National gains time to talk with Icahn

Monday, June 4, 2001 | 11:04 a.m.

First quarter loss

Figures obtained by the Las Vegas Sun show National Airlines has disclosed to the government a loss in the first quarter ending March 31 of $14.5 million on revenues of $68 million. That compares with a loss of $23.2 million on revenues of $68.8 million in the fourth quarter of 2000, which included the months leading up to the airline's Chapter 11 bankruptcy filing.

In filing for bankruptcy in December, National blamed high fuel costs. But analysts noted it also suffered from a shortage of passengers.

National Airlines will continue to fly this week after a U.S. Bankruptcy Court judge issued a temporary restraining order preventing Harrah's Entertainment Inc. from taking ticket revenue to begin recovering funds it advanced the Las Vegas airline.

Judge Linda Riegle ruled Friday that Harrah's would not be harmed by a delay in carrying out an earlier court order that would have enabled the casino company to begin collecting revenues for tickets to passengers beginning travel after June 30. The earlier order, issued May 18, enabled Harrah's to do that beginning Friday.

The airline would have begun feeling the effects of the altered cash flow this week and, in all likelihood, would have shut down had the restraining order not been approved.

In testimony Friday, National Chairman and Chief Executive Officer Mike Conway said the airline would not have been able to continue to operate had Harrah's been allowed to start collecting the ticket revenue.

"It's like I'm watching a TV newscast of a runaway train full of nuclear waste with Harrah's in the dead man's seat, refusing to put on the brakes," Riegle said of the casino company's legal maneuvering.

Harrah's spokesman Gary Thompson said his company was trying to press toward a resolution of National's Chapter 11 bankruptcy status. Thompson said National had "a legitimate offer from (billionaire financier) Carl Icahn and that he has said flat out that the offer expires today (Friday), which makes this ruling very puzzling and disappointing."

"I have no clue what (Judge Riegle's comments) mean," Thompson said. "All I can tell you is that Harrah's has provided financial support to National since its inception two years ago, even though the vast majority of our competitors benefited more from that than we have. Our responsibility is to our shareholders who would be better served if we invest in projects that enhance our competitive edge as opposed to helping our competitors' bottom lines."

Conway acknowledged for the first time in court testimony that Icahn and he have been in negotiations for a role at National since February or March, when Icahn's bid to acquire another bankrupt airline, TWA, began to sour.

Following his court appearance, Conway would not give specifics on what Icahn's stake in National would mean to the operation of the airline and he said he expected Icahn would extend the Friday deadline to complete a deal.

Icahn's representatives could not be reached this morning to determine if his offer had been extended. A National spokesman said the company had several discussions with Icahn over the weekend.

Conway said Friday he would be working against the clock to wrap up details of Icahn's participation.

The order approved by Riegle Friday is a temporary restraining order. Attorneys will return to court June 11 to argue an extension of that order or an injunction if National has yet to complete its dealings with Icahn. Conway estimated that a deal with Icahn could still be weeks away.

At issue in the negotiations, Conway said, are the terms of assumptions with the lessors of National's 16 Boeing 757 jets and plans to pay unsecured creditors.

The bulk of National's assets and liabilities in the bankruptcy involve the planes. There are eight companies from five countries handling the leases of the jets to National. When National filed for Chapter 11 bankruptcy protection in December, it listed assets of $103.5 million and debts of $119.5 million.

Jets are leased to National by Pembrooke Ltd. of the United Kingdom; Ansett Worldwide Aviation, Australia; Sunrock Aircraft Corp. Ltd., Ireland; Tombo Aviation Inc., Japan; International Lease Finance Corp., Los Angeles; Boullioun Aircraft Holding Co. Inc., Bellevue, Wash.; C.I.T. Leasing Corp., New York; and Pegasus Aviation Inc., San Francisco.

Among the major unsecured creditors are aircraft parts suppliers, fuel suppliers, maintenance crews, airports, ground handlers, catering companies and information systems providers.

The largest of the unsecured creditors is Harrah's, which also has a 48 percent equity position in the airline and already has written off $39.4 million in losses in its investment.

Riegle, however, said Harrah's has a greater obligation than other creditors to assist or not hinder the Icahn-National negotiations because of its status as an "insider."

Other unsecured creditors include B.F. Goodrich, Cleveland, repair orders; General Electric Capital Corp., Stamford, Conn., debt; Mercury Air Group, Los Angeles, fuel; John F. Kennedy International Airport, New York, landing fees and rent; and Taesi, Fort Worth, Texas, engine maintenance.

McCarran International Airport also is listed as an unsecured creditor. Randy Walker, director of the Clark County Aviation Department, said last week it's in the airport's best interests for National to continue to fly and he is more interested in deals that would keep the company in the air than in collecting debts.

After Friday's hearing, Conway said the winners in court were "the people who fly on National Airlines, the employees of National Airlines and the community." He said about 500,000 people have tickets to fly on National in the next two months and that the airline's 1,400 employees could be thrown out of work if the company were to close.

He said he is "prepared to work for a company that has Carl Icahn as an investor," and that Icahn's proposed investment in the airline "bodes well for Las Vegas."

He did not provide any other details about the airline, citing a confidentiality agreement.

"Our goal always has been to reorganize into a carrier that is stronger and more valuable than it was," Conway said. "It's not how fast you emerge, but how you emerge that's important."