Aloha gets
credit-card
reprieve

Aloha Airlines, facing a critical Feb. 28 deadline with its aircraft lessors, has received a temporary reprieve from First Hawaiian Bank and American Express to continue using their credit card processing services until the end of the month.

The ability for Aloha's customers to purchase tickets with credit cards is crucial to the airline's success and its emergence from bankruptcy. But First Hawaiian Bank, which processes Visa and MasterCard purchases, and American Express were reluctant to extend their agreements past Feb. 28, which marks the end of a 60-day period that protects Aloha from having its airplanes repossessed.

That date also coincides with an extension granted by the federal Air Transportation Stabilization Board, which is owed more than $24 million on a $45 million loan it granted the airline in 2002. The extension allows Aloha to continue using operating cash that the board has a right to claim as collateral under the loan agreement.

Aloha hasn't had to make any airplane lease payments since it filed for Chapter 11 reorganization on Dec. 30. The airline, which had about $2 million in unrestricted cash when it filed for bankruptcy, has been seeking financing from investors to tide it over until it can find a solution.

In Hawaiian Airlines' bankruptcy, aircraft lessors and Hawaiian kept extending the repossession deadline until new lease deals could be worked out. In the meantime, Hawaiian paid its primary lessor, Boeing Capital Corp., a lower amount.

Aloha hasn't announced new lease agreements with any of its dozen lessors and there has been no indication whether any of the lessors would pull their planes after Feb. 28.

If Aloha is forced to refund tickets already purchased through Visa and MasterCard and cannot come up with the money, First Hawaiian Bank would be on the hook. Visa and MasterCard purchases account for about 57 percent of Aloha's monthly sales.

Aloha has said First Hawaiian's exposure to refunds was approximately $47.5 million and the bank had $16.65 million in an account to cover that amount. Many credit card processors today require that they be 100 percent protected against possible refunds. Aloha has said it could not find another credit card processor without having to put up a higher amount of cash collateral, money it does not have.

Brendan Collins, a Department of Justice attorney representing the ATSB, singled out First Hawaiian in federal Bankruptcy Court yesterday to be more lenient in its dealings with Aloha.

"It's a very critical time for (Aloha)," said Collins. "Sacrifices need to be made by parties to overcome this significant hurdle. It would be tragic if short-term liquidity problems cause (Aloha) to fail and thousands of employees lose their jobs."

Cades Schutte attorney Nick Dreher, who represents First Hawaiian Bank's credit card processing services, has said the bank "vehemently disagrees" with Collins' comments, which were also made last month. "First Hawaiian Bank has shown a willingness to be extremely cooperative and flexible and to help Aloha through its liquidity crisis by amending the credit card agreement to voluntarily provide Aloha with more than $2 million of extra funds," Dreher said.