TWA Agrees to American Buyout Offer

Wednesday, January 10th 2001, 12:00 am

By: News On 6

DALLAS (AP) â€” American Airlines has agreed to acquire most of Trans World Airlines Inc.'s assets for about $500 million in a deal announced Wednesday that will bring an end to the financially troubled TWA, whose roots can be traced back 75 years.

The agreement with TWA, along with a separate pact under which American would buy some of US Airways' assets from United Airlines, would leave American and United in control of about half of the nation's air travel market.

Under the multipart deal unveiled Wednesday, TWA has filed for Chapter 11 bankruptcy protection in Wilmington, Del. and would sell most of its assets to American, a subsidiary of AMR Corp. The bankrutptcy court would have to approve the deal.

American will assume responsibility for most of TWA's plane leases and provide $200 million in immediate financing for the St. Louis-based airline. American will also acquire TWA's gates and takeoff and landing slots at several airports.

In a concurrent move, American would buy certain US Airways assets for $1.2 billion in cash and the assumption of $300 million in aircraft leases. It will also pay $82 million and provide 11 planes for 49 percent of startup DC Air, a regional airline that will fly out of Reagan National Airport in Washington.

The latter portions of the deal are contingent on federal regulators approving United parent UAL Corp.'s $4.3 billion proposal to purchase US Airways. Antitrust regulators have pressed United, the largest carrier in the world, to sell some of its operations before they approve its purchase of US Airways, the nation's No. 6 carrier.

If everything is approved, it would leave the Chicago-based United and American, the nation's No. 2 carrier, head and shoulders above the rest of the U.S. airline industry, each with roughly 25 percent of the U.S. market. They are each currently slightly larger than No. 3 Delta, which has 15 percent, according to industry figures.

American chairman and chief executive Donald J. Carty said in a statement that the three deals ``dramatically increase the scope, efficiency and desirability of American's network'' and allow the carrier increase its share of the valuable business-travel market.

American would add TWA's hub in St. Louis to its hubs in Dallas-Fort Worth and Chicago and greatly increase its presence in busy East Coast cities including New York and Washington.

``The agreement will protect air service in St. Louis and maintain St. Louis's role as a major transportation center,'' TWA said in a statement. ``The agreement also calls for American to offer employment to almost all of TWA's 20,000 employees.''

The deal would bring an end to TWA, which traces its roots to the 1925 founding of Western Air Express, catered to popes and movies stars, once ruled skies around the world with Pan Am, and held that world in rapt attention during a 1985 hijacking and the 1996 crash of a flight from New York to Paris.

TWA, the nation's eighth-largest carrier, has failed to turn a profit since 1988 and has filed for bankruptcy twice before. It's possible that had fuel prices not almost doubled last year, the airline might have finally made money.

Instead, TWA lost $115.1 million through the first three quarters of 2000. That comes after 1999, when the carrier's $353 million loss made it the only major airline not to show a profit.

The decision by TWA to seek a white knight in American comes after the airline started the fourth quarter with just $157 million in cash.

Consumer groups criticized airline consolidation immediately after news of American's planned deals became public earlier this week, and the American Society of Travel Agents said the result would be higher prices and lower customer service.

Analysts and airline industry officials said American's unusually bold moves could prompt more mergers.

``I think the carrier that will be under the most pressure (to expand through acquisition) is Delta,'' said William Franke, chairman and chief executive of Phoenix-based America West Airlines. ``If it does nothing, it'll be significantly smaller than the other two.''

American could face labor trouble digesting the large acquisitions. Pilots held a costly sickout to protest the carrier's purchase of much-smaller Reno Air in 1998.

The airline must integrate TWA and US Airways pilots on American's seniority list, which can threaten the carrier's current pilots. Seniority determines pilots' schedules and whether they fly as captain, co-captain or navigator.

``If you take on an airline the size of TWA or any part of US Airways, there's some shuffling of the seniority list â€” there are only so many seats on the left side of the cockpit'' â€” the captain's seat, said Jim Philpot, a spokesman for the Allied Pilots Association, which represents American's 10,700 pilots.

Philpot said the pilots wouldn't automatically oppose the TWA and US Airways deals.

``If our corporation can be improved by this acquisition, then it's a good thing,'' he said.

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On the Net:

TWA: http://www.twa.com

AMR Corp: http://www.amrcorp.com