Aa's Purchase Of Twa

[jcavinato]

From a passenger's standpoint, it looked like a late-in-maturity-phase of an industry whereby someone buys another just to take capacity off the market and hope that a sellers' market results. In this case, TWA was sadly on its way out. AA seemed to pay a lot for what was inevitable....going to happen anyway. When I see all the TWA aircraft sitting in the deserts where I live, I see it as an expensive mistake.

 

[goingboeing]

The TWA purchase was just a matter of poor timing. It would have been nice if AA had a crystal ball and could have seen 9/11 happening, then they could have hung onto the cash. I think we all need to remember why this purchase happened anyway. It was in response to UA buying US. AA needed a competitive response and TWA was it.

[post="242819"][/post]​

UA never purchased USAir.They had preliminary talks but that was all that happened.
If UAL had torched everyone of their aircraft should AA have done the same thing?
I think not.
THE EXCESS CAPACITY PROBLEM WAS ALREADY REARING ITS UGLY HEAD IN THE YEAR 2000.[not 2001]
Why do you think AA was willing to remove coach seats from their whole fleet?Our load factors then were usually about 63-68% so were weren't even filling up the aircraft we were already operating.[we sure did not need a whole other airline- TWA]

People need to stop blaming 9/11 for the woes in the airline business.

 

[AAquila]

Thank you Mr. Carty, where ever you are

 

[cybercat]

Thank you Mr. Carty, where eve

Roger that. I don't have AA retiree insurance but the passes come in handy. I have to pay a service charge but I have no problem with that and I've always found the crew a pleasant lot.

 

[jimntx]

UA never purchased USAir.They had preliminary talks but that was all that happened.
If UAL had torched everyone of their aircraft should AA have done the same thing?
I think not.

People need to stop blaming 9/11 for the woes in the airline business.

[post="242968"][/post]​

Not quite correct. What stopped the UAL-UAIR deal was the Federal government would not pass it on anti-trust grounds.

And AA people need to quit blaming TWA for our current problems. This is just more of the coulda, woulda, shoulda business that AAmericans seem to love to deal in rather than reality.

First off, you all need to stop believing the lie that TWA was bankrupt before AA bought it. TWA went into bankruptcy at AMR's insistence to rid itself of the Carl Icahn deal. The bankruptcy was a condition of the sale to AMR.

Second, and more importantly, you don't know that TWA would have gone out of business if the deal had not gone through. On the contrary, there is a better than even chance that they would have survived independently.

Post-9/11, TWA was in about the same financial condition as America West, and was eligible for an ATSB loan as America West was. Did America West go away? How do you in your infinite wisdom know for a fact that an ATSB loan would not have given TWA the same breathing room to make the necessary changes as America West did?

Third, there was an almost sure chance that if AMR didn't buy them someone else would have. I love it how all of you conveniently forget that AMR was not the only bidder for TWA. The only reason AMR won out was because they bid more than Boeing. Now, I will grant you that this may not have been a good decision because we did, in fact, pay more for TWA than the market value of the company at the time. However, that sort of buyout happens frequently. The additional price is attributed to good will--i.e., you pay some for company reputation, brand name recognition, etc.

One last point...AMR paid $742 million for TWA. $742 million is approx. 3.7% of AMR's total debt load of $20 BILLION. How does the TWA purchase become responsible for the other $19,260,000,000 in debt. That's $19 BILLION that we would still owe even if we had never even looked at TWA.

The TWA deal happened. It was in all the papers. It's time to deal in reality. Where do we go from here? What can we do to insure that AMR survives?
We should be questioning management decisions such as...
TWA flew 5 jam-packed full 752's a day non-stop STL-PHX. This was a money-making route for them. AMR eliminated every single one of these flights. Why? In STL there is example after example of routes being eliminated by AA that were making money while keeping routes that were losing money. These are the questions that we should be asking.

 

[LaBradford22]

Not quite correct. What stopped the UAL-UAIR deal was the Federal government would not pass it on anti-trust grounds.

Well, no one really knows for sure, outside of UA and US management who were very close to the deal. The DOJ was going to be a significant hurdle, no doubt, but there is also some evidence that UA simply thought better of the deal at the end of the day and called off the dogs. Again, no one really knows.

First off, you all need to stop believing the lie that TWA was bankrupt before AA bought it. TWA went into bankruptcy at AMR's insistence to rid itself of the Carl Icahn deal. The bankruptcy was a condition of the sale to AMR.

