If you know the story of Marilyn Monroe: young, beautiful, curvy, charming, born without privilege,
but quickly rose to fame, rumors circulated that she slept her way to the top of Hollywood
and had affair with the president of the then United States, then gone before her to time.
A lot of people consider TWA as the Marilyn of the airlines: an American icon who associated
with powerful men that wanted a piece of its magic. Glamorous, tragic, and gone before
its time. And even though TWA’s demise didn’t involve pills or rumors of mob involvement,
it was every bit as controversial as Marilyn’s demise. So, what really happened?
Let’s roll back a little bit. Towards the end of the 1920s, the demand for mail delivery
airlines was rapidly increasing, several airlines including Pan Am, was getting a huge contract
from the government to deliver mail, and Western Air express wanted to be part of it, but they
weren’t big enough to get government contracts, so they merged with Transcontinental Air Transport
to form: Transcontinental & Western Air (T&WA) on the first day of October 1930.
The company boasted of the experience of Charles Lindbergh from Transcontinental Air Transport
and John Frye from Western Air Express, a good combination to hit the ground running.
They had the luxury of experience and didn’t have to start from scratch – something many
airlines didn’t have. The company offered one of the first all-plane scheduled services
from coast to coast. By the next year, the new airline moved its headquarters from New
York to Kansas City, Missouri. Fokker F10s were used at the early stages
of operation. These aircraft were later grounded and scrapped after the 1931 crash near Matfield
Green which killed all eight on board including Notre Dame football coach, Knute Rockne. It
was an early tragedy for a new airline, but they bounced back fast. T&WA looked to improve
on its fleet and in 1933, they acquired the Douglas DC-1. This aircraft went on its first
flight when Frye and Eddie Rickenbacker flew it from Glendale, California to Newark, New
Jersey in February 1934. Two months later, Frye was elected president.
One of his first tasks was to add 32 Douglas DC-2s to their fleet. Three years later, the
DC-2s were replaced by the Douglas DC-3 to serve the Columbus-Pittsburgh-Newark route.
Just after the second world war, they were hit by serious financial difficulties, up
to $14.5million losses were recorded in a single year, in addition to owing over $4million
in short-term debt and an additional $38m in long-term debt, uncertainties loomed over
the future of the airline. This led to the fallout between Frye and Hughes. Hughes suggested
that Frye was spending too much in acquiring equipment and managing operations. This mismanagement
of funds by Frye resulted in a major fall in the airline’s stock in 1947 alone. TWA
was losing $20m a year and could not afford fuel for its aircraft.
Hughes stepped up to save the company from premature collapse by funding it with $10m.
As part of the deal to release the funds, he requested that Frye be kicked out of the
company. The board consented to his demands and was Frye kicked out, thereby giving Hughes
full control of the company. In 1950, T&WA officially changed its name
to Trans World Airlines and expanded its fleet and route network, this was when other big
airlines were embracing the jet age and acquiring jet-powered aircraft, Hughes rather decided
not to follow suit. But this changed in February 1956, when he ordered 300 jet engines. In
a desperate attempt to catch up with other airlines, the company had ordered 26 Boeing
707 and 30 Convair 880 skylarks which cost a whopping $497m.
Their reluctance to embrace the jet age didn’t exactly go unforgiven, Hughes leadership was
dragging the airline back, he wasn’t decisive and smart, which made the airline struggle.
The 1960s was truly revolutionary for the TWA, first, the airline struggled to get money,
Banks refused to give the airline funding as long as Hughes is their boss. His gross
mismanagement of funds and poor decisions put them off. He was eventually removed in
1966 after being forced to sell his stock for $546million.
Charles C. Tillinghast was brought in as president, and he was required to make the company profitable
again. It was not easy to achieve instant success and they recorded a net loss of $38.7million
for 1961. However, two years later, the airline became
profitable again recording a net profit of $19.8million in 1963, $37million in 1964,
and $50.1million in 1965. This improved TWA’s stocks from $7.5 per share in 1962 to $62
in 1965, and the company was booming. The mid-1960s saw the holding company of the
airline, Trans World Corporation pursuing other interests and diverting attention to
other businesses to improve revenue. It started with the acquisition of Hilton Hotel, followed
by purchasing Hardee’s, Canteen Corp, and Century 21 reality. Two years later, Trans
World Flight Center, now Terminal 5, at New York City's JFK Airport was open.
While the Trans World Corporation continued to diversify its franchise, the airline which
was a division of the corporation, was not given the attention it required. This caused
a lot of internal problems, which lead to the flight attendant's strike in 1973. In
the same year, the airline had to endure a higher operational cost due to the hike in
fuel price as a result of the Oil crisis. This was when some Arab countries raised an
embargo on the countries that supported Israel during the Yom Kippur war, including the US.
