Trans World Airlines, Inc.

views updated Jun 11 2018

Trans World Airlines, Inc.

605 Third Avenue
New York, New York 10158
U.S.A.
(314) 589–3000
Fax: (314) 589–3000

Public Company
Incorporated: 1928 as Transcontinental Air Transport
Employees: 20,871
Sales: $3.15 billion
Stock Exchanges: New York
SICs: 4512 Air Transportation, Scheduled

In the early 1990s Trans World Airlines, Inc. ranked as the United States’ seventh–largest airline company. The firm’s near seventy–year history has been influenced by such well–known personalities as Charles Lindbergh, Amelia Earhart, Jack Frye, and Howard Hughes. But under the late 1980s and early 1990s stewardship of corporate raider Carl Icahn, the company widely known as TWA squandered its reputation for innovation and plunged into bankruptcy. Icahn took the airline private in 1988, then sold it to its employees and creditors as part of a 1992 bankruptcy reorganization. While TWA returned to public ownership in the mid–1990s, it had not recorded a full year of profitability since 1987.

TWA was established through the merger of several small airline companies in the 1920s. One of those small companies was Maddux Air Lines, which began a luxury passenger service between Los Angeles and San Diego on July 21, 1927. Maddux and a number of other carriers were organized by a group of investors who sought to establish a transcontinental passenger line using a combination of airplane flights and railroads. The group, Transcontinental Air Transport, hired Charles Lindbergh to survey the route. On July 7, 1929, TAT inaugurated the “Lindbergh Line,” offering coast–to–coast transportation in about 48 hours. The journey departed New York in the evening and crossed the eastern U.S. by the Pennsylvania Railroad. The next morning passengers flew from Columbus, Ohio to Waynoka, Oklahoma. From there the Santa Fe Railroad took them overnight to Clovis, New Mexico. From Clovis the passengers flew on to either Los Angeles or San Francisco.

In those early days of commercial aviation, airlines made most of their money hauling mail for postal services. The United States Postmaster, Walter Folger Brown, was responsible for assigning three transcontinental airmail routes. American Airlines won the southern route, Northwest Airlines won the northern route, and TAT was awarded the central route, but only on the condition that the company merge with Western Air Express. In 1930, the two companies joined to form Transcontinental and Western Air Lines, or TWA. That October the new company covered the coast–to–coast route completely with airplanes, in light of the failure of the previous scheme. The trip was reduced to 36 hours and then later to 24.

Bill Boeing manufactured what were generally regarded as the best airplanes of the day; however, he refused to sell them to any air transport company except his own. Excluded from the Boeing market, TWA’s general manager Jack Frye solicited designs from a number of manufacturers. A small California operation run by Donald Douglas proposed an impressive design which outperformed Frye’s basic specifications. TWA accepted Douglas’s offer, and the first DC–1 was built. The DC–1, however, became obsolete before it could be mass produced, so it was lengthened and otherwise improved. The new plane, the DC–2, was every bit as practical as the DC–1, but more difficult to fly.

Air travel was a risky business in the 1930s. Breaches in pilot discipline and frequent equipment failures caused a number of TWA airplane crashes. At one point, the airline was losing 5 percent of its personnel annually to such accidents. The company was further troubled when the Roosevelt administration decided to cancel all government airmail contracts with private carriers in 1934. Many airlines, including TWA, depended on mail contracts for their profitability. During this crisis TWA was sold to a group led by the Lehman Brothers and John Hertz of the Yellow Cab Company. The government decided to restore the airmail contracts a few months later and reopened the bidding. Curiously, companies that had held contracts before were barred from bidding. In order to get around this stipulation, the company responded by merely adding “Incorporated” to its name. It was re–awarded 60 percent of its original airmail system and, over a period of a few years, recovered the rest.

Under the new owners, Jack Frye, a vice–president and former Hollywood stunt pilot, was promoted to president. The new management instituted major improvements in TWA’s training and flight efficiency and also upgraded its airport facilities. The airline employed directional “homing” radar and installed runway lights to facilitate night flying. The DC–3 became the company’s new workhorse while business improved significantly.

In the 1930s airline companies became especially vulnerable to buyouts. General Motors Corp. acquired Eastern Airlines in 1933 and American Airlines was taken over by the auto magnate E. L. Cord. When General Motors purchased stock in TWA, the airline worried that it would be forcibly merged with some other GM interest. In 1938, when TWA had fully recovered from the airmail fiasco, the Lehman/Hertz group sold the airline to another group of investors. During this time Frye personally convinced millionaire Howard Hughes to invest in TWA. It is very likely that Frye wanted Hughes’s interest in the company so that he could help to defend it from any hostile takeover bids, especially from GM.

At the outset, Frye and Hughes respected each other as aviators and businessmen. Frye was a daredevil flier, a man totally enthralled with aviation and its possibilities. Hughes was an equally eccentric young man who was devoted to breaking aviation records. From his father he inherited ownership of the extremely lucrative Hughes Tool Company, the primary supplier of oil well drilling bits. Using this large fortune Hughes purchased 25 percent of TWA’s stock. In 1941 he gained a controlling interest in the airline and later increased his share to 78 percent.

One of Hughes’s first activities at TWA was to begin development of a new airplane, the L–049 Constellation, in association with Lockheed. While the Constellation was still being developed, Hughes approved Frye’s proposal to buy another new airplane, Boeing’s 307 Stratoliner, for the interim. The Strato–liner had a pressurized cabin and was able to reach an altitude of 20,000 feet. As a result, it could fly over bad weather rather than be forced to navigate through it.

TWA was one of the first American airline companies to serve during the Battle of Britain in 1940. Even before the U.S. government had committed itself to the war effort, TWA was helping the Army Air Corps assist the British. When the U.S. became fully involved in 1941, TWA was assigned two military supply routes: the North Atlantic route to Prestwick, Scotland, and the South Atlantic route from Brazil to Liberia and points east.

The airline had the distinction of flying President Roosevelt and a number of other government personnel to and from various meeting places during the war, most notably, Casablanca. The war gave TWA the opportunity to upgrade and expand its facilities worldwide in anticipation of the allied victory. The U.S. War Department actively supported the airline’s activities during the war. It would be fair to say that TWA served the country well and that it also profited handsomely. When TWA’s military service was over it had flown 40 million miles for the Army, and was exposed to hundreds of new destinations.

The major overseas carriers after the war were Pan Am, American, and TWA. All these airlines requested licensing for commercial use of much of their wartime network. TWA was granted two transatlantic routes to Europe, one via the “great circle” near the Arctic, and the other via the Azores to the Mediterranean. From there TWA flew on to India, Southeast Asia, and Japan. The company also enjoyed a government subsidy in the immediate postwar years.

Hughes and Frye had grandiose, but divergent, plans for their company, whose name they had changed to Trans World Airlines. The Constellation they helped to develop first flew in 1944, served briefly during the war, and entered wide commercial use in the postwar era. However, it was at this time that the two men began to disagree. Hughes, who was injured in the crash of a test plane during the war, had developed a very difficult personality and was known to hold up major business decisions for weeks while he agonized over minute details. He even disappeared for several days with a Constellation, only to turn up in Bermuda making endless test landings.

TWA soon found that it did not have enough business on its 21,000 miles of postwar international routes to generate a profit. Frye’s efforts to rectify the problem collided with the plans of Hughes’s financial manager, Noah Dietrich. Dietrich charged that Frye had mismanaged the airline into a financial crisis and dangerous overexpansion. Hughes offered to provide money for TWA from the Hughes Tool Company, but only on the condition that Frye resign. Thus in January of 1947 Frye left TWA.

TWA suspended many of its plans for further expansion. The headquarters was moved from Kansas City to New York. Ralph Damon, who had previously been with American Airlines, was brought in to replace Jack Frye. Damon was an old–school engineer and airplane manufacturer known for his careful attention to detail. Damon’s numerous successes at the airline, however, were shrouded by Hughes’s continued interference and manipulation. Hughes insisted that the company reduce its advertising and promotion at a time when it was probably most needed. Regardless, TWA went off its postwar government subsidy in 1952, and a year later was healthy enough to declare a 10 percent stock distribution. Two years later Damon died at work, a victim of pneumonia and exhaustion. Doctors suggested that his poor health was exacerbated by the unrelenting pressure of running an airline for Howard Hughes.

Damon’s successor was Carter Burgess, a former Assistant Secretary of Defense. Burgess lasted only 11 months, during which time he had never even met Hughes. TWA’s next president was Charles Thomas. Thomas kept a low profile, followed all of Hughes’s orders, and kept the company in good financial condition. When Thomas took over in the mid–1950s, all of the airlines were competing to be the first to have jetliners in their fleets. While the other leading companies were laying their plans and placing orders, TWA’s order was delayed by Hughes’s indecision over which airplane to buy, the Boeing 707 or the DC–8. Weeks later he finally decided to order 76 airplanes from Boeing and Convair. The jetliners would cost $500 million, much more than TWA could afford. Hughes’s plan was to have his successful tool company purchase the planes and lease them to the airline. He wanted to keep TWA’s profits low, channel money out of the Tool Company, and thereby avoid paying large penalty taxes.

