A Look at Carl Icahn’s TWA Experience Before Looking Ahead to JetBlue


Let’s call this Carl Icahn week here at Cranky. This Thursday is the fourth annual Cranky Network Awards, and I’m already up in Oakland getting everything ready for the big night. I have two posts this week. Today, I’ll take a look at what happened at TWA when Carl Icahn got involved back in the 1980s. Then Thursday I’ll discuss what this could mean for JetBlue now that Icahn has taken a stake.

Carl Icahn is well known as an activist investor, and that’s about the nicest way you could describe the man. Others wouldn’t be so generous, calling him a corporate raider and greenmailer. No matter how you feel about him, we can agree that Icahn is someone who puts money into companies that he thinks are being undervalued and poorly run so he can change them and get rich. On occasion he takes them over, but more often he just uses his influence to effect change. His goal is to make money and get out, so he can go on to the next deal and get richer. Full stop.

This may not sound all that bad, and he is certainly transparent in that regard. But Icahn is more of a short-term thinker who isn’t overly concerned about long-term success of a business. Those who have been in the airline industry for awhile know this well. Carl Icahn is generally regarded as the man who killed TWA. You can’t pin all of TWA’s problems on Icahn, but there’s little question that he had an outsized negative influence on the surprisingly-slow demise of the airline because he was acting in his own self interest.

To be very clear, TWA was not in good shape in 1985. It was looking like Frank Lorenzo was going to win a fight to take over the airline and put it under the Texas Air Corp umbrella along with the two others he owned, Continental and New York Air. This wasn’t just speculation. He had an agreement to buy TWA.

Lorenzo had already gone through a bruising battle with labor when he acquired Continental and merged it with Texas International three years earlier. The unions at TWA saw Lorenzo as a bad man, and after a summer of negotiating with all comers, they chose Carl Icahn as their horse in the race to fend off Lorenzo.

Icahn had already acquired just over 20 percent of the company, because he thought it was undervalued. (Sound familiar, Jetblue?) He didn’t care about the unions one bit, but he saw them as a great hedge. If he could get a deal out of the unions to cut their pay, great. He’d go all in and take over the company. If he couldn’t get them to budge, well, that’s fine too. He’d be happy to let Lorenzo win while he sold his shares and counted the profits. He thought he couldn’t lose, but he was wrong.

The unions eventually did agree to concessions, and they worked to help Icahn beat out Lorenzo for control of TWA. He eventually acquired all outstanding stock and took the company private by saddling it with a ton of debt and of course, enriching himself (it was the age of the leveraged buyout). 

Icahn would go on to squeeze everything he could from the airline in order to make money for himself. He moved the headquarters, sold the prized London routes, stripped other assets, and left the airline in an even weaker position than when he found it. In 1992, TWA went bankrupt and Icahn admitted this was a bad investment, but he didn’t walk away. He couldn’t.

During bankruptcy, it came out that Icahn’s TWA had underfunded the airline’s pensions by more than $1 billion. The Pension Benefit Guaranty Corp threatened to sue him, but instead, they settled. Icahn agreed to lend the airline $200 million and contribute millions to the pension fund. He also agreed to resign. Not long after, TWA was back in trouble again when it had to repay Icahn. It didn’t have the money, so it agreed to something terrible… the Karabu agreement.

The Karabu agreement allowed Icahn to purchase any published fare on TWA (except for St Louis origin/destination tickets) at a 45 percent discount. It also gave him access to some consolidator fares. When TWA agreed to this, the debt would be wiped out. Icahn would be able to access these fares until September 2003. Other crushing debt the airline still held would be converted to equity, all through a pre-packaged second bankruptcy in 1995 which was expected to put the airline on more solid footing.

It was envisioned that Icahn would come up with a scheme to make money on the Karabu deal, but the airline had made sure to prevent Icahn from selling these tickets through a third-party travel agent in the agreement. Unfortunately for TWA, this was the dawn of the internet e-commerce era, and Icahn came up with a plan. He created lowestfare.com to sell tickets directly to travelers. He would mark up the tickets to make his profit, but the end result for the customer was that it was still cheaper than buying from TWA or anywhere else. This venture was wildly successful for everyone except TWA.

