Twice in and out of bankruptcy, Trans World Airlines may be running on empty once again.
The St. Louis-based carrier–a pioneer in the airline industry that once shared flagship status with Pan American World Airways–is plagued by a litany of woes. They include poor operating performance, management instability, labor unrest and a geriatric fleet of aircraft.
That would be bad enough. But on top of these are the aftershocks of the still-unsolved crash of Flight 800 last summer off Long Island, N.Y.
As a result, many airline analysts say that it’s just a matter of time before the nation’s seventh-largest carrier in terms of revenue either goes out of business or is bought up by a competitor.
“The odds against it (surviving) are pretty heavy,” said Sam Peltzman, a professor of economics and financial services at the University of Chicago Graduate School of Business.
Peltzman, an expert on airline-industry economics, said any carrier unable to make money at a time when the industry is raking in huge profits is bound to fold its wings eventually.
And TWA has shown it cannot make money. While most major airlines had record earnings for last year, TWA earlier this month reported it lost $284.8 million on revenues of $3.6 billion in 1996. That came on the heels of a $227.5 million loss in 1995.
In fact, the airline hasn’t made an annual profit since 1988, even though employees gave it significant wage and work-rule breaks in 1992 in exchange for a 45 percent stake in the carrier.
“What’s going to happen when the benign environment within the industry comes to an end? They’re going to get killed; that’s what’s going to happen,” Peltzman said.
Even TWA’s auditors are questioning the company’s long-term viability.
After reviewing the carrier’s year-end financial statements, TWA’s auditing firm, KMPG Peat Marwick, expressed reservations about the airline’s “ability to continue as a going concern.”
That observation, which TWA officials made public last Tuesday, sent shivers up the spines of TWA’s investors.
The airline’s shares ended the week at $6.81 on the American Stock Exchange, down $1.19, or nearly 15 percent, from $8 on March 21.
“TWA has had fundamental weaknesses, including a shrinking operation, bad management, an aging fleet and high operating costs, that go back at least a dozen years,” said Frank Cassell, professor emeritus at Northwestern University’s J.L. Kellogg Graduate School of Management.
“The crash of Flight 800 has, perhaps, put the carrier back on the critical list a little sooner than it otherwise might have been, but you can’t blame all of its recent woes on the crash,” he said.
But not everyone is ready to bury TWA just yet–least of all the company’s current management.
Indeed, like the proverbial cat with nine lives, TWA has a history of coming back from the threshold of extinction. While some of its peers, such as Pan Am and Eastern Airlines, were forced to close their doors after filing for bankruptcy, TWA has emerged twice from Chapter 11, in November 1993 and again in August 1995.
One major high-stakes investor, moreover, is confident that the carrier can again turn itself around. Earlier this month, Saudi Arabian Prince Waleed bin Talal, a nephew of King Fahd, bought 5 percent of TWA’s shares.
Back in 1991, the prince placed a similar bet on then-ailing Citicorp. He later sold his shares in the New York-based bank for more than double his investment.
Unlike Cassell, some analysts and many TWA executives blame the airline’s current troubles almost entirely on the explosion that knocked Flight 800 out of the sky on July 17, killing all 230 people aboard the Paris-bound Boeing 747 jumbo jet.
Just hours before the crash, they point out, the 72-year-old carrier reported that its second-quarter earnings had nearly quintupled, to $25.4 million from $5.2 million a year earlier.
TWA’s chairman and chief executive, Gerald L. Gitner, expresses confidence in the airline’s future.
“In 1996, TWA experienced an interruption in the process of rebuilding our airline,” Gitner said, when the carrier released its 1996 financial results.
“During the summer, TWA attempted to grow its route system by, among other things, flying used aircraft,” Gitner said. “This turned out to be a mistake, which led to operational reliability problems (including scores of flight delays and cancellations) that, in turn, drove increased maintenance and crew expense. This resulted in revenue losses and inconvenienced customers.
“This bad situation,” Gitner added, “was compounded by steep increases in fuel prices. In addition, the tragic loss of TWA Flight 800 in July had an unquantified but significant negative business impact.”
To reverse its misfortunes, TWA this year has begun a more-realistic flight schedule, focusing on flying into and out of its two principal hubs–John F. Kennedy International Airport in New York and Lambert International Airport in St. Louis.
Fuel costs also have moderated, and Gitner said the carrier has begun to exchange its older, less-efficient jetliners for newer planes.
Nevertheless, most analysts contend that the airline is just one setback from a fatal tailspin.
“The airline industry is becoming increasingly competitive, especially in the international arena,” said Northwestern’s Cassell.
“In order to survive in that kind of environment, TWA is going to have to have lots of cash, confidence and sophisticated management,” he said. “So far, however, it doesn’t seem to have any of those ingredients.”
Cassell and other longtime TWA observers trace the company’s woes to investor Carl Icahn, who acquired the carrier in 1985 after winning a takeover battle with airline raider Frank Lorenzo. Three years later, Icahn took the company private.
To recoup his investment and reduce losses that were hurting all airlines during the recession of the early 1990s, Icahn sold off many of TWA’s major assets, including most of its key international routes.
In 1991, he sold the carrier’s lucrative Chicago, New York, Los Angeles and Boston routes to London’s Heathrow Airport to American Airlines for $445 million. And in 1992, he sold TWA’s routes to London’s Gatwick Airport from Philadelphia and Baltimore to USAir for $50 million.
By the time Icahn resigned as chairman in 1993 and relinquished all control and interest in the airline, the carrier had been reduced from a mighty global giant–whose network once spanned much of Europe, Africa, the Middle East and Asia–to a bit player.
Today, the carrier serves only a dozen destinations in Europe and the Middle East, as well as some 75 domestic markets.
Since Icahn’s departure, TWA has undergone a series of management shakeups, including five board chairmen, that has further weakened its balance sheet and its standing on Wall Street.
Executives in administrative positions at the carrier also have come and gone. In January, the revolving door claimed perhaps the carrier’s most talented chief executive of the 1990s–Jeffrey Erickson, a 51-year-old airline veteran who helped shepherd TWA through its second bankruptcy.
According to people familiar with the inner workings of TWA, Erickson quit because he was tired of being second-guessed by TWA’s board, which also has had several turnovers since Icahn’s departure.
Gitner, who also is 51, took over as acting chief executive upon Erickson’s departure. A longtime TWA board member, Gitner was named chairman and permanent chief executive in mid-February. He is TWA’s third CEO since Icahn left.
It won’t be easy for Gitner to reverse TWA’s fortunes. In addition to all the carrier’s other problems, TWA’s unionized employees, who haven’t had a raise in years, are demanding more money.
Moreover, the International Association of Machinists, the union representing the carrier’s mechanics and flight attendants–about 80 percent of its work force–is calling for Gitner’s ouster, saying he doesn’t have enough experience in day-to-day operations of an airline.
A bettor, says the University of Chicago’s Peltzman, should wager against a rebound.
“Ever since TWA lost its position as a top international carrier, it’s been struggling to find a new niche within the airline business,” Peltzman said. “So far it hasn’t found one, and I doubt that it ever will.”
