Judge’s OK starts new chapter in airline’s book

Tuesday, March 5, 2002 | 10:34 a.m.

A U.S. Bankruptcy Court judge approved National Airlines' reorganization plan Monday, ending a 15-month chapter in the company's survival saga and starting another process that executives hope lasts 45 days.

"Congratulations, all of you," Judge Linda Riegle told attorneys gathered in the Las Vegas courtroom and several others who were on the phone from as far away as New York, Philadelphia and Dallas. "I hope that you succeed."

With that, she signed three orders that capped two months of legal wrangling and compromise between about 1,000 creditors, some of which will get an equity stake in the Las Vegas-based airline.

While Riegle's action closed the book on a proceeding that began Dec. 6, 2000, when National filed for Chapter 11 bankruptcy protection, it started the clock on another challenge for the company -- winning federal government guarantees to back a loan the airline is seeking from Foothill Capital Corp., a California subsidiary of Wells Fargo Bank.

The company filed for bankruptcy protection about a year and a half after it began flying after fuel prices soared and the airline wasn't selling enough tickets to compensate.

Today National uses a fleet of 15 twin-engine Boeing 757 jets for 30 round-trip flights between McCarran International Airport and nine destinations. It has the third-largest capacity among commercial carriers serving Las Vegas, but ranks sixth in the number of passengers served.

Most of National's capacity comes from east of the Mississippi River, making it an important link to the East Coast for the city's casinos. Several hotels have package deals with National to bring gamblers to Las Vegas from Miami, Philadelphia, New York, Chicago and Newark, N.J.

To get government backing of its loan, National now must convince the three-member Air Transportation Stabilization Board in Washington that it is recovering from effects of the Sept. 11 terrorist attacks and was financially viable before that incident occurred.

One of the prerequisites of consideration for the government loan backing for a company emerging from bankruptcy is to have a court-approved reorganization plan in place, which is why Monday's approval was so important.

National's attorneys had been coordinating approval of the plan while preparing the loan application.

The board must determine whether the company is a credit risk worthy of backing a loan that National is getting from Foothill. National's lead attorney in the bankruptcy case, Craig Hansen, has said the airline hopes to be approved for a $70 million loan but the reorganization plan could succeed if as little as $45 million in loans are backed by the government.

National officials are being very careful about how much they say about the loan process, which has been successfully completed by only one airline -- Tempe, Ariz.-based America West Airlines, National's biggest rival. The two carriers have similar route structures, both using Las Vegas as a hub, and most of National's key executives are former America West employees.

National doesn't want to give the impression it thinks it will skate through the process with ease, yet the airline already has announced a service expansion in May that would require additional aircraft. The company announced last week it would begin three nonstop round-trip flights between Las Vegas and Seattle and add a fourth nonstop round trip between Las Vegas and Dallas-Fort Worth.

National's corporate counsel, Kevin Tourek, said the company is hopeful it could complete its business with the Air Transportation Stabilization Board within 45 days.

When America West went through the process, it ended up being required to give the government warrants for equity in the company. Attorneys who negotiated National's reorganization plan considered that possibility when they split the equity among lessors that are taking a stake in the company as their settlement compensation.

Because each lessor's agreement with National is different, each settlement also is different. And, because the lessors compete for business with other airlines, details of compensation in the reorganization plan were submitted to the court under seal.

Hansen assured Riegle that all parties consented to the deal and when the judge sought questions, there were no complaints from any creditor.

"I can't think of anything that we are aware of that would be material that we would consider to amend this," Hansen said.

Riegle asked the attorneys to return to give status reports on the loan's progress, once at the end of this month and another at the end of April.