Yucaipa may have won the bid for Aloha’s name, but the deal allowing Mesa to rebrand its island operation, go!, as Aloha, the name of the airline that it helped to put out of business was a bit too twisted for the bankruptcy judge who rejected its use by Mesa citing the “lack of sensitivity” of the two companies. The action temporarily blocks the use until a February 19 hearing on the licensing agreement cut between Yucaipa, Aloha’s largest stakeholder, and Mesa to settle the lawsuit filed by Aloha against the regional carrier. The judge, citing the impact of Aloha’s demise on its employees, wants to give possible opponents time to react. The ruling, however, does not impact the settlement from which the use of Aloha’s name arose.
The licensing agreement for Mesa’s use of the Aloha name for a 10-year term is in exchange for the for Mesa’s payment of royalties to Yucaipa – a set percentage of the pre-tax operating profits from Mesa's operations in the Hawaiian inter-island market. Specifically, for each year during the term, Mesa will pay Yucaipa one percent of the passenger ticket revenue generated from all Hawaiian inter-island flight operations, subject to a minimum annual revenue payment of $600,000. It will also pay Yucaipa 30 percent of the pre-tax operating profits from Mesa's operations in the Hawaiian inter-island market less the revenue payments. The deal was an attempt by Yucaipa to recoup the $13 million it is owed by Aloha which also owes $100 million to other creditors.
Yucaipa won the right to the names Aloha and Aloha Airlines during last week’s asset auction with a winning bid of $750,000. It outbid Hawaiian for the Aloha name and was expected to receive court approval clearing the way for Mesa Air Group’s go! to rebrand itself with the legendary moniker. Hawaiian’s bid was only $575,000 besting the required overbid to Yucaipa’s initiating bid by only $50,000. Yucaipa’s lead role resulted from Aloha’s sale of its lawsuit against Mesa in a court approved deal last June in exchange for a $10 million credit bid reducing Aloha’s debt to Yucaipa.
In what Hawaiians will likely call a twisted settlement, Aloha’s majority stockholder planned to allow the company that drove several nails into the coffin of the venerable carrier to use its name. The November 28 deal was forged to settle the pending lawsuit against Mesa for using proprietary information gained in an investment scheme to launch Aloha’s competitor go!. Mesa earlier lost a similar suit to Hawaiian Airlines, costing it $52 million. Related Story
The deal also calls for six space-available, round-trip interisland passes annually each for Aloha’s 3,500 employees. In addition, Mesa will pay $2 million and 2.7 million Mesa Air Group shares to Yucaipa, giving it 10 percent of Mesa’s outstanding stock. Mesa admitted no wrongdoing.
The deal includes a provision that if Mesa ceases inter-island service or breach the settlement agreement, it has the right to terminate the licensing and profit sharing arrangement. In that case, Mesa will provide Yucaipa with a $5 million promissory note payable over five years, at LIBOR +350 basis points interest, reset quarterly. If, at the end of the first five years of the term, the note has not become payable as a result of Mesa's cessation of operations or breach, the principal owing on the note will decrease automatically on a straight-line basis over the remaining five years of the term. If Mesa ceases operations in Hawaii or breaches during the final five years, the amount payable would be the principal remaining at the time of its cessation or breach. The note will be secured by a first priority lien on certain Mesa assets with a fair market value equal to 125 percent of the principal amount of the note.
"We are extremely pleased to resolve all claims put forward in this litigation and look forward to re-branding service under the Aloha name in the near future," said Mesa Chair and Chief Executive Officer Jonathan Ornstein, before the judge’s ruling. "This settlement resolves all claims by Aloha Airlines related to Mesa's entry into the Hawaiian inter-island market and permits us to focus solely on our core competency of providing the best service, convenient schedules and low-fare pricing to our customers. We intend to carry on Aloha's proud tradition, maintain Mesa's status as Hawaii's low cost air carrier and look forward to future growth opportunities made possible by this settlement."