It was later said that this cost the airline about $100 million in revenue per year, or more than 3 percent of total revenue. That may not sound like a lot, but in a world where margins were exceedingly thin, that could make or break an airline. And in this case, it did.

TWA had more problems down the line, like the explosion of TWA 800 after departing New York in 1996, but Icahn’s interest in his own near-term profits over long-term survival for the company undoubtedly made it nearly impossible for TWA to ever recover, though it made a valiant effort. In the end, as we all know, American bought TWA out of a pre-packaged bankruptcy and then proceeded to eliminate it entirely after 9/11.

Icahn, however, didn’t really lose out. He turned his bad investment into a money-maker with lowestfare.com for a few years, in addition to what he got out of TWA during his time at the helm. Since that time, he has eyed countless companies, primarily as an investor who wants to make things change. And now, he has JetBlue in his sights. We’ll talk more about that on Thursday.

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50 comments on “A Look at Carl Icahn’s TWA Experience Before Looking Ahead to JetBlue

  1. Poor TWA employees. Suffered through Icahn, stapled by American, then fired from their jobs.

    Apparently many of these employees would later go to work for JetBlue. I can only imagine what they felt.

    1. That was the nature of the boom/bust airline industry. Until consolidation in the early 2000s, these companies all couldnt make money and took a turn through bankruptcy court. For all the negative talk about US airlines today, they are stable employers who have cash to invest in their IT infrastructure, planes, maitanence, and safety.

    2. I can totally agree with this. My father had to retire early from TWA, after 35 years, or lose his pension! Icahn put the airline in the toilet, then flushed it!

  2. I was a consultant (information technology at their KC administration location) when that piece of crap came in and had them turn off every other fluorescent light, turn off the water fountain that supplied cool water to their mainframe computers and removed key portions of their PARS reservation system.

    TWA had a special culture (think about the purchase of the BWIA plane purchased by their employees as a gift to the company) and I believe would have found a way to continue to survive except when Icahn appeared.

    I see him gutting JetBlue. He’s the devil.

    1. Excatly what I was thinking. Ichahn is Gordon Gekko! And JetBlue wants this? They might as well change their name to Bluestar. Because Ichan is a no-good sleazebag.

  3. Living in St. Louis during my early business career years, TWA was my airline of choice (because honestly I didn’t have another choice). But the service was great, the people great and the planes, well they were air worthy. What Carl I did was criminal. TWA might still be around or had purchased Pan Am or America West and may have been one of the Big 4 or 5.

    JetBlue is a mess, either AA will eventually buy them (my best guess) or Carl will bankrupt them and AA will get the parts (aka TWA). Either way, AA has a Northeast strategy, it’s wait for JetBlue to fail.

    I still miss you TWA, truely. . .the most comfortable way to fly!

      1. You mean how B6 was supposed to be gone in 01 and in ‘08, you mean how that played out? Did you even do your hw? Ichan doesn’t town JetBlue like he did twa. He is knee capped at. 15%. They added 2 seats not replaced so the seats are diluted. He doesn’t want to own and run an airline, just act as an advisor to try to clean up the direction for what it’s worth. (Although he is a snake)B6 knows his history and made him sign a contract with minority ownership and no proxy fight clause.
        All you railing against B6 buying NK are showing your true colors with all your empty bravado of “preserving ulcc service” meanwhile happy to see B6 swallowed up by a legacy. Such class some of you have.

        1. Watch, see and learn my friend. This isn’t about class (I won’t take that personally since I have more of that a few other things. . . ) but the history of how Carl has done business. Not just TWA but look at his history of milking and bankrupting other businesses. History repeats and this will be B6 failing. BTW, they are far from a ULCC or LC carrier, which is part of the issue too.

