Court allows Seattle firm to buy Aloha’s cargo division

Judge OKs sale of Aloha’s cargo division, saving 350 jobs

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Aloha Airlines received court approval yesterday to sell its last remaining business operation - its cargo division - to Seattle-based Saltchuk Resources Inc.

Federal Bankruptcy Judge Lloyd King approved the sale, which is due to close tomorrow. He also granted the request of Chapter 7 trustee Dane Field to reject all six of Aloha's collective-bargaining agreements.

The cargo sale marks a new beginning for Saltchuk subsidiary Aeko Kula Inc., which will be responsible for 85 percent of the state's air cargo shipments. The deal also saved about 350 jobs.

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The last major link to Aloha Airlines' 62-year legacy was severed yesterday when federal Bankruptcy Judge Lloyd King approved the sale of the company's cargo division to Seattle-based Saltchuk Resources Inc.

Aloha's sum of the parts Passenger operations: Shut down on March 31; 1,900 employees terminated Aviation contract services: Purchased by Pacific Air Cargo for $2.05 million on May 1; 950 employees hired. About 150 employees terminated earlier by Aloha when it lost its contract with ATA Airlines following ATA's shutdown on April 2. Cargo: Purchase by Saltchuk Resources Inc. for $10.5 million approved yesterday and expected to close tomorrow. New subsidiary Aeko Kula Inc. to hire about 350 employees, including 260 cargo and supply agents, 60 mechanics and 24 to 30 pilots.

King, dismissing strong objections from the Air Line Pilots Association, also ruled that Chapter 7 trustee Dane Field can reject all six of Aloha's collective-bargaining agreements, clearing the way for the $10.5 million sale to close tomorrow.

But in breaking with Aloha's past, the sale also saved about 350 jobs and brought about a new beginning for the cargo operation, which is to become Saltchuk subsidiary Aeko Kula Inc. It remains responsible for some 85 percent of the state's air cargo shipments.

"We got the sale done," Field said. "It's a great day for Hawaii. We saved the jobs. The cargo business is saved. Everybody has worked very hard for this moment."

Aloha's sale of its cargo unit completes a whirlwind two months in which the airline filed for Chapter 11 reorganization bankruptcy on March 20, shut down passenger operations on March 31, converted its bankruptcy to Chapter 7 liquidation on April 29 and sold its aviation contract services division to Los Angeles-based Pacific Air Cargo for $2.05 million on May 1.

ALPA attorney James Linsey, who opposed both the sale and the rejection of the pilots' union contract, argued that there was "gross mismanagement and collusion" in the selection of Saltchuk, which dropped out of the bidding when Aloha was in Chapter 11 but re-entered the process with a lower bid after Aloha converted its bankruptcy to Chapter 7. He also argued that the trustee should not be allowed to reject the ALPA labor agreement and that Saltchuk should be required to hire Aloha pilots in seniority order.

But King ruled that the trustee acted in the best interest of the estate in obtaining a sale agreement with Saltchuk, which re-entered the bidding at the urging of U.S. Sen. Daniel Inouye, and that the trustee demonstrated "reasonable business judgment" to reject the contracts, which otherwise would have automatically been rejected in 60 days due to the Chapter 7 conversion.

Field testified that rejecting the ALPA contract retroactive to May 2 -- the day he filed his motion -- would save the estate from having to spend money on continuing to train senior passenger pilots for cargo operations, as well as spare the estate from facing potential claims from terminated pilots who claim they are entitled to furlough pay and benefits.

"The union's issues were with seniority, and the buyer didn't want to recognize the seniority with the union," Field said. "The pilots union was about 10 percent of the (cargo) work force, so the tail shouldn't be wagging the dog on this thing."

ALPA attorneys and union officials declined to comment after the hearing.

Field also said that if there are valid claims in Aloha's lawsuit against go! parent Mesa Air Group, "there's absolutely no reason why I would drop those claims."

But, Field added, "any kind of litigation would have to be done on a contingency-fee basis. There's no money in the estate to fund that litigation."

Saltchuk Chairman Mark Tabbutt said he was happy with the outcome.

"We're very positive," he said. "We've worked really hard on this. We've mobilized probably over 30 people who have had to spend weeks out here and leave their families at home trying to get this thing through, and this is going to work out well."

If Saltchuk, the parent of interisland cargo shipper Young Bros. Ltd., is unable to obtain its operating certificates by tomorrow from the Federal Aviation Administration and the U.S. Department of Transportation, Aloha lender GMAC Commercial Finance said it will provide one more day of additional financing.

Michael Coffman, chief operating officer of Aeko Kula, said the company interviewed 140 Aloha pilots over the weekend and will hire between 24 and 30 from the original pool of more than 300.

"We do not intend to recognize the Aloha Airlines seniority because we're a new company, and as such we have to right to hire whomever we want based on their qualifications and experience," Coffman said.

Coffman said Aeko Kula already has reached agreements in principle with the International Association of Machinists and Aerospace Workers District 141 and 142. District 141 represents about 260 cargo agents and supply agents, and District 141 represents about 60 mechanics.

He left open the possibility of the new pilots group obtaining union representation.

"If they want to be represented, it's up to them," Coffman said. "They have to go through the steps required by the Railway Labor Act to have a collective-bargaining agent represent them."