Hawaiian carrier Mokulele Airlines has defaulted payments to Republic Airways Holdings, which could ultimately leave Republic more involved in the Hawaiian market than the operator originally planned.
The two companies reached a deal in October 2008 that entailed Indianapolis-based Republic supplying an $8 million line of credit to Mokulele as well as operating four Embraer E-170s on Hawaiian interisland flights under the Mokulele banner. Another aspect of the agreement included Republic having the right to acquire up to 45% of privately-owned Mokulele's common stock. The Hawaiian carrier also operates seven Cessna Grand Caravan 208Bs.
Today during an earnings call with analysts and investors Republic CEO Bryan Bedford said Mokulele has drawn the full line of credit, and has defaulted on payments of $300,000 covered by the air services agreement between the two companies.
Bedford says if the default is not cured by close of business on 18 February "we will assume control of our collateral".
That collateral includes all of Mokulele's unencumbered assets and a pledge of the equity holdings of the carrier's shareholders.
Mokulele and its majority shareholders are in the midst of negotiating terms of a possible recapitalization with outside investors, says Bedford. As part of that process Republic has reviewed the underlying security of its loan, and took an impairment charge of $1.5 million during the fourth quarter.
Bedford is remaining vague regarding Republic's potential plans for Mokulele should new investment fail to materialize.
"The product that's out there [Mokulelel] is really appreciated", says Bedford, who admits that currently it is one of the worst times to launch a leisure airline.
Currently 100% of Mokulele's distribution channels are in two forms -- a -800 number and a proprietary website, says Bedford. But the carrier has a number of relationships that "are coming online, both mainline and Asia Pacific carriers".
Those interline, frequent flyer and codeshare agreements should start producing revenue during the April timeframe, "but they've got a hurdle to get over", says Bedford. "A lot of those distribution channels were anticipated to have been operating by the end of December but they're probably running three months behindtherefore the revenue coming in has not been as robust as what they had in the plan and that's creating some liquidity pressure on them. I don't know how the investors will react".
While Bedford stresses Republic has made no firm decision regarding its future with Mokulele he does state: "If we have to we're going to become a lot more intimate with what it means to be a Hawaiian airline."
If Mokulele fails to successfully recapitalize Bedford says Republic plans to take a hard look to determine if the Hawaiian market is "business we want to be in or is it not. We just haven't decided".
Explaining the dynamic of Mokulele's current backers Bedford says there is substantial net worth behind the airline and they "have an obligation to put additional capital into the business".