnify and
hold harmless Borrower from any claims, losses, damages, liabilities, actions or
suits arising from the death or personal injury of any person conducting an
inspection on behalf of Bank or any of Bank's authorized representatives.
4.8 FACILITIES. Keep all of the Borrower's property and business premises
in a good state of repair and condition, make all necessary repairs, renewals
and replacements thereto from time to time so that such property and business
premises shall be fully and efficiently preserved and maintained.
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4.9 TAXES AND OTHER LIABILITIES. Pay and discharge when due (1) all of
the Borrower's indebtedness, obligations, assessments and taxes, (2) all taxes
and any other governmental charges or levies which are at any time or from time
to time levied upon or assessed against the Collateral or are otherwise
associated with the ownership, use or operation of the Collateral and (3) all
claims (including without limitation claims for labor, materials and supplies)
against the Collateral, subject to any Permitted Contest and subject to the
contest described in SCHEDULE F hereto.
4.10 NOTICE TO THE BANK. Promptly give notice to the Bank of (a) the
occurrence of any Default or Event of Default of which Borrower has knowledge,
(b) any change in the name or organizational structure of the Borrower, (c) any
uninsured loss of the Collateral through fire, theft, liability or property
damage exceeding ___________, (d) any Proceeding against Borrower if such
Proceeding reasonably would be expected to, in the event of an unfavorable
outcome, cause an Event of Default, have a material adverse effect on Borrower's
financial condition or operations, affect the validity or enforceability of the
Loan Documents or affect priority or enforceability of Bank's security interest
in any of the Collateral, (e) any event which could have a material adverse
effect on the ability of the Borrower to continue its business operations in the
ordinary course, (f) any change in the Borrower's principal place of business,
(g) any change in the principal hangar location of the Aircraft.
4.11 FINANCIAL CONDITION. Maintain the Borrower's financial condition
according to the following standards, in each such case determined in accordance
with GAAP:
(a), (b), and (c) REDACTED IN ITS ENTIRETY.
4.12 HAZARDOUS MATERIALS. Abide at all times by all applicable hazardous
material laws, rules and regulations and immediately notify the Bank of any
claim or threatened claim affecting any property owned, leased or occupied by
the Borrower.
4.13 ERISA. (1) At all times, make prompt payment of all contributions
required under its Plans and required to meet the minimum funding standard set
forth in ERISA with respect to its Plans; (2) notify Bank immediately of any
fact, including, but not limited to, any Reportable Event (as defined in ERISA)
arising in connection with any of its Plans, which might constitute grounds, for
termination thereof by the PBGC or for the appointment by the appropriate United
States District Court of a trustee to administer such Plan, together with a
statement, if requested by the Bank, as to the reason therefor and the action,
if any, proposed to be taken with respect therefor; and (iii) furnish to Bank
upon its request, such additional information concerning any of its Plans as may
be reasonably requested.
4.14 PERMITTED CONTESTS. In connection with any Permitted Contest,
Borrower shall pay, and save Bank harmless against, any and all losses,
judgments, decrees and costs (including, without limitation, all reasonable
attorneys' fees and expenses) in connection with any such contest and shall
promptly after the final settlement, compromise or determination (including any
appeals) of such contest, fully pay and
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discharge the amounts which shall be levied, assessed, charged or imposed or
be determined to be payable therein or in connection therewith, together with
all penalties, fines, interest, costs and expenses thereof or in connection
therewith, and perform all acts, the performance of which shall be ordered or
decreed as a result thereof.
V. NEGATIVE COVENANTS
For so long as any of the Obligations remains outstanding, the Borrower
will not, without the prior written consent of the Bank:
5.1 USE OF FUNDS. Use any of the proceeds of the Loan for any purpose
except as set forth in Section 1.2 of this Agreement.
5.2 CONVEYANCE OF INTEREST IN COLLATERAL. Except as otherwise permitted
herein and except for Permitted Encumbrances, sell, lease, assign, transfer,
convey, Grant an interest in, exchange or otherwise dispose of any of the
Collateral, any part thereof or any interest therein or otherwise cause or
permit any of the foregoing to occur.
5.3 LIENS. Create or suffer to exist any Lien affecting the Collateral or
any part thereof, other than Permitted Encumbrances.
5.4 REDUCTIONS IN PAYMENT ON NOTE. As against Bank, claim any credit on,
or make any deduction from, the principal or interest payable on the Note,
whether by reason of the payment of any taxes levied or assessed upon any of the
Collateral, or otherwise.
5.5 MERGER, CONSOLIDATION, SALE OF STOCK OR ASSETS. Consolidate with or
merge into any other Person or convey, transfer or lease all or substantially
all of its assets as an entirety to any Person without written consent of Bank
(which shall not be unreasonably withheld and for which no fee or other amount
in excess of _________ (exclusive of expenses payable pursuant to Section 9.7)
shall be charged) unless:
(a) such Person shall execute and deliver to the Bank an agreement in
form and substance reasonably satisfactory to Bank containing an assumption by
such successor Person of the due and punctual performance of each covenant and
condition of the Loan Documents;
(b) such Person is organized under the laws of the United States or a
state thereof or is otherwise a United States citizen;
(c) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(d) the Borrower shall have delivered to the Bank a certificate of an
authorized officer of the Borrower and an opinion, of Borrower's counsel or
other counsel reasonably satisfactory to the Bank, reasonably satisfactory in
form and scope
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to Bank, to the effect that such consolidation, merger, conveyance, transfer
or lease and the assumption agreement referred to in clause (a) above comply
with this Section 5.5 and that all conditions herein provided for relating to
such transaction have been complied with in all respects.
Upon any consolidation or merger, or any conveyance, transfer or lease of all or
substantially all of the assets of Borrower as an entirety in accordance with
this Section 5.5, the successor Person, formed by such consolidation or into
which Borrower is merged or the Person to which such conveyance, transfer or
lease is made, shall succeed to, and be substituted for, Borrower hereunder with
the same effect as if such successor Person had been named as the Borrower
herein. No such conveyance, transfer or lease of all or substantially all of the
assets of Borrower as an entirety shall have the effect of releasing Borrower or
any successor Person which shall theretofore have become such in the manner
prescribed in this Section 5.5 from its liability hereunder.
5.6 BUSINESS. Materially change the character of the Borrower's business
from that business in which it is currently engaged or in any business
reasonably related thereto, or engage in any type of business other than the
Borrower's current business or in any business reasonably related thereto.
VI. MAINTENANCE AND OPERATION; POSSESSION
6.1 REGISTRATION, MAINTENANCE AND OPERATION; POSSESSION MARKINGS
(a) REGISTRATION, MAINTENANCE AND OPERATION. The Borrower, at its own
cost and expense, shall, and shall cause each permitted lessee to: (i) cause the
Aircraft to be duly registered, and at all times thereafter to remain duly
registered, in the name of the Borrower (except as otherwise required by the
Federal Aviation Act) under the Federal Aviation Act and shall not register the
Aircraft under the laws of any other country if such registration shall
invalidate or adversely affect registration under the Federal Aviation Act; (ii)
maintain, service, repair, overhaul and test the Airframe and each Engine so as
to keep the Airframe and each Engine in as good operating condition, ordinary
wear and tear excepted; and (iii) maintain all records, logs and other materials
required by the FAA to be maintained in respect of the Airframe and each Engine.
The Borrower, at its own cost and expense shall: (a) perform or cause to be
performed all mandatory service, repair, maintenance, overhaul, and testing of
the Aircraft (i) as may be necessary and required under applicable FAA Rules and
Regulations and (ii) in the same manner and with the same care as shall be the
case with similar aircraft owned or operated by the Borrower, (b) not allow the
Aircraft to be maintained, used or operated in violation of any law or rule,
regulation or order of any government or governmental authority (domestic or
foreign) having jurisdiction, (c) keep the Aircraft in such condition as is
necessary to enable the airworthiness certificate, license or registration of
such Aircraft issued by any such authority to be maintained in good standing at
all times under the Federal Aviation Act and any other applicable law
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or regulation, and (d) maintain all records, logs and other materials
required by the FAA or any other governmental entity to be maintained in
respect of the Aircraft. In the event that any such law, rule, regulation or
order requires alteration of the Aircraft, the Borrower will conform thereto
or obtain conformance therewith (except as otherwise provided herein in
Section 6.2(c)) and will maintain the Aircraft in proper operating condition
under such laws, rules, regulations and orders. The Borrower also agrees not
to operate or locate the Aircraft, or suffer the Aircraft to be operated or
located: (i) in any area not included in coverage under any insurance policy
required by the terms of Section 7.1 hereof, except in the case of a
Requisition of Use by the United States government or any instrumentality or
agency thereof, if the Borrower obtains insurance or an indemnity from the
United States government against the risks and in the amount required by
Section 7.1 hereof covering such areas; or (ii) in any recognized or
threatened area of hostility (including the United States of America or
Canada, if either of them becomes such an area of hostility) unless fully
covered, to the Bank's reasonable satisfaction, by "war risk" insurance, or
unless such Aircraft is operated or used under contract with the United
States government or any instrumentality or agency thereof under which
contract the United States of America assumes liability for any damage, loss,
destruction or failure to return possession of such Aircraft at the end of
the term of such contract or for injury to Persons or damage to property of
others. Except as permitted by the preceding sentence, the Borrower also
agrees not to use or permit the Aircraft to be used in any manner or for any
purpose excepted from or contrary to any insurance policy or policies
required to be carried or maintained under the Security Instruments or for
any purpose or for the carriage or any goods of any description excepted or
exempted from or contrary to such insurance policies, or to do any other act
or permit anything to be done which could reasonably be expected to
invalidate or limit any such insurance policies or which could in any way
render or cause Bank's interest in the Aircraft to be in any way jeopardized,
made unenforceable or unperfected or in any way invalid as against Borrower
or any third parties.
(b) POSSESSION. The Borrower will not, without the prior written consent
of the Bank, which consent will not be unreasonably withheld and for which no
fee or other amount (other than as expressly provided for hereunder) will be
required, lease or otherwise in any manner deliver, transfer or relinquish
possession of the Aircraft, Airframe or any Engine or any part thereof or any
part of the Borrower's rights hereunder to any Person or install any Engine, or
permit any Engine to be installed, on any airframe other than the Airframe;
PROVIDED, HOWEVER, that, so long as no Default or Event of Default shall have
occurred and be continuing, and so long as the Borrower shall comply with the
provisions of Section 7.1 hereof, the Borrower may, without the prior written
consent of the Bank:
(1) subject any Engine or Part to normal interchange or pooling
agreements or arrangements, in each case customary in the airline
industry and entered into by Borrower in the ordinary course of
its business, PROVIDED no such agreement or arrangement
contemplates or requires the transfer of title to such Engine or
Part and PROVIDED FURTHER that, if Borrower relinquishes
possession of an Engine under such an
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agreement or arrangement for a continuous period of more than
180 days, an Event of Loss shall be deemed to have occurred
with respect thereto and Borrower shall comply with Section 7.2;
(2) deliver possession of the Aircraft, Airframe or any Engine to the
manufacturer thereof or to overhaul agencies for testing or other
similar purposes or to any organization for services, repair,
maintenance or overhaul work on the Aircraft, Airframe or any
Engine or any part thereof or for alterations or modifications in
or additions to the Airframe or any Engine to the extent required
or permitted by the terms of Section 6.2(c) hereof;
(3) transfer possession of the Aircraft, Airframe or any Engine to the
United States government or any instrumentality or agency thereof
pursuant to a lease required to be entered into in accordance with
applicable laws, rulings, regulations or orders, a copy of which
lease shall be furnished to the Bank;
(4) transfer possession of the Aircraft, Airframe or any Engine to the
United States government or any instrumentality or agency thereof
when required in accordance with applicable laws, ruling,
regulations or order;
(5) install an Engine on an airframe owned by the Borrower free and
clear of all Liens, except (A) those described in clauses (ii) and
(iii) of the definition of Permitted Encumbrances, (B) those which
apply only to the engines (other than Engines), appliances, parts,
instruments, appurtenances, accessories, furnishings and other
equipment (other than Parts) installed on such airframe (but not
to the airframe as an entirety), and (C) the rights of other
United States certificated air carriers under normal interchange
or pooling agreements or arrangements which are customary in the
airline industry, and which do not contemplate, permit or require
the transfer of title to such airframe or the engines installed
on such Airframe;
(6) install an Engine on an airframe leased to the Borrower or
purchased by the Borrower subject to a conditional sale or other
security agreement; PROVIDED, HOWEVER, that (A) such airframe is
free and clear of all Liens except the rights of the parties to
the lease or conditional sale or other security agreement covering
such airframe which insofar as they relate to such Engine are
subordinate to the rights of the Bank hereunder or which expressly
and effectively provide that each Engine shall not become subject
to the lien thereof as to any rights of any party thereunder other
than the Borrower, and (B) the Borrower shall have received from
the lessor or secured party of such airframe a written agreement
(which may be the lease or conditional sale or other security
agreement covering such airframe), a copy of which shall be
provided to the Bank, whereby such lessor or secured party agrees
that neither it
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nor its successors or assigns will acquire or claim any right,
title or interest in any Engine by reason of such Engine being
installed on such airframe at any time while such Engine is
subject to the Lien of the Security Agreement;
(7) install an Engine on an airframe owned by the Borrower, leased to
the Borrower or purchased by the Borrower subject to a conditional
sale or other security agreement under circumstances where neither
subsection (5) nor subsection (6) of this Section 6.1(b) is
applicable; PROVIDED, HOWEVER, that such installation shall be
deemed an Event of Loss with respect to such Engine and the
Borrower shall comply with Section 7.2 hereof with respect to such
Event of Loss, the Bank not intending hereby to waive any right or
interest it may have to or in such Engine under applicable law
until compliance by the Borrower with said Section 7.2;
(8) lease any engine or the Aircraft, Airframe and any Engines or
engines then installed on such Airframe in the ordinary course of
business to (A) a United States Certificated Air Carrier (a
"PERMITTED AIR CARRIER") not the subject of petition filed under
the Federal bankruptcy laws or other insolvency laws now or
hereinafter in effect for use by such United States Certificated
Permitted Air Carrier on its regularly scheduled or charter
routes, or (B) a foreign permitted air carrier (as described in
SCHEDULE E hereto (a "FOREIGN PERMITTED AIR CARRIER")) not the
subject of a petition filed under bankruptcy or other insolvency
laws now or hereafter in effect, for use by such Foreign Permitted
Carrier in its regularly scheduled or charter routes; provided,
however, that the Bank, upon request, shall receive satisfactory
legal opinions to the effect that, upon such lease, the Bank's
rights under the Loan Documents will remain fully perfected; and
(9) enter into a wet lease or charter (whereby the Borrower provides
flight crew, maintenance, ground crew, etc. for the benefit of any
lessee) in the ordinary course of Borrower's business which shall
not be considered a transfer of possession hereunder, provided
that the Borrower's obligations under the Loan Documents shall
continue in full force and effect notwithstanding any such wet
lease or charter;
PROVIDED, FURTHER, that the rights of any transferee who receives possession by
reason of a transfer permitted by this Section (other than the transfer of an
Engine which is deemed an Event of Loss) shall be subject and subordinate to,
and any lease permitted by this Section shall expressly prohibit any lease of
the Airframe or such Engine by the lessee and shall be made expressly subject
and subordinate to, all the terms of the Loan Documents, including, without
limitation, the covenants contained in this Section, the Bank's rights to
repossession pursuant to the Loan Documents, and Borrower shall remain primarily
liable hereunder for the performance of all of the terms hereof to the same
extent as if such transfer or lease had not occurred. No interchange agreement,
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lease or other relinquishment of possession of the Airframe or any Engine shall
in any way discharge or diminish any of the Borrower's obligations to the Bank
hereunder. In the event the Borrower shall have received from the lessor or
secured party of any airframe leased to the Borrower or purchased by the
Borrower subject to a conditional sale or other security agreement a written
agreement complying with subsection (6) of this Section 6.1(b), and the lease or
conditional sale or other security agreement covering such airframe also covers
an engine or engines owned by the lessor under such lease or subject to a
security interest in favor of the secured party under such conditional sale or
other security agreement, the Bank hereby agrees for the benefit of such lessor
or secured party that the Bank will not acquire or claim, as against such lessor
or secured party, any right, title or interest in any such engine as the result
of such engine being installed on the Airframe at any time while such engine is
subject to such lease or conditional sale or other security agreement and owned
by such lessor or subject to a security interest in favor of such secured party.
The Bank also hereby agrees for the benefit of the mortgagee under any mortgage
complying with clause (A) of subsection (6) of this Section 6.1(b) that the Bank
will not acquire or claim, as against such mortgagee, any right, title or
interest in any engine subject to the lien of such mortgage as the result of
such engine being installed on the Airframe at any time while such engine is
subject to the lien of such mortgage. In the case of any transferee that
receives possession by reason of a transfer permitted by Section 6.1(b) (other
than the transfer of an Engine which is deemed to have been an Event of Loss),
(1) the rights of such transferee shall be subject and subordinate to, and any
lease permitted by this Section 6.1(b) shall be made expressly subordinate to,
all the terms of the Loan Documents; (2) the Borrower shall remain primarily
liable hereunder for the performance of all of the terms of the Loan Documents
to the same extent as if such lease or transfer had not occurred; and (3)
without limiting the effect of the preceding clause (2), any such lease shall
include appropriate provisions (by requiring such obligations to be performed by
the lessee) for the operation, maintenance and insurance of the Airframe and the
Engines leased thereby in accordance with the terms hereof; and PROVIDED,
FURTHER, that any such lease shall expressly prohibit any assignment or sublease
(other than as permitted by subsection (1) of this Section 6.1(b)) of the
subject Aircraft, Airframe or any Engine and any of the rights under such lease.
Borrower may identify the Aircraft to be allocated to the Civil Reserve Air
Fleet Program ("CRAF") only so long as (i) Borrower has delivered a true and
complete copy of the agreement relating to CRAF between Borrower and the United
States Government to Bank and (ii) the United States Government has agreed to
indemnify Borrower and Bank for any loss or damage to the Aircraft while the
Aircraft is being used under CRAF.
As security for the due and punctual payment of all amounts payable by the
Borrower hereunder and the performance and observance by the Borrower of all of
the covenants made by it in the Loan Documents, the Borrower hereby grants to
the Bank a security interest in all of the Borrower's right, title and interest
in and to each lease of the Aircraft, whenever entered into, together with all
renewals of any such lease executed from time to time, and all payments of rent
and all other amounts due and to become due thereunder; and the Borrower shall
take such actions as the Bank may reasonably request for the purpose of
perfecting, preserving or otherwise protecting such security interest.
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(c) MARKINGS. The Borrower agrees, at its own cost and expense, to cause
the Airframe and the Engines to be kept numbered with the identification or
serial numbers therefor as specified in SCHEDULE A.
(d) ASSIGNMENTS. Except as permitted by Sections 5.5 and 6.1(b), all or
any part of the Borrower's rights hereunder or in the Airframe or any Engine
shall not be assigned, let or conveyed by the Borrower to any Person without the
Bank's prior written consent, and any such purported assignment, lease or
conveyance shall be void.
(d) MAINTENANCE OF CERTAIN ENGINES. Notwithstanding anything to the
contrary contained in this Loan Agreement, an engine which is not an Engine, but
which is installed on the Airframe, shall be maintained in accordance with
Section 6.1(a).
(f) RECORDS CONCERNING MAINTENANCE. Throughout the term of the Loan, the
Borrower shall keep accurate, complete and current records (in accordance with
(i) the applicable requirements of the FAA or any other governmental body having
jurisdiction from time to time in effect, and (ii) the mandatory recommendations
of the manufacturer of the Aircraft) of all maintenance carried out with respect
to the Aircraft and shall permit the Bank or its respective agents to examine
such records at any reasonable time provided that such examination shall not
interfere with the Borrower's normal operation and scheduling of the Aircraft.
The records, logs and documents so kept or maintained shall be part of the
Manuals and Technical Records (and the definitions of "AIRCRAFT" and "MANUALS
AND TECHNICAL RECORDS" in Article X shall be construed accordingly).
6.2 REPLACEMENT AND POOLING OF PARTS; IMPROVEMENTS.
(a) REPLACEMENT OF PARTS. The Borrower, at its own cost and expense, will
promptly replace all Parts, which may from time to time be incorporated or
installed in or attached to the Airframe or any Engine and which may from time
to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever,
except as otherwise provided in paragraph (c) of this Section (such substituted
parts being hereinafter called "REPLACEMENT PARTS"). The Borrower shall notify
the Bank of any Replacement Parts having a per item cost of ___________ or more.
In addition, the Borrower may, at its own cost and expense, remove in the
ordinary course of maintenance, service, repair, overhaul or testing any Parts,
whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use; PROVIDED, HOWEVER, that the
Borrower, except as otherwise provided in paragraph (c) of this Section, will,
at its own cost and expense, replace such Parts as promptly as possible. All
Replacement Parts shall be free and clear of all Liens (except for pooling
arrangements to the extent permitted by paragraph (b) of this Section) and shall
be in as good operating condition as, and shall have a value and utility at
least equal to, the Parts replaced assuming such replaced Parts were in the
condition and repair required to be maintained by the terms hereof. Bank's
security interest shall continue in all Parts
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at any time removed from the Airframe or any Engine, no matter where located,
until such time as such Parts shall be replaced by parts which have been
incorporated or installed in or attached to the Airframe or any Engine and
which meet the requirements for Replacement Parts specified above.
Immediately upon any Replacement Part becoming incorporated or installed in
or attached to the Airframe or any Engine as above provided, without further
act, (i) Bank's security interest in the replaced Part shall be released, and
such replaced Part shall no longer be deemed a Part hereunder, and (ii) such
Replacement Part shall become a Part subject to Bank's security interest and
be deemed part of the Airframe or such Engine for all purposes hereof to the
same extent as the parts originally incorporated or installed in or attached
to the Airframe or such Engine.
(b) POOLING OF PARTS. So long as no Default or Event of Default shall
have occurred or be continuing hereunder, any Part removed from the Airframe or
any Engine as provided in paragraph (a) of this Section may be subjected by the
Borrower to a normal pooling arrangement customary in the airline industry
entered into in the ordinary course of the Borrower's business with Permitted
Air Carriers or the manufacturer of such Part; PROVIDED, HOWEVER, that the
Replacement Part shall be incorporated or installed in or attached to the
Airframe or Engine in accordance with paragraph (a) of this Section as promptly
as possible after the removal of such removed Part. In addition, any Replacement
Part when incorporated or installed in or attached to the Airframe or any Engine
in accordance with paragraph (a) of this Section may be owned by a Permitted Air
Carrier subject to such a normal pooling arrangement; PROVIDED, HOWEVER, that
the Borrower, at its expense, as promptly thereafter as possible, either (i)
causes such Replacement Part to be subject to Bank's security interest in
accordance with paragraph (a) of this Section or (ii) replaces such Replacement
Part by incorporating or installing in or attaching to the Airframe or such
Engine a further Replacement Part owned by the Borrower free and clear of all
Liens and by causing such further Replacement Part to be subject to Bank's
security interest in accordance with paragraph (a) of this Section.
(c) IMPROVEMENTS. The Borrower, at its own expense, shall affix or
install any accessory, equipment or device to or on the Airframe or an Engine or
make such alterations, modifications and additions to the Airframe or the
Engines (any such accessory, installed equipment or device, improvement,
modification, alteration or addition affixed or installed pursuant to this
paragraph being herein referred to as an "IMPROVEMENT") as may be required from
time to time to meet the standards of the FAA or other governmental authority
having jurisdiction and as may be required to permit the full and unrestricted
use of the Aircraft in the service now and from time to time provided by the
Borrower, including but not limited to operating noise level standards or other
standards under the regulations of the FAA for which compliance is required.
In addition, the Borrower, at its own expense, may from time to time
make such Improvements to the Airframe or any Engine as the Borrower may deem
desirable in the proper conduct of its business; PROVIDED, HOWEVER, that no such
Improvement shall diminish the value or utility of the Airframe or any such
Engine, or impair the condition or airworthiness thereof, below the value,
utility, condition and airworthiness
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thereof immediately prior to such Improvement assuming the Airframe or any
such Engine was then of the value or utility and in the condition and
airworthiness required to be maintained by the terms of this Agreement. All
Parts constituting Improvements shall, without further act, become subject to
Bank's security interest. Notwithstanding the foregoing sentence of this
paragraph, so long as no Default or Event of Default shall have occurred and
be continuing, the Borrower may, at any time, remove any Improvement;
PROVIDED, HOWEVER, that (i) such Improvement is in addition to, and not in
replacement of or substitution for, any Part originally incorporated or
installed in or attached to the Airframe or such Engine or any Improvement in
replacement of, or substitution for any such Improvement, (ii) such
Improvement is not required to be incorporated or installed in or attached or
added to the Airframe or any such Engine pursuant to the terms of this
Section, and (iii) such Improvement can be removed from the Airframe or such
Engine without diminishing or impairing the value, utility, condition or
airworthiness required to be maintained by the terms of this Agreement which
the Airframe or such Engine would have had at such time had such alteration,
modification or addition not occurred. Upon the removal by the Borrower of
any Improvement as above provided, Bank's security interest in such
Improvement shall, without further act, be released and such Improvement
shall no longer be deemed part of the Airframe or Engine from which it was
removed.
VII. INSURANCE, TRANSFER, CONDEMENATION AND EVENT OF LOSS
7.1 INSURANCE.
(a) LIABILITY INSURANCE. During the term of this Agreement (and
regardless of whether the Aircraft remains in the possession of or the property
of Borrower), Borrower shall maintain (or cause to be maintained) at no expense
to Bank the following insurance on a worldwide basis (except for Iraq and
Kuwait) with no territorial restrictions (other than such territorial
restrictions as may be applicable to War Risks Liability Coverage (AV52C or its
equivalent)), with insurers of recognized responsibility through nationally
recognized aviation insurance brokers: comprehensive aviation liability
insurance (including third party legal liability, public liability, passenger
legal liability, personal injury liability, passenger's baggage and personal
effects (checked and unchecked) liability, cargo legal liability, mail legal
liability, premises liability, products/completed operations, hangarkeepers
(ground and in-flight) liability and war risks liability (Lloyd's of London
Clause AV.52 or its equivalent)), insurance of the indemnification obligations
set forth in Section 9.6 hereof, and property damage liability insurance with
respect to the Aircraft in an amount not less than that carried by Borrower on
similar equipment owned or leased by Borrower, PROVIDED that such liability
insurance shall in no event be less than _______________ for any one occurrence
or offense in the aggregate annually as respects Personal Injury (Passenger
Only) Product Complete Operation Liability. Borrower shall not self-insure with
respect to any public liability coverage, except by way of such deductibles as
may apply to baggage and personal effects, cargo legal, mail legal (if
applicable) and hangar keepers liabilities as are usual and customary in the
worldwide aviation insurance marketplace. Any policies of insurance carried in
accordance with this Section 7.1(a) and any policies taken out in substitution
or replacement for any of such policies shall: (1) name Bank and its
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affiliates and directors, officers, employees, servants and agents as an
additional insured (each such Person, an "ADDITIONAL INSURED"), as its
interests may appear (2) provide that in respect of the interest of each
Additional Insured in such policies, the insurance shall not be invalidated
by any action or inaction of Borrower or any other insured and shall insure
each Additional Insured regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by Borrower;
(3) provide that if the insurers cancel such insurance for any reason
whatever, or if there is any material change in policy terms and conditions
or coverage, such cancellation, lapse or change shall not be effective as to
any Additional Insured until thirty days (seven days, or such other period as
may from time to time be customarily obtainable in the industry, in the case
of war risk and allied perils coverage) after receipt by such Additional
Insured of written notice from such insurers of such cancellation, lapse or
change; and (4) provide that no Additional Insured shall have any obligation
or liability for premiums, commissions, assessments or calls in connection
with such insurance. Each liability policy shall (i) be primary without right
of contribution from any other insurance which is carried by any Additional
Insured, (ii) expressly provide that all of the provisions thereof, except
the limits of liability, shall operate in the same manner as if there were a
separate policy covering any Additional Insured, and (iii) waive any right of
the insurers to any subrogation, set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
any Additional Insured or Borrower to the extent of any moneys due to such
Additional Insureds.
(b) ALL RISK HULL INSURANCE During the term of this Agreement, Borrower
shall maintain (or cause to be maintained) at no expense to Bank the following
insurance on a worldwide basis (except for Iraq and Kuwait) with no territorial
restrictions (other than territorial restrictions as may be applicable to
Aviation Hull War Risks Coverage), with insurers of recognized responsibility
through nationally recognized aviation insurance brokers (A) all-risks (ground,
taxiing, flight and ingestion) hull insurance covering the Aircraft; and (B) all
risks (including transit) Aviation Spare Parts (including Engine and Equipment)
Insurance and (C) at all times that any Aircraft or any Engine is not covered by
the insurance described in Section 7.1(c), coverage against the perils of (i)
strikes, riots, civil commotions or labor disturbances, (ii) any vandalism,
malicious act or act of sabotage, and (iii) hijacking, or any unlawful seizure
or wrongful exercise of control of the Aircraft or crew in flight made by any
person or persons on board such Aircraft without the consent of the insured
other than hijacking committed by persons engaged in a program of irregular
warfare for terrorist purposes, in each case to the extent insured by the
standard "buy-back" provisions to the Common North American Airline War
Exclusion Clause as currently available in the United States aviation insurance
market. Such insurance shall be for an Agreed Value basis which shall be in an
amount not less than the unpaid principal balance of the Loan. With the consent
of Bank, which will not be unreasonably withheld, Borrower may self-insure, only
by way of deductible, the risks required to be insured against pursuant to the
preceding two sentences in such amounts as are reasonably acceptable to Bank.
"Fleet Aggregate" deductions shall not be applicable in respect of claims
payable to Bank pursuant to the policies required to be carried pursuant to this
Section 7.1(b). Any policies carried in accordance with this Section 7.1(b)
covering the Aircraft
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and any policies taken out in substitution or replacement for any such
policies shall (1) name Bank as loss payee as its interests may appear; (2)
provide that the entire amount of any loss shall be paid to Bank; (3) provide
that if such insurance is cancelled for any reason whatsoever, or any
substantial change is made in policy terms, conditions or coverage, or the
same is allowed to lapse for non-payment of premium, such cancellation,
change or lapse shall not be effective as to Bank until thirty days (seven
days or such other period as may from time to time be customarily obtainable
in the industry, in the case of war risk and allied perils coverage), after
receipt by Bank of written notice from such insurers of such cancellation or
lapse or change in policy terms, conditions or coverage; (4) provide that
losses in excess of __________ shall be adjusted with Bank; (5) provide that
in respect of Bank, such insurance shall not be invalidated by any action or
inaction of Borrower or any other insured and shall insure such parties
regardless of any breach contained in such policies by Borrower or any other
insured; (6) be primary without right of contribution from any other
insurance which is carried by Bank with respect to its interest in the
Aircraft; (7) waive any right of subrogation of the insurers against Bank;
(8) waive any right of the insurers to set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
Borrower or Bank to the extent of any moneys due to Bank; and (9) provide
that Bank shall not have any obligation or liability for premiums,
commissions, assessments or calls in connection with such insurance. If the
insurance required to be carried pursuant to Sections 7.1(b) and 7.1(c) is
effected under separate policies, the insurers shall agree that if a
disagreement arises as to whether a claim is covered by the all-risk
insurance or the war-risk insurance, the insurers will settle such claims on
the basis of a 50-50 claim funding arrangement.
(c) WAR-RISK INSURANCE. Borrower shall maintain (or cause to be
maintained), at no expense to Bank, the following insurance on a worldwide basis
(except for Iraq and Kuwait) with insurers of recognized responsibility through
nationally recognized insurance brokers, War-Risk and Allied Perils Aviation
Hull (including Spare Parts, Engines and Equipment) Insurance on an Agreed Value
basis, which shall be not less than the Unpaid Principal Balance. Such policy
shall (i) insure against those perils excluded under Borrower's All Risks Hull
and Spares policy(ies) by virtue of Lloyd's of London Exclusion Clause AVN.48B
("War, Hijacking and Other Perils Exclusion Clause") or its equivalent (other
than paragraph (b) thereof relating to nuclear perils), (ii) provide for payment
in U.S. Dollars, (iii) contain a 50/50 clause in accordance with Lloyd's of
London Aviation Clause AVS.103 or its equivalent, (iv) be endorsed to include
coverage for confiscation, requisition, nationalization, seizure, restraint,
detention, appropriation, requisition of title or for use by any governmental
authority (except for the government of registry) of the Aircraft, (v) provide
coverage on a worldwide basis (subject only to such geographical limits as may
be imposed by the hull, war and allied perils insurance) and (vi) be endorsed to
include provisions identical to those contained in clauses (1), (2), (3), (4),
(5), (6), (7), (8), (9) of Section 7.1(b).
