Icahn To Surrender Control As TWA Emerges From Bankruptcy Protection
WASHINGTON (AP) _ Trans World Airlines owner Carl Icahn has agreed to provide financing for TWA and to guarantee certain pension payments, clearing the way for the airline to emerge from bankruptcy court protection, officials said Monday.
Icahn agreed to provide $200 million in financing to TWA and up to $200 million in contributions to TWA’s existing pension plans.
If the pension plans are terminated, he would pay up to $240 million more over eight years to the Pension Benefit Guarantee Corp., the federal agency that backs pension plans.
Under the plan, Icahn - who has owned more than 80 percent of TWA - would relinquish control of the airline upon final approval of the agreement by the bankruptcy court, which is expected in about 30 days.
After it emerges from bankruptcy, TWA’s creditors will own 55 percent of the company and its unionized employees will own 45 percent.
The agreement came in weekend bargaining with the government as well as TWA creditors and unions. The airline came under heavy pressure to reach a deal because of a looming cash shortage.
″We will come out fighting fit,″ said Robin H.H. Wilson, one of TWA’s two management committee members. He said he expects TWA to emerge from bankruptcy protection in the spring of 1993.
Icahn said, ″Our infusion of $200 million into the airline, if used wisely, combined with the concessions made by the unions and the creditors, should bring about a TWA that will not only survive, but will prosper, in a very troubled industry.″
TWA’s reorganization plan, to be submitted to the bankruptcy court Jan. 12, would reflect the elimination of more than $1 billion in debt as well as wage and benefit reductions of about 15 percent, totaling about $660 million over three years, which were agreed to in September, TWA officials said.
The dispute over the under-funded pension plans had been the last major obstacle to the sale of TWA to its creditors and employees.
In October, the Pension Benefit Guarantee Corp. dropped its demand that the carrier first settle its $1.2 billion pension fund shortfall. In the agreement announced Monday, Icahn would guarantee certain pension payments if the plans are terminated, reducing the liability of taxpayers that would occur if the Pension Benefit Guarantee Corp. had to back the entire loss.
Also Icahn would provide an infusion of cash to the airline - $50 million immediately followed by $150 million when the bankruptcy court approves the transaction - to keep the company operating. Those funds would be turned into a two-year loan with an interest rate of one percentage point above the prime rate, Wilson said.
″You’re going to see a more competitive and aggressive TWA, ... but prudence will always be a watchword,″ Wilson said. He declined to detail TWA’s operational plan because it has not yet been filed with the bankruptcy court.
Asked whether the plan involved any mergers with other airlines, Wilson said, ″The plan calls for us to go it alone.″
TWA filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Act earlier this year after it was unable to make massive interest payments on money Icahn had borrowed to buy the airline in the 1980s.
A U.S. bankruptcy judge last week extended a Nov. 30 deadline for the airline to file its own reorganization plan after TWA lawyers and the airline’s unsecured creditors said they needed more time to reach an agreement with the federal pension agency.