TWA Can Sell American Only 3 London Routes : Airlines: The Department of Transportation’s decision opens questions about the price that will be paid for half of the original offering.
The Department of Transportation on Thursday approved ailing Trans World Airlines’ proposed sale of three key routes between the United States and London to American Airlines butblocked TWA’s transfer of three lesser routes.
The decision was a setback to Beverly Hills financier Kirk Kerkorian’s bid to acquire TWA intact. But the ruling also raised many questions, including whether, when and at what price American would assume the three approved routes, which connect New York, Los Angeles and Boston to London.
Both American and TWA said they were “pleased” with the decision by Transportation Secretary Samuel K. Skinner. However, in separate statements, the airlines appeared to be jockeying for position in upcoming talks to renegotiate the six-route pact.
The original agreement envisioned a payment by American to TWA of $445 million for all six routes. In a statement issued Thursday, TWA Chairman Carl C. Icahn made it clear that he wants the entire sum for the three routes that he is being allowed to sell.
American, on the other hand, said TWA’s “self-announced precarious financial situation creates unique risks which must be carefully dealt with.” American also raised the prospect of further delay because of the possibility of judicial review of DOT’s order.
In approving the sale of routes from New York, Los Angeles and Boston but disallowing the sale of those from Baltimore, Philadelphia and St. Louis, Skinner said American’s expected entrance into the market would enhance “the quality and competitiveness of air service” between the United States and Britain.
The original pact between the two companies “is now a legal impossibility,” Skinner added. But he cautioned that “there is no basis whatsoever for treating our willingness to approve the sale of three routes to London . . . as though it were somehow the end of TWA.”
Kent Scott, chairman of TWA’s pilot’s union, agreed. Due to strong summer bookings to Europe, “money is pouring into TWA right now,” he said. Scott, who backed Kerkorian’s plan, said that in his view the DOT ruling gives Icahn “clear sailing to hold an auction.”
American disagreed, stating that its contract “remains in effect” and “bars TWA” from selling the routes to others.
In its formal ruling, the Transportation Department said a confidential business plan filed by Kerkorian’s Tracinda Corp. “contains enough obvious flaws that we are not persuaded that Tracinda has a practicable plan for acquiring and operating TWA.”
“It’s a big pill to swallow, and we were disappointed,” said Gene Shutlet, general counsel of Tracinda. He reiterated that Tracinda would only buy TWA if it retains all six London routes. He added, however, that Tracinda is “still looking” at the decision to determine whether an acquisition is possible.
Icahn, TWA’s chairman, said: “We now await American’s decision as to whether they wish to proceed with the transaction on the terms permitted by the DOT decision.”
Analysts predicted that, despite uncertainties, American would likely buy the three TWA routes. “American is getting much more than half a loaf,” said Raymond Neidl of Dillon Read & Co.
“With the peak summer season approaching, the sooner they get in there and start competing with United the better.”
United Airlines recently purchased routes linking the United States and London from Pan Am, which is operating under Chapter 11 of the U.S. Bankruptcy Code.
“I wouldn’t be surprised if the renegotiated price has already been determined,” added Kevin Murphy of Morgan Stanley & Co.
Murphy said American’s assumption of the London routes would continue the trend in the airline industry of the strong getting stronger by picking off prized routes from struggling carriers. Delta and USAir are expected to bid for TWA’s remaining routes to London.
In Washington, the Justice Department said it does not intend to try to block TWA’s sale to American Airlines of the three routes approved by DOT.
James F. Rill, assistant attorney general for antitrust, said: “The acquisition by American of all six of TWA’s London routes would have resulted in a substantial increase in concentration and likely would have raised the cost for many consumers of travel between the United States and London. By limiting the transaction to three London routes, antitrust challenge has been averted.”
On Capitol Hill, Sen. John C. Danforth (R-Mo.), who with other members of Congress and Missouri politicians have encouraged Tracinda’s bid to buy TWA, said such a deal could still be consummated.
“It is my hope that Carl Icahn will sell the airline to Tracinda Corp. and TWA’s employees,” Danforth said.
Skinner said the decision was one of the most difficult he has had to make in his two years as secretary of transportation.
“At stake are the livelihoods of thousands of airline employees, the future of two great and proud airlines and the international competitiveness of the airline industry,” he said.
Zonana reported from New York and Olen from Washington. Times staff writer Ron Ostrow in Washington also contributed to this story.