  4. TWA was indeed not in good shape when Icahn took control in 1985. The airline’s problems reached back well before Deregulation but your description of the fight for control of TWA is indeed accurate. Icahn had zero interest in rejuvenating TWA and positioning it for the future. Instead, he simply dismantled the carrier in pieces, and he will do the same to JetBlue. He will see B6 as worth more for its parts (slots at JFK, BOS, it’s relatively newer fleet, minus the A320s which are 20-25 years old + the JFK terminal, and the loyalty program, and the modest LHR slot portfolio). Icahn will cash out of his investment in B6 and sell off parts to the highest bidders. This way, American Airlines will finally solve its NYC and specifically, its JFK problem, and United will find enough slots through a purchase to return to JFK meaningfully (and operate from the B6 terminal). The A220s and A321s will be sold off and leased to UA and AA (and heck, maybe even Delta). The LHR slots will be acquired by United so it can finally return to JFK-LHR with 35 year old 763s in a high-premium configuration that rotate easily on LAX/SFO transcons. The rest of TATL portfolio which is bleeding cash at B6 will end up with Norse or some other destined to fail TATL LCC.

    1. Carl is not a controlling shareholder of JetBlue so he cant dictate terms alone. TWA and JetBlue wouldnt have been in their situation if they had better management and were not weak and susceptible to an activist investor. Still waiting for the JetBlue board to acknowledge that Robin’s strategy and lesdership has hurt the company. The JetBlue board should resign, but I doubt that will happen.

    2. How is he going to sell off parts of Jetblue when he doesn’t own anywhere near a controlling interest?

      1. He just needs to get enough support on the board for those actions to take place. Considering his modus operandi and his perpetual reason to increase the stock price, he may be able to cobble together a Coalition of the Destructive.

  5. Let’s imagine he learned a lesson with TWA (don’t go full private, keep it quick). How can he trim the most fat the quickest and add value? Selling off slots/assets, loading up with debt does little good for the share price and I’d wager he could do much better if he made JB more attractive as a merger candidate.

    If we keep the same DOJ in 2025 will they stop the AS/HA merger due to overlap which would pave the way for AS/B6? If we get a new DOJ would this mean it’s open season for UA/AA/WN/etc to partake in a multi-party deal for the airline staff/gates/slots/planes?

    1. Post pandemic, JetBlue already has a ton of debt and it would be tough to add more. The FAA would balk at JetBlue selling slots at slot controled airports to DAL, UAL, or AA. I can see attempting a merger with Alaska to have the scale to compete with the big 4. Hopefully Carl can bring in a CEO that can change this company than just manage its decline. A leadership shakeup is needed.

    2. There’s no one for JetBlue to merge with, other than possibly Alaska or Hawaiian – who are doing their own merger right now – in the current legal/political environment, unless the B6/NK merger denial is overturned on appeal…and I’m not holding my breath on that, although there is a small possibility of the appeals court giving greater weight to the national market getting more competition and downplaying the loss of competition on a few specific routes, which the trial judge weighted really heavily.

      Even a putative second Trump administration (shudder) would be unlikely to allow B6 to be acquired by a Big Domestic Four airline unless it was in imminent danger of collapse, and even then that’s iffy.

      1. Considering the history and present zombie half-existence of the Eastern Airlines Shuttle, Dolt 45 (and/or 47) should really keep his hands off anything dealing with airlines, especially B6 in his home bailiwick.

  6. Icahn is clearly a value extractor as opposed to a value creator. He’s angling for a board seat at B6 which presumably gets him a variety of non-public information about finances, operations, and strategy. Where I think this differs from the TWA experience is that there was a much different pilot market and a much different anti-trust environment. At the time of his acquisition, he was the lesser of two evils compared with Lorenzo. In the 1980s and 1990s there were more pilots than seats at major airlines and the majors were all smaller before the big consolidations so he had much more leverage against union groups. In the present environment, there is much less ability to reduce employee compensation and continue to operate the airline. A sale in full to AA seems like a non-starter. It’s not clear to me that dismembering it and selling the pieces (slots, fleet, hub operations) will prove easy to execute either. Time will tell.

