TWA, Union Reach Accord for 'Near Term' : Transportation: Airline buys labor peace by suspending debt payments and promising not to sell more foreign routes.

TWA, Union Reach Accord for ‘Near Term’ : Transportation: Airline buys labor peace by suspending debt payments and promising not to sell more foreign routes.

By ROBERT E. DALLOS

May 10, 1991 12 AM PT

TIMES STAFF WRITER

NEW YORK —

Trans World Airlines said Thursday that it had reached an interim agreement with its machinists union not to pay interest and dividends to its debt holders for at least the next several months and not to sell any more of its foreign routes in exchange.

The carrier also said that it is “exploring” buying back its debt for cash in a tender offer next week. The airline has about $1.5 billion in debts. It would reportedly pay 13.5 cents on the dollar.

The airline said that the agreement was designed to “address certain immediate concerns of the International Assn. of Machinists and Aerospace Workers, to prevent labor unrest at least for the near term” and to head off work stoppages and slowdowns such as those in Kansas City earlier this week. TWA declined to describe the union actions and no union spokesperson could be reached.

The agreement concerning the payments of interest and principal comes as little surprise because the airline said in February that it was withholding $75.5 million of such obligations.

Representatives of TWA’s debt holders could be not reached Thursday, but many industry observers believe creditors have little choice but to go along with the arrangement.

TWA said the agreement will last for the next several months, while it engages in “intensive bargaining” with the IAM. As part of the agreement it will not “sell or dispose” of any international routes or TWA’s overhaul base in Kansas City. It also agreed to immediately provide the airline’s passenger service employees a “snapback” to wage levels that existed before a salary cut was imposed on all employees and management about six years ago.

The IAM’s members took pay cuts of about 14% in 1985. These later were restored to all except the passenger service employees who joined the union after the pay increases. The machinists have been working without a contract for about two years.

TWA’s unions are nervous because it has been rumored that Carl C. Icahn, the airline’s chairman and owner, would sell some more assets, including foreign routes and the Kansas City facility. Just last week, TWA closed the sale for $445 million of three of its most lucrative routes to London to American Airlines, which will begin flying them on July 1.

TWA was known to be shopping three other London routes the Department of Transportation would not allow it to sell to American for competitive reasons. “I believe that this agreement was necessary to avoid the type of labor strife that plagued Eastern Airlines,” Icahn said in a statement. “While I am pleased that this arrangement will bring us labor peace with the IAM in the near term, I recognize that we have a long road toward ultimately resolving the many open issues that exist between us and the IAM.”

Each side must give the other 30 days’ notice before terminating the agreement.

Ray Neidl, an airline analyst with Dillon, Read & Co., said in buying back its debt and improving labor relations TWA might become a more attractive candidate for an acquisition.