National detailing latest plan for financing

Monday, Sept. 9, 2002 | 11:13 a.m.

National Airlines would emerge from Chapter 11 bankruptcy protection Oct. 30 under a timetable outlined by attorneys Friday.

Lawyers for the Las Vegas-based airline gave details of their $112 million debt-for-equity emergence plan in a hearing before U.S. Bankruptcy Court Judge Linda Riegle. They'll be back in court on Thursday for a hearing on interim approval of the plan, a procedure that would give National immediate access to $11 million of the cash it is being lent.

A hearing to confirm National's modified reorganization plan is scheduled Oct. 8 with final confirmation set for Oct. 30.

National had already been granted approval of a reorganization plan in April, but it was subject to the airline successfully winning a government-backed loan guarantee from the Air Transportation Stabilization Board, formed following the Sept. 11 attacks. On Aug. 15, the ATSB rejected National's application for a $50.5 million loan guarantee, leaving the airline to scramble for an alternative plan.

That plan was unveiled last week and detailed in court Friday.

Attorneys for creditors are confident the plan and the new financing package would be approved.

Craig Hansen, lead attorney for National, said because the new plan does not adversely affect creditors it wouldn't be necessary to resubmit it to them for a vote. He added, however, that individual creditors could file objections. That doesn't appear likely because the biggest creditors -- the companies that lease planes to National, the fuel contractor and the maintenance contractor -- are on board with the plan following several days of negotiations over the Labor Day weekend.

In Friday's hearing, Hansen detailed the source of the $112 million finance package, including the previously undisclosed total being contributed in reductions of employee wages.

Hansen said $57.3 million is coming from new conversions of debt to equity negotiated with creditors, $24.3 million is from wage reductions, $18.4 million is in new cash equity from undisclosed sources and $11.6 million is from a letter of credit extended by Harrah's Entertainment Inc. that enables the airline to spend money collected by credit card on advance ticket sales.

The $24.3 million in savings from wage reductions comes from four different employee classifications and would be in effect for different time frames ranging from four months to 38 months. The biggest salary hit affects company officers and the company's managers and directors, who have begun taking home 20 percent less on top of a 10 percent cut that began a year ago. Those cuts are in effect through October 2005. Pilots took a cut of 15 percent, also effective through October 2005. All other employees took a 10 percent cut, in effect through the end of the year.

Like the financing that was in place in the earlier reorganization plan, the debtor-in-possession financing would roll over into exit financing should the new reorganization plan be approved.

Hansen told the judge that in his 20 years of practicing bankruptcy law, he has never seen a group of creditors so willing to work with a debtor.

"We have a great deal of optimism, but it's not a done deal yet," Hansen said. "I think we've about used the nine lives of this cat and now we're working on its mother and father."

After the hearing, Hansen said he feels the creditors have been willing to work with National because they believe in the airline's business plan and the product.

Attorneys for creditors also have said they believe that keeping National flying represents their best chance for being paid what they're owed and that the soft aircraft market is working in National's favor.