(d) OTHER INSURANCE. In addition to the insurance described above,
Borrower shall obtain, maintain and keep in force such other insurance of the
types and amounts
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required by applicable law or regulation to be carried by Borrower,
including, but not limited to, workers' compensation insurance.
(e) MISCELLANEOUS. The Borrower shall arrange to the extent procurable
for appropriate certification and broker's letter of undertaking as to the
satisfaction of the requirements set forth above in Sections 7.1(a), (b) and (c)
to be delivered promptly (and in any case not later than the Closing Date) to
the Bank by each insurer with respect thereto. Policies of insurance procured in
accordance with Sections 7.1(a), (b) and (c) inuring to the benefit of the Bank
shall be amended to name as additional named insureds all successors and assigns
of the Bank.
(f) REPORTS, ETC On or before the Closing Date and thereafter during the
term of this Agreement on the anniversary date of the policy or within thirty
(30) days thereafter, (but in any event prior to the expiration of any insurance
required pursuant to this Section 7.1) the Borrower shall furnish to the Bank a
report signed by a firm of independent aircraft insurance brokers of recognized
standing, appointed by the Bank, stating the conclusion of such firm that such
insurance as of the date of such report carried and maintained on the Aircraft
complies with the terms of this Section. The Borrower will cause the insurers to
advise the Bank in writing promptly of any default in the payment of any premium
and of any other act or omission on the part of the Borrower which might
invalidate or render unenforceable, in whole or in part, any insurance on the
Aircraft. Upon the request of the Bank, the Borrower will furnish to the extent
procurable and if the Borrower is not prohibited from so procuring to such
party, within a reasonable period after such request (after the same are
available to the Borrower), a copy of the policy or policies evidencing the
insurance carried and maintained pursuant to this Section. The Borrower will
also cause the applicable insurer to advise the Bank in writing at least 30 days
prior to the expiration or termination date of any insurance carried and
maintained on the Aircraft pursuant to this Section. In the event that the
Borrower shall fail to maintain insurance as herein provided, the Bank may at
its sole option provide such insurance and, in such event, the Borrower shall,
upon demand, reimburse the Bank for the cost thereof, without waiver of any
other rights the Bank may have.
7.2 CERTAIN EVENTS OF LOSS. Upon the occurrence of an Event of Loss with
respect to the Aircraft, (a) Borrower shall pay Bank on the earlier of (i) the
Monthly Payment Date on or immediately succeeding the 90th day following the
date of occurrence of such Event of Loss and (ii) the Monthly Payment Date
immediately succeeding the date of receipt of insurance proceeds with respect to
such Event of Loss, an amount equal to the sum of the outstanding principal
balance of the Loan and the accrued interest on the Note and all other
obligations owing hereunder as of such date, and (b) Bank shall release its Lien
on the Collateral on the date of receipt of all such amounts. Upon the
occurrence of an Event of Loss with respect to an Engine under circumstances in
which there has not occurred an Event of Loss with respect to the Airframe, the
Borrower shall (i) give the Bank prompt written notice thereof, (ii) within 15
days after the date of occurrence of such Event of Loss, take such actions as
are necessary to ensure that such Engine shall be replaced as soon as possible,
and
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(iii) within 60 days after the date of occurrence of such Event of Loss,
cause, as replacement for the Engine with respect to which such Event of Loss
occurred, another General Electric CF6-50C2 engine (or engine of the same or
another manufacturer, of the same or improved utility, performance and
efficiency and suitable for installation and use on the Airframe in
conjunction with the remaining Engines installed on the Aircraft) owned by
the Borrower free and clear of all Liens and having a value and utility at
least equal to, and being in as good operating condition as, the Engine with
respect to which such Event of Loss occurred, assuming such Engine was of the
value and utility and in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of Loss to be
subjected to Bank's security interest hereunder and under the Security
Agreement. Prior to or at the time of any such conveyance, the Borrower, at
its own expense, will (i) cause a supplement to the Security Agreement, in
form and substance satisfactory to the Bank, to be duly executed by the
Borrower and recorded pursuant to the Federal Aviation Act, (ii) execute and,
if necessary, file such documents as may be reasonably required by the Bank
to confirm the Bank's security interest in such replacement engine, (iii)
furnish the Bank with such evidence of compliance with the insurance
provisions of Section 7.1 hereof with respect to such replacement engine as
the Bank may reasonably request, and (iv) furnish the Bank with an opinion of
counsel (and such other evidence of security interest as the Bank may
reasonably request) to the effect that, upon the execution of such
supplement, the Bank will acquire a first priority security interest in such
replacement engine to the same extent as the Engine replaced thereby. Upon
full compliance by the Borrower with the terms of this paragraph, the Bank
will release its security interest in the Engine with respect to which such
Event of Loss occurred. For all purposes hereof, each such replacement engine
shall, after such conveyance, be deemed part of the Collateral shall be
deemed an "Engine" as defined herein and shall be deemed part of the Aircraft.
VIII. THE BANK'S RIGHTS UPON DEFAULT
8.1 EVENTS OF DEFAULT. Each of the following events is an "Event of
Default" under this Agreement:
(a) The Borrower's failure to pay within five (5) Business Days after the
same becomes due any sum payable to the Bank under the Loan Documents or under
any other agreement or note between the Bank and Borrower;
(b) The Borrower shall fail to carry and maintain insurance on or with
respect to the Aircraft in accordance with the provisions of Section 7.1 hereof;
provided, that in the case of insurance with respect to which cancellation,
change or lapse for nonpayment of premium shall not be effective as to Bank for
30 days (seven days in the case of any war risk and allied perils coverage)
after receipt of notice by Bank of such cancellation, change or lapse, no such
failure to carry and maintain insurance shall constitute a Default or an Event
of Default hereunder until the earlier of (i) the date such insurance is no
longer in effect as to Bank, (ii) the date such failure shall have continued
unremedied for a period of 20 days (five (5) days in the case of any war risk
and allied perils coverage) after receipt by Bank of the notice of cancellation,
change or lapse; or
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(c) The Borrower shall operate the Aircraft at a time when, or at a place
in which, any of the insurance required by the provisions of Section 7.1 hereof
shall not be in effect, except in the case of a Requisition of Use by the United
States government or any instrumentality or agency thereof, if the Borrower
obtains insurance or an indemnity from the United States government against the
risks and in the amount required by Section 7.1 hereof covering such time and
areas; or
(d) The Borrower shall (except as expressly permitted by the provisions
of this Agreement) attempt to remove, sell, transfer, encumber, part with
possession of, assign or let the Airframe or any Engine; or
(e) Any representation or warranty made by the Borrower in this Agreement
or any agreement, document or certificate delivered by the Borrower in
connection herewith or therewith shall prove to have been incorrect in any
material respect when any such representation or warranty was made or given and
remains material and incorrect at the time of discovery and is not cured within
30 days of written notice to Borrower by Bank; or
(f) The Borrower shall consent to the appointment of a receiver, trustee
or liquidator of itself or of a substantial part of its property, or the
Borrower shall admit in writing its inability to pay its debts generally as they
come due, or shall make a general assignment for the benefit of creditors; or
(g) The Borrower shall file a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding under any
bankruptcy laws (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against the Borrower in any such
proceeding, or the Borrower shall, by voluntary petition, answer or consent,
seek relief under the provisions of any other now existing or future bankruptcy
or other similar law (other than a law which does not provide for or permit the
readjustment or alteration of the Borrower's obligations hereunder) providing
for the reorganization or liquidation of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors and such
proceedings are not stayed within 60 days; or
(h) An order, judgment or decree shall be entered in any proceeding by
any court of competent jurisdiction appointing, without the consent of the
Borrower, a receiver, trustee or liquidator of the Borrower or of any
substantial part of its property, or sequestering any substantial part of the
property of the Borrower, and any such order, judgment or decree of appointment
or sequestration shall remain in force undismissed, unstayed or unvacated for a
period of 60 days after the date of entry thereof; or
(i) A petition against the Borrower in a proceeding under applicable
bankruptcy laws or other insolvency laws (other than any law which does not
provide for or permit any readjustment or alteration of the Borrower's
obligations hereunder in each case), as now or hereafter in effect, shall be
filed and shall not be withdrawn or dismissed within 60 days thereafter, or if,
under the provisions of any law (other than any law which does not provide for
or permit any readjustment or alteration of the
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Borrower's obligations hereunder in each case) providing for reorganization
or liquidation of corporations which may apply to the Borrower, any court of
competent jurisdiction shall assume jurisdiction, custody or control of the
Borrower or of any substantial part of its property and such jurisdiction,
custody or control shall remain in force unrelinquished, unstayed or
unterminated for a period of 60 days; or
(j) The Borrower shall fail to remain a duly certificated "air carrier"
within the meaning of the Federal Aviation Act; or
(k) The Borrower shall voluntarily suspend for more than 30 days (other
than on a temporary basis as a result of a labor dispute) all or substantially
all of its commercial airline operations or the franchises, concessions,
permits, rights or privileges required for the conduct of the business and
operations of the Borrower shall be revoked, cancelled or otherwise terminated
or the free and continued use and exercise thereof curtailed or prevented, and
as a result thereof the preponderant business activity of the Borrower shall
cease to be that of a commercial airline; or
(l) The Borrower shall fail to maintain in good standing an airworthiness
certification for the Aircraft, or shall fail to maintain the registration of
the Aircraft in the name of the Borrower, under the Federal Aviation Act; or
(m) The Security Agreement shall, for any reason, except for Permitted
Encumbrances and to the extent permitted by the terms hereof and thereof, cease
to create a valid first priority Lien on and perfected first priority security
interest in any of the Collateral purported to be covered thereby;
(n) Any third party obtains a court order enjoining or prohibiting the
Borrower from performing any of its respective obligations under the Loan
Documents and such order is not stayed or, within 30 days after entry of the
same, vacated or dismissed or the subject of a Permitted Contest; or
(o) The Borrower shall default in its obligations under Sections 4.5,
4.10., 5.1 or 5.6 hereof; or
(p) The Borrower shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it under this Agreement
(other than a covenant, condition or agreement failure in the performance of
which is elsewhere in this Section specifically dealt with) or any agreement,
document or certificate delivered by the Borrower in connection herewith or
therewith, and (1) such failure shall continue for 30 days after written notice
thereof from the Bank to the Borrower or (2) if such failure is, in the Bank's
sole discretion, curable but not reasonably curable within 30 days after written
notice thereof from the Bank to Borrower, Borrower has not promptly commenced
and, in Bank's sole determination, is not diligently pursuing such cure.
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8.2 THE BANK'S RIGHTS.
(a) REMEDIES. If an Event of Default shall occur and be continuing the
Bank shall have, in addition to any and all other rights and remedies, legal or
equitable, available to the Bank under any and all of the Loan Documents or at
law, the following additional rights and remedies:
(1) The absolute right to deny to the Borrower any further
disbursement of the Loan proceeds or other funds (the Bank's
obligation to extend any further credit to the Borrower shall
immediately terminate);
(2) The right, at the option of the Bank, to declare, without notice,
the entire principal amount and accrued interest for the Loan,
plus any fees and charges reasonably incurred by the Bank under
any of the Loan Documents, immediately due and payable;
(3) The right, at the option of the Bank, to charge interest on any
principal amount outstanding under this Agreement at the rate of
12% per year or four (4) percentage points above the Base Rate
from time to time in effect, whichever is greater;
(4) The right to the EX PARTE appointment without bond of a receiver,
without regard to the value of any collateral or solvency of any
party liable for payment, observance or performance of the
Obligations and regardless of whether the Bank has any adequate
remedy at law.
(5) The right to exercise, in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under any applicable body of law and also (1) require
Borrower to, and Borrower hereby agrees that it will at its
expense and upon the request of Bank forthwith, assemble all or
part of the Collateral as directed by Bank and make it available
to Bank at a place to be designated by Bank and (2) without notice
except as specified below, sell the Collateral or any part thereof
in one or more parcels at public or private sale, at any of Bank's
offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as Bank may deem commercially
reasonable. Borrower agrees that, to the extent notice of sale
shall be required by law, at least fifteen (15) days' notice to
Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute
reasonable notification. Bank shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given.
Bank may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to
which it was so adjourned;
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(6) The right, to the extent permitted by applicable law, bring suit
at law, in equity or through other appropriate Proceedings,
whether for the specific performance of any covenant or agreement
contained in this Agreement or any of the other Security
Instruments, for an injunction against a violation of any of the
terms hereof or thereof, in aid of the exercise of any power
Granted hereby or thereby, or by law, to recover judgment for any
and all amounts due on the Note, this Agreement, any of the other
Security Instruments or otherwise, including, without limitation,
any deficiency remaining after foreclosure hereunder;
(7) The right to exclude Borrower from the Collateral and take
immediate possession of interest therein, and, at the expense of
Borrower, maintain, repair, alter, use, add to, improve, insure,
lease, operate and manage the Collateral in such manner as Bank
shall see fit; and
(8) The right to take any other appropriate action to protect and
enforce the rights and remedies of Bank hereunder, or under or in
respect of any other Security Instrument, or otherwise under
applicable law;
(b) STATEMENT OF UNPAID AMOUNTS. The unpaid principal balance of the Loan
and all accrued interest and other sums payable under this Agreement shall be
forthwith payable upon a sale of any portion of the Collateral pursuant to
subsection (5) of this Section 8.2(a), notwithstanding any provision to the
contrary contained in this Agreement, the Note or any other Security Instrument.
All earnings, revenues, proceeds, rents, issues, profits and income derived
pursuant to subsection (7) of this Section 8.2(a) (after deducting costs and
expenses of operation and other proper charges), all proceeds of any such sale
and all other money and property received or recovered by the Bank pursuant to
this Section 8.2 shall be held and applied as set forth in Section 8.3 hereof.
(c) POWER OF SALE. The power to effect any sale under this Section 8.2
shall not be exhausted by any one or more sales as to any portion of the
Collateral remaining unsold, but shall continue unimpaired until all of the
Collateral shall have been sold or all of the Obligations shall have been paid
in full.
(d) PURCHASE BY BANK. Bank may bid for and acquire any portion of the
Collateral in connection with a sale thereof under this Section 8.2, and may pay
all or part of the purchase price by crediting against amounts owing on the
Obligations, all or part of the net proceeds of such sale after deducting the
costs, charges and expenses incurred by Bank in connection with such sale. The
Note need not be produced in order to complete any such sale or effect such
credit. Bank may hold, lease, operate, manage or otherwise deal with any
property so acquired in any manner permitted by law.
(e) BANK TO TRANSFER ITS INTEREST IN COLLATERAL. Bank shall execute and
deliver an appropriate instrument of conveyance transferring its interest in any
portion of the Collateral in connection with a sale thereof under this Section
8.2;
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(f) OTHER RIGHTS. Bank's right to seek and recover judgment on the
Obligations shall not be affected by the seeking, obtaining or application of
any other relief under or with respect to this Agreement. Neither the Lien of
the Security Agreement nor any rights or remedies of Bank shall be impaired by
the recovery of any judgment by Bank against Borrower or by the levy.
8.3 PROCEEDS OF COLLATERAL. All cash proceeds received by Bank in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral shall be held by Bank as collateral for, and then promptly
thereafter applied by Bank against, all or any part of the amounts due under the
Note and the other Obligations in such order as Bank shall elect. Any surplus of
such cash or cash proceeds held by Bank and remaining after payment in full of
all the Obligations shall be paid over to Borrower or to whomsoever may be
lawfully entitled to receive such surplus.
8.4 WAIVER OF RIGHTS. To the extent permitted by law, Borrower hereby
waives its right to seek, and hereby agrees that it will not seek or derive any
benefit or advantage from, any of the following whether now existing or
hereafter in effect:
(a) any stay, extension, moratorium or similar law with respect to the
Collateral or the Obligations;
(b) any law allowing for the redemption of any portion of the Collateral
after a sale thereof under Section 8.2 hereof; and
(c) any right to have any portion of the Collateral after an Event of
Default shall have occurred.
Borrower covenants not to hinder, delay or impede the exercise of any right or
remedy of Bank under or in respect of this Agreement and agrees to suffer and
permit the exercise of such remedy.
IX. MISCELLANEOUS
9.1 FURTHER ASSURANCE. From time to time within five (5) Business Days
after the Bank's demand, the Borrower will execute and deliver such additional
documents and provide such additional information as may be reasonably requested
by the Bank to carry out the intent of this Agreement. Without limiting the
generality of the foregoing, Borrower will: mark conspicuously each of its
records pertaining to the Collateral with a legend in form and substance
satisfactory to Bank, indicating that such Collateral is subject to the security
interest Granted by the Security Agreement; and execute and file such documents
with the FAA , such financing or continuation statements, or amendments hereto
or thereto, and such other instruments or notices, as may be necessary or
reasonably desirable, or as Bank may reasonably request, in order to perfect and
preserve the security interests Granted or purported to be Granted by the
Security Agreement.
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9.2 REPORTS, ETC. Borrower will furnish to Bank from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Bank may reasonably
request, all in reasonable detail.
9.3 BANK MAY PERFORM. If Borrower fails to perform any agreement
contained herein, then Bank may itself perform, or cause performance of, such
agreement, and the expenses of Bank incurred in connection therewith shall be
payable by Borrower; provided, that to the extent practicable and permitted by
law, Bank shall give Borrower prior notice of its intention to perform for
Borrower.
9.4 BANK'S DUTIES. The powers conferred on Bank hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Bank shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against other parties or
any other rights pertaining to any Collateral.
9.5 ENFORCEMENT AND WAIVER BY THE BANK. The Bank shall have the right at
all times to enforce the provisions of the Loan Documents as they may be amended
from time to time, in strict accordance with their terms, notwithstanding any
conduct or custom on the part of the Bank in refraining from so doing at any
time or times. The failure of the Bank at any time or times to enforce its
rights under such provisions, strictly in accordance with the same, shall not be
construed as having created a custom in any way or manner contrary to specific
provisions of the Loan Documents or as having in any way or manner modified or
waived the same. All rights and remedies of the Bank are cumulative and
concurrent and the exercise of one right or remedy shall not be deemed a waiver
or release of any other right or remedy.
9.6 GENERAL INDEMNITY. The Borrower agrees to indemnify, protect and hold
harmless the Bank, and its assigns, directors, officers, employees, agents or
representatives (each an "Indemnified Party") from and against all losses,
damages, injuries, liabilities, claims, suits, obligations, penalties, actions,
judgments, costs, interest and demands of any kind or nature whatsoever (all the
foregoing losses, damages etc. are the "indemnified liabilities"), and expenses
in connection therewith (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnified Party in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnified Party shall be designated a party thereto, and the expenses of
investigation by engineers, environmental consultants and similar technical
personnel; provided, that Borrower shall not be liable for the fees, costs and
expenses of more than one separate counsel (unless additional counsels are
reasonably necessary as a result of a conflict between the Indemnified Parties)
at the same time for all Indemnified Parties indemnified hereunder in connection
with the same action and any separate but substantially similar or related
action in the same jurisdiction) arising out of, in connection with, or as the
result of (i) any claim for personal injury or property damage arising from the
manufacture, construction, purchase, acceptance, rejection, operation, use,
modification, maintenance, registration, condition, possession, storage or
repossession of the Collateral, or any claim relating to
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any laws, rules or regulations, (including, without limitation, environmental
control, noise and pollution laws, rules or regulations), (ii) the entering
into or performance of this Agreement, the Note, the Security Instruments and
the other Loan Documents, (iii) the enforcement of any rights thereunder or
(iv) the retention by the Bank of a security interest in the Collateral, and
in each case arising during the period of any operation, use, delivery,
rejection, storage or repossession of the Aircraft while a security interest
therein remains in the Bank or during the exercise of the remedies of Bank
pursuant to any of the provisions of this Agreement; provided, however, that
the Borrower shall have no obligation to so indemnify any Indemnified Party
for any indemnified liabilities arising solely from the willful misconduct or
gross negligence of such Indemnified Party. The foregoing indemnity shall
survive the termination of this Agreement, the Note and the Security
Instruments and payment in full of the Obligations.
9.7 EXPENSES OF THE BANK. The Borrower will, on demand, reimburse to the
Bank all reasonable expenses, including reasonable attorneys' fees (including
allocated costs of the Bank's in-house counsel), incurred by the Bank in
connection with the administration (including, without limitation, expenses
relating to any consent requested by Borrower under the Loan Documents),
amendment, modification, workout or enforcement of the Loan Documents and the
collection or attempted collection of the indebtedness evidenced by the Loan
Documents, whether or not legal proceedings are commenced.
9.8 NOTICES. Any notices or consents required or permitted by this
Agreement or the remainder of the Loan Documents shall be in writing and shall
be deemed delivered if delivered in person or if sent by certified mail, postage
prepaid, return receipt requested, or by facsimile, at the addresses or
facsimile numbers noted below, unless such address or facsimile number is
changed by written notice hereunder:
BORROWER BANK
HAWAIIAN AIRLINES, INC. BANK OF HAWAII
ATTN: Vice President - Finance ATTN: Mr. Peter Ho, Vice
and Treasurer President
3375 Koapaka Street, Suite G350 Corporate Bank Hawaii
Honolulu, Hawaii 96819 130 Merchant Street
PHONE: ____________ Honolulu, Hawaii 96813
FAX: ____________ PHONE: ____________
FAX: ____________
9.9 WAIVER AND RELEASE BY THE BORROWER. To the maximum extent permitted
by applicable law, the Borrower:
(a) Waives notice and opportunity to be heard, after acceleration of the
indebtedness evidenced by the Loan Documents, before exercise by the Bank of the
remedy of setoff or of any other remedy or procedure permitted by any applicable
law or
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by any prior agreement with the Borrower, and, except where specifically
required by this Agreement or by any applicable law, notice of any other
action taken by the Bank; and
(b) Waives presentment, demand for payment, notice of dishonor, and any
and all other notices or demands in connection with the delivery, acceptance,
performance, or enforcement of this Agreement, and consents to any extension of
time (and even multiple extensions of time for longer than the original term),
renewals, releases of any person or organization liable for the payment of the
Obligations under this Agreement, and waivers or modifications or other
indulgences that may be granted or consented to by the Bank in respect of the
Loan and other extensions of credit evidenced by this Agreement; and
(c) Releases the Bank and its officers, agents and employees from all
claims for loss or damage caused by any act or omission on the part of any of
them except willful misconduct or gross negligence.
9.10 RISK OF LOSS. Borrower shall bear all risk of any loss of or damage
to the Collateral so long as any amount remains outstanding under this Agreement
or the Note, and in no event shall Bank be liable for such loss or damage.
9.11 SALES AND PARTICIPATIONS. The Borrower consents to the Bank's
negotiation, offer, and sale to other third parties ("Participants") of the Loan
or participating interests in the Loan, to any and all discussions and
agreements heretofore or hereafter made between the Bank and any Participant or
prospective Participant regarding the interest rate, fees, and other terms and
provisions applicable to the Loan, and to the Bank's disclosure to any
Participant or prospective Participant, from time to time, of such financial and
other information pertaining to the Borrower and the Loan as the Bank and such
Participant or prospective Participant may deem appropriate (whether public or
non-public, confidential or non-confidential, and including information relating
to any insurance required to be carried by the Borrower and any financial or
other information bearing on the Borrower's creditworthiness and the value of
any Collateral); provided, however, that such disclosure shall be on a
confidential basis as to any information that is non-public or confidential and
subject to a confidentiality agreement executed by the Participant or
prospective Participant with respect to any information that is non-public or
confidential; provided, further, that the Bank shall provide to the Borrower
prior written notice of such intended disclosure and the identity of the
Participant or prospective Participant to whom such disclosure will be made;
provided, further, that if two or more parties hold an interest in the Loan,
they shall designate a lead lender or agent to act on behalf of all Participants
and the Bank with respect to the Loan. The Borrower acknowledges that the Bank's
disclosure of such information to any Participant or prospective Participant
constitutes an ordinary and necessary part of the process of effectuating and
servicing the Loan.
9.12 APPLICABLE LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY
TRIAL. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND ALL MATTERS
RELATING THERETO ARE DELIVERED IN THE
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STATE OF HAWAII AND SHALL, EXCEPT TO THE EXTENT OTHERWISE REQUIRED BY
APPLICABLE LAW, BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF HAWAII WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES. BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION AND
VENUE OF THE STATE AND FEDERAL COURTS OF HAWAII AND AGREES THAT BANK MAY, AT
ITS OPTION, ENFORCE ITS RIGHTS HEREUNDER AND UNDER THE NOTE AND OTHER
SECURITY INSTRUMENTS IN SUCH COURTS. BORROWER HEREBY IRREVOCABLY WAIVES THE
DEFENSE OF AN INCONVENIENT FORUM TO MAINTENANCE OF ANY ACTION OR PROCEEDING
BY BANK IN SUCH COURTS. BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING
TO THIS AGREEMENT, THE NOTE OR ANY OTHER SECURITY INSTRUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9.13 BINDING EFFECT. This Agreement shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns, and shall
be binding on the parties hereto and their respective successors and assigns.
9.14 MERGER. This Agreement and the remainder of the Loan Documents
constitute the full and complete agreement between the Bank and the Borrower
with respect to the Loan, and all prior oral and written agreements, commitments
and undertakings shall be deemed to have been merged into the Loan Documents and
such prior oral and written agreements, commitments and undertakings shall have
no further force or effect except to the extent expressly incorporated in the
Loan Documents.
9.15 AMENDMENTS; CONSENTS. No amendment, modification, supplement,
termination, or waiver of any provision of this Agreement or the other Loan
Documents, and no consent to any departure by the Borrower therefrom, may in any
event be effective unless in writing signed by the Bank, and then only in the
specific instance and for the specific purpose given.
9.16 ASSIGNMENTS.
(a) Except as set forth in Section 5.5, the Borrower shall have no right
to assign any of its rights or obligations under the Loan Documents without the
prior written consent of the Bank.
(b) The Bank may sell participations in the Loan, as contemplated by
Section 9.11 above, and the Bank may assign the Loan Documents (or the
receivables evidenced thereby) to a Federal Reserve Bank or to any other agency
or instrumentality of the United States of America to support borrowings of
Federal funds.
9.17 SEVERABILITY. If any provision of any of the Loan Documents shall be
held invalid under any applicable law, such invalidity shall not affect any
other provision of the Loan Documents that can be given effect without the
invalid provision, and, to this end, the provisions of the Loan Documents are
severable.
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9.18 SURVIVAL. All agreements, covenants, representations, warranties and
conditions contained in this Agreement or made pursuant to the provisions hereof
shall survive the execution and delivery of this Agreement until the Obligations
shall have been paid and performed in full. All statements by Borrower contained
in any certificate or other instrument delivered pursuant to the provisions of
this Agreement or any other Security Instrument shall constitute the
representations and warranties of Borrower.
9.19 THE BANK'S RIGHT OF SETOFF; SECURITY INTEREST IN ACCOUNTS. At any
time the Bank may set off obligations owed by the Bank to the Borrower (such as
balances in checking and savings accounts) against the Obligations, whether or
not a Default or an Event of Default shall have occurred or shall have been
declared, and without first resorting to other Collateral. To secure the
Obligations, the Borrower grants to the Bank a security interest in all
checking, savings and other deposit accounts now or hereafter maintained by the
Borrower with the Bank.
9.20 TIME IS OF THE ESSENCE. Time is of the essence under and in respect
of this Agreement.
9.21 HEADINGS. The headings of the various provisions of this Agreement
are inserted for convenience of reference only and shall not affect the meaning
or construction of any provision.
9.22 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original instrument and all of which shall together constitute
one and the same agreement.
9.23 DISPUTE RESOLUTION. Any controversy or claim arising out of or
relating to this Agreement or any of the other Loan Documents shall, at the
request of either party, be decided by binding arbitration conducted in the
State of Hawaii without a judge or jury, under the auspices of the American
Arbitration Association or Dispute Prevention and Resolution, Inc. in accordance
with Chapter 658 of the Hawaii Revised Statutes and the respective and
applicable rules of the aforementioned organizations. The arbitrator will apply
any applicable statute of limitations and will determine any controversy
concerning whether an issue is arbitrable. Judgment upon the arbitration award
may be entered in any court having jurisdiction. The prevailing party will be
entitled to recover its reasonable attorneys' fees and costs as determined by
the arbitrator. This agreement to arbitrate shall not limit or restrict the
right, if any, of any party to exercise before, during or following any
arbitration proceeding, with respect to any claim or controversy, self help
remedies such as setoff, to foreclose a mortgage or lien or other security
interest in any Collateral judicially or by power of sale, or to obtain
provisional or ancillary remedies such as injunctive relief from a court having
jurisdiction. Either party may seek those remedies without waiving the right to
submit the controversy or claim in question to arbitration.
9.24 COURT ORDER AFFECTING BANK. If any third party obtains a court order
enjoing or prohibiting Bank from performing its obligations under the Loan
Documents, the Bank may, at its option, cease the performance of such
obligations.
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X. DEFINITIONS
When used in this Agreement, the following capitalized terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
10.1 ADDITIONAL INSUREDS shall have the meaning set forth in Section 7.1.
10.2 AGREEMENT shall have the meaning set forth in the first paragraph
hereof.
10.3 AIRCRAFT shall mean the Airframe together with the Engines (or any
Engine which may from time to time be substituted, pursuant to Section 7.2
hereof, for any of such Engines), whether or not any of such initial or
substituted Engines may from time to time be installed on such Airframe or may
be installed on any other airframe or on any other aircraft, and where the
context permits, references to the "AIRCRAFT" shall include the Manuals and
Technical Records. The Aircraft is more particularly described in SCHEDULE A
hereto.
10.4 AIRFRAME shall mean (i) the McDonnell Douglas DC10-30 Aircraft
(except Engines or engines from time to time installed thereon) to be sold by
Seller to the Borrower pursuant to the Lease and (ii) any and all Parts so long
as the same shall be incorporated or installed in or attached to such airframe,
or so long as Bank maintains a security interest in such Parts in accordance
with the terms of Section 6.2(a) hereof, after removal from such airframe.
10.5 ASSIGNED AGREEMENT shall have the meaning set forth in the Security
Agreement.
10.6 BANK shall have the meaning set forth in the first paragraph hereof.
10.7 BASE RATE means the primary index rate established from time to time
by the Bank in the ordinary course of its business and with due consideration of
the money market, and published by intrabank memoranda for the guidance of its
loan officers in pricing all of is loans which float with the Base Rate.
10.8 BUSINESS DAY means any day on which the Bank is open to the public
for carrying on substantially all of its banking functions.
10.9 BILLS OF SALE means two (2) bills of sale for the Aircraft, each
duly executed by Seller, in favor of Borrower, one of which is a Federal
Aviation Administration form Bill of Sale on AC Form 8050-2 to be filed with the
Federal Aviation Administration, and the other of which is a warranty bill of
sale executed by Seller for the benefit of Borrower, specifically referring to
the Engines and the Airframe.
10.10 BORROWER shall have the meaning set forth in the first paragraph
hereof.
10.11 CAPITAL LEASE shall mean, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in
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accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of such Person.
10.12 CAPITAL STOCK of any person shall mean any and all shares,
partnership and other interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated) the
equity of such person.
10.13 CASH FLOW means Borrower's EBITDA, less Maintenance Capital
Expenditures.
10.14 CERTIFICATED CARRIER means any certificated air carrier with respect
to which the protection of Section 1110 of Title 11 of the United States Code,
or any successor statute providing protection to lessors and secured parties of
aircraft in airline bankruptcies, is generally available.
10.15 CLOSING DATE shall have the meaning given in Article II.
10.16 COLLATERAL shall have the meaning given in the Security Agreement.
10.17 CONSOLIDATED SUBSIDIARIES shall mean, for any person, all
subsidiaries of such person that should be consolidated with such person for
financial reporting purposes in accordance with GAAP.
10.18 DEBT SERVICE shall mean, for any period, the sum of all scheduled
and of all required payments during such period in respect of all Funded Debt.
10.19 DEBT SERVICE COVERAGE RATIO means the ratio of Borrower's Cash Flow
for the four fiscal quarters immediately preceding the date of determination
(including the Cash Flow of Borrower's Consolidated Subsidiaries) to Borrower's
Debt Service (including the Debt Service of Borrower's Consolidated
Subsidiaries) for the same period.
