Conway looking for new funding for National

Thursday, Oct. 31, 2002 | 11:14 a.m.

National Airlines executives are again scrambling for investors after an aircraft lessor that had pledged a $2 million letter of credit to the airline backed out of the deal.

Mike Conway, chief executive officer of the Las Vegas-based airline, said he would go to National's existing aircraft lessors, talk to a potential replacement company or both in his bid to fill the hole in the financing package disclosed in a Wednesday U.S. Bankruptcy Court hearing.

If the company is unsuccessful in its bid to fill the gap, the airline could be forced to shut down. A hearing is scheduled Nov. 15 to keep Bankruptcy Court Judge Linda Riegle apprised of progress.

National, currently the No. 3 airline by capacity and No. 4 by number of passengers served at McCarran International Airport, has carried 1.8 million people to and from Las Vegas through September. McCarran passenger statistics are a key gauge in determining how many gamblers visit local casinos, since about 45 percent of the people who visit Las Vegas come by plane.

"The entity that dropped out had pledged $2 million out of the $112 million package we announced in September," Conway said.

Conway said the company, which he did not identify, does not have an existing lease agreement with National.

"They thought they would have an airplane available in November," Conway said. "They've since determined that they wouldn't be getting it back until April of next year and the deal was contingent upon them having an airplane available to us. They didn't want to put up a letter of credit now for an airplane they won't deliver until next year."

The letter of credit is important because it would serve as collateral for a $25 million loan from Foothill Capital Corp. The loan is part of the $112 million refinancing package the company unveiled nearly two months ago.

Conway said the aircraft leasing market remains soft, giving National hope that it could cut another deal in the next two weeks. However, he said with the airline industry continuing to lose money -- analysts say the 2002 total could reach $8 billion -- that lessors are somewhat skittish about making deals.

In a financial report National filed in Bankruptcy Court nearly a month ago, the company reported its first monthly profit -- at least on paper -- since the Sept. 11 terrorist attacks.

Conway's comments came hours after National attorneys made a sombre report to Riegle that the airline faced the prospect of shutting down and liquidating if a new investor couldn't be found.

At National's next hearing Nov. 15, attorneys hope to report whether a new financing source has been secured or if the company would enact a plan for an "orderly wind-down."

National attorney Craig Hansen told Riegle that the investor had exercised its option to back out of the deal.

Under the structure of the original deal, three investors were to issue letters of credit on behalf of National in the debt-for-equity refinancing package. Attorneys have said the three letters of credit were interdependent upon each other.

National spokesman Dik Shimizu said the investor pulled out of the deal last week, but the collapse wasn't disclosed until Wednesday's court appearance.

Hansen said if the company initiates a shut-down, the airline would make sure that it had the financial resources to cover employee obligations and taxes.

It was the second time in three months that attorneys discussed the possibility of shutting the airline down in court. In mid-August, the Air Transportation Stabilization Board denied a government-backed loan guarantee to National. Several experts predicted the airline had only a few weeks to survive after the denial.

Attorneys discussed an orderly shut-down at that time, but Conway delivered the new refinancing package, which included concessions from creditors and suppliers, pay cuts for all National employees and fresh investment capital from investors.

"It's frustrating for everyone involved," Hansen said in his court appearance. "I don't like where we are, but we're going to put our heads down and go for this one more time."

In a related matter, the company said a provision in Clark County's Question 10 ballot initiative would cost National $1 million a year if it is approved.

Among other things, Question 10 would add a 1-cent-a-gallon tax on jet fuel on top of Clark County's existing tax of 4.5 cents a gallon. The ballot measure is designed to raise $2.7 billion for the county's regional transit and road improvement program.

"We agree that it is in the city's best interest to improve its infrastructure," Shimizu said, "but now is not the time to be hitting the airline industry up for money."

Shimizu said the company is not lobbying against Question 10 or recommending to employees how they should vote, but is informing people what the cost will be to the airline if the measure is approved.