Corporate Raider on the Ropes

By Barbara Rudolph

In this world there are only two tragedies. One is not getting what one wants, and the other is getting it. --Oscar Wilde

For Carl Icahn, Wilde's words may be painfully true. When Icahn learned last August that he had won his bitter battle to take over Trans World Airlines, the New York financier and renowned corporate raider put on a pilot's cap and jacket and pranced around his office. "We've got ourselves an airline," he exulted.

But now TWA's new chairman and controlling stockholder has got nothing but trouble. As a strike by 6,000 flight attendants grounded nearly half of TWA's flights last week, the carrier's losses rose higher and higher. TWA had a $123 million deficit in the final quarter of 1985 and is expected to drop almost $200 million more in the first three months of this year. Concludes Robert Joedicke, an airline industry expert for the Shearson/Lehman Bros. investment firm: "Icahn has bitten off more than he can chew." The chairman, though, is maintaining a brave front. Says he: "I was looking for a challenge. I got it."

The mission seemed manageable when Icahn first gained control of the ailing airline. As part of his takeover deal, the new chairman received $250 million worth of wage and work-rule concessions from TWA employees, including the unionized pilots and machinists. Because of its high labor costs, TWA has been hard pressed to compete with such no-frills carriers as People Express and Continental Airlines.

Icahn insists that the flight attendants must make $100 million in concessions if TWA is to become competitive. His demands: 17% wage cuts and a two-hour increase in the workweek, which now consists of some 20 in-flight hours. TWA flight attendants currently make an average of $35,000 a year, or 40% more than the industry norm. The union will accept 15% wage reductions but refuses to work as many hours as TWA is requesting.

In facing the union, Icahn is determined and defiant. He has hired nearly 2,000 nonunion flight attendants to replace the strikers. Says he: "The company cannot exist without these cuts. We've got guts. We're not going to chicken out." If the unions reject his demands, Icahn has threatened to sell all or part of TWA. Says he: "I am not going to stand by and watch this company bleed to death. If we can't make money, I will cash in my chips." But Icahn has worked his way into a trap: he could walk away right now only by taking a huge loss. The 16 million TWA shares for which he paid $310 million are currently worth less than $250 million.

Many industry insiders think Icahn had no business buying an airline in the first place. Says a TWA executive: "Icahn doesn't know the difference between a propeller and a jet engine, and he doesn't seem to care." The chairman, however, shrugs off such criticism: "You don't have to understand everything about planes to make money in the business."

Icahn, who has made a fortune by buying and selling stakes in such companies as Dan River and Gulf+Western, hopes to use his deal-making skills to rebuild TWA. He made his first major move three weeks ago, when he persuaded Ozark Air Lines to merge with TWA for $250 million. Among other benefits, the acquisition will sharply increase the number of domestic flights that feed passengers to TWA's overseas routes. Icahn is also thinking about buying a hotel chain and an auto-rental company to combine with TWA. That would enable customers to reserve a plane seat, car and bed with one phone call. Says Icahn: "I've still got a nose for deals, and I intend to make some." --By Barbara Rudolph. Reported by Thomas McCarroll/New York

With reporting by Thomas McCarroll/New York