Topic Author
Posts: 392
Joined: Sat Sep 09, 2000 8:06 pm

Icahn Will Butcher TWA If Given Power

Mon Jan 29, 2001 5:35 am

Hi everyone. The following article is by Darryl Jenkins, the Director of the Aviation Institute at George Washington University, Washington, D.C. He writes about Icahn's destructive behavior toward TWA.

Commentary: Don't put Icahn in the pilot's seat

by Darryl Jenkins

WASHINGTON, D.C. - The 15-year wound from Carl Icahn's cash-draining stab at Trans World Airlines has finally brought the once-proud airline to its knees. Down to its last few dollars, TWA declared bankruptcy and proposed to sell its remaining assets to American Airlines. This reluctant and considerate move will, if successful, preserve thousands of jobs and critical air service. Icahn, the craftiest of all corporate raiders and still a significant TWA creditor, however, wants to go out with TWA the same way he came in: by depriving the airline, its customers and its employees a future of stability and success.

Icahn is maneuvering in the courts to block American Airlines' bid to buy TWA and its assets, proposing a plan of his own to purchase the airline. His bid, a combination of financial smoke and mirrors cobbled together after American's initial offer, would stymie the only real hope TWA employees have for employment security. It is ironic that the guy who got TWA into this mess is asking for permission to control its future.

TWA's "Icahn problem" began in 1985. When Icahn took over TWA, some saw him as a white knight financier trying to restore the sagging airline to financial and operational health. In 1988, Icahn took the company private through a leveraged buyout, putting $469 million in his own pocket and loading the company's balance sheet with debt. That was the last year TWA made any money. The leveraged buyout added approximately $1.2 billion in debt to the company. The cash withdrawal by Icahn deprived TWA of working capital needed to grow the airline. The debt, the economic recession of the early 1990s and the spike in fuel prices were the reasons TWA filed for its first Chapter 11.

TWA lost market share to other airlines at the same time that Pan Am and Eastern were closing down. Again, this was caused by Icahn's focus on finance rather than growing the airline. By the early '90s, TWA had the oldest, least cost-efficient fleet in the industry. If Icahn had lived up to his promise to invest in the airline, perhaps TWA would not have ended up in the deep financial pit that led to what appears to be its last bankruptcy filing.

As fuel and interest costs escalated during the early '90s, once-profitable routes were sold to make payments on the Icahn loans. The assets he sold -- access to Heathrow, in particular -- are now some of the most profitable in the industry. Ironically, these assets are now controlled by American Airlines.

During the first TWA Chapter 11 reorganization, Icahn lost control of the company to creditors. But Icahn's departure was not complete. He remained a TWA creditor. As the price of extending repayment of a $180 million debt, Icahn was allowed to purchase TWA tickets at 55 percent of full retail price until 2003. Some reports indicate that Icahn's Karabu Corp. has paid $514 million to buy TWA tickets with a retail price of $925 million. The airline has been unable to recover from Icahn's double whammy: huge debt costs and loss of a significant amount of seat inventory, which strangled its revenue stream.

Despite these and other financial problems, TWA and its employees have rallied in recent years, improving operations and on-time performance. But it wasn't enough. Now Icahn is trying to throw a roadblock into what could be the last hope for TWA's employees and customers by asking the courts to grant financing power to him, not American. A Delaware court approved the American plan to keep TWA operational, but a final hearing on the issue is set for Jan. 27. The judge made the right decision to allow American to provide the financing and the overall structure to improve service to the flying public.

Liquidating and selling off TWA's assets might give Icahn a cent or two more on the dollar, but it makes no sense for TWA employees, for St. Louis or for the other communities the airline serves. American Airlines has put together a sensible, sound proposal with solid financial terms that would serve to shore up TWA's customers, employees and the nation's aviation system.

Giving Icahn the right to bid for TWA would, in effect, turn control of the airline to Icahn once again. It will be sad to lose TWA, but it would be sadder still if Icahn stands in the way of a last, best offer that will preserve jobs and air service and some measure of TWA's great aviation legacy.

Darryl Jenkins is director of the Aviation Institute at George Washington University, Washington
Posts: 8777
Joined: Thu May 30, 2002 6:54 am

RE: Icahn Will Butcher TWA If Given Power

Mon Jan 29, 2001 5:45 am

While I agree that Icahn does not deserve control of TWA again, you cannot blame him for trying to block AA's move. Ironically, HE has more at stake in this single transaction than any anyone else due to Karabu.

While Karabu is THE largest contributing factor to TWA's eventual financial failure, one must point out that there exists a significant likelihood of TWA being able to survive independantly should Karabu be restructured. The question before the court should therefore be "What is in TWA's best interests?".

If a group of investors - possibly even involving Icahn - came forward with a rival bid to AA that allowed TWA to remain independant - the court should consider it seriously. Ironically, an Icahn involvement might actually be a safeguard against mismanagement. For all his faults, Carl Icahn is too shrewd a businessman to allow another accidental killing of his golden goose.
"The A340-300 may boast a long range, but the A340 is underpowered" -- Robert Milton, CEO - Air Canada
Posts: 882
Joined: Sat Aug 21, 1999 4:15 am

RE: Icahn Will Butcher TWA If Given Power

Mon Jan 29, 2001 6:51 am

I have to agree with b-747-437b
There is no way that Icahn is going to let twa get away that easily. This is gong to be one hell of a long battle between American and Him, I would like to see Twa stay independant. Hopefully it will somehow.
If Icahn does get his way, hopefully he has changed his ways from before, and he will not run the airline or have as much to do with it, Hopefullly he will have someone with really good common sence to run it, Hopefuly he will leave compton at the helm and see how it turns out then? Who knows we will just have to wait and see.

Safety is Everyones Responsibility.

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos