TWA closer to leaving Chapter 11 U.S. judge approves reorganization plan

August 12, 1993|By New York Times News Service

Trans World Airlines won approval yesterday to emerge from 18 months of bankruptcy court protection, a milestone in its campaign to confound skeptics who have predicted the demise of the hobbled carrier, once ranked among the world's innovative airlines.

"There have been a lot of naysayers, but we didn't really have rTC any doubt," said William R. Howard, TWA's chairman, who, along with other executives, was jubilant after presenting the carrier's reorganization plan at a long hearing in federal Bankruptcy Court in Wilmington, Del.

An important feature of the executives' successful pitch was a pledge that TWA would have a cash cushion of roughly $200 million when it officially emerges from bankruptcy in the next few weeks. Such a cushion has been considered essential for the carrier to survive over the generally slow winter months.

With the go-ahead, the airline will soon be managed by employees and creditors. Its unions exchanged $660 million in concessions over three years for a 45 percent stake; the rest will be owned by TWA creditors.

Employees at Northwest Airlines also traded concessions for an equity stake recently in an effort to help that carrier avert a bankruptcy filing. And United Airlines' unions have suggested that they might be willing to make concessions in exchange for a majority stake in the carrier, but have offered no specific plan.

Such moves are regarded as major elements of the effort by airlines to reduce their operating costs and adopt a more competitive stance against low-cost, fast-growing carriers like Southwest Airlines.

TWA's ability to make its case was in doubt as recently as Tuesday. But in last-minute negotiations, the city of St. Louis, a major TWA hub, agreed to lend it $64.7 million. Part of the deal calls for the airline to relocate its administrative headquarters to St. Louis, people familiar with the agreement said. An announcement is expected today.

The airline now has headquarters in Mount Kisco, N.Y., near the home of Carl C. Icahn, the financier who bought it in 1986 and ceded control in January.

TWA is also getting $40 million from a settlement with one of its creditor groups and $10 million from Airbus Industrie, the European jet manufacturer.

The rest of the money will come from the airline itself, including operating profits from June, July and August, and cash on hand. That totals $80 million to $85 million. Also, as part of its reorganization, TWA will shed $1 billion in debt and roughly $3 billion in claims against it.

The carrier may well enjoy improved public relations once the cloud of bankruptcy dissipates. As a rule, many passengers and travel agents avoid bankrupt carriers, particularly for flights booked well in advance.

The move will add to the publicity it gained this year by removing seats from planes, giving coach-class passengers more legroom. After a long period when service was marred by employees unhappy with their former boss, Mr. Icahn, many customers have said that service is improving.

But TWA's problems are far from over. Such a long period spent in bankruptcy inevitably erodes the value of a brand name. Although its customer-complaint rate was down by one-third in June from a year ago, it still received more gripes than any other big carrier, according to the Department of Transportation. Its international route network is considered fair, but it suffers from Mr. Icahn's sale of its New York-to-London route, a move to raise cash.

Industry analysts suggest that the carrier also faces a long campaign to win back business travelers who can afford to be more demanding of their airlines than the price-focused leisure passenger.

"If TWA is not highly successful in winning back the business traveler, I have a fear that they will not really generate the cash they need to be successful," said Phillip Brannon, a bond analyst at Mabon Securities.

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