Las Vegas Sun

March 28, 2024

S.F. airport demands National pay up

An airport creditor of bankrupt National Airlines is demanding to be paid and believes the Las Vegas-based air carrier is on the verge of financial collapse.

San Francisco International Airport will go to court next week to argue against approval of a new $112 million debtor-in-possession financing package announced by the airline's privately held company last month.

U.S. Bankruptcy Court Judge Linda Riegle set a hearing for Tuesday to hear arguments on whether the financing should be approved.

"This airline is dead, they're leading us along," said Douglas Jessop, a Denver-based attorney for the San Francisco airport, in a court hearing on Tuesday.

National attorneys said in court that the San Francisco airport is owed $680,000. An airline spokesman later said the amount reported in court was in error and that the airport actually is owed $580,000. In addition, Jessop said National has never paid a $1.3 million security deposit to the airport.

"They bet the farm on their last plan," Jessop said in an interview after his court appearance.

He was referring to National's bid to receive a government-backed loan guarantee from the Air Transportation Stabilization Board, which denied the airline's request in August. Since then, National has pieced together an alternative debt-for-equity financing package secured by letters of credit from other companies that are owed money, including aircraft lessors. The airline's 1,400 employees also have taken pay cuts to bolster the company's finances.

The San Francisco airport is unhappy that under the new financing package other creditors have been placed ahead of it for payment. Jessop said the aircraft lessors are protected on the backs of other creditors, including other airports.

Asked why the San Francisco airport is the only creditor with an objection to the financing package, Jessop said most airports are administered by municipalities that are "softer" on airlines to encourage more air service.

"They're softer because they're spending your dollars," Jessop said. "We've encouraged our client to think like a business and that means if a tenant doesn't pay the rent, you go to court."

National's payments to airports have been under greater scrutiny since Randy Walker, director of Clark County's Department of Aviation, disclosed that the airline is $6 million in arrears to McCarran International Airport. America West and Southwest airlines, the two largest carriers at McCarran, wrote letters to Walker asking that National not get preferential treatment on paying their debts as they emerge from bankruptcy.

National spokesman Dik Shimizu said the airline has always had a good relationship with the San Francisco airport and that disagreements over priority of payment are not uncommon in bankruptcy proceedings.

"We fully expect to resolve this before the hearing next week," Shimizu said.

Craig Hansen, an attorney for National, told Riegle that he needed "several more weeks" for negotiations with creditors before he could proceed. Originally, he had hoped to get tentative approval of a reorganization plan by the end of October. Now, he hopes to have disclosure statements prepared by the end of the month, a prelude to approval of the plan.

Hansen said the San Francisco airport has not participated in negotiations with National at any time since the airline filed for Chapter 11 bankruptcy protection in December 2000. Jessop said the reason the airport has become more aggressive is that National quit making payments to it once the government loan guarantee was rejected and airport officials feared National was on the verge of collapse.

Jessop said the three-member ATSB, which has approved one loan guarantee and tentative approved a second in one year, determined that National was not a good risk when it unanimously rejected the airline's request.

Other creditors have previously said they felt their best chance of getting paid was by keeping the airline flying and that's why they backed the new refinancing plan.

Hansen said he thought it was unusual that the San Francisco airport would object to the refinancing plan -- the mechanism that would begin the process of making payments to creditors. Hansen said approval of the plan would give National access to some of the loan funds and that the San Francisco airport would get $200,000 from that initial draw of cash.

Riegle was clearly unhappy with the San Francisco airport's challenge.

"It seems the City of San Francisco hasn't been paying attention and now wants to throw a monkey wrench into the works," Riegle said. "If they want to cut off their nose to spite their face, I don't care."

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