10.20 DEFAULT shall mean an event or occurrence which upon the giving of
notice and/or the passage of time shall constitute an Event of Default.
10.21 DISQUALIFIED STOCK of any person shall mean (a) any Capital Stock of
such person which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable), upon the happening
of any event or otherwise (i) matures or is mandatorily redeemable or subject to
any mandatory repurchase requirement, pursuant to a sinking fund obligation or
otherwise, (ii) is convertible into or exchangeable or exercisable for
Indebtedness or Disqualified Stock or (iii) is redeemable or subject to any
mandatory repurchase requirement at the option of the holder thereof, in whole
or in part, in each case on or prior to the seventh anniversary of the Closing
Date and (b) any Preferred Stock of such person.
10.22 EBITDA shall mean, for any period, (a) Net Income for such period,
PLUS, (b) the following to the extent deducted in computing such Net Income: (i)
interest
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expense, (ii) tax expense, (iii) depreciation and amortization of tangible
and intangible assets and (iv) other non-cash charges or non-cash losses,
MINUS, to the extent not already deducted in computing such Net Income: (i)
dividends paid and (ii) extraordinary items, all determined in accordance
with GAAP.
10.23 ENGINE shall mean each of the three General Electric CF6-50C2
engines listed by manufacturer's serial numbers on SCHEDULE A attached hereto
relating to the Airframe, whether or not from time to time installed on such
Airframe or installed on any other airframe or on any other aircraft, and (ii)
any engine which may from time to time be substituted, pursuant to Section 7.2
hereof, for an Engine; together in each case with any and all Parts incorporated
or installed in or attached thereto or any and all Parts removed therefrom so
long as Bank maintains a security interest in such Parts in accordance with the
terms of Section 6.2 hereof after removal from such Engine. The term "ENGINES"
shall mean, as of any date of determination, all Engines hereunder.
10.24 ERISA shall have the meaning set forth in Section 3.16 hereof.
10.25 EVENT OF DEFAULT shall have the meaning given in Section 8.1.
10.26 EVENT OF LOSS with respect to the Aircraft, the Airframe or any
Engine shall mean any of the following events with respect to such property: (i)
loss of such property or the use thereof due to theft, disappearance,
destruction, damage beyond repair or rendition of such property permanently
unfit for normal use for any reason whatsoever; (ii) any damage to such property
which results in an insurance settlement with respect to such property on the
basis of a total loss; (iii) requisition of title by any government or
governmental agency or requisition of use ("REQUISITION FOR USE") by any
government or governmental agency (other than the United States of America or
any agency or subdivision thereof) for more than 90 days; (iv) as a result of
any rule, regulation, order or other action by the FAA or other governmental
body (including, without limitation, any foreign governmental body) having
jurisdiction, the use of such property in the normal course of business of air
transportation shall have been prohibited, or such property shall have been
declared unfit for use, for a period of six consecutive months, unless the
Borrower, prior to the expiration of such six-month period, shall have
undertaken and, in the opinion of Bank, shall be diligently carrying forward all
steps which are necessary or desirable to permit the normal use of such property
by the Borrower or, in any event, if use shall have been prohibited, or such
property shall have been declared unfit for use, for a period of eighteen
consecutive months; and (v) with respect to the Aircraft, the operation or
location of the Aircraft while under Requisition of Use by the United States
government, or any state or local authority within the United States or any
instrumentality or agency of the foregoing, in any area excluded from coverage
by any insurance policy in effect with respect to the Aircraft required by the
terms of Section 7.1 hereof, if the Borrower is unable to obtain indemnity in
lieu thereof from such government, authority, instrumentality or agency or if
the Borrower is unable to effect such special insurance coverage as the Bank may
reasonably require. The date of occurrence of such Event of Loss shall be the
date of such theft, disappearance, destruction, damage, Requisition of Use or
prohibition of, or
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unfitness for use, for the stated period. An Event of Loss with respect to
the Aircraft shall be deemed to have occurred if an Event of Loss occurs with
respect to the Airframe. An Event of Loss with respect to any Engine shall
not, without loss of the Airframe, be deemed an Event of Loss with respect to
the Aircraft.
10.27 FAA means the United States Federal Aviation Administration and any
successor agency or agencies thereto.
10.28 FAA RULES AND REGULATIONS mean the rules and regulations of the FAA
now or hereafter in effect.
10.29 FEDERAL AVIATION ACT shall mean Title 49, Subtitle VII of the United
States Code.
10.30 FOREIGN PERMITTED AIR CARRIER shall have the meaning set forth in
Section 6.1(b) hereof.
10.31 FUNDED DEBT means, on and as of the date of calculation thereof, the
aggregate principal amount, determined in accordance with GAAP, of all
obligations for borrowed money, all recourse obligations on investments, all
obligations evidenced by bonds, debentures, notes or other similar instruments,
and all obligations under Capital Leases.
10.32 FUNDED DEBT TO CASH FLOW RATIO means the ratio of Borrower's Funded
Debt as of the date of determination (including the Funded Debt of Borrower's
Consolidated Subsidiaries) to Borrower's Cash Flow (including the Cash Flow of
Borrower's Consolidated Subsidiaries) for the four fiscal quarters immediately
preceding the date of determination.
10.33 GAAP shall mean generally accepted accounting principles, applied on
a consistent basis.
10.34 GRANT means to grant, bargain, sell, warrant, remise, release,
convey, assign, transfer, mortgage, pledge, deposit, set over, confirm or create
a security interest under any applicable body of law, including without
limitation, the FAA Rules and Regulations, as applicable. A grant with respect
to any instrument, document or agreement shall include all rights, powers and
options (but none of the obligations) of the granting party thereunder,
including without limitation the right to generally do anything which the
granting party then is or thereafter may be entitled to do thereunder or with
respect thereto.
10.35 HAWAII UCC means the Hawaii Uniform Commercial Code, Articles 1-11,
as now in effect and as hereafter amended from time to time.
10.36 IMPROVEMENTS shall have the meaning set forth in Section 6.2(c)
hereof.
10.37 INDEMNIFIED PARTY shall have the meaning set forth in Section 7.1
hereof.
37
<PAGE>
10.38 INTANGIBLE ASSETS means the amount (to the extent reflected in
determining such consolidated stockholders' equity as set forth in (a) above) of
(i) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of assets of a going concern business made within 12
months after the acquisition of such business) subsequent to June 30, 1998 in
the book value of any assets owned by Borrower or Consolidated Subsidiaries and
(ii) all goodwill, patents, trademarks, service marks, trade names, copyrights,
organization or developmental expenses and other intangible assets.
10.39 LEASE means the Aircraft Lease dated as of November 17, 1998 between
the Borrower and Seller, as amended, modified, supplemented restated and or
replaced prior to the date hereof.
10.40 LIEN means any lien, claim, charge, security interest, mortgage,
pledge and/or other encumbrance of any nature whatsoever.
10.41 LOAN shall have the meaning given in Section 1.1.
10.42 LOAN DOCUMENTS shall have the meaning given in Section 1.5.
10.43 MAINTENANCE CAPITAL EXPENDITURES shall mean, for any period, the sum
of all amounts that would, in accordance with GAAP, be included capital
expenditures with respect to the repair and maintenance of Borrower's aircraft
on a consolidated statement of cash flows for the Borrower and its Consolidated
Subsidiaries during such period (including the amount of assets leased under any
Capital Lease). Notwithstanding the foregoing, the term "Maintenance Capital
Expenditures" shall not include capital expenditures related to induction,
renovation and major maintenance for aircraft new to Borrower's fleet during the
first twelve months following the acquisition of such aircraft.
10.44 MANUALS AND TECHNICAL RECORDS means all records, logs, manuals,
technical data, inspection, modification and overhaul records and other
materials and documents (whether kept or to be kept in compliance with any
regulation of the FAA or any other governmental body having jurisdiction) or
otherwise relating to the Aircraft including but not limited to those manuals
and technical records set out in SCHEDULE D hereto.
10.45 NOTE means Borrower's Promissory Note in the original principal
amount of ________________________________ payable to Bank, substantially in the
form of SCHEDULE B attached hereto.
10.46 NET INCOME shall mean, for any period, net income (or loss) of the
Borrower and its Consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
10.47 OBLIGATIONS shall have the meaning given in Section 1.6.
38
<PAGE>
10.48 PARTICIPANTS shall have the meaning given in Section 9.11.
10.49 PARTS shall mean all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature (other than
complete Engines or engines), which may from time to time be incorporated or
installed in or attached to the Airframe or any Engine.
10.50 PBGC shall have the meaning set forth in Section 3.16 hereof.
10.51 PERMITTED AIR CARRIER shall have the meaning set forth in Section
6.1(b) hereof.
10.52 PERMITTED CONTEST means any contest by Borrower with respect to any
Lien or taxes (including, without limitation, income, sales, use, franchise,
gross receipts taxes), so long as Borrower shall contest, in good faith and at
its expense, the existence, the amount or the validity thereof, the amount of
the damages caused thereby, or the extent of its liability therefor, by
appropriate Proceedings and (a) such contest shall not involve any material
danger of (i) the sale, forfeiture or loss of the Aircraft or any material part
thereof or (ii) any interference with the use of the Aircraft or any material
part thereof or (b) Borrower shall have provided to Bank adequate assurances in
Bank's reasonable judgement for the payment of such amounts being contested.
With respect to Section 8.1(n) hereof, PERMITTED CONTEST means any contest by
Borrower with respect to such court order, so long as Borrower shall contest, in
good faith and at its expense, the existence and validity of such order, by
appropriate Proceeding and such contest shall not (a) involve any material
danger of (i) the sale, forfeiture or loss of the Aircraft or any material part
thereof or (ii) any interference with the use of the Aircraft or any material
part thereof or (b) result in a Default or Event of Default described in
Sections 8.1(a) through (m) or in Section 8.1(o).
10.53 PERMITTED ENCUMBRANCES, with respect to the Collateral, means (i)
the Security Agreement, this Agreement and any assignment by or in favor of Bank
permitted hereby, (ii) Liens for taxes either not yet due or being diligently
contested by the Lessee in good faith (and for the payment of which adequate
reserves have been provided) by appropriate proceedings, if counsel for the Bank
shall have determined that the nonpayment of any such tax or the contest of any
such payment in such proceedings does not, in the opinion of such counsel,
involve any material danger of the sale, forfeiture or loss of the Airframe or
any Engine, title thereto or any interest therein, (iii) inchoate materialmen's,
mechanics', workmen's, repairmen's and employees' or other like Liens arising in
the ordinary course of business and for amounts the payment of which is either
not yet due or being contested by the Borrower in good faith (and for the
payment of which adequate reserves have been provided) with due diligence and by
appropriate proceedings, if counsel for the Bank shall have determined that the
nonpayment of such amount or the contest of such payment does not, in the
opinion of such counsel, involve any material danger of the sale, forfeiture or
loss of the Airframe or any Engine, title thereto or any interest therein, (iv)
so long as no Event of Default shall have occurred and is continuing, Liens
arising out of judgments or awards against Borrower not covered by insurance
with respect to which at the time an appeal or
39
<PAGE>
proceeding for review is being prosecuted in good faith and with respect to
which there shall have been secured a stay of execution pending such appeal
or proceeding for review, (v) purchase money security interests in connection
with Parts installed on the Aircraft or any Engine provided that such Parts
supplement rather than replace existing Parts, can be removed without
damaging the Aircraft or Engines or diminishing their value below their
value, utility, condition and airworthiness prior to the incorporation,
installation, attachment or addition of such Parts and provided that such
security interests do not attach to the Aircraft, any Engine or any other
Part of the aircraft, (vi) Liens permitted by Section 6.1(b) and Section
6.2(b) hereof, and (vii) such other Liens as may be consented to in writing
by the Bank.
10.54 PERSON means an individual or a corporation, limited liability
company, partnership, trust, association, joint venture, joint stock company,
firm or other enterprise or government (or a political subdivision or any
agency, department or instrumentality thereof) or other entity of any kind.
10.55 PLAN means any "employee benefit pension plan" or other "plan"
(including a "multiemployer plan" as defined in Section 3(37) of ERISA)
established or maintained, as to which contributions have been made, by Borrower
or any Subsidiary or Affiliate of Borrower for their respective employees and
which is covered by Title IV of ERISA or to which Section 412 of the Internal
Revenue Code of 1986, as amended applies.
10.56 PREFERRED STOCK, as applied to the Capital Stock of any corporation,
shall mean Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
10.57 PREPAYMENT PREMIUM shall have the meaning set forth in Section
1.4(6).
10.58 PROCEEDING means any suit in equity, action at law or other judicial
or administrative proceeding.
10.59 REPLACEMENT PARTS shall have the meaning set forth in Section 6.2(a)
hereof.
40
<PAGE>
10.60 REQUISITION OF USE shall have the meaning set forth in the
definition of Event of Loss.
10.61 SECURITY AGREEMENT shall mean the Aircraft Security Agreement dated
as of the date hereof between Bank and Borrower.
10.62 SECURITY INSTRUMENT means each of this Agreement, the Security
Agreement and any other instrument, document, financing statement or agreement
with respect to which any right or interest in or with respect to the Collateral
has been Granted to Bank.
10.63 SELLER means Fin 3 Limited, an Irish limited liability company.
10.64 SUBSIDIARY means any corporation more than fifty percent (50%) of
the outstanding voting stock of which at the time is owned directly or
indirectly by a Person and/or one of its Subsidiaries.
10.65 TANGIBLE NET WORTH shall mean, as of any date, (a) the total of all
amounts which would, in accordance with GAAP, be included on a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of such date
as (i) the par or stated value of all outstanding Capital Stock of the Borrower,
(ii) paid-in capital or capital surplus relating to such Capital Stock and (iii)
any retained earnings or earned surplus, less (1) any accumulated deficit and
(2) any amounts attributable to Disqualified Stock MINUS (b) Intangible Assets.
IN WITNESS WHEREOF, the Borrower and the Bank have duly executed this
Agreement.
HAWAIIAN AIRLINES, INC. BANK OF HAWAII
By: /S/ By: /S/
------------------------------- ------------------------------
Its ___________________________ Its __________________________
Bank
By: /S/
-------------------------------
Its ___________________________
Borrower
41
<PAGE>
SCHEDULE A
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii, as Bank
DESCRIPTION OF AIRCRAFT
One (1) McDonnell Douglas DC10-30 Aircraft which consists of the following
components:
(a) airframe: FAA Registration Mark N140AA; manufacturer's serial
no. 46712;
(b) engines: three (3) General Electric CF6-50C2 engines bearing,
respectively, manufacturer's serial nos. 455235, 455297 and 455392 (each of
which engines has 750 or more rated takeoff horsepower or the equivalent of
such horsepower); and
(c) standard accessories and equipment and such other items fitted or
installed on the Aircraft.
<PAGE>
SCHEDULE B
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii, as Bank
PROMISSORY NOTE
_________________ DECEMBER ___, 1998
The undersigned ("Borrower") promises to pay to the order of
__________________ ("Bank") the principal amount of __________________ or so
much thereof as shall have been disbursed by Bank and may remain outstanding,
together with interest on outstanding balances of principal, in accordance with
and under the terms of that certain Aircraft Loan Agreement of even date,
between Bank and Borrower, relating to the Loan therein described.
HAWAIIAN AIRLINES, INC.
By /S/
---------------------------
Its ______________________
By /S/
---------------------------
Its _____________________
Borrower
<PAGE>
SCHEDULE C
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii, as Bank
COMPLIANCE CERTIFICATE
DATE:_______________________
TO: Bank of Hawaii
Attn: Mr. Peter Ho, Vice President
Corporate Bank Hawaii
130 Merchant Street
Honolulu, Hawaii 96813
Facsimile No.: (808) 537-8943
SUBJECT: Aircraft Loan Agreement (the "Agreement") dated December 29,
1998, between BANK OF HAWAII (the "Bank") and HAWAIIAN
AIRLINES (the "Borrower").
Pursuant to Section 4.4(c) of the Agreement, the Borrower hereby certifies
as follows (capitalized terms not defined herein shall have the respective
meanings assigned in the Agreement):
1. The information furnished in Attachment A hereto is true and correct as
the last day of the fiscal quarter preceding the date of this Compliance
Certificate.
2. The financial reports delivered to the Bank concurrently herewith were
prepared in accordance GAAP and fully and fairly present the financial condition
of the Borrower at the dates thereof and the results of operations for the
periods covered thereby, except in the case of quarterly financial reports,
which are subject to changes resulting from normal year-end adjustments, and as
of the date of this certificate, there have been no material adverse changes in
the financial condition or business of the Borrower from the date of the
financial reports delivered concurrently herewith.
3. As of the date hereof, no event has occurred and is continuing that
constitutes an Event of Default or a Default. The Borrower has observed and
performed all of Borrower's covenants and other agreements, and satisfied every
condition, contained in the Agreement and in the other Loan Documents, to be
observed, performed or satisfied by Borrower.
HAWAIIAN AIRLINES
By ______________________
Its
Borrower
<PAGE>
Attachment A
To Compliance Certificate
Dated ___________
FUNDED DEBT TO CASH FLOW RATIO (attach calculation):
Permitted maximum: ___ to one _________________
TANGIBLE NET WORTH (attach calculation):
Required minimum: __________ plus the amount equal to (1) ____ of any
additional equity or capital stock issued by Borrower after June 30,
1998, plus (2) _____ of Net Income (if and only if positive) each
fiscal quarter commencing after June 30, 1998, to and including fiscal
quarter ended ____________ $
----------------------------------
DEBT SERVICE COVERAGE RATIO (attach calculation):
Required minimum: _____ to one for
financial reporting periods through
December 31, 2000 and 2.0 to one
thereafter
----------------------------------
<PAGE>
SCHEDULE D
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii, as Bank
MANUALS AND TECHNICAL RECORDS:
MANUALS
1 FAA APPROVED AIRCRAFT FLIGHT MANUAL
2 AIRCRAFT MAINTENANCE MANUAL
3 AIRCRAFT OVERHAUL MANUAL
4 AIRCRAFT WIRING MANUAL
5 AIRCRAFT STRUCTURAL REPAIR MANUAL
6 AIRCRAFT WEIGHT & BALANCE MANUAL, LOADING MANUAL, BASIS AND SUPPLEMENT
7 MEL & CDL
8 CF6 MAINTENANCE MANUAL
9 CF6 OVERHAUL MANUAL
10 CF6 IPC
11 CF6 SB LIST
12 MAINTENANCE CHECK MANUAL
13 ENGINEERING SPECIFICATION MANUAL
DOCUMENTS
1 CERTIFICATE OF AIRWORTHINESS
2 CERTIFICATE OF REGISTRATION
3 SANITARY CERTIFICATE
RECORDS
1 ALL PREVIOUSLY SUPPLIED AA RECORDS
2 IAI PERFORMED TRANSIT CHECKS
3 IAI PERFORMED A CHECKS
4 IAI PERFORMED B CHECKS
5 VENDOR PERFORMED C CHECKS
6 IAI APPROVED COMPLIANCE AIRWORTHINESS DIRECTIVES RECORDS FOR ENGINES,
AIRFRAME AND APPLIANCES
7 IAI APPROVED COMPLIANCE SERVICE BULLETIN RECORDS FOR ENGINES, AIRFRAME
AND APPLIANCES
8 IAI PREDICTIVE REPORT (REPORT NBR 10) FOR ALL TIME CONTROLLED
TASKS/COMPONENTS
<PAGE>
SCHEDULE E
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii, as Bank
FOREIGN PERMITTED AIR CARRIERS
Aeromexico
British Airways
Canadian Airways
Iberia
Japan Air Lines
Japan Air System
Varig
<PAGE>
SCHEDULE F
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii, as Bank
The Department of Taxation, State of Hawaii (the "DOT"), has been in
discussions with Borrower regarding a potential assessment of general excise tax
payments ("GET") on lease rents paid since 1989 to lessors of DC9 aircraft used
by Borrower intrastate. Pursuant to the respective leases, Borrower as lessee
would be liable for such assessment. Borrower has asserted that any such
assessment would be relevant only to lease rent paid under operating leases (not
capitol leases), that Borrower would not be liable for any assessment for
periods prior to its 1994 discharge in bankruptcy, and that any assessment would
be subject to various other defenses. The DOT has recently indicated that
capitol leases may be treated as sale transactions, also subject to GET.
The matter is under negotiation with the DOT.
<PAGE>
ANNEX A
TO
AIRCRAFT LOAN AGREEMENT
Dated December 29, 1998
between
Hawaiian Airlines, Inc., as Borrower, and
Bank of Hawaii,
as Bank
CLOSING DOCUMENTS
1. The original of the Note;
2. The original of the Loan Agreement;
3. The original of the Security Agreement;
4. Copies of the Bills of Sale;
5. The FAA Aircraft Registration Application; and
6. Uniform Commercial Code filings as deemed appropriate by Bank's counsel
duly executed by Borrower and necessary third parties.
<PAGE>
Private & Confidential
DATED: NOVEMBER 18, 1998
FIN 3 LIMITED
-and-
HAWAIIAN AIRLINES INC
AIRCRAFT SALE AND PURCHASE AGREEMENT
for one McDonnell Douglas DC10 Aircraft
Manufacturer's Serial No. 46713
NORTONROSE
London
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
CLAUSE HEADING PAGE
- ------ ------- ----
<S> <C>
1 Definitions and Interpretation. . . . . . . . . . . . . . . . . . . . . 1
2 Agreement to sell . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 Condition of Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . 5
4 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5 Delivery and acceptance . . . . . . . . . . . . . . . . . . . . . . . . 7
6 Manufacturer's warranties . . . . . . . . . . . . . . . . . . . . . . . 8
7 Deposit and Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 8
8 Conditions precedent. . . . . . . . . . . . . . . . . . . . . . . . . . 9
9 Extent of liability . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12 Excusable delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13 Mandatory modifications . . . . . . . . . . . . . . . . . . . . . . . . 15
14 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15 Costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
19 Law and Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE>
AN AGREEMENT dated 19 BETWEEN:
(1) FIN 3 LIMITED, an Irish limited liability company whose registered office
is at WIL House, Shannon Business Park, Co. Clare, Ireland (the
"SELLER"); and
(2) HAWAIIAN AIRLINES INC. whose office is at 3375 Koapaka Street, Suite
G-350, Honolulu, Hawaii 96819 (the "BUYER").
BY WHICH IT IS AGREED as follows:
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires:
"ACCEPTANCE CERTIFICATE" means a certificate of acceptance of the
technical condition of the Aircraft in the form set out in schedule 2 to
be executed by the Buyer and delivered to the Seller in accordance with
clause 5.2;
"AIRCRAFT" means the aircraft described in Schedule 1 Part A including
the airframe, the Engines and all appliances, parts, accessories,
instruments, navigational and communications equipment, furnishings,
modules, components and other items of equipment (including a full
shipset of galley carts) installed on such aircraft at Delivery. Where
the context permits, references to the "Aircraft" shall (a) include the
Manuals and Technical Records and (b) mean such aircraft as a whole and
any part thereof;
"AVIATION AUTHORITY" means the United States Federal Aviation
Administration and each person who is vested with the control and
supervision of, or has jurisdiction over, the registration, airworthiness
or operation of aircraft or other matters relating to civil aviation in
the United States of America;
"BANKRUPTCY EVENT" shall mean, with respect to any party, the occurance
of any of the following with respect to such party; (a) a court or
governmental agency having jurisdiction in the premises shall enter a
decree or order for relief in respect of such party in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or appointing a
1
<PAGE>
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such party or for any substantial part of its
property or ordering the winding up or liquidation of its affairs; or
(b) there shall be commenced against such party an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or any case, proceeding or other action for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such party or for any substantial
part of its property or for the winding up or liquidation of its
affairs, and such involuntary case or other case, proceeding or other
action shall remain undismissed, undischarged or unbonded for a period
of sixty (60) consecutive days; or (c) such party shall commence a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of an
order for relief in an involuntary case under any such law, or consent
to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of such
party or for any substantial part of its property or make any general
assignment for the benefit of creditors; or (d) such party shall be
unable to, or shall admit in writing its inability to, pay its debts
generally as they become due.
"BILL OF SALE" means a bill of sale substantially in the form set out in
schedule 4;
"BUYER" includes the successors and permitted assignees of the Buyer;
"DELIVERY" means the time at which the Buyer shall obtain title to the
Aircraft in accordance with clause 5.3;
"DEPOSIT" means the sum of __________________________;
"DOLLARS" and "$" mean the lawful currency of the United States of
America and, in respect of all payments to be made under this Agreement
in Dollars, mean funds which are for same day settlement in the New York
Clearing House Interbank Payments System (or such other U.S. dollar funds
as may at the relevant time be customary for the settlement of
international banking transactions denominated in United States dollars);
2
<PAGE>
"ENCUMBRANCE" means any mortgage, charge (whether fixed or floating),
pledge, lien, hypothecation, assignment, trust arrangement or security
interest of any kind securing any obligation of any person or any other
type of preferential arrangement (including, without limitation, title
transfer and retention arrangements having a similar effect);
"ENGINES" means the three General Electric Model CF6-50C2 engines
described in Schedule 1 Part A together with all equipment and
accessories belonging to, installed in or appurtenant to such engines;
"ESCROW AGENT" means Daugherty Fowler and Peregrin of 204 North Robinson,
Suite 900, Oklahoma City, Oklahoma 73102 acting in its capacity as Escrow
Agent pursuant to the Escrow Agreement;
"ESCROW AGREEMENT" means the Escrow Agreement of even date herewith and
made between the Escrow Agent, AGES Aircraft Sales & Leasing L.P., the
Seller and the Buyer;
"GOVERNMENT ENTITY" means and includes (whether having a distinct legal
personality or not) (i) any national government, political sub-division
thereof, or local jurisdiction therein; (ii) any board, commission,
department, division, organ, instrumentality, court or agency of any
entity referred to in (i) above, however constituted; and (iii) any
association, organisation or institution (international or otherwise) of
which any entity mentioned in (i) or (ii) above is a member or to whose
jurisdiction any thereof is subject or in whose activities any thereof is
a participant;
"MANUALS AND TECHNICAL RECORDS" means all records, logs, manuals,
technical data and other materials and documents (whether kept or to be
kept in compliance with any regulation of the Aviation Authority or
otherwise) relating to the Aircraft details of which are listed in
schedule 3 and satisfy the intent of FAR 121-380;
3
<PAGE>
"PROPOSED DELIVERY DATE" means February 16, 1999 or such other date as
determined by this Agreement, or as may be agreed in writing between the
Seller and the Buyer as being the date on which Delivery shall occur;
"PURCHASE PRICE" means the sum of ________________________________;
"SELLER" includes the successors and permitted assignees of the Seller;
1.2 Clause headings and the table of contents are inserted for convenience of
reference only, have no legal effect and shall be ignored in the
interpretation of this Agreement.
1.3 In this Agreement, unless the context otherwise requires:
(a) references to clauses and schedules are to be construed as
references to the clauses of, and schedules to, this Agreement and
references to this Agreement include its recitals (if any) and
schedules;
(b) references to (or to any specified provision of) this Agreement or
any other document shall be construed as references to this
Agreement, that provision or that document as in force for the time
being and as from time to time amended in accordance with the terms
thereof or, as the case may be, with the agreement of the relevant
parties;
(c) references to a "regulation" include any present or future
regulation, rule, directive, requirement, request or guideline
(whether or not having the force of law) of any agency, authority,
central bank or governmental department or any self-regulatory or
other national or supra-national authority;
(d) words importing the plural shall include the singular and vice
versa and words importing a gender shall include any gender;
(e) references to a person shall be construed as including references
to an individual, firm, company, corporation, unincorporated
association or body of persons and any Government Entity; and
4
<PAGE>
(f) references to any enactment shall be deemed to include references
to such enactment as re-enacted, amended or extended.
2 AGREEMENT TO SELL
2.1 The Seller agrees to sell and the Buyer agrees to buy and accept delivery
of the Aircraft upon and subject to the terms and conditions of this
Agreement, free from all Encumbrances, in consideration of the payment by
the Buyer to the Seller of the Purchase Price.
3 CONDITION OF AIRCRAFT
3.1 When the Aircraft is tendered for delivery by the Seller (which shall not
occur prior to the Proposed Delivery Date) the Aircraft
(a) shall comply in all material respects with the specification
description and delivery condition set out in schedule 1 (save only
for such minor matters as shall not materially and adversely affect
the value or airworthiness of such Aircraft); and
(b) subject to clause 13.1, the Aircraft shall have incorporated all
modifications, airworthiness directives and service bulletins
issued prior to Delivery the fitment, satisfaction or termination
of which on or prior to the date falling six (6) months after
Delivery shall be mandatory under the requirements of the Aviation
Authority;
3.2 The Aircraft may be delivered with tanks empty, but if on Delivery the
tanks are not empty the Buyer shall forthwith pay to the Seller the cost
to the Seller of such fuel as shall then be present in the tanks.
4 INSPECTION
4.1 The Buyer or its authorised representative (nominated by notice from the
Buyer to the Seller) may inspect the Aircraft on the ground at Goodyear
Airport, Phoenix, Arizona and may inspect the Manuals and Technical
Records during the five days immediately preceding the Proposed Delivery
Date, but such
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inspection shall be carried out so as not to delay, obstruct or hinder the
use of the Aircraft or the performance by the Seller of any obligation
under this Agreement.
4.2 The Seller shall arrange for a test flight to be carried out on the
Aircraft from Goodyear Airport, Phoenix, Arizona not more than five days
prior to the Proposed Delivery Date. The test flight shall be carried out
by crew appointed by the Seller and under the command of a pilot
appointed by the Seller. The duration of the test flight shall not
exceed two hours and the Buyer may designate up to three persons to
participate in the test flight as observers. The test flight shall be
carried out at the expense of the Buyer and during the test flight the
flight crew shall accomplish such flight procedures as are set out in the
test flight manual.
4.3 The Buyer shall within two days after the completion of the inspection(s)
referred to in clause 4.1 and the test flight referred to in clause 4.2,
but no later than the Proposed Delivery Date, notify the Seller of any
failure of the Aircraft to comply with the terms of this Agreement. In
the event of any dispute between the Seller and the Buyer arising under
this clause 4.3 as to the existence of any defect or fault, the same
shall be referred to Joseph Pettigrew of Cavtech (the "EXPERT") for
resolution. The determination of the Expert shall be final and binding
on the parties and all costs and expenses relating thereto shall be borne
by the party against whom the Expert has found.
4.4 Subject as provided below, if the Buyer notifies the Seller, in
accordance with clause 4.3, that the Aircraft has failed to complete
satisfactorily the test flight described in clause 4.2 or otherwise has
failed to comply with the requirements of this Agreement, the Seller
shall if so requested by the Buyer, as soon as practicable, use all
reasonable efforts to carry out any necessary repairs or modifications
to, or work on, the Aircraft to the Seller's approved maintenance
standards and operation specifications and the Seller shall, if requested
by the Buyer, present the Aircraft for a further inspection and/or test
flight, when the
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procedures described in clause 4.2 will again apply, provided always
that where the repairs or modifications to, or work on, the Aircraft are:
(a) in the Seller's reasonable opinion likely to cost, in aggregate, in
excess of ______________ or that the costs involved together with
(1) the costs previously incurred under this clause 4.4 and clause
13.1 and/or (2) costs expected to be incurred under clause 13.1
(from known mandatory airworthiness directives or service bulletins
on or after the date of this Agreement) are likely to exceed
_____________ the Seller may, by notice to the Buyer, terminate its
obligation to sell the Aircraft to the Buyer; or
(b) in the Seller's reasonable opinion likely to take longer than one
month to complete from and including February 16, 1999;
then the Buyer may terminate its obligation to buy and accept delivery of
the Aircraft upon giving the Seller notice to that effect. Upon a
termination in accordance with this clause 4.4, the full Deposit for the
Aircraft shall be returned to the Buyer in accordance with the terms of
the Escrow Agreement but the Seller shall have no other obligation to the
Buyer.
5 DELIVERY AND ACCEPTANCE
5.1 Subject to the satisfaction or waiver of the conditions referred to in
clause 8, delivery of the Aircraft shall take place at Goodyear Airport,
Phoenix, Arizona, or at such other place as the Seller and the Buyer may
agree in writing.
