AIRLINES : TWA Plans 2nd Filing for Bankruptcy : Profitability: Carrier proposes that creditors and note holders forgive $500 million in debt in exchange for stock.
Trans World Airlines Inc. is about to land in U.S. Bankruptcy Court for the second time in four years--but this time it expects the visit to be brief.
TWA, a once-proud transatlantic carrier that’s been hammered in recent years by a takeover fight, fare wars, an aging fleet and suffocating debt, is trying to take the first step toward sustained profits by slashing its $1.7 billion of long-term debt.
Its proposal: Creditors and public note holders would forgive $500 million of the debt in exchange for more common stock in the nation’s seventh-largest airline. That would lift the two groups’ combined equity to 70% from 55%.
But the groups want the restructuring handled via a Chapter 11 filing in Bankruptcy Court. Such a “prepackaged” filing is popular with some creditors because it’s a relatively quick way to get the legal system’s stamp of approval on a plan that’s already been approved by the parties involved.
St. Louis-based TWA, anxious to put the restructuring behind it, is willing to file the prepackaged plan in the hope it will help the airline emerge from Chapter 11 within two months. The filing could come any day.
TWA says it sees no other options.
“The other alternative without the restructuring is that the company would no longer exist,” TWA Chief Executive Jeffrey Erickson said Monday at a special meeting of TWA stockholders, who also endorse the plan.
The plan does carry risks. TWA’s announcement of another bankruptcy filing, no matter how expedient, could prompt some passengers to avoid the airline at a time when it needs all the traffic it can get. But TWA’s bankruptcy stay is not expected to affect passengers, travel agents, airline operations or suppliers.
The process will be “a seamless and almost unidentifiable restructuring from the perspective of the flying public,” said Vincent Intrieri, who advises the committee representing holders of TWA’s 8% notes.
But TWA’s problems will persist even if the plan is implemented.
“Their ability to become a viable airline is less than 50-50 right now, but there’s still a chance,” said Bill Angeloni of the Canaan Group, an airline consulting group in Park City, Utah.
TWA never regained solid footing after it emerged from Chapter 11 in November, 1993, and in 1994 it lost $433.8 million on revenue of $3.4 billion (excluding one-time gains and charges).
The airline now has only one major U.S. hub, St. Louis, and its transatlantic presence has shrunk after it dropped or sold many of its overseas routes. TWA has 23,000 employees and serves about 80 cities worldwide.
The carrier’s aircraft fleet is also the oldest among the major U.S. airlines, with many of its jets at least 20 years old. That keeps TWA’s operating costs higher than those of its rivals, and means the airline will soon have to spend heavily for new equipment if it wants to maintain its size.
Still, TWA has managed to survive this long when some thought it could not. And the company is sharing in the industry’s general improvement this year: TWA passenger traffic through the first five months of 1995 edged up 1% from a year earlier, and its average load factor in May--the percentage of seats filled--climbed to 65.2% from 63.3% a year earlier.
