Aloha Airlines - Flying with the Bankruptcy Buzzards

Three former deputies to city Comptroller Bill Thompson now own or work at firms that earn millions of dollars in fees to invest the pension funds he oversees, The Post has found.

Government watchdogs blasted the ex-employees for seemingly exploiting their connections to get high-paying jobs and bring government cash to their private businesses.

Two of Thompson's former top pension managers, Josh Wolf-Powers and Adam Blumenthal, quit their city jobs and founded Blue Wolf Capital Management in 2005.

The private equity firm landed contracts to invest $63 million of city pension funds - and will collect at least $1.2 million in fees, officials said.

Fees paid to firms that manage pension investments have soared in the past five years from under $100 million to $400 million a year, said a source close to the pension funds.

Thompson was unavailable for comment, but his spokesman said Wolf- Powers and Blumenthal waited more than a year before seeking business with the pension funds, as city rules require, so "there was no conflict."

Another of Thompson's closest aides, Horatio Sparkes, the ex- deputy comptroller for pension funds, left in 2006 to join Yucaipa Companies, an investment firm led by supermarket magnate and Bill Clinton buddy Ron Burkle.

Yucaipa already had a contract to invest $170 million in 2003, according to city documents. The company got new contracts last year to invest another $360 million for four city pension funds, documents indicate.

While total payments to Yucaipa were not disclosed, records show the company has raked in $9.5 million in fees from the $347 million it invests for the city's biggest pension fund - NYCERS.

Even if the deals follow the letter of the law, they reek of preferential treatment, watchdogs say.

"They use their insider knowledge and past relationships to gain an upper hand and make a wad of cash," said Dick Dadey, executive director of Citizens Union.

A Yucaipa spokesman said that the firm didn't make an offer to hire Sparkes, who joined its Manhattan office, until he quit the Comptroller's Office in 2006 - and that Sparkes wasn't allowed to work on accounts related to the city for over a year.

Thompson's office has come under scrutiny in a widening pay-for- play probe by state Attorney General Andrew Cuomo.

Cuomo and the Securities and Exchange Commission last month indicted political adviser Hank Morris for allegedly steering state pension-fund business to investment firms in exchange for kickbacks. Morris denies the charges.

The state scandal was linked to Thompson's office last week, when The Post revealed that Morris had pocketed a placement fee on an $85 million deal between NYCERS and Quadrangle, an investment firm headed by Steven Rattner, now the chief of President Obama's auto- bailout task force.

In addition, Wolf-Powers, Thompson's former managing director for private markets, was quoted as telling Rattner that any investment firm doing business with the city needs a "placement agent," a middleman who charges a finder's fee.

But Blue Wolf did not use a placement agent in 2008, when it landed contracts to invest $63 million of the city's pension money, the Comptroller's Office confirmed. Thompson's spokesman said the Blue Wolf investment was "reviewed and recommended" by two private- equity consultants hired by the pension funds.

Before getting the contracts, Blue Wolf donated $4,950 to Thompson's campaign for mayor in July 2007. At the same time, Blumenthal, Thompson's former first deputy comptroller and chief financial officer, gave $4,050.

Three former deputies of city Comptroller Bill Thompson have gone on to lucrative careers

Josh Wolf-Powers - City comptrollers managing director for private markets (2003-2005)

Adam Blumenthal - First deputy comptroller and chief financial officer (2002-2005)

Blue Wolf lands contracts to invest $63 million in city pension funds in 2007 and 2008. It earns the firm at least $1.2 million in fees.

Wolf-Powers and Blumenthal leave the Comptrollers Office in 2005 and form Blue Wolf Capital Management, a private equity firm.

Blue Wolf donates $4,950 to Thompsons campaign for mayor in 2007; Blumenthal donates $4,050.

Yucaipa receives a contract in 2004 from NYCERS to invest part of its funds and earns $9.5 million in fees. In 2008, it lands other contracts and now handles $530 million in city pension-fund investments.

Until 2005, Yucaipas contacts in the City Comptrollers Office are Josh Wolf-Powers and Adam Blumenthal.

Bill Thompson City comptroller - Oversees $80 billion of city pension funds, including the New York City Employees Retirement System (NYCERS).

In 2006, Sparkes joins Yucaipa Companies, a private equity firm founded by Ron Burkle.

In January 2009, Wolf-Powers and Blumenthal hire Mike Musuraca, a NYCERS pension board member who had voted to approve the Blue Wolf investment contract.

To: "President Barack Obama" <president@whitehouse.gov>, "U.S. Attorney General Eric Holder" <AskDOJ@usdoj.gov>, "David Farmer" <farmerd001@hawaii.rr.com>, "Steven Guttman" <sguttman@kdubm.com>, "Carol K. Muranaka" <ustp.region15@usdoj.gov>, "Judge David A. Ezra" <theresa_lam@hid.uscourts.gov>, "Judge Kevin S.C. Chang" <shari_afuso@hid.uscourts.gov>, "Judge Barry M. Kurren" <tammy_kimura@hid.uscourts.gov>, "Securities & Exchange Commission Enforcement Division" <enforcement@sec.gov>, "U.S. Treasury Dept. Office of Inspector General" <hotline@oig.treas.gov>, "Office of Inspector General US Dept of Justice" <oig.hotline@usdoj.gov>, "Executive Office for U.S. Trustees" <ustrustee.program@usdoj.gov>, "Judge Robert Faris" <hib@hib.uscourts.gov>, "SEC Office of The Inspector General" <oig@sec.gov>, "Hawaii State Bar Association" <info@hsba.org>, "Charles Goodwin" <HONOLULU@FBI.GOV>, "Hugh Jones" <hugh.r.jones@hawaii.gov>, "Insurance Division Fraud Branch" <insfraud@dcca.hawaii.gov>, "Lawrence Reifurth" <dcca@dcca.hawaii.gov>, "Linda Lingle" <governor.lingle@hawaii.gov>, "Jo Ann Uchida" <rico@dcca.hawaii.gov>, "Office of Inspector General Civil Rights Complaints" <inspector.general@usdoj.gov>, "Mark Bennett" <hawaiiag@hawaii.gov>, "American Arbitration Association" <webcase@adr.org>, "Judith Neustadter" <Judy@tiki.net>, "Benjamin J. Cayetano" <bjcayetano@aol.com> ... more

Mr. Farmer and Mr. Guttman, in spite of all this factual evidence (not just "political opinions" or "conspiracy theories" as you have previously alleged), I am again asking that we attempt to reach a global settlement of this matter through confidential negotiation or mediation rather than continuing these costly and seemingly-endless court proceedings.

However, if you, and your insurance carriers, are still not willing to attempt to negotiate or mediate a settlement, then I ask that you perform your mandated review of this new Exhibit in accordance with Judge Ezra's Order, and advise me if you find it contains any so-called "protected subject matter", and whether or not you intend to OBJECT to my filing a Motion to reopen this case.

I respectfully request your immediate reply. If I do not receive a response from you or your insurance carrier within 15 days, I will assume that you have found no "PSM" in these updated pages, and that you will NOT file any objections to my Motion.

Since March, attorneys and experts hired by Aloha have billed the defunct airline nearly $3 million, federal bankruptcy court filings show.

The legal tab is well below the $11 million that Aloha wracked up during its previous bankruptcy, but the amount is expected to increase since the case is still pending.

Employees and retirees say the money would have been spent better if it were used to keep the airline afloat. It also could have been used to pay for health benefits or severance for the 1,900 Aloha employees who lost their jobs when the airline went out of business on March 31, they said.

"It's outrageous to charge such fees when you are just closing the door and turning off the lights," said Steve Brenessel, a retired Aloha pilot.

"All that money could have been better spent by keeping the airline going instead of going into the pockets of lawyers."

Typically, attorney fees and other costs for small bankruptcies amount to about 10 percent of the assets, said Lynn LoPucki, a law professor at the University of California-Los Angeles.

Aloha has received about $20 million from the sale of its profitable cargo and contract services unit. It expects to receive another $10 million to $15 million from the sale of its aircraft frames, engines and other aircraft parts.

Founded in 1946, Aloha was the state's second largest airline before shutting down its passenger service on March 31 as a result of soaring fuel prices and a costly interisland fare war.

The closure came 11 days after Aloha filed for Chapter 11 bankruptcy reorganization, two years after Aloha emerged from its first bankruptcy.

In Aloha's previous bankruptcy, six law firms or investment banking firms billed more than $1 million while a seventh billed just under that amount.

This time, just one firm — Imperial Capital LLC — submitted a bill for more than $1 million.

Imperial, whose fees have not yet been approved by the bankruptcy court, helped Aloha sell the cargo division for $17 million to Saltchuk Resources Inc., the Seattle-based owner of Young Brothers/Hawaiian Tug & Barge.

Miami-based Berger Singerman P.A., which was Aloha's main bankruptcy attorney, received $644,991.51 in fees and expenses. In Aloha's first bankruptcy, the firm earned more than $3 million for its work in helping the airline emerge from reorganization under new ownership;

Sheppard, Mullin, Richter & Hampton LLP of Los Angeles, which represented Aloha on labor related issues, billed $303,904.62;

Char Sakamoto Ishii Lum & Ching, Aloha's long-time law firm, was paid $297,473.48, or less than a third of what it billed during Aloha's first bankruptcy.

Sonneschein Nath & Rosenthal LLP, which represented Aloha's unsecured creditors, earned $242,896.18.

The fees do not include those for Aloha's court-appointed trustee Dane Field who, along with local attorney, James Wagner, have done much of the legal work surrounding the liquidation of Aloha's assets.

Field and Wagner's firm, Wagner Choi & Verbrugge, have not yet applied for their fees.

The total also does not include fees that will be paid to the Los Angeles litigation firm Latham & Watkins LLP and locally based Watanabe Ing Komeiji LLP.

The Latham and Watanabe firms are handling Aloha's anti-trust lawsuit against Mesa Air Group, the Phoenix-based parent of go! airlines.

Aloha recently sold its legal claims against Mesa to its main investor Yucaipa Co., which has agreed to retain the two firms and pay their legal bills.

The suit — which alleges Mesa misused confidential business information to drive Aloha out of business — will likely result in legal fees exceeding $1 million.

The firm of Sonnenschein Nath & Rosenthal which represented the Creditor's Committee for the month before the chapter 11 case was converted to chapter 7 has filed a fee application seeking $235,000 in fees. GMAC has objected to the application calling it excessive (duh). For some telephone calls, Sonnenschein billed $2,000 per hour. That would be two partners in the $750 range and one in the $600 range.

The hearing is July 29. I will check back then. These matters are tough for the judge because the objection complains away but doesn't really tell the judge what number he should approve. Judges tend to simply lop off 10% or some other nominal amount since that is the safe path.

It looks like another win-win situation for the attorneys for both Aloha and Mesa, and a lose-lose proposition for the public who will ultimately pay the millions in legal fees and judgments through higher fares and/or reduced services. I see that the usual cast of questionable characters are involved - including Judges David Ezra and Barry Kurren, bankruptcy Trustee Dane Field, billionaire Ron Burkle, Aloha Airlines' bankruptcy attorney, David C. Farmer, etc., etc.

Yucaipa Corporate Initiative Fund I, LP, the majority investor of Aloha Airlines, will be taking over the bankrupt carrier's 2006 lawsuit against go! parent Mesa Air Group Inc.

The Los Angeles-based company, headed by billionaire Ron Burkle, submitted the only bid by yesterday's deadline. Yucaipa, which is owed $116.7 million by Aloha, made a $10 million credit bid -- a noncash offer that will reduce the amount it is owed by Aloha. In addition, Yucaipa will pay Aloha 5 percent of whatever proceeds it receives from the suit.

A hearing to approve the sale of the lawsuit is scheduled for 9:30 a.m. today in federal Bankruptcy Court.

"If the lawsuit turns up zero, then the estate gets zero," said James Wagner, attorney for Aloha Chapter 7 trustee Dane Field.

Yucaipa is the second secured creditor in the bankruptcy while Aloha's primary lender, GMAC Commercial Finance LLC, is the first secured creditor and is owed about $40 million following the sales of Aloha's cargo and aviation contract services units.

Aloha is suing Mesa for alleged predatory pricing that helped force Aloha out of business, as well as for allegedly misusing confidential information obtained during Aloha's first bankruptcy.

Wagner acknowledged that if Yucaipa prevailed but Mesa were to file for bankruptcy, then Yucaipa "would hold a claim against a bankrupt company.

A jury trial is scheduled to begin on Oct. 28 in federal District Court in front of Judge David Ezra.

U.S. Bankruptcy Judge Lloyd King yesterday rejected a bonus request of up to $600,000 for former Aloha Airlines CEO David Banmiller, saying Banmiller should not "make a windfall off a collapse of the company."

Aloha, the state's No. 2 carrier, shut down its passenger service on March 31 and laid off 1,900 workers with little prior warning.

When an attorney argued it would be fair to pay a bonus to Banmiller and former Aloha Chief Financial Officer Jeffrey Kessler as they work to sell parts of the company, King said:

"I don't think fairness is an appropriate thing to discuss unless you want to talk about fairness to people who lost their jobs on virtually no notice (and) the hardship that has been imposed upon thousands of people. Now we have the top insiders potentially making a big score on this case. I think that's a very ugly aspect of this motion.

"It simply looks bad when the people who are with the company can make more money when it's going out of business than when it is a going concern."

Last month, the airline's court-appointed bankruptcy trustee, Dane Field, proposed paying Banmiller and Kessler incentives for helping sell off the carrier's assets. Under the plan, the two would get $50,000 each if the sale of Aloha's air cargo operations, contract services division and other assets fetches $19.25 million or more.

The two could receive as much as $600,000 each if the sale of Aloha's remaining assets fetches more than $26.5 million.

Those payments would be made by Aloha's chief lender GMAC Commercial Finance LLC from the proceeds of the asset sales.

The bonuses are on top of the $500 an hour that Banmiller and Kessler are now being paid to help the airline sell off its assets. The hourly pay is capped at $25,000 a month.

Prior to the bankruptcy, Banmiller received $500,000 a year in base salary as Aloha's CEO. When hired as Aloha's CFO in 2005, Kessler and his Atlanta-based firm Tatum CFO Partners received $3,000 a week, or $156,000 a year.

During yesterday's hearing, King questioned why Banmiller and Kessler should receive a bonus when they were already being paid $500 an hour. He also asked why other airline industry consultants couldn't have been hired to do the same work.

"Should Mr. Banmiller and Mr. Kessler be singled out for such favorable treatment in a Chapter 7 (bankruptcy) case where the other employees of the company have come out so poorly?" King said.

Jim Wagner, attorney for Field, said his client played an important role in selling Aloha's cargo and contract services units, which saved more than 1,400 jobs and preserved a business that handles more than 85 percent of all air freight between O'ahu and the Neighbor Islands.

Aloha Cargo was sold to Seattle-based Saltchuk Resources Inc. for $10.5 million and the contract services unit was sold to Los Angeles-based Pacific Air Cargo for $2.05 million.

"I think Mr. Banmiller or Mr. Kessler have been working very hard in good faith toward liquidating the estate's assets," Wagner said.

Douglas Lipke, an attorney for GMAC Commercial Finance LLC, said Banmiller's and Kessler's institutional memory are invaluable. They have extensive contacts in the airline industry and have the best handle on the value of assets, such as the company's receivables, Lipke said.

Former Aloha pilot John Riddel said the judge did the right thing in rejecting the bonus plan. Riddel said that many of the pilots who continued to fly Aloha's cargo planes after March 31 have not yet received their full pay.

