Fallen Emperors of the Air

They once ruled the skies, but now they skirt bankruptcy. What went wrong with the globe-girdling giants TWA and Pan Am?

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In the midst of takeover fever in 1986, Icahn acquired control of TWA for $435 million. Thanks partly to Icahn's cost cutting and his refusal to invest in new equipment for TWA's aging fleet, the carrier reported a record $250 million profit in 1988. But TWA lost $287 million the next year, after Icahn took it private in a leveraged buyout and loaded it with more than $2 billion of debt. The airline lost an additional $114 million in the first nine months of 1990. In December, Icahn agreed to sell TWA's U.S.-to-London routes and its Chicago gates to American Airlines for $515 million. (Icahn has already recouped his original TWA investment — plus a reported $33 million profit — as a result of the buyout.)

Can Pan Am and TWA survive, either together or apart? Icahn says a merger would enable the new airline to raise more than $1 billion in cash by selling overseas routes that overlap. "This is just the first step in our growth," Icahn says. "But even with the merger, I'm not telling you it's a sure thing."

Some experts doubt that the two carriers can survive either way. "The difficulty is that both companies are laden with extreme levels of debt," says Paul Dempsey, director of the Transportation Law Program at the University of Denver. Predicts Robert Crandall, the tough-talking chief of American: "The weaker carriers will be absorbed by the stronger ones. The result will be a very competitive nationwide system of relatively few carriers, virtually all of them competing on every major origin and destination route." That could well leave Pan Am and TWA as little more than nostalgic memories of glory in the sky.

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