Every company that heavily depends on Oil, from Long Haul truck companies, Manufacturing
companies, shipping, including TWA started having serious problems because the Arabs
wouldn’t sell them oil for supporting their enemy. Airlines in the US were forced to rely
on other countries for crude oil. This brought about scarcity and a hike in fuel prices.
TWA barely survived this, but this wasn’t their worst nightmare, their worst nightmare
came when the Aviation industry was deregulated in 1978, and everyone was allowed to operate
to their full capacity, fly where they want, when they want, and charge whatever amount
of money they want. TWA lost the monopoly they enjoyed with PAN AM on international
routes, smaller airlines could now operate freely and offer competitive prices, this
took customers off the bigger airlines, TWA lost a great chunk of their market share,
they were flying half-full planes on international routes and losing a lot of money. They figured
that in order to bounce back, they need to reinforce their domestic routes. The first
they took towards this was to buy Ozark Airline for $250 million. Which was a good way to
get back to business for a big airline instead of building from scratch.
At this point, their problems don’t seem to be going away, the board knew realized
that the airline needs a new owner, if it ever hopes to survive again. Carl Icahn, a
business mogul, and owner of Icahn Enterprises bought the company and named himself chairman.
A lot of people believed that Carl Icahn would be better, despite that he already had a dark
reputation for buying and breaking up companies. On his first day as boss, he told TWA what
it wanted to hear: I want to make this company profitable; Profit is my goal all right? The:
“profit is my goal is actually for himself, not for TWA. Icahn did help the airline grow,
most notably by acquiring Ozark Airlines in 1986, an act that cemented TWA’s dominance
at its St. Louis hub. But soon enough, the party was over. “It
became more and more clear that Carl was not interested in growing the airline but in using
TWA as a financial vehicle to acquire wealth for himself.
In 1988, Icahn took his first step towards crushing the airline by taking TWA private.
This deal fetched him $469million while it plunged the airline into $540 million debt.
In a desperate move to raise funds for the airline, he took another devastating move
by selling TWA’s prized London routes to American Airlines for $445 million, and this
sale paralyzed the airline. The airline continued to struggle financially
until it filed for bankruptcy in January 1992. The board wanted to remove Icahn from his
position as president. He was made to pay the company $150 million. In a bid to rescue
the airline, the employees agreed to reduce compensation by 15 percent over three years.
The creditors also agreed to forgive a debt amounting to $1 billion.
With these adjustments, the company emerged from bankruptcy and full operations resumed.
Icahn was eventually removed from his position in 1993, but not without wrecking further
damage. As part of the deal that saw him leave the company, Icahn reached an agreement with
TWA to sell tickets to a company he owned at a 45% discount from 1993 to 2008. This
company was named Karabu Corporation. Karabu will then sell these tickets at the regular
rate, amassing $70 million in profits per year. This deal resulted in TWA losing $150
million in revenue every year. At this time, employees owned 45 percent of the airline
and by 1995, the employee ownership reduced to 30 percent. This new development saw a
reasonable reduction in the company’s debt from $1.8billion to $1.3billion, thereby saving
up to $500 million. Though a huge amount of money, it did not do much to solve their financial
problems. They had to shut down most of their international routes to focus on the domestic
front. European destinations were limited to only London and Paris while it served only
Cairo, Tel Aviv, and Riyadh in the Middle east.
The airline continued to struggle into the early 2000s and was eventually forced to agree
to a deal to be acquired by American Airlines for $745 million although the total assets
were valued at $2 billion including liabilities. Prior to this deal, TWA had filed for bankruptcy
for the third time. The Karabu deal was supposed to last until 2008 and American Airlines didn’t
want any part of that deal or anything to do with Carl Icahn. At this point, many saw
him as the locust who wouldn’t stop eating down an ailing company. In order to get rid
of the deal and Icahn, the airline filed for bankruptcy before the takeover was completed.
Although the deregulation act and crude oil crisis affected the airline, many critics
point at the poor decisions, and greed exhibited by the leadership of the airline as the prime
reason behind its collapse. For an airline that survived many external
factors that threatened growth, gross mismanagement ultimately led to its eventual end. Maybe
if it got the attention, it needed, and better decisions were implemented, it would still
be in operation to this day. But we will never know. TWA’s rise and decline is a typical
tale of a mighty fish that was so starved and malnourished until it grew skinny and
was swallowed by a bigger fish. So, what do you think TWA should have done
to save itself from bankruptcy? Let us know in the comment section.