TWA Agreement With Creditors Would Include Quick Trip to Bankruptcy Court
NEW YORK (AP) _ TWA will make a short hop to bankruptcy court - where four other big U.S. airlines have landed since December - under an agreement with its creditors that strips takeover artist Carl C. Icahn of majority ownership.
The airline’s flights won’t be affected, nor will its 30,000 employees, TWA said Tuesday in announcing the agreement, which averted a threatened seizure of planes by creditors demanding to be paid. TWA owes $1.37 billion.
Under the deal, TWA will give creditors much of its equity while Icahn’s stake shrinks from 90 percent to between 20 percent and 45 percent.
He will remain chief executive but will report to a board of directors that will include creditor representatives.
Public stockholders will control the company for the first time since 1988.
If federal regulators approve the agreement, TWA will briefly land in U.S. Bankruptcy Court next year under what is known as a ″prepackaged bankruptcy.″
Other big U.S. airlines that also sought protection from creditors under Chapter 11 of the federal bankruptcy code since December are Pan Am, Continental, Midway and America West. All fell victim to high debt and a slowdown in business, partly because of the recession and the Persian Gulf crisis.
Chapter 11 allows a company to hold off its creditors and gives it time to reorganize.
Icahn, who gained control of TWA in 1986 in a complicated debt-financed deal, has missed some debt repayments. The agreement will eliminate about $1 billion of that debt and leave the airline with about $400 million in cash.
Some analysts viewed the deal as an important step toward TWA’s fiscal solvency, in part because creditors may have better luck than Icahn in winning concessions from unions.
It is likely to be a struggle no matter who’s in control. TWA’s stature and size have shrunk during Icahn’s tenure. Earlier this year it sold several London routes to American Airlines. Its fleet is among the industry’s oldest.
″Basically it’s completely the opposite of a vibrant, growing airline,″ said Mark Daughtery, a travel analyst for Dean Witter Reynolds Inc.
TWA’s announcement came while the airline was trying to persuade Pan Am’s creditors to accept a $310 million offer for pieces of Pan Am. It wasn’t immediately clear how a TWA bankruptcy would affect those talks.
The airline is incorporated in Delaware, its headquarters are in Mount Kisco, N.Y., and its main domestic operation is in St. Louis.