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From the Honolulu Advertiser: Aloha’s air cargo unit is flying a full schedule today. All six of the company’s Boeing 737-200 cargo jets will fly today, after GMAC and Saltchuk Resources came to terms. It’s hard to believe that these 6 planes handled 85% of Hawaii’s air cargo, but it’s true.

Saltchuk, the owners of interisland barge company Young Brothers, will pay US$10.2 million, which is $3M less than the company’s offer of late last week.

Dane Field finally accepted his appointment as bankruptcy trustee, which helped break the impasse he helped create. He had refused to confirm his appointment on Monday, which led to the air cargo unit’s closure and a subsequent layoff.

Aloha cargo employees and pilots have reported back for work, but Saltchuk can hire or fire whoever the company pleases after the deal is finalized on 14 May 2008. Salaries and wages may be changes, which is a major blow for the Air Line Pilots Association (ALPA). The union wanted Aloha to use more expensive senior passenger-rated pilots.

Hawaii’s senior senator, Daniel Inouye (D), was credited with bringing the parties back to the negotiating table:

Douglas Lipke, GMAC’s attorney, said Inouye called GMAC’s president on Monday to urge the lender to reconsider its decision to cut off Aloha.

Inouye also called Saltchuk executives to stress the importance of a service that transported 85 percent of all goods flown between O’ahu and the Neighbor Islands, Saltchuk president Tim Engle said.

“He (Inouye) was the architect of bringing this back together,” Banmiller said.

According to this article in the Honolulu Star-Bulletin, 1300 jobs were saved. Two planes flew last night from Honolulu to Kona and Kauai, according to another Star-Bulletin article.

Contract services group sold

In a related story, Aloha’s contract services group was sold yesterday to Pacific Air Cargo of Los Angeles. US Bankruptcy Court Judge Lloyd King order the sale to close immediately, instead of Monay, 5 May 2008. PAC paid US$2.05 million for the 1100 employee unit. According to the Advertiser, “[t]he contract services division handles ticketing, baggage services, ramp duties and other ground services for United Airlines, Japan Air Lines and other carriers that serve Hawaii.”

I hope we have no more surprises coming at the airport. It’s been a weird week for tourists, hotels, groceries, restaurants and other businesses who were affected by Monday’s air cargo shutdown.

Related posts on billso.com

• 30 April 2008: Will Aloha Airlines’ contract services unit shut down?
• 29 April 2008: Aloha Airlines shuts down its air cargo unit
• 2 April 2008: Aloha cargo sale and neighbor island mail service in jeopardy
• 8 April 2008: Aloha cargo flights disrupted - is Hawaii’s economy next?
• 30 March 2008: Aloha Airlines shuts down

The Honolulu Star-Bulletin reported this morning that the last remaining business unit of bankrupt Aloha Airlines may shut down as early as today. I mentioned yesterday in this billso.com article that Aloha had shut down its air cargo business Monday.

If the contract services business does shut down, passenger flights on the following carriers may be suspended and thousands of passengers will might be stranded in the State of Hawaii:

• American Airlines
• US Airways
• Japan Airlines
• Air Canada
• Korean Air
• China Airlines

Aloha’s services unit provided gate agents, baggage services and ground personnel for these and other airlines. Outsourcing these functions to Aloha helped these airlines reduce or eliminate their payrolls in Hawaii

Pacific Air Cargo had made a bid to buy the contract services business, but the US Bankruptcy Court did not appoint a liquidation trustee yesterday to supervise the contract services business. Kany of the 950 contract services employees have decided to continue working without any guarantee that they might be paid. The deal is set to close next Monday, 5 May 2008, but PAC is trying to advance that date, and the Honolulu Advertiser reported today that PAC may try to start its own interisland air cargo business.

“I put the burden on all of our guys,” said Randy Kauhane, assistant general chairman of International Association of Machinists and Aerospace Workers, District Lodge 141. “I told our guys to continue to work for free if it means keeping the operation going until we can find out more details what’s going to happen. If we stop, it would interrupt the operations of the carriers that we service.”

