Challenges remain for National

Friday, Sept. 6, 2002 | 11:09 a.m.

While a $112 million financial package announced Wednesday by National Airlines should pull the company out of bankruptcy next month, other challenges remain for the Las Vegas airline.

Possibly the most troublesome issue for the three-year-old air carrier will be retaining its experienced work force.

The package that will be first presented to U.S. Bankruptcy Court Judge Linda Riegle today includes a combination of concessions from vendors and employees and a debt-for-equity exchange that would reduce the company's debt and inject new cash into the company.

The concessions -- from aircraft lessors and other contractors as well as the airline's 1,500 employees -- will save the company more than $4 million a month. The company did not break down how much of that savings could be attributed to the contractors and how much would be saved through employee pay cuts.

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 cut by 10 percent for four months. That's in addition to 10 percent cuts taken by officers and 5 percent cuts taken by directors and managers a year ago.

The question now becomes: Will National be able to keep its work force -- including its managers -- together?

"We may lose some of our management because of this," said Dik Shimizu, a spokesman for the company. "The options were you get 80 percent of what you make today or you get nothing at all."

A potential up side for employees will be their new equity position in the company. National officials say the employee ownership stake in the airline is likely to reach about 20 percent.

Emerging from bankruptcy also will reduce the airline's legal bills. A monthly operating report for the airline for July indicates the company has paid $8.3 million in reorganization expenses since the company filed for Chapter 11 protection in December 2000.

In July, the company reported revenues of $26.3 million, expenses of $30.7 million and reorganization expenses of $347,498, resulting in a net loss of $4.9 million. With concessions already in effect prior to the new financing arrangements announced Wednesday, the company reported a break-even month, with a net profit of $99,538.

As for what Vendors are getting out of the deal, National Chairman Mike Conway said he will stay silent. He explained that because aircraft lessors have contractual obligations with other airlines, it was agreed by the participants that specifics would not be publicly disclosed.

Conway is encouraged by the concessions, but is also realistic in his assessment of what lies ahead.

"Nobody likes to have their pay reduced and nobody likes to have to do that," he said. "There's still a great apprehension out there by travelers to fly. Fuel is still very volatile. And, the last time I looked, the situation in the Middle East wasn't very stable either."

Aviation analyst Robert Mann listed another challenge for the airline, one with which National already is familiar -- its position in a tough and competitive market.

"They have a long way to go to be on equal ground with its largest competitors," said Mann, an analyst for R.W. Mann & Co., Port Washington, N.Y. "Let's face it, National is modest in size compared with their biggest rivals in the markets they serve, Southwest Airlines and America West.

"But the amount and type of funding they are getting is important to the airline and its investors. It gives the company the headroom it needs to maneuver in existing markets and shore up and expand its presence in those markets and commence serving cities that were planned, but have been put on hold."

Conway said one of the first steps National will take is to get additional aircraft and to re-evaluate the top candidates for new service or service expansion.

National is likely to make some movement toward restoring service to Chicago's Midway Airport and Washington's Ronald Reagan National Airport. Earlier this week, National said it would discontinue serving Midway in October and not return next month to Reagan National. The company will start up its four daily Las Vegas-Reno flights in October as planned.

The timing of the return to Midway may be dependent on the completion of airport improvements.

But the return to Reagan National may be a little trickier, since the company isn't expecting to take delivery of any new planes until November and the company has an Oct. 23 deadline to begin service or possibly lose its slot exemption there -- a privilege it fought hard to win from the U.S. Department of Transportation in 2000.

The airline has filed for an extension of the deadline but recognizes it could lose the slot.

"We made the request. If we don't get it, we'll be disappointed, but then, we're used to being disappointed by decisions from Washington," he said in reference to the Air Transportation Stabilization Board's rejection of a government-backed loan guarantee that almost forced the closure of the airline last month.