British Route Talks Could Help Icahn in Bid to Sell TWA : NEWS ANALYSIS
Why would Trans World Airlines Chairman Carl C. Icahn want to sell some of his most prized assets--TWA’s London routes--then turn around and buy long-floundering Pan American World Airways with the proceeds?
With the peripatetic Icahn, no one can know for sure. But his eye may well have been on tough negotiations coming up later this week between the United States and Britain over landing rights at London’s Heathrow Airport.
By striking a deal to sell TWA’s London routes to American Airlines, Icahn probably upped the demands that Britain will make on American negotiators in talks that before would have covered only United Airlines’ pending plans to buy Pan Am’s London routes.
And by renewing his bid for Pan Am, Icahn may be trying to forge a TWA that would be an attractive investment for a British airline or other foreign carrier if those talks end up opening America’s domestic airways to greater foreign ownership.
The talks will be complicated.
The United States is seeking to allow the transfer of landing rights between airlines, giving any U.S. carrier the ability to touch down at Heathrow when a route is transferred.
If United and American aren’t allowed to take over Pan Am’s and TWA’s rights, respectively, they would have to land at Gatwick Airport, which doesn’t have the same easy connections to the rest of Europe that Heathrow offers.
In fact, both deals could easily die if the two governments don’t come to terms, airline officials and analysts say. American Airlines Chairman Robert L. Crandall said Monday that if talks don’t produce an agreement by September allowing American to land at Heathrow, the purchase of TWA’s routes would be canceled.
But to win the landing rights, the United States will have to give up something substantial in exchange.
“It is very clear, the United States is asking for bilateral concessions. They must be paid for with bilateral concessions from the other side,” said Mark Dunkerley, manager of commercial and government affairs for British Airways. “That is the way the system works. The U.S. has never given anything from its side of the table for nothing.”
What do the British want? Three items are on their agenda:
* Freedom to carry passengers between U.S. cities. Until now, foreign carriers have been able to fly passengers to and from the United States, but cannot, for instance, sell tickets on the New York to Los Angeles leg of a flight originating in London.
* The right to serve more U.S. cities from points outside Britain.
* Perhaps most important, permission for foreign airlines to own a greater share of U.S. carriers. At present the limit is 25% ownership.
Transportation Secretary Samuel K. Skinner has hinted at allowing increased foreign ownership of American carriers to enable financially ailing U.S. airlines to get badly needed cash infusions. Such action, however, would ultimately require congressional approval.
In official comments on the bilateral talks set to resume this week in London, U.S. officials are only saying they are confident some kind of agreement will result.
“We are very optimistic that we will work this out with the British,” said Patrick Murphy, a deputy assistant secretary of transportation. “But the issues will be generic,” he said, noting that U.S. officials have not approved either the United-Pan Am or American-TWA deals. “We don’t want to suggest that we are prejudiced in any of the transactions before us.”
What exactly is up Icahn’s sleeve is unclear to most observers. Without its London routes, TWA would still be a major carrier, serving two dozen destinations in Europe and the Middle East and operating domestic hubs in St. Louis and New York.
Most analysts think, though, that Icahn’s ultimate goal is to pick up the pieces of Pan Am or some other floundering airline and sell the resulting combination.
“He is trying to create another airline with what he buys,” says Frank Spencer, a professor at the Northwestern University’s Transportation Center. “If he is clever enough to put it together and it is attractive enough with a good, viable set of routes, someone else will be able to pick it off.”
If Icahn succeeds in acquiring Pan Am, analysts said, he will try to sell off foreign routes that duplicate TWA’s, use that money to pay for the acquisition and then separately sell whatever is left.
But some analysts predicted Monday that a Pan Am-TWA merger will never take place.
“I wish him luck,” added Ray Neidl airline analyst with Dillon, Read & Co., noting that TWA and Pan Am together carry $3.6 billion in debt. “I doubt that he’ll ever sell the combined airline with that much leverage.”
Spokesman Jeffrey Kriendler said Pan Am had no comment on Icahn’s offer. Pan Am rejected a similar offer from TWA last month.