Last night, Hawaii Governer Linda Lingle announced that she would not declare a state of emergency because of the Aloha cargo shutdown. I wonder what she will do if passengers are stranded? The Star-Bulletin published a blistering editorial this morning, taking Lingle and legislative leaders to task for their inaction during the last month.

Meanwhile, in another Star-Bulletin story, food services companies and Kauai businesses are asking the state to help restore Superferry service to that island. A small and vocal group of protesters helped stop the service in August 2007:

Jimmy Trujillo, one of the organizers of the anti-Superferry movement on Kauai, said the vessel still is not wanted.

“Aloha Air cargo is certainly a valued service. Perhaps Aloha Airlines should have been the beneficiary of a special legislative session,” Trujillo said.

“The military cargo Strykerferry isn’t the vehicle to carry depleted uranium and baked goods,” he added.

Trujillo was not available for further comment. Perhaps he has locked himself in the Iolani Palace with approximately 70 other sovereignty protesters who took over the grounds at 0530 this morning.

Got bread?

Yesterday’s shipment of Love’s bread and baked goods for Lihue is still in Los Angeles, because the contact shipper used United to fly items to Kauai. United Airlines has suspended its Kauai cargo shipments because the airline used Aloha’s cargo business for its Lihue ground services.

Love’s is shipping bread to Maui on the Superferry, according to this Star-Bulletin article.

From the Honolulu Advertiser and the Honolulu Star-Bulletin: Aloha Airlines shut down its air cargo unit yesterday. Aloha carried 85 percent of the state’s air cargo. I mentioned that this might happen in my billso.com articles of 2 April 2008 and 8 April 2008. Aloha’s passenger business shut down last month, as I discussed in this billso.com article on 30 March 2008.

Hawaii consumers will start felling the pinch shortly, especially on the neighbor islands. Love’s Bakery had to ship 22,000 pounds of bread and other products to Kauai and the island of Hawaii through Los Angeles. Perhaps their Maui shipments used the Superferry, which can handle cargo? Kauai residents who helped stop the Superferry last August may come to regret their decision in the next few days.

Other shippers were turned away at Aloha offices when they tried to drop off fruit and leis. That’s very bad news, as Lei Day is coming on 1 May, and neighbor island businesses planned to ship several thousand leis to Oahu for the event. One large florist had already made contingency plans to ship with United Airlines, but other businesses hadn’t thought ahead.

The value chain

Aloha’s cargo shutdown forces many time-sensitive shippers to find alternate means of supporting their value chain. Newspapers, auto parts and prescription drug shipments to the neighbor islands will also be affected. This Honolulu Advertiser article has more details.

The US Postal Service has made arrangements with Corporate Air to ship interisland mail, but there may be delays.

The Advertiser’s lead article describes how Saltchuk Resources, the Seattle-based holding company that owns Young Brothers/Hawaiian Tug & Barge had signed a letter of intent to purchase Aloha’s air cargo business for $13 million on 27 March. Another company, bid Jupiter Holdings Group bid $13.65 million.

Now the auction process may have to start again, and 400 Aloha employees have been laid off.

James Wagner, Jupiter’s attorney, said the company was prepared to go through with its purchase as recently as yesterday afternoon. But GMAC unexpectedly upped the price to $15 million and required a higher deposit, he said

Saltchuk, meanwhile, pulled its bid last week after Aloha and GMAC changed the terms of the bidding.

“This all has to do with other parties changing the deal without any warning,” Wagner said. “I’ve been in practice over 30 years and I’ve never seen a case end like this.

Related articles on billso.com

• 30 April 2008: Will Aloha Airlines’ contract services unit shut down?

As I mentioned on 2 April 2008, Aloha Airlines is still flying cargo flights in the state of Hawaii. It hasn’t been easy. Aloha flies 85% of the state’s air cargo, including postal mail, bread and other time-sensitive items. If Aloha stops flying, Hawaii’s economy will feel the effects within two days.

