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California and the West

L.A. Investors Make Deal to Control Aloha Airlines

The group's tentative $100-million agreement still must be approved by a bankruptcy judge.

September 24, 2005|James F. Peltz | Times Staff Writer

Two Los Angeles investors, billionaire Ron Burkle and former football star Willie Gault, are planning to take a flier on Hawaii.

They lead an investor group that has tentatively agreed to acquire control of Aloha Airgroup Inc., which owns Aloha Airlines, in a $100-million deal to help the small Honolulu-based carrier emerge from bankruptcy reorganization, Aloha said Friday.

The investors are betting that Aloha, at least, is poised to rebound from the financial crisis that has beset the U.S. airline industry over the last four years and left the carriers with billions of dollars in combined losses.

Privately held Aloha is one of several carriers big and small that are cruising through U.S. Bankruptcy Court; Delta Air Lines Inc. and Northwest Airlines Corp. filed for Chapter 11 this month. Aloha's main rival, Hawaiian Airlines Inc., just emerged from its own bankruptcy reorganization in June.

"We're really happy" with the agreement, Aloha Chief Executive David Banmiller said in a telephone interview. "Our balance sheet is going to be very strong."

Burkle declined to comment, and Gault couldn't be reached for comment. But for Burkle, whose net worth is estimated at $2.3 billion by Forbes magazine, the Aloha investment is a relatively small gamble that could pay off if the airline returns to profitability.

Through his private investment firm, Yucaipa Cos., Burkle, 52, made most of his fortune buying and selling supermarket chains such as Ralphs and Alpha Beta. Yucaipa this year bought major stakes in two struggling grocery chains, Pathmark Stores Inc. and Wild Oats Markets Inc. Since Burkle created the firm in 1986, Yucaipa has completed acquisitions valued at more than $30 billion.

Gault, 45, is a former track star who spent a decade as a wide receiver for the Chicago Bears and Los Angeles Raiders in the 1980s and early 1990s. He was a member of the Bear team that won the Super Bowl in 1986 and now is part of a Los Angeles investment firm called IBS Capital Holdings, Aloha said.

Aloha's 120 daily departures include service within the Hawaiian Islands and from Hawaii to Orange County, San Diego, Sacramento, Oakland, Las Vegas and Reno. It is the only airline with nonstop flights from Orange County to Hawaii, but it doesn't serve Los Angeles. It once served Burbank but discontinued those flights this year.

The airline's $450 million in annual revenue is about evenly split between transpacific flights and intra-island service. Aloha carries about 4.3 million passengers a year and about 85% of airfreight within the islands.

With 3,500 workers and 22 jetliners, Aloha filed for bankruptcy protection in December under the weight of heavy overhead, inefficient operations, a cash shortfall and poor marketing in the face of strong competition.

The Burkle-Gault investor group, which also includes the Ching and Ing families that have long owned Aloha, agreed in a letter of intent to provide fresh equity of $50 million and assume an additional $50 million of debt, the airline said.

As much as $30 million of the equity would be provided by Yucaipa, which would be the majority stockholder after Aloha emerges from bankruptcy, said Banmiller, a longtime airline manager who became Aloha's CEO in November and would keep the post after the transaction.

Aloha Aviation Investment Group, a private firm managed by Gault, and the Ching-Ing group each would contribute about $10 million of new equity and become minority owners, the airline said.

Banmiller said the airline had slashed its annual operating costs by about 13%, restructured its route system and improved its marketing effort. He also said that Aloha's pact with the investor group must be approved by a bankruptcy judge, but that the airline hoped to emerge from Chapter 11 in December.

Aloha was founded in 1946 as a charter carrier called Trans-Pacific Airlines and adopted the Aloha Airlines name in 1958.

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