American Airlines buys TWA

TWA has not made a profit for 12 years

American Airlines has bought troubled rival TWA in a complex $500m deal which creates a new giant of the skies.

TWA will sell most of its assets to American Airlines' parent company AMR for $300m, after earlier agreeing to file for bankruptcy protection.

American Airlines will also take over TWA's plane lease contracts and immediately pump $200m into the St Louis-based airline.

The deal should secure the jobs of almost all of TWA's 20,000 employees.

New giant created

The deal will create a new giant among US airlines, about the same size as that resulting from the proposed merger of United Airlines and US Airways.

American/TWA will have 25% of the US air travel market while United/US would have 26%.

Placing a value on the deal is more difficult though, analysts say.

TWA has not reported an annual profit for 12 years, has filed for bankruptcy twice and, under any deal with American, would do so again.

According to credit rating agency Standard & Poor's, TWA has about $3.6bn in debt and lease obligations.

But much of this might be renegotiable in light of a deal with American, which has a better credit rating.

TWA, one of the the longest established names in US civil aviation, was the only commercial airline in the US to lose money in 1999, and its losses continued during 2000.

In 1999, TWA lost $353m.

Against consumers' interest?

Airline shares showed continued weakness on Tuesday, with investors concerned about the effects of higher fuel costs, labour disputes and bad weather, and the outcome of expected consolidation in the sector.

Trading in TWA remained suspended.

Consumer and travel agent groups on Tuesday joined rival airlines left out of the mergers in saying the deals would be against the interests of the consumer.

They said less competition would result in higher fares, particularly for business travellers, and a deterioration in customer service.