Related Party and Similar Transactions

12 Months Ended

Dec. 31, 2012

Related Party and Similar Transactions

Related Party and Similar Transactions

(15) Related Party and Similar Transactions

Island Air: Charles F. Willis, IV, our CEO and Chairman of our Board of Directors and the owner of approximately 31% of our common stock, was the sole owner of Island Air, a lessee of the Company since 2004. On February 26, 2013 the stock of Hawaii Island Air was sold to an unrelated third party.  While under common ownership, the independent members of our Board of Directors approved transactions between the Company and Island Air.

The Company and Island Air entered into a series of transactions over the past several years through which the Company provided equipment to Island Air in return for lease payments. The terms of the agreements have been amended from time to time with the Company accepting lower lease payments in some circumstances. 

As of December 31, 2012, Island Air leased from the Company one DeHaviland DHC-8-100 aircraft under an operating lease and two DeHaviland DHC-8-100 aircraft and one spare engine under a finance lease. As of December 31, 2012, Island Air owed $4.5 million and $0.65 million under the finance lease and note payable, respectively. The Company received lease payments and recorded revenue from Island Air totaling $0.6 million, $1.6 million and $0.4 million in the years ended December 31, 2012, 2011 and 2010. 

 In connection with the sale of its stock to an unrelated third party, on February 26, 2013, Island Air prepaid the note payable at a 45% discount of $0.4 million, conditioned on the other large creditors accepting similar reductions in the amounts due to them. The assets under lease to Island Air have a combined net book value of $4.0 million as of December 31, 2012. Future lease rent revenue from Island Air totaling $6.2 million under the finance and operating leases is expected to be recorded through December 2015.

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 twelve months ended December 31, 2012, sales of consigned parts were $18,100. 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%.  As a December 31, 2012, J.T. Power is current and the principal amount owing under the note is $1.2 million.

On 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 one engine with a book value of $23,000. During the twelve months ended December 31, 2012, sales of consigned parts were $52,600.

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 twelve months ended December 31, 2012 under this program.