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Government Considers Closing Down Small Hawaiian Airline

June 28, 1990

WASHINGTON (AP) _ A Transportation Department official said Wednesday he is considering whether to close down Hawaii-based Discovery Airlines for allegedly operating under illegal foreign ownership and control.

The three-month-old carrier flies six leased planes on inter-island flights in competition with both Hawaiian and Aloha airlines, who claim Discovery is owned primarily by Japanese interests and run largely by an Italian.

Patrick Murphy, the deputy assistant secretary designated to decide the matter, said he would ″give considerable weight″ to the recommendation of an administrative law judge.

The judge, Ronnie A. Yoder, declared Tuesday that cancellation of Discovery’s temporary permit to operate ″would appear to be a more appropriate action″ than granting it a requested extension. Yoder said the airline and department lawyers imply in a proposed settlement that Discovery does not qualify as a U.S. airline. The judge also said the airline admitted to ″substantial prior misrepresentations″ in seeking authority to operate.

The judge said the fact that the proposed settlement includes sale of a share in the airline to qualify it as a U.S. airline is an admission that it ″has operated from its inception as a non-U.S. citizen air carrier in violation of the Federal Aviation Act and that its submissions to the department ... were false and constituted misrepresentation in violation of federal law.″

Such actions should not be rewarded with an extension of the airline’s operating permit, as proposed by the department’s lawyers, Yoder said.

The law requires that U.S. airlines have no more than 25 percent foreign ownership and that they not be controlled by foreigners

Discovery is 75 percent owned by Philip Ho, who other airlines claim got his funds from Nansay Corp. of Japan. Ho is president of Nansay’s operations in Hawaii.

The judge recommended against the proposed settlement of the issue by Discovery and department lawyers. The proposal would have allowed Ho to sell most of his stock in Discovery and had the airline pay a $50,000 fine for making misstatements.

The administrative law judge also cited evidence that Franco Mancassola, an Italian citizen, is effectively Discovery’s executive vice president, earning twice as much as its president.

″We are disappointed that the administrative law judge did not concur with the consent order,″ said Discovery President Don Straight. ″However, we are gratified that he saw fit to forward the consent order to the decision maker for an expedited review. We continue to be hopeful of a prompt and fair decision.″

Transportation Department lawyers said problems with Discovery’s application were not intentional and would not warrant criminal prosecution.

Hawaiian Airlines, however, said it would ask the Justice Department to investigate Discovery’s actions in starting up its passenger service.

Hawaiian, in business for 61 years, on Tuesday announced a $9.9 million suit against the new airline, claiming lost revenue because of Discovery’s allegedly fraudulent actions.

A. Maurice Myers, Aloha Airlines president, said the law judge ″has seen through the thinly veiled sham created by the Nansay Corporation and Discovery.″

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