Aloha sees 1st bid for cargo unit

$13M offered by Seattle-based firm

The owner of inter-island ocean cargo shipper Young Brothers Ltd. said yesterday it will pay $13 million to buy the cargo unit of Aloha Airlines Inc.

The offer from Seattle-based Saltchuk Resources Inc. is the first for the cargo unit since the company filed for bankruptcy last week, Aloha spokesman Stu Glauberman said. The airline said last week it was looking to sell all or some of its business units.

Aloha, meanwhile, is seeking court approval of an auction in mid-April that may attract more bidders.

New York-based airline analyst Robert Mann said a strategic investor like Saltchuk may be willing to pay more than other potential bidders for the Aloha operations because of its current link to the isle shipping industry.

"There would be synergies," he said. "Aloha can probably do just fine as a passenger airline, perhaps even selling lift on a subscription basis to the acquirer of the cargo segment."

"Saltchuk's other businesses include air cargo, petroleum distribution and real estate investing.

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Aloha Airlines Inc. has taken a major step toward selling its cargo unit.

The airline said in Chapter 11 bankruptcy proceedings yesterday that Seattle-based cargo company Saltchuk Resources Inc. is likely to become the lead bidder in a planned auction to sell off its Aloha Air Cargo business segment.

Saltchuk, the owner of ocean shipper Young Brothers Ltd. and other isle companies, has offered $13 million for the air cargo operations, plus an additional sum for a portion of monies owed Aloha by cargo customers.

"Traditionally we have continued to run businesses as we have acquired them," Tim Engle, president of Saltchuk, said in an interview. "They have a lot of industry knowledge we can't replicate."

"Engle said he was approached by an investment bank last week about a potential bid. The company has declined to participate in discussions to take over the Aloha's passenger business, the company said in a statement.

Saltchuk would acquire the use of the Aloha name as well as all equipment used in cargo operations. He said he was uncertain about the fate of ground and plane leases held by Aloha.

The cargo unit is Aloha's most profitable business segment, generating earnings before interest, taxes, depreciation and amortization of more than $6 million in recent years, Aloha said in the U.S. bankruptcy court filing yesterday. Company spokesman Stu Glauberman declined to provide further financial details.

Aloha said last Friday it is seeking buyers for one or all of its business segments, which include cargo and contract services and interisland and trans-Pacific passenger service.

The offer by Saltchuk as well as the auction plan are subject to the approval of the U.S. Bankruptcy Court.

The airline, which said it lost $81 million last year from an inter-island fare war and rising fuel costs, will return to court on Monday to seek Judge Lloyd King's approval of bids for the cargo unit as well as an extension of a 10-day cash-collateral agreement that has allowed it to continue operating.

"A number of parties have expressed an interest in potentially acquiring the Air Cargo Assets," Chief Financial Officer Jeffrey Kessler said in a court filing. "Air Cargo assets have value that can be realized through an efficient, orderly and yet expeditious sale process."

Catherine Awakuni, executive director of the state Division of Consumer Advocacy, said the state Public Utilities Commission, which regulates the operations of Young Brothers, would not likely need to approve the purchase. The PUC does not regulate airlines.

"As long as it does not affect Young Brothers operations in any way, I don't see how any of the commission's laws or rules would be invoked as a result of this transaction," she said.

Aloha attempted to sell its cargo operations in late 2004, but failed to find a buyer. Its fleet has 27 airplanes, including five Boeing 737-200 aircrafts used for cargo as well as a dual-purpose Boeing 737-QC aircraft that converts for cargo use at night. That plane falls under the cargo unit, Glauberman said.

Aloha, which began dedicated overnight freight service in 1985, handles 85 percent of Hawaii's non-mail inter-island cargo on more than 25 daily all-cargo flights between Oahu, Maui, Kauai and the Big Island, as well as a "major" contract with the U.S. Postal service to carry mail, the company said in a separate court filing. Other customers include FedEx Corp., United Parcel Service Inc. and the U.S. Postal Service.

About 300 of the company's 3,550 employees work in the cargo unit. Engle said he would work to retain as many employees as possible if a deal was finalized.

Also, Engle said there are many similarities between Aloha's cargo unit and Saltchuk's Northern Air Cargo service in Alaska, where the company uses three of the same 737-200 aircraft as well as two DC-6 aircraft. It is the company's only air cargo holding.

The Aloha operations would be smaller than Young Brothers, but larger than other holdings in the state, he said. Due to the use of air shipping for timely or perishable goods, the Aloha business has little overlap with Young Brothers tug and barge operations, he said.

If a deal is approved, Saltchuk may consider partnering with Aloha on a contract basis for cargo space on passenger jets.

Glauberman would not comment on how a sale would affect a deal announced in January with Mokulele Airlines to operate a new service called Aloha Air Cargo Express in Molokai, Lanai and West Maui beginning next month.

In 1999, Saltchuk acquired Young Brothers and selected assets of Hawaiian Tug & Barge from Hawaiian Electric Industries Inc. It also bought the Hawaii Fuel Network, Maui Petroleum and Minit Shop Stores in 2006.