(AP) A bankruptcy judge nixed on Friday a proposal to give eight top Hawker Beechcraft executives up to $5.3 million in bonuses, ruling the plan merely rewarded them for staying at their jobs.
U.S. Bankruptcy Judge Stuart Bernstein ruled that the bonus plan sought by the Kansas plane maker set the bar too low to qualify as anything other than a retention program for insiders.
Bernstein said that nothing in his opinion is meant to denigrate the efforts of top managers or minimize their contributions to the success of the bankruptcy case. But he said the so-called Key Employee Incentive Plan does not meet legal standards which require "challenging goals" before such bonuses are allowed in bankruptcy proceedings.
Senior management would have likely earned bonus pay under the proposed incentive plan merely by remaining at their jobs, regardless of the road the company takes to emerge from bankruptcy, and must therefore be denied, he noted.
The International Association of Machinists and Aerospace Workers had opposed the bonus plan, as did the U.S. Justice Department's bankruptcy watchdog agency. Both had filed formal objections to it.
"Aside from its legal problems, the bonus plan never made common sense why should a company in financial distress pay millions to its executives for work they are already paid to do?" said Frank Larkin, spokesman for the machinists union. "We welcome the decision."
The company in the past has defended its plan to pay the bonuses, arguing that its managers are a "talented and capable group" with much work left to do before the company can emerge from bankruptcy.
"Hawker Beechcraft's Key Employee Incentive Plan was designed to recognize the critical role that the leadership team has in the company's ongoing restructuring process, and we are evaluating next steps toward amending the incentive plan so it conforms to the guidance in the court's opinion," the company said in an emailed statement.
During an evidentiary hearing last month, the court approved a $1.9 million bonus plan for 31 lower management-level employees, but the judge sought additional written argument before making a decision on the separate bonus plan for the eight top executives.
Hawker Beechcraft Corp., which filed for bankruptcy in May, is owned by Onex Partners and GS Capital Partners, a Goldman Sachs private equity fund. The bankruptcy court has approved exclusive talks with Beijing-based Superior Aviation Beijing Co., which has offered nearly $1.8 billion to buy the company's business jet and general aviation operations.
The decision came down amid voting Friday by machinists union members on pension changes. Machinists agreed by a 97 percent vote to accept a proposal that freezes their pension amid fears of losing benefits entirely during the bankruptcy. The proposal retains pensions for hourly employees and retirees while freezing future accruals starting Dec. 31. It also creates a new retirement income savings plan and retains a 401(k) plan.
"Bankruptcy is not a good place for employees, shareholders and certainly collective bargaining agreements," Larkin said. "It can be very difficult to retain things that took years to negotiate."
Hawker Beechcraft has assured the union that if the pension changes were ratified, the plan would become part of any sales agreement. The company, union leaders and the Pension Benefit Guaranty Corp. reached the agreement in principle to address the pension plans during the restructuring efforts.
The company said that Superior Aviation supports the agreement in principle and the proposed new defined contribution plan.
"We are confident that any final agreement with Superior will result in these agreements being fully honored and preserved," according to Hawker Beechcraft's news release.
The bankruptcy court must still approve the contract changes.