Trans World Airlines, Inc.

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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.