Why Trump's Troubles Are Far From Over : Shuttle: It may be hard for him to sell.


Once upon a time a number of airlines bore the names of their owners or founders. Remember Muse? How about Laker? Or Braniff?

They're all gone. And although the Trump Shuttle is in no danger of biting the dust, there's a good chance it won't bear the name of its flamboyant owner much longer.

The Trump Shuttle, which operates on the busy corridor between New York and Washington and New York and Boston, is for sale. To help restructure his debts over the next few months, Donald Trump is hoping to sell the commuter airline, which he acquired in June, 1989, from bankrupt Eastern Airlines for $368 million. He has said he wants $600 million for the operation, but airline observers say that's more than twice its worth. In fact, some say the line is worth less than Trump paid for it.

But it won't be easy for the real estate and gambling magnate to dispose of the shuttle, even for a lot less than $600 million. For one thing, Pan Am Corp. has put its competing shuttle on the block, and for several reasons, it will likely sell first.

Observers believe that Pan Am will be desperate for cash by the end of the summer, when it enters the unprofitable fall and winter flying season.

Further, Pan Am's investment in its shuttle is said to be about $100 million, much lower than what Trump invested in his airline. (Beyond the purchase price, Trump is said to have spent $30 million to $40 million sprucing up the planes and terminals.) This will allow Pan Am to accept a lower price than Trump while still profiting. Finally, the Trump Shuttle carries more debt than Pan Am's.

Edmund S. Greenslet, an airline analyst based in Ponte Verde Beach, Fla., says the value of all airline assets has slipped in the past year. When Trump bought the shuttle, Greenslet notes, there was a $300-a-share offer on the table for UAL Corp., the parent of United Airlines. The offer collapsed for lack of financing, and UAL's unions are struggling to arrange financing for a buyout of the airline for $201 a share.

"All airline assets have declined by a third," he said. "The same would be true of the shuttle. In fact, all corporate assets are down" since the takeover boom has subsided.

Greenslet today puts a price tag of $200 million to $250 million on the Trump Shuttle. Scott Hamilton, editor of Dallas-based Commercial Aviation Report, a highly regarded industry newsletter, estimates that it would fetch only $144 million to $172 million, based on the value of the carrier's airport gates, its landing rights (also known as slots) and its 20 operating Boeing 727s, all of them old.

Another problem is the downturn in the New England economy, which has greatly reduced shuttle patronage. Meanwhile, rail service between Boston and Washington is improving, boosting the train's share of travelers. The travel time from central city to central city is about the same for planes and trains.

Greenslet concedes that the shuttle has unique values. He notes that the airline has gates and slots at Washington's National and New York's LaGuardia airports, both so congested that gates are in great demand and slots are rationed. Some observers maintain that an airline might purchase the shuttle not to run it but simply to acquire the slots for its other route operations--or to prevent its competitors from getting the slots.

"If you prevent someone else from getting it," said Prof. Frank Spencer of the Northwestern University Transportation Center in Evanston, Ill., "you have market domination for a number of years." But, he said, airlines that want the shuttle's gates and slots don't want its employees and pension obligations.

Bruce Nobles, who was replaced Friday as Trump Shuttle president, said recently Trump "would rather not sell the shuttle. He loves the shuttle. It is not for sale at a bargain-basement price. The shuttle has tremendous potential, (but) at this point, if someone offers him a lot of money, he would sell. All of the assets owned by Mr. Trump would be for sale if someone offers the right price."

Nobles noted that other airlines have expressed interest in the shuttle and that financial data had been supplied to a number of them. But he said no negotiations are under way, nor has any formal offer been made. American Airlines and America West Airlines are among the carriers reported to be interested.

The airline is "cash positive," Nobles maintained. But according to a recent Trump report to the Transportation Department, the shuttle posted a net loss of $20 million for the three months ended March 31 and has lost $80 million in the nine months since the operation was bought from Eastern.

Nobles says the airline was not expected to make a profit for at least a year, possibly two, and the Trump Organization said as much publicly a year ago.

Still, there is a troubling decline in the shuttle's market share since June 10 last year, when Trump bought the carrier from Eastern. Shortly after Pan Am began to compete against the Eastern Shuttle a few years ago, Eastern held 70% of the market. Trump Shuttle now has an estimated 49% of the market compared to Pan Am's 51%.

On top of his other troubles, Trump has had difficulties with banks that financed his shuttle purchase. According to Hamilton of Commercial Aviation Report, Trump recently negotiated a waiver from some terms of his loan, such as maintaining a $20-million cash balance. The shuttle needed the cash to pay its bills, Hamilton said. Trump's banks also agreed to let him defer principal payments on his loan until maturity.

Some aviation industry experts contend that Trump had no business investing in an airline in the first place.

"Donald Trump is in deep kimchee with his shuttle, proving once again that amateurs, financial wizards, astronauts, Air Force generals, MBAs and other whiz kids from other walks of life make lousy airline presidents," says a monthly newsletter published by Avmark Inc., a respected Arlington, Va., aviation consulting firm. "Time and again people, often rich or with access to riches, have bought or started an airline. They have never succeeded. . . ."

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