United States: Thelen Reid Client Aloha Airlines Emerges from Bankruptcy with Restructured Pension and Labor Arrangements
Last Updated: May 12 2006

Thelen Reid & Priest LLP client Aloha Airlines, Inc. has emerged from bankruptcy this Spring with a restructured pension program and revised labor agreements. The airline’s exit followed a six-day bankruptcy trial over the termination of Aloha’s defined benefit pension plans and collective bargaining agreements, an expedited appeal, and intensive negotiations with the federal Pension Benefit Guaranty Corporation. The modifications to Aloha’s pension and labor arrangements were essential to the company’s ability to survive.

The single biggest obstacle to Aloha’s reorganization was the termination of its defined benefit pension plans, which were underfunded by more than $150 million on a termination basis. Aloha’s efforts were opposed by the PBGC, the federal agency that insures such plans.

At the conclusion of the trial in early December, the bankruptcy court found in favor of Aloha, holding that the airline could not continue in business outside bankruptcy unless the pension plans were terminated. The PBGC then appealed to the district court.

Aloha’s trial team obtained orders expediting the appeal, which was heard within days. The district court upheld the bankruptcy court’s ruling, following which Aloha’s labor and pension team negotiated intensively with the PBGC and reached a settlement.

Aloha’s stay in bankruptcy was one of the briefest in recent airline history, lasting less than 14 months from petition to exit.

Aloha’s labor strategy was developed and led by Sheldon Kline, a labor and employment partner in Thelen Reid’s Washington, DC office. Aloha’s trial team was led by Chuck Dyke, a litigation partner in the San Francisco office. Negotiations with the PBGC were led by Sheldon Kline and Michael Schloss, of counsel in Washington, DC.

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