Mesa, Republic Sign Joint Venture To ‘Rightsize’ Mokulele

 - October 14, 2009, 10:09 AM

Mesa Air Group will take a controlling stake in Republic Airways subsidiary Mokulele Airlines under the terms of a deal signed yesterday that will see three Republic/Shuttle America Embraer E170s exit the Mokulele fleet next month in favor of Bombardier CRJs flown by Mesa’s Hawaiian subsidiary, Go!. Under the terms of the contract, Mesa will take a 75-percent interest in the joint venture and Republic a 25-percent share. Current Mokulele shareholders must also fund $1.5 million to capitalize the joint venture, while Republic forgives Mokulele’s $3.1 million outstanding debt to Republic.

“During this period of economic stress within our industry, it is especially important to closely match capacity with demand, and this arrangement allows Mokulele to right-size the aircraft within its network,” said Bryan Bedford, chairman, president and CEO of Republic Airways Holdings. “Meanwhile, the agreement allows Republic Airways to reallocate its E170 aircraft within its branded airline operations, where they will be able to contribute to our network rebuilding efforts.”

Mesa, for its part, will see its Go! operation assume an unchallenged position behind Hawaiian Airlines as Hawaii’s second-largest carrier. Go! will serve all the routes now served by Mokulele partner Shuttle America and passengers will continue to book reservations on the Web sites maintained by both Go! and Mokulele. 

On March 19 Republic became half owner of Mokulele, which also flies four Cessna Caravans, when it converted into equity $3 million of an $8 million loan to the Hawaiian airline and invested another $3 million in cash. Republic demoted former Mokulele CEO Bill Boyer to head of sales and marketing and installed its own vice president for strategic alliances, Scott Durgin, as interim CEO. Republic then injected another $2.5 million into the partnership on May 1 and planned to send a fourth Embraer E170 to the islands in an effort to stage a more serious presence in the market.

All told, Republic had raised its stake in Mokulele to 89 percent by the time it took a controlling stakes in Midwest Airlines on July 30. Never able to gain the load factors that Mokulele needed to turn a profit, however, Republic over the summer began exploring alternatives to the 70-seat jets–airplanes it could use on the mainland to help fill capacity voids as it replaces Midwest Airlines’ Boeing 717s with E190s and embarks on its takeover of Frontier Airlines, control over which it won in a bankruptcy auction on August 13.