I'd replace it with micarta, not original but will last forever. Micarta is the Best handle material for a knife, not the prettiest, but the best for a using knife, bar none. Replacing a handle is real simple and can be made much better than factory. Any one of the guys on here would probably help out with it. Hope that helps, give me a yell if I can help.
i had an old skinnin knife i got in a box at a pawn shop that had nothing left of the handle i assumed it was leather and used a hole saw and bench mounted belt sander and did it myself looked good after i finnished it but the odor of the leather on the sander was horrid
You could always do like the soldiers in WWII and make a Theatre Knife. Replace the leather circles with random pieces of plexiglas, plastic, brass, aluminium, etc. Just make them all a little bigger than needed, stack them on the handle, tighten the nut, and sand it to the shape you want. If you search ebay for theatre knife you can see examples. I doubt all those on ebay are original. Here is an example: http://www.baystatemilitaria.com/WWII/DSCN1239f.JPG
I have leather handle spacers and have done repairs on those knives before. The $64,000 question is if you can remove the buttcap to get the job done...sometimes you can and others it can border on impossible.
John's right, if you don't remove it, it will be difficult to replace the handle material. The butt is an easy fix and cap can be salvaged by losing just a little of the handle length if done carefully.
Plenty of alternate ways to make the repair. Leather stacking would be easy and back to original, but unless you get rid of the rats.......
No disrespect to John, just not a micarta fan. You can replace with just about anything you like if you have a preference. Most good quality woods will out last the owner even on a hard use knife.
The process of compiling, compressing, shaping and coloring the leather washers used to create the traditional KA-BAR knife handles is best left to the experts. Still, if you've got the proper machinery and would like to give it a shot, we do offer a handle kit which includes washers, spacers and a butt cap. Please contact KA-BAR Customer Service at 800-282-0130 to place an order.
If you want to duplicate the old USMC Ka-Bar look, they sell stacked leather washers at many knifemaking outlets, they shouldn't be very hard to find. The original pommels are just steel caps with a pin that goes in and locks the pommel in place, the washers need to be compressed somehow and the pommel installed for a proper fit. Once the washers are on you can tape off the guard and pommel, use a coarse sanding belt to shape the leather, and finish off with a wax, not oil.