Related Party and Similar Transactions

6 Months Ended

Jun. 30, 2012

Related Party and Similar Transactions

Related Party and Similar Transactions

9.  Related Party and Similar Transactions

Island Air:  Gavarnie Holding, LLC, a Delaware limited liability company owned by Charles F. Willis, IV, purchased the stock of Aloha Island Air, Inc., a Delaware Corporation, (“Island Air”) from Aloha AirGroup, Inc. on May 11, 2004. Charles F. Willis, IV is the CEO and Chairman of the Company’s Board of Directors and owns approximately 31% of our common stock. As of June 30, 2012, Island Air leases three DeHaviland DHC-8-100 aircraft and four spare engines from the Company. The aircraft and engines on lease to Island Air have a net book value of $2.7 million at June 30, 2012.

Effective January 2, 2011 the Company converted the operating leases with Island Air to a finance lease, with a principal amount of $7.0 million.  They made their payments through April 2012 and are past due for the months of May, June and July.  We have issued a demand for them to pay these rents and to become current. Revenue is recorded throughout the lease term as cash is received with $0.4 million recorded as lease rent revenue in the six-month period ended June 30, 2012.

Beginning in 2006 Island Air experienced cash flow difficulties, which affected their payments to the Company due to a fare war commenced by a competitor, their dependence on tourism which has suffered from the current economic environment as well as volatile fuel prices. The Board of Directors approved lease rent deferrals which were accounted for as a reduction in lease revenue in the applicable periods. Because of the question regarding collectability of amounts due under these leases, lease rent revenue for these leases have been recorded on a cash basis until such time as collectability becomes reasonably assured. After taking into account the deferred amounts, Island Air owed the Company $2.9 million in overdue rent and late charges.  Effective as of May 3, 2011 the Company entered into a Settlement Agreement with Island Air which was approved by the Board of Directors, which provides that the overdue rent and late charges will be settled by the Company forgiving 65% of the claim and Island Air paying the remaining 35% of the claim as follows: $0.1 million on signing and $1.0 million over 60 months at 5% interest. A note receivable in the amount of $1.0 million and offsetting reserve was established. As cash is collected on this note, revenue will be recorded, with $0.1 million received in the six months ended June 30, 2012. The Settlement Agreement was dependent on Island Air obtaining similar concessions from their other major creditors which have been obtained.

J.T. Power:  The Company entered into two Consignment Agreements dated January 22, 2008 and November 17, 2008, with J.T. Power, LLC (“J.T. Power”), an entity whose sole shareholder, Austin Willis, is the son of our Chief Executive Officer, and directly and indirectly, a shareholder and a Director of the Company. According to the terms of the Consignment Agreement, J.T. Power was responsible to market and sell parts from the teardown of four engines with a book value of $5.2 million. During the six months ended June 30, 2012, sales of consigned parts were $7,100. Under these agreements, J.T. Power provided a minimum guarantee of net consignment proceeds of $4.0 million as of February 22, 2012. Based on current consignment proceeds, J.T. Power was obligated to pay $1.3 million under the guarantee in February 2012. On March 7, 2012, this guarantee was restructured as follows - quarterly payments of $45,000 over five years at an interest rate of 6% with a balloon payment at the end of this five year term. The Agreement provides an option to skip one quarterly payment and apply it to the balloon payment at an interest rate of 12%. The initial quarterly payment of $45,000 was received for the period ended June 30, 2012.

On February 25, 2009 and July 31, 2009, the Company entered into Consignment Agreements with J.T. Power, without guaranties of consignment proceeds, in which they are responsible to market and sell parts from the teardown of two engines with a book value of $633,400. During the six months ended June 30, 2012, sales of consigned parts were $34,500.

On July 27, 2006, the Company entered into an Aircraft Engine Agency Agreement with J.T. Power, in which the Company will, on a non-exclusive basis, provides engine lease opportunities with respect to available spare engines at J.T. Power. J.T. Power will pay the Company a fee based on a percentage of the rent collected by J.T. Power for the duration of the lease including renewals thereof. The Company earned no revenue during the six months ended June 30, 2012 under this program.