Business History Books » Business Plans » Icahn's Not Gone Yet; May Make Move for TWA
Icahn's Not Gone Yet; May Make Move for TWA
Question:
> Ok, the TWA history web site has a strong slant against Icahn, but that is a > PR page. I am curious, in a court of law, could you clearly prove that Icahn > ran TWA into the ground without Icahn being able to provide conjecture proving > it wasn’t his fault nor intention ? > I agree that everything seems to indicate that Icahn killed TWA. But can it be > proven in a court of law ?
Simple–explain why Icahn foolishly sold the JFK-LHR rights to American Airlines for US$500 million in 1991 when the route was generating for TWA more than US$500 million per year in revenues. — Raymond Chuang Mountain View, CA USA
Response:
>Simple–explain why Icahn foolishly sold the JFK-LHR rights to American >Airlines for US$500 million in 1991 when the route was generating for TWA >more than US$500 million per year in revenues.
I’m not sure it’s that simple… What about the expense side of the equation? If TWA was spending $750M to run the route… I think the comparison would need to be made against similar route sales at the time – if there were any.
Response:
> midnight. Former TWA Chairman Carl Icahn, who has a lucrative ticket-selling > deal with TWA, was planning to offer interim debtor-in-possession financing > to TWA himself to give the court more options, according to a person close > to him. Mr. Icahn’s willingness to offer financing raises the prospect that > he may emerge as a rival sole or joint bidder as the formal bankruptcy > auction unfolds.
Well, if Icahn is allowed to get involved again, it will only delay the liquidation of TWA and make the liquidation under Icahn’s control, and will be done at a time when TWA will have little or no value left. Considering it is his cheap-tickets deal that is sending TWA to the brink, I think his offer is laughable. What will happen to his .com outfit once his supply of nearly free tickets runs out ?
Response:
> Considering it is his cheap-tickets deal that is sending TWA to the brink, I > think his offer is laughable. What will happen to his .com outfit once his > supply of nearly free tickets runs out ?
FAT CHANCE that Icahn can wrest control of TWA from AA. The bankruptcy court will definitely take into account how Icahn literally ran TWA into the ground and will reject his claim on the airline based on his unfitness to run TWA. — Raymond Chuang Mountain View, CA USA
Response:
> The bankruptcy court will definitely take into account how Icahn literally > ran TWA into the ground and will reject his claim on the airline based on > his unfitness to run TWA.
Ok, the TWA history web site has a strong slant against Icahn, but that is a PR page. I am curious, in a court of law, could you clearly prove that Icahn ran TWA into the ground without Icahn being able to provide conjecture proving it wasn’t his fault nor intention ? I agree that everything seems to indicate that Icahn killed TWA. But can it be proven in a court of law ?
Response:
January 11, 2001 Dividing the Skies American Air Says Huge Deal Will Benefit Business Travelers By SCOTT MCCARTNEY, SUSAN CAREY and NIKHIL DEOGUN Staff Reporters of THE WALL STREET JOURNAL NEW YORK — AMR Corp.’s American Airlines called its plans to pay $1.8 billion to acquire Trans World Airlines and a chunk of US Airways Group Inc. beneficial to consumers, because it sets up a dogfight between two huge airline networks. "We are determined to create a domestic and international network that is second to none," said AMR’s chairman and chief executive officer, Donald J. Carty. However, a kink in the complex plans began to develop just hours after TWA sought bankruptcy-court protection early Wednesday at three minutes after midnight. Former TWA Chairman Carl Icahn, who has a lucrative ticket-selling deal with TWA, was planning to offer interim debtor-in-possession financing to TWA himself to give the court more options, according to a person close to him. Mr. Icahn’s willingness to offer financing raises the prospect that he may emerge as a rival sole or joint bidder as the formal bankruptcy auction unfolds. American has agreed to pay $500 million for TWA, of which $200 million would provide much-needed immediate financing. Mr. Icahn would likely need to match that financing commitment. American would also get a $65 million breakup fee if it can’t complete the deal — a fee Mr. Icahn opposes. Wednesday, at a lengthy hearing, lawyers for Mr. Icahn contested American’s plan, claiming Mr. Icahn could provide the same financing for $9 million less. However, U.S. District Court Judge Sue L. Robinson in Wilmington, Del., approved the motion by American’s lawyers to give TWA interim financing. The case is expected to be transferred to U.S. Bankruptcy Court in Wilmington shortly. Assuming American completes its two deals and UAL Corp.’s United Airlines finishes its pending purchase of most of US Airways, United and American each will control about a quarter of all the travel on major U.S. airlines. Consumer groups and some congressional critics have protested against such dominance, and rival airlines have warned that they may be forced into mergers of their own to remain competitive. That would leave the U.S. with only three or four giant carriers, plus low-fare king Southwest Airlines and a slew