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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7815
TRANS WORLD AIRLINES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1145889
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE CITY CENTRE
515 N. SIXTH STREET
ST. LOUIS, MISSOURI 63101
(Address of principal executive offices, including zip code)
(314) 589-3000
(Registrant's telephone number, including area code)
-----------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or 15 (d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AS OF
CLASS APRIL 30, 1999
----------------------- -----------------
Common Stock, par value
$0.01 per share 58,531,835
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the Three Months Ended March 31, 1999 and 1998
(Amounts in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Operating revenues:
Passenger $681,190 $676,443
Freight and mail 25,264 27,444
All other 58,134 61,502
-------- --------
Total 764,588 765,389
-------- --------
Operating expenses:
Salaries, wages and benefits 308,841 297,784
Earned stock compensation - 26,502
Aircraft fuel and oil 72,617 92,428
Passenger sales commissions 44,605 51,540
Aircraft maintenance materials and repairs 38,292 34,661
Depreciation and amortization 37,315 39,181
Operating lease rentals 120,768 103,906
Passenger food and beverages 20,680 21,572
All other 159,056 166,522
-------- --------
Total 802,174 834,096
-------- --------
Operating loss (37,586) (68,707)
-------- --------
Other charges (credits):
Interest expense 24,961 30,215
Interest and investment income (3,173) (5,266)
Disposition of assets, gains and losses - net (2,010) (6,997)
Other charges and credits - net (31,302) (7,101)
-------- --------
Total (11,524) 10,851
-------- --------
Loss before income taxes and extraordinary items (26,062) (79,558)
Provision (credit) for income taxes (4,504) (25,418)
-------- --------
Loss before extraordinary items (21,558) (54,140)
Extraordinary items, net of income taxes - (1,380)
-------- --------
Net loss (21,558) (55,520)
Preferred stock dividend requirements 5,863 5,863
-------- --------
Loss applicable to common shares $(27,421) $(61,383)
======== ========
Basic earnings per share amounts:
Loss before extraordinary items $ (0.42) $ (1.04)
Extraordinary items - (0.02)
-------- --------
Net loss $ (0.42) $ (1.06)
======== ========
See notes to consolidated financial statements
</TABLE>
1
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
(Amounts in Thousands)
ASSETS
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 211,156 $ 252,408
Receivables, less allowance for doubtful accounts,
$13,918 in 1999 and $14,459 in 1998 232,475 170,492
Spare parts, materials and supplies, less allowance for
obsolescence, $20,987 in 1999 and $20,554 in 1998 97,906 99,909
Prepaid expenses and other 127,988 82,605
---------- ----------
Total 669,525 605,414
---------- ----------
Property:
Property owned:
Flight equipment 441,535 414,645
Prepayments on flight equipment 70,547 69,875
Land, buildings and improvements 69,091 68,812
Other property and equipment 73,790 72,108
---------- ----------
Total owned property 654,963 625,440
Less accumulated depreciation 149,617 136,336
---------- ----------
Property owned-net 505,346 489,104
---------- ----------
Property held under capital leases:
Flight equipment 176,094 176,094
Land, buildings and improvements 49,431 49,431
Other property and equipment 9,094 9,093
---------- ----------
Total property held under capital leases 234,619 234,618
Less accumulated amortization 110,980 103,692
---------- ----------
Property held under capital leases-net 123,639 130,926
---------- ----------
Total property-net 628,985 620,030
---------- ----------
Investments and other assets:
Investments in affiliated companies 133,789 124,429
Investments, receivables and other 159,940 149,206
Routes, gates and slots-net 350,982 356,324
Reorganization value in excess of amounts allocable to
identifiable assets-net 688,732 699,220
---------- ----------
Total 1,333,443 1,329,179
---------- ----------
$2,631,953 $2,554,623
========== ==========
<CAPTION>
See notes to consolidated financial statements
2
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TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and December 31, 1998
(Amounts in Thousands Except Per Share Amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 114,414 $ 111,538
Current obligations under capital leases 38,266 37,865
Advance ticket sales 300,350 211,340
Accounts payable, principally trade 256,587 229,368
Accounts payable to affiliated companies 7,155 7,167
Accrued expenses:
Employee compensation and vacations earned 143,832 159,064
Contributions to retirement and pension trusts 15,160 12,616
Interest on debt and capital leases 31,478 33,156
Taxes 14,680 11,447
Other accrued expenses 193,822 189,278
---------- ----------
Total accrued expenses 398,972 405,561
---------- ----------
Total 1,115,744 1,002,839
---------- ----------
Long-term liabilities and deferred credits:
Long-term debt, less current maturities 569,313 572,372
Obligations under capital leases, less current obligations 153,725 163,046
Postretirement benefits other than pensions 499,785 496,848
Noncurrent pension liabilities 24,217 24,634
Other noncurrent liabilities and deferred credits 96,305 109,562
---------- ----------
Total 1,343,345 1,366,462
---------- ----------
Shareholders' equity:
8% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; 3,869 shares issued and
outstanding 39 39
9 1/4% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; 1,725 shares issued and
outstanding 17 17
Employee preferred stock, $0.01 liquidation preference;
special voting rights; shares issued and outstanding:
1999-7,163; 1998-6,347 72 63
Common stock, $0.01 par value; shares issued and
outstanding: 1999-58,255; 1998-57,768 583 578
Additional paid-in capital 739,980 730,894
Accumulated deficit (567,827) (546,269)
---------- ----------
Total 172,864 185,322
---------- ----------
$2,631,953 $2,554,623
========== ==========
See notes to consolidated financial statements
</TABLE>
3
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
(Amounts in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(21,558) $(55,520)
Adjustments to reconcile net loss to net cash used by
operating activities:
Employee earned stock compensation - 26,502
Depreciation and amortization 37,315 39,181
Amortization of discount and expense on debt 1,450 2,758
Amortization of deferred gain/loss on sale/leaseback of
certain aircraft and engines (3,094) (49)
Extraordinary loss on extinguishment of debt - 1,380
Equity in undistributed earnings of affiliates not
consolidated (9,371) (4,556)
Revenue from Icahn ticket program - (38,788)
Net (gains) losses on disposition of assets (2,010) (6,997)
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables (62,000) (65,721)
Inventories 1,559 73
Prepaid expenses and other current assets (45,383) (37,739)
Other assets (6,122) 811
Increase (decrease) in:
Accounts payable and accrued expenses 34,777 27,265
Advance ticket sales 89,010 85,233
Other noncurrent liabilities and deferred credits (5,092) (17,832)
-------- --------
Net cash provided (used) 9,481 (43,999)
-------- --------
Cash flows from investing activities:
Proceeds from sales of property 5,946 12,809
Capital expenditures, including aircraft pre-delivery
deposits (39,632) (26,005)
Return of pre-delivery deposits related to leased aircraft 4,711 -
Net decrease (increase) in investments, receivables and other (2,750) 4,626
-------- --------
Net cash used (31,725) (8,570)
-------- --------
Cash flows from financing activities:
Net proceeds from long-term debt and warrants issued - 144,938
Proceeds from sale and leaseback of certain aircraft and
engines 1,874 43,176
Repayments on long-term debt and capital lease obligations (15,390) (21,543)
Cash dividends paid on preferred stock (5,863) (6,151)
Net proceeds from exercise of warrants and options 371 518
-------- --------
Net cash provided (used) (19,008) 160,938
-------- --------
Net increase (decrease) in cash and cash equivalents (41,252) 108,369
Cash and cash equivalents at beginning of period 252,408 237,765
-------- --------
Cash and cash equivalents at end of period $211,156 $346,134
======== ========
See notes to consolidated financial statements
</TABLE>
4
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
(Amounts in Thousands)
(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
------- -------
<S> <C> <C>
Cash paid during the period for:
Interest $21,256 $30,215
======= =======
Income taxes $ 5 $ 4
======= =======
Information about noncash operating, investing and financing
activities:
Promissory notes issued to finance aircraft predelivery
payments $10,248 $ 3,182
======= =======
Aircraft held for sale reclassified from Property to
Investments, Receivables and Other $ 8,582 $19,003
======= =======
Property acquired and obligations recorded under new capital
lease transactions $ - $ 703
======= =======
</TABLE>
ACCOUNTING POLICY
For purposes of the Statements of Consolidated Cash Flows, TWA
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
See notes to consolidated financial statements
5
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TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Trans World Airlines, Inc. ("TWA" or the "Company") and its
subsidiaries. The results of Worldspan, L.P. ("Worldspan"), a 26.315%
owned affiliate, are recorded under the equity method and are included
in the Statements of Consolidated Operations in Other Charges (Credits).
Effective October 2, 1998, TWA's equity interest in Worldspan increased
from 24.999% to 26.315%. The increase was a result of a distribution by
Worldspan to certain existing owners of additional interest at no cost
to the Company.
The unaudited consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission") but do not
include all information and footnotes required by generally accepted
accounting principles pursuant to such rules and regulations. The
consolidated financial statements include all adjustments, which are of
a normal recurring nature and are necessary, in the opinion of
management, for a fair presentation of the results for these interim
periods. These consolidated financial statements and related notes
should be read in conjunction with the consolidated financial statements
and related notes contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. The consolidated balance sheet at
December 31, 1998 has been derived from the audited consolidated
financial statements at that date. Certain amounts previously reported
have been reclassified to conform with the current presentation.
The consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim
or annual basis. TWA's air transportation business has historically
experienced seasonal changes with the second and third quarters of the
calendar year producing substantially better operating results than the
first and fourth quarters, although operational adjustments with the
intent of reducing the level of seasonality have been, and continue to
be, implemented. While the Company anticipates that the
deseasonalization of operations affected thereby will reduce quarter to
quarter fluctuations in the future, there can be no assurance that the
reduction of seasonal fluctuations in financial operating results will
be realized. Accordingly, the results for the three months ended March
31, 1999 should not be read as indicators of results for the full year.
2. INCOME TAXES
The income tax benefits recorded for the three months ended March
31, 1999 and 1998 reflect quarterly effective tax rates and management's
current expectation of full year pre-tax profits. Considering the high
level of non-deductible expenses in relation to expected annual income
(which results in both a high effective tax rate and the potential for
significant changes in the effective rate from relatively small changes
in pretax income levels), the income tax benefits recorded for the first
quarters of 1999 and 1998 were based upon the quarterly allocable
portion of certain non-deductible expenses, primarily amortization of
reorganization value in excess of amounts allocable to identifiable
assets, and statutory tax rates.
6
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3. EXTRAORDINARY ITEMS
In the three months ended March 31, 1998 the Company recorded
extraordinary non-cash charges of $1.4 million related to the early
extinguishment of a portion of the promissory notes issued to the
Pension Benefit Guaranty Corporation (the "PBGC Notes") as a result of
Karabu Corp. ("Karabu"), a company controlled by Carl Icahn, applying
approximately $35.2 million in ticket proceeds as prepayments on the
PBGC Notes. In December 1998, the PBGC Notes were paid in full.
4. LOSS PER SHARE
In computing the loss applicable to common shares for the three
months ended March 31, 1999 and 1998, the net loss has been increased by
dividend requirements on the 8% Cumulative Convertible Exchangeable
Preferred Stock (the "8% Preferred Stock") and the 9 1/4% Cumulative
Convertible Exchangeable Preferred Stock (the "9 1/4% Preferred Stock").
In computing the related net loss per share, the loss applicable to
common shares has been divided by the aggregate average number of
outstanding shares of common stock (58.0 million and 51.6 million for
the three months ended March 31, 1999 and 1998, respectively) and
employee preferred stock (7.6 million and 6.3 million for the three
months ended March 31, 1999 and 1998, respectively) which, with the
exception of certain special voting rights, is the functional equivalent
of common stock. Diluted earnings per share have not been presented as
the impact of stock options, warrants or potential issuances of
additional common stock or employee preferred stock in the three month
periods ended March 31, 1999 and 1998 would have been anti-dilutive.
5. PROPERTY AND DISPOSITION OF ASSETS
Having completed the grounding of TWA's L-1011 and B-747 fleets in
February 1998, the Company reclassified the net book value of its
remaining owned L-1011 and B-747 aircraft fleet to Investments,
Receivables and Other as such assets are currently held for sale. The
amounts reclassified were $27.5 million and $19.0 million at March 31,
1999 and 1998, respectively.
Net gains from the disposition of assets were $2.0 million and
$7.0 million in first quarter 1999 and 1998, respectively. Recorded
gains in 1999 included the sale of TWA's investment in SatoTravel, a
company which provides ticketing services ("SATO"), and certain aircraft
and engines. In 1998, gains recorded related to the sale of certain
aircraft, engines and other surplus equipment.
7
<PAGE>
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6. SEGMENT REPORTING
TWA operates one segment, that of air transportation. However,
that segment is analyzed and reported in two primary geographic areas,
Domestic and International (the Atlantic division as reported to the
Department of Transportation). Information related to revenues
generated from operations within those geographic areas is presented
below.
Quarters Ended March 31,
------------------------
1999 1998
------ ------
Operating Revenues (in millions):
Domestic $690.1 $680.4
International 74.5 85.0
------ ------
Total $764.6 $765.4
====== ======
TWA identifies revenues to each division based on dollars
generated by specific flight segment and the division in which each
flight segment operates. A major portion of the Company's long-lived
assets consists of its flight equipment (aircraft), which are not
assigned to a specific geographic area, but rather are flown across
geographic boundaries.
7. SALE OF EQUANT SHARES
TWA is a long-term member of the Societe Internationale de
Telecommunications Aeronautiques ("SITA"), a worldwide provider of
communication services to the aviation industry. In February 1999, SITA
divested a portion of its shares in Equant N.V., a telecommunication
network company, through a secondary offering. As a member of SITA, TWA
indirectly participated in the sale of a portion of its holdings in
Equant, resulting in a reported gain and receipt of cash of
approximately $21.3 million. Additionally, Worldspan, an affiliate,
also participated in the divestiture of Equant, resulting in the
additional recognition of gain by TWA of approximately $2.6 million as
an equity participant in the earnings of Worldspan.
8. CONTINGENCIES
There has not been any significant change in the status of the
contingencies reflected in the notes to consolidated financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 which, among other matters, described
various contingencies and other legal actions against TWA, except as
discussed in note 9 and Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
9. STATUS OF LABOR NEGOTIATIONS
TWA has been engaged in negotiations with its flight attendants
and ground employees, represented by the International Association of
Machinists and Aerospace Workers ("the IAM"), on new collective
bargaining agreements covering approximately 16,000 employees. The
existing agreements became amendable as of August 31, 1997.
8
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<PAGE>
The Railway Labor Act, which governs collective bargaining
activities of airline workers whose contracts have become amendable,
requires employees to continue to work under the "status quo" (i.e.,
under the terms of employment existing before the amendable date) until
they exhaust the Railway Labor Act's procedures. The Railway Labor Act
also requires TWA and the IAM to bargain until an agreement is reached
or until at least one of the parties petitions the National Mediation
Board ("NMB") to appoint a mediator. If the mediator's efforts fail,
the mediator must attempt to induce the parties to arbitrate the
dispute. If either party refuses to arbitrate, then a thirty-day
"cooling off" period is required prior to either party taking any self-
help actions.
At the request of the IAM, the NMB appointed a mediator with
respect to both ground employees' and flight attendants' negotiations.
On May 7, 1999, the NMB proffered binding arbitration to TWA and the
IAM. While TWA accepted the proffer of arbitration, the IAM declined to
arbitrate. On May 10, 1999, the NMB advised TWA and the IAM that the
thirty-day cooling off period had begun and would end on June 10, 1999
at 12:01 a.m. (EDT). Although no assurance can be given that agreement
will be reached within the thirty-day cooling off period, TWA remains
committed to reaching new labor agreements that will provide immediate
wage increases and progress over the life of a new contract to wage
parity with workers performing similar jobs at other major airlines.
TWA believes it is essential to improve employee productivity as
an offset to any wage increases and will continue to explore other ways
to control and/or reduce operating expenses. However, there can be no
assurance that the Company will be successful in obtaining such
productivity improvements or unit cost reductions. It is essential that
the Company's labor costs remain favorable in comparison to its largest
competitors. As the Company's financial resources are not as great as
those of most of its competitors, any substantial increase in its labor
costs as a result of any new labor agreements or any cessation or
disruption of operations due to any strike or work action could be
particularly damaging to the Company. The outcome of these labor
negotiations and the terms of any contracts cannot be predicted at this
time.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements made below relating to plans, conditions,
objectives, and economic performance go beyond historical information
and may provide an indication of future financial condition or results
of operations. To that extent, they are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and each is subject to risks, uncertainties and
assumptions that could cause actual results to differ from those in the
forward-looking statements. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated or projected. In any event, these forward-looking statements
speak only as of their dates, and the Company undertakes no obligation
to update or revise any of them whether as a result of new information,
future events or otherwise.
GENERAL
TWA operates in an intensely competitive environment. The Company
competes with one or more major airlines on most of its routes
(including all routes between major cities). The airline industry has
consolidated as a result of mergers and liquidations and more recently
through alliances, and further consolidation may occur in the future.
This consolidation has, among other things, enabled certain of the
Company's major competitors to expand their international operations and
increase their domestic market presence, thereby strengthening their
overall operations, by transporting passengers connecting with or
otherwise traveling on the alliance carriers. Such alliances could
further intensify the competitive environment.
The rapid growth of regional jet airline affiliates represents a
significant competitive challenge for TWA due to its reliance on
through-hub passenger traffic. A small regional jet can now offer
direct service in markets that previously were served only by through-
hub service. TWA's current IAM contracts limit TWA commuter affiliates
from utilizing regional jets directly competing in these markets.
These issues represent a competitive challenge for the Company,
which has higher operating costs than many regional carriers and fewer
financial resources than many of its major competitors. Small
fluctuations in revenue per available seat mile ("RASM") and cost per
available seat mile ("CASM") can significantly affect TWA's financial
results. The Company has experienced significant operating losses on an
annual basis since the early 1990s, except in 1995 when the Company's
combined operating profit was $25.1 million. TWA expects the airline
industry will remain extremely competitive for the foreseeable future.
The Company continues to focus on implementing several strategic
initiatives to improve operational reliability and schedule integrity
and overall product quality in order to attract higher-yield passengers
and enhance overall productivity. Key initiatives currently in progress
include:
* modernizing its fleet;
* focusing on improved productivity;
* implementing a series of revenue-enhancing marketing
initiatives to attract higher-yield business travelers;
* implementing a number of employee-related initiatives to
reinforce the Company's focus on operational performance; and
* optimizing TWA's route structure.
10
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TWA faces a number of uncertainties that may adversely affect its future
results of operations, including:
* insufficient levels of air passenger traffic resulting
from, among other things, war, threat of war, terrorism or
changes in the economy;
* governmental limitations on the ability of TWA to service
certain airports and/or foreign markets;
* regulatory requirements necessitating additional capital
or operating expenditures;
* pricing and scheduling initiatives by competitors;
* the availability and cost of capital;
* increases in fuel and other operating costs;
* the outcome of certain ongoing labor negotiations; and
* the adverse effects on yield of the continued
implementation of a discount ticket program between TWA
and Karabu, on the terms currently applied by Karabu.
(TWA believes these terms are inconsistent with, and in
violation of, the ticket agreement governing this
program.) (See "Part II. Item 1. Legal Proceedings.")
TWA is unable to predict the potential effect of any of these
uncertainties upon its future results of operations.
Labor Costs
Wage rates for most of TWA's employees have increased recently as
a result of several events. A new collective bargaining agreement
between TWA and its pilots became effective September 1, 1998. As part
of the new contract, TWA agreed to pay increases over four years that
will result in wages for TWA's pilots improving in 2002 to 90% of the
industry average as determined by wage rates in contracts in effect as
of August 1998. The contract also provides for significant work rule
improvements for pilots in certain areas while also granting TWA
flexibility and improvements necessary to enhance its competitive
position. Under the contract, TWA also will distribute either one
million shares of TWA's common stock or $11 million in cash to its
pilots, in four equal quarterly payments commencing in 1999. TWA has
the option to make each quarterly payment in shares or in cash. The
Company has made the first quarterly distribution of 250,000 shares of
common stock in April 1999.
Pursuant to the labor agreements TWA entered into in 1992, TWA
agreed to pay to employees represented by the IAM a cash bonus for the
amount by which overtime incurred from September 1992 through August
1995 was reduced below specified thresholds. This amount was to be
offset by the failure of medical savings to meet certain specified
levels during the period for the same employees. TWA and the IAM came
to agreement on this obligation which will be due in three equal annual
installments, the first of which was made in October 1998. The
remaining obligation of $17.8 million is reflected as a liability in
the consolidated financial statements.
TWA also entered into agreements subsequent to the 1992 labor
agreements that provide for an adjustment to existing salary rates of
certain labor-represented employees based on the amount of the cash
bonus for overtime to the employees represented by the IAM as described
in the previous paragraph. These adjustments equated to a 4.814%
increase which management made effective for all employee groups on
September 1, 1998, except for pilots whose contract provided for
separate increases also effective September 1, 1998, and the officers of
TWA who did not receive the increase. Management intends that the
4.814% salary adjustments will be part of any percentage increase that
would be incorporated in contract amendments currently being negotiated.
11
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<PAGE>
There are certain issues relating to agreements with employees,
the resolution of which could result in significant non-cash charges to
future operating results of TWA. Shares granted or purchased at a
discount under the Employee Stock Incentive Plan ("ESIP") will generally
result in a charge equal to the fair market value of shares granted and
the discount for shares purchased at the time these shares are earned or
purchased. As a result of the first two target prices being realized on
February 17, 1998, and March 4, 1998, respectively, the Company issued
an additional 2,377,084 shares on July 15, 1998, to satisfy the 1997 and
1998 ESIP grant amounts. In connection with such issuance, TWA recorded
an aggregate non-cash charge in the first quarter of 1998 in the amount
of $26.5 million. An aggregate non-cash charge of $1.0 million was
recorded in the third quarter of 1998 to reflect the actual number of
shares issued on July 15, 1998. If the ESIP's remaining target prices
for TWA common stock are realized, the minimum aggregate non-cash charge
for the years 1999 to 2002 will be approximately $103.4 million based
upon these target prices and the number of shares of common stock and
employee preferred stock outstanding at December 31, 1998. The non-cash
charge for any year, however, could be substantially higher if the then
market price of the TWA common stock exceeds certain target prices.
In connection with certain wage scale adjustments afforded to non-
contract employees, employees previously represented by the Independent
Federation of Flight Attendants ("IFFA") have asserted and won an
arbitration ruling with respect to the comparability of wage concessions
made in 1994 that, if sustained, would require TWA to provide additional
compensation to these employees. The Eighth Circuit Court of Appeals
upheld a district court ruling that affirmed the arbitrator's award.
TWA has filed a motion before the District Court for the Eastern
District of Missouri seeking referral of the matter to the System Board
of Adjustment for determination on TWA's claim that, to the extent it
was unsuccessful on the merits, actions taken by TWA following issuance
of the arbitrator's award and in accordance with the arbitrator's
opinion have substantially, if not totally, mitigated potential damages.
Accordingly, the Company has not recorded any liability for this
litigation. The IAM (now collective bargaining agent for employees
formerly represented by IFFA) has filed a motion requesting the district
court to hold TWA in contempt of court and to order TWA to implement the
arbitration award. TWA believes that pending the district court's
ruling on TWA's motion to remand, TWA is not required to implement the
arbitration award and the IAM's motion is without merit. The amount, if
any, due under the award is incapable of being determined pending the
district court's ruling on TWA's motion and, if remanded, the decision
of the System Board of Adjustment.
TWA has been engaged in negotiations with its flight attendants
and ground employees, represented by the IAM, on new collective
bargaining agreements covering approximately 16,000 employees. The
existing agreements became amendable as of August 31, 1997.
The Railway Labor Act, which governs collective bargaining
activities of airline workers whose contracts have become amendable,
requires employees to continue to work under the "status quo" (i.e.,
under the terms of employment existing before the amendable date) until
they exhaust the Railway Labor Act's procedures. The Railway Labor Act
also requires TWA and the IAM to bargain until an agreement is reached
or until at least one of the parties petitions the NMB to appoint a
mediator. If the mediator's efforts fail, the mediator must attempt to
induce the parties to arbitrate the dispute. If either party refuses to
arbitrate, then a thirty-day "cooling off" period is required prior to
either party taking any self-help actions.
At the request of the IAM, the NMB appointed a mediator with
respect to both ground employees' and flight attendants' negotiations.
On May 7, 1999, the NMB proffered binding arbitration to TWA and the
IAM. While TWA accepted the proffer of arbitration, the IAM declined to
arbitrate. On May 10, 1999, the NMB advised TWA and the IAM that the
thirty-day cooling off period had begun and would end on June 10, 1999
at 12:01 a.m. (EDT). Although no assurance can be given that agreement
will be reached within the thirty-day cooling off period, TWA remains
committed to reaching new labor agreements that will provide immediate
wage increases and progress over the life of a new contract to wage
parity with workers performing similar jobs at other major airlines.
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TWA believes it is essential to improve employee productivity as
an offset to any wage increases and will continue to explore other ways
to control and/or reduce operating expenses. However, there can be no
assurance that the Company will be successful in obtaining such
productivity improvements or unit cost reductions. It is essential that
the Company's labor costs remain favorable in comparison to its largest
competitors. As the Company's financial resources are not as great as
those of most of its competitors, any substantial increase in its labor
costs as a result of any new labor agreements or any cessation or
disruption of operations due to any strike or work action could be
particularly damaging to the Company. The outcome of these labor
negotiations and the terms of any contracts cannot be predicted at this
time.
Seasonality
Due to the greater demand for air travel during the summer months,
airline industry revenues for the third quarter of the year are
generally significantly greater than revenues in the first and fourth
quarters of the year and moderately greater than revenues in the second
quarter of the year. In the last two years, TWA has attempted to reduce
the seasonal nature of its business through an acceleration of its fleet
renewal program, a decrease in international operations, and the
restructuring of its JFK operations, with the result that the difference
between TWA's seasonal average daily peak and trough capacities relating
to available seat miles ("ASMs") has dropped from 20.8% in 1996 and
16.9% in 1997 to 3.9% in 1998. TWA anticipates that the seasonal
variability of its financial performance will be reduced (but not
eliminated) as a result of these changes; however, there can be no
assurance that this deseasonalization will occur.
