National future uncertain after guarantee rejected

Thursday, Aug. 15, 2002 | 11:06 a.m.

Las Vegas-based National Airlines took off on a flight into the unknown Wednesday, learning a federal agency had rejected a loan package that is key to the company's survival.

Mike Conway, president and chief executive officer of National, vowed to put together an alternative plan, but he told the company's 1,500 employees it's possible the airline that has flown since May 1999 may have to shut down.

The airline's board of directors was scheduled to meet this afternoon to consider National's options. Conway said National would keep flying at least until a decision is reached.

"Don't count us out," Conway said in a statement responding to news of the rejection. "We are working diligently on an alternative plan and will issue a statement in that regard shortly."

Conway learned late Wednesday afternoon that the Air Transportation Stabilization Board, an agency appointed to consider approving loan guarantees for airlines affected by the Sept. 11 terrorist attacks, had turned down his company's request to back $50.5 million of a $60 million loan from Foothill Capital, a subsidiary of Wells Fargo Bank.

National originally planned to seek a $70 million loan guarantee, reduced that amount to $60 million, then received commitments to guarantee $9.5 million of that from the private sector.

National, which has been operating under Chapter 11 bankruptcy protection since December 2000, received conditional approval of a reorganization plan from U.S. Bankruptcy Court Judge Linda Riegle in April. The bulk of the plan was dependent on National receiving the loan guarantee from the ATSB.

A representative of one of the major creditors in the case said he expects to hear by Monday what will happen next.

"We're very disappointed," said Dennis O'Dea, an attorney for B.F. Goodrich Aerospace, one of the largest creditors in the case. "This was a decision made in Washington that's not good for the people of Nevada."

O'Dea, whose client holds the heavy maintenance contract with National, said he doesn't think creditors in the case are not in a position to make any further concessions that would enable National to continue flying if the airline made that request.

He said he and attorneys for other creditors expect to be told in a hearing Monday what National intends to do. He said he has not been told whether National has any alternative sources of capital to fill the guarantee role that was sought from the ATSB.

If National quits flying, it could take a bite out of Las Vegas' economic recovery efforts.

In just more than three years, National has become the third-largest carrier at McCarran International Airport by capacity. McCarran's July statistics show National flew 7.9 percent of the commercial flights at the airport and provided 9.5 percent of the seats coming into the market every day.

Since the beginning of 2002 through June, National has flown 1.15 million passengers to and from Las Vegas, about 7.5 percent of the 15.4 million commercial passengers that have used McCarran this year, making it the fifth-busiest carrier by passenger volume at the airport.

The airline, which averages 34 flights a day, has nonstop round trips between Las Vegas and Los Angeles, San Francisco and Seattle on the West Coast, two airports in Chicago, Dallas-Fort Worth, Miami, Philadelphia, New York's John F. Kennedy International Airport, Washington D.C.'s Dulles International Airport and Newark, N.J. on the East Coast.

The company was to begin service to Reno and return flights to Washington's Ronald Reagan National Airport in the fall.

Aviation analyst Mike Boyd of the Evergreen, Colo.-based Boyd Group, said he doesn't know of any airline capable of replacing National's capacity if it were to cease operations.

"There's nobody out there that can put that much iron in the air so quickly," Boyd said. "It absolutely could hurt Las Vegas drastically, especially considering that airline capacity is so closely attached to hotel occupancy in your city and Las Vegas is under so much pressure from places like Gulfport, Miss., and every Indian reservation casino east and west of the Mississippi."

The ATSB announced its rejection of National in a one-page press release posted on the U.S. Treasury Department's Internet site today. The three-member board, which unanimously rejected National's request, said essentially the same thing it has said after other rejections -- that it didn't appear National had the financial means to pay its debts.

Conway disagreed.

National issued a press release Wednesday night, most of it a blistering attack on the ATSB decision with Conway alleging inconsistencies in the way the board has treated airlines seeking loan guarantees.

Prior to issuing the press release, Conway addressed his own employees -- including 1,200 in Las Vegas who could be out of work if National goes under.

"It is with a great deal of disappointment and frustration that I inform you that the Air Transportation Stabilization Board has rejected National's loan guarantee application," Conway said in a letter to employees.

"This, no doubt, leaves you with many questions, the most significant of which would be, 'Are we closing our doors?' As has been the case throughout our reorganization, that is possible. Now that the ATSB is no longer an option, unless we are able to receive firm commitments from interested parties we have been speaking with to date, National Airlines may have to cease operations."

In an interview earlier this year with In Business Las Vegas, a sister publication of the Las Vegas Sun, Conway said National would consider another strategy if the ATSB did not approve the loan guarantee. However, at that time he would not disclose details of that strategy.

National has had 10 consecutive months of losses through June, according to documents filed with the U.S. Bankruptcy Court in Las Vegas.

In June, the company showed a $4.6 million loss, with $26 million in revenues and $30.1 million in expenses and the payment of $395,318 in bankruptcy reorganization expenses for the month.

Airline officials, however, considered June a break-even month because the results do not include contractual concessions National has received from aircraft lessors as part of its reorganization plan. With reduced rental costs of $2 million and other contract modifications, the airline said it would have lost $611,487 for the month.

Since National filed for bankruptcy protection, it has lost $82.1 million.