Unfortunately, a world oil glut hurt the Hughes Tool Company so badly that it was unable to pay for the new airplanes. As a result, TWA was forced to turn to a group of Wall Street investment bankers for financial support. The bankers were aware of Hughes’s reputation as a successful tycoon, but also recognized that his interests were probably not the same as those of the airline. As a condition for their financial assistance, they required that Hughes’s majority voting interest in TWA be placed in a trust under their control. Negotiations lasted until the bankers’ deadline, when Hughes finally conceded.

One of the investment group’s first actions was to install Charles Tillinghast as president of TWA. Tillinghast, a lawyer, promptly filed an antitrust suit against Hughes, alleging violations of the Sherman Act and the Clayton Anti–Monopoly Act, and accusing him of monopolizing aircraft purchases for his own benefit and to the detriment of TWA. Hughes responded with a countersuit, charging that they swindled him out of his airline. The litigation continued for many years and cost TWA over $10 million. In the end, the courts returned no clear decision.

Tillinghast reorganized the airline quickly and completely. Management was restructured and pared down. TWA placed orders for newer B–727s and French–built Caravelles. In addition, Tillinghast attempted to change the company’s public image. In light of its association with Hughes, TWA was regarded as being overly concerned with speed, glamour, and style, and not enough with dependability, efficiency and safety. TWA emerged from its troubles with stable and consistent profits through 1966, largely due to the direction of Charles Tillinghast. Ironically, the chief beneficiary of TWA’s improvement was Howard Hughes. In 1966 he sold his stock in the airline for $546.5 million, or $86 per share. Three years earlier TWA stock had sold for a paltry $7.50.

Aside from the large profits and the Hughes fiasco, the 1960s were important in another way. It was at this time that Tillinghast made perhaps his most important contribution. Hoping to provide the company with protection against the unpredictable and unstable airline business, he initiated a diversification program aimed at strengthening the airline’s capital structure and cash flow.

TWA’s diversification began in 1964 with a contract to provide base support services to the National Aeronautics and Space Administration at Cape Kennedy. In 1967 TWA purchased Hilton International, the operator of all Hilton Hotels outside the United States. Later, TWA acquired the Canteen Corporation, Spartan Food Services, and Century 21, a real estate firm. The company was the first to diversify into non–airline businesses, and its timing was auspicious, as the industry was suffering from the recession of the early 1970s. TWA’s B–747s and L–1011’s were flying with nearly empty passenger cabins. The original decision to purchase the jetliners was made in response to Pan Am’s huge orders, and not based on TWA’s needs. As a result, the airline was plagued with overcapacity; it owned too many big, inefficient planes.

To make matters worse, TWA suffered a crippling six–week flight attendants’ strike in 1973. By 1975 several payrolls could only be met with the immediate sale of six 747s to the Iranian Air Force. It was an unfortunate financial transaction for TWA (which sold the jetliners for about one–sixth their actual value), but the airline was desperate for cash. TWA was also losing money on its trans–Pacific route, which had been awarded during Lyndon B. Johnson’s presidency. For the first time in its history, TWA’s network stretched around the world, but even this would soon come to an end.

Tillinghast retired amid these numerous crises. He was succeeded in January of 1976 by Carl Meyer. Meyer navigated the airline through a series of changes in the airline passenger market. Costs were reduced as international traffic expanded. The Airline Deregulation Act of 1978 allowed TWA to establish a more efficient dual hub system: St Louis for domestic traffic and New York for international traffic. Moreover, under Carl Meyer TWA reduced its fleet and its staff. The company purchased more fuel–efficient airplanes while selling the “gas–guzzlers” as soon as their value had completely depreciated.

On January 1, 1979, TWA created a holding company called the Trans World Corporation, which assumed ownership of the airline and the various subsidiaries. Several years later, facing financial difficulties, Trans World Corporation decided to sell its airline. Thus TWA was acquired by the “corporate raider” Carl Icahn early in 1986. Icahn’s style of “raiding” usually involved buying up enough of a company’s stock to threaten the other stockholders with a controlling interest or takeover. This drives the price of the stock up to a point where the raider decides to sell, usually at a large profit. In his battle with Texas Air Corporation (parent of Eastern Airlines) for control of TWA, Icahn enlisted the support of the target airline’s labor unions with pledges to honor their numerous demands. With their support, Icahn was able to hold out with a bid of $ 18.17 per share and ultimately took over. Icahn fired the airline’s popular president, Richard Pearson, and replaced him with Joseph Corr.

Icahn’s apparent commitment to TWA and hands–on approach surprised many observers. He launched a new subsidiary, the Travel Channel, acquired Ozark Airlines, pared expenses to the industry’s lowest cost–per–available–seat–mile (8.50), and turned 1986’s $106 million loss into a $106 million profit for 1987. That success, however, was fleeting. A number of intractable problems—including an insufficient number of hubs and feeder lines, a rapidly declining market presence, heavy debt load, and price wars—plagued the airline.

By the end of 1988, when Icahn took TWA private, the firm’s nearly $4 billion debt load gave it a negative net worth and contributed to the growing dissatisfaction of TWA’s labor unions. Both the Air Line Pilots Association and the Independent Federation of Flight Attendants filed suits against Icahn alleging poor management. The financier in turn threatened to liquidate the airline in a long, drawn out bankruptcy if he didn’t get wage concessions from the unions and cooperation from creditors.

From 1985 until January 1992, when TWA declared Chapter 11 bankruptcy, its share of the domestic market had slipped from 7 percent to 5.5 percent and its slice of the international market was halved from 20.9 percent to 10 percent. The company’s bankruptcy reorganization plan called for its 28,000 employees to make 15 percent ($660 million) wage and work rule concessions in exchange for an additional 35 percent stake in the company, raising their share of TWA’s equity to 45 percent. Creditors forgave $1 billion of the airline’s $1.5 billion debt in exchange for the remaining equity. Icahn gave up his entire 90 percent share of the company, left it $200 million in cash, and paid the federal government’s Pension Benefit Guaranty Corporation $240 million to prop up TWA’s pension plan, which was underfunded by an estimated $1.2 billion. About 2,000 jobs were eliminated, domestic capacity was reduced by 13 percent, and international volume was cut by 38 percent. The company even relocated its headquarters from Mt. Kisco, New York, to the more centrally–located St. Louis, Missouri.

Robin H. H. Wilson and Glenn A. Zander were selected to run the company on an interim basis in the fall of 1992. Wilson had been with TWA for most the 1960s and 1970s, and Zander was a 28–year veteran of the company. In February of 1993, the joint chief executives traveled around the United States to explain their plan to bring the company out of bankruptcy, which included a major image overhaul, from low–budget to quality–conscious. A new advertising campaign launched TWA’s “Comfort Class” seating, with more legroom than any other leading airline. Although the effort raised customer satisfaction, TWA continued to lose money in 1992 and 1993.

TWA emerged from bankruptcy protection months later than it had hoped to, in November of 1993, after the peak summer season. Wilson and Zander became executive vice–presidents of operations and finance, respectively, and former Piedmont Airlines chief William R. Howard took the airline’s helm. Within just two months, however, Howard and Zander resigned after a dismal winter season, leaving TWA with yet another dilemma. Although board member Donald F. Craib, Jr. had no airline experience (he was formerly chairman and CEO of Allstate), he was selected to succeed Howard.

As new owners, TWA’s employees made heroic efforts to sustain their company, improving service and timeliness and donating their own pay to fund advertising and capital expenses. Yet they watched the value of their shares decline by over one–third in the first six months of 1994. That June, two of the airline’s three largest unions agreed to another $200 million in concessions to help the company survive yet another harsh winter. The company also started post–bankruptcy negotiations with creditors, including the Pension Benefit Guaranty Corp., offering a swap of about 15 percent in equity for about $800 million of debt. Late in 1994, when the plan was unveiled, Anthony L. Velocci, Jr. of Aviation Week & Space Technology, who had long followed the saga, related analysts’ general skepticism that the offer would be accepted.

TWA’s continuing problems have raised the question of its ability to continue as an independent airline. Throughout this difficult period in the firm’s history, mergers with Eastern Airlines, America West, USAir, and British Airways have been speculated on and reportedly negotiated.

Principal Subsidiaries

Trans World Express, Inc.; WORLD–SPAN (50%).

Trans World Airlines, Inc.

views updated May 18 2018

Trans World Airlines, Inc.