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TWA's passenger traffic data, for scheduled passengers only, are
shown in the table below for the indicated periods<F1>:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ---------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NORTH AMERICA
Passenger revenues ($ millions) $ 622 $ 610 $ 2,562 $ 2,512 $ 2,515
Revenue passenger miles (millions)<F2> 4,899 4,793 20,132 19,737 19,513
Available seat miles (millions)<F3> 7,163 7,071 28,796 29,341 30,201
Passenger load factor<F4> 68.4% 67.8% 69.9% 67.3% 64.6%
Passenger yield (cents)><F5> 12.70 cents 12.74 cents 12.72 cents 12.73 cents 12.89 cents
Passenger revenue per available seat mile (cents)<F6> 8.69 cents 8.63 cents 8.90 cents 8.56 cents 8.33 cents
INTERNATIONAL
Passenger revenues ($ millions) $ 59 $ 66 $ 333 $ 412 $ 563
Revenue passenger miles (millions)<F2> 821 971 4,290 5,363 7,598
Available seat miles (millions)<F3> 1,134 1,396 5,657 7,093 10,393
Passenger load factor<F4> 72.3% 69.6% 75.8% 75.6% 73.1%
Passenger yield (cents)<F5> 7.18 cents 6.79 cents 7.77 cents 7.68 cents 7.41 cents
Passenger revenue per available seat mile (cents)<F6> 5.19 cents 4.72 cents 5.89 cents 5.81 cents 5.42 cents
TOTAL SYSTEM
Passenger revenues ($ millions) $ 681 $ 676 $ 2,895 $ 2,924 $ 3,078
Revenue passenger miles (millions)<F2> 5,720 5,764 24,422 25,100 27,111
Available seat miles (millions)<F3> 8,297 8,467 34,453 36,434 40,594
Passenger load factor<F4> 68.9% 68.1% 70.9% 68.9% 66.8%
Passenger yield (cents)<F5> 11.91 cents 11.74 cents 11.85 cents 11.65 cents 11.35 cents
Passenger revenue per available seat mile (cents)<F6> 8.21 cents 7.99 cents 8.40 cents 8.03 cents 7.58 cents
Operating cost per available seat mile (cents)<F7> 9.53 cents 9.67 cents 9.31 cents 8.99 cents 8.78 cents
Average daily utilization per aircraft (hours)<F8> 9.34 9.81 9.77 9.38 9.63
Aircraft in fleet being operated at end of period 186 181 185 185 192
<FN>
<F1> Excludes subsidiary companies.
<F2> The number of scheduled miles flown by revenue passengers.
<F3> The number of seats available for passengers multiplied by
the number of scheduled miles those seats are flown.
<F4> Revenue passenger miles divided by available seat miles.
<F5> Passenger revenue per revenue passenger mile.
<F6> Passenger revenue divided by scheduled available seat miles.
<F7> Operating expenses, excluding special charges, other
nonrecurring charges and subsidiaries, divided by total
available seat miles.
<F8> The average block hours flown per day in revenue service per
aircraft.
</TABLE>
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED
TO THE THREE MONTHS ENDED MARCH 31, 1998
For the first quarter of 1999, TWA reported an operating loss of
$37.6 million, a $31.1 million improvement over the 1998 operating loss
of $68.7 million. The 1999 operating loss represented a 45.3%
improvement over the first quarter 1998 loss which includes a non-cash
operating expense of $26.5 million relating to a distribution made in
July 1998 of TWA common stock and employee preferred stock to employee
stock plans pursuant to the ESIP. The 1999 results represent a 10.9%
improvement excluding the non-cash charge.
The net loss of $21.6 million for the first quarter 1999 was $33.9
million better than the 1998 net loss of $55.5 million. The first
quarter 1999 net loss included non-operating income of $21.3 million
related to the sale of a portion of the Company's ownership interest in
Equant N.V., a telecommunications network company. The first quarter
1998 net loss included an extraordinary charge of $1.4 million relating
to the early retirement of debt.
In the first quarter of 1999, total operating revenues of $764.6
million were $0.8 million less than the $765.4 million recorded in 1998.
Passenger revenues improved $4.8 million including an adjustment of $4.0
million to reduce an estimated ticket voucher liability, which was
offset by decreases in revenues for freight and mail ($2.2 million),
Getaway Tour revenues ($1.2 million), and revenues from rental of
facilities and equipment ($1.9 million).
System-wide capacity, as measured by scheduled ASMs, decreased
2.0% during the first quarter of 1999 (reflecting an increase of 1.3% in
domestic ASMs and a decrease of 18.8% in international ASMs) from the
comparable period of 1998. The decrease in international capacity was
primarily attributable to the ongoing replacement of B-747 aircraft with
smaller B-767 and B-757 aircraft. The retirement of the last B-747
aircraft from TWA's fleet occurred in February 1998, completing the
retirement of the wide-body jets. Passenger traffic volume, as measured
by total revenue passenger miles in scheduled service for the three
months ended March 31, 1999, decreased 0.8% reflecting an increase in
domestic traffic of 2.2% and a decrease in international traffic of
15.5%.
Passenger load factors were 68.9% in the first quarter of 1999
compared to 68.1% in the first quarter of 1998. The system load factor
improved 1.3% during the first quarter of 1999 versus the same period in
1998 and system yield improved 1.4% from 11.74 cents to 11.91 cents
quarter over quarter. There was a 2.8% improvement in RASM from 7.99
cents to 8.21 cents during the first quarter 1999 compared to the same
period in 1998. CASM decreased 1.4% from 9.67 cents to 9.53 cents
quarter over quarter. First quarter 1999 CASM was negatively impacted
by a $14.6 million increase in aircraft rentals (0.17 cents), while
first quarter 1998 CASM includes a $26.5 million charge relating to the
employee stock incentive program (0.31 cents).
Operating expenses decreased $31.9 million to $802.2 million in
the first quarter of 1999 versus $834.1 million in the first quarter of
1998. Earned stock compensation charges of $26.5 million were included
in the operating expenses for the first quarter of 1998. Other changes
to operating expenses occurred in the following expense groups:
* Salary, wages and benefits of $308.8 million in the first
quarter of 1999 were $11.1 million (3.7%) greater than the
$297.8 million recorded in the first quarter of 1998. While
the average number of employees declined from 22,213 in the
first quarter of 1998 to 21,167 in the first quarter of
1999, this was more than offset by the 4.815% salary
increase effective September 1, 1998, the pilot
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contract increases and the payment of $4.6 million in
employee performance incentives. (see Part I. Item 2. Labor
Costs)
* Earned stock compensation expense of $26.5 million for the
first quarter of 1998 represents the charge for incentive
shares issued in July 1998 under the ESIP relative to the
achievement of certain common stock target prices in
February and March 1998.
* Aircraft fuel and oil expense of $72.6 million for the first
quarter of 1999 was $19.8 million less than the expense of
$92.4 million during the first quarter of 1998.
Approximately $16.9 million of the decrease was due to a
reduction in the average cost of fuel to 45.0 cents per
gallon in the first quarter of 1999 from 55.6 cents per
gallon in the first quarter of 1998. The remaining $2.9
million decrease was due to a 3.0% reduction in gallons
consumed (161.3 million gallons in the first quarter of 1999
versus 166.3 million gallons in the first quarter of 1998)
resulting from the replacement of older B-747 and B-727
aircraft with more fuel efficient MD-83, B-757 and B-767
aircraft.
* Passenger sales commissions expense of $44.6 million for the
first quarter of 1999 was $6.9 million (13.5%) less than the
comparable period of 1998 primarily due to domestic
commissions being capped at a certain dollar limit during
the first quarter of 1999 and a decrease of 1.4% in the
number of domestic commissionable tickets sold during the
first quarter of 1999 versus 1998.
* Aircraft maintenance materials and repairs increased $3.6
million to $38.3 million in the first quarter of 1999 versus
$34.7 million in the same period of 1998. The primary
contributing factor to this increase was engine material
requirements for both TWA and customer engine overhauls.
* Depreciation and amortization expense was $37.3 million in
the first quarter of 1999 compared to $39.2 million in the
first quarter of 1998. The $1.9 million decrease resulted
primarily from major improvements to certain aircraft
becoming fully depreciated in 1998 in addition to the sale
and leaseback of 20 owned aircraft. This was partially
offset by additional depreciation expense in conjunction
with the purchase of five B-767 aircraft previously leased
by TWA.
* Operating lease rentals of $120.8 million in the first
quarter of 1999 were $16.9 million (16.2%) greater than
rentals of $103.9 million in the first quarter of 1998.
Reflecting TWA's continuing fleet renewal program, the
increase was primarily due to an increase in the number of
leased aircraft in 1999 versus 1998. Fifteen additional
aircraft were added to TWA's fleet under operating leases
between April 1998 and March 1999. In addition, 20 owned
aircraft were sold and leased back during this period.
* Passenger food and beverage expense of $20.7 million in the
first quarter of 1999 represented a decrease of $0.9 million
from $21.6 million during the first quarter of 1998
primarily due to a retroactive rate increase recorded in the
first quarter of 1998.
All other operating expenses of $159.1 million in the first
quarter of 1999 decreased by $7.5 million (4.5%) from $166.5 million in
the three months ended March 31, 1998, primarily represented by
decreases in advertising expense associated with the launch of new TWA
services during 1998 ($3.7 million), corporate liability and hull
insurance resulting from lower insurance premiums during the current
policy period ($2.7 million), and Getaway tours expense related to a
lower volume of tour packages sold by TWA's subsidiary, Getaway
Vacations ($1.2 million).
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Other charges (credits) were a net credit of $11.5 million during
the first quarter of 1999 compared to a net charge of $10.9 million for
the same period in 1998. Interest expense of $25.0 million and $30.2
million in first quarter 1999 and 1998, respectively, showed a decrease
of $5.2 million as a result of the retirement of certain debt in 1998.
