Pan Am Says It Might Agree to a TWA Merger : Airlines: But Pan Am insists that its suitor would have to help with its dire cash needs during the first three months of ’91.

Bringing two of the nation’s sickliest airlines a step closer to combining forces, Pan American World Airways said Friday that it might agree to a merger with Trans World Airlines.

In a letter to Carl C. Icahn, chairman of TWA, Pan Am Chairman Thomas G. Plaskett said his airline’s board of directors had decided such a combination would be “advantageous” to its shareholders and 27,800 employees.

But Plaskett insisted that TWA would have to help Pan Am meet its dire cash needs during the first three months of the new year, traditionally the carrier’s slowest season.

“Under the circumstances, it would be futile to enter into a transaction without provision for bridge financing, especially if TWA were not to commit to close the transaction regardless of our financial situation,” Plaskett said in his letter.

Icahn made his $375-million offer for Pan Am on Sunday, his second pitch to merge the nation’s two leading transatlantic carriers in a month.

Both TWA and Pan Am have been struggling for years; together they are $3.6 billion in debt. And each has moved recently to sell its valuable London routes: Pan Am to United Airlines for $400 million and TWA to American Airlines for $515 million.

Those deals, crucial for Pan Am’s and TWA’s survival, hang on talks between the U.S. and British governments over landing rights at London’s Heathrow Airport--talks that stalled Friday.

On receipt of Plaskett’s letter, Icahn immediately sent a memo to all TWA employees that read: “I view the response of Pan Am as a sufficient basis for continuing to evaluate financing and a merger possibility and we are in the process of doing so.”

Sources said TWA would need help from banks to provide the bridge financing, a sum that exceed $100 million. Icahn would probably insist in any loan arrangement on a pact that would make him a so-called debtor-in-possession. That would give him a priority claim on assets if Pan Am filed for bankruptcy, as some observers expect is unavoidable.

But most analysts believe that Icahn will prove neither able nor willing to come up with interim financing--and thus that the merger will never transpire.

“No one in their right mind is going to advance Pan Am any meaningful amount of money unless they are absolutely certain that Pan Am will not go into Chapter 11 bankruptcy,” said John V. Pincavage, an airline analyst with the Transportation Group, an affiliate of the Paine Webber investment house.

In a bankruptcy, he explained, a judge might cancel a merger deal “or throw the money into the pot that would be set aside for the creditors”--not for the interim lender.

Another analyst, who declined to be identified because the situation is so “delicate,” said: “Plaskett is not enamored with the deal but he needs the bucks.”

“Furthermore, it is not a combination that solves any problems” for the two embattled carriers, the analyst said.

“They will have the ability to sell their duplicate route authorities, but that’s the only advantage,” he said. “But otherwise there are major problems: The separate labor groups must be integrated, both airlines have old airplanes and there are greatly underfunded pension funds at both carriers.”

Yet Morton S. Bayer, chairman of Avmark, Inc., an Arlington, Va., aviation consulting firm, said the combination would be favorable. “There are definite strengths,” he said. “They have the capability of greatly increasing their domestic feed of traffic into overseas routes. And they have numerous dormant overseas routes that they could activate.”

THE AIRLINES AT A GLANCE PAN AM

Year ended Dec. 31 1989 1988 1987 Sales (millions) $3,561 $3,569 $3,593 Net income (loss) (millions) (452) (97) (265)

Assets: $2,441,000,000 Employees: 27,769 Fleet: 130 jets Transatlantic flights (4Q, 1989): 1,895 TWA

Year ended Dec. 31 1989 1988 1987 Sales (millions) $4,507 $4,361 $4,056 Net income (loss) (millions) (287) 250 45

Assets: not available Employees: 32,577 Fleet: 220 jets Transatlantic flights (4Q, 1989): 1,947