National says financing package ready for judge

Thursday, Sept. 5, 2002 | 11:19 a.m.

A financing package valued at $112 million will be presented to creditors and a Bankruptcy Court judge in a bid to rescue financially troubled National Airlines.

The company announced Wednesday that it had reached agreement with key creditors for a debt-for-equity exchange that would reduce the company's debt and inject new cash equity in the company.

An airline analyst said today the financing package unveiled Wednesday exceeded his expectations.

"It does appear that compared to some of their prior expectations, they shot the moon on this one," said analyst Robert Mann of R.W. Mann & Co., Port Washington, N.Y. "It's a lot larger package than we had previously seen. It's no surprise, given Mike Conway's tenacity. The upside surprise is in the size and scope of the deal."

National's 1,500 employees will see their pay cut by between 10 percent and 20 percent for between four and 38 months as part of the concession package that National officials hope leads to emergence from Chapter 11 bankruptcy protection by next month.

National, the No. 3 airline at McCarran International Airport by capacity, offering about 10 percent of the seats coming into the Las Vegas market, filed for bankruptcy in December 2000 and has ridden a roller coaster of successes and disappointments ever since.

Through the course of the bankruptcy case, National has lost $87 million. However, the airline has negotiated concessions from key creditors, particularly aircraft lessors, that have enabled the airline to keep flying and even consider expansion.

National was dealt a severe blow on Aug. 15 when the Air Transportation Stabilization Board denied the airline's application for a $50.5 million government-backed loan guarantee on a $60 million financing package arranged with Foothill Capital Corp., a Wells Fargo Bank subsidiary.

Airline officials were confident they were going to win approval of the guarantee and the denial sent them scrambling for new sources of capital. While the negotiations were in progress, the top official at McCarran disclosed that National owed the airport $6 million. Randy Walker, Clark County's director of aviation, at the time said he didn't expect National to survive.

National Chairman Mike Conway said today the airline would pay what it owes to the airport and that there were no concessions to McCarran.

"They're not taking equity or anything like that," Conway said. "We did not ask for concessions from McCarran. They've been carrying us for awhile. It's not unsual for that to occur for an airline that is hubbed at an airport because of the impact it has on the entire airport and on the community. Randy Walker is a class guy and a smart guy."

Walker could not be reached for comment.

Earlier this week, National announced that it was cutting service to Chicago's Midway Airport and would not return to Washington D.C.'s Ronald Reagan National Airport in October as originally planned. Flights were discontinued to Reagan National following the Sept. 11 terrorist attacks.

The decision not to return to Reagan National could jeopardize the airline's ability to serve the airport in the future. National, which fought in 2000 to win a slot exemption from the U.S. Department of Transportation to provide nonstop service between the central Washington airport and Las Vegas, has requested an extension of the airline's slot rights with the department. National is facing an Oct. 23 deadline to return to the airport or lose its slot exemption unless the Department of Transportation grants an extension.

Conway said that the financial package includes about $50 million in concessions from vendors and airline employees as well as new capital.

Conway did not give specific details about the package, but sources familiar with the deal said International Lease Finance Corp., Los Angeles, National's largest aircraft lessor, plays a key role.

Conway explained some of the package to employees -- particularly how it would affect their pay -- in a memorandum dated Saturday.

"All employees will be financially affected by this agreement," Conway said in the memo. "On the up side, National will continue to operate. On the 'pain' side, compensation for all employees, effective Sept. 1, will be reduced."

Pay is being reduced by 20 percent for officers, 15 percent for pilots and 10 percent for directors and managers for 38 months. All other employees will see their pay reduced by 10 percent for four months, the memo said.

Those reductions are in addition to 10 percent cuts taken by officers and 5 percent cuts taken by directors and managers a year ago. Per diem and employee benefits, including medical, are not affected.

A recent Bankruptcy Court filing listed the company's monthly payroll at about $3 million in July. Conway received about $26,000 in gross pay for the month.

In the memo, Conway said he recognized that some employees would not be able to weather the cuts.

Next on the agenda for National is winning approval from creditors and the bankruptcy court on the financial plan. Key creditors, recognizing that keeping the airline flying represented their best chance of being paid, are expected to green-light the deal.

"We are delighted that National has been able to obtain this financing and we heartily endorse their continued operations," said Robin Phelan, an attorney for the airline's unsecured creditors.

A hearing is scheduled before Judge Linda Riegle on Friday to explain the package and establish a timetable for setting the bankruptcy reorganization plan in motion.