Report Title:

Transportation; Interisland Airlines; Loan Guarantee Trust Fund



Allows DBEDT to guarantee up to 90% of the principal balance of a loan made by a private lending institution to a Hawaii air carrier; provided that the aggregate amount of the State's liability shall not exceed $          .  Repealed on 06/30/2018.  (HB509 SD2)



H.B. NO.



H.D. 2


S.D. 2














     SECTION 1.  The legislature finds that air transportation is uniquely important to the people of the State of Hawaii.  The construction of surface transportation systems linking the various islands of Hawaii on the comprehensive basis that prevails elsewhere in the United States is impractical.  Accordingly, the people of the State of Hawaii must rely extensively on air travel for their basic daily personal transportation needs and for the shipment of goods that are important to their daily lives.  Similarly, visitors to the State must often rely on local air travel services provided by Hawaii air carriers for transportation among the various islands.  This makes reliable air transportation among the islands of the State vital to the growth of the statewide tourism industry.  The recent inter-island air travel fare wars, the conduct of which is currently subject to litigation, has resulted in a dramatic and severe loss of revenues by inter-island airlines.  The legislature further finds that failure to provide relief to these critical transportation providers is likely to result in reduced inter-island travel opportunities and, consequently, to visitor decline on the neighbor islands.  This will have severe negative impacts on businesses statewide.  The loss of air transportation among our islands and from points of origin in Hawaii other than Honolulu to destination points on the mainland not covered by major airlines would result in a significant reduction in employment and the quality of life for the citizens of Hawaii.

     The legislature also finds that financial assistance for those hardest hit by this loss of revenues is not available through a loan from a federal or state agency.  Such financial assistance can best be provided through a loan guarantee by the State to assist Hawaii inter-island air carriers when other government resources are not available and a loan from a private lending institution can only be secured through the use of a guarantee from the State.  The legislature finds and declares that the issuance of loan guarantees under this Act is in the public interest and for the public health, safety, and general welfare of the State.

     The purpose of this Act is to assist Hawaii inter-island air carriers whose operations and revenues have been adversely affected by the recent inter-island travel fare wars by authorizing the department of business, economic development, and tourism, through its director, to guarantee loans from private lending institutions.

     SECTION 2.  Loans guaranteed by the department of business, economic development, and tourism.  (a)  The department of business, economic development, and tourism, through its director, may guarantee up to ninety per cent of the principal balance of a loan made by a private lending institution to a Hawaii air carrier providing the carriage of persons or property by air for compensation or hire between any two points, both of which are within the State of Hawaii; provided that at no time shall the aggregate amount of the State's liability, contingent or otherwise, on loans guaranteed by this Act exceed $         .

     (b)  The loan guarantee shall be for a term of not more than ten years.

     (c)  The department shall not approve a loan guarantee unless the Hawaii air carrier provides reasonable assurance that the loan can and will be repaid pursuant to its terms.

     (d)  Funds provided by the guaranteed loan may be used for working capital, except that a loan guarantee shall not be granted if the granting of the loan guarantee would directly or indirectly serve the following purposes:

     (1)  Satisfy debts arising prior to the effective date of the loan guarantee;

     (2)  Provide funds, directly or indirectly, for payment, distribution, or as a loan to owners, partners, or shareholders of the Hawaii air carrier; or

     (3)  Replenish funds heretofore used for any of the above purposes in anticipation of applying for a loan guarantee under this Act.

     (e)  The department may set additional terms and conditions on the granting of the loan guarantee.  When an application for a loan guarantee is approved by the department, the department shall issue to the private lending institution a guarantee for the percentage of the loan guaranteed.  The private lending institution shall collect all payments from the Hawaii air carrier and otherwise service the loan.

     (f)  The Hawaii air carrier shall:

     (1)  Expend the loan in accordance with the provisions of this Act;

     (2)  Keep the department informed of any and all changes in the security and other major changes in the Hawaii air carrier's operation; and

     (3)  Promptly provide any information and documents to the department upon request.

     (g)  During the term of the loan guarantee, the Hawaii air carrier shall submit to the department audited annual financial statements consisting of a balance sheet, income statement, and a statement of cash flows.  These reports shall be submitted no later than four months after the close of the Hawaii air carrier's fiscal year.  The department may require the Hawaii air carrier to file interim financial statements and reports as deemed necessary by the director.

     SECTION 3.  The provisions of this Act shall be performed to the extent permissible under the United States Constitution and federal law without causing a violation of the United States Constitution, federal grant agreements, federal law, or federal regulations.

     SECTION 4.  This Act shall take effect upon approval and shall be repealed on June 30, 2018.