Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Tue, Aug 4 1992 Date: Tue, 4 Aug 92 07:01:11 EDT Message-ID: 08-04 0000 BONUS: Icahn may bow out at TWA USA TODAY Update Aug. 4, 1992 Source: USA TODAY:Gannett National Information Network Carl Icahn took over Trans World Airlines in 1986 to save it. Now he may give it up to his creditors and employees for the same reason. If he does, it will be a stunning reversal for one of the 1980's most-feared corporate raiders, a successful financier who once saw TWA as a chance to practice what he preached about how companies should be run. WHAT IS ICAHN'S PLAN? To give creditors 55% of the airline in exchange for forgiving more than $1 billion of TWA's $2.2 billion of debt. Give employees a 45% stake in exchange for wage and benefit concessions estimated at more than $200 million. He will step aside as chairman and invest at least $150 million, remaining a creditor. WHAT WOULD TWA'S PROPOSAL DO? TWA's latest bankruptcy reorganization proposal - the subject of intense negotiations during the weekend and Monday - is not a done deal. But in the short run, the rescue plans being discussed for TWA and other ailing airlines could shift the balance of power in an industry where only three carriers - American, United and Delta -have been counted as sure survivors. WHERE WOULD TWA STAND? The rescue plan for TWA would bring the airline out of bankruptcy court with 45% to 70% less debt and would save $200 million a year in interest costs. It would have among the lowest labor costs in the airline industry and, presumably, a highly motivated and enthusiastic workforce. WOULD IT DO BETTER WITHOUT ICAHN? It's too early to say whether long-suffering TWA will fare better without Icahn than it has with him. TWA will still have some serious problems: Its fleet is among the oldest in the industry, and many airline analysts consider its route system too small to go head to head with giants American, United and Delta. WHAT IS TWA'S BEST HOPE? TWA creditors' and unions' best hope is to fix up the carrier, get costs down and make it profitable for a year or two in hopes of attracting a merger, perhaps with a foreign airline. "If this deal gets done, we would expect to hear from a bunch of them who have been around to kick the tires," says Brian Freeman, a machinists union lawyer. WHAT IS THE UNIONS' PLAN? The unions' plan is to keep TWA alive until the economy recovers and air travel and profits pick up. Much depends on whom the creditors and TWA unions hire to run the company. They may seek an outsider. "Capable management is an oxymoron for this goddamn industry," says Connolly. WILL THE DEAL COME OFF? Like anything else involving Icahn - one of the business world's canniest negotiators - nothing is certain until a deal is signed. All three TWA unions must support the deal. So far, only TWA's machinists union says it's close to an agreement. The machinists are TWA's biggest union, but the pilots and the flight attendants unions aren't aboard. WHY ARE THE PILOTS IMPORTANT? The pilots' support is crucial to raise the $200 million needed in concessions. That's because the pilots make up 10% of the workforce but about a fifth of the payroll. The pilots are already paid about 40% less than those at the top five airlines and may be reluctant to take more pay cuts for uncertain benefits. WHAT ARE THE PILOTS' CONCERNS? Reports that Icahn will turn over control of the airline are "unfortunately premature," says Bill Compton, head of the pilots union. Among the pilots' concerns: job security, pension guarantees and guarantees of equity value in exchange for concessions. A potential sticking point is how employee ownership will be divided among the unions. HOW MUCH COULD ICAHN INVEST? TWA says Icahn will invest $150 million in the reorganized airline in exchange for notes - the machinists say up to $200 million. But creditors or unions may want him to put in more. WHAT DO CREDITORS SAY? Creditors must support the plan. TWA bondholders, including some of Icahn's friends, have taken a bath. Bonds with a $1,000 face value that once sold for more than $400 are trading at $50. Wall Street estimates say Icahn has lost $40 million to $60 million. Also, creditors want to know more if unions are giving up enough to get 45% of TWA's equity. WHAT ABOUT ITS PENSION PROBLEM? The Pension Benefit Guaranty Corp. says TWA's pensions are underfunded by $1.2 billion. TWA disputes that, but the PBGC could try to enforce a law that makes Icahn's other businesses liable for the underfunding if Icahn gives up control of the airline. Icahn says privately that he can resolve the pension problem. WHY HAS ICAHN STAYED ON? Icahn has hung in partly because he hasn't been able to find anyone to buy TWA on his terms. As TWA has deteriorated, Icahn's pride has kept him at the helm, too. As late as April, Icahn was saying he wanted to continue running TWA after the reorganization. "I don't want a failure on my record," he said. WHY HAS ICAHN CHANGED HIS MIND? Ruinous fare wars since American Airlines overhauled fares in April had an effect. TWA is said to be losing more than $1 million a day. Icahn is telling people privately that he realized TWA had to have wage concessions to survive and the unions wouldn't take pay cuts without gaining significant ownership in the airline. And he doesn't want to see American Airlines drive TWA out of business. Bonus Editor: Susan M. Andrews. (1-919-855-34912) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM