Hawaiian and AlohaAloha Airlines and Hawaiian Airlines - reeling from the post-Sept. 11 economic downturn - announced today that they will merge in a deal that will end decades of heated rivalry between Hawaii's two major airlines.
A new investor group includes the
former president of Continental Airlines
Passengers value service, but don't want to pay more
Neighbor isles may be affected most
By Rick Daysog
The two will be combined into a new company, Aloha Holdings Inc., which will be headed by veteran airline industry executive Greg Brenneman.
Brenneman is a former president and chief operating officer of Continental Airlines who now heads a Texas-based private equity firm TurnWorks Inc.. He will also take a 20 percent stake in Aloha Holdings and will serve as the airline's chairman and chief executive officer.
The combined company will become the nation's 10th largest carrier with annual revenues of about $1 billion.
"This merger is the best thing these two great airlines could do for the people and economy of Hawaii," said Brenneman. "The merger will create a flagship carrier for Hawaii that will not only allow the continuation of interisland service that Hawaii depends on, but will also provide the financial muscle and staying power needed to allow us to bring more visitors to Hawaii by growing in new markets, on the mainland and in the Pacific."
Addressing consumer concerns, the companies said today that they plan to freeze unrestricted fares for two years. The airlines also pledged to link future fare increases during the following three-year period to inflation and other other cost increases.
Trading in Hawaiian Airlines stock was halted today on the American Stock Exchange in anticipation of the merger, which has been rumored for several months.
In the deal, Hawaiian Airlines' shareholders will received about 52 percent of the combined company while Aloha Airlines's investors will get 28 percent.
Of the shares going to Hawaiian Airlines' investors, Airline Investors Partnership will receive 28 percent while public shareholders will receive 28 percent.
Airline Partners, led by New York investor John Adams, will also receive $10 million in cash as well as a six-year note bearing an interest rate of 8 percent.
The new company will be run by an 11-member board which will be chaired by Brenneman. Aloha Airlines Chairman Han Ching will become vice chairman of Aloha Holdings.
The new company will continue to trade publicly as Hawaiian Airlines on the American Stock Exchange.
The deal - the first in the U.S. airline industry since the Sept. 11 terrorist attacks - will require antitrust clearance from the U.S. Department of Justice. A department spokeswoman could not be reached for comment.
The companies said they plan to complete the merger during the first half of 2002.
The deal caps a roller coaster year for businesses in Hawaii, which has seen an unprecedented number of mergers and acquisitions. During the past 12 months, ownership in long-established local companies like Liberty House Stores, First Hawaiian Bank, Crazy Shirts and Schuler Homes Inc. have changed hands.
Founded in 1946 as Trans-Pacific Airlines, Aloha Airlines is the state's largest provider of interisland transportation service. Hawaiian Airlines, which was established in 1929 as Inter-Island Airways, is the nation's 12th-largest carrier.
Such a deal would likely result in job cuts as the merged airlines - which have aggressively competed for decades - would look to eliminate duplicative functions, flight schedules and excess aircraft. However, the airlines must maintain enough capacity to fend off challenges from encroaching mainland carriers.
Hawaiian Airlines employs about 3,100 employees while Aloha has about 3,000 workers.
The airlines said the merger will result in savings of about $90 million.
The company said it plans to minimize the number of layoffs and will work closely with the two airlines' unions and employees in integrating the two companies.
After meeting with representatives for both Hawaiian and Aloha, Gov. Cayetano said he believes at least one of the airlines was going to go out of business.
As a result, he said, "the state is going to support the proposed merger."
Since Sept. 11, the two airlines have cut more than 600 jobs and reduced interisland flights.
Of the two airlines, Aloha has been the harder hit. Aloha - a privately held company led by the heirs of local financiers Sheridan Ing and Hung Wo Ching - launched its mainland service only to see business tumble as a result of the terrorist attacks in New York and Washington, D.C.
In an August filing with the Transportation Department, the company said it had lost $205,618 during its second quarter. Year-to-date figures were not immediately available. For all of 2000, Aloha lost $4.3 million.
Publicly traded Hawaiian Airlines posted a year-to-date net profit through Sept. 30 of $15.2 million.
This is not the first time that the two airlines looked to merge.
During the past 30 years, both companies have explored combining operations several times, but the plans fell through when neither side could agree on who would run the new company.
Brenneman, 40, is well respected in the U.S. airline industry for helping turn around Continental Airlines, the nation's fifth-largest carrier.
During Brenneman's tenure at Continental, the Houston-based airline negotiated with the state of Hawaii to build a $24 million jet maintenance facility at Honolulu Airport. The deal, which created more than 100 jobs, included $2 million in tax breaks from the state and a favorable long-term lease.
Brenneman currently serves as Turnworks' chairman and chief executive officer. The Texas-based private equity firm specializes in corporate turnarounds.
Industry watchers credit Brenneman for much of Continental's resurgence from its mid-1990s bouts with bankruptcy. Bob Mann, a Port Washington, N.Y.-based airline analyst, believes that Brenneman will look to expand the airlines' mainland flights without sacrificing interisland service.
"You could not possibly hope for better," Mann said. "He will not leave the interisland constituency behind while he attempts to fix the entire enterprise."