After emerging from Chapter 11 for the second time in three years, TWA's management may have left the immediate crisis behind but there are still plenty of problems that need fixing. TWA came out of bankruptcy protection in late August with a prepackaged restructuring that erased $500 million in debt. 'The ability to survive is no longer an issue,' says Scott Gibson, vice president of market planning.
Though not everyone would agree with that statement, the St Louis airline has certainly given itself some breathing room. With less than eight weeks in bankruptcy, adverse customer and travel agent reaction was minimised.
At the same time, $50 million in annual interest was wiped out in the creditors' debt-for-equity trade, and an ongoing cost reduction has left a 7.5-cent per available seat mile cost target within reach for 1996, according to TWA officials. The immediate result will be third-quarter earnings that 'will surprise the analysts,' Gibson says, adding that the carrier is 'reasonably close' to achieving a full year profit. The carrier estimates a $65.7 million operating profit which plummets to a $237.2 million net loss.
Like most other US carriers, TWA's second quarter performance was solid, although $5.2 million net profit on revenues of $860.5 million was pale compared to rivals.
Analysts are warning that whatever TWA's health now, it could quickly worsen if the economy slows. Debt still stands at close to $1 billion and cash reserves are expected to shrink to $128 million by December. Credit lines are non-existent.
Its international network was plundered and sold by former chairman Carl Icahn for much needed cash, while its domestic operation, with only one major hub, is highly susceptible to broader economic vagaries. But a system restructuring has increased capacity at the St Louis hub, which Gibson says has been profitable for two years. But transatlantic competition has been too fierce to make its small JFK hub profitable and analysts say the airline needs an international partner.
TWA is doing everything it can to portray itself as a new airline, down to a new livery which was due for launch in mid-September. The first aircraft in the new scheme could be the first of a revitalised fleet: three new MD-80s on lease from Ansett. Over the next three years TWA, with the oldest fleet of any US major, plans to replace 16 L.1011s and 45 B727s - a third of its fleet - and hushkit 58 DC9s. The international fleet of nine B747-100s and two B747-200s will probably be replaced by B767-200s and -300s.
The question now is how much longer the airline can survive without a major cash infusion. TWA has previously said a capital injection is a key part of its continued survival, but there is no indication of when that will happen.
Source: Airline Business
