National Air seeks loan of $45 million

Wednesday, Dec. 5, 2001 | 10:44 a.m.

National Airlines will seek a federally guaranteed loan of at least $45 million to pull the Las Vegas-based air carrier out of bankruptcy.

The loan proposal is one of the keys to reorganizing the finances of National, which has operated under Chapter 11 bankruptcy protection for nearly a year. Plans for the loan are detailed in a disclosure statement for the reorganization plan filed in U.S. Bankruptcy Court in Las Vegas Tuesday.

Creditors will vote on implementation of the plan through Dec. 27. Approval of the plan will require a majority of the number of creditors within a specific creditor group as well as a two-thirds majority of creditors by weighted dollar amount.

That prevents any one group of creditors from dictating the outcome.

A confirmation hearing is scheduled Dec. 28. Once the reorganization plan is confirmed -- and airline officials are confident they have enough backing from creditors -- the company would apply for the loan. The plan is expected to be effective by Feb. 28.

There are about 1,000 creditors in the National case, but some of the key players, like Harrah's Entertainment Inc., B.F. Goodrich Aerospace and Mercury Air Group, support the plan. A committee of unsecured creditors also supports it.

Harrah's, one of National's first investors, operates the Rio and Harrah's hotel-casinos in Las Vegas and has supplied letters of credit for the airline. Goodrich has a maintenance contract with National and services the airline's fleet. Mercury holds the airline's fuel contract.

Eight aircraft lessors, meanwhile, have differing levels of support for the plan. Attorneys said Tuesday that of the eight lessors, four are in agreement with the plan, three are close to agreement and one does not support it. National officials would not disclose which lessors are backing the plan or the issues that remain for those that aren't.

National officials have said they would seek a loan ever since the federal government announced that $10 billion in loan guarantees would be made available to airlines through the Air Transportation Safety and System Stabilization Act approved after the terrorist attacks.

National attorney Craig Hansen told Judge Linda Riegle that the airline is negotiating with two separate lenders, one based on the West Coast and a backup on the East Coast, to secure financing that would be guaranteed by the federal government. Hansen said confidentiality agreements prohibited disclosure of the names of the potential lenders.

While the federal government is backing most of the loan, Hansen said National has negotiated with one of its aircraft lessors -- International Lease Finance Corp., Los Angeles -- to help secure the rest of the loan.

Another key aspect of the reorganization plan is the conversion of debt to equity in the emerging company. Creditors will be offered common stock in the privately held company.

The company's senior management also will receive options to acquire an aggregate number of shares equal to 4 percent of outstanding common stock.

The reorganization value of the company, determined by Dresdner Kleinwort Wasserstein Inc., is between $100 million and $116 million, the plan says.

The plan also provides for the election of a new board of directors comprised of at least three, but no more than 11 members. The initial board will include National's chief executive officer, Mike Conway, two people designated by him and two by aircraft lessors assumed by the company.

The reorganization plan also addresses the company's proposed growth over the next five years. By the end of 2006, National plans to double its Boeing 757 jet fleet to 30 and add a new, smaller aircraft type -- probably twin-engine Boeing 737 or MD-80 jets -- and acquire 20 of them.

The new jet type would enable National to return to Washington D.C.'s Ronald Reagan National Airport. Presently, the airline can't serve the airport because planes with a seat capacity greater than 166 are prohibited from landing there because of new security restrictions.

The smaller jets also could be used on short-hop flights to the West Coast.