Indianapolis-based Republic Airways has pumped an additional $2.5 million into Mokulele Airlines and said its partner is making progress toward becoming the state's No. 2 interisland carrier.

Republic disclosed on an earnings conference call yesterday that it now has invested $13 million in Mokulele since the two airlines teamed up last October and began offering new interisland jet service on 70-seat Embraer 170s in November. Republic's net investment is $11 million because of a $2 million deposit it holds from Mokulele.

“;We are fully committed to the Mokulele operation,”; said Bryan Bedford, chairman, president and chief executive of Republic. “;We see a viable business there, and we're very encouraged by the revenue build that we're seeing and the traction that we're gaining with airline partners, distribution channels and the wholesalers.”;

Bedford said Mokulele appears to have recovered from the negative publicity surrounding its loan default that was disclosed in February when Mokulele overdrew its $8 million line of credit with Republic.

“;We are now making very good progress to establishing Mokulele as the viable No. 2 carrier in the islands,”; Bedford said.

Mesa Air Group's go!, which began Hawaii service in June 2006 and increased its passenger traffic after Aloha Airlines ceased operations on March 31 of last year, challenged Bedford's assertion.

“;The folks at Hawaiian (Airlines) would probably take issue that (Mokulele) would replace Hawaiian Airlines (as the No. 2 carrier) because they're certainly not talking about go!,”; Mesa Chairman and CEO Jonathan Ornstein said. “;I guess we have different definitions of good progress because running load factors (percentage of seats filled) in the 20s and charging fares below cost would not be the definition of good progress at most airlines.”;

Ironically, Hawaiian and Aloha accused go! of charging below-cost fares when go! entered the market.

Ornstein said there's “;a major difference”; now.

“;When Mesa's go! came into the market, the market was capacity constrained, and the fares were extremely high, with local fares over $100,”; he said. “;That was not the case when Mokulele came in. The market did not get stimulated (when Mokulele lowered fares) because the fares were already low.”;

Hawaiian Airlines declined to comment.

Mokulele interim President and CEO Scott Durgin said May has started out as a “;fairly challenging month”; for the airline but that the last two weeks of May look “;reasonably strong.”;

“;We were about 40 percent (filled) in April,”; Durgin said.

In March, Republic took over operations of Mokulele and became a 50 percent shareholder by converting $3 million of the loan it was owed into common stock and investing an additional $3 million. The recapitalization agreement required Republic to invest an additional $2.5 million, which it did last Friday.

Republic discussed Mokulele on a conference call yesterday after reporting first-quarter earnings fell 89.3 percent to $2.2 million from $20.2 million a year ago. Excluding a $13.3 million goodwill impairment charge, Republic would have earned $15.5 million in the quarter.

Durgin said the recapitalization and investment in Mokulele has “;restored the confidence”; that was shaken in February.

“;We're having meaningful talks with various carriers that want to do business with Mokulele,”; Durgin said.