Friday, Aug. 16, 2002 | 11:09 a.m.
National Airlines' strategy for keeping its planes in the air after being rejected for a federal loan guarantee may be kept under wraps until a U.S. Bankruptcy Court hearing Monday.
But attorneys for creditors who have signed on to National's wavering reorganization plan think they know how National Chief Executive Officer Mike Conway is spending his time these days -- working the phones for new sources of capital.
National spokesman Dik Shimizu said the airline plans no public comment on the status of the airline's finances, other than the Las Vegas-based airline plans to continue to operate its 34 daily flights normally.
Wednesday, National was jolted by the news that the three-member federal Air Transportation Stabilization Board had unanimously rejected the airline's request for a government guarantee on its $60 million loan from Foothill Capital.
Conway teleconferenced with members of National's board of directors about the company's options Thursday, but made no announcements.
Attorneys for creditors say they have not been apprised of National's plans, but they expect to get answers when National appears before bankruptcy Judge Linda Riegle on Monday. In April, Riegle conditionally approved National's reorganization plan, linking its activation to the approval of the loan guarantee by the ATSB.
With the loan guarantee dead -- and with no means of appeal -- attorneys will look to Riegle to determine what happens next.
One attorney said Thursday the National case is entering uncharted legal waters.
"There's never been a government agency handling government-backed loan guarantees for airlines before," said Dennis O'Dea, an attorney for B.F. Goodrich Aerospace, one of the creditors in the case. "None of us has been down this street before."
O'Dea said because normal procedures may not apply, it's hard to say how Riegle will proceed. But he praised Conway and National's management team
"National's management has been masterful at coming up with dramatic news at the last minute," O'Dea said. "I used to enjoy going to the movies to see Roy Rogers because the story always ended with a cliffhanger. These guys (National) have had one cliffhanger after another."
O'Dea said he and representatives of other creditors haven't been apprised of National's plans, but they have stood by National because keeping the airline flying is the best way for creditors to be paid.
"Everybody wants the airline to continue to operate and to prosper," said Robin Phelan, who represents unsecured creditors in the case.
Phelan said he, too, has not received any specific details, but he suspects National is seeking new equity partners.
"We've made every effort to be accommodating," added Pauline Lee, who represents a National fuel supplier. "We're just waiting to hear something from National."
Meanwhile, National conducted business as usual Thursday.
Las Vegas travel agents said there were no unusual ticketing patterns or extraordinary numbers of customers seeking refunds on trips on National.
"I think it's because National has said they are going to continue to operate all their flights," said John Berman, director of leisure sales for Prestige Travel. "Travel agencies across the country love National and people here like them because they treat customers right."
And, it doesn't hurt that National is one of the few airlines that still pay travel agents commissions on ticket sales.
"Sure, we're always conscious of the revenue, but I think many travel agents are supporting them because they put people first," Berman said.
For some of National's 1,200 Las Vegas employees, Thursday was a rough day because of the uncertainly that lies ahead. Some found time to attend a political rally for two Democratic House candidates, Dario Herrera and Rep. Shelley Berkley.
Berkley, a member of a House Aviation subcommittee, blasted the ATSB decision on National and vowed to do what she could to help the airline.
"I have contacted the ATSB and requested a formal explanation for the loan denial," Berkley said. "If the ATSB cannot justify its decision to my satisfaction, I will be calling for congressional hearings into the standards of the board and its decision-making procedures.
"In the absence of any rhyme or reason from the board, I can only assume that the board is making these decisions on a subjective and preferential basis. Large carriers are being treated as if they are too big to fail and smaller, more efficient carriers are being hung out to dry."
A day earlier, Conway was critical of the ATSB, accusing it of giving preferential treatment to two major carriers, America West and US Airways, which have received the only loan guarantee approvals from the board so far. America West, National's biggest rival, was named in a complaint by National with the Department of Justice over alleged unfair competitive practices.
America West denied the allegations.
Through a spokeswoman, the ATSB also defended its decision on National.
"The decision was carefully evaluated by the board, based on the statute and the established evaluation process," said spokeswoman Betsy Holohan.
She said more specific details on the meeting at which the National decision was reached would be posted on the ATSB's Internet site as soon as meeting minutes are transcribed.
However, the ATSB's letter to Conway clearly states the reason the board voted against the National application is it felt the airline did not provide a reasonable assurance it would be able to repay the loan.
"The board concluded that National's proposed business plan poses an unacceptable risk to the federal government," a letter to Conway said.
According to Bankruptcy Court filings, National has not shown a profit in the 10 months that ended in June.
National officials say they broke even in June because the loss that month did not include revised aircraft lease rates that are part of the stalled reorganization plan.
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