National Airlines to sell assets to cargo company

Friday, Feb. 28, 2003 | 11:26 a.m.

Defunct National Airlines plans to sell its scant assets to an Alaskan cargo company planning to develop a Las Vegas-based niche charter operation.

The new National would operate two round-trip freight and passenger charters a week between Houston and Magadan, Russia, via Anchorage, Alaska, under an exclusive contract with an undisclosed U.S. oil corporation, the company said in U.S. Bankruptcy Court.

Details of the planned charter operation emerged Thursday as National's attorneys attempted to block the conversion of the airline's bankruptcy filing from a Chapter 11 reorganization to a Chapter 7 liquidation.

U.S. Trustee Barry Jenkins argued that converting the bankruptcy to Chapter 7 would expedite payment to creditors of the airline, which ceased operations on Nov. 6. But National attorneys argued that converting the bankruptcy now could kill its deal with Northern Air Cargo Inc., Anchorage.

Judge Linda Riegle decided to appoint a Chapter 11 trustee in the case and ordered that National return to court March 12 to report on the company's progress in completing the deal with Northern Air Cargo, a company that has operated since 1956 and once flew a DC-6 aircraft originally owned by Howard Hughes.

Riegle also asked the trustee to scrutinize National's payment of about $6 million since the company shut its doors. About $4 million of the expenditures are for transportation taxes and another $1.2 million was for the company's final payroll.

Since Nov. 6, the company has paid a skeleton crew of officers about $280,000.

Under a proposal outlined in a letter by National President and Chief Executive Officer Mike Conway and Northern Air Cargo President and Chief Operating Officer William Dix Fowler, the cargo company would acquire National's assets for $350,000 and would form a joint venture -- Northern National LLC.

Because National leased its fleet of Boeing 757 jets and most of its office space and equipment, it has few assets. Northern National would acquire National's operating manuals, including its Federal Aviation Administration and U.S. Department of Transportation certifications, the National Airlines trademark and some office equipment and supplies.

The company would be based in Las Vegas and 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 region.

The transaction would be valuable to Northern Air Cargo because the company currently operates three three-engine Boeing 727-100F jet freighters but would be able to haul a larger number of passengers and cargo to a remote location in Russia with the long-range 757 twin-engine jets National is certificated to fly.

Conway said after Thursday's court hearing that in the current aviation marketplace, 757 jets, which can carry about 200 passengers, are easy to come by and are being leased at low rates because demand is so low.

Fowler said he and Conway have been negotiating the deal between National and Northern since late last year. He said he had business dealings with Conway for years when he was an executive with National and America West Airlines in Phoenix.

Neither Fowler nor Conway would disclose the name of the oil company that would charter the jets. In a filing with the court, Conway said that if requested, he would file a copy of the complete Northern National proposal with the court, the committee of creditors and the U.S. trustee on a confidential basis. Conway said he anticipates a favorable response to the proposal by March 21, but if the deal collapses, he would not oppose converting National's bankruptcy to a liquidation in April.

Conway cautioned that Northern National would not be a new-look National Airlines in that it would not offer scheduled air service. However, he did not rule out the possibility of someday returning to scheduled air service if the 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 a travel downturn following the Sept. 11 terrorist attacks. Two major carriers -- US Airways and United Airlines -- are operating under bankruptcy protection and analysts predict more will find their way to bankruptcy court in the months ahead.

John Armbrust, an aviation fuel analyst with Armbrust Aviation Group, West Palm Beach, Fla., said Wednesday he expects American, Continental, Delta and Northwest will file for bankruptcy within the next six months.

"In essence, you have a whole industry in bankruptcy," Conway said after Thursday's court hearing.