Aloha Air moves to sell
1,000-worker baggage
and cabin services unit

Aloha Airlines said it is close to selling its contract-services unit in a move that will reduce the size of the 3,600-person company by more than a fourth.

David Banmiller, president and chief executive of Aloha, said yesterday there are three "serious" bidders for the airline's contract-services unit, which employs nearly 1,000 people to handle various duties for 15 other airlines. He said he hopes to make a decision by June 1.

The announcement came on a day when Aloha also announced its first monthly operating profit since August. The carrier, which has been in reorganization bankruptcy since Dec. 30, told a federal Bankruptcy Court judge it had an operating gain of $2.6 million in March on revenue of $40.7 million.

However, revenue for April is trailing the company's forecast and likely is due to Easter falling in March this year, Banmiller said.

Aloha attorney Paul Singerman said the company might need to implement an employee retention program after 27 managers, or 18 percent on an annualized basis, have left the company since Dec. 1. This is in addition to the company's layoff of 12 managers and the freezing of 35 open management positions in December. Singerman said Aloha's pre-bankruptcy turnover rate was 3 percent to 5 percent.

The contract-services unit, which assists airlines in Honolulu, Maui, Kona and Lihue, performs baggage handling, cabin cleaning, some maintenance work and some cargo handling. The unit was first shopped around in September along with the company's cargo division.

Banmiller said yesterday that even though the contract-services unit is profitable, the company is selling because it is not achieving the margins the company would like and the work is labor-intensive. He said, though, that Aloha will keep the cargo division.

"The cargo division has a good return, and we carry about 85 percent of the cargo overnight between the islands. In the contract-services group, the margins are different," Banmiller said.

Under their collective-bargaining agreement, employees in the cargo-services unit have a right to negotiate with the new buyers, according to Randy Kauhane, assistant general chairman of the International Association of Machinists and Aerospace Workers District Lodge 141.

"The company has to give us a 30-day notification when it's going to be sold," Kauhane said. "I'm not too sure if it's a good thing or a bad thing in that we have an agreement with the Aloha contract. But we can't control if the company wants to sell it off. But if we get an agreement with the other party, we haven't lost anything."

Banmiller said the airline is making progress and exceeded the company's revenue forecast by about $2 million in March while its operating expenses were about $1.7 million less than anticipated. Net income, which included about $1.7 million in loan interest and expenses for attorneys and consultants, was about $335,000.

In the first quarter, Aloha had an operating loss of just under $3 million but beat its forecast by about $7 million. Banmiller said revenue was $3.7 million higher than projected, while operating expenses were lower by about $4 million. Aloha should begin to see the benefits of employee labor concessions in the second quarter, Singerman said.

Banmiller said comparing Aloha's situation now and where it was at the end of last year is "night and day."

"We've got adequate financing in place," he said. "We've paid off the (federal Air Transportation Stabilization Board loan) and the banks. We've gone through the very challenging times of renegotiating five labor agreements and 26 or 27 aircraft leases in an incredibly restricted time frame and have been able to satisfy various constituencies. So I'm very optimistic about the future. I think we're going to have a good summer."