515 North 6th Street
St. Louis, Missouri 63101
U.S.A.
Telephone: (314) 589-3000
Toll Free: (800) 221-2000
Fax: (314) 589-3129
Web site: http://www.twa.com">http://www.twa.com

Public Company
Incorporated: 1928 as Transcontinental Air Transport
Employees: 21,000
Sales: $3.31 billion (1999)
Stock Exchanges: American
Ticker Symbol: TWA
NAIC: 481111 Scheduled Passenger Air Transportation

In the 1990s, Trans World Airlines, Inc. (TWA) ranked as the seventh largest U.S. airline company. The firm’s history has been influenced by such well-known personalities as Charles Lindbergh, Amelia Earhart, Jack Frye, and Howard Hughes. However, under the late 1980s and early 1990s stewardship of corporate raider Carl Icahn, the company widely known as TWA squandered much of its reputation. It filed for bankruptcy protection twice in the 1990s, losing money ten years in a row even as its rivals logged record profits. Although TWA leads the pack in on-time performance, lingering image problems have prevented it from winning much of the lucrative business travel market.

Origins

TWA was established through the merger of several small airline companies in the 1920s. One of those small companies was Maddux Air Lines, which began a luxury passenger service between Los Angeles and San Diego on July 21, 1927. Maddux and a number of other carriers were organized by a group of investors who sought to establish a transcontinental passenger line using a combination of airplane flights and railroads. The group, Transcontinental Air Transport, hired Charles Lindbergh to survey the route. On July 7, 1929, TAT inaugurated the “Lindbergh Line,” offering coast-to-coast transportation in about 48 hours. The journey departed New York in the evening and crossed the eastern U.S. by the Pennsylvania Railroad. The next morning passengers flew from Columbus, Ohio, to Waynoka, Oklahoma. From there the Santa Fe Railroad took them overnight to Clovis, New Mexico. From Clovis the passengers flew on to either Los Angeles or San Francisco.

In those early days of commercial aviation, airlines made most of their money hauling mail for postal services. The United States Postmaster at the time, Walter Folger Brown, was responsible for assigning three transcontinental airmail routes. American Airlines won the southern route, Northwest Airlines won the northern route, and TAT was awarded the central route, but only on the condition that the company merge with Western Air Express. In 1930, the two companies joined to form Transcontinental and Western Air Lines, or TWA. That October the new company covered the coast-to-coast route completely with airplanes, in light of the failure of the previous scheme. The trip was reduced to 36 hours and then later to 24.

Bill Boeing manufactured what were generally regarded as the best airplanes of the day; however, he refused to sell them to any air transport company except his own. Excluded from the Boeing market, TWA’s general manager, Jack Frye, solicited designs from a number of manufacturers. A small California operation run by Donald Douglas proposed an impressive design which outperformed Frye’s basic specifications. TWA accepted Douglas’s offer, and the first DC-1 was built. The DC-1, however, became obsolete before it could be mass produced, so it was lengthened and otherwise improved. The new plane, the DC-2, was every bit as practical as the DC-1, but more difficult to fly.

New Owners in the 1930s and 1940s

Air travel was a risky business in the 1930s. Breaches in pilot discipline and frequent equipment failures caused a number of TWA airplane crashes. At one point, the airline was losing five percent of its personnel annually to such accidents. The company was further troubled when the Roosevelt Administration decided to cancel all government airmail contracts with private carriers in 1934. Many airlines, including TWA, depended on mail contracts for their profitability. During this crisis TWA was sold to a group led by Lehman Brothers and John Hertz of the Yellow Cab Company. The government decided to restore the airmail contracts a few months later and reopened the bidding. Curiously, companies that had held contracts before were barred from bidding. In order to get around this stipulation, the company responded by merely adding “Incorporated” to its name. It was re-awarded 60 percent of its original airmail system and, over a period of a few years, recovered the rest.

Under the new owners, Jack Frye, a vice-president and former Hollywood stunt pilot, was promoted to president. The new management instituted major improvements in TWA’s training and flight efficiency and also upgraded its airport facilities. The airline employed directional “homing” radar and installed runway lights to facilitate night flying. The DC-3 became the company’s new workhorse while business improved significantly.

In the 1930s airline companies became especially vulnerable to buyouts. General Motors Corporation acquired Eastern Airlines in 1933 and American Airlines was taken over by the auto magnate E.L. Cord. When General Motors purchased stock in TWA, the airline worried that it would be forcibly merged with some other GM interest. In 1938, when TWA had fully recovered from the airmail fiasco, the Lehman/Hertz group sold the airline to another group of investors. During this time Frye personally convinced millionaire Howard Hughes to invest in TWA. It is very likely that Frye wanted Hughes’s interest in the company so that he could help to defend it from any hostile takeover bids, especially from GM.

At the outset, Frye and Hughes respected each other as aviators and businessmen. Frye was a daredevil flier, a man totally enthralled with aviation and its possibilities. Hughes was an equally eccentric young man who was devoted to breaking aviation records. From his father he inherited ownership of the extremely lucrative Hughes Tool Company, the primary supplier of oil well drilling bits. Using this large fortune Hughes purchased 25 percent of TWA’s stock. In 1941 he gained a controlling interest in the airline and later increased his share to 78 percent.

One of Hughes’s first activities at TWA was to begin development of a new airplane, the L-049 Constellation, in association with Lockheed. While the Constellation was still being developed, Hughes approved Frye’s proposal to buy another new airplane, Boeing’s 307 Stratoliner, for the interim. The Stratoliner had a pressurized cabin and was able to reach an altitude of 20,000 feet. As a result, it could fly over bad weather rather than be forced to navigate through it.

Overseas in World War II

TWA was one of the first American airline companies to serve during the Battle of Britain in 1940. Even before the U.S. government had officially committed itself to the war effort, TWA was helping the Army Air Corps assist the British. When the U.S. became fully involved in 1941, TWA was assigned two military supply routes: the North Atlantic route to Prestwick, Scotland, and the South Atlantic route from Brazil to Liberia and points east.

The airline had the distinction of flying President Roosevelt and a number of other government personnel to and from various meeting places during the war, most notably, Casablanca. The war gave TWA the opportunity to upgrade and expand its facilities worldwide in anticipation of the allied victory. The U.S. War Department actively supported the airline’s activities during the war. It would be fair to say that TWA served the country well and that it also profited handsomely. When TWA’s military service was over it had flown 40 million miles for the Army, and was exposed to hundreds of new destinations.

The major overseas carriers after the war were Pan Am, American, and TWA. All these airlines requested licensing for commercial use of much of their wartime network. TWA was granted two transatlantic routes to Europe, one via the “great circle” near the Arctic, and the other via the Azores to the Mediterranean. From there TWA flew on to India, Southeast Asia, and Japan. The company also enjoyed a government subsidy in the immediate postwar years.

Hughes and Frye had grandiose, but divergent, plans for their company, whose name they had changed to Trans World Airlines. The Constellation they helped to develop first flew in 1944, served briefly during the war, and entered wide commercial use in the postwar era. However, it was at this time that the two men began to disagree. Hughes, who was injured in the crash of a test plane during the war, had developed a very difficult personality and was known to hold up major business decisions for weeks while he agonized over minute details. He even disappeared for several days with a Constellation, only to turn up in Bermuda making endless test landings.

TWA soon found that it did not have enough business on its 21,000 miles of postwar international routes to generate a profit. Frye’s efforts to rectify the problem collided with the plans of Hughes’s financial manager, Noah Dietrich. Dietrich charged that Frye had mismanaged the airline into a financial crisis and dangerous overexpansion. Hughes offered to provide money for TWA from the Hughes Tool Company, but only on the condition that Frye resign. Thus in January 1947 Frye left TWA.

Company Perspectives:

At TWA, our mission is to ensure that our customers accomplish theirs. You, our valued customers, are an important part of TWA’s vision. We are committed to continually improving our brand product and focusing on customer service. Every employee has been trained to deliver our unique brand of customer service. Our Customer Service Plan is specifically designed to assist us in reaching this objective for every customer on every flight. We are an airline of proud professionals, committed to One Mission … Yours.

TWA suspended many of its plans for further expansion. The headquarters was moved from Kansas City to New York. Ralph Damon, who had previously been with American Airlines, was brought in to replace Jack Frye. Damon was an old-school engineer and airplane manufacturer known for his careful attention to detail. Damon’s numerous successes at the airline, however, were shrouded by Hughes’s continued interference and manipulation. Hughes insisted that the company reduce its advertising and promotion at a time when it was probably most needed. Regardless, TWA went off its postwar government subsidy in 1952, and a year later was healthy enough to declare a ten percent stock distribution. Two years later Damon died at work, a victim of pneumonia and exhaustion. Doctors suggested that his poor health was exacerbated by the unrelenting pressure of running an airline for Howard Hughes.

