National still in dispute over plane leases

Wednesday, Jan. 16, 2002 | 11:12 a.m.

National Airlines of Las Vegas and one of its aircraft lessors are still far apart on a revised lease agreement necessary to complete a reorganization plan for National to emerge from Chapter 11 bankruptcy protection.

Pembroke Ltd. of Ireland leases four of National's 15 twin-engine Boeing 757 jets and attorneys for both sides said in court Tuesday that while they'll continue trying to hammer out a deal, prospects for reaching an agreement within two weeks are slim.

If the two sides can't agree upon terms of a new deal, U.S. Bankruptcy Court Judge Linda Riegle would hear both sides and issue a ruling to move the process forward. At Tuesday's status hearing, she told attorneys she would hear their arguments Jan. 28, a day before she is expected to confirm the reorganization plan.

Once the reorganization plan is confirmed, National would apply for a federally secured loan, similar to the $429 million loan America West Holdings Corp. received earlier this week. National attorneys said they would seek approval of a $70 million loan package.

The government-backed loans are part of a $15 billion bailout program approved to help airlines hurt by the Sept. 11 terrorist attacks.

National officials said last month that two unnamed banks, one on the East Coast and one on the West Coast, would be co-participants in the loan that would be secured by the government. Under terms of the America West loan, the Tempe, Ariz.-based airline agreed to issue warrants to give the government the option to purchase shares of the company's common stock to secure the loan.

National also is expected to issue similar warrants to the government as part of the terms of its loan.

National attorney Craig Hansen said the names of the lenders and two new equity partners would be disclosed when the loan deal is in place, possibly later this week. He called the $70 million loan facility "expensive, difficult financing," but the airline would not disclose terms of the package or the interest rate.

Once the loan is in place and the reorganization plan is in effect, National can begin paying off creditors, most of whom have approved the plan. Last month, attorneys identified six creditors that opposed the plan while about 1,000 approved it. On Tuesday, attorneys disclosed that a seventh creditor had filed an objection.

Companies that have filed objections are Rolls Royce, which leases engines on the jets; Dallas-Fort Worth International Airport, one of the airline's destinations; the city of Philadelphia, which operates the airport in that city, another destination; GE Capital, one of the airline's financiers; and Certified Airline Passenger Services, which has handled remote check-ins for the airline at some Las Vegas hotels.

The new objection came from Expedia.com, an Internet ticket seller.

Attorneys said National is close to agreement with all the companies that filed objections except Pembroke. Issues involving the objections are expected to be resolved by Riegle before the confirmation hearing Jan. 29.

Meanwhile, National officials already are considering the possibility that Pembroke would not renegotiate terms of their deal and take possession of the four jets if they aren't happy with the final outcome.

Dik Shimizu, a spokesman for Las Vegas-based National, said the company would negotiate an orderly return of the aircraft while looking for planes to take their place.

Since the terrorist attacks, several airlines have stopped flying some of their planes or returned aircraft to their lessors, creating a buyers' market for airlines looking for planes.

Shimizu said National is confident that it would be able get replacement jets. It already has negotiated revised contracts with seven other lessors that supply jets for the airline's fleet.

If National were forced to take different aircraft, it probably would take a month or more to reconfigure, equip and paint planes.

National attorney Laurence Frazen said Pembroke and the airline are about $13 million apart on their deal and that they are at odds on determining a fair rental value of the aircraft.

Pembroke attorney Harvey Strickon said Tuesday that his client "had been stonewalled by the debtor" and that the lessor had made three counter offers to National's proposed lease agreement.