DALLAS — Today in Aviation, Trans World Airlines (TWA), formed as Transcontinental & Western Air, emerged from its first bankruptcy in 1993.
Once one of the world’s most iconic airlines, TWA had been struggling financially for a number of years. The Airline Deregulation Act of 1978 left TWA lagging behind, especially in the domestic market.
Passed with bipartisan support, the Airline Deregulation Act phased out the Civil Aeronautics Board and lifted restrictions on fares and access to routes. Airlines could now fly where they wanted and charge what the market would bear.
In 1985, entrepreneur Carl Icahn purchased TWA. Under his direction, many of the airline’s most profitable assets were sold off. This included its prized London Heathrow (LHR) routes, purchased by American Airlines (AA) for US$445 million in 1991. Losses continued, and its first bankruptcy was declared on January 31, 1992.
Its creditors, who had bailed out the airline, now owned 55% of the company. One of these investors was Mr. Icahn.
The Karabu Deal
To recoup his money, Icahn developed the “Karabu deal.” This saw TWA tickets being sold to Karabu Corp., a company he controlled, at a massive 45% discount. The deal cost the airline an estimated $150 million per year. This pushed TWA into its second bankruptcy on June 30, 1995.
It emerged a few months later, and for the first time in many years, the carrier announced a modest profit. Then tragedy struck with the loss of TWA Flight 800. All 230 souls on board were killed when a Boeing 747 bound for Paris (CDG) exploded off Long Island.
A turnaround plan was introduced. Hundreds of new planes were ordered, and on-time performance drastically improved. But financial woes continued. The company’s third bankruptcy was declared in January 2001, and it was purchased by AA in April 2001.
Featured image: A Lockheed Constellation L-1649 Starliner in TWA livery, seen here parked at the TWA Hotel, which occupies the restored TWA Flight Center. Photo: By Jag9889, own work, CC BY-SA 4.0
