Wednesday, Aug. 28, 2002 | 10:58 a.m.
It's crunch time for financially troubled National Airlines, which is continuing do-or-die negotiations with a creditor that may hold the key to whether the airline keeps flying.
At stake are the jobs of 1,500 employees, future trips for thousands of passengers, including those planning Labor Day weekend excursions, and the fate of the company that now provides nearly 10 percent of McCarran International Airport's commercial airline capacity, the third-largest among 31 scheduled airlines arriving in the Las Vegas market regularly.
National's ability to continue to operate rests with negotiations with the one creditor that National is not identifying, attorneys told U.S. Bankruptcy Court Judge Linda Riegle at a Tuesday hearing.
If National is successful in negotiating concessions with the creditor, the airline would receive $30 million in new financing. If it isn't, the company would begin shutting down, a process attorneys said would occur quickly.
Another possibility is the emergence of an unsolicited bidder for the airline that could rescue the carrier, a scenario that appears unlikely.
In Tuesday's court hearing, National attorney Craig Hansen told Riegle that the airline was close to completing negotiations with the one remaining creditor and that if the airline was able to secure some concessions from that creditor, National would continue to fly with the fresh infusion of cash.
"On a scale of 1 to 10, with 10 as having everything wrapped up, we're at about an 8 or a 9," Hansen told Riegle.
In a court hearing earlier this month, attorneys for C.I.T. Leasing Corp., New York, told Riegle that it had given National notice that it wants two Boeing 757 jets it leases to the airline back.
One of the jets is the subject of attachment lien litigation between C.I.T. and National's heavy maintenance contractor, B.F. Goodrich Aerospace. C.I.T. gave National 60 days' notice for the return of the other jet.
At the time, National officials said they still had a good rapport with C.I.T. and did not expect to lose access to either plane. Neither of the lead attorneys for C.I.T. or Goodrich were in court Tuesday, participating in the hearing by telephone.
Another creditor that has voiced concern about National is McCarran International Airport. Clark County Aviation Director Randy Walker last week said the airport is owed $6 million by National and that he didn't expect the airline to survive much longer.
The largest aircraft lessor, International Lease Finance Corp., Los Angeles, also is key to finalizing the deal.
Several people had to stand in the back of the courtroom at Tuesday's hearing, which was heavily attended by National employees. Most of them were relieved when Riegle scheduled another hearing for National on Sept. 6, but Hansen made it clear that negotiations had to be successful in order for that hearing to have any relevance.
"We've made substantial progress, but we need to get fully there for this to work," he said.
Hansen explained that three things had to occur for National to keep flying: that it get new debtor-in-possession financing; that credit support be secured with key vendors, primarily fuel supplier Mercury Air Group and Harrah's Entertainment Inc. for a letter of credit; and new concessions from other creditors.
The first two are nearly completed. Foothill Capital Corp., a subsidiary of Wells Fargo Bank, has agreed to $30 million in new financing and a vendor credit agreement has been reached with Harrah's and is nearly finalized with Mercury.
The only element left, Hansen said, is the concessions with creditors. He explained after the hearing that the reason those negotiations are so difficult is that some creditors have sought to maintain competitive advantages with their peers. For example, if an aircraft lessor agrees to concessions, it may do so under the condition that a competitive lessor that also furnishes planes to National be bound by the same concessions. That would require National to go back to other creditors after completing the original negotiations.
"They're all tied together," Hansen said. "That's why this is such a long and difficult process."
After the hearing, Hansen said National's board of directors was meeting by conference call daily -- sometimes twice a day -- to be kept informed of the status of negotiations. Hansen said that if negotiations failed, the inevitable shutdown of the airline would be swift but orderly.
If a shutdown were to occur, Hansen said most passengers with tickets for future flights would be protected financially as long as they were purchased with a credit card. However, thousands of passengers could be inconvenienced if a shutdown occurred in the midst of a round trip.
The airline has not disclosed details of a shutdown plan, or how stranded passengers would be accommodated, but Hansen said in court earlier this month that National has such a plan prepared. Tuesday, Riegle told attorneys to stay focused on both scenarios -- a successful negotiation that would keep the airline flying and a "worst-case scenario" to close down the company.
Several National employees were in the courtroom Tuesday, hoping to get a definitive answer on whether they were headed for the unemployment line.
"Last night was the first night that I didn't get any sleep," said Ruth Duer, a Las Vegas-based National flight attendant who attended the hearing shortly before going to work on flights to and from Los Angeles and San Francisco.
Duer said company morale has stayed high despite the stress the airline has been under since Aug. 15, the date the federal Air Transportation Stabilization Board rejected a loan guarantee that would have activated a court-approved reorganization plan. National officials were confident they were going to win approval of the loan guarantee they applied for in May.
Duer said most passengers have been oblivious to the financial problems that have been reported.
"Most of our flights are nearly full and nobody ever asks us about things like that," she said.
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