TWA Seeks Bankruptcy Protection

Trans World Airlines Inc., weighted down with debt and buffeted by an industry-wide slump, Friday became the nation’s fifth major air carrier in little more than a year to file for bankruptcy court protection from creditors.

TWA Chairman Carl C. Icahn said that agreements had already been reached with bondholders and various unions that will pave the way for the airline’s emergence from bankruptcy protection later this summer. But the filing may only be a short-term solution to the airline’s financial woes, and it does not assure its long-term survival, according to industry analysts.

At airports across the country Friday, it was business as usual at TWA ticket counters and gate areas, with no reported service disruptions related to the bankruptcy filing. The airline said its flight schedule will remain unchanged and that it will continue to honor tickets and frequent-flyer awards while in bankruptcy court.

TWA’s Chapter 11 bankruptcy filing comes less than two months after former rival Pan American World Airways ceased operations amid an industry tailspin that has cost the airlines about $6 billion in losses over the last two years.

At a press conference in New York, Icahn professed optimism in TWA’s future, but he also conceded some failures.

“This has not been one of my stellar investments,” said Icahn, one of the most famed corporate raiders in the 1980s. Icahn estimated his personal losses from TWA at between $150 million and $200 million.

“At TWA, we’ve cut our costs, we’ve cut our bureaucracy, we’ve worked with our unions,” he said, claiming significant cost advantages over much larger competitors despite their presumed economies of scale.

“We are doing very well from a revenue point of view,” he added, noting that new discounted fares aimed at luring business travelers had boosted TWA’s percentage of domestic seats filled to 61%, versus 53% for the industry.

Despite Icahn’s optimism about a rapid recovery, many in the airline industry say that TWA’s outlook remains bleak and it has little hope of surviving as an independent carrier in the long run. The Chapter 11 filing gives Icahn time to make TWA attractive for a merger partner, industry observers said.

“Mr. Icahn is the ultimate trader,” said John Pincavage, a partner in the Transportation Group, a New York-based airline investment firm. “If he believes that by buying time he can make TWA’s assets worth more to someone else, he will do it.”

Icahn stressed that TWA’s bankruptcy filing, in the works since last summer, differed from abrupt filings by Pan Am, Eastern and Continental. He noted that TWA had secured agreements from bondholders before filing for Chapter 11 and had $500 million in cash on hand.

Under the proposal to reorganize the airline, bondholders agreed to exchange $1 billion in debt for most of Icahn’s 90% ownership stake in TWA. The airline will be left with between $600 million and $700 million in debt at far lower interest rates than the current debt bears, allowing it to save an estimated $150 million a year in interest payments.

TWA joins four other airlines that have sought bankruptcy protection since December, 1990--Continental, Pan Am, Midway and America West. But only Continental and America West continue to operate under court protection while Pan Am and Midway ceased operations last fall.

Eastern, which had been in bankruptcy court since 1989, also shut down last year.

TWA may face some of the same problems that finished off some of the carriers that died in bankruptcy court: Travel agents are reluctant to book customers aboard a bankrupt airline, and full-fare business travelers avoid the bankrupt carriers.

“Some business travelers have been reluctant because . . . of the financial difficulties at TWA,” said Thomas Nulty, president of Associated Travel Management in Santa Ana.

“We have serious concerns as to whether (TWA) will really come out,” said Lawrence R. Crawford, president of Avitas, a Washington-based airline consulting firm. “Over the past several years, (Icahn) has cleaned out the capital, stripped off the routes and sold them off for additional funding.”

TWA’s bankruptcy filing only strengthens the positions of the three largest U.S. air carriers--American, United and Delta, which control more than 50% of the nation’s passenger traffic--and are rapidly expanding overseas as part of the globalization of the industry.

But even the so-called “mega-carriers” have failed to escape the wrath of the current industry slump. For example, United this week posted a $494-million loss from operations for 1991.

During his six-year reign at TWA, Icahn has been blamed by employees and industry observers for dismantling an airline with a pioneering history almost as rich as that of the defunct Pan Am.

“While Pan Am’s demise emotionally is more wrenching for a lot of industry people, TWA was in many ways just as prestigious,” said an airline industry consultant. “But it’s not the same company anymore.”

TWA traces its roots to 1925, when its predecessor, Western Air Express, was incorporated. Transcontinental and Western Air Inc., was formed in 1930 with the merger of a portion of Western Air Express and two other airlines. In the early 1930s, TWA circulated specifications for a twin-engine, all-metal airliner to aircraft manufacturers, prompting the Douglas Aircraft Co. to build the DC-1 and launch a line of Douglas transports that included the workhorse DC-3.