5.2 When the inspection and test flight have been completed without any
defects being agreed in accordance with clause 4.3, or after the Seller
has remedied any such defect in accordance with clause 4.4 then, subject
to the terms and conditions of this Agreement, the Seller shall tender
the Aircraft for delivery (which, for the avoidance of doubt, shall not
occur prior to the Proposed Delivery Date) and the Buyer shall execute
and deliver to the Seller the Acceptance Certificate and pay to the
Seller the Purchase Price less the amount of the Deposit.
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5.3 Upon receipt by the Seller of the Acceptance Certificate and payment of
the Purchase Price (less the amount of the Deposit) the Seller shall
execute and deliver to the Buyer a Bill of Sale whereupon all the
Seller's rights, title and interest in and to, and all risk whatsoever
and howsoever arising in, the Aircraft shall pass from the Seller to the
Buyer and the Seller shall forthwith deliver the Aircraft (including the
Manuals and Technical Records) to the Buyer.
6 MANUFACTURER'S WARRANTIES
6.1 The Seller hereby assigns to the Buyer with effect from Delivery all
subsisting assignable manufacturers' and suppliers' warranties (if any)
relating to the Aircraft and each part thereof. The Seller undertakes
upon written request by the Buyer from time to time to use reasonable
endeavours to obtain any consents for such assignments that may be
necessary from the manufacturers or the suppliers. If any of such
warranties shall not be assignable, or if consent to assignment shall be
refused, then subject to receipt by the Seller of an indemnity from the
Buyer in such form as may be reasonably satisfactory to the Seller as to
costs and expenses to be incurred, the Seller will take such action as
the Buyer may reasonably request to enforce any such manufacturers' or
suppliers' warranties.
7 DEPOSIT AND PAYMENTS
7.1 The Buyer shall, subject to the terms and conditions of this Agreement,
pay to the Seller on the date of this Agreement the amount of the Deposit
which shall be held by the Escrow Agent in accordance with the terms of
the Escrow Agreement. Such amount shall be applied by the Seller on
Delivery in part satisfaction of the Purchase Price. In the event of the
non-delivery of the Aircraft, the Deposit shall be released to the Seller
in accordance with the terms of the Escrow Agreement, otherwise than in
the circumstances referred to in clauses 4.4, 13.1, 14.1, 14.2, 14.3,
14.4 or 14.5 (in the case of a termination by the Buyer) in which case
the amount of the Deposit for the Aircraft shall be returned to the Buyer
in accordance with the terms of the Escrow Agreement.
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7.2 All payments to be made under this Agreement by the Buyer to the Seller
shall be made in Dollars in full, without any set-off or deduction on
account of taxes or otherwise, in immediately available funds, so that
the Seller receives credit for the full amount of such payment on the due
date, to the account of the Seller at Allied Irish Bank, PO Box 518,
IFSC, Dublin 1, Ireland, Ref. AIBKIE2D Account Number ________________ or
to such other account as the Seller may notify to the Buyer in writing.
8 CONDITIONS PRECEDENT
8.1 In respect of the Aircraft the obligation of the Seller to sell and
deliver the Aircraft to the Buyer is subject to the following conditions
being fulfilled to the satisfaction of the Seller:
(a) the Aircraft having been redelivered to the Seller by Transaero
Airlines;
(b) title to the Aircraft having been transferred to the Seller by AGES
Aircraft Sales & Leasing LP or Wilmington Trust Company;
(c) a copy certified by an officer of the Buyer to be a true, complete
and up-to-date copy, of the By-Laws of the Buyer being delivered to
the Seller;
(d) a copy, certified by an officer of the Buyer to be a true copy, and
as being in full force and effect and not amended or rescinded, of
the resolutions of the Board of Directors of the Buyer evidencing
approval of this Agreement and authorising its appropriate officers
to execute and deliver this Agreement and to give all notices and
take all other action on behalf of the Buyer under or for the
purposes of this Agreement being delivered to the Seller;
(e) specimen signatures authenticated by an officer of the Buyer of the
persons authorised in the resolutions of the Board of Directors of
the Buyer referred to in clause 8.1(d) being delivered to the
Seller;
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(f) an insurance certificate evidencing the insurance required by
clause 11 being delivered to the Seller;
(g) the Buyer having executed and delivered to the Seller the
Acceptance Certificate in accordance with clause 5.2; and
(h) the Buyer having paid the Purchase Price to the Seller in
accordance with clause 7.
8.2 The obligations of the Buyer to purchase and take delivery of the
Aircraft from the Seller are subject to:
(a) the Aircraft being tendered for delivery by the Seller in the
condition required by this Agreement;
(b) a certified copy of each of the current Certificate of
Airworthiness (Transport Category (Passenger)) and the Certificate
of Registration for the Aircraft issued by Aviation Authority being
delivered to the Buyer;
(c) a copy certified by an officer of the Seller to be a true, complete
and up-to-date copy, of the Memorandum and Articles of Association
of the Seller being delivered to the Buyer;
(d) a copy, certified by an officer of the Seller to be a true copy,
and as being in full force and effect and not amended or rescinded,
of the resolutions of the Board of Directors of the Seller
evidencing approval of this Agreement and authorising its
appropriate officers to execute and deliver this Agreement and to
give all notices and take all other action on behalf of the Seller
under or for the purposes of this Agreement being delivered to the
Buyer; and
(e) specimen signatures authenticated by an officer of the Seller of
the persons authorised in the resolutions of the Board of Directors
of the Seller referred to in clause 8.2(d) being delivered to the
Buyer.
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9 EXTENT OF LIABILITY
9.1 The Seller warrants to the Buyer that:
(a) immediately prior to Delivery the Seller will have legal and
beneficial title to the Aircraft free from all Encumbrances and
will have full power and lawful authority to transfer that title to
the Buyer free from all Encumbrances, and
(b) on Delivery the Aircraft will be free from all Encumbrances.
9.2 The Buyer acknowledges that it will have adequate opportunity to inspect
and test the Aircraft before Delivery, and to evaluate the state and
condition of such Aircraft, and that the Buyer's delivery of the signed
Acceptance Certificate to the Seller shall be conclusive evidence for all
purposes that the Aircraft is satisfactory and in accordance with the
requirements of this Agreement.
9.3 The Buyer expressly agrees and acknowledges that save only as provided in
clause 9.1, NO CONDITION, WARRANTY OR REPRESENTATION OF ANY KIND IS OR
HAS BEEN GIVEN BY OR ON BEHALF OF THE SELLER IN RESPECT OF THE AIRCRAFT
OR ANY PART THEREOF, AND ACCORDINGLY THE BUYER CONFIRMS THAT IT HAS NOT,
IN ENTERING INTO THIS AGREEMENT, RELIED ON ANY CONDITION, WARRANTY OR
REPRESENTATION BY THE SELLER OR ANY PERSON ON THE SELLER'S BEHALF,
EXPRESS OR IMPLIED, WHETHER ARISING BY LAW OR OTHERWISE IN RELATION TO
THE AIRCRAFT OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OR REPRESENTATIONS AS TO THE DESCRIPTION, AIRWORTHINESS,
SUITABILITY, QUALITY, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, VALUE,
STATE, CONDITION, APPEARANCE, SAFETY, DURABILITY, DESIGN OR OPERATION OF
ANY KIND OR NATURE OF THE AIRCRAFT OR ANY PART THEREOF, AND THE BENEFIT
OF ANY SUCH CONDITION, WARRANTY OR REPRESENTATION BY THE SELLER IS HEREBY
IRREVOCABLY AND
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UNCONDITIONALLY WAIVED BY THE BUYER. TO THE EXTENT PERMISSIBLE UNDER
APPLICABLE LAW, THE BUYER HEREBY ALSO WAIVES ANY RIGHTS WHICH IT MAY
HAVE IN TORT IN RESPECT OF ANY OF THE MATTERS REFERRED TO ABOVE AND
IRREVOCABLY AGREES THAT THE SELLER SHALL HAVE NO GREATER LIABILITY IN
TORT IN RESPECT OF ANY SUCH MATTER THAN IT WOULD HAVE IN CONTRACT AFTER
TAKING ACCOUNT OF ALL OF THE FOREGOING EXCLUSIONS. NO THIRD PARTY
MAKING ANY REPRESENTATION OR WARRANTY RELATING TO THE AIRCRAFT OR ANY
PART THEREOF IS THE AGENT OF THE SELLER NOR HAS ANY SUCH THIRD PARTY
AUTHORITY TO BIND THE SELLER THEREBY. NOTWITHSTANDING ANYTHING
CONTAINED ABOVE, NOTHING CONTAINED HEREIN IS INTENDED TO OBVIATE, REMOVE
OR WAIVE ANY RIGHTS OF WARRANTY OR OTHER CLAIMS RELATING THERETO WHICH
THE BUYER OR THE SELLER MAY HAVE AGAINST THE MANUFACTURER OR SUPPLIER OF
THE AIRCRAFT OR ANY THIRD PARTY.
9.4 Except for Seller's obligations to Simat, Helliesen & Eichner, Inc.
("SH&E"), neither party has any obligation in respect of any finder's
broker's, investment banking or other similar fee in connection with any
of the transactions contemplated by this Agreement. Seller shall be
solely responsible (and Buyer shall have no obligation), for any amounts
due to SH&E with respect to the transactions contemplated hereby.
9.5 In no event whether as a result of breach of contract, warranty, tort
(including negligence), strict liability or otherwise shall either party
be liable to the other hereunder for any consequential or indirect loss
or damages, including loss of revenues, profits or goodwill, or any
special or incidental damages. Excluding any liability of the Buyer
under Clause 10.1 the total aggregate liability of the Buyer with respect
to any and all claims of the Seller arising out of the performance or non
performance of the Buyer's obligations, whether based on contract,
warranty, tort (including negligence), strict liability or otherwise
shall
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not exceed the amount of the Deposit and the Seller agrees that it
shall look solely to the Deposits for payment of any such claims.
10 INDEMNITY
10.1 The Buyer agrees to indemnify and hold harmless the Seller and its
shareholders, affiliates, directors, officers, servants, agents and
employees from and against all costs, expenses, payments, charges,
losses, demands, liabilities, claims, actions, proceedings, penalties,
fines, damages, judgments, orders or other sanctions (in this clause 10
together referred to as "LOSSES"):
(a) relating to, or arising directly or indirectly in any manner or for
any cause or reason whatsoever out of, the condition, testing,
delivery, design, manufacture, purchase, import, export,
registration, ownership, possession, control, use, leasing,
sub-leasing, operation, insurance, maintenance, repair,
refurbishment, service, storage, modification, overhaul,
replacement, removal or disposal of the Aircraft, or loss of or
damage to the Aircraft, or otherwise in connection with the
Aircraft or relating to loss or destruction of or damage to any
property, or death or injury of, or other loss of whatsoever nature
suffered by, any person caused by, relating to, or arising from or
out of (in each case whether directly or indirectly) any of the
foregoing matters sustained, brought or incurred at any time after
title to the Aircraft has passed to the Buyer in accordance with
this Agreement; and
(b) which may, after title to the Aircraft has passed to the Buyer in
accordance with this Agreement, be made or brought on the ground
that any design, article or material in the Aircraft or the
operation or use thereof constitutes an infringement of patent or
other intellectual property right or any other right whatsoever;
provided always that such indemnity shall be without prejudice to any of
the Seller's other rights under this Agreement.
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10.2 Buyer shall indemnify and hold harmless the Seller and its shareholders,
affiliates, directors, officers, agents, servants, and employees from and
against any and all Losses arising by reason of death or injury to any
employee of Buyer, arising out of, or in any way connected with the
inspection and test flight of the Aircraft referred to in clause 4.
11 INSURANCE
11.1 The Buyer undertakes and agrees with the Seller that as from Delivery and
throughout the period of three years thereafter the insurance policies
effected in relation to the Aircraft shall include provisions whereby:
(a) the Seller, AGES Aircraft Sales & Leasing LP, Wilmington Trust
Company and American Airlines Inc shall be named as additional
assured to each and every one of the aircraft third party,
passenger, baggage, cargo, mail and airline general third party
liability insurance policies effected in relation to the Aircraft
to the extent of the Buyer's indemnity set forth in clause 10.1,
and
(b) the insurers under any hull insurance policy for the Aircraft shall
waive all rights of subrogation against the Seller, AGES Aircraft
Sales & Leasing LP, Wilmington Trust Company and American Airlines
Inc.
11.2 The Buyer further undertakes and agrees with the Seller that the Buyer
shall when requested by the Seller from time to time (which shall be no
more frequently than once per calendar year unless the Seller reasonably
believes that the Buyer is no longer complying with its obligations set
out in Clause 11.1) produce to the Seller such certificate or other
evidence as the Seller may reasonably require to show that the Buyer has
complied with the obligations set forth in clause 11.1, and the Buyer
acknowledges and agrees that such obligations shall continue whether or
not the Aircraft remains in the possession, or the property, of the
Buyer.
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12 EXCUSABLE DELAY
12.1 Without prejudice to clause 4.6, the Seller shall not be liable for any
delay or failure to deliver the Aircraft or the performance of any other
obligation under this Agreement where such failure or delay is the result
of any cause or matter beyond the Seller's reasonable control, and for
the purposes of this clause 12.1, mechanical failure of the Aircraft or
the conditions precedent referred to in clauses 8.1(a) or (b) shall,
inter alia, be deemed to be a cause or matter beyond the Seller's
reasonable control.
12.2 If between the date of this Agreement and Delivery the Aircraft or any
part thereof suffers damage which in the Seller's opinion is repairable,
then the Seller shall notify the Buyer in writing of such damage and,
subject to clauses 4.4, 13.1, 14.1, 14.2 and 14.3 shall use all
reasonable efforts to repair such damage as soon as practicable. Upon
completion of such repairs, the Buyer shall purchase the Aircraft and
take delivery of the Aircraft in accordance with clause 5.2. The time
taken to effect any such repairs shall be deemed to be an excusable delay
for the purposes of this Agreement and the Proposed Delivery Date shall
be extended accordingly.
13 MANDATORY MODIFICATIONS
13.1 If the incorporation before the date referred to in clause 3.1(b) of any
airworthiness directive or service bulletin relating to the Aircraft is
made mandatory by the Aviation Authority after the date of this Agreement
but before Delivery then the Seller shall notify the Buyer in writing and
if in the Seller's reasonable opinion the aggregate cost of all such
modifications is likely to exceed ____________ or that the costs involved
together with (1) the costs previously incurred under this clause 13.1
and clause 4.4 and/or (2) costs expected to be incurred under clause 4.4
are likely to exceed ____________ then unless the Buyer elects to take
the Aircraft without the modification, or unless the Seller and the Buyer
otherwise agree in writing, the Seller shall be entitled to terminate its
obligation to sell the Aircraft to the Buyer by giving notice to the
Buyer to that effect. Upon a termination in accordance with this
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clause 13.1, the full amount of the Deposit for the Aircraft shall be
released to the Buyer in accordance with the terms of the Escrow Agreement
but the Seller shall have no other obligation to the Buyer.
13.2 Any delay in tendering delivery of the Aircraft attributable to the
carrying out of any mandatory modification referred to in clause 13.1
shall be deemed to be due to a reason beyond the Seller's reasonable
control, the provisions of clause 12.1 shall apply and the time taken to
effect any such repairs shall be deemed to be an excusable delay for the
purposes of this Agreement and the Proposed Delivery Date shall be
extended accordingly. The Seller shall not be liable for any effect upon
the value, performance or airworthiness of the Aircraft which may be
attributable directly or indirectly to any such mandatory modification,
and notwithstanding anything to the contrary which may be contained in or
implied by this Agreement, the Buyer shall be bound to accept delivery of
the Aircraft as so modified.
14 TERMINATION
14.1 If as a result of any cause:
(a) delivery of the Aircraft is delayed for a period of more than one
month calculated from and including February 16, 1999; or
(b) if prior to Delivery Aircraft suffers repairable damage which in
the reasonable opinion of the Seller, is likely to take more than
one month to repair from and including February 16, 1999; then
the Buyer may terminate its obligation to buy and accept delivery of the
Aircraft upon giving the Seller notice to that effect.
14.2 If (a) as a result of any cause or matter beyond the Seller's reasonable
control as referred to in clause 12.1, delivery of the Aircraft is
delayed for a period of more than three months from and including
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February 16, 1999 the Seller may notify the Buyer of its election (subject
to no Extension Period being required by the Buyer) to terminate its
obligation to sell the Aircraft to the Buyer on a specified date no less
then ten days (a "TERMINATION DATE") following the date of such notice to
the Buyer. Unless the Buyer shall agree in writing within seven days of
receipt of such notice from the Seller to waive its rights to terminate
its obligation to buy and accept delivery of the Aircraft under clauses
4.4(b) and 14.1 for a period (an "EXTENSION PERIOD") ending (subject as
provided below) no earlier than thirty days after (1) the date of such
notice in the case of subclause (a) above or (2) the date on which the
Seller reasonably expects the Aircraft to be repaired in the case of
subclause (b) above, the Seller's obligation to sell the Aircraft to the
Buyer will terminate on the Termination Date. The Buyer may extend the
Extension Period from time to time by a notice in writing to the Seller,
such notice to be given no less than five days before the expiry of the
Extension Period. Where the Buyer has required an Extension Period, the
Seller's obligation to sell the Aircraft to the Buyer shall terminate on
the day succeeding the last day of the Extension Period. Notwithstanding
the above, no Extension Period (or extended Extension Period) shall
continue or be capable of continuing beyond September 1, 1999. Upon
termination in accordance with clause 14.1, or this clause 14.2 the full
Deposit for the Aircraft shall be released to the Buyer in accordance
with the terms of the Escrow Agreement but the Seller shall have no other
obligation to the Buyer.
14.3 If before Delivery the Aircraft is lost or destroyed, or suffers
substantial damage which in the Seller's opinion it would be uneconomical
to repair, or is requisitioned by any Government Entity, the Seller shall
promptly notify the Buyer of such occurrence, whereupon this Agreement
shall be deemed to have been terminated and upon such termination the
full Deposit for the Aircraft shall be released to the Buyer pursuant to
the terms of the Escrow Agreement but the Seller shall have no other
obligation to the Buyer.
14.4 Without prejudice to any other remedies then available to it each party
shall have the right to terminate this Agreement forthwith by notice to
the other party if:
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(a) a Bankruptcy Event occurs with respect to the other party; or
(b) there occurs, in relation to the other party in any country or
territory in which it carries on business, or to the jurisdiction
of whose courts any part of its assets is subject, any event which
appears in that country or territory to correspond with, or have an
effect equivalent or similar to, any of the events mentioned in (a)
above or such party otherwise becomes subject in any such country
or territory to the operation of any law relating to insolvency,
bankruptcy or liquidation;
and on such termination, the full Deposit for the Aircraft shall be
released to the terminating party pursuant to the terms of the Escrow
Agreement but the non-terminating party shall have no other obligation to
the terminating party.
14.5 If the Buyer shall fail to satisfy the conditions set out in clause 8.1
on or prior to the Proposed Delivery Date, or shall fail to take delivery
of the Aircraft when it is tendered for delivery in accordance with this
Agreement, or shall fail to pay the Deposit and the balance of the
Purchase Price or any other payment under this Agreement when due or any
part thereof, the Seller may by notice to the Buyer terminate its
obligation to sell the Aircraft to the Buyer and on such termination the
full Deposit for the Aircraft shall be released to the Seller pursuant to
the terms of the Escrow Agreement but the Buyer shall have no other
obligation to the Seller.
15 COSTS AND EXPENSES
15.1 All payments to be paid under this Agreement are expressed exclusive of
value added tax, sales tax and any similar tax on added value or on
turnover and if any value added tax, sales tax or any such similar tax is
chargeable on any amount payable by the Buyer to the Seller under this
Agreement, the payment due from the Buyer shall be increased to an amount
which, after deduction therefrom of the value added tax, sales tax or
similar tax payable, will leave the Seller in receipt of an amount equal
to the amount which would have been payable had no such value added tax,
sales tax or similar tax been imposed, save that the
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requirement for the Buyer to increase payments pursuant to this
clause 15.1 shall not apply with respect to any sales taxes imposed by
the Republic of Ireland in connection with the sale of the Aircraft to
the Buyer.
15.2 The Buyer shall pay all stamp, documentary, registration or other like
duties or taxes (including any payable by the Seller) imposed on or in
connection with this Agreement, the Bill of Sale, the Acceptance
Certificate or the sale of the Aircraft pursuant thereto.
15.3 Each party shall be responsible for its own costs and expenses
(including legal, printing and out-of-pocket expenses) together with any
value added tax or similar tax properly payable in respect thereof,
incurred by it in connection with the negotiation, preparation and
execution of this Agreement.
15.4 Notwithstanding anything to the contrary contained in this Agreement, the
obligations of the parties contained in this clause 15 shall continue in
full force and effect notwithstanding the termination of this Agreement,
or the termination of any other of either party's obligations under this
Agreement, for any reason.
16 NOTICES
16.1 Save as otherwise expressly provided in this Agreement, every notice,
request, demand or other communication under this Agreement shall:
(a) be in writing delivered personally or by first class prepaid letter
(airmail if available), or by telex or facsimile;
(b) be deemed to have been received, subject as otherwise provided in
this Agreement, in the case of a facsimile upon confirmation of
safe receipt thereof, in the case of a telex, at the time of
despatch with confirmed answerback of the addressee appearing at
the beginning and end of the communication (provided that, if the
time of despatch is not within normal business hours on a business
day in the country of the addressee it shall be deemed to have been
received at the opening of business on
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the next such business day), and in the case of a letter, when
delivered personally or 3 days after it has been put into the post;
(c) be sent:
(i) to the Seller at:
WIL House
Shannon Business Park
Co. Clare, Ireland
Fax: ____________
(Attention Company Secretary
copy to:
The AGES Group LP
645 Park of Commerce Way
Boca Raton
Florida 33487
USA
Attention: Chief General Counsel
Fax: _______________
Tel: _______________
(ii) to the Buyer at:
3375 Koapaka Street
Suite G-350
Honolulu
Hawaii 96819
Fax: _______________
(Attention Vice President - Finance)
Copy: General Counsel
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or to such other address, telex or facsimile number as is notified by one
party to the other under this Agreement.
17 ASSIGNMENT
17.1 Neither party may assign any of its rights or duties under this Agreement
except with the other party's prior consent in writing, which consent
shall not be unreasonably withheld:
(a) in the case of any assignment by the Seller of its right to receive
the Purchase Price, or
(b) in the case of any assignment by the Buyer of its right to obtain
title to the Aircraft, where such assignment is required in
connection with the Buyer's financing of its purchase of the
Aircraft under this Agreement and is on terms whereby the Buyer
will remain fully liable to the Seller notwithstanding any default
by the assignee.
18 MISCELLANEOUS
18.1 This Agreement and the Escrow Agreement contains the entire agreement and
understanding between the Seller and the Buyer relating to the sale and
purchase of the Aircraft, and the terms and conditions of this Agreement
shall not be varied otherwise than by an instrument in writing of even
date herewith or subsequent hereto executed by or on behalf of each of
the Seller and the Buyer.
18.2 No failure or delay on the part of either party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise of any such right, power or
remedy. The rights and remedies provided in this Agreement are
cumulative and are additional to, and not exclusive of, any rights or
remedies provided by law or otherwise.
18.3 All certificates, instruments and other documents to be delivered under
or supplied in connection with this Agreement shall be in the English
language or
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shall be accompanied by a certified English translation upon which the
recipient shall be entitled to rely.
18.4 This Agreement may be entered into in the form of any number of
counterparts, each executed by at least one of the parties and, provided
that all the parties shall so enter into this Agreement, each of the
executed counterparts, when duly exchanged or delivered, shall be deemed
to be an original but, taken together, they shall constitute one
instrument.
18.5 Each provision of this Agreement is severable and distinct from the
others and, if any provision is or at any time becomes to any extent or
in any circumstances invalid, illegal or unenforceable for any reason, it
shall to that extent or in those circumstances, be deemed not to form
part of this Agreement but (except to that extent or in those
circumstances in the case of that provision) the validity, legality and
enforceability of that and all other provisions of this Agreement shall
not be affected or impaired, it being the parties' intention that every
provision of this Agreement shall be and remain valid and enforceable to
the fullest extent permitted by law.
18.6 No provision of this Agreement is intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
19 LAW AND JURISDICTION
19.1 This Agreement is governed by and shall be construed in accordance with
the laws of the State of New York, without regard to the conflict of laws
rule of such state.
19.2 (a) Each of the Seller and the Buyer irrevocably agrees that any legal
action or proceedings in connection with this Agreement or the
Escrow Agreement against the other or any of its assets may be
brought in the courts of the State of New York in New York County,
or of the United States for the Southern District of New York, and,
by execution and delivery of this Agreement, each of the parties
hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally,
22
<PAGE>
the non-exclusive jurisdiction of such courts. Each of the parties
further irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by
the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at the address set forth for notices
pursuant to clause 16.1, such service to become effective three
(3) days after such mailing. Nothing herein shall affect the
right of either party to serve process in any other manner
permitted by law or to commence legal proceedings or to otherwise
proceed against any party in any other jurisdiction.
(b) Each of the parties hereto irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection
with this Agreement or the Escrow Agreement brought in the courts
referred to in sub-clause (a) above and hereby irrevocably waives
and agrees not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought in
an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE BUYER AND THE SELLER,
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE ESCROW AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
19.3 Each party agrees that in any legal action or proceedings against it or
its assets in connection with this Agreement no immunity from such legal
action or proceedings (which shall include, without limitation, suit,
attachment prior to judgment, other attachment, the obtaining of
judgment, execution or other enforcement) shall be claimed by or on
behalf of such party or with respect to its assets, irrevocably waives
any such right of immunity which it or its assets now have or may
hereafter acquire or which may be attributed to it or its assets and
consents generally in respect of any such legal action or proceedings to
the giving of any relief or the issue of any process in connection with
such action or proceedings including, without limitation, the making,
enforcement or execution
23
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against any property whatsoever, (irrespective of its use or intended
use) of any order or judgment which may be made or given in such action
or proceedings.
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
24
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SCHEDULE 1
SPECIFICATION OF AIRCRAFT
PART A
One McDonnell Douglas DC10-30 aircraft bearing manufacturer's serial No. 46713.
Three General Electric Model CF6-50C2 engines bearing Manufacturer's Serial
Numbers 455437, 455121 and 455261.
PART B
DELIVERY CONDITION
On delivery the Aircraft will conform to the following outline conditions:
<TABLE>
<S> <C>
Configuration: Business Class 34C Tourist/Coach Class 256Y.
Airframe: Ex a "B" check in accordance with previous operator's
maintenance program. CPC Program up to date.
Engines: Engines will be delivered in a condition as specified
in the disc sheets supplied by the Seller to the Buyer.
Landing Gear: Landing gear will be delivered in a condition as
specified in the specification sheets supplied by the
Seller to the Buyer.
Components: Each life limited component or time controlled part
will have the greater of (i) fifty per cent. (50%) of
the full allotment of hours and cycles or (ii) two
thousand (2000) hours and one thousand (1000) cycles
(whichever is applicable)
Calendar limited items will have a minimum of one year
expected life remaining.
Emergency equipment will have one hundred per cent.
(100%) of its total approved calendar life remaining.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
APU: APU will be delivered in a condition as specified in
the specification supplied by the Seller to the Buyer
Livery Painting: White or plain metal finish
Shipsets: Galley carts shall be in good operating condition
</TABLE>
26
<PAGE>
SCHEDULE 2
TECHNICAL ACCEPTANCE CERTIFICATE
Hawaiian Airlines Inc. of 3375 Koapaka Street, Suite G-350, Honolulu, Hawaii
96819 (the "BUYER") acknowledges that at [TIME] on [DATE] the technical
condition of the McDonnell Douglas DC10-30 aircraft with manufacturer's serial
number 46713 (the "AIRCRAFT") is satisfactory to, and accepted by, the Buyer
(the Aircraft having been inspected by the Buyer) and that at such time the
Aircraft was of suitable quality and in all respects in accordance with the
Aircraft Sale and Purchase Agreement dated [-] and made between Fin 3 Limited
(the "SELLER") and the Buyer.
SIGNED for and on behalf of
HAWAIIAN AIRLINES INC.
.................................................
(Authorised signatory)
Dated [-]
27
<PAGE>
SCHEDULE 3
MANUALS AND TECHNICAL RECORDS
MANUALS
1 FAA APPROVED AIRCRAFT FLIGHT MANUAL
2 AIRCRAFT MAINTENANCE MANUAL
3 AIRCRAFT OVERHAUL MANUAL
4 AIRCRAFT WIRING MANUAL
5 AIRCRAFT STRUCTURAL REPAIR MANUAL
6 AIRCRAFT WEIGHT & BALANCE MANUAL, LOADING MANUAL, BASIS AND SUPPLEMENT
7 MEL & CDL
8 CF6 MAINTENANCE MANUAL
9 CF6 OVERHAUL MANUAL
10 CF6 IPC
11 CF6 SB LIST
12 MAINTENANCE CHECK MANUAL
13 ENGINEERING SPECIFICATION MANUAL
DOCUMENTS
1 CERTIFICATE OF AIRWORTHINESS
2 CERTIFICATE OF REGISTRATION
3 SANITARY CERTIFICATE
RECORDS
1 ALL PREVIOUSLY SUPPLIED AA RECORDS
2 IAI PERFORMED TRANSIT CHECKS
3 IAI PERFORMED A CHECKS
4 IAI PERFORMED B CHECKS
5 VENDOR PERFORMED C CHECKS
6 IAI APPROVED COMPLIANCE AIRWORTHINESS DIRECTIVES RECORDS FOR ENGINES,
AIRFRAME AND APPLIANCES
7 IAI APPROVED COMPLIANCE SERVICE BULLETIN RECORDS FOR ENGINES, AIRFRAME
AND APPLIANCES
8 IAI PREDICTIVE REPORT (REPORT NBR 10) FOR ALL TIME CONTROLLED
TASKS/COMPONENTS
28
<PAGE>
SCHEDULE 4
FORM OF BILL OF SALE
BY THIS BILL OF SALE Fin 3 Limited (the "SELLER") does hereby sell, grant and
transfer in accordance with the terms of an Aircraft Sale and Purchase Agreement
dated [-] (the "PURCHASE AGREEMENT") and made between the Seller and Hawaiian
Airlines Inc. (the "BUYER"), all its rights, title and interest in and to the
Aircraft, with full title guarantee, specified below to the Buyer for and in
consideration of the Purchase Price (as defined in the Purchase Agreement)
receipt of which is hereby acknowledged by Seller:
one McDonnell Douglas DC10-30 aircraft, manufacturer's serial number
46713 with three General Electric CF6-50C2 engines bearing manufacturer's
serial numbers or 455437, 455121 and 455261
and that the Aircraft is sold free from all mortgages, charges, liens, debts and
other encumbrances.
IN WITNESS whereof Fin 3 Limited has caused this Bill of Sale to be duly
executed on [DATE] and delivered to the Buyer.
PRESENT when the COMMON SEAL )
of FIN 3 LIMITED )
was affixed hereto )
<PAGE>
SIGNED ) /S/
for and on behalf of )
FIN 3 LIMITED )
in the presence of: )
SIGNED ) /S/
for and on behalf of )
HAWAIIAN AIRLINES INC. )
in the presence of: )
SIGNED ) /S/
for and on behalf of )
HAWAIIAN AIRLINES INC. )
in the presence of: )
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
This Passenger Aircraft Charter Agreement (the "Agreement") is made and
entered into this 9th day of November, 1997 and effective the 1st day of
February, 1998 (the "Effective Date"), by and between Hawaiian, Inc., a Hawaii
corporation, whose principal place of business and mailing address is P.O. Box
30008, Honolulu, Hawaii, 96820 ("Hawaiian") and HAWAIIAN VACATIONS, INC., an
Alaska corporation, whose principal place of business and post office address is
1010 West Northern Lights Boulevard, Anchorage, Alaska, 99503 ("Charterer").
Charterer and Hawaiian are sometimes referred to in this Agreement as the
"Party" or collectively as the "Parties."
W I T N E S S E T H :
WHEREAS, Hawaiian is engaged in the business of providing charter air
transportation, and Charterer is in the business of organizing and extensively
marketing and promoting travel arrangements for sale to the public;
WHEREAS, Hawaiian and Charterer desire to set forth the charter fare
levels, flight schedules and other procedures to be followed, whereby Charterer
may purchase charter air transportation on Hawaiian,
NOW, THEREFORE, in consideration of the premises and the mutual
obligations hereinafter set forth, Hawaiian and Charterer agree as follows:
ARTICLE 1. GENERAL
1.1 The Agreement constitutes the entire agreement and understanding of the
Parties regarding the subject matter hereof, and, as of the commencement
date, supersedes all prior agreements, whether written or oral, between
the Parties concerning the subject matter hereof.
