Thursday, July 10, 2008

Companies that vanished: TWA, a story of American Capitalism
Posted Jun 9th 2008 by Michael Rainey

The story of Trans World Airlines is the story of American capitalism in the 20th century. Founded by aviation pioneers and scrappy entrepreneurs, TWA became one of the largest and most successful airlines in the world. It racked up numerous awards and distinctions and created a devoted base of customers and employees.

Along the way, it also displayed the twisted corporate history typical of capitalism American-style, with plenty of buyouts and mergers and awkward transitions. Finally, it ended up the victim of vulture capitalists, who picked it clean and sold its carcass to a competitor. All in all, a heckuva ride.

The company got its official beginning in 1930, when Transcontinental Air Transport and Western Air Express merged to form Transcontinental & Western Air (T&WA). The merger was driven by one of the great motivators in American free market capitalism: the pursuit of lucrative government contracts.

In this case, the contracts were for airmail transport and the new airline was soon rolling in federal dough, though not for long. The great Air Mail Scandal of 1934 brought an end to that arrangement and the airlines split up, although the name lived on. From 1930 forward, TWA experienced some dramatic ups and downs.

After a TWA crash killed Notre Dame coach Knute Rockne in 1931, the airline nearly went out of business. It survived though and went on to pioneer the use of many of the great aircraft of the 20th century, including the first (and only) DC-1, the Boeing Stratoliner, and the Lockheed Constellation.

TWA also built some beautiful buildings, including the famous terminal at JFK in New York designed by Eero Saarinen. And TWA gained some noteworthy owners and managers along the way, most famously the reclusive though aircraft obsessed Howard Hughes, who lost control of the airline when his effort to upgrade to jets in the 1950s hit some financial turbulence. TWA peaked in the early 1980s, when it was carrying over half of all passengers traveling from the U.S. to Europe.

But deregulation and a lack of investment in new aircraft hit the airline hard, and the airline was acquired by Carl Icahn in 1985 in a hostile takeover. In classic form, Icahn took the company private in 1988, pocketing nearly $500 million for himself while saddling the company with $540 million in debt. Four years later, stripped of its most valuable assets (like the routes to London sold to American Airlines) and struggling with massive debt payments, TWA declared bankruptcy. More difficulties followed.

Icahn made a deal that allowed him to buy certain TWA tickets for 55 cents on the dollar, then sell them for his own profit, which he did relentlessly at Lowestfare.com, costing TWA hundreds of millions of dollars. Another bankruptcy in 1995 took care of that problem.

Then TWA flight 800 exploded over the ocean near New York City in 1996, killing all 230 aboard. After that, TWA focused on domestic routes, but with decreasing success. Finally, American Airlines bought TWA in 2001, ending its run as an independent company.

Although it doesn't seem to be part of the official history of the company, Trans World Airlines was also a victim of the September 11 attacks against the United Sates. The airline had been struggling for years before that, but the attacks and the resulting turmoil in the airline industry were a final nail in the coffin.

Oddly enough, I took a TWA flight to Paris in early September, 2001. I didn't know it at the time, but it was one of the last TWA flights over the Atlantic.My girlfriend and I were scheduled to return to the U.S. on September 17 on TWA. Most flights were canceled in the days after 9/11, so we knew we wouldn't be leaving on that day. But we went to the airport in Paris anyway -- we couldn't call TWA, since the phone lines were jammed -- and were amazed by what we saw.

Thousands of people waited in lines, and many of them looked like they had been at the airport for days. I could hear loud American voices offering large sums of money to get on a plane back home or anywhere close. One group of travelers bought tickets to Mexico City and planned to rent or buy a car to get back home to Dallas.

It was a pretty chaotic scene.But at the TWA counter, the situation was different: there were no passengers at all. We walked right up to the counter and immediately spoke to the agents. We quickly found out why there was no one else there: TWA was no longer flying back to New York. In fact, TWA was no longer flying at all.
So despite the fact that we had purchased round trip tickets on TWA and had flown to Paris on a TWA plane, we would not be flying home on one. We ended up flying home days later on American Airlines. But TWA was gone for good.

No comments: