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TWA to Emerge from 2nd Bankruptcy : Airlines: Cost cuts have made the firm lean. But it needs revenue to survive stiff competition.

From Bloomberg Business News

Trans World Airlines Inc. will emerge this week from its second bankruptcy in as many years, leaner after a cost-cutting crusade but saddled with an aging fleet and an anemic presence in the lucrative transatlantic market.

TWA, the nation’s seventh-largest airline, has already won broad concessions worth $130 million a year from its unions.

The airline’s prepackaged restructuring plan is another element in its favor. It cuts TWA’s yearly interest expenses by $50 million and pares its debt by 30%--from $1.7 billion to $1.2 billion.

Creditors and shareholders had few complaints. The plan was filed June 30 and won court approval just a month later. TWA could exit Chapter 11 as early as today. In Chapter 11, a company is protected from its creditors as it tries to reorganize its finances. In a prepackaged plan, most of the reorganization plan is agreed to beforehand.

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But problems remain. Never a cash cow, TWA in its diminished state will have to struggle even harder to boost revenue and earn the money it needs to buy new jets, pay off debt and boost service from its St. Louis hub.

“While management has done an impressive job of cutting costs and arranging a financial restructuring,” Standard & Poor’s analyst Philip Baggaley said in an Aug. 7 report, “TWA’s credit profile remains limited by historically weak revenue generation, its modest position on transatlantic routes and the industry’s oldest fleet of jet aircraft.”

Duff & Phelps analyst Andrew Leinoff took an even dimmer view. “We believe that in two to three years, yet another restructuring of TWA’s balance sheet will be necessary,” he said in a July 13 report. He cited the airline’s “likely inability to finance the modernization needed to stay competitive.”

A big problem, according to Leinoff, is the presence in St. Louis of low-cost rival Southwest Airlines.

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For its part, TWA concedes that revenue is running slightly below last year, when sales totaled $3.4 billion and the airline’s net loss was $435.8 million. But it says that is due to the elimination of money-losing routes, including several in its Atlanta and international markets.

More important, said TWA spokesman John McDonald, is the effect these cuts have had on expenses.

“Costs have dropped at a far greater rate than revenue,” he said. “We’re spending our money and using our assets more wisely than we did before.”

The airline is still in better shape than it was in November, 1993, when it emerged from its first bankruptcy.

TWA had no prepackaged agreements going into that one. Talks dragged on for nearly two years, and debt remained high when the airline finally emerged from the court’s protection.

TWA is an airline pioneer with a storied past. It inaugurated coast-to-coast service in 1930--you could fly from Newark, N.J., to Los Angeles in just 36 hours, with one stopover.


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