1.2 Subject to Hawaiian and Charterer receiving the necessary regulatory
approvals, this Agreement shall be effective on the Effective Date and
shall continue through April 30, 1999.
1.3. During the term of this Agreement, Hawaiian shall not enter into the
Anchorage/Hawaii market on a scheduled basis other than flights
scheduled for this Agreement, or extend charter services to any other
operator other than Charterer. During the term of this Agreement,
Charterer shall not operate any scheduled service or charter service in
the Anchorage/Hawaii market other than with Hawaiian.
ARTICLE 2. CHARTER AIR TRANSPORTATION, FLIGHT SCHEDULES AND FARE LEVELS
2.1 CHARTER FLIGHT(S). Subject to the terms and conditions of this
Agreement, Hawaiian agrees to make available to Charterer, and Charterer
agrees to charter from Hawaiian, aircraft of the type and configuration
as set forth in Attachment(s) A, attached hereto, for the performance of
the charter flight(s) described in Attachment A ("Charter Flights").
2.2 REGULATORY APPROVALS. It is agreed that both Parties' performance under
this Agreement is subject to Hawaiian receiving from Charterer evidence
satisfactory to Hawaiian that Charterer has complied with and obtained
governmental regulatory approval necessary to conduct Charter Flights,
including but not limited to Department of Transportation ("DOT") Forms
4533 "Statement of Charter Operator or Direct Air Carrier and Securer,"
4532 "Statement of Charter Operator and Direct Air Carrier Flight
Schedule" and 4534 "Statement of Charter Operator, Direct Air Carrier
and Depository Bank," and has complied with Part 380 of the DOT.
2.3 During the course of the Agreement should another scheduled air carrier
or charter operator approved by the DOT enter the Hawaii market on a
nonstop basis from Alaska the
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 2
Parties will jointly review the viability of a continuation of the
contract. If it is agreed to continue, the contract price will be
revised to represent ____ of the lowest "published" retail price point
offered by the other air carrier. "Published" shall mean the
appearance of the fare in at least two (2) CRS systems, or in
advertising in the local media or in written communication to retail
travel agents in the Hawaii/Alaska market. "Published" shall not
constitute an announcement of intention to operate but must be proven
to be available for purchase. If Hawaiian reduces the cost per seat
the accompanying rules of the published fare shall apply to the
reduced Charterer fare. If Hawaiian decides that continuation of the
Agreement is not viable, the Agreement may be canceled with ninety
(90) days written notice by Charterer to Hawaiian. In that case,
Hawaiian will agree to amend the Agreement to match ____ of the
competitive published rate forty-five (45) days prior to the
commencement of operations by the other air carrier and for the
balance of the ninety (90) days remaining from receipt of the written
cancellation notice.
ARTICLE 3. FINANCIAL ARRANGEMENTS
3.1 SECURITY DEPOSIT. Simultaneously with the execution of this Agreement,
as security for the payment of any and all amounts due Hawaiian pursuant
to this Agreement and not paid by Charterer within the periods
specified, Charterer or its designee shall deliver to Hawaiian an
appropriate instrument, as specified in Attachment A and in a form
reasonably acceptable to Hawaiian, which shall remain valid until
forty-five (45) days after the termination of this Agreement. Hawaiian
shall promptly report to Charterer any draw made against such security.
Charterer shall immediately amend such security to provide for
additional security in the amount so reported to have been drawn or
cause to be issued a new security in the amount so reported to have been
drawn.
3.2 PAYMENTS. This Agreement is for a public charter under Part 380 of the
Regulations of the DOT. Charterer, Hawaiian and Charterer's bank (the
"Depository Bank") shall execute a depository agreement in form and
substance satisfying the requirements of Part 380. Upon execution of
the bank depository agreement by the Parties hereto, said agreement
automatically becomes a part of this Agreement. Hawaiian shall be paid
in accordance with the depository agreement. Such payments, made in
accordance with Part 380, due to Hawaiian hereunder, will be made by
Depository Bank on or before the due date in immediately available funds
by electronic funds transferred to the Escrow Account as follows:
Bank of Hawaii
Main Branch
111 South King Street
Honolulu, Hawaii 96813
Attention: Escrow Department
Federal Wire Routing No. ____________
___________________
___________________
Attention: Escrow Department
and credited to the escrow account of Hawaiian at Bank of Hawaii. Each
deposit to the Escrow Account shall be accompanied by sufficient
information to properly identify the payment in accordance with the
requirements of Part 380 and Part 207. All monies shall remain in the
escrow account until the rotation for which payment is made has been
completed.
3.3 MANIFEST LIST. At least two (2) days prior to the departure of each
flight, Charterer will fax to Hawaiian a manifest list of all passengers
of the flight and their return flight. This manifest list will be
provided to Hawaiian, Schedule Planning, through the use of the
SABRE-Registered Trademark- system with airline capabilities provided by
Hawaiian to Charterer or by any other means that is mutually agreed to
by both Parties. No later than 7 p.m. (HST) on the day of departure of
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 3
each flight, Charterer will use its best efforts to provide a revised
manifest list of all passengers of the flight and their return flight to
Hawaiian, Schedule Planning and Customer Services, by any means mutually
agreed to by both Parties.
3.5 NON-PAYMENT. Hawaiian has no obligation to perform any Charter Flight
unless the full payment amounts set forth in Attachment A and any other
payment due in advance hereunder have been properly remitted to Hawaiian
in full at least fifteen (15) days before departure. Such payments
shall be paid on or before the due date(s) set forth herein, without
notice, demand, counterclaim, set off or deduction whatsoever.
3.6 TRANSPORTATION TAXES. The charter price as set forth in Attachment A is
exclusive of transportation tax, passenger facility charges (PFCs) and
charter international terminal fees (CITs). Charterer is responsible
for these taxes/fees and any additional airport assessments or passenger
charges. To the extent that Hawaiian is required to remit any such
payments directly, Charterer will pay such amounts directly to Hawaiian
as set forth in Attachment A. Hawaiian also reserves the right to amend
payment of transportation fees within the effective period of this
contract.
3.7 LATE CHARGES ON PAST-DUE PAYMENTS. In the event Charterer or Hawaiian
fails to make payment to the other Party when it becomes due pursuant to
this Agreement, the defaulting Party shall pay the non-defaulting Party
interest on the amount in default from its due date to the date of
payment at the then current prime rate of interest plus
___________________ per annum announced in the Wall Street Journal, or
at the highest rate applicable by law, whichever is less.
ARTICLE 4. PERFORMANCE OF CHARTER FLIGHTS
4.1 AIRCRAFT AND REGULATIONS. Hawaiian shall provide the aircraft properly
crewed, maintained and fueled as set forth in Attachment A. Charterer
shall observe all operating rules and regulations of Hawaiian and shall
comply with all reasonable instructions of Hawaiian employees and
agents. It is understood that the aircraft and its crew will at all
times during the course of the Charter Flight be under the exclusive
command and control of Hawaiian and Hawaiian's Pilot-in-Command, whose
orders will be strictly complied with by the Charterer and all
passengers.
4.2 FLIGHT SCHEDULE. Hawaiian shall use its best efforts to carry the
charter passengers and their baggage with reasonable dispatch.
Departure times are subject to and may be altered by aircraft
availability and routing, the availability of airport gate spaces,
weather conditions and other operational factors.
Each Party hereto agrees to use its best efforts in causing on-time
departure of all Charter Flights in accordance with the schedules, which
are set forth in the Attachment(s). In no event shall Hawaiian be
liable to the Charterer or any other individual for the transportation
of any passenger who is not at the specified check-in point at least
one-half (1/2) hour prior to the scheduled departure, and such flight
may depart as scheduled without such passenger(s), except that
Charterer's airport agent at departure can request a delay to Hawaiian's
airport agent in order to accommodate passengers who are not at check-in
or on board at the specified time. It is further agreed that Hawaiian
will check with Charterer's airport agent prior to committing the
aircraft for departure to determine if Charterer chooses to exercise
such option. Payment, if any, for such a requested delay shall be
billed at the rate outline in section 4.12 of this Agreement.
4.3 SUBSTITUTE AIRCRAFT. Hawaiian may, at its option, substitute comparable
aircraft (i.e. aircraft with at least 300 passengers seats and the
capability to fly non-stop between Honolulu and Anchorage) of a type
different from that specified in Attachment A without penalty to
Hawaiian, provided that any such substitution shall not result in an
increase in the charter
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 4
price payable by the Charterer. Hawaiian may, to the extent permitted
by applicable government regulations, subcontract the performance of
any of its obligations under this Agreement, provided that it shall
not thereby be relieved of its obligations to the Charterer, and
provided that all passengers covered by the original contract with the
Charterer will be protected by such substitution.
4.4 ALTERNATE ROUTING. If, for any reason, Hawaiian determines, in the
exercise of its reasonable discretion, at any time, that the landing
facilities at any point(s) on the itinerary of the charter are
inadequate for safe operation or if landing is prohibited or restricted
by law, Hawaiian may substitute in place thereof the nearest point at
which, in Hawaiian's sole judgment, suitable landing facilities are
available and landing can be made. In this event, the Parties shall
share equally in the costs for the transportation and all additional
costs of whatever nature, of the passengers to the original destination.
4.5 ALTERNATE LANDING. Hawaiian shall not be liable for loss, injury,
damage or delay to or suffered by the Charterer or any passengers due to
landing at an airport or at a destination other than as contracted, or
due to a failure to stop at any contracted intermediate airport, or due
to any flight interruption, delay or cancellation caused by riots, wars,
civil commotions, strikes, labor disputes, weather conditions, acts of
God, public enemies, quarantine, or due to the absence of any necessary
government approvals, or due to any other cause (whether of the same or
different nature) beyond Hawaiian's control. In the event any of the
foregoing shall occur, Hawaiian shall have the right, without any
liability, to cancel any portion of the charter contract affected by the
above.
4.6 INFLIGHT SERVICE. Hawaiian has the right to sell liquor and headsets on
all passenger Charter Flights. Hawaiian may charge the individual
passenger for inflight entertainment, if such entertainment is available
and if Attachment A hereof does not contain provisions to the contrary.
Hawaiian shall have the right to offer "Duty Free" items for sale in
flight. Nothing contained herein shall require Hawaiian to pay
Charterer any of the proceeds derived from the inflight services set
forth in this paragraph. Notwithstanding the above, Hawaiian shall
provide complimentary headsets and up to two (2) complimentary alcoholic
beverages to each of the 30 Charterer passengers in the first class
section of the aircraft.
4.7 PASSENGERS' TRAVEL DOCUMENTS. Charterer and all passengers and all
cargo consignors shall comply with all laws, regulations, orders,
demands and travel requirements of all states and countries to be flown
from, to or over and shall comply with all of Hawaiian's associated
rules and instructions. Hawaiian shall not be liable for any aid or
information given by any agent or employee of Hawaiian to any passenger
or to Charterer in connection with obtaining necessary documents or
complying with such laws, etc., whether given in writing or otherwise,
or for the consequences to Charterer or any passengers resulting from
failure to obtain such documents or to comply with such laws, etc.
Charterer and all passengers shall present all exit, entry, health and
other documents required by the laws, rules or regulations, of the
states or countries concerned. Hawaiian reserves the right to refuse
carriage to any passenger or to carry any cargo of Charterer on Charter
Flights if, in Hawaiian's sole judgment, the required documents are not
completed or there has not been compliance with applicable laws,
regulations, orders, demands or travel requirements, then Hawaiian shall
not be liable for loss or expense due to failure to comply with the
requirements listed in this paragraph.
Charterer agrees to pay for the transportation of all persons or baggage
that, on government regulation or order, is required to be returned to
the point of origin or elsewhere owing to inadmissibility into a state
or country, whether of transit or destination. If Hawaiian is required
to pay or deposit any fine or penalty or make any expenditure by reason
of a failure to comply with the laws, rules or regulations of the states
or countries concerned, Charterer shall reimburse Hawaiian for all
amounts so paid or deposited and any expenditures so incurred.
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 5
4.8 INSPECTION. Passengers will be required to comply with the requirements
of Customs, United States Department of Agriculture, Airport Security
Personnel and any other governmental officials regarding the inspection
of passenger baggage. Neither Hawaiian nor Charterer shall be liable to
passengers for any loss or damage due to the passengers failure to
comply with such requirements. Hawaiian shall not require Charterer to
assist with Security Directive SD-96-05B relating to profile screening.
4.9 PASSENGER TICKETING. Charterer agrees that every passenger ticket and
ticket envelope is issued pursuant and subject to this Agreement, and
the provisions thereof are incorporated herein by reference. If
Charterer issues a ticket in connection with a Charter Flight conducted
under the terms of this Agreement, said ticket shall include the terms
of this Agreement insofar as they are applicable. In the event of any
inconsistency, the terms of this Agreement shall prevail.
4.10 UNUSED CAPACITY. If the Charterer does not use all of the chartered
space, Hawaiian reserves the right to utilize the space with written
consent from the Charterer. Charterer and Hawaiian shall make every
effort to communicate with each other in a timely fashion regarding
existence and utilization of unused space.
4.11 NO SHOW PASSENGERS. Hawaiian shall not be responsible or liable for the
transportation of passengers who fail to report at the specified
Hawaiian check-in point at the airport one half (1/2) hour prior to the
scheduled departure time of the flight in the cases of domestic flights,
or who are, through no fault of Hawaiian's, not aboard at time of
departure. If one or more members of one group fails to so report or
board, Hawaiian may depart as scheduled and shall in no way be
responsible for or to such individual but shall be deemed to have
completed its contractual obligation to Charterer. At each check-in
point Charterer will provide an agent who has the authority to request a
delay in order to accommodate any passengers. It is further agreed that
Hawaiian will check with Charterer's airport agent prior to committing
the aircraft for departure to determine if Charterer chooses to exercise
such option. Hawaiian shall instruct its airport agents to refer
passenger questions to Charterer's airport agent or for the
arrival/departure in Honolulu Charterer's toll free number
(800-770-2700). Honolulu is the only arrival/departure airport which
Charterer's airport agents will not be available.
4.12 DEVIATIONS FROM SCHEDULE. Any deviations from the terms and conditions
set out in this Agreement subsequently made at the request of the
Charterer, or caused by actions of the Charterer, may involve an
increase in the Charter Flight price. Charterer requested delays shall
be billed at a rate determined by Hawaiian based on all costs Hawaiian
incurs as a result of the delay.
4.13 PASSENGER AND BAGGAGE LIMITATIONS. Passengers and baggage will be
carried within the space and weight limitations of the aircraft, said
limitations to be established solely at the discretion of Hawaiian.
Hawaiian will have no responsibility for any baggage, which exceeds the
space and weight limitations of the aircraft, and such baggage will be
at the disposition of, and at the expense of, the Charterer. Baggage
limitations per passenger are: two (2) checked bags having maximum
linear dimensions of 62 inches in total (length + width + height), with
a maximum weight of 70 pounds each, or one (1) oversized bag or box, and
additionally two (2) unchecked bag having maximum linear dimensions of
41 inches in total (length + width + height), which may be carried on
board the aircraft, unless such limitations are reduced by governmental
action, in which event the lower limits shall apply. Hawaiian reserves
the right to charge each passenger for any baggage in excess of the
maximum set forth herein, such excess baggage charges to be remitted to
Charterer.
All excess baggage will be accepted on a space available basis, and
Hawaiian will not accept liability for any expenses, including delivery,
resulting from the delayed delivery of such baggage.
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PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 6
Hawaiian will provide a container which specifies the maximum size that
a bag may be carried on board the aircraft at each departure point. It
is agreed that all excess baggage will have a higher boarding priority
than any freight sold by Hawaiian.
4.14 CHARTER CANCELLATION (OBLIGATION TO PASSENGERS). If Charterer elects,
consistent with its obligations under Part 380 if the charter is a
public charter operated under those rules, to cancel a Charter Flight,
or group of flights, for whatsoever reason, or defaults on any
provisions of this Agreement, thereby forcing Hawaiian to cancel a
Charter Flight or group of flights, in addition to other provisions in
this Agreement, it will be the Charterer's sole responsibility to
provide return transportation for all passengers previously carried on
Hawaiian, with no additional expense to Hawaiian. However, Hawaiian
will put forth its best effort to help Charterer in these situations.
If Hawaiian is required to return such passengers, Charterer will
reimburse Hawaiian for such expenses, if such expenses have not already
been paid.
4.15 DENIED BOARDING COMPENSATION. Hawaiian shall be primarily liable for
denied boarding compensation based on an overbooking situation.
Charterer shall reimburse Hawaiian its actual out-of-pocket costs of all
such documented denied boarding compensation within ten (10) days of
submission of such invoice.
Hawaiian shall provide Charterer with rates out of its West Coast
gateways for the purpose of accommodation of any denied boarding
situations. Such rates are incorporated into this Agreement as
Attachment B.
4.16 FLIGHT CANCELLATION OR DELAY. Hawaiian shall use its best efforts to
accommodate passengers with flight delays on the Charter Flights as set
forth on Exhibit C attached hereto. If, in Charterer's opinion, Hawaiian
does not or not able to use its best efforts to accommodate passengers
with flight delays on the Charter Flights as set forth on Exhibit C
attached hereto, Charterer has express permission to provide such
accommodation on another carrier or on Hawaiian's scheduled service
flights, and Hawaiian shall reimburse Charterer its actual out-of-pocket
costs of all such documented flight delay accommodations within ten (10)
days of submission of such invoice.
4.17 HAWAIIAN'S EMPLOYEES. Charterer reserves the right to accept or reject
any of Hawaiian's employees providing services under this Agreement for
any regulatory-based reason in Charterer's sole discretion.
ARTICLE 5. FUEL
5.1 FUEL SURCHARGE. Charterer agrees to pay Hawaiian, over and above all
other charges as set forth in this charter contract, a fuel surcharge
in accordance with the provisions set forth below. Hawaiian shall
notify Charterer fifteen (15) days in advance of the departure date
set forth in this contract of the amount of fuel surcharge calculated
by increasing the charter price by _______________ per mile for each
_______________ per gallon increase in the average price of fuel over
the into plane fuel base price, which shall be based on the average
into plane fuel costs per gallon for the period February 1, 1998
through February 28, 1998. Hawaiian shall provide Charterer with
appropriate documentation of the actual into plane fuel costs per
gallon for the period February 1, 1998 through February 28, 1998. If
the cumulative surcharge increases the charter price net of any fuel
discounts as defined herein in excess of _______________ during the
term of this Agreement, Charterer shall have the right, within seven
(7) days after receipt of the notice of fuel surcharge, to cancel
Charter Flights, but only those Charter Flights scheduled to depart
later than fourteen (14) days from Hawaiian's receipt of Charterer's
notice to cancel the Charter Flights. In the event of cancellation by
the Charterer hereunder, all monies paid for flights thereby canceled
shall be promptly refunded by Hawaiian. In the event the
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 7
Charterer does not cancel the Agreement hereunder, the Agreement shall
remain in full force and effect, and the fuel surcharge shall be added
to the contract price and become due and payable on the installment
dates set forth herein. Hawaiian further agrees that it will apply no
additional fuel surcharge after the aforementioned notice prior to the
date of departure.
5.2 FUEL DISCOUNT. For each _______________ per gallon decrease in the
average price of fuel over the fuel base price, Hawaiian shall provide
Charterer with a fuel discount equal to _______________ per mile. Any
fuel discount shall apply to all flights commencing with those flights
departing fifteen (15) days after Hawaiian provides Charterer with a
notice of change in the Fuel Index. Hawaiian shall calculate the Fuel
Index no less than once per month and provide Charterer written notice
of the then current Fuel Index and indicate whether the Fuel Index has
increased, decreased or remained constant since the last notice. Such
fuel credit will be due and payable on the installment dates set forth
herein.
5.3 FUEL AVAILABILITY. Hawaiian may cancel, without liability, any
Charter Flight under contract before the outbound flight is scheduled
to operate if sufficient fuel is not available from its suppliers,
provided that such determination is made by Hawaiian in the exercise
of good faith business judgment. In such case, Hawaiian shall
promptly arrange for a refund to Charterer, or to Charterer's
Depository Bank if a Bank Depository Agreement is in effect, of all
charter payments already made applicable to such canceled flight made
by Charterer or its Depository Bank to Hawaiian but shall not
otherwise be liable to the Charterer or any charter participants for
any damage, loss, cost, or expenses arising out of, or in connection
with such cancellation, and Charterer agrees to indemnify and hold
Hawaiian harmless from any claims, demands or suits brought by any
charter participants, including any legal fees and expenses incurred
in the defense of such claims, demands or suits, arising out of or in
connection with such cancellation. The rights of cancellation
reserved to Hawaiian under this Article 5 shall be in addition to, and
not in place of or in derogation of, any and all other rights which
Hawaiian may otherwise have, at law or equity or under the force
majeure or any other article of this Agreement.
ARTICLE 6. POSITIONING AND DEPOSITIONING (FERRY) CHARGES
Any estimated positioning/depositioning ("ferry") charges shown in Attachment
A have been calculated on the basis of aircraft positioning requirements
related to the departure city of the origin and/or return flight(s), and will
be the stipulated charge for ferry mileage. Refunds will not be paid to the
Charterer for estimated ferry mileage not in fact flown, and the Charterer
will not be charged any additional sums for ferry mileage flown in excess of
the estimate on which the stipulated charge was based, unless such mileage is
flown for the convenience of, at the express direction of, and/or due to
cancellation of a flight(s) by the Charterer.
ARTICLE 7. SPECIAL SERVICES AND CHARGES
In the event Charterer requests, in writing, Hawaiian's assistance in
securing ground transportation for passengers or baggage, hotel reservations
or other services, Hawaiian shall make supplier recommendations and
suggestions but Charterer shall perform its own negotiations and bear the
cost of such services and all risks of injury, damage or loss arising out of
such services.
ARTICLE 8. CHARTER ELIGIBILITY
8.1 CHARTERER'S COMPLIANCE WITH DOT REGULATIONS. Charterer and its
agents, and all passengers shall be deemed to have notice of and shall
comply in all respects with Parts 207 and 208 of the Economic
Regulations or Part 380 of the Special Regulations of the DOT and all
other applicable laws, rules, or regulations (the "Regulations").
Hawaiian shall have the right without penalty, return of deposits, or
payments and damages, to cancel a Charter Flight or refuse to board
any of the passengers should Hawaiian reasonably determine that the
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 8
Charterer, its agents or any passengers have failed to comply with any
of the Regulations. In the case of a pro rata charter under Part
208.200, Charterer hereby acknowledges receipt of a copy of Part 208.
A copy of Part 207 and Part 380 has been provided to Charterer.
8.2 CHARTERER FURNISHED DOCUMENTS. The Charterer and its agents shall
furnish Hawaiian in a timely manner with all documents required by the
Regulations, including, but not limited to, Statements of Supporting
Information, load manifests, passenger lists, certifications and such
other supporting documentation as may be necessary for Hawaiian to
obtain traffic rights for the Charter Flight(s) in any state or
country, provided that Statements of Supporting Information shall be
furnished to Hawaiian prior to the date of the first such Charter
Flight herein. Charterer acknowledges that once approved its
prospectus with the DOT will expire one year from the date of approval
and that it must file a new prospectus with the DOT prior to that
expiration.
8.3 CHARTERER BREACHES OR REGULATIONS. Charterer agrees to give, at its
own expense, such notice to the passengers and/or consignees as
Hawaiian shall request in the event the Charterer or any charter
participant breaches any of the Regulations and thereby causes or
threatens to cause delay or cancellation of a Charter Flight or
cancellation of any of the charter participants thereon. Hawaiian
shall incur no liability of any nature to Charterer, its agents, any
travel company or any charter participants as a result of giving such
notice, or refraining therefrom, whether or not such breach shall, in
fact, cause or result in the delay or cancellation of a Charter
Flight. Charterer agrees to indemnify Hawaiian and hold Hawaiian
harmless from any claims, demands or suits brought by Charterer's
agents, any travel company or any charter participants, defending such
claims, demands or suits, arising out of Charterer's giving the notice
requested by Hawaiian, or refraining therefrom, whether or not such
breach shall, in fact, cause or result in the delay or cancellation of
a Charter Flight.
ARTICLE 9. LIABILITY
9.1 CHARTERER'S RESPONSIBILITY TO ITS PASSENGERS. Charterer acknowledges
that it shall solely be responsible to its passengers for furnishing
all services, not required to be performed by Hawaiian; as set forth
in the Charterer's charter prospectus and solicitation material
distributed in connection with said Charter Flights. Charterer agrees
to hold Hawaiian free and harmless from and to defend Hawaiian and
keep Hawaiian indemnified against any and all claims, actions, or
demands brought or asserted against Hawaiian, including any legal fees
and expenses incurred in the defense of such claims, arising out of
any act or omission of the Charterer, its agents, servants or
employees.
9.2 PASSENGER AND CONSIGNEE LIABILITY OF HAWAIIAN. Hawaiian's liability
to each passenger and/or consignee on all international flights is
limited as follows: The rules and limitations relating to liability
established by the Convention for the Unification of Certain Rules
Relating to International Carriage by Air shall to the extent such
Convention is applicable, apply to the Charter Flight(s) hereunder.
For passengers on a journey to, from, or with an agreed stopping place
in the United States of America, the Convention and special contracts
for carriage provide that the liability of Hawaiian and certain other
carrier parties to such special contracts for death of or personal
injury to passengers, is limited in most cases to proven damages not
to exceed _______________ per passenger and that this liability up to
such limit shall not depend on negligence on the part of Hawaiian.
This limit of liability is inclusive of legal fees and any costs,
except that in case of a claim brought in a State where provision is
made for a separate award of legal fees and costs, the limit shall be
________________, exclusive of legal fees and costs.
9.3 BAGGAGE LIABILITY; LIMITATIONS OF LIABILITY; EXCLUSIONS FROM
LIABILITY; DECLARATION OF HIGHER VALUE. The Terms of Contract of
Carriage, which govern baggage liability and exclusions, are attached
hereto as Exhibit "A" and made a part hereof.
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 9
Hawaiian shall not be liable for delivery by surface transportation of
checked baggage, at the passenger's point of destination where the
baggage is not presented by the passenger at least twenty-five (25)
minutes prior to the scheduled departure time of the flight on which
the passenger is transported or where the passenger is transported on
a flight on which the passenger did not hold a confirmed reservation
and the passenger's luggage did not accompany the passenger on such
flight.
9.4 CONTRACT OF CARRIAGE. Charterer's passengers may inspect the full
text of the terms of Contract of Carriage at any of Hawaiian's airport
or city ticket offices, or via the Internet at www.hawaiianair.com.
Additionally, a free copy may be requested by writing to Hawaiian
Airlines, Inc., P.O. Box 30008, Honolulu, Hawaii 96820.
9.5 NOTIFICATION. The passengers must notify the agent of Hawaiian at
baggage check-in of the existence of (1) fragile, (2) perishable
items, (3) live animals or (4) hazardous material ("Special Items")
acceptable for air transportation in checked or unchecked baggage so
that Hawaiian may examine said items to ensure that they are properly
packed or prepared for air travel, and meets Hawaiian's guidelines.
Charterer agrees, if the charter includes transportation to Hawaii, to
advise all passengers that carriage of live animals must meet
Hawaiian's guidelines. If Hawaiian determines that items are not
properly prepared, Hawaiian will afford the passenger the choice of
(1) repacking or preparing the items according to Hawaiian's
specifications; or (2) signing a release eliminating Hawaiian from all
liability of loss or damage. If the passenger refuses either option,
Hawaiian may refuse carriage of the Special Items.
9.6 CONSEQUENTIAL DAMAGES. Under no circumstances shall Hawaiian be
liable for consequential damages whether in contract, strict
liability, or negligence.
9.7 INSURANCE. At all times during the term of this Agreement, each Party
shall, at its sole cost and expense, carry and maintain in full force
and effect:
a. With respect to insurance carried and maintained by Hawaiian:
Comprehensive Airline Liability Insurance in an amount not less than
_______________ combined single limit bodily injury (including
Passengers) and property damage liability each occurrence.
b. With respect to insurance carried and maintained by Charterer:
Comprehensive General Liability Insurance in an amount not less
than _______________ combined single limit bodily injury and
property damage liability each occurrence.
9.8 CERTIFICATES OF INSURANCE. On or before the effective date of this
Agreement, and as a condition to the effectiveness of this Agreement,
each Party shall provide the other Party with certificates of
insurance evidencing the coverage required in this Agreement. The
certificates shall indicate that the above coverage shall not be
canceled or materially altered without thirty (30) days prior written
notice by the insurers to the other Party. Hawaiian's certificate
shall name Charterer as an additional insured.
9.9 INDEMNIFICATION. Hawaiian shall indemnify and hold harmless Charterer
(including, without limitation, Charterer's officers, directors,
employees, servants and agents) for, from and against all damages and
claims for damages, demands, liabilities, actions, losses, costs,
suits, recoveries, judgments or executions (including, without
limitation, reasonable costs of investigation, litigation costs, court
costs, expert witness fees, litigation support services, settlement
costs and reasonable attorneys' fees), damages or injury to persons or
property including, without limitation, injury resulting in death,
however caused, arising from or relating
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 10
to Hawaiian's performance of its obligations under this Agreement.
Charterer shall indemnify and hold harmless Hawaiian (including,
without limitation, Hawaiian's officers, directors, employees,
servants and agents) for, from and against all damages and claims for
damages, demands, liabilities, actions, losses, costs, suits,
recoveries, judgments or executions (including, without limitation,
reasonable costs of investigation, litigation costs, court costs,
expert witness fees, litigation support services, settlement costs and
reasonable attorneys' fees), damages or injury to persons or property
including, without limitation, injury resulting in death, however
caused, arising from or relating to Charterer's performance of its
obligations under this Agreement.
ARTICLE 10. CANCELLATION CHARGES
10.1 CANCELLATION FEES. In the event that after the Agreement has been
signed by the Charterer and by Hawaiian, and:
a. The Agreement is voluntarily canceled at the request of the
Charterer; or
b. The Charter Agreement is canceled by Hawaiian due to the Charterer's
being ineligible for charter transportation under the provisions of
applicable governmental regulations; or
c. The Charter Agreement is canceled by Hawaiian due to the Charterer's
failure to make payment as prescribed herein or in Attachment A; or
d. Hawaiian cancels all future Charter Flights under all Charter
Agreements with the Charterer due to the Charterer's failure to pay
all cancellation charges due within fourteen (14) days of the
cancellation of a Charter Agreement, or any portion thereof;
then the cancellation charge will be assessed to Charterer, as liquidated
damages, and not as a penalty when the cancellation occurs:
WHEN THE FLIGHT IS CANCELED: THE CANCELLATION CHARGE
WILL BE:
At least sixty-one (61) days but not A cancellation fee of ___ of charter
more than one hundred twenty (120) price per segment plus any additional
days before a Charter Flight is to ferrying charges.
depart from point of origin.
At least thirty-one (31) days but not A cancellation fee of ___ of charter
more than sixty (60) days before a price per segment plus any additional
Charter Flight is to depart from point ferrying charges.
of origin.
At least fifteen (15) days but not A cancellation fee of ___ of charter
more than thirty (30) days before a price per segment plus any additional
Charter Flight is to depart from point ferrying charges.
of origin.
Fourteen (14) days or less before a A cancellation fee of ___ of charter
Charter Flight is to depart from point price per segment plus any additional
of origin. ferrying charges.
10.2 ATTORNEY'S FEES. If Charterer fails to pay cancellation charge, or any
other amount due under this Agreement, and Hawaiian refers the matter
for collection to an attorney, Charterer will pay a reasonable
attorney's fee not to exceed thirty percent (30%) of the amount payable
or
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 11
such lesser attorney's fee, if any, as may be legally permitted plus
costs associated with any such collection. If Hawaiian fails to pay
any amount due under this Agreement, and Charterer refers the matter
for collection to an attorney, Hawaiian will pay a reasonable
attorney's fee not to exceed thirty percent (30%) of the amount
payable or such lesser attorney's fee, if any, as may be legally
permitted plus costs associated with any such collection.
10.3 RIGHT OF CANCELLATION. Either Party may cancel this Agreement without
penalty upon one hundred and twenty (120) days' advance written notice
to the other Party.
