National Airlines discloses huge fourth-quarter loss: Still plans to grow

Tuesday, May 8, 2001 | 10:45 a.m.

National Airlines, despite taking huge losses in the last six months of 2000, still doesn't look like a company operating under Chapter 11 bankruptcy protection. It had back-to-back weeks of record bookings in April.

Company officials said sales from the week of April 22 were the highest in the two-year-old airline's history and a week later, sales were the second highest ever. The number of tickets sold is considered proprietary information and was not disclosed.

Mike Conway, president and chief executive officer of National, said he hopes to announce by the end of the month details of the company's reorganization plan, which could include the names of companies that may be investing in the airline.

Conway has said that National has been in discussions with aviation companies that have invested in other airlines. In an interview Friday, Conway would not say how any new investors would affect the investment Harrah's Entertainment Inc. of Las Vegas has in the airline or whether Harrah's would continue to be an investor in the company.

Harrah's, which owns the Harrah's and Rio hotel-casinos in Las Vegas, has a number of promotional tie-ins and tour packaging with National and the airline has a luggage delivery agreement for hotel guests that use the airline.

Harrah's, which has invested more than $57 million in National and still maintains a 48 percent equity stake in the airline, remains a partner, even though company executives could not convince other casino operators to invest in the company when the bankruptcy was filed.

"We're still a partner, we still have equity and we're also a creditor and have provided a letter of credit," said Gary Thompson, a spokesman for Harrah's. "We bought a lot of advance tickets, so we hope they stay in operation."

Harrah's $11 million letter of credit was extended through June 30, according to documents filed with the bankruptcy court.

National also has dismissed speculation that billionaire financier Carl Icahn would in some way be connected with the airline. Icahn, owner of Lowestfare.com, a Las Vegas-based Internet ticket sales company, has said he is interested in acquiring or developing an airline to sell tickets at a discount on his Internet business.

Icahn, who also owns three Las Vegas hotel-casinos, including the Stratosphere, had a contract with TWA for inexpensive tickets for Lowestfare, but that deal was scrapped when American Airlines acquired bankrupt TWA's assets. Icahn is experienced in the aviation industry, having owned TWA from 1985 to 1993.

Meanwhile, National disclosed its earnings for the fourth quarter of 2000, giving the public the first glimpse of the extent of its financial woes since the company filed for bankruptcy protection Dec. 6.

For the quarter ending Dec. 31, the company reported losses of $23.2 million on revenues of $68.8 million. In the third quarter of the year, the airline reported losses of $2.6 million on revenues of $75 million.

It was in the third quarter, Conway said, when rising fuel prices began taking their toll on the company. In the second quarter of 2000, the company had reported a profit, earning $1.5 million on revenues of $64.3 million.

As a privately held company, National is not compelled to report its profits and losses publicly, but the company reports its finances to the U.S. Department of Transportation, which delays releasing statistics until four months after the end of the quarter for proprietary reasons.

The report for the first quarter covering January through March isn't due to be released until the end of July.

According to the report filed with the Department of Transportation, National paid $94.4 million for fuel in the fourth quarter, compared with $81 million in the third quarter and $64.5 million in the second.

Fuel prices peaked at $1.20 a gallon late last year, with the price easing since the bankruptcy filing. Now, fuel is running at about 83 cents a gallon. When the airline began flying in May 1999, fuel cost about 65 cents a gallon.

Jet fuel prices track more like heating oil than gasoline, so prices are expected to ease in the summer. Every penny of fuel increase translates into an additional $65,000-per-month increase in expenses for National.

Another factor in National having to file for bankruptcy was that loads -- the percentage of seats filled with paying customers -- were well below industry averages. In the first half of the 2000 fiscal year, National's loads were at 53.7 percent.

Conway said in December that National needed loads in the low 60 percent range to turn a profit and analysts said a reasonable goal for National would be to achieve the high 60s.

While loads are proprietary information, Conway said the heavier level of bookings since the bankruptcy filing have made the company optimistic.

The first expenses related to the bankruptcy filing emerged in the fourth quarter with $9.1 million in general and administrative expenses reported, compared with $4.6 million in the third quarter and $3.2 million in the second.

The company also reported higher expenses for flying operations, maintenance, promotion and sales for the quarter because it added a jet to its fleet and it began service to a new city -- Washington D.C.'s Ronald Reagan National Airport -- in December.

But despite the reorganization efforts, Conway said National is continuing its growth plan. Last week, the airline began flying to Chicago's O'Hare International Airport with two flights a day between Las Vegas and the Midwest's busiest airport.

National will continue to fly to Chicago's Midway Airport, where the company has three flights a day to and from McCarran International Airport.

Conway said if the reorganization plan stays on track, the airline will add to its fleet and begin flying to two new cities -- Atlanta and Seattle -- by the end of the year.

National's Chapter 11 status also hasn't stopped Conway from weighing in on proposed legislation aimed at improving customer service.

Conway said the Passenger Bill of Rights, championed by Sen. Harry Reid, D-Nev., "is simply a political reaction to placate consumers who are understandably upset."

In a statement issued Monday, Conway said "no legislation is going to fix one of the most glaring problems facing passengers today at most airlines -- the poor attitudes of airline employees."

And he said predatory practices by the nation's largest air carriers are hurting new-entrant airlines like National, which in two years has grown to be the No. 5 carrier at McCarran.

Conway also said lawmakers could help the aviation industry by assuring that money collected in passenger facility charges on plane tickets pay for airport improvements instead of paying down the national debt.

The Air Transport Association said uncommitted funds in the aviation trust fund grew from $1.3 billion to $7.5 billion from 1997 to 2000.