clarinews@clarinet.com (BRENDAN MURPHY, UPI Business Writer) (02/03/90)
NEW YORK (UPI) -- Trans World Airlines Inc. Chairman Carl Icahn reshuffled his top managers Friday, naming J. William Hoar to replace Jerry Nichols as chief operating officer amid union questions as to whether he is committed to building the carrier or selling it off in pieces. The appointment of Hoar came amid union complaints that recent asset sales by Icahn trampled on a 1986 pact giving him labor concessions. An investor group led by Icahn won control of TWA in 1986 and took it private in 1988 in a leveraged buyout bringing its stake to 90 percent. A TWA statement said Hoar joins Alfred Kingsley, vice chairman, and Nichols, now executive vice president for administration, on the staff of the office of the chairman. Icahn said in an interview he hoped Hoar would ``continue to improve our performance,'' particularly in on-time service. Pilots and mechanics unions, which hold 7 percent of the airline's stock, say Icahn recent moves -- such as the $210 million sale of 11 jets the line then leased back -- suggest he is engaged in ``controlled liquidation.'' Besides the eight Lockheed L-1011s and three Boeing 747s, TWA late last year agreed to sell American Airlines its Chicago-London route, with four gates and a maintenance hangar at O'Hare International Airport, for $195 million. Union officials objected to that transaction as well. ``We're concerned that Carl Icahn does not have a long-range view for TWA and that the airline's best interest is not at heart here,'' said David Berkley, an Airline Pilots Association spokesman in St. Louis. ``What we have is a pretty bad situation,'' said Herb Johnson, president of the Machinists Union Local 1650 in Kansas City, Mo., where TWA, whose hub is in St. Louis, has a major overhaul facility. Under Icahn, he charged, TWA ``has been dragged down and is quite honestly decaying.'' But Icahn called the Chicago sale ``judicious'' and said he wants to improve TWA's finances, building cash reserves up to $1.6 billion. Then, whether TWA expands or shrinks depends on the unions -- particularly the pilots -- from whom he is demanding further cost reductions, he said. ``We're at a crossroads because on many routes we can't be competitive because of our costs,'' Icahn told United Press International. ``We have to get concessions. There's no other way we can do it.'' Airline analyst Louis Marckesano at Channing Montgomery Scott brokerage in Philadelphia said TWA's problems leave Icahn few choices but to ``grow the airline,'' meaning heavy investment, a merger or sale. With competition tough and no suitor in sight, a sale seems likely, he said. Icahn reportedly told the Machinists union that he is looking for a buyer for the airline and a recent Business Week article said Icahn has set a price of more than $500 million for the airline. But Icahn said he is not actively seeking to sell the airline. ``I've been approached here and there but have not in any way actively looked for someone to buy the company.'' Whether he sells or not, the unions are concerned that with further sales of assets not much will remain but debt. To take TWA private in 1988, Icahn incurred corporate debt of more than $2.6 billion, Berkley said. To buy out stockholders TWA paid out more than $750 million in cash, including $469 million to Icahn, he said. Debentures for $320 million of the debt today pay a whopping 22.6 percent interest. Performance has suffered, Berkley said, citing ``horrendous'' results for the 1989 third quarter. TWA posted a $48.6 million loss for the July-September vacation period, traditionally the airline's best. The carrier's losses in the first nine months of 1989 totaled $182.1 million. ``We will have a loss'' for the year,'' Icahn acknowledged. ``There's no doubt about that.'' Union officials voice disappointment at these results and object to what they see as Icahn's breaching of the spirit, if not the letter, of the pact concluded in 1986. Wage concessions that labor then gave Icahn have saved the financier about $500 million, Berkley said. In return for the concessions Icahn pledged not to sell assets, Berkley said. But a force majeure clause allowed him to dispose of assets if adjusted gross income fell to a certain level -- to which it has sunk mainly because of debt piled on by the 1988 leveraged buyout, Berkley said. ``We didn't foresee the methodology he would use in taking the company private in 1988,'' Berkley said. ``The privatization was structured in such a way as to affect (the agreement's threshhold) figure. It appears (Icahn is) eagerly taking advantage of that option.'' Icahn rejected these arguments, saying privatization was always in the cards and that, in any case, his money kept the airline solvent. ``My worst critics will admit I kept it from going bankrupt,'' he said. ``We'll have opportunities to expand,'' Icahn said. ``I'd like to see us expand, to be one of the four airlines I believe will be survivors, but a lot of it is up to the pilots.'' Without concessions on costs, he said, ``the only alternative is we'll have is to do some shrinking.''