Not true. TW was losing money even in 2000 when virtually all airlines (including AA) were making money. TW's balance sheet was a mess - over 100% leveraged (sort of like AA today). Certainly the Icahn deal didn't help TW's matters, and AA was in talks with TW even before the official filing. But TW was going bankrupt even if AA wasn't there as a buyer.

Second, and more importantly, you don't know that TWA would have gone out of business if the deal had not gone through. On the contrary, there is a better than even chance that they would have survived independently.

Well, no one knows for sure on this one either. Most likely scenario is that TW would have gone through the same song and dance that US and UA are in bankruptcy today (employee concessions). Given what was about to happen to the entire industry, I believe they would have faced one heck of an uphill battle.

Third, there was an almost sure chance that if AMR didn't buy them someone else would have. I love it how all of you conveniently forget that AMR was not the only bidder for TWA. The only reason AMR won out was because they bid more than Boeing. Now, I will grant you that this may not have been a good decision because we did, in fact, pay more for TWA than the market value of the company at the time. However, that sort of buyout happens frequently. The additional price is attributed to good will--i.e., you pay some for company reputation, brand name recognition, etc.

Again, who knows if this is true or not. Most likely scenario (in my mind, anyway) is TW goes away and various airlines buy bits and pieces of it. AA might have bought the MD80 fleet and some of the JFK slots, someone else (an LCC maybe) would have bought the B717's, someone else would have bought the beyond rights in Europe, someone else might have bought some of the STL assets. Who knows. There were competing bids out there for the whole company, then again, who knows if some of them were genuine or not.

One last point...AMR paid $742 million for TWA. $742 million is approx. 3.7% of AMR's total debt load of $20 BILLION. How does the TWA purchase become responsible for the other $19,260,000,000 in debt. That's $19 BILLION that we would still owe even if we had never even looked at TWA.

Well, what you're missing here is that having TW under the AMR umbrella has dramatically increased AMR's financial losses since the acquisition closed in April 2001. Exactly how much is anyone's guess, but given that TW was losing money with much cheaper labor than AA, I think it's safe to say the loss driven by TW has been pretty substantial. Furthermore, letting TW go by the wayside or be bought in pieces would have been good for everyone in the industry due to reduced overall capacity. That would have helped AMR's balance sheet today.

The TWA deal happened. It was in all the papers. It's time to deal in reality. Where do we go from here? What can we do to insure that AMR survives?
We should be questioning management decisions such as...
TWA flew 5 jam-packed full 752's a day non-stop STL-PHX. This was a money-making route for them. AMR eliminated every single one of these flights. Why? In STL there is example after example of routes being eliminated by AA that were making money while keeping routes that were losing money. These are the questions that we should be asking.

That route (STL-PHX) probably were profitable for TW as a stand-alone with TW's old labor costs. The labor costs are much higher when that route comes over to AA. Furthermore, when that route moved into the AA network, it probably cannibalized a lot of ORD-PHX and DFW-PHX flow traffic. AA probably realized that it didn't make sense to have three hubs flowing large amounts of traffic to a market with heavy LCC presence to begin with (HP and WN, among others). STL ended up being the odd man out.

 

[aafsc]

Not quite correct. What stopped the UAL-UAIR deal was the Federal government would not pass it on anti-trust grounds.

And AA people need to quit blaming TWA for our current problems. This is just more of the coulda, woulda, shoulda business that Americans seem to love to deal in rather than reality.

First off, you all need to stop believing the lie that TWA was bankrupt before AA bought it. TWA went into bankruptcy at AMR's insistence to rid itself of the Carl Icahn deal. The bankruptcy was a condition of the sale to AMR.

Second, and more importantly, you don't know that TWA would have gone out of business if the deal had not gone through. On the contrary, there is a better than even chance that they would have survived independently.

Post-9/11, TWA was in about the same financial condition as America West, and was eligible for an ATSB loan as America West was. Did America West go away? How do you in your infinite wisdom know for a fact that an ATSB loan would not have given TWA the same breathing room to make the necessary changes as America West did?

Third, there was an almost sure chance that if AMR didn't buy them someone else would have. I love it how all of you conveniently forget that AMR was not the only bidder for TWA. The only reason AMR won out was because they bid more than Boeing. Now, I will grant you that this may not have been a good decision because we did, in fact, pay more for TWA than the market value of the company at the time. However, that sort of buyout happens frequently. The additional price is attributed to good will--i.e., you pay some for company reputation, brand name recognition, etc.

