National’s next destination will be Washington to apply for federal aid

Friday, Feb. 1, 2002 | 11:16 a.m.

Now that National Airlines is coming to the end of a 14-month sojourn through the U.S. Bankruptcy Court maze, the company is embarking down a new road.

When Judge Linda Riegle gave her tentative approval to National's reorganization plan Tuesday, she gave the airline's leadership the green light to apply for a government-guaranteed loan through the Air Transportation Safety and System Stabilization Act.

National Chairman and Chief Executive Officer Mike Conway said the airline plans to apply for a $70 million loan guarantee on financing arranged with Foothill Capital Corp., a subsidiary of Wells Fargo Bank.

Conway said he already has made contact with the ATS Board to inform it of National's intentions. Besides America West, only two other airlines have applied for loan guarantees.

Aviation experts are split on how National will fare.

"If they don't get it (the loan guarantee), both U.S. senators from Nevada should go nuts," said Mike Boyd, an aviation consultant with the Boyd Group, Evergreen, Colo. "It's simply a guarantee, not the loan itself. National should be able to get it by return mail."

Boyd said he expects National will be asked some tough questions about its finances.

Ray Neidl, an airline analyst with ABN AMRO Inc., New York, said National's size may be another hurdle.

"The smaller you are, the harder it's going to be (to win approval)," Neidl said.

Since National announced its strategy to apply for the loan, Conway has characterized the process as a sure thing. However, Ian Herman, the former chief executive of British World Airlines whose Old Mission Assessment Corp. made an unsuccessful bid for National in court Tuesday, isn't as confident.

Herman said the loan guarantees are designed for companies that have no other alternative sources of capital available. He argues that National does have another source of capital -- the $65 million in cash and debentures his shareholders have put up to make a bid for the airline.

The loan guarantees are critical to National since they are part of its reorganization plan package. The loans are just one component in how the restructured National will pay its debts.

Under the reorganization, National is converting most of its debts to various creditors into equity in the company. That means instead of getting paid, many of the large companies that are owed money are getting about 85 percent of the stock in National.

The next class to be compensated, the unsecured creditors in the case, will get 15 percent of the shares.

Those percentages will be diluted, since the company also has to secure its government-backed loan with warrants and company employees also receive stock as part of their compensation.

One high-profile Las Vegas company that isn't in either category is Harrah's Entertainment Inc., which already wrote off its $39.4 million investment in National in the fourth quarter of 2000. Harrah's spokesman Gary Thompson said the company continues to have a business relationship with the airline, offering a letter of credit for a fee and through sales of vacation packages that include hotel rooms and airline tickets.

The letter of credit enables National to spend money from customers who paid for tickets on future flights with a credit card. Harrah's receives $100,000 a month from National to use the letter of credit.

When the reorganization plan takes effect, a new board of directors will take office, but Conway and another existing National executive, Ray Nakano, will keep their seats. Aircraft lessors will be allowed to designate two board members and the trustee will name one.

Conway will stay on as chairman and chief executive officer .

Attorneys said Tuesday that most creditors prefer to keep the airline afloat because in the current market, it's more profitable to work with an established company -- even at a reduced rate -- than it is to go out and find new customers.com