The trustee for bankrupt Aloha Airlines said yesterday that he will auction off Aloha's potentially lucrative legal claims against the owner of go!, Mesa Air Group Inc.

In April, Mesa agreed to pay $52.5 million to settle a similar suit by Hawaiian Airlines, which alleged that Mesa misused confidential information to launch go! airline.

"A lawsuit is no different than a propeller," said James Wagner, attorney for Aloha's bankruptcy trustee Dane Field. "It's an asset and we're going to sell it."

Aloha, once the state's second largest airline, shut down its passenger service on March 31 and terminated 1,900 workers, in the largest mass layoff the state has ever seen.

The shutdown came 11 days after Aloha filed for bankruptcy for the second time in less than 3 1/2 years.

Aloha sued Mesa in federal court in January 2007, alleging that the Phoenix-based company misused confidential information to drive it out of business. The trial is scheduled for October.

The rights to the Aloha lawsuit will become one more asset to be sold to pay off Aloha's creditors. Wagner said he has "no concept" of what Aloha's legal claims would sell for.

Asset sales so far have included the $10.5 million sale of Aloha Cargo to Seattle-based Saltchuk Resources Inc. and the $2.05 million sale of Aloha's contract services division to Los Angeles-based Pacific Air Cargo.

Wagner said potential bidders for the lawsuit include Aloha's former financial backer, Yucaipa Co. Yucaipa, which is headed by California billionaire Ron Burkle, rescued Aloha during its first bankruptcy and is owed more than $100 million by the defunct carrier.

In court filings, Wagner said Yucaipa has agreed to use a portion of any recovery to create a hardship fund for laid-off employees.

GMAC Commercial Finance, Aloha's chief lender, also agreed to set aside 5 percent of any proceeds it receives from the sale of Aloha's assets to pay the airline's unsecured creditors.

Mesa also could bid on the rights to the suit, in what would result in a settlement of the lawsuit, Wagner said.

Wagner said potential bidders would have to front what could amount to several million dollars in legal bills to bring the case to trial. He noted that Aloha's expert witnesses alone have asked for a $250,000 retainer.

Aloha Airlines, which has been on a fast track to liquidate its assets since filing for bankruptcy in mid-March, said in federal District Court yesterday that it plans to sell the legal claim in its 2006 lawsuit against go! parent Mesa Air Group Inc. to the highest bidder.

"A lawsuit is no different than a propeller," said James Wagner, an attorney for Aloha Chapter 7 trustee Dane Field. "It's an asset and we're going to sell it."

He said a motion would be filed Monday or Tuesday and an auction likely would be held the following week.

Wagner said the likeliest bidder would be Yucaipa Cos. LLC, which is Aloha's majority shareholder and second secured creditor behind Aloha's primary lender, GMAC Commercial Finance LLC. Wagner said Mesa also could be a possible bidder.

"As you can imagine, there's probably very few bidders for this asset," Wagner said.

A winning bid by Yucaipa, which is owed $106.7 million, would allow it to control the lawsuit, while a bid by Mesa would be, in essence, an out-of-court settlement. Aloha is suing Mesa for alleged predatory pricing that helped force Aloha out of business, as well as for allegedly misusing confidential information obtained during Aloha's first bankruptcy.

Last month, Mesa settled a suit with Hawaiian for $52.5 million over the misuse of confidential information.

However, Mesa General Counsel Brian Gillman said yesterday that "we haven't even considered bidding" on the Aloha lawsuit.

"We believe the case is without merit and we intend to vigorously defend the case in any proceeding," he said.

Wagner said that unless Mesa decides to settle, Wagner said Yucaipa likely would be the winning bidder. In that case, Aloha creditors would have to wait until the end of the lawsuit to share in any possible recovery.

GMAC, which initially was owed about $49 million, still is due about $34 million following the sales of Aloha's aviation contract services and cargo divisions. If there is additional money left after GMAC is made whole, then Yucaipa would be next in line for up to the $106.7 million it is owed.

Both GMAC and Yucaipa have said they would give 5 percent of any recovery to Aloha.

Federal Judge David Ezra chastised both parties' attorneys yesterday for letting the case sit for two years with very little action. He said he wouldn't allow the case to sit around as "a bargaining chip."

"We're going to be on the fast track in this case and it's not going to be decided two years from today," Ezra said. "This is a case of some importance to the community, and it's also important to the Mesa shareholders."

Former Aloha Airlines Chief Executive Officer David Banmiller and Chief Financial Officer Jeffrey Kessler could each receive a bonus for helping sell off the bankrupt airline's assets.

Both executives are eligible for a $50,000 payout if the sale of Aloha's air cargo operations, contract services division and other assets fetches $19.25 million or more, under an agreement with Aloha's chief lender GMAC Commercial Finance LLC.

But Banmiller and Kessler could pocket more than $1.1 million each if the sale of Aloha's non-passenger service assets generates more than $26.5 million.

"It's disgusting," said former pilot John Riddel, who lost his job after 23 years when Aloha shut down its passenger operations. "I find it despicable that this management, which was at the helm of a 62-year-old institution and allowed it to be run into the ground, now wants to reward itself for a job well done."

The bonus plan, which was outlined in a filing last week by Aloha's court-appointed trustee Dane Field, requires the approval of U.S. Bankruptcy Judge Lloyd King.

But Field defended the proposal, saying Banmiller and Kessler played an important role in selling Aloha's cargo and its contract services units, which saved more than 1,400 jobs and preserved a business that handles more than 85 percent of all air freight between O'ahu and the Neighbor Islands.

The deals include the $10.5 million sale of Aloha Cargo to Seattle-based Saltchuk Resources Inc. and the $2.05 million sale of contract services to Los Angeles-based Pacific Air Cargo.

Although the combined amount is below the $19.25 million minimum threshold for a bonus, Aloha still has considerable assets to sell. Field's filing last week noted that the airline must liquidate its company-owned aircraft, jet engines, its receivables and its intellectual property, which includes Aloha's trademarks and brand name.

The airline also holds the rights to its lawsuit against the Phoenix-based owner of go! airlines, Mesa Air Group, which Aloha accuses of using anti-competitive measures to drive it out of business. A similar suit by Hawaiian Airlines was settled with Mesa agreeing to pay $52.5 million.

"Without these guys (Banmiller and Kessler), we wouldn't be able to figure out how to get rid of everything," Field said.

"They know what equipment Aloha has, they know its values, they know where it's located and they know its approximate value."

The bonus would be on top of Banmiller's $500,000-a-year base salary. When they were hired as Aloha's CFO in 2005, Kessler and his Atlanta-based firm Tatum CFO Partners received $13,000-a-month, or $156,000 a year.

Aloha shut down its passenger service on May 31 and terminated 1,900 workers. The closure came 11 days after the carrier filed for bankruptcy reorganization.

The proposed bonuses for Banmiller and Kessler are modest compared to the so-called $8 million "success fee" sought by Joshua Gotbaum, the former bankruptcy trustee appointed in the Hawaiian Airlines bankruptcy.

In October 2005, Federal Bankruptcy Judge Robert Faris cut Gotbaum's bonus request to $250,000, saying it would be difficult to justify an excessive payment to Gotbaum given the concessions made by Hawaiian's employees during the airline's three-year bankruptcy.

Riddel, the Aloha pilot, believes that Aloha could put the money to better use giving it to the people who need it the most: the employees.

When Aloha shut down its passenger service, many employees were left without any severance and healthcare coverage, he said.

"As the captain, I would have been the last one who left the ship. I would want to make sure that it went to the people who (were) struggling," Riddel said.

HONOLULU (AP) - The new trustee of Aloha Airlines has asked a federal bankruptcy court to reject all six of the company's union labor contracts as Aloha moves forward with plans to liquidate and stop its business operations.

The demand from trustee Dane Field, which has been criticized by Aloha's pilots union, comes as the airline is expected to complete the sale of its cargo unit to Seattle-based Saltchuk Resources Inc. on May 14.

Saltchuk, meanwhile, has met with representatives of the International Association of Machinists and Aerospace Workers union. The group represents Aloha's cargo and supply agents.

Assistant Chairman of IAM District 141 Randy Kauhane says Saltchuk has been willing to negotiate and is not anti-union.

Aloha Airlines' cargo division received the green light from a federal Bankruptcy Court judge to begin operating last night, capping off a chaotic day that earlier saw the sale of the company's airport contract services unit finalized four days early.

The courtroom action involving the two units saved about 1,300 jobs -- although in the case of the cargo unit, it amounts only to a two-week reprieve.

Bankruptcy Judge Lloyd King, acting on an order from new Chapter 7 trustee Dane Field, approved an oral motion to allow cargo operations to resume flying immediately. The pilots showed up last night, and the first flights were scheduled to take off around 11:30 p.m.

The decision to revive cargo operations brings needed relief to thousands of customers throughout the state who have been scrambling to make alternative plans since cargo operations were shut down Monday night.

King's order permits the cargo unit to operate until at least May 14, when an 11th-hour sales agreement to Saltchuk Resources is scheduled to close. A hearing is set for May 12.

Saltchuk, which had walked out of the cargo bidding auction last week, revived its interest after receiving a call from U.S. Sen. Daniel Inouye.

In yet another twist in Aloha Airlines' bankruptcy saga, Federal Bankruptcy Judge Lloyd King approved an oral motion last night by the new Chapter 7 trustee to allow the company's cargo operation to resume flying immediately.

King's order, amounting to a two-week temporary reprieve for the cargo unit, permits it to operate until at least May 14 when an 11th-hour sales agreement to Saltchuk Resources, the parent of interisland cargo shipper Young Bros., is scheduled to close.

The decision to revive cargo operations brings needed relief to thousands of customers throughout the state who have scrambled to make alternative plans since Monday night when Aloha's lender, GMAC Commercial Finance LLC, cut off funding and prompted Aloha to convert its bankruptcy to Chapter 7 liquidation from Chapter 11 reorganization.

Earlier in the day, King ordered that the sale of Aloha's contract services division to Pacific Air Cargo for $2.05 million be expedited to close yesterday instead of Monday.

Former Aloha Chief Executive David Banmiller, who is being retained along with management during the interim period by new trustee Dane Field, said last night that Aloha pilots had been put on standby and that three planes were expected to be put in service to fly from eight to 10 segments. The pilots showed up last night, and the first flights were expected to go out around 11:30 p.m., according to a source familiar with the situation.

Saltchuk announced earlier in the day it had signed a letter of intent to buy the operations for $10.5 million after receiving a phone call from U.S. Sen. Daniel Inouye. However, Saltchuk stipulated that the offer was good only if cargo flights resumed by midnight. Last night, King declined to approve the sale due to the short notice but scheduled a hearing on the matter for May 12.

Aloha pilots agreed to fly the planes even though they were given no assurances of future employment by Saltchuk, despite objections by the Air Line Pilots Association.

In addition, Field told the court that he plans to file a motion to reject all six of Aloha's labor union contracts. That motion also will be heard on May 12.

Field, who had been wavering on accepting the trustee appointment over a pay dispute, did not ask King to resume cargo services until after Field had worked out a deal with GMAC for additional money that the trustee could use to pay for professional help and other expenses. Under the agreement, Field will get a $100,000 advance on a guaranteed $250,000 in compensation, plus 5 percent of net proceeds for the estate from the sale of any cargo assets and anything else sold, with the exception of contract services.

Although Field was appointed trustee Wednesday morning, his indecision in accepting the case prompted King to overrule the objections of U.S. Trustee Carol Muranaka and order that Pacific Air Cargo's deal be completed yesterday.

"If the trustee wants to get on board, the trustee needs to get on board," King snapped in reference to Field, who started his position in September after relocating from Texas.

By the afternoon, Field decided to accept the appointment even though his attorney, Simon Klevansky, had walked out. King then ordered a reluctant Field to execute the closing documents for the contract services sale.

Field later retained as his attorney Jim Wagner, who previously represented the other cargo bidder in the case.

Pacific Air Cargo CEO Beti Ward, who seemed overwhelmed by the entire event, said, "I'm close to hysterical, and I don't know if that's hysterical bad or hysterical good."

"We've got a business, and now we've got to figure out a way to make it run properly."

Ward praised the contract services workers who have stayed on the job without any guarantee of payment.

"These people have been fantastic," she said. "They're working on faith. All they've got is my personal guarantee that they're going to get paid, and they're believing in me."

Saltchuk, which walked away last week from bidding for the cargo unit after GMAC requested that Saltchuk raise its $13 million bid to $20 million, revived its interest after conversations with Inouye and his staff.

"He was greatly concerned about the 300 jobs and the vital service that Aloha Air Cargo has provided for the people of Hawaii and asked we try once again to see if we could make something happen," Saltchuk President Tim Engle said.

Aeko Kula Inc., a recently formed subsidiary of Saltchuk, intends to hire out of the existing Aloha cargo work force, the company said.

"We owe a tremendous amount of gratitude to our senior senator for interceding on behalf of the employees and the operation in working out a deal," Banmiller said.

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.

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.

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.

The sale of assets and a pending lawsuit will generate
funds, but the airline owes too much

Aloha Airlines' unsecured creditors, who received one-hundredth of a cent on the dollar after the company's last bankruptcy three years ago, likely will receive nothing this time around.

The unsecured creditors include all those who paid for Aloha tickets using cash or checks -- people whom Aloha's Web site advises to file claims with the U.S. Bankruptcy Court.

"Between you and me, the unsecureds are not going to get squat," said one insider close to the case.

All the money that Aloha receives from the sales of its cargo division, aviation services unit and the company's intellectual property, such as the Aloha name and logo, will go first to its primary lender, General Motors Acceptance Corp., and then -- if anything is left over -- to its majority investor, Yucaipa Cos. LLC.

Aloha owes GMAC $44 million of principal, plus an additional $4.9 million for letters of credit that the lender issued on behalf of Aloha, while Yucaipa is owed $106.7 million.

Aloha reported in its March 20 bankruptcy filing that it has in excess of 4,000 creditors. On Monday the 61-year-old airline shut down its passenger operations.

"We have major concerns that this is essentially being operated for the benefit of the secured lenders rather than for the creditors and the people of Hawaii," said attorney Christopher Prince, who represents the unsecured creditors committee.

Under federal Bankruptcy Law, secured creditors -- those with collateral -- get paid first from the proceeds of any sales. Administrative claims, such as attorney fees, are paid next, while unsecured claims are last in the pecking order.

In a case where there is little money available, attorneys can get paid through "carve-outs" in which the secured creditors set aside money to pay the attorneys and other professionals for the debtor -- in this case, Aloha -- and the unsecured creditors committee.

The one wild card for creditors is Aloha's lawsuit against Mesa Air Group, which is scheduled to be heard in federal District Court in October. Aloha is alleging that Mesa used predatory pricing and confidential information obtained as a potential investor during Aloha's bankruptcy to gain a competitive advantage in entering the Hawaii market.

A federal Bankruptcy Court judge already has awarded Hawaiian Airlines more than $80 million in a separate lawsuit with some of the same allegations. Aloha President and Chief Executive David Banmiller thinks the damages award could be even higher if Aloha prevails in its suit.

Banmiller said the shutdown of Aloha's passenger operations increases the amount of damages it could seek from Mesa in the lawsuit.

But the next turning point for Aloha's creditors comes today, at a court hearing over the potential sale of the cargo unit.

Cargo, the airline's most profitable division, flies 85 percent of the state's goods as well as all the U.S. mail to Maui and the Big Island. The unit has generated earnings before interest, taxes, depreciation and amortization of more than $6 million annually in recent years.

