Icahn, Las Vegas company could move to block AA acquistion deal

Wednesday, Jan. 10, 2001 | 11:38 a.m.

Financier Carl Icahn and his Las Vegas-based Internet discount travel concern, Lowestfare.com Inc., could prove to be a thorn in the side of American Airlines' plans to acquire Trans World Airlines in bankruptcy court.

In a strategy reminiscent of his takeover of the Stratosphere hotel-casino, Icahn has amassed a sizable position in TWA's debt, the Wall Street Journal reported today. In previous instances, including at the Stratosphere, Icahn has pushed through reorganization plans that converted debt into equity, giving the financier control of a reorganized company.

In the case of TWA, creditors may argue that TWA could yield more cash if broken into pieces, rather than being sold whole to American, the Journal reported.

Icahn once held a controlling interest in TWA.

But Icahn's financial stake in TWA goes beyond his position in its debt. In 1995, Icahn struck a deal with TWA to purchase tickets from the airline at a 45 percent discount to TWA's published fare. This agreement was used as the basis for the launch of Lowestfare.com, Icahn's Internet-based, Las Vegas discount travel service -- and generally allows Lowestfare to sell tickets at 17 percent to 30 percent below TWA's lowest published fare, according to Securities and Exchange Commission documents filed in March 1999. Moreover, Lowestfare indicated, the tickets aren't subject to severe restrictions, such as blackout periods, advance purchase or last-minute purchase requirements.

Though Lowestfare has agreements with other airlines, it appears to remain extremely dependent on its deal with TWA. In SEC documents, Lowestfare indicated that it grossed $63.5 million in revenues in the first quarter of 1999 from the deal -- 95.6 percent of the company's total revenues. Revenues from the TWA deal in 1998 were $218.6 million, 97.4 percent of company revenues.

Updated financial figures aren't available, as Lowestfare did not go public as planned in 1999.

Lowestfare's deal with TWA expires in September 2003, but American hopes to break the deal if it acquires TWA, the New York Times reported.

Icahn and Lowestfare's chief executive, Ken Swanton, could not be reached for comment this morning.

"I would not be surprised if that issue ends up in the courts," said Robert Milmore, an analyst at Arnhold & S. Bleichroeder in New York.