American Airlines to Buy TWA

W A S H I N G T O N, Jan. 8, 2001 -- American Airlines is about to buy Trans World Airlines, the longest continuously flying carrier in U.S. aviation history, in a deal that will leave half of the country’s air travel in the hands of just two airlines.

Sources in the airline industry told ABCNEWS American is expected to announce plans this week to buy the financially troubled TWA for about $2 billion.

The Washington Post reported American would purchase all of TWA’s assets and keep all 20,000 of the carrier’s employees. The deal would make the Fort Worth, Texas-based American a comparable sizecarrier to the one that would be created proposed United-US Airways merger.

The Post also reported that part of the American-TWA combinationcould include a deal with United to operate jointly the US Airwaysshuttle between Washington, New York and Boston.

Chapter 11 and Higher Fares Predicted

Under the proposed buyout, American would take over TWA’s St. Louis hub, which should help passengers by easing congestion and delays at American’s hubs in Dallas and Chicago.

But the deal would spell the demise of TWA, the longest continuously flying name in U.S. commercial aviation. The airline is short on cash with big debt payments due this week.

“TWA in all probability is very close to going into their third Chapter 11 bankruptcy,” says Ray Neidl, an airline industry analyst.

The fact that American and United would control more than half the commercial flights in the country makes higher fares inevitable, consumer advocates said.

“The historical record in the airline industry is quite clear about that,” says Bill McGee of the Consumer Reports Travel Letter. “We cannot anticipate that if United and American were to further dominate key markets throughout the country, particularly in the Northeast, that that would somehow lead to lower fares.”

Another travel-industry watcher, Tom Parsons of, agrees, saying that if the deal goes through, American Airlines would have less incentives to discount fares.

“TWA for example, right now is running a coast-to-coast sale and I can’t come up with a major sale that American Airlines has done for the last six to eight months,” Parsons says.

Companies Tight-lipped

In a brief statement, TWA said the airline “is alwaysreceptive to legitimate business overtures and is open toconsideration of business combinations that will be beneficial.”But the statement said TWA does not comment on discussions until ifor when an agreement is reached.

American spokesman Tim Doke said American also does’t commenton rumor or speculation. “We are talking to lots of folks aboutlots of different things all the time,” he said.

While reports that American would keep TWA’s employees was greeted with relief in St. Louis, where the carrier is based, American’s employees were not happy. Its unions, after a decade of conflict with the airlines’s management, may well oppose the deal.

Sources said American does not plan to continue the TWA name, consigning it to the ranks of such once venerable air carriers as Pan American World Airways and Eastern Airlines.

TWA Only Carrier in 1999 to Lose Money

TWA was founded July 13, 1925, as Western Air Express, andmerged five years later with Transcontinental Air Transport to formto Transcontinental and Western Air, or TWA. The company changedthe name without changing the initials in 1950, when then-ownerHoward Hughes made it Trans World Airlines.

Of the nation’s top airlines, TWA was the only carrier to losemoney in 1999 — $353 million, the worst financial performance sincethe airline’s second financial reorganization in 1995. It was onpace to do worse in 2000, despite increasing revenues. Through thefirst three quarters, TWA lost $115.1 million.

The Wall Street Journal reported that the deal calls for American to step inand provide financing after TWA’s bankruptcy filing. The newspaper saidthe equity value of the TWA deal is small and talks on the debt areongoing. Sources told the newspaper that the total value of the assetsand the assumed liabilities is expected to be about $2 billion,depending on what value is given to some of the liabilities.

TWA’s hub operation at Lambert Airport in St. Louis would giveAmerican a third hub in the middle of the country. American alreadyoperates hubs at Chicago’s O’Hare International Airport and atDallas-Fort Worth International Airport.

The sale continues a trend of consolidation in the airlineindustry that started when United Airlines, the nation’s largestcarrier, announced plans to buy US Airways. The Justice Departmenthas yet to sign off on that merger, but the department has approvedan alliance between Northwest Airlines and Continental Airlines.

ABCNEWS’ Bob Jamieson, ABCNEWS Radio’s Clarissa Douglas, The Associated Press and Reuters contributed to this report.