Aloha Airgroup to Continue Restructuring

3rd Jan 2005

In a continuing effort to restore the
company’s long-term financial health, Aloha Airgroup, Inc. and its
principal operating subsidiary, Aloha Airlines, Inc., announced today they
have filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. “It will be business as usual as we move forward to complete the
restructuring of our Company,” said David A. Banmiller, Aloha’s president
and chief executive officer. Banmiller went on to say Aloha hopes to
emerge from Chapter 11 as expeditiously as possible.

“Meanwhile, it is important for the traveling public to know that
reservations for future travel will continue to be taken, tickets will be
honored, and flights will continue to operate as scheduled.”

Banmiller said: “Despite actions already taken to cut unprofitable routes
and reduce senior management by 36 percent, Aloha must continue to pursue
cost-reduction initiatives necessary to offset higher fuel and operating
expenses in what has become a fiercely competitive market environment. If
Aloha is to effectively compete, we must align our aircraft lease rates to
market levels and match our expenses to those of competitors who have
already benefited from bankruptcy protection.

“The decision to file Chapter 11 was not easy for Aloha—a company with
a proud history etched by a conscientious desire to be a good corporate
citizen and deeply rooted in the communities we serve.”

Banmiller emphasized: “With our valued customers and loyal employees in
mind, Aloha is focused on successfully emerging to become a bigger,
stronger and more competitive player in the industry, so that we can
continue to optimize our route network and provide our high-quality
service at affordable fares to travelers in the cities we serve in Hawaii
and North America.”


Chapter 11 of the U.S. Bankruptcy Code enables companies to reorganize
under court supervision while they continue to operate and meet their
customers’ needs. Aloha’s restructuring efforts will be led by Banmiller,
a veteran airline executive with an accomplished background specializing
in airline financings and turnaround ventures for “financially-challenged”
companies. Banmiller has a proven record of successfully taking other
airline companies such as Sun Country Airlines and Pan Am through Chapter
11 reorganization. In addition, Banmiller has retained Giuliani Capital
Advisors to assist Aloha in exploring all strategic alternatives to
maximize value through the Chapter 11 process.

This is the first time in Aloha’s 58-year history that the privately held
Honolulu-based company has sought bankruptcy protection. Another
Hawaii-based carrier, publicly held Hawaiian Airlines, came under Chapter
11 in 1993 and again in March 2003.

Since the attacks of September 11, 2001, the nation’s airlines have faced
what has been described as “the perfect storm” of financial hardships. A
general economic slowdown and a skittish world travel market stiffened
competition, which brought air fares down and reduced revenue at a time
when the price of fuel, insurance and other fixed costs were skyrocketing.
In Hawaii, the prolonged slump in visitor arrivals from Asia and the
increase in Mainland flights going direct to the Neighbor Islands had a
compounding economic impact on Aloha, the state’s largest provider of
inter-island air services.

In 2002, when a merger attempt was called off between Aloha and Hawaiian
airlines, and private capital was unavailable, Aloha Airlines sought and
received a loan guarantee from the federal Air Transportation
Stabilization Board in 2002. The federally backed $45 million loan program
enabled Aloha to upgrade systems and pursue expansion plans. To date,
Aloha has repaid approximately half of the loan.

Rapidly mounting fuel and other operational costs sapped the company’s
financial strength in 2004. In spite of an 8 percent increase in
enplanements in the airline’s transpacific service, Aloha was unable to
post a profit in the third quarter of 2004 due to higher fuel cost and
lower ticket prices. Through November 2004, Aloha has paid $24 million
more in fuel than over the same period in 2003 representing a 48% increase
in fuel expenses year-over- year.

In announcing the airline’s restructuring, Banmiller emphasized that: *
Aloha’s top priority will be to provide travelers with safe and
consistently reliable and high-quality service. * Aloha’s inter-island and
transpacific flights will continue to operate according to schedule. * All
Aloha tickets and coupons will be honored. Reservations, ticketing and
refunds will continue as normal. * AlohaPass members will still be able to
earn and redeem mileage and Aloha will continue to offer frequent flyers
the option of earning United Mileage Plus miles on Aloha flights. *
Transactions made with the Aloha AirAwards Card will continue to earn
bonus miles. * Vendors will be paid in the ordinary course for goods and
services provided after the filing date. * Aloha will continue to operate
its air-cargo freight service. * Aloha will continue to provide contracted
services to those airlines with signed agreements. * Code-sharing
agreements with partner airlines will not be affected by the filing.

Founded in 1946, the privately held, Honolulu-based Aloha is a leading
provider of aviation services in the State of Hawaii. Aloha offers
approximately 620 interisland flights per week between Honolulu, Kahului,
Kona, Hilo and Lihue. In February 2000, Aloha inaugurated transpacific
service from Hawaii to Oakland, California. Today the airline operates 140
transpacific flights a week between Hawaii and Oakland, Burbank, Orange
County, San Diego and Sacramento, California; 42 weekly flights between
California and Nevada; and daily service between Vancouver, Canada, and

Aloha provides Hawaii with critical airlift for passengers flying between
the five major airports throughout the Islands and carries 85 percent of
the state’s inter-island air freight business. Aloha is also the largest
provider of contract aviation services for more than 20 domestic and
international air carriers serving Hawaii.

Aloha is among Hawaii’s top employers with a workforce of over 3,600 and
an annual payroll of $113 million. Aloha’s fleet consists of 13 Next
Generation Boeing 737-700s, 10 B737-200s, three dedicated B737-200
freighters and one B737-200 QC.


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