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Icahn's evolution from a raider to a manager began in 1984, when he took over St. Louis-based ACF, a leading U.S. producer and lessor of railroad cars. At ACF, which was suffering from steadily declining earnings, Icahn encountered a splendid example of the so-called corpocracy of entrenched executives that he had berated for years. The company was so disorganized that no one seemed to know exactly what function was being served by an entire finance division of 173 employees. When a follow-up study confirmed that the division wasn't doing much of anything, he unhesitatingly abolished it. By remorselessly shrinking the company bureaucracy and cutting other costs, Icahn in just three years has rocketed ACF's earnings from $500,000 to $27 million, at a time when the railcar industry has generally been unprofitable.
ACF was only a warm-up for a much bigger boardroom challenge. In 1985 Icahn won a bitter seven-month tug-of-war with Texas Air Chief Frank Lorenzo over TWA (1985 losses: $150 million). In the process, he passed up the chance to turn a quick $150 million profit on his $310 million investment. That forced Icahn to prove another of his maxims: executives with their own money invested in a company do a better job of running it.
Soon after he started, some 5,000 TWA flight attendants walked out, grounding nearly half the airline's flights. Critics described the burgeoning disaster as Icahn's "comeuppance." Icahn coolly hired replacement workers willing to start at salaries as low as $12,000, compared with the $35,000 average prestrike wage of their predecessors.
He slashed costs by $400 million, eliminated 24 unprofitable routes and added 31 moneymaking ones. He also took over Ozark Air Lines to bolster TWA's St. Louis hub and feed more domestic passengers to TWA's international route structure. Results: in 1987 TWA earned an unprecedented $240.3 million. Based on the carrier's increased cash flow, Chairman Icahn, who holds 76% of the shares, has more than doubled the value of his investment. "If I hadn't come along," he boasts, "the airline would have unquestionably gone bankrupt by now."
While he was still struggling to salvage TWA, Icahn decided in 1986 to launch an even more ambitious gambit, the takeover of giant USX (1987 sales: $14.8 billion). Kingsley proposed the idea one day when Icahn, suffering from vacation boredom, called from Palm Beach, Fla., and asked, "What do you like, Al?" But Icahn underestimated the stubborn and resourceful opposition of USX Chairman David Roderick. After spending nearly $650 million buying up 11.4% of the company's stock, Icahn gave up, unable to raise the $10.5 billion he would need to complete the takeover.
On the face of it, Icahn's attempt to capture USX was a failure. But instead of selling his shares and pocketing a raider's profit, the feisty investor decided to keep his USX stock. Reason: in the 15 months since Icahn turned to USX, Roderick has essentially launched the restructuring that Icahn wanted, selling off unprofitable assets, trimming costs and shrinking management. Last week the company reported 1987 earnings of $219 million. The shares that Icahn bought at about 21 in 1986 have now reached 30 3/4.