Air turbulence

The potential loss of Aloha's last division threatens air carriers

STORY SUMMARY »

They say bad things come in threes.

First, Aloha Air ended its passenger service. Then on Monday it closed up its cargo operations, which handled 85 percent of interisland freight.

Now Aloha's aviation contract services unit, which handles ground operations for nearly all of the major domestic and international carriers flying into the state, could be shut down as early as today in a move that could paralyze much of the air travel throughout Hawaii.

Aloha's aviation contract services unit has a buyer, Pacific Air Cargo, but that deal has yet to close, and Aloha's lender is refusing to fund it any further. That threatens to force the unit's closure, possibly as soon as today.

Meanwhile, Pacific Air Cargo is leasing a Boeing 727 freighter aircraft, which was expected to arrive today from Oakland, Calif., to fill some of the void left by the shutdown of Aloha Airlines' cargo unit.

And a number of food industry executives, led by Love's Bakery President Mike Walters, are urging the Hawaii Superferry, Gov. Linda Lingle and Kauai politicians to bring the vessel back to Kauai, where it was greeted by protesters last summer.

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Aloha Airlines' aviation contract services unit, which handles ground operations for nearly all of the major domestic and international carriers flying into the state, could be shut down as early as today in a move that could paralyze much of the air travel throughout Hawaii.

Even though the approximately 400 contract services employees continued to work yesterday, there was no guarantee they would continue to get paid. Similar to the chaos that erupted Monday following the abrupt shutdown of Aloha's cargo operations, confusion reigned again yesterday on what was happening with contract services.

Among those carriers affected are United Airlines, American Airlines, US Airways, Japan Airlines, Air Canada, Korean Air and China Airlines.

It had been expected that a Chapter 7 liquidation trustee, Dane Field, would be appointed yesterday on an interim basis to give the parties some guidance. But as of last night, Carol Muranaka, assistant U.S. trustee for the District of Hawaii, had not made an appointment. She did not return phone calls.

"If the employees aren't getting paid, and there's no insurance to cover the operations, then a responsible trustee will shut them down," said attorney David Farmer, who was Aloha's local co-counsel in the bankruptcy case and sometimes serves as a Chapter 7 trustee. "That's Bankruptcy 101."

But Farmer added that there were indications late last night that saving both the cargo and contract services divisions still could be possible.

"The company is in discussions and remains optimistic to achieve preservation of these two divisions," he said.

Additional details were not available, Farmer said.

Pacific Air Cargo, the prospective new buyer of Aloha's contract services unit, said yesterday it is "moving forward" with its deal to buy the unit.

The Los Angeles-based company's chief executive, Beti Ward, said the employees who are working during this interim period "will get paid by one entity or another."

Approximately 950 employees in the contract service unit have been working since Monday night without any guarantee of getting paid after Aloha's lender, GMAC Commercial Finance LLC, cut off financing and Aloha announced it was converting to Chapter 7 liquidation from Chapter 11 reorganization.

"I put the burden on all of our guys," said Randy Kauhane, assistant general chairman of International Association of Machinists and Aerospace Workers, District Lodge 141. "I told our guys to continue to work for free if it means keeping the operation going until we can find out more details what's going to happen. If we stop, it would interrupt the operations of the carriers that we service."

The contract services deal is scheduled to close Monday, but people familiar with the situation said Pacific Air Cargo was trying to move up the closing date before the business deteriorates.

The ripple effect of the cargo shutdown already was being felt locally and nationally yesterday.

Mike Walters, president of Love's Bakery, said the company's regular Tuesday shipment of bakery goods to Kauai "is still sitting in Los Angeles" because a freight forwarder it hired used United, which has stopped flying cargo to Lihue Airport.

United suspended its cargo operations to Kauai because the transfer of the airline's interisland cargo had been handled by Aloha's now-defunct cargo unit.

Walters said Love's will sign a contract with a smaller freight service, Pacific Wings, to start flying bread tomorrow to Lihue.