Interest and investment income decreased $2.1 million in the first
quarter of 1999 primarily due to a decrease in the level of invested
funds. Net gains from the disposition of assets were $2.0 million and
$7.0 million in first quarter 1999 and 1998, respectively. Recorded
gains in 1999 included the sale of TWA's investment in SatoTravel, a
company which provides ticketing services ("SATO"), and certain aircraft
and engines. In 1998, gains recorded related to the sale of certain
aircraft, engines and other surplus equipment. Other charges and
credits - net improved $24.2 million quarter over quarter, primarily due
to a $21.3 million gain related to the sale of a portion of TWA's
shares in Equant N.V., a telecommunications network company.
Additionally, TWA's equity interest in Worldspan reflected its share of
Worldspan's gain on the sale of Equant shares of $2.7 million.
A tax benefit of $4.5 million was recorded in the first quarter of
1999 versus a benefit of $25.4 million recorded in the first quarter of
1998 (see note 2 to consolidated financial statements).
As a result of the above, the Company's operating loss of $37.6
million in the first quarter of 1999 improved $31.1 million from the
operating loss of $68.7 million for the first quarter of 1998. The
Company had a net loss of $21.6 million in the first quarter of 1999
versus a net loss of $55.5 million in the first quarter of 1998, an
improvement of $33.9 million. The first quarter of 1998 net loss
included a $1.4 million non-cash extraordinary charge related to the
early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The following is a discussion of the impact of significant factors
affecting TWA's liquidity position and capital resources. These
comments should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements and Notes thereto.
Liquidity
The Company's consolidated cash and cash equivalents balance at
March 31, 1999 was $211.2 million, a $41.2 million decrease from the
December 31, 1998 balance of $252.4 million. The net decrease in cash
and cash equivalents during the first quarter of 1999 was due, in large
part, to cash used by financing activities of $19.0 million in 1999
versus cash provided of $160.9 million in 1998. Sources of cash
generated by financing activities included proceeds of $1.9 million from
the sale and leaseback of certain aircraft and engines in the first
quarter of 1999 versus $43.2 million from the sale and leaseback of
certain aircraft in 1998. Additionally, during the first quarter of
1998, TWA received proceeds of $144.9 million from notes issued while no
such proceeds were received in the first quarter of 1999. The
aforementioned proceeds were offset by the repayment of long-term debt
and capital lease obligations of $15.4 million in the first quarter of
1999 versus $21.5 million in 1998.
The favorable change in cash provided by operating activities
reflects a decrease in the net loss from 1998 to 1999 of $33.9 million.
This includes a first quarter 1999 gain of $21.3 million related to the
sale of a portion of TWA's shares of Equant N.V., a telecommunications
network company. Additionally, net discounted sales from tickets sold
under the Karabu ticket program agreement between the Company and Karabu
have been excluded from cash flows from operating activities in first
quarter 1998 as the related amounts were applied to reduce certain loans
to the Company provided by Karabu (the "Icahn Loans") and the PBGC Notes.
On December 30, 1997, TWA repaid the outstanding balance of the Icahn
Loans out of the
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proceeds of a receivables securitization offering by the Company. In
the first quarter of 1998, the proceeds applied to reduce the PBGC Notes
were $35.2 million. In December 1998, the PBGC Notes were paid in full
primarily with the proceeds from tickets sold under the Karabu ticket
agreement. Accordingly, proceeds from the sales of tickets under the
Karabu ticket agreement are now paid directly to TWA. During the first
quarter of 1999, $34.2 million of these proceeds were paid directly to
TWA. Additionally, during the first quarter of 1998, TWA recorded an
aggregate non-cash charge of $26.5 million relating to the issuance of
employee stock under terms of the ESIP.
Cash used by investing activities was $31.7 million in the first
quarter of 1999 compared to $8.6 million in the first quarter of 1998.
Components of cash used in the first quarter of 1999 include the purchase
of one Boeing 767-200 aircraft and related engines for $27.1 million and
capital expenditures of $12.5 million. Comparatively, cash used in the
first quarter of 1998 included capital expenditures of $21.9 million, which
included approximately $10.9 million related to standardization of aircraft
fleet additions, and pre-delivery deposits of $4.1 million. There were no
aircraft purchases made during the 1998 first quarter. Gross proceeds from
assets sold during 1999 were $5.9 million primarily from the sale of retired,
wide-body aircraft, engines and other surplus equipment while 1998 proceeds
from the sale of like equipment was $12.8 million. Additionally, approximately
$4.7 million was provided in the first quarter of 1999 primarily due to the
return of pre-delivery deposits relating to a new Boeing 757-231 aircraft
delivered in March 1999 which was immediately sold to and leased back under
an operating lease from an aircraft lessor.
Capital Resources
TWA generally must satisfy all of its working capital expenditure
requirements from cash provided by operating activities, from external
capital sources or from the sale of assets. However, TWA has pledged a
substantial portion of its assets to secure various issues of
outstanding debt. TWA's financing agreements generally require TWA to
apply the sale proceeds from the sale of any pledged assets to repay the
corresponding debt. If TWA is unable to obtain additional capital, the
Company may not be able to make certain capital expenditures or to
continue to implement certain other aspects of its strategic plan, and
TWA may therefore be unable to achieve the full benefits expected from
the plan.
Commitments
TWA entered into an agreement in February 1996 with Boeing for the
purchase of ten B-757-231 aircraft and related engines, spare parts and
equipment for an aggregate purchase price of approximately $500 million.
As of December 31, 1998, TWA had taken delivery of six aircraft and had
four on firm order. Five of the six aircraft already delivered were
originally manufacturer-financed and one was leased. In separate
transactions in June, July and October 1998, these five manufacturer-
financed aircraft were sold to, and leased back from, an aircraft
lessor. The four remaining aircraft are scheduled to be delivered in
1999. The first of these aircraft was delivered in March 1999 and was
immediately sold to, and leased back under an operating lease from an
aircraft lessor. TWA has obtained commitments for debt financing
for approximately 80% of the cost of acquiring two of the remaining
three aircraft and commitments for 100% lease financing of the cost of
acquiring the remaining aircraft. In September 1998, TWA entered into
an agreement with Boeing to acquire four additional B-757-231 aircraft
to be delivered during 1999. TWA has obtained commitments for debt
financing for approximately 80% of the cost of acquiring these aircraft.
The Company has entered into an agreement for the operating lease
for one additional B-767-300ER and three additional B-757-200 aircraft.
These aircraft are scheduled to be delivered in 1999, excluding one
B-757-200 that is scheduled for delivery in January 2000.
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The Company has granted to a major financial institution the
option to purchase and leaseback to TWA, under substantially the same
terms and conditions as another B-757 aircraft previously leased to TWA
in 1998, four of the eight B-757-231 aircraft to be delivered by Boeing
during 1999. However, such institution did not exercise its option to
purchase the first two of these aircraft.
In 1989, TWA entered into agreements with AVSA, S.A.R.L.
("Airbus") and Rolls-Royce plc relating to the purchase of ten A330-300
twin-engine wide-body aircraft and related engines, spare parts and
equipment for an aggregate purchase price of approximately $1.0 billion.
The agreements, as amended, require the delivery of the aircraft in 2001
and 2002 and provide for the purchase of up to ten additional aircraft.
TWA has not yet made arrangements for the permanent financing of the
purchases subject to the agreements. In the event of cancellation,
predelivery payments of approximately $18 million may be subject to
forfeiture.
In 1996, TWA entered into an agreement to acquire from Boeing 15
new MD-83s, to be financed by long-term leases. As of March 31, 1999,
TWA had taken delivery of all the MD-83 aircraft.
In April 1998, TWA entered into an agreement with Boeing to
acquire 24 additional new MD-83 aircraft, with deliveries in 1999. The
Company has obtained commitments for long-term debt and lease financing
for these aircraft. The first of these aircraft was delivered on May
12, 1999.
In December 1998, TWA announced that it had signed letters of
intent to acquire an additional 125 new aircraft: 50 Boeing 717-200
aircraft for delivery beginning in 2000, 50 Airbus A318 aircraft for
delivery beginning in 2003 and 25 Airbus "A320 Family" aircraft for
delivery beginning in 2005. In addition to these 125 firm orders, TWA
has taken options on an additional 50 Boeing 717s and an additional 75
"A320 Family" aircraft. The letter of intent provides for financing for
all firm order aircraft. The terms of the purchase orders and the
related financing are subject to further negotiation and the signing of
definitive agreements. These new aircraft would primarily replace B-
727, DC-9 and older MD-80 aircraft currently in TWA's fleet.
TWA elected to comply with the transition requirements of the
Noise Act by adopting the Stage 2 aircraft phase-out/retrofit option,
which required that 50% of its base level (December 1990) Stage 2 fleet
be phased-out/retrofitted by December 31, 1996. To comply with the 1996
requirement, the Company retrofitted, by means of engine hush-kits, 30
of its DC-9 aircraft at an aggregate cost of approximately $55.5
million, most of which was financed by lessors with repayments being
facilitated through increased rental rates or lease term extensions.
