go! airline owner sued over secrecy violations

Aloha Air claims that the company intends to drive it out of business

Aloha Airlines, starting down a legal trail blazed by Hawaiian Airlines, filed a lawsuit yesterday alleging that Mesa Air Group Inc. used confidential information obtained as a potential Aloha investor to enter the interisland market with the intent of driving Aloha out of business.

The 60-year-old local carrier is seeking unspecified damages and a permanent injunction to stop Mesa -- which operates the new interisland airline go! -- from competing unfairly and threatening the jobs of 3,500 Aloha employees. It also accused Mesa of predatory pricing.

Aloha's action in state Circuit Court follows a similar suit filed in February in federal Bankruptcy Court by Hawaiian against Mesa.

Last week, Bankruptcy Judge Robert Faris denied Hawaiian's request for a preliminary injunction to prohibit go! from selling tickets for one year, saying Hawaiian had not shown that Mesa had caused any irreparable harm to Hawaiian.

But the judge also criticized Mesa's conduct and said the Phoenix-based carrier likely will be found in an April trial to have violated a confidentiality agreement it entered into during Hawaiian's bankruptcy.

"Mesa came to Hawaii under false pretenses, making false promises," said David Banmiller, Aloha's president and chief executive. "Aloha is not opposed to competition; we're opposed to unfair competition and a competitor whose object appears to be the demise of Aloha Airlines, ultimately to the detriment of Hawaii's consumers."

Jonathan Ornstein, chairman and chief executive of Mesa, fired back at Aloha.

"This is a desperate act by a desperate carrier," he said. "It has absolutely no merit. These are people we were friendly with, and it's extremely disappointing they would resort to something like this given the personal relationships we had developed."

On Jan. 25, Aloha and Mesa met in Phoenix to discuss a possible Mesa investment in Aloha, according to yesterday's filing. The meeting came four months after Mesa said it was entering the interisland market. An industry source said Mesa, which signed a confidentiality agreement, offered to invest up to $25 million in Aloha, but Aloha rejected the deal. That investment would have been on top of the $98 million investment in Aloha made earlier by the carrier's now majority owner, Yucaipa Cos., and others.

Earlier in Aloha's bankruptcy proceedings, Mesa signed its first confidentiality agreement in January 2005, before Aloha had chosen Yucaipa as its majority owner.

Aloha said in the suit that Mesa used Aloha's proprietary information to compete unethically in the Hawaii market by offering airfares that failed to cover Mesa's costs. Mesa has been touting its $39 one-way fares as a way for family and friends to visit each other and, in a just-concluded promotion, had cut its fares further to $19 one way.

The suit alleges that Mesa is offering unrealistic fares to drive out competition in the Hawaii market.

"If left unchecked, (Mesa has) a dangerous probability of succeeding in monopolizing the interisland market," the filing said.

Mesa has only about 8 percent to 9 percent of the market now, but has said it plans to bring in larger planes before next summer's peak season.

Ornstein reiterated that go! is not trying to drive Aloha out of the market, and said Aloha "should spend less money on legal fees and more money updating its 30-year-old fleet."

Aloha based its charge about Mesa's intentions on e-mails that Hawaiian obtained in the course of its own still-pending lawsuit against Mesa.

The judge in Hawaiian's suit cited an e-mail between Mesa's chief financial officer, Peter Murnane, and Mesa consultant Mo Garfinkle, written one week before Mesa announced its entry into the Hawaii market, in which Murnane said, "I agree that if we assume (Aloha) stays in (the) market and in business forever, this project makes no sense. We definitely don't want to wait for them to die, rather we should be the ones who give them the last push. ... Clearly, if we can get (Aloha) out of the market without anyone else stepping in, this is a home run."

Mesa announced it was entering the Hawaii market in September 2005. It began operating on June 9, 2006 -- four months after Aloha emerged from bankruptcy. Hawaiian came out of Chapter 11 in June 2005.

Aloha said in its suit that Ornstein has stated more than once that go! can "fly empty" for five years on the profits from Mesa's mainland operations. Aloha also pointed out that before beginning service in Hawaii, Ornstein told Mesa's shareholders that Mesa had enjoyed the benefit of looking at both Aloha and Hawaiian when they were both in bankruptcy.

Ornstein scoffed at the significance of Aloha's "fly empty" claim, calling it "simple math."

"We make $100 million a year, and it doesn't cost us much money to fly the planes in Hawaii," he said. "Anybody that can add or subtract can figure that one out."

Still, Mesa is trying to watch its expenses in Hawaii. It is planning to cut fewer than 10 pilots from its current crew of about 40 pilots, according to Mesa spokesman Paul Skellon. He said go!'s flight schedule would not be affected by the reduction, which he attributed to Mesa overstaffing its Hawaii crew during go!'s first 90 days to make sure operations ran smoothly.