State lawmakers discussed yesterday a financial rescue for Aloha Airlines that could include loan guarantees, landing fee waivers and the elimination of the excise tax on jet fuel.

Aloha filed for bankruptcy protection last week for the second time in a little more than three years, and lawmakers are concerned about the economic fallout should the state's No. 2 carrier fail.

"You are talking about a company with 3,500 employees that has been a part of our community for decades," said state Sen. Rosalyn Baker, chairwoman of the Senate Ways and Means Committee. "If Aloha were to go under, it would have a huge ripple through our economy."

Baker, D-5th (W. Maui, S. Maui), is one of five Neighbor Island senators who have pledged to support Aloha during its bankruptcy reorganization. They include Sen. Kalani English, D-6th (E. Maui, Moloka'i, Lana'i); Sen. Russell Kokubun, D-2nd (S. Hilo, Puna, Ka'u); Sen. Gary Hooser, D-7th (Kaua'i, Ni'ihau); and Sen. Shan Tsutsui, D-4th (Kahului).

"Aloha carries a significant percentage of interisland travelers, and the other two carriers may not be equipped to make up for that lost capacity," Kokubun said. "Add to that Aloha's cargo operations, which carry fresh produce and perishables, and you can see where our Neighbor Island agriculture industries could suffer."

Aloha's bankruptcy filings show that the company has lost more than $120 million during the past two years as a result of soaring fuel prices and a costly interisland fare war. The airline said it is looking for a buyer for all or some of its operations and is trying to attract new funding.

Baker said a loan guarantee would help the company attract new financing. The state's backing in the form of a loan guarantee would send a message to lenders, potential investors and consumers that Aloha is an important company, Baker said.

She noted that the state has provided similar guarantees to high-tech companies, agriculture companies and firms that invest in solar energy. In 1993, the state Legislature approved a measure providing Hawaiian Airlines with $14 million in loan guarantees, although the company later decided not to use the guarantees.

"It's not unprecedented for us to try to assist businesses that are important to Hawai'i," Baker said.

Lawmakers also are considering a plan that would allow Aloha to waive or defer its payment of landing fees at the state's airports, Baker said. Aloha currently owes the state about $1.3 million in landing fees.

Baker noted that the state provided similar deferrals to airlines shortly after the 9/11 tragedy which sent air travel plunging.

A measure that was recently passed by the state House of Representatives calls for the elimination of general excise taxes on jet fuel. Fuel has become the airline industry's No. 1 cost driver as the price for a gallon of oil has soared recently to a record $111 a barrel. Aloha said the recent rise in the price of fuel will add about $71 million in costs.

The fuel tax generates about $3.5 million in state tax revenues each year. Eliminating the tax would provide a level playing field for all major carriers in Hawai'i, she said.

Founded in 1946, Aloha operates more than 700 interisland flights a week and more than 120 weekly flights to the West Coast. The company's bankruptcy papers said it has assets of $215.9 million and liabilities of $284.9 million.