Aloha Air talks
financing with
potential investors

The airline's CEO says
shareholders have offered
a $3 million loan

Aloha Airlines, which declared bankruptcy last week, is in talks with prospective investors on throwing a financial lifeline to the struggling carrier, the company's chief executive said yesterday.

Even as Aloha appeared for its first day in bankruptcy court, company President and Chief Executive David Banmiller said the airline was discussing possible debtor-in-possession financing arrangements, which he said are "often a prelude to equity investment."

"We've been discussing opportunities with multiple parties," he said, offering no details.

He said the airline also has been offered a $3 million loan from shareholders in the privately held firm, which is controlled by the families of the late real estate investor Hung Wo Ching and late local developer Sheridan Ing.

"It shows people we have the cash to continue operating," Banmiller said during a court break. "It sends a positive message to all the constituents we deal with."

Banmiller's comments came on a day in which the airline largely got its way in a court hearing that ironed out many of the rules of engagement between Aloha and its creditors and employees and bankruptcy authorities.

Overruling a federal lawyer on several occasions, bankruptcy court Judge Robert Faris granted a number of motions by Aloha's attorneys aimed at keeping the airline aloft as it undergoes reorganization.

These included approval to continue operating its frequent-flyer and other customer programs, continued use of its existing cash-management system and bank accounts, and permission to honor a litany of obligations to customers, employees, vendors, service providers and other airlines with which it has travel agreements.

"What's important is that we continue to operate smoothly and successfully," Banmiller said.

Also granted was a motion allowing First Hawaiian Bank to continue accepting credit card payments despite the Dec. 31 expiration of an agreement with First Hawaiian, which processes credit card transactions for Aloha.

Credit cards are used to generate about 75 percent of Aloha's revenue, and the two sides are negotiating an extension to their agreement.

First Hawaiian Bank is Aloha's largest single creditor and is owed $42.8 million, according to the airline's bankruptcy filing.

Faris indicated during the hearing that he was keen to make sure neither Aloha nor Hawaiian was put at a "competitive disadvantage" by the court.

That should sit well with Banmiller, who has said one of the key reasons Aloha filed for Chapter 11 bankruptcy protection last week was that longtime rival Hawaiian Airlines' protracted bankruptcy meant there was not a level playing field between the two major Hawaii-based carriers.

Hawaiian has been able to restructure some of its debt and labor agreements since declaring bankruptcy in March 2003. At the same time, Banmiller complained, Aloha has labored under aircraft lease agreements that are "two to three times higher" than market rates, as well as the skyrocketing fuel costs that have hit all airlines.

Aloha's lead attorney, Don Gelber, argued before the court that the airline was being squeezed on several fronts, including rising fuel costs, health care and pension costs, increased competition from other carriers on Hawaii-mainland routes and the "unfair" protections enjoyed by Hawaiian.

He urged Faris to allow the airline considerable latitude to continue to operate normally while it reorganizes, even if this might infringe slightly on the rights of some of its creditors.

"Otherwise, the damage going forward will be far more than a slight disruption in creditor's rights," Gelber said.

Faris was mostly accommodating toward Aloha; however, he agreed to some restrictions on the size of payments that Aloha can make to foreign vendors and suppliers.

Under an agreement hastily hammered out yesterday during a court break, payments under $100,000 can be made at Aloha's discretion, but anything more than that will require approval from the carrier's creditors and the Office of the U.S. Trustee.

Some other motions were deferred for later consideration, including an objection by the trustee's office over Aloha's retention of the firm Gelber, Gelber, Ingersoll and Klevansky as legal counsel.

The firm also represents RC Aviation LLC, a significant investor in rival Hawaiian Airlines' parent company, Hawaiian Holdings Inc.