National seeking new financing to stay aloft

Tuesday, Aug. 20, 2002 | 11:10 a.m.

Rejected by a federal board last week in a bid for bankruptcy-clearing financing, National Airlines is going back to its aircraft lessors for new financing to bolster a reorganization plan it hopes flies in Bankruptcy Court.

Attorneys for Las Vegas-based National say executives are working to arrange new debtor-in-possession financing that will keep the airline flying.

National attorney Craig Hansen told U.S. Bankruptcy Court Judge Linda Riegle on Monday the airline is working with the companies that lease National's Boeing 757 jet fleet to arrange $30 million in financing to pull the company out of bankruptcy and keep its 34 daily round trips to and from Las Vegas operating.

Hansen said the new timetable projects National emerging from bankruptcy by the end of September. Attorneys will report to the court on their progress next week.

Riegle was told in a courtroom dotted with about a dozen of the airline's employees that National is embarking on "Plan B," a financing package that doesn't rely on a federal government-backed loan guarantee.

Last week, the Air Transportation Stabilization Board denied National's request to guarantee $50.5 million of a $60 million loan approved by Foothill Capital, a subsidiary of Wells Fargo Bank.

The decision stunned National's executives, who informed the company's 1,500 employees it was possible the airline would have to shut down.

Hansen said the rejection was even more stunning, considering previously undisclosed details of National's plan. Nine aircraft lessors invested $8.65 million in the airline as part of the package, Hansen said. But on Monday, he disclosed those lessors also consented to a $20 million loan to bolster the deal and seal a positive response from the ATSB.

But that didn't happen.

Hansen told Riegle while debates about the ATSB will rage on in political circles, the airline decided to put its energy into Plan B.

Attorneys also disclosed a new hurdle National may eventually have to clear. Laurance Frazen, another attorney for National, told Riegle C.I.T. Leasing Corp., New York, which leases two jets to the company, has put the airline on notice that it wants its planes back.

The action stems from a dispute that has been a part of the bankruptcy proceeding since it began in December 2000. Shortly after National filed for Chapter 11 protection, B.F. Goodrich Aerospace, the airline's maintenance contractor, slapped a lien on one of the jets when it was flown to Washington state for servicing. That triggered a dispute between C.I.T. and Goodrich that has stayed on the back burner pending the resolution of the bankruptcy.

When the ATSB issued its denial to National last week, the dispute erupted again and Riegle will consider arguments in an upcoming hearing. Frazen said C.I.T. also gave National 60 days' notice to return a second plane it leases.

The action is not expected to affect National's operations -- it routinely flies its schedules with two or three spare aircraft ready as backups. National Chief Executive Officer Mike Conway said Monday afternoon after the court hearing that National still has a good rapport with C.I.T. and he doesn't expect to lose access to either plane.

Conway concurred National is in a good bargaining position, considering aircraft sales and leases are soft industrywide. One aviation expert said National is in an even better position with aircraft lessors than other carriers because the Boeing 757 is in less demand than smaller jets used by other companies.

In the meantime, National will continue to fly its regular schedule, an operation that transports about 45,000 people a week into and out of Las Vegas.

"We know we have responsibilities to creditors, responsibilities to employees and responsibilities to the flying public," Hansen told Riegle.

But he also warned National has a shutdown plan prepared if negotiations collapse.

"If that were to happen, it's not going to be pretty and it's not going to be pleasant," Hansen said. "It's not like shutting down a grocery-store chain."