Aloha Air hunting for buyers

Airline gets reprieve to continue operations

Aloha Airlines Inc. is searching for a buyer for some or all of its business.

A day after filing for Chapter 11 bankruptcy protection, the airline told a federal bankruptcy court yesterday that it is seeking a buyer for its cargo and contract services, and interisland and trans-Pacific passenger segments, as well as investors to provide long-term financing. The state's second-oldest airline is facing plummeting revenues caused by record-high fuel prices and an interisland fare war sparked by Mesa Air Group's local carrier go! in June 2006.

It got approval yesterday for a cash collateral arrangement and other measures that enable it to continue operating for 10 days.

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Aloha Airlines isn't ready for a departure from Hawaii quite yet.

The state's second-oldest airline won court approval yesterday for a cash collateral arrangement that will let it keep operating on a short-term basis in the wake of filing for Chapter 11 bankruptcy protection on Thursday.

The airline told a federal bankruptcy court that it is seeking a buyer for some or all of its major business segments in the face of plummeting revenues caused by an interisland fare war sparked by Mesa Air Group's interisland carrier go! and record-high fuel prices.

"We do have potential investors we are talking to," David Banmiller, Aloha's president and chief executive officer, said after the hearing. "Sometimes in a bankruptcy environment the opportunity financially and otherwise might be better for an investor."

Jonathan Ornstein, Mesa's chairman and CEO, declined to comment on the case. Aloha is suing Mesa for allegedly engaging in predatory pricing intended to drive the airline out of business. That case is scheduled to be heard in federal District Court on Oct. 8.

Aloha spokesman Stu Glauberman declined to comment on the potential for talks with partner carriers such as United Airlines, which has a seat on the airline's board and has one of the largest unsecured claims against Aloha -- $5.5 million -- out of more than 4,000 creditors.

Aloha is also in talks with undisclosed lenders to provide additional long-term financing, as the airline said it expects to burn through $2.4 million of its current $3.7 million unrestricted cash by its next hearing, scheduled for March 31.

Yucaipa Corporate Initiatives Fund I LP, headed by billionaire grocery magnate Ronald Burkle, holds a 68 percent stake in the company, followed by Aloha Aviation Investment Group LLC at 26 percent.

The airline will be allowed to draw on financing totaling more than $43 million from lender General Motors Acceptance Corp. through March 31. U.S. Bankruptcy Judge Lloyd King also granted other motions to let Aloha continue operating in the near term, including payments for fuel, utilities and employee wages and benefits.

U.S. Bankruptcy Judge Robert Faris, who presided over Aloha's previous bankruptcy from December 2004 through February 2006, recused himself from the case because of family relations in one of the participating law firms.

State legislators from both the House and Senate spoke separately in support of the airline yesterday, following a similar plea by Gov. Linda Lingle on Thursday concerning the airline's 3,500 employees.

But several industry analysts were left wondering what could be done to stem losses at Aloha, which totaled $81 million last year and include $11 million in the first month of this year.

"It will be very difficult to maintain three interisland carriers," aviation industry consultant George Hamlin said, quoting words he said had previously applied to other airlines: "You can either have two fat cows or three skinny ones."

New York-based airline analyst Robert Mann questioned the airline's ability to individually sell off its major business segments, which include interisland and trans-Pacific passenger service, cargo services and contract services.

"That raises the issue of how are you going to change your operating costs -- because that's the only way you are going to increase your cash flow," he said. "All the good work that has been done in restructuring has been overwhelmed by energy costs. What makes it a little worse in the interisland market of course is the new competitor you've got there with the very, very low fares."

Because of cuts made during the previous bankruptcy, Aloha is unlikely to start concession talks with employees, said Michael Feeney, a member of the Air Line Pilots Association's Aloha negotiating committee and the former chairman of Aloha's unsecured creditors' committee in its first bankruptcy.

Banmiller said yesterday he has been in talks with union representatives over the bankruptcy filing but that no new cuts are planned. During Aloha's last bankruptcy, some pensions were cut by up to 70 percent and pilot salaries were cut by 24 percent, he said.