10.4 PRIVILEGED LICENSE. Both Parties acknowledge that each Party conducts a
business that is subject to, and exists because of, privileged licenses
issued by governmental authorities. Each Party therefore agrees that,
in the event that one Party shall determine, in its reasonable judgment
(i) that the other Party is, or might be, engaged in, or about to be
engaged in, any activity or activities that jeopardizes, or could
jeopardize, its business licenses, or (ii) that the existence of this
Agreement jeopardizes or may jeopardize, its business or such licenses,
such Party shall have the right, upon notice to the other Party,
immediately to terminate this Agreement, at which time the Agreement
shall cease and terminate and be of no further force and effect;
provided, however, that the indemnity and insurance provisions of this
Agreement shall survive any such termination.
ARTICLE 11. DEPARTURE TAXES
11.1 DOMESTIC TAXES. Refer to Article 3, Section 6.
ARTICLE 12. GOVERNMENT APPROVALS
Hawaiian will, as expeditiously as possible, apply for all necessary foreign and
U.S. approvals to operate the Charter Flights. Charterer will render all
assistance in obtaining such approval as requested by Hawaiian. In the event
that the approval is not rendered the flights are canceled without penalty to
Hawaiian.
ARTICLE 13. USE OF HAWAIIAN'S NAME AND/OR LOGO.
13.1 Hawaiian grants Charterer a non-exclusive, non-transferable, limited
license to use Hawaiian's trademarks, servicemarks and trade names, but
solely in connection with the terms and obligations of this Agreement.
13.2 Charterer shall be required to execute the "Limited Use of Hawaiian's
Name and/or Logo" form ("Logo Use Form") attached hereto as Exhibit "B"
prior to Hawaiian providing Charterer with Hawaiian's logo in
camera-ready format.
13.3 If Charterer desires to provide Hawaiian's logo to any third party
vendor to reproduce Hawaiian's logo ("Third Party Vendors"), the Third
Party Vendors shall be required to execute the Logo Use Form attached
hereto as Exhibit "B" prior to Charterer providing the Third Party
Vendor with Hawaiian's logo. Failure to timely provide Hawaiian with
the executed Logo Use Form by the Third Party Vendors shall be construed
as a material breach of this Agreement. Charterer shall inform
Hawaiian's Marketing Department with list of Third Party Vendors who
possess Hawaiian's logo for reproduction and who have properly executed
the Logo Use Form.
13.4 Failure of Charterer to provide Hawaiian with the executed Logo Use Form
by the Third Party Vendors shall be construed as a material breach of
this Agreement, if Charterer executes the Logo Use Form.
13.5 Each Party shall have the right to review and approve or disapprove,
prior to printing, the portion of any and all artwork generated by the
other Party (or at its direction or
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 12
authorization) that references this Agreement or uses any trademark,
servicemark or trade name of the other Party. The generating Party
shall provide the printed materials to the other Party in a timely
manner and the other Party shall review and approve or disapprove such
materials in writing within ten (10) working days.
13.6. Each Party shall have the right to review and approve or disapprove,
prior to release, all press and/or news releases generated by the other
Party (or at its direction or authorization) that reference this
Agreement. Such Party shall provide the printed materials to the other
Party in a timely manner and the other Party shall review and approve or
disapprove such materials in writing within ten (10) working days.
ARTICLE 14. GENERAL CONDITIONS
14.1 CHARTERER AS AGENT. This Agreement is entered into by both Parties on
their own behalf. The individual consignors, consignees or passengers
shall not have the right to claim any refund of the Charter Price or
portions thereof from Hawaiian except as may be specifically provided
for in writing and signed by Hawaiian, or as may be required by law or
regulation.
14.2 GOVERNMENTAL REGULATION. This Agreement is subject to (i) the
provisions of the Federal Aviation Act of 1958, as amended; (ii) the
terms, conditions, limitations, rules and regulations set forth in
applicable governmental or other approvals as may be required.
14.3 APPLICABLE STATUTES. This Agreement shall be governed by and construed
in accordance with the laws of the State of Hawaii. Any term or
provision of this Agreement which now or hereafter is declared contrary
to any law, order, ordinance, requirement ruling or regulation of any
governmental authority, whether federal, state or local, whether now in
force or enacted or promulgated in the future, or which is otherwise
invalid, shall be deemed stricken from this Agreement without impairing
the validity of the remainder of this Agreement. Any action against
Hawaiian must be commenced in a court of competent jurisdiction in the
County of Honolulu, State of Hawaii. If any provision of this Agreement
is rendered inoperative or illegal by operation of law or otherwise, the
other provisions contained herein shall remain in full force and effect,
and in such cases the principle of severability shall govern.
14.4 WRITTEN AGREEMENT. This Agreement supersedes all prior agreements, if
any between the Parties with respect to the same subject matter, and
fully sets forth the understanding of the Parties. Any change or
amendment to this Agreement shall be in writing signed by authorized
officials of both Hawaiian and the Charterer.
14.5 STRICT PERFORMANCE. "On Time" is defined as the aircraft pushing back
from the gate no later than _________________ after the scheduled
departure time. If during a calendar month, less than _________________
of the flights depart on time, Hawaiian shall refund to Charterer a sum
calculated by multiplying _____ times the number of one way passengers
carried on the delayed flights only during that month. This calculation
shall be made within fifteen (15) days of the end of each month and
shall be paid within fifteen (15) days of receipt of the invoice from
Charterer.
Mechanical failures, breakdowns, force majeure causes and delays caused
or requested by Charterer will not count as a delayed flight for the
purpose of this paragraph. Any flight delayed because of a previous
flight delay (same aircraft) caused by mechanical failures or breakdowns
or force majeure shall not be counted as a delayed flight.
14.6 TITLES AND HEADINGS. The titles and headings of this Agreement are
included for convenience only and shall not be deemed to constitute part
of this Agreement or to affect the construction or interpretation
hereof.
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 13
14.7 GENDER. Whenever the context may require, any pronouns used herein
shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and
vice versa.
14.8 BANKRUPTCY. In the event either Party shall (i) file a voluntary
petition in bankruptcy, (ii) make an assignment for the benefit of
creditors of all or substantially all of its assets, or (iii) fail to
secure dismissal of an involuntary petition or bankruptcy filed against
it within sixty (60) days after the filing thereof, then upon the
occurrence of any of the said events, the other Party may immediately
terminate this Agreement.
14.9 TERMINATION FOR CAUSE. If either Party shall have committed a material
breach of this Agreement or shall default in any material aspect of its
obligations under this Agreement and such breach or default is not cured
within fifteen (15) days of written notice thereof by the other Party,
such other Party may, in addition to any other remedies it may have,
immediately terminate this Agreement. All obligations incurred by the
Parties prior to the effective date of the termination will be settled
in accordance with the terms of this Agreement. Termination for cause
shall not include events covered by Article 14.13.
14.10 In the event of any action or proceeding to compel compliance with, or
with respect to any breach of, the Agreement, the prevailing Party shall
be entitled to recover all reasonable costs and reasonable expenses of
such action or proceeding including, without limitation, its reasonable
attorneys' fees and costs incurred in connection therewith regardless of
whether any formal legal action is commenced or whether such fees and
costs are incurred at or in connection with trial or appellate
proceedings.
14.11 CONFIDENTIALITY. Except in any proceeding to enforce the provisions of
this Agreement or as may be required by law, both Parties, and their
employees, officers, directors and agents shall not publicize or
disclose to any third party any of the terms or conditions of this
Agreement without the prior written consent of the other. If either
Party or any one of its employees, officers, directors or agents is
served with a subpoena or other process requiring production or
disclosure of this Agreement or any of its terms or conditions, then the
person or entity receiving such a subpoena or other process, before
complying with such subpoena or other process, shall immediately notify
the other of same and permit the other a reasonable period of time
(taking into account the terms of the subpoena or other process) to
intervene and to contest disclosure or production.
14.12 INDEPENDENT CONTRACTOR. The relationship between Hawaiian and Charterer
shall be that of independent contractor for all purposes, and in no
event shall persons employed by either Party be held or construed to be
employees of the other Party. All persons performing work hereunder and
the manner and details of performance thereof, shall be under the
exclusive control of their respective employers, and their respective
employers shall have the sole right and responsibility for the direct
supervision of its personnel through its designated representative.
Each Party shall be responsible for any and all liability to its own
employees on account of injury or death resulting therefrom, sustained
in the course of their employment. Each Party with respect to its own
employees accepts full and exclusive liability for payment of all
workers' compensation and employer's liability insurance premiums with
respect to such employees, and for the payment of all State, Federal,
county and municipal taxes, contributions or other payments for
unemployment compensation or old age benefits, pensions or annuities now
or hereafter imposed upon employers by any government or agency thereof
having jurisdiction in respect of such employees measured by the wages,
salaries, compensation or other remuneration paid to such employees, and
agrees to make such payments and to make and file all reports and
returns and to do everything necessary to comply with the laws imposing
such taxes, contributions or payments.
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 14
14.13 FORCE MAJEURE
a. Neither Party shall be liable for failure to perform under this
agreement when such failure is caused by accidents, strikes,
lockouts, or other labor disturbances or labor disputes of any
character or any other similar cause beyond its reasonable control.
b. Neither Party shall have responsibility for any delay, cancellation
or prevention of the completion of any obligation on its part to be
performed, including, but not limited to, any flight covered by
this Agreement, resulting from any seizure under local process,
sanction, quarantine restriction, act of governmental authority,
strike, work stoppage, labor dispute, war or hazard incident to a
state of war, fire, act of God or nature (including without
limitation floods, earthquakes, hurricanes or weather conditions),
mechanical difficulties, prior or civil commotion, or any other
act, matter or thing, whether or not of a similar nature, beyond
the control of either Party.
14.14 ASSIGNMENT; SUBCONTRACTOR. All covenants and agreements herein
contained shall be extended to and be binding upon the successors and
assigns of each Party; provided, however, that neither Party shall
assign its interest in and to this Agreement or its duties and
obligations under this Agreement in whole or in part or assign, pledge
or otherwise transfer the right to receive any monies to become due
under this Agreement except with the non-assigning Party's prior written
consent which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Hawaiian may subcontract with providers
of goods and services necessary to allow Hawaiian to fulfill its
obligations under this Agreement; provided, however, that in no event
shall Hawaiian subcontract with another provider of air service to
provide the actual Charter Flights without the prior consent of
Charterer.
14.15 NOTICES. All notices and other communications between the Parties
provided for or permitted hereunder shall be in writing and delivered or
mailed by registered or certified mail, return receipt requested,
overnight mail, or by telex or cable with confirmed delivery, or via
facsimile.
If to Charterer: Hawaiian Vacations, Inc.
Attn: John T. Hardwick, President
1010 West Northern Lights Blvd.
Anchorage, AK 99503
Telephone: _____________
Facsimile: _____________
If to Hawaiian: Charter Sales
Hawaiian, Inc.
P.O. Box 30008
Honolulu, HI 96820-0008
Telephone: _____________
Facsimile: _____________
with copies to: Vice President and General Counsel
Hawaiian, Inc.
P.O. Box 30008
Honolulu, HI 96820-0008
Telephone: _____________
Facsimile: _____________
14.16 SEVERABILITY. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein
unless the deletion of such provision or
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
HAWAIIAN VACATIONS, INC.
Page 15
provisions would result in such a material change as to cause the
agreements contemplated herein to be unreasonable.
14.17 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same Agreement. Any such counterpart
signature pages may be attached to the body of one Agreement to form a
complete integrated whole.
14.18 ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement constitutes the
full and complete agreement of the Parties and supersedes any other
agreement, understanding or representation, whether verbal or in writing
by or between the Parties. Any changes, amendments or other
modifications to this Agreement shall be in writing and executed by both
Parties hereto. The failure of any Party hereto to enforce at any time
any provision of this Agreement shall not be construed to be a waiver of
such provision, nor in any way affect to validity of this Agreement or
any part hereof or the right of such Party thereafter to enforce each
and every provision. No waiver of any breach of this Agreement shall be
held to constitute a waiver of any other subsequent breach.
ARTICLE 15. REPRESENTATIONS AND WARRANTIES
15.1 Each Party represents that (a) it is fully experienced, properly
qualified and, where appropriate, licensed as necessary to provide the
services specified in this Agreement; (b) it is knowledgeable and
experienced in operating the equipment to be utilized in performing its
obligations under this Agreement; and iii) is in good standing in the
state of its incorporation.
15.2 Each Party represents that it is duly organized and validly existing
under the laws of the jurisdiction in which it was formed, and that it
has obtained all licenses, permits or approvals of any governmental
authority necessary or appropriate to perform the obligations under this
Agreement.
/
/
/
/
/
/
/
/
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above.
HAWAIIAN AIRLINES, INC. HAWAIIAN VACATIONS, INC.
a Hawaii corporation an Alaska corporation
By /S/______________________________ By /S/____________________________
Glenn G. Taniguchi John T. Hardwick
Its Vice President Its President
Reservations & Schedule Planning
By /S/ ____________________________
Clarence K. Lyman
Its Vice President-Finance
<PAGE>
ATTACHMENT A
- --------------------------------------------------------------------------------
PASSENGER AIRCRAFT CHARTER AGREEMENT
- --------------------------------------------------------------------------------
HAWAIIAN AIRLINES, INC.
P. O. BOX 30008
HONOLULU, HAWAII 96820
This Agreement is made between HAWAIIAN AIRLINES, INC. ("HAWAIIAN") and
CHARTERER designated below. It is mutually agreed that, subject to HAWAIIAN
receiving necessary regulatory approval, and to the provisions below and the
terms and conditions hereof, CHARTERER shall purchase from HAWAIIAN and HAWAIIAN
shall furnish to CHARTERER charter air transportation as described herein:
<TABLE>
<CAPTION>
- ---------------------------------- ------------------------- -------------------------- -------------------------
CONTRACT NUMBER CHARTER TYPE AIRCRAFT TYPE DATE OF ISSUE
- ---------------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
Public DC-10 11/9/97
- ---------------------------------- ------------------------- -------------------------- -------------------------
</TABLE>
Name and address of CHARTERER: HAWAIIAN VACATIONS, INC.
1010 West Northern Lights Blvd.
Anchorage, AK 99503
Contact: John T. Hardwick, President
<TABLE>
<CAPTION>
- -------------------------------------- ------------------------------------------------ ----------------------------
Passenger Seats Available: Baggage Allowance/Passenger: Fuel Base Prices:
- -------------------------------------- ------------------------------------------------ ----------------------------
<S> <C> <C>
300 2 checked bags with maximum linear dimension ________
of 62", with a maximum weight of 70 lbs. per
30 seats in first class piece; 2 carry on bags with maximum linear (Into Plane)
dimensions 41".
270 seats in coach class
- -------------------------------------- ------------------------------------------------ ----------------------------
</TABLE>
CHARTER ROUTING: HNL-ANC-HNL
CHARTER PERIOD: February 1, 1998 through April 30, 1999
TOTAL ROUNDTRIPS: 151
GUARANTEED ROUNDTRIPS: Charterer guarantees all flights before February
1, 1999 in this schedule, unless this Agreement is
canceled by either Party as provided for in this
Agreement.
I. COMMITTED FLIGHT SCHEDULE
<TABLE>
<CAPTION>
ROUNDTRIP ORIGINATES
-------------------- -------------------------- ------------ -------------------------------------- -------------
DEP DEPARTURE PERIOD TRIPS
FLIGHT NO. ROUTE HNL
-------------------- -------------------------- ------------ -------------------------------------- -------------
<S> <C> <C> <C> <C>
938 HNL-ANC TUES 02/03/98-04/27/99
-------------------- -------------------------- ------------ -------------------------------------- -------------
938 HNL-ANC THU 11/19/98-4/23/99
-------------------- -------------------------- ------------ -------------------------------------- -------------
938 HNL-ANC FRI 02/06/98-04/30/99
-------------------- -------------------------- ------------ -------------------------------------- -------------
-------------------- -------------------------- ------------ -------------------------------------- -------------
939 ANCHNL WED 02/04/98-04/28/99
-------------------- -------------------------- ------------ -------------------------------------- -------------
-------------------- -------------------------- ------------ -------------------------------------- -------------
939 ANC-HNL FRI 11/20/98-04/23/99
-------------------- -------------------------- ------------ -------------------------------------- -------------
939 ANC-HNL SAT 02/07/98-05/01/99
-------------------- -------------------------- ------------ -------------------------------------- -------------
</TABLE>
<PAGE>
II. OPERATIONAL TIMES
OPERATIONAL SCHEDULE
<TABLE>
<CAPTION>
---------------- -------------------------------------- -------------------------- -------------------------
DEPARTURE TIME
ROUTE ROUNDTRIP ORIGINATES ARRIVAL TIME
---------------- -------------------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
HNL-ANC 02/03/98-04/04/98 11:55 p.m. 6:40 a.m. + 1
---------------- -------------------------------------- -------------------------- -------------------------
HNL-ANC 04/05/98-10/24/98 10:55 p.m. 6:40 a.m. + 1
---------------- -------------------------------------- -------------------------- -------------------------
HNL-ANC 10/25/98-04/03/99 11:55 p.m. 6:40 a.m. + 1
---------------- -------------------------------------- -------------------------- -------------------------
HNL-ANC 04/04/99-04/27/99 10:55 p.m. 6:40 a.m. + 1
---------------- -------------------------------------- --------------------------- ------------------------
---------------- -------------------------------------- --------------------------- ------------------------
ANC-HNL 02/04/98-04/04/98 8:35 a.m. 1:15 p.m.
---------------- -------------------------------------- -------------------------- -------------------------
ANC-HNL 04/05/98-10/24/98 8:35 a.m. 12:15 p.m.
---------------- -------------------------------------- -------------------------- -------------------------
ANC-HNL 10/25/98-04/03/99 8:35 a.m. 1:15 p.m.
---------------- -------------------------------------- -------------------------- -------------------------
ANC-HNL 04/04/98-04/28/99 8:35 a.m. 12:15 p.m.
---------------- -------------------------------------- -------------------------- -------------------------
</TABLE>
III. CHARTER COST
<TABLE>
<CAPTION>
--------------------------- ----------------------- ------------------- ------------ -----------------------
ROUNDTRIP ROUND
PERIOD ROUTE LIVE COST TRIPS TOTAL
--------------------------- ----------------------- ------------------- ----------- -----------------------
<S> <C> <C> <C> <C>
02/03/98-05/01/99 HNL-ANC-HNL
--------------------------- ----------------------- ------------------- ------------ -----------------------
</TABLE>
An additional charge or add-on of _____ plus applicable tax per
passenger round-trip will be charged to Charterer for passengers
traveling between Anchorage and an outer island without a stopover in
Honolulu.
For passengers traveling between the islands, except as noted above,
the segment one way charge to Charterer will be _____ plus applicable
tax.
As of October 13, 1997, the current applicable tax rate due on through
fares (direct connections without stopover) is the federal city pair
tax rate of .0044% of the applicable through fare, plus the $6 US
international departure tax in each direction per passenger plus $1 per
person per segment. The 9% domestic transportation tax is applicable on
additional interisland flight segments, including add-on fares due to
stopover or additional interisland segments. Charterer agrees to
utilize Hawaiian for approximately ninety percent (90%) of all
interisland passenger travel.
Payment of the foregoing taxes and/or fees, when imposed, will be the
responsibility of Charterer and Charterer will remit such payments
directly to the governmental authority.
IV. PAYMENT SCHEDULE
PAYMENTS FOR ROTATIONS ARE DUE FIFTEEN (15) DAYS PRIOR TO ORIGINATING
DEPARTURE OF FIRST ROTATION OF THE WEEK, FOR A TOTAL OF THREE (3)
ROTATIONS FROM 02/03/98 THROUGH 03/19/98 AND 12/17/98 THROUGH 03/18/99,
AND THEN A TOTAL OF TWO (2) ROTATIONS FROM 03/20/98 THROUGH 12/15/98
AND 03/19/99 THROUGH 04/27/99, AND ARE DUE AS FOLLOWS:
<TABLE>
<CAPTION>
------------------------------------ ----------------------------------- ----------------------------------
PAYMENT DATE(1) AMOUNT PERIOD
------------------------------------ ----------------------------------- ----------------------------------
<S> <C> <C>
MONDAY 01/19/98-03/02/98
MONDAY 03/09/98-11/23/98
MONDAY 11/30/98-03/01/99
MONDAY 03/08/99-04/05/99
MONDAY 04/12/99-04/12/99
------------------------------------ ----------------------------------- ----------------------------------
</TABLE>
(1) Payments are due fifteen (15) days prior to originating departure of
first rotation of the week. Upon contract execution, all rotations
within fifteen (15) days must be paid immediately.
<PAGE>
V. SECURITY
NO LATER THAN JANUARY 26, 1998, CHARTERER WILL DELIVER TO HAWAIIAN, A
LETTER OF CREDIT IN THE AMOUNT OF ______________________________, WITH
TERMS SATISFACTORY TO HAWAIIAN.
VI. TERM OF AGREEMENT, RENEWAL AND RIGHT OF CANCELLATION
(1) The price established herein shall be effective for the period
February 1, 1998 to April 30, 1999. The Parties agree to
negotiate in good faith to establish the price for the second
year, May 1, 1999 to April 30, 2000. Negotiations shall
commence no later than September 1, 1998.
(2) If an agreement cannot be reached on a new price by December
1, 1998, the contract will terminate, upon one hundred twenty
(120) days' advance written notice from either Party unless
otherwise agreed, in writing, by both Parties.
VII. GENERAL TERMS
(1) Meals will be provided at appropriate times as part of the
contract price. Except as set forth in this Agreement, movie
headsets, alcoholic beverages and all "Duty Free" sales will
be for the account of Hawaiian.
(2) Hawaiian reserves the exclusive right to sell and carry cargo
on these flights. It is further agreed that all cargo will be
boarded only if Charterer does not use all of the chartered
space for its passengers baggage, including excess baggage.
Pursuant to paragraph 4.13, all excess baggage will have a
higher boarding priority than any freight sold by Hawaiian.
(3) ANC-HNL: Excess baggage charges collected by Hawaiian in
Anchorage will be forwarded to Charterer's airport supervisor
within one (1) hour of each departure..
HNL-ANC: Hawaiian will reduce Charterer's payment per rotation
by ___________ for any excess baggage charges collected by
Hawaiian.
FAILURE TO COMPLY WITH THE REQUIREMENTS LISTED ABOVE WILL RESULT IN THE
CANCELLATION OF THIS AGREEMENT AND ALL TERMS, CONDITIONS AND PROVISIONS
PERTAINING TO THIS AGREEMENT WILL BE CONSIDERED NULL AND VOID.
HAWAIIAN AIRLINES, INC. HAWAIIAN VACATIONS, INC.
a Hawaii corporation an Alaska corporation,
By By
------------------------------------------ -------------------------------
Glenn G. Taniguchi Its
Its Vice President
Reservations & Schedule Planning
By
------------------------------------------
Clarence K. Lyman
Its Vice President-Finance
<PAGE>
EXHIBIT A
TERMS OF CARRIAGE
(Attached)
<PAGE>
EXHIBIT B
[LOGO]
LIMITED USE OF HAWAIIAN AIRLINE'S NAME AND/OR LOGO
Hawaiian Airlines, Inc., a Hawaii corporation ("Hawaiian") grants :
_________________________________, ("Contractor" or "Vendor")
- Non-exclusive - Non-transferable - Limited license
to use Hawaiian's trademarks, servicemarks and trade names, but solely in
connection with these agreed upon terms and obligations. Hawaiian Airlines'
Marketing Department shall provide Contractor with the necessary artwork.
CONTRACTOR/VENDOR REQUIREMENTS FOR USEAGE OF HAWAIIAN'S ARTWORK AS FOLLOWS:
- - Signed copy of this form must be forwarded prior to printing or production
start to:
Senior Director of Marketing and Promotions
Hawaiian Airlines
P.O. Box 30008 Honolulu, HI 96820
- - Hawaiian Airlines shall have the right to REVIEW AND APPROVE or disapprove
artwork prior to production. Contractor shall provide the printed materials
to Hawaiian in a timely manner and Hawaiian shall respond with approval or
disapproval in a timely manner
- - Two (2) samples of the finished product or ad must be provided to Hawaiian
within seven (7) days of production.
- - Contractor must return of the artwork (unless otherwise directed by
Hawaiian Airlines) within seven (7) days of production.
- - Upon completion of the production, contractor shall destroy any and all
screens and/or films developed for this assignment, unless otherwise
instructed by Hawaiian.
GOVERNING LAW AND DISPUTES. This agreement shall be governed by and construed in
accordance with the laws of the State of Hawaii. Any dispute, controversy or
claim arising out of or relating to this agreement, or the breach thereof, shall
be settled by immediate binding arbitration in accordance with the Arbitration
Rules then prevailing of the American Arbitration Association for Commercial
Disputes. The Arbitrators shall interpret the agreement in accordance with the
laws of the State of Hawaii and the arbitration shall take place in Honolulu,
Hawaii. Judgment upon any arbitral award contemplated above may be entered in
any court in the State of Hawaii having jurisdiction.
CONTRACTOR/VENDOR AGREES TO THE TERMS AND CONDITIONS STATED ABOVE:
By______________________________ Print Name: _______________________________
(Authorized Signature)
________________________________ _______________________________
(Title) (Date)
Address: ____________________________________________________________________
Phone: ______________________________ Fax: _______________________________
Intended Usage of Hawaiian Airlines' artwork: _______________________________
_____________________________________________________________________________
<PAGE>
EXHIBIT C
The following are amenities/services that Hawaiian will provide to Charterer's
customers for flight delays:
REDACTED IN ITS ENTIRETY.
<PAGE>
DOMESTIC FARE RULES TARIFF BA-2
4th Revised Page 70
SECTION V BAGGAGE
RULE NO.
230 LIABILITY -- BAGGAGE
A) LIMITATIONS OF LIABILITY
Liability, if any, for the loss of, damage to, or the delay in
the delivery of, any personal property, baggage (whether such
property has been checked in or otherwise delivered into the
custody of the carrier) shall not be more than USD 1,250.00
per passenger subject to certain exclusions set forth below
unless the passenger elects to pay for higher liability as
provided for in paragraph C) below. These limitations also
apply to baggage or personal property accepted by HA for
temporary storage at a city or airport ticket office or
elsewhere before or after the passengers trip.
EXCEPTION 1: When transportation is via HA, and one or more
carriers with different limitations of
liability, and responsibility for loss, damage
or delay in delivery of baggage cannot be
determined, the lowest maximum liability will
apply when the claim is filed with HA.
EXCEPTION 2: The maximum liability for the loss, damage or
delay in delivery of any assistive device (such
as a wheelchair which is the property of the
paying passenger) is limited to 200% of the
normal baggage liability on any domestic segment
of a domestic or international trip.
B. EXCLUSIONS FROM LIABILITY
1) HA shall not be liable for the loss, damage or delay in delivery of
any property which is not acceptable for transportation in
accordance with Hawaiian's Rules 190, 195 and 200, or for any other
loss or damage of whatever nature resulting from any such loss or
damage, or from the transportation of such property. This exclusion
is applicable whether the nonacceptable property is included in the
passengers checked baggage, with or without the knowledge of the
carrier.
2) HA shall not be liable for the loss, damage or delay in delivery of
a passenger's cabin baggage.
<PAGE>
8th Revised Page 71
SECTION V BAGGAGE
RULE NO.
230
LIABILITY -- BAGGAGE
EXCLUSIONS FROM LIABILITY (CONTINUED)
3) HA assumes no liability for medicines including but not limited to
vitamins, dietary supplements, over counter home remedies etc.,
orthotic devices (surgical supports), money, jewelry, camera
equipment, kitchen appliances of any kind, or other valuable or
fragile items, including but not limited to items listed below,
whether contained in checked or unchecked baggage, with or without
the knowledge of HA:
A) ARTISTIC ITEMS
Sculptures; paintings or pictures, framed or unframed; and
models. Sconces; decorative screens; items of decorator stones;
marble, onyx and alabaster; vases; figurines; trophies;
souvenirs; other decorator objects and curios, chess sets;
drawings; statues; or other sculptures; paintings; picture
albums; plastics; plaster of paris molds and casts; photographs;
display models; antique furniture; fish tanks; terrariums;
religious or ceremonial mats; artifacts.
B) CHINAWARE/CERAMICS/POTTERY (See also GLASS)
Ceramics, pots, bowls, crockery, dishes, glasses, earthenware,
and other containers or ornaments made of porcelain or clay
hardened by heat.
C) ELECTRONIC AND MECHANICAL ITEMS
Typewriters, sewing machines, watches, clocks, sensitive
calibrated tools and instruments, televisions, radios (including
citizen band), calculators, audio and video equipment, computers
and/or parts thereof, cellular telephones and/or parts thereof,
compact disc players, discs, and parts thereof, electronic
microscopes, electographs, and electronic medical equipment that
includes tubes and glass.
D) GARMENT BAGS
Garment Bags and suit/dress covers of light, flimsy plastic or
vinyl designed for carrying and not for shipping.
E) GLASS (See also CHINAWARE/CERAMICS/POTTERY)
Glassware, crystal, mirrors, bottles and any liquids contained
therein (excluding reasonable quantities or toiletries),
telescopes, binoculars, barometers; prescription or
non-prescription sunglasses, eyeglasses and contact lenses.
F) HOUSEHOLD ARTICLES
Lamps, lamp shades, picture frames and furniture.
G) LIQUIDS
H) LIQUOR/CARTONS
Liquor/cartons provided for hand carriage by duty-free shops.
<PAGE>
3rd REVISED Page 71A
SECTION V BAGGAGE
RULE NO.
230
LIABILITY -- BAGGAGE
EXCLUSIONS FROM LIABILITY (CONTINUED)
I) MUSICAL INSTRUMENTS AND EQUIPMENT
Guitars, violins and violas, cello, organs, harps, drums, and other
musical instruments and amplifiers or speakers used in conjunction with
electronic instruments that are not protected or in carrying cases that
are not sufficient to prevent damage during the course of normal baggage
handling.
J) PAPER
Business/personal documents, negotiable papers, securities, manuscripts,
publications (including manuals and textbooks), mechanical drawings,
blueprints, maps, charts, historical documents, and photographs.
NOTE: All photographs referred to in this section include negatives,
prints, portraits and slides.
K) PERISHABLE ITEMS
(1) Floral and nursery stock such as flower, fruit and vegetable plants;
cut flowers and foliage; floral displays; and bulbs.
(2) Foodstuffs (fresh and frozen) such as fruits, vegetables, meat, fish
cheese, poultry, and bakery products.
(3) Medicines including but not limited to vitamins, dietary
supplements, over counter home remedies etc.,
(4) Plants and foliage such as branches and blossoms or flowers, fruits
and vegetables.
L) PHOTOGRAPHIC/CINEMATOGRAPHIC EQUIPMENT
Cameras, camera lenses, film (processed or unprocessed), photoflash
equipment, photometers, spectroscope, phototubes, or other devices
using sensitive tubes or plates.
M) PLASTICS (See also TOYS)
N) PRECISION ITEMS(See also ELECTRONIC AND MECHANICAL ITEMS)
Microscopes, oscilloscopes, binoculars, meters, counters, polygraphs
electrographs, medical equipment, watches, clocks, and other sensitive
calibrated tools and equipment.
O) RECREATIONAL AND SPORTING GOODS
Backpacks, sleeping bags, and knapsacks (and contents thereof) made of
cloth, plastic, vinyl, or other easily torn material, and those that
have aluminum frames, outside pickets, straps, buckles and other
protruding parts.
<PAGE>
2nd REVISED Page 71B
SECTION V BAGGAGE
RULE NO.
230
LIABILITY -- BAGGAGE
EXCLUSIONS FROM LIABILITY(CONTINUED)
P) TOYS
Dolls, stuffed animals, dollhouses, and model trains and airplanes.
Q) MISCELLANEOUS ITEMS
Natural fur products, irreplaceable times, sample goods for resale,
heirlooms, collectives, artifacts, precious metals/stones,
silverware, cash. toolboxes and tools.
R) DENTURES AND RETAINERS
4. HA shall not be liable for damage to baggage which does not impair the
ability of the baggage function, and specifically shall not be liable
for damage arising from the normal wear and tear of baggage handling,
including but not restricted to scratches, scuffs, punctures, or
marks.
5. HA shall not be liable for loss or damage to articles which are
strapped, fastened, or otherwise secured to other baggage being checked
and which are not independently tagged and/or packaged. Such items
include but are not restricted to, sleeping bags, luggage racks, luggage
carriers and umbrellas.
6. HA shall not be liable for the loss, damage to, or delay in delivery of
any property checked by a passenger traveling on a nonrevenue or reduced
rate ticket, except for any assistive devices.
