Hawaiian Air Moves to Keep Mesa Out

Hawaiian alleges Mesa misused corporate data before trying to launch its service in the 50th state.
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Months after it emerged from bankruptcy, Hawaiian Airlines woke up one morning to find low-cost commuter airline

Mesa Air Group

(MESA) - Get Report

planning to enter its intra-island markets.

Not surprisingly, that development didn't make Hawaiian happy.

This week, Hawaiian filed a lawsuit in U.S. Bankruptcy Court for Hawaii, asking that Mesa be restrained from operating in the state for two years and fined an undisclosed amount. The suit alleges that Mesa CEO Jon Ornstein misused confidential business information obtained as a potential acquirer of Hawaiian during its bankruptcy reorganization.

Hawaiian, the operating unit of

Hawaiian Holdings

(HA) - Get Report

, emerged from two years of Chapter 11 bankruptcy-court protection in June.

"If Mesa is allowed to enter Hawaii's inter-island market, having been provided with access to and improperly used and retained Hawaiian's proprietary information to study the market over the past two years, Hawaiian would incur substantial losses by virtue of reduced revenue, market share, goodwill and customer relationships," the lawsuit said.

Ornstein said in September that Mesa would begin service this spring with 50-seat CRJ200s, serving routes that Hawaiian also flies. Posted fares are all under $100 round trip, or about half of Hawaiian's fares. Fares were loaded into the computer last month.

"These guys clearly don't want the competition," Ornstein said. "They like the fact that they can overcharge people with impunity, and now Mesa has filed fares that are half of what theirs are. When they saw our fares in the computer, I imagine they went ballistic."

Ornstein said his decisions on entering Hawaii had nothing to do with any information made available during the bankruptcy, which were primarily copies of aircraft leases, labor contracts and ground leases.

However, Hawaiian attorney Bruce Bennett said the court closely monitored the reviews of the data provided online to parties that signed a confidentiality agreement. According to the lawsuit, Mesa representatives visited the electronic data room six times and downloaded more than 60 documents containing over 2,000 pages, including future projections relating to Hawaiian's business. "There is a thorough and complete trail," Bennett said.

According to the lawsuit, Ornstein said during a quarterly conference call with investors in January that "we do have thebenefit of looking at both Aloha and Hawaiian when theywere in bankruptcy (and) we feel pretty strongly that the inter-island business can be successful for a low-cost carrier."

Ornstein on Thursday defended Mesa's Hawaii plan. "We've been looking at this for years," he said. "Its not the first time we talked about buying a carrier in Hawaii. But that being said, the information we received had nothing to do with our decision to enter the market."

He said he would start service with three aircraft and quickly add three more. Because there is little market for the 50-seaters, which are increasingly being replaced by larger regional jets, Ornstein expects to lease at extremely favorable rates.

"We know we are up against established competitors," Ornstein said. "But we are a pretty strong company, we have $300 million in cash, and we look forward to the opportunity to provide a high level of service to the people of Hawaii at low fares."

Helane Becker, airline analyst for Benchmark Capital, called the lawsuit "ridiculous."

"It shows that Mesa probably has a good business plan for going into Hawaii, and Hawaiian is just scared," she said.

Aviation consultant Robert Mann of Port Washington, N.Y., said the history of Hawaiian aviation is replete with efforts by third parties to undercut the pricing of the established carriers, Hawaiian and Aloha Airlines, which is currently operating under bankruptcy court protection.

"This always occurs when the Hawaiian-Aloha axis decides to stop giving things away and raises local fares to nosebleed levels," Mann said.

But he added that "there is an appearance issue" involved in starting service after seeing bankruptcy court documents, even if there is no actual wrongdoing.

Mann noted that he himself had viewed documents as a consultant for the Hawaiian trustee during the bankruptcy case. Those particular documents included sensitive information such as fare distribution within markets, he said.

Later, he was asked if he could assist with due diligence in the Aloha case, but he was unsuccessful in getting a release from a court official.

"I understand," he said. "It didn't look good. Even if the Chinese wall was a mile high and a mile wide, you'd still have an appearance issue."

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