One last point...AMR paid $742 million for TWA. $742 million is approx. 3.7% of AMR's total debt load of $20 BILLION. How does the TWA purchase become responsible for the other $19,260,000,000 in debt. That's $19 BILLION that we would still owe even if we had never even looked at TWA.

[post="243084"][/post]​

First of all, at the end of 2000 TWA had about $150 million in cash but they had about $100 million in notes coming due in 2001 along with some other obligations. Read the Kasher ruling where it says that TWA would have had a negative cash balance of $20 million. TWA also had about $100 million in notes due in 2002 and another $100 million due in 2003. Also don't forget the Icahn ticket deal did not expire until 2003, so that was another 2 years of cash flowing from TWA to Icahn. some will say that they could have refinanced the note due in 2001. OK, assume they did then 9/11 and everyhting else hit, do you think that the note holders of 2002 and 2003 would have refinanced when they saw the condition of the industry. I don't think so. They would have demanded payment instead of seeing it evaporate before their very eyes. TWA could have filed bankruptcy to keep from paying these note holders but after your third bankruptcy, your out (liquidation). And remember that AA had to provide TWA additional cash until the deal closed because TWA burned through the $200 million in DIP financing very quickly. You talk about them getting a goverment loan like AW. But that did not happen until the end of 2001, almost a whole year which would have been an eternity for TWA. No they never would have made it.
As for the purchase price it is as follows:$625 million in cash+$117 million in flight deposits forgone by AA+assumption of the TWA retirees medical obligation, about $730 million+ a host of other current and long term liabilities+ assumption of capital and operating leases of aircraft and facilities. AA paid $1 BILLION more than the assets were actually worth. AA placed this under the "goodwill" account and it was subsequently written off per the FASB pronouncement. In closing, TWA is one of MANY Carty screwups that put us where we are.

 

[jimntx]

who knows if some of them [other offers for TWA] were genuine or not.

Oh, absolutely. Boeing and GE are well-known for making bogus business moves. I should have known that they were both just playing.

Well, what you're missing here is that having TW under the AMR umbrella has dramatically increased AMR's financial losses since the acquisition closed in April 2001.

Don't you think this is just a little dishonest logically and intellectually? I suppose that if it hadn't been for the TW purchase, 9/11 would not have happened and oil would still be selling for $18/bbl. It's one thing to say that in the time period since the purchase, losses have increased dramatically. It's another thing entirely to say, or even imply, that having TW as part of AMR is the cause of those losses.

Furthermore, letting TW go by the wayside or be bought in pieces would have been good for everyone in the industry due to reduced overall capacity.

If you actually believe this, I have a nice bridge in NYC to sell you. The reduction in capacity would have lasted for 6 months at most--probably not that long. If TWA had gone under (and same thing applies in the near future if UAIR or UAL go under), the lessors of TW's a/c would be offering rock-bottom prices to anyone and everyone who would take over those planes. Those airlines--probably LCCs-- would immediately put those a/c to work. Net result, same or possibly even greater capacity in the market.

The cities where TWA flew would be offering very attractive gate leases to anyone who would take over the service (see also DFW AOA's offer of FREE rent and discounted landing fees to any LCC willing to take over some or all of Delta's gates in Terminal E).

Has anyone heard of SWAs cancelling delivery of new 737s? I'm not seeing a reduction in capacity here.

That route (STL-PHX) probably were profitable for TW as a stand-alone with TW's old labor costs.  The labor costs are much higher when that route comes over to AA.

Oh, really. Can you prove this? I don't know about the other labor groups, but as far as the f/as, most of the TW flight attendants netted a cut in take home pay when they came over to the AA payroll. Yes, they got a substantial increase in HOURLY pay rate; however, because of their much more liberal work rules--such as trip trading, and hours aloft--they actually took home more pay at TW than at AA.

Furthermore, when that route moved into the AA network, it probably cannibalized a lot of ORD-PHX and DFW-PHX flow traffic.  AA probably realized that it didn't make sense to have three hubs flowing large amounts of traffic to a market with heavy LCC presence to begin with (HP and WN, among others).  STL ended up being the odd man out.