7. HA shall not be liable for the loss, damage or delay in delivery of any
baggage accepted by another carrier for interline transfer to HA if the
items are not acceptable for transportation as checked baggage by HA
8. The owner of a pet shall be responsible for compliance with all
governmental regulations and restrictions, including furnishing valid
health and rabies vaccination certificates when required. HA shall not
be liable for the loss or expense due to the passenger's failure to
comply with this provision, and HA shall not be responsible if any pet
is refused passage through any county, state or territory.
C) DECLARATION OF HIGHER VALUE
1. A passenger may, when checking in for a flight and presenting
property for transportation, pan an additional charge for each
carrier on which the property is to be transported and declare a
value higher than the maximum amounts specified in paragraph A)
above and up to the maximum specified below, in which event, HA's
liability shall not exceed the higher declared value.
2. Any declared value shall not apply to items listed in paragraph B,
"Exclusions from Liability" above or similar valuables when such
valuables are included in baggage checked or otherwise delivered
into the custody of HA.
<PAGE>
1st REVISED Page 71C
SECTION V BAGGAGE
RULE NO.
230
LIABILITY -- BAGGAGE
DECLARATION OF HIGHER VALUE CONTINUED)
3. HA's excess valuation may be purchased at the rate of USD 1.00 per USD
100.00 of declared value. The declared value is not to exceed USD
2,500.00.
4. "Declaration of Higher Value" does not apply to live animals.
<PAGE>
1ST REVSIED Page 71D
INTENTIONALLY LEFT BLANK
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
BETWEEN
HAWAIIAN AIRLINES, INC.
AND
RENAISSANCE CRUISES, INC.
DATED: NOVEMBER 2, 1998
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
BETWEEN
HAWAIIAN AIRLINES, INC.
AND
RENAISSANCE CRUISES, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. GENERAL..........................................................1
Section 1.01 Entire Agreement.............................................1
Section 1.02 Term.........................................................1
ARTICLE 2. CHARTER AIR TRANSPORTATION, FLIGHT SCHEDULES AND FARE
LEVELS...........................................................1
Section 2.01 Charter Flight(s)............................................1
Section 2.02 Regulatory Compliance........................................2
Section 2.03 The Aircraft.................................................2
ARTICLE 3. FINANCIAL ARRANGEMENTS...........................................2
Section 3.01 Security Deposit.............................................2
Section 3.02 Payments.....................................................3
Section 3.03 Manifest List................................................3
Section 3.04 Non-Payment..................................................4
Section 3.05 Transportation Taxes and Fees................................4
Section 3.06 Late Charges on Past-Due Payments............................4
ARTICLE 4. PERFORMANCE OF CHARTER FLIGHTS...................................5
Section 4.01 Aircraft and Regulations.....................................5
Section 4.02 Flight Schedule..............................................5
Section 4.03 Flight Delay.................................................5
Section 4.04 Substitute Aircraft..........................................5
Section 4.05 Alternate Routing............................................6
Section 4.06 Alternate Landing............................................6
Section 4.07 Inflight Service.............................................6
Section 4.08 Customer Service Handling....................................6
Section 4.09 Passengers'and Consignors'Travel Documents...................6
Section 4.10 Inspection...................................................7
Section 4.11 Passenger Ticketing..........................................7
Section 4.12 Unused Capacity..............................................7
Section 4.13 Cargo Utilization............................................7
Section 4.14 No Show Passengers...........................................8
Section 4.15 Additional Use of Aircraft; Deviations From Schedule.........8
Section 4.16 Passenger and Baggage Limitations............................8
Section 4.17 Charter Cancellation (Obligation to Passengers)..............8
Section 4.18 Denied Boarding Compensation.................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5. FUEL.............................................................9
Section 5.01 Fuel Surcharge...............................................9
Section 5.02 Fuel Availability............................................9
ARTICLE 6. SPECIAL SERVICES AND CHARGES....................................10
ARTICLE 7. CHARTER ELIGIBILITY.............................................10
Section 7.01 Charterer's Compliance with DOT Regulations.................10
Section 7.02 Charterer Furnished Documents...............................10
Section 7.03 Charterer Breaches of Regulations...........................10
ARTICLE 8. LIABILITY.......................................................11
Section 8.01 Charterer's Responsibility to Passengers....................11
Section 8.02 Baggage Liability; Limitations of Liability;
Exclusions from Liability; Declaration
of Higher Value.........................................11
Section 8.03 Notification................................................11
Section 8.04 Consequential Damages.......................................11
Section 8.05 Insurance...................................................12
Section 8.06 Certificates of Insurance...................................12
Section 8.07 Indemnification.............................................12
ARTICLE 9. CANCELLATION CHARGES AND FEES...................................13
Section 9.01 Cancellation Charges/Fees...................................13
Section 9.02 Cancellation Charges for Delay of Start Prior to
Commencement of Service.*...............................13
Section 9.03 Maximum Cancellation Charges for Cancellation of
Agreement or Cancellation of Charter Flights
for One Ship, Prior to Commencement of Service..........13
Section 9.04 Cancellation of Charter Flights after Commencement
of Service..............................................14
Section 9.05 Privileged Licenses.........................................14
ARTICLE 10. USE OF NAME AND/OR LOGO........................................15
Section 10.01 Mutual Licenses.........................................15
Section 10.02 Logo Use Form...........................................15
Section 10.03 Logo Use by Third Parties...............................15
Section 10.04 Approval of Logo Use....................................15
Section 10.05 Approval of News Releases...............................15
ARTICLE 11. GENERAL CONDITIONS.............................................16
Section 11.01 Charterer as Contracting Party..........................16
Section 11.02 Governmental Regulation.................................16
Section 11.03 Applicable Law and Jurisdiction.........................16
Section 11.04 Written Agreement.......................................16
Section 11.05 Strict Performance......................................16
Section 11.06 Titles and Headings.....................................17
Section 11.07 Gender..................................................17
Section 11.08 Bankruptcy..............................................17
Section 11.09 Termination for Cause...................................17
Section 11.10 Attorneys'Fees..........................................17
Section 11.11 Confidentiality.........................................17
Section 11.12 No Partnership..........................................18
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 11.13 Force Majeure...........................................18
Section 11.14 Assignment; SubCharter..................................19
Section 11.15 Notices.................................................19
Section 11.16 Severability............................................19
Section 11.17 Execution in Counterparts...............................20
Section 11.18 Entire Agreement; Amendments; Waiver....................20
ARTICLE 12. REPRESENTATIONS AND WARRANTIES.................................20
</TABLE>
iii
<PAGE>
PASSENGER AIRCRAFT CHARTER AGREEMENT
This Passenger Aircraft Charter Agreement (the "Agreement") is made and
entered into and effective the 2ND DAY OF NOVEMBER, 1998 (the "Effective Date"),
by and between HAWAIIAN AIRLINES, INC., a Hawaii corporation, whose principal
place of business and mailing address is P.O. Box 30008, Honolulu, Hawaii, 96820
("Hawaiian") and R HOLDINGS, INC., sole shareholder of RENAISSANCE CRUISES,
INC., an Antigua & Barbuda corporation, whose principal place of business and
post office address is 1800 Eller Drive, Suite 300, Ft. Lauderdale, Florida
33335-0307 (collectively referred to herein as "Charterer").
W I T N E S S E T H :
WHEREAS, Hawaiian is engaged in the business of providing commercial and
charter air transportation, and Charterer is in the business of providing cruise
and travel vacation arrangements for sale to the public;
WHEREAS, Hawaiian and Charterer desire to set forth the charter fare
levels, flight schedules and other procedures to be followed, whereby Charterer
may purchase charter air transportation on Hawaiian,
NOW, THEREFORE, in consideration of the premises and the mutual obligations
hereinafter set forth, Hawaiian and Charterer agree as follows:
ARTICLE 1. GENERAL
SECTION 1.01 ENTIRE AGREEMENT.
The Agreement constitutes the entire agreement and understanding of the parties
regarding the subject matter hereof, and, as of the commencement date,
supersedes all prior agreements, whether written or oral, between the
parties concerning the subject matter hereof.
SECTION 1.02 TERM.
This Agreement shall be effective immediately and shall continue through
AUGUST 31, 2001 unless sooner terminated in accordance with its terms.
ARTICLE 2. CHARTER AIR TRANSPORTATION, FLIGHT SCHEDULES AND FARE LEVELS
SECTION 2.01 CHARTER FLIGHT(S).
Subject to the terms and conditions of this Agreement, Hawaiian agrees to make
available to Charterer, and Charterer agrees to charter from Hawaiian,
aircraft of the type and configuration as set forth in Attachment A,
attached hereto (the "Aircraft"), for the performance of the charter
flights described in Attachment A (the "Charter Flights").
<PAGE>
SECTION 2.02 REGULATORY COMPLIANCE.
The performance of both parties under this Agreement is subject to the receipt
by each party from the other on or before DECEMBER 31, 1998 of evidence
that the other party hereto has obtained all necessary government
regulatory approvals for conduct of the Charter Flights, such approvals to
include as to Hawaiian, but not be limited to, a grant of landing rights
from the Government of Tahiti, necessary for the period of this Agreement;
and as to Charterer, one of the following:
(a) A Cruise Line Waiver from the United States Department of Transportation
("DOT") authorizing the sale and operation by Charterer of the Charter
Flights or, in the alternative,
(b) Approval by the DOT of Form 4533 "Statement of Charter Operator or Direct
Air Carrier and Securer", Form 4532 "Statement of Charter Operator and
Direct Air Carrier Flight Schedule", and Form 4534 "Statement of Charter
Operator, Direct Air Carrier and Depositor Bank" and satisfactory assurance
of Charterer's compliance with applicable provisions of Part 380 of the DOT
Regulations.
(c) The parties hereto acknowledge that Section 380.32(h) of the DOT
Regulations preclude cancellation by either party hereto of a Charter
Flight less than ten (10) days prior to said Charter Flight.
SECTION 2.03 THE AIRCRAFT.
Charterer acknowledges that Hawaiian has executed a Letter of Intent for the
purchase of the Aircraft, which Letter of Intent provides for the purchase
and possession by Hawaiian of the Aircraft in November of 1998 and March
of 1999, respectively.
ARTICLE 3. FINANCIAL ARRANGEMENTS
SECTION 3.01 SECURITY DEPOSIT.
Simultaneous with the execution of this Agreement, as security for the payment
of any and all amounts due Hawaiian pursuant to this Agreement and not paid
by Charterer, Charterer or its designee shall deliver to Hawaiian a
nonrevocable letter of credit (the "Letter of Credit") in the amount
of __________________________________ and in a form reasonably acceptable
to Hawaiian, which shall remain valid until ninety (90) days after the
termination of this Agreement. Hawaiian shall promptly report to Charterer
any draw made against such letter of credit and, unless all Charter Flights
hereunder have been cancelled, Charterer shall immediately amend such
letter of credit to provide for additional security in the amount so
reported to have been drawn or cause to be issued a new letter of credit in
the amount so reported to have been drawn, so that the total security
availability to Hawaiian pursuant to the letter(s) of credit shall remain
_________________________________________ at all times.
2
<PAGE>
SECTION 3.02 PAYMENTS.
Charterer shall make all payments due to Hawaiian under this Agreement,
including as listed in Attachment A, on a timely basis and in the manner
described herein. Hawaiian, Charterer and Bank of Hawaii shall enter into
an Escrow Agreement which shall establish an escrow account (the "Escrow
Account"). The full payment, as listed in Attachment A, for each Charter
Flight rotation shall be deposited on or before fifteen (15) days prior to
departure of each rotation to the Escrow Account in immediately available
United States ("U.S.") dollar funds by electronic funds transfer to:
Bank of Hawaii
Main Branch
111 South King Street
Honolulu, Hawaii 96813
Attention: Escrow Department
Federal Wire Routing No. ___________
Escrow #: ___________
Credit A/C: ___________
Each deposit to the Escrow Account shall be accompanied by sufficient
information to properly identify the payment in accordance with the
requirements of Part 207 and Part 380 of DOT Regulations. All monies shall
remain in the Escrow Account until the rotation for which payment is made
has been completed, at which time such funds shall be paid to Hawaiian.
(a) If Charterer obtains a Cruise Line Waiver from the DOT, then payment shall
be made directly by Charterer into the Escrow Account as above described.
(b) In the event that Charterer does not receive a Cruise Line Waiver from the
DOT, then Charterer, Hawaiian, and the Charterer's bank (the "Depository
Bank") shall execute a depository agreement (the "Depository Agreement") in
form and substance satisfying the requirements of Part 380, which agreement
shall automatically become a part of this Agreement. Payment from customers
for Charter Services shall be deposited directly into the Depository Bank.
Hawaiian shall be paid in accordance with the terms of the Depository
Agreement.
(c) If any rotation for which payment has been made into the Escrow Account is
not completed as the result of a failure by Hawaiian which is not otherwise
excused under Paragraph 11.13, then Bank of Hawaii shall dispose of such
funds in accordance with the terms of the Escrow Agreement, or,
alternatively, where a Cruise Line Waiver is in effect, such funds shall be
paid over to Charterer, unless otherwise provided in this Agreement.
SECTION 3.03 MANIFEST LIST.
At least two (2) days prior to the departure of each Charter Flight segment,
Charterer will fax to Hawaiian a manifest list of all passengers for the
flight. This manifest list will be
3
<PAGE>
faxed to Hawaiian Airlines, Schedule Planning at 808/838-6738. No later
than six (6) hours prior to the departure of each Charter Flight
segment, Charterer will fax to Hawaiian a revised manifest list of all
passengers for the flight segment. This manifest list will be faxed to
Hawaiian Airlines, Schedule Planning at 808/838-6738 and to Customer
Service, attention Bob Fishman, at 808/836-1791. Pursuant to FAA
regulations, this list shall contain full names of passengers and the
name and telephone number of a non-accompanying contact for each
passenger.
SECTION 3.04 NON-PAYMENT.
If full payment for any Charter Flight is not deposited into the Escrow Account
fifteen (15) days before the scheduled departure of said flight, Hawaiian
shall have the right to draw said payment under the Letter of Credit for
deposit into the Escrow Account and shall report said draw to Charterer
pursuant to Section 3.01 and the Escrow Agreement. Hawaiian shall have no
obligation to perform said Charter Flight and reserves the right to cancel
any Charter Flight unless, at least eleven (11) days prior to the scheduled
departure date for said Charter Flight, Charterer shall have amended the
Letter of Credit so that the availability thereunder is restored to
_______________ or have otherwise made full payment for the Charter Flight.
Such payments shall be paid, without notice, demand, counterclaim, set off
or deduction whatsoever.
SECTION 3.05 TRANSPORTATION TAXES AND FEES.
The charter price as set forth in Attachment A is exclusive of transportation
taxes, passenger facility charges (PFCs) and charter international terminal
fees (CITs). Charterer is responsible for these taxes/fees and any
additional airport assessments or passenger charges. Hawaiian will remit
any such payments directly to the appropriate entity and will process a
reconciliation invoice to Charterer on a monthly basis. Charterer will pay
such amounts directly to Hawaiian with the regular payment made fifteen
(15) days prior to rotation, if known, or within fifteen (15) days of
receipt of invoice from Hawaiian. Any decreases or increases in
transportation taxes, PFCs, or CITs, or other such costs will be passed
through by Hawaiian to Charterer.
SECTION 3.06 LATE CHARGES ON PAST-DUE PAYMENTS.
In the event Charterer fails to make any payment to Hawaiian when it becomes due
pursuant to this Agreement or fails to restore the Letter of Credit to
________________ within four (4) days of receipt of notice from Hawaiian of
such failure or draw, Charterer shall pay Hawaiian interest on the amount
in default from the due date to the date of payment at the then current
prime rate of interest announced in the Wall Street Journal on the last day
of the preceding month plus __________________ per annum, or at the highest
rate applicable by law, whichever is less.
4
<PAGE>
ARTICLE 4. PERFORMANCE OF CHARTER FLIGHTS
SECTION 4.01 AIRCRAFT AND REGULATIONS.
For each Charter Flight, Hawaiian shall provide the Aircraft properly maintained
and fueled. Charterer shall observe all operating rules and regulations of
Hawaiian and shall comply with all reasonable instructions of Hawaiian
employees and agents. The Aircraft and its crew will, at all times during
the course of Charter Flights, be under the exclusive command and control
of Hawaiian and Hawaiian's Pilot-In-Command whose orders will be strictly
complied with by Charterer and all passengers.
SECTION 4.02 FLIGHT SCHEDULE.
Hawaiian shall use its best efforts to carry the Charter passengers and their
baggage with reasonable dispatch. Departure times are subject to and may be
altered by routing, the availability of airport gate spaces, mechanicals,
weather conditions and other force majeure factors listed in Section 11.13.
Each party hereto agrees to use its best efforts in causing on-time
departure of all Charter Flights in accordance with the schedules which are
set forth in Attachment A or as otherwise agreed by Hawaiian and Charterer.
Hawaiian will not be liable to the Charterer or any other individual for
the transportation of any passenger who is not at the specified check-in
point at least one and one-half (1-1/2) hours prior to the scheduled
departure, and such flight may depart as scheduled without such
passenger(s).
SECTION 4.03 FLIGHT DELAY.
In the event of a delayed departure of a Charter Flight, Hawaiian shall use its
best efforts to accommodate passengers on other Hawaiian flights, including
Charter Flights, and shall provide to passengers the services described in
Exhibit C.
SECTION 4.04 SUBSTITUTE AIRCRAFT.
Under circumstances described in Section 11.13 or in the event of a mechanical
failure which results in an anticipated delay of twelve (12) hours for any
Charter Flight, Hawaiian will attempt to substitute comparable aircraft
(i.e., aircraft with at least 256 passenger seats, and the capability to
operate between LAX and PPT) of a type different from that specified in
Attachment A without penalty to Hawaiian, provided that any such
substitution shall not result in an increase in the charter price payable
by the Charterer. If Hawaiian is unable to perform for any reason set out
in paragraph 11.13 hereof or in the event of a mechanical failure which
results in a delay of twelve (12) hours for any Charter Flight, it may, to
the extent permitted by applicable government regulations, subcontract the
performance of any of its obligations under this Agreement, provided that
it shall not thereby be relieved of its obligations to Charterer and
provided that all passengers with reservations on such flights will be
protected by such substitution at no additional cost to Charterer. Hawaiian
shall provide Charterer with not less than nine (9) months written notice
in advance of any scheduled maintenance which would affect the flight
rotations noted in Attachment A hereto.
5
<PAGE>
SECTION 4.05 ALTERNATE ROUTING.
If, for any reason, Hawaiian determines, in the exercise of its reasonable
discretion, at any time, that the landing facilities at any point(s) on the
itinerary of the charter are inadequate for safe operation or if landing is
prohibited or restricted by law, Hawaiian may substitute in place thereof
the nearest point at which, in Hawaiian's sole judgment, suitable landing
facilities are available and landing can be made. In this event, the
parties shall share equally in the costs for the transportation and all
additional costs of whatever nature, of the passengers to the original
destination.
SECTION 4.06 ALTERNATE LANDING.
Hawaiian shall not be liable for loss, injury, damage or delay to or suffered by
the Charterer or any passengers or consigned cargo due to landing at an
airport or at a destination other than as contracted, or due to a failure
to stop at any contracted intermediate airport, or due to any flight
interruption, delay or cancellation caused by riots, wars, civil
commotions, strikes, labor disputes, weather conditions, acts of God,
public enemies, quarantine, or due to any other cause (whether of the same
or different nature) beyond Hawaiian's control. In the event any of the
foregoing shall occur, Hawaiian shall have the right, without any
liability, to cancel any portion of this Agreement affected by the above.
SECTION 4.07 INFLIGHT SERVICE.
Hawaiian shall staff each Charter Flight with an inflight crew as listed in
Attachment A. Inflight service will be provided as described on Attachment
A. If requested by Charterer, Hawaiian will provide duty free sales on the
Charter Flights.
SECTION 4.08 CUSTOMER SERVICE HANDLING.
Hawaiian will provide customer service agents, either Hawaiian employees or
agents under contract with Hawaiian for ground service, at each origin and
destination point to provide dedicated service for the Charter Flights in a
manner consistent with the "business class" service provided inflight, as
listed in Attachment A.
SECTION 4.09 PASSENGERS' AND CONSIGNORS' TRAVEL DOCUMENTS.
Charterer and all passengers and all cargo consignors shall comply with all
laws, regulations, orders, demands and travel requirements of all states
and countries to be flown from, to or over and shall comply with all of
Hawaiian's associated rules and instructions. Charterer and all passengers
and all cargo consignors and consignees shall present all exit, entry,
health and other documents required by the laws, rules or regulations, of
the states or countries concerned. Hawaiian reserves the right to refuse
carriage to any passenger or refuse to carry any cargo on Charter Flights
if, in Hawaiian's sole judgment, the required documents have not been
completed or the applicable laws, regulations, orders, demands or travel
requirements have not been complied with, and Hawaiian shall not be liable
for loss or expense suffered by any passenger or cargo consignor due to its
failure to comply with the requirements listed in this paragraph.
6
<PAGE>
Charterer will provide appropriate information on required travel
documentation to all passengers. Charterer agrees to pay for the
transportation of all persons or baggage that, on government regulation or
order, is required to be returned to the point of origin or elsewhere owing
to inadmissibility into a state or country, whether of transit or
destination, if information provided to Hawaiian was fraudulent. Hawaiian
shall be responsible for the expense of transportation of all persons or
baggage that, on government regulation or order, is required to be returned
to the point of origin or elsewhere if Hawaiian boarded passengers without
the proper documentation. If Hawaiian is required to pay or deposit any
fine or penalty or make any expenditure by reason of a failure to comply
with the laws, rules or regulations of the states or countries concerned,
Charterer shall reimburse Hawaiian for all amounts so paid or deposited and
any expenditures so incurred.
SECTION 4.10 INSPECTION.
Passengers will be required to comply with the requirements of Customs, United
States Department of Agriculture, Airport Security Personnel and any other
governmental officials regarding the inspection of passenger baggage.
Hawaiian shall not require Charterer to assist with Security Directive
SD-96-05B relating to profile screening.
SECTION 4.11 PASSENGER TICKETING.
Hawaiian will provide ticket jackets which Charterer will provide to all
passengers. Each ticket jacket will incorporate by reference this Agreement
and will include Hawaiian's Terms of Contract of Carriage and Warsaw
Convention limitations on liability. In the event of any inconsistency, the
terms of this Agreement shall prevail. Hawaiian authorizes Charterer to act
as its agent for the sole purpose of issuing tickets for Charter Flights
pursuant to this Agreement.
SECTION 4.12 UNUSED CAPACITY.
If the Charterer does not use all of the passenger space on any Charter Flight,
Hawaiian reserves the right to utilize said space with written consent from
the Charterer. Any revenue collected by Hawaiian for usage of such space
shall be paid over to Charterer.
SECTION 4.13 CARGO UTILIZATION.
As part of this Agreement, Charterer has the right to utilize the cargo space on
the Charter Flights as necessary to service its cruise vessels in Tahiti
and will pay Hawaiian handling charges for cargo shipments at rates/fees to
be provided by Hawaiian and will pay any related duties or fees levied on
such cargo. Charterer agrees to notify Hawaiian as early as possible, but
no later than ten (10) days before each Charter Flight of the amount of its
cargo usage for said Cargo Flight. Any cargo space on the Charter Flights
not utilized by Charterer may be utilized by Hawaiian for commercial or
company usage. Charterer and Hawaiian shall make every effort to
communicate with each other in a timely fashion regarding existence and
utilization of unused cargo space.
7
<PAGE>
SECTION 4.14 NO SHOW PASSENGERS.
Hawaiian shall not be responsible or liable for the transportation of passengers
who fail to report at the specified Hawaiian check-in point at the airport
one and one-half (1-1/2) hour prior to the scheduled departure time of the
flights, or who are, through no fault of Hawaiian's, not aboard at time of
departure. If one or more passengers fail to so report or board, Hawaiian
may depart as scheduled and shall in no way be responsible for or to such
individual but shall be deemed to have completed its contractual obligation
to Charterer.
SECTION 4.15 ADDITIONAL USE OF AIRCRAFT; DEVIATIONS FROM SCHEDULE.
When not in service pursuant to the schedule established in Attachment A to this
Agreement, the Aircraft remains available to Hawaiian for other operations,
and Hawaiian agrees to provide notification to Charterer immediately upon
negotiation of any such other operations.
(a) Charterer may, on not less than ninety (90) days notice to Hawaiian of the
points to be serviced and number and dates of rotations, charter the
Aircraft for other charter flights between different pairs of points, at
rates and under terms and conditions to be agreed between the parties
subject to availability of the Aircraft.
(b) Any deviations from the terms and conditions set out in this Agreement that
are subsequently made at the request of the Charterer, or caused by actions
of the Charterer, which result in an increase in costs to Hawaiian, shall
be billed to Charterer at a rate to be agreed between the parties, provided
that such rate, at a minimum, covers all of Hawaiian's costs plus _____.
SECTION 4.16 PASSENGER AND BAGGAGE LIMITATIONS.
Passengers and baggage will be carried within the space and weight limitations
of the Aircraft, said limitations to be established solely at the
discretion of Hawaiian. Hawaiian will have no responsibility for any
baggage which exceeds the space and weight limitations of the Aircraft, and
such baggage will be at the disposition and the expense of the Charterer.
Baggage limitations per passenger are two (2) checked bags, each having
linear dimensions no greater than 80", with a maximum weight of 70 pounds
each, and additionally two (2) unchecked bags having maximum linear
dimensions of 41", which may be carried on board the aircraft, unless such
limitations are reduced by governmental action, in which event the lower
limits shall apply. Hawaiian reserves the right to charge each passenger
for any baggage in excess of the maximum set forth herein at the applicable
excess baggage charges established in Hawaiian's Terms of Contract of
Carriage.
All excess baggage will be accepted on a space available basis. Hawaiian
will not accept liability for any expenses, including delivery, resulting
from the delayed delivery of such baggage.
8
<PAGE>
SECTION 4.17 CHARTER CANCELLATION (OBLIGATION TO PASSENGERS).
If either party hereto, apart from any reason provided in Section 11.13 hereof,
elects to cancel one or more segments of any Charter Flight or group of
flights, or defaults on any provision of this Agreement, which default
results in cancellation of one or more segments of any Charter Flight or
group of flights, then it shall be the sole responsibility of the party
defaulting or electing to cancel to provide return transportation to the
point of origin, if necessary, for all passengers, with no additional
expense to the non-defaulting/non-electing party. Hawaiian will exercise
its best efforts to arrange the necessary transportation, provided that if
the cancellation is due to Charterer's default or election, Charterer will
reimburse Hawaiian for its incremental expense.
SECTION 4.18 DENIED BOARDING COMPENSATION.
Hawaiian shall make good efforts to provide alternative travel necessary due to
an overbooking situation. Charterer shall reimburse Hawaiian its actual
documented costs and expenses for such alternative travel within ten (10)
days of submission of invoice for such alternative travel.
ARTICLE 5. FUEL
SECTION 5.01 FUEL SURCHARGE.
Charterershall pay for fuel based on the Fuel Surcharge Price Range and
application thereof as incorporated in Attachment A hereto. Any changes in
the Fuel Surcharge Price during the term of this Agreement shall be passed
through to Charterer. If the Fuel Surcharge Price falls below the low end
of the range provided in Attachment A, Charterer will be credited the
balance; if the actual Fuel Surcharge Price increases above the high end of
the range provided in Attachment A, Charterer will be charged for the
difference. Hawaiian will notify Charterer on or before the 25th day of
each month after commencement of operations hereunder of the net amount of
the total Fuel Surcharge Price costs incurred in the preceding month by
Hawaiian pursuant to this Agreement. Within fifteen (15) days after such
notification, Charterer shall pay Hawaiian any additional amount due to
Hawaiian above the basic Fuel Surcharge Price or Hawaiian shall credit
Charterer's account any balance due to a decrease below the basic Fuel
Surcharge Price.
SECTION 5.02 FUEL AVAILABILITY.
The provision of all necessary fuels, lubricants and other necessary aircraft
fluids is the sole obligation of Hawaiian, and Hawaiian hereby covenants
that all fuels, lubricants and the like necessary for operation of the
Charter Flights provided herein, will be available at all times as
required, except as provided in Sections 11.13. Any breach of this
provision shall be deemed a material breach of the Agreement.
9
<PAGE>
ARTICLE 6. SPECIAL SERVICES AND CHARGES
In the event Charterer requests, in writing, Hawaiian's assistance in securing
ground transportation for passengers or baggage, hotel reservations or other
services, Hawaiian shall make supplier recommendations and suggestions but
Charterer shall perform its own negotiations and bear the cost of such services
and all risks of injury, damage or loss arising out of such services.
ARTICLE 7. CHARTER ELIGIBILITY
SECTION 7.01 CHARTERER'S COMPLIANCE WITH DOT REGULATIONS.
Charterer and its agents, and all passengers shall be deemed to have notice of
and shall comply in all respects with Parts 207 and 208 of the Economic
Regulations or Part 380 of the Special Regulations of the DOT and all other
applicable laws, rules, or regulations (the "Regulations"). Should Hawaiian
reasonably determine that the Charterer, its agents or any passengers have
failed to comply with any of the Regulations, Hawaiian shall provide
immediate notice to Charterer and afford Charterer a right to cure such
failure for a period of fifteen (15) days or such shorter period as shall
end eleven (11) days before the next scheduled Charter Flight. If such
failure is not cured to Hawaiian's satisfaction, Hawaiian shall have the
right without penalty, return of deposits, or payments and damages, to
cancel a Charter Flight or refuse to board any of the passengers. A copy of
Part 207 and Part 380 has been provided to Charterer.
SECTION 7.02 CHARTERER FURNISHED DOCUMENTS.
The Charterer and its agents shall furnish Hawaiian in a timely manner with all
documents required by the Regulations, including, but not limited to, load
manifests, passenger lists, certifications and such other supporting
documentation as may be necessary for Hawaiian to obtain traffic rights for
the Charter Flight(s) in any state or country. Charterer acknowledges that,
once approved, any prospectus filed with the DOT will expire one (1) year
from the date of approval and that it must file a new prospectus with the
DOT prior to that expiration.
SECTION 7.03 CHARTERER BREACHES OF REGULATIONS.
Charterer agrees to give, at its own expense, such notice to the passengers
and/or consignors as Hawaiian shall request in the event the Charterer or
any charter participant breaches any of the Regulations and thereby causes
or threatens to cause delay or cancellation of a Charter Flight or
cancellation of any of the charter participants thereon. Hawaiian shall
incur no liability of any nature to Charterer, its agents, any travel
company or any charter participants as a result of giving such notice, or
refraining therefrom, whether or not such breach shall, in fact, cause or
result in the delay or cancellation of a Charter Flight. Charterer agrees
to indemnify Hawaiian and hold Hawaiian harmless from any claims, demands
or suits brought by Charterer's agents, any travel company or any charter
participants, defending such claims, demands or suits, arising out of
Charterer's giving the notice requested by
10
<PAGE>
Hawaiian, or refraining therefrom, whether or not such breach shall,
in fact, cause or result in the delay or cancellation of a Charter Flight.
ARTICLE 8. LIABILITY
SECTION 8.01 CHARTERER'S RESPONSIBILITY TO PASSENGERS.
Charterer acknowledges that it shall solely be responsible to passengers for
furnishing all services not required to be performed by Hawaiian, as set
forth in the Charterer's charter prospectus and solicitation material
distributed in connection with said Charter Flights. Charterer agrees to
hold Hawaiian free and harmless from and to defend Hawaiian and keep
Hawaiian indemnified against any and all claims, actions, or demands
brought or asserted against Hawaiian, including any legal fees and expenses
incurred in the defense of such claims, arising out of any act or omission
of the Charterer, its agents, servants or employees.
SECTION 8.02 BAGGAGE LIABILITY; LIMITATIONS OF LIABILITY; EXCLUSIONS FROM
LIABILITY; DECLARATION OF HIGHER VALUE.
The Terms of Contract of Carriage, which are attached hereto as Exhibit "A" and
made a part hereof, govern baggage liability and exclusions. Hawaiian shall
not be liable for delivery by surface transportation of checked baggage at
the passenger's point of destination, where the baggage is not presented by
the passenger at least one and one-half (1-1/2) hours prior to the
scheduled departure time of the flight on which the passenger is
transported or where the passenger is transported on a flight on which the
passenger did not hold a confirmed reservation and the passenger's luggage
did not accompany the passenger on such flight.