  7. Icahn will not have the same power at JetBlue that he had at TWA. For starters, he owns less than 10% of the company with a cap of 20% and only 2 board seats. I’m sure he will use his influence to affect change and cut costs at JetBlue but its unlikely the board will go along with a plot to dismantle the company and sell it for parts. Too many armchair experts preciting he will do the samer to JetBlue that he did to TWA without reognizing that the financial situations of the companies are different and the regulatory/competitive environment is drastically different than it was 40 years ago.

    1. Don’t bother with facts, it’s clear there are vultures clamoring for a lazy wish of the airline that’s been a thorn to all the established legacy carriers to go away. JetBlue will thrive. Ichan is knee caped at 15% and will only advise what to do to gain margins, cash out and he’ll move on. It’s what he does now.

  8. Great recap, Brett. Brought back a lot of memories of those days in the travel business. I remember seeing Carl at the TWA PARS convention in Washington, DC in 1985 just after he took control. He was smarmy then, too.

  9. This is what happens when a management team (looking at you, Mr Hayes) runs a company so long with such blatant disregard for its stock price. Do it for long enough, you’ll attract sharks. It’s like throwing chum in the water.

    Whatever anyone might think about the wisdom of the Spirit-JetBlue merger, shareholders hated it. The stock price cratered. And JBLU management stuck to this scheme through thick and thin. Management was clearly distracted, the airline has clearly suffered in the meantime.

    This is Hayes’s last, perhaps worst legacy – attracting the likes of Icahn to the party.

    Management of a public company has a lot of things to balance and stock price is far from the least of these.

    Do you know when JetBlue stock hit its all-time high? Ever? September 2003.

    2003. It’s been up and down since then (mostly down) but JBLU has ben dead money for over 20 years.

    And there’s no excuse for that. Frankly, in terms of corporate raiders, you can make the case that JetBlue has been living on borrowed time for well over a decade.

  10. as much as some people resist talking about it, this is why airlines have to be run well. Airlines are typically bottom choices for investors because they are subject to macroeconomic certainties. But when you don’t financially perform at least average for the industry, there will be opportunities for investors to come in and force the issue of running a better business.
    JBLU started as a great idea but has had very few of its 23 years where it was at or above industry financial performance.
    As much or more than their financial performance has been their lack of strategic focus. They have been all over the board as to what they want to be and have executed very little well including their operation. When an airline is in highly competitive markets, all of the onboard product doesn’t matter if your ground operation and on-time is so bad. Engaging in a costly and risky merger attempt at the same time as pushing the NEA which it and AA knew was never allowed in the US between two US carriers was icing on the cake in the fall of JBLU stock.
    Icahn doesn’t have to carve up B6 in order to make money turning it around. Joanne might have had plans to fix some of the basic stuff of running an airline that hasn’t been done in years but, if she didn’t have those plans, the best thing she can do is make it happen. I am optimistic she can do it and Icahn can be convinced B6 can turn itself around. but there isn’t a whole lot of time to demonstrate results.
    Given how badly depressed JBLU stock is, it won’t take much in terms of decent performance and evidence of a much stronger financial future for the stock to pop, he can cash out, and the major destructive changes that so many people fear will be put on the back burner.

  11. Never heard of the Karabu (there has to be a story behind that name!) agreement before, that’s crazy! But didn’t people wonder why lowestfare.com only had great deals on TWA tickets?

    Even though it’s not directly related to Icahn, does anybody recall why American was preordained to purchase TWA out of (yet another) bankruptcy? Obviously STL was stunningly duplicative with DFW and ORD.

    TWA would have made a great fit for an airline that needed a mid continent presence along with beefing up at LAX and JFK. In a very ironic twist, this sounds a lot like JetBlue currently.

    At the time, it seemed like TWA made much more sense for an airline like US as that would have allowed it to play bigger on the coasts and gain a hub in a city further west than PIT. Pre-NW DL needed bulking up in LAX and NYC but already had a CVG hub. A smaller airline like HP may have benefitted from a STL hub which might have prevented their disastrous attempt to create one at CMH.

