Aloha’s CEO familiar
with bankruptcy

David Banmiller has a history of
making hard decisions, experts say

When Aloha Airlines named David Banmiller as the new head of the struggling carrier last month, it said he was inheriting a company that was in "OK" financial shape.

But in tapping Banmiller, Aloha's actions spoke louder than its words.

Banmiller has a history of taking struggling companies into bankruptcy, so his announcement on Thursday that Aloha Airlines would file for bankruptcy came as little surprise to insiders, who know him as a man used to making hard decisions.

"He's got a track record in that," said Mike Boyd, president of Colorado-based aviation consulting firm The Boyd Group. "I expect him to get results. He's got a good reputation."

His previous results are somewhat mixed, however. He was head of Pan Am Corp. during the 1998 bankruptcy filing that helped chart a downward course for the once-premier carrier.

More recently, he was hired in April 2001 to shake up ailing Minneapolis-based discount carrier Sun Country Airlines, which filed for bankruptcy protection later that year with Banmiller at the helm. It was the first U.S. airline to seek bankruptcy court protection following the attacks on Sept. 11, 2001.

Sun Country was eventually sold to an investor group and, as in the case of Pan Am, hundreds of jobs were lost. But Sun Country subsequently turned profitable and remains in business.

But Banmiller is back to square one at Aloha. The company has been hemorrhaging cash for three straight quarters, and he says it needs to find $60 million in cost cuts for 2005.

"In order to turn things around, there are tough decision that are going to be made across the board," Banmiller said on Thursday.

But the overriding factor is one that is out of his control.

"In a word: fuel," said Boyd, referring to the 40 percent rise in aviation and other fuel costs derived from crude oil over the past year.

"This wouldn't be happening if not for that," he said. "You never want to go into bankruptcy if you can avoid it. It's a very expensive process for everyone involved."

In their court filings, Aloha said that due to fuel and other operating expenses, the company will "run out of cash and will not be able to operate" without court protection.

It's a familiar scenario being played out across the country, and Aloha is far from alone.

"The real story for the industry is that fuel prices are hurting everyone that doesn't have a sizable hedge position," said Robert Mann, president of R.W. Mann & Co., an airline industry analysis firm in New York.

So Banmiller is looking elsewhere for the savings, including in the rates Aloha pays to lease its aircraft.

Market rates have dropped in recent years as European aircraft maker Airbus makes inroads into the U.S. leasing market at Boeing's expense. This has helped some companies, but others that are locked into long-term leasing contracts are at a disadvantage.

Aloha's rival Hawaiian Airlines, which operates Boeing 717 and 767 jets, has been able to get more favorable leases on its aircraft since declaring bankruptcy in March 2003. But it's unclear how easy this will be for Aloha, which flies Boeing 737s.

Last month, America West Holdings said it would not bid for the assets of bankrupt ATA Airlines -- a competitor of Aloha's on transpacific routes -- partly because it was unable to negotiate new leasing deals with ATA's aircraft lessors for its 737 and 757 aircraft.

But a limited market for 737s could give Aloha a strong hand, Boyd said.

"I expect the lessors will play ball because there aren't a lot of options for them with those planes. There's not a lot of demand for them elsewhere," he said.

Fuel costs make planes of that size flying short interisland routes "incredibly expensive," he said.

"It's like breaking up a bar fight with a bazooka," he said, though he adds that a wholesale switch to another aircraft type is unattractive, as well.

All of which means Aloha's staff will shoulder much of the cost-cutting burden.

The company has asked its various employee unions for "major" cuts across the board, including increased hours and cuts to pay, retirement plans and employee benefits, said Steve Brenessel, communications chairman and spokesman for Aloha's pilot's union.

"You name it, they've asked for it," he said.

Banmiller indicated Thursday that layoffs also were possible.

But Brenessel said the union is satisfied that Aloha's situation was precarious enough for a bankruptcy filing and will cooperate to work on a cost-reduction package, he said.

"The pilots are not pleased that we have to be in bankruptcy, but when other airlines are, it doesn't really upset us," he said. "The hope is that we can come up with something that satisfies everyone and keeps the airline flying."