[post="243091"][/post]​

In my book, a money-making route is a money-making route. And, you are just guessing that these routes hurt DFW or ORD in any way. If we are going to suppose, then I suppose that the routes were eliminated so that AMR could "prove" that STL operations were losing money.

 

[jimntx]

As for the purchase price it is as follows:$625 million in cash+$117 million in flight deposits forgone by AA+assumption of the TWA retirees medical obligation, about $730 million+ a host of other current and long term liabilities+ assumption of capital and operating leases of aircraft and facilities. AA paid $1 BILLION more than the assets were actually worth. AA placed this under the "goodwill" account and it was subsequently written off per the FASB pronouncement. In closing, TWA is one of MANY Carty screwups that put us where we are.

[post="243092"][/post]​

Oh, ok. My bad. Let's add a billion dollars to the purchase price. We are now up to almost 8% of AMR's total debt load. How does the purchase account for the other $16 billion that we owe?

 

[MCI transplant]

Not quite correct. What stopped the UAL-UAIR deal was the Federal government would not pass it on anti-trust grounds.

And AA people need to quit blaming TWA for our current problems. This is just more of the coulda, woulda, shoulda business that AAmericans seem to love to deal in rather than reality.

First off, you all need to stop believing the lie that TWA was bankrupt before AA bought it. TWA went into bankruptcy at AMR's insistence to rid itself of the Carl Icahn deal. The bankruptcy was a condition of the sale to AMR.

Second, and more importantly, you don't know that TWA would have gone out of business if the deal had not gone through. On the contrary, there is a better than even chance that they would have survived independently.

Post-9/11, TWA was in about the same financial condition as America West, and was eligible for an ATSB loan as America West was. Did America West go away? How do you in your infinite wisdom know for a fact that an ATSB loan would not have given TWA the same breathing room to make the necessary changes as America West did?

Third, there was an almost sure chance that if AMR didn't buy them someone else would have. I love it how all of you conveniently forget that AMR was not the only bidder for TWA. The only reason AMR won out was because they bid more than Boeing. Now, I will grant you that this may not have been a good decision because we did, in fact, pay more for TWA than the market value of the company at the time. However, that sort of buyout happens frequently. The additional price is attributed to good will--i.e., you pay some for company reputation, brand name recognition, etc.

One last point...AMR paid $742 million for TWA. $742 million is approx. 3.7% of AMR's total debt load of $20 BILLION. How does the TWA purchase become responsible for the other $19,260,000,000 in debt. That's $19 BILLION that we would still owe even if we had never even looked at TWA.

The TWA deal happened. It was in all the papers. It's time to deal in reality. Where do we go from here? What can we do to insure that AMR survives?
We should be questioning management decisions such as...
TWA flew 5 jam-packed full 752's a day non-stop STL-PHX. This was a money-making route for them. AMR eliminated every single one of these flights. Why? In STL there is example after example of routes being eliminated by AA that were making money while keeping routes that were losing money. These are the questions that we should be asking.

[post="243084"][/post]​

<_< Thank you jim! I've been trying to say the same thing many times but it seems aafsc and the like need someone to blame for their problems, and we're handy! I get the impression the a.a. employees have for whatever reason precieved us exTWAers a threat to their little worlds! Too bad it turned out this way! I feel we could have contributed greatly to this Airline!

 

[operaations]

cant we drop this subject

 

[LaBradford22]

Oh, absolutely. Boeing and GE are well-known for making bogus business moves. I should have known that they were both just playing.

I don't ever remember Boeing or GE making a full-up bid for all of TWA - just certain assets. As far as the bids for the whole thing, I recall some "mystery bidder" offering a bundle of money basically to make life hell for AA while they were bidding. Bottom line - it's unclear that any company was willing to buy substantially all of TWA's assets aside from AMR.

Don't you think this is just a little dishonest logically and intellectually? I suppose that if it hadn't been for the TW purchase, 9/11 would not have happened and oil would still be selling for $18/bbl. It's one thing to say that in the time period since the purchase, losses have increased dramatically. It's another thing entirely to say, or even imply, that having TW as part of AMR is the cause of those losses.

Do I think it's "dishonest logically and intellectually" to assume that a company already posting operating losses would continue to post operating losses if you add a few hundred million to its operating expenses? No. In fact, I find it to be quite sound logically and intellectually. I never said TW was the sole cause of AMR's losses since 2001, what I'm saying is that TW has made a bad situation even worse.

