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How Did Icahn Get Karabu  
User currently offlineAhlfors From Canada, joined Oct 2000, 1347 posts, RR: 5
Posted (13 years 9 months 3 weeks 2 days 21 hours ago) and read 1751 times:

I know Icahn has the infamous Karabu agreement with TWA, but what exactly does it entail, and why in the world did TWA sign this deal??

11 replies: All unread, jump to last
 
User currently offlineAA737-823 From United States of America, joined Mar 2000, 5766 posts, RR: 11
Reply 1, posted (13 years 9 months 3 weeks 2 days 15 hours ago) and read 1724 times:

Well, I asked this question some time ago, so you might try to do a search on it, as I have forgotten some of the details.
But this is the jist:
After some strange, under the table stuff, TWA ended up owing Ichann a lot of money. Were talking huge amounts. So, since they couldn't pay it, he came up with Karabu. Why did he spell it that way? Because that is the name of one of his companies. It entails TWA giving him most of their tickets and allowing HIM to sell them. But there is a catch. He buys them from Trans World at roughly HALF market value, then sells them for what they are worth, even a little less. Because he knocks off just a few bucks, the unsuspecting public buys from him, not TWA. So, he is getting his money and TWA is going bankrupt.
This is especially cruel when you consider HE is most of the reason they owed him money to begin with.
The whole thing ends in 2003, a day that all TWA employees and fans look forward too.
There is some speculation as to what will happen at that time. As they will no longer owe money to anybody, many people have suggested that they will shut down or merge. But some say no. They have recently developed a fleet renewal program. They've ordered 50 717s with 50 options. They recently retired ALL 727s to cut costs. They dropped ALL Florida service just about a month ago. That last one scares us. Why are they pulling out of profitable areas? All of these things can be seen two different ways- they are trying to stay in business, OR they are trying to make themselves more appealing to another airline for a merger deal.
I hope they don't merge. It is the opposite of what our free enterprise marketing system was intended to do. It would decrease competition, which INCREASES prices. And, on top of all that, they are a great airline with a colorful history.
Hope that explained it.
R


User currently offlineVirginA340 From United States of America, joined Jul 2005, 15 posts, RR: 0
Reply 2, posted (13 years 9 months 3 weeks 2 days 14 hours ago) and read 1718 times:

TWA is getting rid of the Karabu covered routes but hopefully will restart them after that agreement is over.


"FUIMUS"
User currently offlineD L X From United States of America, joined May 1999, 11265 posts, RR: 52
Reply 3, posted (13 years 9 months 3 weeks 2 days 14 hours ago) and read 1714 times:

Merging does not always reduce competition. TWA has become so small that they do not compete with some of the other majors much at all. Examples include US, AS, and HP.


Send me a PM at http://www.airliners.net/aviation-forums/sendmessage.main?from_username=NULL
User currently offlineLowfareair From , joined Dec 1969, posts, RR:
Reply 4, posted (13 years 9 months 3 weeks 2 days 12 hours ago) and read 1713 times:

>>They dropped ALL Florida service just about a month ago. That last one scares us. Why are they pulling out of profitable areas?<<

They did not pull all of the Florida service, a lot of flights still operate from STL, and several from JFK.

How do you know they were profitable? Karabu/Lowestfare.com bought a lot of those already low-yield tickets from TWA.

And who exactly does it scare? Not me. Not a TWA res. agent I know who has been at TWA for 30 years.


User currently offlineACVITALE From United States of America, joined Aug 2001, 922 posts, RR: 11
Reply 5, posted (13 years 9 months 3 weeks 2 days 6 hours ago) and read 1708 times:

Many have asked via email or via forums what is Karabu and how does it effect TWA.

From the early to mid 1980s thru the mid 1990s TWA was controlled by Carl Icahn who used Icahn industries to buy TWA and take the company private. He then proceeded to raid TWAs cash, sold it's London routes, cancelled or deferred new aircraft orders and took the cash in it's pension funds. He also brought about a diabilitating strike between the IFFA and TWA (flight attendents that lasted years) and transferred many assets to Icahn's holding companies. He sold airplanes to the leasing companies and then leased them back. Essentially taking billions worth of cash and assets out of TWA and leaving the carrier with few assets little cash and poor moral as well as an aging fleet of aircraft.

