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 Invest-ment 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.

"The state of Hawai'i needs at least two airlines to have more choices and prevent almost a monopoly," said Kristi-Lyn Ueoka, a paralegal from Wailuku, Maui, who flies on Aloha two or three times per month. "If they didn't have competition or somebody taking away their ridership, what would be the incentive for them to provide stellar customer service? I would be very disappointed if they weren't around anymore."

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.

Aloha will remain privately owned.

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."

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.