BUSINESSWEEK ONLINE : JANUARY 22, 2001 ISSUE
NEWS: ANALYSIS & COMMENTARY Why Carl Icahn Wants to Spoil American's Deal Carl C. Icahn knows his way around a bankruptcy court. The one-time corporate raider forced Texaco (TX) into bankruptcy proceedings way back in 1987. And he's been there twice before with Trans World Airlines (TWA), which he owned from 1985 to 1993. But with TWA yet again filing for Chapter 11 on Jan. 10, Icahn is now on the outside looking in. And by all accounts, he's eager to play the role of spoiler in American Airlines' (AMR) deal to take over ailing TWA. At the core of Icahn's looming battle with American is the package of low-priced tickets he got in TWA's 1995 bankruptcy. The savvy financier made a $190 million loan to the airline in exchange for a contract to buy low-cost tickets that are worth hundreds of millions a year. The deal, which runs through September, 2003, is the central piece in Icahn's Lowestfare.com, which books budget cruises, hotel stays, and other getaways, both online and through some 10,000 travel agencies. As is his custom, Icahn isn't talking. But to offer those rock-bottom airline prices, he needs to keep getting his hands on discounted TWA tickets. Lowestfare.com gets such a good deal that its prices run as much as 45% below TWA's published fares. Those seats made up about 87% of Lowestfare's bookings in 1999, according to the most recent figures the company made available. Once TWA files for bankruptcy, American is expected to void Icahn's contract or attempt to pay him off at a fraction of its value. And there's little doubt that Icahn will put up a fight. The question is how much damage he could do to the deal. He's already caused the current TWA management plenty; TWA filed suit against him in 1996 and 1999, arguing that Icahn violated the loan deal by selling tickets to travel agents and in other ways. ''It took hundreds of millions of dollars from TWA's revenue base,'' says one TWA executive. Still, TWA lost both suits. This time, Icahn might be able to keep his cheap tickets if he can convince the court that they were a result of TWA's 1995 bankruptcy, says University of California at Los Angeles law professor Kenneth N. Klee, a bankruptcy expert. In that case, Icahn would have to be bought out for the deal to go through--and that could cost American several hundred million dollars at least. For now, American executives don't seem concerned. Shrugs American CEO Donald Carty: ''I guess Carl's got a lot more lawyers than I do.'' If they do their jobs right, he could walk away from this deal with plenty of loot to pay them all, and then some. By Ronald Grover in Los Angeles _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Ever-Shrinking Skies TABLE: Airline Consolidation: Will It Help or Hurt? VIDEO: Interview with American Airlines CEO Donald J. Carty Why Carl Icahn Wants to Spoil American's Deal INTERACT E-Mail to Business Week Online

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