Bankruptcy woes dispirit Hawaii

Bankruptcy courts have taken an even greater role in the course of the US airlineindustry as Aloha Airlines follows Hawaiian Airlines into Chapter 11 reorganisation.

The two main carriers of the Pacific island paradise join giants United Airlines and US Airways and discounter ATA Airlines in court protection from their debtors. The plight of the two Hawaiian carriers, once potential merger partners, is perhaps ironic, in that Hawaiian had achieved profits while in bankruptcy court, while Aloha accumulated deficits for nearly a year. Until rising fuel costs pushed it into the red in September 2004, Hawaiian had posted a streak of 17 monthly operating gains in a row.

Hawaiian declared bankruptcy in March 2003, following the collapse of a proposed merger with Aloha. That put Aloha at a competitive disadvantage, says the carrier's new chief executive Dave Banmiller. "Aloha expects to align its aircraft lease rates and match its expenses to those of competitors who have already benefited from bankruptcy protection," he says. Aloha's fleet consists of Boeing 737s, both classic and Next Generation models, while Hawaiian operates Boeing 717s and 767s. The carrier had already begun to make cost cuts before filing, with a decision to axe unprofitable routes and reduce senior management positions by a third.

Banmiller has vowed a rapid reorganisation, although he declines to specify a date for the exit. He is looking for $60 million in cost cuts for the year. Banmiller is a veteran of the reorganisation of Sun Country Airlines, one of the first US carriers to seek bankruptcy protection after the 11 September 2001 attacks. Hawaiian, which also went through a bankruptcy in 1993, may be able to exit reorganisation later this year, having won contract agreements with all of its labour unions except its pilots.

Their plight thus raises the question posted by the US bankruptcy dilemma: is court protection from creditors and debt relief a competitive advantage? Douglas Baird, a University of Chicago law professor and bankruptcy expert, insists that it is not and that carriers both in and out of reorganisation must develop business plans that ensure cash flow and survival.

Their plight also suggests that consolidation and merger may not be a palliative, since both carriers operate in a competitive environment that reflects the worst of many expensive-to-operate, short flights and intense long-haul competition from better known, bigger airlines in a low-yield, leisure-only market. Both carriers operate to the mainland as well as within the islands, while Hawaiian reaches Australasia.

Source: Companies, Airline Business research

DAVID FIELD WASHINGTON

Source: Airline Business