Island Air files for bankruptcy

One of Island Air’s Bombardier Q-400 turboprops is seen in this picture from earlier this year. The parent company of Island Air announced Monday that it has filed for Chapter 11 bankruptcy protection over a dispute involving leases for its aircraft. Island Air photo

The parent company of interisland carrier Island Air has filed for Chapter 11 bankruptcy protection over a dispute involving leases for its aircraft, the airline announced Monday.

Hawaii Island Air Inc. said that the threats of legal action to ground aircraft and strand hundreds of passengers triggered the move. The filing prevents the threatened action and allows Island Air to fly, according to the airline’s news release.

During the reorganization process, Island Air, the state’s second largest interisland carrier, expects to fly its scheduled routes normally and to honor all previously purchased tickets and confirmed reservations. There will be no changes to the Island Miles frequent flier and other customer service programs, including Kupuna & Keiki Saver Fare, Island Biz corporate travel program and military and group travel programs.

On Thursday, while negotiating its aircraft leases with its lessors, Island Air said it was “very surprised” that the lessors served airline officials with notices of termination of the leases and demands to surrender airplanes.

The airline said it made the “difficult decision to file for bankruptcy protection” while continuing to operate under the protection of U.S. Bankruptcy Court. This action will allow Island Air to maintain its air service, provide continued employment to its more than 400 employees and ensure a revenue stream so vendors are paid, the news release said.

“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.”

In January, the airline announced that it was transitioning its ATR-72 aircraft to Bombardier Q-400 turboprops and announced in September that it had completed its transition. The fleet includes five new Q-400 aircraft with a sixth expected to be added at the end of the year, the airline has said.

The price tag for the six aircraft was $188 million, the January news release said. Elix Aviation Capital Ltd. was named as the leasing company for the 78-seat turboprops in that news release.

The airline logged a $10.8 million net income loss for the first two quarters of the year and an $8.2 million loss in the second quarter alone, according to U.S. Department of Transportation filings. This comes on the heels of a $17.1 million annual net income loss in 2016. The airline was required to begin reporting its financial data in 2013 due to its aircraft size.

“As with all companies experiencing a growth in demand, there is an adjustment period,” Island Air said in its news release.

In the first quarter of this year, Island Air flew 172,200 passengers, more than double the 75,102 over the same quarter in 2016, the airline said.

Southwest Airlines announced last week that it will be filing an application for service between Hawaii and the Mainland. Hawaii News Now reported that the low-cost airline is exploring entering the interisland market, which is dominated by Hawaiian Airlines.

In January 2016, Hawaii-based investment company PacifiCap acquired controlling interest in Island Air from Ohana Airline Holdings LLC, wholly owned by Oracle founder Larry Ellison. The current owners have been making investments in equipment, including new aircraft, and modernizing its information technology system to enhance online reservations and bookings and the interface with code share and interisland airline partners, the airline said.

Founded in 1980 as Princeville Airways, the company was renamed Island Air in 1992. Island Air currently offers about 200 flights weekly between Oahu, Maui, Kauai and Hawaii island.

* Lee Imada can be reached at