TWA complied with the transition requirements for December 31, 1998, by
having 75% of its fleet meet Stage 3 requirements through the grounding
of older Stage 2 aircraft in combination with the acquisition of Stage 3
aircraft. By December 31, 1999, 100% of the fleet must meet Stage 3
requirements.
In April 1999, TWA sold and leased back four Boeing 767-200
aircraft and agreed to a sale/leaseback in July 1999 of a fifth such
aircraft which will subsequently be returned to the lessor in 1999 and
2000 and replaced with three Boeing 767-300 aircraft from the same
aircraft lessor. In connection with this transaction, the
Company purchased $28.8 million total principal amount of its
outstanding 11 3/8% Senior Secured Notes due April 15, 2003 and all of
its outstanding 10 1/4% Senior Secured Notes due June 15, 2003 which
totaled $14.5 million.
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Certain Other Capital Requirements
TWA generally does not commit to expenditures for facilities and
equipment, other than aircraft, before purchase and, therefore, no such
significant commitments exist at the present time. TWA's ability to
finance these expenditures will depend in part on TWA's financial
condition at the time of the proposed expenditure.
Restructuring Liabilities
At December 31, 1998, TWA established a provision related to the
restructuring of its international operations and the closure of the Los
Angeles Reservation Office. The Company recorded a special charge of
approximately $17.6 million primarily related to employee severance
liabilities. During the first quarter of 1999, the Company had
approximately $0.7 million of expenditures related to these provisions.
The Company continues to expect severance costs to be paid to the
respective employees during 1999 due to these changes in operations.
Year 2000
TWA utilizes software and related computer technologies essential
to its operations that use two digits rather than four to specify the
year, which will result in a date recognition problem in the year 2000
and thereafter unless modified. TWA has completed an assessment to
determine the changes needed to make its computer systems, internal
operating systems and equipment year 2000 compliant and is executing a
plan to implement these changes. The Company currently expects that it
will complete the necessary changes and testing for its mission critical
systems in the third quarter of 1999.
TWA estimates that the total cost to complete the remediation of
its information technology systems is approximately $19.3 million, which
is approximately 20% of the Company's total information technology
budget for the project duration period. As of March 31, 1999, the
Company estimates that approximately 54% of the cost to complete the
remediation of its computer systems had been incurred. As of March 31,
1999, approximately 71% of the systems had been remediated. TWA has
substantially completed assessments and begun remediation for the non-
information technology related systems. The Company currently estimates
the remediation costs related to infrastructure and facilities
enhancements necessary to prepare its systems for the year 2000 will
range from $2 million to $4 million, which it plans to fund through
operating cash flows. The costs of the Company's year 2000 project and
the date on which it will be completed are based on management's best
estimates and include assumptions regarding modification plans of third
parties. However, there can be no assurance that these estimates will
be achieved and actual results could differ materially from those
anticipated.
TWA has also reviewed software that was purchased from outside
vendors and has evaluated its reliance on other third parties (e.g. the
FAA, the DOT, airport authorities, data providers and suppliers) to
determine and minimize the extent to which its operations may be
dependent on these third parties to remediate the year 2000 issues in
their systems. Outside vendors and other third parties have either
provided TWA with year 2000 compliant versions of their products, or
informed TWA that all mission critical systems from such parties are in
process of being remediated. To help insure compliance, TWA is
continuing to set up and perform independent testing with these systems.
Although the Company currently has day-to-day operational contingency
plans, management is in the process of reviewing and modifying these
plans for each mission critical system for possible year 2000-specific
operational requirements. TWA's emphasis in this process is on
passenger safety, and then on business continuity. Further, TWA has
been actively participating in the industry
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reviews led by the Air Transport Association and the International Air
Transport Association. TWA's business, operating results and financial
condition could be materially adversely affected by the failure of its
systems or those of other parties to operate properly beyond 1999.
Fuel Hedging
TWA is party to future jet fuel fixed price swaps with respect to
a minor portion of its fuel requirements during 1999 to provide a
hedging mechanism against significant increases in jet fuel prices.
Reorganization
During the period from 1992 through 1995, TWA underwent two
separate Chapter 11 bankruptcy reorganizations, the first in 1992-93,
and the second in 1995. In connection with the 1995 reorganization, TWA
applied fresh start reporting in accordance with generally accepted
accounting principles, which resulted in the creation of a new reporting
entity for accounting purposes and TWA's assets and liabilities being
adjusted to reflect fair values on the effective date of the 1995
reorganization.
As a result of the application of fresh start reporting,
substantial values were assigned to routes, gates and slots ($458.4
million) and reorganization value in excess of amounts allocable to
identifiable assets ($839.1 million). TWA has evaluated its future cash
flows and notwithstanding the operating losses experienced since the
1995 reorganization, expects that the carrying value of the intangibles
at December 31, 1998, will be recovered. However, the achievement of
these improved future operating results and cash flows are subject to
considerable uncertainties. In future periods, TWA will evaluate these
intangibles for recoverability based upon estimated future cash flows.
If TWA does not achieve these expectations, it may be required to charge
future operations for impairment of these assets, and these charges
could be material.
Availability of NOLs
TWA estimates that it had, for federal income tax purposes, net
operating loss carryforwards ("NOLs") amounting to approximately $975
million at December 31, 1998. Such NOLs expire in 2008 through 2018 if
not utilized before then to offset taxable income. Section 382 of the
Internal Revenue Code of 1986, as amended, and regulations issued
thereunder impose limitations on the ability of corporations to use NOLs
if the corporation experiences a more than 50% change in ownership
during certain periods. Changes in ownership in future periods could
substantially restrict the Company's ability to utilize its tax net
operating loss carryforwards. The Company believes that no such
ownership change has occurred subsequent to the 1995 reorganization.
There can be no assurance, however, that such an ownership change will
not occur in the future. In addition, the NOLs are subject to
examination by the Internal Revenue Service ("IRS") and, thus, are
subject to adjustment or disallowance resulting from any such IRS
examination. For financial reporting purposes, the tax benefits related
to the utilization of the tax net operating loss carryforwards generated
prior to the 1995 reorganization of approximately $491 million will, to
the extent realized in future periods, have no impact on the Company's
operating results, but instead be applied to reduce reorganization value
in excess of amounts allocable to identifiable assets.
21
<PAGE>
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting
standards for derivative instruments and all hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities at their fair values. Accounting for changes in the fair
value of a derivative depends on its designation and effectiveness. For
derivatives that qualify as effective hedges, the change in fair value
will have no impact on earnings until the hedged item affects earnings.
For derivatives that are not designated as hedging instruments, or for
the ineffective portion of a hedging instrument, the change in fair
value will affect current period earnings. The Company will adopt
Statement No. 133 during its first quarter of fiscal 2000 and does not
presently believe that it will have a significant effect on its results
of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in the Company's market risk sensitive
instruments and positions is the potential loss arising from adverse
changes in those factors. TWA is susceptible to certain risks related
to changes in the cost of jet fuel, changes in interest rates and
foreign currency exchange rate fluctuations. The Company does not
purchase or hold any derivative financial instruments for trading
purposes.
Aircraft Fuel
Airline operators are inherently dependent upon energy to operate
and, therefore, are impacted by changes in jet fuel prices. Jet fuel
and oil consumed in the first quarter of 1999 represented approximately
9.1% of TWA's operating expenses. TWA endeavors to acquire jet fuel at
the lowest prevailing prices possible.
TWA's earnings are affected by changes in the price and
availability of aircraft fuel. The Company hedges its exposure to jet
fuel price market risk only on a limited basis. The fair value of
outstanding derivative commodity instruments (primarily commodity swap
agreements) related to the Company's jet fuel price market risk during
the first quarter 1999 and at March 31, 1999 was immaterial. A one cent
change in the average cost of jet fuel would impact TWA's aircraft fuel
expense by approximately $1.6 million per quarter, based upon
consumption in the first quarter of 1999.
22
<PAGE>
<PAGE>
Interest Rates
Airline operators are also inherently capital intensive, as the
vast majority of assets are aircraft, which are long lived. TWA's
exposure to market risk associated with changes in interest rates
relates primarily to its debt obligations. The Company does not have
significant exposure to changes in cash flows resulting from changes in
interest rates as substantially all its long-term debt carries fixed
rates of interest. The nature of fixed rate obligations does expose the
Company to the risk of changes in the fair value of these instruments.
The Company has outstanding debt of $683.7 million, net of unamortized
discounts and including current maturities at March 31, 1999. The
contractual maturities of long term debt and the associated average
interest rates are as follows:
Contractual
Amounts Weighted Average
Maturity Date in Thousands Interest Rate
------------- ------------ ----------------
1999 $110,525 9.07%
2000 17,367 10.22%
2001 141,355 9.58%
2002 70,024 11.51%
2003 67,761 10.92%
Thereafter 290,000 11.44%
Foreign Currency Exchange Rates
Airline operators who fly internationally are exposed to the
effect of foreign exchange rate fluctuations on the U.S. dollar value of
foreign currency-denominated operating revenues and expenses. While
international operations generated 9.7% of TWA's operating revenues in
the first quarter of 1999, a substantial portion of these related ticket
sales are denominated in U.S. dollars. Additionally, no single foreign
currency is a material portion of that amount. The Company does not
have significant exposure to fluctuations in these currency rates
because of the short-term nature of maturities of receivables and
payables related to these operations. The Company has not undertaken
additional actions to cover this currency risk and does not engage in
any other currency risk management activity.