Mid-1950s Bailout

Damon’s successor was Carter Burgess, a former Assistant Secretary of Defense. Burgess lasted only 11 months, during which time he never even met Hughes. TWA’s next president was Charles Thomas. Thomas kept a low profile, followed all of Hughes’s orders, and kept the company in good financial condition. When Thomas took over in the mid-1950s, all of the airlines were competing to be the first to have jetliners in their fleets. While the other leading companies were laying their plans and placing orders, TWA’s order was delayed by Hughes’s indecision over which airplane to buy, the Boeing 707 or the DC-8. Weeks later he finally decided to order 76 airplanes from Boeing and Convair. The jetliners would cost $500 million, much more than TWA could afford. Hughes’s plan was to have his successful tool company purchase the planes and lease them to the airline. He wanted to keep TWA’s profits low, channel money out of the Tool Company, and thereby avoid paying large penalty taxes.

Unfortunately, a world oil glut hurt the Hughes Tool Company so badly that it was unable to pay for the new airplanes. As a result, TWA was forced to turn to a group of Wall Street investment bankers for financial support. The bankers were aware of Hughes’s reputation as a successful tycoon, but also recognized that his interests were probably not the same as those of the airline. As a condition for their financial assistance, they required that Hughes’s majority voting interest in TWA be placed in a trust under their control. Negotiations lasted until the bankers’ deadline, when Hughes finally conceded.

One of the investment group’s first actions was to install Charles Tillinghast as president of TWA. Tillinghast, a lawyer, promptly filed an antitrust suit against Hughes, alleging violations of the Sherman Act and the Clayton Anti-Monopoly Act, and accusing him of monopolizing aircraft purchases for his own benefit and to the detriment of TWA. Hughes responded with a countersuit, charging that they swindled him out of his airline. The litigation continued for many years and cost TWA over $10 million. In the end, the courts returned no clear decision.

Tillinghast reorganized the airline quickly and completely. Management was restructured and pared down. TWA placed orders for newer B-727s and French-built Caravelles. In addition, Tillinghast attempted to change the company’s public image. In light of its association with Hughes, TWA was regarded as being overly concerned with speed, glamour, and style, and not enough with dependability, efficiency, and safety. TWA emerged from its troubles with stable and consistent profits through 1966, largely due to the direction of Charles Tillinghast. Ironically, the chief beneficiary of TWA’s improvement was Howard Hughes. In 1966 he sold his stock in the airline for $546.5 million, or $86 per share. Three years earlier TWA stock had sold for a paltry $7.50.

Diversifying in the 1960s

Aside from the large profits and the Hughes fiasco, the 1960s were important in another way. It was at this time that Tillinghast made perhaps his most important contribution. Hoping to provide the company with protection against the unpredictable and unstable airline business, he initiated a diversification program aimed at strengthening the airline’s capital structure and cash flow.

TWA’s diversification began in 1964 with a contract to provide base support services to the National Aeronautics and Space Administration at Cape Kennedy. In 1967 TWA purchased Hilton International, the operator of all Hilton Hotels outside the United States. Later, TWA acquired the Canteen Corporation, Spartan Food Services, and Century 21, a real estate firm. The company was the first to diversify into non-airline businesses, and its timing was auspicious, as the industry was suffering from the recession of the early 1970s. TWA’s B-747s and L-1011s were flying with nearly empty passenger cabins. The original decision to purchase the jetliners was made in response to Pan Am’s huge orders, and not based on TWA’s needs. As a result, the airline was plagued with overcapacity; it owned too many big, inefficient planes.

Key Dates:

1929:: After incorporating during the previous year, Trans-continental Air Transport (TAT) offers 48-hour coast-to-coast service via air and rail.
1930:: TAT merges with Western Airlines to form TWA.
1934:: Airmail crisis forces sale to Lehman Brothers and John Hertz.
1938:: Howard Hughes invests in TWA.
1945:: TWA is left with international routes after ferrying cargo and troops in World War II.
1964:: TWA begins an extensive diversification spree.
1966:: Hughes, long stripped of power by investment bankers, cashes in his TWA shares.
1986:: Carl Icahn buys a controlling interest in TWA.
1992:: Laden with debt, TWA files for Chapter 11 bankruptcy protection.
1995:: TWA files bankruptcy again.
1996:: Loss of Flight 800, bound from New York to Paris, comes just as TWA is recovering.
1998:: TWA tops on-time performance lists but continues to lose money.
1999:: The new Boeing 717-200 is adopted as a symbol of TWA’s future.

To make matters worse, TWA suffered a crippling six-week flight attendants’strike in 1973. By 1975 several payrolls could only be met with the immediate sale of six 747s to the Iranian Air Force. It was an unfortunate financial transaction for TWA (which sold the jetliners for about one-sixth their actual value), but the airline was desperate for cash. TWA was also losing money on its trans-Pacific route, which had been awarded during Lyndon B. Johnson’s presidency. For the first time in its history, TWA’s network stretched around the world, but even this would soon come to an end.

Tillinghast retired amid these numerous crises. He was succeeded in January 1976 by Carl Meyer. Meyer navigated the airline through a series of changes in the airline passenger market. Costs were reduced as international traffic expanded. The Airline Deregulation Act of 1978 allowed TWA to establish a more efficient dual hub system: St. Louis for domestic traffic and New York for international traffic. Moreover, under Carl Meyer TWA reduced its fleet and its staff. The company purchased more fuel-efficient airplanes while selling the “gasguzzlers” as soon as their value had completely depreciated.

Raided in the 1980s

On January 1, 1979, TWA created a holding company called the Trans World Corporation, which assumed ownership of the airline and the various subsidiaries. Several years later, facing financial difficulties, Trans World Corporation decided to sell its airline. Thus TWA was acquired by “corporate raider” Carl Icahn early in 1986. Icahn’s style of “raiding” usually involved buying up enough of a company’s stock to threaten the other stockholders with a controlling interest or takeover. This drove the price of the stock up to a point where he could decide to sell, usually at a large profit. In his battle with Texas Air Corporation (parent of Eastern Airlines) for control of TWA, Icahn enlisted the support of the target airline’s labor unions with pledges to honor their numerous demands. With their support, Icahn was able to hold out with a bid of $18.17 per share and ultimately took over. Icahn fired the airline’s popular president, Richard Pearson, and replaced him with Joseph Corr.

Icahn’s apparent commitment to TWA and hands-on approach surprised many observers. He launched a new subsidiary, the Travel Channel, acquired Ozark Airlines, pared expenses to the industry’s lowest cost-per-available-seat-per-mile (8.5 cents), and turned 1986’s loss into a profit for 1987. That success, however, was fleeting. A number of intractable problems—including an insufficient number of hubs and feeder lines, a rapidly declining market presence, heavy debt load, and price wars—plagued the airline.

By the end of 1988, when Icahn took TWA private, the firm’s nearly $4 billion debt load gave it a negative net worth and contributed to the growing dissatisfaction of TWA’s labor unions. Both the Air Line Pilots Association and the Independent Federation of Flight Attendants filed suits against Icahn alleging poor management. The financier in turn threatened to liquidate the airline in a long, drawn out bankruptcy if he did not obtain wage concessions from the unions and cooperation from creditors.

Losing Money in the 1990s

From 1985 until January 1992, when TWA declared Chapter 11 bankruptcy, its share of the domestic market had slipped from seven percent to 5.5 percent and its slice of the international market was halved from 20.9 percent to 10 percent. The company’s bankruptcy reorganization plan called for its 28,000 employees to make 15 percent ($660 million) wage and work rule concessions in exchange for an additional 35 percent stake in the company, raising their share of TWA’s equity to 45 percent. Creditors forgave $1 billion of the airline’s $1.5 billion debt in exchange for the remaining equity. Icahn gave up his entire 90 percent share of the company, left it $200 million in cash, and paid the federal government’s Pension Benefit Guaranty Corporation $240 million to prop up TWA’s pension plan, which was underfunded by an estimated $1.2 billion. About 2,000 jobs were eliminated, domestic capacity was reduced by 13 percent, and international volume was cut by 38 percent. The company even relocated its headquarters from Mt. Kisco, New York, to the more centrally located St. Louis, Missouri.

Robin H.H. Wilson and Glenn A. Zander were selected to run the company on an interim basis in the fall of 1992. Wilson had been with TWA for most the 1960s and 1970s, and Zander was a 28-year veteran of the company. In February 1993, the joint chief executives traveled around the United States to explain their plan to bring the company out of bankruptcy, which included a major image overhaul, from low-budget to quality-conscious. A new advertising campaign launched TWA’s “Comfort Class” seating, with more leg room than any other leading airline. Although the effort raised customer satis-faction, TWA continued to lose money in 1992 and 1993.

TWA emerged from bankruptcy protection months later than it had hoped, in November 1993, after the peak summer season. Wilson and Zander became executive vice-presidents of operations and finance, respectively, and former Piedmont Airlines chief William R. Howard took the airline’s helm. Within just two months, however, Howard and Zander resigned after a dismal winter season, leaving TWA with yet another dilemma. Although board member Donald F. Craib, Jr., had no airline experience (he was formerly chairman and CEO of Allstate), he was selected to succeed Howard. Jeffrey Erickson, formerly of Reno Air, became CEO in the spring of 1994, temporarily ending the string of executives passing through the top job.

