Troubled USAir discusses acquiring TWA


NEW YORK -- USAir Group Inc., which has struggled with two major acquisitions in the past six years, has been discussing buying the assets of Trans World Airlines in a deal that might involve British Airways.

Arlington, Va.-based USAir is the largest carrier at Baltimore-Washington International Airport with 56 percent of the traffic. New York-based TWA has a 3.4 percent share.

Whether a USAir-TWA combination would further depress traffic at BWI -- as occurred after USAir bought Piedmont Aviation in 1987 -- is unclear, although several observers suggested it would not.

"I'd be surprised if that happens," said Peter Sontag, chairman of USTravel in Rockville, one of the country's largest travel agencies. "I think [the merger] would be a good thing."

"TWA has such a small presence there would be no difference," said Jeffrey Miller, an attorney specializing in the travel industry.

USAir declined to comment on the talks, reported in yesterday's Wall Street Journal, but TWA released a statement saying that it has held discussions with USAir and other airlines but that any reference to an offer was premature.

On the New York Stock Exchange, USAir's shares jumped $1.625 to close at $12.375 yesterday. The 15.1 percent jump in the company's stock was the largest percentage gain on the Big Board.

Referring to the estimated $6 billion in losses suffered by commercial aviation in the past two years, TWA Chief Executive Carl C. Icahn said, "Clearly there is a virus in our midst which must be addressed, and one of the ways to address it is through a complete review of all operations, options and potential merger partners."

USAir and TWA, which is operating under Chapter 11 of the U.S. bankruptcy code, have been particularly hard hit by price wars, the recession and flawed strategies, and are among the weaker carriers. In 1986, USAir bought San Diego-based PSA for $380 million in the hope of gaining a strong presence on the West Coast. A year later it bought Piedmont Aviation Inc., of Winston-Salem, N.C., for $1.6 billion.

Today, USAir's market valuation is about $351 million, and much of what was bought has been surrendered.

USAir has curtailed jet service out of BWI, once projected by Piedmont to be its largest hub operation, and in December the airline announced it was abandoning the use of Dayton, Ohio, as a hub.

Along with Charlotte, N.C., BWI and Dayton were Piedmont's three anchors. Similarly, USAir has forgone many of PSA's old West Coast stops and dramatically shrunk its California operations.

TWA has also been shrinking and, despite a low-fare strategy, has been unable to lure all but the most price-conscious fliers. It has just a handful of flights out of BWI, going to John F. Kennedy International Airport in New York and to St. Louis.

It recently sold some prized assets, including two routes to USAir: Philadelphia-London and Baltimore-London.

Wall Street traders and analysts considered the possibility of some combination between USAir and TWA highly feasible. If a straight acquisition is not possible, they said, a management contract would be, similar to the one USAir recently negotiated with creditors of the now-defunct Trump Shuttle to take over the Washington-to-New York-to-Boston route.

They were further encouraged by another report in the Journal that British Air might play a role in a combination by taking a large equity stake in USAir.

Although that facet of the deal was unconfirmed, the price of USAir's junk-rated debt rose about 2 percent yesterday in heavy trading, and TWA's secured debt rose about 4 percent. TWA unsecured debt, which sells for less than 7 cents on the dollar, barely budged. "The subordinated bond holders will get zilcho," said a trader. "They weren't going to get much, and this doesn't change much."

Analysts said British Airways long has wanted to buy a U.S. feeder system for its international operations. Under federal law, foreign carriers are precluded from owning more than 25 percent of the voting shares of a domestic airline, and earlier efforts, most notably by the shah of Iran, to acquire control of Pan Am have been vetoed by regulators.

British Airways has not commented on the reported talks with USAir.

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