No surprise later, Icahn finds TWA in financial troubles. They file a bankruptcy and reorganize the company.

The basic fundementals never changed and TWA continued to post poor numbers made worse by the Persian Gulf Crisis.

In the early to mid 1990's Trans World Airlines (TWA) filed a prepackaged bankruptcy filing. It was expected to go thru bankruptcy court quickly as TWA had made prior arrangements with it's creditors to refinance the debt and holdings.

TWA was between 2-3 billion in debt with less than 400 million in assets

Things took an unexpected turn when the court removed Carl Icahn after the US Pension Guarantee Fund found that all of TWAs pensions were underfunded.

They threatened to shut TWA down unless the funds were adequately funded immediately.

TWA then negotiated a deal to survive. The deal was basically, That Carl Icahn's corporate interests would guarantee the pension guarantee fund the monies TWA owed and would make the money thru the sale of reduced rate tickets to Icahn's companies for corporate use. (not for sale to the general public). TWA agreed (they had no choice) Also part of the agreement were the resignation of Icahn and elimination of anything to do with TWA, Work rules modifications and wage cuts for TWA employees in exchange for stock and board seats , Stock and board seats for creditors. Icahn was required to provide the company with a 200 million dollar loan as well that would also be repaid with this agreement.

Well, to make a very long complicated story short. TWA finds shortly after emerging from bankruptcy court that Icahn has set a company called Global Discount Travel up that is selling these tickets to travel agents and the general public. TWA sues. Do to a very tricky lawyer and some bad legal advice to TWA they lose an unloseable case. Global can sell the tickets. Global starts a website. Lowestfares.com The site later becomes the name of the company as the internet soars. The ticket types Global/Lowestfare sells are outlined in the cut from Lowestfare.com's 10Q report from Q1 this year. (next paragraph.. But join me below as there is so so much more...)


------- From lowestfare.com 10Q---------
Products
- Trans World Airlines. On June 14, 1995, TWA and Karabu Corp., an entity controlled by Carl C. Icahn, entered into a ticket program agreement, pursuant to which Karabu Corp. may purchase tickets for passenger travel on TWA at significant pre-determined discounts from published fares through September 2003. By agreement dated August 14, 1995, Lowestfare.com LLC, our wholly-owned operating subsidiary, was joined as a party to the ticket program agreement.

Pursuant to the ticket program agreement, Lowestfare.com LLC may purchase an unlimited number of system tickets. System tickets are tickets for all applicable classes of service which are purchased by us from TWA at a 45% discount from TWA's published fare. In addition to system tickets, Lowestfare.com LLC may also purchase domestic consolidator tickets, which are tickets issued at bulk fare rates and are limited to specified origin/destination city markets and do not permit the holder to modify or refund a purchased ticket. Our purchase of domestic consolidator
tickets is subject to a cap of $70 million per year based on the full retail price of the tickets.
The ticket program agreement excludes tickets for travel which originates or terminates in St. Louis, Missouri. Tickets are subject to TWA's normal seat
assignment and boarding pass rules and regulations, are non-assignable to any other carrier and are non-endorsable. No commissions are paid to us by TWA for
tickets sold under the ticket program agreement. See "Risk Factors -- We depend heavily upon our contract with TWA which terminates in September 2003; -- We are engaged in litigation brought by TWA concerning system ticket sales under the ticket program agreement."

--------- End of lowest fare 10Q excerpt --------


Now here is the fun part. TWA paid off Global/Lowestfare/Icahn about 2 years ago. The Pension fund was paid off. Everyone was paid off early.
Except the tickets that are sold at a 45% discount to TWA are unrestricted (except for STL O/D and codeshares) and are now accounting for almost a billion in revenue from TWA!

Not only that but, If another carrier trys to buy TWA the new carrier is saddled with the same agreement for the life of the agreement.

Additionally, If TWA tries to get out of it with a bankruptcy filing.. No dice.. It is written to withstand a bankruptcy filing and it holds assets such as equipment, engines and planes as a guarantee.

Well needless to say.. Icahn got the cash sold the best assets and left the company with an aging fleet and no real cash or assets left. Then got more cash from the agreement he broke and continues to rape the company until Sep 2003.

