SOURCE: Honolulu Star-Bulletin http://starbulletin.com/2004/05/08/news/index3.html Hawaiian draws eye of airline in Arizona Mesa Air is part of a group interested in joining the firm?s reorganization effort By Dave Segal dsegal@xxxxxxxxxxxxxxxx Phoenix-based Mesa Air Group Inc., which operates 120 regional jets and 50 turbo props, has expressed an interest in investing in Hawaiian Airlines. The company is one of 13 parties that is interested in teaming up with Hawaiian Airlines trustee Joshua Gotbaum and the unsecured creditors' committee on a reorganization plan, according to sources familiar with the situation. Mesa is partnering with venture capitalists and is the only airline in the group of interested bidders, sources said. Gotbaum and the committee have been conducting a small auction of interested parties. If one of them is acceptable, Gotbaum and the committee would then collaborate to file a plan by the June 14 deadline set by U.S. Bankruptcy Court. Mesa, which operates under code-share agreements with United Airlines, US Airways, America West and Midwest Airlines, has been looking at options to replace possible lost business. One of its partners, US Airways, has been struggling since emerging from Chapter 11 bankruptcy last year and is seeking to cut operating expenses 40 percent. United, meanwhile, has been in bankruptcy for more than a year. Mesa, which has a history of investing in bankrupt companies, has been interested in the Hawaii market before. In the early 1990s it looked at investing in a now-defunct Hawaii carrier, Discovery Airways. Mesa also has a code-share agreement through its America West relationship with Hawaiian, which flies nonstop to Mesa's base in Phoenix. Besides the possible investment benefit, Mesa could capitalize on any synergies that might exist between combining operations. Mesa reported $230 million in cash and marketable securities on March 31 at the end of its fiscal 2004 second quarter. Mesa Chairman and Chief Executive Jonathan Ornstein, who has a reputation as a turnaround specialist, declined comment yesterday. But in 1993, Ornstein was involved in Mesa investing $20 million in the America West bankruptcy. Mesa later sold its stock in the company for a $47 million profit. Ornstein, a former stockbroker, has had two stints with Mesa. He was there from 1988 to 1994 and rose as high as executive vice president. He then returned in 1998 as president and CEO. Ornstein's turnaround ventures included Continental Express. He also hooked up with British airline mogul Richard Branson in starting up Virgin Express in 1995. Airline analyst Robert Mann said Ornstein has a reputation of keeping a tight rein on expenses. "He's the low-cost producer among the regional airline segment," said Mann, president of R.W. Mann & Co. "He's the guy that produces regional airline capacity at the lowest unit costs. That's one of the methods he tries to maintain his lowest cost positioning." Among other parties submitting expressions of interest, sources say, are Vx Capital Partners, a San Francisco-based airline investment firm; Jefferies & Co., a New-York based investment banker; and Pegasus Capital, a Connecticut-based venture capital firm. Hawaiian Holdings Inc., parent company of Hawaiian Airlines, also has submitted an expression of interest in addition to having earlier filed its own preliminary reorganization plan. "We think we are the natural ally of the creditors' committee and the trustee," said GCW Consulting President Mo Garfinkle, a Hawaiian Holdings adviser and an industry analyst. "At the end of the day, they'll find it's in their best interest and in Hawaiian's to support our proposed plan. I think we will present the best plan for the creditors, and there's no reason for us not to make every effort to work together." There have been four reorganization plans filed in the 13-month old bankruptcy case. They came jointly from aircraft lessor Boeing Capital Corp. and turnaround firm Corporate Recovery Group; Hawaiian Holdings; Hawaiian Airlines pilot Robert Konop; and a joint plan by the Hawaiian Reorganization Committee, comprising some airline employees and small creditors, and the Hawaiian Investment Partners Group LLC, which is made up of investors and venture capitalists.