National’s Chapter 11 plan converted to liquidation case

Tuesday, April 15, 2003 | 10:15 a.m.

A U.S. Bankruptcy Court judge has converted National Airlines' Chapter 11 reorganization to a Chapter 7 liquidation case, which will enable a trustee to sell the defunct airline's scant assets.

Judge Linda Riegle on Monday ordered the conversion, enabling National's federal bankruptcy trustee, Tom Grimmett, to arrange for the sale of the airline's remaining assets to pay creditors pennies on the dollar for what they're owed.

Grimmett said Monday he did not know the total amount owed creditors.

Most of National's equipment, including its fleet of Boeing 757 jets, were leased, so the company has little left to sell.

Grimmett said the company's most valuable assets are its Federal Aviation Administration and Department of Transportation certifications and a series of 300 to 400 operations manuals for the jets the company leased. The lessors of those jets have stored them and would lease them to a buyer if a transaction is approved by the court.

Grimmett also said his office would investigate whether National's estate would be eligible to collect any federal aid approved by lawmakers to reimburse airlines for security expenses. He estimated that the airline's estate would be eligible to receive $2.2 million in government aid -- if the government allows airlines no longer in operation to be paid.

The trustee said the company also has dozens of computer terminals, which probably have not retained much value, and the National Airlines trademark. Grimmett said the value of the company's assets is about $350,000.

Grimmett said a deal disclosed in court in February is still under consideration.

Under a proposal outlined in a letter by National President and Chief Executive Officer Mike Conway and William Dix Fowler, the president and chief operating officer of Northern Air Cargo Inc., Anchorage, Alaska, the cargo company would acquire National's assets for $350,000 and form a joint venture, Northern National LLC.

Conway and Fowler would develop a Las Vegas-based niche air charter company that would operate two round-trip freight and passenger charters a week between Houston and Magadan, Russia, via Anchorage, under an exclusive contract with an undisclosed U.S. oil corporation.

Contacted Monday, Conway said the deal with Fowler "very much is on the front burner, and we're still pursuing that and collecting receivables which are due the company."

Under Conway's proposal, the new venture would begin operations in the summer in connection with the oil company's multibillion-dollar oil and gas exploration project in the Russian Far East.

Grimmett said it's possible that a small number of former National employees could be hired if the new proposal moves ahead.

He said if the Northern Air Cargo proposal moves forward, that rival companies could also bid for National's assets and there could be a courtroom auction

Conway has said the new-look company would not offer scheduled air service from Las Vegas. However, he has not ruled out the possibility of someday returning to scheduled air service if aviation industry conditions improve.

When National Airlines discontinued service in November, it laid off 1,500 employees, including 1,200 in Las Vegas. The airline had a fleet of 18 jets and had 36 round-trip flights a day between McCarran International Airport and 11 cities when the doors closed. The company began flying in May 1999, but filed for bankruptcy protection in December 2000.

Last year, the airline industry lost a record $11 billion, fighting off a sluggish economy and travel downturn following the Sept. 11 terrorist attacks.

The industry continues to struggle with a downturn in demand due to the Iraqi war and the mysterious respiratory disease known as SARS.

The nation's No. 2 airline and the third-busiest operating at McCarran, Elk Grove Township, Ill.-based United Airlines, is flying under Chapter 11 bankruptcy protection.