Republic Airways has taken a 50 percent ownership stake in Mokulele Airlines and replaced the CEO of the Kona-based company with a Republic executive who will lead the company while a search for a new top executive is conducted.

Under an agreement, Indianapolis-based Republic converted a substantial portion of an $8 million loan to Mokulele, along with investing additional equity, to receive a half-interest in the local carrier.

"We are very pleased we were able to successfully recapitalize our airline thanks to Republic Airways," said Bill Boyer, who is stepping down as head of Mokulele to lead the company's sales and marketing efforts.

Mokulele said Scott Durgin, Republic vice president for strategic alliances, will assume the interim president and CEO role during the executive search.

Bryan Bedford, CEO of Republic Airways, traveled to Honolulu to finalize details of the agreement.

"Republic's investment in Mokulele gives it greater financial strength and positions it to compete effectively and continue to grow its expanding base of loyal interisland customers," Bedford said.

The loan was part of a partnership Republic and Mokulele formed in October providing daily interisland jet service. Republic provided four Embraer 170 jets and crew under a wet-lease agreement. The planes are flown under the Mokulele brand.

Mokulele's subsequent financial problems led to the recapitalization of the company with Republic taking an ownership position.

Mokulele had fallen behind on its payments to Republic, and last month was on the verge of defaulting on the $8 million loan. Mokulele was able to temporarily stave off default on Feb. 18 when employees agreed to defer paychecks to help the company make its interest payments.

Mokulele Airlines began offering interisland jet service between Honolulu and Kona and Lihu'e in November and began service to Kahului in early February.

Mokulele was founded in 1998 as Mokulele Flight Service Inc. The airline owns a fleet of seven 208B Cessna Grand Caravans and operates 56 daily departures to seven airports across the state.