of start-ups. Mr. Carty, at both a news conference Wednesday and a speech to an aviation association, answered criticism by saying that customers, particularly business travelers, are most loyal to carriers that offer the most flights and most destinations. "American Airlines says ‘I can take you anywhere’ and United says the same thing. There’s more competition between networks across the whole country," he said. "I think if there were three or four comprehensive networks across the country, consumers would be assured a high level of competition." TWA, which offered huge fare discounts as it struggled and sold lots of inventory to wholesalers and consolidators such as Priceline.com, was selling seats below cost, Mr. Carty said. Fares may go up after American’s acquisition, he acknowledged, but only because TWA’s prices weren’t economically sustainable. "It was a failing business model. Consumers should never expect those every day," he said. The acquisitions will shave an estimated 9% off AMR’s per-share earnings this year, according to Chief Financial Officer Tom Horton, but will eventually boost earnings by 20% to 25% within two or three years, he said. American’s deal to buy TWA required TWA to make its third trip to Chapter 11 of the U.S. Bankruptcy Code in nine years. In addition to putting up cash, American also will assume some $3 billion of leases on as many as 190 aircraft. Mr. Icahn would consider offering his own financing only if the court agrees to hold at bay for about a month American’s conditions for a breakup fee, a person close to him said. Because American’s breakup fee and other payments that it would receive total $75 million if the deal falls through, TWA is asking that any rival bids be at least $85 million higher than American’s proposal. Icahn’s Argument Mr. Icahn’s camp wants the judge to set aside those conditions to "level the playing field, so that American doesn’t have a leg up in the proceedings," according to a person close to the Icahn group. At the end of the bankruptcy auction process, "once we’ve studied the situation, we can decide whether we want to bid." Mr. Icahn also is said to be peeved that TWA passed on an offer from Boeing Co. and the airline’s unions, but people familiar with the deal say that it didn’t have adequate financing. A Boeing spokesman declined to comment. TWA had assets of $2.1 billion and debt of nearly $2.4 billion as of Nov. 30. TWA’s largest unsecured creditor is First Security Bank, the Salt Lake City trustee for $150 million of TWA notes. Officials involved in the negotiations say secured creditors will likely be made whole, and unsecured creditors will likely receive 20 cents to 30 cents on the dollar. For shareholders, though, there "won’t be much of anything," said William Compton, a longtime TWA pilot who became the CEO in 1999. "There were so many things that needed to be done to fix TWA that we simply ran out of time," Mr. Compton said, adding that he talked to "everybody" a year ago about buying his airline, but found no takers. "I was like the Fuller Brush man, knocking on doors." What American Would Get The deal will give American a much-needed third Midwestern hub in St. Louis for its east-west traffic flow, plus additional maintenance capacity and valuable landing slots and gates at both Kennedy and La Guardia airports in New York and Reagan National Airport in Washington. At the same time, American also agreed to pay United $1.2 billion to acquire 86 airplanes, split the US Airways Shuttle into a 50-50 joint venture, and gain: an additional 36 landing slots and five gates at La Guardia, three gates at Washington-Reagan, three gates at Boston, and one gate apiece in Newark, N.J., Philadelphia and Atlanta. American also agreed to pay $82 million to acquire a 49% stake in DC Air, a new regional line based at Washington-Reagan that will be sold by US Airways. All the deals still must win Justice Department approval. Indeed, the United divestiture to American is being done to satisfy concerns that antitrust regulators have raised about the United-US Airways deal. As of 4 p.m. in New York Stock Exchange composite trading Wednesday, AMR shares were off 25 cents at $38.69, UAL shares were off 13 cents at $41.88, and US Airways shares were up $1.69 to $44.38. Integrating airlines is always an expensive proposition, from merging labor groups to repainting airplanes, and labor offers the biggest challenge for American. Its pilots led an expensive eight-day sickout to protest an acquisition of tiny Reno Air two years ago; its flight attendants have already rejected one contract offer and are moving closer to a showdown with the company, and its mechanics just began talks on a new contract. Mr. Carty said some 270 planes may ultimately come into American’s fleet, but not enough employees to staff all the jobs. TWA will bring 20,000 workers, and American will take 500 to 1,100 pilots from US Airways. As a result, American’s flight attendants, mechanics and even pilots will see new promotional opportunities, Mr. Carty said, which should make the deals attractive. So far, American’s unions have withheld judgment on the plan. Pilots received an extensive briefing Wednesday; a spokesman for the Allied Pilots Association, which could block the 86-aircraft purchase from US Airways, said the group wasn’t yet ready to take a stand.