Island Air employees may not get final wages

HONOLULU — Bankruptcy Judge Robert Faris told Island Air employees Wednesday there are no assurances they will receive their final paycheck.

Faris, who approved a motion to convert the bankruptcy case to a Chapter 7 liquidation from a Chapter 11 reorganization, addressed Island Air employees in the court room, saying they are “entitled to the truth.”

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Island Air ceased operations on Friday, and the employees have not been paid for the work they did this month. CEO David Uchiyama said earlier this week that pay period encompasses about 10 days.

“The sad but the true news is that nobody knows right now whether or when those last wages are going to get paid,” Faris said. “The trustee will have to get his or her arms around the case, try to gather as much money as possible. How much money the trustee will be able to gather will be anybody’s guess and the trustee would then distribute that money.”

Faris said the bankruptcy trustee and others hired to complete the liquidation of Island Air will be paid first.

The next priority is to people who are owed money for goods or services provided after Oct. 16 when Island Air filed for Chapter 11 bankruptcy protection. That group would include the employees.

After all assets are sold off for cash, if there is still not enough money to pay creditors, including employees, the creditors may get only a portion of what they are owed or nothing.

“I don’t know if all the other bills got paid,” Faris said. “I don’t know if the fuel got paid, or the electric bill got paid or the airport rent or landing fees got paid.

“I do know that aircraft rent apparently did not get paid so there will be quite a few claims to share in whatever money the trustee is able to gather, and nobody knows what those claims are going to be. In the process of gathering the money, ascertaining the claims takes time. So the sad but true answer is that nobody can say whether those wages are going to get paid or how much is going to get paid. I’m sorry to say that but you’re entitled to the truth.”

Uchiyama, who was present in court Wednesday, was asked whether he wanted to respond to Faris’ comments regarding the employees’ pay.

“I don’t have any comment,” Uchiyama said.

Island Air said in a news release Friday that it “hopes to compensate its employees in full for the work performed” through that final day but that the final determination would be up to the Bankruptcy Court trustee.

Island Air’s 423 employees potentially could have to wait years to get paid, if at all, depending how quickly the case winds its way through bankruptcy.

The last Hawaii-based carrier to endure a liquidation process was the significantly larger Aloha Airlines, which converted to Chapter 7 from Chapter 11 in March 2008. It took more than seven years until July 23, 2015, for the case to be closed in what was the largest asset liquidation in state history. Only $57.3 million of the $337.7 million in creditors’ claims were paid and unsecured creditors received nothing.

Island Air said when it filed for bankruptcy that it had $14.3 million in assets and $39.4 million in liabilities.

Unsecured creditors, such as vendors, who were owed money before the Chapter 11 filing, will be at the back of the line when it comes to repayment.

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Faris also cleared the way for Ireland-based aircraft lessor Elix Assets 8 Ltd. to immediately take back its three Bombardier Q400 aircraft, the only planes Island Air had remaining in its fleet. Faris denied a motion from Elix and its aircraft trustee, Wells Fargo Bank Northwest, to receive additional compensation for such things as the depreciation of the aircraft.

Elizabeth Kane, one of three Honolulu-based Chapter 7 trustees, was appointed to oversee the case.