The number of interisland airlines is shrinking again, with an agreement announced yesterday between the parent companies of go! and Mokulele Airlines to consolidate the two carriers.

The combination of the two financially struggling carriers will happen tomorrow and result in one airline called go! Mokulele.

Passengers with tickets for either carrier will be served by the merged airline, which will consolidate routes and most facilities, including ticket counters, but maintain two Web sites — www.iflygo.com and www.mokulele.com.

It was unclear how many employees will be affected by the merger late yesterday. Mokulele employs about 180 people, while go! employs about 330. Neither airline provided a figure yesterday on how many jobs would be lost in the merger.

In large part, Mokulele — which had struggled financially despite investments that made Indianapolis-based Republic Airways Holdings the local carrier's majority owner — is being folded into go!

The deal leaves three major interisland airlines in business, led by dominant carrier Hawaiian Airlines and niche operator Island Air.

"During this period of economic stress within our industry, it is especially important to closely match capacity with demand, and this arrangement allows Mokulele to right-size the aircraft within its network," Bryan Bedford, Republic chairman and CEO, said in a statement.

Mokulele CEO Scott Durgin added in a statement that the combination "will ensure that the Hawai'i interisland market is served by a strong competitor offering continued low fares to the traveling public and in particular our loyal 'ohana."

The merger technically is structured as a joint venture, with Phoenix-based Mesa Air Group Inc., go!'s parent company, owning 75 percent of the new airline. Mokulele shareholders, including Republic, will hold a 25 percent stake.

Jonathan Ornstein, Mesa chairman and CEO, said the merged airlines will build upon go!'s position as a low-cost interisland carrier.

The merger follows the March 2008 shutdown of Aloha Airlines, which created some opportunity for go! and Mokulele to expand. However, Hawai'i's depressed tourism market has continued to present financial challenges for both go! and Mokulele.

Mokulele, established in 1998 on the Big Island, dramatically expanded last fall with an $8 million loan and use of up to four 70-seat Embraer 170 jets and crew from Republic to supplement Mokulele's fleet of nine-seat turboprop aircraft.

But earlier this year, Mokulele defaulted on the loan, and Republic increased its investment and ownership in the troubled local airline. Republic as of August had invested $20 million in Mokulele and owned 89 percent of the state's fourth-largest carrier.

Mesa, which launched go! in June 2006 and kicked off a fare war that contributed to Aloha going out of business, also has struggled financially. The company in August reported an operating loss of $3.5 million for go! during the three months ended June 30, down from an operating loss of $7.4 million in the year-earlier quarter.

For the first six months of this year, go!'s jets flew about 66 percent full, or about 2 percentage points better than the year-earlier period.

Under the joint venture, 84 daily departures of Mokulele will be consolidated with go!'s 50 daily departures. The number of daily departures for go! Mokulele was not available yesterday, but is expected to be somewhere between 50 and 84. The only route not flown by both airlines previously was Kona-Maui, according to go!

$3.1 MILLION IN DEBT

Service will be flown mostly on go!'s jets that will be rebranded with the go! Mokulele name, though three nine-seat Cessna Grand Caravan planes in Mokulele's fleet also will be incorporated into the new carrier.

Another part of the merger agreement calls for $3.1 million in Mokulele debt to be forgiven by Republic, which will take back its three Embraer jets in use by Mokulele. Also, Mokulele shareholders are obligated to invest up to $1.5 million in go! Mokulele.

Ornstein called the joint-venture a first among regional airlines, though there has been some consolidation among Hawai'i airlines before.

In 1987, the parent company of Aloha Airlines acquired Princeville Airways and renamed it Aloha Island Air. That airline later was renamed Island Air and was sold in 2003 to a San Francisco company.

One major merger that was announced but not consummated was a plan in 2001 to combine Hawaiian and Aloha, but the preliminary agreement fell apart after the two companies could not agree on details.