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Local airline hits rough skies

Mokulele could have its assets seized today if it cannot recapitalize

STORY SUMMARY | READ THE FULL STORY

Mokulele Airlines is finding that it's tough to survive in the crowded Hawaii interisland market.

The Kona-based airline has overdrawn its $8 million line of credit with partner Republic Airways, and could hand over service at the end of business today if it doesn't make an approximately $300,000 payment to the Indianapolis-based company.

Mokulele General Manager Chris Van Den Heuvel said yesterday that Mokulele is working with its current investors and outside companies to acquire additional capital.

"I don't think we're going to shut down (Wednesday)," he said. "We're going to restructure and work on a recapitalization plan."

Republic said late yesterday that it hopes "the current owners will be successful in their efforts to recapitalize the airline," but if not, it will assume responsibility for the continuation of jet service.

Approximately half of Mokulele's just-under 200 employees are former laid-off workers from Aloha Airlines, which abruptly ceased passenger operations on March 31. ATA Airlines shut down about the same time as Aloha.

Bryan Bedford, chairman, president and chief executive of Republic, disclosed in an earlier earnings conference call yesterday that Mokulele was in payment default and that Republic would take control of Mokulele's collateralized assets if the payment isn't made today.

— Dave Segal



FULL STORY >>

By Dave Segal

POSTED: 01:30 a.m. HST, Feb 18, 2009

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Mokulele Airlines, the Kona-based commuter carrier that gambled it could survive as a new third carrier in Hawaii's competitive interisland market, is in payment default with Indianapolis-based partner Republic Airways and could have its planes and other assets seized by Republic as early as the close of business today.

Facing turbulence

Founded: 1998 as Mokulele Flight Service Inc.

Partnership: Formed partnership with Mesa Air Group's go! in 2007 to fly to smaller interisland cities as go!Express.

Total aircraft: Three Embraer 170s; seven nine-seat 208B Cessna Grand Caravans, with one of them being utilized as a dedicated freighter.

Daily flights: About 85 to seven cities in Hawaii.
Bryan Bedford, chairman, president and chief executive of Republic, said in an earnings conference call yesterday that Mokulele has fully drawn its $8 million line of credit and that Mokulele has exceed that amount by about $300,000 under their airline services agreement.

"If the default does not clear by the close of business (Wednesday), we will assume control of our collateral," Bedford said.

Mokulele General Manager Chris Van Den Heuvel said yesterday that Mokulele is working with its current investors and outside companies to acquire additional capital.

"I don't think we're going to shut down (Wednesday)," he said. "We're going to restructure and work on a recapitalization plan."

Republic said late yesterday that it would assume responsibility for the continuation of jet service if the airline is not successful in efforts to recapitalize.

If Mokulele were to shut down, it would be the third local carrier serving Hawaii to cease service in less than a year following the abrupt closures of Aloha Airlines and ATA Airlines at the end of last March. Ironically, about half of Mokulele's just-under 200 employees are former Aloha employees.

Mokulele operates three 70-seat Embraer 170 jets between the islands under its capacity-purchase agreement with Republic Airways. The fourth and final Embraer jet that Mokulele was going to put into service was due to arrive next month, but that delivery date is now in limbo. Mokulele also operates seven nine-seat 208B Cessna Grand Caravans, with one of them being utilized as a dedicated freighter.

Republic, which reported yesterday a fourth-quarter profit of $19 million, took a $1.5 million impairment expense to account for money it estimated it would not be able to collect from Mokulele if Republic foreclosed on Mokulele's assets.

Still, Bedford said on the conference call that he's not writing off Mokulele.

"They do have a number of relationships that are coming online with both mainland and Pacific Asian carriers," Bedford said. "Those relationships - interline agreements, frequent flyer agreements and code-share agreements - should probably start producing revenue in the April time frame. But they've got a hurdle to get over. A lot of those distribution channels were anticipated to have been operating by the end of December. But they're probably running three months behind actually getting those channels functioning."

Mokulele Airlines, the Kona-based commuter carrier that gambled it could survive as a new third carrier in Hawaii's competitive interisland market, is in payment default with Indianapolis-based partner Republic Airways and could have its planes and other assets seized by Republic as early as the close of business today.

CRAIG T. KOJIMA \ CKOJIMA@STARBULLETIN.COM
Mokulele Airlines has drawn its $8 million line of credit and additionally owes $300,000, according to its airline service agreement with Republic Airways. Above, the Spirit of Oahu, an Embraer 170 jet, taxied to its gate at Honolulu Airport last November.

Facing turbulence

Founded: 1998 as Mokulele Flight Service Inc.

Partnership: Formed partnership with Mesa Air Group's go! in 2007 to fly to smaller interisland cities as go!Express.

Total aircraft: Three Embraer 170s; seven nine-seat 208B Cessna Grand Caravans, with one of them being utilized as a dedicated freighter.

Daily flights: About 85 to seven cities in Hawaii.
Bryan Bedford, chairman, president and chief executive of Republic, said in an earnings conference call yesterday that Mokulele has fully drawn its $8 million line of credit and that Mokulele has exceed that amount by about $300,000 under their airline services agreement.

"If the default does not clear by the close of business (Wednesday), we will assume control of our collateral," Bedford said.

Mokulele General Manager Chris Van Den Heuvel said yesterday that Mokulele is working with its current investors and outside companies to acquire additional capital.

"I don't think we're going to shut down (Wednesday)," he said. "We're going to restructure and work on a recapitalization plan."

Republic said late yesterday that it would assume responsibility for the continuation of jet service if the airline is not successful in efforts to recapitalize.

If Mokulele were to shut down, it would be the third local carrier serving Hawaii to cease service in less than a year following the abrupt closures of Aloha Airlines and ATA Airlines at the end of last March. Ironically, about half of Mokulele's just-under 200 employees are former Aloha employees.

Mokulele operates three 70-seat Embraer 170 jets between the islands under its capacity-purchase agreement with Republic Airways. The fourth and final Embraer jet that Mokulele was going to put into service was due to arrive next month, but that delivery date is now in limbo. Mokulele also operates seven nine-seat 208B Cessna Grand Caravans, with one of them being utilized as a dedicated freighter.

Republic, which reported yesterday a fourth-quarter profit of $19 million, took a $1.5 million impairment expense to account for money it estimated it would not be able to collect from Mokulele if Republic foreclosed on Mokulele's assets.

Still, Bedford said on the conference call that he's not writing off Mokulele.

"They do have a number of relationships that are coming online with both mainland and Pacific Asian carriers," Bedford said. "Those relationships - interline agreements, frequent flyer agreements and code-share agreements - should probably start producing revenue in the April time frame. But they've got a hurdle to get over. A lot of those distribution channels were anticipated to have been operating by the end of December. But they're probably running three months behind actually getting those channels functioning."

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