Just days before Island Air filed for bankruptcy protection, it was in a pitched battle with the owner of three of its five planes to prevent the turboprops from being repossessed.
Island Air was $4.4 million behind on lease payments to Dublin, Ireland-based Elix Assets 8 Ltd., owner of the three planes, when two Elix representatives showed up in Hawaii to take possession of the aircraft, Island Air said in a Tuesday filing in federal Bankruptcy Court.
Island Air said it had an agreement with Elix to delay payments and was surprised when the Elix men came to get the planes.
“Without any prior notice, Tom Dalton and Phillippe Poutissou are in Honolulu attempting to repossess the aircraft,” an Island Air attorney wrote in a letter to Elix last week. “Be advised that their actions constitute a breach of the peace and the appropriate authorities at Honolulu Airport and airports on the neighbor islands have been advised to not allow Dalton and Poutissou or any agent of lessors to access the aircraft. Any attempt to repossess or approach the aircraft is unlawful and will be deemed trespassing.”
Island Air, which filed for Chapter 11 reorganization on Monday, is scheduled to appear in court today at 9:30 a.m.
The company will ask Judge Robert Faris to allow the airline to continue paying wages and employee benefits as well as honor credit card processing agreements, passenger reservations and the airline’s travel programs, among other things.
Island Air has lost money for 17 straight quarters, including an $8.2 million loss in the second quarter of this year, up from a $5.1 million loss a year earlier.
The airline leased three Bombardier Q400 aircraft from Elix with deliveries in December, January and April. The planes were part of a new fleet of larger aircraft brought in amid the airline’s aggressive expansion strategy.
Dalton, Elix Aviation commercial director, referred questions Tuesday to his Dublin office, which did not immediately respond to an email.
Island Air said Monday it filed for reorganization to fend off action by the aircraft lessors that threatened to ground the aircraft and leave passengers stranded.
Honolulu attorney Ted Pettit, who is representing Island Air, said in a Thursday letter that the lessors’ attempt to seize funds in Island Air’s accounts are “unlawful” and that the “lessors engaged in unlawful conduct by attempting to repossess Island Air’s aircraft and interfere with Island Air’s business operations.”
Pettit said in the letter that the lessors and Island Air reached a deferral agreement to resolve the disputes under the lease agreement and that Island Air “continues to perform its obligations and efforts to resolve the disputes. There has been no material default by Island Air under the deferral agreement.”
But the London-based law firm of Milbank, Tweed, Hadley & McCloy LLP wrote in a letter to Pettit that Island Air has not satisfied the conditions of the deferral agreement and that the airline must pay the debt it owes immediately.
“After weeks of negotiations, Island Air was completely surprised by lessors’ recent, unexpected actions,” Island Air CEO David Uchiyama said in a filing.
In addition to the $4.4 million, the state’s second-largest carrier also owes an additional $204,000 that came due Thursday on the day the airline received a lease termination letter from Wells Fargo Bank Northwest, an aircraft trustee for Elix, according to the filing.
The bankruptcy filings on Tuesday made no mention of the two remaining Q-400s that are being leased by Island Air.
For the first time, billionaire Larry Ellison’s stake in Island Air also was disclosed in the filings. His company, Ohana Airline Holdings LLC, owns one-third of the airline, according to the Uchiyama declaration. The other two-thirds are equally owned by PaCap Aviation Finance LLC and Malama Investments LLC, two investment groups led by Honolulu venture capitalist Jeffrey Au. The investment groups bought a controlling interest in February 2016 from Ellison, who also owns 98 percent of the island of Lanai. Ellison is the seventh-richest person in the world with a net worth of $52.2 billion, according to Forbes Magazine.
Island Air, which began the switch to 78-seat Q400s in January, announced on Labor Day it had completed the makeover of its fleet after retiring the last of its 64-seat ATR-72 aircraft.
Since the ownership change last year, Island Air has increased its workforce to 453 from 256, restored service to Kauai and Kona, and had planned to begin service later this year to Hilo. The airline offers about 200 flights a week between Honolulu, Kona, Kahului and Lihue.
