Customers, employees likely relieved by new extension from Harrah’s

Friday, July 27, 2001 | 11:09 a.m.

Melissa Swenson says she can sleep easier now.

Swenson, who works at Arizona Charlie's East, has a ticket for her stepson, Storm, to fly to New York on National Airlines Aug. 11.

Swenson attended a U.S. Bankruptcy Court hearing in June when National officials said they were close to shutting down the airline, only to emerge with an agreement with Harrah's Entertainment Inc. that gave them another month to hammer out a deal with a buyer or an investor.

Thursday afternoon, she was back in court again, hoping that a buyer had been found or that something else would be done to keep the bankrupt Las Vegas-based carrier flying.

When National attorney Craig Hansen told Judge Linda Riegle that Harrah's had agreed to another extension to continue negotiations, Swenson was relieved.

"He's underage, so flying by himself is a little tricky," Swenson said of her 7-year-old stepson. "When he came out (to Las Vegas, in early June), I was really impressed with the way National took care of him. When he got off the plane, he was telling us about everything they did."

Thousands of other travelers -- and National's 1,400 employees -- undoubtedly are just as relieved as Swenson. Now a new deadline is in place -- Aug. 31 -- and National's chances for success in finding a buyer have improved as Hansen told the court that a second bidder has entered negotiations to acquire the airline.

As was the case a month ago, National officials won't say who the new bidder is, but Hansen said negotiations are under way between the airline and two entities, presumably the mystery bidder announced in June and the new party.

"We're in active discussions at this time with sophisticated industry players," Hansen told the court Thursday.

Hansen also said National's relationship with Harrah's has improved dramatically and that key creditors have consented to extend concessions that will enable National to operate less expensively while negotiations with the prospective buyers continues.

Nine companies that lease National its fleet of 16 Boeing 757 twin-engine jets have been paid less than their original contracted rates since National filed for Chapter 11 bankruptcy protection in December.

The only creditor that expressed some concern about the extension was Mercury Air Group, Los Angeles, National's fuel supplier, and attorney Pauline Lee's primary objection was that she only received notice of National's plans five minutes before the hearing and hadn't had time to consult with her client over whether it would object. Mercury has consistently agreed to the various extensions National has sought in the past, as most creditors concur that the best way for them to be paid is for the airline to keep flying.

A representative for both McCarran International Airport and Dallas-Fort Worth International Airport expressed similar concerns about being told at the last minute about extension plans.

The extension approved for National is for a letter of credit provided by Harrah's. A $16 million letter of credit enables National to immediately use much-needed cash generated by tickets charged to credit cards. Harrah's, which wants to get out of its relationship with National, has written off more than $39.4 million in the investment.

Under the new agreement with Harrah's, National will pay the Las Vegas-based casino company $100,000 for the credit line extension. It also is committed to paying $400,000 to Harrah's if an acquisition of National fails to materialize.

The agreement is similar to the deal National had with Harrah's in June, in which National promised to pay $350,000 to Harrah's if a deal didn't fall into place. If a term sheet -- a sales or investment agreement -- is drafted by the end of August, National wouldn't have to pay any of the money to Harrah's.

Because a normal seasonal dip in ticket sales is anticipated in the months ahead, the new Harrah's credit letter will be reduced to $15.5 million from $16 million, Hansen said.

Riegle approved orders extending the deadline to Aug. 31 and set court hearings for Aug. 27-28 to consider new legal issues and monitor progress.

Issues under consideration include legal challenges among National's creditors to establish an order of payment. B.F. Goodrich, National's Cleveland-based maintenance contractor, placed liens on some of the airline's jets when National brought them in for scheduled maintenance and couldn't pay. Now, the court must sift through laws of various states to determine the rights of the airline, the lessors and contractor for payment.

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