As new owners, TWA’s employees made heroic efforts to sustain their company, improving service and timeliness and donating their own pay to fund advertising and capital expenses. Yet they watched the value of their shares decline by over one-third in the first six months of 1994. That June, two of the airline’s three largest unions agreed to another $200 million in concessions to help the company survive yet another harsh winter. The company also started post-bankruptcy negotiations with creditors, including the Pension Benefit Guaranty Corp., offering a swap of about 15 percent in equity for about $800 million of debt. Late in 1994, when the plan was unveiled, Anthony L. Velocci, Jr., of Aviation Week & Space Technology, who had long followed the saga, related analysts’ general skepticism that the offer would be accepted.

Although revenues rose eight percent to $3.4 billion, TWA posted a $436 million loss for 1994. The company filed for its second Chapter 11 in June 1995 to shed $500 million of its $1.7 billion in debt. This time around, creditors had approved its deal before filing, putting it on track to emerge from its second restructuring in August 1995.

With unprofitable routes already slashed and employee loyalty taxed to the fullest, managers gambled on a new strategy in 1996. They installed a new yield management system (software determining how many seats are sold at what prices) in a plan to emphasize the lucrative business side of the market.

Soon the carrier began to show signs of a turnaround, with some union representatives balking at the generous stock options granted Erickson. TWA began hiring again, planning to increase employment by nearly ten percent in 1996. It announced plans to finally acquire some new planes, 15 leased MD-83s, on July 16.

The next day, Flight 800 to Paris exploded shortly after taking off from New York City, killing all 230 people on board. An extended investigation to determine the cause of the explosion followed. Senior executives were criticized in the press by New York Mayor Rudolph Giuliani for their slow response to the news. However, Erickson had been in London lobbying for a new route and could not charter a return flight until the next morning. Further, two of his top aides had recently resigned.

Ultimately, Erickson resigned after TWA announced a $14 million loss for the third quarter—traditionally the airline’s strongest season. Erickson had been struggling with both the board of directors and the pilots’ union. The carrier posted a loss of $259 million on $3.6 billion in revenues in 1996.

The board chose Gerald L. Gitner as Erickson’s replacement, making the position permanent in February 1997. The selection reportedly infuriated the Machinists’ union, although it was later revealed that the union’s two representatives on the TWA board had voted in favor of Gitner. Gitner had worked at Texas Air and Pan Am, both of which folded; the Machinists at Eastern Airlines had gone on strike after it was acquired by Texas Air, led by Frank Lorenzo.

The steam that had driven TWA’s turnaround, the loyalty of its relatively underpaid workers, was giving out. TWA was the only major U.S. airline to lose money in 1997. By focusing on on-time performance, the carrier tried to capture a bigger percentage of the lucrative business travel market—no other major airline controlled less. To improve reliability, TWA retired its old Lockheed L-1011s in favor of smaller Boeing 757s. International service was also greatly scaled back. In 1997, TWA was second among majors for on-time performance. Pilot William Compton was promoted to president in December 1997 and oversaw the airline’s efforts to keep planes moving on time.

However, the strategy failed as planes flew with many unfilled seats that would have otherwise gone to vacation traffic. While other major airlines were posting banner years, TWA again lost money ($121 million) for the tenth straight year in 1998. The company at the end of the year was embroiled in contract disputes and calls for new leadership from unions and shareholders alike. It had recently ordered 125 new jets. Compton was designated TWA’s new CEO, effective May 1999, while Gitner remained chairman. The Machinists’ union derided the shift as a “manipulative shuffle.”

In July 1999, Compton called Boeing’s new 717-200 a symbol of where the airline was headed. With AirTran, TWA was the launch customer for the plane, a medium range jet designed by McDonnell Douglas (also known the MD-5) before that manufacturer was acquired by Boeing. TWA ordered 50 of the 717-200s and invested $15 million in a state-of-the-art flight simulator to train pilots in their use.

TWA contracted with Indianapolis-based Chautauqua Air-lines to provide feeder services on small, 50-seat regional jets. A new labor agreement made the partnership possible. On regional routes, TWA had previously been using only turboprop aircraft, which were generally less favored by passengers. At least 15 of Chatauqua’s Embraer 145 regional jets were to be in service by the end of 2001 in markets around the country.

TWA ranked first in a 1999 J.D. Power and Associates survey of business travelers. It continued to lead the other major airlines in on-time performance. Intriguingly, it also ranked second in the number of passenger complaints to the federal government. Lingering image problems prevented the carrier from charging top rates. TWA had a limited network and faced competition on nearly all of its routes. Once strong in New York, the airline had retained only one hub, the crowded, outdated St. Louis-Lambert International Airport. Since most passengers did not want to travel to the middle of the country every time they flew, TWA was working out agreements so its passengers could earn frequent flier miles on other airlines such as America West.

Principal Subsidiaries

Ambassador Fuel Corporation; Royal Ambassador Insurance Company; Getaway Management Services, Inc.; International Aviation Security, Inc.; International Airport Services; International Aviation Security Gesellschaft; International Aviation Security Italia S.r.l.; International Aviation Security Ltd.; International Aviation Security (UK); International Aviation Security N.V.; Mega Advertising, Inc.; Northwest 112th Street Corp.; Ozark Group, Inc.; TWA Getaway Vacations, Inc.; The Getaway Group (UK), Inc.; The TWA Ambassadors Club, Inc.; Transcontinental & Western Air, Inc.; Trans World Computer Services, Inc.; Trans World Express, Inc.; Trans World Pars, Inc.; TWA Aviation, Inc.; TWA de Mexico S.A. de C.V.; TWA Employee Services, Inc.; TWA Group, Inc.; TWA Nippon, Inc.; TWA Standards & Controls, Inc.; TWA-NY/NJ Gate Company, Inc.; TWA-LAX Gate Company, Inc.; TWA-San Francisco Gate Company, Inc.; TWA-Logan Gate Company, Inc.; TWA-D.C. Gate Company, Inc.; TWA-Omnibus Gate Company, Inc.; TWA-Hangar 12 Holding Company, Inc.; LAX Holding Company, Inc.; TWA Stock Holding Company, Inc.; ConFin Inc.; Constellation Finance LLC; Worldspan, L.P. (26.31%).

Principal Competitors

AMR Corporation; Southwest Airlines Co.; UAL Corporation; Delta Air Lines Inc.

Trans World Airlines, Inc.

views updated May 11 2018

Trans World Airlines, Inc.

605 Third Avenue
New York, New York 10158
U.S.A.
(212) 692-3000

Public Company
Incorporated: 1928 as Transcontinental Air Transport
Employees: 20,871
Sales: $3.145 billion
Market value: $608 million
Stock Index: New York

Trans World Airlines, or TWA, has a long and eventful history which dates back to the mid-1920’s. From rather humble beginnings the airline has grown to serve airports on four continents and operate a complete round-the-world route system. Such well-known people as Charles Lindbergh, Amelia Earhart, Jack Frye and Howard Hughes were closely associated with the company. The company established a reputation for leadership and innovation and was widely regarded as one of the United States’ leading airlines. In recent years, however, TWA has been forced to reduce its size in order to remain competitive.

TWA was established through the merger of several small airline companies in the 1920’s. One of those small companies was Maddux Air Lines, which began a luxury passenger service between Los Angeles and San Diego on July 21, 1927. Maddux and a number of other carriers were organized by a group of investors who sought to establish a transcontinental passenger line using a combination of airplane flights and railroads. The group, Transcontinental Air Transport, hired Charles Lindbergh to survey the route. On July 7,1929, TAT inaugurated the “Lindbergh Line.” It began by boarding the Pennsylvania Railroad in New York in the evening. The next morning passengers flew from Columbus, Ohio to Waynoka, Oklahoma. From there the Sante Fe Railroad took them overnight to Clovis, New Mexico. From Clovis the passengers flew on to either Los Angeles or San Francisco. TAT offered coast-to-coast transportation in about 48 hours.

In the early days of commercial aviation, airlines made most of their money hauling mail for postal services. The United States Postmaster, Walter Folger Brown, was responsible for assigning three transcontinental airmail routes. American Airlines won the southern route, Northwest Airlines won the northern route, and TAT was awarded the central route, but only on the condition that the company merge with Western Air Express. By the end of August of 1930, the two companies joined to form Transcontinental and Western Air Lines. In October the new company, “TWA,” mastered the coast-to-coast route completely with airplanes, in light of the failure of the previous scheme. The trip was reduced to 36 hours and then later to 24.