A dispute over pilot seniority and the company's fears of a walkout that could scuttle the cargo unit's sale prompted Aloha to file a motion Tuesday in Bankruptcy Court seeking a temporary restraining order against the Air Line Pilots Association. Bankruptcy Judge Lloyd King put off making a decision on the motion to give the sides time to talk. A status conference on those talks is scheduled for today.

Prince said he is concerned that there is a "rush to judgment to sell these assets piecemeal and deny the state of Hawaii the business that it's enjoyed for the last 61 years."

"I've been trying for at least a year to sell Aloha Airlines -- the entire entity -- because I think it has great value," Banmiller said. "The problem is, the realities that are out there today are frankly different. Fuel has dramatically increased the bet on trans-Pac and interisland because most of the fuel goes to that. So when you talk about a doubling of fuel, it really affects interisland and trans-Pac and not cargo, because the cargo cost fuel surcharge is passed on. Contract services just handle other carriers, so the economics is different for those two.

"Go! trashed the environment interisland, but not cargo. Fuel did the same for trans-Pac and interisland. So we woke up one day and everybody is saying, 'I'd like to buy this but not the entire entity.' So as a responsible debtor, I have to listen to the marketplace, and we have a lot of interest in cargo."

Also on the docket today is a motion by Aloha to reject 14 of its 27 aircraft leases. The remaining aircraft are either cargo planes or aircraft already owned by Aloha.

EVERY Christmas Day, Hung Wo Ching, Aloha Airlines' chairman, would hop on his company's planes and tour the islands just to shake hands with employees and wish them well. That, says one long-time employee, was one indication of the type of man Ching was.

Others remember him as a man of his word, someone who could be trusted. He was accessible, too. Long after his retirement, Ching had an office downtown. The former Bishop Estate trustee and board member of some of Hawaii's most prestigious companies had a listed phone number and answered his own phone.

Where Ching truly was different and made a difference, however, was that he was of Asian ancestry and was a great success at a time when Hawaii was run by Caucasians.

Ching gave the Caucasian establishment a run for their money, jumping into real estate after World War II, successfully developing eight subdivisions. In 1958, he bought a 10 percent stake in a nearly bankrupt company called Trans- Pacific Airlines, which was trying to compete with Hawaiian Airlines in interisland travel.

He renamed it Aloha Airlines, stepped in as president, led it to success and was chairman of the publicly held company's board from the mid-1960s until he converted it to a private company in 1987, after surviving hostile takeover bids. When he died in 1996 at age 83, he was vice chairman of Aloha Airgroup, parent of Aloha Airlines and Island Air.

Ching was one of the Hawaii-born Asian entrepreneurs who started poor, worked hard and succeeded in an often-difficult environment.

In a 1968 interview, Ching showed his awareness of just what he was achieving for himself and others like him, chuckling at the knowledge that the big Caucasian-run businesses were missing a good bet by not bringing them in, leaving them outside to become fierce competitors.

"The haole community does not realize that by not taking on Orientals and integrating their companies, they are forcing the young Orientals to go into business for themselves and they are going to give them a hard time," Ching said.

Stuart Ho, chairman of Capital Investment of Hawaii Inc., remembers Ching -- not unlike his own father, the late Chinn Ho -- as representing a breed of lowly born, successful Hawaii-born Chinese entrepreneurs....

Ching was born in 1912 and lived in a tenement on School Street as the youngest of six children of poor Chinese immigrants.

Ching showed a remarkable ability to learn and had an equally remarkable education -- Royal School, McKinley High, the University of Hawaii, Yenching University in Beijing, Utah State and the University of California. He earned a doctorate in agricultural economics from Cornell University.

He took the knowledge gained in his doctorate work to China at the end of World War II, to start a sugar beet industry. Two years later, the Communist revolution broke out and Ching came back to Hawaii in 1948.

He kept his education growing and graduated from the Harvard Business School in the mid-1950s at age 42.

The speed with which Aloha Airlines shut its passenger business has surprised many, but not those familiar with the airline's bankruptcy case.

Lenders were unwilling to throw more money into the money-losing passenger service part of the operation and no other group was willing to come to the rescue, according to several people familiar with the case.

"I'm not blaming the lender," said one bankruptcy attorney who is involved in the case and didn't want to be identified. "It was a business decision. They didn't want to keep losing money, either."

Less than two weeks after filing for Chapter 11 bankruptcy protection, Aloha announced yesterday that it plans to halt passenger service with its last flight tonight. It will continue operating its cargo and charter operations.

People familiar with the bankruptcy case said the airline's hand was forced because its existing lenders were unwilling to put more money into passenger operations, no other lenders were interested in filling that void and no airline or investor group was willing to purchase the passenger operation or the entire company.

Even before filing for bankruptcy protection March 20, Aloha had been shopping its overall business and just the passenger operation to other airlines and investor groups. Aloha came close more than once to striking a deal, according to one person familiar with the case. But those potential deals collapsed, said the person, who like most people involved with the case was unwilling to speak on the record.

While Aloha was searching for buyers, its lenders were pressuring the airline to stop selling tickets to passengers, taking the position that such sales would further expose the lenders to more potential losses, the person said.

Aloha was under the gun to find a buyer by today, when it returns to bankruptcy court to get a financing arrangement extended, one person said.

"To pull the plug, it wasn't an easy decision," said David Farmer, Aloha's attorney in the bankruptcy case.

"But it would also be foolish" to continue operations under existing conditions, given Aloha's responsibilities to its employees, the public, owners and others, he said.

An indication of how quickly Aloha is bleeding financially came in a court filing yesterday. The airline said its unrestricted cash had dwindled from $3.8 million on March 20 to $900,000 as of yesterday.

Aloha's lenders are willing to fund the airline's profitable cargo and charter operations, but not its money-losing interisland and transpacific passenger service, according to one attorney.

Aloha cited the soaring cost of fuel and an interisland fare war, triggered by the entrance of go! airlines, when it filed for bankruptcy protection, a move that was meant to buy the company time while it restructured.

With no substantive offers for its passenger business, Aloha officials decided to stop the bleeding by shutting that operation, people familiar with the case said.

A tight credit market nationally added to Aloha's woes, making it difficult to find new lenders willing to risk their money in a slowing economy and a bare-knuckles interisland fare war, several people said.

"In this credit market, no one else is crazy enough to lend," said one attorney....

It's not unusual for a company that files Chapter 11 to be unable to continue operations in the same manner as before the filing, said attorney Don Gelber, who handles bankruptcy cases but is not involved in the Aloha's.

"What is unusual is that a company is forced to terminate a major segment of its business so rapidly," he said.

Other airlines operating out of bankruptcy have sold parts of their business — often lucrative parts — to raise money to focus on the rest of their operations. Years ago, Eastern Airlines sold its shuttle service while in bankruptcy, while Pan Am sold lucrative routes to sustain its operations.

But Aloha's case is different, in part because this is the airline's second go-around with bankruptcy. It first filed for bankruptcy protection in December 2004 and emerged only two years ago.

"It's not going to be your usual bankruptcy the second time around," said one attorney involved in the case.

Aloha Airlines announced today that it will be shutting its inter-island and trans-Pacific passenger flight operations. Aloha's last day of operations will be Monday.

On that day Aloha will operate its schedule with the exception of flights from Hawaii to the West Coast and flights from Orange County to Reno and Sacramento and Oakland to Las Vegas.

Effective immediately, Aloha will stop selling tickets for travel beyond tomorrow.

"This is an incredibly dark day for Hawaii," said David Benmiller [sic], Aloha's president and chief executive officer.

"Despite the groundswell of support from the community and our elected officials, we simply ran out of time to find a qualified buyer or secure continued financing for our passenger business. We had no choice but to take this action."

Aloha Airlines Inc. CEO David Banmiller will earn about $500,000 this year and could receive up to $1 million in severance should the airline emerge from bankruptcy under new ownership, according to documents filed in U.S. Bankruptcy Court.

Banmiller will receive an annual base salary of $455,400 plus annual housing expenses of at least $42,000, the airline said in documents filed Wednesday.

Aloha's filing — which provides the first public glimpse into the pay of the airline's top executive — revealed that Banmiller owns 5 percent of the privately held airline and could receive more than $1 million in severance pay over two years should Aloha emerge from bankruptcy under new investors. As a privately held company, Aloha has not been required to report such information in public filings with the Securities and Exchange Commission.

Aloha also said Banmiller could seek a success fee when the company completes its reorganization. A success fee, the details of which are yet to be determined, would be subject to the bankruptcy court's review.

Banmiller's compensation package was contained in a filing seeking bankruptcy court approval for his employment contract. The airline negotiated Banmiller's contract in October but needs court approval to assume his contract.

Bankruptcy Judge Robert Faris has scheduled a hearing Tuesday on Banmiller's contract.

Aloha said Banmiller's compensation was reasonable, given his experience in the airline business and his expertise in restructuring distressed companies.

Banmiller, who was named Aloha's chief executive officer in November, has more than three decades of experience in the airline industry. He previously served as president and CEO of Sun Country Airlines and Pan American World Airways. He also was president and chief operating officer of Air Cal before the company was acquired by American Airlines.

Aloha said Banmiller and other top executives have seen their pay reduced by 20 percent since the bankruptcy and added that its chief executive likely would lose his post should the company emerge from bankruptcy under new investors.

"Mr. Banmiller's contract is reasonable for an executive of his caliber," said Stephanie Ackerman, Aloha's senior vice president for public relations and government affairs.

In its filing, Aloha said Banmiller's annual compensation is well below that of his peers on the Mainland, including the chief executives of United Airlines and American Airlines who each received more than $1 million last year.

The airline also compared Banmiller's pay with that of his predecessor, Glenn Zander, who was paid $500,000 a year in salary and housing allowance, and former Hawaiian Airlines bankruptcy trustee Joshua Gotbaum, who received $720,000 in annual salary, housing and living expenses.

Gotbaum's pay figures did not include a success fee, which he is entitled to seek for steering Hawaiian out of bankruptcy. He has not yet applied for the fee but has until next month to do so.

Hawaiian, which emerged from bankruptcy protection in June, had no immediate comment on Aloha's filing.

Aloha, the state's second largest airline with more than 3,600 employees, filed for bankruptcy protection in December. The company is searching for new investors that will help it get out of bankruptcy.

Banmiller's pay, along with the compensation of other top executives, has been a sore point for the airline's unionized workers, who say they have made significant concessions during the past year.

Daniel Katz, attorney for the Air Line Pilots Association, said he plans to file an objection to Banmiller's contract later today. The pilots, who have given up more than $20 million in concessions, previously criticized the executive packages as extravagant.

"We object to these benefits for executives while the rank and fine are getting cuts in pay," Katz said.

A state government bailout of Aloha Airlines is gaining momentum as key lawmakers and hundreds of employees voiced their support yesterday.

At a state Capitol rally yesterday, House Speaker Calvin Say and Senate Ways and Means Chairwoman Rosalyn Baker pledged to support the airline, which filed for bankruptcy last week for the second time in about three years.

"We would not be doing our jobs if we didn't make an effort to assist a company that has as much reach and impact in the community," said Baker, D-5th (W. Maui, S. Maui).

At least one leading airline industry analyst said the state could be wasting its money.

"Putting more money into this company is like giving a transfusion without trying to stop the bleeding," said Bob McAdoo, senior research analyst with Nashville, Tenn.-based Avondale Partners LLC.

On Monday, the state Senate will vote on a House measure that will exempt local carriers from paying the general excise tax on the millions of dollars in jet fuel that they use every year. The Senate Ways and Means Committee will hold a hearing on Tuesday on a bill that would provide loan guarantees for Aloha.

Aloha, the state's No. 2 carrier, filed for Chapter 11 reorganization last week after losing more than $120 million in the past two years. Aloha, which is down to about $3.8 million in cash, blamed its bankruptcy on soaring fuel prices and "predatory pricing" by its interisland competitor go!

Lowell Kalapa, executive director of the nonprofit Tax Foundation of Hawaii Inc., said there's precedent for providing financial assistance to the airline industry.

In 1993, the state issued about $14 million worth of loan guarantees to Hawaiian Airlines, which was experiencing financial troubles at the time.

Four years later, the state provided Continental Airlines $2 million in tax incentives, more than $25 million in revenue bonds and a $1.2 million general excise tax break to build a $24 million, state-of-the-art jumbo-jet maintenance hangar at Honolulu International Airport.

Kalapa said he opposed the 1993 loan guarantees for Hawaiian because he thought that government shouldn't guarantee the debt of a private company. But since the state has already granted Hawaiian a loan guarantee, it would only be fair to give its competitor a similar loan guarantee, Kalapa said.

"If they can bail out Hawaiian, the only fair thing to do is to bail these guys out, too," Kalapa said.

Kalapa added that the state provides tax credits and other incentives to high-tech and film industries, so it can provide similar breaks for the airline industry, which plays a more vital role in the state's economy.

Airline industry analyst McAdoo believes that Hawai'i taxpayers may wind up paying for Aloha's loan guarantees should the company wind up closing its doors.

McAdoo said loan guarantees have been used in the airline industry when a company has a temporary problem and has a business plan that will "stop the bleeding."

He noted that the federal loan guarantee program enacted shortly after the Sept. 11 tragedy included a rigorous evaluation process and required the airlines to provide the government with protections against default.

In Aloha's case, the fare war and high fuel prices aren't problems that are going to go away in the short term but are part of the carrier's everyday business environment....

Employees who attended yesterday's rally said they aren't giving up on the company.

Despite Aloha's grim predicament, Tracy Chung said she isn't going to look for another job just yet.

But Chung, a ticket agent at Aloha for 19 years, said the past several days have been "an emotional roller-coaster." She said it's going to be difficult to attract a new investor in today's business climate where oil prices are hovering over $100 a barrel.

Ventura-Paulino, an Aloha flight attendant for the past eight years, said she's worried about the financial toll on Aloha's 3,500 employees and their families should Aloha not survive.

"The situation today is much more grim. We might not even get an investor," she said.

Many employees at yesterday's rally expressed gratitude for support by state lawmakers and members of the public.

Karen Clark, an Aloha flight attendant for 22 years, said the turnout of hundreds of employees at yesterday's rally shows that "we have a company worth saving."

"It's really too bad with the predatory pricing and the high fuel prices because it's a viable company," Clark said.

Aloha Airlines is in discussions with several parties to sell the entire airline or parts of it.

Aloha, which filed for bankruptcy protection on Thursday, said yesterday its chief financial banker, California-based Yucaipa Co., cut off its funding, forcing it to seek new owners.

"We have been talking to parties who have expressed an interest," Aloha Chief Executive Officer David Banmiller said. "We're talking to a lot of people in the industry."

In addition to an investment in the entire airline, Aloha said it is in "substantive talks" to sell its interisland, trans-Pacific and cargo divisions.

Banmiller declined to identify the potential investors because of confidentiality agreements but said talks picked up recently in the wake of financial pressures brought on by the interisland fare war and rising fuel prices.

Aloha pilot Randall Cummings said many employees would prefer the airline be sold as a whole and not in pieces.

"It would be better for both consumers and employees if Aloha remained in the interisland market," Cummings said. "If we get out of the interisland business, airfares are going to skyrocket."

Experts say any sale would face obstacles, given the turmoil in the airline industry and doubts about demand in the interisland market.

"It doesn't make any sense for any investor to get into the Hawai'i market," said Scott Hamilton, a Washington state-based aviation industry consultant.

Yesterday, U.S. Bankruptcy Judge Lloyd King approved a number of measures that will allow Aloha to operate without interruption while it reorganizes.

King authorized the company to continue taking reservations, pay employee wages and benefits, and honor frequent-flier memberships and credit-card arrangements.

