Court sustains National’s contracts with vendors

Grace Leong

Friday, Dec. 8, 2000 | 10:27 a.m.

National Airlines of Las Vegas, which filed for Chapter 11 bankruptcy protection Wednesday, won a court order to stop 111 airline carriers from suspending or terminating several inter-airline services National says are crucial to sustaining its operations and reorganization efforts.

In a lawsuit filed in U.S. Bankruptcy Court, National, which said it has 16 Boeing 757s and is scheduled shortly to add four additional aircraft, cited dramatic increases in fuel prices and delays in adding new aircraft to its fleet as primary reasons for its failure to generate sufficient revenue to service its current debt.

National said fuel costs for calender 2000 are estimated to exceed previous projections by $13.4 million. Since it began flying in 1999, the airline said its fuel costs have exceeded projections by $18 million.

The defendants also include two clearing houses, International Air Transport Association (IATA) and Airline Clearing House Inc.; National's primary fuel supplier, Mercury Air Group Inc.; and eight computer reservation systems vendors.

A Wednesday court order, in addition to preserving its fuel supply contract with Mercury Air, also requires the defendants to honor any tickets, passes and requests for exchange of tickets written for travel on National on or after Wednesday.

A hearing for the airline's motion for a preliminary injunction in the case is scheduled Dec. 15 in U.S. Bankruptcy court.

National said it had to take legal action to protect employee benefits and ensure flights and airport baggage handling operations nationwide weren't disrupted.

Concern over agents

The company expressed concerns that travel agents, whom it said are responsible for almost 60 percent of the airline's revenues, will be reluctant or refuse to book customers on National if its interline services with other carriers were disrupted.

Dik Shimizu, National's spokesman, said: "Every single agreement that exists will be renegotiated to some extent. We're now talking to the hundred or so airlines to come up with some kind of agreement."

"Without an interline agreement, a customer buying a ticket directly from a carrier would be issued a ticket only for those segments of the itinerary that involved that carrier, even though the optimal itinerary might require the use of a second carrier," the lawsuit said. "And since eight percent of all National tickets have itineraries involving more than one carrier, it would be a significant disadvantage for a carrier not to be part of the interline network."

The company said the order also maintains agreements in which a large number of carriers contract with each other for services and regularly settle their accounts through IATA and the Airline Clearing House.

'Revenue generator'

"The clearing house tracks and gathers all ticketing data. It is a revenue generator for the airline," Shimizu said. "National may collect or owe money to IATA depending on the (cash) amounts the airlines collected for the tickets they sold versus what the airlines are entitled to for the services they provided. We are concerned that other airlines may be hesitant to want to book on National after the bankruptcy filing."

National, which said it has agreements with 20 airline carriers to give its employees discounted air tickets and emergency travel tickets, said it needs to maintain such benefits to retain its workers.

The order also protects National's agreements with eight computer reservation services vendors. The company said it is concerned that vendors, which typically charge the airlines a booking fee for tickets sold and services including pre-reserved seating and frequent flyer identification, may try to cancel such contracts.