Aloha Airlines wants to break off and sell its profitable air cargo business as it looks to buy time and generate money needed to operate in coming months.

The air carrier has filed bankruptcy court papers showing it has lined up the Seattle-based owner of Young Brothers Ltd. as a potential buyer at $13 million for the division, but will hold an auction next month to see if other bidders emerge to boost the price.

Aloha has been scrambling to find a buyer for the entire airline or its divisions, given its mounting losses. The company filed for a Chapter 11 bankruptcy reorganization last week, saying it was down to $3.8 million of cash.

It blamed competition from go! airlines, which entered the market in 2006 with discount fares, and surging fuel prices for its impoverished state.

Since that time the airline has come up with a plan to find a possible buyer to set a floor for minimum bidding on its cargo division, which is the dominant air freight carrier in the state, carrying 85 percent of the non-mail air cargo between islands. Aloha uses six 737-200 freighters to fly produce, newspapers, perishable goods and other cargo among the islands.

The operation employs about 300 people and has generated more than $6 million in profit before interest, taxes, depreciation and amortization in recent years.

Court filings show Aloha signed an agreement on Monday with Saltchuk Resources Inc., owner of Young Brothers, Hawaiian Tug & Barge, and other Hawai'i businesses as a possible purchaser for the business.

Saltchuk agreed to bid at least $13 million for the air cargo business in an auction that's tentatively being set for April 14. Aloha bankruptcy attorney David Farmer said the airline hopes to attract other bidders for the auction. Proceeds from the sale can be used by Aloha for its continued operation provided its secured lenders agree to the use, Farmer said.

The sale marks a bit of good news for the No. 2 interisland carrier, which has lost more than $120 million during the past two years.

But while observers said money from the transaction would help Aloha, the company still faces the larger task of finding buyers for its interisland passenger, Mainland passenger and contract services.

Aloha has lost more than $5 million a month on average during the past two years. If the cargo unit is sold for $13 million and money goes to operations, the funding will most likely last several months.

"$13 million in itself is nothing," said Franco Mancassola, a former airline executive who started Discovery Airways here and Debonair Airways in Europe.

"It may be a temporary gulp of oxygen; every little (bit) helps."

But he said Aloha still has much value for the right buyer and investors who have a clear vision of what it takes to restructure the air carrier to make it more competitive in today's market.

He said Aloha needs to get rid of its older 737 aircraft that burn too much fuel, expand its Mainland flights, and possibly subcontract the interisland passenger operation to someone else.

"They have already great assets," he said, noting Aloha has a good group of well-trained employees and a good brand that's attracted loyal customers.

"My heart really goes out to the employees because you couldn't have asked any more from them."

The agreement with Saltchuk provides for another bidder to come in with a higher offer. If that were to occur, the bid would have to be at least $650,000 more than the $13 million and 5 percent of accounts receivables that the Seattle company has agreed to pay. A portion of that overbid would go to pay a $400,000 "break up" fee due Saltchuk for agreeing to act as a stalking horse in the auction.

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