The former owner of Aloha Airlines will see its stake in Mesa Air Group shrink as Mesa issues new stock to pay off bondholders.

Last month, Mesa, the Phoenix-based parent of go! airline, settled a lawsuit by Yucaipa Co. by offering Yucaipa 2.7 million shares of Mesa stock and $2 million in cash.

The lawsuit originally was filed by Aloha Airlines against Mesa in 2006, alleging Mesa used confidential business information about Aloha to launch interisland carrier go!. Yucaipa last year acquired the rights to the lawsuit.

In the settlement, Mesa also agreed to pay Yucaipa $6 million over 10 years to use the Aloha brand name for its interisland service. The settlement is subject to court approval.

Yucaipa's 2.7 million shares represent about 9 percent of Mesa's outstanding common stock. But that stake will be diluted after Mesa shareholders approved a plan to increase the number of authorized shares by up to 900 million shares of common stock.

Mesa will use the stock to repay $92 million in bonds, which are coming due in the next two months. The company also is looking to renegotiate the terms of the bonds.

Shares of Mesa were unchanged at 16 cents on the Nasdaq market yesterday.

Jonathan Ornstein, Mesa's CEO, said the company is working closely with bondholders to "come up with a solution that satisfies all parties."

A Yucaipa spokesman did not return a call.

Aloha, once the state's second largest carrier, shut down on March 31 because of high fuel prices and a fare war initiated by the June 2006 launch of go!

Aloha had sued Mesa, alleging the company violated federal antitrust law in an effort to drive it out of business.

The settlement between Mesa and Yucaipa requires the approval of U.S. Bankruptcy Judge Lloyd King, who will hold a hearing on Feb. 19.

King previously criticized the licensing deal for Aloha's corporate name as insensitive to former Aloha workers, many of who blame go! and Mesa for Aloha's demise.