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TWA picks American Airlines

ST. LOUIS — The bankrupt Trans World Airlines Inc. indulged an offer from former owner Carl Icahn but ended up selecting a sweetened $742 million deal from AMR Corp.'s American Airlines as its preferred bid at an auction Wednesday.

The final decision still rests with U.S. Bankruptcy Judge Peter Walsh, who will consider several other offers as well during a sale hearing on Friday in Wilmington, Del.

The auction began Monday, when a group backed by Icahn presented a $650 million bid that would have kept the airline flying under its own name. But after adjourning the auction to spend a few days considering it, the TWA board ended up rejecting the financier's offer.

"I'm not going to handicap what Judge Walsh will do," said TWA spokesman Mark Abels. "We feel that the American offer is the highest and best offer."

In addition to the bid from Icahn, whose dealings with TWA workers were acrimonious, the airline also dismissed several others for not following the rules of the bidding process established by the bankruptcy court.

At the bankruptcy court hearing on Friday the spurred bidders will have a chance to object and present their bids to the court.

It's possible Walsh could rule from the bench at Friday's hearing, meaning TWA — the longest flying carrier in American commercial aviation — could have a new owner in place by week's end.

American announced its initial bid of $500 million, plus the assumption of $3.5 billion in debt and lease obligations, on Jan. 10 — the same day the St. Louis-based carrier filed for bankruptcy.

At the request of TWA, American increase its bid Wednesday afternoon by $242 million. TWA said the increased offer will help it pay off a larger portion of its debts.

The bid backed by Icahn, who attended the auction Wednesday when TWA selected the American offer, was filed several days after the Feb. 28 deadline set by the court.

Abels said the Icahn bid contained several conditions that led the airline's board to reject it. Most notably, it required TWA's two unions to agree to concessions, an unlikely prospect considering both refuse to have any dealings with Icahn or his associates.

The other two bidders making offers for substantially all of TWA's assets failed to provide the $50 million in "good-faith" financing required by the court.

That includes Jet Acquisitions Group of Arizona.

Abels said Jet Acquisitions asked TWA to provide a letter its bank could use to demonstrate that financing was in place. The letter was provided and never returned, Abels said.

The TWA board also rejected a $220 million bid from Rosemont, Ill.-based Galileo International for the airline's 26 percent share of Worldspan, a travel reservation service.

TWA has asked Walsh to approve a $125 million increase in what is known as debtor-in-possession financing — basically a loan that allows TWA to continue operations as the bankruptcy progresses.

TWA, which has already been provided with $200 million in debtor financing by American, wants the additional money primarily to pay off aircraft lease payments that are coming due.

If American's offer is selected by the court, the Texas-based airline will pay TWA $742 million in cash, minus whatever amount of debtor financing TWA has used.