23
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Icahn Litigation
On June 14, 1995, TWA signed the Extension and Consent Agreement
with Karabu to extend the term of certain financing provided by Karabu
(the "Icahn Loans"). In consideration of, among other things, the
extension of the Icahn Loans, TWA and Karabu entered into a 99-month
ticket agreement, which permitted Karabu to purchase two categories of
discounted tickets: (1) "domestic consolidator tickets," which are
subject to a cap of $610 million, based on the full retail price of the
tickets ($120 million in the first 15 months and $70 million per year
for the next seven consecutive years through the term of the ticket
agreement), and (2) "system tickets," which are not subject to any cap
throughout the term of the ticket agreement.
Tickets sold by TWA to Karabu pursuant to the ticket agreement are
priced at levels intended to approximate current competitive discount
fares available in the airline industry. TWA believes that applicable
provisions of the ticket agreement do not allow Karabu to market or sell
system tickets through travel agents or directly to the general public.
Karabu, however, has been marketing system tickets through travel agents
and directly to the general public. TWA has demanded that Karabu cease
doing so, and Karabu has stated that it disagrees with TWA's
interpretation concerning sales through travel agents or directly to the
general public. In December 1995, TWA filed a lawsuit against Karabu,
Mr. Icahn, and certain affiliated companies seeking damages and to
enjoin further violations of the ticket agreement. Mr. Icahn countered
by threatening to file his own lawsuit and to declare a default on the
loans from entities related to Mr. Icahn, which financing was then
secured by certain receivables and flight equipment. Mr. Icahn's
position was based upon a variety of claims related to his
interpretations of the security agreement, as well as, with respect to
certain alleged violations of the ticket agreement by TWA. The parties
negotiated a series of standstill agreements pursuant to which TWA's
original lawsuit was withdrawn, while TWA and Mr. Icahn endeavored to
negotiate a settlement of their differences and respective claims.
On March 20, 1996, TWA filed a petition in the Circuit Court for
St. Louis County, Missouri, commencing a lawsuit against Mr. Icahn,
Karabu and certain other entities affiliated with Mr. Icahn. The TWA
petition alleged that the defendants are violating the ticket agreement
and otherwise tortiously interfering with TWA's business expectancy and
contractual relationships, by among other things, marketing and selling
tickets purchased under the ticket agreement to the general public. The
TWA petition sought a declaratory judgment finding that the defendants
have violated the ticket agreement, and also sought liquidated,
compensatory and punitive damages, in addition to TWA's costs and
attorney's fees. On May 7, 1998 the court denied the TWA petition and
dismissed the defendants' counterclaims. The court concluded that the
defendants could sell discount tickets under the ticket agreement to any
person who actually uses the ticket, including non-business travelers,
and that the defendants had not breached the ticket agreement. No
damages were assessed in respect to either plaintiff's or defendants'
petitions.
The court's ruling could have an adverse effect on revenue, which
could be significant but the impact of which will depend on a number of
factors, including yield, load factors and whether any resulting
incremental sales by the defendants will be to passengers that would not
otherwise have flown on TWA. The defendants moved to amend or modify
the court's ruling to include a declaratory judgment that the defendants
are permitted to sell tickets to any person for any purpose, which could
include use by the purchaser's family members or friends. TWA opposed
the motion and requested that
24
<PAGE>
<PAGE>
the court clarify the ruling to limit its scope consistent with the
reasoning set forth in the decision, specifically so that the person
purchasing the ticket must use the ticket (with certain enumerated
exceptions) and may not purchase a ticket for any other person. The
court denied both motions on June 25, 1998. TWA has appealed the denial
of its motion for clarification and the court's original ruling.
Although TWA intends to press its claims vigorously, it is
possible that Karabu's interpretation of the ticket agreement regarding
system discount ticket sales by the defendants through travel agents or
directly to the general public could be determined, either by a court or
otherwise, to be correct. In such event, unless TWA took appropriate
action to mitigate the effect of these sales, TWA could suffer loss of
revenue and reduced overall passenger yields on a continuing basis
during the term of the ticket agreement.
Additional disputes have arisen between TWA and the entities
affiliated with Mr. Icahn as to the meanings of various provisions of
the ticket agreement. These include disputes as to the scope of the
advertising restrictions in the ticket agreement; whether the Icahn
entities are entitled to discounts under the ticket agreement based on
special fares offered by TWA on the Internet; whether the Icahn entities
can sell discounted tickets to travel agencies; and whether the Icahn
entities are complying with certain tax provisions of the ticket
agreement. The disputes have resulted in a new suit filed by the Icahn
entities against TWA on May 3, 1999 in the District Court for Clark
County, Nevada, in which the Icahn entities allege that TWA has
tortiously interfered with their ability to complete a proposed public
offering of a company controlled by Mr. Icahn and in which they seek a
declaratory judgment with respect to their disputes. TWA will file an
answer to the complaint in late May.
ITEM 5. OTHER INFORMATION
TWA has been engaged in negotiations with its flight attendants
and ground employees, represented by the IAM, on new collective
bargaining agreements covering approximately 16,000 employees. The
existing agreements became amendable as of August 31, 1997.
The Railway Labor Act, which governs collective bargaining
activities of airline workers whose contracts have become amendable,
requires employees to continue to work under the "status quo" (i.e.,
under the terms of employment existing before the amendable date) until
they exhaust the Railway Labor Act's procedures. The Railway Labor Act
requires TWA and the IAM to bargain until an agreement is reached or
until at least one of the parties petitions the NMB to appoint a
mediator. If the mediator's efforts fail, the mediator must attempt to
induce the parties to arbitrate the dispute. If either party refuses to
arbitrate, then a thirty-day "cooling off" period is required prior to
either party taking any self-help actions. At the request of the IAM,
the NMB appointed a mediator with respect to both ground employees' and
flight attendants' negotiations. On May 7, 1999, the NMB proffered binding
arbitration to TWA and the IAM. While TWA accepted the proffer of
arbitration, the IAM declined to arbitrate. On May 10, 1999, the NMB
advised TWA and the IAM that the thirty-day cooling off period had begun
and would end on June 10, 1999 at 12:01 a.m. (EDT). Although no
assurance can be given that agreement will be reached within the thirty-
day cooling off period, TWA remains committed to reaching new labor
agreements that will provide immediate wage increases and progress over
the life of a new contract to wage parity with workers performing
similar jobs at other major airlines.
