Judge OKs National plan to reorganize

Wednesday, Jan. 30, 2002 | 11:02 a.m.

U.S. Bankruptcy Court Judge Linda Riegle gave tentative approval Tuesday to a reorganization plan for National Airlines that converts most of its debt into equity and places control of the company into the hands of its creditors.

Under terms of the plan, which received tentative approval because it still isn't completed, creditors and suppliers owed money will get a piece of the company through the issuance of new common stock.

The amount of the stock issued and its value are still up in the air because the company hasn't finalized settlement agreements with eight aircraft lessors and other major creditors to whom the airline owes money.

But Riegle said in an afternoon court hearing she was convinced the plan had enough support from creditors and because the remaining work was in hammering out minor details, she could sign off on the reorganization. Attorneys for National hope to have final agreements in place by Feb. 14 and the company would officially emerge from bankruptcy protection by March 1.

National's success is important to Las Vegas because the airline flies routes exclusively to and from McCarran International Airport. National's focus is on the leisure market and offers discounted fares to attract tourists, who stay in the city's resorts and gamble in their casinos.

National has carried 2.1 million passengers to and from Las Vegas in 11 months in 2001 and is the fifth largest airline serving the airport.

Riegle also on Tuesday rejected an alternative reorganization plan filed with the court by Old Mission Assessment Corp., Miami, and Las Vegas-based Certified Airline Passenger Services. The two companies had filed an alternative reorganization plan with the court on Jan. 14

CAPS, an off-airport passenger and baggage check-in service, has been out of business since the Sept. 11 terrorist attacks because of stricter security measures implemented by the Federal Aviation Administration and the Department of Transportation.

Old Mission executive Ian Herman is the former chairman of British World Airlines, a company that held a Federal Express contract to transport freight in Europe in addition to transporting passengers.

Old Mission, a holding company for a business that works as a bankruptcy consultant, recently was approved to trade on the Nasdaq exchange and wanted to turn National into a publicly traded company.

Mark Brennan, chief operating officer of CAPS, said his company and Old Mission are partners in a venture to take control of National, with Herman overseeing the airline and CAPS managing ground operations.

Riegle rejected the CAPS-Old Mission plan for two reasons: an exclusivity agreement was in place for National to file its own reorganization plan and because CAPS and Old Mission had not filed a disclosure statement offering more background about the companies and their plan.

Under bankruptcy code, a debtor has the exclusive right to file its own reorganization plan for the first two months after the bankruptcy filing. After that, the debtor can ask the court for an extension. National had filed for numerous extensions of the agreement.

But attorney Paul Keiffer, representing CAPS and Old Mission, argued court records indicated National was not under the exclusivity arrangement when the companies filed their reorganization plan. Riegle said because the Bankruptcy Court is in the middle of a transition to a new computer system, many records have been delayed from the time they are received to the time they are placed in the official record.

National attorney Craig Hansen urged Riegle to reject the CAPS-Old Mission plan to avoid confusion in National's next challenge -- convincing a government panel to approve a $70 million federally guaranteed loan through the Air Transportation Safety and System Stabilization Act.

The confrontation between Keiffer and Hansen was the only tension in the four hours National spent in court Tuesday.

Riegle's approval of the reorganization plan enables National to go forward with its loan application, which is a key to the success of the airline's emergence from bankruptcy.

National said it already has a lender, Foothill Capital Corp., a Santa Monica, Calif.-based subsidiary of Wells Fargo Corp., and an unnamed private investor that will guarantee up to $7 million of the loan. The airline doesn't expect the federal government to guarantee the entire amount of the loan, which is why the unnamed investor -- described by Hansen as "one of the most significant players in the airline industry" -- is needed for financial help.

Mike Conway, National's chairman, president and chief executive officer, described the investor as an aerospace company and said the identity is being protected because it has other airline customers with which it doesn't want to jeopardize its relationships because of the equity position it will hold with National.

Conway would not say how much the company is investing in National, but told Riegle under oath he was confident the investor would be able to deliver on its financial commitments.

In a declaration filed with the court, Conway said the investor "will guarantee up to $7 million of the Foothill loan or purchase a $7 million participation interest in the Foothill loan ... will purchase $2 million of shares of a series of new National's convertible preferred stock on the effective date and will arrange for a third party to purchase an additional $1 million of shares of preferred stock ... and will enter in agreements with National for the lease of three aircraft, plus additional aircraft in the future."

Adding to the fleet is another key element to National's reorganization plan.

The company, which operates 15 twin-engine Boeing 757 jets between Las Vegas and nine airports in eight cities, plans to add a new aircraft type with a capacity of about 150 passengers to supplement long-haul service with short flights.

Conway said new planes would be added to National's fleet and new destinations announced only after the company wins approval on its government-backed loan.

Following the hearing, Conway said he felt Riegle's ruling was "very good for National Airlines and very good for Las Vegas" and that it "gives us a green light" to proceed with the government-backed loan. He said he already has had his first meeting with the Air Transportation Stabilization Board in Washington D.C. last week.

Conway also took a shot at the CAPS-Old Mission takeover bid, saying Riegle's ruling protects National from "further disruptions from sources that obviously lack credibility."

Herman, who left the courtroom quickly, said he disagreed with Riegle's ruling. He also said he isn't as confident as Conway that National would be able to win approval for a government-backed loan, since the company was operating under bankruptcy protection when the bailout was signed into law.

Conway has said National's application would be accepted as long as a reorganization plan was in place.

"I am confident that the board will review the application in a timely matter," he said.