Why Other Airlines Are Saying 'Not So Fast' to TWA Takeover

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TWA: Will takeover by American Airlines be blocked?

Suddenly, everybody wants to fly TWA.

Almost the whole airline business taxis into bankruptcy court this weekend under the aegis of an American Airlines proposal to ground and gobble up 76-year-old Trans World Airlines. American would pay $500 million in cash for most of TWA's assets — jets, 20,000 employees, much-needed maintenance centers, and TWA's St. Louis hub — assume $3 billion in leases and debts, and essentially get itself a merger partner without the merger.

Tuesday, Continental and Northwest, American's two big U.S. competitors along with United Airlines and Delta, decided that if American was going to be the one to get TWA's carcass, then nobody should. Continental wants to pay $400 million to keep the venerable airline flying — after a reorganization/shrinking of its operations led by unspecified other parties. TWA would then be able to sell seats on Continental flights, and its passengers would be able to earn Continental frequent flier miles.

Northwest, meanwhile, has also lodged an objection to the American buyout plan. It wants to buy TWA's 26 percent stake in Worldspan, a computer reservations system, which is worth around $200 million. (American would get that, too, under its offer.)

Big Two vs. Threatened Three

And so, though the setting is a Delaware bankruptcy court and not the boardrooms at the Federal Trade Commission (or the Justice Department), the game remains the same: Keeping the airline business's Big Five from turning into a Big Two, with Continental, Northwest and Delta playing a distant second fiddle.

See, American isn't just gunning for TWA, and American won't be the only winner if the deal goes through. American has a separate deal cooking to pay $1.2 billion in cash for a host of US Airways assets and assume about $300 million in aircraft leases — all to help United's purchase of US Airways get past federal regulators.

Very cozy — and for Continental and Northwest, very scary. If all the deals go through as American and United imagine them, those two carriers — already the largest in the U.S. (and the world) — would together account for fully half of the U.S. market, put US Air (now the sixth largest carrier) and TWA (the 12th) out of business, and leave Continental and Northwest (and Delta, though they aren't involved in this particular argument) out in the cold.

"TWA has huge values that American Airlines is trying to steal," David Grizzle, Continental senior VP told the New York Times. "We want to see a fair process put in place that assures the independence of TWA, the preservation of competition in the market, and full value for any assets that are sold."

Laissez "fares" under Bush?

For flyers, it's that competition thing that probably should worry them about the rapidly consolidating airline industry. And American, along with Continental, did nothing to ease those fears Thursday as the two carriers announced they would be hiking the change fees on advance-purchase tickets from $75 to $90 and $100, respectively. Other airlines, as they say, are expected to follow suit.

The matter of TWA and who gets it will be addressed by a federal bankruptcy judge in hearings this weekend, and for competition hawks it's a comfort to know that Continental and Northwest are in there swinging for airline parity, such as it is.

Because the early signs from George W. Bush's Justice Department (still without a head) seem to indicate he'll be perfectly willing to let the chips fall where they may.