If you actually believe this, I have a nice bridge in NYC to sell you. The reduction in capacity would have lasted for 6 months at most--probably not that long. If TWA had gone under (and same thing applies in the near future if UAIR or UAL go under), the lessors of TW's a/c would be offering rock-bottom prices to anyone and everyone who would take over those planes. Those airlines--probably LCCs-- would immediately put those a/c to work. Net result, same or possibly even greater capacity in the market.

Right. So, at least in the short-term, eveyone would have been better off. Just as everyone would be better off today (again, short-term) if US and UA are allowed to fail. Short-term benefits can help the balance sheet position. AA would have probably leased some (not all) of the MD80 fleet as well as possibly some of the B757's, I'm not sure what LCC would have found any of the MD80's or B757's or B717's attractive - not WN, not B6, HP was in no shape to add a bunch of planes at that point, FL maybe. The DC9's probably would be Arizona desert fodder just as they are today.

Oh, really. Can you prove this? I don't know about the other labor groups, but as far as the f/as, most of the TW flight attendants netted a cut in take home pay when they came over to the AA payroll. Yes, they got a substantial increase in HOURLY pay rate; however, because of their much more liberal work rules--such as trip trading, and hours aloft--they actually took home more pay at TW than at AA.

My group did the analysis that said that AA's contracts (given TW's demographics) would add $200 million to $300 million to TW's cost structure. When TW employees came over, they got higher payrates, richer active and retiree medical benefits, much richer pensions, and much more employee-friendly work-rules. If you're an ex-TW employee, life sucks now, and there are some AA Unions (I won't name names) that treated TW employees like crap, no doubt. But that's not really what I'm arguing about here. What I'm saying is that the cost to the company in 2001 of bringing TW's employees to AA's contracts was real and it was big.

In my book, a money-making route is a money-making route. And, you are just guessing that these routes hurt DFW or ORD in any way. If we are going to suppose, then I suppose that the routes were eliminated so that AMR could "prove" that STL operations were losing money.

Well, you may want to brush-up on your route-profitability analysis. AA connects a very high % of traffic through its hubs. AA could already connect traffic from the Southeast to PHX via DFW, and from the upper Midwest and Northeast via ORD. That's already a bunch of connectivity to PHX. STL-PHX made sense for TW as a stand-alone, but add it to a system that already has ORD-PHX and DFW-PHX and it doesn't make sense anymore.

 

[mweiss]

LaBradford22,

I think you're doing a little bit of apples-and-oranges there. True, TW had lower labor costs than AA, but at the same time they had downward pressure on revenues resulting from Karabu. AA came in and removed both of those.

Which had a greater impact on profitability?

jimntx,

While I agree that the purchase is in the past and we should be looking forward, the entire point of this thread is to look back and, with 20/20 hindsight, rate the deal.

 

[jimntx]

Well, then, it's settled. If it weren't for the TWA purchase, AMR would be rolling in clover and making a bigger profit than SWA.

If you take all the purchase price of TWA and add all the "alleged" losses directly attributable to former TW operations since the purchase (which you admit you can't quantify, you're just guessing), you are still talking about a minor percentage of the overall AMR debt load. Yes, technically, you could say that TW made a bad situation "worse", but to say or imply that it made the situation much worse is just wrong.

It would be like saying that if I owed $20,000 in credit card debt (which I don't), the $95 I added to my AMEX bill last night for taking 2 friends out for sushi, made my credit card debt situation much worse. (By the way, it was delish! )

 

[FWAAA]

Well, then, it's settled. If it weren't for the TWA purchase, AMR would be rolling in clover and making a bigger profit than SWA.

If you take all the purchase price of TWA and add all the "alleged" losses directly attributable to former TW operations since the purchase (which you admit you can't quantify, you're just guessing), you are still talking about a minor percentage of the overall AMR debt load. Yes, technically, you could say that TW made a bad situation "worse", but to say or imply that it made the situation much worse is just wrong.

It would be like saying that if I owed $20,000 in credit card debt (which I don't), the $95 I added to my AMEX bill last night for taking 2 friends out for sushi, made my credit card debt situation much worse. (By the way, it was delish! )

[post="243142"][/post]​

Excellent post!

Pretty obvious that the TWA asset purchase hasn't worked out as planned.

Quite another thing for people to dance while proclaiming "I told you so!" and "TWA is the source of all our problems now!"