Aloha Airlines is in discussions with several parties to sell the entire airline or parts of it.

Aloha, which filed for bankruptcy protection on Thursday, said yesterday its chief financial banker, California-based Yucaipa Co., cut off its funding, forcing it to seek new owners.

"We have been talking to parties who have expressed an interest," Aloha Chief Executive Officer David Banmiller said. "We're talking to a lot of people in the industry."

In addition to an investment in the entire airline, Aloha said it is in "substantive talks" to sell its interisland, trans-Pacific and cargo divisions.

Banmiller declined to identify the potential investors because of confidentiality agreements but said talks picked up recently in the wake of financial pressures brought on by the interisland fare war and rising fuel prices.

Aloha pilot Randall Cummings said many employees would prefer the airline be sold as a whole and not in pieces.

"It would be better for both consumers and employees if Aloha remained in the interisland market," Cummings said. "If we get out of the interisland business, airfares are going to skyrocket."

OBSTACLES TO SALE

Experts say any sale would face obstacles, given the turmoil in the airline industry and doubts about demand in the interisland market.

"It doesn't make any sense for any investor to get into the Hawai'i market," said Scott Hamilton, a Washington state-based aviation industry consultant.

Yesterday, U.S. Bankruptcy Judge Lloyd King approved a number of measures that will allow Aloha to operate without interruption while it reorganizes.

King authorized the company to continue taking reservations, pay employee wages and benefits, and honor frequent-flier memberships and credit-card arrangements.

"We are grateful to the bankruptcy court for enabling us to move ahead and continue all operations as usual while Aloha seeks additional investors and new opportunities," Banmiller said.

Aloha, the state's second largest airline, filed for Chapter 11 reorganization with assets of $215.9 million and liabilities of $284.9 million. Bankruptcy court filings show that Aloha lost more than $120 million during the past two years, including $81 million in 2007 and $41.2 million in 2006.

Thursday's bankruptcy filing is the company's second in a little more than three years.

During yesterday's hearing, Aloha said it is down to $3.8 million in cash and its expenses over the next 10 days would eat away about $2.3 million of that.

$71M MORE FOR FUEL

Aloha attorney Jordi Guso cited two factors that contributed to the decision to seek bankruptcy protection: the interisland fare war with discount carrier go! and soaring fuel prices.

With the price for a barrel of oil hitting a record $111 recently, Aloha said its annual fuel costs are set to increase by $71 million. When Aloha filed for bankruptcy for the first time in December 2004, the cost of a gallon of jet fuel was $1.80. Today, it's about $3.25, Guso said.

The attorney also blamed go! and its Phoenix-based parent, Mesa Air Group, for what he called "unlawful predatory pricing."

"The fare war triggered by Mesa's predatory pricing has been devastating," Guso said.

Jonathan Ornstein, Mesa's chief executive officer, would not comment yesterday.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.