"We are grateful to the bankruptcy court for enabling us to move ahead and continue all operations as usual while Aloha seeks additional investors and new opportunities," Banmiller said.

Aloha, the state's second largest airline, filed for Chapter 11 reorganization with assets of $215.9 million and liabilities of $284.9 million. Bankruptcy court filings show that Aloha lost more than $120 million during the past two years, including $81 million in 2007 and $41.2 million in 2006.

Thursday's bankruptcy filing is the company's second in a little more than three years.

During yesterday's hearing, Aloha said it is down to $3.8 million in cash and its expenses over the next 10 days would eat away about $2.3 million of that.

Aloha attorney Jordi Guso cited two factors that contributed to the decision to seek bankruptcy protection: the interisland fare war with discount carrier go! and soaring fuel prices.

With the price for a barrel of oil hitting a record $111 recently, Aloha said its annual fuel costs are set to increase by $71 million. When Aloha filed for bankruptcy for the first time in December 2004, the cost of a gallon of jet fuel was $1.80. Today, it's about $3.25, Guso said.

The attorney also blamed go! and its Phoenix-based parent, Mesa Air Group, for what he called "unlawful predatory pricing."

"The fare war triggered by Mesa's predatory pricing has been devastating," Guso said.

It has been announced that the proposed co-counsel for
Debtor in the new Aloha Airlines bankruptcy case is...

Aloha Airlines today said it is in discussions with several parties to sell the entire airline or parts of it.

Aloha, the state's second-largest carrier, filed for Chapter 11 bankruptcy protection yesterday with assets and liabilities both in excess of $100 million. Aloha also blamed unfair competition by low-cost carrier go!.

In a hearing in U.S. Bankruptcy Court this morning, Aloha said it was down to $3.5 million in cash and that its expenses over the next 10 days would eat away about $2.3 million of that.

Aloha said its main investor, Yucaipa Co., had plowed more than $110 million in the airlines since it emerged from bankruptcy in February 2006. Yucaipa said it is unwilling to provide further financing.

During the hearing, U.S. Bankruptcy Judge Lloyd King granted Aloha permission to pay some of its daily operating costs, such as utility bills and wages. King will hold further hearings this afternoon on Aloha's agreement with lenders to secure more financing.

Aloha Airlines filed for bankruptcy protection today for the second time in just over three years.

The state's No. 2 carrier filed for Chapter 11 reorganization with the U.S. Bankruptcy Court in Honolulu.

The airline said it hopes to protect the jobs of its 3,500 employees, honor all travel reservations and keep air cargo moving between the Islands.

In its filing, Aloha said it wasn't making enough money off inter-island routes because of "predatory pricing by Mesa Air Group's go! airline."

"In the highly competitive inter-island market, Aloha was forced to match go!'s below-cost fares at a time when the airline industry was facing unprecedented increases in the cost of jet fuel," the company said

"It is a travesty and a tragedy that the illegal actions of a competitor and other factors completely beyond our control have forced us to take this action," said David A. Banmiller, Aloha's president and CEO, in a statement.

"Through this filing, we hope to achieve a successful outcome that will protect the jobs of 3,500 dedicated employees who have made extraordinary sacrifices for Aloha, and to continue to earn the support of our loyal customers, business partners, vendors and financial backers."

Aloha said it will seek the court's approval to continue operating with financing from its principal working capital lender, General Motors Acceptance Corp.

Mark Dunkerley, president and CEO of Hawaiian Airlines, the state's No. 1 carrier, issued a written statement.

"The action taken by Aloha Airlines today reflects the difficult operating environment in Hawaii's airline industry," Dunkerley said. "It is extremely challenging and marked by high operating costs, record high fuel prices and a very competitive pricing structure."

"Fortunately at Hawaiian Airlines we have made many tough operating decisions in the past year and customers have responded positively. We know the local airline industry will continue to change and I'm confident that our employees are up to the challenge."

Gov. Linda Lingle issued a statement on the bankruptcy filing: "I am very concerned about the 3,500 employees who have sacrificed a lot over the years. I am hopeful that this action will allow Aloha Airlines to successfully emerge from reorganization as they have done in the past.

"The continued, uninterrupted service of the airline is in the best interest of the employees, Hawai'i residents and visitors and our state's economy. We will continue to monitor this situation and any potential impacts resulting from Aloha's filing today."

Rudolph W. Giuliani sprinted through October as if he were running for national office. He was, of course, campaigning for other Republican candidates--popping up, over a period of ten days, in Detroit; Schaumburg, Ill.; Portland, Ore.; Seattle; New York City; Mystic, Conn.; Concord, N.H.; Providence, R.I.; and Stamford, Conn. Wherever he went, Giuliani was the main attraction. The crowds didn't want to hear much about election 2006; they wanted to know if Rudy was planning to run for president in 2008. "I'll make the decision sometime next year," he announced in New Hampshire. Is the outcome in doubt?...

Since leaving office in early 2002, Giuliani has been winning more than political capital. While battling prostate cancer (he won that war) and raising hell in a very public divorce (he is now married to Judith Nathan, his third wife), he has been banking millions of dollars a year. His Leadership (Talk Miramax Books, 2002) figured in an estimated $3 million in advances for two books. He earns as much as $8 million a year on the speaking circuit (FORBES hired him to speak at a conference last year). Giuliani Partners, a management consultancy that oversees Giuliani Security & Safety and Giuliani Capital, has nabbed tens of millions of dollars in contracts and deals.

Giuliani Capital, a magnet for many deals with niggling companies and Giuliani Partners' largest unit, hasn't exactly blown the braces off Wall Street. Acquired from Ernst & Young in November 2004 for $9.8 million, the investment bank was already a bit of a shambles, recording a loss of $28 million on $17 million in revenue in the five months before the sale. By the end of last year the bank had improved a dismal situation--losing $1.4 million on $48 million in revenue. Oesterle points out that absent transition expenses, the firm would have been profitable.

Some Giuliani alliances, announced with great fanfare, have fizzled to virtually nothing. Back in 2003 the firm announced that it would advise Bear Stearns (nyse: BSC - news - people ) Merchant Banking on $300 million in security-related investments. The goal, Giuliani said, was "helping companies as they seek to supply products and services that will make the U.S. and the world a safer place." But three years on, the results of the alliance are modest: a single investment, which is in trouble.

In November 2003 Bear Stearns Merchant put down $100 million in a $210 million leveraged buyout of CamelBak, a Petaluma, Calif. maker of a hands-free canteen, popular with Marines in Iraq and weekend warriors. In the fiscal year ended June 30, 2004 it recorded $31 million in operating profit (earnings before interest, taxes, depreciation and amortization).

In March 2004 Giuliani Partners announced it was becoming a "strategic investor" in CamelBak; it now describes its investment as "de minimus." Bernie Kerik, then a Giuliani Partners vice president, hopped on CamelBak's board. It was the start of a steep decline. In 2005 Bear Stearns Merchant got CamelBak to pay owners a $24 million dividend [remember the Bush administration’s elimination of taxes on dividends?], saddling the company with unsustainable debt; in fiscal 2006 operating profit dropped to $18 million.

This year CamelBak replaced its chief executive and broke loan covenants; its second-lien bank debt fell in price to 80 cents on the dollar. Standard & Poor's recently pointed to CamelBak as an example of how lbos, combined with debt-funded dividends, put companies "in danger of going belly-up." Says Oesterle, "We have not shared in any of the dividends."

The most controversial deal ever made by Giuliani Partners was struck in mid-2004 with Applied DNA Sciences, then backed by Richard Langley Jr. Its main asset was a licensing deal with a Taiwanese outfit that could supposedly outsmart counterfeiters by inserting plant genes into products such as cosmetics and pills. In 2002 the company had done a reverse merger with ProHealth Medical, an o-t-c bulletin board stock, that resulted in Langley's RHL Management getting 5.5 million shares.

For a while Langley worked as Applied DNA's vice president in charge of p.r. He left that job but was still the company's largest shareholder when Giuliani Partners signed on to help develop and market the technology. The firm accepted $2 million and promises of stock; Applied DNA's shares traded for as much as $1.89.

But in March 2005 USA Today reported on Langley's sordid past: In 1999 he had pleaded guilty to conspiracy to commit wire fraud and commercial bribery in connection with a penny stock called Pollution Controls International. Court documents show Langley had tried to bribe a law enforcement official posing as a broker willing to pump up Pollution's shares. It also turned out that Applied's investment bank, Vertical Capital, had twice been fined by the National Association of Securities Dealers.

Giuliani Partners quietly deep-sixed its contract but still collected $1.3 million through June 30, 2005. "It was more administrative problems that caused us to terminate with them," says Hess. Applied DNA's stock now trades for 10 cents.

Giuliani threw in his lot with a questionable chain, We the People USA, which sells do-it-yourself services for bankruptcy, divorce, wills and trusts. It all started with a walk-in visit to a store by Michael Hess, who was so impressed he eventually arranged for Ira Distenfield, the chain's owner at the time, to meet his boss.

"Who in America would not want to sit down with Rudy Giuliani?" asks Distenfield. The tête-à-tête led to a 2003 consulting agreement and a press release. "We the People helps individuals navigate the complex and often daunting legal system," Giuliani said.

Those navigating skills caught the attention of Deirdre Martini, the U.S. Trustee--a Department of Justice affiliate that upholds the integrity of the bankruptcy process--in New York. In 2004 Martini sued We the People for engaging in deceptive conduct that put its clients' homes at risk. The company settled the case, agreeing to change its business practices. That didn't end it. U.S. bankruptcy trustees, affiliates of the Department of Justice, have filed at least 13 lawsuits across the nation against We the People and its franchises for the unauthorized practice of law. In addition, the chain paid a $286,000 penalty to settle charges, brought by the Federal Trade Commission, of selling franchises without disclosing the U.S. Trustee lawsuits.

Giuliani Partners severed its contract with the company last year, as Distenfield was selling out to Dollar Financial (nasdaq: DLLR - news - people ) for $14 million. "I think the concept and the theory of doing that kind of work is still a good one," says Hess.

Some of Giuliani Capital's most lucrative work has been providing financial advice to failing airlines. The firm deploys 11 employees at Delta Air Lines, which has been operating under bankruptcy protection since September 2005; for eight months of consulting, ending May 31, Giuliani Capital pocketed $3.2 million. It billed $2.3 million last year, when it worked on the US Airways bankruptcy.

But its contract with Aloha Airgroup, parent of the distressed airline, has brought angry charges of greed. Cutting a deal with Aloha Chief David Banmiller in December 2004, Giuliani Capital agreed to work for a flat fee of $125,000 a month and what amounted to a $1 million restructuring bonus if the company got out of bankruptcy court alive. Seven Giuliani advisers, led by Marc Bilbao, obtained a $65 million loan and helped negotiate the sale of the carrier to a group led by billionaire Ronald Burkle.

Then last November, on the eve of Aloha's exit from Chapter 11, Giuliani Capital decided it deserved a bigger payday. It persuaded Banmiller to amend the original contract in order to give Giuliani a $1.5 million restructuring bonus and a total compensation of $2.9 million. Giuliani Capital argued that it all added up to a mere $369 an hour. No way, cried the flight attendants union, which was in the process of persuading 420 members to accept deep cuts in wages and benefits. The union petitioned the court to "soundly condemn" the request. Backing that position was Steven Katzman, a U.S. Trustee. Judge Faris awarded the flat fees and the $1 million bonus. But he deferred making a decision on the extra bonus. In February 2006 Aloha withdrew the request. Giuliani Capital says it acted appropriately.

Giuliani is still renting out his name. But these days it's with a political goal in mind. Last year he signed on as a senior partner at a Texas law firm known for its energy sector work and ties to the Republican Party. Bracewell & Patterson got something out of it, too, besides a name change (to Bracewell & Giuliani): a branded New York office. Giuliani joined the nation's 121st-largest law firm, in terms of revenue, and copped a fee that Lynn Mestel, a legal recruiter, estimates at $1 million a year.

And he gained something much more valuable. "The alliance with law groups in Texas gives him a network he didn't have," says Frederick Siegel, a former Giuliani campaign consultant and biographer. "It's the contacts he is making that are going to be the backbone of the presidential campaign."

Just as Giuliani contemplates that important decision comes a reminder, courtesy of the New York tabloids, that political and business relationships can sometimes collide. Nearly two years after leaving Giuliani Partners, Bernie Kerik is still embarrassing his old boss. The contretemps involves former Westchester County district attorney Jeanine Pirro, recorded by the police talking with Kerik last year about bugging her husband's boat to expose an affair. Kerik called an employee of Giuliani Security & Safety to get a recording device.

Pirro insists the boat was never bugged but reportedly had her husband followed by Giuliani Security employees. "It was, for lack of a better term, 'freelance' work," says Sunny Mindel, Rudy Giuliani's spokesperson. "Jeanine Pirro was not a client."

Aloha Airlines becomes the latest carrier to
slough off its pensions in bankruptcy.

The Pension Benefit Guaranty Corporation (PBGC) has taken over the pensions of nearly 4,000 employees and retirees in three pension plans of Aloha Airlines Inc., making it the latest airline to ditch its defined-benefit plans as part of a bankruptcy reorganization. The agency said it expects to be responsible for $117 million of the $155 million shortfall.

The three pension plans covered are the Pilots’ Fixed Retirement Plan, the Pension Plan for Non-Represented Employees, and the Pension Plan for Employees Represented by the International Association of Machinists. The airline will maintain responsibility for a fourth plan, for dispatchers, the PBGC said.

Aloha Airlines recently emerged from bankruptcy reorganization. It had filed for bankruptcy protection on December 30, 2004, and notified employees on October 14, 2005, that it would seek bankruptcy court approval to terminate its pension plans. On February 2, 2006, the court approved a settlement between Aloha and the PBGC providing for termination of the three plans.

The PBGC said that assumption of the plans will have no material effect on its balance sheet since an estimate of the liability was included in its fiscal 2005 financial statements.

The Associated Press pointed out that the PBGC's most recently reported deficit was $22.8 billion. Airlines and steel companies have accounted for much of this shortfall.

WASHINGTON - Pension Benefit Guaranty Corporation (PBGC) representatives will meet with workers and retirees covered by the Aloha Airlines Inc. Pension Plan for IAM Employees, the Aloha Airlines Inc. Pilots’ Fixed Retirement Plan and the Aloha Airlines Inc. Pension Plan for Non-Represented Employees to explain the federal pension program and answer questions.

PBGC took over the plans on April 27, 2006, and continued uninterrupted payment of benefits to retirees. The plans cover more than 3,900 workers and retirees and are underfunded by about $169 million. PBGC uses its insurance funds to make up the shortfall and guarantees to pay benefits as promised by the plans up to the maximum allowed by law.

The U.S. Department of Labor is investigating whether Aloha Airlines used employee pension funds to pay its bank loans.

Under federal law, an employer is barred from using workers' pension money to pay for the company's business expenses, including bank loans. Pension money must be used to pay for employee benefits designated by the retirement plans.

Aloha declined to comment on the investigation. The state's second largest airline emerged from bankruptcy last week. The investigation involves events before the bankruptcy when the airline was headed by former CEO Glenn Zander.

The Labor Department's investigation centers on the 2,400-member machinists union's defined-benefit plan.

The federal agency earlier this month subpoenaed First Hawaiian Bank, asking for loan records, investment agreements and other financial records relating to Aloha's management of machinists union pension.

In a Feb. 3 letter accompanying First Hawaiian Bank's subpoena, Labor Department Deputy Regional Director Crisanta Johnson said the department is looking into possible violations of federal labor laws involving the management of the machinists union pension.

"This office is conducting an investigation of the above referenced employee benefit plan ... to determine whether any person has violated or is about to violate" federal law, wrote Johnson, who is based in the Labor Department's office in Pasadena, Calif.

First Hawaiian Bank spokesman Brandt Farias declined to comment, saying the company doesn't discuss pending investigations or customer matters. Bank of Hawaii, American Savings and Central Pacific also had no comment.

The four banks were part of a team of local lenders that provided financing for Aloha.

Aloha's management of its employees' pensions has been a major source of controversy for the local carrier during its 13-month bankruptcy.

As part of its cost-cutting measures taken during bankruptcy, Aloha decided to terminate defined pension benefits for about 3,000 of its union and nonunion employees. The decision was opposed by the airline's union members and the federal Pension Benefit Guaranty Corp., delaying the airline's emergence from bankruptcy for several months.

The airline eventually settled with the unions and the PBGC, allowing it to jettison the pensions.

The Labor Department's probe follows concerns raised during Aloha's bankruptcy proceedings by the carrier's smaller creditors.

The airline's unsecured creditors committee had been looking into the use of airline employee pension money to acquire Aloha stock issued several years ago by the airline. Proceeds from the stock sale went to the airline, which the committee said was used to pay bank loans.

The pension was left with Aloha stock, which became worthless during the bankruptcy.

In bankruptcy court filings, the creditors committee said it was considering suing one or more of Aloha's lenders, but the dispute was settled out of court just as the airline was exiting bankruptcy.

The terms of the settlement were sealed by federal Bankruptcy Judge Robert Faris.

The Labor Department's subpoena said its investigation is being handled by its Employee Benefits Security Administration division, which investigates misuse and mismanagement of pension and health plans run by private employers.

The division oversees about 730,000 pension plans and another 6 million health and welfare plans and investigates about 4,000 pension plans each year.

WASHINGTON, D.C.--The United States Trustee Program has launched an initiative to more aggressively use existing civil enforcement methods to curb abuse of the bankruptcy system, Martha Davis, Acting Director of the Executive Office for United States Trustees, announced today.

"Effective case administration is vital to ensure the American public that the bankruptcy system provides relief for honest but unfortunate debtors overcome by serious financial difficulties," Davis stated. "The Civil Enforcement Initiative emanates from the U.S. Trustee Program's long-standing commitment to enforce the Nation's bankruptcy laws and explore other meaningful strategies to bolster public confidence in the integrity and effectiveness of the bankruptcy system."

"The priorities of the initiative will require a concerted effort nationwide to use existing tools in a way that best accomplishes tangible results and improvements for case administration," Davis continued. "Many of our offices use such strategies today and we hope to build upon their experience. By focusing our resources on these priorities, we also seek to address some of the concerns that have been at the forefront of debate in recent years both before Congress and in other public venues. In the end, this is very much a community effort that will require communication and cooperation with private bankruptcy trustees and with the bankruptcy bench and bar."

Ensuring that Chapter 7 is not abused and that Chapter 7 debtors are held accountable.

Chapter 7 debtors who do not comply with the law will have their cases converted or dismissed, or their bankruptcy discharges denied or revoked. Enforcement measures include motions to dismiss Chapter 7 cases under 11 U.S.C. §§ 707(a) and 707(b), and complaints to bar or defer discharge under 11 U.S.C. § 727.

Protecting consumer debtors, creditors, and others who are victimized by those who mislead or misinform debtors, make false representations in connection with a bankruptcy case, or otherwise abuse the bankruptcy process.

Attorneys and bankruptcy petition preparers (non-attorneys who prepare bankruptcy documents for a fee) must engage in full disclosure, be free of conflicts of interest, and engage in ethical practices. Enforcement measures include motions for sanctions, contempt of court, and disgorgement under 11 U.S.C. § 329 for misconduct by attorneys, and complaints and motions under 11 U.S.C. § 110 for misconduct by bankruptcy petition preparers....

Fighting fraud and abuse by making criminal referrals and assisting United States Attorneys in criminal prosecutions.

The U.S. Trustee Program is a component of the Justice Department that oversees the administration of bankruptcy cases and intervenes in court to enforce the bankruptcy laws. There are 21 regions in the Program, each headed by a U.S. Trustee appointed by the Attorney General.

The Civil Enforcement Initiative took effect Oct. 1, 2001, with the start of the federal government's 2002 fiscal year. Previous U.S. Trustee Program initiatives have focused on issues such as enhancing the supervision of private trustees who administer Chapter 7 bankruptcy cases, increasing the efficiency and speed of Chapter 7 case administration....

Interisland airline go!, whose low prices started a fare war, has lost a court ruling that might prompt it to leave Hawai'i, industry analysts said.

A judge yesterday ruled that go!'s parent, Mesa Air Group, must pay $80 million to Hawaiian Airlines for misusing confidential business information.

Mesa said it will likely appeal the decision and said it remained committed to the Hawai'i market. But analysts said that if the ruling stands, it will likely affect whether go! continues to offer $19, $29 and $39 one-way fares, or operate at all in Hawai'i.

"This definitely hurts Mesa," said Nick Capuano, managing director and head of equity research at Los Angeles-based Imperial Capital LLC, whose firm follows Hawaiian.

The $80 million judgment is more than double the $34 million that Mesa earned for all of 2006 and is equivalent to about $2.78 for each outstanding share of Mesa's stock.

Since the June 2006 launch of go!, Mesa's cash holdings have fallen from about $345 million to about $198 million, according to a recent filing with the Securities and Exchange Commission.

Local airline industry historian Peter Forman said he believes the ruling will likely hasten Mesa's exodus from Hawai'i.

"I would think that this puts more pressure on Mesa to look at finding a settlement with Hawaiian for an exit strategy," Forman said.

The judge said Mesa used proprietary information it obtained from Hawaiian Airlines to "gain a competitive advantage ... to enter the market for Hawai'i interisland air transportation services."

"In this case, the award of money damages adequately redresses the harm suffered by (Hawaiian Airlines) as a result of Mesa's breach of the confidentiality agreement," Faris wrote in a 14-page finding accompanying his ruling.

"Today's ruling is a triumph for fair competition and ethics over dishonesty and illegal behavior," he said.

"Nobody benefits when a company like Mesa misuses confidential information to gain an unfair competitive advantage, then lies about it and destroys evidence."

Jonathan Ornstein, Mesa's chief executive officer, said the likelihood of an appeal "is very high."

Ornstein said his company remains "more committed" to the interisland market in light of yesterday's ruling.

But should Mesa decide to leave Hawai'i in the future, Faris' ruling could cost consumers "hundreds of millions of dollars," Ornstein said.

He said Faris "basically ruled that the actions of one person were enough to punish" Mesa, its 5,000 employees and Hawai'i's residents and visitors.

He was referring to Mesa Chief Financial Officer Peter Murnane, who downloaded thousands of pages of proprietary information about Hawaiian's business, then destroyed the records, saying he thought he was deleting pornography from his work computers.

"We are extremely disappointed, and that judge has put the interest of Hawaiian above the interests of the people of Hawai'i," Ornstein said.

Hawaiian sued Phoenix-based Mesa last year for $173 million in damages, alleging that Mesa used confidential financial data from Hawaiian to set up go! airline.

The ruling came after yesterday's close of the stock market. Mesa's stock closed at $5.10 on the Nasdaq market yesterday, up 16 cents. Shares of Hawaiian rose 61 cents to $5 per share on the American Stock Exchange in after-hours trading yesterday.

Mesa has up to 10 days to appeal Faris' decision with the U.S. District Court or with the bankruptcy appellate panel of the 9th U.S. Circuit Court of Appeals in California.

Such an appeal would require Mesa to post a bond for the full $80 million, unless Faris were to grant Mesa a stay pending the outcome of such an appeal.

Besides Hawaiian's lawsuit, Aloha Airlines has filed an antitrust lawsuit in U.S District Court against Mesa, alleging that Mesa used confidential information to drive it out of business.

"Aloha believes it is important for all companies serving the people of Hawai'i to conduct their business affairs with the highest ethical and legal standards, and the court today found that Mesa did not meet that standard of conduct," said David Banmiller, Aloha's president and chief executive officer.

"Contrary to what Mesa has been saying, today the court confirmed what we have been saying all along, that Mesa's actions as a new entrant have been inconsistent with fair play."

In its February 2006 lawsuit, Hawaiian alleged that Mesa received more than 2,000 pages of confidential financial information when Mesa expressed an interest in acquiring Hawaiian in 2004 while Hawaiian was in bankruptcy.

Mesa, whose bid was rejected, was supposed to return the documents or destroy them but didn't, Hawaiian alleged. Hawaiian emerged from bankruptcy protection in June 2005 under the ownership of California-based Ranch Capital LLC.

Mesa previously has argued that losses suffered by Hawaiian after go!'s entry were largely self-inflicted because the local airline increased capacity in response to go!'s entry.

Mesa also has said that Hawaiian wants go! out of the market so it can increase fares.

Yesterday's ruling comes after two weeks of court hearings from Sept. 25 to Oct. 4.

During a pretrial hearing, Faris found that Mesa kept confidential information it was supposed to return or destroy; Mesa misused information it kept, and that was a substantial factor in Mesa's decision to enter the Hawai'i market.

In his findings of facts and conclusion of law, Faris cited about a half dozen confidential documents that Mesa misappropriated to start go! They include:

> Internal projections on Hawaiian Airlines' future operations and financial performance;

> Documents spelling out Hawaiian's contracts with its codeshare partners like American Airlines, Continental Airlines, Northwest Airlines and US Airways;

"A skilled and experienced expert in the airline business might have been able to make an 'educated guess' about some of these topics by drawing inferences from publicly available information," Faris wrote.

"These inferences would not have been as accurate and reliable as the information, which Mesa obtained directly from HA."

Scott Hamilton, a Washington state-based aviation industry consultant, called go! a "misadventure from the beginning."

Hamilton said the interisland market could not sustain more than two major players, especially when fares are as low as $29 or $19.

He predicted that fares will return to where they were in 2005 when the local carriers were charging more than $79 each way if go! leaves the market.

"If indeed Mesa does decide to withdraw and shuts down go!, fares will go up the day go! shuts down, if not before," Hamilton said.

"There is no incentive to keep fares at present levels without go! in the market," he said.

"This situation cannot continue indefinitely; eventually fares must increase to a level that eliminates the market-wide losses. (It is highly unlikely that any of the three carriers could reduce its costs enough to eliminate its losses.)

"It is impossible to say with any decree of certainty, however, when this will occur or what the new fare level will be. It is also possible that another carrier could enter the market, holding fares down."

March 2003: Hawaiian Airlines files for bankruptcy protection.

April 2004: The federal bankruptcy court allows potential investors to study Hawaiian's books under a confidentiality agreement.

April to May 2004: Mesa downloads more than 60 documents, including more than 2,000 pages of proprietary information about Hawaiian's financial performance, projections and business strategy.

May 2004: Mesa is eliminated as a bidder for Hawaiian.

December 2004: Aloha Airlines files for bankruptcy protection.

April 2005: Mesa starts looking into acquiring or forming a business alliance with Aloha. Mesa retains GCW Consulting, an Arlington, Va.-based aviation consulting firm, to "look at a possible acquisition or some other structure for entry into the Hawai'i market."

June 2005: Hawaiian Airlines exits bankruptcy protection under the ownership of California-based Ranch Capital LLC.

January 2006: Mesa's Chief Executive Officer Jonathan Ornstein tells investors that Mesa's decision to enter the interisland market was based on its review of Hawaiian and Aloha Airlines during their bankruptcy cases.

February 2006: Hawaiian sues Mesa to bar the company from operating in the interisland market for two years. Hawaiian alleges Mesa improperly used confidential data it received when Hawaiian was in bankruptcy. Hawaiian later reduces the length of the ban it seeks to one year.

March 2006: Mesa begins selling tickets for its June 9 launch of interisland carrier go!

March 2006: Mesa files countersuit, accusing Hawaiian of trying to illegally block competition.

June 2006: Mesa launches go!

September 2006: Hawaiian alleges Mesa tried to drive Aloha out of business and cites e-mails by Mesa Chief Financial Officer Peter Murnane. One e-mail says: "If we assume Aloha stays in 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."

October 2006: U.S. Bankruptcy Judge Robert Faris rejects Hawaiian's request for a ban but says Mesa "probably breached the confidentiality agreement" by failing to return or destroy material it received. Faris also concludes that "at one time, Mesa hoped to drive Aloha out of business."

October 2006: Aloha sues Mesa, alleging that it misused confidential information in an attempt to drive Aloha out of business.

December 2006: Faris throws out Mesa's countersuit against Hawaiian.

August 2007: Hawaiian accuses Mesa CFO Murnane of destroying several computer files that included confidential Hawaiian material.

Yesterday: Faris orders Mesa to pay Hawaiian $80 million in damages for misusing confidential business information.

Postings at www.honoluluadvertiser.com

This is a representative sampling of comments posted at honoluluadvertiser.com after the go! airline ruling was announced:

go! just wanted to drive out Aloha or Hawaiian, then it would have raised prices for sure.

Dan, Honolulu

Please don't go, go! We need the "reasonable" fares to stay. Hawaiian and Aloha were gouging us for too long!

RCM, Honolulu

I think it is fair considering Mesa came in to put either Hawaiian or Aloha out of business using confidential information.

Nate

Mesa will go buh-bye,
Hawaii Superferry will go buh-bye,
Hawai'i consumers will suffer once again,
And the "ol' boy network" will live happily ever after.

Largo, Honolulu

When it filed for bankruptcy just more than 13 months ago, it could not afford employee payroll. Its unions were balking at what would become the first of two rounds of concessions. And liquidation was an all-too-real possibility for an airline that had mounting debt and just $2 million left in cash.

Then things got worse: soaring fuel costs, a demand from lenders to shut down mainland flights, a 15.5 percent loan interest rate and last-minute appeals to its reorganization plan.

But the state's second-oldest airline somehow survived. And in a turbocharged pace for an airline bankruptcy, Aloha plans to emerge from reorganization around noon today with new owners, a $63 million cash infusion that it will use to pay off existing liabilities, a $15 million term loan and a $20 million revolving line of credit it can tap if necessary.

"(Liquidation was mentioned) so many times that people said we were crying wolf, but I wasn't," David Banmiller, president and chief executive of Aloha Airlines, said this week. "We had to find a way to pull it off because failure was not an option."

Banmiller would not detail Aloha's plans, but he did say the airline will begin another daily flight to Orange County, Calif., in April and plans to add more routes next year. The airline is sticking with its long-haul 737-700s for now but is "re-evaluating the fleet mix," he said.

The near death of Aloha's mainland routes came in June. The company's lenders, Goldman Sachs and Ableco Finance LLC, asked Aloha to shut down its mainland operations and return all its long-haul 737-700s because Aloha was in default of its loan agreement....

It took a last-minute phone call from a court's restroom corridor, but Aloha Airlines overcame more last-minute opposition from the federal pension agency and signed a settlement yesterday that clears the way for the carrier to emerge from bankruptcy in the middle of this month.

About four hours later, federal Bankruptcy Judge Robert Faris approved both the settlement and the airline's modified reorganization plan to effectively put an end to the 13-month-old bankruptcy case.

David Banmiller, president and chief executive of Aloha, said the airline had been spending $60,000 to $70,000 a day on loan interest and attorney and consultant fees, and now management can focus on customer service and improving the airline. He declined to pinpoint a specific date for exiting bankruptcy.

