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The Honolulu Advertiser

Updated at 11:19 a.m., Tuesday, November 5, 2002

Aloha wins preliminary OK for loan guarantee

By Frank Cho
Advertiser Staff Writer

Aloha Airlines received conditional loan guarantees from the federal government today worth more than $40 million to the struggling airline.

The loan backing from the Air Transportation Stabilization Board, which was established last year by Congress after the Sept. 11 terrorist attacks, will cover 90 percent of loans being sought by the Honolulu-based airline.

If final approval is granted, the board would cover $40.5 million of the $45 million in financing Aloha is seeking.

Glenn Zander, Aloha’s president and chief executive officer, said today that he was pleased with the unanimous vote of the board.

“We will move expeditiously to finalize the loan and meet all conditions,” Zander said.

As part of the guarantee, the board has asked Aloha to make unspecified “structural and financial enhancements” acceptable to the board.

Aloha, a privately held company, has already asked all of its roughly 3,000 employees to take pay cuts to save $37 million during the next three years in its effort to get the federal loan guarantee.

It is also working with Hawaiian Airlines, under a recently granted antitrust exemption, to coordinate seat capacity on some routes in the interisland market.

In granting its conditional approval today, the board also said in its letter to Aloha that it may require control rights, anti-dilution protections and registration rights in connections with warrants.

The board also said in the letter that it may later withdraw its guarantee if any negative information not previously available surfaces.

The airline was hard-hit financially after Sept. 11 when airports around the country were closed for several days, and interisland travel has remained sluggish.

Aloha joins several other carriers to receive conditional loan approvals. Frontier Airlines also received a conditional loan approval today for $63 million of a $70 million credit facility the carrier is seeking. America West, the nation’s eighth largest airline, has received a $429 million loan guarantee.

The loan backing for Frontier and Aloha is significant in that some smaller, regional airlines had already been rejected by the federal board.

Las Vegas-based National Airlines’ request for a $50.5 million loan guarantee was rejected in August because it was deemed too risky. Spirit Airlines of Fort Lauderdale, Fla., was denied a $54 million guarantee. The board also rejected requests from Kansas City-based Vanguard Airlines and Frontier Flying Service Inc., an Alaska commuter airline. Vanguard shut down after the rejection.

United Airlines, the nation's second-largest airline, is still seeking a $1.8 billion guarantee.

Congress established the loan guarantee program to provide financial stability to airlines hurt by the Sept. 11 terrorist attacks.

Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.