Consolidation, Brenneman In Paradise

Hawaii's two airlines, Hawaiian Airlines and Aloha Airlines, moved yesterday to end 55 years of competition when they agreed to merge under the leadership of former Continental Airlines president Greg Brenneman.

Brenneman, who helped broker the exchange of stock deal, will become CEO and chairman, as well as owner of 20 percent of the stock of the new company, Aloha Holdings. Hawaiian's majority owner will receive 28 percent, Aloha Airgroup's limited number of shareholders will get 28 percent and Hawaii's public shareholders will get about 24 percent of Aloha Holdings stock.

As the first airline consolidation proposal since Sept. 11, and coming from a market that experienced a 30 percent drop in travelers in October, it could set a precedent for economic recovery to outweigh antitrust concerns. To sweeten the prospect of the Department of Justice and other federal and state regulatory and antitrust officials approving the deal during the first half of 2002, Aloha Holdings has committed to freezing inter-island fares for two years, and for the next three years to link fare hikes to inflation.

Aloha Holdings expects to save nearly $90 million from consolidating operations, eliminating excess aircraft and coordinating flight schedules, ticket distribution and other functions. It also expects to have $1 billion in annual revenue.

Even if Aloha Holdings is successful, however, it is unlikely to be a prelude to consolidation in the majors. American Airlines and AMR CEO Don Carty told BTN today that, "any carrier using liquidity for an acquisition would be making a very risky move. Not many airlines out there have that kind of liquidity: maybe American, maybe Delta, but that's about it. Acquisition targets may have liabilities that exceed assets. So, no, I don't expect much in the way of consolidation, unless its through bankruptcy proceedings."