Aloha Airlines shut down its passenger service and fired 1,900 workers after its chief lender, which is facing its own financial pressures due to the subprime meltdown, stopped funding the carrier.

GMAC Commercial Finance LLC loaned Aloha more than $44 million but was unwilling to take on more risk after the carrier lost $120 million during the heated, two-year interisland fare war.

"GMAC owns this company right now ... because they control all of the assets," said Aloha CEO David Banmiller, explaining the decision to close passenger service at a news conference last week. "They get to call the shots, folks."

With the turmoil in the credit markets, the supply of cheap financing has dried up. Lenders have become more conservative as the national economy has slowed and mortgage foreclosures have climbed.

"These lenders have taken it in the shorts," said Robert Mann, a Port Washington, N.Y.-based aviation industry consultant. "They're not willing lenders (to airlines) at this time.

"Even the best-run hedge funds and lenders are in a pinch now. The financing is not there now and ... lots of deals are falling through."

GMAC's decision to cut off Aloha came after the lender's sister company, GMAC Resident-ial Capital, lost more than $4 billion last year from defaults tied to subprime loans.

Subprime loans are typically home loans made to higher-risk borrowers often with adjustable mortgage rates. As rates adjusted higher and home prices dropped in the past year or so, many of these borrowers lost their homes to foreclosures.

In February, GMAC Financial Services, the parent of GMAC Commercial Finance and GMAC Residential Capital, laid off 1,000 people and shortly after that its debt securities were downgraded by Standard & Poor's to junk bond levels.

Kelly Rionda, a spokeswoman for GMAC Commercial in Southfield, Mich., declined comment for this story, saying the company does not discuss specific customers.

Aloha, the state's No. 2 carrier, abruptly shut down its passenger service on Monday after serving Hawai'i for more than six decades.

The closing, which came just 11 days after Aloha filed for bankruptcy for the second time in about three years, disrupted the travel plans of thousands of customers and put 1,900 people out of work, making it one of the largest mass layoffs the state has ever seen.

GMAC HAS FIRST DIBS

As its senior lender, GMAC has first claims on all assets owned by Aloha. Any use of the company money required GMAC's approval.

GMAC also has first dibs on the proceeds from the sale of Aloha's profitable units.

Aloha is trying to sell its 200-worker cargo division for $13 million or more. It also is trying to market its 1,050-worker contracts services division, which provides customer service, baggage service, ticket agents and ramp agents for United Airlines, Japan Airlines and other carriers that serve Hawai'i. Those two units were not affected by the close of Aloha's passenger service.

The sales of Aloha's profitable units will probably raise about half of the $44 million owed to GMAC.

The majority owner of GMAC, Cerberus Capital Management L.P., was involved in Aloha's first bankruptcy filed in 2004 and owns stakes in many of Hawai'i's top hotels.

Privately held Cerberus, with more than $26 billion under management, has a 65 percent stake in the Japan-based Kokusai Kogyo KK, which owns the Sheraton Waikiki, the Royal Hawaiian and the Sheraton Moana Surfrider hotels.

It also is a minority shareholder of Japan-based Seibu Holdings Inc., which owns the Hawaii Prince Hotel Waikiki, the Hapuna Beach Prince Hotel, the Maui Prince and the Mauna Kea Beach Hotel.

In 2005, Cerberus' commercial lending unit Ableco Finance LLC and Goldman Sachs Credit Partners LP loaned Aloha $65 million to finance the airline while it was going through its first Chapter 11 bankruptcy.

TENSE RELATIONSHIP

Often times, the relationship between lender and borrower was tense.

An Aloha attorney said Ableco regularly pressed the company to find a buyer and threatened to sell it off it in parts if an investor didn't come through.

Aloha emerged from bankruptcy protection in February 2006 under new ownership led by California billionaire Ron Burkle.

In a 2005 Bankruptcy Court filing, Jeffrey Kessler, Aloha's chief financial officer, described the daily pressure Ableco put on the airline.

"For several days, funds were withheld as the lenders made daily sweeps of cash revenues from (Aloha's) accounts while refusing to re-advance the monies so swept," Kessler said.

"The lenders began demanding, as a condition to each daily advance under the loan, a daily 'deal report' detailing the company's progress in obtaining a transaction sufficient to repay the loan."

Mann, the airline industry consultant, believes that the financial pressures on lenders have only increased since Aloha's first bankruptcy, making a bailout of the carrier even more difficult.