OST-2008-0158 - Aloha Airlines and Aeko Kula

Aloha Airlines, Inc. and Aeko Kula, Inc. d/b/a Aloha Air Cargo hereby request that the Department transfer AAl's Certificate of Public Convenience and Necessity (and certain other exemption authority) to AKI. This request is submitted as a result of the March 20, 2008 filing by AAI filed for protection under Chapter 11 of the Bankruptcy Code, and the subsequent efforts (described below) to find a buyer for the assets of AAI. Despite the recent conversion of the bankruptcy action from Chapter 11 to Chapter 7, the Bankruptcy Court on May 1, 2008 authorized AAI to continue its cargo operations in anticipation of a proposed sale of those operations to AKI. A formal hearing on the transaction is slated for May 12, with closing scheduled to occur as soon as possible after that date, but no later than May 14, 2008.

The viability of AKI depends on the timely approval of the requested certificate transfer. AKI requires the timely certificate transfer to continue the operations of AAI with minimal disruption to service. As noted above, approval of this certificate transfer will preserve over 200 jobs and ensure continued critical air cargo services in Hawaii. Hawaii is unique in that there are few (if any) substitutes for the critically important air cargo service that has been provided by AAI up to now, and local businesses throughout the islands are heavily reliant on the economic lifeline that these air services provide. Failure to authorize the transfer of the certificate on or before May 14, 2008, would have severe consequences, as the company's interim financing expires on that date. The failure to transfer the certificate to AKI, and provide the company with a fresh source of capital, will cause severe disruption of air cargo services in Hawaii, and a threat to the local economy.

Counsel: Holland & Knight, Anita Mosner, 202-419-2604, anita.mosner@hklaw.com for Aeko Kula / Squire Sanders, Edward Sauer, 202-626-6641, esauer@ssd.com for Aloha Airlines

OST-2008-0158 - Transfer of Certificate of Public Convenience and Necessity
OST-2008-0159 - Pendente Lite Exemption

On May 6, 2008, Aloha Airlines, Inc. and Aeko Kula, Inc. d/b/a Aloha Air Cargo filed a joint application in Docket OST-2008-0158 requesting that the Department transfer the interstate scheduled certificate
and other exemption authority held by Aloha to AKI pursuant to 49 U.S.C. § 41105 to enable AKI to close its purchase of Aloha's cargo-related assets and conduct intra-Hawaii cargo operations by May 14, the proposed closing date of the transaction. On that same date, the Joint Applicants filed an application in Docket OST-2008-0159 requesting that the Department grant them a pendente lite exemption from section 41105 in the event the Department is unable to act on their transfer application by May 14.

Concurrently, the Joint Applications filed a motion requesting that the Department shorten the answer period in this case to 12:00 p.m. on May 8, 2008,' to facilitate their request for expedited action in this matter and to enable the Joint Applicants to proceed with their commercial transaction.

On May 8, 2008, the Joint Applicants advised the Department that there were no objections to shortening the answer period or the underlying applications.

Under these circumstances, we have decided to grant the Joint Applicants' request for a shortened answer period in this case. Therefore, acting under authority assigned in 14 CFR 385.12, answers to the Joint Applicants request for a certificate transfer and a pendente lite exemption will now be due no later than 12:00 p.m. on May 9, 2008.

While the Department continues to believe that the public interest justifies a shortened answer period, in recognition of ALPA’s argument that that the time frame requested by the applicants is insufficient, we have decided to extend the period for answers by three additional days. Therefore, the Department now directs interested parties to file answers to the Joint Applicants’ request for a certificate transfer and a pendente lite exemption no later than 10:00 a.m. on May 12.

Air Line Pilots Association objects to the request of Aloha Airlines, Inc., and Aeko Kula, Inc., d/b/a Aloha Air Cargo to shorten the answer period to their certificate transfer and pendente lite exemption applications to 12:00 noon Eastern time May 8, 2008.

The application raises multiple difficult issues being addressed in Aloha's U.S. Bankruptcy Court proceeding (In re Aloha Airgroup Inc. Case No., 08-00337, U.S. Bankruptcy Court for the District of Hawaii). These issues include, but are not limited to, the calling back of Aloha pilots for its cargo operation out of seniority order in violation of Aloha's collective bargaining agreement with ALPA, and other violations of that agreement. In addition, ALPA requires further detail about the particular statements in the Applicants' papers that Aloha Air Cargo intends to employ certain Aloha pilots and aircraft to take an informed position on the merits. It is essential that all parties be given adequate time to review these facts, as well as the almost 60 pages of supporting documents, before responding to the pending applications.

