National Airlines changing course, to recapitalize

Thursday, Oct. 11, 2001 | 11:03 a.m.

National Airlines will attempt to use federally guaranteed loans from Congress' aviation bailout to emerge from bankruptcy.

Attorneys for Las Vegas-based National, McCarran International Airport's fourth-busiest air carrier, told U.S. Bankruptcy Court Judge Linda Riegle on Wednesday that the company is not planning to sell the airline and will instead concentrate on crafting a reorganization plan to place before creditors in December.

A National spokesman said today that the airline would continue to talk to interested buyers, although its new plan is to recapitalize and remain independent.

National attorney Craig Hansen outlined the change in strategy in a status hearing on the airline's bid to emerge from Chapter 11 bankruptcy. The company filed for bankruptcy protection in December and determined in May that selling the airline was the best option available for the company's survival.

Billionaire financier Carl Icahn was one of National's suitors at one time, offering $181.5 million for it in June. The bid was rejected.

National's chairman, president and chief executive officer, Mike Conway, has said at least two aviation-oriented companies with Las Vegas ties also have expressed interest in the company.

But, as Hansen explained in court, just about everything related to the aviation industry changed course dramatically after terrorists hijacked four airliners and crashed them on suicide missions in the deadly attacks on the East Coast Sept. 11.

Federal authorities grounded the nation's entire fleet of commercial airliners for three days, but lawmakers quickly drafted the Air Transportation Safety and System Stabilization Act to pump $15 billion into the airline industry and help compensate for some of the losses. Of that money, $5 billion is being distributed as grants and $10 billion is being made available in loans.

National is receiving $22 million in grant money and is eligible to apply for a federally guaranteed loan through the Air Carrier Guarantee Loan Program administered by the Office of Management and Budget.

But one of the eligibility requirements for the loan program is that any applicant operating under bankruptcy protection must have a bankruptcy court reorganization plan in place.

Hansen said after meeting with creditors, National officials have decided to change plans to sell the airline and focus instead on drafting a reorganization plan. Hansen said he hopes the plan will be presented in court Dec. 4 with a confirmation hearing Dec. 28. National has until June to apply for the loan.

"The level of commitment and tenacity of this management team has been extraordinary," Hansen told the judge.

Hansen explained that National has made efforts to cut costs, boost revenues and conserve cash since the attacks. The airline cut routes by 20 percent, laid off 300 employees and launched sale initiatives to get passengers back in their planes. Hansen said National's "Get America Flying" incentive program has boosted loads on flights.

The company announced today that it would offer discounted travel to employees of companies that participated in its incentive program. Employees of 25 businesses, most of them hotel-casinos, will be eligible for the discounts. The company also said it would offer free upgrades to military personnel in uniform traveling on the airline.

National also has begun strengthening doors in its fleet of 15 Boeing 757 jets in anticipation of future government directives.

National already has received half of the $22 million grant from the government and Hansen indicated some of those funds have been used to train staff on new security regulations and to catch up on payments to some creditors with which National has revised payment agreements.

"There has been a little slippage" in payments to some suppliers since Sept. 11, Hansen said, and some of the grant money was used to get caught up. He did not specify what companies were paid and said the court would receive a sealed document accounting for what was paid.

The other half of the $22 million should be delivered to National within a few weeks, Hansen said, noting that the payment represents compensation for anticipated airline losses between Sept. 11 and the end of 2001.

Bankruptcy court records showed National had operating revenues of $29.5 million in August, the last month for which the company had filed a statement of operations.

During that month, National posted a loss of $655,782 before the company renegotiated some of its aircraft leases. The company said it would have shown net income of $1.5 million that month under the new lease terms.

Since the bankruptcy filing, National has posted losses of $32.1 million.

The company is expected to make a case for loan approvals by showing that a high percentage of its business involves areas severely impacted by the attacks.

Two of National's most successful routes are the ones linking McCarran with New York City at John F. Kennedy International Airport and with Newark, N.J. Another important route for National has been its single daily nonstop flight between Las Vegas and Washington Ronald Reagan National Airport.

The Washington airport, within miles of several of the city's major landmarks, was closed for more than a week after the attacks and is in the midst of a gradual reopening. Las Vegas was not among the cities in the first wave of destinations to which service was restored.

Even when Las Vegas joins the list of cities that get the green light for the resumption of service to Washington, there's a restriction in place banning the use of aircraft with more than 156 seats from flying there. Until that ban is lifted, National can't get in, since the capacity of each jet in the fleet is greater than 156.