Bill Boeing manufactured what were generally regarded as the best airplanes of the day; however, he refused to sell them to any company except his own. Excluded from the Boeing market, TWA’s general manager Jack Frye solicited designs from a number of manufacturers. A small California operation run by Donald Douglas proposed an impressive design which outperformed Frye’s basic specifications. TWA accepted Douglas’ offer, and the first DC-1 was built. The DC-1, however, became obsolete before it could be mass produced. It was lengthened and otherwise improved. The new plane, the DC-2, was every bit as practical as the DC-1, but more difficult to fly.

Since there were breaches in pilot discipline and frequent equipment failures, a number of TWA airplanes crashed. At one point, the airline was losing 5% of its personnel annually to such accidents. The company was further troubled when the Roosevelt administration decided to cancel all government airmail contracts with private carriers in 1934. Many airlines depended on mail contracts for their profitability, and like them, TWA was adversely affected.

During this crisis TWA was sold to another group led by the Lehman Brothers and John Hertz of the Yellow Cab Company. The government decided to restore the airmail contracts a few months later and reopened the bidding. Curiously, companies that had held contracts before were barred from bidding. In order to get around this stipulation, the company responded by merely adding “Incorporated” to its name. It was re-awarded 60% of its original airmail system and, over a period of a few years, recovered the rest.

Under the new owners Jack Frye, a vice president and former Hollywood stunt pilot, was promoted to president. Under this new management TWA made major improvements in its training, flight efficiency and also upgraded its airport facilities. TWA employed directional “homing” radar and installed runway lights to facilitate night flying. The DC-3 became the company’s new workhorse while business improved significantly.

In the 1930’s airline companies became especially vulnerable to buyouts. General Motors acquired Eastern Airlines in 1933 and American Airlines was taken over by the auto magnate E.L. Cord. When General Motors purchased stock in TWA, the airline worried that it would be forceably merged with some other GM interest. In 1938, when TWA had fully recovered from the airmail fiasco, the Lehman/Hertz group sold the airline to another group of investors. During this time Frye personally convinced millionaire Howard Hughes to invest in TWA. It is very likely that Frye wanted Hughes’ interest in the company so that he could help to defend it from any hostile takeover bids, ostensibly from GM.

Frye and Hughes respected each other as aviators and businessmen. Frye was a daredevil flier, a man totally enthralled with aviation and its possibilities. Hughes was an equally eccentric young man who was devoted to breaking aviation records. From his father he inherited ownership of the extremely lucrative Hughes Tool Company, the primary supplier of oil well drilling bits. Using his large fortune Hughes purchased 25% of TWA’s stock. In 1941 he gained a controlling interest in the airline and later increased his share to 78%.

One of Hughes’ first activities at TWA was to begin development of a new airplane in association with Lockheed. The airplane was the L-049 Constellation. While the Constellation was still being developed Hughes approved Frye’s proposal to buy another new airplane, Boeing’s 307 Stratoliner, for the interim. The Stratoliner had a pressurized cabin and was able to reach an altitude of 20,000 feet. As a result, it could fly over bad weather rather than be forced to navigate through it.

TWA was one of the first American airline companies to serve during the Battle of Britain in 1940. Even before the U.S. government had committed itself to the war effort, TWA was helping the Army Air Corps assist the British. When the U.S. became fully involved in 1941, TWA was assigned two military supply routes: the North Atlantic to Prestwick, Scotland; and the South Atlantic from Brazil to Liberia and points east.

The airline had the distinction of flying President Roosevelt and a number of other government personnel to and from various meeting places during the war, most notably, Casablanca. The war gave TWA the opportunity to upgrade and expand its facilities worldwide in anticipation of the allied victory. The U.S. War Department actively supported the airline’s activities during the war. It would be fair to say that TWA served the country well and that it also profited handsomely. When TWA’s military service was over it had flown 40 million miles for the Army, and was exposed to hundreds of new destinations.

The major overseas carriers after the war were Pan Am, American and TWA. All these airlines requested licensing for commerical use of much of their wartime network. TWA was granted two transatlantic routes to Europe, one via the “great circle” near the Artie, and the other via the Azores to the Mediterranean. From there TWA flew on to India, Southeast Asia and Japan.

Hughes and Frye had grandiose plans for the airline whose name they had changed to Trans World Airlines. The Constellation they helped to develop first flew in 1944, served briefly during the war, and was now in wide commercial use. However, it was at this time that the two men began to disagree. Hughes, who was injured in the crash of a test plane during the war, had changed. He had developed a very difficult personality and was known to hold up major business decisions for weeks while he agonized over minute details. He even disappeared for several days with a Constellation, only to turn up in Bermuda making endless test landings.

TWA didn’t have enough business on its 21,000 miles of postwar international routes to generate a profit. Frye’s efforts to rectify the problem collided with the plans of Hughes’ financial manager Noah Dietrich. Dietrich charged that Frye had mismanaged the airline into a financial crisis and dangerous overexpansion. Hughes offered to provide money for TWA from the Hughes Tool Company, but only on the condition that Frye resign. In January of 1947 Frye left TWA.

TWA suspended many of its plans for further expansion. The headquarters was moved from Kansas City to New York. The man brought in to replace Jack Frye was Ralph Damon, who had previously been with American Airlines. Damon was an old-school engineer and airplane manufacturer. He was known for his careful attention to detail. Damon’s numerous successes at the airline, however, were hindered by Hughes’ continued interference and manipulation. Hughes insisted that the company reduce its advertising and promotion at a time when it was probably most needed. Regardless, TWA went off its postwar government subsidy in 1952, and a year later was healthy enough to declare a 10% stock distribution. Two years later Damon died at work, a victim of pneumonia and exhaustion. Doctors suggested that his poor health was exacerbated by the unrelenting pressure of running an airline for Howard Hughes.

Damon’s successor was Carter Burgess, a former Assistant Secretary of Defense. Burgess lasted only 11 months, during which time he had never even met Hughes. TWA’s next president was Charles Thomas. Thomas kept a low profile and followed all of Hughes’ orders. He worked hard to keep the company in good financial condition.

When Thomas took over in the mid-1950’s, all of the airlines were competing to be the first to have jetliners in their fleets. While the other leading companies were laying their plans and placing orders, TWA’s order was delayed by Hughes’ indecision over which airplane to buy, the Boeing 707 or the DC-8. Weeks later he finally decided to order 76 airplanes from Boeing and Convair. The jetliners would cost $500 million, much more than TWA could afford. Hughes’ plan was to have his successful tool company purchase the planes and lease them to the airline. He wanted to keep TWA’s profits low, channel money out of the Tool Company, and thereby avoid paying large penalty taxes.

However, a world oil glut hurt the Hughes Tool Company so badly that it was unable to pay for the new airplanes. As a result, TWA was forced to turn to a group of Wall Street investment bankers for financial support. The bankers were aware of Hughes’ reputation as a successful tycoon, but also recognized that his interests were probably not the same as those of the airline. As a condition for their financial assistance, they required that Hughes’ majority voting interest in TWA be placed in a trust under their control. Negotiations lasted until the bankers’ deadline when Hughes finally conceded.

One of the first actions of the bankers was to install Charles Tillinghast as president of TWA. Tillinghast, a lawyer, promptly filed an antitrust suit against Hughes, alleging violations of the Sherman Act and the Clayton Anti-Monopoly Act, and accusing him of monopolizing aircraft purchases for his own benefit and to the detriment of TWA. Hughes responded to the bankers with a countersuit, charging that they swindled him out of his airline. The litigation continued for many years and cost TWA over $10 million. In the end, there was no clear decision by the courts.

Tillinghast reorganized the airline quickly and completely; management was restructured and pared down. TWA placed orders for newer B-727s and French-built Caravelles. In addition, Tillinghast attempted to change the company’s public image. In light of its association with Hughes, TWA was regarded as being overly concerned with speed, glamour and style, and not enough with dependability, efficiency and safety.

TWA emerged from its troubles with stable and consistent profits through 1966, largely due to the direction of Charles Tillinghast. Ironically, the chief beneficiary of TWA’s improvement was Howard Hughes. In 1966 he sold his stock in the airline for $546.5 million; he received $86 per share. Three years earlier TWA stock sold for only $7.50.

Aside from the large profits and the Hughes fiasco, the 1960’s were important in another way. It was at this time that Tillinghast made perhaps his most important contribution. Hoping to provide the company with protection against the unpredictable and unstable airline business, he initiated a diversification program aimed at strengthening the airline’s capital structure and cash flow.

TWA’s diversification began in 1964 with a contract to provide base support services to the National Aeronautics and Space Administration at Cape Kennedy. In 1967 TWA purchased Hilton International, the operator of all Hilton Hotels outside the United States. Later, TWA acquired the Canteen Corporation, Spartan Food Services and Century 21, a real estate firm. The company was the first to diversify into non-airline businesses, and its timing was auspicious. The airline was suffering from the recession of 1970-71. In addition, TWA’s B-747s and L-1011’s were flying with nearly empty passenger cabins. The original decision to purchase the jetliners was made in response to Pan Am’s huge orders, and not based on TWA’s needs. As a result, the airline was plagued with overcapacity; it owned too many of the wrong kind of airplanes.

