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Island Air files for Chapter 7 liquidation - Honolulu, Hawaii news, sports & weather - KITV Channel 4

Island Air files for Chapter 7 liquidation

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HONOLULU -

Island Air shut down on Friday, putting 400 employees out of work after it failed to get an infusion of cash to keep it operating.

24-hour security is in place at the commuter terminal as well as Island Air's facility off lagoon drive where the planes are stored.

The recently leased planes sit grounded.

Wells Fargo Bank, the lessor, tried to seize the aircraft and claimed Island Air defaulted on its payments.

The airline denied that it had and told the court last week, hiccups with a new software system created problems,.

Judge Robert Faris had blocked the bank's move, but the company folded anyway, after it failed to convince potential funders to help with their cash flow problem.

Island Air's attorney said some $2 million had been frozen by credit card companies which added to its woes.

Documents filed in court show that the state transportation department is the largest unsecured creditor.

The airline worked out a deal for deferred rent. 

But the department of transportation says it was tied to moving the airline because it needs to demolish the commuter terminal to make improvements to the Mauka concourse.

"When we cut them, the six month deferral, it included payment with interest over 36 months so it included costs with interest to help with the move,” Tim Sakahara, DOT spokesman said. 

It's unclear how much, if any, that the state may collect but DOT said it may actually save money because it may no longer have to relocate the airline.

The bankruptcy hearing is set for 10:30 a.m. Wednesday.

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