TWA still in spite of all this has managed to reduce long term debt to between 600-700 million (extremely low for an airline of it's size. TWA is 2/3 the size of US Airways in RPM and US Air had almost 7 billion in long term debts) TWA has rejuvinated their fleet with all new 717-200, 757-200, and many new MD80's. They also have been retiring 767-200's with used but fairly new 767-300ers and retireing the 727 and DC-9 fleets as 717's arrive.

TWA still is #1 in on time performance and ranked in the top 2 for the last 4 years in JD Powers annual survey of frequent flyers for short and long haul flights.

So inspite of a horrible situation TWA has survived. They are expected to turn a Q2 profit. If so it will be amazing. Can you imagine Delta/United/US Air or any airline making money when any ticket sold is discounted up to 45% if sold through Icahns internet website, consolidator company, or network of travel agents and affiliated web sites.

It is as a result of Icahn's dealings that the FAA and DOT have specifically said the man is not permitted to be involved in any airline in any capacity. Not even Lorenzo is limited by the DOT like that.

There is a lot of interesting reading for those of you who are technical types. Go to the US Supreme Court and look up TWA vs. Karabu. It has tons of useless facts and incredible amounts of data.

Any questions start here in this thread. Corrections let me know...

Albert


User currently offlineDCA-ROCguy From United States of America, joined Apr 2000, 4499 posts, RR: 33
Reply 6, posted (13 years 9 months 3 weeks 2 days 6 hours ago) and read 1698 times:

Actually, as TWA becomes stronger, the possibility of a post-Karabu TWA-US Airways merger looks plausible. Why, some of you may ask, is one of airliners.net's most dogged opponents of airline mergers--which are usually hugely anticompetitive and a disaster for medium-and small-sized markets--open to the possibility of UA-US?

TWA is, as I've said elsewhere, on the mend and on the move. If they've survived Karabu this long, it's unlikely that they'll fail now. Fleet renewal, as DLX notes, is underway. They would not be a millstone around US's neck, as they might have been a few years ago.

US is a Big 6 Oligopoly mainline-cost carrier. Mergers between Big 6 carriers are utterly anticompetitive and should be blocked at all costs--a big 3, of which US-UA would be the opening move, would be able to crush any and all low-fare carriers. The fact that WN is the size of US means nothing because it would be a fraction the size of any Big 3 Superoligopoly carrier.

But US has higher costs due to its regional-amalgam structure and its Northeast-based operating system. A merger with smaller TWA, with which US largely does not compete, would bring two strong route systems--US in the East, TW in the Midwest, together and only cement US's position in the current Big 6 industry structure. It would not be anticompetitive.

Such a system would also leverage US's higher operating costs, and assist US with the process of overall cost reduction. Both carriers would be stronger as one, market power would not be unacceptably concentrated, and employees would, with proper legal agreements, have job security. The strength of a combined TW/US would likely guarantee all of them jobs anyway.

The fleets are also similar--US has many DC-9s and MD-80s, and 757s and 767's. Maintenance cost should not be unduly increased in a merger. The M80s and DC9s can be retired together as TW/US's well-compliemented fleet-renewal narrowbodies arrive. And the 717 and A318 would take care of 100 seat needs--US has not chosen a 100-seater, and the 318 would complement US's 319-320-321 orders. And the 717 would be economical on short hops in the Northeast and Midwest.

Maybe a combined TW-US could be called US World Airways. As long as the United Steel Workers of America don't mind sharing their acronym, as I've noted elsewhere.

Jim



Need a new airline paint scheme? Better call Saul! (Bass that is)
User currently offlineACVITALE From United States of America, joined Aug 2001, 922 posts, RR: 11
Reply 7, posted (13 years 9 months 3 weeks 2 days 6 hours ago) and read 1695 times:

More corrections to misinformation...

TWA has hardly pulled out of all of Florida. They currently fly the following Florida city pairs.

JAX-STL
TPA-STL
MCO-STL
MCO-JFK
MIA-STL
MIA-JFK
MIA-SJU
FLL-STL
FLL-SJU
RSW-STL
FLL-TPA

Routes cut were
PBI-LGA
PBI-STL
PBI-JFK
FLL-JFK
TPA-JFK
SRQ-STL

TWA will begin flying STL-PNS with RJs
TWA codeshares with Gulfstream on many intra-Florida routes and service to EYW is on Gulfstream

In short TWA is still a large carrier in the Florida markets but, cut several low yield routes that Karabu had caused to drop below levels of obtainable profitability.


Finally, TWA is larger then HP and AS and is roughly 2/3 the size of US.

The misquotes by idiots whom make airliners.net the laughingstock of the airline industry must stop. The information is available at http://www.dot.gov Use the resource. People whom put up false or mis-leading information like that technically are guilty of liable and slander depending on which posts we would like to reference. I look forward to the day when the moderators of this board can get real and enforce laws by moderating posts or requiring references to be posted or disclaimers by non referenced materials. Frankly many of you post with no clue as to the facts and should be deleted for the vile you post as fact. TWA is not going to shut down after Karabu (Assuming they survive that far) That has not and will never be a consideration. Where did you dream up that crap? Please people.... God gave you a brain use it!

Al

http://www.MidwestWingsAirlines.com


User currently offlineACVITALE From United States of America, joined Aug 2001, 922 posts, RR: 11
Reply 8, posted (13 years 9 months 3 weeks 2 days 6 hours ago) and read 1692 times:

More corrections to misinformation...

TWA has hardly pulled out of all of Florida. They currently fly the following Florida city pairs.

JAX-STL
TPA-STL
MCO-STL
MCO-JFK
MIA-STL
MIA-JFK
MIA-SJU
FLL-STL
FLL-SJU
RSW-STL
FLL-TPA

Routes cut were
PBI-LGA
PBI-STL
PBI-JFK
FLL-JFK
TPA-JFK
SRQ-STL

TWA will begin flying STL-PNS with RJs
TWA codeshares with Gulfstream on many intra-Florida routes and service to EYW is on Gulfstream

In short TWA is still a large carrier in the Florida markets but, cut several low yield routes that Karabu had caused to drop below levels of obtainable profitability.


Finally, TWA is larger then HP and AS and is roughly 2/3 the size of US.

The misquotes by idiots whom make airliners.net the laughingstock of the airline industry must stop. The information is available at http://www.dot.gov Use the resource. People whom put up false or mis-leading information like that technically are guilty of liable and slander depending on which posts we would like to reference. I look forward to the day when the moderators of this board can get real and enforce laws by moderating posts or requiring references to be posted or disclaimers by non referenced materials. Frankly many of you post with no clue as to the facts and should be deleted for the vile you post as fact. TWA is not going to shut down after Karabu (Assuming they survive that far) That has not and will never be a consideration. Where did you dream up that crap? Please people.... God gave you a brain use it!

Al

http://www.MidwestWingsAirlines.com


User currently offlineD L X From United States of America, joined May 1999, 11265 posts, RR: 52
Reply 9, posted (13 years 9 months 2 weeks 6 days 18 hours ago) and read 1672 times:

DCA-ROC, 100% agreement. (Is that a first?) I seriously believe that should the US/UA merger not occur (which I strongly believe it won't) US and TW will at a minimum be in talks if they aren't already now around the time that Karabu expires.

A marriage between these two would create a carrier on the scale of Delta and Northwest and would be able to offer a route system competitive with AA, DL, and to a lesser extent UA and NW.

Question for Acvitale: how much revenue does TW lose due to Karabu? Do you have a rough percentage? What percent of TWA bookings come from Lowestfare.com?



Send me a PM at http://www.airliners.net/aviation-forums/sendmessage.main?from_username=NULL
User currently offlineACVITALE From United States of America, joined Aug 2001, 922 posts, RR: 11
Reply 10, posted (13 years 9 months 2 weeks 6 days 16 hours ago) and read 1668 times:

It is impossible to estimate the revenue effect in 2000. Karabu grows at a large rate due to Carl Icahn's continued advertising across the internet, in print, and on radio and TV. He has accounted for over 1 billion in revenue sales in the years 1994-1999. The revenue gleaned is a real issue as TWA does NOT need the passengers from Karabu. They have been operating with record loads and the yields are down. Frankly, Karabu costs the airline revenue on both sides of the equation because in theory it pits the airline against itself.

Al


User currently offlineTurboTristar From , joined Dec 1969, posts, RR:
Reply 11, posted (13 years 9 months 2 weeks 5 days 22 hours ago) and read 1660 times:

Albert, when I started reading your posts, I was getting pissed and red. But thank you for letting us know all the good things that ARE going to happen to TWA. TWA, you are #1.

TurboTristar


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