OST-2008-0158 - Transfer of Certificate of Public Convenience and Necessity
OST-2008-0159 - Pendente Lite Exemption

The May 6 application for approval to transfer Aloha's certificate to Aeko Kula lists a number of individuals as key personnel for Aeko Kula. It is ALPA's understanding that, with the exception of Mr. Tim Engle and Mr. Mike Coffman -- Aeko Kula's president and chief executive officer, respectively -- at least as of May 10, the listed individuals were not holding and had not been offered by Aeko Kula the positions set forth in the application. (See Declaration of John Dean, ALPA Senior Contract Administrator, attached hereto.) If ALPA's understanding is correct - and it is based on statements from individuals who are listed as holding key personnel positions with Aeko Kula - it is plain that the Department can not at this juncture approve the transfer of Aloha's certificate to Aeko Kula

The need for expedition in this case is clear. As has been explained, the Aloha Airlines bankruptcy had been converted from Chapter 11 reorganization to a Chapter 7 liquidation at the time Saltchuk Resources, Inc. and AKI were able to reach tentative agreement with the Bankruptcy Trustee for the purchase of the cargo assets of AAI. Because AKI is committed to serving Hawaii's cargo needs in the future, the Bankruptcy Trustee sought and obtained approval from the Bankruptcy Court to keep AAI flying whilst AAI and AKI applied for DOT approval of the certificate transfer. The proceeding in the Bankruptcy Court is on a highly expedited schedule, given the fact that the Court has approved the continued operation of AAl's air cargo transportation only through May 14, at which time funding for the operation will be terminated. Indeed, the Court is to rule today on the proposal to transfer these assets.

ALPA's attempt to cast doubt on AKI's plan is entirely misguided. While AKI/Saltchuk has indeed begun employment discussions with certain employees of AAI, and concluded agreements with others, it is essential to note that AAI has been subject to the jurisdiction of the Bankruptcy Court. The Bankruptcy Court must authorize the asset purchase transaction before AKI can close on the purchase transaction and reach final employment agreements with the AAI staff. Following this process is especially essential, given that these personnel are currently overseeing and flying cargo missions for AAI. These key managers simply cannot leave the AAI payroll and go on the AKI payroll until such time as the necessary court approvals and regulatory approvals are received without causing a disruption of flight services. As soon as the Court indicates its approval of the transaction, AKI will be making formal offers of employment to all of the key employees indicated in the transfer application, and to others as well.

Counsel: Holland & Knight, Anita Mosner, 202-416-2604 for Aloha Air Cargo / Squire Sanders, Edward Sauer, 202-626-6641 for Aloha

Order 2008-5-17
OST-2008-0158 - Transfer of Certificate of Public Convenience and Necessity
OST-2008-0159 - Pendente Lite Exemption

By this order, we (1) find Aeko Kula, Inc. d/b/a Aloha Air Cargo fit, willing, and able to conduct interstate and foreign scheduled air transportation of property and mail; (2) transfer to AKI the scheduled cargo authority contained in the interstate scheduled persons, property, and mail certificate and in the exemption authority currently held by Aloha Airlines, Inc., subject to conditions; (3) cancel the passenger authority contained in the interstate certificate and exemption authority issued to Aloha; and (4) dismiss as moot the pendente lite exemption filed jointly by Aloha and AKI.

We have reviewed pleadings in this case, including the concerns raised by ALPA that none of AKI's management, with the exception of Messrs. Engle and Coffinan, are currently employed by or have been offered employment contracts with AM, and conclude that AM offering formal employment contracts to current Aloha employees before the Bankruptcy Court approved the sale of Aloha's cargo‑related assets to AKI would have been premature considering the sale order had yet to be signed. Moreover, AKI has assured the Department that such formal employment agreements will be entered into upon approval of the sale agreement and transfer of Aloha's assets to AKI by the Bankruptcy Court.

We find that approval of this transfer will have a positive effect on competition in the domestic airline industry and on the U.S. international trade market as the surviving company, with the financial support of Saltchuk, a private company with reported net profits of $83.4 million and $94.7 million in calendar years 2006 and 2007, respectively, is in a better position financially to continue the cargo operations previously provided by Aloha. In fact, absent the grant of a proposed transfer, the inter-Hawaii all-cargo air transportation currently provided by Aloha, which accounts for approximately 85 percent of the inter-island air cargo service in Hawaii, and the foreign cargo air transportation provided between Hawaii and Canada, would cease by May 14, 2008, the expiration of the company's interim financing. The transfer of Aloha's certificate and exemption authority, as described by this order, will prevent a disruption of air cargo services in Hawaii, which is critical to many local businesses and Hawaii's economy and will preserve competition in the Hawaii-Canada market and more than 200 local jobs.