Former TWA Attendants Press On

[eolesen]

It's unlikely there were contracts being paid early -- anything paid to a supplier within 60 days of a bankruptcy filing is considered a preference payment, and the courts routinely invalidate those payments and demand the suppliers to return the money.

What's more likely is that some suppliers stopped extending TWA credit and put them on a cash basis once it was obvious they were running out of cash. Once TW filed, that also triggered repayment as preference payments from those who had put TW on a cash basis, but only the portion paid from mid November until the date of filing.

Their cash burn was said to be $3m towards the end, but I can't substantiate that.

What I do know is that cash at end of 3Q99 was $239M, and $180M at end of 4Q99, resulting in roughly a $60M cash burn over three months.

Cash at end of 3Q00 was $157M -- assuming a similar $60M cash burn would have brought TW to $97M of cash at the end of 4Q00, and it's likely that the burn rate was slightly more, since TW's labor unions pretty much all got raises in 2000.

You'll remember that AMR's loan covenants required a minimum of $1B in cash before triggering default. TW's loans most likely had similar provisions; if $100M was the trigger point, then assuming their 1999 burn rate, TW was definitely in default territory regardless if they pre-paid a couple contracts.


From April 15, 2000 10-K Filing:

TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external borrowings or from sales of assets. Substantially all of TWA's strategic assets, including its owned aircraft, ground equipment, gates and slots have been pledged to secure various issues of outstanding indebtedness of the Company. Sales of such assets which are not replaced would, under the terms of the applicable financing agreements, generally require payment of the proceeds from such dispositions or payment of the indebtedness secured thereby. TWA has relatively few non-strategic assets which it could monetize, many of such assets being subject to various liens and security interests which would restrict and/or limit the ability of TWA to realize any significant proceeds from the sale thereof.

The Company believes that its 26.315% interest in Worldspan has substantial value, net of certain encumbrances. The Company is currently considering various alternatives to monetize this asset.

Should the Company require additional liquidity and be unable to monetize its holdings in Worldspan in a timely manner and should its
access to capital from outside sources be constrained, the Company may not be able to make certain capital expenditures or implement certain
other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. This could
adversely affect TWA's operations and future viability. <ed note: that's finance speak for bankruptcy filing>

The outstanding balance of the Company's 9.8% Airline Receivable Asset Backed Notes, aggregating $100 million, mature beginning in January 2001 and would require repayment within 60 days unless their maturity date is extended or is refinanced. The Company intends to extend or refinance this obligation, although no assurance can be given that it will be successful in this regard. However, these Asset Backed Notes are secured by collateral with an average value in 1999 of over $175 million which the Company believes should be sufficient to allow such financing.

The same language appeared in the following three submissions, and the refinancing never took place.


Mark Abels:

“The cash position was such that had American not stepped up to the deal on the day that they did, on the next day we would have shut down the airlineâ€￾

Bill Compton Testimony Before Senate Commerce Committee:

Despite TWA's many accomplishments , profitability remained elusive. The events of the 1980s had made it virtually impossible to compete effectively. Due to its fragile financial condition, TWA is paying premium lease prices for its aircraft – almost twice the industry average. The need to provide longoverdue wage increases for TWA employees and the recent, staggering increases in the price of jet fuel have further drained TWA's reserves. TWA remains essentially a single hub operation, putting us at a schedule disadvantage to multiple hub carriers. Finally, this winter we ran out of time. In fact, by January 10, 2001, TWA had cash on hand of only $20 million and needed significantly more just to make it through the next day. With our cash reserves nearly depleted and a major financial commitment to lenders coming due, our backs were squarely against the wall.

The financial crisis that hit TWA this winter did not materialize overnight. A year ago we could see problems looming on the horizon that culminated in our recent bankruptcy filing, and we tried very hard to do something dramatic about it. We recognized that the viability of our airline was at stake and we went knocking on doors to find a solution. There is not an airline of any size in America that we did not approach. There is not an airline of any size in America that did not have an opportunity to step in and join with us. No one was interested in TWA as a going concern. In my view, most recognized that they would benefit from TWA’s demise, and they were willing, at best, to stand back and watch it happen.

SO.....

You can argue all you want to about the "bogus" filing and how Compton was looking for the deal that benefitted him best, but there's no question that they simply ran out of cash, and it wasn't at all unexpected.

 

[aafsc]

Excellent post FM! If only 1 more day would have elapsed.. I would also like to point out how quickly twa burned through the DIP financing AA provided; so quick in fact that AA wired them more money so they could operate until final approvals were obtained. If UA,NW,DL and US (twice) declared bankruptcy each with multiple hubs and superior route networks, reasonable aircraft lease rates, much more cash, and no karabu ticket agreements, there was no way twa was going to make it. twa was dead, D-E-A-D dead! Anyone who thinks otherwise is hallucinating.

 

[nbmcg01]

Excellent post FM! If only 1 more day would have elapsed.. I would also like to point out how quickly twa burned through the DIP financing AA provided; so quick in fact that AA wired them more money so they could operate until final approvals were obtained. If UA,NW,DL and US (twice) declared bankruptcy each with multiple hubs and superior route networks, reasonable aircraft lease rates, much more cash, and no karabu ticket agreements, there was no way twa was going to make it. twa was dead, D-E-A-D dead! Anyone who thinks otherwise is hallucinating.

I think many of us will agree on that FM. If only.....

You and I will have to disagree on the media spin put on this transaction by both parties.