To make matters worse, TWA suffered a crippling six-week flight attendant’s strike in 1973. By 1975 several payrolls could only be met by the immediate sale of six 747s to the Iranian Air Force. It was an unfortunate financial transaction for TWA (which sold the jetliners for about one-sixth their actual value), but the airline was desperate for cash. TWA was also losing money on its transpacific route which had been awarded during Johnson’s presidency. For the first time in its history TWA’s network stretched around the world, but even this would soon come to an end.

Amid these numerous crises Tillinghast retired. He was succeeded in January of 1976 by Carl Meyer. Meyer navigated the airline through a series of changes in the airline passenger market. Costs were reduced as international traffic expanded. The Airline Deregulation Act of 1978 allowed TWA to establish a more efficient dual hub system: St Louis for domestic traffic and New York for international traffic. Moreover, under Carl Meyer TWA reduced its fleet and its staff. The company purchased more fuel-efficient airplanes while selling the “gas-guzzlers” as soon as their value had completely depreciated.

On January 1, 1979, TWA created a holding company called the Trans World Corporation. “TWC” assumed parent ownership of the airline and the various subsidiaries. Four years later, a curious thing happened. Other airline holding companies have been known to sell their non-airline subsidiaries in periods of financial difficulties. When hard times came to Trans World Corporation, however, it sold the airline.

TWA was acquired by the corporate “raider” Carl Icahn early in 1986. Icahn’s style of “raiding” usually involves buying up enough of a company’s stock to threaten the other stockholders with a controlling interest, or takeover. This drives the price of the stock up to a point where the raider decides to sell, usually at a large profit. With TWA, however, Icahn was battling Texas Air Corporation. He enlisted the support of the airline’s labor unions by pledging to honor their numerous demands. With the unions behind him, Icahn held out with a bid of $18.17 per share and found himself the new owner of the airline. Unfortunately, the company Icahn purchased was not fully prepared for the trauma of a corporate raid. As owner, however, Icahn was free to reorganize management as he thought necessary. He fired the popular president, Richard Pearson, and replaced him with Joseph Corr.

TWA’s labor relations and economic condition deteriorated after Icahn took control. 4,000 striking flight attendants were more or less fired, which reduced the number of flights at a time when TWA should have experienced a period of growth. In response, Icahn purchased TWA’s smaller competitor, Ozark Airlines. TWA had long considered acquiring Ozark, but it took Carl Icahn to finally commit the airline to the purchase. In accordance with the terms of the acquisition, TWA would receive four dozen older, but popular, jetliners which could be sold for cash. TWA also sold 50% of its successful IBM Pars computerized reservations system to Northwest Airlines. Joint use of the Pars system will introduce a significant degree of cooperation between TWA and Northwest. In addition, Northwest’s payment for Pars in installments will guarantee TWA scheduled infusions of cash for some time to come.

At the present time TWA no longer operates its transpacific routes. Despite a brief rash of terrorism in 1985, TWA continues to fly in the Mediterranean, but has reduced its routes there. Instead, the airline has shifted its excess capacity to European and domestic routes, following the popular demand for alternative vacation spots.

Presently, TWA is in the middle of a series of changes: changes in identity, purpose, size and character. Icahn has surprised many of his critics by devoting the time and money necessary to return the airline to profitability. The conditions created by deregulation hinder any airline from carving out a niche which guarantees security or certainty. TWA is by no means an exception to these prevailing conditions.

Principal Subsidiaries

Trans World Airlines, Inc., lists no subsidiaries.

Trans World Airlines, Inc.

views updated Jun 27 2018

Trans World Airlines, Inc.

also known as: twa founded: 1928

Contact Information:

headquarters: 1 city centre
515 n. 6th st.
st. louis, mo 63101 fax: (314)589-3129 phone: (314)589-3000 url: http://www.twa.com

OVERVIEW

Trans World Airlines, Inc. (TWA) is the nation's oldest major airline, and the seventh largest. It is a global company, connecting four continents with regularly scheduled flights carrying passengers, freight, and mail. The company's domestic hub is in St. Louis, Missouri, which serves as the hub for both north-south and east-west transcontinental traffic. From New York (the airline industry's largest international gateway from North America), TWA runs a hub system to transfer domestic flights into its transatlantic service. TWA's history has been turbulent, seeing several financial ups and downs and struggles for power. Activity during the mid- to late 1990s was no more stable. In the wake of a bankruptcy reorganization and rapid-fire executive turnover, the company looks toward the future, cutting back its services and subsidiaries, investing in new aircraft, and modernizing its operations.

COMPANY FINANCES

TWA was slowly pulling itself out of financial trouble resulting from its years in bankruptcy. Operating revenues during the first quarter of 1998 (ended March 31, 1998) were $765.4 million, up slightly from 1997 first quarter figures of $762.3 million. The company realized an operating loss for the company of $68.7 million and a net loss of $54.1 million. This compared to operating losses of $99.5 million and a net loss of $70 million for the same period in 1997. The company's substantial decrease in net loss figures represented 45 percent improvement in TWA's financial performance. Additionally, the company's gains in operating revenues during the first quarter of 1998 were achieved despite expenses incurred from its replacement of 747 and L1011 aircraft with 767, 757, and MD-80 planes.

For the entire year of 1997, TWA reported an operating loss of $29.3 million, compared to an operating loss of $198.5 million in 1996. The company's net loss for 1997 was $110.8 million, compared to $284.8 million one year before. Net loss realized per share was $1.98, compared to $6.60 in 1996. Reported operating revenues for 1997 were $3.3 billion, down from $3.5 billion in 1996. The decline was an expected result of reduction in aircraft capacity as older planes were replaced with new, smaller aircraft.

TWA stock was trading at around $10 per share during mid-1998. Over the 52-week period from mid-1997 to mid-1998, the company's stock price ranged from $6.00 to $15.13 per share.

ANALYSTS' OPINIONS

TWA's most important critics—its customers—rewarded the company in May 1998 by ranking it first in customer satisfaction in the "long flight" category (domestic flights of more than 500 miles). The results were reported in a recent study conducted by Frequent Flyer Magazine/J.D. Power and Associates. Long flights were key to TWA's routes due to increased international travel, and recognized improvement in the company's frequent flier program was an integral part of the company's mission for improved performance.

HISTORY

In 1925, as investors sought to organize a transcontinental passenger line, Harry Chandler and James Talbot founded Western Air Express (WAE). The company was the result of a merger of several smaller airlines offering services at a regional level. In 1928 aviation giant Clement Keys created Transcontinental Air Transport (TAT) and hired famed pilot Charles Lindbergh to scout out cross-country routes. Coordinating with the Pennsylvania and Santa Fe railroads, TAT was able to take passengers from New York to California in 48 hours.

In their infancy, commercial airlines acted mainly as mail carriers. As such, they were largely dependent on regulations put forth by the U.S. government. Upon assigning transcontinental mail routes to American Airlines and Northwestern Airlines, the U.S. Postmaster offered the third route to TAT, provided it merge with WAE. The two companies formed Transcontinental and Western Air Lines in August of 1930 (and the name was changed to Trans World Airlines in 1950). By the end of 1930 the merged company was operating coast-to-coast all-air service in 36 hours. Between 1939 and 1941 business tycoon Howard Hughes gained firm control of the airline. His 20 years at the helm promoted company expansion, but also created some long-term problems.

In 1946 TWA became a truly intercontinental airline. In February, the airline announced its New York-Gander-Shannon-Paris route. A month later, service to Rome, Athens, and Cairo began. In May, Madrid and Lisbon joined the growing list of destinations. In January 1947 the company inaugurated its transatlantic all-cargo service, the first ever to operate over the North Atlantic.

During the 1970s TWA diversified its acquisitions with forays into the hotel, food service, and real estate industries. The Trans World Corporation (TWC) was formed in 1979 as a holding company for TWA and its new acquisitions. When financial hardship hit, instead of TWA selling off its subsidiaries, TWC sold TWA.

Two years after going public in 1983, corporate raider Carl Icahn took control of TWA, eventually gaining ownership of 90 percent of the company. In 1988 the company once again went private. Despite the acquisition of Ozark Airlines and Icahn's attempts at returning the company to financial stability, TWA filed for Chapter 11 bankruptcy in 1992. Icahn also resigned as head of the company in 1992.

In November 1993, TWA's Chapter 11 reorganization was complete. Four months later, Jeffrey H. Erickson was named president and chief operating officer (and later chief executive officer). By mid-1995 the company had completed its financial reorganization, and 1996 showed the strongest financial results the company had seen in 10 years. In 1996 the company also announced the purchase of $1 billion in new planes. Financial performance continued to improve through 1998, though the company still recorded operating losses. And in June 1998 TWA reported a 9.2 percent increase in domestic traffic and showed its best volume in passenger boardings since 1978.

