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TWA official urges judge to OK sale of assets to American

WILMINGTON, Del. — A top Trans World Airlines Inc. official urged a judge Friday to approve the planned sale of the troubled airline's assets to AMR Corp.'s American Airlines instead of a group backed by billionaire Carl Icahn.

In a hearing before U.S. Bankruptcy Judge Peter Walsh, TWA chief financial officer Michael Palumbo testified the American bid would protect future employee health and retirement benefits, while Icahn's offer would not.

Icahn's $1.1 billion bid would keep TWA operating as an independent airline, while American would absorb much of TWA's operations and employees with its $772 million bid.

TWA selected American's offer as its preferred bid on Wednesday.

At the bankruptcy court hearing, the spurned bidders were to be given a chance to object and present their bids to the court. Two other bidders are considered long shots by analysts.

An American spokesman, Al Becker, said American was not ruling out an attempt to outbid Icahn even as the court proceedings were underway. American's bid was the highest until Icahn raised his offer for TWA on Thursday.

"We're maintaining complete flexibility," Becker said. "Anything is possible in this process."

It was not clear when Walsh would rule, but Palumbo asked him to immediately approve a $130 million loan from American to keep TWA's planes flying next week.

Without the loan, creditors who hold the leases for most of TWA's jets might move to seize the planes, said Palumbo. And that would prevent TWA from operating, stranding thousands of passengers.

"I would expect that the company would have to liquidate," Palumbo testified.

Dozens of TWA pilots attended the bankruptcy hearing in their uniforms, wearing white badges with a red slash over the name "Icahn."

Icahn was chairman of TWA from 1985 to 1993 and is loathed by many of TWA's unionized workers. They say he pocketed handsome profits while they went years without raises, made other concessions to keep TWA afloat and became owners of company stock now worth nothing.

In an interview Friday, Icahn defended his management of TWA, saying union workers wouldn't have kept their jobs if he had not stepped in to run the troubled airline. Concessions by the union at the start of his tenure were proposed by the unions themselves, Icahn said.

"When I took over, the airline was in much worse shape at that time than Braniff, Pan Am and Eastern," Icahn said. "Those airlines are out of business, but TWA is still flying."

Icahn said he made unpopular decisions — such as selling some of TWA's international routes and borrowing money from the airline for other investments — to keep the airline operating.

But the recession of the early 1990s, fears of overseas travel brought on by the 1991 Gulf War and TWA's dependence on profits from international flights hurt the company, Icahn said.

"What hit us very badly and put us under was that you had that Desert Storm and no one would fly to Europe that summer," Icahn said.

TWA filed for bankruptcy and Icahn relinquished control in early 1993. But he maintained a lucrative ticket contract allowing him to buy certain TWA tickets at 55 cents on the dollar. Icahn resells the tickets on the Internet at steep discounts. Airline experts have said the deal is partly to blame for TWA's financial failure.

American has said it does not plan to honor the ticket contract if it takes over most of TWA's assets. Under the proposal by Icahn's group, TWA Acquisition Group, the ticket deal would remain in place.

Icahn said between 4,000 and 5,000 of TWA's workers would lose their jobs under his plan to run the airline. But he said he doubted pledges by American officials to keep most TWA workers.

"I believe that a great many of the jobs are in jeopardy," he said.