Hawaii’s 2 Main Carriers Tell of Merger Agreement

Hawaiian Airlines Inc. and Aloha Airgroup Inc. agreed Wednesday to merge Hawaii’s two main carriers into a new company, Aloha Holdings Inc., with combined annual sales of about $1 billion.

The company would be 52% owned by Hawaiian Airlines’ shareholders and 28% owned by Aloha Airgroup shareholders, the companies said. The remaining 20% would be held by Greg Brenneman, the former president of Continental Airlines Inc., who helped arrange the deal and who will become chairman and chief executive of the new company.

Hawaiian, the larger of the two carriers, and closely held Aloha Airgroup, the parent of Aloha Airlines, said they sought the merger because a global economic slowdown and the Sept. 11 terrorist attacks damped demand for travel. If state and federal regulators approve the merger, the surviving carrier would control most of the flights among the state’s islands.

“I hate to use the word monopoly, but that’s pretty much what it would be, so there could be regulatory concerns,” said Lantz Stringham, an analyst with Red Chip Review.

Hawaii Gov. Ben Cayetano said the combination of Hawaiian and Aloha airlines probably would lead to higher fares and layoffs, but the state won’t oppose it.

The airlines however, said they agreed to freeze unrestricted inter-island fares for two years and to link them to inflation and other industrywide cost increases for three years after that.

Hawaiian Air historically has trailed only UAL Corp.’s United Airlines in flights between the U.S. mainland and Hawaii, Stringham said. Hawaiian Air put itself up for sale in May 2000.

Trading in Hawaiian Air shares was halted Wednesday. The shares closed Tuesday at $2.50 on the American Stock Exchange.