SECTION 8.03 NOTIFICATION.
The passengers must notify Hawaiian's agent at baggage check-in or at the time
cargo is turned over to Hawaiian of the existence of (1) fragile, (2)
perishable items, (3) live or (4) hazardous material unacceptable for air
transportation in checked or unchecked baggage so that Hawaiian may examine
said items to ensure that they are not prohibited from transportation for
any reason or are properly packed or prepared for air travel. If Hawaiian
determines that items are not properly prepared, Hawaiian will afford the
passenger the choice of (1) repacking or preparing the items according to
Hawaiian's specifications; or (2) signing a release eliminating Hawaiian
from all liability of loss or damage. If the passenger refuses either
option, Hawaiian may refuse carriage of the fragile or perishable items.
Hawaiian will refuse carriage of any prohibited items and the passenger
will be responsible for the disposal of any prohibited items.
SECTION 8.04 CONSEQUENTIAL DAMAGES.
Under no circumstances shall either party be liable for consequential damages
whether in contract, strict liability, or negligence.
11
<PAGE>
SECTION 8.05 INSURANCE.
At all times during the term of this Agreement, each Party shall, at its sole
cost and expense, carry and maintain in full force and effect, an insurance
policy with a carrier with an A.M. Best rating of A++ or A+;
(a) With respect to insurance carried and maintained by Hawaiian:
Comprehensive Airline Liability Insurance in an amount not less than
____________________________________ combined single limit bodily
injury (including Passengers) and property damage liability each
occurrence.
(b) With respect to insurance carried and maintained by Charterer:
Comprehensive General Liability Insurance in an amount not less than
______________________________________ combined single limit bodily
injury and property damage liability each occurrence.
SECTION 8.06 CERTIFICATES OF INSURANCE.
On or before the effective date of this Agreement, and as a condition to the
effectiveness of this Agreement, each party shall provide the other party
with certificates of insurance evidencing the coverage required in this
Agreement and listing the other as an additional named insured thereon. The
certificates shall indicate that the above coverage shall not be canceled
or materially altered without thirty (30) days prior written notice by the
insurers to the other Party.
SECTION 8.07 INDEMNIFICATION.
Hawaiian shall indemnify and hold harmless Charterer (including, without
limitation, Charterer's officers, directors, employees, servants and
agents) for, from and against all damages and claims for damages, demands,
liabilities, actions, losses, costs, suits, recoveries, judgments or
executions (including, without limitation, reasonable costs of
investigation, litigation costs, court costs, expert witness fees,
litigation support services, settlement costs and reasonable attorneys'
fees), damages or injury to persons or property including, without
limitation, injury resulting in death however caused, arising solely from
or relating solely to Hawaiian's performance of its obligations under this
Agreement. Charterer shall indemnify and hold harmless Hawaiian (including,
without limitation, Hawaiian's officers, directors, employees, servants and
agents) for, from and against all damages and claims for damages, demands,
liabilities, actions, losses, costs, suits, recoveries, judgments or
executions (including, without limitation, reasonable costs of
investigation, litigation costs, court costs, expert witness fees,
litigation support services, settlement costs and reasonable attorneys'
fees), damages or injury to persons or property including, without
limitation, injury resulting in death however caused arising solely from or
relating solely to Charterer's acts or omissions pertaining to the subject
matter of this Agreement.
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<PAGE>
ARTICLE 9. CANCELLATION CHARGES AND FEES
SECTION 9.01 CANCELLATION CHARGES/FEES.
Not withstanding the provisions of Section 11.13, in the event that the
cancellation of any Charger Flight under this Agreement, or of this
Agreement, results in the imposition, pursuant to any other provision of
this Agreement of a cancellation charge or fee, then any such charge will
be assessed as liquidated damages and not as a penalty.
SECTION 9.02 CANCELLATION CHARGES FOR DELAY OF START PRIOR TO COMMENCEMENT OF
SERVICE.*
If, prior to the Commencement of Service under this Agreement, Charterer cancels
one or more rotations of Charter Flights, then within ten (10) days of each
cancellation, Charterer shall pay to Hawaiian a cancellation charge for
each cancelled rotation based on the following schedule:
<TABLE>
<CAPTION>
---------------------------- -------------------------------------- -------------------------
If cancelled during the following periods:
Charge Per Rotation Ship R-3 Ship R-4
---------------------------- -------------------------------------- -------------------------
<S> <C> <C>
0 Prior to 1/31/1999
---------------------------- -------------------------------------- -------------------------
Prior to 3/31/1999 2/1/1999 to 7/31/1999
---------------------------- -------------------------------------- -------------------------
4/1/1999 to 7/31/1999 8/1/1999 to 10/31/1999
---------------------------- -------------------------------------- -------------------------
After 8/1/1999 After 11/1/1999
v ---------------------------- -------------------------------------- -------------------------
</TABLE>
*"Commencement of Service" means at least ten (10) scheduled Charter rotations
have been flown for each ship.
SECTION 9.03 MAXIMUM CANCELLATION CHARGES FOR CANCELLATION OF AGREEMENT OR
CANCELLATION OF CHARTER FLIGHTS FOR ONE SHIP, PRIOR TO
COMMENCEMENT OF SERVICE.
If, prior to Commencement of Service for either ship, Charterer cancels all
Charter Flights under this Agreement or all Charter Flights for either of
the ships used under this Agreement, then within ten (10) days of such
cancellation, Charterer shall pay to Hawaiian cancellation charges pursuant
to the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
SUMMARY OF MAXIMUM CANCELLATION CHARGES
----------------------------------------------------------------------------------------------------------
If Cancellation Maximum Cancellation Charge Maximum Total Cancellation
Occurs per Ship Charge
R3 R4
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prior to 1/31/99
----------------------------------------------------------------------------------------------------------
2/1/99 to 3/31/99
----------------------------------------------------------------------------------------------------------
4/1/99 to 7/31/99
----------------------------------------------------------------------------------------------------------
8/1/99 to 10/31/99
----------------------------------------------------------------------------------------------------------
After 11/1/99
----------------------------------------------------------------------------------------------------------
</TABLE>
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SECTION 9.04 CANCELLATION OF CHARTER FLIGHTS AFTER COMMENCEMENT OF SERVICE.
If, after Commencement of Service under this Agreement, Charterer cancels one or
more rotations of Charter Flights or cancels the remaining Charter Flights
under this Agreement, within ten (10) days of said cancellation Charterer
will pay to Hawaiian a cancellation charge for each cancelled rotation
based on the following schedule, provided that if in any consecutive thirty
(30) day period, Charterer cancels more than three (3) rotations, the cost
for each rotation cancelled [including the first three (3)] will be
__________________________________________________.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
WHEN THE FLIGHT IS CANCELED: THE CANCELLATION CHARGE
WILL BE:
------------------------------------------------------ ----------------------------------------------------
<S> <C>
One hundred twenty-one (121) days but not more than one hundred eighty
(180) days before a Charter Flight is to depart from point of origin.
-----------------------------------------------------------------------------------------------------------
At least ninety-one (91) days but not more than one hundred and twenty
(120)days before a Charter Flight is to depart from point of origin.
-----------------------------------------------------------------------------------------------------------
At least Thirty-one (31) days but not more than
ninety (90) days before a Charter Flight is to depart from point of
origin.
-----------------------------------------------------------------------------------------------------------
At least thirty (30) days and not more than ten (10)
days before a Charter Flight is to depart from point
of origin.
-----------------------------------------------------------------------------------------------------------
</TABLE>
SECTION 9.05 PRIVILEGED LICENSES.
Both Parties acknowledge that each Party conducts a business that is subject to,
and exists because of, privileged licenses issued by governmental
authorities. Each Party therefore agrees that, in the event that one Party
shall determine, in its reasonable judgment (i) that the other Party is, or
might be, engaged in, or about to be engaged in, any activity or activities
that jeopardizes, or could jeopardize, its business licenses, or (ii) that
the existence of this Agreement jeopardizes or may jeopardize, its business
or such licenses, such Party shall have the right, upon providing notice to
the other Party, immediately to suspend performance hereunder and, if such
reason for notice is not cured immediately to the noticing party's sole
satisfaction, terminate this Agreement, at which time the Agreement shall
cease and terminate and be of no further force and effect; provided,
however, that the indemnity and insurance provisions of this Agreement
shall survive any such termination.
14
<PAGE>
ARTICLE 10. USE OF NAME AND/OR LOGO
SECTION 10.01 MUTUAL LICENSES.
Each of the parties grants the other a non-exclusive, non-transferable, limited
license to use its trademarks, service marks and trade names, but solely in
connection with the terms and obligations of this Agreement.
SECTION 10.02 LOGO USE FORM.
Each party seeking to make use of the other's trademarks, service marks, and
trade-names shall be required first to execute a "Limited Use of Name
and/or Logo" form ("Logo Use Form") in the form attached hereto as
Composite Exhibit "B" prior to use of such trademark, service mark, or
trade name. Upon execution of such a Logo Use Form by Charterer, Hawaiian
shall provide Charterer forthwith with Hawaiian's logo in camera ready
format.
SECTION 10.03 LOGO USE BY THIRD PARTIES.
If Charterer desires to provide Hawaiian's logo to any third party vendor to
reproduce Hawaiian's logo ("Third Party Vendors"), the Third Party Vendors
shall be required to execute the Logo Use Form attached hereto as Exhibit
"B" prior to Charterer providing the Third Party Vendor with Hawaiian's
logo. Failure to timely provide Hawaiian with the executed Logo Use Form by
the Third Party Vendors shall be construed as a material breach of this
Agreement. Charterer shall inform Hawaiian's Marketing Department with list
of Third Party Vendors who possess Hawaiian's logo for reproduction and who
have properly executed the Logo Use Form. Failure of Charterer to provide
Hawaiian with the executed Logo Use Form by the Third Party Vendors shall
be construed as a material breach of this Agreement, if Charterer executes
the Logo Use Form.
SECTION 10.04 APPROVAL OF LOGO USE.
Each party shall have the right to review and approve or disapprove, prior to
printing, the portion of any and all artwork generated by the other party
(or at its direction or authorization) that references this Agreement or
uses any trademark, servicemark or trade name of the other party. The
generating party shall provide the printed materials to the other party in
a timely manner and the other party shall review and approve or disapprove
such materials in writing within ten (10) working days.
SECTION 10.05 APPROVAL OF NEWS RELEASES.
Each party shall have the right to review and approve or disapprove, prior to
release, all press and/or news released generated by the other party (or at
its direction or authorization) that references this Agreement or the
Charter Flights. Such party shall provide the printed materials to the
other party in a timely manner and the
15
<PAGE>
other party shall review and approve or disapprove such materials in
writing within ten (10) working days.
ARTICLE 11. GENERAL CONDITIONS
SECTION 11.01 CHARTERER AS CONTRACTING PARTY.
This Agreement is entered into by both parties on their own behalf. The
individual consignors, consignees or passengers shall not have the right to
claim any refund of the Charter Price or portions thereof from Hawaiian
except as may be specifically provided for in writing and signed by
Hawaiian, or as may be required by law or regulation.
SECTION 11.02 GOVERNMENTAL REGULATION.
This Agreement is subject to (i) the provisions of the Federal Aviation Act of
1958, as amended; (ii) the terms, conditions, limitations, rules and
regulations set forth in applicable governmental or other approvals as may
be required.
SECTION 11.03 APPLICABLE LAW AND JURISDICTION.
Any dispute under this Agreement shall be submitted to arbitration pursuant
to the rules and procedures of the American Arbitration Association, with
such arbitration to be held in New York City before a panel of arbitrators
with knowledge of the travel industry. This Agreement shall be governed by
and shall be construed in accordance with the laws of the State of New
York, without regard to the conflict of laws rule of such state.
SECTION 11.04 WRITTEN AGREEMENT.
This Agreement supersedes all prior agreements, if any between the parties with
respect to the same subject matter and fully sets forth the understanding
of the parties. Any change or amendment to this Agreement shall be in
writing signed by authorized officials of both Hawaiian and the Charterer.
SECTION 11.05 STRICT PERFORMANCE.
If during a calendar month after the Commencement of Service, less than
___________________ of the flights depart "on time", Hawaiian shall refund
to Charterer a sum calculated by multiplying __________ times the number of
passengers carried on the delayed flight only during that month. This
calculation shall be made within fifteen (15) days of the end of each month
and the credit, if any, will be applied to the next scheduled rotation. "On
Time" shall be defined as the aircraft pushing back from the gate no later
than twenty (20) minutes after the scheduled departure time. Mechanical
failures, breakdowns, force majeure causes and delays caused or requested
by Charterer will not count as a delayed flight for the purpose of this
paragraph. Any Charter Flight delayed because of a previous Charter Flight
delay (same aircraft) caused by mechanical failures, or
16
<PAGE>
breakdowns, airtraffic delays, or weather or other force majeure shall not
be counted as a delayed flight.
SECTION 11.06 TITLES AND HEADINGS.
The titles and headings of this Agreement are included for convenience only and
shall not be deemed to constitute part of this Agreement or to affect the
construction or interpretation hereof.
SECTION 11.07 GENDER.
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa.
SECTION 11.08 BANKRUPTCY.
In the event either party shall (i) file a voluntary petition in bankruptcy,
(ii) make an assignment for the benefit of creditors of all or
substantially all of its assets, or (iii) fail to secure dismissal of an
involuntary petition or bankruptcy filed against it within sixty (60) days
after the filing thereof, then upon the occurrence of any of the said
events, the other party may immediately terminate this Agreement.
SECTION 11.09 TERMINATION FOR CAUSE.
If either party shall have committed a material breach of this Agreement or
shall default in any material aspect of its obligations under this
Agreement and such breach or default is not cured within fifteen (15) days
of written notice thereof by the other party, such other party may, in
addition to any other remedies it may have, immediately terminate this
Agreement. All obligations incurred by the parties prior to the effective
date of the termination will be settled in accordance with the terms of
this Agreement. Termination for cause shall not include events covered by
Article 11.13.
SECTION 11.10 ATTORNEYS' FEES.
In the event of any action or proceeding to compel any collection of fees or
charges, or compliance with, or with respect to any breach of, this
Agreement, the prevailing party shall be entitled to recover all reasonable
costs and reasonable expenses of such action or proceeding including,
without limitation, its reasonable attorneys' fees and costs incurred in
connection therewith regardless of whether any formal legal action is
commenced or whether such fees and costs are incurred at or in connection
with trial or appellate proceedings.
SECTION 11.11 CONFIDENTIALITY.
Except in any proceeding to enforce the provisions of this Agreement or as may
be required by law, both parties, and their employees, officers, directors
and agents shall not publicize or disclose to any third party any of the
terms or conditions of this Agreement without the prior written consent of
the other. If either party or any one of
17
<PAGE>
its employees, officers, directors or agents is served with a subpoena
or other process requiring production or disclosure of this Agreement or
any of its terms or conditions, then the person or entity receiving such
a subpoena or other process, before complying with such subpoena or
other process, shall immediately notify the other of same and permit the
other a reasonable period of time (taking into account the terms of the
subpoena or other process) to intervene and to contest disclosure or
production.
SECTION 11.12 NO PARTNERSHIP.
Nothing in this Agreement shall be deemed to constitute the parties hereto as
partners, joint venturers, employee and employer or principal and agent,
except as specifically provided in Section 4.11. Neither party shall have
any right to bind the other by any representation, admission, contract or
commitment. In no event shall persons employed by either Party be held or
construed to be employees of the other Party. All persons performing work
hereunder and the manner and details of performance thereof, shall be under
the exclusive control of their respective employers, and their respective
employers shall have the sole right and responsibility for the direct
supervision of its personnel through its designated representative.
Each Party shall be responsible for any and all liability to its own
employees on account of injury or death resulting therefrom, sustained in
the course of their employment. Each Party with respect to its own
employees accepts full and exclusive liability for payment of all workers'
compensation and employer's liability insurance premiums with respect to
such employees, and for the payment of all State, Federal, county and
municipal taxes, contributions or other payments for unemployment
compensation or old age benefits, pensions or annuities now or hereafter
imposed upon employers by any government or agency thereof having
jurisdiction in respect of such employees measured by the wages, salaries,
compensation or other remuneration paid to such employees, and agrees to
make such payments and to make and file all reports and returns and to do
everything necessary to comply with the laws imposing such taxes,
contributions or payments.
SECTION 11.13 FORCE MAJEURE.
(a) Neither party shall be liable for failure to perform under this agreement
when such failure is caused by, strikes, lockouts, or other labor
disturbances or labor disputes of any character or any other similar cause
beyond its reasonable control.
(b) Neither party shall have responsibility for any delay, cancellation or
prevention of the completion of any obligation on its part to be performed,
including, but not limited to, any flight covered by this Agreement,
resulting from any seizure under local process, sanction, quarantine
restriction, act of governmental authority, strike, work stoppage, labor
dispute, war or hazard incident to a state of war, fire, act of God or
nature (including without limitation floods, earthquakes, hurricanes
18
<PAGE>
or weather conditions), prior or civil commotion, or any other act,
matter or thing, whether or not of a similar nature, beyond the control
of the party.
SECTION 11.14 ASSIGNMENT; SUBCHARTER.
All covenants and agreements herein contained shall be extended to and be
binding upon the successors and assigns of each party; provided, however,
that neither party shall assign its interest in and to this Agreement or
its duties and obligations under this Agreement in whole or in part or
assign, pledge or otherwise transfer the right to receive any monies to
become due under this Agreement except with the non-assigning party's prior
written consent which consent shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, Hawaiian may subcontract with
providers of goods and services necessary to allow Hawaiian to fulfill its
obligations under this Agreement.
SECTION 11.15 NOTICES.
All notices and other communications between the parties provided for or
permitted hereunder shall be in writing and delivered or mailed by
registered or certified mail, return receipt requested, or by telex or
cable with confirmed delivery, or via facsimile.
<TABLE>
<S> <C>
IF TO CHARTERER: WITH COPIES TO:
Renaissance Cruises, Inc. Stephen A. Blass
Lori McCloud, Blass & Frankel
Director-Air Sea and Tariffs One Southeast Third Avenue
1800 Eller Drive, Suite 300 Suite 1400
Ft. Lauderdale, Florida 33335-0307 Miami, Florida 33131
Telephone: ___________ Telephone: ___________
Facsimile: ___________ Facsimile: ___________
IF TO HAWAIIAN: WITH COPIES TO:
Glenn G. Taniguchi Lyn F. Anzai, Esq.
Vice President - Reservations Vice President, General
& Schedule Planning Counsel
Hawaiian Airlines, Inc. Hawaiian Airlines, Inc.
P.O. Box 30008 P.O. Box 30008
Honolulu, HI 96820-0008 Honolulu, HI 96820-0008
Telephone: ___________ Telephone: ___________
Facsimile: ___________ Facsimile: ___________
Toll Free: ___________ Toll Free: ___________
</TABLE>
SECTION 11.16 SEVERABILITY.
In case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall be construed as if
such invalid, illegal or unenforceable
19
<PAGE>
provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material
change as to cause the agreements contemplated herein to be unreasonable.
SECTION 11.17 EXECUTION IN COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which shall constitute one and the same
Agreement. Any such counterpart signature pages may be attached to the body
of one Agreement to form a complete integrated whole.
SECTION 11.18 ENTIRE AGREEMENT; AMENDMENTS; WAIVER.
This Agreement constitutes the full and complete agreement of the Parties and
supersedes any other agreement, understanding or representation, whether
verbal or in writing by or between the Parties. Any changes, amendments or
other modifications to this Agreement shall be in writing and executed by
both Parties hereto. The failure of any Party hereto to enforce at any time
any provision of this Agreement shall not be construed to be a waiver of
such provision, nor in any way affect the validity of this Agreement or any
part hereof or the right of such party thereafter to enforce each and every
provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other subsequent breach.
ARTICLE 12. REPRESENTATIONS AND WARRANTIES
Each party represents that (a) it is fully experienced and properly qualified,
and where appropriate licensed as necessary to provide the services
specified in this Agreement; that it was duly organized and is validly
existing under the laws of the jurisdiction in which it was formed and is
in good standing in the jurisdiction of its incorporation or organization;
and (b) each further represents and warrants that it possesses the
necessary authority to enter into and perform this Agreement. Hawaiian
further represents and warrants that it is knowledgeable and experienced in
operating the equipment to be utilized in performing its obligations under
this Agreement. Each Party further represents that it is duly organized and
validly existing under the laws of the jurisdiction in which it was formed,
and that it has obtained all licenses, permits or approvals of any
governmental authority necessary or appropriate to perform the obligations
under this Agreement.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
<TABLE>
<CAPTION>
HAWAIIAN AIRLINES, INC. R HOLDINGS, INC., Sole Shareholder
a Hawaii corporation of RENAISSANCE CRUISES, INC. an
Antigua & Barbuda corporation
<S> <C>
By /S/ By /S/
------------------------------------ ---------------------------------
Paul J. Casey Lynn Torrent
Its President & Its Vice President-Sales Operations
Chief Executive Officer
Date:
--------------------------------
By /S/
-------------------------------------
Glenn G. Taniguchi
Its Vice President -
Reservations & Schedule Planning
Date:
----------------------------------
</TABLE>
21
<PAGE>
ATTACHMENT A
to
PASSENGER AIRCRAFT CHARTER AGREEMENT
by and between
HAWAIIAN AIRLINES, INC.
and
RENAISSANCE CRUISES, INC.
Dated as of November 2, 1998
This Attachment A is incorporated by reference into the above-referenced
Agreement.
"AIRCRAFT": two DC-10-30s
Tail Nos.: MSN ______ & MSN ______
AIRCRAFT CONFIGURATION: DC10-30, configured with 256 seats
84 business class seats with 44" pitch and seven-
across seating
172 coach class seats with 34" pitch and nine-across
seating
Aircraft will have 10 lavatories
AIRCRAFT LIVERY: Hawaiian Airlines livery with Renaissance Cruises
logo, as agreed by the parties
CHARTER ROUTING: LAX-PPT-LAX
FLIGHT ATTENDANTS: ________ Flight Attendants per Charter Flight
CUSTOMER SERVICE: ________ counter agents preflight, increased to
________ counter agents 1 1/2hours preflight
________ service/ramp agents at departure & arrival
IN-FLIGHT SERVICE: ALL CLASSES: One meal and one snack in each
direction. Meal menu determined by departure time.
Complimentary headsets and inflight movie and video
entertainment program.
BUSINESS CLASS: Complimentary bar service and
upgraded meal service. Amenity kits provided.
<PAGE>
ATTACHMENT A
PAGE 2
COST Per ROTATION: _____________ U.S. Dollars until August 31, 2000
subject to negotiation thereafter at a cost not to
exceed a _____ increase annually, with supporting
documentation, before taking into consideration
changes arising due to Fuel Surcharge provisions
ONE-WAY COST: For initial and final flights to be determined.
ESTIMATED TAX: Estimated tax per passenger as of 11/2/98, subject to
change:
US 24.00 USD = US Departure Tax
XA 2.00 USD = US Aphis Fee
XY 5.00 USD = US Customs Fee
XF 3.00 USD = Passenger Facility Charge
PF 12.10 USD = French Polynesian Tax
FUEL SURCHARGE PRICE RANGE:
LAX ____ to ____* / PPT ____ to ____*
*includes tax, does not include in-to-plane cost(s)
COMMITTED FLIGHT SCHEDULE:
<TABLE>
<CAPTION>
MONTH/YEAR NUMBER OF ROTATIONS
----------------------------------------------
<S> <C>
August - 1999 --
September -1999 --
October - 1999 --
November - 1999 --
December - 1999 --
TOTAL FOR 1999 --
January - 2000 --
February - 2000 --
March - 2000 --
April - 2000 --
May - 2000 --
June - 2000 --
July - 2000 --
August - 2000 --
September - 2000 --
October - 2000 --
November - 2000 --
December - 2000 --
TOTAL FOR 2000 --
2
<PAGE>
ATTACHMENT A
PAGE 3
<CAPTION>
MONTH/YEAR NUMBER OF ROTATIONS
----------------------------------------------
<S> <C>
January - 2001 --
February - 2001 --
March - 2001 --
April - 2001 --
May - 2001 --
June - 2001 --
July - 2001 --
August - 2001 --
TOTAL FOR 2001 --
</TABLE>
OPERATIONAL TIMES:
DAYLIGHT SAVINGS: 08/31/99 - 10/30/99, 04/02/00 - 10/28/00, 04/01/01-
08/31/01.
STANDARD TIME: 10/31/99 - 04/01/00, 10/29/00 -03/31/01.
DAYLIGHT SCHEDULE:
<TABLE>
<CAPTION>
Flight No. Routing Departure Time Arrival Time
---------------------------------------------------
<S> <C> <C> <C>
941 LAX-PPT 1200 1700
943 LAX-PPT 1400 1900
942 PPT-LAX 1900 0600 + 1
944 PPT-LAX 2100 0800 + 1
STANDARD TIME SCHEDULE:
<CAPTION>
Flight No. Routing Departure Time Arrival Time
---------------------------------------------------
<S> <C> <C> <C>
941 LAX-PPT 1200 1815
943 LAX-PPT 1400 2015
942 PPT-LAX 2000 0600 + 1
944 PPT-LAX 2200 0800 + 1
</TABLE>
3
<PAGE>
ATTACHMENT A
Renaissance
08/31/99 - 08/31/01
Flight Schedule
REDACTED IN ITS ENTIRETY
4
<PAGE>
EXHIBIT A
TERMS OF CONTRACT OF CARRIAGE
[The Terms of Contract of Carriage is not attached via diskette. It is
provided by the Airline Tariff Publishing Company (ATPCO) via printed
matter only. A printed version is attached.]
<PAGE>
EXHIBIT B
LIMITED USE OF NAME AND/OR LOGO
HAWAIIAN AIRLINES, INC., a Hawaii corporation ("Hawaiian") and R
HOLDINGS, INC., sole shareholder of RENAISSANCE CRUISES, INC., an Antigua &
Barbuda corporation (collectively referred to herein as "Charterer") each
hereby grant to the other a non-exclusive, non-transferable, limited license
to use its trademarks, servicemarks and trade names, but solely in connection
with these agreed upon terms and obligations. Each will provide the other
with the necessary artwork to effect this contract.
Each party hereto shall have the right to review and approve or
disapprove, prior to printing, the portion of any and all artwork generated
by the other (or at its direction or authorization) that references this
contract or uses any trademark, servicemark or trade name of the other party
pursuant to this Agreement. Each party shall provide the printed materials to
the other party in a timely manner and each party shall review and approve or
disapprove such materials in writing.
Upon completion of the production of the materials, each party shall
destroy any and all screens and/or films developed for the assignment, unless
otherwise instructed by the other party. The destroyed screens and/or film,
and any other material bearing each party's Logo in the possession of the
other party shall be delivered to original party within two (2) days from the
completion of production.
GOVERNING LAW AND DISPUTES. This agreement shall be governed by and
construed in accordance with the laws of the State of New York. Any dispute,
controversy or claim arising out of or relating to this agreement, or the
breach thereof, shall be settled by immediate binding arbitration in
accordance with the Arbitration Rules of the American Arbitration
Association. The Arbitrators shall interpret the agreement in accordance with
the laws of the State of New York and the arbitration shall take place in New
York, New York.
The parties hereto agree to the terms and conditions stated above.
Exhibit B version
<TABLE>
<CAPTION>
HAWAIIAN AIRLINES, INC. R HOLDINGS, INC., Sole Shareholder
a Hawaii corporation of RENAISSANCE CRUISES, INC. an
Antigua & Barbuda corporation
<S> <C>
By /S/ By /S/
------------------------------------- ------------------------------------
Glenn G. Taniguchi Lynn Torrent
Its Vice President - Its Vice President - Sales Operations
Reservations & Schedule Planning
Date:
-----------------------------------
By /S/
-------------------------------------
Lyn F. Anzai
Its Vice President , General Counsel
Date:
-----------------------------------
</TABLE>
<PAGE>
EXHIBIT C
The following are amenities/services that Hawaiian Airlines, at Hawaiian's
expense, will provide to (Charter) customers for flight delays:
<TABLE>
<CAPTION>
DELAY MEAL HOSPITALITY/ TRANSPORTATION/
- ----- ---- HOTEL/ROOM DELIVERY
---------- --------
<S> <C> <C> <C>
0-2 Hr. No No No
2-4 Hr. Beverage & Snack No No
4-8 Hr. One (1) meal Yes (late night departure) Yes
8-12 Hr. Meal & Snack Yes (late night departure) Yes
12-20 Hr. Two (2) meals & snack Yes Yes
20-48 Hr. Three (3) meals (X24hrs) Yes Yes
</TABLE>
- - Alcoholic beverage is NOT included
- - Meals will be appropriate for time of delay
If Hawaiian reschedules a flight and Charterer has received written notification
at least forty-eight (48) hours prior to the original flight time delays will be
timed from the rescheduled rather than original time.
<TABLE>
<CAPTION>
GUIDELINE: MEALS
<S> <C>
Snack
------
Breakfast
------
Lunch
------
Dinner
------
</TABLE>
TRANSPORTATION
Cabs/Taxi - reimburse passengers with receipts.
- reimbursement will be provided within fourteen (14) days.
Bus - If bus service is provided for transportation. Reimbursement
for taxi/cabs will not be provided.
NON-USE
If passengers choose not to use services/amenities provided by Hawaiian Airlines
NO reimbursement will be provided.
ADDITIONAL
<PAGE>
Hawaiian will extend amenities/services beyond these guidelines depending upon
the circumstantial needs of a passenger.
9
<PAGE>
Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors
Hawaiian Airlines, Inc.:
We consent to incorporation by reference in Registration Statement Nos.
033-064299, 333-09667, 333-09669, 333-09671, and 333-09673 on Form S-8 of
Hawaiian Airlines, Inc. of our reports dated March 11, 1999, relating to the
balance sheets of Hawaiian Airlines, Inc. as of December 31, 1998 and 1997,
and the related statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998, and relating to the financial statement
schedule of Hawaiian Airlines, Inc. for the three-year period ended December
31, 1998, which reports appear in the December 31, 1998 annual report on Form
10-K of Hawaiian Airlines, Inc.
/s/ KPMG LLP
Honolulu, Hawaii
March 26, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John L.
Garibaldi, his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to
this Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connections therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that all
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated below.
SIGNATURE TITLE DATE
/s/ JOHN W. ADAMS Chairman of the March 29, 1999
- ---------------------------- Board of Directors
John W. Adams
/s/ PAUL J. CASEY President and March 29, 1999
- ---------------------------- Chief Executive Officer
Paul J. Casey (Principal Executive Officer)
/s/ JOHN L. GARIBALDI Executive Vice President March 29, 1999
- ---------------------------- Chief Financial Officer
John L. Garibaldi (Principal Financial and
Accounting Officer)
/s/ TODD G. COLE Director March 29, 1999
- ----------------------------
Todd G. Cole
/s/ ROBERT G. COO Director March 29, 1999
- ----------------------------
Robert G. Coo
/s/ WILLIAM BOYCE LUM Director March 29, 1999
- ----------------------------
William Boyce Lum
/s/ RENO MORELLA Director March 29, 1999
- ----------------------------
Reno Morella
<PAGE>
SIGNATURE TITLE DATE
/s/ ARTHUR J. PASMAS Director March 29, 1999
- ----------------------------
Arthur J. Pasmas
/s/ SAMSON PO'OMAIHEALANI Director March 29, 1999
- ----------------------------
Samson Po'omaihealani
/s/ EDWARD Z. SAFADY Director March 29, 1999
- ----------------------------
Edward Z. Safady
/s/ SHARON SOPER Director March 29, 1999
- ----------------------------
Sharon Soper
/s/ THOMAS J. TRZANOWSKI Director March 29, 1999
- ----------------------------
Thomas J. Trzanowski
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,011
<SECURITIES> 0
<RECEIVABLES> 36,927
<ALLOWANCES> 500
<INVENTORY> 8,546
<CURRENT-ASSETS> 81,907
<PP&E> 110,506
<DEPRECIATION> 25,584
<TOTAL-ASSETS> 221,911
<CURRENT-LIABILITIES> 75,677
<BONDS> 20,420
0
0
<COMMON> 410
<OTHER-SE> 90,477
<TOTAL-LIABILITY-AND-EQUITY> 221,911
<SALES> 426,415
<TOTAL-REVENUES> 426,415
<CGS> 409,010
<TOTAL-COSTS> 409,010
<OTHER-EXPENSES> 994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> 16,008
<INCOME-TAX> 7,803
<INCOME-CONTINUING> 8,205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,205
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
