American Airlines Expected to Buy TWA, Sources Say

American Airlines Inc., in a surprise move, this week is expected to announce plans to buy financially troubled Trans World Airlines Inc., which would effectively retire one of the oldest names in U.S. aviation history, industry sources said Sunday.

At the same time, the sources said, American has reached an agreement to buy 49% of DC Air, the airline being created by Black Entertainment Television founder Robert Johnson, and is close to a deal with UAL Corp.’s United Airlines to jointly operate the US Airways Shuttle on routes involving Washington, New York and Boston.

All three deals will be announced Wednesday, sources familiar with the negotiations said. Figures were not available Sunday.

The moves are part of a complex deal designed to address federal antitrust concerns about United’s proposed merger with US Airways Group Inc. as well as to improve American’s competitive position in the United States. The acquisition of TWA would make American comparable in size to the combined United and US Airways after their planned merger. United already is the nation’s largest airline.

As part of the TWA deal, sources said, St. Louis-based TWA would file for Chapter 11 bankruptcy protection from its creditors Wednesday, and American would buy all TWA assets and preserve the jobs of its 20,000 employees. The acquisition of TWA’s St. Louis operation would give American a much-needed third mid-continent hub along with Chicago O’Hare International Airport and Dallas-Fort Worth International Airport, where it has run out of room to expand. American is a subsidiary of AMR Corp., which is based in Fort Worth.

The purchase of TWA, which has twice filed for bankruptcy protection, would consign the airline to the ranks of such departed carriers as Pan American World Airways and Eastern Airlines. American does not plan to continue the TWA name, sources said.

TWA officials declined to comment on the purchase. Other airline industry officials would not speak for attribution.

The agreements are expected to head off the concerns of congressional critics who have indicated that the United-US Airways deal would touch off another major round of consolidation in the airline industry.

With American’s planned purchase of TWA and the Justice Department already having signed off on an alliance agreement between Northwest Airlines Corp. and Continental Airlines Inc., Delta Air Lines Inc., the remaining major airline, would be left with no major carrier with which to merge.

Although the United and DC Air agreements are designed to satisfy antitrust concerns, sources close to the negotiations said there was no guarantee the moves would satisfy the government. A source emphasized that Justice Department antitrust officials did not specify any of the moves being taken in the American agreements. “They just said, ‘Here are our concerns; you go and find the solutions to them,’ ” the source said.

“This will handle most of the antitrust issues,” said Darryl Jenkins, a professor at George Washington University who specializes in airline economics. “This one deal will make the merger of United and US Airways likely.”

Details of the agreement between United and American are still being wrapped up, but the agreement with DC Air was basically a done deal, sources said.

The purchase of 49% of DC Air by American would take the new airline out from under the influence of United. DC Air was being crafted from the merger of United and US Airways. US Airways is the largest airline operating at Reagan National Airport in Washington. To avoid antitrust problems, US Airways agreed to sell most of its “slots”--departure and landing rights--there to BET’s Johnson, who agreed to continue serving the 43 smaller cities now served by US Airways.

Under the initial proposal, United would provide jet aircraft and crews to DC Air until it could provide its own equipment and crews. American, a major competitor to United, would now provide those planes and crews.

Details of the agreement being worked out between American and United have United selling to American 86 jet planes, ranging from Fokker 100s and MD-80s to Boeing 757s. American plans to use the Fokkers, 11 of them at first, for DC Air; the rest would be used for its TWA operation, sources said. American has the world’s largest fleet of MD-80s.

American also has agreed to provide competition for United on five routes from US Airways hubs where United and US Airways now compete, routes where the Justice Department has expressed concern about future lack of competition. The routes involve Charlotte, N.C., Pittsburgh and Philadelphia, a source said. Three of the routes are from Philadelphia to Denver, Los Angeles and San Jose; another is from Charlotte to Chicago’s O’Hare airport; and the fifth is from Pittsburgh to Reagan National in Washington.

In exchange, United plans to sell American coveted slots at airports in the eastern half of the nation from New York to Atlanta. American would pick up at least five slots at La Guardia Airport in New York, three at Reagan National, four at Boston’s Logan International Airport and one each at airports in Philadelphia, Atlanta and Newark, N.J.

Perhaps the most novel agreement involves the hourly US Airways Shuttle service between Washington and New York and New York and Boston. United would get the shuttle under its merger deal with US Airways, but under the agreement between United and American, the two airlines would jointly operate it. United and American would alternate hourly, with each airline flying under its own banner and colors. The airlines would not share revenue. “Whoever carries the passengers gets the revenue,” a source said. The shuttle would continue to operate from the same gates, and each airline would honor the other’s tickets for the shuttle.

American’s purchase of TWA makes enormous sense for American, analysts said.

TWA once was an aviation powerhouse, vying with Pan Am for global travel dominance. But like Pan Am, TWA did not fare well after the airline industry was deregulated in 1978.

Yet TWA owns one of the nation’s smoothest-flowing hubs, St. Louis, which almost sits astride the geographic center of the country’s population. And although most of its aircraft are leased, TWA operates one of the most modern fleets in the U.S.

“American is gaining a jewel,” Jenkins said.

TWA’s costs are unusually high, Jenkins said, because the airline has no credit. Hence, TWA cannot hedge on fuel prices, and its aircraft lease fees to Boeing Corp. are steep.

But with American’s expertise and financial power, he said, “all of a sudden you have a premier airline.” As part of the bankruptcy filing, the lease agreements would be renegotiated.