Banmiller said he also was being pressured from Aloha's two lenders, Goldman Sachs and Ableco Finance LLC, who on Jan. 10 began reducing their loan exposure to Aloha by $200,000 a day, reducing the amount of liquidity available to the airline. Moreover, the Federal Reserve's decision to raise interest rates on Tuesday had boosted Aloha's interest payments to its lenders to 15 1/2 percent, or $28,000 a day.

"We were on a timeline because our economic situation needed to be satisfied," Banmiller said.

Under the modified reorganization plan, Aloha's unsecured creditors will get virtually nothing -- nearly the reverse of the 26-month Hawaiian Airlines bankruptcy, where creditors got paid in full. Aloha's unsecured creditors will receive 1/100th of a cent on the dollar compared with 86/100th of a cent on the dollar under the original plan.

Faris agreed with Aloha that it was impractical to delay yesterday's hearing to have unsecured creditors vote again on the reduced amount, since they had previously rejected the higher amount. The plan was confirmed the first time because other classes of creditors voted for it.

Banmiller, who had been hoping to get the airline out of bankruptcy in less than a year, nearly met his objective but was still happy.

The bump came when the federal Pension Benefit Guaranty Corp. appealed the confirmation of Aloha's reorganization plan shortly before Dec. 15, when Aloha had planned to emerge from bankruptcy. The carrier filed for Chapter 11 protection from creditors on Dec. 30, 2004.

Until PBGC attorney Stephen Schreiber made the call yesterday morning to the agency's executive director, Brad Belt, it appeared that Aloha's attempt to get out of reorganization would be quashed again. The pension agency, which had reached a tentative settlement with Aloha in December, filed a motion before the hearing yesterday to oppose the confirmation of Aloha's reorganization plan, saying the airline repeatedly had sought modifications and additions to the agreement in principle.

"One thing the PBGC wants to make clear is the principle that we've been fighting for all along, which is that companies cannot merely transfer their pension plans to the PBGC as a matter of convenience or because an investor desires it," PBGC spokesman Randy Clerihue said. "You have to meet legal criteria ... which we don't think (Aloha was meeting) earlier on in this case."

The agreement with the federal agency calls for Aloha to keep a pension plan covering 28 employees in the Transport Workers Union but terminate three other pension plans covering the Air Line Pilots Association, the International Association of Machinists and Aerospace Workers, and nonunion employees. The pilots and machinists, who both had "me too" clauses in their new contracts that called for all the union pension plans to be treated the same, waived that provision to get the settlement approved.

In return, the pension agency agreed not to file any more appeals, and Aloha agreed to pay the agency $1.25 million to satisfy its administrative and priority bankruptcy claims. In addition, Aloha agreed to allow the PBGC to have unsecured claims of $154.4 million against the carrier for the terminated pension plans. The agency would be paid on a pro-rata basis with other unsecured creditors and would get 70 percent of the available proceeds.

Banmiller said all systems are now go for Aloha, which has been infused with $63 million in cash from its new investors, including Yucaipa Corporate Initiatives Fund I LP, headed by billionaire grocery magnate Ronald Burkle, and Aloha Aviation Investment Group, led by former National Football League star Willie Gault.

They will be joined by the Ing family partnership of Richard Ing and his sister, attorney Louise Ing Stich, both of whom are among the current owners of the airline; Hawaii developer Stanford Carr; Duane Kurisu, who has Hawaii commercial real estate and communications holdings; and Colbert Matsumoto, president of Island Holdings Inc. Kurisu and Matsumoto are board members of Oahu Publications Inc., publisher of the Honolulu Star-Bulletin and MidWeek.

Aloha said it will have available $35 million in exit financing but it plans to draw only $15 million of that.

"For '06, our plan is to stabilize with our new capital structure, which is going to be fabulous," Banmiller said. "We're going to have one of the best capital structures in the industry on (an equity-debt) ratio basis and focus on blocking and tackling and working with our employees who have gone through a lot this past year. There's no question ... our new ownership structure wants us to grow."

Aloha Airlines has reached a new deal with its investors that soon could fly the carrier out of bankruptcy.

The company, whose emergence from bankruptcy was delayed last month by an appeal from the federal agency that guarantees pension plans, filed a motion yesterday seeking a hearing Tuesday before Bankruptcy Judge Robert Faris on a restructured reorganization proposal.

A NEW BEGINNING

Key features of Aloha Airlines' modified reorganization plan:

» $43.25 million in cash from the Yucaipa Corporate Initiatives Fund I LP

» $16.8 million in cash and converted debt from the Aloha Aviation Investment Group

» $2.2 million from Aloha Hawaii Investors LLC, consisting of the Ing family partnership of Richard Ing and his sister, Louise Ing Sitch; Hawaii developer Stanford Carr; Duane Kurisu; and Colbert Matsumoto

» $750,000 from GMAC

» $35 million in exit debt financing

» $4.5 million in cost savings

Aloha also is asking for a waiver of the 10-day comment period if Faris approves the new plan....

David Banmiller, president and chief executive of Aloha, said in a statement yesterday that he hopes the modifications allow for a successful completion of Aloha's bankruptcy reorganization and the recapitalization of the company.

"The new equity investment clearly strengthens Aloha's financial position and has the added advantage of participation by new Hawaii investors," Banmiller said.

Aloha's new plan includes $43.25 million in cash from the Yucaipa Corporate Initiatives Fund I LP, headed by billionaire grocery magnate Ronald Burkle, and $16.8 million in cash and converted debt from Aloha Aviation Investment Group, led by former National Football League star Willie Gault. Yucaipa's cash investment is a $10 million increase from its previous proposal.

In addition, $2.2 million in cash is coming from a new group, Aloha Hawaii Investors LLC, which consists of the Ing family partnership of Richard Ing and his sister, attorney Louise Ing Sitch, both of whom are among the current owners of the airline; Hawaii developer Stanford Carr; Duane Kurisu, who has Hawaii commercial real estate and communications holdings; and Colbert Matsumoto, president of Island Holdings Inc., the parent company of Island Insurance.

Kurisu and Matsumoto are board members of Oahu Publications Inc., publisher of the Honolulu Star-Bulletin and MidWeek....

GMAC, the finance arm of General Motors, also is putting in $750,000 in cash....

Included in the new cost savings are the elimination of a proposed $2 million note and $175,000 cash distribution to Aloha's unsecured creditors. The total amount of unsecured claims against the carrier is approximately $207 million, according to the motion, and it is uncertain how many cents on the dollar unsecured creditors will get. However, the motion said the recovery to unsecured creditors under the modified plan will be reduced by less than 1 percent from what creditors were going to receive under the previous plan. Under that plan, unsecured creditors were expected to receive less than 5 cents on the dollar.

The attorneys and advisers connected with the case also have agreed to reduce their fees collectively by $1 million.

Aloha said in its filing that all key constituents support the plan and that it must be approved expeditiously.

"If not," the motion said, "there is the distinct possibility that (Aloha) could run out of cash and would be forced to cease operating, rendering 3,500 residents of the state of Hawaii unemployed, and severely harming the state of Hawaii's passenger and cargo operations."

The new deal became necessary when investors Yucaipa and AAIG balked after Aloha failed to emerge from bankruptcy by a Dec. 15 deadline. Aloha's first reorganization plan was approved on Nov. 29.

Aloha, which filed for bankruptcy on Dec. 30, 2004, saw its goal of emerging from Chapter 11 in less than a year thwarted when the federal Pension Benefit Guaranty Corp. filed several last-minutes appeals last month. The agency and Aloha have since reached a tentative settlement, though details have not been disclosed.

Aloha blamed the PBGC's appeals and rising fuel prices for the need to restructure the deal.

"These cost increases make the original plan's capital and price structure unworkable," the motion said.

The future of Aloha Airlines will come down to an appeal that will be decided tomorrow in U.S. District Court over whether Hawai'i's second-largest airline can turn its pension responsibilities over to the federal Pension Benefit Guaranty Corp.

U.S. Judge Michael Seabright late yesterday agreed to rule on PBGC's appeal tomorrow afternoon, the same day that Aloha attorneys say the airline's current funding expires.

Aloha officials also hope that a ruling in their favor will clear the way for Aloha to exit bankruptcy under new owners, who will inject up to $100 million in new capital.

Attorneys for Aloha Airlines and Aloha Airgroup, Inc. have said that terminating the employee-defined benefit plans is a condition of Aloha's prospective new owners, California billionaire Ron Burkle's Yucaipa Companies and former NFL football star Willie Gault's Aloha Aviation Investment Group.

"Without a replacement loan, this company is dead," Aloha attorney David C. Farmer told Seabright. "It will shut down. These two events are on a collision. ... It's a matter of life or death to the company."

Seabright's decision to hear the PBGC's appeal capped a flurry of legal activity that began yesterday morning in U.S. Bankruptcy Court, where Judge Robert Faris told Aloha's attorneys there was "no way" they would be able to proceed with their plans to exit bankruptcy by tomorrow.

But Seabright agreed to speed up PBGC's appeal to meet Aloha's deadline tomorrow.

"It puts a lot of pressure on me," Seabright said. But he cited "the irreparable harm" to Aloha and its nearly 3,600 employees if he did not hear the appeal.

"Now that all of the facts have been established, new contracts have been ratified by all Aloha employee bargaining groups and creditor issues have been resolved," Aloha said in a statement yesterday, "it is unfortunate that the PBGC is challenging the court's order confirming Aloha's plan of reorganization. ... We believe that it is in everyone's best interest for the PBGC to revisit its appeal, respect the court's order confirming Aloha's plan to exit bankruptcy and work with Aloha to complete this transaction."

Few people in Hawai'i have ever heard of Cerberus Capital Management LP, yet in the past year, the New York-based hedge fund has become a top hotel owner in the state and major lender to the state's No. 2 airline.

Cerberus took control of Waikiki's crown jewels — the Sheraton Waikiki, the Royal Hawaiian and the Sheraton Moana Surfrider — when it bought a 65 percent interest in the hotels' owner, Japan-based Kokusai Kogyo KK, for $2.4 billion in November 2004.

"These properties are worth billions of dollars, making them (Cerberus) one of the biggest hotel owners in Hawai'i," said Mike Hamasu, director of consulting and research at Colliers Monroe Friedlander Inc.

The company also played a pivotal role in Aloha Airlines' reorganization. In March, Ableco Finance LLC, Cerberus' lending arm, teamed up with Goldman Sachs Credit Partners LP to provide up to $65 million in financing to help the bankrupt carrier continue operating.

The rapid rise of Cerberus on the Hawai'i business landscape comes amid a resurgence of investment from Mainland companies.

New York-based Cendant Corp., which in addition to running Avis, Budget, Century 21 and Cheap Tickets, bought the local Coldwell Banker residential real-estate franchise last month.

HRPT Properties Trust, based in Newton, Mass., which paid nearly $600 million to acquire more than 400 acres of industrial properties owned by the Damon Estate and the Campbell Estate.

While much of the outside investment in Hawai'i in the 1990s involved businesses that bought cheap, added improvements and sold three to five years later, today's investor is taking a more hands-on management approach and may end up waiting a decade before they see a big payoff.

"They're much more patient, and they're much more willing to take much more complex risk," said Jon Miho, co-founder of local real-estate investor Trinity Investment LLC, whose affiliate is purchasing the Kahala Mandarin Oriental Hawaii hotel.

Cerberus, a major global player with over $16 billion invested worldwide, declined to comment on its Hawai'i strategy for this story. Local executives who have dealt with the company say its record in the state is mixed.

Managers of the Sheraton chain say that Cerberus is committed to improving its Hawai'i properties, while representatives of Aloha Airlines paint a picture of a demanding lender keeping a close eye on all operations.

Keith Vieira, senior vice president and director of Hawai'i operations for Starwood Hotels & Resorts, which manages the five Sheraton hotels controlled by Cerberus, said Starwood had preliminary discussions with Cerberus about renovating its local properties.

He noted that Kamehameha Schools' $84 million facelift of the nearby Royal Hawaiian Shopping Center has prompted Starwood and Cerberus to consider upgrading the properties.

"We think they're going to be a good owner of our hotels in Hawai'i," Vieira said.

David McNeil, a spokesman for Prince Hotels, said the chain's Japan-based owners haven't planned any changes at this time.

Unlike the mid-1990s "vulture" investors like Colony Capital and the Blackstone Group that bought distressed Hawai'i real estate for as little as 25 cents on the dollar, Cerberus is paying nearly the full value of the properties.

"They're not buying on a huge discounted basis; they're buying on value," said Joseph Toy, president of the local consulting firm Hospitality Advisors LLC.

In July, Ableco, Cerberus' lending arm, abruptly increased the interest rate on its multimillion-dollar loan to Aloha from 11.25 percent to 14.25 percent, Aloha said in Bankruptcy Court documents.

The following month, Ableco stopped lending money to Aloha until management agreed to hire a chief restructuring officer and reach an agreement to sell the airline. Aloha attorney Charles Dyke stated during a Bankruptcy Court hearing in October that Ableco and Goldman Sachs would consider liquidating Aloha if a deal to sell it fell through.

Aloha, which is being sold to a group headed by California billionaire Ron Burkle and former football star Willie Gault, won approval from Bankruptcy Court last week for its reorganization plan. Aloha could emerge from bankruptcy as soon as Dec. 15.

In a recent Bankruptcy Court filing, Jeffrey Kessler, Aloha's interim chief financial officer, described the pressure Cerberus put on the airline.

"For several days, funds were withheld as the lenders made daily sweeps of cash revenues from (Aloha's) accounts while refusing to re-advance the monies so swept," Kessler said.

"The lenders began demanding, as a condition to each daily advance under the loan, a daily 'deal report' detailing the company's progress in obtaining a transaction sufficient to repay the loan," Kessler added. "They further informed the company that financing would be cut off by Oct. 15, 2005, if a signed letter of intent from an investor were not secured by then."

Cerberus has been involved in a controversy in Japan over its planned investment in the parent of the Prince Hotels.

Cerberus' investment in financially troubled Seibu, one of Japan's largest real-estate firms and owner of the Seibu Railway, has led to legal action by the sons of the company's founder, Yasujiro Tsutsumi.

The brothers, Yuji and Seiji Tsutsumi, recently lost an appeal to Tokyo's high court to essentially block Cerberus' investment and Seibu's restructuring plan. The two brothers recently filed suit in Hawai'i Circuit Court, seeking to be recognized as the rightful owners of the Prince Hotels in Hawai'i.

Founded in 1992 by Stephen Feinberg, a former Drexel Burnham Lambert manager, Cerberus began as a vulture fund specializing in bankrupt and distressed companies. The name, Cerberus, comes from the mythical three-headed dog that guarded the gates of the ancient Greek underworld.

In recent years, the company, whose executives include former Vice President Dan Quayle, has branched out to lending and investing in less-risky companies, says the Wall Street Journal.

The closely held company shies away from publicity, preferring to work in the background. It has no local office or employees based in Hawai'i.

The firm has invested in a broad range of companies, including Mervyn's department stores, building products maker Formica Corp., Italian sportswear maker Fila and DaimlerChrysler's former aircraft leasing business, according to BusinessWeek.

In more recent years, the firm has taken huge bets in troubled companies in Japan, where restrictions on foreign ownership have relaxed in recent years.

Before its investment in Kokusai Kogyo, the company paid $850 million for a controlling stake in Aozora Bank Ltd., formerly known as Nippon Credit Bank Ltd. before it was taken over by Japanese regulators in 1998.

Kevin Aucello, senior vice president at CB Richard Ellis Hawaii who worked with Cerberus Japan executives in the mid-1990s, said that Cerberus' combined ownership stake in the local Sheraton and Prince hotels has advantages.