Charles A. Lindbergh surveyed routes for TWA, which billed itself as “The Lindbergh Line” in the 1930s.

In 1939, Howard Hughes took control of the airline, involving the carrier in the development and purchase of the Burbank-built Lockheed Constellation four-engine airliner, which enabled TWA to offer the first nonstop flights across the United States in the early 1950s. Under Hughes, the airline pushed its routes across the Atlantic after World War II, changing its name to Trans World Airlines in 1950.

In 1969, new Pacific routes gave TWA around-the-world route authority, joining Pan Am as the only U.S. carriers ever to have had passenger flights circling the globe. TWA ended the flights in the mid-1970s as losses forced it to curtail Pacific operations.

With airline deregulation in 1978, TWA moved to establish a domestic hub in St. Louis and bought St. Louis-based Ozark Air Lines in 1986 to bolster that operation. But TWA faltered in its attempts to compete in the highly competitive environment spawned by deregulation.

TWA became embroiled in a takeover battle against Frank Lorenzo, then chief of Texas Air Corp. Icahn, supported by TWA employees who feared Lorenzo’s anti-union philosophy, began buying TWA shares and soon took control of the carrier.

But relations between Icahn and the unions soon deteriorated, as did the airline’s competitive position. Last year, TWA looked at possible mergers with Pan Am and Continental while it sold off most of its prized transatlantic routes to American Airlines for more than $500 million. The recession and the Persian Gulf War sent airline industry revenues into a tailspin.

Last summer, Icahn announced that TWA was preparing to enter into a prepackaged bankruptcy that would have the blessing of its major creditors and the federal Securities and Exchange Commission.

Instead, TWA filed under normal bankruptcy protection procedures, saying the documentation required by the SEC would have delayed the process until early spring, when many passengers book their summer travel plans.

Milestones in TWA History

TWA became the sixth big U.S. airline to seek sanctuary from creditors under Chapter 11 in the last few years. Here is a chronology of important events in the life of the airline: July, 1925: TWA’s predecessor, Western Air Express, is incorporated. October, 1930: Transcontinental and Western Air Inc. is formed by a merger of part of Western Air Express, TAT-Maddux and Pittsburgh Aviation Industries Corp. April, 1939: Aviation pioneer Howard Hughes becomes principal stockholder of the company, beginning a relationship that spans decades and ends in the 1960s after several years of legal feuding with the carrier’s management. May, 1950: Transcontinental officially changes its corporate name to Trans World Airlines Inc. August, 1969: TWA inaugurates transpacific and around-the-world service. May, 1985: Financier Carl C. Icahn, known for his hostile takeover forays on companies, discloses he controls 23% of TWA. The airline sues Icahn to prevent him from acquiring more, but he outmaneuvers the company’s management. September, 1985: Icahn wins effective control of TWA after a bitter takeover fight with Frank Lorenzo, head of Texas Air Corp., then-parent of Continental Airlines. March, 1986: Five-thousand TWA flight attendants strike over concessions demanded by Icahn to save money. Icahn replaces all the strikers at lower cost, and the walkout fails after a few months. September, 1988: Icahn takes TWA private. January, 1989: Icahn moves TWA headquarters from New York to suburban Mt. Kisco, N.Y., near Icahn’s home. January, 1991: TWA sells its Chicago-London route to American Airlines for $110 million. TWA defaults on interest payments to some debt-holders, marking the first serious deterioration in relations with TWA and creditors. May, 1991: American Airlines buys three more TWA London routes for $445 million, seriously diminishing TWA’s preeminence as a transatlantic carrier but providing it with much-needed cash. July, 1991: Negotiations with creditors intensify and speculation increases that TWA will be forced to seek bankruptcy court refuge. Icahn later announces an accord with creditors that will put TWA under federal bankruptcy protection briefly in 1992, trim its debt from $1.7 billion to $700 million and provide another $400 million in cash. Dec. 12, 1991: TWA and Continental Airlines disclose they have been conferring about a possible merger. Some industry analysts say TWA would make a good fit with Continental, which had been under bankruptcy court protection for a year. Dec. 20, 1991: TWA agrees to sell two of its last three London routes to USAir Group Inc. for $50 million. TWA employees say the sale proves their suspicion that Icahn is trying to dismember the airline. Jan. 31, 1992: TWA seeks federal bankruptcy court protection. Source: Times news services

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