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The Honolulu Advertiser
Posted on: Tuesday, December 24, 2002

Aloha gets federally backed $45M loan

By Kelly Yamanouchi
Advertiser Staff Writer

Aloha Airlines received a $45 million loan yesterday backed by a $40.5 million federal guarantee to help the carrier recover from a drop in air travel since the Sept. 11 terrorist attacks.

As part of the loan guarantee from the Air Transportation Stabilization Board, Aloha tentatively agreed to issue warrants to the board allowing it to buy a 17.5 percent stake in the airline.

Aloha officials have said the federal loan guarantee, which received conditional approval last month, is a critical part of the airline's plans for future financial health.

"With the completion of this financing, Aloha will be able to move forward with its plans for the future, which include further increases of service to the U.S. Mainland and Pacific Islands as well as continuing to serve the people of Hawai'i in our traditional interisland transportation niche," Aloha President Glenn R. Zander said in a written statement.

Privately held Aloha took several steps in recent months to ensure it would be approved for the loan guarantee. With its conditional approval, the board asked Aloha to make structural and financial changes.

Aloha asked its roughly 3,000 employees to take pay cuts that will save $37 million over several years. Earlier this month, the airline's unions approved a 10 percent pay cut.

Aloha also has negotiated financial agreements with lenders, lessors and shareholders. The $45 million loan from Citibank was arranged by Salomon Smith Barney. Mercer Management Consulting acted as financial adviser.

Zander said the support of Hawai'i's congressional delegation, led by U.S. Sen. Daniel K. Inouye, was instrumental in demonstrating Aloha's role in the regional transportation system.

The Air Transportation Stabilization Board was established last year by Congress after the Sept. 11 attacks to oversee a $10 billion loan program. Aloha applied for the loan guarantee in June.

Like other U.S. airlines, Aloha has struggled since Sept. 11, 2001, which precipitated three quarters of losses. It posted a $12 million loss in last year's fourth quarter, a $7.1 million net loss during the first quarter of this year and a $6.8 million loss in the second quarter before returning to profitability in the third quarter.

Aloha secured a federal antitrust exemption in September allowing it to coordinate some interisland routes with rival Hawaiian Airlines to make that part of its business more financially viable.

Since its inception, the Air Transportation Stabilization Board has both approved and turned down loan guarantees.

United Airlines was denied a $1.8 billion loan guarantee this month, forcing it to file for bankruptcy protection.

The board on Friday conditionally approved a federal loan guarantee of $148.5 million on a $150 million loan package for Evergreen International Airlines, but turned down a request by Great Plains Airlines to guarantee $17 million of a $25 million loan package.

Reach Kelly Yamanouchi at 535-2470 or at kyamanouchi@honoluluadvertiser.com.