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Friday, 9 March, 2001, 15:35 GMT
TWA airline bidding takes off
Carl Icahn, sponsor of TWA Acquisition.
Carl Icahn wants his airline back.
Only hours after it was agreed that American Airlines would buy the bankrupt TWA, a white knight rescue bid was slammed down on the table by a group of investors who say they want to secure the airline's independence.

Our proposal was never given its due consideration by the company or its board of directors

Brian Freeman
TWA Acquisition
The unofficial airline auction has escalated in the past couple of days and the bids have been pumped up from around $500m (340m) to a whopping $1.1bn - more than double the original offers.

The new bid by the TWA Acquisition Group or TAG, which is sponsored by the airline's former owner and once corporate raider Carl Icahn, is $480m higher than its previous bid.

Mr Icahn's team increased its offer after TWA, one of the longest established names in US civil aviation, accepted a $742m bid from the second largest US carrier, American Airlines, on Thursday.

This offer had itself been raised, from $500m.

Other bidders, which have been squeezed out of the auction because they failed to make required deposits, included the Jet Acquisition group of investors and Global Airlines.

Decision time

TWA's board recommended its shareholders to accept the American Airlines bid, but that was before Mr Icahn and his supporters raised their offer.

TWA planes at an airport
The bids for TWA have more than doubled in a couple of days
The bidding procedure, which led to TWA accepting the American Airlines deal, has incensed Mr Icahn and his TWA Acquisition Group, lead by investment banker Brian Freeman.

"Our proposal was never given its due consideration by the company or its board of directors as evidenced by the lack of feedback and dialogue that ensued since our proposal was first entered," Mr Freeman said in a statement.

TWA's response was that the group had "received due consideration for their proposal, which was tardy and proved to be inadequate".

"TWA is moving forward with the highest and best offer, which is from American Airlines."

Court decides

But in the end, as is customary in auctions, a third party will slam the hammer; this time a bankruptcy judge.

But this bidding war differs from other auctions in its complicated details.

American Airlines shop
A deal with American would create a new giant among US airlines
At first sight, it may seem as if Mr Icahn's group has the upper hand with its much higher offer.

But the bid is conditional.

Firstly, the $1.1bn bid includes $750m in operating loans that will enable TWA to continue operating.

Continued operations are important for either bidder since a halt in activity would reduce TWA's asset value.

For this reason, American Airlines has already injected $200m worth of financing into the troubled carrier, and this cash is burning as fast as jet fuel.

In fact, the speedy cash burn is seen as one reason why American Airlines was willing to raise its bid by a quarter of a billion to complete it quickly.

And there are plenty of other complicated financial structures attached to both the bids.

These catches, along with any doubts about the bidders' abilities to deliver what they promise, make it difficult to compare the two offers.

Cheap tickets

One crucial catch is a clause that grants Mr Icahn the right to buy TWA tickets at just over half the listed price, then sell them at a profit through his budget travel website.

This clause, which has been in existence for a long time, was agreed when Mr Icahn forgave a loan to TWA.

If Mr Icahn's group wins the bidding war, this clause will remain in place.

Whereas if American Airlines win, the major airline has said that the clause will no longer be honoured.


The trade unions have opposed the American Airlines bid, despite its promise to retain its 20,000 staff.

Many workers have instead been sweetened by Mr Icahn's offer to pour $30m into staff training and a promise to modernise TWA's facilities, as part of the effort to rebuild it as an independent airline.

But again, when it comes to worker relations, it is not clear who has the upper hand.

Consolidation fears

The bidding war for TWA comes as the US Congress looks into the consolidation of the airline industry.

A deal with American Airlines would create a new giant among US airlines, with about a quarter of the US air travel market.

As such, the group would yield significant market power. It will be up to the Congress to decide whether this power would be excessive.

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See also:

08 Feb 01 | Business
Counter bid for TWA
10 Jan 01 | Business
American Airlines buys TWA
17 Jan 01 | Business
Flying the global skies
08 Jan 01 | Business
'American Airlines to buy TWA'
24 May 00 | Business
US airlines merge
20 Dec 99 | Business
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