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CNN's Susan Lisovicz: American Airlines takes over TWA

January 10, 2001
1:30 p.m. EST
Photo of Susan Lisovicz
Susan Lisovicz  

Susan Lisovicz is a correspondent for CNN Business News, based in New York.

CNN Moderator: What is the overall plan for the American Airlines takeover of TWA?

Susan Lisovicz: This transaction is actually a three-way transaction. The TWA aspect, if approved -- that is if the bankruptcy process goes according to plan, and if federal regulators give American the green light, the deal could be done by early April. What would happen is American would buy most of TWA's assets for $500 million and would also provide $200 million in immediate financing. American says it will retain most of TWA's approximately 20,000-person work force. There are two other aspects of the deal. American would also buy key US Airways assets for $1.5 billion and a 49 percent stake in DC Air for $82 million. That's a broad overview.

CNN Moderator: Why are many regulators and consumer groups opposed to the acquisition?

Susan Lisovicz: Because the airline business is a service business. Furthermore, it's a commodities business and commodities are driven by supply and demand. If the number two airline, American, buys the number eight airline, TWA, you have one less airline. And critics say when there is less competition there is less of an incentive for improved service and better fares.

Question from chat room: What does this merger mean to the consumer?

Susan Lisovicz: Well, it depends on whom you talk to. American Airlines says it will have a strengthened network and a more competitive carrier to the industry leader, United, which is also in the process of merging with an airline, U.S. Airways. Because American is retaining or wants to retain most of TWA's assets, one would think at this early going that a lot of TWA's routes will be protected. Consumer groups say, however, there could be a monopoly in some markets and also say that pricing may not be as competitive.

CNN Moderator: Will the resulting merged airline have a new name?

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Susan Lisovicz: Not that we know of now. TWA is the oldest continually operating airline in the U.S., and as such has a unique brand equity. But it's also had a lot of problems. This is the third time it has filed for Chapter 11 Bankruptcy protection. American, because it's the nations second largest carrier, also has a strong brand recognition. So the chairman and CEO of American, Donald Carty, says he expects the enlarged airline to be called American, though he left the door open to the possibility of using the TWA name in some fashion, but he didn't offer any specifics.

Question from chat room: Will this merger give American more access to oversea routes?

Susan Lisovicz: TWA sold off a good deal of its overseas routes earlier in a bid to stay solvent. The driving force is the strengthening of the domestic market, and I'm not sure how it will affect TWA's overseas flights.

CNN Moderator: Will frequent flier miles convert over?

Susan Lisovicz: That's happening right away. Later this month Mr. Carty, Chairman and CEO of American, said that the TWA frequent flyer program will be merged into the American Frequent flyer program as of January 17th.

CNN Moderator: How will the merger affect jobs?

Susan Lisovicz: American has emphatically said that most of TWA's work force would be retained, so it seems that there was a lot of consideration in bringing these people over into the merged airline. You have to remember, though, this is a highly unionized industry and TWA pilots and American pilots belong to two different unions, and the transition may not be all that smooth. But that said, American has said that most jobs will be saved.

CNN Moderator: Do you have any final thoughts for us today?

Susan Lisovicz: TWA is a publicly traded company: What will happen to shareholders of TWA who have suffered greatly? The stock is not open today from what I can see, but it's trading on its 52 week low at near $1.32. This is a stock that in 1996 was trading at 23 or 24 dollars. When a company files for Chapter 11 Bankruptcy protection, it's because they can't pay creditors, and theoretically can't pay the shareholders. And American has no obligation to pay these shareholders. Theoretically they could offer something to the TWA shareholders but have not voiced any intent to do so. They are not obligated.

CNN Moderator: Thanks for joining us today, Susan Lisovicz.

Susan Lisovicz joined the chat room via telephone from New York, NY. CNN provided a typist. The above is an edited transcript of the interview on Wednesday, January 10, 2001.



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RELATED STORIES:
AMR takes TWA aboard
January 10, 2001
AMR eyes TWA purchase
January 8, 2001
United to buy US Airways
May 24, 2000

RELATED SITES:
Susan Lisovicz's Biography
American Airlines
TWA
United Airlines
U.S. Airways

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