    As a DL platinum medallion (when that was the highest level) in the mid to late 90s, I can personally attest that DL scooped up every single TWA L10 they could. Some were turned so quickly it was not unusual to find some TWA branding remaining on one of my myriad Delta LAX-ATL flights.

    Ah the L10, such a beautiful plane but a bittersweet tale. Those wretched DC10s were literally falling out of the sky and Lockheed still couldn’t give them away. I still blame Rolls-Royce. Many airlines cancelled their L10 orders and bought DC10s due to the engine related delays on the L10.

    1. I don’t know if it was pre-ordained per se, but AA bought TW for a couple of reasons.

      First, at the time, UA & US were close to a tie-up. As a concession to the DOJ, most of US’ operations at DCA were to be spun off into a new company called DC Air. AA also agreed to buy a percentage of that operation, and operate a chunk of the US Shuttle (I’m going off memory here, so I’m happy to stand corrected).

      With US & UA potentially merging, AA saw TW as a viable acquisition to grow to a similar size.

      Second: STL. At the time, there was chatter of STL becoming a reliever hub for ORD, or even replacing it. 9/11 stopped most of those plans in their tracks.

      1. Excellent refresher, I had forgotten about a potential US United tie up. IIRC there was even a potential US DL merger floated at some point. Apparently US tried to pimp itself out to everybody back then, who would have thought HP would win that contest?!

        Much to my chagrin American ended up with the DCA operation anyway, thanks to the now infamous US DL DCA LGA slot swap (now known as American’s retreat from NY).

      2. It was going to be a wall of hubs, DFW, STL and ORD. And if I recall correctly, TWA’s mechanics were also viewed as additive to American, getting hands on skilled wrench-turners.

        Then 9/11 happened and effectively American compensated by downsizing by about the size of TWA. That TWA pilots were basically stapled to the bottom of the American seniority list meant they were more or less all gone after 9/11. That led to the Missouri senators getting upset and McCaskill-Bond was put in place to prevent such a thing in the future.

        American bought TWA out of bankruptcy as part of the sale – that was the third bankruptcy – 1992, 1995 and 2001. Icahn challenged the cancellation of the Karabu deal as part of the bankruptcy – challenge failed. The sale would never have happened without the cancellation.

        With the 100+ MD-80s from TWA, American had briefly almost 400 of these things. TWA bought the very last MD-80s – the story was that MD had a bunch of kit sets left over that at one time were supposed to be shipped to China to be assembled there. After Boeing bought MD, they sold them to TWA at a bargain price. Something like that.

    2. You may wish to check on DL acquiring any L-1011s from TWA.
      I know Delta purchased ten from Eastern but I do not believe any were acquired from TWA.

      1. Really? I would love to check that because I’m pretty certain but it has been a while and you know what that does to memories. I do recall DL scooped up all the L10s it could get its hands on in that time frame as I had a conversation with somebody at Delta regarding that topic.

        1. I was at DL at the time. They acquired a number of L1011-1s from EA and L1011-500s from AC. We also had a number of L-1011-500s called “PUDs” as they were operated by PA/UA prior to DL…hence PUDs.

      2. According to the Delta aircraft museum website, they leased 2 from TWA early on (1978-80), but the used models they bought were from PanAm (1980s), and Air Canada and Eastern (1991).

    3. DL never obtained any of TWA;’s L1011’s. Early on they leased a few from TWA.

      DL has many of TW’s 717 via Air Tran and 757’s from AA post AA acquisition

      List of TWA L1011’s that flew with DL on lease. SOURCE: DL Museum

      Aircraft Engine Ship# Registration Serial DL Srv Dates Notes
      Lockheed L-1011-100 RB211-22B 798 N81028 193B-1108 (1978-1980)
      Leased from TWA. Later converted to -200 variant.
      Lockheed L-1011-100 RB211-22B 799 N31029 193B-1109 (1978-1980)
      Leased from TWA. Later converted to -200 variant.