Owning several high-end hotels in Hawai'i means Cerberus can leverage the advertising, marketing and managing efforts. "It's much more efficient to manage a larger portfolio," Aucello said.

Editor's note: Here is the statement that David Banmiller, president and chief executive officer of Aloha Airlines, read to the federal Bankruptcy Court on Tuesday after the company's reorganization plan was confirmed by Judge Robert Faris:

THANK YOU, Your Honor, for allowing me this opportunity to address the court. If you perceive a softness in my tone, and perhaps a slip of the tongue here and there, it relates in part to a lack of sleep -- due in part to Your Honor's challenging words of yesterday. I must say, though, that sleep is overrated.

I will not take up much of the court's time, Your Honor, but the significance of this moment in the evolution of Aloha Airlines deserves comment.

In the 60-year history of this fine company, Aloha and its employees have never faced greater challenges: an industry in chaos, 50 percent of U.S. airlines in bankruptcy, unbridled competition, and oil at unprecedented levels.

The employees and local ownership of Aloha have continuously stepped forward, making contribution after contribution for its very survival. Had it not been for such efforts, we would not be standing before you today.

"In the 60-year history of this fine company, Aloha and its employees have never faced greater challenges."

AS YOU KNOW, I am a relative newcomer and have been through a few "economic Vietnams" in this industry, but none as challenging, certainly sometimes frustrating, but on the whole no more satisfying than this experience, and I have enormous respect for everyone involved.

It is always risky to highlight certain individuals and situations in such a case, but I have chosen to take the risk because this accomplishment is all about teamwork, sensitivity when needed, and most of all, focus on the end game with extraordinary people.

We have asked our employees and their union leaders three times in the last several years to step up to tough stuff. In every instance, they made the tough decisions. Their willingness to make sacrifices while maintaining top-quality service to our valued customers, says volumes about the Aloha spirit within the heart and soul of these fine people.

» Dave Bird, chairman of (the master executive council for the Air Line Pilots Association);

» Peggy Gordon, president of (the Association of Flight Attendants / Communications Workers of America);

» Randy Kauhane, assistant general chairman of (the International Association of Machinists and Aerospace Workers 141);

» The shareholders, and in particular the Chings and Ings, have a long and cherished history with this company. When I joined, I asked to be given the latitude to make the tough decisions without undue influence or avoidance of the myriad of business decisions that had to be made.

The shareholders were true to their word, and allowed the management team to execute, and they put cash behind their words.

» Our management team, some new but with an outstanding support staff comprised of a team of veterans in this business, many who are residents of this state, hung in there, put up with my idiosyncrasies and saw the ranks of VPs dwindle, dynamically increasing their workload -- with never a complaint.

» Hawaii's federal-, state- and county-elected officials, and all of our vendors, who have reached out during this past year. ... Without their support, we also would not have succeeded in getting this far. To them we owe thanks.

» Our customers, for their loyalty bringing cash in the door with every ticket sale. They provided the hope for our company to get through each day.

» Our team of professionals, led by Paul Singerman of Berger Singerman; Char Sakamoto Ishii Lum & Ching led by Betty Ishii; the Giuliani Group led by Marc Bilbao; our lead banker First Hawaiian Bank led by Don Horner; our local counsels Don Gelber and David Farmer; the unsecured creditors' committee chaired by Capt. Michael Feeney and guided by lead counsel Brett Miller; and Sheldon Kline of Thelen Reid.

MY COMMENTS would be far from complete without recognizing the presence of both Richard d'Abo of Yucaipa and Willie Gault of Aloha Aviation Investment Group. Without their financial commitment and support, this company would not be here, especially considering the rejections we faced in the investment community. I personally thank them, as well as Ron Burkle, for their confidence in the employees of this fine company.

And finally, Your Honor, you, too, have made the tough calls, sprinkling wisdom and experience with at times a level of common sense, humor and sensitivity that does your profession honor. You should take great pride, Your Honor, if I am permitted to say, in what has gone on this past year. Hopefully, this will be your last airline case in the islands.

And now, I assume you can renew your AlohaPass membership and continue to be one of our most-valued customers.

A California billionaire and his partners have agreed to buy Aloha Airlines with a $100 million investment that will allow Hawai'i's No. 2 carrier to emerge from bankruptcy by the end of the year.

Aloha has signed a letter of intent with billionaire Ron Burkle's Yucaipa Companies and Aloha Aviation Investment Group LLC, which is led by former professional football standout Willie Gault. Yucaipa will become the new majority shareholder.

The deal, which requires court approval, breathes new life into Aloha and ensures that travelers in Hawai'i will continue to have two fierce competitors in the interisland air market....

Hawaiian Airlines, the state's largest airline on the basis of revenue, was bought by a California investment company, Ranch Capital LLC, earlier this year and emerged from bankruptcy in June.

The $100 million investment into Aloha will allow the 3,600-employee company to preserve jobs, continue operating at current levels and pay off more than $65 million it owes to its lenders, the company said.

"This clearly gives us the platform to exit bankruptcy by the end of the year," said David Banmiller, Aloha's chief executive officer. "It creates a positive sense of momentum in the company."

Banmiller will remain as the airline's chief executive officer. The company's longtime owners — the heirs of local investor Hung Wo Ching and developer Sheridan Ing — will become minority shareholders.

The Ing and Ching families will continue to be represented on the company's board of directors. The airline's senior management team will remain in place.

With nearly $500 million in annual revenues, Aloha operates about 700 weekly interisland flights and about 140 weekly flights to the Mainland. Aloha filed for bankruptcy protection in December because of rising costs due in large part to higher prices for jet fuel.

Banmiller met with about 400 of Aloha's employees at the Honolulu airport yesterday to announce the deal.

Banmiller said later in an interview that Aloha's primary concern will be to emerge from bankruptcy and stabilize its operations. During the past several years, the price for jet fuel has more than doubled to $2 a gallon, forcing the airline to make significant cost cuts.

Since December, the airline has reduced its costs by $60 million a year, Banmiller said.

According to Aloha, the new investors have a proven track record in working with distressed companies.

Yucaipa, founded by Burkle in 1986, is a private equity investment firm that has taken part in more than $30 billion worth of mergers and acquisitions. In June, the company invested $150 million for a 40 percent stake in Pathmark Stores Inc., a New Jersey-based grocery store operator.

AAIG is a private equity firm managed by Gault, a former All-Pro wide receiver for the Chicago Bears. Gault, who is a principal in Los Angeles-based IBS Capital Holdings, and other investors in AAIG recently acquired ERA Aviation Inc., a regional airline serving Alaska.

In a bankruptcy court filing yesterday, Aloha provided a summary of a reorganization plan, which it will submit in the next few months to the bankruptcy court for approval.

According to the summary, Aloha intends to pay off more than $65 million borrowed from Ableco Finance LLC and Goldman Sachs Credit Partners LP after the carrier filed for bankruptcy. The airline also will repay some $4.7 million in loans issued to the company from the Ing and Ching families.

The summary did not say how much other creditors will receive when Aloha emerges from bankruptcy.

Aloha also said that it may exclude payments to employees' pension plans but did not provide details.

Mike Feeney, a spokesman for the 340-member Aloha chapter of the Air Line Pilots Association, said union members look forward to working with the new investors. Since December, pilots have agreed to about $12 million in wage concessions, and many have been frustrated by the "slow pace" of the bankruptcy proceedings, he said.

"This will take us out of bankruptcy and it will help us explore new growth opportunities," said Feeney.

For Banmiller, the deal culminated several months of on-and-off deal-making. The airline, which was down to about $3 million in cash when it went into bankruptcy, initially courted Maitlin Patterson Global Opportunities Partners this past spring, but the deal fell through.

Founded in 1946 as TransPacific Airways by local publisher Rudy Tongg, Aloha has had a long tradition of local ownership. In 1986, then-Chairman Hung Wo Ching and Sheridan Ing fought off a takeover attempt from Dallas-based CNS Partners by taking the company private.

"The Ching and Ing families are proud to have supported Aloha for more than half a century," said Han Ching, chairman of Aloha Airgroup Inc., the airline's parent company, in a news release.

"We look forward to being actively involved in the future of this company with our new partners."

Aloha Airlines is suing its own pilots, claiming it didn't outsource their work to lower-paid pilots at Island Air.

The airline's lawsuit asks the U.S. Bankruptcy Court to nullify the relief Aloha's pilots were promised in April when an arbitrator sided with their union, the Air Line Pilots Association.

Aloha argues that the arbitrator was wrong in his finding that the airline didn't actually sell Island Air in 2003 but rather leased it, and therefore violated its collective-bargaining agreement with the pilots.

"We need to set the arbitrator's decision aside and revisit the issue in the bankruptcy court," said David Farmer, attorney for Aloha Airlines, which filed for Chapter 11 bankruptcy on Dec. 30, 2004.

Arbitrator Richard Bloch ruled in April that Aloha violated the protective-scope clause of its collective-bargaining agreement with the pilots' union. The clause stipulates that Aloha pilots get preference in flying for Aloha and its affiliates, and that as long as Island Air is an affiliate of Aloha it can't operate flights between the principal airports of Lihue, Kahului, Honolulu, Kona and Hilo.

If the ruling stands, Aloha would have to compensate its pilots for the loss of work that went to Island Air pilots. Island Air flies 83 daily flights, many of them to the five principal Hawaii airports.

"The remedy phase will have a substantial impact on Aloha's financials and diminish its income," Farmer said.

The highest hourly wage of an Aloha pilot on an interisland flight is $109.09, compared with $108 for Island Air pilots.

Island Air recently raised the wages of all its employees by about 30 percent while Aloha negotiated a wage cut of about 20 percent.

The lawsuit filed last week is the latest step in negotiations between Aloha and the pilots' union, following the arbitration ruling in April. At no point has either of the parties involved Island Air in the dispute.

As part of the remedy, the pilots have asked the airline to stop parceling off its passengers onto Island Air flights as part of a code-share agreement with the commuter airline. Aloha maintains that it can't control the routes Island Air flies because the commuter airline is a separate entity.

The Gelber firm was at the center of a dispute
between the carrier and its lenders

Aloha Airlines' lead legal firm, which has represented the carrier during its four-month bankruptcy, is withdrawing from the case.

The Honolulu firm Gelber, Gelber, Ingersoll & Klevansky didn't offer any specific reasons for its decision. However, earlier this month, Aloha went to court after having a dispute with the company's new lenders over whether the Gelber firm's Aloha Airlines trust account was vulnerable if the lenders were to collect on a lien.

The Gelber firm's Aloha trust account contains the firm's pre-bankruptcy retainer, which has a balance of $250,000, plus additional money for legal services that were deposited in keeping with court procedures.

Don Gelber, partner in the Gelber law firm, declined to comment on reasons for withdrawing as counsel. However, the firm said in its motion that it was an opportune time because the withdrawal would eliminate any question concerning a conflict of interest between the firm and the airline, many of the company's legal problems have already been addressed and the firm's withdrawal probably would reduce Aloha's legal expenses.

People familiar with the case said fee issues and a difference of opinion over the bankruptcy process prompted the Gelber firm's decision to want out.

The move to pull out comes as Aloha is entering a new chapter in its bankruptcy.

Earlier this week, the company's mechanics and inspectors union became the last of the airline's five unions to ratify a labor contract that has concessions. The new pact will allow the outsourcing of heavy-machinery work, which will result in 79 positions being lost.

In addition, Aloha sent letters to its flight attendants last week requesting volunteers to take three-month unpaid vacations.

Al Pattison, the company's senior vice president of human resources, said about 40 jobs will be affected and that the airline will be forced to lay off flight attendants if it doesn't get enough volunteers. The airline won't need as many flight attendants because a new contract provision reduces the number of attendants on trans-Pacific flights from four to three.

David Banmiller, president and chief executive of Aloha, said the company has made "monumental progress" during its reorganization. He cited new aircraft leases, paying off more than $20 million in federally guaranteed loans, paying off another $20 million in commercial loans, obtaining a new $65 million loan and securing the new labor contracts.

"We are now at a new juncture that places great emphasis on the capitalization of the company and its emergence from bankruptcy," Banmiller said.

Berger Singerman, a Miami-based law firm that has been acting as the airline's special transaction counsel, will replace the Gelber firm as the lead attorneys. Hawaii lawyer David Farmer, a former president of the bankruptcy law section of the Hawaii State Bar Association, will join Berger Singerman's legal team as the local co-counsel.

Paul Singerman said the Gelber firm has done "a great job" but declined to comment on why the firm decided to pull out.

"A development of this kind is not a particularly common occurrence in a Chapter 11 case," Singerman said.

The U.S. Trustee's office yesterday challenged the selection of the Case Bigelow & Lombardi law firm to represent the creditors in Aloha Airlines' bankruptcy case, saying the Bishop Street firm has a conflict of interest because it once represented Aloha.

Case Bigelow & Lombardi and a Park Avenue-based law firm, Otterbourg, Steindler, Houston & Rosen PC, applied in February to jointly represent the official committee of unsecured Aloha creditors. But Case Bigelow failed to disclose that it had issued opinion letters on Aloha's behalf in 2000 regarding loans made by First Hawaiian Bank, according to the U.S. Trustee's motion.

The office of the U.S. Trustee represents the federal government in bankruptcy proceedings and argued in its motion yesterday that Case Bigelow's "failure to disclose its direct conflict of interest in representing the interests of its client, the (creditors) committee, disqualifies it as counsel. ... The committee should not be represented by a party with a direct financial stake favoring an outcome against the committee's interests."

Case Bigelow has filed subsequent disclosure statements about its past relationship with Aloha, according to the U.S. Trustee's motion, but "it appears that the firm still falls short of providing full and forthright information."

Case Bigelow attorney Ted Pettit, who filed the motion to employ Case Bigelow in the case, did not return telephone calls yesterday.

Now, Bill Clinton is a leading consultant with investment companies Yucaipa American Fund and Yucaipa Corporate Initiatives Fund, owned by Ron Burkle, a friend of Bill Clinton. Ron Burkle made his fortune on a network of grocery supermarkets.

The RosBusinessConsulting news agency reports that the ex-president will be in charge of meetings and talks with political leaders and presidents of companies for further investing.

Mr. Burkle says, “I am proud that Bill Clinton will be a consultant with our company.”

No information about the salary of the new employee was published, but it was said his salary will depend on the company’s financial showings. Still, the sum is sure to be large.

On the whole, it is not a sensation that the ex-president will be working as a consultant. The majority of his predecessors preferred to earn their living by consulting for different companies. Such people with their wonderful connections in politics and business are really useful for companies.

Bill Clinton had no regular work for two years already. He delivered lectures and wrote memoirs that brought large and easy earnings. The ex-president needed money to cover his debts to the attorneys who worked for Mr. Clinton during his presidency.

Looks as though the Rev. Jesse Jackson has helped his good buddy, former President Bill Clinton, land a cushy job with a California investment firm.

The Associated Press reported last week that Clinton will serve as counsel to the Yucaipa American Fund and the Yucaipa Corporate Initiatives Fund, both headed by billionaire former supermarket magnate Ron Burkle. He’s a good friend of Jackson’s and a significant campaign contributor to the Democratic National Committee.

Burkle has helped out Jackson in the past. In 1998, Burkle, then CEO of Ralph’s Food Stores, helped two of Jackson’s sons land a lucrative Budweiser beer distributorship in Chicago.

In 1997, Clinton, Jackson and Burkle appeared in Pittsburgh for the AFL-CIO annual convention. A year later, Jackson and Burkle were part of a large entourage that accompanied Clinton on a trip to Africa.

The Yucaipa American Fund was formed in February by Burkle’s company. It is funded primarily from investments by the California Public Employees Retirement System.

