Island Air files for Chapter 11 bankruptcy protection

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Island Air announced Monday it is filing for Chapter 11 bankruptcy protection.

The airline says the filing was caused by threats of legal action to ground the aircraft and strand hundreds of passengers.

Island Air says on Oct. 12, while in the process of negotiating its aircraft leases with its lessors, the airline was served with notices of termination of the leases and demands to surrender its airplanes.

We reached out to one of those lessors, and the company declined to comment.

Island Air says operating under the protection of the United States Bankruptcy Court will allow it to maintain its service to its customers, provide continued employment to its more than 400 valued employees, and ensure a revenue stream so its vendors are paid.

“Island Air will continue to hold our customers and employees, as well as our invaluable vendors, as our main priorities during this reorganization process,” said David Uchiyama, Island Air president and CEO. “Once we have completed the reorganization process, Island Air expects to emerge as a stronger airline with a solid financial structure that will allow us to continue to meet the demands of Hawaii’s dynamic interisland market, while positioning us for future growth and expansion.”

During the reorganization process, Island Air expects to fly its scheduled routes as normal and honor all previously purchased tickets and confirmed reservations.

In addition, there will be no changes to the Island Miles frequent flyer and other customer service programs, including Kupuna & Keiki Saver Fare, Island Biz corporate travel program, and military and group travel programs.

One day prior to the airline receiving notice, Southwest Airlines had announced its planned entry into Hawaii’s market.

Aviation expert Peter Forman says the timing raises some questions.

“Somebody’s got to take a look and see just what is going on here. Why there was a demand for their airplanes back the very day that Southwest announces they’re coming to Hawaii?” he said. “Island Air is by far the lowest-cost interisland carrier, so Island Air could cause Southwest a lot of trouble coming into the Hawaii market, so I think this is a very interesting development.”

Forman notes that there was a period when more than half of the U.S. airlines were in Chapter 11, and they kept flying.

He says Island Air needs “to keep carrying passengers and convincing people how good of a service they have. They have to continue doing that and not get distracted by what the lessors are trying to do.”

Island Air isn’t the first local airline to file for Chapter 11.

Amid financial trouble, both Hawaiian and Aloha airlines filed multiple times in the 1990s and early 2000s. Hawaiian came out stronger.

But Aloha couldn’t take the hit from competitor go’s rock-bottom fares and went out of business in 2008.

Founded in 1980 as Princeville Airways, the company was renamed Island Air in 1992 and has been serving the islands for 37 years.

Island Air currently offers approximately 200 flights each week between Oahu, Maui, Kauai, and Hawaii island, and employs more than 400 individuals throughout the state.

In January 2016, Hawaii-based investment company PacifiCap acquired controlling interest in Island Air from Ohana Airline Holdings, which is wholly owned by Oracle corporation founder Larry Ellison.

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