TWA Pilots Join With Icahn in Effort to Stop Merger With Texas Air
The pilots union allied itself Tuesday with corporate raider Carl C. Icahn in an effort to ward off a merger between Trans World Airlines and Texas Air Corp.
The Air Line Pilots Assn. said that, on behalf of its about 3,100 members at TWA, it had entered into an agreement with Icahn and his affiliates under which Icahn pledged “to use his best efforts to acquire control of TWA and effect a merger with TWA.”
If he succeeds, the union pledged in return to accept pay and benefit cuts of up to 20% through Dec. 31, 1988, in exchange for profit sharing and common stock in any post-merger TWA.
The pact, which was ratified by the union’s executive council, is contingent on Icahn reaching similar agreements with the TWA machinists and flight attendants unions.
Texas Air agreed to acquire TWA on June 13 for $793.5 million. The Houston-based company said it would pay $19 in cash and preferred stock worth $4 for each share of TWA’s 34.5 million shares outstanding.
Success Story
The union, in announcing the cooperative effort, made it clear that its major objective was to thwart the takeover of TWA by Texas Air Chairman Francisco (Frank) Lorenzo. Organized labor regards Lorenzo as an enemy because of his union-breaking tactics at Continental Airlines, which is 84% owned by Texas Air.
The labor unions contend that Lorenzo deliberately threw Continental into bankruptcy in 1983 to break his union contracts and to cut labor costs. Although the airline is still technically in Chapter 11 proceedings under the U.S. Bankruptcy Code, it is currently one of the most successful carriers, largely because of its lower labor bills.
“Look at what he has done at Continental,” ALPA spokesman John Mazor said. “We’re concerned that he will try either a repeat of what he did at Continental or that he will invent a new game.”
New York financier Icahn already holds 32.77% of TWA, his shares bought over many months at an average price of $16 per share. When the TWA-Texas Air agreement was announced, he did not commit himself to selling his shares. Sources reported that he was not happy with the terms of the proposed merger.
Late Tuesday, after the pilots’ announcement in Washington, an Icahn spokesman first said that there would be an announcement from the entrepreneur, then postponed any comment until this morning. A Texas Air spokesman said there would be no comment from Lorenzo. TWA also said it had no comment.
A source close to the negotiations, who asked not to be identified, said the pilots had engaged Lazard Freres & Co. as their investment adviser. He said the deal with Icahn would grant the pay reductions and benefit cuts in exchange for 20% of the stock of TWA when the airline is merged with one of Icahn’s affiliate companies.
“The unions would own 20% of the airline,” the source said. “Icahn would own the other 80%.” In addition, the unions would also get 20% of the profits of the airline “in real money.”
The source said he thought that Icahn would either buy the shares he needs to control TWA on the open market or launch a tender offer. Such an action could come soon, “possibly as early as tomorrow,” the source said.
The source said he could not estimate how much Icahn would be willing to pay for the additional shares of TWA. But he said the $23 offered by Texas Air was being “discounted by the market” because, for one thing, the public “doubts the value of the 4% preferred stock which Lorenzo has offered.”
In addition, Lorenzo, as the owner of other carriers--Texas Air also owns 70% of New York Air-- might have difficulty with governmental regulatory agencies such as the Department of Transportation. Icahn, the source said, has already passed all such obstacles.
Late Tuesday, the TWA Labor Union Coalition, which was formed to try to thwart Lorenzo’s takeover, said the agreement binds only the pilots. Vicki Frankovich, president of the Independent Federation of Flight Attendants and a spokeswoman for the coalition, said that her union and the machinists would “continue to discuss differences with Icahn” but that the coalition was also “continuing its discussions with other potential investors and partners.”
Texas Air, meanwhile, has joined TWA in urging the Department of Transportation to use “expedited procedures” to process their merger application, which they maintain raises no anti-competitive problems. In the filing Monday, the two companies characterized the pact as “an end-to-end acquisition,” with each party bringing complementary operations to the deal.
