Wednesday, June 18, 2008


FIGHTING ALL WHO ROB OR PLUNDER: One of the more bizarre stories of the week was the report that Aloha Air is “auctioning off” it’s lawsuit against go! airline as part of it’s bankruptcy proceedings.

How exactly this would work is up for grabs as the article in yesterday’s Honolulu Advertiser doesn’t get into those specifics. But it seems that there is a disconnect with the basic premise of lawsuits.

Normally in a civil lawsuit you have an aggrieved party suing whomever actually and personally, well, aggrieved them. As Judge Wopner taught us, they’re called the plaintiffs and defendants.

And it’s pretty well established that you can’t sue unless you are the one who lost something to someone else illegally. Joe can’t sue Sam after Irving slipped in Sam’s driveway. Irving has to do that.

The article says “(l)egal experts say that the sale of a company's legal claims, especially in a bankruptcy case, is not unusual. What is unusual is the size of the claims and the cost of litigating Aloha's lawsuit.”.

But that issue aside, the way the deal is going down if just plain baffling.

With a starting bid of $10 million being set for what could be, like Hawaiian’s original suit, a $173 million payout- or maybe more like the $80 million as the verdict called for or at least the $52.5 million Hawaiian got when it settled with go!- it sounds like a bargain.

But while Aloha's largest investor, a company named Yucaipa Cos. is being allowed to bid without securing the bid there is another potential bidder- go!’s parent company Mesa Air

Aloha’s suit is based on the same basic complaint as Hawaiian’s. And the payout could be more since they allegedly (for now) actually drove them out of business due to what were called unfair business practices in the Hawaiian case.

And if the verdict in the Hawaiian Air suit is any kind of indicator of success for Aloha’s suit then Mesa’s purchase of the lawsuit for as low as $11 million, would be rewarding them for their illegal actions to the tune of perhaps as much as $200 million when you add up the value lost in all the actual amounts that creditors and others are “out” over Aloha’s collapse and bankruptcy

Pretty good deal. go! gets to stay in business and have only one competitor- with whom they apparently are already colluding to increase process and split the market- and all they have to pay is the $52.5 million for the Hawaiian suit and another $11 million for the Aloha suit.

The only potential fly in the ointment we can see for Mesa then would be whether the bankruptcy judge could or would order Mesa to go ahead and follow though with the current October court date for the suit and pursue the action so as to satisfy the collection of the full value of the lawsuit and order some money to go to the outstanding creditors.

But that sounds pretty far fetched although what isn’t in this case.?

A winning bid by Mesa would apparently be a fait accompli. With the purported intentional preplanned ousting of Aloha- which is what the suit alleges- accomplished, go! can move into Aloha’s niche and the entire price for essentially obtaining Aloha Airlines- without its debts- would be $63.5 million.

Pretty good for a market that produced hundreds of millions in profits per company when there were only two competitors and, if fuel surcharges become common, could once again produce those earnings.

How high will Yucaipa Cos. go? The article reports that Aloha left town owing them more than $106 million according to the bankruptcy judge. So the question is where the diminishing return point is for both Yucaipa and Mesa.

We’ll leave that to their financial experts to figure out but we don’t expect Yucaipa to throw good money after bad, especially since a $200 or even $100 million judgment could put Mesa into bankruptcy and leave Yucaipa in line with the creditors there as well as at Aloha.

And with Mesa’s history showing them to be anything but conservative in the way they put their business at risk in return for huge profits who know how high they might go... maybe even higher than they can really prudently afford to, what with the word “prudent” and “Mesa” not often used in the same sentence.

Sweet- how do we get one of these deals. This may be the only chess game in history to be won after sacrificing the king.


Anonymous said...

Mesa buying the law suit is pretty much equal to an offer to settle. If Aloha's creditors just want $10 million without a fight, who's to stand in the way?

Andy Parx said...

Yes- it does amount to a $10 million “settlement”. My point is that it was “allegedly” illegal manipulation of the market- and the settlement of the Hawaiian claims would indicate a fair settlement with Aloha would be in the same monetary neighborhood if not higher- that allowed them to save tens of not hundreds of millions and it is certainly not legal to benefit from illegal activity.