Curiously enough, Burkle has been a significant campaign contributor to both California Gov. Gray Davis and San Francisco Mayor Willie Brown, who just happens to be a trustee of the pension system.

The California Public Employees Pension System steered $700 million in investment capital to a wealthy financier who has donated more than $600,000 to Gov. Gray Davis and thousands more to officials who serve on the CalPERS board, according to state records.

According to the records, in the past year the CalPERS board has twice voted to make multimillion-dollar cash infusions in venture capital funds controlled by billionaire financier and supermarket magnate Ron Burkle of Los Angeles.

He is a heavy-hitting political donor with close ties to Davis and other top Democrats, including CalPERS board members San Francisco Mayor Willie Brown and state Treasurer Phil Angelides.

Since 1998, Burkle has donated $609,000 to Davis' gubernatorial campaigns, and last year his Golden States Foods firm hired Davis' wife to serve on its board of directors.

The governor controls four appointments to the 13-member CalPERS board, but a spokesman said Davis plays no role in CalPERS investment decisions.

A CalPERS spokeswoman said the investments in Burkle's concerns were thoroughly vetted and made on the merits. Brown and Angelides acted legally in voting for the Burkle investments, said the spokeswoman, Patricia Macht.

But James Knox, chairman of the reform group California Common Cause, said the affair was troubling on clean-government grounds.

He contended that Brown and Angelides should have recused themselves rather than vote on the Burkle investments because they had obtained donations from him. And Knox said the scenario of a major donor seeking investment funds from CalPERS was "a concern because it puts the governor's appointees in a position where they can show favor to a major campaign contributor."

Charlie Oates, who publishes an independent newsletter for CalPERS pensioners, said the board should pursue more conventional investments and steer clear of investments involving their political benefactors.

"It's a public pension trust fund for the benefit of the members of the system and not for the benefit of the politicians," he said. "As trustees, they should be more concerned with running the trust and taking care of the beneficiaries."

Burkle is a self-made billionaire who rose from grocery store clerk to owner of the Ralph's/Food 4 Less chain. Today he lives in Greenacres, a Beverly Hills estate once owned by silent film star Harold Lloyd, and is CEO of the Yucaipa Companies investment concern.

Burkle is a longtime Democratic activist, and since 1998 he has donated $1.9 million to Democratic candidates and causes in California, state records show. Davis is his single biggest beneficiary.

According to Yucaipa spokesman Ari Swiller, the financier's friendship with Davis goes back 20 years, to the days when Burkle was a supermarket owner and Davis was an assemblyman pushing the idea of putting photos of abducted children on milk cartons....

They share other connections as well. Swiller, Yucaipa's spokesman, also serves as Davis' campaign treasurer. Davis' wife, Sharon, helped run Burkle's charitable foundation in the 1990s, and last year she went on the board of Golden State Foods, a Yucaipa-owned firm.

Burkle also has a long-standing connection to Mayor Brown, whom Davis appointed to the CalPERS board. From 1993 through 1995, while Brown was speaker of the Assembly, he moonlighted as a lawyer for Burkle's Food 4 Less chain, earning more than $30,000, state records show. Burkle's companies also donated $59,000 to his legislative campaigns.

After Brown became mayor of San Francisco, Burkle donated $100,000 to help underwrite the 1997 U.S. Conference of Mayors meeting in San Francisco.

The billionaire also became involved in efforts to redevelop Treasure Island in San Francisco. In 1999, a firm backed by Burkle and headed by Darius Anderson, a Sacramento lobbyist who has worked as a fund-raiser for both the governor and Brown, was chosen by the mayor's office to develop a marina at Treasure Island...

CalPERS records show that Burkle's Yucaipa Corporate Initiative Fund obtained $200 million in investment capital via what the pension fund styled its "California initiative."

That strategy, announced in June 2000, is intended to boost economic development by pumping funds into what it called "underserved" areas, including rural and inner-city areas.

CalPERS consultants and staff reviewed more than 60 investment proposals, and finally recommended 11 investment firms, the records show.

In May 2001, the board unanimously approved the plan. Yucaipa's $200 million share was quadruple what any of the other firms obtained, the records show.

While the matter was pending, state records show Burkle hosted a fund- raiser for Davis and donated $20,000 to his campaign. He also donated $25,000 to Angelides, and made a series of other political donations, including $100, 000 to the state Democratic Party.

After Yucaipa obtained the $200 million investment, the firm pitched CalPERS on backing the Yucaipa America Fund, an investment fund that proposed to tap labor union pension funds for a venture capital fund....

In November, at a closed meeting, the CalPERS board voted to commit $500 million to the fund.

While that matter was pending, state records show Burkle hosted two more fund-raisers for Davis and donated $50,000 to his campaign. Less than three weeks after the vote, Burkle also hosted a fund-raiser for Angelides.

Macht said that in both Burkle investments the CalPERS staff had negotiated excellent terms to protect pensioners' investment and maximize return. No one in the governor's office ever contacted CalPERS staff about either matter, she said.

The $150 billion CalPERS pension fund is run by a 13-member board of state officials and representatives of pensioners and other interested groups.

Controversy over political donations has occasionally roiled CalPERS. In 1998, CalPERS voted to bar board members from obtaining political donations from firms that sought or were doing business with the pension fund.

The action came after the Los Angeles Times reported that state Controller Kathleen Connell and then-state Treasurer Matt Fong had obtained $400,000 in political donations from CalPERS contractors. Connell denied wrongdoing and successfully sued to overturn the ban, which is no longer in effect.

Earlier this month, the co-founder of a vineyard development firm that had recently obtained a $100 million investment from CalPERS hosted a $2,500-per- head political fund-raiser for Davis in San Francisco.

Backers of GOP gubernatorial candidate Bill Simon accused Davis of using CalPERS to raise funds for his re-election drive, but Davis and Richard Wollack, co-CEO of Premier Pacific Vineyards, said there was no connection between the investment and the fund-raiser...

Federal bankruptcy judge Robert Faris, now handling the bankruptcies of both Hawaiian Airlines and Aloha Airlines, said at Aloha's hearing Monday that he will take care to see that neither airline is put at a disadvantage by his rulings concerning the other.

That promise by Faris will reassure Aloha CEO David Banmiller, who has said he filed for Chapter 11 bankruptcy last Thursday in part because receivership had allowed Hawaiian to obtain a cost edge by renegotiating leases and other contracts.

Companies in Chapter 11 have the power to back out of contracts. The implicit threat of this allows them to renegotiate agreements with lenders and vendors, obtaining better terms. Outside of bankruptcy, a contract is a contract. Hawaiian has won new terms for jet leases, while Aloha has been locked into much higher rates.

Aloha is privately held by two local families, descendants of Hung Wo Ching and Sheridan Ing, and the airline revealed Monday that the families had offered to lend the airline $3 million in operating cash.

The parallel bankruptcies put Faris in the position of having unique access to operating information about the rival airlines. Ordinarily the airlines would not share such information with other. Both airlines operate a combination of interisland short-haul and trans-Pacific long-haul flights, though Aloha has more of the former and Hawaiian has more of the latter.

The proposed merger between the state's two local airlines foundered because Hawaiian Airlines wanted to change the terms of the agreement, including eliminating the Houston consulting firm coordinating the deal, the chief executive of Aloha Airlines said in a statement today.

Hawaiian's proposal also would have given Hawaiian chairman John Adams the top spots in the merged airline, eliminating Greg Brenneman, the TurnWorks executive who had been orchestrating the merger, according to Glenn Zander, Aloha's president and chief executive officer.

"Aloha could not accept Hawaiian's new proposal because in our judgment, it was not in the best interest of the state, the traveling public or Aloha's shareholders and employees," Zander said.

The details emerged a day after Hawaiian said it was pulling out of the deal because it did not wish to extend what it called an April 18 "outside date for completing the merger." It said increasing costs and risks of the deal were factors.

The announcement surprised many in the state, including employees of both airlines and state legislators who as late as last Tuesday had held a hearing on the merger.

Today, Zander said Hawaiian's action was "regrettable" and said members of Aloha's board of directors voted unanimously to reject Hawaiian's proposal. He also praised Brenneman and TurnWorks for their work on the merger.

Hawaiian spokesman Keoni Wagner said tonight, "We don't necessarily agree with Aloha's characterization of the negotiations, but we also choose not to discuss publicly what would otherwise be private conversations."

The apparent power grab by Adams came even though he and his affiliated companies would have been the financial winners if the merger had gone through. Adams stood to receive assets valued at about $109 million. Adams, his companies and other Hawaiian shareholders also would have held a 52 percent stake in the new airline.

Under terms of the original merger, the shareholders of privately owned Aloha Airlines — many of them relatives of the company founders — would have gotten 28 percent of the merged airline, worth an estimated $56 million.

For more than a year, Aloha and its consultant have viewed TurnWorks and Brenneman as essential to the success of the merger, according to documents filed with the Securities and Exchange Commission last month that outlined how the merger came about.

Aloha's consultant, Mercer Management, initially approached Brenneman in February 2001 asking whether he wanted to invest in the airline. In July, Brenneman, a former top executive with Continental Airlines, met further with Mercer to discuss a possible investment and subsequent merger with Hawaiian.

Hawaiian officials, contacted in August, initially appeared cool to the idea but after the Sept. 11 terrorist attacks, and subsequent downturn in travel, they agreed to "discuss a possible merger involving the two airlines and TurnWorks," according to the documents.

On Sept. 22, according to the documents, Mercer and senior management officials of Aloha and Hawaiian met and Mercer proposed that both airlines should continue to include Brenneman and TurnWorks in the merger discussions as Brenneman "was likely to be an important factor in creating an agreement between the two airlines, leading the integration efforts, and running the combined carrier and in generating maximum value for shareholders of both companies."

On Sept. 25, the documents say, all parties agreed to proceed with merger talks. They also agreed "that the involvement of TurnWorks and Brenneman would be an important factor in consummating a deal, as past efforts to combine the two airlines were not successful."

TurnWorks officials said in a statement today, "We were surprised and disappointed (by Hawaiian's decision) ... The failure to extend the timetable essentially precludes completing this complex transaction....

The abrupt end to the merger, which was announced Dec. 19, leaves the future of the two airlines and of Hawai'i's interisland airline market uncertain. In announcing the deal three months ago, executives with both airlines said they needed to merge because conditions in the airline industry — and in the interisland market in particular — had made it impossible for them to survive separately.

After the Sept. 11 attacks, both airlines lost tens of thousands of dollars a day and furloughed hundreds of workers. In recent weeks, as the Mainland economy has recovered, there have been signs of improvement in the local airline market.

Still, documents filed with the Securities and Exchange Commission show that Aloha is financially more vulnerable than Hawaiian. The privately held airline has more debt on its books and reported a $1.25 million loss at the end of the third quarter Sept. 30. The airline also has smaller and older aircraft and fewer flights to the Mainland.

Today Zander said Aloha has its own business plan to move ahead "on a stand-alone basis." Aloha spokesman Stu Glauberman said Zander will be meeting with Aloha's employees' union executives tomorrow.

Before the announcements over the weekend, the two airlines had been working on a joint application to take advantage of a special antitrust exemption granted by Congress last November to cooperate on some operations, such as routes, scheduling and pricing....

Gov. Ben Cayetano had been a supporter of the merger and said today, "The failure of the merger had nothing to do with the U.S. Department of Justice, the state Legislature or public opposition. This was a business decision that we will have to accept. The state administration will do its best to try to assure that Hawai'i will continue to have two viable interisland carriers."

State Sen. Ron Menor, D-18th (Mililani, Waipahu, Crestview), chairman of the Senate Commerce, Consumer Protection and Housing Committee, had opposed the merger and his committee took part in statewide hearings....

The mood among workers at Honolulu's interisland terminal was split between the two airlines today, with Aloha employees grim-faced and in no mood to talk about the failed merger, and Hawaiian employees buoyant.

Baggage handlers outside the Hawaiian half of the terminal this afternoon burst into ebullient giggles when asked how they and their co-workers felt about the merger being called off.

"We still have our jobs!" said Thad Estrada, one of the Hawaiian handlers. "Everybody is pretty happy right now. There had been a lot of stress lately, and then today, even though all the schedules and everything are still the same, everybody is smiling. It sure makes the day go better."...

Outside the terminal, Tammy Castro of Mililani and Diane Halemano of Makakilo grew tired of driving around the airport while waiting to pick up relatives, and parked in a lot to talk until their cell phones rang.

"They'd have a monopoly on the fares, and we'd have no one else to go to," she said. "We need a choice. People would lose their jobs and we already have enough unemployment. Besides," she added. "No offense, but I just love Aloha."

The $200 million deal helps save
the sputtering airlines, hurt by the
downturn since the Sept. 11 attacks

THE $200 million proposed marriage between longtime rivals Hawaiian and Aloha airlines will cost hundreds of jobs, may raise fares on some flights and will leave Hawaii with a single interisland carrier for the first time in more than 50 years.

The two companies, hard-hit by the economic downturn since Sept. 11, said the merger is necessary for their survival and will lay the groundwork for future growth.

Hawaii's two major airlines announced yesterday they have agreed to merge into a new publicly traded company, Aloha Holdings Inc., which will be the nation's 10th-largest airline with annual sales of about $1 billion.

The carriers expect to complete the merger during the first half of 2002, pending regulatory approvals.

Former Continental Airlines President Greg Brenneman, widely known for his experience as a corporate turnaround specialist, was introduced as chairman and chief executive officer of Aloha Holdings.

"We have the patient on the operating table, and we want to get it well first and in all aspects, and then we want it to grow," Brenneman said. "We have to get healthy to do that."

At a news conference yesterday, Brenneman said the merger will save about $90 million. But he added that the new airline still needs to "trim around the edges" to bring it back to profitability.

Brenneman -- whose Texas-based firm TurnWorks Inc. will own 20 percent of the new company -- said the new company will eliminate fewer than 600 positions, or less than 10 percent of the combined payrolls of Aloha and Hawaiian.

He said the merger will not require more drastic job cuts because both carriers have already eliminated more than 600 positions since Sept. 11. Brenneman said he will meet with employees and unions to make the merger work....

Company officials plan to negotiate with the state Attorney General's Office to work out a new fare structure....

The merger requires antitrust clearance from the state and the Department of Justice.

Brenneman said the deal already has the support of Gov. Ben Cayetano and U.S. Sen. Daniel Inouye. He believes that the state's review will be more rigorous than the federal government's review because the Attorney General's office will be looking at the impact on the interisland market whereas the Justice Department will largely focus on the impact on West Coast flights.

Aloha, a privately held company led by the heirs of local financiers Sheridan Ing and Hung Wo Ching, launched its mainland service earlier this year, only to see business tumble as a result of the terrorist attacks.

In an August filing with the Transportation Department, the 55-year-old company said it had lost $205,618 during its second quarter. Year-to-date figures were not available. For all of 2000, Aloha lost $4.3 million.

Publicly traded Hawaiian Airlines, which was established in 1929, posted a year-to-date net profit through Sept. 30 of $15.2 million....

During the past 30 years, both companies have explored combining operations several times, but the plans fell through when neither side could agree on who would run the new company.

Glenn Zander, Aloha Airlines chief executive officer, said his company has talked to a number of investment companies during the recent months about a capital infusion.

Zander, who plans to step down when the merger is completed, said Aloha's consulting firm Mercer Management Consulting first approached Brenneman in August about acquiring the company.

But Brenneman told the consultants that he would be interested in acquiring both companies.

"I guess I am responsible for bringing together the Hatfields and the McCoys," Brenneman said.

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