25
<PAGE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<F*>2.1 - Joint Plan of Reorganization, dated May 12, 1995
(Appendix B to the Registrant's Registration
Statement on Form S-4, Registration Number 33-
84944, as amended)
<F*>2.2 - Modification to Joint Plan of Reorganization,
dated July 14, 1995 and Supplemental
Modifications to Joint Plan of Reorganization
dated August 2, 1995 (Exhibit 2.5 to 6/95 10-Q)
<F*>2.3 - Findings of Fact, Conclusions of Law and Order
Confirming Modified Joint Plan of
Reorganization, dated August 4, 1995, with
Exhibits A-B attached (Exhibit 2.6 to 6/95 10-Q)
<F*>2.4 - Final Decree, dated December 28, 1995, related
to the 1995 Reorganization (Exhibit 2.7 to
12/31/95 Form 10-K)
<F*>3(i) - Third Amended and Restated Certificate of
Incorporation of the Registrant (Exhibit 3(i) to
the Registrant's Registration Statement on Form
S-4, Registration Number 333-26645)
<F*>3(ii)- Amended and Restated By-Laws of Trans World
Airlines, Inc., effective May 24, 1996 (Exhibit
3(ii) to 12/31/98 10-K)
<F*>4.1 - Voting Trust Agreement, dated November 3, 1993,
between TWA and LaSalle National Trust, N.A. as
trustee (Exhibit 4.3 to 9/93 10-Q)
<F*>4.2 - IAM Trans World Employees' Stock Ownership Plan
and related Trust Agreement, dated August 31,
1993, between TWA, the IAM Plan Trustee
Committee and the IAM Trustee (Exhibit to 9/93
10-Q)
<F*>4.3 - IFFA Trans World Employees' Stock Ownership Plan
and related Trust Agreement, dated August 31,
1993, between TWA, the IFFA Plan Trustee
Committee and the IFFA Trustee (Exhibit 4.5 to
9/93 10-Q)
<F*>4.4 - Trans World Airlines, Inc. Employee Stock
Ownership Plan, dated August 31, 1993, First
Amendment thereto, dated October 31, 1993, and
related Trust Agreement, dated August 31, 1993,
between TWA and the ESOP Trustee (Exhibit 4.6 to
9/93 10-Q)
<F*>4.5 - ALPA Stock Trust, dated August 31, 1993, between
TWA and the ALPA Trustee (Exhibit 4.7 to 9/93
10-Q)
<F*>4.6 - Stockholders Agreement, dated November 3, 1993,
among TWA, LaSalle National Trust, N.A., as
Voting Trustee and the ALPA Trustee, IAM
Trustee, IFFA Trustee and Other Employee Trustee
(each as defined therein), as amended by the
Addendum to Stockholders dated November 3, 1993
(Exhibit 4.8 to 9/93 10-Q)
26
<PAGE>
<PAGE>
<F*>4.7 - Registration Rights Agreement, dated November 3,
1993, between TWA and the Initial Significant
Holders (Exhibit 4.9 to 9/93 10-Q)
<F*>4.8 - Indenture between TWA and Harris Trust and
Savings Bank, dated November 3, 1993 relating to
TWA's 8% Senior Secured Notes Due 2000 (Exhibit
4.11 to 9/93 10-Q)
<F*>4.9 - Indenture between TWA and American National Bank
and Trust Company of Chicago, N.A., dated
November 3, 1993 relating to TWA's 8% Secured
Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q)
<F*>4.10 - The TWA Air Line Pilots 1995 Employee Stock
Ownership Plan, effective as of January 1, 1995
(Exhibit 4.12 to 9/95 10-Q)
<F*>4.11 - TWA Air Line Pilots Supplemental Stock Plan,
effective September 1, 1994 (Exhibit 4.13 to
9/95 10-Q)
<F*>4.12 - TWA Air Line Pilots Supplemental Stock Plan
Trust, effective August 23, 1995 (Exhibit 4.14
to 9/95 10-Q)
<F*>4.13 - TWA Air Line Pilots Supplemental Stock Plan
Custodial Agreement, effective August 23, 1995
(Exhibit 4.15 to 9/95 10-Q)
<F*>4.14 - Form of Indenture relating to TWA's 8%
Convertible Subordinated Debentures Due 2006
(Exhibit 4.16 to Registrants Registration
Statement on Form S-3, No. 333-04977)
<F*>4.15 - Indenture dated as of March 31, 1997 between TWA
and First Security Bank, National Association
relating to TWA's 12% Senior Secured Notes due
2002 (Exhibit 4.15 to Registrant's Registration
Statement on Form S-4, No. 333-26645)
<F*>4.16 - Form of 12% Senior Secured Note due 2002
(contained in Indenture filed as Exhibit 4.15)
<F*>4.17 - Registration Rights Agreement dated as of March
31, 1997 between the Company and the Initial
Purchaser relating to the 12% Senior Secured
Notes due 2002 and the warrants to purchase
126.26 shares of TWA Common Stock (Exhibit 4.17
to Registrant's Registration Statement on Form
S-4, No. 333-26645)
<F*>4.18 - Warrant Agreement dated as of March 31, 1997
between the Company and American Stock Transfer
& Trust Company, as Warrant Agent, relating to
warrants to purchase 126.26 shares of TWA Common
Stock (Exhibit 4.18 to Registrant's Registration
Statement on Form S-4, No. 333-26645)
<F*>4.19 - Form of Indenture relating to TWA's 9 1/4%
Convertible Subordinated Debentures due 2007
(Exhibit 4.19 to Registrant's Registration
Statement on Form S-3, No. 333-44689)
27
<PAGE>
<PAGE>
<F*>4.20 - Registration Rights Agreement dated as of
December 2, 1997 between the Company and the
Initial Purchasers (Exhibit 4.20 to Registrant's
Registration Statement on Form S-3, No. 333-
44689)
<F*>4.21 - Indenture dated as of December 9, 1997 by and
between TWA and First Security Bank, National
Association, as Trustee, relating to TWA's
11 1/2% Senior Secured Notes due 2004 (Exhibit
4.21 to Registrant's Registration Statement on
Form S-4, No. 333-44661)
<F*>4.22 - Form 11 1/2% Senior Secured Note due 2004
(contained in Indenture filed as Exhibit 4.21)
<F*>4.23 - Registration Rights Agreement dated as of
December 9, 1997 among the Company and Lazard
Freres & Co. LLC and PaineWebber Incorporated,
as initial purchasers, relating to TWA's 11 1/2%
Senior Secured Notes due 2004 (Exhibit 4.23 to
Registrant's Registration Statement on Form S-4,
No. 333-44661)
<F*>4.24 - Sale and Service Agreement dated as of December
30, 1997 between TWA and Constellation Finance
LLC, as purchaser, relating to TWA's receivables
(Exhibit 4.24 to Registrant's Registration
Statement on Form S-4, No. 333-44661)
<F*>4.25 - Registration Rights Agreement dated as of March
3, 1998 between the Company and the Initial
Purchaser (Exhibit 4.25 to Registrant's
Registration Statement on Form S-4, No.
333-59405)
<F*>4.26 - Indenture dated as of March 3, 1998 by and
between TWA and First Security Bank, National
Association, as Trustee, relating to TWA's
11 3/8% Senior Notes due 2006 (Exhibit 4.26 to
Registrant's Registration Statement on Form S-4,
No. 333-59405)
<F*>4.27 - Aircraft Sale and Note Purchase Agreement dated
as of April 9, 1998 among TWA, First Security
Bank, National Association, as Owner Trustee and
Seven Sixty Seven Leasing, Inc. (Exhibit No.
4.27 to Registrant's Registration Statement on
Form S-4, No. 333-59405)
<F*>4.28 - Indenture dated as of April 21, 1998 by and
between TWA and First Security Bank, National
Association, as Trustee, relating to TWA's
11 3/8% Senior Secured Notes due 2003 (Exhibit No.
4.28 to Registrant's Registration Statement on
Form S-4, No. 333-59405)
<F*>4.29 - Form of 11 3/8% Senior Secured Notes due 2003
(contained as Exhibit 1 to Rule 144A/Regulation
S Appendix to Indenture in Exhibit 4.28)
<F*>4.30 - Registration Rights Agreement dated as of April
21, 1998 between the Company, Lazard Freres &
Co. LLC and First Security Bank, National
Association relating to the 11 3/8% Senior
Secured Notes Due 2003 (Exhibit 4.31 to
Registrant's Registration Statement on Form S-3,
No. 333-56991)
28
<PAGE>
<PAGE>
11 - Statement of computation of per share earnings
27 - Financial Data Schedule
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated March 16, 1999 was filed in the
first quarter 1999 by the Company. The filing reported the election of
William F. Compton, currently President and Chief Operating Officer, as
Chief Executive Officer to be effective at the annual meeting of
shareholders on May 25, 1999.
[FN]
- ------------
<F*>Incorporated by reference
29
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD AIRLINES, INC.
Dated: May 14, 1999 By: /s/ Michael J. Palumbo
------------------------------
Michael J. Palumbo
Executive Vice President and
Chief Financial Officer
30
<PAGE>
EXHIBIT 11
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
ADJUSTMENTS TO NET LOSS:
Loss before extraordinary items $(21,558) $(54,140)
Preferred stock dividend requirements (5,863) (5,863)
-------- --------
Loss before extraordinary items applicable to
common stock for basic earnings per share calculation (27,421) (60,003)
Extraordinary items - (1,380)
-------- --------
Net loss applicable to common stock for
earnings per share calculation $(27,421) $(61,383)
======== ========
OUTSTANDING SHARES:
Average number of shares of common stock
for basic earnings per share calculation<F1> 65,630 57,889
======== ========
BASIC EARNINGS PER SHARE AMOUNTS<F2>:
Loss before extraordinary items $ (0.42) $ (1.04)
Extraordinary items $ - $ (0.02)
Net loss $ (0.42) $ (1.06)
<FN>
- ----------
<F1> Includes 7,641 shares for the three months ended March 31, 1999
and 6,309 shares for the three months ended March 31, 1998 of
Employee Preferred Stock which, except for a liquidation
preference of $.01 per share and the right to elect a certain
number of directors to the Board of Directors, is the functional
equivalent of common stock.
<F2> As the effects of including the incremental shares associated with
options and warrants and the assumed conversion of the 8% and the
9 1/4% Preferred Stock are antidilutive, diluted earnings per
share are not presented in the accompanying condensed statements
of consolidated operations for the first quarter of 1999 or 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Information extracted
from the Condensed Consolidated Financial Statements of Trans
World Airlines, Inc. and Subsidiaries and is qualified in its
entirety by reference to such Condensed Consolidated Financial
Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 211,156
<SECURITIES> 0
<RECEIVABLES> 246,393
<ALLOWANCES> 13,918
<INVENTORY> 97,906
<CURRENT-ASSETS> 669,525
<PP&E> 889,582
<DEPRECIATION> 260,597
<TOTAL-ASSETS> 2,631,953
<CURRENT-LIABILITIES> 1,115,744
<BONDS> 723,038
0
128
<COMMON> 583
<OTHER-SE> 172,153
<TOTAL-LIABILITY-AND-EQUITY> 2,631,953
<SALES> 0
<TOTAL-REVENUES> 764,588
<CGS> 0
<TOTAL-COSTS> 802,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,151
<INTEREST-EXPENSE> 24,961
<INCOME-PRETAX> (26,062)
<INCOME-TAX> (4,504)
<INCOME-CONTINUING> (21,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,558)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
