Court gives Aloha Air
breathing room

But the carrier’s mechanics union
rejects a tentative contract, so the
company will seek to force a deal

CORRECTION Wednesday, March 2, 2005 » A quote from airline analyst Robert Mann about US Air was missing a few words in an article about Aloha Airlines on Page C1 Saturday. Here is the whole quote: "The issue is if you set the targets wrong, you can appear to go in and out and end up right back in again," Mann said. "In US Air's case, they never made any of their revenue or work-cost targets from the moment they emerged. Doing it quick and doing it right doesn't need to be mutually exclusive, but in that case it doesn't appear to have been a good combination." The Honolulu Star-Bulletin strives to make its news report fair and accurate. If you have a question or comment about news coverage, call Editor Frank Bridgewater at 529-4791 or email him at corrections@starbulletin.com.

Aloha Airlines Chief Executive David Banmiller, staring at $6.4 million in aircraft lease payments due next month, sighed with relief yesterday after a federal bankruptcy judge approved a $5 million financial package that will get the airline through another month of operations.

The deal was part of an overall $90 million package that New York-based private-equity investor MatlinPatterson Global Partners II LP is proposing to take Aloha out of bankruptcy.

But it wasn't an entirely turbulence-free day for Banmiller. He said the company will file a motion seeking to impose a contract on the airline's mechanics after the group rejected a tentative agreement on Thursday night. The mechanics unit is the only one of Aloha's five union groups that has not ratified a contract.

"There was a snag (that) I attribute part to communications and making sure they understand the issues," he said. "(The motion will ask) the court for temporary relief in order to effect the last proposal on the table to be consistent with what (other unions have agreed to), effective Feb. 1."

Banmiller wouldn't reveal yesterday how much cash the company has left.

The company filed a motion Thursday saying it needed the $5 million infusion to continue operating.

Paul Singerman, Aloha's special transaction counsel, told Bankruptcy Judge Robert Faris yesterday that the airline needed to pay its aircraft lessors $1.9 million on Monday and would need $4.5 million for March and subsequent months to keep its aircraft lease payments current.

Banmiller said the airline had other options it was considering if it hadn't obtained the $5 million financial package announced Thursday, which includes a $4 million loan from MatlinPatterson and the release of $1 million from Aloha's collateral account by credit-card processor First Hawaiian Bank. A two-week bidding process in March will let other potential investors offer reorganization plans for Aloha.

"In these kinds of situations, you have multiple strategies because you can never fully depend upon one," Banmiller said. "And we're going to get by March, so I don't want the consumers out there to think (otherwise). We're a nimble group."

Yesterday may have been Aloha's busiest day in court since its first-day bankruptcy hearings following its Dec. 30 filing for reorganization. The airline yesterday received approval for renegotiated leases with nine of its 10 remaining aircraft lessors and said it reached a 30-day extension with the other lessor. Aloha also confirmed it was rejecting two Boeing 737-700s that it uses for trans-Pacific routes.

After the hearing, the airline said it will add a Maui-Oakland, Calif., route in July and change its nonstop Honolulu-Las Vegas route to add a stop in Oakland beginning April 3. The additional Maui service will be Aloha's fourth daily flight from Hawaii to Oakland and the second one from Maui. A route analysis determined that its nonstop service to Las Vegas was unprofitable due to overcapacity and highly discounted fares.

Banmiller, who said the airline is close to realizing its projected $60 million in cost savings, said his objective is for Aloha to be out of bankruptcy by summer.

"Whether it's May or June ... summer is a reasonable target," he said. "When you think of where we've come from this point, in terms of all these activities and actions, you have to admit it's pretty dramatic."

Airline analyst Robert Mann, president of New York-based R.W. Mann & Co., said that "a prepackaged bankruptcy in and out in less than six months is a pretty mean feat."

"In terms of airlines, I can't think of one that worked out that way," he said.

US Airways sped through bankruptcy in seven months and emerged in March 2003 only to go back into Chapter 11 last September.

"The issue is if you set the targets wrong, you can appear to go in and out and end up right back in again," Mann said. "In US Air's case, they never made any of their revenue work-cost targets from the moment they emerged. Doing it quick and doing it right doesn't need to be mutually exclusive, but in that case it doesn't appear to be a good combination."

Banmiller said he's confident Aloha is covering all its tracks.

"We've got to run an airline and sometimes these things get to be an art form," he said. "You go through it for years and you start to count all the (financial advisers and lawyers) you're paying and you say, 'I'd rather be putting that money toward running an airline.' And if we can get through the process and do it properly and aggressively with the talented group of people we have, then it's in everybody's best interest."