Interisland airline go!, whose low prices started a fare war, has lost a court ruling that might prompt it to leave Hawai'i, industry analysts said.

If go! leaves, interisland airfares will likely rise, the analysts predicted.

A judge yesterday ruled that go!'s parent, Mesa Air Group, must pay $80 million to Hawaiian Airlines for misusing confidential business information.

But U.S. Bankruptcy Judge Robert Faris rejected Hawaiian's request to bar go! from selling interisland tickets for one year.

Mesa said it will likely appeal the decision and said it remained committed to the Hawai'i market. But analysts said that if the ruling stands, it will likely affect whether go! continues to offer $19, $29 and $39 one-way fares, or operate at all in Hawai'i.

"This definitely hurts Mesa," said Nick Capuano, managing director and head of equity research at Los Angeles-based Imperial Capital LLC, whose firm follows Hawaiian.

"It's now less likely that they will slug it out in a money-losing market."

The $80 million judgment is more than double the $34 million that Mesa earned for all of 2006 and is equivalent to about $2.78 for each outstanding share of Mesa's stock.

Since the June 2006 launch of go!, Mesa's cash holdings have fallen from about $345 million to about $198 million, according to a recent filing with the Securities and Exchange Commission.

Local airline industry historian Peter Forman said he believes the ruling will likely hasten Mesa's exodus from Hawai'i.

"I would think that this puts more pressure on Mesa to look at finding a settlement with Hawaiian for an exit strategy," Forman said.

The judge said Mesa used proprietary information it obtained from Hawaiian Airlines to "gain a competitive advantage ... to enter the market for Hawai'i interisland air transportation services."

"In this case, the award of money damages adequately redresses the harm suffered by (Hawaiian Airlines) as a result of Mesa's breach of the confidentiality agreement," Faris wrote in a 14-page finding accompanying his ruling.

REACTIONS TO RULING

Mark Dunkerley, Hawaiian's president and CEO, welcomed the judge's decision.

"Today's ruling is a triumph for fair competition and ethics over dishonesty and illegal behavior," he said.

"Nobody benefits when a company like Mesa misuses confidential information to gain an unfair competitive advantage, then lies about it and destroys evidence."

Jonathan Ornstein, Mesa's chief executive officer, said the likelihood of an appeal "is very high."

Ornstein said his company remains "more committed" to the interisland market in light of yesterday's ruling.

But should Mesa decide to leave Hawai'i in the future, Faris' ruling could cost consumers "hundreds of millions of dollars," Ornstein said.

He said Faris "basically ruled that the actions of one person were enough to punish" Mesa, its 5,000 employees and Hawai'i's residents and visitors.

He was referring to Mesa Chief Financial Officer Peter Murnane, who downloaded thousands of pages of proprietary information about Hawaiian's business, then destroyed the records, saying he thought he was deleting pornography from his work computers.

Murnane has since been placed on a 90-day leave of absence by Mesa's board.

"We are extremely disappointed, and that judge has put the interest of Hawaiian above the interests of the people of Hawai'i," Ornstein said.

Hawaiian sued Phoenix-based Mesa last year for $173 million in damages, alleging that Mesa used confidential financial data from Hawaiian to set up go! airline.

POSSIBILITY OF APPEAL

The ruling came after yesterday's close of the stock market. Mesa's stock closed at $5.10 on the Nasdaq market yesterday, up 16 cents. Shares of Hawaiian rose 61 cents to $5 per share on the American Stock Exchange in after-hours trading yesterday.

Mesa has up to 10 days to appeal Faris' decision with the U.S. District Court or with the bankruptcy appellate panel of the 9th U.S. Circuit Court of Appeals in California.

Such an appeal would require Mesa to post a bond for the full $80 million, unless Faris were to grant Mesa a stay pending the outcome of such an appeal.

Besides Hawaiian's lawsuit, Aloha Airlines has filed an antitrust lawsuit in U.S District Court against Mesa, alleging that Mesa used confidential information to drive it out of business.

"Aloha believes it is important for all companies serving the people of Hawai'i to conduct their business affairs with the highest ethical and legal standards, and the court today found that Mesa did not meet that standard of conduct," said David Banmiller, Aloha's president and chief executive officer.

"Contrary to what Mesa has been saying, today the court confirmed what we have been saying all along, that Mesa's actions as a new entrant have been inconsistent with fair play."

In its February 2006 lawsuit, Hawaiian alleged that Mesa received more than 2,000 pages of confidential financial information when Mesa expressed an interest in acquiring Hawaiian in 2004 while Hawaiian was in bankruptcy.

Mesa, whose bid was rejected, was supposed to return the documents or destroy them but didn't, Hawaiian alleged. Hawaiian emerged from bankruptcy protection in June 2005 under the ownership of California-based Ranch Capital LLC.

Mesa previously has argued that losses suffered by Hawaiian after go!'s entry were largely self-inflicted because the local airline increased capacity in response to go!'s entry.

Mesa also has said that Hawaiian wants go! out of the market so it can increase fares.

Yesterday's ruling comes after two weeks of court hearings from Sept. 25 to Oct. 4.

A 'MISADVENTURE'

During a pretrial hearing, Faris found that Mesa kept confidential information it was supposed to return or destroy; Mesa misused information it kept, and that was a substantial factor in Mesa's decision to enter the Hawai'i market.

In his findings of facts and conclusion of law, Faris cited about a half dozen confidential documents that Mesa misappropriated to start go! They include: