I am reposting a prior post on Karabu! With Icahn's Picharn Corp dropping the pension with it 800 million underfunded and TWA still locked into Karabu which was use to pay off Icahn on Karabu. With the latest developments what do you think?
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---------
- 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...