By Kathryn Bender, Star-Bulletin
Mahalo Air says its turboprop planes will be idled until
at least Friday as the low-cost interisland carrier tries to
obtain new capital to make up a missed $1.5 million
insurance payment.

Competitors fly
Mahalo customers

Hawaiian and Aloha step in
as Mahalo works on getting
airborne again

Star-Bulletin staff

Hawaiian Airlines and Aloha Airlines, the islands' historic interisland competitors, today were hauling passengers who had planned to fly on their bankrupt, low-fare competitor Mahalo Air.

Mahalo shut down after its last flight returned to Honolulu about 8:30 last night and today its 300 employees were out of work -- on furlough but subject to recall if the airline resumes operations.

Mahalo said it is working on a plan to obtain some new capital and could be flying again as soon as Friday.

"We were hoping to avoid this and in fact hope now that it's temporary," said Michael Yocum, Mahalo Air president and chief operating officer. "The brick wall that we can't get past is that we do need investor capital."

Mahalo Air, which went into Chapter 11 bankruptcy reorganization July 25, missed a deadline yesterday to come up with $1.5 million insurance payment and had to halt operations.

"Negotiations are ongoing with investor interests to recapitalize the company," Mahalo Air said in a statement. "We hope to soon have a firm commitment on this investment, which would allow resumption of operations perhaps as early as Friday Sept. 5, 1997."

Meanwhile, for a $15 fee on top of what they paid for their tickets, Mahalo coupon and ticket holders can fly with Aloha and Hawaiian, the two airlines said last night.

Hawaiian Air, which has a code-sharing agreement with Mahalo in which the four-year-old competitor carries Hawaiian's passengers to some of Hawaii's smaller airports, said it is working out ways to help.

For example, Hawaiian hoped to use buses to take Mahalo's Kapalua passengers to Kahului where they could board Hawaiian jets to get back to Honolulu.

Hawaiian and Aloha said they will accept Mahalo tickets for the next few days for the additional fee which brings the price of a trip up to about what the bigger airlines charge. Aloha said the offer also applies to its Island Air affiliate which services smaller airports with aircraft similar to Mahalo's.

Mahalo Air, whose biggest stockholder is Robert Iwamoto Jr., president of Roberts Hawaii Tours & Transportation, said it is talking to a foreign investor with airline experience. Under U.S. law, foreign owners are limited to no more than a 25 percent investment in a U.S. airline.

Iwamoto's office said he was out of town and unavailable for comment.

At a 1 p.m. creditors hearing yesterday in federal Bankruptcy Court, Mahalo Air creditors asked questions on reorganization, what's owed and what the airline's opinion of its prospects for emerging from bankruptcy.

Yocum issued a news release later recapping answers he gave to creditors. Mahalo Air was in arrears to creditors because of extraordinarily high maintenance irregularities on its French-built leased ATR-42 turboprop aircraft, the statement said.

Mahalo said it lost revenues when it had to cancel flights so the maintenance could be done.

The airline said it had not planned to enter bankruptcy, had created no contingency plan and had not set aside money to finance a reorganization. Mahalo said it was forced to seek court protection because the aircraft's owners -- Renaissance Leasing -- threatened repossession.

After 40 days of operating under Chapter 11 reorganization, Mahalo Air was unable to restore cash flow, primarily from wholesale accounts. Because of the uncertainty created by the bankruptcy filing, they took their business elsewhere, Mahalo said.

"They have understandably been very concerned as to whether or not we will be able to continue," Yocum said.

Despite the shortage of cash to meet ongoing costs, Mahalo said August operations should show a profit. Mahalo said it has been nearly breaking even financially.

Mahalo has been flying since October 1993. At its peak, it had about 100 interisland flights a day but cut back to 70 after the bankruptcy filing, when it reduced its fleet from seven aircraft to five.

The Associated Press contributed to this report.

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