Where Is Icahn Headed Now? : Airlines: Analysts wonder what the real reason is behind TWA's offer for ailing Pan Am. The move marks a dramatic change in direction for his struggling carrier.

By DENISE GELLENE

Nov. 13, 1990 12 AM PT

TIMES STAFF WRITER

Trans World Airlines’ $450-million offer for ailing rival Pan Am Corp. raises questions about what TWA Chairman Carl C. Icahn really wants.

Icahn has spent much of the past few years shrinking--not expanding--TWA. He has even tried to sell it; only five months ago he offered its domestic system to America West Airlines.

Icahn’s proposal to merge with Pan Am, and his separate bid to buy groundfacilities from Eastern Airlines, marks a dramatic change in direction. Some analysts suggested that Icahn may simply be trying to keep Pan Am’s European routes out of the hands of rivals or that he plans to sell the routes himself at a huge profit.

The purchases, if completed, would transform a languishing TWA into a strong transatlantic carrier with a real chance for survival. It would get Pan Am’s European hub in Frankfurt, Germany, and that carrier’s domestic hub in Miami.

A successful acquisition of Eastern’s Atlanta hub would give TWA an additional springboard to Europe.

The result would be “a reasonably strong airline,” said Hans J. Plickert, an analyst with the Transportation Group Ltd. in New York.

There are several reasons why the deal might not succeed. TWA’s offer is contingent on Pan Am backing out of its $400-million agreement to sell its prized European routes to UAL Corp., parent of United Airlines, and to form a joint marketing arrangement. On Monday, Pan Am made it clear that it wants to close the United deal on Wednesday as scheduled.

Many analysts believe--despite Pan Am’s financial condition--that Icahn’s share price of $1 in cash and $2 in securities is too low. TWA’s bonds trade at a huge discount, meaning that new securities would probably be worth far less than face value. Analysts estimated that Icahn’s offer might be worth no more than $1.50 to $2 a share.

It isn’t clear whether Icahn, known for his endless haggling on deals, would go higher.

Moreover, Icahn’s offer might not satisfy Pan Am’s critical need for cash. Standard & Poor’s, a credit rating agency, said Monday that without the $400-million infusion from United, Pan Am might not make it through its slow winter season.

To provide Pan Am with cash, Icahn has offered to buy its Northeast shuttle for an undisclosed price that includes a $100-million down payment, but that might not be enough for Pan Am.

One analyst suggested that Icahn doesn’t really want Pan Am; he simply doesn’t want United to get its European routes. Money-losing Pan Am is a weak transatlantic rival for TWA, but financially strong United would be formidable. TWA, already a slipping No. 2 in the transatlantic market, would likely lose more ground to United.

“I don’t think anyone really wants Pan Am. They just don’t want each other to get it.”

Many who follow Icahn and his raids on such non-airline companies as Texaco Inc. and USX doubt that he intends to further entrench himself as an airline executive by assembling a bigger airline.

“Whatever he is up to, it is designed to bring a profit to his pocket, you can be sure of that,” said Bruce Benteman, who tracks Icahn’s activities for his Wealth Monitors newsletter.

Raymond Neidl, an analyst with Dillon Read & Co. in New York, said it isn’t likely that Icahn will alter his style if he succeeds in buying Pan Am.

He said it is possible that Icahn is eyeing huge profits from a sale of some of Pan Am’s Western European routes. Neidl said TWA could take in as much as $700 million from such a sale.

“That is typical of his thinking,” said Kent T. Scott, chairman of the TWA pilots’ union master executive council. “It is very possible that is what he has in mind.”

Scott said Icahn discussed with him a possible acquisition of Pan Am last Thursday, but Scott did not take it too seriously. “You have to understand, Carl is always talking about doing everything--buying Eastern or Pan Am.”

The leaders of TWA’s unions, in fact, said his bid for Pan Am notwithstanding, Icahn has little interest in TWA. When asked recently for evidence that he planned to invest in TWA, Icahn presented pilots with a plan that called for the purchase of new vacuum cleaners for the aircraft and the repair of an escalator at New York’s John F. Kennedy International Airport.

Icahn’s relationship with TWA’s unions has soured since he took the airline private in 1988. In a complicated transaction, Icahn ended up with $469 million, more than the $440 million he paid for his TWA stake in 1985. He also got 90% of the company.

TWA has piled up cash as Icahn sold its assets, including a Chicago-London route to AMR Corp., parent of American Airlines, and many of its planes, which it then leased back.

Meanwhile, TWA’s debt now stands at $2.7 billion. Across The Atlantic U.S. airlines compete vigorously on routes to Western Europe, flying to a score of major cities from New York, Chicago, Los Angeles and other domestic airports. The current contest between United and American for Pan Am’s London routes-and TWA’s bid to take over Pan Am-may launch a major revision of the route charts. This map indicates the major U.S. carriers serving a dozen leading Western European destinations. A. Amsterdam: Delta, Pan Am, TWA B. Athens: TWA, Pan Am C. Berlin: Pan Am, TWA D. Brussels: American Airlines, Pan Am, TWA E. Frankfurt: American Airlines, Delta, Pan Am, TWA, United F. London: (Heathrow) Pan Am, TWA; (Gatwick) American Airlines, Delta, TWA G. Madrid: American Airlines, Pan Am, TWA H. Munich: American Airlines, Delta, Pan Am, TWA I. Paris: American Airliens, Delta, Pan Am, TWA, United J. Rome: TWA, Pan Am K. Stockholm: American Airlines, TWA, Pan Am L. Zurich: American Airlines, TWA, Pan Am THE AIRLINES AT A GLANCE TWA

Year ended Dec. 31 1989 1988 1987 Revenues (millions) $4,507 $4,361* $4,056 Net income (loss) (millions) (299) 250* 106

* reflects 10/24/88 merger with TWA Acquisition Inc.

Assets: not available

Revenue passenger miles

(as of October): 2.8 billion

Fleet size: 209 aircraft

Average age of fleet: 15.4 years as of 1/1/90

Employees: 33,000

Hubs: St. Louis and New York (Kennedy)

12-month price range: (preferred) $17.375-$9.875

Monday close (NYSE): $10.125, up 0.125

Sources: Avmark (fleet age data); Standard & Poor’s