A report posted this evening on the newspaper’s web site says that GMAC has agreed to provide US$3 million in bridge financing while the Air Line Pilots Association and Aloha management are still negotiating.

UPDATE: here’s the full article from the Star-Bulletin’s 9 April 2008 print edition.

The main issue is which pilots will be retained when the cargo business is sold at auction on 24 April. Aloha management wants junior pilots, while ALPA favors the current collective bargaining agreement and senior pilots.

Cancellations and allegations

Meanwhile, Aloha canceled 7 of its 16 cargo flights today after pilots staged a sick-out. Mail and other time-sensitive cargo was shipped, but the situation will only get worse if the sick-outs continue.

An earlier report in the Tuesday print edition has more details. In the article, ALPA representatives claim that Aloha is blocking pilots from flying to Oahu for job fairs by confiscating their ID cards and turning off some information systems.

Senator Daniel Inouye (D-Hawaii) will hold a hearing of the US Senate Commerce, Science and Transportation Committee on Thursday, according to this Star-Bulletin report. Inouye chairs the committee, and he will examine the current state of the airline industry in Hawaii.

Aloha Airlines president David Banmiller and the state’s three other Congressional representatives have been invited to testify. Banmiller has become more vocal in recent days, as he provides more information about how state officials refused to assist Aloha Airlines during the last two years. This Pacific Business Story has more details.

No backup plan?

Meanwhile, USPS spokesman Duke Gonzales stated that there is no contingency plan for interisland mail service if Aloha stops flying. Aloha flies in all of the mail for the islands of Hawaii and Maui.

Hawaii residents have enough problems already, as Kilauea producing an increasing amount of vog. The Honolulu Advertiser reported this afternoon that Volcano National Park has been closed as air quality deteriorates.

Yesterday, the Hawaii Superferry started sailing between Honolulu and Kahului, Maui after a two-month repair cycle. See this Star-Bulletin story for more details. The Superferry can handle large delivery trucks and their cargo, but the company has been unable to maintain a reliable daily schedule since the service was launched in August 2007. The departure of ATA and Aloha Airlines gives the Superferry a fighting chance to hit breakeven, which is possible with about 400 passengers and 110 cars per voyage.

UPDATE: The Star-Bulletin ran a long article on the Superferry in the 9 April 2008 print edition, with a timeline and plenty of details.

Aloha’s cargo pilots may walk off the job. Their union, the Air Line Pilots Association (ALPA) wants Aloha Airlines to reassign senior pilots to cargo flights, while the airline wants to use the current cadre of 25 or 30 cargo pilots. ALPA claims its contract with Aloha requires the airline to consider the entire 250-pilot pool.

This conflict may ground the Aloha’s cargo flights, which are still operating while the bankruptcy judge prepares to auction off the business. A walkout or contract dispute may delay or destroy the planned sale of Aloha’s cargo business. The Seattle-based parent of Superferry opponent Young Brothers is the only confirmed bidder, with a US$13 million offer. See this article in today’s Honolulu Star-Bulletin for more details.

Check’s in the mail

Aloha Airlines flies the US mail flights to and from Maui and the big island of Hawaii. Aloha also delivers fresh bread and other perishable foods between the island, according to this Honolulu Advertiser article:

According to the latest available state statistics, in 2006 there was 47,000 tons of non-mail air cargo transported from Honolulu to the Neighbor Islands, and 22,000 tons from the Neighbor Islands to Honolulu.

Mail added another 16,500 tons to the Neighbor Islands and 2,200 tons to Honolulu.

State of shock

A long-term disruption in interisland shipping may trigger more layoffs at other companies, further weakening the state’s economy. As this article in the Star-Bulletin discusses, home prices have continued to drop on Oahu. Here’s a disturbing quote from today’s Advertiser article, and I hope it is not prophetic:

The economists doubt home prices will fall more than a few percentage points unless there’s a shock to the state economy that reverses job and income growth, creates a population exodus or boosts interest rates sharply.