Icahn fires back at American and TWA — pledges $400 million for competing airline

Friday, March 23, 2001 | 11:12 a.m.

Executives of Lowestfare.com won't say if their plans to build or buy a new airline will include a bid to acquire Las Vegas-based National Airlines.

National, operating in Chapter 11 bankruptcy since early December, is negotiating with prospec- tive investors, but has discounted speculation that Carl Icahn, chairman of Lowestfare.com, is one of them.

Icahn, who owns the Stratosphere hotel-casino and two Arizona Charlies properties in Las Vegas, on Thursday issued his first statement about plans for his Internet travel company since he was thwarted in his bid to acquire TWA for $1.1 billion.

In the statement, he said he would make $400 million available to Las Vegas-based Lowestfare.com to build or buy an airline.

"The business and last-minute leisure traveler has been forced by the major airlines to pay inordinately high prices and the success of Lowestfare.com with the traveling public proves that," Icahn said.

"There has never been a greater opportunity for a well-capitalized, low-cost airline," he said. "Currently, the Lowestfare.com management team is in discussions to that end and will pursue any and all opportunities that arise."

David Lovely, a spokesman for Lowestfare.com in the company's New York executive offices, said the company would not disclose how many or which airlines the company has approached.

"When we complete negotiations, we will make a public announcement," Lovely said.

Lovely also said about 335 employees would be laid off, including about 180 in Las Vegas, and the company's Kent, Wash., office would be closed. The 38,000-square-foot office in suburban Seattle had been open just over a year and about 154 people will lose their jobs there by May.

The 35 percent cutback in Lowestfare.com employees is a result of Icahn's failed bid for TWA. Lowestfare, which originally was called Global Discount Travel Services, started in 1995 as a result of a ticket agreement Icahn had with TWA. As part of his settlement for leaving the airline, he negotiated the ticket deal, which allowed him to buy TWA tickets at a discount and then re-sell them.

When TWA filed for bankruptcy last year, American Airlines' parent company, AMR Corp., made a $742 million bid for it that was accepted March 12 by U.S. Bankruptcy Court Judge Peter Walsh. Icahn's ticket deal with TWA was canceled in the process.

Icahn's attorneys have said they will sue AMR because they said the company induced TWA to file for bankruptcy and to seek to terminate the ticket agreement.

Icahn commented further about the bankruptcy court's decision in his Thursday statement.

"The TWA-AMR merger was rushed to approval because both airlines claimed there was no alternative," Icahn's statement says. "Let me set the record straight. I provided the financial backing to TWA Acquisition Corp.'s bid of over $1.1 billion for TWA and offered to provide the immediate cash infusion that TWA said it needed to operate. I believe there was absolutely no reason for the bankruptcy and sale of TWA to AMR.

"TWA's (chief executive officer) and president, Bill Compton, and three other executives piloted TWA to its demise, yet they are getting $14 million under the AMR deal," Icahn said. "How the other TWA employees fare remains to be seen, but it should be noted that a motion to cancel labor contracts has already been filed. It is my prediction that AMR will never give TWA employees seniority and therefore, a large number will be laid off. While my alternative bid would have allowed a renegotiated ticket agreement, which I view as positive, it would also have meant that TWA would continue flying under its own flag and prevent the behemoth that AMR will become as a result of the merger. AMR will now control more than 22 percent of the market and has successfully eliminated yet another competitor.

"Competition has been the cornerstone of keeping prices down for the flying public. Ironically, AMR is in court now being charged by the Justice Department of undercutting discount airline fares to put them out of business and then raising the fares once the competition is out of the way. Those charges have yet to be decided, but this is not the first time AMR has been accused of predatory pricing," Icahn said.

Some airline experts say it was Icahn's discount deal that led to TWA's demise, but Icahn denies that.

"TWA blamed the ticket agreement in part for its financial condition, but we believe we provided a great deal of business that the airline would never have otherwise realized," he said.