After rough flight, CEO is staying

Following Aloha Airlines' tumultuous trip through bankruptcy, David Banmiller will stay at the helm

>> Aloha Air prepares to depart bankruptcy.

DAVID BANMILLER has been through so much with Aloha Airlines that he's not about to go anywhere soon.

The 61-year-old president and chief executive, who took over six weeks before the company filed for bankruptcy on Dec. 30, 2004, said yesterday he has signed a long-term contract with a minimum three-year commitment. He did not disclose the terms.

"(Aloha's new investors) want me to stay and I want to stay," Banmiller said earlier this week. "It's a good group of people. Their management style is they want this team to run the company. They invested in this company because of this management team. That was a prerequisite."

Banmiller, who helped rescue Aloha from the brink of liquidation several times, said the company is in a solid financial position now that will enable it to expand its routes, look at other types of planes and seek out airline-related business.

"Before, our problem was we never were properly capitalized as a company, and it shows from time to time," he said. "Hawaiian (Airlines) has been better capitalized. They've gone through some tough times like everybody, but they've been better capitalized and they were public so they had access to markets for capital that this company never had. We now have that."

Banmiller said various new cost-saving measures will save Aloha $75 million a year, and the carrier's projected EBITDA, or earnings before interest, taxes, depreciation and amortization, is projected to be $27 million in 2006 -- a $47 million improvement from a negative $20 million in 2004.

Aloha's EBITDA, a measure of a company's profitability, was about $17 million in 2005, Banmiller said.

He said Aloha is looking at locking in some advance fuel purchases, or hedging, but is not ready yet to pull the trigger. Every penny that a gallon of fuel goes up costs Aloha another $500,000 a year, so a 10-cent rise would result in an increased cost of about $5 million, Banmiller said.

"Between everything we did, we dramatically reduced the cost structure of this company for the future," Banmiller said. "In the meantime, fuel nearly doubled. If we hadn't done that, there's no way we could have survived the fuel increase. We would have been dead many, many months ago."

That very nearly happened, several times.

Last June, lenders Goldman Sachs and Ableco, an affiliate with Cerberus Capital Management, asked Aloha to cease mainland flights and return all its long-haul 737-700s because Aloha was in default of a loan agreement.

In April 2005, Aloha came within 10 minutes of having aircraft lessor GE Commercial Aviation Services recall nine 737-700s because Aloha, which went down to the wire trying to finalize a loan with its lenders, owed GE $4 million.

A month earlier, lender MatlinPatterson gave up its right to buy the airline because it didn't want to take on the obligations of the defined-benefit pension plans covering Aloha's unions. When MatlinPatterson walked, Banmiller was in New York, where he struck a new loan deal with Goldman Sachs and Ableco.

In early January 2005, the Ching and Ing families, the owners of the airline, put up $3 million and then later another $1.6 million so Aloha could make its payroll.

And before that, a week before Aloha filed for bankruptcy, the federal Air Transportation Stabilization Board was planning to call $24 million remaining on a $45 million loan package that Aloha received in the wake of 9/11. Aloha owed the ATSB a $4.5 million payment, and the agency was threatening to call the loan on Dec. 23, 2004, in an attempt to be paid whatever it could get from Aloha's assets. Banmiller, who had taken over the reins on Nov. 14, 2004, went back to Washington, D.C., and told the stabilization board he could cut the airline's costs by $60 million a year. The ATSB took him at his word and waived the default.

When Banmiller hooked up with Yucaipa, the new majority investor in Aloha, he promoted the airline's 60-year reputation and an almost completely new management team, and he explained what a recapitalization and new cost structure could do for the company.

"What I said to the Yucaipa people is you take an industry in the tank that is the driver of the economies of the world," he said. "This business is being restructured, but it's not going away. Then you take a company that's distressed in that industry and you look at that as an opportunity."

Banmiller said he has had some general discussions with the new investors about taking Aloha public but that no decision has been made. Aloha was publicly traded in the early 1980s but has been private for the last 20 years.

He said the airline is committed to keeping both its interisland and mainland routes, which complement each other in multiple ways, including the use of credit cards.

"Frequent fliers who fly between the islands also want the opportunity to go to the West Coast and use their miles," Banmiller said.

"So we offer that opportunity. They're economically dependent on each other, and that's why I never wanted to shut down (the mainland flights) even though there was some pressure (by Aloha's lenders) to do that. I thought the long-term opportunity is beyond just the airlines."

Aloha relies on five business units to generate revenue. In addition to mainland and interisland flights, it flies cargo, offers contract services and has a co-branded credit-card arrangement with First Hawaiian Bank. Aloha began shopping around its cargo and contract-services units in September 2004 before filing for bankruptcy, but couldn't get the price it was seeking.

The contract-services unit, which assists other airlines locally, performs baggage handling, cabin cleaning, some maintenance work and some cargo handling. In the credit-card unit, Aloha gets a percentage of the cards' sales and in return gives miles to First Hawaiian customers that can be redeemed on Aloha.

Banmiller said Aloha will be looking at growing or acquiring support businesses apart from the airline.

"If you look at this business, it's supported by other infrastructures, whether they're distribution systems or travel agencies or transportation companies, and we think there are opportunities, particularly in the technology sector, related to our industry," he said. "(New owner) Ron Burkle (of Yucaipa) said, 'We have capital to expand and it's up to you guys to tell us what you'd like to do.'"