      Disclosure: My family worked at both Ozark & TWA

    4. DL did not obtain any TWA L1011’s. They leased two L1011’s from 1978-1980

      DL obtained TWA 757’s after AA phased them out due to power plant differences & obtained TWA 717’s that AA phased out after merger and AirTran picked most of the them up.

  12. I worked on a project with TWA’s former Director of Finance and the guy who helped “fix” the Karabu agreement. The airline looked at its largest domestic consolidator at the time, Mr. Travel out of Chicago, Apple Vacations, and Pirillo Vacations at their air volumes/agreements to see exactly how much “damage” Karabu would put on the airline, and they were NOT expecting Icahn to develop Lowestfare.com. They assumed he was going to do a travel agency and spend millions marketing in newspapers, radio, tv, etc to get the volume – but nope, instead he got smart. The TWA team ran significant scenarios to see how it would affect them, and not one ever thought it would grow to be as big as it was. Revenue management really strugged with it and there just wasn’t much they could do about it. Eventually they’d try to throw a few changes at them (and lose), such as limiting frequent flyer miles, upgrades, etc… just didn’t work. The Karabu agreement was even beating out the TWA Senior Travel Packs by about 25% – sales for those dropped off like a cliff, which is one thing that actually HELPED TWA because they were prepaid flight coupons & TWA could use that cash NOW (STPs were non-refundable).

    The man is smart and works capitalism to his benefit. *shrugs*

    1. TWA probabaly should have taken a trip through bankruptcy court earlier, killed off this money losing agreement, reduced its debt, and rework its contract pay/benefits to a manageable level. If TWA followed what AA did through its turn in bankruptcy, it could have emerged as a stronger company that trying to limp along.

  13. The man is 88 years old. I don’t understand why he’s still doing what he’s doing at his age…just retire already and use your riches to enjoy a life so few will ever have the privilege to do.

    1. That’s what I was thinking when I heard the news about B6 (how can Icahn still be alive?). See you later jetBlue…your toast!

  14. My Mom was a reservationist for Ozark/TWA. She retired in October, 2000, a few months before the AA buyout. She and I lived through it. Icahn promised the employees of TWA new aircraft in exchange for concessions when he first took over TWA. His solution to that promise? He bought Ozark which around 46 used DC-9’s and 4 newer MD-80’s. This, he explained was buying TWA “new” aircraft! What he paid for Ozark he recouped by raiding OZ’s pension plan and folding it into TWA’s, which is part of the reason there was a pension shortfall later on. The man is a heartless shark.

    1. Ozark also owned all 50 of their aircraft and Icahn sold and leased them back after the merger. Ozark also had additional MD-80’s on order, which Icahn canceled and then TWA eventually picked them up on leases. These MD-80’s; N950U thru N953U were on property at merger

      The Shark was not good for Ozark or TWA Retirees or Employees

      The Shark also leased oddball DC-9’s and then tried to base them in Europe in violation of the lease agreement.

      JetBlue beware of the Shark that is swimming. He is not the Knight in Shinning Armor as people believe.

  15. At one point in history Carl was the exact definition of Eloquence with a CAPITAL E !

    As in the County of Cork Ireland — Castle Kilarney–Stone of Blarney.

    Perhaps the Serpent has changed !


    And Bill Cosby portraying Moses building the Ark for God . . . .


  16. As someone who worked at TWA during the Icahn years my first thought when hearing he bought part of Jetblue, was poor Jetblue employees.

    He will only do what it takes to make more money for him, and doesn’t care about the companies he buys or any of the workers.

  17. I tell you what, if there was ever a blessing to dying at 58 of lung cancer, my loyal “I’d do this job for free…just don’t tell my bosses” TWA LAX mechanic promoted to Maintenance Instructor dad was fortunate to have left us in 1983. I enjoyed 21 years of using TWA like my personal bus as a Term Pass child, with TWA staff at all levels treating me like family, better, like a valued customer. May that clever dick Icahn rot in hades.

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