The Island Air and Honolulu Rail Connection in Federal Bankruptcy Court?

HART and Island Air may be connected in a conspiracy of corporate greed, lies, and possible fraud in hiring David Uchiyama. A complaint filed on August 12 in U.S. Bankruptcy Court in Honolulu alleges Uchiyama was hired knowingly by Island Air owners to run the company into the ground.

Many loyal workers for Island Air lost their jobs and health insurance overnight. Hawaiian Airlines almost became a monopoly overnight, increasing their market shares and airfares.

Now the same David Uchiyama will be in charge of the billion dollar Honolulu Rail project.

When Uchiyama was hired by Mr. Au to run Island Air, Uchiyama had very little experience in the airline industry other than working for a few years at Continental Airlines in the late 1970s during college and then for a few years in the early 1980s in entry- and mid-level positions at Mid-Pacific Air.

The lawsuit alleges this was a calculated risk and in bad faith by the owners of the airline.

Hawaiinews.online published an article about the Good Old Boy network in the State and former Island Air CEO David Uchiyama who was appointed to lead HART, known as Honolulu Rail.

Did HART know about the federal lawsuit filed by Elizabeth Kane, Bankruptcy Trustee, the Airline Pilots Association International, and Allied Workers Union which alleges that Uchiyama was put into the position as the COO of Island Air to run it out of business when they hired Uchiyama for a top job to lead Honolulu Rail?

The 100+ page suit demonstrates why Uchiyama was put into the position to lead Island Air with the owners knowing he never worked for an airline in a leading position before.

The Island Air bankruptcy was caused by acts of self-interest of its owners. Had Island Air’s owners and their representatives acted in the interests of Island Air rather than their own, then the bankruptcy of the company would not have occurred when it did (if it would have occurred at all), and the outstanding debts would not have been as substantial as they are, and there would be additional assets to satisfy those debts.

In early 2016, Mr. Ellison’s company, Ohana, sold a two-thirds interest in Island Air to investment entities owned by Mr. Au and his investors. Nonetheless, through his representative, Mr. Marinelli, Mr. Ellison continued to exercise substantial control over Island Air up until the bankruptcy. In other words, from early 2016 through the bankruptcy, there were 2 owners of Island Air:

(1) Mr. Au and his entities that controlled two-thirds of the equity; and
(2) Mr. Ellison and Ohana (acting through Mr. Marinelli) who controlled one-third of the equity but still had substantial control over Island Air.

In May 2017, Island Air hit a substantial financial crisis. By June, it became apparent to Mr. Au and Mr. Marinelli that substantial new investment was necessary to keep Island Air aloft. From May 2017, until the shutdown on November 10, 2017, Island Air was kept on life support through various small cash infusions that all parties knew were insufficient in the long run. As a foreseeable consequence, Island Air’s debt ballooned and its assets dwindled. Simply put, any person controlling the company and acting in the best interest of it would have shut it down many months earlier and not continue to dispose of assets and rack up liabilities that could not be repaid.

In the course of this 6-month crisis period, the owners of Island Air acted with an astounding disregard for the interests of the company. Mr. Marinelli, as proxy for Mr. Ellison, had an interest in keeping Island Air unnaturally on life support because Island Air was in possession of 5 aircraft that Mr. Ellison owned. Mr. Marinelli knew that if Island Air went into bankruptcy, it would be extremely difficult to sell Mr. Ellison’s 5 airplanes without the assistance of Island Air’s maintenance personnel, and that the price that could be obtained would plummet. So, Mr. Marinelli made just enough funds available to Island Air to keep it alive long enough for him to sell those aircraft. Even those funds were given reluctantly and in situations where:

(1) the ultimate purchaser of Mr. Ellison’s aircraft required some of the purchase funds be made available to Island Air; or

(2) where loans were made on terms that Mr. Marinelli thought were very low risk for Mr. Ellison. When the goal of selling Mr. Ellison’s aircraft was accomplished, not only did the flow of funds from Mr. Ellison stop, the flow was reversed.

Mr. Marinelli used his control over Island Air to take critical monies back from the company just days before the bankruptcy filing.

As for Mr. Au, he believed (falsely) that his investment in Island Air would be completely repaid in bankruptcy because he had structured it as purported debt rather than equity. This was done precisely because Mr. Au (and Mr. Marinelli) knew that Mr. Au was making a small and very risky investment, and Mr. Au wanted the investment to be protected in the event of a bankruptcy. Island Air was never profitable from the time Mr. Au got involved, and the cash crisis became acute in May 2017 when the company exhausted its line of credit from Mr. Ellison. Although Mr. Au knew that substantial outside investment was needed, he categorically refused to consider any investment that would either:

(1) convert his prior investment from debt to equity, and, therefore, deprive his investment of the protection in bankruptcy that he thought it had by structuring it as debt; or

(2) substantially dilute his two-thirds equity ownership of Island Air and cause him to lose control and the upside potential on his equity. Rather, Mr. Au continued to look for a sweetheart deal for a new investment, proposing only the most patently unrealistic of terms and juicing up the Island Air financial projections provided to potential investors to try to lure one in. From Mr. Au’s perspective, he had little to lose (because he thought his initial investment was protected) and much to gain by risking Island Air’s future in the hopes of a sweetheart deal for a new investment.

Other than the unsecured creditors of Island Air in general, the real victims of Mr. Au’s and Mr. Marinelli’s disloyalty were Island Air’s employees.

When the company filed for Chapter 11 bankruptcy on October 16, 2017, the employees were told that there was nothing to worry about and the future was bright. As a result, when the company shut down less than a month later, the employees were shocked. Responsible parties did not give Island Air employees or their unions the required 60 days’ notice of closure under the state Dislocated Workers Act or the federal Workers Adjustment and Retraining Notification Act,

They were not paid their wages from the last pay period. Their medical premiums were not paid. Rather than use the available funds of Island Air to pay the employees, Mr. Au tried to secure those funds for himself.

The complaint says: After Mr. Au terminated Mr. Murashige and Mr. Mauracher, there was no one at Island Air who had executive-level airline experience. Rather than hire someone with airline experience to be CEO, Mr. Au promoted Mr. Uchiyama to President and CEO and left the COO position vacant. Mr. Uchiyama is an an amiable and conciliatory person, and his primary qualification for CEO in Mr. Au’s assessment was that he would not challenge Mr. Au’s authority as Mr. Murashige and Mr. Mauracher had.

Click here to read the full complaint, PDF