TWA to Press for Restructuring of Its $1.8-Billion Debt

L.A. Times Archives

Oct. 12, 1994 12 AM PT

From Associated Press

ST. LOUIS —

Trans World Airlines Inc. said Tuesday that it will seek approval from creditors for a massive restructuring of its debt that would increase ownership of the company by its creditors.

The carrier has filed for Securities and Exchange Commission permission to cut its current $1.8 billion in debt by $800 million by exchanging equity for debt. If creditors fail to approve the plan, TWA said, it will file a prepackaged bankruptcy plan.

Officials said the restructuring calls for shifting creditor ownership of the company to about 70% from the current 55% by issuing stock to the creditors and postponing lease payments for six months.

“The proposed exchange of new equity for debt is part of new management’s strategic business plan to restructure the airline operationally and financially,” the company said.

In exchange for a six-month moratorium on lease payments for flight equipment and aircraft, the company offered to issue shares of common stock and equity rights to the lessors in exchange for cancellation of 50% of the rental payments over the period and a payment plan for the other 50%.

The out-of-court financial restructuring plan hinges on approval of all of its aspects, TWA said.

TWA, based in St. Louis, ended a 21-month bankruptcy restructuring last November. Creditors got a 55% stake in the airline in exchange for forgiving $1 billion in debt. Employees took the remaining 45% stake. Under the new plan, that share would shrink to as low as 30%.

Jeffrey Erickson, TWA’s chief executive, also said Tuesday that the airline expects to cut its costs to about 7.5 cents per available seat mile by this winter, from 9 cents.

Many carriers have sought to achieve the 7.5-cent figure, but only Southwest Airlines has succeeded. Erickson said operating-cost reductions the company initiated over the past few months will produce annual savings of $250 million.

Part of those savings include agreements reached recently with its three major labor unions that would save $130 million a year.