Aloha Airlines Shutting Down Cargo Division

HONOLULU --

Aloha Airlines shut down its cargo division Monday because its primary lender decided not to provide further financing.

Aloha carries 85 percent of the state's interisland air cargo, including all mail to and from Maui and the Big Island.

Airline attorneys say GMAC Commercial Finance's decision to stop financing Monday came after two companies interested in buying the cargo division pulled out.

One of the two companies, Jupiter Holdings Group, said it bowed out when Aloha and GMAC increased the asking price to $15 million. Jupiter had been the highest bidder with an offer of $13.65 million.

Aloha's cargo division transported a wide variety of items, including all mail to and from Maui and the Big Island, as well as produce and fresh flowers.

Gov. Linda Lingle said she was in contact with the mayors of Maui, Kauai and the Big Island to see what they could do to ensure continued interisland air cargo service.

U.S. bankruptcy court will appoint a trustee to oversee the cargo division's liquidation.

"Because it was a grim possibility, it takes us all by surprise," U.S. Bankruptcy Court Judge Lloyd King said.

Aloha filed for bankruptcy last month and then shut down its unprofitable passenger service March 31 after it was unable to find a buyer. The passenger business had long suffered from rising fuel prices and stiff competition triggered by an interisland airfare war.

Aloha's cargo business was the one division that made a substantial profit.

King says the latest developments won't affect the sale of Aloha's contract services division to Pacific Air Cargo for $2.2 million.

That division, which takes care of baggage handling and other ground services in Hawaii for Japan Airlines, United Airlines and other carriers, was nominally profitable. It employs about 1,100 people.