Mokulele Airlines' Mainland partner said it could assume control of the local carrier after Mokulele defaulted on an $8 million loan.

But Indianapolis-based Republic Airways said it has no plans to shut down the state's fourth largest airline.

"We have a default situation with Mokulele," Republic CEO Bryan Bedford said during a conference call with investors today.

"But we're certainly not going to just shut it down and go sell the assets. I mean we'll certainly take a hard look."

Republic has provided daily interisland service under the Mokulele brand since November under a wet-lease agreement in which it provides the aircraft and crew to Mokulele.

The deal, which partially filled the void left by the March 31, 2008 shutdown of Aloha Airlines, called for Republic to provide at least three 70-seat Embraer 170 jets and an $8 million line of credit.

Bedford told investors that Mokulele had fully drawn the line of credit and is in default on about $300,000 of the loan.

If the default is not resolved by the end of business tomorrow, Bedford said Republic could take over the local carrier's unencumbered assets along with stock held by the company's majority shareholders, which was pledged as collateral.

Bill Boyer, Mokulele's CEO, said he is negotiating with Republic to restructure the loan. Boyer said he also is holding talks with its outside investors to bring in new capital.

Mokulele, based in Kailua, Kona on the Big Island, has been flying in the Islands since 1998. It currently operates 85 daily flights. It launched service last fall with 14 flights a day between Honolulu and Lihu'e, Kaua'i, and Kailua, Kona, using jets operated by Republic. On Feb. 1 it added jet service to Kahului.

Founded in 1973, Republic is a regional carrier with about 4,500 employees. It operates regional service on the Mainland for major carriers such as United, American and Continental airlines.