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Icahn Offers TWA’s International Routes To Cover Pension Deficit

August 7, 1992

NEW YORK (AP) _ Trans World Airlines Inc. chairman Carl Icahn has offered its international routes and a maintenance base as security to cover a pension-fund shortfall of as much as $1.2 billion, the pilots union said Friday.

The Pension Benefit Guaranty Corp., the government agency that insures worker pensions, and the pilots union oppose the proposal. They are the two key holdouts in a plan to reorganize TWA.

Word of the proposal provided a glimpse into what has been standing in the way of a previously announced deal that might be TWA’s last chance to emerge from bankruptcy court as a viable airline.

The reorganization plan would transfer ownership of TWA to its unions and creditors and oust Icahn as chairman. Progress in negotations between the pension agency and TWA on the reorganization have stalled over how the pension obligation will be fulfilled, people familiar with the talks said Friday.

William Compton, chief negotiator for TWA branch of the Air Line Pilots Association, confirmed Icahn’s offer to use TWA assets as collateral for the the pension agency.

″We believe Icahn is the one responsible for this underfunding and believe he’s the one who should take care of it,″ Compton said in a telephone interview from St. Louis.

TWA spokesman Don Fleming said he was not familiar with details of the negotiations and could not comment. Compton said Icahn thinks the shortfall amounts to $200 million. Fleming repeated a company statement that the pensions are ″well-funded.″

The pilots have been seeking assurances that TWA employees’ jobs would be safe if the carrier or major assets are sold. The union also wants guarantees from TWA that its pensions will be covered beyond the pension agency’s $28,000 per year maximum.

Sources close to the talks, who spoke on condition of anonymity, said the offer to secure the pension deficit with TWA assets would free Icahn and his other businesses from any liability to cover the shortfall.

″Using TWA to pay off his obligation, he walks away scot-free,″ one of the sources said.

The pension agency fears that if it had to foreclose on the international routes and the Kansas City maintenance base to fund the pensions, it would doom the carrier, the sources said.

Icahn has also offered to lend TWA $150 million to keep it flying until the deal is completed.

″If Carl Icahn is no longer going to be on the hook, there has to be adequate compensation for the pensions. ... It takes more protection of the pension plan than Icahn is offering″ for TWA to be viable, one source said in characterizing the pension agency’s position.

No new talks between the pension agency and Icahn are scheduled for the weekend or next week, but the two sides have been in touch via telephone, the sources said.

The pension agency’s strongest weapon against Icahn would be taking control of the pensions and placing liens on Icahn’s other businesses and possibly his own property. That would shift retiree payments from TWA to the pension agency and could bring about a bankruptcy filing for the rest of Icahn’s holdings.

The reorganization plan for TWA would give the unions 45 percent of its equity in return for wage and benefit concessions that would save the carrier about $200 million a year. Creditors would receive 55 percent of TWA in return for forgiving about two-thirds of its $1.5 billion debt, saving it another $200 million a year in interest and principal payments.

Icahn, who because of his TWA bonds is also a creditor, would be treated differently from other creditors and would not receive a stake in the company, Compton said.

Brian Freeman, a financial adviser to the Machinists union, which has agreed to the plan, said the unions would split their 45 percent share based on cash concessions, not productivity or work rule changes.

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