STRATEGY

TWA's corporate strategies have been as varied as the personalities at its helm. But if one factor fueled TWA's growth in its first few decades, it was a commitment to innovation. TWA was both the first transcontinental and transatlantic airline. In 1962 Doppler radar navigation technology made TWA's transatlantic flights the first to operate without a professional navigator. In 1969 the company was first to offer round-the-world service. It was also the first U.S. airline to use an all jet fleet. In 1970 it became the first U.S. airline to introduce 747 service and to offer non-smoking sections on all flights.

TWA has been to bankruptcy court twice. In an effort to maintain financial stability, the airline has been forced to sell off subsidiaries and cut back on some of its destinations and routes in favor of more profitable routes. Focusing on long-term gain, TWA began investing in new aircraft. In 1996 it announced the purchase of 20 new 757-200 aircraft. Additional planes were purchased during 1997 and 1998. The airline made the modernization of its fleet one of its top priorities, and as part of its fleet renewal program, TWA replaced 20 percent of its aircraft between mid-1996 and mid-1998.

In 1997 TWA also focused on areas it considered key to the company's operational and financial success, including on-time arrivals, growth in load factors (percentage of available seats filled), improved revenue, and cost-efficiency (through fleet modernization). On-time arrivals (flights arriving within 15 minutes of their scheduled times) increased almost 1 percent between 1997 and 1998, and TWA ranked first in domestic on-time performance during the second and third quarters of 1997. The company attributed this improvement to operational turnaround generated by its employees.

FAST FACTS: About Trans World Airlines, Inc.

Ownership: Trans World Airlines, Inc. is a publicly owned company traded on the American Stock Exchange.

Ticker symbol: TWA

Officers: Gerald L. Gitner, Chmn. & CEO, 53; William F. Compton, Pres. & COO, 50; Michael J. Palumbo, Sr. VP & CFO, 51; Donald Casey, Exec. VP, Marketing, 62

Employees: 22,321

Chief Competitors: As a major international airline, TWA's primary competitors include: AirFrance; British Airways; Continental Airlines; Delta; KLM; Lufthansa; Northwest Airlines; SAS; UAL; USAir; and Virgin Group.

INFLUENCES

Forces affecting TWA performance have been varied, from conflicting agendas within the company to conflicting influences from the outside. After buying stock in TWA in 1939, Howard Hughes consolidated his control of the company in 1941, increasing his share to 78 percent. Hughes added scores of new jets to the fleet, which he planned to pay through his Hughes Tool Company (Toolco). In 1960 he was unable to meet the terms of his loan so the bank placed his stock in a voting trust and appointed a new president. TWA promptly filed a $115 million damage suit against Hughes and Toolco, claiming violation of the Sherman Act and the Clayton Anti-Monopoly Act. Hughes fought back, and the unresolved litigation cost the company $10 million.

During the 1970s and 1980s TWA workers went on strike, costing the airline profits and growth. In 1985 a rash of terrorism caused the company to cut back its service in the Mediterranean. Moreover, the crash of TWA Flight 800 off Long Island in 1996, resulting in the deaths of 230 people, prompted a drop in passenger bookings.

CURRENT TRENDS

TWA planned to continue its focus on increasing revenues and regaining profitability during 1998. Toward that end, the company was seeking to improve its share of the market for business travelers. TWA created a new first-class service on domestic flights, increasing the number of first-class seats by 60 percent. Called "Trans World First," the new service was designed to complement its existing "Trans World One" service, an enhanced international business class service.

Not forgetting the leisure traveler, TWA positioned itself as a carrier offering competitive fares and high-quality service. Management believed that the company's cost structure and attractive route system positioned it well to compete for leisure traffic and also offered TWA's Getaway Program, an original airline tour program that held a leading position in the leisure travel sector.

PRODUCTS

Products offered by TWA during the late 1990s included enhanced first-class and business services, offered internationally through its "Trans World One" program and domestically through "Trans World First." In the first quarter of 1998, the company also launched "TWQ," another business travel service available from its St. Louis hub on routes to Chicago, Washington, and New York's LaGuardia airport; the service would be introduced in Philadelphia during the year's second quarter. TWA also announced a new frequent flier program that would replace its current Frequent Flight Bonus program—effective May 1, 1998, the Aviators program offered more features aimed at business travelers expecting premium services. The new program rewards members with mileage credits based on the fare paid, miles flown, and member purchases of goods and services offered by participating businesses, all redeemable for TWA travel.

GLOBAL PRESENCE

TWA was the first truly global airline. With hub locations in New York and St. Louis, TWA serves airports on four continents. The airline offers service to 77 cities in Canada, the Caribbean, Europe, Mexico, the Middle East, and the United States. In the wake of its rise from bankruptcy, the company began offering flights to popular winter destinations like Cancun and Montego Bay. TWA's New York-to-London route alone—worth at least $100 million in yearly revenues—was seen as key to TWA turning a profit in its global operations.

CHRONOLOGY: Key Dates for Trans World Airlines

1925:: Western Air Express (WAE) is incorporated
1928:: Transcontinental Air Transport (TAT) is created
1930:: TAT and WAE merge to form Transcontinental and Western Air (TWA)
1939:: Howard Hughes acquires control of TWA
1946:: TWA gets its first international flights with service to Europe
1950:: Transcontinental is officially changed to Trans World Airlines
1961:: TWA files a $115 million lawsuit against Howard Hughes and the Hughes Tool Company for violation of the Anti Monopoly Act
1962:: TWA flight to London is the first ever to use a radar system of navigation
1979:: Trans World Corporation is established with Trans World Airlines as a subsidiary
1983:: The company goes public
1988:: Controlling shareholder Carl Icahn privatizes the company
1992:: TWA files for Chapter 11 bankruptcy
1993:: After Chapter 11 reorganization, employees of TWA own 45 percent of the company
1997:: TWA finishes second for domestic on-time arrivals, up from tenth in 1996

EMPLOYMENT

At TWA, employees are also shareholders; this dates back to 1992, when TWA and the TWA Creditors' Committee signed agreements in principle with the airline's three main unions. In exchange for concessions, the Airline Pilots Association (APA), the International Association of Machinists (IAM), and the Independent Federation of Flight Attendants received 45 percent equity in the airline. Employee ownership has been in effect at TWA since 1993. In 1997 TWA employees owned approximately 30 percent of the airline.

There was further discussion in 1997 of TWA employees giving concessions to help raise the airline from its financial plight. By altering contracts with pilots and machinists, the company would reportedly save more than $87 million. Contract negotiations thus began with its three major unions: the IFFA, IAM, and the Air Line Pilots Association. Contract negotiations, amendable since September 1, 1997, were still on in mid-1998. Pilots identified compensation and job-protection issues among their major concerns, and they were trying to recover some of the compensation they gave up when TWA went through its series of financial problems.

SOURCES OF INFORMATION

Bibliography

bochove, danielle. "twa chases host of foreign routes." st. louis business journal, 1 may 1995.

staggenborg, rob. "twa zeros in on new planes as a top priority for '96." st. louis business journal, 18 december 1995.

"trans world airlines, inc." hoover's online, june 1998. available at http://www.hoover.com.

"trans world airlines, inc." international directory of company histories. chicago: st. james press, 1988.

"twa, pilots resume negotiation." reuters, 2 july 1998.

"twa receives frequent flyer magazine/j.d. power & associates award." twa press release, 12 may 1998.

"twa reports 4th quarter operating profit." twa press release, 13 february 1998.

"twa reports 9.2 percent increase in may domestic traffic." twa press release, 4 june 1998.

"twa reports significantly improved first quarter results." twa press release, 22 april 1998.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. twa's primary sic is:

4512 air transport, scheduled

Company Profiles for Students

Trans World Airlines, Inc.

Trans World Airlines, Inc.

Principal Subsidiaries

Further Reading

Trans World Airlines, Inc.

Trans World Airlines, Inc.

Origins

New Owners in the 1930s and 1940s

Overseas in World War II

Company Perspectives:

Mid-1950s Bailout

Diversifying in the 1960s

Key Dates:

Raided in the 1980s

Losing Money in the 1990s

Principal Subsidiaries

Principal Competitors

Further Reading

Trans World Airlines, Inc.

Trans World Airlines, Inc.

Principal Subsidiaries

Further Reading

Trans World Airlines, Inc.

Trans World Airlines, Inc.

Contact Information:

OVERVIEW

COMPANY FINANCES

ANALYSTS' OPINIONS

HISTORY

STRATEGY

FAST FACTS: About Trans World Airlines, Inc.

INFLUENCES

CURRENT TRENDS

PRODUCTS

GLOBAL PRESENCE

CHRONOLOGY: Key Dates for Trans World Airlines

EMPLOYMENT

SOURCES OF INFORMATION

Bibliography

For additional industry research:

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Trans World Airlines Inc

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