Interisland Dogfight Heading for Court

On Friday the 13^th of October, Aloha Airlines filed suit against Mesa Air Group (Nasdaq: MESA) claiming that its rival breached confidentiality agreements with the carrier. Mesa considered the purchase of Aloha during the Hawaii airline’s flight through bankruptcy court, and Aloha alleges that Mesa illegally used confidential knowledge of the carrier’s operation to compete unfairly. Aloha specifically names predatory pricing as a complaint. This lawsuit is similar to one filed by Hawaiian Airlines against Mesa Airlines for breach of a confidentiality agreement.

In early October, Bankruptcy Judge Robert Faris denied Hawaiian’s request for an injunction to ground go! Airlines in anticipation of a full trial set for April, 2007. Hawaiian needed to prove that “irreparable harm” would take place if go! was allowed to continue operations, and the judge felt that Hawaiian Airlines did not meet this test. Judge Faris’s ruling did not exonerate Mesa Air Group, however. In fact, Faris commented that Mesa “probably breached the confidentiality agreement”.

Not surprisingly, Mesa’s Chairman put his best spin on the news and called the ruling “a big win for the people of Hawaii and for low fares.” Such tactics by Jonathan Ornstein highlight the difficulties that may lay ahead for Mesa. Ornstein is a master at using the media to best advantage. He has been known to make statements that fly in the opposing direction to available evidence. A smile, a denial, and a positive spin have served his airline well so far in this battle. Such tactics don’t work in court, however. Several observers of the hearing in Judge Faris’s courtroom commented on how poorly Mesa’s defense faired when subjected to the evidence and arguments presented by Hawaiian’s attorney. Most likely, only the high standard of “irreparable harm” saved Mesa from defeat during the early October hearing. Such a standard will not need to be met in Hawaiian’s April 2007 trial or with Aloha’s trial.

So, what can we expect from the upcoming legal action? The evidence presented so far suggests that Mesa will be found guilty of at least some misconduct concerning the confidentiality agreements. Aloha and Hawaiian should have no trouble proving that the extremely low fares forced upon them by go! have resulted in millions of dollars in losses for their interisland markets. Aloha and Hawaiian will most likely seek monetary damages along with an interruption to Mesa’s interisland operations.

The game now is in settlements before the trials begin. The potential downside for Mesa is enormous: adding damages realized by Hawaiian and Aloha to its already expensive venture into the interisland market. Aloha’s lawsuit makes the whole bargaining process just that much tougher now that two plaintiffs would need to be satisfied. The stakes have been raised in this poker match and no one yet appears ready to fold. The next year should be interesting indeed.